oversight

Audit of Health Alliance HMO Urbana, Illinois

Published by the Office of Personnel Management, Office of Inspector General on 2014-05-05.

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
                               HEALTH ALLIANCE HMO
                                 URBANA, ILLINOIS


                                          Report No. 1D-FX-00-14-001


                                                             May 5, 2014
                                          Date:




                                                          --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 that 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 propriety information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                  Federal Employees Health Benefits Program
                               Experience-Rated Health Maintenance Organization


                                             Health Alliance HMO
                                Contract CS 1980              Plan Codes FM/FX
                                                Urbana, Illinois



                                                                                      May 5, 2014
                      REPORT NO. 1D-FX-00-14-001                              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 that 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 propriety information that was redacted from the publicly distributed copy.
                               EXECUTIVE SUMMARY



                         Federal Employees Health Benefits Program
                      Experience-Rated Health Maintenance Organization


                                   Health Alliance HMO
                      Contract CS 1980              Plan Codes FM/FX
                                      Urbana, Illinois



                                                              May 5, 2014
                REPORT NO. 1D-FX-00-14-001            DATE: ______________

We conducted a limited scope audit of the Federal Employees Health Benefits Program
(FEHBP) operations at Health Alliance HMO (Plan), located in Urbana, Illinois. Our audit was
conducted in accordance with Government Auditing Standards. The audit covered
miscellaneous health benefit payments and credits, such as refunds, subrogation recoveries, and
pharmacy drug rebates, from 2008 through June 30, 2013 as reported in the Annual Accounting
Statements. In addition, we reviewed the Plan’s cash management activities and practices
related to FEHBP funds from 2008 through June 30, 2013 and the Plan’s Fraud and Abuse
Program from 2012 through June 30, 2013.

The audit disclosed no significant findings pertaining to miscellaneous health benefit payments
and credits, the Plan’s cash management activities and practices, and the Plan’s Fraud and Abuse
Program. Accordingly, this final report contains no questioned charges or recommendations.




                                                i
                                                    CONTENTS
                                                                                                                     PAGE

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

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

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

III.   RESULTS OF AUDIT .....................................................................................................6

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ............................................................7

V.     SCHEDULE A – HEALTH BENEFIT CHARGES
                        I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
Health Alliance HMO (Plan). The Plan is located in Urbana, Illinois.

The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEHBP was established by the Federal Employees Health Benefits (FEHB) 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. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

The Plan is an experience-rated health maintenance organization (HMO) that provides health
benefits to federal enrollees and their families. 1 Enrollment is open to all federal employees and
annuitants in the Plan’s service area, which includes Illinois, Western Indiana, and Central and
Eastern Iowa.

The Plan’s contract (CS 1980) with OPM is experience-rated. Thus, the costs of providing
benefits in the prior year, including underwritten gains and losses that have been carried forward,
are reflected in current and future years’ premium rates. In addition, the contract provides that in
the event of termination, unexpended program funds revert to the FEHBP Trust Fund. In
recognition of these provisions, the contract requires an accounting of program funds be
submitted at the end of each contract year. The accounting is made on a statement of operations
known as the Annual Accounting Statement.

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the Plan’s
management. Also, management of the Plan is responsible for establishing and maintaining a
system of internal controls.




1
 Members of an experience-rated HMO have the option of using a designated network of providers or using non-
network providers. A member’s choice in selecting one healthcare provider over another has monetary and medical
implications. For example, if a member chooses a non-network provider, the member will pay a substantial portion
of the charges and benefits available may be less comprehensive.



                                                       1
All findings from our prior audit of the Plan (Report No. 1D-FX-00-04-001, dated December 20,
2004) for contract years 2000 through 2002 have been satisfactorily resolved.

The results of this audit were provided to the Plan in written audit inquiries (AI), and were
discussed with Plan officials throughout the audit and at an exit conference on December 11,
2013. The Plan’s comments and supporting documentation offered in response to the AIs were
considered when preparing our final report. Also, additional documentation provided by the
Plan and OPM’s contracting officer on various dates through February 24, 2014 was considered
in preparing our final report. Since our audit disclosed no significant findings, a draft report was
not issued.




                                                 2
               II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were as follows:

       Miscellaneous Health Benefit Payments and Credits

       •   To determine whether miscellaneous payments charged to the FEHBP were in
           compliance with the terms of the contract.

       •   To determine whether credits and miscellaneous income relating to FEHBP benefit
           payments were returned promptly to the FEHBP.

       Cash Management

       •   To determine whether the Plan handled FEHBP funds in accordance with applicable
           laws and regulations concerning cash management in the FEHBP.

       Fraud and Abuse Program

       •   To determine whether the Plan's communication and reporting of fraud and abuse
           cases were in compliance with the terms of Contract CS 1980 and the applicable
           FEHBP Carrier Letters.

SCOPE

We conducted our limited scope performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient and 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.

We reviewed the Plan’s Annual Accounting Statements for contract years 2008 through 2012.
During this period, the Plan paid approximately $144.4 million in health benefit charges (see
Figure 1 and Schedule A). Specifically, we reviewed the Plan’s miscellaneous health benefit
payments and credits (e.g., refunds, subrogation recoveries, and pharmacy drug rebates) and cash
management activities (e.g., letter of credit account drawdowns and interest income) for 2008
through June 30, 2013. We also reviewed the Plan’s Fraud and Abuse (F&A) Program for 2012
through June 30, 2013.

In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,

                                               3
we primarily relied on substantive tests of transactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving the Plan 's intemal control stm cture
and its operations. However, since our audit would not necessarily disclose all significant
matters in the intem al control structure, we do not express an opinion on the Plan's system of
intemal conu·ols taken as a whole.

We also conducted tests to determine whether
the Plan had complied with the FEHBP conu·act,                              Health Alliance HMO
                                                                            Health Benefit C harges
th e applicable procurement regulations (i.e.,
Federal Acquisition Regulations and Federal                 $50 . - - - - - - - - - - - - - - - - - ,
Employees Health Benefits Acquisition
                                                            $40 + - - - - - - - - - - - - - - 1
Regulations, as appropriate), and the laws and
regulations goveming the FEHBP. The results                 $30 +-----im:J---l~L__
                                                                                ~-;~
                                                                                                   7-7­
                                                                                       ~~~ ,------ ~~~

of our tests indicate that, with respect to the                   ;m    ~       ~~:    ~~~         ~:~
                                                                  ~~: - #~~
                                                            $20 ­ //#    //
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items tested, th e Plan complied with all                            ~~:        ~~      ~~:      ~~~    ~:~

applicable provisions of the contract and federal           $10 ­    ~~~ - #~~ r - ~~~ -         ~~~r- ~~~ -
                                                                     //#        //      """      /hi    """
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procurement regulations. With respect to the
                                                                    2008       2009    2010    201l    2012
items not tested, nothing came to our attention
th at caused us to believe that the Plan had not                                Contract Years
complied, in all material respects, with those
prOVISIOnS.                                                                f3Health Benefit C harges


                                                             Figure 1 - Health Benefit Charges

In conducting our audit, we relied to varying degrees on computer-generated data provided by
th e Plan. Due to time consu·aints, we did not verify th e reliability of the data generated by the
various inf01mation systems involved. However, while utilizing the computer-generated data
during our audit testing, nothing came to our attention to cause us to doubt its reliability. We
believe that the data available was sufficient to achieve our audit obj ectives.

The audit was perf01med at the Plan's office in Urbana, Illinois from November 5, 2013 through
November 21 , 2013. Audit fieldwork was also perf01med at our office in Jacksonville, Florida.

METHODOLOGY

We obtained an lmderstanding of the intem al conu·ols over the Plan's financial and cash
management systems by inquny of Plan officials .

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. We also
judgmentally selected and reviewed 86 high dollar health benefit refunds, totaling $1,043,972
(from a universe of2,429 refunds, totaling $1,698,346); 34 high dollar subrogation recoveries
and adjustlnents, totaling $931 ,132 (from a universe of 156 recoveries and adjustlnents, totaling
$ 1,071 ,950); 5 hospital and provider audit recoveries, totaling $8,984 (from a universe of25
audit recoveries, tot~$11 ,505); 177 phrumacy dmg rebate amounts, totaling $ 1,531 ,427
(from a universe of-        dmg rebate ammmts, totaling~ ; 10 lmcashed health benefit


                                                  4

checks, totaling $95,238 (from a universe of 147 uncashed checks, totaling $118,375); and all
other refund adjustments, totaling $118,758, to determine if refunds and recoveries were
promptly returned to the FEHBP and if miscellaneous payments were properly charged to the
FEHBP. 2 The results of these samples were not projected to the universe of miscellaneous
health benefit payments and credits.

We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 1980 and applicable laws and regulations.
We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
F&A Program, as well as reviewed the Plan’s communication and reporting of fraud and abuse
cases to test compliance with Contract CS 1980 and the applicable FEHBP Carrier Letters.




2
  The sample of health benefit refunds included all refund receipts of $5,000 or more from 2008 through June 2013,
and three judgmentally selected provider offsets for each year from 2011 through June 2013. For the subrogation
sample, we selected all recoveries of $5,000 or more for the audit scope and the highest repayment adjustment (i.e.,
a refund of a subrogation recovery) from each year. The sample of hospital and provider audit recoveries included
all recoveries of $500 or more. For pharmacy drug rebates, we selected all rebate amounts of $5,000 or more for
Plan code FX and $300 or more for Plan code FM. The sample of uncashed health benefit checks included all
uncashed checks of $1,000 or more that were voided during the audit scope.

                                                         5
                               III. RESULTS OF AUDIT

The audit disclosed no significant findings pertaining to miscellaneous health benefit payments
and credits, the Plan’s cash management activities and practices, and the Plan’s Fraud and Abuse
Program. Overall, we concluded that the Plan returned health benefit refunds and recoveries,
including pharmacy drug rebates, to the FEHBP in a timely manner, and properly charged
miscellaneous payments to the FEHBP. We also concluded that the Plan handled FEHBP funds
in accordance with Contract CS 1980 and applicable laws and regulations. In addition, we
determined that the Plan is complying with the communication and reporting requirements for
fraud and abuse cases that are set forth in Contract CS 1980 and FEHBP Carrier Letter 2011-13.




                                               6
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

             , Auditor-In-Charge

                            , Auditor

                , Auditor



                  , Chief

               , Senior Team Leader




                                        7
                                                                    V. SCHEDULE A

                                                               HEALTH ALLIANCE HMO
                                                                 URBANA, ILLINOIS

                                                             HEALTH BENEFIT CHARGES


HEALTH BENEFIT CHARGES*                                     2008             2009            2010             2011             2012          TOTAL


HEALTH BENEFIT CHARGES

  CLAIM PAYMENTS                                          $24,815,595      $25,695,238     $31,722,032      $32,939,383       $33,559,164    $148,731,412
  OTHER HEALTH BENEFIT ADJUSTMENTS                           (609,991)        (896,200)       (812,810)        (659,243)       (1,372,444)     (4,350,688)

TOTAL HEALTH BENEFIT CHARGES                              $24,205,604      $24,799,038     $30,909,222      $32,280,140       $32,186,720    $144,380,724



* This audit only covered miscellaneous health benefit payments and credits and cash management activities from 2008 though June 30, 2013.