!' 

/ 

U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AlIDITS 

Final Audit Report 

Subject: 

Audit of the Federal Employees Health Benefits.
 

Program Operations of Coventry Health Care of
 

Kansas, Inc.
 

Plan Code HA
 

. . 

Report No. lC-HA-OO-09-035' 

Date: December 14,2009 

-- CAUTION -. 

This~allditreporth.3S been distribtlled to Federal offidals who are responsible for ~he administration of the audiled program. This 

a"difreport mayeontain proprietary data whieh is proteeled by Federal Jaw (18 U.S.c. 1905). Therefore, while this audit report is 

available under the Freedom of Information Ad and made available 10 the public on the OIG webpage, caulion needs to be exercised 

.before releasing the report to the general public liS it may con lain proprietary information thaI was redacted from the publicly 

distrib.lJled copy•.' . .'. . 
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
 

Coventry Health Care of Kansas, Inc.
 

Contract Number 1948-A - Plan Code HA
 

Kansas City, Missouri
 

Report No. lC-HA-OO-09-035 Date: pecember 1 4 t...-.f..9.Q9 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.usaJobs.goY 
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
 

Coventry Health Care of Kansas, Inc.
 

Contract Number 1948-A - Plan Code HA
 

Kansas City, Missouri
 

Report No. lC-HA-OO-09-035 Dak:December 14, 2009 

The Office of the Inspector General performed an audit ofthe Federal Employees Health Benefits 

Program (FEHBP) operations at Coventry Health Care of Kansas, Inc. (Plan). The audit covered 

contract years 2006 through 2008 and was conducted at the Plan's office in Kansas City, 

Missouri. This report details a procedural finding related to a non-covered elective abortion 

benefit which was incorrectly paid by the Plan. We found that the Plan's ratings of the FEHBP 

were developed in accordance with applicable laws, regulations, and the Office of Personnel 

Management's rating instructions for the years audited. 

www.opm.goY www.usajobs.goY 
CONTENTS 

EXECUTIVE SUMMARy i
 

. 1. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGy 3
 

III. AUDIT FINDINGS AND RECOMMENDATION 5
 

I. Premium Rate Review 5
 

2. Procedural Deficiency 5
 

Claims Review - Payment for Non-Covered Services 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 6
 

Appendix (Coventry Health Care of Kansas, Inc.'s October 19,2009, response to 

the draft report) 
I. INTRODUCTION AND BACKGROUND
 

Introduction 

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

at Coventry Health Care of Kansas, Inc. - Plan Code HA (Plan) in Kansas City, Missouri. The 

audit covered contract years 2006 through 2008. The audit was conducted pursuant to the 

provisions of Contract CS 1948-A; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations 

(CFR) Chapter I, Part 890. The audit was perfonned by the Office of Personnel Management's 

(OPM) Office ofthe 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 

Center for Retirement and Insurance Services. The provisions of the Federal Employees Health 

Benefits Act are implemented by OPM through regulations codified in Chapter 1, Part 890 of 

Title 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 Benefits Act 

and implementing regulations promulgated by OPM. 

The FEHBP FEHBP Contracts/Members should pay a market price rate, 

March 31 which is defined as the best rate offered to 

either of the two groups closest in size to 

the FEHBP. In contracting with 

community-rated 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 of the FEHBP. 

The chart to the right shows the number of 

FEHBP contracts and members reported by 

the Plan as of March 31 for each contract 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

o 

2006 

• Contracts 5,434 

fJMembers 13,096 

2007 

4,089 

9,885 

2008 

4,911 

10,911 

year audited. 
The Plan has participated in the FEHBP since 1984 and provides comprehensive medical 

services to the FEHBP as a mixed-model plan. Primary health care services are provided to Plan 

members throughout the Kansas City metropolitan area in Kansas and Missouri. In 2008, the 

Plan merged its plan code 7W, which covers the Wichita, Kansas area, into plan code HA. The 

last audit conducted by our office covered contract years 2002 through 2005. All noted 

exceptions were resolved and amounts questioned were returned to the FEHBP. 

The preliminary results of this 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 ofthis 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 standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

This performance audit covered contract years 2006 

through 2008. For these contract years, the FEHBP 

paid approximately $128.9 million in premiums to 

the Plan. The premiums paid for each contract year 

audited are shown on the chart to the right. 

OIG audits of community-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. 

FEHBP Premiums Paid to Plan 

$50 

$40 

$30 

$20 

$10 

• Revenue 

We obtained an understanding of the 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 of the 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 of the data generated by 

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

3 
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 Kansas City, Missouri during March 

and April 2009. Additional audit work was completed at our offices in Washington, D.C. and 

Jacksonville, Florida. 

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 determine if the 

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 ofthe 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 RECOMMENDATION
 

1. Premium Rate Review 

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

laws, regulations, and OPM's rating instructions to carriers for contract years 2006 through 

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

2. Procedural Deficiency 

Claims Review - Payment for Non-Covered Services 

According to FEHBP Program Carrier Letters 2006-14 and 2007-09, the Office of Personnel 

Management requires aJJ carriers to keep on file aJJ data necessary to justify its Adjusted 

Community Rating (ACR) rate and save back-up copies of their claims databases for audit 

purposes. We reviewed FEHBP claims data for contract years 2007 and 2008. We ran 

queries on the claims data that relate to hospital, physician, prescription drugs, and 

coordination of benefits, bundling of claims, and non-covered benefits according to the 

FEHBP benefit brochures. 

Our review of the 2007 and 2008 FEHBP claims data shows that the Plan paid for claims that 

related to elective abortion, which is a non-covered benefit according to the FEHBP benefit 

brochure. We queried claims data during the experience period of2007 (January 1,2004 

through December 31,2005) and 2008 (January 1,2005 through December 31, 2006). We 

found that there were seven instances ofthe Plan inappropriately paying for this benefit. The 

total paid amount was $1,860 for 2007 and $2,480 for 2008. We notified the Plan of our 

results and requested an explanation for payment ofthese claims. The Plan agreed that the 

abortion claims were paid erroneously. 

We addressed this issue as a procedural item because the amounts in question did not have a 

significant impact on the premium rates for 2007 or 2008. 

Plan's Comment (See Appendix): 

The Plan states it has no concerns with the audit finding or the recommendation. 

Recommendation 

We recommend that the contracting officer require the Plan to monitor its claims system that 

tracks elective abortions so that these claims are being reviewed and rejected as a non-covered 

benefit. 

5
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Auditor-In-Charge 

Auditor 

, Auditor 

Chief 

, Senior Team Leader 

6
 
Appendix 

T Hral/Il 

COVENTRY 

farr al Kansas. Inr 

2009 HOY -2 AM II: 55 

October 19, 2009 

_nnel Managemcllt 

Office of the Inspector General 

1900 E Street, NW 

Room 6400 

Washington, DC 20415-1100 

RE: Draft Report - Report No. IC-HA-OO-09-035 

Dea_ 

Coventry Health Care of Kansas, Inc. ("Coventry") is in receipt orthe draft report dated 

September 21, 2009 regarding the above reference audit. We appreciate the opportunity 

to review and provide comments. 

At this time, Coventry has no concerns with the item noted, the recommendation 

provided, or the posting of the report on the DIG webpage. We look forward tG receiving 

a copy of the final document. 

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

Sincerely, 

Director, Policy and Compliance 

8320 Ward Porkway • Kansas City, Missouri 64114
 

816-221-8400 • Toll Free. 1866795·3995 • Web Address: www.cnckansas.com