,l I I US OFFICE OF PERSONNEL MANAGEMENT . OFFICE OFTHE INSPECTOR GENERAL . . OFFICE OF AUDITS .Subject: . . -~ " . ' '. . . .' . . . . Alldit···ofThe 'lIealthPlall· .()f tllcU'pper.··O hio ·Vall~y .• . .. ,.. ., ,.. ..' " .. '..•.,. .' CAUTION-- ,'.. ., ,. ,.',.,. ." .,.". . . This all~it repGrthasbeen distributedto Federal officials who are responsibleJor the administraU(llIQf the audited program;. this 1I11dit .rePort may contain proprietary datil which is protected by Fedenill,lIw (18US.G190S); therefore, while this auditrtportis available lInder the Fre~do",ofInformation Act, eaution needS to' b~ exereisedbef(lre releasing thereport 10 Ihe general public. . 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 The Health Plan of the Upper Ohio Valley Contract Number 2616 - Plan Code U4 St. Clairsville, Ohio Report No. 1C-U4-00-08-013 Date: JaD1l.at;y 23, 2009 ~~ Michael R. Esser Assistant Inspector General for Audits www.opm.goY www.usaJobs.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 The Health Plan of the Upper Ohio Valley Contract Number 2616 - Plan Code U4 St. Clairsville, Ohio Report No. lC-U4-00-08-013 Dare: Janua~y 23, 2009 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at The Health Plan oftheUpper Ohio Valley (Plan) in St. Clairsville, Ohio. The audit covered contract years 2003 through 2007 and was conducted at the Plan's office in St. Clairsville, Ohio. This report questions $516,844 for inappropriate health benefit charges in 2005, including $79,072 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. II In 2005, the Plan did not support the benefit change factor applied to a similarly sized subscriber group's rates. Accordingly, we changed the factor to "hich resulted in a " percent discount to the group. We applied that discount to the FEHBP's rates and determined that the FEHBP was overcharged $437,772 in 2005. Consistent with the FEHBP regulations and contract, the FEHBP is due $79,072 for lost investment income, calculated through December 31, 2008, on the defective pricing finding in 2005. In addition, the contracting officer should recover lost investment income on amounts due for the period beginning January 1, 2009, until all defective pricing amounts have been returned to the FEHBP. www.opm.goY www.usajobs.goY CONTENTS EXECUrfIVE SUMMARY i I. INTRODUCTION AND BACKGROUND 1 II. OBJECTIVES, SCOPE, AND METHODOLOGy 3 III. AUDIT FINDINGS AND RECOMMENDATIONS 5 Premium Rates : ' _ 5 1. Defective Pricing 5 2. Lost Investment Income , 6 3. Prescription Drug Rebate 7 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 (The Health Plan of the Upper Ohio Valley's December 10,2008, response to the draft report) I. INTRODUCTION AND BACKGROUND Introduction We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at The Health Plan of the Upper Ohio Valley (Plan). The audit covered contract years 2003 through 2007 and was conducted at the Plan's office in St. Clairsville,Ohio. The audit was conducted pursuant to the provisions of Contract CS 2616; 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 COlO), 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 health insurance carriers who 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 (Le., 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 2.500 the FEHBP. In contracting with community-rated carriers, aPM relies on 2.000 carrier compliance with appropriate laws 1,500 and regulations and, consequently, does not negotiate base rates. OPM negotiations 1.000 relate primarily to the level of coverage and other unique features of the FEHBP. 500 The chart to the right shows the number of o 2003 2004 2005 2006 2007 FEHBP contracts and members reported by 916 880 899 • Contracts 1,070 974 the Plan as of March 31 for each contract DMembers 2,282 2,083 1,963 1,872 1,941 year audited. 1 The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP members throughout Northeast and Eastern Ohio and Northern and Central West Virginia. The last full-scope audit covered contract years 2001 and 2002. There were no questioned costs identified during that audit. The preliminary results of this audit were discussed with Plan officials at an exit conference. 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 detennine whether the Plan was in compliance with the provisions of the laws and regulations governing the FEHBP. FEHBP Premiums Paid to Plan We conducted this perfonnance auditin accordance with generally accepted government auditing standards. $10 Those standards require that we plan and perfonn the $8 audit to obtain sufficient, appropriate evidence to UI provide a reasonable basis for our findings and c ~ $6 conclusions based on our audit objectives. We believe i that the evidence obtained provides a reasonable basis $4 for our findings and conclusions based on our audit $2 objectives. $0 This performance audit covered contract years 2003 tluough 2007. During this period, the FEHBP paid approximately $34.6 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 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 888Gs); 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 infonnation systems involved. However, nothing came to our attention during our 3 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 performed at the Plan's office in St. Clairsville, Ohio, during February 2008. Additional audit work was completed at our offices in Cranberry Township, Pennsylvania; Jacksonville, Florida; 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 (FEHBAR), 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'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 $437,772 The Certificate of Accurate Pricing the Plan signed for contract year 2005 was defective. In accordance with federal regulations, the FEHBP is therefore due a price adjustment for that year. We applied the defective pricing remedy for the year in question and determined that the FEHBP is entitled to a premium adjustment totaling $437,772 (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. Ifit 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. 2005 The Plan selected as the SSSGs for contract year 2005. We agree with these selections. Our analysis ofthe SSSG rates shows that _ _ did not receive a discount and eceived a . percent discount. Our review of the rate development shows that the Plan applied a to account for reductions in the group's benefit level. However, our review ofthe benefits offered to hows that the group's benefits did not decrease from the experience period to the renewal period. Therefore, we did not include t h e _ factor in our calculation of the audited rates. Since the FEHBP is entitled to a discount equivalent to the largest disco~SSSG, we recalculated the FEHBP rates using the~iscount given t o _ A comparison of the audited rates to the reconciled rates shows that the FEHBP was overcharged $437,772 in contract year 2005 (see Exhibit B). Plan's Comments (See Appendix): The Plan states that a . as applied to rates during the request for renewal process to account for the addition of several new ~o its rating area. H o w e v e r , _ o u l d not allow the Plan to add the new _ u n t i l . nitiated a new request for proposal process. Since would not allow the Plan to subsequently alter its proposed renewal rates to remove the the Plan believes that it does not owe the FEHBP any additional premium for 2005. 5 OIG's Response to the Plan's Comments: According to correspondence provided by the Plan, both a standard bid and an alternate bid, which added to the were presented to Both the standard bid rates and the alternate bid rates were the same. Therefore we contend that the Plan intended to bill ates that reflected an adjustment, or the standard and alternate bids would have produced different rates. Accordingly, we do not accept the Plan's contention that it would have adjusted the proposed renewal rates to remove the _ _ As a result, we continue to recommend that the FEHBP rates be adjusted by the. percent discount offered t~ Recommendation 1 We recommend that the contracting officer require the Plan to return $437,772 to the FEHBP for defective pricing in 2005. 2. Lost Investment Income $79,072 In accordance with the FEHBP regulations and the contract between aPM and the Plan, the FEHBP is entitled to recover lost investment income on the defective pricing finding identified in contract year 2005. We determined that the FEHBP is due $79,072 for lost investment income, calculated through December 31, 2008 (see Exhibit C). ]n addition, the FEHBP is entitled to lost investment income for the period beginning January 1, 2009, until all defective pricing amounts have been returned to the FEHBP. 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 were not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount ofthe overcharge caused by the defective data. In addition, when die nltes are reduced due to defective pricing, the regulations state 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. We calculated the lost investment income amount based on the United States Department of the Treasury's semiannual cost of capital rates. Plan's Comments (See Appendix): The Plan believes its response results in the elimination of the lost investment charge. OIG's Response to the Plan's Comments: Lost investment income should be calculated on the defective pricing amounts actually due the FEHBP. Therefore, our lost investment income calculation is based on the defective pricing amounts discussed in this report. 6 • Recommendation 2 We recommend that the contracting officer require the Plan to return $79,072 to the FEHBP for lost investment income calculated through December 31, 2008. In addition, we recommend that the contracting officer recover lost investment income on amounts due for the period beginning January 1,2009, until all defective pricing amounts have been returned to the FEHBP. 3. Prescripton Drug Rebate In every year of our audit, the Plan's prescription drug rating methodology correctly included an adjustment factor f o r _ . The adjustment is based on a May 7, 2001, letter from an actuarial c~tated on a ~asis, but the Plan applies it on a basis. The same factor was used in the 2003 through 2007 rate developments for the groups reviewed. Since the information the Plan is using to calculate the~:!~!5:5;~is~s~e~v:er~a~1years old, the Plan should update this information. Furthermore, the should be based on received by the Plan. Finally, since the Plan applies the basis, the rebate supporting calculation should also be on a_basis, not a _ basis. Plan's Comments (See Appendix): The Plan did not address this issue in its response. Recommendation 3 We recommend that the Contracting Officer direct the Plan to update its prescription drug rebate amOlUlt. The amount should be based on actual prescription drug rebates received by the Plan and it should be applied on the basis of actual prescription drug benefit usage. 7 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group Auditor-In-Charge Auditor Chief 8 Exhibit A The Health Plan of the Upper Ohio Valley Summary of Questioned Costs Defective "fricing Questioned Costs: Contract Year 2005 $437,772 Total Defective Pricing Questioned Costs $437,772 Lost Investment Income on Defective Pricing Findings $79,072 Total Questioned Costs $516,844 Exhibit B The Health Plan of the Upper Ohio Valley Defective Pricing Questioned Costs Contract Year 2005 Per Plan's Reconciliation 1. Actual Community Rate· i/1l2005 2. Special Benefit Loadings 2a. Prescription Drugs 3. Community Rate plus Special Benefit Loadings 4. Standard Loadings 4a. Extension of Coverage. 0.004 x 30% 4d. Community rate + Spec. Ben. & Standard Loadings 4e. Enrollment Discrepancies Loading - 1% 5. TOTAL FEHBP Rates 2005 $150.73 $346.68 Contract Year 2005 Self Family Per Audit 1. Actual Community Rate - 111/2005 2. Special Benefit Loadings 2a. Prescription Drugs }".'COIpmunity Rate plus Special Benefit Loadings 4. Standard Loadings 4a. Extension of Coverage - 0.004 x 30% 4d. Community rate + Spec, Ben. & Standard Loadings 4e. Enrollment Discrepancies Loading - 1% 5. TOTAL FEHBP Rates 2005 $150.73 $346.68 Sa. TOTAL FEHBP Rates 2005 (with SSSG Discount) Overcharge To Annualize Overcharge: x 3/31/05 Enrollment per Headcount x Pay Periods 26 26 Subtotal $111,994 $325,778 $437,772 TOlal2005 Defective Pricing Questioned Costs $437,772 ExhibitC The Health Plan of the Upper Ohio Valley Lost Investment Income Year 2005 2006 2007 2008 Total Audit Findings: 1. Defective Pricing $437,772 $0 $0 $0 $437,772 Totals (per year): $437,772 $0 $0 $0 $437,772 Cumulative Totals: $437,772 $437,772 $437,772 $437,772 $437,772 Avg. Interest Rate (per year): 4.375% 5.4375% 5.5000% 4.9375% Interest on Prior Years Findings: $0 $23,804 $24,077 $21,615 $69,496 Current Years Interest: $9,576 $0 $0 $0 $9,576 Total Cumulative Interest Calculated Through December 31, 2008: $9,576 $23,804 $24,077 $21,6151 $79,072 St. Clairsville Office HomeTown Office Appendix 52160 National Road East 100 Lillian Gish Boulevard St. Clairsville, OH 43950·9365 P.O. Box 4816 PH: 1.800.624.6961 Massillon,OH 44648-4816 Hearing Impaired: 1.800.622.3925 PH: 1.877.236.2289 FAX: 740.699-6163 www.heallhplan.org OftlfJfiC9lrrrairpH ~1Illt4j6.2291 ""AX. ~~~7.6869 www.heallhplan.org Commercial HMO Medicare HMO December 10, 2008 'U4-oo -OB-Ol3 Chief, Community-Rated Audits Group V.S. Office of Personnel Management ',. Office of the Inspector General .' 1900 E Street, NW Room 6400 Washington, D.C. 20415-1100 RE: Response to the FEHBP draft audit report The Health Plan of the Upper Ohio Valley, Inc. (U4) Dear_ I have prepared the response to the audit perforrhed by Deleted by the OIG Not Relevant to the Final Report In res oose to the 200S fiodi" s: rate development for 2005 was reduced by a factor o f _ due to The Health Plan's anticipation of the addition of s e v e r a l _ t o the Health Plan service area brought about by their prior purchase of Hometown ~n Northeast Ohio. The underwriter used an adjustment factor_that was applied to the group's incurred claim's experience. In the ACR model, the only area that can be used that affects the premium development for a 100% credibility group is the Benefit Plan Factor column. The underwriter simply applied this aggregate area adjustment factor to the paid claims in order to price the group going forward assuming the addition of the new Health Plan that had a significantly lower area adjustment factor (see attached) due to factors in those former HomeTown HT counties. The Health Plan operated under the false assumption that we would be offered to ccount in all counties that we possessed a Once the rates were presented to account through their Request for Renewal process we were not permitted to alter the renewal premiums that we proposed. The Health Plan subsequently learned from ccount that we could only annex our new counties whe~id a Request for Proposal, and not the Request for Renewal process. Thus, the new counties were not annexed, but the rate was considered final by ccount. Based on this response to the 2005 findings, The Health Plan believes there should be no financial penalty, which would eliminate the lost investment income. Please consider the above response from The Health Plan. If you find you need more information or have any questions, please contact me at or by email at cc:
Audit of the Health Plan of the Upper Ohio Valley
Published by the Office of Personnel Management, Office of Inspector General on 2009-01-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)