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
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)