oversight

Audit of the Federal Employees Health Benefits Program Operations of Univera Healthcare

Published by the Office of Personnel Management, Office of Inspector General on 2009-09-08.

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

                                                                                            .                                         .


                                                   u.s; OFFICE OF PERSONNEL MANAGEMENT
                                                                    OFFICE OF TI-IEINSPECTOR GENERAL
                                                                                      OFFICE OFAUIJITS




               .       .        .



.'Final Audit Report
Subject:
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         'ProgtaulOperatiQllSof Univeta IJ:ealtbcare




                                         Date:         .   September
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                                                     -"CAUTION ,.­
This audilrepol"t has been distrib.lit~dto Federal officials who arc responsible forthe administration of the auditedpHig.-am. Thjs
lludilreport maycoritainproprielary data which is protected by federal law 08 U.S.c. 1905). Therefore, while this audit report is
available under theFree~omorInformation Act and made avanable to the public on IheOIG webpage,c:lulioli needs to be exercised
before relusing the report 10 fhe ~elleral public asit may contain proprietary informaiion .that wuredacled from the publicly
disiribulcd copy.
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                            Washington, DC 20415



   Office of the
Inspector General




                                            AUDIT REPORT




                                  Federal Employees Health Benefits Program

                               Community-Rated Health Maintenance Organization

                                             Univera Healthcare

                                    Contract Number 1891 - Plan Code Q8

                                             Buffalo, New York




                      Report No. 1C-08-00-09-008                    Da~:   September 8, 2009




                                                                    Michael R. Esser
                                                                    Assistant Inspector General
                                                                      for Audits



        www.opm.gov                                                                       www.lIsajobs.gov
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 20415


   Office of the
Inspector General




                                       EXECUTIVE SUMMARY





                                Federal Employees Health Benefits Program

                             Community-Rated Health Maintenance Organization

                                           Univera Healthcare

                                  Contract Number 1891 - Plan Code Q8

                                           Buffalo, New York




                    Report No. 1C-Q8-00-09-008                     Da~:September      8, 2009

        The Office of the Inspector General perfonned an audit of the Federal Employees Health Benefits
        Program (FEHBP) operations at Univera Healthcare (Plan). The audit covered contract years
        2004,2005,2007, and 2008 and was conducted at the Plan's office in Rochester, New York.
        This report questions $3,982,122 for defective pricing in 2005,2007, and 2008, including
        $354,140 for related lost investment income.

        For contract years 2005,2007, and 2008, we detennined that the FEHBP rates were overstated by
        $226,404,$2,437,976, and $963,602, respectively, because the Plan did not apply a similarly
        sized subscriber group discount to the FEHBP's rates.

        Consistent with the FEHBP regulations and the contract, the FEHBP is due $354,140 for lost
        investment income, calculated through June 30,2009, on the defective pricing findings. In
        addition, the contracting officer should recover lost investment income on amounts due for the
        period beginning July I, 2009, until all defective pricing amounts have been returned "to the
        FEHBP.




        www.opm.goy                                                                          www.usaJobs.goY
                                      CONTENTS



                                                                                      Page

   EXECUTIVE SUMMARy	                                                                   i


 I. INTRODUCTION AND BACKGROUND	                                             :         1


II.	 OBJECTIVES, SCOPE, AND METHODOLOGY                ~                               3


m.	 AUDIT FINDINGS AND RECOMMENDAnONS ;                                  :             5


   Premium Rates                                                                 >0    5


   1. Defective Pricing	                                                               5


   2. Lost Investment Income    ~	                                                     6


IV.	 MAJOR CONTRIBUTORS TO THIS REPORT                                                 8


   Exhibit A (Summary of Questioned Costs)


   Exhibit B (Defective Pricing Questioned Costs)


   .Exhibit C (Lost Investment Income)


   Appendix (Univera's August 10, 2009, response to the draft report)

                      I. INTRODUCTION AND BACKGROUND


 Introduction .

. We completed aIiaudit of the Federal Employees Health Benefits Program (FEHBP) operations
  at Univera Healthcare (plan) in Buffalo, New York. The audit covered contract years 2004,
  2005, 2007, and 2008. The audit was conducted pursuant to the provisions of ContractCs
  1891; 5 U.S.c. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The .
  audit was performed by the Office of Personnel Management's (OPM) Office of the 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
  Center for Retirement and Insurance Services. The provisions of the Federal Employees Health
. Benefits Act are implemented by aPM through regulations codified in Chapter 1, Part 890 of
  Title 5, CFR. Health insurance coverage is provided through contracts with health insurance
  carriers who provide service benefits, indemnity benefits, or comprehensive medical services.

 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 FEHBP should pay a market price rate,                     FEHBP Contracts/Members

 which is defined as the best rate offered to
                        March 31

 either of the two groups closest in size to           8,000
 the FEHBP. In contracting with                        7,000
 community-rated carriers, OPM relies on               6,000
 carrier compliance with appropriate laws              5,000
 and regulations and, consequently, does not
                                                       4,000
 negotiate base rates. OPM negotiations
                                                       3,000
 relate primarily to the level of coverage and
                                                       2,000
 other unique features of the FEHBP.
                                                       1,000

 The chart to the right shows the number of .              o
                                                               2004     2005     2007     2008
 FEHBP contracts and members reported by                                3,923    2,342    2,397
                                                 • Contracts   3,104
 the Plan as of March 31 for each contract       D Members     6,703    7,351    4,469    4,463
 year audited.



                                                  1

  The Plan has participated in the FEHBP since 1980 and provides health benefits to FEHBP
. members in the northern counties ofwestem New York State. The last audit conducted by our
\ office was a rate reconciliation audit and covered contract year 2006. All matters related to that
  audit have been resolved.                      .

 1'he 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 agrees with our findings.




                                                  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 FEHBPrates 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.


                                                                 FEHBP Premiums Paid to Plan

  We conducted this performance audit in
. accordance with generally accepted government               $21

  auditing standards. Those standards require that            $20
  we plan and perform the audit to obtain                     $19
  sufficient, appropriate evidence to provide a
                                                              $18
  reasonable basis for our findings and conclusions
  based on our audit objectives. We believe that              $17
  the evidence obtained provides a reasonable basis           $16
  for our findings and conclusions based on our .
  audit objectives.                                     _Revenue


 This performance audit covered contract years 2004, 2005,2007, and 2008. For these contract
 years, the FEHBP paid approximately $77.1 million in premiums to the Plan. The premiums
 paid for each contract year audited are shown on the chart above.

 OIG audits of community-rated carriers are designed to test carrier compliance with the FEHEP
 contract, applicable laws and reguhltions, 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 SSS·Gs);-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

                                                   3

the various information 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.       .

The audit fieldwork was performed at the Plan's office in Rochester, New York during October
2008. Additional alldit work was completed at our field office in Cranberry Township,
Pennsylvania.         .

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 S88Gs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers 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's policies and procedures, interviewed appropriate Plan officials, and
perforrried other auditing procedures necessary to meet our audit objectives.




                                                 4

              III. AUDIT FINDINGS AND RECOMMENDATIONS



Premium Rates

1. Defective Pricing                                                                 $3,627,982

  The Certificates of Accurate Pricing the Plan signed for contract years 2005, 2007, and 2008
  were defective. In accordailce with federal regulations, the FEHBP is therefore due a price
  adjustment for these years. Application of the defective pricing remedies shows that the
  FEHBP is entitled to premium adjustments totaling $3,627,982 (see Exhibit A).

  Carriers proposing rates to OPM are required to submit a Certificate of Accurate Pricing
  certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are
  market price rates. OPM regulations refer to a market price rate in conjunction with the rates
  offered to an SSSG. Ifit is found that the FEHBP was charged higher than a market price
  (i.e., the best rate offered to an SSSG), a condition of defective pricing exists, requiring a
  downward adjustment ofthe FEHBP premiums to the equivalent market price.



  We agree with the Plan's selection of                        and                  as the SSSGs
  for contract year 2005.

  Our analysis of the rates charged to the SSSGs shows that                           eceived a
  "percent discount, which was not applied to the FEHBP. ~id not receive
  a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we
  recalculated the FEHBP rates by applying the"percent discount given to
  _           A comparison of our audited line 5 rates to the Plan's reconciled line 5 rates shows
  that the FEHBP was overcharged $226,404 in 2005 (see Exhibit B).



  The Plan selected -'nd_
  agree with the selection of
                                                   as the SSSGs for contract year 2007. We
                                           but disagree with the selection o f _
  • • • • • • • • should have been selected as an SSSG since it was closer in enrollment
  size to the FEHBP and because it met SSSG requirements.

  Our analysis ofthe rates charged to the SSSGs shows that                           received an
  _percent discount, which was not applied to the FEHBP.                           did not receive
  a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we
  recalculated the FEHBP rates by applying the _percent discount given to _
  _           A comparison of our audited line 5 rates to the Plan's reconciled line 5 rates shows
  that the FEHBP was overcharged $2,437,976 in 2007 (see Exhibit B).


                                                5
    The Plan selected                  and               as the SSSGs for contract year 2008,
   .Again, we agree with the selection of                but disagree with. the selection of
                                         should have been selected as an SSSG since it was
   closer in enrollment sIze to the FEHBP and because it met SSSG requirements.

    Our analysis of the rates charged to the SSSOs shows that                          received a
   _percent discount, which was not applied to the FEHBP.                           did not receive
    a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we
    recalculated the FEHBP rates by applying the _     percent discount given to                    .
   _            A comparison of our audited line 5 rates to the Plan's reconciled line 5 rates shows
    that the FEHBP was overcharged $963,602 in 2007 (see Exhibit B).

   Recommendation 1

   We recommend that the contracting officer require the Plan to return $3,627,982 to the
   FEHBP for defective pricing in contract years 2005, 2007, and 2008..

   Plan's Comments

   The Plan agrees with our findings.

. 2. Lost Investment Income                                                               $354,140

   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 findings due the
   FEHBP in contract years 2005, 2007, and 2008. We determined that the FEHBP is due
   $3.~4,140 for lost investment income, calculated through June 30, 2009 (see Exhibit C). In
   addition, the FEHBP is entitled to lost investment income for the period beginning July 1,
   2009, until all defective pricing finding amounts have been returned to the FEHBP.

   FEHBAR 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 were 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 oflost investment income is based on the United States Department ofthe
   Treasury's semiammal cost of capital rates.




                                                   6
Recommendation 2

 We recommend that the contracting officer require the Plan to return $354;140 to the FEHBP
 for lost investment income for the period January 1, 2005 through June 30, 2009. In addition,
 we recommend thatthe contractmg officer recover lost investment income on amounts due for
 the period beginning July 1, 2009, until all defective pricing amounts have been returned to
 theFEHBP.

 Plan's Comments

 The Plan agrees with our findings.




                                             7

            IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community-Rated Audits Group

                  Auditor-In-Charge

                  Auditor


                    Chief

                  , Senior Team Leader




                                         8

                                                    Exhibit A




                  .
                      Univera Healthcare
                           .

             Western New York - Northern Comities
                 Summary of Questioned Costs

Defective Pricing Questioned Costs:

      Contract Year 2005                                $226,404
      Contract Year 2007                              $2,437,976
      Contract Year 2008                                $963,602

Total Defective Pricing Questioned Costs              $3,627,982

Lost Investment Income                                  $354,140

Total Questioned Costs                                $3,982,122
                                                                        . Exhibit B




                                     Univera Healthcare
                            Western New York - Northern Counties
                             Defective Pricing Questioned Costs


             2005 Contract Year

    Plan's Reconciled Rates
    Audited Rates
    Biweekly Overcharge
    To Annualize:
    x March 31, 2005 Headcount
    x Pay Periods                                                  26
  . Subtotal
    Amount Due FEHBP in 2005                                                  $226,404

             2007 Contract Year

   Plan's Reconciled Rates
   Audited Rates
   Biweekly Overcharge
   To Annualize:
   x March 31, 2007 Headcount
   x Pay Periods                                    26             26
   Subtotal
   Amount Due FEHBP in 2007                                                  $2,437,976

             2008 Contract Year

   Plan's Reconciled Rates
   Audi ted Rates
   Biweekly Overcharge
   To Annualize:
   x March 31, 2008 Headcount
   x Pay Periods                                    26             26
   Subtotal
   Amount Due FEHBP in 2008                                                   $963,602


Total Defective Pricing Questioned Costs                                     $3,627,982
                                                                                                              Exhibit C



                                                     Univera Healthcare

                                            Western New York - Northern Counties

                                                   Lost Investment Income



  Year                                  .2005        2006         2007         2008        30-Jun-09           Total
Audit Findings:

Defective Pricing                        $226,404           $0   $2A37,976     $963,602            $0            $3,627,982



                   Totals (per year):    $226,404          $0    $2,437,976    $963,602            $0
           $3,627,982
                  Cumulative Totals:     $226,404    $226,404    $2,664,380   $3,627,982   $3,627,982
           $3,627,982

     Average Annual Interest Rate:         4.375%     5.4375%      5.5000%     ·4.9375%       5.6250%


   Interest on Prior Years Findings:            $0    $12,311       $12,452     $131,554      $102,037
             $258,354

            Current Years Interest:        $4,953           $0      $67,044      $23,789            $0
                $95,786

          Total Cumulative Interest        $4,953     $12,311      $79,496     $155,343      $102,037    I
        $354,140
            Through June 30, 2009

                                                                                                   Appendix



 llllivera~

  HEALTHCARE
       8n ,,~...s company




 August 10, 2009



 US Office of Personnel Management

 Office ofthe Inspector General

 800 Cranberry Twp, PA 16066


 Dear_:

 I am writing to you to inform you ofUnivera Health Plan's agreement with the settlement
 numbers presented by your office via email on August 5, 2009.

. The settlement in question encompasses pricing adjustments and lost investment income for
  the years 2005,2007, and 2008. Univera agrees to the settlement of$3,627,982 ofpricing
  adjustments and $354,140 of lost investment income resulting in a total settlement of
  $3,982,122.         .

 Please let us know if you have any questions and what the next steps in this process are.




                   205 Park Club lane   I   Buffalo. NY 14221-5239 I. www.univeraheallhc.are.com