oversight

Audit of the Federal Employees Health Benefits Program Operations at Dean Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2016-03-28.

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

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




                Final Audit Report

         AUDIT OF THE FEDERAL EMPLOYEES HEALTH
            BENEFITS PROGRAM OPERATIONS AT
                    DEAN HEALTH PLAN

                                          Report Number 1C-WD-00-15-039
                                                  March 28, 2016



                                                               -- 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 

                       Audit of the Federal Employees Health Benefits Program 

                                    Operations at Dean Health Plan 

Report No. 1C-WD-00-15-039                                                                          March 28, 2016


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

The primary objective of the audit       We determined that the Plan did not use the correct FEHBP claims
was to determine if Dean Health Plan     data for the 2012 and 2013 MLR calculations. In addition, the
(Plan) was in compliance with the        Plan did not reduce the incurred claims totals for both years by the
provisions of its contract and the       change in Health Care Receivables, incorrectly included taxes on
provisions of the laws and regulations   investment income, and did not use the correct premium income.
governing the Federal Employees          As a result, we are questioning $537,762 for the Plan’s
Health Benefits Program (FEHBP).         overstatement of its 2013 MLR credit. There was no effect on the
We verified whether the Plan met the     2012 MLR.
Medical Loss Ratio (MLR)
requirements established by the U.S.     We also determined that the FEHBP rates were developed in
Office of Personnel Management           accordance with applicable laws, regulations, and OPM’s Rate
(OPM). We also verified whether the      Instructions to Community-Rated Carriers for contract years 2012
Plan developed the FEHBP premium         and 2013.
rates using complete, accurate and
current data.

What Did We Audit?

Under Contract CS 1966, the Office
of the Inspector General performed
an audit of the FEHBP operations at
the Plan. The audit covered the
Plan’s 2012 and 2013 FEHBP
premium rate build-ups and MLR
submissions. Our audit fieldwork
was conducted from May 11, 2015,
through May 22, 2015, at the Plan’s
office in Madison, Wisconsin.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                      i
               ABBREVIATIONS


ACA      Affordable Care Act
ACR      Adjusted Community Rating
CFR      Code of Federal Regulations
DHS      Dean Health Systems
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
HHS      U.S. Department of Health and Human Services
MLR      Medical Loss Ratio
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     Dean Health Plan
SSMWI    SSM Health Care of Wisconsin
SSSG     Similarly-Sized Subscriber Group
TCR      Traditional Community Rating




                                ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                         Page 

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


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


  I.	     BACKGROUND ..........................................................................................................1 


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


  III.	   AUDIT FINDINGS AND RECOMMENDATIONS.................................................7


          1. Overstated Medical Loss Ratio Credit.....................................................................7 


          2. Program Improvement Area ..................................................................................11 


  IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................13 


          Exhibit A (Summary of Overstated Medical Loss Ratio Credit)


          Exhibit B (Overstated Medical Loss Ratio Credit)


          Appendix (Dean Health Plan’s November 16, 2015 response to the draft report) 


          REPORT FRAUD, WASTE, AND MISMANAGEMENT
            I. BACKGROUND
IV. MAJOR CONTRIBUTORS TO THIS REPORT
This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at Dean Health Plan (Plan). The audit was conducted pursuant to the
provisions of Contract CS 1966; 5 United States Code Chapter 89; and 5 Code of Federal
Regulations (CFR) Chapter 1, Part 890. The audit covered contract years 2012 and 2013, and
was conducted at the Plan’s office in Madison, Wisconsin.

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, and is administered by the U.S.
Office of Personnel Management’s (OPM) Healthcare and Insurance Office. The provisions of
the Federal Employees Health Benefits Act are implemented by OPM through regulations
codified in 5 CFR Chapter 1, Part 890. Health insurance coverage is provided through contracts
with health insurance carriers who provide service benefits, indemnity benefits, or
comprehensive medical services.

In April 2012, OPM issued a final rule establishing an FEHBP-specific Medical Loss Ratio
(MLR) requirement to replace the similarly-sized subscriber group (SSSG) comparison
requirement for most community-rated FEHBP carriers (77 FR 19522). MLR is the proportion
of FEHBP premiums collected by a carrier that is spent on clinical services and quality health
improvements. The MLR for each carrier is calculated by dividing the amount of dollars spent
for FEHBP members on clinical services and health care quality improvements by the total
amount of FEHBP premiums collected in a calendar year.

The FEHBP-specific MLR rules are based on the MLR standards established by the Affordable
Care Act (ACA, P.L. 111-148) and defined by the U.S. Department of Health and Human
Services (HHS) in 45 CFR Part 158. In 2012, community-rated FEHBP carriers could elect to
follow the FEHBP-specific MLR requirements, instead of the SSSG requirements. Beginning in
2013, the MLR methodology was required for all community-rated carriers, except those that are
state mandated to use traditional community rating (TCR). State mandated TCR carriers
continue to be subject to the SSSG comparison rating methodology.

Starting with the pilot program in 2012 and for all non-TCR FEHBP carriers in 2013, OPM
required the carriers to submit an FEHBP-specific MLR. OPM required that the FEHBP-specific
MLR threshold calculation take place after the ACA-required MLR calculation, and that any
rebate amounts due to the FEHBP as a result of the ACA-required calculation be excluded from
the FEHBP-specific MLR threshold calculation. Carriers were required to report information
related to earned premiums and expenditures in various categories, including reimbursement for
clinical services provided to enrollees, activities that improve health care quality, and all other
non-claims costs.


                                                1                          Report No. 1C-WD-00-15-039
If a carrier fails to meet the FEHBP-specific MLR threshold, it must make a subsidization
penalty payment to OPM within 60 days of notification of amounts due.

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 Plan reported 4,227 contracts and 8,765 members as of March 31, 2012, and 3,628 contracts
and 7,177 members as of March 31, 2013, as shown in the chart below.

In contracting with community-rated                    FEHBP Contracts/Members
carriers, OPM relies on carrier compliance                    March 31
with appropriate laws and regulations and,
consequently, does not negotiate base                  9,000
rates. OPM negotiations relate primarily               8,000
to the level of coverage and other unique              7,000
                                                       6,000
features of the FEHBP.
                                                       5,000
                                                       4,000
The Plan has participated in the FEHBP                 3,000
since 1985 and provides health benefits to             2,000
FEHBP members in south central                         1,000
Wisconsin. A prior audit of the Plan                       0
                                                                  2012           2013
covered contract year 2011. There were               Contracts    4,227          3,628
no findings or questioned costs identified.          Members      8,765          7,177


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 an Appendix to the report.




                                                 2                         Report No. 1C-WD-00-15-039
    II. OBJECTIVES,
TO THIS REPORT      SCOPE, AND METHODOLOGY
     Objectives
     The primary objective of this performance audit was to determine whether the Plan was in
     compliance with the provisions of its contract and the laws and regulations governing the
     FEHBP. Specifically, we verified whether the Plan met the MLR requirements established by
     OPM and paid the correct amount to the Subsidization Penalty Account, if applicable.
     Additional tests were performed to determine whether the Plan was in compliance with the
     provisions of the laws and regulations governing the FEHBP.

     Scope
     We conducted this performance audit in accordance 

     with generally accepted government auditing 
                       FEHBP Premiums Paid to the
     standards. Those standards require that we plan and 
                        Plan
     perform the audit to obtain sufficient, appropriate 

     evidence to provide a reasonable basis for our 

     findings and conclusions based on our audit 
                      $54
     objectives. We believe that the evidence obtained
                 $52
                                                                        $50
                                                              Million
     provides a reasonable basis for our findings and 
                 $48
     conclusions based on our audit objectives. 
                       $46
                                                                        $44
     This performance audit covered contract years 2012 
               $42
                                                                        $40
     and 2013. For contract years 2012 and 2013, the 
                              Revenue
     FEHBP paid approximately $50.5 million and $47.2 
                 2012         $50.5
     million in premiums to the Plan, respectively.
                    2013         $47.2


     The Office of the Inspector General (OIG) audits of 

     community-rated carriers are designed to test carrier compliance with the FEHBP contract, 

     applicable laws and regulations, and the 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 rates charged to the FEHBP were developed in accordance with the Plan’s
              standard rating methodology and the claims, factors, trends, and other related
              adjustments were supported by complete, accurate, and current source documentation;
              and


                                                      3                          Report No. 1C-WD-00-15-039
              The FEHBP MLR calculation was accurate, complete, and valid; claims were processed
               accurately; appropriate allocation methods were used; and, that any other costs
               associated with its MLR calculation were appropriate.

       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 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 from May 11, 2015, through May 22, 2015, at the Plan’s
       office in Madison, Wisconsin.

       Methodology
       We examined the Plan’s MLR calculation and related documents as a basis for validating the
       MLR. Further, we examined claim payments and quality health expenses to verify that the cost
       data used to develop the MLR was accurate, complete and valid. We also examined the
       methodology used by the Plan in determining the premium in the MLR calculation. Finally, we
       used the contract, the Federal Employees Health Benefits Acquisition Regulations (FEHBAR),
       and the rate instructions to determine the propriety of the Plan’s MLR calculation.

       To gain an understanding of the internal controls in the Plan’s claims processing system, we
       reviewed the Plan’s claims processing policies and procedures and interviewed appropriate Plan
       officials regarding the controls in place to ensure that claims were processed accurately. Other
       auditing procedures were performed as necessary to meet our audit objectives.

       The tests performed, along with the methodology, are detailed below by Medical and Pharmacy
       claims:


                Medical Claims Sample Selection Criteria/Methodology
                                                                                                        Results
 Medical Claims        Universe       Universe       Universe      Sample Criteria        Sample       Projected
  Review Area          Criteria      (Number)        (Dollars)        and Size             Type          to the
                                                                                                       Universe?
                                                                    All claims over
Coordination of
                      All medical                                     $10,000 for
Benefits (COB) –                                                                        Judgmental           No
                      claims                                       patients age 65+;
Medicare 2012
                                                                     resulted in 27


                                                       4                          Report No. 1C-WD-00-15-039
                                                                    claims totaling
                                                                       $593,064.
                                                                    All claims over
                                                                      $10,000 for
Coordination of
                       All medical                                 patients age 65+;
Benefits (COB) –                                                                          Judgmental      No 
                       claims                                        resulted in 19
Medicare 2013 
                                                                    claims totaling
                                                                       $467,356.
                                                                    All claim lines
                                                                     with elective
                                                                     abortion CPT
                                                                     codes 59812,
                                                                    59820, 59821,
Non-Covered                                                         59830, 59840,
                       All medical
Benefits (Abortion)                                                 59841, 59850,         Judgmental      No
                       claims
2013                                                                59851, 59852,
                                                                    59855, 59856,
                                                                    59857, 59866;
                                                                      resulted in 2
                                                                    claims totaling
                                                                         $322.

                                                                    All claims over
                                                                         $500 for
                                                                        dependent
Dependent              All medical                                 members between
                                                                                          Judgmental      No
Eligibility 2013       claims                                      age 26 and age 27;
                                                                      resulted in 10
                                                                     claims totaling
                                                                         $28,734.



                   Pharmacy Claims Sample Selection Criteria/Methodology

                                                                                                         Results
 Pharmacy Claims          Universe                                  Sample Criteria         Sample      Projected
                                        Universe   Universe
   Review Area            Criteria                                     and Size              Type         to the
                                       (Number)    (Dollars)
                                                                                                        Universe?
                                                                       All claims for
                                                                    members that did
                                                                        not have an
Dependent               All pharmacy                                     employee
                                                                                          Judgmental       No
Eligibility 2013        claims                                      relationship code
                                                                    listed; resulted in
                                                                    6 claims totaling
                                                                            $917.



                                                    5                             Report No. 1C-WD-00-15-039
We also examined the rate build-up of the Plan’s 2012 and 2013 Federal rate submissions and
related documents as a basis for validating the Plan’s standard rating methodology. We verified
that the factors, trends, and other related adjustments used to determine the FEHBP premium
rate(s) were sufficiently supported by source documentation. Further, we examined claim
payments to verify that the cost data used to develop the FEHBP rates was accurate, complete
and valid. Finally, we used the contract, the FEHBAR, and the rate instructions to determine the
propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan’s rating
system.

In addition, we examined the Plan’s financial information and evaluated the Plan’s financial
condition and ability to continue operations as a viable ongoing business concern.




                                                6                        Report No. 1C-WD-00-15-039
III. AUDIT FINDINGS AND RECOMMENDATIONS

 1. Overstated Medical Loss Ratio Credit                                                   $537,762

    The Plan elected to participate in the 2012 MLR pilot program offered to certain FEHBP
    carriers. The MLR pilot program replaced the SSSG requirements with an MLR threshold.
    Simply stated, the MLR is the ratio of FEHBP incurred claims (including expenses for health
    care quality improvement) to total premium revenue determined by OPM. For contract year
    2012, the MLR pilot program carriers must meet the OPM-established MLR threshold of 89
    percent. Therefore, 89 cents of every health care premium dollar must be spent on health
    care expenses. If the carrier’s MLR is less than the 89 percent threshold, it will owe a
    subsidization penalty equal to the difference between the threshold and the carrier’s actual
    MLR.

    For contract year 2013, OPM adjusted the MLR threshold to 85 percent and created an MLR
    corridor. If carriers meet the MLR threshold, no penalty is due. If the MLR is over 89
    percent, the carrier receives a credit equal to the difference between the carrier’s reported
    MLR and 89 percent, multiplied by the denominator of the MLR. This credit can be used to
    offset any future MLR penalty and is available until it is used up by the carrier or the carrier
    exits the FEHBP.

    The Plan calculated an MLR of        percent for contract year 2012, and      percent for
    contract year 2013. However, during our review of the Plan’s MLR submissions, we found
    the following issues.

    MLR Claims Data

    During our review of the Plan’s MLR submissions for contract years 2012 and 2013, we
    determined that the claims included in the MLR calculations did not adhere to OPM
    instructions, and did not represent the actual cost of the FEHBP’s incurred claims.

    OPM’s 2012 MLR Pilot Instructions state, “FEHB claims incurred in calendar year 2012 and
    paid through March 31, 2013 must be included in the MLR calculation; no other claims will
    be considered.” Similarly, OPM’s 2013 Community Rating Guidelines state, “FEHB claims
    incurred in calendar year 2013 and paid through June 30, 2014 must be included in the MLR
    calculation; no other claims will be considered.”

    The Plan’s 2012 and 2013 MLR claims represented claims paid during the respective
    calendar year, not the claims that were incurred. 


    Additionally, we determined that the Plan’s claims did not accurately represent the actual
    cost of the FEHBP claims. Instead, the claim costs that were used represent an

                            As described by the Plan, a service agreement was established
    between the Plan and related companies, Dean Health Systems (DHS) and SSM Health Care


                                              7                             Report No. 1C-WD-00-15-039
of Wisconsin (SSMWI),




Consequently, use of this capitation allocation methodology to derive the claims portion of
the MLR calculation does not represent the FEHBP’s actual incurred claims, and as such,
circumvents the purpose of the MLR process. As part of our audit we determined the actual
incurred FEHBP claims for contract years 2012 and 2013, which were used in our audited
MLR calculation for each year. Our audited 2012 claims amount was $                , versus
the Plan’s submitted amount of $             . Our audited 2013 claims amount was
$            , versus the Plan’s submitted amount of $           .

Plan Response:

The Plan maintains that it complied with all applicable OPM and HHS MLR requirements
and that its agreement with DHS and SSMWI was categorized as a capitated arrangement.
The Plan explained that it




                  In addition, the Plan stated that it obtained pre-approval from OPM’s
Office of Actuaries for the MLR reporting treatment of its capitation payments.

OIG Comment:

We do not agree with the Plan’s position that it complied with all applicable MLR
requirements. OPM’s Community Rating Guidelines specifically require the use of incurred
claims in the MLR calculation. However, the Plan instead
                                                    as its claims piece of the MLR calculation,
which is a direct violation of the guidance provided by OPM. Furthermore, because of its
use of                                      to represent incurred claims, its MLR calculation
can be easily manipulated.



                                            8                          Report No. 1C-WD-00-15-039
Moreover, the Plan’s adjusted community rating (ACR) methodology, used to develop the
FEHBP’s rates in 2012 and 2013, used group specific claims experience. If claims
experience was available to develop the FEHBP’s rates, we maintain that a consistent
methodology should have been used for its MLR calculation.

Additionally, while the arrangement between the Plan and DHS and SSMWI was categorized
by the Plan as a capitated arrangement, the American Medical Association defines
capitations as being paid to providers based on membership, rather than per service.
Previous audit experience has also shown capitated rates to be agreed-upon rates between a
carrier and a provider that are generally developed based on factors such as past utilization,
demographics, and other factors. This is not the case with the arrangement between the Plan
and DHS and SSMWI, where DHS and SSMWI are actually related companies to the Plan
and




Furthermore, it is important to note that even though the Plan had predictable claim expenses



            Consequently, this capitated arrangement is not an arm’s length transaction and
lacks intent to make a profit or even break even. This arrangement also does not meet the
expectation of a true capitated arrangement, as the Plan would not, in good faith, enter into a
similar arrangement with a non-related third party.

Finally, OPM’s Office of Actuaries never confirmed to us or the Plan that it accepted the
Plan’s claims methodology and its deviation from the FEHBP MLR instructions. We cannot
interpret this lack of acknowledgement as acceptance of the methodology.

Healthcare Receivables

The Plan did not include any healthcare receivables on the 2012 and 2013 MLR submissions.
Pursuant to HHS instructions, health plans are required to include the impact of any change
between prior year healthcare receivables and current year receivables in the MLR
numerator. When we inquired why the receivables were not included in the MLR
submissions, the Plan responded that it unintentionally excluded them. Our review of the
Plan’s annual accounting statements showed there was a change in the healthcare receivables
balance in both contract years 2012 and 2013. Consequently, we calculated the impact of the
change applicable to the FEHBP using claim ratios. Based on our calculations, we included
$58,398 and ($17,778), in the 2012 and 2013 audited MLR calculations, respectively.

Plan Response:

The Plan agrees with the healthcare receivables finding and reiterated that it was an
unintentional error.



                                             9                          Report No. 1C-WD-00-15-039
Taxes on Investment Income

Pursuant to the provision of 45 CFR §158.161(a)(2), health plans are allowed to reduce the
premium used in the MLR calculation by taxes and regulatory fees paid, excluding Federal
income taxes paid on investment income and capital gains. The Plan erroneously included
taxes paid on investment income in its Federal income tax calculation. As a result, we
removed $         and $         from the 2012 and 2013 audited MLR calculations,
respectively.

Plan Response:

The Plan agrees with the taxes on investment income finding and stated that it was an
unintentional error.

Premium

The 2012 OPM MLR Pilot Instructions required health plans to use OPM’s subscription
income amount as the premium portion of the MLR calculation. However, OPM’s 2013
Community Rating Guidelines allowed health plans the option of using OPM’s subscription
income amount or its own premium income amount, if it could be supported. For contract
years 2012 and 2013, the Plan elected to use OPM’s subscription income amounts for its
premium income. However, it made adjustments to these premium amounts in order to
reconcile its premium figure to the OPM premium figure. The adjustments were unallowable
under the OPM MLR instructions for plans that elected to use OPM’s subscription income
amount. As a result, we removed the premium adjustments of $          and $      , from the
2012 and 2013 audited MLR calculations, respectively.

Plan Response:

The Plan agrees with the premium finding for contract year 2012. However, the Plan
disagrees with the premium finding for contract year 2013. The Plan stated that the
“Total 2013 Premium Income” amount (line 1.11 on the 2013 FEHBP MLR form)
equaled its own premium income amount because it elected to use its own premium
income instead of OPM’s subscription income.

OIG Comment:

In completing its 2013 FEHBP MLR form, the Plan opted to enter OPM’s premium income
amount on Line 1.1, which is titled “OPM Provided 2013 Premium from the 2015 Rate
Letter.” Had it intended to use its own premium income amount the Plan would have filled
out Line 1.2, which is titled “Plan Provided 2013 Premium Income.” Filling out this line
item would have also made that premium income amount subject to audit. However, because
the Plan elected to use OPM’s provided premium amount, the Plan’s premium was not
reviewed during our audit. Therefore, we used OPM’s provided premium and disallowed
any other adjustments made by the Plan in our audited MLR calculation.




                                           10                        Report No. 1C-WD-00-15-039
  Conclusion

  We recalculated the Plan’s 2012 and 2013 MLR submissions using incurred claims for the
  calendar year, adding the impact of changes in healthcare receivables, removing taxes paid
  on investment income, and using OPM’s subscription income amounts. Our audited MLR
  calculation resulted in an overstated MLR credit of $537,762 in contract year 2013. The
  audited MLR calculation in 2012 did not result in a penalty or overstated credit.

  Recommendation 1

  We recommend that the contracting officer instruct OPM’s Office of the Actuary to reduce
  the Plan’s 2013 MLR carryover credit by $537,762.

  Recommendation 2

  We recommend that the contracting officer require the Plan to follow OPM’s Community
  Rating Guidelines when developing the claims to be included on the MLR submission.

2. Program Improvement Area                                                           Procedural

  We determined that the Plan did not maintain documentation for all of its disabled dependent
  members we reviewed.

  Per the FEHBP Handbook, the employing office is responsible for determining if a
  dependent is incapable of self-support, maintaining necessary records, and notifying the Plan
  by letter. The Plan may continue coverage for a dependent over the age of 26, if it
  determines that the dependent had a disability that could cause them to be incapable of self-
  support during adulthood before reaching the age 26. If the Plan continues the dependent’s
  coverage, it must send an approval notice to the member and advise that member to send a
  copy of the notice to the employing office.

  While the Plan is not required by the FEHBP Handbook to maintain the supporting
  documentation for disabled dependents, for audit purposes, it is best practice for the Plan to
  maintain this type of documentation.

  We reviewed a sample of six pharmacy claims that did not contain an employee relationship
  code, which the Plan determined were disabled dependents. For three of the six claims, the
  Plan provided supporting documentation to verify that the member was a disabled dependent.
  For the remaining three claims, the Plan did not maintain sufficient supporting
  documentation.

  It is the Plan’s position that no purpose is served by retaining the supporting documentation
  since the employing office made the eligibility determination for the disabled dependents.


                                              11                          Report No. 1C-WD-00-15-039
However, by not maintaining this documentation, the Plan cannot support the edits within its
system that denote the member is a disabled dependent. Consequently, the Plan could have
dependent members erroneously marked as disabled dependents whose coverage should have
terminated when the member turned 26 years old.

Recommendation 3

We recommend that the contracting officer direct the Plan to maintain supporting
documentation for disabled dependents.




                                           12                        Report No. 1C-WD-00-15-039
IV. MAJOR CONTRIBUTORS TO THIS REPORT

  COMMUNITY-RATED AUDITS GROUP

               , Auditor-in-Charge

             , Lead Auditor

           , Auditor




              , Senior Team Leader

               , Group Chief




                                     13   Report No. 1C-WD-00-15-039
                                 EXHIBIT A

                                 Dean Health Plan
                          Summary of Overstated MLR Credit


Contract Year 2013


Overstated Medical Loss Ratio Credit                    $537,762


Total Overstated MLR Credit                             $537,762




                                                         Report No. 1C-WD-00-15-039
                                              EXHIBIT B

                                             Dean Health Plan 

                                           Overstated MLR Credit 


                                                                                             Per Audit           Per Plan
2013 FEHBP MLR Lower Corridor                                                                  85%                 85%
2013 FEHBP MLR Upper Corridor (a)                                                              89%                 89%

Claims Expense
Incurred Claims (Medical and Pharmacy)                                                      $                $
Less: Prescription Drug – Rebate
Allowable Fraud Reduction Expense (the smaller of expense or recovery)                                 $0               $0
Less: Change in Healthcare Receivables                                                                                  $0
Adjusted Incurred Claims
Expenses to Improve Health Care Quality
Total Adjusted Incurred Claims

Premiums
Earned Premium                                                                              $47,162,718 $47,169,917
Less: Federal and State Taxes and Licensing or Regulatory Fees
Adjusted Premiums
Less: Defective Pricing Finding (Due OPM)                                                              $0               $0
Total Adjusted Premiums (b)

Total Adjusted Incurred Claims (MLR Numerator)
Total Adjusted Premiums less Defective Pricing (MLR Denominator)
FEHB MLR Calculation (c)                                                                               %                %
Penalty Calculation                                                                                    $0               $0
Credit Calculation ((c-a)*b)
Overstated MLR Credit                                                                           $537,762




      1
       This is the MLR credit calculation number that the Plan submitted to OPM. The math from this column will not
      calculate this credit correctly ($ difference) even though we used the exact numbers from the Plan’s supporting
      documentation.


                                                                                           Report No. 1C-WD-00-15-039
                                                 Appendix
August 7, 2015



November 16, 2015




U.S. Office of Personnel Management
Office of the Inspector General
1900 E Street, NW
Room 6400
Washington, DC 20415

Re: Draft Audit Report 1C-WD-00-15-039

Dear                 :

    Dean Health Plan (DHP) has reviewed the draft Audit Report on the Federal Employees
Health Benefits Program (FEHBP) operations at DHP for contract years 2012 and 2013 (the
Draft Report). We disagree with several of the Draft Report’s findings and recommendations.
DHP also objects to the phrasing used with respect to certain other findings and
recommendations. Both our comments and report phrasing recommendations are to ensure that
the final audit report reflects an accurate account and summary of DHP’s operations and
compliance with Office of Personnel Management (OPM) requirements.

      I.       Overstated Medical Loss Ratio Credit

    The Draft Report indicates that the audited medical loss ratio (MLR) calculation for contract
year 2012 did not result in a penalty or overstated credit, although it contains findings with
respect to DHP’s MLR calculation that are discussed below. For 2013, however, the Draft
Report claims that DHP overstated its MLR credit by $537,762. In addition, the Draft Report
contains a recommendation that DHP be directed to follow OPM’ s community rating guidelines
in developing the claims included on the MLR submissions.

      A. MLR Claims Data

    The Draft Report contains preliminary findings that the claims included in DHP’s MLR
submissions for 2012 and 2013 did not adhere to OPM instructions and did not represent actual
performance of the FEHBP’s claims. These findings are simply incorrect. Furthermore, the
Draft Report’s statement that DHP’s capitation methodology “circumvents the purpose of the
MLR process” is not correct and reflects a core misunderstanding of capitation vs. fee-
reimbursement-based claim liabilities. It also ignores OPM’s acceptance of capitation for MLR
as well as premium rating purposes,2 conformity of DHP’s MLR calculation process with
2
    OPM’s regulations expressly recognize capitation payments as cost or pricing data for the FEHBP:


                                                                                        Report No. 1C-WD-00-15-039
Department of Health & Human Services (HHS) MLR reporting guidance, which guidance is
applicable to the FEHBP per OPM’s own instructions,3 and DHP’s having obtained pre-approval
from OPM’s Office of the Actuaries for the MLR reporting treatment of its capitation payments.

       The issue concerns DHP’s reporting for MLR purposes of the capitation payments it
makes under its Service Agreement with Dean Health Systems, Inc. (DHS) and SSM HealthCare
of Wisconsin, Inc. (SSMWI).




                                                      4



                                                 Deleted by OIG 

                                         Not Relevant to the Final Report 





       Consistent with the above instruction, DHP filed with the OPM Office of the Actuaries
our                              methodology for valuing the FEHBP MLR numerator (claims)
and received approval.5 The communication between DHP and OPM’s Office of the Actuaries
including the methodology approval by OPM was provided to the auditors during our meeting on
May 18, 2015, but it is not referenced in the Draft Report.

                                                 Deleted by OIG 

                                         Not Relevant to the Final Report 


DHP has complied with all applicable OPM and HHS requirements for the treatment and
reporting of capitation payments for MLR purposes. The Draft Report’s findings and
recommendations under “MLR Claims Data” should not appear in the final audit report.




(a) Experience rated carriers. Cost or pricing data … includes:
(1) Information such as claims data;
(2) Actual or negotiated benefit payments made to providers of medical services for the provision of healthcare,

such as capitation… 

(b) Community rated carriers. Cost or pricing data … include, but are not limited to, capitation rates….48 C.F.R.

§ 1602.170-5 (emphasis added).

3
  OPM’s community rate instructions provide that “HHS MLR guidelines will apply for issues not covered in [the] 

instructions.” 2013 Community Rating Guidelines at p. 9. 

4
                                                                                                                  


                                                                                                             

                          

5
    See Exhibit 2 & 3.



                                                                                        Report No. 1C-WD-00-15-039
B. Healthcare Receivables

The Draft Report contains findings that DHP did not reduce the incurred claims total by the
change in Health Care Receivables. DHP agrees with this finding, but requests that the final
audit report reflect that this was an unintentional error.

C. Taxes on Investment Income

The Draft Report found that DHP did not exclude taxes paid on investment income and capital
gains from the reduction to premium for taxes that is allowed under the HHS MLR rules.

                                        Deleted by OIG 

                                Not Relevant to the Final Report


Thus, DHP agrees with this finding, but requests that the final audit report reflect that this was an
unintentional error.

                                        Deleted by OIG 

                                Not Relevant to the Final Report 


D. Premium

The Draft Report found that DHP did not use the correct premium income for 2012 and 2013
MLR reporting purposes.

                                        Deleted by OIG 

                                Not Relevant to the Final Report


The “Total 2013 Premium Income” amount (line 1.11) equaled our own premium income
amount evidencing our election to use our own premium income vs. OPM’s subscription income.

                                        Deleted by OIG 

                                Not Relevant to the Final Report


DHP acknowledges that the OPM’s 2012 MLR instructions did not allow carriers to use their
own premium income.

In light of the foregoing, the audit finding related to use of OPM’s subscription income should be
limited to contract year 2012 in the final audit report

                                        Deleted by OIG 

                                Not Relevant to the Final Report



II.    Disabled Dependent Support – Procedural Finding

                                         Deleted by OIG


                                                                            Report No. 1C-WD-00-15-039
                              Not Relevant to the Final Report

Furthermore, no FEHBP purpose is served by carriers’ retaining such documentation since it is
the responsibility of the Employing Office to determine employee and family member eligibility.

                                      Deleted by OIG 

                              Not Relevant to the Final Report


If you have any questions regarding this document or any of the attachments, please contact me
via phone or email.


Sincerely,



Randy Ruplinger
Chief Financial Officer
Dean Health Plan

                @Deancare.com




                                                                        Report No. 1C-WD-00-15-039
                                                                             



               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
  
                                                                             
                                                                             




                                                                      Report No. 1C-WD-00-15-039