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, Email Confidentia lity Notice: The info rmation contained in this transm ission is confiden tial, propr ietary or privileg ed and ma y be subj ect to protectio n under the law, including the He alth Insurance Portabil ity and Acc ounta bility Act (HIPAA). The message is intended for the sole use of the individual or entity to whom it is addressed. If you are not the intended recipient, you are noti fied that any use, distribution or copying of the message is strictly prohibited and may subj ect you to crimina l or civil penaltie s. If yo u rece ived this transmiss ion in error, please co ntact the sender immed iately by replying to this email and de lete the material from any computer.
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)