. . 

u.s; OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF TI-IEINSPECTOR GENERAL 

OFFICE OFAUIJITS 

. . . 

.'Final Audit Report 

Subject: . . . '.. ..... . '. . .'. " . 

··AuditQftbe. F'ederaIEIl:lPloyees·lIea~tb:B~net.its

'ProgtaulOperatiQllSofUniveta IJ:ealtbcare 

Date: . September .' ' ., '. $,' 2.0.. 09.

-"CAUTION ,.­

This audilrepol"t has been distrib.lit~dto Federal officials who arc responsible forthe administration of the auditedpHig.-am. Thjs 

lludilreport maycoritainproprielary data which is protected by federal law 08 U.S.c. 1905). Therefore, while this audit report is 

available under theFree~omorInformation Act and made avanable to the public on IheOIG webpage,c:lulioli needs to be exercised 

before relusing the report 10 fhe ~elleral public asit may contain proprietary informaiion .that wuredacled from the publicly 

disiribulcd 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
 

Univera Healthcare
 

Contract Number 1891 - Plan Code Q8
 

Buffalo, New York
 

Report No. 1C-08-00-09-008 Da~: September 8, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.lIsajobs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Community-Rated Health Maintenance Organization
 

Univera Healthcare
 

Contract Number 1891 - Plan Code Q8
 

Buffalo, New York
 

Report No. 1C-Q8-00-09-008 Da~:September 8, 2009 

The Office ofthe Inspector General perfonned an audit ofthe Federal Employees Health Benefits 

Program (FEHBP) operations at Univera Healthcare (Plan). The audit covered contract years 

2004,2005,2007, and 2008 and was conducted at the Plan's office in Rochester, New York. 

This report questions $3,982,122 for defective pricing in 2005,2007, and 2008, including 

$354,140 for related lost investment income. 

For contract years 2005,2007, and 2008, we detennined that the FEHBP rates were overstated by 

$226,404,$2,437,976, and $963,602, respectively, because the Plan did not apply a similarly 

sized subscriber group discount to the FEHBP's rates. 

Consistent with the FEHBP regulations and the contract, the FEHBP is due $354,140 for lost 

investment income, calculated through June 30,2009, on the defective pricing findings. In 

addition, the contracting officer should recover lost investment income on amounts due for the 

period beginning July I, 2009, until all defective pricing amounts have been returned "to the 

FEHBP. 

www.opm.goy www.usaJobs.goY 
CONTENTS
 

Page 

EXECUTIVE SUMMARy	 i
 

I. INTRODUCTION AND BACKGROUND	 : 1
 

II.	 OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

m.	 AUDIT FINDINGS AND RECOMMENDAnONS ; : 5
 

Premium Rates >0 5
 

1. Defective Pricing	 5
 

2. Lost Investment Income 	 6
 

IV.	 MAJOR CONTRIBUTORS TO THIS REPORT 8
 

Exhibit A (Summary of Questioned Costs)
 

Exhibit B (Defective Pricing Questioned Costs)
 

Appendix (Univera's August 10, 2009, response to the draft report)
 

.Exhibit C (Lost Investment Income)
 
I. INTRODUCTION AND BACKGROUND
 

Introduction . 

.We completed aIiaudit ofthe Federal Employees Health Benefits Program (FEHBP) operations 

at Univera Healthcare (plan) in Buffalo, New York. The audit covered contract years 2004, 

2005, 2007, and 2008. The audit was conducted pursuant to the provisions ofContractCs 

1891; 5 U.S.c. Chapter 89; and 5 Code ofFederal Regulations (CFR) Chapter 1, Part 890. The . 

audit was performed by the Office ofPersonnel Management's (OPM) Office 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 ofthe Federal Employees Health 

. Benefits Act are implemented by aPM 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 should pay a market price rate, FEHBP Contracts/Members
 

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 

year audited. 

March 31 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

o 

2004 

• Contracts 3,104 

D Members 6,703 

2005 

3,923 

7,351 

2007 

2,342 

4,469 

2008 

2,397 

4,463 

1
 
The Plan has participated in the FEHBP since 1980 and provides health benefits to FEHBP 

.members in the northern counties ofwestem New York State. The last audit conducted by our 

\ office was a rate reconciliation audit and covered contract year 2006. All matters related to that 

audithave been resolved. . 

1'he preliminary results ofthis 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 agrees with our findings. 

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 FEHBPrates were reasonable and equitable. 

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

provisions ofthe 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. 

FEHBP Premiums Paid to Plan 

$21 

$20 

$19 

$18 

$17 

$16 

_Revenue 

This performance audit covered contract years 2004, 2005,2007, and 2008. For these contract 

years, the FEHBP paid approximately $77.1 million in premiums to the Plan. The premiums 

paid for each contract year audited are shown on the chart above. 

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHEP 

contract, applicable laws and reguhltions, 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 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 the SSS·Gs);-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 

3
 
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 Rochester, New York during October 

2008. Additional alldit work was completed at our field office in Cranberry Township, 

Pennsylvania. . 

Methodology 

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

the market price rates. In addition, we examined the rate development documentation and 

billings to other groups, such as the S88Gs, 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 

determine the propriety of the 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 

perforrried other auditing procedures necessary to meet our audit objectives. 

4
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

Premium Rates 

1. Defective Pricing $3,627,982 

The Certificates of Accurate Pricing the Plan signed for contract years 2005, 2007, and 2008 

were defective. In accordailce with federal regulations, the FEHBP 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 $3,627,982 (see Exhibit A). 

Carriers proposing rates to OPM are required to submit aCertificate ofAccurate Pricing 

certifying that the proposed subscription rates, 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 defective pricing exists, requiring a 

downward adjustment ofthe FEHBP premiums to the equivalent market price. 

We agree with the Plan's selection of and as the SSSGs 

for contract year 2005. 

Our analysis of the rates charged to the SSSGs shows that eceived a 

"percent discount, which was not applied to the FEHBP. ~idnot receive 

a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we 

recalculated the FEHBP rates by applying the"percent discount given to 

_ A comparison of our audited line 5 rates to the Plan's reconciled line 5 rates shows 

that the FEHBP was overcharged $226,404 in 2005 (see Exhibit B). 

The Plan selected -'nd_as the SSSGs for contract year 2007. We 

agree with the selection of but disagree with the selection of_ 

••••••••should have been selected as an SSSG since it was closer in enrollment 

size to the FEHBP and because it met SSSG requirements. 

Our analysis ofthe rates charged to the SSSGs shows that received an 

_percent discount, which was not applied to the FEHBP. did not receive 

a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we 

recalculated the FEHBP rates by applying the _percent discount given to _ 

_ A comparison ofour audited line 5 rates to the Plan's reconciled line 5 rates shows 

that the FEHBP was overcharged $2,437,976 in 2007 (see Exhibit B). 

5 
The Plan selected and as the SSSGs for contract year 2008, 

.Again, we agree with the selection of but disagree with.the selection of 

should have been selected as an SSSG since it was 

closer in enrollment sIze to the FEHBP and because it met SSSG requirements. 

Our analysis ofthe rates charged to the SSSOs shows that received a 

_percent discount, which was not applied to the FEHBP. did not receive 

a discount. Since OPM requires plans to apply the same SSSG discount to the FEHBP, we 

recalculated the FEHBP rates by applying the _ percent discount given to . 

_ A comparison ofour audited line 5 rates to the Plan's reconciled line 5 rates shows 

that the FEHBP was overcharged $963,602 in 2007 (see Exhibit B). 

Recommendation 1 

We recommend that the contracting officer require the Plan to return $3,627,982 to the 

FEHBP for defective pricing in contract years 2005, 2007, and 2008.. 

Plan's Comments 

The Plan agrees with our findings. 

. 2. Lost Investment Income $354,140 

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 2005, 2007, and 2008. We determined that the FEHBP is due 

$3.~4,140 for lost investment income, calculated through June 30, 2009 (see Exhibit C). In 

addition, the FEHBP is entitled to lost investment income for the period beginning July 1, 

2009, until all defective pricing finding amounts have been returned to the FEHBP. 

FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP 

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

complete, accurate, or current as certified in its Certificate ofAccurate 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 states that the government is 

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

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

Our calculation oflost investment income is based on the United States Department ofthe 

Treasury's semiammal cost of capital rates. 

6 
Recommendation 2 

We recommend that the contracting officer require the Plan to return $354;140 to the FEHBP 

for lost investment income for the period January 1, 2005 through June 30, 2009. In addition, 

we recommend thatthe contractmg officer recover lost investment income on amounts due for 

the period beginning July 1, 2009, until all defective pricing amounts have been returned to 

theFEHBP. 

Plan's Comments 

The Plan agrees with our findings. 

7
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Community-Rated Audits Group 

Auditor 

Auditor-In-Charge 

, Senior Team Leader 

Chief 

8
 
Exhibit A 

Univera Healthcare . . 

Western New York - Northern Comities 

Summary of Questioned Costs 

Defective Pricing Questioned Costs: 

Contract Year 2005 

Contract Year 2007 

Contract Year 2008 

Total Defective Pricing Questioned Costs 

Lost Investment Income 

Total Questioned Costs 

$226,404 

$2,437,976 

$963,602 

$3,627,982 

$354,140 

$3,982,122 
. Exhibit B 

Univera Healthcare 

Western New York - Northern Counties 

Defective Pricing Questioned Costs 

2005 Contract Year 

Plan's Reconciled Rates 

Audited Rates 

Biweekly Overcharge 

To Annualize: 

x March 31, 2005 Headcount 

x Pay Periods 

. Subtotal 

Amount Due FEHBP in 2005 

26 

$226,404 

2007 Contract Year 

Plan's Reconciled Rates 

Audited Rates 

Biweekly Overcharge 

To Annualize: 

x March 31, 2007 Headcount 

x Pay Periods 

Subtotal 

Amount Due FEHBP in 2007 

26 26 

$2,437,976 

2008 Contract Year 

Plan's Reconciled Rates 

Audited Rates 

Biweekly Overcharge 

To Annualize: 

x March 31, 2008 Headcount 

x Pay Periods 

Subtotal 

Amount Due FEHBP in 2008 

26 26 

$963,602 

Total Defective Pricing Questioned Costs $3,627,982 
Exhibit C 

Univera Healthcare
 

Western New York - Northern Counties
 

Lost Investment Income
 

Year .2005 2006 2007 2008 30-Jun-09 Total 

Audit Findings: 

Defective Pricing $226,404 $0 $2A37,976 $963,602 $0 $3,627,982 

Totals (per year): $226,404 $0 $2,437,976 $963,602 $0
 $3,627,982 

Cumulative Totals: $226,404 $226,404 $2,664,380 $3,627,982 $3,627,982
 $3,627,982 

Average Annual Interest Rate: 4.375% 5.4375% 5.5000% ·4.9375% 5.6250%
 

Interest on Prior Years Findings: $0 $12,311 $12,452 $131,554 $102,037
 $258,354 

Current Years Interest: $4,953 $0 $67,044 $23,789 $0
 $95,786 

Total Cumulative Interest 

Through June 30, 2009
 

$4,953 $12,311 $79,496 $155,343 $102,037 I
 $354,140 
Appendix 

llllivera~
 HEALTHCARE 

8n ,,~...s company 

August 10, 2009 

US Office ofPersonnel Management
 

Office ofthe Inspector General
 

800 Cranberry Twp, PA 16066
 

Dear_: 

I am writing to you to inform you ofUnivera Health Plan's agreement with the settlement 

numbers presented by your office via email on August 5, 2009. 

. The settlement in question encompasses pricing adjustments and lost investment income for 

the years 2005,2007, and 2008. Univera agrees to the settlement of$3,627,982 ofpricing 

adjustments and $354,140 of lost investment income resulting in a total settlement of 

$3,982,122. . 

Please let us know if you have any questions and what the next steps in this process are. 

205 Park Club lane I Buffalo. NY 14221-5239 I. www.univeraheallhc.are.com