oversight

Audit of the Federal Employees Health Benefits Program Operations at Aetna Open Access Memphis, Tennessee

Published by the Office of Personnel Management, Office of Inspector General on 2011-09-28.

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

                                                            U.S. OFFICE OF PERSONNEL MANAGEMENT
                                                                  OFFICE OF THE fNSPECTOR GENERAL
                                                                                   OFFICE OF AUDITS




                                       Final Audit Report 

SUbject:

          Audit of the Federal Employees Health Benefits 

           Program Operations at Aetna Open Access ­
                        Memphis, Tennessee 




                                                Report No. IC-UB-OO-II-032

                                                Date: September 28 , 2011




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                             UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                Washington . DC 204 15


   Office of the
Inspector Gener:al




                                              AUDIT REPORT



                                    Federal Employees Health Benefits Program 

                                 Community-Rated Health Maintenance Organization 

                                     Aetna Open Access - Memphis, Tennessee 

                                      Contract Number CS 2867 - Plan Code UB
                                               Blue Bell, Pennsylvania



                         Report No. IC-UB-OO-II-032                      Date: Sept embe r 28 , 2011




                                                                         Michael R. Esser
                                                                         Assistant Inspector General
                                                                           for Audits




         IoIww.opm.'Ov                                                                          "'''''''.lIuJobi .&oy
                           UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                             Washinglon. DC 20415


 Office or tke:
ln~tlN  GCIICr.II




                                      EXECUTIVE SUMMARY 





                                Federal Emp loyees Health Benefits Progr am 

                             Community.Ratcd Health Maintenance Organization 

                                 Aetna Open Access - Memphis, Tennessee 

                                 Contract Number CS 2867 - Plan Code UB 

                                          Blue Bell, Pennsylvania 




                    Report No. IC-UB-OO-II-032                  Date: September 28 , 2011


      The Office of the Inspector General perfonned an audit of the Federal Employees Health Benefits
      Program (FEJ-lBP) operations at Aetna Open Access - Memphi s, Tennessee (Plan). The audit
      covered contract yc,ars 2006 through 2010 and was conducted at the Pl an's o ffice in Blue Bell,
      Pennsylvania. We found that the FEHBP rates were developed in accordance with app licable
      laws. regu lations, and the Office of Personnel Management ' s rating instructions for the years
      audited .




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                                                    CONTENTS


                                                                                                                   Page

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

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

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

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
                     I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Aetna Open Access – Memphis, Tennessee (Plan). The audit covered contract years 2006
through 2010 and was conducted at the Plan’s office in Blue Bell, Pennsylvania. The audit was
conducted pursuant to the provisions of Contract CS 2867; 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 (OIG), as established by the
Inspector General Act of 1978, as amended.

Background

The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86-382),
enacted on September 28, 1959. The FEHBP was created to provide health insurance benefits
for federal employees, annuitants, and dependents. The FEHBP is administered by OPM’s
Healthcare and Insurance Office. The provisions of the Federal Employees Health Benefits Act
are implemented by OPM 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 (i.e., many community-rated carriers are federally qualified). In addition,
participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The 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         6,000
the FEHBP. In contracting with
                                                    5,000
community-rated carriers, OPM relies on
carrier compliance with appropriate laws            4,000
and regulations and, consequently, does not
                                                    3,000
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and       2,000
other unique features of the FEHBP.
                                                    1,000

The chart to the right shows the number of               0
                                                             2006    2007    2008    2009    2010
FEHBP contracts and members reported by                      2,570   2,538   2,516   2,642   2,635
                                                 Contracts
the Plan as of March 31 for each contract        Members     5,796   5,640   5,472   5,603   5,439
year audited.


                                                1
The Plan has participated in the FEHBP since 2002 and provides health benefits to FEHBP
members in Crockett, Dyer, Fayette, Haywood, Lauderdale, Shelby, and Tipton counties in the
Memphis, Tennessee area. The last audit of the Plan conducted by our office was a full scope
audit of contract years 2002 through 2005 and identified $1,119,981 in defective pricing. All
issues identified in the previous audit have been resolved.

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




                                                 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 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
                                                                     $30
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 basis                     $0
for our findings and conclusions based on our                              2006    2007    2008    2009    2010

audit objectives.                                                Revenue   $19.3   $19.8   $22.0   $22.3   $26.4


This performance audit covered contract years 2006 through 2010. For these years, the FEHBP
paid approximately $110 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

                                                 3
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 Blue Bell, Pennsylvania, during May
2011. Additional audit work was completed at our offices located in Washington, D.C.,
Cranberry Township, Pennsylvania, and Jacksonville, Florida.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates were accurate, complete, and valid. 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’s policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
                           III. RESULTS OF THE AUDIT

Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and OPM’s rating instructions to carriers for contract years 2006 through 2010.
Consequently, the audit did not identify any questioned costs and no corrective action is
necessary.




                                              5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community-Rated Audits Group

                       , Auditor-in-Charge

                   , Lead Auditor

                 , Lead Auditor

_______________________________________________________________________

                   , Deputy Assistant Inspector General for Audits

                  ., Chief

              , Senior Team Leader




                                             6