oversight

Audit of the Federal Employees Health Benefits Program Operations of Aetna Open Access - Plan Code RD

Published by the Office of Personnel Management, Office of Inspector General on 2009-03-26.

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

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                                                                                                                             US OFFICE OF PERSONNEL MANAGEMENT
                                                                                                                                 .OFFICE OF THE INSPECTOR GENERAL
                                                                                                                                                                               OFFICE OF AlJDITS




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                        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

                                        Aetna Open Access

                             Contract Number CS 2867 - Plan Code RD

                                      Blue Bell, Pennsylvania




                      Report No. lC-RD-OO-08-056        Da~:     March 26, 2009




                                                           Michael R. Esser
                                                           Assistant Inspector General
                                                             for Audits




        www.opm.goY                                                                  www.usa)obs.goY
                        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

                                         Aetna Open Access

                              Contract Number CS 2867 - Plan Code RD

                                       Blue Bell, Pennsylvania



                      Report No. lC-RD-OO-08-056             Date; March 26 ( 2009


        The Office of the Inspector General performed an audit of the Federal Employees Health
        Benefits Program (FEHBP) operations at Aetna Open Access - Plan Code RD (Plan). The audit
        covered contract years 2003 through 2008 and was conducted at our office in Cranberry
        Township, Pennsylvania. This report questions $86,743 for inappropriate charges to the FEHBP
        in 2005 and 2008 l including $6,030 for lost investment income. We found that the FEHBP rates
        were developed in accordance with the applicable laws, regulations, and the Office of Personnel
        Management's rating instructions in contract years 2003, 2004, 2006, and 2007.

        We determined that the FEHBP rates were overstated by $25,886 for contract year 2005 because
        the Plan incorrectly charged the FEHBP an open access loading on the mental health benefits. In
        addition, the FEHBP rates were overstated by $54,827 for contract year 2008 because the Plan
        did not completely apply a similarly sized subscriber group discount to the FEHBP's rates.

        Consistent with the FEHBP regulations and contract, the FEHBP is due $6,030 for lost
        investment income, calculated through December 31, 2008, on the defective pricing findings in
        2005 and 2008. The Plan agreed with the findings and remitted a check for $86,743.




        www.opm.gov                                                                         www.usajobs.gov
                                     CONTENTS


                                                                     Page

   EXECUTIVE SUMMARY	                                                 i


 I. INTRODUCTION AND BACKGROUND	                                      1


II.	 OBJECTIVES, SCOPE, AND METHODOLOGy                               3


III.	 AUDIT FINDINGS AND RECOMMENDAnONS                               5


   Premium Rates                                                      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 (Aetna's March 6, 2009, response to the draft report)

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit ofthe Federal Employees Health Benefits Program (FEHBP) operations
at Aetna Open Access - Plan Code RD (Plan) in Blue Bell, Pennsylvania. The audit covered
contract years 2003 through 2008. The audit was conducted pursuant to the provisions of
Contract CS 2867; 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, 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 various
health insurance carriers that 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 the
FEHBP. In contracting with community-rated                   8,000
                                                                                                   1"1'
carriers, aPM relies on carrier compliance with               7,000
                                                                                                   F:
appropriate laws and regulations and,                        6,000
                                                                                                   1<
consequently, does not negotiate base rates.                  5,000               I""!
aPM negotiations relate primarily to the level               4,000         o!J;
of coverage and other unique features of the


                                                                                         .-
                                                             3,000
FEHBP.                                                                            I::                         ,....
                                                                                              I­          ~


                                                                       ~I2003.. Jt                        .. . .
                                                              2,000


The chart to the right shows the number of                    1,000

                                                                                2004               ­ 2007 200;;;8
                                                                                         2005 1I2006
                                                                                                                      "
FEHBP contracts and members reported by the            I_ Contracts    1,794 2,116 3,121 3,221 2,828 3,257
Plan for March 31 of each contract year                10 Members      3,785 4,783 6,259 7,429 5,783 6,172
audited.




                                                  I

The Plan began participating in the FEHBP in 1983 and provides health benefits to FEHBP
members throughout the greater Cincinnati, Ohio area. The last audit of the Plan conducted by
our office was a rate reconciliation audit of contract year 2002. As a result of that audit, we
found that the Plan's rating of the FEHBP was in accordance with the applicable laws,
regulations and aPM rating instructions for the year audited.

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



We conducted this performance audit in                                      FEHBP Premiums Paid to Plan
accordance with generally accepted
government auditing standards. Those
standards require that we plan and perform the                        $27
audit to obtain sufficient, appropriate evidence                      $22
to provide a reasonable basis for our findings                        $17
and conclusions based on our audit objectives.                        $12
We believe that the evidence obtained provides                         $7
a reasonable basis for our findings and
                                                                       $2
conclusions based on our audit objectives.
                                                                • Revenue
This performance audit covered contract years
2003 through 2008 1• For contract years 2003
through 2007, the FEHBP paid approximately $102 million in premiums to the Plan. The
premiums paid for each contract year audited are shown on the chart to the right.

OIG audits of conununity-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations·, and aPM 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 systems and such other auditing procedures as we
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 an SSSG); and

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



I   The Subscription Income Report for 2008 was not available at the time this report was completed.

                                                           3

In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment,
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the various information systems involved. However, nothing came to our attention during our
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 performed in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was conducted at our 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 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 (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers to
deteniline 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
performed other auditing procedures necessary to meet our audit objectives.




                                                 4

              III. AUDIT FINDINGS AND RECOMMENDATIONS

Premium Rates

1. Defective Pricing                                                                      $80,713

  The Certificates of Accurate Pricing the Plan signed for contract years 2005 and 2008 were
  defective. In accordance with federal regulations, the FEHBP is therefore due a price
  adjustment for each year. We applied the defective pricing remedies for the years in question
  and determined that the FEHBP is entitled to premium adjustments totaling $80,713 (see
  Exhibit A). We found that the FEHBP rates were developed in accordance with the
  applicable laws, regulations, and OPM rating instructions in contract years 2003,2004,2006,
  and 2007.

  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. If it is found that the FEHBP was charged rates that exceeded the market
  price (i.e., the best rate offered to an SSSG),a condition of defective pricing exists, requiring a
  downward adjustment of the FEHBP premiums to the equivalent market price.

  In contract years 2003 through 2008, the Plan used an adjusted community rating (ACR)
  methodology to develop the FEHBP rates. In some contract years, the SSSG rates were
  developed using a blend of an ACR methodology and a community-rating-by-class
  methodology. This only applied to groups that had an experience credibility that was Jess than
  100 percent. The ACR methodology is based on group specific claims experience, which is
  adjusted by factors such as trends, benefit changes, high-dollar claims, retention, and
  administrative fees to determine the required per-member-per-month (PMPM) revenue needed
  for the renewal period. The current billed rates and enrollment by tier are used to obtain the
  current PMPM. Once the current PMPM is calculated, the total is divided by the required
  PMPM to determine the percentage of rate increase or decrease. Each tier of the current billed
  rates is multiplied by the percentage increase or decrease to arrive at the groups' renewal
  rates.



  We agree with the Plan's selection of
                               as the SSSGs for contract year 2005. Our analysis ofthe rates
  charged to the SSSGs shows that neither
  received a discount.

  In reviewing the FEHBP rates, we noted that the Plan charged the FEHBP an open access
  loading on its mental health benefits. The 2005 FEHBP benefit brochure states "Aetna offers
  Open Access to our members ... You can go directly to any network specialist for covered
  services without a referral from your primary care physician. Note: This does not apply to
  mental health and/or substance abuse services." The Plan did not remove the open access


                                                 5

  loading from the mental health or substance abuse sections of the benefit change factor
  calculation. Therefore, we changed the mental health and substance abuse open access factors
  from~o _               By removing the open access loading from the mental health and
  substance abuse benefits, the 2004 to 2005 benefit change percentage was reduced from the
  Plan-stated .percent to our audited .percent.

  We re-developed the FEHBP's rates by removing the open access loading from the mental
  health and substance abuse benefits. A comparison of our audited line 5 rates to the Plan's
  reconciled line 5 rates shows that the FEHBP was overcharged $25,886 in 2005 (see Exhibit
  B).



  We agree with the Plan's selection of                                 as the SSSGs for

  contract year 2008. Our analysis of the rates charged to the SSSGs shows that _

  _          received a •   percent discount, of which. percent was applied to the

  FEHBP's rates by the Plan in its rate reconciliation. _ d i d not receive a discount.


 The Plan originally calculated a _ percent discount given to
 applied it to the FEHBP's rates. However, we determined that                              as
 only charged for a 20 visit limitation for physical and occupational therapies, while the group
 actually received a 40 visit limitation. Therefore, we changed the 20 visit limitation factor of
 • • • to the 40 visit limitation factor o f _ i n the benefit change workbook. This change
 in factors caused the actual discount to increase from" percent to.percent.

  We fe-developed the FEHBP's rates by applying the.percent discount that _
  _          received to the FEHBP's rates. A comparison of our audited line 5 rates to
  the Plan's reconciled line 5 rates shows that the FEHBP was overcharged $54,827 in 2008
  (see Exhibit B).

  Recommendation 1

  After receiving the draft report, the Plan returned $80,713 to the FEHBP for defective pricing
  in contract years 2005 and 2008. Since we verified that the Plan returned $80,713 to the
  FEHBP, no further action is required.

2. Lost Investment Income                                                                   $6,030

  In accordance with FEHBP regulations and the contract between OPM and the Plan, the

  FEHBP is entitled to recover lost investment income on the defective pricing findings in

  contract years 2005 and 2008. We determined that the FEHBP is due $6,030 for lost

  investment income, calculated through December 31, 2008 (see Exhibit C).


  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 was not
  complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall


                                                  6

be reduced by the amount of the overcharge caused by the defective data. In addition, when
the rates are reduced due to defective pricing, the regulation states that the government is
entitled to a refund and simple interest on the amount of the overcharge from the date the
overcharge was paid to the carrier until the overcharge is liquidated.

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

Recommendation 2

After receiving the draft report, the Plan returned $6,030 to the FEHBP for lost investment
income on the defective pricing findings in contract years 2005 and 2008. Since we verified
that the Plan returned $6,030 to the FEHBP, no further action is required.

Plan's Comments (See Appendix):

The Plan agrees with the defective pricing findings and the calculated lost investment income
and submitted payment in the full amount of$86,743 ($80,713 + $6,030).




                                             7

             IV. MAJOR CONTRIBUTORS TO THIS REPORT



Community-Rated Audits Group

                      A uditor-in-Charge

                   Auditor

                        Auditor

                   Auditor

                    Auditor


                     Chief

    _          Senior Team Leader




                                           8

                                                                           Exhibit A


                                      Aetna Open Access - Plan Code RD
                                        Summary of Questioned Costs



Defective Pricing Questioned Costs:


      Contract Year 2005                                         $25,886
      Contract Year 2008                                         $54,827




                Total Defective Pricing Questioned Costs                    $80,713


      Lost InvesbnEmt Income


                    Total Questioned Costs                                  $66.743
                                                                        Exhibit B

                                  Aetna Open Access - Plan Code RD

                                  Defective Pricing Questioned Costs





FEHBP Line 5 - Reconciled Rate
FEHBP Line 5 ~ Audited Rate

Overcharge

To Annualize Overcharge:
   3/31/05 enrollment
   Pay Periods
Subtotal

Total 2005 Defective Pricing Questioned Costs                            $25,886




FEHBP Line 5 - Reconciled Rate
FEHBP Line 5 - Audited Rate

Overcharge

To AmlUalize Overcharge:
   3/31/08 enrollment
  .P~y Periods
Subtotal

Total 2008 Defective Pricing Questioned Costs                            $54,82'7

Total Defective Pricing Questioned Costs                                 fSO,V3
                                                                                                                                 EXHIBITC

                                                              Aetna Open Access· Plan Code RD

                                                                   Lost InYestment Income




   Year                                             2003          2004             2005             2006      2007      2008           Total
Audit Findinl!s:

I, Defective Prici ng                                  :1\0         $0           $25,886              $0        $0   $54,827        :1\80,713



                            Totals (per year):         $0           SO           $25,886              SO        $0   $54,827
       $25,886
                           Cumulative Totals:          $0           $0           $25,886         $25,886   $25.886   $80,713
       $25,886

               Avg. IntereSl Rate (per year):     3.6875%       4,250%           4.375%          5.4375%   5.5000%   4.9375%


            Interest on Prior Years Findings'.         SO           SO               $0           $1,408    SI,424    $1,278
        $4,110

                        Currenl Years Interest:        $0           $0             $566               $0        SO    SI,354
        S1,920

       Total Cumulative [nrerest Calculated

              Through December 31, 2008:               $0           SO             $566           $1,408    $1,424    S2,6321
       $6,030




                                   I
                                                                                                  Appendix
                                                                             930 Harvest Drive
)~   Aetna"                                                                  Mail Stop: U32N
                                                                             Blue Bell.PA 19422

                                           2009 HAR 16 MI 7: 39
                                                                             FEHBP Underwriting Manager
                                                                             National Accounts
                                                                             215-775-7004

      March 6, 2009




      Chief, Community-Rated Audits Group
      U.S. Office'ofPersonnel Management
      Office of the Inspector General
      1900 E Street. NW - Room 6400
      Washington, D.C. 204] 5-1100


      RE: Aetna's response to Draft Audit Report IC-RD-00-08-056


      DeaJ'_

      Aetna agrees with the findings in the Draft Audit Report for Aetna Open Access Cincinnati ­
      Plan Code RD (] C-RD-OO-08-056) under the Federal Employees Health Benefits Prog.ram.
      Enclosed. please find a check in the amount of $86.743.

      Please feel free to contact me with any questions at (215) 775-7004.




      FEHBP Underwriting