oversight

Audit of the Federal Employees Health Benefits Program Operations at SelectHealth

Published by the Office of Personnel Management, Office of Inspector General on 2015-01-29.

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

          U.S. OFFICE OF PERSONNEL MANAGEMENT 

             OFFICE OF THE INSPECTOR GENERAL 

                      OFFICE OF AUDITS 





                 AUDIT OF THE FEDERAL EMPLOYEES HEALTH 

                    BENEFITS PROGRAM OPERATIONS AT 

                              SELECTHEALTH 


                                             Re p ort Number 1C-SF-00-14-060 

                                                      Janua ry 29, 2015 





                                                              -- CAUTION -­
This audit •·eport has been distributed to Federal officials who are responsible fo1· the administr ation of the audited program. T his audit report may
contain proprieta1-y data which is protected by Federal law (18 U.S.C. 1905) . T herefore, while this audit rep011 is available under the Freedom of
Information Act and made available to the public on the OI G webpage (http://wn~v.opm.go•>lour-inspector-geueral), caution needs to be exercised
before releasing the •·eport to the general public as it may contain propdeta1-y information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY 

               Audit ofthe F ederal Employees Health Benefits Program Operations at
                                           SelectH ealth
Repot·t ~o. 1C-SF-00-14-060                                                                   Januat·y 29, 2015

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

The primaty obj ective of this           We detennined that the Plan's 2012 FEHBP MLR submission was
perf01mance audit was to detetmine       accurate, complete, and cunent, and was developed in accordance
whether the SelectHealth (Plan) was      with th e laws and regulations goveming the FEHBP.
in compliance with the provisions of     Consequently, a draft rep01i was not issued because the audit did
its contract and the laws and            not identify any questioned costs. N o con ective action is
regulations goveming the Federal         necessary .
Employees Health Benefits Program
(FEHBP) . Specifically, we verified if
the Plan met the Medical Loss Ratio
(MLR) requirements established by
OPM. Additional tests were
perf01med to detetmine whether the
Plan was in compliance with the
provisions of the laws and regulations
goveming the FEHBP.

What Did We Audit?

Under contact CS 2925, the Office of
the Inspector General completed a
perf01mance audit of the FEHBP
operations at the Plan. The audit
covered the Plan's 2012 MLR
submission, and was conducted at the
Plan's office in Munay, Utah during
June 2014. Additional audit work
was completed at our offices in
Washington, D .C. and Jacksonville,
Florida .




 Michael R. Esser
Assistant Inspector General
for Audits
                ABBREVIATIONS


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




                              ii
                               TABLE OF CONTENTS 


                                                                                                                          Page 

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


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


I. 	     I NTRODUCTION AND BACK GROUND ............................................................... ! 


II. 	    OBJECTIVES, SCOPE, AND METHODOLOGY ................................ ................. .3 


III. 	   RESULT OF THE AUDIT..........................................................................................8 


IV. 	    MAJOR C ONTRIBUTORS TO T HIS REPORT ................................ .................... 9 


         REPORT FRAUD, WAST E, AND MI SMANAGEMENT 

       I. INTRODUCTION AND BACKGROUND 



Introduction
We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at SelectHealth (Plan). The audit covered conu·act year 2012, and was conducted at th e Plan's
office in MmTay, Utah. The audit was conducted pursuant to the provisions of Conu·act CS
2925; 5 U.S .C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Prui 890. The
audit was perf01med by the U.S . Office of Personnel Management's (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

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 Healthcare and Insurance Office. The provisions of the Federal Employees Health
Benefits Act ru·e implemented by OPM through regulations codified in Chapter 1, Pati 890 of
Title 5, CFR. Health insurance coverage is provided through conu·acts with health insurance
cruTiers who provide service benefits, indemnity benefits, or comprehensive medical services.

In April 2012, OPM issued a finalmle establishing an FEHBP-specific Medical Loss Ratio
(MLR) requirement to replace the similru·ly sized subscriber group (SSSG) compru·ison
requirement for most community-rated FEHBP caniers (77 FR 19522). MLR is th e prop01iion
of FEHBP premiums collected by a catTier that is spent on clinical services and quality health
improvements. The MLR for each canier is calculated by dividing the amount of dollars spent
for FEHBP members on clinical services and health cru·e quality improvements by the total
am mmt of FEHBP premiums collected in a calendru· year.

The FEHBP-specific MLR mles ru·e based on the MLR stan dru·ds established by the Affordable
Care Act (ACA, P.L. 111-148) and defined by the U.S. Deprui ment of Health and Human
Services in 45 CFR Pati 158. In 2012, community-rated FEHBP caniers could elect to follow
th e FEHBP-specific MLR requirements, instead of th e SSSG requirements. Beginning in 201 3,
th e MLR methodology is required for all community-rated cruTiers, except those that ru·e state
mandated to use u·aditional community rating (TCR). State mandated TCR cmTiers continue to
be subject to the SSSG compru·ison rating methodology.

Strui ing with the pilot program in 2012 and for all non-TCR FEHBP caniers in 2013, OPM
required the caniers to submit an FEHBP-specific MLR. OPM required that the FEHBP-specific
MLR threshold calculation take place after the ACA-required MLR calculation and any rebate
am mmts due to the FEHBP as a result of the ACA-required calculation be excluded from the
FEHBP-specific MLR threshold calculation. Can'iers were required to rep01i inf01m ation related
to erun ed premiums and expenditures in various categories, including reimbursement for clinical
services provided to em ollees, activities that improve health care quality, and all oth er non­
claims costs.




                                               1                          Rep01i N o. 1C-SF-00-1 4-060
If a carrier fails to meet the FEHBP-specific MLR threshold, it must make a subsidization
penalty payment to OPM within 60 days of notification of amounts due. This payment would
take place via wire transfer.

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

The Plan reported 568 contracts and 1,794 members as of March 31, 2012, as shown in the chart
below.


                          FEHBP Contracts/Members

                                 March 31



                        2,000
                        1,500
                        1,000
                         500
                            0
                                               2012
                      Contracts                 568
                      Members                  1,794


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

The Plan has participated in the FEHBP since 2011 and provides health benefits to FEHBP
members in the state of Utah. A prior audit of the Plan covered the premium rate buildup for
contract year 2012. In that audit, we determined that the FEHBP premiums were developed in
accordance with applicable laws, regulations and OPM’s Rate Instructions to Community Rated
Carriers (rate instructions) for contract year 2012.

The preliminary results of this audit were discussed with the Plan officials at an exit conference
and in subsequent correspondence. Since this audit concluded that the Plan’s FEHBP MLR
submission was developed in accordance with applicable laws, regulations, and the rate
instructions, a draft report was not issued.




                                                 2                           Report No. 1C-SF-00-14-060
 II. OBJECTIVES, SCOPE, AND METHODOLOGY 



Objective
The primary objective of this peifonnance audit was to detennine whether the Plan was in
compliance with the provisions of its contract and the laws and regulations goveming the
FEHBP. Specifically, we verified that th e Plan met th e MLR requirements established by OPM
and paid the correct ammmt to the Subsidization Penalty Account, if applicable. Additional tests
were perfonned to detennine whether the Plan was in compliance with the provisions of the laws
and regulations goveming the FEHBP.

Scope
We conducted this perfon nance audit in accordance with generally accepted govemment
auditing stan dards. Those stan dards require that we plan and perf01m the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for om findings and conclusions
based on om audit objectives. We believe that the evidence obtained provides a reasonable basis
for om findings and conclusions based on om audit objectives.

This perf01mance audit covered contract year 2012 . For this year, the FEHBP paid
approximately $7.9 million in premiums to the Plan.

OIG audits of community-rated carriers ar e designed to test cruTier compliance with the FEHBP
contract, applicable laws and regulations, and the rate instructions. These audits ru·e also
designed to provide reasonable assmance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan's intem al conu·ol stmcture, but we did not use this
inf01m ation to dete1mine the nature, timing, and extent of om auditing procedm es. However, the
audit included tests of the Plan's FEHBP claims data, quality health expenses, and all other
applicable costs considered in the calculation of its MLR. Om review of intemal conu·ols is
limited to the procedm es the Plan has in place to ensm e that the FEHBP MLR calculation is
accm ate, complete, and valid, FEHBP claims ru·e processed accmately, appropriate allocation
methods for quality health expenses ru·e used, and that any other costs associated with its MLR
calculation are appropriate.

In conducting the audit, we relied to vruy ing degrees on computer-generated data provided by
the Plan. We did not verify the reliability of the data generated by the vru·ious inf01m ation
systems involved. However, nothing crune to om attention dming om audit testing utilizing the
computer-generated data to cause us to doubt its reliability. We believe that the available data
was sufficient to achieve om audit objectives. Except as noted above, th e audit was conducted in
accordance with generally accepted government auditing stan dru·ds, issued by the Compu·oller
General of the United States.

Based on the survey work perf01m ed, we identified a totallmiverse of 44,073 medical claim
lines and 22,788 phrumacy claim lines incmTed from Januruy 1, 2012 through December 31,
2012, and paid through Mru·ch 31, 2013. The audit universe atu·ibutes ru·e the mandatory medical



                                               3                           Rep01i N o. 1C-SF-00-1 4-060
and pharmacy claim field requirements included in FEHB Carrier Letter 2014-01, Audit
Requirements for 2012 MLR Pilot Program Carriers.

The audit fieldwork was performed at the Plan’s office in Murray, Utah during June 2014.
Additional audit work was completed at our offices in Washington, D.C. and Jacksonville,
Florida.

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

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

To test whether the Plan accurately processed and paid FEHBP claims for contract year 2012 and
complied with its contract, we tested for potential claim errors within the full claims universes of
44,073 medical claim lines and 22,788 pharmacy claim lines, totaling $6,979,439 and
$1,423,265, respectively.

During our claim reviews, the samples were not statistically based. Consequently, the results
could not be projected to the universe since it is unlikely that the results are representative of the
universe as a whole.

However, we did use statistical sampling software to select a discovery sample for the
coordination of benefits (COB) review. A discovery sample is the smallest sample size capable
of providing a specified confidence level of detecting a misstatement in the population or
tolerable rate of deviation in the population. Additionally, the discovery sample was selected
randomly from a universe using random numbers, in which each item has an equal chance of
being selected. The use of statistical sampling also requires the selection of confidence levels
and precision rates. For the sample selected, we used a confidence level of 90 percent and a
maximum precision rate of 5 percent. This means we are 90 percent confident that the difference
between the projected questioned claims and the actual questioned claims is no more than 5
percent. The results from the discovery sample would determine if a larger sample would be
required. Results of a larger sample could be projected over the entire universe, since it is likely
that the results would be representative of the universe as a whole.




                                                  4                            Report No. 1C-SF-00-14-060
The following audit steps were performed:

Claims Review

   Medical Claims

   	 We identified a potential COB error universe of 3,303 claim lines totaling $510,160 for
      contract year 2012. The universe contained all claim lines for members over age 64. We
      selected a statistical sample of 46 claim lines totaling $2,868, and pulled the highest 5
      claim lines from the COB universe totaling $185,080 for review in determining if the
      claims were coordinated with Medicare properly and accurately processed.

   	 We identified a potential member enrollment error universe of 295 claim lines totaling
      $2,379,910 for contract year 2012. Our sample contained all claim lines over $2,500. We
      judgmentally selected a sample of 13 claim lines for 7 members, totaling $240,064, to
      determine if the claims were accurately processed.

   	 We identified a potential dependent eligibility error universe of 13 claim lines for one
      member totaling $435 for contract year 2012. The universe contained all claims for
      members over age 26 and excluded all patients identified as a subscriber or spouse. We
      sent the entire universe of 13 claim lines to the Plan for review to determine if the claims
      were accurately processed.

   	 We identified a potential bundling/unbundling error universe of 331 claim lines totaling
      $3,911. The universe contained all claims lines associated with the current procedural
      terminology (CPT) codes related to the primary panel code 80048, Basic Metabolic Panel
      (Calcium, total). We identified 4 possible claims line errors totaling $53. We sent the
      claim lines to the Plan for review to determine if the claims were accurately processed for
      contract year 2012.

Pharmacy Claims

   	 We identified a potential member enrollment error universe of 17 claim lines totaling
      $108,467 for contract year 2012. The universe contained all claim lines over $5,000. We
      sent the entire universe of 17 claim lines to the Plan for review to determine if the claims
      were accurately processed.

   	 We identified a potential dependent eligibility error universe of 23 claim lines for one
      member totaling $11 for contract year 2012. The universe contained all claims for
      members over age 26 and excluded all patients identified as a subscriber or spouse. We
      sent the entire universe of 23 claim lines to the Plan for review to determine if the claims
      were accurately processed.

   	 We identified a potential high dollar drug script error universe of 45 claim lines for 26
      members totaling $82,926 for contract year 2012. The universe contained all claim lines



                                                5	                          Report No. 1C-SF-00-14-060
       over $1,000. We sent the entire universe of 45 claim lines to the Plan for review to
       determine if the claims were accurately processed.

   	 We identified a potential high quantity dispensed error universe of 19,759 claim lines
      totaling $1,085,399 for contract year 2012. The universe contained all claim lines with a
      drug unit measure as EA (for each). We then identified and reviewed the claims with
      high quantities that appeared unusual. We also included several claims that had a large
      quantity, but no descriptive information such as drug name, drug strength, and drug unit
      of measure. We judgmentally selected a sample of 14 claim lines totaling $8,761, to
      determine if the claims were accurately processed.

We also completed the following reviews which produced no results:

   	 We completed a duplicate claims review of the medical and pharmacy claim universes
      (using “best match” criteria) to identify claims that have all the same fields or duplicate
      claims where only the claim number is different. We chose which fields to match against
      and the order of precedence. We selected the following fields for medical claims: patient
      ID number, patient (first and last) name, incurred date, covered charges, provider ID,
      procedure code, diagnosis code, type of service, and provider specialty. For the
      pharmacy claims, we selected all of the provided fields. We used the sort data function in
      our statistical software and selected the “keep only one entire duplicate if entirely
      duplicated” option. This would generate the possible duplicates as a separate run. We
      then reviewed the results for duplicate claims or any claims that have the same selected
      fields, but different claim numbers.

   	 We completed a duplicate claims review of the medical and pharmacy claim universes
      (using “near match” criteria) to identify claims for which some of the fields are the same
      or are duplicates but do not exactly match within the medical and pharmacy claim
      universe. We chose which fields to match against and the order of precedence. We
      selected the following fields for medical claims: patient ID number, patient (first and last)
      name, incurred date, covered charges, provider ID, procedure code, and procedure
      modifier code. However, for the pharmacy claims, we selected the member number,
      subscriber number, and drug code, and the prescription fill date had to be within five days
      of each other. We used the sort data function in our statistical software and selected the
      “keep only one entire duplicate if entirely duplicated” option. This would generate the
      possible duplicates as a separate run. We then reviewed the results for duplicate claims
      or any claims that have the same selected fields, but different claim numbers.

   	 We completed a debarred pharmacist and pharmacies review to determine if the Plan paid
      any pharmacy claims to debarred pharmacists or pharmacies. We requested a list of
      debarred pharmacists and pharmacies in the Plan’s service area from the OIG
      Administrative Sanctions Branch (ASB). We ran a query on the claims data to determine
      if any debarred pharmacists or pharmacies were included in the pharmacy data.

   	 We completed a review of debarred providers to determine if the Plan paid any medical
      claims to debarred providers. The review compared the list of debarred providers to the


                                                6	                          Report No. 1C-SF-00-14-060
       medical claims data. We requested a list of debarred providers in the Plan’s service area
       from the ASB. We identified the debarred providers and compared each one to the
       medical claims data. The debarred provider list included the provider names and the
       provider National Provider Identifier (NPI) numbers, when available. We used the NPI
       number to query against the medical claims, but used the provider name if the NPI
       number was unavailable.

   	 We completed a zero quantity review to determine if any pharmacy claims were paid that
      had a zero quantity amount. We attempted to identify all pharmacy claims that had zero
      in the quantity field and a dollar amount in the paid field.

   	 We completed an ineligible group number review on the medical and pharmacy universes
      to determine if any claims were paid for non-FEHBP members or for members enrolled
      in a different employer group. We requested a list of group numbers and group names
      for both the medical and pharmacy claims data and sorted this data by the group number
      to identify any exceptions. We used the statistical summary function within our
      statistical software to determine the universe of group numbers. We compared the
      universe to the list of group numbers provided by the Plan to determine if there were any
      results.

   	 We completed a non-covered benefits review on the medical claims universe. We
      reviewed the 2012 FEHBP benefit brochure to determine non-covered benefits. We
      tested the medical claims data to determine if any of the following non-covered benefits
      were paid in error: elective abortions, sex transformations, reversal of sterilization, radial
      keratotomy, eye exercises, hypnotherapy, and in-vitro fertilization.

   	 We completed a deceased member review on the medical and pharmacy universe. We
      selected a sample from the older population in the claims data. The claims were sorted
      by member age (over age 70). Claims were extracted from data for the oldest members.
      We removed any duplicate patient IDs. We obtained a sample of 20 members. The
      sample was sent to the OIG Office of Investigations to determine if a death record existed
      for the member.

All samples selected (except for COB) during our audit were not statistically based.
Consequently, the results could not be projected to the universe, since it is unlikely that the
results are representative of the universe, as a whole. The COB sample was statistically based
and the results could have been projected to the universe. However, we did not find errors in our
COB sample.




                                                 7	                           Report No. 1C-SF-00-14-060
                   III. RESULTS OF THE AUDIT 



Our audit detennined that the Plan 's 2012 FEHBP MLR submission was accurate, complete, and
valid, and was developed in accordance with th e applicable laws an d regulations goveming the
FEHBP. For the claims testing described in the Methodology section, we found that all of the
potential processing errors identified were in fact processed con ectly. Consequently, a draft
rep01i was not issued because the audit did not identify any questioned costs. No con ective
action is necessary.




                                           8                             Rep01i No. 1C-SF-00-14-060
 IV. MAJOR CONTRIBUTORS TO THIS REPORT 


COMMUNITY-RATED AUDITS GROUP

         , Auditor-ill-Charge

          , Auditor

- -, Auditor



         , Senior Team Leader

          , Group Chief




                                9   Rep01i No. 1C-SF-00-14-060
                                        Report Fraud, Waste, and 

                                            Mismanagement

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


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


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


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




                                                             -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program . This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                 Report No. 1C-SF-00-14-060