U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

Audit of the Federal Employees Health Benefits
 

Program Operations of TakeCare Insurance
 

Company, Inc.
 

Report No. lC-JK-OO-09-045 

Date: February 22, 2010 

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

TakeCare Insurance Company, Inc.
 

Contract Number CS 2825-A - Plan Code JK
 

Tamuning, Guam
 

Report No. lC-JK-OO-09-045 Date: February 22, 2010 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.goY www.usaJobs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

TakeCare Insurance Company, Inc.
 

Contract Number CS 2825-A • Plan Code JK
 

Tarnuning, Guam
 

Report No. lC-JK-OO-09-045 Date: February 22, 201 0 ' 

The Office ofthe Inspector General (OIG) performed an audit ofthe Federal Employees Health 

Benefits Program (FEHBP) operations at TakeCare Insurance Company, Inc. (Plan). The audit 

covered contract years 2005 through 2008 and was conducted at the Plan's office in Tamuning, 

Guam. During the years covered by the audit, the Plan did not implement five ofthe FEHB 

industry standards for Fraud and Abuse programs as listed in FEHB Program Carrier Letter 

2003-23. We found that the FEHBP rates were developed in accordance with the Office of 

Personnel Management's rules and regulations in contract years 2005 through 2008. 

www.opm.gov www.usaJobs.gov 
CONTENTS
 

EXECUTIVE SUMMARy · i
 

I. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy 3
 

III. AUDIT FINDINGS AND RECOMMENDATIONS 5
 

1. Premium Rate Review 5
 

2. Fraud and Abuse Program Review 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 7
 

Appendix (TakeCare Insurance Company, Inc.'s November 11,2009, response to the 

draft report) 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

We completed an audit ofthe Federal Employees Health Benefits Program (FEHBP) operations 

at TakeCare Insurance Company, Inc. (Plan). The audit covered contract years 2005 through 

2008 and was conducted at the Plan's office in Tamuning, Guam. The audit was conducted 

pursuant to the provisions of Contract CS 2825-A; 5 U.S.C. Chapter 89; and 5 Code ofFederal 

Regulations (CFR) Chapter 1, Part 890. The audit was performed by the Office ofPersonnel 

Management's (OPM) Office of the Inspector General (OIG), as established by the Inspector 

General Act of 1978, as amended. 

Background 

The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86-382),
 

enacted on September 28, 1959. The FEHBP was created to provide health insurance benefits
 

for federal employees, annuitants, and dependents. The FEHBP is administered by OPM's
 

Retirement and Benefits Office. The provisions of the Federal Employees Health Benefits Act
 

are implemented by OPM through regulations codified in Chapter 1, Part 890 ofTitle 5, CFR.
 

Health insurance coverage is provided through contracts with health insurance carriers who
 

provide service benefits, indemnity benefits, or comprehensive medical services.
 

Community-rated carriers participating in the FEHBP are subject to various federal, state and
 

local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction,
 

many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93­


222), as amended (i.e., many community-rated carriers are federally qualified). In addition,
 

participation in the FEHBP subjects the
 

carriers to the Federal Employees Health FEHBP Contracts/Members
 

Benefits Act March 31 and implementing regulations 

promulgated by OPM. 

The FEHBP should pay a market price rate, 

which is defined as the best rate offered to 

either ofthe two groups closest in size to the 

FEHBP. In contracting with communityrated carriers, OPM relies on carrier 

compliance with appropriate laws and 

regulations and, consequently, does not 

negotiate base rates. OPM negotiations relate 

primarily to the level of coverage and other 

unique features ofthe FEHBP. 

2008 

8,204 

3,246 

2007 

9,020 

3,478 

2006 

3,631 

9,563 

2005 

9,382 

3,293 

10,000 

9,000 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

o 

• Contracts 

ClMembers 

The chart to the right shows the number ofFEHBP contracts and members reported by the Plan 

as of March 31 for each contract year audited. 
The Plan has participated in the FEHBP since 1998 and provides health benefits to FEHBP 

members on the island ofGuam. The last full-scope audit covered contract years] 999 through 

2003. All questioned costs associated with that audit have been resolved. 

The preliminary results ofthis audit were discussed with Plan officials at an exit conference and 

through subsequent correspondence. A draft report was also provided to the Plan for review and 

comment. The Plan's comments were considered in the preparation of this final report and are 

included, as appropriate, as the Appendix. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

Objectives 

The primary objectives of the audit were to verify that the Plan offered market price rates to the 

FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable. 

Additional tests were performed to determine whether the Plan was in compliance with the 

provisions of the laws and regulations governing the FEHBP. 

We conducted this performance audit in accordance with
 

generally accepted government auditing standards.
 

Those stand.afds 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.
 

This performance audit covered contract years 2005
 

through 2008. For these years, the FEHBP paid
 

approximately $143.2 million in premiums to the Plan.
 

The premiums paid for each contract year audited are shown on the chart to the right.
 

DIG audits ofcommunity-rated carriers are designed to test carrier compliance with the FEHBP
 

contract, applicable laws and regulations, and OPM rate instructions. These audits are also
 

designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.
 

We obtained an understanding ofthe Plan's internal control structure, but we did not use this
 

information to determine the nature, timing, and extent of our audit procedures. However, the
 

audit included such tests ofthe Plan's rating system and such other auditing procedures
 

considered necessary under the circumstances. Our review of internal controls was limited to the
 

procedures the Plan has in place to ensure that:
 

•	 The appropriate similarly sized subscriber groups (SSSG) were selected; 

•	 the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best 

rate offered to SSSGs); and 

•	 the loadings to the FEHBP rates were reasonable and equitable. 

In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment, 

and claims data provided by the Plan. We did not verify the reliability ofthe data generated by 

FEHBP Premiums Paid to Plan 

$0 

$50 

CIl 

c: 

i $25 

• Revenue 

3
 
the various infonnation systems involved. However, nothing came to our attention during our 

audit testing utilizing the computer-generated data to cause us to doubt its reliability. We believe 

that the available data was sufficient to achieve our audit objectives. Except as noted above, the 

audit was conducted in accordance with generally accepted government auditing standards issued 

by the Comptroller General of the United States. 

The audit fieldwork was performed at the Plan's office in Tamuning, Guam, during April 2009. 

Additional audit work was completed at our office in Cranberry Township, Pennsylvania. 

Methodology 

We examined the Plan's federal rate submissions and related documents as a basis for validating 

the market price rates. Further, we examined claim payments to verify that the cost data used to 

develop the FEHBP rates were accurate, complete, and valid. In addition, we examined the rate 

development documentation and billings to other groups, such as the SSSGs, to detennine ifthe 

market price was actually charged to the FEHBP. Finally, we used the contract, the Federal 

Employees Health Benefits Acquisition Regulations, and OPM's Rate Instructions to 

Community-Rated Carriers to determine the propriety ofthe FEHBP premiums and the 

reasonableness and acceptability of the Plan's rating system. 

To gain an understanding ofthe internal controls in the Plan's rating system, we reviewed the 

Plan's rating system's policies and procedures, interviewed appropriate Plan officials, and 

performed other auditing procedures necessary to meet our audit objectives. 

4
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

1.	 Premium Rate Review 

Our audit showed that the Plan's rating ofthe FEHBP was in accordance with the applicable 

laws, regulations, and OPM's rating instructions to carriers for contract years 2005 through 

2008. Consequently, the audit did not identify any questioned costs. 

2.	 Fraud and Abuse Program Review 

We reviewed the Plan's Fraud and Abuse (F&A) Program and interviewed Plan personnel to 

detennine compliance with FEHB Program Carrier Letter # 2003-23 (CL 2003-23). CL 2003­

23 lists eight industry standards that aPM expects all FEHB plans to have in place to help 

address health care F&A within their organization (for both in-house and subcontracted work). 

Dming 2005 through 2008, the following five industry standards were not implemented by the 

Plan: 

1.	 Anti-Fraud Policy Statement: Publish a policy statement providing the corporate 

strategy to address F&A and make it available to employees, enrollees, providers, and 

subcontractors. 

2.	 Written Plan and Procedures: Establish written policies and procedures to be followed 

by all personnel for the deterrence and detection of fraud. 

3.	 Fonnal Training: Conduct fraud awareness training for all employees, underwriting 

departments, and subcontractors. Training should consist of an overview of specific 

F&A reporting requirements and debarment policies and procedures to enable 

personnel to identifY and handle potentially fraudulent claims submitted. 

4.	 Education: Infonn enrollees about fraudulent and abusive practices via newsletters, 

web sites, or other means. 

5.	 Technology: Use fraud protection software to analyze claims data. Software should 

evaluate on a prospective claim-by-claim basis and through the retrospective analysis 

of claim trends from either providers and/or members. 

Prior to 2005, the Plan was owned by PacifiCare Health Plan and operated under the name 

PacifiCare Asia Pacific. In 2005, TakeCare became an independent company and did not 

maintain PacifiCare Health Plan's formal F&A program. 

Failure to implement all eight industry standards increases the risks of fraudulent activities 

and potential abuse resulting in unnecessary costs. 

5
 
Plan's Comments (See Appendix): 

The Plan does not agree with the DIG's opinion that its F&A program was insufficient to meet 

the requirements set by CL 2003-23. The Plan feels that it attempted to meet the "spirit" of 

the regulations. The Plan feels that it made a good faith effort to implement F&A protocols 

that were consistent with an organization of their size, based upon the circumstances at the 

time. 

The Plan is in the process of implementing an Anti-Fraud Program in cooperation with Total 

Claims Capture and Control Health, Inc. (TC3). The Plan has provided an Anti-Fraud 

Program implementation timeline that lists a completion date of July 11,2010. The Plan is 

also in the process of reviewing their provider contract agreement to ensure that no legal 

issues will result from any retrospective cost recovery due to F&A. The Plan is currently in 

discussion with IC3 to implement post-F&A recoveries. 

OIG's Response to the Plan's Comments: 

While we recognize that the Anti-Fraud Program developed in conjunction with IC3 is a 

positive step in meeting the FEHB industry standards established in CL 2003-23, this program 

was not in place during the scope of the audit. 

Recommendation 1 

We recommend that the contracting officer require the Plan to report on its Anti-Fraud 

Program implementation every three months until such time that the contracting officer feels 

the Plan is fully compliant with CL 2003-23. The Plan's Anti-Fraud Program will be 

reviewed during future audits scheduled by the OIG. 

.-Recommendation 2 

We recommend that the Plan use fraud detection software to detennine ifthere were ariy 

fraudulent claims paid on FEHBP members during the experience periods used to develop the 

FEHBP's rates in contract years 2005 through 2008. Any fraud recoveries should be credited 

in the FEHBP rate development. The Plan's fraud detection software efforts will be reviewed 

during future audits scheduled by the DIG. 

6
 
IVo MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Auditor-In-Charge 

Auditor 

Auditor 

Chief 

Senior Team Leader 

7
 
P.V. Box 6578 Tamuning, Guam 96931 e TakeCare~ Telephone : (671) 646-6956 .ax (6711 I 647-3520 Ap'pendix 

2009 NOV 13 AM 10: 30 

November 11, 2009 

Chief, Community Rated Audits Group
 

United States Office of Personnel Management
 

Office of the Inspector General
 

1900 E Street, NW
 

Room 6400
 

Washington, D.C. 20415-1100
 

-Re: TakeCare Insurance Company Response to Office of the Inspector General Draft 

Audit Report (Audit Report No. IC-JK-00-09-045) 

Dea 

Thank you for extending the deadline to respond to the Office of the Inspector General 

(OIG) Draft audit report for TakeCare Insurance Company (Audit Report No. IC-JK00-09-045) to November 12, 2009 instead of the original October 29, 2009 deadline. 

This allowed our organization sufficient time to present a comprehensive response to 

the Draft audit report. 

The following responds to the audit findings stated in the OIG Draft report: 

1.	 TakeCare appreciates the Office of the Inspector General's opinion that the 

interim fraud and abuse program was insufficient to meet the requirements 

set forth by the FEHBP Carrier Letter 2003-23. While we do not necessarily 

share the same opinion, we do hope you understand that TakeCare attempted 

to meet the spirit of the regulations. We made every effort to implement, in 

good faith, protocols albeit less fonnalized than the OIG would have 

preferred, but consistent with an organization of our size and based upon the 

circumstances at the time. 

Moving forward, the implementation of the enterprise wide fraud and abuse 

program through the assistance of our vendor partner, Total Claims Capture 

and Control Health Inc (TC3) will be effective (based on timeline from 

TC3). We have attached a detailed timeline for the fraud and abuse program 

implementation for your reference. 
It was also noted in the draft report that initial Special Investigative Unit 

(SIU) team members did not have any law enforcement experience. We have 

asked TC3 to provide us with additional team members profile to deal with 

this issue. We have attached the profile of these additional SIU team 

members. Furthermore, we do not have any Guam contacts with law 

enforcement experience but the program implementation will be managed 

and monitored by the Underwriting Department through the Corporate 

Compliance Officer, 

It was also initially mentioned by TakeCare persOlwel that no retro recovery 

will occur during the program implementation for fraud and abuse. We 

acknowledge that it's important that retro cost recovery should occur. We 

are in the process of reviewing our provider contract agreement to ensure 

that no legal issues will result from these recoveries. Also, we have engaged 

TC3 in discussions to implement post recoveries. 

Lastly, we have attached TakeCare's anti-fraud manual that will be a 

significant part of the program implementation for this program. 

Deleted by OIG - Not relevant to the Final Report 

We anticipate that our responses are sufficient to address all procedural findings in 

this Draft report and these issues will be deemed resolved in the Final audit report for 

TakeCare Insurance Company. 

Please do not hesitate to contact me with any concerns or questions. 

Respectfully,