oversight

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

Published by the Office of Personnel Management, Office of Inspector General on 2013-03-11.

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 Univera Healthcare



                                           Report No. 1C-Q8-00-12-057

                                          Date: March 11, 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
                                              Univera Healthcare
                                    Contract Number CS 1891 - Plan Code Q8
                                              Rochester, New York


                                                                                                 March 11, 2013
                 Report No. 1C-Q8-00-12-057                                          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
                                  Univera Healthcare
                        Contract Number CS 1891 - Plan Code Q8
                                  Rochester, New York


         Report No. 1C-Q8-00-12-057                     Date: March 11, 2013


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Univera Healthcare (Plan). The audit covered contract
years 2009 through 2011, and was conducted at the Plan’s office in Rochester, New York.

We found that the FEHBP rates were developed in accordance with applicable laws, regulations,
and the Office of Personnel Management’s rating instructions for contract years 2010 and 2011.

This report questions $578,157 for inappropriate health benefit charges to the FEHBP in contract
year 2009. The questioned amount includes $523,318 for defective pricing and $54,839 due the
FEHBP for lost investment income, calculated through February 28, 2013.

For contract year 2009, we determined that the FEHBP’s rates were overstated by $523,318 due
to defective pricing. More specifically, the Plan did not apply the correct SSSG discount to the
FEHBP rates.

Consistent with the FEHBP regulations and contract, the FEHBP is due $54,839 for lost
investment income, calculated through February 28, 2013, on the defective pricing finding. In
addition, we recommend that the contracting officer recover lost investment income starting
March 1, 2013, until the defective pricing amount has been returned to the FEHBP.


                                                i
                                                        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. 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 Healthcare’s November 19, 2012, response to the draft report)
                      1. INTRODUCTION AND BACKGROUND


Introduction

We comp leted an audi t of the Federal Employees Health Benefits Program (FE HB P) operations
at Univera Healthcare (Plan) . TIle audi t cove red contrac t yea rs 2009 through 20 11. TIle audi t
wa s conducted pursuant to the provisions of Contract CS 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 Manage me nt 's (OPM) Office of the Inspector General (DIG), as established by the
Inspector Ge neral Ac t of 1978, as amended.

Background

The FE HEP wa s established by the Federal Employees Health Ben efi ts Ac t (Public Law 86 ­
382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provide health insuran ce
benefits for federal employees, annuitants, and dependents . The FEHBP is administered by
OPM ' s Healthcare and Insurance Office . TIle provisions of the Federal Employee s He alth
Benefits Ac t are implemented by O PM through regulations co dified in Chapter 1, Part 890 of
Title 5, CPR . Health insurance co verage is provided thr ough co ntrac ts with health insurance
carriers who provide servi ce benefits, indemnity benefit s, or co mprehensive medical serv ices .

Community-rated ca rriers parti c ipating in the FEHBP are subject to various fede ral, state and
local laws, regul ations, and ordina nce s. While most carriers are subject to state j urisdiction,
many are further subj ect to the Health Ma intena nce Orga niza tion Ac t of 1973 (Public Law 93­
222), as amended (i.e., many co mmunity-rated carriers are federa lly qualified ). In addition,
parti cipation in the FE HB P subjects the carriers to the Federal Employees Health Benefits Ac t
and implementing regula tions promulgated by OPM.

                                                                      FEHBP Contracts/Member s

The FEHBP should pay a market pri ce                                         March 31

rate , which is de fined as the best rate
offered to either of the two groups closest                 1,800
in size to the FEHBP. In co ntrac ting with                 1,600
community-rated carriers, OPM re lies on                    1,400
carrier co mpliance with appro priate laws                  1,200
and regulations and, consequently, does                     1,000
not negotiate base rates. OPM negoti ations                  800
re late primarily to the level of cove rage                   600
and othe r unique features of the FEHBP.                     400
                                                              200
The cha rt to the right shows the number of                     o
FEHBP co ntrac ts and members reported by              . COfI/racts
the Plan as of Ma rch 3 1 for each co ntract           IJ Members
yea r audited.




                                                  I

The Plan has participated in the FEHBP since 1980 and provides health benefits to FEHBP
members in Western New York. The last audit of the Plan conducted by our office was a full
scope audit of contract years 2004, 2005, 2007, and 2008. For that audit we questioned
$3,982,122, including $354,140 for related lost investment income for defective pricing in 2005,
2007, and 2008. All matters 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

We conducted this performance audit in
accordance with generally accepted government                       $12
auditing standards. Those standards require that                    $10




                                                      Millions
we plan and perform the audit to obtain                              $8
sufficient, appropriate evidence to provide a                        $6
reasonable basis for our findings and conclusions                    $4
based on our audit objectives. We believe that                       $2
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                            2009       2010        2011
                                                                 Revenue   $11.0      $6.0        $5.8
our audit objectives.

This performance audit covered contract years
2009 through 2011. For these contract years, the FEHBP paid approximately $22.8 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 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
                                                 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 conducted during May 2012 in Rochester, New York, and additional
audit work was completed at our offices located in Cranberry Township, Pennsylvania, and
Washington, D.C.

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 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, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
              III. AUDIT FINDINGS AND RECOMMENDATIONS


Premium Rate Reyiew

1. Defective Pricing                                                                        $523.318

   The Certificate of Acc urate Pricin g Univera Healthcare (Plan) signed for contract year 2009
   wa s defecti ve. In acco rdance with Federal regu lat ions, the Federal Employees Health
   Benefi ts Program (FEHBP) is therefore due a rate redu ction for this year. Applicat ion of the
   defective pricing remedy shows that the FEHB P is entitled to a premium adj ustment totaling
   $523,3 18 (see Exhibit A). We found that the FEHEP rates were devel oped in accordance
   with applicable laws, regulation s, and OPM 's rule s and regu lations in contract years 20 10
   and 20 11.

   Carriers proposing rates to a PM are requi red to submit a Cert ifica te of Accurate Pricing
   certifying that the proposed subscription rates, subject to adjustments recognized by OPM,
   are market price rates. FEHBP regulati ons refer to a market price rate in conj unc tion with
   the rates offered to similarly sized subscriber gro ups (SSSG). SSSGs are the Plan ' s two
   employer gro ups closest in size to the FEHBP. If it is foun d that the FEHEP wa s charged
   higher than the market price rate (i.e., the best rate offered to an SSSG), a condition of
   defective pricing exists, requiring a down ward adj ustment of the FEHBP premiums to the
   equivalent market price rate.

   2009

                                                                     as SSSGs for contract
                                                                , but disagree with the
   selection of                                                terminate d its contract with the
   Plan in 2009, and consequently was not eligible to be an SSSG. Therefore, we selected
                       as the other SSSG.

   Om ana lysis of the rates c~ shows that                                             received a
  II percent discount and _                        received a          percent disco unt. The FEHBP
   did not receive a disco unt. Since the FEHB P is ent itle d to a discount ei iivalent to the largest
   diScO l 'ven
              Uto   ltanMSSSG.B we recalculated the FEHBP rates using the            percent discoun t
   given to                        A comparison of om audited rates to the Plan ' s reconcil ed
   rates shows t rat t e FEHBP wa s overcharged $523 ,3 18 in contract year 2009 (see Exhibit B).

   Plan's Com m ents (see Appendix):

   The Plan agrees with the selection of                      as an SSSG. TIle Plan also agrees
   that the FEHEP did not receive a disco unt for contract year 2009. However, the Plan
   disagree s that                    received a   II  percent disco unt.

   The Plan assert s that                   received a     II
                                                           percent discount for contract year
   2009. The Plan cites the difference between the composite rate change of .     percent and

                                                  5

   the modified compo site rate change of .       percent as the only conce ssion given to the
   group . TIle Plan indicates their calculated discoun t o.     percent should ha ve been applied
   to the FEHBP rates. The Plan believe s the FEHBP rates should be reduced in the amo un t of
   $ 190,296 for contract year 2009.

   DIG's Response to Plan's Comments:



               a.
  We disagree with the Plan that the only conce ssion zive n to _ was the
  difference between the compo site rate change o f.perc~ composite
  rate change         percent .

  In addition to the above concession, we found that the Plan applied a contrac t mi x factor of
  _       to _ rate deve lopme nt . TIle Plan indicated that the contract mix
  ~wa~g a rate change . TIley explained the purpose of the factor is
  to account for shi fts in plan enrollment, which helps illustrate how the experience period
  revenue shifts to projected revenu~cy. We view this adj ustme nt as a
  discount and removed it from our _                        audited rates. In orde r to maint ain
  consistency , contract mix factor s were also removed for all other gro ups, including the
  FEHBP, for all contract years audited .

  Finall y, we found that the Plan discounted                         adm inistration and
  retention charges. The Plan charged             for adm inistrative and other retenti on costs;
  however , we calculated adm inistrative and other retenti on costs of _        .

  After removin g these concessions, we continue to maintain that                           received
  a.     percent discount .

   Recommendation 1

   We recommend that the contracting officer require the Plan to returu $523 ,318 to the FEHBP
   for defective pricing in contract year 2009 (see Exh ibit B).

2. Lost Innstment Income                                                                    $54,839

  In accordance with the FEHBP regu lations and the contrac t between OPM and the Plan. the
  FEHBP is entitled to recover lost investment income on the defective pri cing finding in
  contract year 2009. We determi ned that the FEHBP is due $54,839 for lost investment
  incom e, calc ulated through February 28 , 2013 (see Exh ibit C) . In addition, the FEHBP is
  entitled to lost investment income for the period beginning March 1, 20 13, until all defective
  pricing finding amo unts have been returned to the FEHBP.

  Federal Employees Health Benefit s Acquisition Regul ation 1652.21 5-70 provide s that if any
  rate establi shed in connec tion with the FEHBP contract wa s incre ased because the carrier
  furnished cos t or pricing data that were not complete, acc ura te, or current as certified in its
  Certifica te of Accura te Pricing, the rate shall be reduced by the amoun t of the overc harge
  caused by the defe ctive data . In addition, when the rates are reduced due to de fective

                                                 6
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 agrees that the FEHBP is entitled to lost investment income on any overpayments
due to the FEHBP. The Plan states they calculated a different amount of overpayment which
the lost investment income calculation should be based on, and indicates the FEHBP is due
lost investment income only for that amount of the overpayment.

OIG’s Response to Plan’s Comments

Our calculation of lost investment income is based on our defective pricing finding.

Recommendation 2

We recommend that the contracting officer require the Plan to return $54,839 to the FEHBP
for lost investment income for the period January 1, 2009, through February 28, 2013. In
addition, we recommend that the contracting officer recover lost investment income on
amounts due for the period beginning March 1, 2013, until all defective pricing amounts have
been returned to the FEHBP.




                                              7
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                 , Auditor-in-Charge

                 , Lead Auditor



               ., Chief

              , Senior Team Leader




                                       8
                                                             Exhibit A


                            Univera Healthcare
                         Summary of Questioned Costs



Defective Pricing Questioned Costs


       Contract Year 2009                         $523,318


       Total Defective Pricing Questioned Costs              $523,318


Lost Investment Income                                        $54,839


Total Questioned Costs                                       $578,157
                                                                                              Exhibit B

                                                  Univera Healthcare
                                           Defective Pricing Questioned Costs


2009
                                                                          Self   Family
  FEHBP Line 5 - Reconciled Rate
  FEHBP Line 5 - Audited Rate

  Bi-weekly Overcharge

  To Annualize Overcharge:
    March 31, 2009 Enrollment
    x 26 Pay Periods                                                       26     26
  Subtotal

  Amount due FEHBP in 2009                                                                $523,318


Total Defective Pricing Questioned Costs                                                  $523,318
                                                                                                                                    Exhibit C

                                                            Univera Healthcare
                                                          Lost Investment Income



                                                                                                                 Through
  Year                                       2009          2010             2011             2012            February 28, 2013    Total
Audit Findings:

1. Defective Pricing                           $523,318            $0                  $0              $0                    $0      $523,318


                        Totals (per year):     $523,318             $0               $0              $0                     $0       $523,318
                       Cumulative Totals:      $523,318       $523,318         $523,318        $523,318               $523,318

           Avg. Interest Rate (per year):       5.2500%       3.1875%          2.5625%          1.8750%                1.3750%

        Interest on Prior Years Findings:            $0        $16,681             $13,410          $9,812               $1,199       $41,102

                  Current Years Interest:       $13,737            $0                  $0              $0                    $0       $13,737

    Total Cumulative Interest Calculated
            Through February 28, 2013:          $13,737        $16,681             $13,410          $9,812               $1,199       $54,839
Re sponse to
Audit of Univera Healthcare Report No.lC-Q8-00-12-057
dated October 23, 2012

2009

   •   We   agree with the selection of                      as the SSSG.
   •
   •
   •
       We
       We
       We
            disagree that                              a.%
            agre e that no conce ssion (discount) was provided to the FEHBP plan
                                                received
            disagree that the amount due is $523 ,318
                                                                  concession as you noted

   •   We   find that _       rece ived a concession of . %
   •   We   find the amo unt due is $ 190,296

Per discussions with                 at the time of the on-site audit, we provided the
underwriting Rate Adequac y reports for the SSSGs. These Rate Adequac y reports show
concessions on the initial page as "Modified Composite Percent Rate Change " versus
"Composite Rate Change". If no "Modified Composite Percent Rate Change " is represented ,
then no conce ssion wa s given.

Included is the Rate Adequacy for _ provided during the audit . Our C~ite Rate
Change was ~o . The Modified Compo site Percent Rate Change was ~% . The
difference is t~% . We have no documentation of' furt her conce ssion .

On the attac hed amended version of your Exh ibit B, I have recalculated the amount due FEHBP
in 2009 as S190,296.




                        Deleted by DIG -1""ot Relevant to Final Report
                      Deleted by OIG – Not Relevant to Final Report




Lost Investment Income recalculation

The draft report notes lost investment income as $77,364. With amounts due, we are estimating
lost investment income at $19,568.

Total requested by OPM - $1,557,497
Total estimated by Univera Healthcare - $242,774