u.s. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF HEALTHPARTNERS
 

BLOOMINGTON, MINNESOTA
 

Report No. ID-53-00-09-029 

Date: April 29. 2010 

--CAUTION-­

This audit ~epo~t has been dist~ibuted to Fede~al officials who a~c ~esponsible fo~ the administration of tht audited prog~alTl_ This audit 

~epo~t may contain p~optielary data which is protected by Fede~allaw (18 U.S.c. 1905). Therefo~e, while this audit npo.. t is available 

unde~ the F~eedom of Information Act and made available to the public on the DIG webpage, caution needs to be exe~cised before 

~eleasing tbe ~epo~t to the general public as it may conlain p~op~ietary illfo~mation that was redacted from the publicly dist~ibuted copy. 

, ,'...... ~.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

, Experience-Rated Health Maintenance Organizations
 

HealthPartners
 

Bloomington, Minnesota
 

HealthPartners Classic Plan
 

Contract CS 2875 Plan Code 53
 

HealthPartners Primary Clinic Plan
 

Contract CS 2874 Plan Code HQ
 

REPORT NO. ID-53-00-09-029 DATE: April 29, 2010 

~~
 Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm·liov www.usa)obs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General. 

EXECUTIVE SUMMARY 

Federal Employees Health Benefits Program
 

Experience-Rated Health Maintenance Organization
 

HealthPartners
 

Bloomington, Minnesota
 

HealthPartners Classic Plan
 

Contract CS 2875 Plan Code 53
 

HealthPartners Primary Clinic Plan
 

Contract CS 2874 Plan Code HQ
 

REPORT NO. lD-S3-00-09-029 . DATE: April 29, 2010 

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at 

HealthPartners (Plan), which specifically included the HealthPartners Classic Plan and· 

HealthPartners Primary Clinic Plan, questions $7,279 in phannacy drug rebates and lost 

investment income. The report also includes a procedural finding for administrative expenses. 

The Plan agreed (A) with the questioned amount, but disagreed (D) with the procedural finding. 

Our limited scope audit was conducted in accordance with Government Auditing Standards. The 

audit covered miscellaneous health benefit payments and credits and administrative expenses for 

2004 through 2008 as reported in the Annual Accounting Statements. In addition, we reviewed 

the Plan's cash management practices related to FEHBP funds for contract years 2004 through 

2008. 

Questioned items are summarized as follows: 

www.opm.gov www.usajobs.gov 
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

• Pharmacy Drug Rebates fA) $7,279 

The Plan did not allocate unidentified pharmacy drug rebates to the FEHBP. As a result, the 

FEHBP is due $7,279, consisting of $6,268 for drug rebates and $1,011 for lost investment 

income on these drug rebates. 

B. ADMINISTRATIVE EXPENSES 

• Unallowable and/or Unallocable Expenses (D) Procedural 

The Plan allocated unallowable and/or unallocable administrative expenses to. the FEHBP 

from 2004 through 2008. Also, the Plan did not correctly report the actual administrative 

expenses on the Annual Accounting Statements from 2004 through 2008. Since the Plan's 

actual administrative expenses exceeded the contractual expense limitations from 2004 

through 2008, this is a procedural finding. 

C. CASH MANAGEMENT 

Overall; we concluded that the Plan handled FEHBP funds in accordance with Contracts CS 

2874 and 2875 and applicable laws and regulations, except for the finding pertaining to cash 

management noted in the "Miscellaneous Health Benefit Payments and Credits" section. 

II 
CONTENTS 

PAGE 

EXECUTIVE SUMMARY	 i
 

I.	 INTRODUCTION AND BACKGROUND 1
 

II.	 OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

III.	 AUDIT FINDINGS AND RECOMMENDATIONS 6
 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 6
 

1. Phannacy Drug Rebates	 6
 

B. ADMINISTRATIVE EXPENSES	 7
 

1. Unallowable and/or Unallocable Expenses	 7
 

C. CASH MANAGEMENT	 10
 

IV.	 MAJOR CONTRIBUTORS TO THIS REPORT. 11
 

V.	 SCHEDULE A - CONTRACT CHARGES AND AMOUNTS QUESTIONED
 

APPENDIX (HealthPartners reply, dated January 19,2010, to the audit inquiries)
 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

This final audit report details the findings, conclusions, and recommendations resulting from our 

limited scope audit ofthe Federal Employees Health Benefits Program (FEHBP) operations at 

HealthPartners (plan), pertaining to the HealthPartners Classic Plan and HeaIthPartners Primary 

Clinic Plan. The Plan is located in Bloomington, Minnesota. 

The audit was performed by the Office of Personnel Management's (OPM) Office ofthe Inspector 

General (GIG), 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 Retirement and Benefits 

Office has overall responsibility for administration ofthe FEHBP. The provisions of the FEHB 

Act are implemented by OPM through regulations, which are codified in Title 5, Chapter I, Part 

890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available 

through contracts with various health insurance carriers. 

The HealthPartners Classic Plan is an experience-rated health maintenance organization (HMO) 

that provides health benefits to federal enrollees and their families.! Enrollment is open to all 

federal employees and annuitants that live or work in the plan's service area, which includes the 

entire state of Minnesota and the surrounding communities in Western Wisconsin, Northern 

Iowa, and Eastern North and South Dakota. 

The HealthPartners Primary Clinic Plan is also an experience-rated HMO. Enrollment is open to 

all federal employees and annuitants that live or work in the plan's service area. The plan's service 

area includes the Minneapolis, Saint Paul, and Saint Cloud metropolitan area; South Central and 

Southeastern Minnesota and the surrounding communities; and West Central Wisconsin. 

The Plan's contracts with OPM for the HealthPartners Classic Plan (CS 2875) and HealthPartners 

Primary Clinic Plan (CS 2874) are experience-rated. Thus, the costs of providing benefits in the 

prior year, including underwritten gains and losses which have been carried forward, are reflected 

in current and future years' premium rates. In addition, these contracts provide that in the event of 

termination, unexpended program funds revert to the FEHBP Trust Fund. In recognition ofthese 

provisions, the contracts require an accounting ofprogram 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. 

1 Members ofan experience-rated HMO have the option of using a designated network of providers or using nonnetwork 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
 
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. 

This is our first audit of this Plan pertaining to the experience-rated HMO plans. The results of 

this audit were provided to the Plan in written audit inquiries (findings) during fieldwork and 

. were discussed with Plan officials througholit the audit and at an exit conference. The Plan's 

comments offered in response to our audit inquiries were considered in preparing our final report 

and are included as an Appendix to this report. Since the Plan provided complete responses to 

our audit inquiries, we bypassed the draft report and only issued a final report. The Plan agreed 

with this decision. ' 

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 ofthe contracts. 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 ofthe contracts.
 

•	 To determine whether credits and miscellaneous income relating to FEHBP benefit 

payments were returned promptly to the FEHBP. 

Administrative Expenses 

•	 To determine whether administrative expenses charged to the contracts were actual, 

allowable, necessary and reasonable expenses incurred in accordance with the terms of 

the contracts and applicable regulations. 

Cash Management 

•	 To determine whether the Plan handled FEHBP funds in accordance with applicable laws 

and regulations concerning cash management in the FEHBP. 

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 2004 through 2008 

pertaining to plan codes 53 (HealthPartners Classic Plan) and HQ (HealthPartners Primary Clinic 

Plan). During this period, the Plan paid approximately $433 million in health benefit charges 

and $36 million in administrative expenses for the HealthPartners Classic Plan and 

HealthPartners Primary Clinic Plan (See Figure 1 and Schedule A).2 

2 The Plan paid approximately $407 million in health benefit charges and $34 million in administrative expenses for 

the HcalthPartners Classic Plan. Also, the Plan paid approximately $26 million in health benefit charges and $2 

million in administrative expenses for the HealthPartners Primary Clinic Plan. 

3
 
HealthPartners 

Summary of Contract Charges 

$200 ,...-------------------, 

III $150 

o 

l: 

... 

i $100 +---~----==--­

$50 

$0 

2004 2005 2006 2007 2008 

Contract Years 

I?J Health Benefit Payments .Administrative Expenses 

Figure 1 - Contract Charges 

In planning and conducting our audit, we 

obtained an understanding ofthe 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 

operation. 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. 

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds, 

subrogation recoveries, and pharmacy drug rebates), administrative expenses, and cash 

management for 2004 through 2008. 

We also conducted tests to detennine whether the Plan had complied with the contracts, the 

applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal 

Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws 

and regulations governing the FEHBP. The results of our tests ~ndicate that, with respect to the 

items tested, the Plan did not comply with all provisions of the contract and federal procurement 

regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings 

and Recommendations" section of this audit report. With respect to the items not tested, nothing 

came to our attention that caused us to believe that the Plan had not complied, in all material 

respects, with those provisions. 

In conducting our audit, we relied to varying degrees on computer-generated data provided by the 

Plan. Due to time constraints, we did not verify the reliability of the data generated by the 

various 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 objectives. 

The audit was perfOlmed at the Plan's office in Bloomington, Minnesota from October 20,2009 

through November 19,2009. Audit fieldwork was also performed at our offices in Washington, 

D.C. and Jacksonville, Florida. 

4
 
METHODOLOGY
 

We obtained an understanding ofthe internal controls over the Plan's financial, cost accounting, 

and cash management systems by inquiry ofPlan officials. 

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting 

records during our audit ofmiscellaneous health benefit payments and credits. We also 

judgmentally selected and reviewed 125 health benefit refunds, totaling $1,771,034 (from a 

universe of 3,068 refunds, totaling $2,774,815); 24 subrogation recoveries, totaling $429,744 

(from a universe of967 recoveries, totaling $805,100); and all quarterly pharmacy drug rebate 

receipts, totaling_ to determine if refunds and recoveries were promptly returned to 

the FEHBP and ifmiscellaneous payments were properly charged to the FEHBP.3 The results of 

these samples were not projected to the universe of miscellaneous health benefit payments and 

credits. 

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 

2004 through 2008. Specifically, we reviewed administrative expenses relating to cost centers, 

expense accounts, employee health benefits, executive compensation, subcontracts, non-recurring 

projects, lobbying, benefit plan brochures, and Health Insurance Portability and Accountability . 

Act of 1996 compliance. We used the FEHBP contracts, the FAR, and the FEHBAR to 

determine the allowability, allocability, and reasonableness of charges. The results of the testing 

were not projected to the universe of administrative expenses. 

We also reviewed the Plan's cash management to determine whether the Plan handled FEHBP 

funds in accordance with Contracts CS 2874 and 2875 and applicable laws and regulations. 

3 The sample of health benefit refunds consisted ofthe 25 highest dollar refunds for each year from 2004 through 

2008. The sample ofsubrogation recoveries consisted ofthe five highest dollar recoveries from each year in 2004, 

2006,2007, and 2008 and the four highest dollar recoveries from 2005. 

5
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS
 

1. Pharmacy Drug Rebates $7,279 

The Plan did not allocate unidentified phannacy drug rebates to the FEHBP. As a result, 

the FEHBP is due $7,279, consisting of $6,268 for drug rebates and $1,011 for lost 

investment income (LII) on these drug rebates. 

48 CFR 3] .201-5 states, "The applicable portion of any income, rebate, allowance, or 

other credit relating to any allowable cost and received by or accruing to the contractor 

shall be credited to the Government either as a cost reduction or by cash refund." 

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 ofthe 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) ofthis clause, and then at the rate 

applicable for each six-month period as fixed by the Secretary until the amount is paid." 

The Plan allocates and credits phannacy drug rebates to the FEHBP when the Plan 

submits the rebate invoices to the pharmaceutical manufacturers. When the drug rebates 

are received from the manufacturers, the Plan reconciles the differences between the 

amounts invoiced and the amounts actually received, and then allocates the differences to 

. all tines of business, including the HeaIthPartners Class~c Plan and HealthPartners 

Primary Clinic Plan. We reviewed this process and verified that phannacy drug rebates, 

totaling _ were returned to the FEHBP from 2004 through 2008. 

However, during our review, we found that the Plan did not allocate unidentified drug 

rebates to the FEHBP~eriod 2004 through 2008, the Plan received unidentified 

drug rebates totaling ~which were not allocated to the lines of business. We 

calculated that the FEHBP's allocable share of these unidentified drug rebates totaled 

$6,268. In addition, the FEHBP is due LII of $1 ,0 lIon these rebates, calculated through 

June 30,2009. 

Plan's Response: 

"Health Partners, Inc. concurs with OPM's finding that it has a line item within its 

reporting ofpharmaceutical rebates by Lines ofBusinesses that is classified as missing.... 

Health Partners did a review ofthe phannaceutical rebates within the missing classification 

and detennined that less than $400 was attributed to the FEHBP program over the five year 

audit period. However, we understand that because we did not specifically identify the 

FEHBP pharmaceutical rebates within the missing classification we need to follow the 

same methodology for allocating these rebates to all HeathPartners applicable Lines of 

6
 
Businesses (rather than to a missing category) as we previously used to allocate rebate 

payments that are higher or lower than the amounts invoiced to phannaceutical companies. 

To eliminate this issue in the future Health Partners will make sure that all missing 

pharmacy rebates are analyzed and recorded to the correct Lines of Businesses on our 

pharmacy rebate report." 

DIG Comments: 

After receiving the Plan's response, we were infonned by the Plan via email that the 

questioned rebate amount of $6,268 and LII of$1,011 were credited to the FEHBP letter 

of credit account in December 2009 and February 2010, respectively. 

Recommendation 1 

We recommend that the contracting officer verify that the Plan credited the FEHBP 

$6,268 for unidentified drug rebates. 

Recommendation 2 

We recommend that the contracting officer verify that the Plan credited the FEHBP 

$1,011 (plus interest accruing after June 30, 2009) for LII on the questioned drug rebates. 

B. ADMINISTRATIVE EXPENSES 

1. Unallowable and/or Unallocable Expenses Procedural 

The Plan allocated unallowable and/or unallocable administrative expenses to the FEHBP 

from 2004 through 2008. Also, the Plan did not correctly report the actual administrative 

expenses on the Annual Accounting Statements (AAS) from 2004 through 2008. Since 

the Plan's actual administrative expenses exceeded the contractual expense limitations 

from 2004 through 2008, even after the unallowable and/or unallocable amounts are 

deducted, this is a procedural finding.4 

Part III, Section 3.2 (b)(l) of Contracts CS 2874 and 2875 states, "The Carrier may charge 

a cost to the contract ... if the cost is actual, allowable, allocable, and reasonable." In 

regards to the certification ofthe annual accounting statement accuracy, Section 3.2 (c)(l) 

states, "The Carrier shall certify the annual and fiscal year accounting statements in the 

form set forth in paragraph (c)(3) of this clause." This clause states, "The costs included 

in the statement are actual, allowable, allocable, and reasonable in accordance with the 

tenus ofthe contract and with the cost principles ofthe Federal Employees Health 

Benefits Acquisition Regulation and the Federal Acquisition Regulation." 

4 The Plan's actual administrative expenses exceeded the contractual expense limitations by $2,882,937, $1,910,525, 

$1,749,401, $1,908,230, and $701,000 from 2004 through 2008, respectively, for the HealthPartners Classic Plan. 

Also, the Plan's actual administrative expenses exceeded the contractual expense limitations by $134,775, $26,677, 

$3,582, $31,322, and $18,572 from 2004 through 2008, respectively, for the HealthPartners Primary Clinic Plan. 

7
 
48 CFR 31.201-4 states, "A cost is allocable ifit is assignable or chargeable to one or more 

cost objectives on the basis of relative benefits received or other equitable relationship. 

Subject to the foregoing, a cost is allocable to a Government contract ifita) Is incurred specifically for the contract; 

b) Benefits both the contract and other work, and can be distributed to them in 

reasonable proportion to the benefits received; or 

c) Is necessary to the overall operation ofthe business, although a direct relationship to 

any particular cost objective cannot be shown." 

48 CFR 31.205-1 through 205-52 specifically address certain costs and state that 

entertainment and charitable contributions are unallowable. 

Regarding public relations, sales, advertising, and marketing expenses charged to the 

FEHBP, 48 CFR 31.205-1 and 48 CFR 163 I.205-70 provide specific criteria on the 

extent to which such expenses are chargeable. Generally, these regulations state that such 

expenses are unallowable. 

48 CFR 31.201-6 (a) states, "Costs that are expressly unallowable ... including ... 

unallowable directly associated costs, shaH be identified and excluded from any billing ... 

to a Government contract." 

The Plan uses an administrative cost allocation model, which is built on a Microsoft Excel 

based platform, to allocate administrative expenses to the FEHBP. The allocation model 

has three administrative components: corporate, medical, and pharmacy/dental. We found 

that the Plan's allocation model does not make distinctions for the FEHBP plans, and 

therefore, allocates administrative expenses to the FEHBP regardless of the allowability 

and/or allocability of the expenses. Furthermore, the Plan infonned us that there are no 

specific procedures in place to identify and exclude unallowable and/or unallocable 

expenses from the allocations to the FEHBP. As a result, the Plan allocates expenses to 

the FEHBP that are unallowable and/or unallocable under the FAR and FERBAR. 

Based on the Plan's accounting unit titles and descriptions and/or the Plan's responses to 

our accounting unit questionnaires, we identified numerous expenses allocated to the 

FEHBP that are unallowable, partially unallowable, and/or do not benefit the FEHBP. 

Specifically, we identified expenses pertaining to advertising, marketing, sales, 

entertainment, legal matters, sport sponsorships, charitable contributions, and other lines 

ofbusiness that should be excluded from the cost allocations to the FEHBP but are not. 

For example, we identified the following unallowable andlor unallocable expenses in 

2008 during our accounting unit review and transaction testing: 

•	 18 accounting units with expenses for sales, advertising, marketing, and/or public 

relations were allocated to the FEHBP. The Plan allocated $673,094 ofthese 

accounting units' expenses to the FEHBP. These types of expenses are generally 

unallowabJe. 

8 
•	 $130,460 in project/audit expenses were specifically incurred for the Medicaid and 

Medicare lines ofbusiness in accounting unit "12811222" (Govenunent Programs). 

$20,144 ofthese expenses were allocated to the FEHBP. During the audit, the Plan 

subsequently removed this ae<.:ounting unit's costs from the FEHBP allocation. 

•	 $7,630 of $140,948 in charitable contributions, sport sponsorships, and entertainment 

expenses were also allocated to the FEHBP. 

After discussing our concerns with the Plan, the Plan removed a majority of these 

questionable expense types from the FEHBP's allocation in the administrative cost 

modeL 

In addition, we found that the Plan did not correctly report the actual administrative 

expenses on the 2004 through 2008 AAS's. For example, the Plan incurred actual 

administrative expenses of $8,986,524 for the HealthPartners Classic Plan, but only 

reported $7,078,294 on the 2007 AAS, which equaled the contractual expense limitation. 

Similarly, the Plan incurred actual administrative expenses of$311,130 for the 

HealthPartners Primary Clinic Plan, but only reported $279,808 on the 2007 AAS, which 

also equaled the contractual expense limitation. 

Plan's Response: 

"HealthPartners, Inc. (HPJ) uses a comprehensive administrative allocation modeJ to 

allocate administrative costs across all Lines of Business that HPJ sells.... HPJ feels that 

this model is an accurate representation ofthe administrative expense of each ofour line 

of business which would include the Federal Employees Health Benefit Plan ... 

The audit inquiry or procedural findings related to our administrative model identifies 

examples of areas of expenses that are deemed unallowable or unallocable to the FEHBP 

program that were allocated to the FEHBP program within our administrative model. 

However, it should be clearly noted that they were never charged to the FEHBP program 

because our limits were substantially lower than our administrative expenses calculated 

by our model and thus they were never included in our AAS statements or were they 

drawn down from our LOC account for any of the years under audit. 

HPJ does have policies and procedures in place related to certain expenses that are 

considered unallowable for the FEHBP program. Those expenses are either prohibited by 

HPI, have significant restrictions on the reimbursement for those expenses or are not 

expensed to administrative accounting units that are allocated to the FEHBP program. 

HPI does acknowledge that while we do our best to identify and remove those 

unallowable costs that there are instances where they are not removed from our 

administrative allocation model especially in contributions, donations and entertainment 

costs. However, as an organization HPJ spends very little on contributions, donations and 

entertainment costs ... 

9 
HPI does. acknowledge that if our actual administrative costs calculated by our 

administrative allocation model were close to our ceiling limit that the way our model 

works there would be the potential ofcharging the FEHBP program for unallowable or 

unallocable costs. HPI did try each year to implicitly remove those costs from our 

administrative model related to the FEHBP program. While the OPM auditors were on 

site we revised each year's administrative model to explicitly remove unallowable or 

unallocable costs and compared that against the amount that we implicitly removed. The 

impact ofthis change to the calculated administrative costs ofthe FEHBP program was 

immaterial and did not impact the amount that we charged to the FEHBP each year." 

OIG Comments: 

Since the Plan's actual administrative expenses exceeded the contractual expense 

limitations from 2004 through 2008, we agree that the expense limitations implicitly 

minimized the chances that unallowable and/or unallocable expenses were charged to the 

FEHBP. However, the Plan should have specific procedures to identify and remove 

unallowable and/or unallocable expenses from the allocations to the FEHBP. With these 

procedures in place, the Plan could clearly demonstrate that certain unallowable and/or 

unallocable expenses were not allocated to the FEHBP, especially if the actual 

administrative expenses in the future are close to or less than the annual contractual 

expense limitation. 

Recommendation 3 

We recommend that the contracting officer instruct the Planto implement procedures to 

ensure that unallowable and/or unallocable expenses are excluded from the expense 

allocations to the FEHBP. 

Recommendation 4 

We recommend that the contracting officer instruct the Plan to correctly report actual 

administrative expenses on the AAS. 

C. CASH MANAGEMENT 

Overall, we concluded that the Plan handled FEHBP funds in accordance with Contracts CS 

2874 and 2875 and applicable laws and regulations, except for the finding pertaining to cash 

management noted in the "Miscellaneous Health Benefit Payments and Credits" section. 

10
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experience-Rated Audits Group 

Auditor-In-Charge 

Team Leader 

Auditor 

, Senior Team Leader 

11
 
V. SCHEDULE A
 

HEALTH PARTNERS
 

BLOOMINGTON, MINNESOTA
 

CONTRACT CHARGES AND AMOUNTS QUESTIONED 

CONTRACT CHARGES (pLAN CODES 53IHQ)* 2004 2005 2006 2007 2008 TOTAL 

HEALTH BENEFIT CHARGES $81,026,684 $80,936,757 $88,783,882 $92,702,495 $89,712,635 $433,162,453 

ADMINISTRATIVE EXPENSES 6,957,679 6,862,173 7,144,481 7,358,102 7,366,801 35,689,236 

OTHER EXPENSES AND RETENTIONS 327,475 370,535 240,735 187,019 160,655 1,286,419 

TOTAL CONTRACT CHARGES I $88,311.838 $88,169.465 $96.169098 $100,247.616 597,240091 5470.138,108 ) !~ 11lmflj~, mlj./~mw'~:~m!' l~imi~ II ,lIlWillr.Hmlll~ Ilillll1 I~ IJ mmlMlllmm IIrIIIilllJEl.I);lJmIlJll:ml/,'lIImlHil3'mjrqJm~mlrtll, ,tmuwlID ~~~ ~llJ.lfl:llJll1lllll~~ulmrnmUltmmloo'~m,r !ffil\lRtl~i~mlm~lrJ~~.m1NlIlm: ~,~ jtl!m!~~llll~1 l~lf!m ~;~r.1:s.'!~ilj~ m HJM~UlMnlllml II 

AMOUNTS QUESTIONED 2004 2005 2006 2007 2008 2009 TOTAL 

MISCELLANEOUS HEALTH BENEFIT PAYMENTS 

A. AND CREDITS 

I. Pharmacy Drug Rebates*'" $1,747 $73 $745 $2,620 $1,917 $176 $7,279 

B. ADMINISTRATIVE EXPENSES 

1. Unallowable and/or Unallocable Expenses (procedural) 0 0 0 0 0 0 0 

C. CASH MANAGEMENT 0 0 0 0 0 0

° '~ TOTAL AMOUNTS QUESTIONED I $1747 $73 $745 $2,620 $1.917 SI76 $7,279 m , , l.mm'li' ~l3' ~llll~;~i~~~~ ~IIIIUl.'O~ Il I ~r~lIl'~. ;~!~~i1illllllill. 1 j J I~i II{! lll~jmllllil 11~;J.JllIml~mIMlmrJliiir:jmfli'~~I!Il~!~~~!11 I! 1.11i~iNl~1 • ~"I, <l~lm;lji~illl~l~mJI'h~ffill!Jml ~lllll!lll~mWml • I I !l~ ~~~ij~~~~~~l~i~ll~~III:::'J~ti~m~"''')JjJ''''''I''''' , rfJffi!f.ffl1ili,lJl~i~ml~1 M 

We did not review claim payments and other expenses and retentions. * 

H This audit finding also includes lost investment inl:ome of$I.Oll. 
--="'11'': APPENDIX

.tlu'; -II­ HealthPartners@ 

Corporate OffICe: . Mailing Address:
 

8170 33'd AvenueSoulh : Mall Stop: 21109A
 

. Bloomington. MN 55425. P.O. Box 1309
 

.www.heallhpartners.com.MinneaPolis.MN 55440-1309
 

··-Jan.uary19,2010 

:Group Ctlief 

p • .. i • s Group· 

Office of the Inspector General· 

U.S. Office .of Personnel Man.agement:·
 

1900 E Street, Room6400··::: ..
 

Washingtcm. DC 2():415-11.()O
 

Dear 

Attached are HealthPartliers' reSponse to. .the twa8udit inClOires related to the audits of 

HealthPartners Plan: Code 53 'and Plan: Code Hq FEHBP Experience rated contracts for ... 

the years 2004 through 2008.-' If YOlr have any questions regarding our response please 

feel free to contact me at '952:-.883-6535 or Kevin Brandt at 952-883-6584. . 

Senior Vice·President and Chief Firaanaal Officer 

Attachments (2) 'oohI_I/OPM_R_11R201DdaiI.­

Our mission is to improve the health ofour members. our patients and/lle community.. 
:Corporate Office: Mailing Address: 

:a170 33'd Avenue South Mail Stop: 21109A 

. Bloomington, MN 55425 P.O. Box 1309 

www.heallhpaltners.com·Minneapolls.MN 55440-1309 

HealthPartliers, Inc::ooncurs:With OPM~s finding that it has a line item within itsreporting 

of pharmaceutical: rebates biLines:ofBusinesses thatls classified as missing.: While the 

OPM auditors were on site, HealthPartners did a review of the pharmaceutical rebates ..... 

: -within the missing classification and determined that less than $400 was attributed to: the· 

. FEHBFfpmgram over the five year audit period..However, we understand :that becau·se 

. we did not speci~cally:identifythe.FEHBP pharmaceutica·' rebates wi~hin the missing .. 

classification we need to follow the same methodology for allocating these rebates to all 

HealthPartii:ers applicable Lines of Businesses trather· than to a missing category) as we. 

previously used to allocate rebate payments that are higher or lower than the amounts : 

invoiced iii pharmaceutical companies. To eliminate this issue in the future ... : 

::: HealthPartners· will make sure that all missing pharmacy rebates are analyzed and. :::: 

.. recorded to the correct Lines of Businesses on our pharmacy rebate report.· . 

Our mission is to i~f.rove Ihe hefJllh ofQur "Iemhers. ourpatients and the cOltIJnullity. ... .. 
:"".''= mffi Hea1thPartners~"

:Corporate Office: Mailing Address: 

:817033fd Avenue Soulh . Mail Stop: 21109A 

. . Bloomington, MN 55425 . ·P.O. Box 1309 .... www.healthpartners.com Minneapolis, MN 5544Q-1309 

... Audit Inquire #2: Administrative Expenses . 

HealthPartners, Inc..(HPI)" uses a comprehensive administrative allocation model to . . . . 

allocate administrative costs across all lines of Business that HPI sells.·This model is 

used to a.llocated such co~s as ; Legal, Finance, Actuary, Underwriting, Human 

Resources, 'Information services, S'aies, Marketing, Claims Pro'cessing;'Memb(:lrship 

.• Accounti"ng, Member Services, Disease Management, Quality and Utilization:: ... . . 

.. Management, Health Improvement Programs, PharrilacyAdministration and Dental . . . 

· AdmInistration. HPI tracks these costs through approximately 225 accounting 

unit~departments witl1in our financial system;.,Each administrative accounting unit is' 

reviewed each year to come up with the besfaiiocationmethodology to use in allocating 

the accounting unit costs across each:lines of business. HPI uses multiple allocation 

methodologies. in .the model. They include allocations using membership, member 

months, weighted member months, claims:counts,input from leaders of the accounting 

unit, direct allocations .and percentage effort of each accounting unit by line of business. 

HPI feels that this model is an accurate representation of the administrative expense of 

each of our line of business which wO'uld include the Federal Employees Health Benefit 

Plan (FEHBP). 

From 2003 to 2007 HPI reported on its Annual Accounting Statements (AAS) 

Supplemental·Schedule of Admiriistrative 'Expenses and the Special·PurposeStatements 

.. of Op.erations its admInistration ceiling limit each year calculated by the Office of Personal 

Management (OPM). The reason why HPI reported its ceiling limit is because our 

ini~rnal administratron allocation model calcuJ~t~ admtnistratiQn expense exceeding our 

~nnual c~i1ing limit. Thus we were only allowed .to report and :charge tne FEHSP program 

our' ceiling: limit. In 2008 after discussions with OPM 'and at the requesfcif OPMwe .. 

· changed:howwe.:reported administration expense on our Supple~erltSchedule of ..
 

Admh,lstrative Expenses to the 'aCtual administrative experis'es calculated from our:·
 

... Internal.admiliistrationallocatio:n model. However; because our model calculated an 

admini"strative expense that exceeded our ceiling 'iimits ~Iculated by OPM we only 

charged and reported on the Special Purpose 'Statements of Operations of the AAS 

statements()ur ceiling limits and we did not charge the FEHBP for ouraclual 

... :ad~inistrative costs associated with running the FEHBP pr:qgram. 

The audit inquiry or procedural findings related to our administrative model. indentifies 

examples of areas of expenses that are deemed unallowable orunallocable.to. the' ... 

FEHBP program that were aUocated:to'the FEHBP program within our administrative 

model. HoWever, it should be clearly rioted that they Were nevetcharged·to theFEHBP 

program because our limits were substantially lower than our administrative expenses 

• calculated by our model and thus they were never inch.idedjn our AAS Statements or . 

were they drawn down from ourLOe account for any of the·years: under audit. 

Our mission is to improve tile heo/th ofour IIlembers. ollr patients and the community.. 
~~. HealthPartners@
 

Corporale OIfi::e: Mailing Address:
 

8170 3Yd Avenue South MallStop: 21109A
 

Bloomington, MN 55425.. _ P,O. Box 1.309'
 .. www.healthpartners.com·. Minneapolis, MN 55440-1309 

HPI dQes have .poliaesand procedures in place related to certain expenses that are' .
 

:oonsideired un'ailowable'for the:FEHBP program. Those ~xpensel;; are either prohibited
 

: by H!=,I"have significant restrictions on the rejmbur~~menUorthose expenses or are not
 

expensed to administrative accounting units that are al!oeated to.the FEHPB program.
 

HPldoesacknowledge that while we do our best to identify and. remove those
 

unallowable costs that there are instances where they are not removed from our
 

administrative allocation model especially in: contributions, donations and entertainment
 

:: costs. However;: as an :organization HPI'spends very little on contributions, donation's:and
 

entertainment costs ofWhich only' approximately 3% to 6% of those costs would be:"" ..
 

allocated the FEHBP program though our allocation model if we did not remove tho'se
 

costs from our model. It shOUld also: be noted.agafn that even thQugh some unallqwable.::
 

costs did get allocated the FEHBP program nne of business in our administrative' .
 

allocatlon_m()del if.w~s notcharged.to.the FEHBP program.
 

:. HPI does acknoWledge that if ouraetual'administrative costs calculated by our
 

administrative allocation model: were close to our ceiling limit that the way our mod~l
 

. - works there woUld be the potential of charging the FEHBP program for unallowable or 

unallocable costs. HPI did trY: each year to implicitly remove those costs from our:::· 

administrative modefrelated to the FEHBP program. While the aPM auditors were on 

site we revised each year's administrative model to explicitly remove unallowable or 

unallocable co$tsand' cornpared:thataga;nst"the amount that we implicitly removed.: The 

impact of this:change to· the ~alcuiated administrative costs of the FEHBP program was 

immaterial and did not impact the .amount that we.-charged to the FEtlBP each year. 

Our mission is to improve tile healtil ofour members, our.patien!$ ondthe community.