oversight

Audit of the Federal Employees Health Benefits Program Operations at HealthAmerica Pennsylvania, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2012-11-01.

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
               HealthAmerica Pennsylvania, Inc.


                                          Report No. 1C-SW-00-12-025

                                          Date: November 1, 2012




                                                       -- 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
                                     HealthAmerica Pennsylvania, Inc.
                                Contract Number CS 2078-A - Plan Code SW
                                         Harrisburg, Pennsylvania



              Report No. 1C-SW-00-12-025                                                     November 1, 2012
                                                                                       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
                            HealthAmerica Pennsylvania, Inc.
                       Contract Number CS 2078-A - Plan Code SW
                                Harrisburg, Pennsylvania


         Report No. 1C-SW-00-12-025                        Date: November 1, 2012

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at HealthAmerica Pennsylvania, Inc. (Plan). The audit
covered contract years 2010 and 2011, and was conducted at the Plan’s office in Harrisburg,
Pennsylvania. Based on our audit of contract years 2010 and 2011, we have no questioned costs.
However, we found the Plan applied inappropriate loadings to the FEHBP rates in both contract
years.

In contract year 2010, the Plan applied a medical management fee to the FEHBP rates that was
greater than the amount supported by the documentation. The amount applied was
inappropriately allocated based on estimated usage percentages instead of the ratio of group
enrollment to total enrollment.

Additionally in contract year 2010, the Plan applied autism and mental health parity loadings to
the FEHBP rates. In contract year 2011, the Plan applied an autism loading to the FEHBP rates.
The costs associated with these loadings are included in the claims experience used to develop
the FEHBP premium rates; therefore, no additional loadings are necessary.

In developing the audited FEHBP rates, we adjusted the medical management fee and removed
the autism and mental health parity loadings in 2010, as well as removed the autism loading in
2011. Due to other adjustments to our audited FEHBP rates, there was no cost impact to the
FEHBP rates in contract years 2010 and 2011.
                                                i
                                                     CONTENTS

                                                                                                                        Page

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

 I. INTRODUCTION AND BACKGROUND..................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 2

III. AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 4

     1. Premium Rate Review ............................................................................................... 4

     2. Inappropriate Benefit Loadings ................................................................................. 4

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6

     Appendix (HealthAmerica Pennsylvania’s July 26, 2012 and September 5, 2012 responses
     to the audit findings)
                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
                                                                    $25
auditing standards. Those standards require that




                                                      Millions
we plan and perform the audit to obtain                             $20

sufficient, appropriate evidence to provide a                       $15
reasonable basis for our findings and conclusions                   $10
based on our audit objectives. We believe that                       $5
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                             2010           2011
                                                                 Revenue    $25.0          $24.5
our audit objectives.

This performance audit covered contract years
2010 and 2011. For these contract years, the FEHBP paid approximately $49.5 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
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



                                                 2
that the available data was sufficient to achieve our audit objectives. Except as noted above, the
audit was conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was performed at the Plan’s office in Harrisburg, Pennsylvania, during
January and February 2012. Additional audit work was completed at our offices in Washington,
D.C.; Jacksonville, Florida; and Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s Federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the 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.

To test the Plan’s compliance with the FEHBP health benefit provisions regarding coordination
of benefits, we selected and reviewed a judgmental sample of claims for contract years 2010 and
2011. This audit included a 2010 sample of 23 claims from 838,595 claim lines and a 2011
sample of 15 claims from 649,347 claim lines. The results from the samples were not projected
to the population as a whole.




                                                 3
               III. AUDIT FINDINGS AND RECOMMENDTIONS
1. Premium Rate Review

  Based on our audit, we have accepted the Plan’s rating of the FEHBP for contract years 2010
  and 2011, and have no questioned costs.

2. Inappropriate Benefit Loadings

  In contract year 2010, the Plan applied a medical management fee to the FEHBP rates that
  was greater than the amount supported by the Plan’s documentation. Additionally, in contract
  year 2010, the Plan applied an autism loading and mental health parity loading to the FEHBP
  rate development. In contract year 2011, the Plan applied an autism loading to the FEHBP
  rate development. We adjusted the medical management fee for contract year 2010, and
  removed the loadings from both contract years.

  Medical management expenses are the operational costs incurred by the Plan and allocated to
  all product lines given various cost drivers associated with each department. The operational
  costs and cost drivers generate a per-member per-month (PMPM) charge per product line.
  The PMPM is applied to each group as a claims amount by taking the PMPM times each
  group’s member months.

  Our review of the operation costs incurred by the Plan and their methodology in allocating the
  costs to each product line show that the Plan estimated the percent of complex case enrollment
  and did not equitably allocate the adjustment in 2010. We adjusted the complex case
  enrollment percentages by taking the Health Maintenance Organization member months and
  dividing by the total fully insured member months in 2010. This adjustment lowered the
  medical management PMPM amount from $              to      , in contract year 2010.

  The mental health parity loading is related to the Mental Health Parity and Addiction Equity
  Act that became effective on January 1, 2010. However, the FEHBP has had mental health
  parity as a benefit for several years and the cost for this benefit is already reflected in the
  claims experience used to develop the FEHBP rates. Therefore, this additional loading is
  unnecessary.

  The autism loading is related to the cost for diagnostic assessment and treatment of
  individuals with autism spectrum disorders (ASD). The FEHBP has consistently provided
  medically necessary services for enrollees as part of its OPM-approved benefit package. The
  cost of allowable ASD services should already be reflected in the claims experience used to
  develop the FEHBP rates. Therefore, this additional loading is unnecessary.

  As a result, these loadings were deemed inappropriate and removed from our audited FEHBP
  rates. However, due to other audit adjustments to our FEHBP rates, the medical management
  fee adjustment and removal of loadings had no cost impact to the FEHBP rates.




                                                4
Plan’s Comments (see Appendix):

The Plan agrees to exclude mental health parity and ASD loadings in the FEHBP rate
development going forward.

Additionally, the Plan agrees that the medical management expenses were incorrectly
allocated in 2010.

OIG’s Comments:

We accept the Plan’s statement that they will exclude the ASD and mental health parity
loadings in the FEHBP rates going forward. Additionally, we accept the Plan’s response to
the medical management finding. We will verify that the medical management fee is
correctly allocated, and the loadings are excluded during subsequent OIG audits.

Recommendation 1

We recommend that the contracting officer require the Plan to allocate medical management
costs by using verifiable allocation methods, such as member months, rather than estimates,
and exclude autism and mental health parity loadings in the FEHBP rate developments going
forward.




                                            5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group

                 , Auditor-in-Charge

                  , Auditor

                r, Auditor


                  ., Chief

                 , Senior Team Leader




                                        6
                                                    APPE:-IIlIX




                                                Coventry He alth Care , HealthAmerica
                                                3721 TecPort Drive
                                                P.O. Box 6710 3
                                                Harrisburg, PA 17106-7103
                                                July 26, 201 2

                                                                                    RECEIVED AUG 06 1011
 U.S. Office of Personnel Man agement

 Offi ce of the Inspector Gene ral -Attn: • • • • • • 

 600 C ra nberry W oods Drive

 Su ite 270

 Cranberry Township, PA 16066



           RE: Draft Audit Report 1C~SW-Oo- 1 2-o25, Contract Number CS 2078-A- Plan Code SW

Dear • • •

         T his lette r and the enc losed attachments are the comm ents of HeartMmerica Pennsylvania, Inc .
("the Pla n") rega rding Final Aud it Report 1C-SW-oo-1 2·025 (· ~he Reporf) on opera tJons of the Plan under
Fed eral Emp loye es Health Benefits Prccrem ("FEHBP-) Contr act Num ber CS 2078·A, Plan Cod e SW. for
contra~~year s   20.10 through 2Q.~ '!..:.~ _                              ,. - •       .        ._           .



Fin ding

         """' 9 recom mend lha t the contracting offi cer require the plan to exclude mental hea lth parity
         and autism loading s in th e FEHBP rate developmen ts going forward. As a resul t, thes e
         loa dings were deemed Inappropriate and remov ed from our audited FEH BP rate . However,
         due to other audit adj ustments to our FEHBP rates, thIs re moval had no cos t Impact to Ihe
         FEHBP rates:

Response

         We agree to taka thra action for our Plan site In 2013 , as ou r rates for 2012 have already bee n
subm itted and Inclu de this load ing , For 2012, there Is an adjustme nt for the loa ding.


Conclusion
       If you have any queetlo ne or require addition al information during your review of the Plan' s
response , ple ase con tact me            , Con troller,                  or               , Director of
UnderMltlng                     Please continue to add ress your corr es po
she was unavailable at the time of response.

                                                      Sincerely,




                                                      Controller
                                                      Coventry Hea lth Care, Heelthecnerlca

ce:
                   , Chief Finan cia l Offi cer
                 lrector of Underwriting , Coventry Healt h Car e, Heal thA merlca
                    , Vice Preside nt Business Development Lega l, Coventry He alth Care
                                                      APPEN DIX



 RE: Procedural Finding for Plan Code SW

 Se nt: Wednesda y, Septe mber a s, 2012 4:49 PM
 To:                     J.
 Cc




Thanks for pr oviding the updated infor mat ion regard'n g the final repo rt for the plan code SW. Thanks fo r also
providi ng t he proced ural finding that was not in the prev ious ly report ing In t he draft report . I do not have any
fu rthe r response to th at outside of agreeing to t he procedural finding.


Sert.<or u ntUwwyil:er
H~mer(..cwtlUlU:h.-\mW'"1M\UI




From:
Sent: wednesday, September 05, 20 12 1:47 PM
To:
Cc:
Subject: P




  We are in the process of completing the final report for plan code SW and we will be including the
  followi ng proc ed ur al finding that was not previo usly reported in the draft repo rt:



  "Med ica l management expenses are the operational costs incurred by the Plan and allocat ed to all
  product lines given various cost drivers associated w ith each department The operational costs and
  cost dri ver s generate a per-member per-month (PMPM) charge per prod uct line. The PMPM is
  app lied to each group as a claim s amoun t by takin g the PMPM time s each gro up's me mber months.



  Our rev iew of the operation costs incurred by the Plan and their meth odol ogy in allocating the costs
  to each product line show that the Pla n estimated the percent o f complex. case enrollmen t and did not
  equ itably allocat e the adjustment in 2010. We adju sted the co mplex case enr ollment percentages by
  lakin g the Health Maintenance Orga nization mem ber months and d ividing by the tota l fully insured
                                                  APPEI\DL\:
RE: Proced ural Finding for Plan Code SW


   mem ber month s in 2010. This adj ustment lowered the med ical management PMPM amount from
   ~ to ~in contract year ZOI O.

   The medical ma nagement expense in 20 10 was overstated by the Plan and was adjusted based on our
   analy sis of the support. Due to othe r audit adj ustments to our FEHB P rates, this loading had no cost
   impact to the FEHBP rates."




   Please review the finding above . If you would like to respond to this finding, please do so bye-mail
   by September 11,2012.

   Thank you for your time.




  -Best Rega rds,


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