oversight

Audit of the Federal Employee Health Benefit Program Operation at HealthPlus of Michigan

Published by the Office of Personnel Management, Office of Inspector General on 2018-04-24.

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
         HEALTHPLUS OF MICHIGAN

          Report Number 1C-X5-00-17-032
                  April 24, 2018
             EXECUTIVE SUMMARY 

                        Audit of the Federal Employees Health Benefits Program 

                                  Operations at HealthPlus of Michigan 

Report No. 1C-X5-00-17-032                                                                               April 24, 2018

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

The primary objective of the audit was to   This report questions $527,027 for overstating the OPM MLR credits
determine if HealthPlus of Michigan         in contract years 2013 through 2015. Specifically, our audit
(Plan) was in compliance with the           identified the following:
provisions of its contract and the laws
and regulations governing the Federal       	 In contract year 2013, we determined that the Plan used its own
Employees Health Benefits Program              unsupported premium amount and an inaccurate adjusted
(FEHBP). To accomplish this objective,         incurred claims amount in its MLR calculation. These errors
we verified whether the Plan met the           resulted in an overstatement of the Plan’s 2013 OPM MLR credit
Medical Loss Ratio (MLR) requirements          totaling $188,957.
and thresholds established by the U.S.
Office of Personnel Management (OPM).
                                            	 In contract year 2014, we found errors in the Plan’s adjusted
                                               incurred claims total, in the coordination of benefits claims
Because of Program changes resulting
                                               review, and in the high dollar pharmacy prescriptions review.
from OPM’s roll-out of its MLR
                                               These errors resulted in an overstatement of the Plan’s 2014
Program, we are no longer performing a
                                               OPM MLR credit totaling $315,052.
review of the FEHBP’s rates.
Consequently, this change to our audit
process only allows us to verify whether    	 In contract year 2015, we identified errors within the adjusted
the calculated percentage of the premium       incurred claims total, as well as the expense allocations for the
paid is spent on patient related health        Quality Healthcare Improvement and the Health Insurance
care expenses. It does not allow us to         Provider Fee expenses. These errors resulted in an
assess the fairness of the premium paid        overstatement of the Plan’s 2015 OPM MLR credit totaling
for benefits received.                         $23,018.

What Did We Audit?                          	 Material weaknesses in the Plan’s internal control structure that
                                               resulted in their inability to adequately support the 2013 through
Under Contract CS 2712, the Office of          2015 MLRs filed with OPM.
the Inspector General (OIG) completed
a performance audit of the FEHBP            	 For contract years 2013 and 2014, the Plan did not maintain a
MLR submissions to OPM for contract            required Fraud, Waste, and Abuse (FWA) Manual or provide all
                                               FWA potential case notifications to the OPM OIG, as required
years 2013 through 2015. Our audit
                                               by Carrier Letters 2011-13 and 2014-29.
fieldwork was conducted from May 15,
2017, through October 11, 2017, at the      	 Our audit did not disclose any findings related to the Plan’s
Plan’s office in Flint, Michigan and in        policies and procedures for debarment or off-shore contracting.
our OIG offices.                               Additionally, our audit did not disclose any findings related to
                                               our claim reviews for deceased members, dependent eligibility,
                                               member eligibility, or non-covered benefits.
 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                       i
           ABBREVIATIONS


CFR        Code of Federal Regulations
Contract   OPM Contract CS-2712
FAR        Federal Acquisition Regulation
FEHBAR     Federal Employees Health Benefits Acquisition Regulations
FEHBP      Federal Employees Health Benefits Program
FWA        Fraud, Waste, and Abuse
HIPF       Health Insurance Providers Fee
MLR        Medical Loss Ratio
OIG        Office of the Inspector General
OPM        U.S. Office of Personnel Management
Plan       HealthPlus of Michigan
QHI        Quality Healthcare Improvement
SSSG       Similarly-Sized Subscriber Group




                        ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS
                                                                                                                                   Page
         EXECUTIVE SUMMARY ........................................................................................ i

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


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


  II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................4

  III.   AUDIT FINDINGS AND RECOMMENDATIONS ................................................9

         A. Medical Loss Ratio Review ............................................................................................... 9

              1. Overstated Medical Loss Ratio Credit ......................................................................... 9

                    a.       Adjusted Incurred Claims ............................................................................... 10

                    b.       MLR Claims Data ........................................................................................... 12

                    c.       QHI and HIPF Expenses.................................................................................. 14

                    d.       2013 Premium Income ..................................................................................... 14

         B. Internal Controls Review .................................................................................................. 15

         C. Fraud, Waste and Abuse Review ..................................................................................... 17

         D Debarment Review ........................................................................................................... 17 


         E. Offshore Contracting Review ........................................................................................... 17


         Exhibit A (Summary of MLR Credit Adjustment)

         Exhibit B (2013 MLR Credit Adjustment)

         Exhibit C (2014 MLR Credit Adjustment)

         Exhibit D (2015 MLR Credit Adjustment)


         APPENDIX (HealthPlus of Michigan’s December 21, 2017 Response to the Draft
         Report)


         REPORT FRAUD, WASTE, AND MISMANAGEMENT
IV. MAJOR CONTRIBUTORS TO THIS REPORT
            I. BACKGROUND
This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at HealthPlus of Michigan (Plan). The audit was conducted pursuant to the
provisions of Contract CS 2712 (Contract); 5 United States Code (U.S.C.) Chapter 89; and 5
Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit covered contract years 2013
through 2015, and was conducted at the Plan’s office in Flint, Michigan.

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 MLR was established to ensure that healthplans are meeting specified thresholds for
spending on medical care and health care quality improvement measures, and thus limiting
spending on administrative costs, such as executive salaries, overhead, and marketing. For
example, the threshold of 85 percent requires carriers to spend 85 cents of every premium dollar
on patient care and limits the amount that can go to administrative expenses and profit to 15
cents of every dollar. However, the MLR does not provide an assessment of the fairness of the
premium paid for benefits received, only that the calculated percentage of the premium paid is
spent on patient related health care expenses.

The FEHBP-specific MLR rules are based on the MLR standards established by the Affordable
Care Act (P.L. 111-148) and defined by the U.S. Department of Health and Human Services 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, however, the
MLR methodology was required for all community-rated carriers, except those that are state-

                                                1                  Report No. 1C-X5-00-17-032
mandated to use traditional community rating. State-mandated traditional community-rated
carriers continue to be subject to the SSSG comparison rating methodology.

Starting with the pilot program in 2012 and for all non-traditional community-rated FEHBP
carriers in 2013, OPM required the carriers to submit an FEHBP-specific MLR. This FEHBP-
specific MLR calculation required carriers 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. 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. In addition, participation in the FEHBP subjects the
carriers to the Federal Employees Health
                                                                   FEHBP Contracts/Members
Benefits Act and implementing                                              March 31
regulations promulgated by OPM.
                                                        4,000
                                                        3,500
The number of FEHBP contracts and                       3,000
members reported by the Plan as of                      2,500
March 31 for each contract year audited                 2,000
is shown in the chart to the right.                     1,500
                                                        1,000

The Plan has participated in the FEHBP                   500

since 1995 and provides health benefits                    0
                                                                 2013   2014           2015
to FEHBP members in the eastern                      Contracts  1,514   1,528          1,326
                                                     Members    3,807   3,603          3,058
Michigan area. However, effective
January 1, 2017, the Plan merged with
Health Alliance Plan. Consequently, it is no longer a participating FEHBP carrier.

There were no previous MLR audits of the Plan. However, a prior audit of the Plan covered
contract years 2011 and 2012. The audit found that the FEHBP premium rates were developed
in accordance with the Office of Personnel Management's rules and regulations for contract year
2011. However, the Plan was not compliant with its FEHBP record retention clause in contract
year 2012. The audit report did not identify any questioned costs, but recommended that the
Contracting Officer assess the maximum allowed penalty in the Plan's contract with OPM for
breach of the record retention clause and to inform the Plan that they are expected to fully
comply with the record retention provisions of the Contract and applicable regulations.




                                                  2                   Report No. 1C-X5-00-17-032
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.




                                                 3                  Report No. 1C-X5-00-17-032
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          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 and thresholds
 established by OPM and paid the correct amount to the Subsidization Penalty Account, if
 applicable. Additional tests were also performed to determine whether the Plan was in
 compliance with the provisions of other applicable laws and regulations. Further, we reviewed
 the Plan’s internal controls; compliance with fraud, waste, and abuse (FWA) requirements;
 debarment; and offshore contracting program areas to ensure that the Plan had adequate policies
 and procedures covering these areas.

 Our audits of the MLR submission filed with OPM are completed in accordance with the criteria
 expressed in OPM’s rating instructions. The MLR audit evaluation includes an assessment of
 key components of the MLR calculation, including allowable claims, health care expenses, and
 quality health improvements (numerator), and the premium received, excluding applicable tax
 expenses (denominator). The result of the MLR calculation must meet OPM’s prescribed
 thresholds. If the calculation falls below the threshold, the health plan must pay a penalty
 determined by the variance between the actual MLR ratio and the established threshold.

 Although the FEHBP premiums used in the MLR calculation are ultimately determined by the
 premium rates proposed by the Plan and certified and paid by OPM, the OPM rating instructions
 no longer provide sufficient criteria to evaluate the fairness of those rates against the standard
 market value of similarly-sized groups. Furthermore, per the OPM rating instructions, health
 plans can utilize OPM’s total reported premium, as the denominator in the MLR calculation,
 which when utilized is not subject to audit. Since the majority of health plans choose this option,
 the premiums utilized in the MLR calculation are very frequently not available for audit and the
 fairness of the FEHBP premium rates cannot be evaluated.

 SCOPE

 We conducted this performance audit in accordance with generally accepted government auditing
 standards. Those standards require that we plan and perform the audit to obtain sufficient,
 appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
 audit objectives. We believe that the evidence obtained provides a reasonable basis for our
 findings and conclusions based on our audit objectives.


                                                  4                  Report No. 1C-X5-00-17-032
This performance audit covered contract years 2013 through 2015. For these years, the FEHBP
paid approximately $56.7 million in premiums to the Plan.

The Office of the Inspector General’s
                                                                FEHBP Premiums Paid to Plan
(OIG) audits of community-rated carriers
are designed to test carrier                                $20.0
compliance with the FEHBP contract,                         $18.0
                                                            $16.0
applicable laws and regulations, and the
                                                            $14.0




                                             Millions
rate instructions. These audits are also                    $12.0
                                                            $10.0
designed to provide reasonable assurance
                                                             $8.0
of detecting errors, irregularities, and                     $6.0
illegal acts.                                                $4.0
                                                             $2.0
                                                             $0.0
                                                                      2013          2014      2015
We obtained an understanding of the               Revenue     $19.6      $19.1        $18.0
Plan’s internal control structure, but we
did not use this information to determine
the nature, timing, and extent of our audit procedures. Our review of internal controls was
limited to the procedures the Plan has in place to ensure that:

        The FEHBP MLR calculations were accurate, complete, and valid; claims were
         processed accurately; appropriate allocation methods were used; and, that any other
         costs associated with its MLR calculations 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 15, 2017, through October 11, 2017, at the Plan’s
office in Flint, Michigan and in our offices in Jacksonville, Florida; Cranberry Township,
Pennsylvania; and Washington, D.C.

METHODOLOGY

We examined the Plan’s MLR calculations and related documents as a basis for validating the
MLR. Further, we examined claim payments, quality health expenses, taxes and regulatory fees

                                                        5                     Report No. 1C-X5-00-17-032
       and any other applicable costs 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 calculations. 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 calculations.

       To gain an understanding of the internal controls over the Plan’s MLR process, we reviewed the
       Plan’s MLR policies and procedures and interviewed appropriate Plan officials regarding the
       controls in place to ensure that MLR calculations were completed accurately and appropriately.
       Other auditing procedures were performed as necessary to meet our audit objectives.

       We also interviewed Plan officials and reviewed the Plan's policies and procedures associated
       with its internal controls over the claims processing system, FWA, debarment and offshore
       contracting programs.

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


                  Medical Claims Sample Selection Criteria/Methodology
                                                                                                        Results
                                                                     Sample
Medical Claims         Universe         Universe    Universe                           Sample          Projected
                                                                   Criteria and
 Review Area           Criteria        (Number)     (Dollars)                           Type             to the
                                                                       Size
                                                                                                       Universe?
                                                                 Judgmentally
                    Queried high
                                                                 selected 14
                    dollar medical
Coordination of                                                  claims greater
                    claims for          7,333
Benefits with                                      $1,678,198    than or equal to     Judgmental           No
                    members             claims
Medicare 2014                                                    $8,000 totaling
                    greater than or
                                                                 $387,085 for 10
                    equal to age 65
                                                                 members
                    Queried
                    medical claims                               Randomly
                    (excluding high                              selected 15
Coordination of     dollar claims                                claims from the
                                        7,319
Benefits with       from the COB                   $1,291,113    universe using        Random              No 
                                        claims 
Medicare 2014       sample above)                                SAS EG,
                    for members                                  totaling $2,901
                    greater than or                              for 12 members 
                    equal to age 65 



                                                       6                  Report No. 1C-X5-00-17-032
                    Queried
                                                               Randomly
                    members with
                                                               selected 25
Member              at least one        3,294
                                                    N/A        members from        Random            No
Eligibility 2014    medical claim      members
                                                               the universe
                    during FY
                                                               using SAS EG
                    2014.
                    Queried
                    members
                                                               Selected the full
Dependent           greater than or      42
                                                    N/A        universe of 42        N/A         N/A
Eligibility 2014    equal to age 26    members
                                                               members
                    designated as
                    dependent

                    Queried
                    medical claims                             Selected the full
Deceased                                 12
                    for members                     N/A        universe of 12        N/A         N/A
Member 2014                            members
                    greater than or                            members
                    equal to age 80



                Pharmacy Claims Sample Selection Criteria/Methodology

                                                                                                Results
   Pharmacy                                                        Sample
                       Universe                                                    Sample      Projected
 Claims Review                          Universe   Universe      Criteria and
                       Criteria                                                     Type         to the
     Area                              (Number)    (Dollars)         Size
                                                                                               Universe?
                                                                Selected all
                                                                members that
                    Queried
                                                                were NOT part
                    members
                                                                of the medical
Dependent           greater than or      40
                                                     N/A        dependent            N/A             N/A 
Eligibility 2014    equal to age 26    members 
                                                                eligibility
                    designated as
                                                                review sample,
                    dependent
                                                                which totaled 2
                                                                members

                    Queried                                     Selected all
                    pharmacy                                    pharmacy
High Dollar
                    claims greater                              claims,
Pharmacy                                  28
                    than or equal to               $227,996     representing 9       N/A             N/A
Prescriptions                           claims
                    $5,000                                      members, from
2014
                                                                the universe.




                                                     7                  Report No. 1C-X5-00-17-032
Finally, 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.




                                                8                  Report No. 1C-X5-00-17-032
III. AUDIT FINDINGS AND RECOMMENDATIONS

 Effective January 1, 2017, the Plan merged with Health Alliance Plan. Consequently, it is no
 longer a participating FEHBP carrier. As a result of the merger, this report does not offer
 recommendations on audit issues that could only be remedied if the Plan continued to operate as
 a going concern.

 A. Medical Loss Ratio Review

    1. Overstated Medical Loss Ratio Credit                                               $527,027

        Beginning with its pilot program in 2012, OPM’s MLR program replaced SSSG
        requirements with an MLR threshold. Simply stated, the MLR is the ratio of the FEHBP
        incurred claims (including expenses for health care quality improvements (QHI)) to total
        premium revenue determined by OPM.

        For contract years 2013 through 2015, OPM established                  The Plan’s non-
        an MLR threshold of 85 percent and created an MLR                      compliance with
        corridor. This threshold requires carriers to spend 85             Program requirements
        cents of every health care premium dollar on health care              and its inability to
        expenses. If a carrier’s MLR falls between 85 and 89                   support its MLR
        percent, no penalty is due. If a carrier’s MLR is less than       calculations resulted in a
        85 percent, the carrier will owe a subsidization penalty           total overstated MLR
        equal to the difference between the threshold and the               credit of $527,027 for
        carrier’s actual MLR, multiplied by the denominator of               contract years 2013
        the MLR. If the MLR is over 89 percent, the carrier                     through 2015.
        receives a credit equal to the difference between the
        carrier’s reported MLR and 89 percent, multiplied by the denominator of the MLR. For
        contract year 2013, the credit can be used to offset any future MLR penalties and is
        available until it is used up by the Plan or the Plan exits the FEHBP. For the remaining
        contract years, the credit can be used to offset any future MLR penalties for a period of
        five years subsequent to the current contract year.

        The Plan calculated an MLR of 96.82 percent, 102.49 percent, and 106.30 percent for
        contract years 2013, 2014, and 2015, respectively. Since these ratios exceeded the OPM
        established threshold of 89 percent, the Plan received a 2013 MLR credit of $1,539,615, a
        2014 MLR credit of $2,562,532, and a 2015 MLR credit of $3,033,892. However, during
        our review of the Plan’s MLR submissions in each of these years, we identified issues

                                                  9                   Report No. 1C-X5-00-17-032
that resulted in audited MLR percentages that were lower than those calculated by the
Plan. Consequently, this audit determined that the Plan’s MLR credits should be reduced
by $188,957, $315,052, and $23,018 for contract years 2013 through 2015, respectively.
The specific issues that led to the overstated credits include the following.

a. Adjusted Incurred Claims

   During our claims review, we determined that the Plan's adjusted incurred claims
   were not fully supported and included erroneous prior year adjustments. Specifically,
   it erroneously included prior year medical claim adjustments in the 2013 and 2014
   medical claims, it included unsupported indirect healthcare expenses in its 2015
   incurred claims amount, and we identified variances within the Plan's pharmacy
   rebates, as well as unexplained medical claims variances in the 2013 through 2015
   incurred claims.

   OPM's Carrier Letters 2014-18 and 2015-11 require carriers to only include claims
   incurred during the current calendar year and paid through June 30 of the following
   year as part of their MLR calculation.

   Additionally, the 2013, 2014, and 2015 OPM Rating Instructions require that Carriers
   "maintain all MLR documentation ... to fully support all claim values." OPM
   Contract Section 1.11(b) further requires insurance carriers to maintain all records
   relating to the Contract and to make these records available for a period of time
   specified by the FEHBAR 1652.204-70. The referenced clause is also incorporated at
   Section 3.4, which requires the carrier to maintain individual enrollee and/or patient
   claim records "for six years after the end of the contract term to which the claim
   records relate.”

   Finally, Section 5.7(f) of the Contract states that “The Contractor shall make available
   at its office at all reasonable times the records, materials, and other evidence ... for
   examination, audit, or reproduction, until 3 years after final payment under this
   contract or for any shorter period specified in Subpart 4.7, Contractor Records
   Retention, of the Federal Acquisition Regulation (FAR), or for any longer period
   required by statute or by other clauses of this contract.”

   The Plan explained that its actuarial reports used to support the medical claims totals
   included claims paid through June 30 of the following calendar year. However, those
   claims also included prior year dates of service claims totaling $83,035 and ($17,742)
   for 2013 and 2014, respectively. The Plan did not adjust its claims totals to remove

                                         10                 Report No. 1C-X5-00-17-032
the unallowable prior years' claims. As a result, we did not include the unallowable
claim amounts in our audited 2013 and 2014 claims figures.

The Plan also included indirect healthcare expenses for the Affordable Care Act
Vision/Dental and Other categories, totaling $12,964, in its 2015 adjusted incurred
claims. Due to its merger with another health plan and key personnel no longer being
available to provide supporting documentation, the Plan was unable to support the
indirect healthcare expenses. Consequently, we removed it from our audited MLR
calculation for 2015.

After incorporating the adjustments for the prior year’s claims and the indirect
healthcare expenses in the medical claims for 2013 through 2015, variances still
existed. The Plan was unable to account for the remaining medical claim variances
of $125,307, $49,761, and ($5,065) for 2013 through 2015, respectively. Therefore,
these medical claims variances were removed from our audited 2013 through 2015
MLR calculations.

Finally, the Plan stated that pharmacy claim variances of $44,971, $96,385, and
$62,487 for 2013 through 2015, respectively, were due to the pharmacy rebates. The
variances occurred because of the difference between the estimated pharmacy rebates
used at the time of the original MLR submissions and the actual rebate amounts
reported a year later, which the Plan provided as support during the audit. The Plan
was unable to duplicate the data used for the estimated pharmacy rebates to quantify
the pharmacy variances. Consequently, we removed the pharmacy claims variances
from our audited 2013 through 2015 MLR calculations.

As a result of the issues explained above, our audited adjusted incurred claims varied
from the Plan's calculated totals for 2013 through 2015. The results are summarized
in the following table. As stated above, we used our audited incurred claims amounts
in our audited MLR calculations for each contract year.




                  Initial Adjusted    Audited Adjusted
    Contract      Incurred Claims     Incurred Claims
     Years             Totals              Totals            Variance
     2013          $18,128,545            $17,875,232        $253,313
     2014          $18,666,717            $18,538,313        $128,404
     2015          $17,953,896            $17,883,510        $70,386

                                     11                  Report No. 1C-X5-00-17-032
b. MLR Claims Data

  During our 2014 claims review, we determined that the Plan included unsupported
  medical and pharmacy claim amounts in its MLR calculation.

  i. Coordination of Benefits

          The Plan could not       We reviewed a combined sample of 29 claims for
          support that seven       20 unique members (2 members were included in
       claims, totaling $164,081   both samples) age 65 or over from the 2014
            were properly          medical claims data to determine whether the
           coordinated with        sampled claims were properly coordinated with
               Medicare.           Medicare and paid by the Plan. The results of our
                                   review identified seven claims, totaling $164,081,
     which the Plan could not support, in spite of numerous requests for the
     documentation.

     The 2014 OPM rating instructions require that Carriers “maintain all MLR
     documentation ... to fully support all claim values.” As mentioned previously,
     Section 1.11(b) of the Contract additionally requires the Plan to maintain all
     records relating to the Contract and to make the records available for a period of
     time specified by FEHBAR 1652.204-70. The referenced clause is also
     incorporated at Section 3.4, which requires the carrier to maintain individual
     enrollee and/or patient claim records “for six years after the end of the contract
     term to which the claim records relate.”

     Because the Plan could not support the proper coordination with Medicare for
     these seven claims totaling $164,081, they were removed from our audited 2014
     MLR numerator.

  ii. High Dollar Pharmacy Prescriptions

     We reviewed a sample of 28 claims for nine
     members from the 2014 pharmacy claims data,              The Plan could not
     where the amount paid was greater than or equal       support three high dollar
     to $5,000, to determine if the claims were            pharmacy claims, totaling
     supported by an original prescription. The                    $22,567.
     results of our review identified two claims that
     were not supported by an original prescription.

                                       12                 Report No. 1C-X5-00-17-032
   As stated previously, OPM’s 2014 Community Rating Guidelines require the Plan
   “to maintain all MLR documentation ... to fully support all claim values.”
   Furthermore, Section 1.11(b) of the Contract requires the Plan to maintain all
   records relating to the Contract and to make the records available for a period of
   time specified by FEHBAR 1652.204-70. The referenced clause is also
   incorporated at Section 3.4, which requires the carrier to maintain individual
   enrollee and/or patient claim records “for six years after the end of the contract
   term to which the claim records relate.”

   The Plan stated that it had attempted several times to obtain the original
   prescriptions from its pharmacy benefit manager but was unable to do so. We
   extracted all additional prescription refills associated with both of the impacted
   prescription numbers. Consequently, we removed three unsupported claims,
   totaling $22,567, from our audited 2014 MLR numerator.

iii. Deceased Member

   Based on our review, we concluded that the Plan did not pay any medical or
   pharmacy claims for deceased members.

iv. Dependent Eligibility

   Based on our review, we concluded that the Plan did not pay any medical or
   pharmacy claims for ineligible dependents age 26 and over.

v. Member Eligibility

   Based on our review, we concluded that the Plan did not pay any medical benefits
   for members after they were terminated by the Plan, dropped coverage, or during
   a gap in coverage.

vi. Non-Covered Benefits

   Based on our review, we concluded that the Plan did not pay for benefits not
   covered in the FEHBP Plan brochure.




                                     13                  Report No. 1C-X5-00-17-032
c. QHI and HIPF Expenses

  The Plan's 2015 administrative expense percentage used to allocate its QHI and
                                    Health Insurance Providers Fee (HIPF) expenses
     QHI and HIPF expenses
                                    was inaccurate due to the removal of an
     were understated due to
                                    unsupported $154,170 tax credit.
         allocation errors.
                                        Section 1.11(b) of the Contract requires insurance
  carriers to maintain all records relating to the Contract and to make these records
  available for a period of time specified by FEHBAR 1652.204-70. The referenced
  clause is also incorporated at Section 3.4, which requires the carrier to maintain
  individual enrollee and/or patient claim records “for six years after the end of the
  contract term to which the claim records relate.”

  Furthermore, Section 5.7(f) of the Contract states that “The Contractor shall make
  available at its office at all reasonable times the records, materials, and other evidence
  ... for examination, audit, or reproduction, until 3 years after final payment under this
  contract or for any shorter period specified in Subpart 4.7, Contractor Records
  Retention, of the [FAR], or for any longer period required by statute or by other
  clauses of this contract.”

  In spite of numerous requests for documentation, the Plan was unable to support the
  removal of the $154,170 tax credit. Consequently, the $154,170 was added back into
  the audited FEHBP administrative expense total for 2015. Adding the tax credit back
  into the administrative expense total increased the overall allocation percentage from
  9.25 percent to 9.99 percent. This percentage increase raised the QHI expenses by
  $16,977, resulting in an audited expense total of $228,763, which decreased the
  FEHBP MLR claims total. Similarly, the percentage increase raised the HIPF
  expense by $34,147, resulting in an audited Federal and State Taxes and Regulatory
  Fees expense total of $460,105, which increased the Plan's allowable deduction from
  its premium totals for 2015.

d. 2013 Premium Income

  The Plan used its own internal premium income amount of $19,685,242 in its 2013
  FEHBP MLR filing.

  OPM's 2013 Community Rating Guidelines state that the Plan may use its own
  premium income, but it will be subject to audit and must be justified with supporting

                                         14                  Report No. 1C-X5-00-17-032
         documentation at the time of audit. The Plan stated that it could not support its
         internal premium income amount because personnel who could have explained and
         supported the amount were no longer with the Plan at the time of our audit.
         Consequently, we adjusted the premium income amount used in the 2013 MLR
         calculation to OPM's premium income amount of $19,612,931. The Plan stated that
         it agreed with the use of OPM's premium income amount.

     Conclusion

     We recalculated the Plan’s 2013 through 2015 MLRs, incorporating the adjustments
     mentioned above. A comparison of our audited MLR calculations to those submitted by
     the Plan showed overstated MLR credits of $188,957 for 2013, $315,052 for 2014, and
     $23,018 for 2015. (see Exhibits B, C, and D)

     Plan Response:

     The Plan agrees with all of our findings.

     Recommendation 1

     We recommend that the contracting officer instruct OPM’s Office of the Actuary to
     reduce the Plan’s 2013 credit by $188,957.

     Recommendation 2

     We recommend that the contracting officer instruct OPM’s Office of the Actuary to
     reduce the Plan’s 2014 credit by $315,052.

     Recommendation 3

     We recommend that the contracting officer instruct OPM’s Office of the Actuary to
     reduce the Plan’s 2015 credit by $23,018.

B. Internal Controls Review

  The Plan did not have any written policies and procedures regarding the FEHBP MLR
  process and was unable to provide all of the necessary supporting documentation during the
  audit.



                                              15                Report No. 1C-X5-00-17-032
Section 5.64(c)(2)(ii)(A) of the Contract states that
                                                            A lack of internal controls over
the Contractor's internal control system will at a
                                                              the MLR process resulted in
minimum provide for "Assignment of responsibility
                                                            inaccurate MLR submissions to
at a sufficiently high level and adequate resources to
                                                               OPM and overstated MLR
ensure effectiveness of the business ethics awareness
                                                             credits for 2013 through 2015.
and compliance program and internal control
system.” The Contract further states at Section 5.64(c)(2)(ii)(C)(1), (2) and (3) that the
Contractor’s internal control system should provide “Periodic reviews of company business
practices, procedures, policies, and internal controls for compliance with the Contractor's
code of business ethics and conduct and the special requirements of Government contracting,
including--
   (1) Monitoring and auditing to detect criminal conduct;
   (2) Periodic evaluation of the effectiveness of the business ethics awareness and
compliance program and internal control system, especially if criminal conduct has been
detected; and
   (3) Periodic assessment of the risk of criminal conduct, with appropriate steps to design,
implement, or modify the business ethics awareness and compliance program and the internal
control system as necessary to reduce the risk of criminal conduct identified through this
process.”

Additionally, Section 1.11(b) of the Contract requires insurance carriers to maintain all
records relating to the Contract and to make these records available for a period of time
specified by FEHBAR 1652.204-70. The referenced clause is also incorporated at Section
3.4, which requires the carrier to maintain individual enrollee and/or patient claim records
“for six years after the end of the contract term to which the claim records relate.”

Furthermore, Section 5.7(f) of the Contract states that “The Contractor shall make available
at its office at all reasonable times the records, materials, and other evidence described ... for
examination, audit, or reproduction, until 3 years after final payment under this contract or
for any shorter period specified in Subpart 4.7, Contractor Records Retention, of the [FAR],
or for any longer period required by statute or by other clauses of this contract.”

The Plan did not maintain written policies and procedures regarding its FEHBP MLR process
for the scope of our audit. As mentioned previously, effective January 1, 2017, the Plan
merged with another health plan. Due to the merger, key staff members at the Plan were not
available to answer audit requests and provide supporting documentation. As a result of the
lack of written policies and procedures, we were unable to determine if the Plan had
sufficient oversight over its MLR calculation for our audit scope and were unable to obtain
supporting documentation for various pieces of the MLR calculation in each year.

                                               16                  Report No. 1C-X5-00-17-032
C. Fraud, Waste and Abuse Review

  During our review of the Plan's FWA policies and procedures, we found that it did not
  provide all potential case notifications to the OPM OIG for contract years 2013 and 2014 as
  required by Carrier Letter 2011-13, and it did not have a separate FWA Manual as required
  by OPM's Carrier Letter 2014-29.

  According to Carrier Letter 2011-13, Carriers “are required to submit a written notification to
      The Plan did not make       the OPM OIG … within 30 working days of becoming
      the OPM OIG aware of        aware of a fraud, waste, or abuse issue where there is a
       potential fraud, waste,    reasonable suspicion that a fraud has occurred or is
       or abuse issues which      occurring against the Federal Employees Health Benefits …
        could have impacted       Program. … Furthermore, it is understood that in order to
         premium rates and        meet the 30 day notification requirement, Carriers may
     patient safety of FEHBP provide notification on cases where their investigation is still
             members.             in the early stages and the Carrier has not yet determined
                                  whether there is sufficient evidence to substantiate the
  allegation.”

  Additionally, Carrier Letter 2014-29 required carriers to publish a FWA manual that includes
  all plans, policies, and procedures, which are involved in the Carrier's FWA program.

  As a result of its non-compliance with Carrier Letters 2011-13 and 2014-29, OPM OIG was
  not aware of potential fraud, waste, or abuse that could have negatively impacted the
  premium rates charged during our audit scope, as well as impacted the safety of FEHBP
  members enrolled in the Plan during this time.

D. Debarment Review

  Based on our review, we concluded the Plan had procedures in place to identify providers
  that are debarred or suspended from participation in the FEHBP. Also, we determined the
  Plan had procedures in place to notify both the provider and the subscriber and to stop
  payment to debarred or suspended providers.

E. Offshore Contracting Review

  Based on our review, we concluded that the Plan had adequate procedures to ensure
  oversight of its offshore activities. 



                                               17                 Report No. 1C-X5-00-17-032
                                EXHIBIT A


                             HealthPlus of Michigan
                        Summary of MLR Credit Adjustment


2013 Overstated MLR Credit                                 ($188,957)


2014 Overstated MLR Credit                                 ($315,052)


2015 Overstated MLR Credit                                 ($23,018)


Total Overstated MLR Credit                                ($527,027)




                                                       Report No. 1C-X5-00-17-032
                                              EXHIBIT B

                                         HealthPlus of Michigan 

                                      2013 MLR Credit Adjustment

                                                                    Plan               Audited
2013 FEHBP MLR Lower Corridor (a)                                   85%                 85%
2013 FEHBP MLR Upper Corridor (b)                                   89%                 89%

Claims Expense
Incurred Claims (Medical and Pharmacy)                        $18,128,545            $18,128,545
Less: Claims from prior year date of service                       $0                  $83,035
Less: Unexplained Medical Variance                                 $0                 $125,307
Less: Pharmacy Claims Variance                                     $0                  $44,971
Adjusted Incurred Claims                                      $18,128,545            $17,875,232

Paid Medical Incentive Pools and Bonuses                        $532,587               $532,587
Expenses to Improve Health Care Quality                        $398,348               $398,348
Total MLR Numerator                                           $19,059,480            $18,806,167

Premium Expense
Premium Income                                                $19,685,242            $19,612,931
Total MLR Denominator (c)                                     $19,685,242            $19,612,931

FEHBP MLR Calculation (d)                                       96.82%                 95.89%
Penalty Calculation (If (d) is less than (a), ((a-d)*c)            $0                    $0
Credit Calculation (If (d) is greater than (b), ((d-b)*c)      $1,539,615            $1,350,658
Overstated Credit Amount                                                             ($188,957)




                                                                     Report No. 1C-X5-00-17-032
                                              EXHIBIT C

                                         HealthPlus of Michigan 

                                      2014 MLR Credit Adjustment

                                                                Plan                Audited
2014 FEHBP MLR Lower Corridor (a)                               85%                  85%
2014 FEHBP MLR Upper Corridor (b)                               89%                  89%

Claims Expense
Incurred Claims (Medical and Pharmacy)                       $18,666,717          $18,666,717
Less: Claims from prior year date of service                      $0               ($17,742)
Less: Unexplained Medical Variance                                $0                $49,761
Less: Pharmacy Claims Variance                                    $0                $96,385
Less: Coordination of Benefits Claims Finding                     $0               $164,081
Less: Prescription High Dollar Finding                            $0                $22,567
Adjusted Incurred Claims                                     $18,666,717          $18,351,665

Paid Medical Incentive Pools and Bonuses                      $371,356             $371,356
Expenses to Improve Health Care Quality                       $433,405             $433,405
Total MLR Numerator                                          $19,471,478          $19,156,426

Premium Expense
Premium Income                                               $19,150,647          $19,150,647
Federal and State Taxes and Regulatory Fees                   $151,831             $151,831
Total MLR Denominator (c)                                    $18,998,816          $18,998,816

FEHBP MLR Calculation (d)                                     102.49%              100.83%
Penalty Calculation (If (d) is less than (a), ((a-d)*c)          $0                   $0
Credit Calculation (If (d) is greater than (b), ((d-b)*c)    $2,562,532           $2,247,480
Overstated Credit Amount                                                          ($315,052)




                                                                    Report No. 1C-X5-00-17-032
                                          EXHIBIT D

                                   HealthPlus of Michigan

                                2015 MLR Credit Adjustment

                                                                Plan           Audited
2015 FEHBP MLR Lower Corridor (a)                               85%             85%
2015 FEHBP MLR Upper Corridor (b)                               89%             89%

Claims Expense
Incurred Claims (Medical and Pharmacy)                       $17,953,896     $17,953,896
Less: Indirect Healthcare Expenses                                $0           $12,964
Less: Unexplained Medical Variance                                $0           ($5,065)
Less: Pharmacy Claims Variance                                    $0           $62,487
Adjusted Incurred Claims                                     $17,953,896     $17,883,510

Paid Medical Incentive Pools and Bonuses                      $478,090        $478,090
Expenses to Improve Health Care Quality                       $211,786        $228,763
Total MLR Numerator                                          $18,643,772     $18,590,363

Premium Expense
Premium Income                                               $17,965,149     $17,965,149
Federal and State Taxes and Regulatory Fees                   $425,958        $460,105
Total MLR Denominator (c)                                    $17,539,191     $17,505,044

FEHBP MLR Calculation (d)                                     106.30%          106.20%
Penalty Calculation (If (d) is less than (a), ((a-d)*c)          $0               $0
Credit Calculation (If (d) is greater than (b), ((d-b)*c)    $3,033,892       $3,010,874
Overstated Credit Amount                                                       ($23,018)




                                                                  Report No. 1C-X5-00-17-032
                                                                  APPENDIX
December 21, 2017

                                                      Plan X5 Response to Draft Audit Report


From:    
To:  
Cc:  
Subject:                   RE: HealthPlus (Plan Code X5) Draft Report and Transmittal Letter
Date:                      Thursday, December 21, 2017 11:14:20 AM
Attachments:               image001.png      


Hi        ,
 
This email is to let you know that we are in agreement with the draft report findings for HealthPlus (X5) 
and will not be disputing anything.
Please proceed accordingly.
 
Best regards,

Senior Director, Revenue Management
2050 S. Linden Rd, Flint, MI, 48532
Phone:                  | Fax: 
         @hap.org
 

                                             

 
CONFIDENTIALITY NOTICE: This communication contains information from HAP that may be CONFIDENTIAL, LEGALLY PRIVILEGED, PROPRIETARY, or otherwise protected 
from disclosure. The communication is intended for use only by the person to whom it is addressed. If you are not the intended recipient, any use, disclosure, copying, 
distribution, printing, or any action taken in reliance on the contents of this communication, is strictly prohibited. If you received this communication in error, please 
contact the sending party at the above telephone number and shred or delete the communication.       




                                                                                                                          Report No. 1C-X5-00-17-032
                                                                               



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