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 2015-07-29.

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

                AUDIT OF THE FEDERAL EMPLOYEES HEALTH
                   BENEFITS PROGRAM OPERATIONS AT
                      PRESBYTERIAN HEALTH PLAN

                                           Report Number 1C-P2-00-15-022
                                                    July 29, 2015



                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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 

               Audit of the Federal Employees Health Benefits Program Operations at
                                     Presbyterian Health Plan
Report No. 1C-P2-00-15-022                                                                          July 29, 2015


Why Did We Conduct the Audit?             What Did We Find?

The primary objective of this             We determined that the Plan’s 2013 FEHBP MLR submission was
performance audit was to determine        prepared in accordance with the laws and regulations governing
whether Presbyterian Health Plan          the FEHBP and met the requirements established by OPM.
(Plan) was in compliance with the
provisions of its contract and the laws   We also determined that the Plan’s 2013 FEHBP premium rates
and regulations governing the Federal     were developed in accordance with applicable laws, regulations,
Employees Health Benefits Program         and OPM’s Rate Instructions to Community-Rated Carriers.
(FEHBP). We determined if the Plan
met the Medical Loss Ratio (MLR)          Consequently, a draft report was not issued and no corrective
requirements established by the U.S.      action is necessary.
Office of Personnel Management
(OPM). We also verified whether the
Plan developed the FEHBP premium
rates using complete, accurate and
current data.

What Did We Audit?

Under contact CS 2627, the Office of
the Inspector General completed a
performance audit of the Plan’s
FEHBP premium rates and MLR
submission to OPM for contract year
2013. Our audit fieldwork was
conducted from January 5, 2015
through January 16, 2015 at the
Plan’s office in Albuquerque, New
Mexico.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                       i
                ABBREVIATIONS


ACA      Affordable Care Act
CFR      Code of Federal Regulations
COB      Coordination of Benefits
CPT      Current Procedural Terminology
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
MLR      Medical Loss Ratio
NPI      National Provider Identifier
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     Presbyterian Health Plan
SSSG     Similarly Sized Subscriber Group
TCR      Traditional Community Rating
U.S.C.   United States Code




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                          Page 

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


        ABBREVIATIONS ..................................................................................................... ii 


I.	     BACKGROUND ..........................................................................................................1 


II.	    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................4 


III.	   RESULTS OF THE AUDIT .......................................................................................8 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ....................................................9 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT

 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Presbyterian Health Plan (Plan). The audit covered contract year 2013, 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 United States Code
Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit was
performed by the U.S. Office of Personnel Management’s (OPM) Office of the Inspector
General (OIG), as established by the Inspector General Act of 1978, as amended.

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 and is administered by OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers who provide service benefits, indemnity benefits, or comprehensive
medical services.

In April 2012, OPM issued a final rule establishing an FEHBP-specific Medical Loss Ratio
(MLR) requirement to replace the similarly sized subscriber group (SSSG) comparison
requirement for most community-rated FEHBP carriers (77 FR 19522). MLR is the proportion
of FEHBP premiums collected by a carrier that is spent on clinical services and quality health
improvements. The MLR for each carrier is calculated by dividing the amount of dollars spent
for FEHBP members on clinical services and health care quality improvements by the total
amount of FEHBP premiums collected in a calendar year.

The FEHBP-specific MLR rules are based on the MLR standards established by the Affordable
Care Act (ACA, P.L. 111-148) and defined by the U.S. Department of Health and Human
Services in 45 CFR Part 158. In 2012, community-rated FEHBP carriers could elect to follow
the FEHBP-specific MLR requirements, instead of the SSSG requirements. Beginning in 2013,
the MLR methodology is required for all community-rated carriers, except those that are state
mandated to use traditional community rating (TCR). State mandated TCR carriers continue to
be subject to the SSSG comparison rating methodology.

Starting with the pilot program in 2012 and for all non-TCR FEHBP carriers in 2013, OPM
required the carriers to submit an FEHBP-specific MLR. OPM required that the FEHBP-specific
MLR threshold calculation take place after the ACA-required MLR calculation, and that any
rebate amounts due to the FEHBP as a result of the ACA-required calculation be excluded from
the FEHBP-specific MLR threshold calculation. Carriers were required to report information
related to earned premiums and expenditures in various categories, including reimbursement for


                                               1                          Report No. 1C-P2-00-15-022
clinical services provided to enrollees, activities that improve health care quality, and all other
non-claims costs.

If a carrier fails to meet the FEHBP-specific MLR threshold, it must make a subsidization
penalty payment to OPM within 60 days of notification of amounts due. This payment would
take place via wire transfer.

Community-rated carriers participating in the FEHBP are subject to various federal, state and
local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction,
many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93-
222), as amended (i.e., many community-rated carriers are federally qualified). In addition,
participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The Plan reported 5,485 contracts and 11,877 members as of March 31, 2013, as shown in the
chart below.


                          FEHBP Contracts/Members
                                 March 31


                       12,000
                       10,000
                        8,000
                        6,000
                        4,000
                        2,000
                            0
                                                2013
                      Contracts                 5,485
                      Members                  11,877




In contracting with community-rated carriers, OPM relies on carrier compliance with appropriate
laws and regulations and, consequently, does not negotiate base rates. OPM negotiations relate
primarily to the level of coverage and other unique features of the FEHBP.

The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP
members in the state of New Mexico. A prior audit of the Plan covered contract years 2010
through 2012. That audit questioned $1,933,916 in defective pricing for years 2010 and 2011.
The findings were resolved and closed out by OPM’s audit resolution process.


                                                  2                            Report No. 1C-P2-00-15-022
The preliminary results of this audit were discussed with the Plan officials at an exit conference
and in subsequent correspondence. Since this audit concluded that the Plan’s FEHBP MLR
submission and FEHBP premium rates were developed in accordance with applicable laws,
regulations, and OPM’s Rate Instructions to Community-Rated Carriers (rate instructions), a
draft report was not issued.




                                                 3                           Report No. 1C-P2-00-15-022
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objectives
The primary objective of this performance audit was to determine whether the Plan was in
compliance with the provisions of its contract and the laws and regulations governing the
FEHBP. Specifically, we verified that the Plan met the MLR requirements established by OPM
and paid the correct amount to the Subsidization Penalty Account, if applicable. We also
verified whether the Plan developed the FEHBP premium rates using complete, accurate and
current data.

Scope
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

This performance audit covered contract year 2013. For this year, the FEHBP paid
approximately $68.6 million in premiums to the Plan.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the 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 auditing procedures. However, the
audit included tests of the Plan’s FEHBP claims data, quality health expenses, and all other
applicable costs considered in the calculation of its MLR. Our review of internal controls is
limited to the procedures the Plan has in place to ensure that:

   	 The rates charged to the FEHBP are developed in accordance with the Plan’s standard
      rating methodology and the claims, factors, trends, and other related adjustments are
      supported by complete, accurate and current source documentation; and

   	 The FEHBP MLR calculation is accurate, complete, and valid, and claims are processed
      accurately; appropriate allocation methods for quality health expenses are used; and any
      other costs associated with its MLR calculation are appropriate.

In conducting the audit, we relied to varying degrees on computer-generated data provided by
the Plan. We did not verify the reliability of the data generated by the various information


                                               4	                         Report No. 1C-P2-00-15-022
systems involved. However, nothing came to our attention during our 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.

We identified a total universe of 465,891 medical claim lines and 153,733 pharmacy claim lines
incurred from January 1, 2013 through December 31, 2013, and paid through June 30, 2014.
The audit universe attributes are the mandatory medical and pharmacy claim field requirements
included in FEHB Carrier Letter 2014-01, Audit Requirements for 2013 MLR Program Carriers.

The audit fieldwork was performed at the Plan’s office in Albuquerque, New Mexico during
January 2015. Additional audit work was completed at our offices in Washington, D.C. and
Jacksonville, Florida.

Methodology
We examined the Plan’s MLR calculation and related documents as a basis for validating the
MLR. Further, we examined claim payments and quality health expenses to verify that the cost
data used to develop the MLR was accurate, complete and valid. We also examined the
methodology used by the Plan in determining the premium in the MLR calculation. Finally, we
used the contract, the Federal Employees Health Benefits Acquisition Regulations (FEHBAR),
and the rate instructions to determine the propriety of the Plan’s MLR calculation.

To gain an understanding of the internal controls in the Plan’s claims processing system, we
reviewed the Plan’s claims processing policies and procedures and interviewed Plan officials
regarding the controls in place to ensure that claims are processed accurately. Other auditing
procedures were performed as necessary to meet our audit objectives.

To test whether the Plan accurately processed and paid FEHBP claims for contract year 2013 and
complied with its contract, we tested for potential claim errors within the full claims population
of 465,891 medical claim lines and 153,733 pharmacy claim lines, totaling $46,604,948 and
$9,288,765, respectively.




                                                5                           Report No. 1C-P2-00-15-022
  The tests performed, along with the methodology, are detailed below by Medical and Pharmacy
  claims:

                  Medical Claims Sample Selection Criteria/Methodology
                                                                           Sample
                                                                                                     Results
                                             Sample          Sample         Size
 Medical Claims                                                                         Sample      Projected
                      Sample Criteria        Universe       Universe       (Claim
  Review Area                                                                            Type         to the
                                            (Number)        (Dollars)    Lines/Total
                                                                                                    Universe?
                                                                          Dollars)
Coordination of       Member age 65+
Benefits (COB) -      and paid Claim           21           $1,973,808       All       Judgmental      No
Medicare              over $50,000
                      All Claim Lines
Bundling/             with CPT 80047
                                             No Hits           N/A          N/A           N/A         N/A
Unbundling            (Basic Metabolic
                      Panel)
                      Compared patient
                      ID, patient name,
                      incurred date,
                      covered charges,
Duplicate Claims –    provider ID, CPT
                                             No Hits           N/A          N/A           N/A         N/A
Best Match Criteria   code, ICD-9 code,
                      type of service,
                      and provider
                      specialty and all
                      claims >$25,000
                      All claims for
                      Cervical PAP
Gender-Specific
                      Smear,                 No Hits           N/A          N/A           N/A         N/A
Review
                      Hysterectomy and
                      Vasectomy
                      Tested claims for:
                      elective abortions,
                      alternative
                      treatments,
Non-Covered
                      contact lenses,          19            $2,039          All       Judgmental      No
Benefits
                      eye glasses,
                      hearing aids and
                      in-vitro
                      fertilization




                                                        6                          Report No. 1C-P2-00-15-022
                Pharmacy Claims Sample Selection Criteria/Methodology

                                                                           Sample
                                                                                                         Results
                                            Sample          Sample          Size
Pharmacy Claims                                                                           Sample        Projected
                      Sample Criteria       Universe       Universe        (Claim
  Review Area                                                                              Type           to the
                                           (Number)        (Dollars)     Lines/Total
                                                                                                        Universe?
                                                                          Dollars)
Pharmacy Claims -     All Claim Lines
Dependent             Dependents age          326           $6,994           All        Judgmental         No
Eligibility           26+
                      Claim lines >
High Dollar Drugs                             175          $597,956          All        Judgmental         No
                      $8,000
                      All claim lines
Zero Quantity         with paid
                                            No Hits          N/A             N/A           N/A            N/A
Prescriptions         amounts but had
                      zero quantity

       We also examined the rate build-up of the Plan’s contract year 2013 Federal rate submission and
       related documents as a basis for validating the Plan’s standard rating methodology. We verified
       that the factors, trends, and other related adjustments used to determine the FEHBP premium
       rate(s) were sufficiently supported by source documentation. Further, we examined claim
       payments to verify that the cost data used to develop the FEHBP rates was accurate, complete
       and valid. Finally, we used the contract, the FEHBAR, and the rate instructions to determine the
       propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan’s rating
       system.

       To gain an understanding of the internal controls in the plan’s rating system, we reviewed the
       Plan’s rating system policies and procedures and interviewed Plan officials regarding the
       controls in place to ensure that the appropriate rates were charged. Other auditing procedures
       were performed as necessary to meet our audit objectives.

       In addition, we examined the Plan’s financial information and evaluated the Plan’s financial
       condition and ability to continue operations as a viable ongoing business concern.




                                                       7                           Report No. 1C-P2-00-15-022
 IV. MAJOR
        III. CONTRIBUTORS
              RESULTS OF THETO THIS REPORT
                             AUDIT

Our audit determined that the Plan’s 2013 FEHBP MLR submission was accurate, complete, and
valid, and was developed in accordance with the applicable laws and regulations governing the
FEHBP.

Our audit also determined that the Plan’s FEHBP premium rates were developed in accordance
with applicable laws, regulations, and the rate instructions for contract year 2013. Consequently,
the audit did not identify any questioned costs and no corrective action is necessary.




                                            8                               Report No. 1C-P2-00-15-022
COMMUNITY-RATED AUDITS GROUP

       , Auditor-In-Charge

        , Lead Auditor




       , Senior Team Leader

           , Group Chief




                              9   Report No. 1C-P2-00-15-022
                                                                                                                        



                                       Report Fraud, Waste, and 

                                           Mismanagement 

                                                 Fraud, waste, and mismanagement in
                                              Government concerns everyone: Office of
                                                  the Inspector General staff, agency
                                               employees, and the general public. We
                                             actively solicit allegations of any inefficient
                                                   and wasteful practices, fraud, and
                                              mismanagement related to OPM programs
                                             and operations. You can report allegations
                                                         to us in several ways:


                     By Internet:                 http://www.opm.gov/our-inspector-general/hotline-to-
                                                  report-fraud-waste-or-abuse


                         By Phone:                Toll Free Number:                              (877) 499-7295
                                                  Washington Metro Area:                         (202) 606-2423


                           By Mail:               Office of the Inspector General
                                                  U.S. Office of Personnel Management
                                                  1900 E Street, NW
                                                  Room 6400
                                                  Washington, DC 20415-1100
                      
                                                                                                                        
                                                                                                                        




                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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.

                                                                                                                  Report No. 1C-P2-00-15-022