oversight

Audit of Capital District Physicians' Health Plan Albany, New York

Published by the Office of Personnel Management, Office of Inspector General on 2013-05-30.

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
  CAPITAL DISTRICT PHYSICIANS’ HEALTH PLAN
             ALBANY, NEW YORK


                                          Report No. 1D-SG-00-13-010


                                                         May 30, 2013
                                            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


                                      Capital District Physicians’ Health Plan
                                    Contract CS 2901               Plan Code SG
                                                Albany, New York




                      REPORT NO. 1D-SG-00-13-010                                     5/30/13
                                                                              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


                           Capital District Physicians’ Health Plan
                         Contract CS 2901               Plan Code SG
                                     Albany, New York




                REPORT NO. 1D-SG-00-13-010                   5/30/13
                                                      DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at Capital District Physicians’ Health Plan (Plan), located in Albany, New York, questions
$10,168 in lost investment income (LII). The report also includes a procedural finding regarding
the Plan’s annual fraud and abuse (F&A) reports. The Plan agreed (A) with the questioned
amount and the procedural finding.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered health benefit refunds and recoveries from 2007 through June 30, 2012 as reported
in the Annual Accounting Statements. In addition, we reviewed the Plan’s cash management
activities and practices related to FEHBP funds and the Plan’s F&A Program from 2007 through
June 30, 2012.

The audit results are summarized as follows:




                                               i
               HEALTH BENEFIT REFUNDS AND RECOVERIES

•   Health Benefit Refunds and Pharmacy Drug Rebates (A)                                 $10,168

    Our audit determined that the Plan did not timely deposit 9 health benefit refunds and 18
    quarterly pharmacy drug rebates, totaling approximately $4 million, into the FEHBP
    investment account. Since the Plan returned these funds to the FEHBP during the audit
    scope, we did not question the principal amounts of these refunds and rebates as a monetary
    finding. However, as a result of this finding, the Plan returned $10,168 to the FEHBP for LII
    calculated on these refunds and rebates.

                                 CASH MANAGEMENT
    Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract
    CS 2901 and applicable laws and regulations, except for the audit finding pertaining to cash
    management noted in the “Health Benefit Refunds and Recoveries” section.

                           FRAUD AND ABUSE PROGRAM

•   Fraud and Abuse Annual Reports (A)                                               Procedural

    The Plan did not provide the Office of Personnel Management with annual F&A reports
    containing FEHBP-specific data for contract years 2010 and 2011. Specifically, these reports
    contained corporate-wide fraud cases, recoveries, savings, and dollar losses instead of the
    required FEHBP-specific data.




                                                ii
                                                  CONTENTS
                                                                                                                 PAGE

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

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

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

III.   AUDIT FINDINGS AND RECOMMENDATIONS .......................................................6

       A.     HEALTH BENEFIT REFUNDS AND RECOVERIES .........................................6

              1. Health Benefit Refunds and Pharmacy Drug Rebates .......................................6

       B.     CASH MANAGEMENT ........................................................................................7

       C.     FRAUD AND ABUSE PROGRAM ......................................................................7

              1. Fraud and Abuse Annual Reports ......................................................................7

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ............................................................9

 V.    SCHEDULE A – HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED

       APPENDIX           (Capital District Physicians’ Health Plan response, dated March 25,
                          2013, to the draft audit report)
                        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
Capital District Physicians’ Health Plan (Plan). The Plan is located in Albany, New York.

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 Upstate, Hudson Valley, and Central New
York.

The Plan’s contract (CS 2901) 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
This is our first audit of this Plan as an experience-rated HMO. The results of this audit were
provided to the Plan in written audit inquiries; were discussed with Plan officials throughout the
audit and at an exit conference; and were presented in detail in a draft report, dated February 25,
2013. The Plan’s comments offered in response to the draft report were considered in preparing
our final report and are included as an Appendix to this report. Also, additional documentation
provided by the Plan on various dates through April 8, 2013 was considered in preparing our
final report.




                                                 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:

       Health Benefit Refunds and Recoveries

       •   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 if the Plan's fraud and abuse annual reports to OPM were in compliance
           with the FEHBP contract.

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 2007 through 2011.
During this period, the Plan paid approximately $214 million in health benefit charges (See
Figure 1 and Schedule A). Specifically, we reviewed health benefit refunds and recoveries (e.g.,
refunds, fraud recoveries, and pharmacy drug rebates), cash management activities (e.g., letter of
credit account drawdowns, working capital adjustments, and interest income), and the Plan’s
Fraud and Abuse (F&A) Program from 2007 through June 30, 2012.

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,
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 internal control structure
and its operations. However, since our audit would not necessarily disclose all significant
matters in the internal control structure, we do not express an opinion on the Plan’s system of
internal controls taken as a whole.

                                                 3
We reviewed the Plan’s cash management to determine whether the Plan handled FEHBP funds
in accordance with Contract CS 2901 and applicable laws and regulations. We also interviewed
the Plan’s Special Investigations Unit, as well as reviewed the Plan’s annual F&A reports to test
compliance with the FEHBP contract.




                                                5
            III. AUDIT FINDINGS AND RECOMMENDATIONS
A. HEALTH BENEFIT REFUNDS AND RECOVERIES

  1. Health Benefit Refunds and Pharmacy Drug Rebates                                    $10,168

     Our audit determined that the Plan did not timely deposit 9 health benefit refunds and 18
     quarterly pharmacy drug rebates, totaling approximately $4 million, into the FEHBP
     investment account. Since the Plan returned these funds to the FEHBP during the audit
     scope, we did not question the principal amounts of these refunds and rebates as a
     monetary finding. However, as a result of this finding, the Plan returned $10,168 to the
     FEHBP for lost investment income (LII) calculated on these refunds and rebates.

     48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or
     other credit relating to any allocable cost and received by or accruing to the contractor
     shall be credited to the Government either as a cost reduction or by cash refund.”

     Contract CS 2901, Part II, Section 2.3 (i) states, “All health benefit refunds and
     recoveries, including erroneous payment recoveries, must be deposited into the working
     capital or investment account within 30 days and returned to or accounted for in the
     FEHBP letter of credit account within 60 days after receipt by the Carrier.”

     FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall
     bear simple interest from the date due . . . The interest rate shall be the interest rate
     established by the Secretary of the Treasury as provided in Section 611 of the Contract
     Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the
     amount becomes due, as provided in paragraph (e) of this clause, and then at the rate
     applicable for each six-month period as fixed by the Secretary until the amount is paid.”

     For the period January 1, 2007 through June 30, 2012, there were 9,816 health benefit
     refunds totaling $6,521,295. From this universe, we selected and reviewed a judgmental
     sample of 98 refunds, totaling $2,329,794, for the purpose of determining if the Plan
     timely returned these refunds to the FEHBP. Our sample included all refunds of $5,000
     or more, except for standard option refunds from July 1, 2009 through June 30, 2012,
     which only included refunds of $20,000 or more. In addition, we reviewed the complete
     universe of pharmacy drug rebates for the audit scope, which included 24 quarterly drug
     rebate amounts totaling $5,486,895, to determine if the Plan timely returned these funds
     to the FEHBP.

     Based on our review, we determined that the Plan did not timely deposit 9 health benefit
     refunds, totaling $237,954, and 18 quarterly drug rebates, totaling $3,763,046, into the
     FEHBP investment account within 30 days of receipt. Specifically, these funds were
     deposited into the FEHBP investment account from 1 to 123 days late. Since these funds
     were deposited into the FEHBP investment account and returned to the letter of credit
     account (LOCA) during the audit scope, we did not question the principal amounts of
     these refunds and rebates as a monetary finding. However, we calculated LII of $10,168

                                              6
     on these refunds and rebates since the funds were deposited untimely into the FEHBP
     investment account.

     Plan’s Response:

     The Plan agrees with this finding and states that the questioned LII of $10,168 has been
     deposited into the FEHBP investment account. The Plan is actively working with the
     Pharmacy Benefit Manager to have the rebates directly deposited into the FEHBP
     investment account. The Plan is also currently reviewing the recovery processes.

     OIG Comments:

     We verified that the Plan returned the questioned LII of $10,168 to the FEHBP.

     Recommendation 1

     Since we verified that the Plan returned $10,168 to the FEHBP for the questioned LII, no
     further action is required for this LII amount.

B. CASH MANAGEMENT

  Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract
  CS 2901 and applicable laws and regulations, except for the audit finding pertaining to cash
  management noted in the “Health Benefit Refunds and Recoveries” section.

C. FRAUD AND ABUSE PROGRAM

  1. Fraud and Abuse Annual Reports                                                Procedural

     The Plan did not provide OPM with annual F&A reports containing FEHBP-specific data
     for contract years 2010 and 2011. Specifically, these reports contained corporate-wide
     fraud cases, recoveries, savings, and dollar losses instead of the required FEHBP-specific
     data.

     Contract CS 2901 Section 1.9(a) states, “The Carrier shall conduct a program to assess its
     vulnerability to fraud and abuse and shall operate a system designed to detect and
     eliminate fraud and abuse internally by Carrier employees and subcontractors, by
     providers providing goods or services to FEHB Members, and by individual FEHB
     Members. . . . The Carrier must submit to OPM an annual analysis of the costs and
     benefits of its fraud and abuse program." In addition, the Plan must submit annual F&A
     reports to OPM by March 31st, to include FEHBP cases opened, dollars identified as lost
     and recovered on active cases, and actual and projected savings on active cases.

     We reviewed the Plan’s annual F&A reports for 2007 through 2011. For 2007 through
     2009, the Plan reported no FEHBP cases in the annual reports. For 2010 and 2011, we
     found that although the Plan provided annual F&A reports to OPM on the required


                                              7
contact elements, the Plan only reported corporate-wide fraud cases, recoveries, savings
and dollar losses, and not FEHBP-specific data. By reporting only corporate-wide data to
OPM, the Plan is overstating recoveries and savings that the FEHBP receives from the
Plan's fraud and abuse activities. Reporting of corporate-wide data can also be
misleading and may give OPM a false sense that the FEHBP is being adequately
protected.

Plan’s Response:

The Plan agrees with this finding. The Plan states, “Upon further review and discussions
. . . CDPHP understands that it will report only on FEHBP specific related cases and not
companywide statistics for future reporting. CDPHP did not intentionally attempt to
inflate the numbers as it was believed companywide numbers were to be reported to
OPM.”

Recommendation 2

We recommend that the contracting officer verify that the Plan submits annual F&A
reports to OPM that include FEHBP-specific cases opened, dollars identified as lost and
recovered, and actual and projected savings.




                                        8
                IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

                  , Lead Auditor

                 Auditor

                 , Auditor



                    , Chief

               , Senior Team Leader

Office of Investigations

                  , Special Agent-In-Charge




                                              9
                                                                                                       V. SCHEDULE A

                                                                                 CAPITAL DISTRICT PHYSICIANS' HEALTH PLAN
                                                                                            ALBANY, NEW YORK

                                                                          HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED


HEALTH BENEFIT CHARGES*                                                                 2007                 2008                  2009           2010          2011                        TOTAL

    HEALTH BENEFIT CHARGES                                                            $39,496,779          $40,578,449            $43,642,675    $44,171,264   $46,192,036                  $214,081,203


AMOUNTS QUESTIONED                                                                      2007                 2008                  2009           2010          2011          2012          TOTAL

A. HEALTH BENEFIT REFUNDS AND RECOVERIES

    1. Health Benefit Refunds and Pharmacy Drug Rebates**                                   $2,875               $4,176                   $178       $1,597            $658          $684       $10,168

B. CASH MANAGEMENT                                                                                0                    0                    0             0              0             0              0

C. FRAUD AND ABUSE PROGRAM

    1. Fraud and Abuse Annual Reports (Procedural)                                                0                    0                    0             0              0             0              0

TOTAL AMOUNTS QUESTIONED                                                                    $2,875               $4,176                   $178       $1,597            $658          $684       $10,168


* This audit only covered health benefit refunds and recoveries and cash management activities from 2007 through June 30, 2012.
** The amount questioned is for lost investment income (LII). No additional LII is applicable for this audit finding.
                                                                                         SOC Patroon Creek Blvd.
                                                                                           Albany, 1'I,tV 12206·1057
                                                                                                 www.cdphp.com




M"",h 25, 2013


     A\iidilo,:::Ex"pe,ien.ce.. Rated Audits Group
Office of Inspector General
1900 E Street N.W., Room 6400
Washington, DC 20415

Re: Report NO. lD-SG-OO-13-01O/Audit Draft Report Response

Dea~
CDPHP has reviewed the Draft Audit Report and Schedule A that was provided on February 25, 2013. The
audit that was conducted at CDPHP covered heaJth benefit refunds and recoveries from 2007 through June 3D,
2012. In addition, CDPHP's cash management practices related to the FEHBP funds and the CDPHP Fraud and
Abuse (F&A) Program from 2007 through June 30, 2012 were reviewed during the audit.

Based on the review conducted by 010, it was detcnnined that there were two finding. The first of
which is related to untimely deposits of phannacy rebates and health benefit refunds. CDPHP agreed
with the finding and is actively working with PBM to have the rebates directly deposited into to the
FEHBP account. Additionally, CDPHP is currently reviewing its' recovery processes as well. As a
result of the audit it was determined that FEHBP was due $10,168 for loss of investment income on the
untimely returned health benefit refunds and pharmacy drug rebates. Attached please find a copy of the
verification showing that these monies have been deposited in the FEHBP account.

The second finding indicated that CDPHP did not report FEHBP-specific data but rather supplied aPM
v,rith corporate-data only. CDPHP agreed that FEHBP specific data was not reported separately from
corporate wide cases on the 2011 Fraud & Abuse Annual Report. Upon further review and discussions
had during the OIG Audit, CDPHP understands that it will report only on FEHBP specific related cases
and not companywide statistics for future reporting.




                                                                   Capital District Physicians' Health Plan, Inc. 

                                                           Capital District Physicians' Healthcare Network, Inc. 

                                                                                CDPHP Universal Benefits,O Inc. 

We appreciated having the opportunity to review a copy of the Draft Audit Report, allowing for a
thorough review of the document and an opportunity to provide comments.


If you have any questions, please feel free to contact me directly at




Capital District Physicians' Health Plan


Attachment