u.s. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE fNSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

. Audit of the Federal Employees Health Benetits 

Program Operations at Group Health Cooperative 

Report No. I C-S4-00-09-048 


Date: September 8, 2010 


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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

Washi ngton, OC 2041 5 

Office of the 

Inspo!(:tor General 

AUDIT REPORT 

Federal Employees Health Benefits Program 


Community-Rated Health Maintenance Organization 


Group Health Cooperative 


Contract Number CS 1043 - Plan Code 54 


Seattle, Washington 


Report No. lC-S4·00-09·048 Date: September 8, 2010 

Michael R. Esser 

Assistant In'spector General 

for Audils 

www.u.aJot\s.go_ ........ w,opm co­
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 


Wa;;hinglOn. DC 20415 


Office of the 

Inspeclor General 

EXECUTIVE SUMMARY 


Federal Employees Health Benefits Program 


Community-Rated Health Maintenance Organization 


Group Health Cooperative 


Contract Number CS 1043 - Plan Code 54 


Seattle, Washington 


Report No. 1C-54-00-09-048 Date: September 8 , 2010 

The Gilice of the Inspector General perfonned an audit of the ral Employees Health Benelits 

Prog ram (FEHBP) operations at Group Heahh Coope rative (Plan). The audit covered contract 

years 2006 through 2008 and was conducted at the Plan's office in Seattle, Washington. 

This report questions $37,816,559 for defective pricing in contract years 2007 and 2008. The 

questioned amount includes $33,122,807 for inappropriate health benefit charges and $4,693,752 

due the FEHBP for lost investment income. calculated through June 30, 2010. We found that the 

FEHBP rates were developed in accordance with the Office of Personnel Management's rules 

and regulations in 2006. 

For contract years 2007 and 2008, we detennined that the FEHBP's rates were overstated by 

$30.636.448 in 2007 and $2.486,359 in 2008 due to defecti ve pricing. More specifically, the 

Plan did not se lect the correct similarly sized subscriber group (SSSG) for comparison to the 

FEHBP and did not apply that SSSG discount appropriately at line 5 of the FEHBP's rates in 

2007. Additionally, the Plan did not appropriately apply an SSSG discoun t in 2008 at line 5 of 

Ihe FEHBP's rall!s. 

Consistent with the FEHBP regulations and the contract, the FEHBP is due $4,693,752 for lost 


investment income, calculated through June 30, 201 0, on the defective pricing tindings. In 


w .....opm.(ov 
addition, the contracting officer should recover lost investment income on amounts due for the 

period beginning July 1, 2010, until all defective pricing amounts have been returned to the 

FEHBP. 

II 
CONTENTS 


Page 

EXEClfTIVE SlTMMAR Y ............................................................................................... i 


L INTRODUCTION AND BACKGROUND ..................................................................... 1 


II. 	 OBJECTIVES, SCOPE, AND METHODOLOGy .......................................................... 3 


III. 	 AUDIT FINDINGS AND RECOMMENDA nONS ....................................................... 5 


Premium Rates ......................................................... : ...................................................... 5 


1. Defective Pricing .......................................................................................................... 5 


2. Lost Investment Income ...............................................................................................9 


3. Claims Review ........................................................................................................... 10 


4. Gender-Specific Identifiers ........................................................................................ 11 


IV. 	 MAJOR CONTRIBUTORS TO THIS REPORT ........................................................... 12 


Exhibit A (Summary of Questioned Costs) 


Exhibit B (Defective Pricing Questioned Costs) 


Exhibit C (Lost Investment Income) 


Appendix (Group Health Cooperative'S May 28,2010, response to the draft report) 

I. INTRODUCTION AND BACKGROUND 


Introduction 

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

at Group Health Cooperative (Plan) in Seattle, Washington. The audit covered contract years 

2006 through 2008. The audit was conducted pursuant 10 the provisions of Contract CS 1043; 5 

U.S.c. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter I, Part 890. The audit was 

perfonned by the Office ofPersonnd Management'::; (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 

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

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

Title .5, CFR. Health insurance coverage is provided through contracts with health insurance 

carriers who provide service benelits, 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 subj ect to the Hea lth Maintenance Organization Act of t973 (Public Law 93­

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

participation in the FEHBP ubj~ s the carriers to the federal Employees Health Benefits Act 

and implementing regulations promulgated by OPM. 

The.fEHBP should pay a market price rate, FEHBP ContrilctslM.mbers 

which March 31 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 primari ly to the level of coverage and 

other unique features of the FEHBP. 

The chart to the right shows the number of 

FEHBP CORlracts and members reported by 

the Plan as of March 3 t for each contract 

year audited. 

!lO,OOO 

40.000 

JO,ooo 

20,000 

fO,OOO 

o 
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP 

members in most of Washington State and Northern Idaho. The last audit conducted by our 

office was a full scope audit and covered contract years 2000, 200 I, 2003 and 2005. All matters 

related to that audit have been resolved. 

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

in 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 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. 

Additionallests were perfonned to detennine whether the Plan was in compliance with the 

provisions of the laws and regulations governing the FEHBP. 

We conducted this perfonnance audit in 

accordance with generally accepted government 

auditing standards. Those standards require that 

we plan and perfonn the audit to obtain 

sufficient, appropriate evidence to provide a 

reaso~able 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. 

FEHBP Premiums Paid to Ptan 

This performance audit cove red contract years 2006 through 2008. For these contract years, the 

FEHBP paid approximately $621.3 million in premiums to the Plan. The premiums paid for 

each contmct year audited afe shown Ull the chart abov..:. 

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. 

We obtained an understanding of the Plan's internal control structure, but we did nol use this 

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

audit included such tests oflhe 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) \\,'ere el~cted ; 

• 	 the rates charged 10 th e FEHBP were the market price rates (i.e., equivalent 10 the best 

rate offered to the SSSGs); 3nd 

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

In conducting the audit, we relied to val)'ing degrees on computer-generated billing, enroilment, 

and claims data provided by the Plan. We did not ve rify the reliabil ity oflhe data generated by 

,

.> 
the various information 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 Seattle, Washington, during May 2009. 

Additional audit work was completed at our field offices in Cranberry Township, Pennsylvania, 

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 was 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 (FEHBAR), and OPM's Rate Instructions to 

Community-Rated Carriers to detennine the propriety of the 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 

perfonned other auditing procedures necessary to meet ouraudit objectives. 

4 

m. AUDIT FINJ)[NGS AND RECOMMEN])ATlONS 

Premium Rates 

1. ndective Pricing 	 $33,122,807 

Tile Certificates of Accurate Pricing the Plan signed for conlract years 2007 and 2008 were 

defective. In accordance with federal regulations, the FEI-IBP is therefore due a price 

adjustment for these years. Application of the defective pricing remedies shows that the 

FEHBP is entitled to premium adjustments totaling $33, 122,807 (sec Exhibit A). We fo'und 

that the FEHBP rates were developed in accordance with OPM' s rules and regulations for 

contract year 2006. 

FEHBAR 1652.215-70 provides that carriers proposing rates to OPM are required to submit a 

Certificate ofAccurate Pricing certifying that the proposed subscription rale s, subject to 

adjustments recognized by OPM, are market price rates. OPM regulations refer to a market 

price rate in conjunction with the rates offered to an SSSG. Ifit is found that the FEHBP was 

charged higher than a market price (i.e., the best rate offered to an SSSG), a condition of 

defecti ve pricing exists, requiring a downward adjustment of the FEHBP premiums to the 

equivalent market price. 

The Phm s.::kc tcd 

SSSGs fo r contnlct year 

with the se lection of_ 

as an SSSG since it was closer 

selected 

and because it met SSSG 

requirements. 

Our analysis of the rates charged to the SSSGs shows that~ received a percent 

discount. The Plan applied a. percent discount to the FEHBP nltes. The_ 

did not receive a discount. 

Since OrM require s the FEHBP rates to be at least equivalent to the best rates given to an 

SSSG and that the discount be applied at line 5, we recalculated the FEHBP mles by applying 

the factors, trends, and the ~er ent discount given to _ A comparison or our 

audited line 5 rates to the Plan's reconciled line 5 rates shows that the FEHBP was 

overcharged $30,636,448 in 2007 (see Exhibit B). 

Plan's Commt!ots (St!e Appt!ndix); 

I. 	 (a) cannot be an SSSG bccau e~ is not a customer group of Group Health 

Cooperative (G HC) but is a customer of Group Health Options, Inc. (GHO), which is a 

wholly-owned subsidiary ofGHC 

5 
(b) Only groups that contract with GHC " the Carrier" are eligible for SSSG consideration. 

(c) The Plan asserts that the definition of "Carrier" is the entity contracting with the 

FEHBP and does not include the subsidiaries and affiliates of the entity. 

11. 	 Even ifllll were a customer group ofGHC, II1II is comprised of individuals and 

groups coming togelher to purchase insurance and qualifies for exclusion as a purchasing 

alliance. 

1lI. 	 The discount gi ven to an SSSG should be applied only 10 the non-Medicare portion oflhc 

FEHBP's rales, which is the per member per month line 1 portion of the rale, before the 

Medicare rates are blended in. 

IV. 	 _ factors and Irends should not be used in th~ calculation of the FEHBP's rates; 

however, if_fac lors and trends are used to re-rate the FEHBP, then_ 

commission and tax factors should be applied to the FEHBP as wel l. 

DIG's ReSI)Onse'o the Plan's Comments: 

I. 	 (a) GHO does not meet the criteria 10 be a separate line ofbusiness. According to Ihe 

2007 rate instructions, "Groups covered under a separate line of business of a carrier that 

offers an FEHBP product are excluded from consideration as an SSSG. To be considered a 

separate line of business all of the following crileria must be satisfied : 

• It must be a separate organizational unit, such as a division; 

• It must have separate financial accounting with ' books and records that provide 

se parate revenue and expense information' ; and 

• It must have a separate work force and separate management involved in the 

design and rating of the healthcare product." 

GHO does not have separate financial accounting with books and records that provide 

separate revenue and expense infonnation, nor does it have a separate work force and 

separate management involved in the design and rating of the healthcare product. 

Therefore, GHO groups are not excluded under the separate line of business criteria 

above and can be SSSGs. 

(b) Any group that contracts with GHC and its subsidiaries (excluding separate lines of 

business as established in the 2007 Rate Reconciliation Instructions above) can be 

sdec ted as an SSSG. 

According to the 2007 rate instructions. "any group wilh which an FEHB carrier enters into 

an agreement 10 provide health care services may be an SSSG (including government 

entities, groups that have multi-year contracts, and group s having point of scrvice products)." 

6 
Since GHO is nOl a separate line of business (as defined above) from GHC and since GHO 

provides all of the POS and pro products for GHC, groups under GHO can be selected as 

SSSGs. 

(c) The interpretation that the tenn "Carrier", as established in Carrier Lener 2005-11, 

excludes subsidiaries and affiliates is inacc·urate. The rewording of 'parent company' to 

'carrier' and the addition of 'subsidiary' to the first disqualifying point does not negate the 

second and third disqualifying points. To be a separate line of business, GHO must have 

separate financial accounting with "books and records that provide separ'dte revenue and 

expense infonnation," and GHO must have a "separate work force and separate management 

involved in the design and rating of the healthcare product." 

OPM clearly establishes that !ill three disqualifying poi nts must be met to exclude an cntity 

(including separate and distinct legal entities) and their contracted groups from SSSG 

qualification. As discussed above, GHO does not meet the qualifications to be considered a 

separate line of business. Therefore, l1li and all other GHO groups, if meeting the SSSG 

criteria, can be selected as SSSGs. 

IT. 	 l1li is a purchasing alliance made up of groups only (not individuals) and does not meet 

OPM's qualification to be excluded from SSSG consideration as a purchasing alliance. 

According to the 2007 rate instructions, "Purchasing Alliances are any groups bonding 

together to purchase health insurance. Purchasing Alliances are considered employee 

groups and may be SSSGs." The rate instructions furthe r state that, "Exceptions to the 

general rule (and the following groups must be excluded from SSSG consideration) .. . (9) 

A purchasing alliance (as defined above) in which every employer in the alliance has less 

thall 100 enrollees." 

l1li meets the 'Purchasing Alliance' definition. Lt is uncl ear what information the Plan 

used to state that this purchasing alliance included individual enrollees. However, our 

review of the Plan's supporting enrollment report showed was made up of 

. Each ofthe three alliance 

have 100 enrollees 

under the purchasing 

III. As stated in the 2007 Proposal Instructions, "unless OPM agrees in \\!fiting, all discounts 

must be applied at line 5." We recognize that there should be consistency related to the 

application of discounts from SSSGs. Since the FEHBP's rate includes a blend of no 1)­

Medicare and Medicare enrollees, it is our practice to blend SSSG non-Medicare and 

Medicare rates to determine the overall discount. We then apply that blended discount to 

the FEHBP rates. 

Furthermore, past proposal and reconciliation instructions clearl y state that all discounts 

should be applied to the FEHBP line 5 rates. There was not a written agreement between 

OPM and GHC stating that SSSG discounts could be applied using a different 

7 
methodology. Therefore. the discount given to~ in 2007 will be applied to the 

FEHBP line 5 ["'dtes. 

IV. 	 It is our practice to use the discounted SSSG's factors and trends in the FEHBP rate 

development to determine the true amount of a given discount. However, this practice 

does not supersede 5 U.S.C 8909(f)(J), which prohibits the imposition of taxes, fees, or 

other monelary payment, directly or indirectly, on FEHBP premiums by any State, the 

District ofColumbia, or the Commonwealth of Puerto Rico, or by any political subdivbion 

or other governmental authority ofthose entities. Based on this statute, the FEHBP rate 

cannot include _ tax charges. 

Furthermore. broker fees are specifically disallowed under 48 C.f.R. 1631.205-75(a) 

which statt!s, "to eliminate from allowable costs those costs related to sales promotion 

and the payment of sales commissions fees or salanes to employees or outside 

commercial or selling agencies for enrolling Federal subscribers in a particular FEHB 

plan." Based on this statute, the FEHBP rates cannot include_ broker fees. 

We agree with the Plan's selection SSSGs for 

contract year 2008. Our analysis of the rates charged to the SSSGs shows that 

received a. percent discount, which was not applied to the FEHBP. The 

did not receive a discount. 

the Plan did not disclose a discount to OPM at the time of the FEHBP 

rec,onci l,,",on. L.urlng our review, we IQund that the enrollment used to determine the current 

month (PMPM) calculation was overstated for subgroup 

99 contracts. When the i contracts were removed, the 

was reduced to_, resulting in a greater renewal rate action. 

received a~percent discount due to this error. 

Since OPM requires the FEHBP rates to be at least equivalent to the best rates offered to an 

SSSG, we recalculated the FEHBP rates by applying the factors, trends, and the. percent 

discount given to A comparison of our audited line 5 rates to the Plan's 

reconciled line 5 rates the FEHBP was overcharged $2,486,359 in 2008 (see 

Exhibil B). 

l'lan's Comments (See Appendix): 

I. 	 The Plan agrees that an unintentional numerical error resulted in a discount for~ 

_ ho\.....t!ver, the Plan does not agree that said discount should be applied to the 

FEHBP line 5 rates. Instead, the Plan believes that the discount should be applied to the 

FEHBP's non-Medicare PMI'M rate, which is the line 1 rate before Medicare is blended 

in the rate. 

8 
developed by 

II. 	 The Plan asserts that the DIG auditors did not use GHC's benefit adjustment 

methodology to adjust both the and FEHBP benefits from the 2006 

experience period to the 2008 cor"""" 

OIG's Response to the Plan's Comments: 

I. 	 As stated in the 2008 Proposal Instructions, "unless aPM agrees in writing, all discounts 

must be applied at line 5." We recognize that there should be consistency related to the 

application of discounts from SSSGs. Since the FEHBP's rate includes a blend of nonMedicare and Medicare enrollees, it is our practice to blend SSSG non-Medicare and 

Medicare rates to determine the overall discount. We then apply that blended discount to 

the FEHB? rates. 

Furthermore, past proposal and reconciliation instructions clearly state that all discounts 

should be applied to the FEHBP line 5 rates. There was not a written agreement between 

OPM and GHC stating that SSSG discounts could be using a different 

methodology. Therefore, the discount given in 2008 will be applied to 

the FEHBP line 5 rates. 

II. 	 The benefit change factors were consistently developed 


and our audited analysis resulted in the same benefit change fael.ors 


the Plan. 


Recommendation 1 

We recommend that the contracting officer require the Plan to return $33, ' 22,807 to the 


FEHBP for defective pricing in contract years 2007 and 2008 . 


2. Lost Investment Income 	 $4,693,752 

In accordance with the FEHBP regulations and the contract between OPM and the Plan, the 

FEHBP is entitled to recover lost investment income on the defective pricing findings due the 

FEHBP in contract years 2007 and 2008. We detennined that the FEHBP is due $4,693,752 

for lost investment income, calculated through June 30, 2010 (see Exhibit C). In addition, the 

FEHBP is entitled to lost investment income for the period beginning July 1, 2010, until all 

defective pricing finding amounts have been retumed to the FEHBP. 

FEHBAR 1652.2 15-70 provides that, if any rate established in connection with the FEHUP 

contract was increased because the carrier furnished cost or pricing data that were not 

complete, accurate, or current as certified in its Cenificate of Accurate Pricing. the rate shall 

be reduced by the amount of the overcharge caused by the defective data. In addition, when 

the rates are reduced due to defective pricing, the regulation state~ that the government is 

entitled to a refund and simple interest on the amount ofthe overcharge from the dale the 

overcharge was paid to the carrier until the overcharge is liquidated. 

<) 
Our calculation of lost investment income is based on the United States Department of the 

Treasury's semiannual cost of capital rates. 

Plan's Comments (See Appendix): 

The lost investment income calculation must be based on the amounts ultimately due the 


FEHBP. 


~iG's Response to tbe Plan's Comments: 

We agree and our calculation of lost investment income is based on the amounts due the 


FEHBP. 


Recommendation 2 

We recommend that the contracting officer require the Plan to return $4,693,752 to the 

FEHBP for lost investment income for the period January 1,2007 through June 30, 2010. In 

addition, we recommend that the contracting officer recover lost investment income on 

amounts due for the period beginning July 1, 2010, until all defective pricing amounts have 

been returned to the FEHB P. 

3. Claims Review 

Non-Covered Abortion-Related Claims 

The Plan used FEHBP claims experience from calendar years 2005 and 2006 to develop 

premium rates for contract years 2007 and 2008. We found that from January 1,2005 through 

December 31, 2006, the Plan paid 18 abortion-related claims for FEHBP members that should 

not have been paid, or the supporting documentation was not adequate to justify the claim 

payment. 

Beginning January 1, 1996, Public Law 104-52 requires that FEHBP plans not be permitted to 

payor provide benefits for an abortion except, "where the life of the mother would be 

endangered if the fetus were carried to term, or that the pregnancy is the result of an act of 

rape or incest." 

The Plan's claim processing and information systems did not have adequate controls in place 

to detect, document and deny payment for non-covered abortion-related claims. Failure to 

adjudicate abortion-related claims correctly increases the risk that the Plan will pay for noncovered services and inflate the FEHBP premiums. 

Plan's Comments (See Appendix): 

The Plan agrees that it paid 18 abortion-related claims for the FEHBP that should not have 

been paid or for which the supporting documentation was not adequate to justify the claim 

10 
payment. The Plan will create and implement policies and procedures documenting these 

internal controls and accountabilities. To confirm the effectiveness of these measures, the 

Plan will perform an audit and the outcomes will be documented and reviewed six-months 

after the submission of this response. 

DIG's Response to the Plan's Comments: 

We acknowledge the Plan's proposed corrective action and will evaluate its effectiveness 

during our next audit ofthe Plan. 

Recommendation 3 

We recommend that the contracting officer require the plan to submit the results of its internal 

audit to our office by December 31,2010. 

4. Gender-Specific Identifiers 

The Plan did not comply with FEHBP Carrier Letter 2007-09 (CL 2007-09), Attachment I 

related to gender-specific identifiers in its claim data submission. CL 2007-09 requires 

certain plans to submit its FEHBP claims data to the 0[0 arumally. Attachment 1 further 

explains the specific data field requirements that plans are to follow. 

The Plan's claim data submission to the 010 in 2007 (to support the 2008 rates) was 

incomplete because it did not include gender-specific identifiers in the data fields. Failure to 

comply with CL 2007-09 restricts our ability to meet the audit objecti\;e and increases the risk 

that payment for non-covered services will remain undetected. 

Plan's Comments (See Appendix): 

The Plan agrees that the claims data it submitted did not include gender-specific identifiers in 

the data fields. In response, this field will be included in the program used to create the 


FEHBP data. 


DIG's Response to the Plan's Comments: 

We acknowledge the Plan's agreement and will verify that the Plan's next claim data 

submission to the 010 contains gender-specific identifiers. 

Recommendation 4 

We recommend that the contracting officer remind the Plan to ensure that future claim data 

submissions contai n all of the required fields. 

II 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 

CommuDity-Rated Audits Group 

Auditor-tn-Charge 

Staff Auditor 

Staff Auditor 

Staff Auditor 

_ •.Staff Auditor 

Chief 

Senior T cam Leader 

12 

Group Health Cooperative 

Summary of Questioned Costs 

Defective Pricing Questioned Costs: 

Contract Year 2007 $30,636,448 

Contract Year 2008 $2,486,359 

Total Defective Pricing Questioned Costs $33,122,807 

Lost Investment Income $4,693,752 

Total Questioned Costs $37,816.559 

Exhibit A 
• 

-

• 

-

Croup Health Cooperative 


Derective Pricing Questioned Costs 


2007 ConirOtI \ 'tar - High Opl;on 

Plan's R~on ilcd Rales 

Audiled R~es 

Iliwceld)' Overcharge 


To nnu~ ize : 

x Ml\Jch 3 1, 2007 Ik3doou nt 


x I'a}' Periods 


Subtolal 


TOOt! 2007 High Option DcflXli."e Pricing Qucstioned COSH 

2007 CUnlrae! \ 'tar - Standard Op!ioo 

Plan's Reconciled Rafes 


Audited Rates 


Oi.."c41r O.'ercliargc 


To An nualize; 


x Milich J I, 2007 Hcadcounl 


x ray Periods 

ubl l~ 

TOIaJ 200? SllIIldard Opllon Dele-Clive !'ricin!,! Qucsliuncd COSIS 

TOIII1007 Ttllal DereCI;vt Pricing Quulioned Cosls 

llMl8 Cllnlnocl \'.... , - ltigh Opl;OI> 

I'lan 's R~concikd Ibles 


Audited Rales 


Oiwcd:I)' O."e<cha.-g.: 


To Allnlla li ze: 


x March J I, 2008 Hcadcounl 


x I'ar I'eriods 


Sublolal 


lOlal 2008 HII:h Oplion Defeclh"c Pricing QUe5tlonoo Cosls 

2008 Con lra~1 \'ur - Siandard Oplioll 

Plan's Reconcited Rates 


Audited Rales 


Ri .. ('Ck ~ O.'ercharj!c 


To Annuali ze: 


x M:.rch 3\. 20OS lleadcoo"1 


K Paj' l'criod!; 


Subtotal 


T0I aI2()08 StanJ~rd Oplion [kfo:cti, e "ricing QUc slioll.:d ' '''h 

Tnul Dr rHlin Pricing Outslionrd COSI~ 

-

l!i 

-

" 

SJO,Jl2.090 

-" " 

S.'i14.JSII 

16 " 


Sl,JJ7,S07 

-

•

" -

•

" 

H.486J.'i9 

SJl,I22,SO? 
Exhibit C 

Group Health Cooperative 

Lost Investment Income 

Year 2007 2008 2009 2010 Total 

Audit Findings: 

Defective Pricing $30,636,448 $2,486,359 $0 $0 $33,122,807 

Totals (per year); $30,636,448 $2,486,359 $0 $0 $33,122,807 

Cumulative Totals: $30,636,448 $33,122,807 $33,122,807 $33,122,807 $33,122,807 

Average Annu<llInterest Rate; 5.5000% 4.9375% 5.2500% 3.2500% 

Interest on Prior Years Findings: $0 $1,512,675 $1,738,947 $538,246 $3,789,868 

Current Years Interest: $842,502 $61,382 $0 $0 $903,884 

Total Cumulative Interest $842,502 $ I ,574,057 $1,738,947 $538,246 I $4,693,752 

Through June 30, 20 10 
--

Al'pcndix 


GroupHealth Group Health Cooperative . 320 ,~s la ke Avenue N. SVlle 100 

S(>a!llc WA 98 109 

wwvv gtl C 019 

C h lc l . ( llmJIIII ~ · 1{;1\,:d A udi ts tifl lliP 

Uni ted Sla les Ortit.:(> .: soll 1 t'd (J Il i.\~e lll ": I\1 

OOi c(: o f til l: [11:)1'':'::1 \11' (iL'll e raJ 

(1)00 F SlrL'cl. N W 

ROll lll (i.:lOO 

\\ a.-;l lIllg 1UIl. D{ ' II ~- I IOI) 

He: 	 Gruuflilcalth CIHIIH:rali\'c 


O."aft Audit H(,[HU"' N.I. I C -:i.:l-OU-09-U-tX 


Ikar_' 

( jruupl kalrll ( '(1<IIICr <1l l\ ,.: , " (il H ''') SlIhll l ih Ihis r":s[,o ll "'- III 'h," I l l f l\' l' <11 

i. llS P,X; t.Jf lj":llcral. U lli e"': o i" Aud iJS. U nt Il Report No_ IC -54 -IHI" lllJ-II-1 X. d:I(.,: d ,v[;lrcil 

10l U i--L> r(lli ~o..: lf l") on Ih...: ['c<.kral b ll[lloy..::.:s I-I.:alth O<': III. .'lil ::; ' rug ~ul l" II III " 1 

o pc ra liulI) Il ( jilt ' 1( 1(" CO lll ra'.: l Y<:Jrs O(, l1truugh 00~ '111<.' I)rtl n K q )\ Ir! Ul<.: lud..::-; 


prL'l l\l ill " ILlldiligs \.lrddCL" lih : pricing ill corllraCf y..:ars 20 (1 7 ilnd O()~ . :lI llj a 


prel iIII nar ~ n.'WIlUlll.' lldat k il l liral ( j II( rdurn ·U . I .. :;. I 7lJ to Ih.;: I· LilliJ' . <..' _\(' Ithl \ <: () r 


lu:> t 11I \l.:sll11<:111 IlKll llK . 


As d SC ll ,,~cd hdm\ . 1. 11(" Jis;rgrl.:cs \\ il h the D r;)tI o.: jl rr ·~ lh ll g ~ :111(1 

recommendaltOll regard ing ddcCl1 \·c pfl c ing fo r contract year 100 7" 'Ih ,: [}r;Jf\ Re po rt ' s 

fiod ing is nOf 5UPPOftCJ by law or OPM instrucfio ns. GHC ,'lCkJ hI \\ lL'dg.:.'" tk tl a ll 

:ldju:;tllll.: lI t i:-; du..: the FUln!' rd a ll.:d tt! contract year 2008. [HII ll is ~ '..: :-; \\ ilh Ihe 

amoun t assert.;:,1 in tit.: Ur;Jn l{ep!'III -;'; Jin,lin gs. 

I. 	 l'rcnriulII Rate- nl'\'icn 

.\. 	 ( ' ''"ILld \ ('a'" 1011 7 

Tire.: Dra!"t R..:purl tihag:r..:..:,> \\1111 ( il l... "s so.:!.:d iull u t" th<: sll!Il lad ; sl/l.:ll .,>uhslTii>..:r 

SSlis'" ) for 2/ltJ7_ '1'11<: Ut an Re po rl a '>Sl..'rts liwi {d ll ' "ho u l.! Ir !\ <.: "..:i<:..: I..:d 

1 ••••1a" " IL": (11' 1\\ " SSS( j" sin..:,; 11 \\ "IS 

111":1.:1:-; I h l.' SSS( I cnlcrld 1\,1'><.. ,1 ,llltir,: ulL llg , 0[ 
~'·b· I' l ~': 

lII ~ s.,.1 ~ 1(, 

l1li.Il l<' r)r:.n I{..:pm l ;l ll<.!g~s Ih;.I 1(iflC cl1gag..:d ill d..:ktl l\ l'l'ri..:i ng lll d Il1alll ll': 


H .:: II I ~ I' b cU ll 1led kl an :ldjus llHCII ( () r S.. 7,7 1 O.(d19 _ ..: ...... ...:ttl,,! \..: (I r lo 1 i ll\ ...·S{II 10,' 111 j n C(lllh :. 


(i lIC d is;lgr<.:l'S \\lllllhe D ra fL Report "s pr llllll1il r~ liud ing Ikll_1I 1.:.:IS Ih,: 

SSSG nill'ri a . dol'S lIo t quali(v as all SSSG lor 1\\ 0 rl SO Il . The first reasoJi Ih a l 

_ IS [hll all dlg ib lc f!-roup fo r SSSli purposes IS that is no [ .a cU$lo m c r g nJUp of 

G i ll.' . _ is <I ,,: us wllwr grou p o!" ([wup lI.:a llll Uptions. illc . ~ IO . [NC. "), ;I 

II hoi I.' -u\\ t h:d ult idiar ~ 0 rGlfe. 0£";' O r g dllizil l lonal U larl .;IIt 'Jdl ..:d III': rLlu ;J S F.\ II ibiI 

A . S<:i.: al 'i!.! (intu!' Conlr<Jds hdwCL'n (11-10, INC. ;Hld _ ilH,:to..:hed h..:rc lO as f:>; lIiult 

U . Sin..:..: l1li is nul a CuSlOllH: r grOtl!) (/rl l ~ III~I' ...: ar ri~ r (/IIC' _ C<lIUIU I 11..: ;111 


SSS(j 1 11l . ll ~r (j IIC'~ C< 1111 rde l w i I h I IIL' ()nic., "r l 'n ' I IIH1l'1 ;\ Lin :1 ~~...'II I.:nl l "()I' \ j " ) 


(II fe's inaJ\ t.: rI..::nL inc lusil.l ll of in (,He's 20 7 'l c proposal do cs [101 chan g(! Ih ..: 


Lac t llial is nlil a n el igible g ro up for SS SG p1lrposes, 


IS 11 0 1 ; In SSSCi I:; Il lal, ": \ ":11 ir~ \\cn; a 

CUSh1[lICI !!HJu[l o ((jIIC is C()lll pri s cJ ,I f llld i \ Id ll, il " ,lIId 'l llp s otll i l~! tug": II1'::1 

In p Ul"c h ;t'>l: lIISlIr'mc..: 111 ..:rc f r do.:s lIot q ll ;ll lf~ ,IS ;t plln ha~ iH g :ll li;lIlC":. b ;I ..;",d 

01.1 ()I' ;'".j gliidalKL", and IS 1101 eli gihk til he :lll SSS< i _ 

I. 	 (lilly Groups Ihal Cunt.-acl wilh (;11(: Arc Elig.i"ll~ fur SSS(; 

C onsideration 

OI't...I 's ralill g re qu irclIl ..:nts fu r tlw FEIIBP, ilH:l u(lillg IIISlrU( lioliS ]1)1' id lll ~i l' g 

III...' SSS(i , :11 -, ' : HL' lh.: t ll ~ thL" tTIl II \('1 IIll' [TIII\ \ -'; 'I"hlli"ll l{ ' ~' I I ;ll lI 

(" 'F I,: 11 n..\ H" L ( ) I ' t'vl '" Standard ('onl r:II': I I~)I ' CUl lllllI lUi l~ -Rated I-ICd I I II j\,b i11lCll:lllCl: 

()rganl l:illlll ll Carri i.!rs ~th e "Stanua rd Contract ") a nd O ll \ l's alllllwl r,Jll' 11IsIrucl iolh 

Ihe FIJ III:\ I{ Jo.; lin..:, th..: SSSGs as (oll,)\\ s: 

(;.1) Simi larl y Sib:d subs<.:rib...: r fOUp S (SSS(i-s) arc a c ompr;.;h"':llsl\ 0.; 

ul l:di cill piau o.: " rricr's l\\ o lll n~ r groups , hat : ( I ) As o l"lh o: da,o.; 

:;pl:ci!ied l>y OI'M loth.: ra t.: illslruo.:tiulI:; , 11 ;.1\0..' a so.: kr e nro ilm o.: 111 

closcsllo Ihe FEI-HlP subscriber enrollment: and, {2 ) USl: any ratinb 

rlIdhoJ otilo than rClros pecti\-l: cxp;';" ic llcC .-ating: anu , 0) tviee l th.::: 

Lrite ri a spcufi...d iOllle ral..: inslrucliuns issu..:d ~ O l'i\'(' 

(b) :\1!~_g Jl wi th which a ll 1-'E1 1U1' o.:a rrio.:r c uters 11110 a ll ~reo; lll 

1(1 pw\'we h..:alt h c a re Sf J'\' ices i" <l ' 1": ~I~ .ia I 5SSG (inc luding. separ;lI <.' 

l ilIes ,If bus! lie",>, ?,I )\-e rn [lleu t ell l illCS, , III liS tllal ha \ <.' IJIIIIII \ c; ! [" 

C,'ll ll,ICb, .tIIJ g illu ib 11 .. \ IllS 1I, IIIII -ll l -'> ": I \ IL( 11I " dud .,) 

(el 1':,\CO: l'li " I1':> to Ih..: geJl.:rJ I w I.: stilkJ III ;r " pl l (II) ,rl Il S see l lU l1 

ill'o.: (and Ihe li..dl\I\\i ng ~ro up :) IJl USt II": ":Xd lld.:J (roll l SSS<j 

cl ,nsid<.:r;II II IIl ): ( I ) (ili lUpS Ille Llnler r;ll~~ "; Il~ 11 ,(' Illdhild of 

I"l'l n 1:;1',:(:1 i \~ o.:x pl'fiello.: c ra t i fi g: \ 2 I ( irllu p " ":~ '[1 sis t i Il l!. II rlilo.: carri.:r':-> 
---

Ma~ 2:-).20 I() 

Pag..: _~ of [ (i 

O\\ ll l'mploycc..,; (3) Mcdll,;;,id gro ups. ,,- l(: ar.:: g roups. :md t'-l"l'U P:-: 

thai ha\"e onl y a siano aloll": benelil (slIc h:J" denl;,1 n nl y J. ;IIlJ (-II A 

purc has in g alliance \\hose ralc -setting is mandated by Ihe S til te ( Ir 

local govwnmenL 

(d) OPM.sha ll determ ine the FEHUP rate b~ sdccling the kHl ef o l."'h.o: 

two ratcs dcriycd b~ using ratin g m.-: thods con si~ lll wil h those lIsed 

to Jeri,'c lhe SSSG ra ies. 

'18 C .F R ~ 1602. 170 · [ 3 (emphasIs adJcd 1­

Unde r OPM 's rcgul<ltio ns fo r th l" FEHIJP. lhe SSSGs a rc the "carner" s " ( Wo 

gro ups_ The ,-crill "carrier" is dell ned ill tllL' Fr-;:HB .-'\cl as I(lilows' 

",ClarYi..:r" llIeans a llJlIlar~ 'lssoc iali o n, corpora liol!. ri.IIIIlCrship. I.)f 

olher Ilo llgm -c rnmclllal org.;lIli /;)tioll \\ hiclt J~ ~Jill~ " "::!.lg!).g. .,:tJ.\1l

jHO\"id ilw . navi n!.! fbr, or re imbursing the cost o r heal th s<:r \"i ~~ Llllder 

group insurance polici es o r cOlltracts, medi ca l or hospita l SCI \ iLl: 

ag rcemc nts. mcmbe rship o r subsc riptio n contracts. llr :-; illli[ar g.roup 

arrangemenls. in cotlsilie raLion 0rmcmiUlllS or oth er period ie ch:lfgc.<., 

fl:avable Lo th e carri er. inc ludin g. :l he:llth bClh.'fits pl'lIl Juh sllolIson:cl 

or underwrillc n by an em ployee organi u lli o n and an asso cia ti on o r 

o rgallizatiolls or (llhe r l:l1tilies desc ribed in this raragmph 'jjl(1Ilsorillg a 

1 1,: llt h h...·llcfih pLlI lll 

5 U S.c. S890 I(7 ) (emphasis added). Sc.'!. also -'8 c.r. R. § 1602. I 70 - 1 . 

The dc/i ui tion of ca rri .... .- in th e Sta ndard CQlltr<Jc t incorporate s ' atu!Or~ 

dclinilioll Hl d /ilnhc r pro vid es thaI the term " II1 <I~ he ust.'d nlLTcha ll g<:.' ab l ~ \\ itll the krill 

Contrac luL·' See Standa rd COlltrJd at § 1.1­

I'iwll l) , tl1 .... lc rm -"lh:al th he.: llclil:-; plall,·· \\hi d l is use.:J ill till: ..k["ulitwn or Lilrn..:r. 

is defined 3S follows: 

Ik<.tlth hc.: lli.: fi ts pia" lIl e.:a liS I g rot! p iIlSU rarKe Jlo Iil.:~ . ,,:olllr:1LI. Ill..:u ica l 

o r hO<;I' I1 :11 "e rvie.:e <1 \-'.n:cIlH'IlI . 11IClIlher<; 1I ip <lr ,\1111 ,> ..: ripl in II .."(lilt L Id . or 

sinHl:Jr g rollp arrall gc lllelllS provided bv a ca rrier !"o r the pu rpose ,J! 

pro\·idi ng. amlllgi IIg for. deli \ e.:ri ng,. fla yi ng ft.)r, or n:illlhul"-; ing ln~· of 

Ihe.: cO ~b o j" h..:al lh 011'''' ~..: n ice s 

4:-5 C J "R" § j 602. \ 70 ·9 clllpha.-;is added L 

Il ~:d 0 11111.." I(x t.'.gtl illg dt.'! il1i l((l Il ~ . Ill.: te rlll ··C:WI..-r " ;1-; lh ..'d ill I h I.! .il.' lilli lwll "r 

SSS(,s 1"<::krs Ii! Ih.: k gal <': lIlil :-" 111 .11 ..::o nll ;Kh \\ illt ()I ' \I LII (, I·ln a " ,-·.ll tll h': l1 diLs pl. 1I1 
Page: ·1of 16 

under Ih~ F E 1·1 U I'" I IlL' ddiIHlim, o f c~rrii.'r d() c~ 1101 !Ocilla\: subsi d I;II'I ...S (If.)Ihn 

cOqNrah.: aflilial<:$ ur lh\.' carrier. 

OPl'v(" s ra ling IIlSlruCiions regard in g SSSGs are consistc lli \"'ith (he ddilillions 

discussed above . This consislenl approach is highliglHcd by rC\'isions OPi\·l made 10 ils 

rate instructions regardin g the circumstan ces under which groups co \"crcd und i:r a 

separate I; ne of husi IICSS of a carrier Ihat ofTers all FEI-I B P product call be exe! uded fro III 

SSSG considera lion. Spcci li c(lll y, III 200). opr,,1 rn)pl)s~~d I';' ,k'I;Il,';1SCpar:lk lillc o f 

business as 1{.Illu\\s: 

(irmlps c()\c r..:d under a s('pa ll \' lille \ If hllsiness ,)f:1 p:IITIII 

compau\' thai offers an FEHBP product <1 r.e excluded from 

co nsideration as an SSSG. To be considered a se parate line of 

busi!!..:ss all of the following criteria must be sallslicd: 

• It mUSI be a scpar;He organ ization;11 ullit. $'I.:h as a di\ is tOIl or 

~ubsid;an· . 

• 11111 "-; ' h :l \ l' sql..lrall" fi nilllc i:d ,K 'lIll1 "il ll~ \\i ll, " h, ,, )k ~; lI\ ! 

I'c(:l lrds IlwI pnl\"idc s<~p lratc re\'CIl IiC and ,:Xjl<:lISC rn ti'm lliltitJll !h:1I is 

used to r int ernal planning and contro l. 

• It Inust ha\"(: a se parate work Coree and eparilt .: mi'lIIa ge llle llt 

imo""cd in Ih<-" design al[(I ra ting oflh..: ileal tli<.: ar( produCi 

See OPM Id k r dat ed Februnry 23, 200 5 Oltwc hcd hc ri..·lo as F\ hibil C 

II I response 10 cn lTl11ll nt s thaI OI'M's nsc o r th ... krtll ;'; " pa re nl ronl p:ut y" ;1111 1 

"subsidiary" wo uld cause (:onfu5ioll regarding whelher gro ups Ihal :Ire 11 01 cllstomers of 

th..: carri.:!" co uld be considered SSSGs, OPM modi6cd tile: klllf'-llagc, c han ging " pan: nl 

CO mp;1rI ~" III "(;;trrier" and del cle:d the \\nrd '·5ub:; id i'\f\··· .' Sr ([li(;all ~. ort\ / Iloh;d 

Soml~ of Ihe rrjcr~ had problems \~ ilh the te rm " parent company" 

sill\:c Ihey thoug ht this implied groups co uld be SSSGs c\'c n tho ug h a 

k g," l: lI tny uth<-'f thall the FEHBI' l:arri c r pru \ Id es th\! co \"(:r:Jgc . Thl!) 

said the use o r the \-vords " parelll company" and "subsidiary" crea les 

confusio n aLout intc nt oCthc proposed policy. 

One re pond~1l1 said the \\'o r(\ " :; uh sid i: l[\'" J1r'-';-;': II I~ d a prn hknl 

bccause it typically rclers to a se pawtc and distinct kgal l it ~, Tltey 

s.lid lhe wo rdin g would c reat e uncc-rlainty ahout \\ lh~r gwups \l"tlll 

ar~: lIot cllstolllers (If Ille eani T c(llIl<I in $0111.: ; 1l ", 1 KC~ h.: n lt b l.kred 

:):-':--'u :- , I hc) \lrtl lh.bc iHllcllJmg til..: :J ll ll'I ~C ~ o,;lt. II' lII g . P,\l CIit 

Ullljl; ll l~ "to "carri..:-r" · :llld striking (lut lite \\ord ·s llhs i ; lr~· . 
May 2tL (J III 

Page 5 o r 16 

Om:: \:arricr said thdt our desc ri ption appears 10 encompass a carri,:r's 

$I"tc r corporations " hich me sqmratl' Icga l e ntitil'S and. pO I<: nti l~ . 

nol co ntr<lcled with OPM a s appro\'ed carriers. They do not behe\'t~ it 

IS the il1lenllo cross illto separa te' \cgal entilies cn::11 be twee n 

commonly owned corporations 10 selcct pOlenli a l SSSGs. 

We agree to change " I)arent Company" to "Carrie r ' and strike OUI Ihe 

word "s llb id ar~ " 

Sc ~ OI' M Carrier LCII..:r No. 2005- 11 attached heret o as L.\hibil L 

OPM 's revisions in response to cOlllments demollStra tc Ihe agency's clear inl el1t 

to exc lude from consideration as a n SSSG those groups thaI arc nol c ustome rs of the 

carrier Ihat conlracts with OI)M. The clarified instructions remain to address situa tions 

v..'here a group cUSlome r ora separale line o f busi nc:,;s. opa<lled as a di visioll \~'- thin a 

singlLcjl!Iler. could hr: excl ud ed from SSSG d igibility, They do 11\)( s..:e k to expand lil,: 

contrac tual aud regulatory de lln itioll ofSSSGs. Th.:: inslruc lious make cI'::M tll,,1 a 

ddL'rn lilliltiou as to whether a program is (I separa le line O r bUSl llCSS is Illlldo.: :15 ",jth 

respec t 10 the ope rations "of a carrier. " 

T lh.:r..::l"o l''':: . th..: ··,..: parat..: li ne (I rh Ll illc '.~ " ill " nh.; lI lIl L~Ill!h)1 h..:: al'p ll.:d Il' : l 

subsidian "rlh..: carrier thai co ntra..::Ls with OPI\.·1. rh.;; filc tlhatlile carri e r that COUlracts 

"ilh Ol'ivf also) PCril)flI1S administrati ve sen ices l'or til..: uhsiJ :Jr~ dues no t neah: iJ 

difr~~r\.-'Illll·-';lli l Tho.: IllU \ isiull ufadministrall \''': so.: n ce.~ hy;l lj ldLII "~ lun:I!! 1', 1 .11 1 

a ffi liate i~ n~ ry COllilOon in the health plan and other induslries. Such arrangc lnellts J o 

not affect the legal se para leness of lho.: relatcd parli es. 

na-.;c d Oil Ilk' lorel:!.o ltll'.. OPt>.'! Iccop nl l<:S lhat (he carrier \\]'(11 "hidl It clIlltr:JCh - ~ ~-, 

unde r the FF::I·IIlP and the c<lrri er's aftili alc(sJ arc se para le legal enl ities a nd llj~· gro up 

c ustomers of the fEHBP ca rrier arc eligihle for S~SG considerati on. Thus, conlrary to 

Ihe Drafl Re port 's preLinlinary finding, l1li cannot be all SSSG since it docs not 

\.-·o ntral·t with Gl lt...: fu r health bcndits ..:o\"cra~c, 

2. Group lIealfh Coo[lcnllin and Croup ([eahh OltliOlls Inc. A,·c 

SC[laJ'alc :Iud ()islincf Lega l Enlities 

GHC li nd GI-IO, IN C. are separate lind distmci lega l enti ties. GHC was /orrneJ III 

I(H S, II is J Washingto n Ilollprofil.laX-CXcmpl organ iz.ati(lil. GII C has bee n registered 

with lile Wilshill g. tOIi Slate Ofli cc: \)r lhe Insur:I[H:,: Cnllllllissillll<.: r (-'Ole"') as it IIC<l ll h 

IIMlIlt t.: ll lI lCe I II !t<llIlUI iUII SlIlee 1'1 76. :So.:..; (He CertJlI(.;lIo.: 0 1 l(o.:glslr:JIIOII a uadwd 

herell) as Ls.h ibit F. Ci II C 's 101al ..:nrol I 111":1 II S vI" April 2('10 IS proxilll<lId ~ :i7S,()l)(} 

It ha " contractcJ with O PM as ,HI FEIIB I' cO nlnlCIOr since 198 5. 

(illO. INC \\ :IS (ln ~,ll ll 1991J. It i:-. cl \\ as lllll g ltlll fn f -prll ril t.:u rpnrali(lll (oJ 1(1 , 

INC Iws he':fI s ed wilh Ihl' ore ;1 " iI hea llh Cilrl' ser\i cG n ll llr;h:lor si nce 1il'HI -"co.: 
, 

Pagl! G of Hi 

o le Ccrlili catc of RcglstrLltio l1 auac hcd hc rch l a5 ~x ih ll G GHO. INC \\ as estah lished 

primaril: In o ffe r hcalth p la n proJw.: ts. sm: h :lS p(l irll -(lf-sc n 'tce bCIIl.:fib , tha t \\ <.) lI ld be 

incons istent \\"jlh CiHe s registratio n a'> a health ma intenance organizat io n . G HO ,INC:s 

tota l CllJoUrncnl as of April 201 0 is 228.000. -GI-fO. INC. is no t an FEHUI' conlracloL 

As separately registered carriers. GHC and G I-I O. INC. arc each suhj ec t to 

separa te chapte rs o f the WashinglO n SLale Insurallce Code. GI-IC is prima ri Iy go \'c ru ed 

by RC W Ch. ,-'I R.4 G a nd G fIO. [NC. is primari ly gC)\'e rncd lly.ltCV: Ch. X _ Each 

e ntity SUb/III IS all nco..:essary tilillgS willI theOrC. Eac h e ntity is a lso ppro eJ~ 

capita lil:cd in accordance \\ ilh Washin gto n S tate insuran ce law. 

I'u rs ua nt to a n Ad lll in istrati\ t! Se rvices Ag recllle nC GHC performs ad minislrali\'e 

[ullc lio ns fo r GHO, INC. , includi ng c laims processing , underwriling. and ap peals. There 

is a lso a Medical Ser.... ice Agree menl bel ween GHO, INC and GHC through which (IIIC 

pro \'ides med ical :)cf\·iccs 10 GHO, fNC. enro llees. Bolh agrecments an:.' fi l(.'d wit h ti lC 

O le a rid pro .... ide Ihat G I Ie is cOln pe n.'><llcd for a ll aC li\ ' li e~ perfofl llL'd o n Ilcllal r o f (-; 1 10, 

rNe 

:t . _ J)oes not Salisfy OI'M C.-ilui:! fOI' run ha in g Allianc cs 

..\~ l lilh:d ab,,\c. th..: ,",,: .n<: 1\\0 r..:asO ll!; \\ h ~ _ do..:::; n\II . ." (i :) ~ O I'I\I 's SSS(j 

crite ria . W it h resped I,) the sceo nJ fe<LSOIl , C\\:~ 11 if\\.o c a SSUlllL' thai g. l"UUpS 11 1<:11do no t 

cOnlrac t \\ ilh the Fl':r·H3 I' carTI er ca ll be po k illi al SSSGs, _ docs no t ali s y O PM's 

('ri(ni:1 li'f 1'lIn.:iu" ifll' ; l l! i l \ I ": c~;le; (l()I\'::ll li ,ll SSS( is TI\<' .kfll li tillfl ll r :1 I'urd u ',i ll!' 

all iance in tlli: 1110 7 Rate Inslructions PrQ \'ide<; tha t " Purchasing Alliances a rc ~.!!~ :.. rotl ..:i 

bondmg g( lh r to purchas.: health insura llce." (emphasis added ) _ docs 1I0lmCe t 

tile dd ini taJIl u f ,I I' urchasing Allia nc..: be ca use it is cOli lp riscu o r ho lh ldu ls and 

groups. A co miJinntii)ll o f indi vidua ls and g r(IUp s is IIOl ille Iyp.: o r hn lldi llg logo?1 h.:r In 

p'UfdJasc i ll wll\.:: ~ th at O I'M ime nded to incl ude in Ihe Ra le [Ilslruc ti(lll de linilion 

Even the Ol(j 'S Audit Guidance suppo rts Ihe conciusioLl Ihal a comb ina llon of 

individua ls and groups such as _ s nOl a potenti a l SSSG . Per Audi t G uidance 

CUIIlIllUllIly-J{;lk d Cam cn. ~ull <.'l i ll iN7-02 (dfco.:ti v..: 0 5/05/97), a "" ..: oa liti o ll is i"u ril lcd 

\vhcn sc '- c.-al subscribe.- gl'oups come toget he r 10 form olle un it and negoti ale with the 

plan as a united fronL" (cmphasis (J(JdL-d) 

Cjj·1(' conlinues to assert lhat _ docs nol mce t the requiremc nts 1) 1' ;\11 SSS(~ 

a nd thc n.:]"H..: c:\IIn ul he til L' hasis \(11" :1 cfcc t c [,ric in,t!. filld ing or pri : lIl g a d iuSlll l": lll 

g, ~1 " ,J It . I ]O\\ L'\..: I , III ' IrJ ..:r I. I pr..:.:i..:1 \ ..: all I lglll:., ( 11 ~ . db u ha~ IJcIl II 11L·J t il": 

f(III (I\\i llg cl wr:; in tit..: I)w ft ": (l rt ·s <l [l lll ic ati ' lIl o l"lh ..." _ r" lillt:! ll lelhlld u l{Jgy toJ ~ 

IT.lIBI ' lor (l llt H..:l ~ L':l r 1007. 

Ih ~ li llldall lL' llla l ur [l(l~t: o f Ille SS SGs is 10 e llsurc lil a l O f' r.·('s r;ll..:s "r~ 

ddcrtll il l..-:d in a IHalle r 0.:011 '> 1';1('111 \\'ith tilL SSS(is .s ~~ 48 c.r I{ ~ 1602 .t70- I Vd l, 
--

;\ -')a, 2R. 20 I 0 

I'a ..: 7 .>1 I(, 

--0 1',\-' \il l l dck lll l1l l": 111<': FU -IU I' rat.: by sck...:ling tll..- km cr Oll llL" [H" r:lh.: ~ .kli,...,:.! h~ 

u SlII g ral il H! III Clho ~ O) Il ~ ": 1l1 "illl th o se liSCO to ri c the SS S~ j 1"<1 1"::; . ' h: lllpli;]<;i:-­

added ). \\1ICII.1 d isco unt is pr(I\"idcd 10 an SSSG . O l'r\,i" s ral ing rcq uin': lI1 clIl:'; dictate: Ih ;(( 

:10 cq ui\alelll JiSCOU ll1 he applied to the Fl I-IRP S\!e 48 C. F,R ~ 1(i :5 :! _~ Wh)( "2 ) . 

lnlhal n: g;m L \\ 1I("1t OI I I~.'1 specitl c S.-::gIIlCIiI o f a ll SSSG rCL i\ ~ a discc,u llL lhe ll 

(J ill ~ II Ie ctJlllpar:lbk :i<.~~~lll (..1 rth..: FEH B I' el Hoi hn 111 shou ld .; c,~ i \ e (he d isCOllll1 ill 

;,rder ';1 [" the FUIlIP 10 he raled usin g a Ill er {) g~ CO Il SiSICli 1 \\ llh Iha t u <;t'd 10 r ilk Ih(: 

SSSG as req uited 11\ OP~' I 's regulati ons. See. 48 C.F_R. § 16 52 .2 15-70 . [t is a sr.;Jllda rd 

mdustry pra.::tic .... fo r carrie rs 10 rat..: fl(ltl - t....\cdicafc aud Medicare;:: CO ll lp<lIlellt '> 01 a g r<H ljl 

[ ..... ,ti tlt pi.m ".... p , l/ tll..:!.\ 0HC I~l l u\\ :> Il us sLln.J:Jl d Il\ ll :>t f ~ rird...:tl c": lutlt..: ..: :1:-. .... u r _ 

Ill..: non -M·cd iea re s cgmc nt o(tll<: g rou p received (l dl ;C () t 0 ,"_ wh d e tile 

dl\.: ar..: po rtlOl1 (II" the group dId lIot receive any d i')cQIlIit. H O Wcvd . Ih .... Draft Report 

Jllllli .... :-; the discoullt III CiHC S cuI ire r EI IU P cnrolime lll . Appl yillg. th..: d iscount to 111<': 

'-'III In:: FEIIIH' l.'nroll(ll cll t. 1I0t\l !\ ledi carc ;'lIld nOIl-Medicar.> disregard ,> o r rvt · s 

I"<•.:gulahol ls ,wJ Pp l :; a r;llillg U\,:I I (lJo ~ 10 th,~ FF.I I U I' 111 :.11 IS !lo t ":011 5 1:;1 0.:: 111 H it h III .... 

<IPI,ll c:lll k :---,:---':---"i ·) 11 k:l \l lu g~ . JIl .... ~:>O':: lI ..: .... . tho.:: I 1-:1 1131' I"..:..:":I\C:> 111< ,1"": 111; 11 11[1": 1)<: 11.: 111 

·llr tll..: b;u g,lill jllUI iJ..:d tq 11 1l.' :»)SG <I ud I ll.I~ s kss t llitll wlli.lt It IS legal ly a lIJ · 

('O Il[f lll(\ll ~ r....q ll ired II) a~ GHC. All example calc u la llflll de lllo llstra tilig Ih ..: ri.1 f.... glling 

is ;llla..: h.... d hLro.::tu 3 :; F " hi b ll H 

III ;ludill o n . l1 k Jhtlllg (li..: i~"':()lJ lll :i h~I\\ ":~ 11 II....· SSS(j s l.' kd i...:a ~ a nd 11011· 

iI..kd l...:;u ...: r:lk s d.)..::; lIul I...:suh In (h...: appllc" Ii ull o f , I t..'OJ ISISI<:1I1 Ja lin g Illo.::l llOdol 'l g; 

bcl\\":":lIth...: SSSC, an d j U ILH' II I t...: SSSlf I\<l:, Jhlt r a l..:d \\1I1L Ih.: S;UI IL· bkllJmS 

Jl\ 'II J~lu l .l\.':'\ \hll "': lH Cf, I h.~ ~SSG· :-; mix l!LlIIC.... 1l M..:dicarc illlLl lh lll -McJi c a n: II ill 

Llr..:h . If <:1 cr. IILlt e ll Iii.: rEHBf' group m ix het\-vccli j\ 1cdica re all t1l hln-M ar ~ . Thus 

111..: <l[1pllC{H It..H I ' I t" ,I I, I.... ndcd SSS(; rillt.: {combi Il l lig i\ k di ("a re a lld II, HI - di..:ar.... \ h ' Ih..: 

l T I IB I' ~c HH p \\ III r":SI JII II I Ihe r EI {[W c(;e i l' ill ~ 11 1('1\: u L I ,1i s<': Ll tillt l il.'lll lilL" SSSCi 

n:c..: il·c,1III ks-.. Or'l discoulll th all lh .... SSSG re.::c l\ ....d JCjJt:lld in p, UP'lIl III..: FI:I Hl( ' ·.'> 

Medll;a rcinon -Mc(h..:ar<! nu x ill comparison to that of ille SSSG. Sc~ Ex hi b it H fo r <III 

n ;ulI plc c;lk u l<lf io n d emonstra ting Il le to rego ing. Su ch il resull is (l ntr ar~ 10 Ihe ra ting 

rcq ul fC lt l...: nts Olcr llill ~ the r[ t~ . 

Ucl eled by Ih e 01(; 


Not Relevant to the Final Report 

--

Ma~ 28. 2010 

!lag,· S (If 1(; 

Deleted by the OIG 


Not Relevant to the Final Report 


Fina ll y. the rEHBP rates for the Hi g h Option Benefits and Sland::mJ Plan l'3 encfits 

did not includ..~ taxes and commissions rdated 10"l1li before dctcnnining the discollnt 

due III !he rl :.HHP. which inappropriate ly lo wers the FEHf)P nile and inap propri::l.I.:ly 

mllak's the d i:;clllint due In the FEHnr. 

Deleted by the OIG 

Not Relevant to the Final Report 

5. Adjustment Ouc FF.UBr ror Contract YC;lf 2007 

naS"d tJlllh..: (,-,r<:going, 110 adjuslml.:nl is due the FEIIIJI' III cOIlJlecti01l \\ ith 

_ as d nes lIo t s:l.!isfy the SSSCi eliteri,) lor ?O()7. 

!-'Ilr contract year 2(}Olt the Draft. Report agrees wilh GHC's SSSG selections. 

Ho\\'c\/cr, the Orati contains preliminary findings tha t one of the SSSGs. ~ 

_ ro."l;CI \I.,:J a , uf wluch was Ilot <1pp lted tQ lh..; ~ IIW _ 

G HC acknowk dges rece ived a disc() ulll and tha t the ITHUI' did not 

eli ,;':o""L '1l1e discount \1/35 the result of 

an UI1 i IIkUUOIl<11 IriHISlh\sitioli of numb..:rs w hen enter; ng group'5 ell rolll11<'111 data in 

th~ rat 111 0'. tfludd. HCt\\\;,vcr, (~ !C' disa!;rco.:s wllh tho.: Draft Re port's nal~ "is orthe ~ 

_ al\d liEl-fBl' rating. 

I'; r-;I ;1:'> L\ pLII I1 ~~, I ' I H'\~_ \\ ~11 oll l) a r~·,,:; .;,..; llh:111 01' ,111 SSS(; 1''':'':'':11<.::; a 

Ji Sl:l.) lIll1 1I ~~ ll l)lll y lil(' Ctllllparabk seglllL"lll arlltc FEHHI' enrol 1I 11":11 l slwukl reed \ ..: th;n 

Ji t.::olll1 l ill "nkr " If II,,: 1,1,:1 1111' h I II..: rated using a rll cliuldo lo!-!,y CO Il S ~h:I J I Hllh 111:1 1 

use d 10 nl<: 111(' SSS(i as r- by OPM's regulations See 4X('TR ~ 16 ~ 2 15-7U 

As \\;tll h,t:-> sl':parak ra tings for ils M..:di c~lrl' aud nOIl Ml" ~aro..: 

dt.'\c\lunl in l OOX applieo (lIlly llllhl' g rllup 's \HIIl-l\kJ ,c,Ui:: 

pl)pUlalioll . I hcrL'l ,ll"l' , [it:lI (l!scuLlIlI should olily he apphe<llo llw nnl1 -i" kd lcclro: 
Page 9 of lG 

IIlcmba:-; of the FEHBP. Application of a non-Medicare population disc(lllil t l{I the cillirc.: 

F[I-II3P disregards O[lrvrs regulations and rating rcqulr(:mcllts and applie s a rating 

mc thodol(lgy to the FEUBI) that is not consistent \',:ith the applicable SSSG's 

nlcthock,logy. 

Deleted by the OIG 


Not Relevant to the Final Report 

Page 10 of 16 


Deleted by the ole 


Not Relevant to the Final Report 

IJage I I ofl 6 

Deleted by the OIG 


Not Relevant to the Final Report 

Deleted by the OlG 

Not llelevant to the Final Report 
--

Ma~ S . ~()IO 

P3g..: 1.1 (I f I(j 

Deleted by the OIG 


Not Relevant to the Final Report 


( ', 1 .0 :0. 1 111\ I.'S IUlI'III lnnlllll' 

Any losl in\',,:slllIcnt in<.:un1t: Ull.: the FEIIBP lIlust be bas.:d on Ih.. ,IIIiULllll S 

\lll ld ~ .llh' rl1,: FI'[ IHI ' .111,1 rl"r Ib,' inn .I!.'.! : .. 11,'11111 ......\'1 t~' r1h ill Ih,- 1)1,11", 1:':11. 11 1 

A . NUfl ( U\l I d ,\I'tJl"lioll · H.cI:lll'd ( "J:tim s 
Page 1401' 16 

The Draft Report ':olltai ns prel ilTlinary find ings that duri ng the period o r Jan uary 

I. 2005 through rkcembe r 3 1. 2006 , the experiencc period lor the 2006 and 2007 

contract yea rs, G IIC paid 18 aboltion-rel ated c laims fo r the FEHBP that should not have 

been paid or for whi ch the supporting doc umentation was not adequate to justi fy the 

cl aim payment. 

Management agrees to the above findi ng. As a result o rthe FEI-IUP aud it, two 

issues \Ven; ideilli li ed and arc being add ressed. One isslle cOl}cems a lack o f an int ernal 

cOl1lrol to stop internal cla ims (cl a ims for procedures pro \'ided in lac ilities owned and 

o perated by ( iHC) from paying since a medi cal necessity re \'iew process is not in place to 

distinguish hd \\ecn clai ms that an: f()f co ve red sen 'ices and should he raid and those Ih::H 

arc lo r non-covered services accord ing to the FEHBP contrac t and should not be paid_ 

Work is underway to enabl e GHC prac titione rs to use the medical necessity review 

process to ensure that claims are (k"lid according to' appli cable contract terms. 

The second iss Lle that resulted in cla ims being paid \Vh": l1 Lhey should have b..:en 

deni ed ou,:urred ill a \ cry isolaLed Il ulll ba o f cases and rdates to laboratory sen ices 

prov ided in G HCs contrac ted network. The control in place to pre \'ent this in ....o lves the 

orde ri ng physician knowing these se rvices are nOll-covered by req uesti ng and being 

deni ed pre-authorization. It is the provide r's responsibility 10 identify these sen'iees as 

no n-covered and to ensure related cla ims are not submi tted for reimbursement. 

In response to these two identifit:d process gaps GHC wi ll create and implement a 

~rec ifi c policy and proc('durc documenting the'>e intema l cOIII[l. ls and ,lCC\l ulllab ilities_ 

Th is po licy \ ... ill help to Ul(lre c learl y commulli cate FEHRP standards and how these arc 

met. In addition, training in the torm o fa written process sUlllmary \\.:ill he provided to 

cmploYi!d prac titi oners identi fied through this audit process and a fo rmal communi catio n 

regarding this standard will be added to G HCs Contracted Pro\'idcr Manual. To confirm 

lhe d Tccli velless o r these measures. an audit \\lill be pe rfo rmed and audit outcomes 

doclI[\1ented and rev iewed six-mo nths a ft e r the submission o f this response. 

It Gcndcr-SI.ccific h\t:nlificrs 

The Draft Report contains preliminary fi ndi ngs Ihal GI-IC's cla ims data 

submission Lo the OIG in 2007 pursuant to Carri e r Lette r 2007-09 was incomplete 

because it did lIot inelude geuder-specific identill ers i!llhe data ('dds. 

It is agreed that G HC cla ims data did not include gende r-spec ille identifie rs in the 

data lields. In response, th is field will be included in the program used to create the 

FEIIIW d~lla. \\'c arc rcs uhmitting lilc Jala to suppOrt f..ILc:; IllI" 2008 and a C D conlaining 

that informatio n is he reto included as Exhibit O. Wr: have o created a new process to 

check the dala (i dds e~ ircd to ellsur..: all requested data is submitted. Going f(lrWard, 

when G IIC assembles th ~ data requested by Ihe UIG, J ere ~c J oeulllent \.. ill be 

CfcCl tcd 10 idcnt ify the I:omponculs of lhc text document H correspond to the dala 
Page l 5 0f 16 

requested from the Ol.G. Through this process, G IIC \iJI be ahlt.! to ctlsur..:: th at the c~ l 

doc ument with the claims data contains; all of the req uested elemellts. 

III. Conclusion 

Ba d on the foregoi ng and attached supporl ing documelltation. FEHBP is due $0 

for 2007 and is due $ 1,445,362 for 2008 as noted on Exhi bit J - 2008 Audited FEI-IBP 

Wo rkbook adjusted , Sheet E.t hibit-A Hif!h Option. Cell P47 .. 

If you ha ve allY q uestions regarding our resp()nse. please cO llta(;[

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