oversight

Audit of the Federal Employees Health Benefits Program Operations at Group Health Cooperative of South Central Wisconsin

Published by the Office of Personnel Management, Office of Inspector General on 2013-09-26.

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
Subject:

    Audit of the Federal Employees Health Benefits
  Program Operations at Group Health Cooperative of
               South Central Wisconsin


                                          Report No. 1C-WJ-00-13-007

                                          Date: September 26, 2013




                                                      -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                Federal Employees Health Benefits Program
                            Community-Rated Health Maintenance Organization
                            Group Health Cooperative of South Central Wisconsin
                                 Contract Number CS 1828 - Plan Code WJ
                                           Madison, Wisconsin



              Report No. 1C-WJ-00-13-007                                                   September 26, 2013
                                                                                     Date: _________________




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                               EXECUTIVE SUMMARY




                       Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                   Group Health Cooperative of South Central Wisconsin
                        Contract Number CS 1828 - Plan Code WJ
                                  Madison, Wisconsin


         Report No. 1C-WJ-00-13-007                       Date: September 26, 2013


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Group Health Cooperative of South Central Wisconsin,
plan code WJ (Plan). The audit covered contract years 2010 through 2012. The audit was
conducted at the Plan’s office in Madison, Wisconsin.

This report questions $1,981,487 for inappropriate health benefit charges to the FEHBP in
contract years 2011 and 2012. The questioned amount includes $1,943,857 for defective pricing
and $37,630 for lost investment income, calculated through August 31, 2013. For contract year
2010, we determined that the Plan’s rating of the FEHBP did not result in any questioned costs.

For contract years 2010 through 2012, we found the following areas of concern:

   •   The Plan used a Community Rating by Class (CRC) methodology for the FEHBP.
       However, an Adjusted Community Rating (ACR) methodology was used for the
       Similarly Sized Subscriber Groups (SSSG). According to the Office of Personnel
       Management’s (OPM) Rate Instructions to Community-Rated Carriers (rate instructions),
       the Plan is expected to use the same rating method for the FEHBP as it uses for the

                                               i
       SSSGs. Therefore, we re-rated the FEHBP using the Plan’s ACR methodology and
       determined the FEHBP was overcharged in 2011 and 2012.

   •   The Plan’s method of calculating pooled claims was inconsistent and lacked objective
       criteria. The Plan uses three criteria to calculate pooled claims. We were only able to
       objectively apply two criteria fairly to all groups.

   •   The Plan could not provide original source documentation to support its rate development
       for the FEHBP and SSSGs. The regulations state that a carrier must retain and make
       available all records applicable to a contract term for a period of six years after the end of
       the contract term to which the records relate.

   •   The Plan is required to send FEHBP claims data to the OIG for each contract year, and
       maintain the SSSG claims data on-site for our review. This rule applies to Plans that use
       an ACR rating methodology. Since the FEHBP should have been rated using ACR, the
       Plan was not compliant with OPM Carrier Letters 2009-06, 2010-13 and 2011-11,
       regarding the FEHBP claims data submission to the OIG and maintaining the SSSG
       claims data for our on-site audit.

After re-rating the FEHBP using an ACR methodology and correcting the above noted
exceptions, we found that the FEHBP’s rates were overstated by $101,108 and $1,842,749, for
contract years 2011 and 2012, respectively.

Consistent with the FEHBP regulations and contract, the FEHBP is due $37,630 for lost
investment income, calculated through August 31, 2013, on the defective pricing finding. In
addition, the contracting officer should recover lost investment income on amounts due for the
period beginning September 1, 2013, until all defective pricing amounts have been returned to
the FEHBP.




                                                 ii
                                                          CONTENTS

                                                                                                                                     Page

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

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

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

III. AUDIT FINDINGS AND RECOMMENDATIONS ......................................................... 5

      Premium Rate Review ........................................................................................................ 5

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

      2. Lost Investment Income.................................................................................................. 9

      3. Record Retention .......................................................................................................... 10

      4. FEHBP Claims Data Submission.................................................................................. 11

      5. SSSG Claims Data Retention........................................................................................ 12

IV.    MAJOR CONTRIBUTORS TO THIS REPORT............................................................ 14

      Exhibit A (Summary of Questioned Costs)

      Exhibit B (Defective Pricing Questioned Costs)

       Exhibit C (Lost Investment Income)

       Appendix (Group Health Cooperative of South Central Wisconsin’s May 29, 2013 letter
                 and July 9, 2013 email responses to the draft report)
                      I. INTRODUCTION AND BACKGROUND 


Introduction

We completed an audit of th e Federal Employees Health Benefits Program (FEHBP) operations
at Group Health Cooperative of South Centm l Wisconsin , plan code WJ (Plan). The audit
covered contract years 2010 through 2012, and was conducted at the Plan's office in Madison,
Wisconsin. The audit was conducted pmsuant to the provisions of Contract CS 1828; 5 U.S .C.
Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Pmi 890. The audit was
perf01m ed 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 insm ance
benefits for federal employees, annuitants, and dependents. The FEHBP is administered by
OPM 's Healthcare an d Insm ance Office. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in Chapter 1, Prui 890 of
Title 5, CFR. Health insm ance coverage is provided through contracts with health insmance
can iers who provide service benefits, indemnity benefits, or comprehensive medical services.

Community-rated caniers pa1i icipating in the FEHBP are subject to vru·ious federal, state and
local laws, regulations, an d ordinan ces. While m ost cruTiers are subject to state j misdiction,
many are fmther subject to the Health Maintenance Organization Act of 1973 (Public Law 93 ­
222), as am ended (i.e., many community-rated cmTiers are federally qualified) . In addition,
pruiicipation in the FEHBP subjects the caniers to the Federal Employees Health Benefits Act
and implem enting regulations promulgated by OPM .
                                                               FEHBP Contracts/Members 

The FEHBP should pay a mru·ket price rate,                            March 31 

which is defined as the best rate offered to
either ofthe two groups closest in size to the
FEHBP. In contracting with community­
rated can iers, OPM relies on can ier
compliance with appropriate laws and
regulations and, consequently, does not
negotiate base rates. OPM negotiations relate
primarily to the level of coverage and other
unique featm es of the FEHBP.

The chait to the right shows the number of
FEHBP contracts an d members rep01ied by
the Plan as of March 31 for each contract yeru·
audited.



                                                  1

The Plan has participated in the FEHBP since 1979 and provides health benefits to FEHBP
members in South Central Wisconsin. The last full scope audit of the Plan conducted by our
office covered contract years 2004 through 2009. Record retention issues reported in that audit
were identified again in this 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 included, as
appropriate, in the Appendix.




                                                 2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to 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
                                                                      FEHBP Premiums Paid to Plan
with generally accepted government auditing
standards. Those standards require that we plan
and perform the audit to obtain sufficient,                           $20
appropriate evidence to provide a reasonable basis



                                                        Millions
                                                                      $15
for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained                     $10
provides a reasonable basis for our findings and
conclusions based on our audit objectives.                             $5

                                                                       $0
This performance audit covered contract years 2010                           2010      2011         2012
                                                                   Revenue   $16.3     $18.0        $19.5
through 2012. For these years, the FEHBP paid
approximately $53.8 million in premiums to the
Plan, as shown on the chart to the right.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and OPM’s Rate Instructions to Community-Rated
Carriers (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 Madison, Wisconsin during November
2012. Additional audit work was completed at our office in Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and 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
              III. AUDIT FINDINGS AND RECOMMENDATIONS
Premium Rate Review

1. Defective Pricing                                                                  $1,943,857

  The Certificates of Accurate Pricing the Plan signed for contract years 2011 and 2012 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 totaling $1,943,857 (see Exhibit A). Our review of contract year 2010
  did not result in any questioned costs.

  Carriers proposing rates to OPM are required to submit a Certificate of Accurate Pricing
  certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are
  market price rates. OPM regulations refer to a market price rate in conjunction with the rates
  offered to an SSSG. SSSGs are the Plan’s two employer groups closest in subscriber size to
  the FEHBP. If it is found that the FEHBP was charged higher than the market price rate (i.e.,
  the best rate offered to an SSSG), a condition of defective pricing exists, requiring a
  downward adjustment of the FEHBP premiums to the equivalent market price rate.

  a. Inconsistent Rating Methodology

      The Plan indicated in its proposal and reconciliation questionnaires that they developed
      the FEHBP and the SSSGs’ rates using a Community Rating by Class (CRC)
      methodology. Based on our audit, we determined the Plan rated the FEHBP using a CRC
      methodology, but rated the SSSGs using an Adjusted Community Rating (ACR)
      methodology.

      According to the rate instructions, the Plan is expected to use the same rating method for
      the FEHBP as it uses for the SSSGs. If the Plan rates an SSSG using a method
      inconsistent with the Plan’s established policies, the FEHBP is entitled to a discount based
      on the SSSG rating method applied to the Federal group. During our on-site audit, Plan
      personnel stated it was their established policy to rate large groups using ACR. The
      FEHBP qualifies as a large group in all contract years audited. Accordingly, we re-rated
      the FEHBP like the SSSGs by using the Plan’s ACR methodology. Failure to rate the
      FEHBP using the same rating method as the SSSGs violates the Plan’s Certificate of
      Accurate Pricing and increases the risk of FEHBP premium overcharges.

      Plan’s Comments (see Appendix):

      The Plan does not contest the recommendation that the FEHBP be recalculated using the
      Plan’s ACR methodology for contract years 2010 through 2012. The Plan has established
      written guidelines around the FEHBP process to ensure the appropriate rating
      methodology is used in the future.



                                                5
   OIG’s Response to Plan’s Comments:

   We continue to use the ACR methodology in calculating our audited FEHBP rates for
   contract years 2010 through 2012. We appreciate the Plan taking steps to ensure the
   appropriate rate methodology will be used going forward.

b. Pooled Claims

   The Plan calculates pooled claims using the following three criteria:

   1. The Plan set pooling points of $          for 2010,          for 2011, and
      for 2012. Any member’s total claims over the experience period exceeding these
      amounts, for their respective years, are removed from the claims experience.

   2. The Plan removes claims, over an aggregate of            , associated with any member
      who is no longer insured by the Plan at the time of rating.

   3. The Plan removes claims, over an aggregate of         , which the Plan considers to
      be a one-time procedure. A one-time procedure is one that can never be performed
      more than once on a member or is considered an uncommon procedure.

   The first two criteria can be applied to all groups consistently and therefore, we followed
   these criteria to calculate our audited pooled claims for the FEHBP and SSSGs. However,
   the third criterion is subjective and cannot be applied consistently to all groups. It was
   difficult to identify one-time procedures in our rate review. We also noted claims that the
   Plan had removed that could be performed more than once on a member. Finally, these
   one-time procedures that the Plan removed also contained other medical services that were
   unrelated to the one-time procedure.

   Although it may be the Plan’s methodology to remove claims for one-time procedures, the
   Plan did not have written guidelines that listed all of the one-time procedures. Therefore,
   when developing our audited rates, we did not exclude one-time claims in our calculation
   of the pooled claims for all groups reviewed.

   Plan’s Comments (see Appendix):

   The Plan is in partial agreement with our comments about pooled claims. The Plan states
   they consistently applied the appropriate large claims over       in the pooled claims
   amount.

   The Plan agrees they did not have written guidelines on how they define a one-time
   procedure and how to include these claims in the pooled claims amount. The Plan also
   agrees they did not have any supporting documentation saved at the time of the rating
   process to support the excluded one-time procedures. The Plan has implemented written


                                             6
   guidelines for calculating pooled claims which should be applied consistently across all
   groups.

   OIG's Response to Plan's Comments:

   We appreciate the Plan' s eff01ts in creating guidelines for claims considered one-time
   claims. Upon review of the Plan 's guideline entitled " Conditions generally over and
   done" we continue to maintain this criterion is subj ective and cannot be applied
   consistently to all groups. The written guidelines submitted by the Plan contain the
   following statem ents:

   •	   These are a few of the conditions that can be considered over and done
   •	   Claims for these conditions can usually be rem oved
   •	   This list doesn't include all conditions
   •	   There is still unde1writing discretion allowed
   •	   This list may not have eve1y condition that is considered over and done with as well as
        some of these conditions could be ongoing for various reasons

   All of these statements supp01t om position that this criterion is based on subjective
   selection of claims to be removed. We continue to believe this criterion should not be
   used in the pooled claims selection . Om audited rates do not exclude one-time claims in
   om calculation of the pooled claims for all groups reviewed.

c. 	 SSSG Discounts

   The Plan applied a discount to the FEHBP rates; however it was not related to an actual
   discount given to an SSSG. At the time of the FEHBP proposal and re conciliation, the
   Plan rated the FEHBP using a CRC methodology, and created a CRC rate for the SSSGs,
   although the SSSGs were actually rated using an ACR methodology. In order to
   determine a market price rate for the FEHBP, the Plan calculated the difference between
   the SSSG' s illustrative CRC rates and the actual ACR rates for each billed tier. The Plan
   then used this difference to dete1mine an FEHBP rate reduction. This method does not
   conf01m to the rate instm ctions. The conect discmmt calculation compares the audited
   rate development to the actual billed rates for a group.



      rates          to .
   percent discount. -         did not receive a 11" '""'"" t

                      2012, we agree with the Plan's selections
                      as the SSSGs. Om analysis of the rates           to
                                    received a -      percent discount. - d i d not




                                                7

Per the rate instructions, the FEHBP should be given the largest discount granted to an
SSSG. We re-rated the FEHBP using the Plan’s ACR methodology, and applied the
largest SSSG discount to the FEHBP rates in each year.

Plan’s Comments (see Appendix):

The Plan disagrees with the amount of the questioned costs in the draft report.
Specifically, the Plan disagrees with the audited rates calculated for
           n 2011 and 2012. Per the Plan’s July 9, 2013 email, they believe the FEHBP
underpaid in 2011 by $74,027, and overpaid in 2012 by $1,040,623. Offsetting these two
numbers and taking into consideration the amount already paid of $460,626 leaves a
balance due of $505,970.

OIG’s Response to Plan’s Comments:

The Plan states they disagree with our audited rates for                             in
2011 and 2012, which we used to calculate the SSSG discount. The Plan did not provide
any specific reason for their disagreement in their May 29, 2013, response. In a follow-up
email from the Plan, dated July 9, 2013, they expanded on this issue:

    “GHC-SCW is still in disagreement with the audited rates that were supplied by the
    auditors. GHC supplied the corrected audited rates which are the original billed and
    final ACR calculated rates. The audited rates that were supplied by the auditors show
    an additional increase of 1% added to GHC-SCW’s original audited rates. It is the
    understanding of GHC-SCW that this may be due to the old 1% enrollment discrepancy
    which was an option for plans to add to the FEHBP’s group only not to other plan
    groups. GHC-SCW does not believe that FEHBP is entitled to increase another group’s
    original rates by 1%. If this increase is due to some other reason, please supply the
    rationale for the 1% increase.”

Our audited rates for                              in 2011 and 2012 do not reflect a one
percent enrollment discrepancy loading as suggested by the Plan. Our
          audited rates are different from the Plan’s rates due to the following:

•   Using a pooling point of           for 2011, and          for 2012.
•   Finding members who termed, and including them in the pooled claims amount, which
    the Plan did not.
•   Large claims we did not include in our pooled claims amount because they were one
    time procedures.
•   Using current member figures that matched the support provided by the Plan, but were
    different from what the Plan used at the time of rating.
•   Using an administration charge of       in 2012, which matched the support provided
    by the Plan. The Plan used an administration charge of

These are the main reasons for the differences between our audited rates and the rates
billed to                            . We continue to maintain
                                         8
               received a        percent discount for contract year 2011, and a       percent
     discount for contract year 2012. Our audited rates include application of these discounts.

     Based on our analysis, a comparison of our audited line 5 rates to the Plan’s reconciled
     line 5 rates shows that the FEHBP was overcharged $101,108 in contract year 2011, and
     $1,842,749 in contract year 2012 (see Exhibit B).

     Recommendation 1

     We recommend the Plan not include claims the Plan considers “over and done” in the
     pooled claims amount.

     Recommendation 2

     We recommend the contracting officer require the Plan to return $1,943,857 to the FEHBP
     for defective pricing in contract years 2011 and 2012. The Plan has already agreed to and
     paid $455,314 for these years, leaving a balance of $1,488,543.

2. Lost Investment Income                                                                  $37,630

  In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
  FEHBP is entitled to recover lost investment income on the defective pricing findings in
  contract years 2011 and 2012. We determined that the FEHBP is due $37,630 for lost
  investment income, calculated through August 31, 2013 (see Exhibit C). In addition, the
  FEHBP is entitled to lost investment income for the period beginning September 1, 2013,
  until all defective pricing finding amounts have been returned to the FEHBP.

  Federal Employees Health Benefits Acquisition Regulation (FEHBAR) 1652.215-70 provides
  that, if any rate established in connection with the FEHBP contract was increased because the
  carrier furnished cost or pricing data that was not complete, accurate, or current as certified in
  its Certificate 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 defective pricing,
  the regulation states that the government is entitled to a refund and simple interest on the
  amount of the overcharge from the date the overcharge was paid to the carrier until the
  overcharge is liquidated.

  Our calculation of lost investment income is based on the United States Department of the
  Treasury's semiannual cost of capital rates.

  Plan’s Comments (see Appendix):

  The Plan agrees that the FEHBP is due simple interest on any overcharges. The Plan does not
  agree with the amount we calculated based on the findings in the draft report. The Plan
  submitted a check to the FEHBP for the defective pricing amount they agreed to of $455,314
  plus $5,312 for interest, totaling $460,626. The Plan has requested lost investment income
  accrual to end on February 28, 2013.

                                                 9
  OIG’s Response to Plan’s Comments:

  We have taken into consideration the support the Plan provided in response to the draft report
  in determining the defective pricing amount on which lost investment income is calculated.
  The Plan submitted a check for $460,626 dated May 29, 2013 for the amount of questioned
  costs they agreed to after receiving the draft report.

  We calculated lost investment income through May 29, 2013 totaling $31,604. We then
  applied the Plan’s return of funds to the total questioned costs of $1,943,857 and determined
  the remaining questioned costs to be $1,483,231. Beginning May 30, 2013, we calculated lost
  investment income on the remaining questioned costs up until August 31, 2013. The lost
  investment income totaled $6,026 during this time.

  The total lost investment income findings amount to $37,630. We will continue to assess lost
  investment income until all defective pricing findings are returned to the FEHBP.

  Recommendation 3

  We recommend that the contracting officer require the Plan to return $37,630 to the FEHBP
  for lost investment income, calculated through August 31, 2013, on the defective pricing
  findings. The Plan has already paid $5,312 for lost investment income through August 31,
  2013, leaving a balance due at that point of $32,318. We also recommend that the contracting
  officer recover lost investment income on amounts due for the period beginning September 1,
  2013, until all defective pricing finding amounts have been returned to the FEHBP.

3. Record Retention

  The Plan did not provide original source documentation to support the rates charged to the
  FEHBP and the SSSGs for all years audited.

  FEHBAR 1652.204-70 states the carrier will retain and make available all records applicable
  to a contract term for a period of six years after the end of the contract term to which the
  records relate.

  Without appropriate supporting documentation, it is difficult to determine if the FEHBP rates
  were established in accordance with the Plan’s contract, applicable regulations, and the rate
  instructions. Under these circumstances, we may have to depend on other data, and at times,
  different rating methodologies to determine the appropriateness of the FEHBP rates. Due to
  this, the outcome of our analysis may result in a less desirable outcome to the Plan.

  During our prior audit (report number 1C-WJ-00-10-041), covering contract years 2004
  through 2009, we also found that the Plan was not compliant with the record retention clause
  of the contract. Specifically, age/sex factor and enrollment support provided by the Plan was
  not original source documentation. The Plan responded by stating they immediately made
  improvements in these areas. However, we continue to find the same record retention issues
  in this audit.

                                              10
  Plan’s Comments (see Appendix):
  The Plan disagrees with being assessed the maximum penalty allowed for breach of record
  retention. The Plan states it is working to improve their record keeping process since the
  audit. The Plan has established written guidelines that include the retention provision of six
  years and retaining original source document support.

  OIG’s Response to Plan’s Comments:

  While we acknowledge the Plan’s recent efforts in response to retaining original source
  documentation, the Plan should have resolved this issue after the prior audit report, which also
  found issues with the Plan’s record retention policy.

  Recommendation 4

  We recommend that the contracting officer assess the maximum penalty allowed in the
  contract between OPM and the Plan for the Plan’s breech of the record retention clause.

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

     •   OPM expects it to fully comply with the record retention provision of the contract and
         all applicable regulations;
     •   it should maintain original copies of all pertinent rating documents that support the
         calculations used in the rate development for the FEHBP; 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. FEHBP Claims Data Submission

  The Plan has not been sending the FEHBP claims data to the OIG. According to Carrier
  Letters 2009-06, 2010-13 and 2011-11, “All claims data [for the FEHBP] should be submitted
  on CD, DVD, USB memory stick, or electronically submitted to the OIG.” Any Plan which
  uses an ACR methodology to develop the FEHBP rates is to send the FEHBP claims data to
  the OIG.

  The Plan indicated in its proposal and reconciliation questionnaires that they rate the FEHBP
  using a CRC methodology. Based on our review, we determined the FEHBP should have
  been rated using an ACR methodology.

  Due to the error in rating methodology, the Plan did not send the FEHBP claims data to the
  OIG. Therefore, the Plan is not compliant with Carrier Letters 2009-06, 2010-13 and 2011-
  11.

  Plan’s Comments (see Appendix):
  The Plan disagrees with being assessed the maximum penalty allowed for not submitting the
  claims data for the contract years 2010 through 2012. The Plan mistakenly rated the FEHBP
                                               11
  using a CRC methodology for which claims are not required to be sent. The Plan does not
  feel they should be penalized because of this mistake. The Plan will rate the FEHBP using an
  ACR methodology going forward and will submit and maintain claims data per the rating
  instructions.

  OIG’s Response to Plan’s Comments:

  We are of the opinion that the Plan did not intentionally use the wrong rating methodology to
  rate the FEHBP for the years under review, which in turn caused them to be non-compliant
  with Carrier Letters 2009-06, 2010-13 and 2011-11. The Plan has demonstrated their
  willingness to comply with Carrier Letter 2012-15 for claims data submission for rate year
  2013, as we have received the claims data for 2013.

  Recommendation 5

  We recommend that the contracting officer instruct the Plan to fully comply with all future
  Carrier Letter instructions regarding FEHBP claims data submissions.

5. SSSG Claims Data Retention

  The Plan did not have the SSSG claims data readily available during our on-site audit.
  According to Carrier Letters 2009-06, 2010-13 and 2011-11, the Plan, “must maintain, in the
  same format as the FEHBP data, the group-specific claims or utilization data for the SSSGs.
  The carriers must keep this data at their offices and make it available for review during OIG
  audits. This data (for the FEHBP and the SSSGs) should be downloaded from a central
  database at the time the rates are developed.”

  The Plan indicated in its proposal and reconciliation questionnaires that they rate the SSSGs
  using a CRC methodology. Based on our review, we determined the SSSGs were rated using
  an ACR methodology.

  The Plan did not have the SSSG claims data readily available for us while on-site. Therefore,
  the Plan is not in compliance with the Carrier Letters 2009-06, 2010-13 and 2011-11.

  Plan’s Comments (see Appendix):

  The Plan disagrees with being assessed the maximum penalty allowed for not maintaining the
  SSSG claims data. The Plan is implementing a separate procedure to comply with the
  requirement.




                                              12
OIG’s Response to Plan’s Comments:

We do not dispute the Plan has the SSSG claims data within their claims system. However,
we did not find the SSSG claims data was readily available while we were onsite. To be
compliant with future claims carrier letters, the Plan needs to maintain the claims data which
was used at the time the SSSG rates were developed on a CD or similar media, and ensure it is
readily available to the auditors at their request. On future audits, we will check to make sure
the Plan is compliant.

Recommendation 6

We recommend that the contracting officer instruct the Plan to fully comply with all future
Carrier Letter instructions regarding SSSG claims data retention.




                                             13
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

               , Auditor-in-Charge

              , Auditor


                  ., Chief

                Senior Team Leader




                                     14
                                                                       Exhibit A

               Group Health Cooperative of South Central Wisconsin
                          Summary of Questioned Costs



Defective Pricing Questioned Costs


        Contract Year 2011                                 $101,108
        Contract Year 2012                                $1,842,749


        Total Defective Pricing Questioned Costs                       $1,943,857


Lost Investment Income


        Calculated to May 29, 2013                          $31,604
        Calculated From May 30, 2013 to August 31, 2013      $6,026


        Total Lost Investment Income                                     $37,630


Total Questioned Costs                                                 $1,981,487
                                                                             Exhibit B
                     Group Health Cooperative of South Central Wisconsin
                             Defective Pricing Questioned Costs
2011
                                                      Self      Family
  FEHBP Line 5 - Reconciled Rate
  FEHBP Line 5 - Audited Rate

  Bi-weekly Result

  To Annualize Overcharge:
     March 31, 2011 Enrollment
     Pay Periods                                       26        26
  Subtotal

  Total 2011 Defective Pricing Questioned Costs                             $101,108

2012
                                                      Self      Family
  FEHBP Line 5 - Reconciled Rate
  FEHBP Line 5 - Audited Rate

  Bi-weekly Result

  To Annualize Overcharge:
     March 31, 2012 Enrollment
     Pay Periods                                       26        26
  Subtotal

  Total 2012 Defective Pricing Questioned Costs                            $1,842,749


Total Defective Pricing Questioned Costs                                   $1,943,857
                                                                                                                     EXHIBIT C

                          Group Health Cooperative of South Central Wisconsin
                         Lost Investment Income Calculated Through May 29, 2013



  Year                                                 2011                  2012                29-May-2013           Total
Audit Findings:

1. Defective Pricing                                      $101,108            $1,842,749                        $0      $1,943,857


                           Totals (per year):             $101,108            $1,842,749                       $0       $1,943,857
                          Cumulative Totals:              $101,108            $1,943,857               $1,943,857       $1,943,857

              Avg. Interest Rate (per year):               2.5625%               1.8750%                  1.3750%

          Interest on Prior Years Findings:                      $0                 $1,896                $11,137          $13,033

                       Current Years Interest:                $1,295             $17,276                        $0         $18,571

      Total Cumulative Interest Calculated
                 Through May 29, 2013:                        $1,295             $19,172                  $11,137          $31,604




            Lost Investment Income Calculated From May 30, 2013 to August 31, 2013



                                                                                             Interest on Remaining
                                                 Defective Pricing     Amount Paid By               Findings
  Year                                                Total            Plan on 5/29/2013          31-Aug-2013          Total
Audit Findings:

1. Defective Pricing                                    $1,943,857              $460,626               $1,483,231       $1,483,231


                          Cumulative Totals:                                                           $1,483,231       $1,483,231

              Avg. Interest Rate (per year):                                                              1.6250%

           Interest on Remaining Findings:                                                                  $6,026             $6,026


 Total Cumulative Interest Calculated From                                                                  $6,026             $6,026
        May 30, 2013 to August 31, 2013:
                                                                                                          APPENDIX 



                                                                                                         Administrative Offices
                                                                                                   1265 John Q. Hammons Drive
                                                                                                                 PO Box 44971
                                                                                                       Madison. WI 53744-4971
                                                                                                                (800) 605-4327
                                                                                                                (608) 251-4156
              Accredited by the National Comminee fer Quality Assurance - NCQA                              Fax (608) 257-3842
                                                                                                             www.ghc-hmo.com




May 29, 2013




-	                 -Rated Audits Group
U.S. Office of Personnel Management
Office of the Inspector General
800 Cranberry Woods Drive
Suite 270
Cranberry Township, PA 16066


RE: 	   Group Health Cooperative of South Central W isconsin Federal Employees Health Benefits Program
        Draft Report Dated February 28, 2013


This letter is in response to the proposed findings and recommendations set forth in the above-referenced draft
audit report (the "Draft Report") on the Federal Employees Health Benefits Program ("FEHBP") operations at
Group Health Cooperative of South Central Wisconsin ("GHC-SCW") for contract years 2010, 2011 , and 2012 .

GHC-SCW is a small Staff Model HMO selling Health Care Benefit (Insurance) plans to employer groups in
Dane County in the State of Wisconsin. GHC-SCW is organized as a member owned Cooperative under
Chapter 185 of the Wisconsin Statutes and is under the regulatory authority of the State of Wisconsin Office of
Commissioner of Insurance. GHC-SCW is an non-profit, tax-exempt organization under 501(cX3) of the
Internal Revenue code. GHC-SCW is the only non-profit and is also smallest, serving 71,000 of the 552,000
lives covered by the four HMO's serving employers in Dane County. Although, GHC-SCW is a small HMO, we
are a nationally recognized leader for quality that has been consistently ranked in the Top Ten health Plans in
the United States by NCQA, #9 in 2012, and the Top Health Plan in Wisconsin for the past seven years.

The draft report questions inappropriate health benefit charges to the FEHBP for the years 2011 and 2012 in
the amount of $2,064,048. The questioned amount includes $2,038,188 for defective pricing and $25,930 for
lost investment income. The contract year 2010, did not result in any questionable costs.

According to the FEHBP Acquisition Regulation 1652.215-70, OPM is entitled to lost investment income when
rates are reduced due to defective pricing. OPM determined FEHBP is due an amount of $25,930 ca lcu lated
through February 28, 201 3. The regulation entitles a continuum of interest accrual as of March 1, 2013 until
the overcharge is paid .



   Capit ol Clin ic             De Forest Clinic         GHC East Clinic           Hatchery Hill Clinic      Sauk Tra ils Clinic
   675 West Washington Avenue   815 South Main Street    5249 East Terrace Drive   3051 Cahill Main          8202 EJ:celsior Drive
   Madison, WI 53703            DeForest, WI 53532      Madison, WI 53718          Fitchburg, W I 53711      Madison, WI 53717
   (608) 257-9700               (608) 846-4787          (608) 2.22-9777            (608) 661 -7200           (608) 831 -1 766
   Fax (608) 258-9042           Fax (608) 846-4605      Fax (608} 221-2646         Fax (608) 661-7201        (608) 251-5797
                                                                                                             Fax (608} 831-1562
 OPM Recommendation 1:
 OPM recommends that the contracting officer instruct the Plan to carefully follow the rate instructions when
 developing the FEHBP's rates.

GHC-SCW's Comments to Recommendation 1: 

The plan's original rate reconciliation had calculated a rate discount for the FEHBP by evaluating the SSSGs' 

rates relative to the CRC method used to rate the FEHBP. The Draft Report notes that the SSSGs were rated 

using an ACR method and that the FEHBP and the SSSGs should be rated using the same rating 

methodology. It recommends, therefore, that the FEHBP be re-rated on an ACR basis, w ith the rates for the 

SSSGs and the FEHBP to be assessed relative to ACR rating. The FEHBP rate instructions actually state: 


          "The carrier is expected to use the same rating method for the Federal group as it uses for the
          SSSGs though different rating methods are acceptable in some situations.· (2012 Community
          Rating Guidelines, Part 1 at p. 11)

It is, therefore. permissible for a plan to use a different rating method for the FEHBP than for its SSSGs
in some instances. GHC.SCW will not contest the Draft Audit's recommendation that the FEHBP's
rates be recalculated on an ACR basis provided that corrections are made to the Draft Report's
calculations, as explained below. GHC-SCW appreciates its obligations as an FEHBP carrier and has
established written guidelines around the FEHBP process to ensure the appropriate rating methodology
is followed for the FEHBP.

See Attachment A.


OPM Recommendation 2 :
OPM recommends that the contracting officer instruct the Plan to revise its pooled claims criteria in a manner
that can be consistently applied to all groups in an objective manner.

GHC-SCW's Comments to Recommendation 2:
GHC-SCW is in partial agreement that the pooled claims criteria be applied consistently across all groups in an
objective manner. The Plan has consistently applied the set pooling point thresholds and the removal of
aggregated claims of ~ or over. GHC-SCW did not have explicit written guidelines in place on how to
exclude one-time claim proceaures and what defines a one-time claim procedure. The plan did not have any
supporting documentation saved at the time of the rating process to support the excluded one-time
procedures.

The Plan rea lizes the importance of written procedures and documented support. The Plan has implemented
and expanded on the written guidelines for calculating the pooled claims as noted in attachment A. The
Underwriter has included an attestation with a list to set parameters one-time claim procedures to be applied
consistently across all groups.

See Attachment B.




   Capitol Clinic              De Forest Clinic         GHC East Cl inic          Hatchery Hill Cl inic   Sauk Trails Clinic
  675 West Washington Avenue   81 5 South Main Street   5249 East Terrace Drive   3051 Cahill Main        8202 Excelsior Drive
  Madison, WI 53703            DeForest. WI 53532       Madison. WI 53718         Fitchburg. WI 5371 1    Madison. WI 53717
  (608) 257-9700               (608) 846-4787           (608) 222.-9777           (608) 661 -7200         (608) 831-1766
  Fax (608) 258-9042           Fax (608) 846-4605       Fax (608) 221-2646        Fax (608) 661-7201      (608) 251-5797
                                                                                                          Fax (608) 831-1562
OPM Recommendation 3: 

OPM recommends that the contracting officer require the Plan to return $2,038,118 to the FEHBP for defective 

pricing in contract years 2011 and 2012.

GHC-SCW's Comments to Recommendation 3: 

GHC-SCW disagrees with the defective   amount of $2,038,118 that is bei 

years 2011 and 2012. 





 Capit ol Clinic              De Forest Clinic        GHC East Clinic           Hatchery Hill Clinic   Sauk Trails Clinic
 675 West Washington Avenue   815 South Main Street   5249 East Terrace Drive   3051 Cahill Main       8.202 E xce lsio r Drive
 Madison. WI 53703            DeForest. WI 53532      Madison. WI 53 718        F~chburg. W I 53711    Madison. W I 53717
 (608) 257-9700               (608) 846-4787          (608 ) 222-9777           (608) 661-7200         (608) 831-1766
 Fax (608) 25~9042            Fax(608) 846-4605       Fax (608) 221-2646        Fax (608) 661-7201     (608) 251-5797
                                                                                                       Fax(608)831-1562
GHG-SCW is also in disagreement with the audited rates that were supplied and the blended
overcharge/discount rate for               calculated on the lead schedule. GHC-SCW has supplied the
correct rates using the ACR me~mcma11Da




OPM Recommendation 4:
OPM recommends that the contracting officer require the Plan to return $25,930 to the FEHBP for lost
investment income, calculated through February 28, 2013, on the defective pricing findings. We also
recommend that the contracting officer recover lost investment income on amounts due for the period
beginning March 1, 2013 , until all defective pricing finding amounts have been returned to the FEHBP.

GHC-SCW's Comments to Recommendation 4:
GHC-SCW is in agreement with the FEHBP Acquisition Regulation 1652.215-70 and that the reg ulation states
that the government is entitled to a refund and simple interest on the amount of the overcharge from the date
the overcharge was pa id to the carrier until the overcharge is liquidated. GHC-SCW is not in agreement with
the amount of $25,930 that is calculated for lost investment income.

GHC-SCW is requesting the accrual interest timeframe to end as of the noted February 28, 2013 date . GHC­
SCW would like to request all interest accrual ends as of the month of February since GHC-SCW will pay the
defective pricing amount of $455,314 plus the 2 months of interest accrual, $5,312 for a tota l of $460,626.

See Attachment 0




  Capitol Clinic               De Forest Clinic        GHC East Clinic           Hatchery Hill Clinic   Sauk Trails Clinic
  675 West Washington Avenue   815 South Main Street   5249 East Terrace Drive   3051 Cahill Main       8202 Excelsior Drive
  Madison. WI 53703            DeForest, WI 53532      Madison, WI 53718         Fltchburg, WI 53711    Madison, WI 53717
  (608) 257-9700               (608) 846-4787          (608) 222.-9777           (608} 661-7200         (608) 831-1766
  Fax (608} 258-9042           Fax (608) 846-4605      Fax (608) 221-2646        Fax (608) 661-7201     (608) 251-5797
                                                                                                        Fax (608) 831-1562
 OPM Recommendation 5: 

 OPM recommends that the contracting officer assess the maximum penalty allowed in the contract between 

 OPM and the Plan for the Plan's breach of the record retention clause. 


OPM also recommends that the contracting officer inform the Plan that:
  • 	 OPM expects it to fully comply with the record retention provision of the contract and all applicable
      regulations;
  • 	 it should maintain original copies of all pertinent rating documents that support the calculations used in
      the rate development for the FEHBP; and
  • 	 the applicable community-rated performance factors described in FEHBAR 1609.7101-2 wi ll be
      enforced if information requested during an audit is not provided.


GHC-SCW's Comments to Recommendation 5: 

GHC-SCW disagrees with being assessed the maximum penalty allowed for breach of record retention. GHC­

SCW is working very hard towards process improvement and has taken action since the on-site of the FEHBP 

audit. As noted in the comments section to recommendation 1, GHC-SCW has established written guidelines 

that include the retention provision of six years and retaining original source document support. 


See Attachment 1. 



OPM Recommendation 6: 

OPM recommends that the contracting officer assess the maximum penalty allowed in the contract between 

OPM and the Plan, for not submitting the FEHBP claims data to OIG for contract years 2010 through 2012. 


GHC-SCW's Comments to Recommendation 6: 

GHC-SCW disagrees with being assessed the maximum penalty allowed for not submitting the cla ims data for 

the contract years 2010-20 12. GHC-SCW rated the FEHBP using the CRC methodology, whi ch submission of 

the claims data is not a requirement, therefore was compliant according to the CRC rate instructions. GHC­ 

scw should not be penalized on such a matter. Going forward GHC-SCW will rate using the ACR 

methodology and will submit and maintain claims data per the rating instructions and per GHC-SCW FEHBP 

guidelines that have been put in place. 



OPM Recommendation 7: 

OPM recommends that the contracting officer assess the maximum penalty allowed in the contract between 

OPM and the Plan. for not maintaining the SSSG claims data for their review. 


GHC-SCW's Comments to Recommendation 7: 

GHC-SCW disagrees with being assessed the maximum penalty allowed for not maintaining the SSSG claims 

data. GHC-SCW maintains all claim data within the claims system Tapestry. GHC-SCW is implementing a 

separate data mart, a single source for integration and reporting that will be retained for a minimum of 6 years. 


See Attachment 1 





   Capitol Clinic               De Forest Clinic        GHC East Clin ic          Hatchery Hill Clinic   Sauk Trails Clinic
   675 West Washington Avenue   815 South Main Street   5249 East Terrace Drive   3051 Cahill Main       8202 E.xcelsior Drive
   Madison. WI 53703            DeForest. WI 53532      Madison. WI 53718         Fitchburg, WI 53711    Madison, WI 53717
   (608) 257-9700               (608) 846-4787          (608) 222-9777            (608) 661-7200         (608) 831-1766
   Fax (608) 258-9042           Fax (608) 846-4605      Fax (608) 221-2646        Fax (608) 661-7201     (608) 251-5797
                                                                                                         Fax(608) 831-1562
        Page JofJ

Conclusion: 

In closing , GHC-SCW is in partial agreement with OPM's Recommendation 1, 2 and is in disagreement with 

Recommendations 3,4,5,6 & 7. GHC-SCW is requesting the interest accrual to end as of February 28 with no 

additional added interest there forward. GHC-SCW is proposing an amount due to OPM of $460 ,626 . 


Enclosed please find a check in the amount of $460,626 to close this matter. We would be happy to respond 

to any additional questions you may have -and consider this matter closed . 


Please contact me                          for any additional information you may require .




Enclosures

Cc:                          Chief Insurance Group Ill
                                of Finance
                       Internal Auditor




  Capitol Clinic                De Forest Clinic         GHC fast Clinic           Hatchery Hill Clinic   Sauk Trails Clinic
  675 West Washington Avenue    81 5 South Main Street   5249 East Terrace Drive   305 1 Cahill Main      8202 Excelsior Drive
  Madison. WI 53703             DeForest. WI 53532       Madison. WI 53718         Fitchburg. WI 53711    Madison. WI 53717
  (608) 257-9700                (608) 846-4787           (608) 222-9777            (608) 661-7200         (608) 831-1766
  Fax (608) 258-9042            Fax(608 ) 846-4605       Fax (608) 221-2646        Fax (608) 661-7201     (608) 251-5797
                                                                                                          Fax (608) 831-1562
                                   And Input Needed Before Final Report



See our responses below. I have up dated t he spreadsheets that we re sent by you and made the
cha ng es to the claims tab and made the changes to the -             aud ited rates . We still believe the
rates supplied by OPM are incorrect, the rates have a .        increase and are not our actual billed or
fin al rates. I would still like to continue discussion on th~ rates. With t he new
adjustments the 2011 s hows that th e Feds stil l underpaid by -            and 2012 new calculations
are -             that would be owed. Using the 2011 to offset 2012 would equa l a total of
-            GHC has submitted a payment of -               leaving a balance o-            due.

Please let me know when we can talk about th~ rates.

Thank you.
          , MBA, CHA
Internal Auditor
G ro up Healih Coopera tive o f South Cen tra W isconsin




                                            Needed Before Final Report

Hi. .

I wanted to summarize a few items we have been communicating about before I can finish the
final report. Please have any responses due to me by end of day 7/9/2013. After that point, I wi ll
need to move on and fin ish the final report and turn it in for review. If I have any other questions
or concerns I will let you know.
 The Plan says they do not agree with our aud ited rates used in the lead schedule. The Plan has
 not given any rea son why they disagree however, so our audited rates wil l rema in the same for
                  for d eterm ining the d iscount in the Final.

 Response: GHC- SCW is still in d isagreemen t with the audited rat es that were sup plied by t he
 auditors. GHC sup plied the corrected audited rates which are the original billed and fin al ACR
calculated ra tes. (See exh ibit H for 2011 and exhibit J for 2012 in the docume nted sup port
suppl ied as part of GHC-SCW's response to th e draft report.) The aud ited rates that were
suppl ied by the aud itors show an add ition al increase o~ added to GHC- SCW's origina l audited
rates. It is the u nderstanding of GHC-SCW that this may be due to t he ol ~ enrollment
discrepancy which was an optio n fo r plans to add to the FEHBP's group only not to other p lan
groups. GHC -SCW does not believe that FEHBP is entitled to increase another group 's orig inal
rat es by .    If this increase is due to some other reason, please supply the rationale for the 1%
rncrease.




Thanks,



Lead Auditor

 •          .   . . ..
Office of the Inspector General
               . ... '
OIG Deleted - Not
                                  .   '


Relevant to the Final
Report