oversight

Audit of the Federal Employees Health Benefits Program Operations at Presbyterian Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2013-09-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                     U.S. OFFICE OF PERSONNEL MANAGEMENT
                                                           OFFICE OF THE INSPECTOR GENERAL
                                                                            OFFICE OF AUDITS




                                   Final Audit Report
Subject:

       Audit of the Federal Employees Health Benefits
      Program Operations at Presbyterian Health Plan


                                           Report No. 1C-P2-00-13-015

                                          Date: September 26, 2013




                                                       -- CAUTION –
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                Federal Employees Health Benefits Program
                             Community-Rated Health Maintenance Organization
                                         Presbyterian Health Plan
                                 Contract Number CS 2627 - Plan Code P2
                                        Albuquerque, New Mexico



              Report No. 1C-P2-00-13-015                                                    September 26, 2013
                                                                                     Date: _________________




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits


                                                       -- CAUTION –
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                               EXECUTIVE SUMMARY




                       Federal Employees Health Benefits Program
                    Community-Rated Health Maintenance Organization
                                Presbyterian Health Plan
                        Contract Number CS 2627 - Plan Code P2
                               Albuquerque, New Mexico


         Report No. 1C-P2-00-13-015                        Date: September 26, 2013


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Presbyterian Health Plan (Plan). The audit covered
contract years 2010 through 2012, and was conducted at the Plan’s office in Albuquerque, New
Mexico.

This report questions $1,933,916 for inappropriate health benefit charges to the FEHBP in
contract years 2010 and 2011. The questioned amount includes $1,819,836 for defective pricing
and $114,080 for lost investment income. We found that the FEHBP rates were developed in
accordance with applicable laws, regulations, and the Office of Personnel Management’s rules
and regulations for contract year 2012.

In contract year 2010, the Plan did not apply a similarly sized subscriber group discount to the
FEHBP rates, and the Plan used incorrect base rates in determining the FEHBP’s benefit
adjustment factors. In contract years 2010 through 2012, the Plan did not properly coordinate
claims with Medicare. This led to an increase of the FEHBP rates in 2010 and 2011, but had no
material cost impact to the FEHBP rates in contract year 2012.

Consistent with the FEHBP regulations and contract, the FEHBP is due $114,080 for lost
investment income, calculated through June 30, 2013, on the defective pricing finding. In
                                                i
addition, the contracting officer should recover lost investment income on amounts due for the
period beginning July 1, 2013, until all defective pricing amounts have been returned to the
FEHBP.




                                               ii
                                                          CONTENTS

                                                                                                                                     Page

      EXECUTIVE SUMMARY ................................................................................................. i

 I. INTRODUCTION AND BACKGROUND ....................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY ............................................................ 3

III. AUDIT FINDINGS AND RECOMMENDATIONS ......................................................... 5

      Premium Rate Review ........................................................................................................ 5

      1. Defective Pricing ............................................................................................................ 5

      2. Coordination of Benefits ................................................................................................. 9

      3. Lost Investment Income.................................................................................................. 9

IV.    MAJOR CONTRIBUTORS TO THIS REPORT............................................................ 11

       Exhibit A (Summary of Questioned Costs)

       Exhibit B (Defective Pricing Questioned Costs)

       Exhibit C (Lost Investment Income)

       Appendix (Presbyterian Health Plan’s June 18, 2013, response to the draft report)
                      I. INTRODUCTION AND BACKGROUND 


Introduction

We completed an audit of th e Federal Employees Health Benefi ts Program (FEHBP) operations
at Presbyterian Health Plan (Plan). The audit covered contract years 2010 through 2012, and
was conducted at the Plan ' s office in Albuquerque, New Mexico. The audit was conducted
pursuant to the provisions of Contract CS 2627; 5 U.S.C. Chapter 89; and 5 Code of Federal
Regulations (CFR) Chapter 1, Pmi 890. The audit was perf01m ed by the Office of Personnel
Management ' s (OPM) Office ofth e Inspector General (OIG), as established by the Inspector
General Act of 1978, as amended.

Background

The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86­
382), enacted on September 28, 1959 . The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. The FEHBP is administered by
OPM ' s Healthcare an d Insurance Office. The provisions of the Federal Employees Health
Benefits Act m·e implem ented by OPM through regulations codified in Chapter 1, Prui 890 of
Title 5, CFR. Health insurance coverage is provided through contracts with health insurance
can iers who provide service benefits, indemnity benefi ts, or comprehensive medical services.

Community-rated caniers pa1i icipating in the FEHBP are subject to vru·ious federal, state and
local laws, regulations, an d ordinan ces. While m ost cmTiers are subject to state j urisdiction,
many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93 ­
222), as am ended (i.e., many community-rated cmTiers are federally qualified) . In addition,
pruiicipation in the FEHBP subjects the caniers to the Federal Employees Health Benefits Act
and implem enting regulations promulgated by OPM .

The FEHBP should pay a mru·ket price rate,                   FEHBP Contracts/Members
                                                                    March 31
which is defined as the best rate offered to
either ofthe two groups closest in size to
the FEHBP. In contracting with
commlmity-rated can iers, OPM relies on
can ier compliance with appropriate laws
and regulations an d, consequently, does not
negotiate base rates. OPM negotiations
relate primarily to the level of coverage an d
other unique features of the FEHBP.

The chait to the right shows the number of
FEHBP contracts an d members rep01ied by
the Plan as of March 31 for each contract
year audited.



                                                  1

The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP
members in all counties of New Mexico. The last full scope audit of the Plan conducted by our
office covered contract years 2007 through 2009. All issues related to that audit have been
resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. A draft report was also provided to the Plan for review and
comment. The Plan’s comments were considered in preparation of this report and included, as
appropriate, in the Appendix.




                                                 2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to determine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.

Scope
                                                                      FEHBP Premiums Paid to Plan
                                                                    $80
We conducted this performance audit in
                                                                    $70
accordance with generally accepted government
auditing standards. Those standards require that                    $60




                                                      Millions
we plan and perform the audit to obtain                             $50
sufficient, appropriate evidence to provide a                       $40
reasonable basis for our findings and conclusions                   $30
based on our audit objectives. We believe that                      $20
the evidence obtained provides a reasonable
                                                                    $10
basis for our findings and conclusions based on                             2010         2011       2012
our audit objectives.                                            Revenue    $53.3        $57.5      $73.9


This performance audit covered contract years
2010 through 2012. For these contract years, the FEHBP paid approximately $184.7 million in
premiums to the Plan, as shown on the chart above.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and OPM rate instructions. These audits are also
designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan’s internal control structure, but we did not use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan’s rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

        • The appropriate similarly sized subscriber groups (SSSG) were selected;

        • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
          rate offered to the SSSGs); and

        • the loadings to the FEHBP rates were reasonable and equitable.

In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment,
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the various information systems involved. However, nothing came to our attention during our
                                                 3
audit testing utilizing the computer-generated data to cause us to doubt its reliability. We believe
that the available data was sufficient to achieve our audit objectives. Except as noted above, the
audit was conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was performed at the Plan’s office in Albuquerque, New Mexico during
December 2012. Additional audit work was completed at our offices in Cranberry Township,
Pennsylvania and Jacksonville, Florida.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and OPM’s Rate Instructions to Community-Rated Carriers (rate instructions) to
determine the propriety of the FEHBP premiums and the reasonableness and acceptability of the
Plan’s rating system.

To test the Plan’s compliance with the FEHBP health benefit provisions related to coordination
of benefits with Medicare, we selected a judgmental sample of potential uncoordinated claim
lines. We queried the Plan’s FEHBP claims data for any members over the age of 65 and sorted
by the Insurance Amount Paid. We then selected the top 10 - 20 claims in dollar amounts paid
(all claims over $25,000 were selected for review). The 2012 sample included 14 members with
17 claims out of a universe of 24 members, the 2011 sample included 11 members with 15
claims out of a universe of 11 members, and the 2010 sample included 14 members with 23
claims out of a universe of 24 members. The results of the samples for each year were not
projected to the universe.

To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
              III. AUDIT FINDINGS AND RECOMMENDATIONS
Premium Rate Review

1. Defective Pricing                                                           $1,819,836

  The Ce1i ificates of Accm ate Pricing the Plan signed for contract years 2010 and 201 1 were
  defective . In accordance with federal regulations, the FEHBP is therefore due a rate reduction
  for these years. Application of the defective pricing remedy shows that the FEHBP is due a
  premium adj ustment totaling $1,8 19,836 (see Exhibit A). We found th at the FEHBP rates
  were developed in accordance with applicable laws, regulations, and th e rate instmctions in
  contract year 2012.

  Caniers proposing rates to OPM are required to submit a Ce1i ificate of Accm ate Pricing
  ce1iifying th at the proposed subscription rates, subject to adj ustments recognized by OPM, are
  market price rates. OPM regulations refer to a market price rate in conj unction with the rates
  offered to an SSSG. SSSGs are the Plan 's two employer groups closest in subscriber size to
  the FEHBP. If it is fmmd that the FEHBP was charged higher than the market price rate (i.e.,
  the best rate offered to an SSSG), a condition of defective pricing exists, requiring a
  downwar d adjustment of th e FEHBP premiums to the equivalent market price rate.



  The Plan                                                     as SSSGs for c~ O.
  ~e with the              .                                   the selection of­
  -          We found th at                         was an administrative services only (ASO)
  group. The 2010 rate instmctwns                  exclude ASO groups from SSSG eligibility. We
  selected-            because it met all of the SSSG requir ements and was the next closest group
   in subscriber size to the FEHBP. The Plan stated in its 2010 reconciliation questionnair e that
  there were no SSSG discounts.




  We also found that the Plan used incon ect medical and prescription dmg base rates when
  calculating the benefit adj ustment factors (BAFs) for the cunent (2009) benefit level to the
  new (2010) benefit level. In 2009, the Plan offered the FEHBP both a high and standard
  option . In 2010, the Plan did away with the standard option an d only offered a high option
  benefit plan . When calculating the 2010 BAFs, the Plan incon ectly used the prefen ed

                                                5

     provider organization prescription dm g base rate instead of the health maintenance
     organization base rate. fu addition, the Plan inconectly used the FEHBP 2008 high option
     medical base rate, instead of the FEHBP 2010 high option medical base rate. The Plan
     calculated a high option BAF of-         , an d our audited fa~ The Plan calculated



     -
     a BAF going fr om the standar d option to the high option of~ur audited factor is


     W e also fmmd seven FEHBP claims totaling $176,269 that were not properly coordinated
     with Medicare in contract year 2010. The Medicare mles set f01th in the Plan 's contract with
     OPM state when an annuitant or their covered spouse are 65 or over and have both Medicare
     and FEHB coverage, the prima1y payer is Medicare and th e secondruy payer is the FEHBP.
     We removed the $176,269 that should have been coordinated with Medicare fro m our audited
     rate development.

     We recalculated the FEHBP's rates by applying the SSSG discount, using the con ect BAFs,
     and rem oving the claims th at should have been coordinated with Medicru·e and deten n ined
     that the FEHBP was overcharged $1,534,999 in contract year 2010 (see Exhibit B).

     Plan's Comments (see Appendix)

     The Plan did not respond to the use of incon ect medical an d prescription dmg base rates in
     the FEHBP' s BAF calculations.

     ~ with our selection of-                                  as an SSSG and instead ru·gues that
     -                           should be an SSSG. The Plan          " PHP's 1 group accmmt most
     similar in size to the FEHBP for 2010 was                             ...The Rep011 did not
      identify it as an SSSG because the Plan      not             group on the list of 2010 potential
     SSSGs in~1 subinitted at the end of May 2009. At the time of the rate
     proposal,-                           was a retrospectively experienced rated group and was left
     off the list of 'potential' SSSGs. Subsequently, the account switched to th e same prospective
     rating method as the FEHBP for 2010. Therefore,                                would be eligible
      for 2010 SSSG status."

     The Plan also states that                                         changed to ASO status on
     7/ 112010, but we were not                                             was moving to ASO until
      6/ 1112010. The switch crune over a year                               proposal was subinitted and
      also after subinission of the 2010 rate reconciliation .. .It is ironic that a rote application of the
      SSSG instructions results i n -, the group most siinilar in size to the
     ~ out ofSSSG~s not listed in PHP's rate proposal.                                               Ill
     -                 in tum, was eligible at the time of the rate proposal, but b~ible for
     2010 as an ASO account later. .. an equitable approach would be to penn i ­
                       be an SSSG, since it ce1tainly could have been considered a ' potential' SSSG
                tnne of the rate proposal subinission."



1
    In the Plan 's response, PHP stands for Presbyterian Health Plan.
                                                            6

The Plan does not agree t h a t - received a discount because of an inappropriate
pooling charge . The Plan states "the Repmt faults PHP for e - l      ·n o
                                                                         the applicable pooling
charge for a group with - when the group had                                  . It is this rmmding
that the Repmt treats as ~unding in this fashion s ou not e considered a
'discount', pa1t icularly not in the circumstances here. Specifically, while the FEHBP and
other groups had claims excluded via the pooling point exclusion that exceeded the net
amount of pooling charges over a three year period, the pooling charges to -                greatly
exceeded the group's pooled claims experience. To have~er pooling charge
on account of the group having a few members less t h a n - would have resulted
in an extraordinruy subsidization b y - of other accounts."

The Plan also states that '' t h e - pooled claims are much lower than the pooling
charges for the three years [of the experience period]. In effect, -  is subsidizing the
pooling deficiencies of other groups including the FEHBP group.

Finally, even if the pooling charge for the            accmmt were viewed as a discount, it is
not appropriate to conve1t that into                    adjustment for the FEHBP. It would be
more logical to give the FEHBP an        ustment conesponding to the percentage reduction in
the      · charge set for the group . In this case, the actual PMPM pooling charge for
               set at-         , rather than -        , which, if considered a discmmt, ammmts
to          reduction in the pooling charge. Applying that percentage reduction to the pooling
charge used for the FEHBP rates would produce a recovery amount of $307,322 ."

The Plan agrees with om coordination with Medicare finding.

OIG's Response to the Plan's Comments

Since the Plan did not respond to the use of incon ect medical and prescription dmg base rates
in the FEHBP ' s BAF calculations, we will continue to question the full amount relating to this
fmding .

W d.            ith the Plan' s position t h a t - should be replaced by ­
                sa 2010 SSSG. For contract year 2010, plans had a choice. They could submit
         p      ml SSSGs based on eligible groups as of March 2009, or wait until the rate
reconciliation and select SSSGs based on eligible groups as ofMru·ch 2010. For contract year
2010, the Plan chose to~ SSSGs based on Mru·ch 2009 eligible groups.
This list did not i n c l u d e - because the group was retrospective rated in
2009, and therefore not eligible to be a potential SSSG. The 2010 rate instructions exclude
~ rated groups from potential SSSG eligibility. Since we verified t h a t ­
-              was not eligible for SSSG consideration at the time of proposal, we agree with
the Plan' s original list of potential SSSGs, which excluded the group .

We disagree with the Plan' s position that~ot receive a discount because of the
pooling chru·ges assessed to the group in~ had                   II cunent experience
members. According to the Plan' s rating meth odology and state-filed rates, member claims
above a -         specific pooling level ru·e removed from the claims experience. At this

                                               7

pooling level, a group should receive pooling charges of                              PMPM
for the current and prior experience periods, respectively. The Plan altered its pooling table
and strayed from its standard rating methodology when it developed rates for               As a
result, a     percent rate reduction was given to the group. Since the FEHBP is entitled to
any SSSG discount or rate advantage given to an SSSG, we recalculated the FEHBP rates
using the       percent           discount.

We disagree with the Plan’s position that             would have been subsidizing other groups
if their pooling level was not increased to the 1,000 member threshold. This argument has no
effect on the actual finding. However, a subjective application of the pooling method
circumvents the true purpose of having a mechanism to spread the risk of high dollar claims
among the Plan’s entire book of business. Each group should be treated consistently and use
the same pooling table.

We disagree with the Plan’s position that even if the pooling charge for             was
considered a discount, we should apply a percentage reduction to the FEHBP’s pooling
charge. In accordance with the Plan’s established rating methodology, we use the filed
pooling table for the pooling level and pooling charges for all groups in our 2010 premium
rate review. By doing so, we determined that               received a      percent rate advantage
which we applied to the FEHBP’s line 5 rates. The 2010 rate instructions state “we expect the
Federal group to receive at least the largest rate discount and any other advantage given to
either SSSG...The FEHBP must receive all discounts given to an SSSG in the rate
reconciliation of the same year the discounts were given.”

2011

The Plan selected                                           as SSSGs for contract year 2011.
We agree with these selections. Our analysis of the rates charged to the SSSGs shows that
neither group received a discount.

We found five FEHBP claims totaling $225,905 that were not properly coordinated with
Medicare in contract year 2011. The Medicare rules set forth in the Plan’s contract with OPM
state when an annuitant or their covered spouse are 65 or over and have both Medicare and
FEHBP coverage, the primary payer is Medicare and the secondary payer is the FEHBP. We
removed the $225,905 that should have been coordinated with Medicare from our audited rate
development.

We recalculated the FEHBP’s rates by removing the claims that should have been coordinated
with Medicare and determined that the FEHBP was overcharged $284,837 in contract year
2011 (see Exhibit B).

Plan’s Comments (see Appendix):

The Plan agrees with our finding.



                                              8
  Recommendation 1

  We recommend that the contracting officer require the Plan to return $1,819,836 to the
  FEHBP for defective pricing in contract years 2010 and 2011.

2. Coordination of Benefits (COB)

  During our COB review, we found FEHBP claims not properly coordinated with Medicare in
  contract years 2010, 2011, and 2012. This resulted in an increase of the FEHBP rates in
  contract years 2010 and 2011. We found seven claims totaling $176,269 in 2010, and five
  claims totaling $225,905 in 2011 that Medicare should have paid as primary instead of the
  Plan. This error had no material cost impact to our 2012 FEHBP audited rates.

  We queried the SAS data for any members over the age of 65 and sorted by the Insurance
  Amount Paid. We then selected the top 10 - 20 claims in dollar amounts paid (all claims over
  $25,000 were selected for review). The 2012 sample included 14 members with 17 claims out
  of a universe of 24 members, 2011 sample included 11 members with 15 claims out of a
  universe of 11 members, and the 2010 sample included 14 members with 23 claims out of a
  universe of 24 members. The results of the samples for each year were not projected to the
  universe.

  The Medicare rules set forth in the Plan’s contract with OPM state when an annuitant or their
  covered spouse are age 65 or over and have both Medicare and FEHBP coverage, the primary
  payer is Medicare and the secondary payer is the FEHBP.

  The Plan stated that some COB errors were the result of late Centralized Enrollment
  Clearinghouse System (CLER) reports and some errors were due to a delay in the CLER data
  getting to their COB department.

  We adjusted the FEHBP claims experience used in our audited rate developments to account
  for the incorrect COB claims.

  Plan’s Comments (see Appendix):

  The Plan agrees with our finding.

  Recommendation 2

  We recommend the contracting officer require the Plan to take the necessary steps to ensure
  that COB is performed in a timely, accurate, and effective manner.

3. Lost Investment Income                                                             $114,080

  In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
  FEHBP is entitled to recover lost investment income on the defective pricing finding in
  contract years 2010 and 2011. We determined that the FEHBP is due $114,080 for lost

                                              9
investment income, calculated through June 30, 2013 (see Exhibit C). In addition, the FEHBP
is entitled to lost investment income for the period beginning July 1, 2013, until all defective
pricing finding amounts have been returned to the FEHBP.

Federal Employees Health Benefits Acquisition Regulation 1652.215-70 provides that, if any
rate established in connection with the FEHBP contract was increased because the carrier
furnished cost or pricing data that was not complete, accurate, or current as certified in its
Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge
caused by the defective data. In addition, when the rates are reduced due to defective pricing,
the regulation states that the government is entitled to a refund and simple interest on the
amount of the overcharge from the date the overcharge was paid to the carrier until the
overcharge is liquidated.

Our calculation of lost investment income is based on the United States Department of the
Treasury's semiannual cost of capital rates.

Plan’s Comments (see Appendix):

The Plan did not respond to our lost investment income finding.

Recommendation 3

We recommend that the contracting officer require the Plan to return $114,080 to the FEHBP
for lost investment income, calculated through June 30, 2013. We also recommend that the
contracting officer recover lost investment income on amounts due for the period beginning
July 1, 2013, until all defective pricing finding amounts have been returned to the FEHBP.




                                             10
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                   , Auditor-in-Charge

                 , Auditor


                   Chief

                 , Senior Team Leader




                                         11
                                                                        Exhibit A


                                Presbyterian Health Plan
                              Summary of Questioned Costs



Defective Pricing Questioned Costs


        Contract Year 2010                             $1,534,999
        Contract Year 2011                                  $284,837


        Total Defective Pricing Questioned Costs                       $1,819,836


Lost Investment Income:                                                 $114,080


Total Questioned Costs                                                 $1,933,916
                                                                         Exhibit B
                                  Presbyterian Health Plan
                              Defective Pricing Questioned Costs

2010
                                                     Self      Family
  FEHBP Line 5 - Reconciled Rate
  FEHBP Line 5 - Audited Rate

  Bi-weekly Overcharge

  To Annualize Overcharge:
     3/31/2010 enrollment
     Pay Periods                                      26           26
  Subtotal

  Total 2010 Defective Pricing Questioned Costs                         $1,534,999

2011
                                                     Self      Family
  FEHBP Line 5 - Reconciled Rate
  FEHBP Line 5 - Audited Rate

  Bi-weekly Overcharge

  To Annualize Overcharge:
     3/31/2011 enrollment
     Pay Periods                                      26           26
  Subtotal

  Total 2011 Defective Pricing Questioned Costs                         $284,837

Total Defective Pricing Questioned Costs                                $1,819,836
                                                                                                              EXHIBIT C

                                                      Presbyterian Health Plan
                                                      Lost Investment Income



  Year                                         2010              2011              2012       June 30, 2013     Total
Audit Findings:

1. Defective Pricing                         $1,534,999        $284,837             $0             $0         $1,819,836


                        Totals (per year):   $1,534,999         $284,837             $0            $0         $1,819,836
                       Cumulative Totals:    $1,534,999        $1,819,836        $1,819,836    $1,819,836     $1,819,836

            Avg. Interest Rate (per year):    3.1875%           2.5625%           1.8750%       1.3750%

        Interest on Prior Years Findings:       $0              $39,334           $34,122       $12,511        $85,967

                  Current Years Interest:     $24,464           $3,649              $0             $0          $28,113

    Total Cumulative Interest Calculated
               Through June 30, 2013:         $24,464           $42,983           $34,122       $12,511        $114,080
                                                                             APPENDIX 




& PRESBYTERIAN
   Health Plan, Inc.

P.O . Box 27489, A lbuqu erq ue, NM 87125-7489



June 18, 2013




Chief, Community-Rated Audits Group
U.S. Office of Personnel Management
Office of the Inspector General
800 Cranberry Woods Drive, Suite 270
Cranberry Township, PA 16066



Re: 	 Presbyterian Response to Draft of Proposed Report- OPM
      Report No. 1C-P2-00-13-015
      Date: March 27 , 2013




This letter responds to the draft audit report ("the Report") contain ing the resu lts of the
Federal Employees Health Benefits Program ("FEHBP") operations at Presbyterian
Health Plan ("PHP") fo r contract years 2010 through 2012. The Report identifies issues
with regard to SSSG rating for 2010 and regarding coordination of benefits with
Med icare for 2010 and 2011 . It recommends a total of $1 ,819,836 in recovery in health
benefit charges and also recommends recovery of lost investment income. PHP
accepts the recommendation with regard to coordination of benefits with Medicare, but
respectfully disagrees with the Report's recommendations regarding SSSG rating in
2010 .

The proposed find ings of the Report with regard to SSSG selection and rating for 2010
resu lt from a technical and rigid construction of the rating instructions that has a punitive
impact on PHP. a small local health plan t hat seeks to provide value and strong service
to all of its members includ ing FEHBP enrollees. The recommended adjustment is
simply inequitable. In addition, PHP disagrees that any rate adjustment is due the
FEHBP based on the rating o~

    A. 201 0 SSSG selection


DCACTIVE-23651636.1
It is only through a unique and unforeseen effectuation of the instructions that
is treated by the Report as an SSSG. An equitable application of the instructions would
not produce this harsh result.

PHP’s group account most similar in size to the FEHBP for 2010 was t
              . We did not provide any discount to                         for its plan
year starting 7/1/2010. The Report did not identify it as an SSSG because the Plan did
not include the group on the list of 2010 potential SSSGs in its FEHBP rate proposal
submitted at the end of May 2009. At the time of the rate proposal, t
               was a retrospectively experienced rated group and was left off the list of
“potential” SSSGs. Subsequently, the account switched to the same prospective rating
method as the FEHBP for 2010. Therefore,                              would be eligible
for 2010 SSSG status. Documentation with regard to                              account is
included in Exhibit A.

        was the fifth closest account to the FEHBP as shown on the submitted list.
The groups included on the rate submission in advance of the 2010 contract year are
shown below, along with the FEHBP and                           account.

                      POTENTIAL SSSGS
                                              ENROLLMENT/ AS              2010 SSSG
                      NAME
                                                   OF                     Eligibility


      FEHBP                                             / 3/31/09


                                                        / 3/31/09            Yes


 1.                                                     / 3/31/09             No

 2.                                                     / 3/31/09            Yes

 3.                                                     / 3/31/09             No

 4.                                                     / 3/31/09             No

 5.                                                     / 3/31/09            Yes



DCACTIVE-23651636.1
 6.                                                       / 3/31/09

 7.                                                       / 3/31/09

 8.                                                       / 3/31/09

 9.                                                       / 3/31/09

 10.                                                      / 3/31/09



     (1) changed to ASO status on 1/1/2010 eliminating it from SSSG consideration.
The Report agrees with the Plan’s selection of              (2) as an SSSG and that it
received no discount.

                                      (3) became retrospectively rated effective 3/1/2010
eliminating it from SSSG eligibility.                         (4) changed to ASO status
on 7/1/2010, but we were not notified that                           was moving to ASO
until 6/11/2010. The switch came over a year after the 2010 FEHBP proposal was
submitted and also after submission of the 2010 rate reconciliation. See Exhibit B.

It is ironic that a rote application of the SSSG instructions results in
                 the group most similar in size to the FEHBP, falling out of SSSG
treatment because it was not listed in PHP’s rate proposal.                       , in turn,
was eligible at the time of the rate proposal, but became ineligible for 2010 as an ASO
account later.

This type of anomaly and difficulty in identifying and using other commercial accounts
for rating comparison to the FEHBP is a large part of the reason OPM transitioned away
from SSSGs to a “medical loss ratio”-based rating review. Here, an equitable approach
would be to permit                             to be an SSSG, since it certainly could have
been considered a “potential” SSSG as of the time of the rate proposal submission. As
noted above, we are including back-up information relating to that group’s 2010 rating in
Exhibit A. We can also provide information with regard to the rates proposed to
             for 2010 prior to its decision to switch to ASO if that information would be
useful to you.




DCACTIVE-23651636.1
    B. Pooling charge for

The Report claims that PHP established an inappropriate pooling charge for           ,
as an SSSG, which resulted in a         “discount”. We also disagree with the Report’s
calculation of the recommended recovery amount for the FEHBP. The pooling charge
for           was not established as a means to provide a discount.

Under PHP’s rating, claims experience above a pooling point is excluded, and a
corresponding pool charge is set for the group. The pooling charge is set on a weighted
basis, blending the current and prior year charge, depending on the size of the group.
For          , the Report faults PHP for employing the applicable pooling charge for a
group with 1,000 members when the group had          members. It is this rounding that
the Report treats as a discount. This alone accounts for the proposed finding of a
    % “discount” finding and recommended adjustment of $1.36 million.

                      Current                   Pooling Charge   Pooling Charge
                                Pooling Point
                      Members                      Current            Prior




Rounding in this fashion should not be considered a “discount”, particularly not in the
circumstances here. Specifically, while the FEHBP and other groups had claims
excluded via the pooling point exclusion that exceeded the net amount of pooling
charges over a three year period, the pooling charges to          greatly exceeded the
group’s pooled claims experience. To have charged the higher pooling charge on
account of the group having a few members less than 1,000 members would have
resulted in an extraordinary subsidization by         of other accounts.



The following table shows the pooling experience for               and FEHBP for the three
renewals prior to 1/2010.




DCACTIVE-23651636.1
 Renewal                         Pooling Experience

                      Pooling Charge     Pooled Claims
 January 2007
 January 2008
 January 2009

 Total



 Renewal              FEHBP Pooling Experience

                      Pooling Charge     Pooled Claims
 January 2007
 January 2008
 January 2009

 Total

Back-up data for this experience is shown in Exhibit C. As you can clearly see, the
         pooled claims are much lower than the pooling charges for the three years. In
effect,         is subsidizing the pooling deficiencies of other groups including the
FEHBP group.



Finally, even if the pooling charge for the           account were viewed as a discount,
it is not appropriate to convert that into a       discount adjustment for the FEHBP. It
would be more logical to give the FEHBP an adjustment corresponding to the
percentage reduction in the pooling charge set for the group. In this case, the actual
PMPM pooling charge for                was set at           , rather than          which, if
considered a discount, amounts to a            reduction in the pooling charge. See Exhibit
D. Applying that percentage reduction to the pooling charge used for the FEHBP rates
would produce a recovery amount of $307,322. See Exhibit D.

We strongly urge that the proposed findings and recommendations of the Report be
modified to eliminate, or at most reflect a much lower adjustment for contract year 2010.
The proposed findings of the Report, which convert a putative “discount” of
approximately             into a $1.36 million penalty, would be a strong disincentive for
a Small Health Plan like Presbyterian Health Plan to participate in the FEHBP. (
million excludes the COB portion.)

Thanks for your consideration related to this finding.




DCACTIVE-23651636.1
Sincerely



Senior Actuarial Assistant
Presbyterian Health Plan


Enc: Exhibits A through D




DCACTIVE-23651636.1