oversight

Audit of the Federal Employees Health Benefits Program Operations at the Health Plan of the Upper Ohio Valley, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2015-02-20.

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 THE 

            HEALTH PLAN 0 F THE UPPER 0 HI0 VALLEY, IN C. 


                                            Rep o rt Numbe r 1C-U4-00-14-038 

                                                     February 20, 2015 





                                                              --CAUTION -­
This audit r epot·t has been distributed to Federal officials who are n sponsible for the administration of the audited program. T his audit report may
contain pt·opl'ietat·y data which is protected by Federal l aw (18 U.S.C. 1905). Therefot·e, while this audit report is available undet· the Freedom of
Information Act and made available to the public on t he OIG webpage (http:lhmmv.opm.govl our-iu spector-geuernl), caution needs t o be exer cised
before releasing the t·epot·t to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
           EXECUTIVE SUMMARY 

             Audit ofthe Federal Employees Health Benefits Program Operations at 

                         The Health Plan            Ohio Vc      Inc. 



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

The objectives of om audit were to       This report questions $2,144,107 for inappropriate health benefit
detennine if The Health Plan of the      charges to the FEHBP in contract years 2008 an d 2010. The
Upper Ohio Valley, Inc. (Plan)           questioned am mmt includes $ 1,940,249 for defective pricing and
offered the Federal Employee Health      $203 ,858 due the FEHBP for lost investment income, calculated
Benefits Program (FEHBP) market          through Janumy 31, 2015. While rating discrepancies were
price rates and that the loadings        identified in contract year 2009, we fmmd that there was no
applied to the FEHBP rates were          material cost impact to th e FEHBP rates for that yem·.
reasonable and equitable. Additional
tests were perf01m ed to dete1mine       Additionally, in contract yem·s 2008 through 2010, we found that
whether the Plan was in compliance       the Plan did not maintain original somce documentation to supp01t
with the provisions of the laws and      its rate developments of the Similarly Sized Subscriber Groups
regulations goveming the FEHBP.          (SSSGs) as required by Section 3.4 of its FEHBP contract.

What Did We Audit?                       Finally, the Plan does not have adequate rating system controls to
                                         ensme that the SSSGs an d the FEHBP are rated consistently and
Under contract 2616, the Office of the   that the FEHBP receives a mm·ket price rate.
Inspector General (OIG) completed a
perf01mance audit of the FEHBP's
rates offered for contract years 2008
through 2010. Om audit was
conducted from April 28, 20 14
through May 9, 2014 at the Plan's
office in St. Clairsville, Ohio.




Michael R. Esser
Assistant Inspector General
for A udits
                ABBREVIATIONS

ACR      Adjusted Community Rating
CFR      Code of Federal Regulations
FEHBP    Federal Employees Health Benefits Program
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FY       Fiscal Year
HMO      Health Maintenance Organization
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
PPO      Preferred Provider Organization
PLAN     The Health Plan of the Upper Ohio Valley, Inc.
SSSG     Similarly Sized Subscriber Group
U.S.C.   United States Code




                               ii
                                TABLE OF CONTENTS 


                                                                                                                            Page 

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


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


I. 	     BACK GROUND .......................................................................................................... 1 


II. 	    OBJECT IVES, SCOPE, AND METHODOLOGY ..................................................3 


III. 	   AUDIT FINDINGS AND RECO MMENDATIONS.................................................5 


         Prenlimn Rate Review ......................................... .......................................................... 5 


         1. Defective Pricing .....................................................................................................5 


         2. Lost Investrnen t Income ......................................................................................... 11 


         3. Record Retention ................................................................................................... 12 


         4. Rat ing System Contr·ols ......................................................................................... 12 


IV. 	    MAJOR C ONTRIBUTORS TO TillS REPORT .................................................. 15 


         Exhibit A (Summruy of Questioned Costs) ....................................................... .......... 16 


         Exhibit B (Defective Pricing Questioned Costs) ......................................................... 17 


         Exhibit C (Lost Investment Income) ................ ............................................................ 18 


         Appendix (The Health Plan 's November 25 , 2014 response to the draft rep01t) ........ 19 


         REPORT FRAUD, WAST E, AND MI SMANAGEMENT ....................................25 

                                I. BACKGROUND 



This final rep01t details the findings, conclusions, and recommendations resulting from om audit
of the Federal Employees Health Benefits Program (FEHBP) operations at The Health Plan of
the Upper Ohio Valley, Inc. (Plan). The audit covered contract years 2008 through 2010, an d
was conducted at the Plan 's office in St. Clairsville, Ohio.

The audit was conducted pmsuant to FEHBP contract CS 26 16; 5 U.S .C. Chapter 89; and 5 Code
of Federal Regulations (CFR) Chapter 1, Part 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.

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 insmance
benefits for Federal employees, annuitants, and dependents. The FEHBP is administered by
OPM's Healthcar e and Insmance Office. Health insman ce coverage is provided through
contracts with health insmance caniers that provide service benefits, indemnity benefits, or
comprehensive medical services.

Commlmity-rated can iers participating in the FEHBP are subject to various Federal, state and
local laws, regulations, and ordinances. While most caniers are subject to state j m isdiction,
many are fmther subject to the Health Maintenance Organization Act of 1973 (Public Law 93­
222), as amended (i.e. , many community-rated can iers are Federally qualified) . In addition,
pmt icipation in the FEHBP subjects the cmTiers to the Federal Employees Health Benefits Act
and implementing regulations promulgated
by OPM .                                                     FEHBP Contracts/Members 

                                                                                 Marc h 31 


The FEHBP should pay a mm·ket price rate,                  2,500 ,/
                                                                                                               r=
which is defmed as the best rate offered to
either of the two groups closest in size to the            2,000     v       --                 ~
                                                                                                                     r-­

FEHBP. In conu·acting with comrmmity­
rated cmTiers, OPM relies on catTier                       1,500     v-                                              1-­


complian ce with appropriate laws an d
regulations an d, consequently, does not                   1,000     v ,.­                 .­                        1-­


negotiate base rates. OPM negotiations
                                                             500     v              1--­             -               r-­
relate primm·ily to the level of coverage and
other lmique features of the FEHBP.                            0 /
                                                                                    1--­             r--­
                                                                                                                     7
                                                                         2008               2009            2010
                                                      ID Contracts        955               964             1,052
The chmt to the right shows the number of             Ia Members         2,089              2, 095          2, 297
FEHBP conu·acts and members rep01t ed by


                                                  1                                        Rep01t N o. 1C-U4-00-14-038
the Plan as of March 31 for each contract year audited.

The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP
members in Northeast and Eastern Ohio, and Northern and Central West Virginia. The last audit
conducted by our office was a rate reconciliation audit and covered contract year 2011. There
were no issues identified during that audit.

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




                                                 2                          Report No. 1C-U4-00-14-038
 II. OBJECTIVES, SCOPE, AND METHODOLOGY


Objective
The primaty objectives of the audit were to detennine if the Plan offered the FEHBP market
price rates and that the loadings to the FEHBP rates were reasonable and equitable. Additional
tests were perf01med to detetmine whether the Plan was in complian ce with the provisions of the
laws and regulations goveming the FEHBP.

Scope
We conducted this perfon nance audit in
                                                                    FEHBP Premi ums Paid to Plan
accordance with generally accepted govemment
auditing stan dards. Those standar ds require that
                                                                 $12
we plan and perf01m the audit to obtain sufficient,                                                    ,......__
                                                                 $10
appropriate evidence to provide a reasonable basis                                                                 -
                                                      ~           $8
for our findings an d conclusions based on our
audit objectives. We believe th at th e evidence
                                                      .Q

                                                      :ll         $6
                                                                         1­                                        -
obtained provides a reasonable basis for our                      $4
                                                                         r­                                        -
                                                                  $2
                                                                         r­                                        -
findings an d conclusions based on our audit                             ....._                                    r-­
objectives.                                                       $0
                                                                                  2008      2009   I   2010
                                                            lc Revenue            $8.4      $8.4   I   $10.3
This perfon nance audit covered contract years
2008 through 2010. For th ese years, th e FEHBP
paid approximately $27 million in premiums to
th e Plan.

OIG audits of community-rated can iers are designed to test catTier compliance with the FEHBP
contract, applicable laws and regulations, and the rate instructions . These audits are also
designed to provide reasonable assurance of detecting en ors, inegularities, an d illegal acts.

We obtained an understanding of the Plan 's intem al contr·ol structure, but we did not use this
inf01mation to detetmine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan 's rating system and such oth er auditing procedures
considered necessaty lmder th e circmnstan ces. Our review of intem al contr·ols 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 mru·ket price rates (i.e., equivalent to the best
           rate offered to the SSSGs); an d



                                                 3	                                      Rep01i No. 1C-U4-00-14-038
        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
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 in April and May
2014.

Methodology
We examined the Plan’s Federal rate submission 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 the rate instructions 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.




                                                 4                           Report No. 1C-U4-00-14-038
III. AUDIT FINDINGS AND RECOMMENDATIONS 


Premium Rate Review

1. Defective Pricing                                                                  $1,940,249

  The Ce1iificates of Accmate Pricing The Health Plan of Upper Ohio Valley, Inc. (Plan)
  signed for contract years 2008 and 2010 were defective. In accordance with Federal
  regulations, the FEHBP is therefore due a rate reduction for these years. Application of the
  defective pricing remedy shows that the FEHBP is due a premium adjustment of $1,940,249
                                (see Exhibit A). While rating discrepancies were identified in
     The FEHBP is due a         contract year 2009, we fmmd that there was no material cost
       rate reduction of        impact to the FEHBP rates in that year.
        $1,940,249 for
     defective pricing in       Federal Employees Health Benefits Acquisition Regulation
     contract years 2008        (FEHBAR) 1652 .2 15-70 provides that caniers proposing rates to
           and 2010.            OPM are required to submit a Ce1i ificate of Accm ate Pricing
                                ce1iifying 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. SSSGs are the Plan's two
  employer groups closest in subscriber size to the FEHBP. If it is fmmd that the FEHBP was
  charged higher than the market price rate (i.e. , best rate offered to an SSSG), a condition of
  defective pricing exists, requiring a downward adjustment of the FEHBP premimns to the
  equivalent market price rate.




  We agree with the Plan's selection                                                     as
  SSSGs for contract year 2008 . The FEHBP and
  Adjusted Commlmity Rating (ACR) methodology                                   was rated
  using a blended ACR and Commlmity Rating by Class methodology. The Plan did not apply
  an SSSG discount to the FEHBP rates. Om analysis of the rates charged to the SSSGs shows
  that the                 received a -        discount.                             did not
  receive a discount.

  The Plan sold the                   three benefit options; however, the
  rate development did not accmmt for benefit option differences in the claims experience. In
  addition, each option had a deductible change that was not accounted for in the claims
  experience. Finally, we found that the                      medical claims and em ollment
  inf01mation used in the rate development did not match the supp01iing documentation. After



                                            5                              Rep01i No. 1C-U4-00-1 4-038
adjusting our audited rate development using the supported claims and enrollment numbers
and adjusting for the benefit differences, we determined that the                received a
             discount.

During our review of the FEHBP rates, we found that the claims and enrollment data used in
the Plan’s FEHBP rate development did not match the reports generated at the time of rating.
In addition, we found that the Plan applied an FEHBP pharmacy trend factor that was lower
than the state-filed pharmacy trend factor that was correctly applied to the SSSGs. We
updated the claims, enrollment and pharmacy trend factor in our FEHBP audited rates.

We recalculated the FEHBP rates based on the exceptions noted above and applied the SSSG
discount of               to our audited rates. A comparison of our audited line 5 rates to the
Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $140,296 (see Exhibit
B).

Plan’s Comments (see Appendix):

                  Option Differences
The Plan did not comment on this issue.

                  Deductible Change
The Plan agrees that the $100 deductible benefit should be accounted for in the
           claims experience. However, the Plan believes that the relative change is
       averaged over all of the experience.

                  Claims and Enrollment Data
The Plan did not comment on claims and enrollment data variances between their 2008
            rate development and the source documentation.

FEHBP Claims and Enrollment Data
The Plan did not comment on claims and enrollment data variances between their 2008
FEHBP rate development and the source documentation.

Pharmacy Trend Differences
The Plan agrees that the             Pharmacy trend should be applied consistently to the
FEHBP and the                     if the auditors are applying a                 generated
discount to the FEHBP rates.




                                             6                           Report No. 1C-U4-00-14-038
2008 Questioned Costs
The Plan disagrees with the questioned costs in 2008. Based on their position, the Plan
contends that they owe the FEHBP $18,959 in contract year 2008.

OIG’s Response to the Plan’s Comments:

                   Deductible Change
Prior to the issuance of the draft report, we accounted for the                  experience
period deductible change. Per the Plan’s rate filing, the applicable benefit change for a $100
deductible is              , which we applied to the three months of experience when the $100
deductible was available to                     members. We do not agree with the Plan’s
calculation of the $100 deductible adjustment. The Plan did not use the filed benefit change
factor of             , instead using an unsupported factor of            . Additionally, the
Plan weighted the benefit change over a full year of claims experience, instead of the benefit
change being applied to the three months of claims experience when the $100 deductible was
applicable.

Pharmacy Trend Differences
Prior to issuance of the draft report, we applied the           pharmacy trend to the FEHBP
pharmacy rate to be consistent with the Plan’s 2008 rating of the                  .

2008 Questioned Costs
Our audit documentation accounts for the $100 deductible change for the
rate development. Additionally, the application of the            pharmacy trend factor in
the FEHBP and                     rate developments is consistent. The Plan was unable to
provide any further evidence that would dismiss our findings in the draft report for contract
year 2008. Thus, we continue to question $140,296 in contract year 2008 (see Exhibit B).

2010

We agree with the Plan’s selection of                              and
             as SSSGs for contract year 2010. The FEHBP and the SSSGs were rated using
ACR. The Plan provided an “other” discount of approximately                to the proposed
2010 FEHBP rates. The Plan was notified by OPM on July 23, 2009 that they will not be
allowed to recoup the “other” discount in the 2010 reconciliation. The Plan did not apply an
SSSG discount to the FEHBP rates. Our analysis of the rates charged to the SSSGs shows
that                             received a             discount and
             received an               discount.

The Plan sold                            two products, a Health Maintenance
Organization (HMO) and a Preferred Provider Organization (PPO) product. The Plan rated


                                             7                           Report No. 1C-U4-00-14-038
this group as one product with combined experience, but did not adjust the experience to
account for the product benefit differences. In addition, the HMO product had a preventative
benefit change that was not accounted for in the experience. To account for the cost of each
product, we used the Plan’s HMO experience to re-rate the HMO product and the Plan’s PPO
experience to re-rate the PPO product. We made the adjustment for the preventative benefit
change in the HMO experience as outlined by the group’s benefit brochure and made the
renewal benefit adjustments for each product as outlined by their respective benefit brochures.

In addition, the Plan’s catastrophic claims policy is to pool claims and apply a pooling charge
to groups with less than 500 covered lives.                                 had 517 covered
lives and did not qualify for pooling; however, the Plan pooled claims for this group and
applied a pooling charge. In accordance with the Plan’s rating methodology, we removed the
catastrophic pooled claims and the pooling charge from our
audited rate development. Additionally, the $174,883 in claims that the Plan removed from
the FEHBP rates due to member termination were added back into the FEHBP rate for
consistency.

Finally, the Plan could not support the use of an      medical trend factor used in
                                rate development. We applied an             trend rate,
which was used consistently for the FEHBP and                             .

We recalculated the FEHBP rates applying the largest SSSG discount of                    to our
audited rates. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates
shows that the FEHBP was overcharged $1,799,953 (see Exhibit B).

Plan’s Comments (see Appendix):

                               SSSG Status
The Plan states that                                is not an appropriate SSSG due to the fact
that over 50 percent of the covered lives are enrolled in a PPO product which was
underwritten by The Health Plan Insurance Company in 2010.

                            Product Benefit Differences
The Plan did not comment on this issue.

                              HMO Preventative Benefit Change
The Plan agrees that                               HMO product should receive an
adjustment for the preventative benefit change. However, they contend that the preventative
benefit change was accounted for in the 2010 HMO trend factor applied to the group.




                                             8                           Report No. 1C-U4-00-14-038
                               Pooling
The Plan agrees that per the underwriting policy, groups with less than 500 covered lives pool
their catastrophic claims and in exchange receive a pooling charge. The Plan also states that
at their discretion they may pool catastrophic claims and apply a pooling charge to large
groups (greater than 500 lives) if the group requests the adjustment.

FEHBP Member Termination
The Plan states that they removed $174,883 of catastrophic claims from the 2010 FEHBP
renewal without a corresponding pooling charge, which represents a discount to the FEHBP
rate that was not afforded the SSSGs.

                               Trend Rates
The Plan disagrees with the use of the            trend rate applied to
              audited rate. Due to the timing of                                     rate
development, the Plan states that they used an updated rate filing.

                              Discount
The Plan agrees that they discounted                               , but states that the
discount was             effective on the PPO product only.

                             Discount 

The Plan disagrees with the discount calculated on                              .


2010 Questioned Costs
The Plan disagrees with the questioned costs in 2010. Based on their position, the Plan
contends that they owe the FEHBP $70,341 in contract year 2010.

OIG’s Response to the Plan’s Comments:

                               SSSG Status
The Health Plan Insurance Company does not meet the criteria to be considered a separate
line of business. Additionally, the Plan was aware, prior to
2010 renewal, that the group met the criteria to be selected as an SSSG and elected them as
such in the 2010 Proposal on the Potential SSSG listing, and again in the 2010 Reconciliation.
                               qualifies as an SSSG in 2010.

                               HMO Preventative Benefit Change
The Plan is unable to support that                             HMO preventative benefit
change is accounted for in the HMO trend factor.




                                             9                            Report No. 1C-U4-00-14-038
                              Pooling
The Plan removed                                     catastrophic claims and applied a pooling
charge at the group’s request and at the Plan’s discretion. This action was contrary to the
Plan’s pooling policy. Additionally, the Plan was aware prior to
                2010 renewal that the group met the criteria to be an SSSG and that they
should no longer apply pooling to the group. In accordance with the Plan’s rating
methodology, the catastrophic claims were added back into
rate and the pooling charge was removed, for SSSG discount calculation purposes.

FEHBP Member Termination
To be consistent with                                 rating, we added the $174,883 in
claims back into the FEHBP rate development. In the 2010 reconciliation, the Plan explained
that these claims were related to member termination.

                                Trend Rates
The Plan was unable to support the               HMO trend and               PPO trend that
they blended to arrive at an overall          trend for                                 2010
rating. Based on the rate filings we received from the Plan and the OPM rating criteria, we
applied the             trend to                              , as was applied to the FEHBP
and                               .

                              Discount
We disagree with the Plan’s calculation of the                                  effective
discount of           . We maintain that the discount given to
was              .

                            Discount
The Plan was unable to provide any additional documentation to counter the
discount we calculated on the 2010                            rate.

2010 Questioned Costs
We adjusted the audited FEHBP workbook to account for the $174,883 in claims previously
removed by the Plan to account for terminated members. We re-developed the FEHBP’s
rates by applying the                                          discount to the line 5
FEHBP rates. We continue to question $1,799,953 in contract year 2010 (see Exhibit B).




                                            10                           Report No. 1C-U4-00-14-038
  Recommendation 1

  We recommend that the contracting officer require the Plan to retum $ 1,940,249 to the 

  FEHBP for defective pricing in conu·act years 2008 and 2010. 


2. Lost Investment Income                                                                   $203,858

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

  FEHBP is entitled to recover lost inveshnent income on the defective 

                                                                          The FEHBP is due
  pricing fmdings in conu·act years 2008 and 2010. We detennined the       lost investment
  FEHBP is due $203,858 for lost inveshnent income, calculated           income on defective
  through Januaty 3 1, 201 5 (see Exhibit C). In addition, the FEHBP is
                                                                          pricing findings in
  entitled to lost inveshnent income for the period beginning
                                                                            the amount of
  Febmaty 1, 201 5, until all defective pricing amounts have been              $203,858.
  retumed to the FEHBP.

  FEHBAR 1652.215-70 provides that, if any rate established in connection with th e FEHBP 

  conu·act was increased because the catTier fumished cost or pricing data that was not 

  complete, accurate, or cmTent as certified in its Ce1i ificate of Accurate Pricing, the rate shall 

  be reduced by the amount of the overcharge caused by the defective data. In addition, when 

  the rates are reduced due to de fective pricing, the regulation states that the govemment is 

  entitled to a reftmd and simple interest on the am mmt of the overcharge from the date the 

  overcharge was paid to the catTier until th e overchat·ge is liquidated. 


  Our calculation of lost inveshnent income is based on the United States Depatiment of the 

  Treasmy 's semiaimual cost of capital rates. 


  Plan's Comments (see Appendix):

  The Plan agrees that an adjushnent to lost investment income should be made based on the 

  adjusted fmdings; however, the Plan did not express an opinion on the am mmt of lost 

  inveshnent income due. 


  Recommendation 2

  We recommend that the conu·acting officer require the Plan to retum $203 ,858 to the FEHBP 

  for lost investment income, calculated through J anuaty 3 1, 201 5. We also recommend that 

  the conu·acting officer recover lost inveshnent incom e on am mmts due for the period 

  beginning Febmaty 1, 2015, until all defective pricing amounts have been retumed to the 

  FEHBP. 




                                                 11                           Rep01i N o. 1C-U4-00-1 4-038
3. Records Retention

  The Plan did not comply with the records retention clause of its FEHBP contract. After
  several requests, the Plan could not provide sufficient and appropriate documentation to
  support the 2008                             age/gender adjustments, the 2009
  age/gender adjustments, and the 2010                                   medical trend factor.
  Although we ultimately developed audited rates using alternative methods, the FEHBP
  contract requires the Plan to retain and make available all records supporting its rate
  submissions for a period of six years after the end of the contract term to which the records
  relate.

  Plan’s Comments (see Appendix):

  The Plan agrees to maintain original documents for future audits.

  Recommendation 3

  We recommend that the contracting officer assess the maximum penalty allowed in the
  contract between OPM and the Plan for the Plan’s non-compliance with the records retention
  clause.

  In addition, we recommend that the contracting officer inform the Plan that:

  		 OPM expects it to fully comply with the records retention provision of the contract and all
      applicable regulations;

  		 it should maintain copies of all pertinent rating documents that show the factors and
      calculations the Plan uses in developing the actual rates for the FEHBP and the groups
      closest in size to the FEHBP for each unaudited year; and

  		 the applicable community-rated performance factors described in FEHBAR 1609.7101-2
      will be enforced if information requested during an audit is not provided.

4. Rating System Controls

  The Plan does not have adequate rating system controls to ensure that the FEHBP and groups
  closest in size are rated consistently and in accordance with the Plan’s standard rating
  methodology. This condition is mostly due to the following rating system control
  weaknesses:




                                               12 	                        Report No. 1C-U4-00-14-038
Separation of Duties
The Plan’s marketing department is responsible for both the sale and pricing of employer
group products. This is an internal control weakness in the Plan’s rating system that may lead
to improper rate application, inconsistent rate development and non-compliance with the
Plan’s standard rating methodology.

Insufficient Rating System Policies and Procedures
The Plan’s rating system policies and procedures are outdated and are not always followed
consistently. The Plan provided its 2003 underwriting and rating manual to document its
current rating methodology. According to the Plan, it has had very little turnover in the
marketing department and its rating policies and procedures are known by staff. However,
we found that these policies were not followed consistently among all groups reviewed. For
example, although the Plan’s stated policy was to adjust for benefit changes in the claims
experience used in pricing groups, the adjustment was not always applied. In another case,
the Plan removed catastrophic claims from a 500+ life group and applied a pooling charge,
contrary to the Plan’s rating policies that stated groups over 500 lives do not receive a
catastrophic claim adjustment.

Rate Review Process
The Plan’s group rating system and group rate development does not include an underwriting
review process to minimize the risk of errors or non-compliance with internal policies and
procedures.

Failure to correct these issues may result in: 1) the FEHBP receiving a defective price; 2) the
potential for inaccurate or inconsistent pricing of the FEHBP rates; and, 3) the potential for
future inaccurate and inconsistent calculations and reporting of OPM’s new medical loss ratio
methodology requirements.

Plan’s Comments (see Appendix):

Separation of Duties
The Plan states that they will be working on reorganization of the Marketing and
Underwriting departments in 2015.

Rating System Policies and Procedures
The Plan states that they will be implementing updated written policies and procedures for
their large groups by December 31, 2014.




                                             13                          Report No. 1C-U4-00-14-038
Rate Review Process
The Plan contends that they have adequate rating system controls to ensure that the FEHBP
and the groups closest in size are rated consistently and receive sufficient review.

Recommendation 4

We recommend that the contracting officer require the Plan to submit a corrective action plan
within 60 days of final report issuance, which addresses actions taken to mitigate internal
control weaknesses related to its rating system.

Recommendation 5

We also recommend that the contracting officer require the Plan to develop and implement
updated written rating policies and procedures.




                                            14                         Report No. 1C-U4-00-14-038
  IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

           , Auditor-in-Charge

         , Lead Auditor

           , Lead Auditor


          , Senior Team Leader

           , Chief




                                 15   Report No. 1C-U4-00-14-038
                                   EXHIBIT A




                 The Health Plan of the Upper Ohio Valley, Inc.
                        Summary of Questioned Costs



Defective Pricing Questioned
Costs


         Contract Year 2008                          $140,296
         Contract Year 2010                         $1,799,953


         Total Defective Pricing Questioned Costs                       $1,940,249


Lost Investment Income                                                    $203,858


Total Questioned Costs                                                  $2,144,107




                                             16                  Report No. 1C-U4-00-14-038
                                     EXHIBIT B




                   The Health Plan of the Upper Ohio Valley, Inc.
                        Defective Pricing Questioned Costs


Contract Year 2008
                                                Self   Family
FEHBP Line 5 - Reconciled Rate
FEHBP Line 5 - Audited Rate

Bi-weekly Overcharge

To Annualize Overcharge:
   March 31, 2008 enrollment
   Pay Periods                                  26       26
Subtotal                                                                 $140,296

Contract Year 2010
                                                Self   Family
FEHBP Line 5 - Reconciled Rate
FEHBP Line 5 - Audited Rate

Bi-weekly Overcharge

To Annualize Overcharge:
   March 31, 2010 enrollment
   Pay Periods                                  26       26
Subtotal                                                                $1,799,953

Total Defective Pricing Questioned Costs                                $1,940,249




                                           17                   Report No. 1C-U4-00-14-038
                                                                         EXHIBIT C


                                                    The Health Plan of the Upper Ohio Valley, Inc.
                                                              Lost Investment Income


  Year                                    2008        2009       2010        2011      2012      2013      2014     January 31, 2015     Total
Audit Findings:

1. Defective Pricing                     $140,296      $0      $1,799,953     $0        $0        $0        $0            $0           $1,940,249



                   Totals (per year):    $140,296    $0    $1,799,953     $0         $0         $0         $0              $0             $0
                  Cumulative Totals:     $140,296 $140,296 $1,940,249 $1,940,249 $1,940,249 $1,940,249 $1,940,249      $1,940,249         $0

        Avg. Interest Rate (per year):   4.9375%     5.2500%   3.1875%      2.5625%   1.8750%   1.5625%   2.0625%       2.1250%

     Interest on Prior Years Findings:     $0        $7,366     $4,472      $49,719   $36,380   $30,316   $40,018        $3,436        $171,707

               Current Years Interest:    $3,464       $0       $28,687       $0        $0        $0        $0            $0            $32,151


 Total Cumulative Interest Calculated
          Through January 31, 2015:       $3,464     $7,366     $33,159     $49,719   $36,380   $30,316   $40,018        $3,436        $203,858




                                                                             18                             Report No. 1C-U4-00-14-038
                                         APPENDIX 



                                                                               November 25 , 2014
Deleted b OIG-Not Relevant to Final Re art
U.S. Office of Pers01mel Management
Office of Inspector General
800 Cranbeny Woods Drive
Suite 270
Cranbeny Township, Pennsylvania 16066


Response to draft repOii for FEHBP.

Deleted b OIG-Not Relevant to Final Re art

The Health Plan of the Upper Ohio V
defective pricing for 2008 and 2010

The Health Plan provides the following documents and facts that rebut the findings in your letter
of September 30, 2014:

2008 Deleted b OIG-Not Relevant to Final Re art

Finding: The Health Plan did not take into account the benefit ootton differences or benefit
changes in the claims experience period for the 2008                  renewal.

Facts and Observations: The                       did in fact have a deductible change in July,
2007 to $100 (across all three                 options). The experience period used in the
audited ACR model calculation contained 3 months of claims that had no benefit deductible.
Consequently, the last 9 m onths of claims used in the ACR model were reflective of the $ 100
deductible benefit and claims. Based upon that, a Benefit Plan Factor adj ustment would need to
have been used to adjust (lower) the claims to account for the $ 100 deductible not in force (3 of
12 months) during the experience period.




Deleted by OIG-Not Relevant to Final Report




                                              19                     Rep01i No. 1C-U4-00-14-038
                                                        The Health Plan's recalculation represents a
minor miscalculation which only provided                discount to the medical component of The
-                2008 renewal rather than              . This would reduce the FEHBP calculation of
~-to -.
Finding: The Health Plan applied an FEHBP phannacy u·end factor that was lower than the
state-filed phannacy u·end factor that was conectly applied to the SSSGs.

Facts and Ob~hannacy u·end factors comp ared between the FEHBP Rx ACR
model and th e - Rx ACR model differ due to the point in time in which each
group's renewal was developed. The FEHBP 2008 premium was developed in May 2007; while
the SSS                    2008 premium renewal was not developed until March 2008 . In
                         and approved Rx u·end factor was .    . The Health Plan ' s 2008 Rx
             were not filed and          by State regulators until the fomih quarter of 2007 .
             Rx u·end factor        been       the FEHBP Rx premium would have increased


In conclusion, The Health Plan has calculated the net result of discount to SSSG ­
- tobe- .

2010 Deleted by OIG-Not Releva nt to Final Report

Finding: The Health Plan rated the group as one product and did not adjust the experience to
account for product benefit differences.

Facts and Observations: The Health Plan would initially contend t h a t ­
-            was not an appropriate SSSG due to the fact that over 50%~ives
were enrolled in a PPO product unde1written by THP Insurance Co. in 2010.

The Health Plan originally calculated the 2010 renewal for                                   two (2)
ways. First, the renewal rate was calculated\.1__\-~~~li_l:J~           ~~~'0'-'"-l'lJ'H"'"' of both
the HMO and PPO members
resulted in an overall -     increase for each of the separate product offerings. This increase
was applied to each p~'s in-force premium.

A second ACR Model was also developed that calculated the renewal for the HMO and PPO
             . This method would accmmt for specific benefit differentials. Deleted b OIG-No
i!ltlr!ml                    This method resulted in a. . increase for the HMO and a ­
                                    • • -..u increase lmder t~ethod was -
                            v vJLllVll                                              · At this pomt m
the renewal process,                                      and the broker had asked if          enrolled
in the HMO, would the HMO rate mcrease                                           ~
Fi nal Re ort . The Health Plan infonned the group . the HMO price would need to be
modified/increased to reflect the higher claims experience of the PPO members if eve1yone was
to be enrolled in the HMO.




                                                  20                           Rep01i No. 1C-U4-00-14-038
The broker pointed out that the renewal under the " combined" method was a
         under the            rating method.
                               wanted the HMO rate increase to remain at          as calculated
                                     an d asked if the -     PPO rate increase could be adjusted
downward to an ive at the          overall increase indicated by " combined" rating method. The
Health Plan did adjust                    down to           rate increase which made th e overall
rate increase •    .                                                       This premium
adjustmentie·resented an effective discount to the PPO rate             . This equates to ­
pmlpm for       PPO members over 12 months totaling- .

                              had then asked for rates if the benefits for the HMO were adjusted
                       an        $15/$100 to a HMO Value $15/$250. The HMO value
includes 20% co-insm an ce on things such as lab x-ray, MRI, Chemotherapy, and other copay
changes. This benefit        resulted in an         reduction to the         rate increase calculated
under the         method.
                              then asked for rates if the benefits for the PPO were adjusted to
                               100%/$15/$100 to th e PPO 90%/$ 15/$250. The renewal rates
                                          rate increas e to reflect this benefit change. l1!t§§ill


Finding: The HMO product had a preventative benefit change in th e HMO product that was not
accounted for in th e experience.

Facts and Observations : The Health Plan contends that the 2010 HMO trend factor used in the
ACR Model included a component th at accounted for the coverage of the preventative benefit
change th at was to take effect. Therefore, no discount should be applied to the HMO
methodology.

Finding: The Health Plan pooled claims and applied a pooling charge to a group with over 500
covered lives.

Facts and Observations : The Health Plan 's Intemal Unde1w riting Guidelines an d ACR Model
do requir e a pooling charge for groups with less than 500 covered lives. However, if a large
group with greater than 500 covered lives makes a specific request of The Health Plan to pay the
pooling charge in an effort to mitigate futme catastrop hic claim fluctuations, exceptions to the
Intem al Unde1writing Guidelines (at the discretion of The Health Plan) may be granted to the
request to include pooling in exchange for a pooling charge . This decision has to be made in
advan ce an d a pooling charge included in the prior          ' rates in order to have claims pooled in
the subsequent renewal calculation . In this case,                                     specifically
requested th at The Health Plan include the pooling                                        · ·
2001. They have been pooled eve1y year th ereaf ter. r.iilliiillliailliill
          The Health Plan contends that the SSSG client requested pooled claims an d a pooling
charge , and ar e not a discount.

For the FEHBP 2010 renewal, a -  credit for catas trophic claims was given with out a
con esponding pooling charge ha~n paid in the prior year or included in the renewal


                                                  21                            Rep01i No. 1C-U4-00-14-038
premium. This credit reduced th e medical renewal rate increase
-~t of a .         discmmt not afforded


           The Health Plan could not supp01i the use of an -                  medical trend factor used in
                                  rate development.

Facts and Observations : The Health Plan can only apply trend factors in the ACR model that
are consistent with the State rate filing in force at the time the renewal premium rate is
developed.

The 2010 FEHBP rate was developed in May 2009. At that point in
trend factor for the HMO product was           In Janmuy 2010 , the
rate development was calculated                     the State <>nr"."'"""ri
th e HMO and .       for th e PPO . 1,;6;1,1~
"combined" ACR model prc>portHmate
an overall. . u·end factor.
 The fmal,~justed rate was based on rating the
The Health Plan asse1is th ere was no discount given to
used th e appropriate filed an d approved u·end factors .

Finding Deleted b OIG-Not Relevant to Final Re art

Fact s and Observations :                    does not specify the reasons for the -       discount
of the 2010                               rate . We have assumed that this perceiv:fdlscount was
calculated            group                 an HMO product in 2009 to a POS product in 2010.
At th at time, The Health Plan had higher base              rates for an HMO plan than a
comparable THP Insurance Co. POS plan.                                      evaluated the HMO
products an d asked for other product altem atlves                      product. We applied the
State approved product pricing differentials to altemative POS plan designs requested by the
group.         ·      The Health       offered similar                to the FEHBP but was
declined . ...-.~.-.

Given this inf01mation, The Health Plan did not provide a discount to
-       ' but rather they selected a more affordable altemative to their

Deleted b OIG-Not Relevant to Final Re art

Response: Although The Health Plan contends that 

considered a 2010 SSSG due to their majority PPO coJtnposinon, 

effective discount to have been - . 


We have also addressed the minor miscalculation to the 2008                              ACR Model and 

dete1mined their effective discount to have been - . 





                                                    22                              Rep01i No . 1C-U4-00-14-038
                                                 Deleted by OIG-Not Relevant to Fina l


Response: This ammmt should be reduced commensurate with a downward adj ustment to the
"SSSG" discmmt calculations above.

Recommendation 3: Records not retained for 6 years.

Response: The dr aft rep01t s states that "The Health Plan could not     sufficient and
appropriate documentation to supp01t the 2008                         age/gender
adjustments ." The Heath Plan does not                               groups th at ar e 100%
experience rated because age/gender adjustments only impact the community rate portion of the
ACR Model which is not used for 100% experience rated groups.

The age/gender rep01t used to calculate the age/gender factor for - was misplaced
during the numerous times the rep01t was copied for various audits . While the age/gender report
can be regenerated at any time, it is always updated to reflect changes in enrollment. As a result,
we were unable to exactly match the numbers used in the original calculation . To prevent this in
the future, The Health Plan will put age/gender rep01ts (when applicable) and copies of cmTent
bills on the disk along with the MK-150 claim rep01ts to preserve the original documents for
future audits .

                                         medical trend factor is discussed above i•!t§§il@


Recommendation 4: Rating System Controls

Response: The Health Plan does not agree with the assettion that we do not have adequate
rating system controls to ensure that the FEHBP and th e groups closest in size are rated
consistently . Monthly meetings were held to review commercial group renewals by the CEO,
CFO, VP Marketing an d Director ofMarketing/Undetwriting. We are also addressing re­
organization of the Marketing and undetwriting depattments in 2015.

Recommendation 5: Updated Policies & Procedures

Response: The Health Plan's large group rating model and methodology have remained
consistent for years. As a result, no significant updates to the policy an d procedures have been
updated. The Health Plan contracting officer is taking the opp01tunity of this audit to implement
written updated policy and procedures for rating of large employer groups to implement controls
to minimize any impact of non-compliance. This process should be fully completed by
December 31, 2014.

In conclusion, The Health Plan has provided data, facts and observations to the fmdings of the
FEHBP audit and maintains the actual discmmts provided to th e SSSGs total - plus any


                                                23                          Rep01t No. 1C-U4-00-14-038
accrued interest. The Health Plan has always made every effort to develop renewal rates for
potential SSSG’s without applying any discounts. We remain hopeful this letter has
demonstrated that these renewals were in fact conducted within the parameters of our rating
model(s).

Sincerely,

Deleted by OIG-Not Relevant to Final Report
Vice President, Marketing
The Health Plan

Attachments

Deleted by OIG-Not Relevant to Final Report




                                              24                         Report No. 1C-U4-00-14-038
                                                                              



               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
  
                                                                              
                                                                              




                                        25                       Report No. 1C-U4-00-14-038