United States General Accounting Office

GAO Report to Congressional Requesters

February 1997 DEFENSE HEALTH

CARE

Dental Contractor

Overcome Obstacles,

but More Proactive

Oversight Needed

GAO/HEHS-97-58

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-276142 

February 28, 1997

The Honorable Steve Buyer

Chairman

The Honorable Gene Taylor

Ranking Minority Member

Subcommittee on Military Personnel

Committee on National Security

House of Representatives

The Honorable Joel Hefley

The Honorable Walter B. Jones, Jr.

The Honorable Charles W. Norwood, Jr.

House of Representatives

In 1985, the Congress authorized the Department of Defense (DOD) to

establish a dental benefits program for eligible family members of active

duty members who could no longer be accommodated on a

space-available basis at military dental clinics. Today, the TRICARE Active

Duty Family Member Dental Plan (FMDP) is a large dental insurance

program covering over 1.8 million beneficiaries and allowing up to $1,000

annually per person for a wide range of dental services. From

February 1996 through July 2001, the FMDP will be administered nationwide

for DOD under a $1.9 billion contract with United Concordia Companies,

Inc., and its parent company, Highmark, Inc., both of Camp Hill,

Pennsylvania.1

Concordia experienced a difficult and protracted takeover from the

incumbent FMDP contractor, DDP*Delta.2

 Until February 1996, DDP*Delta

had been the only nationwide FMDP insurer, and dentists and beneficiaries

alike had grown accustomed to DDP*Delta’s management of the program.

DDP*Delta’s unsuccessful legal action protesting DOD’s contract award to

Concordia caused a 6-month delay in Concordia’s takeover and generated

negative publicity that Concordia has had to surmount. In addition,

congressional concerns were raised early on about whether Concordia

was administering the FMDP in such a way as to ensure the satisfactory

1

Concordia is the legal entity acting as the prime FMDP contractor. Concordia’s parent company as of

December 1996 is Highmark, Inc., after its original parent company, Pennsylvania Blue Shield, merged

with Blue Cross of Western Pennsylvania. Highmark has an agreement to participate as an

interdivisional affiliate providing various services in support of the contract, such as information

systems, internal audit, training, and business experience.

2

From August 1987 through January 1996, the FMDP was administered and underwritten by

DDP*Delta, representing Delta Dental Plans in 50 states.

Page 1 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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delivery of dental care nationwide. Of particular concern were the

amounts Concordia paid to dentists, the number of participating dentists,

and the timeliness of claims processing and restrictiveness of coverage.

In response to these concerns, House Committee Report 104-563

(accompanying H.R. 3230, Fiscal Year 1997 Defense Authorization Act), in

addition to a joint request from Representatives Joel Hefley; Charles

Norwood, Jr.; and Walter Jones, Jr., directed us to evaluate several issues

regarding the program. Specifically, we were required to determine

whether (1) Concordia’s fee allowances for participating and

nonparticipating dentists are appropriate, (2) Concordia has established

an adequate network of participating dentists, (3) Concordia’s claims

processing and marketing efforts meet contract requirements, and (4) DOD

is meeting its oversight responsibilities to ensure that Concordia complies

with contract requirements.

To do our work, we obtained actuarial assistance from the Hay Group and

reviewed regulations, contract provisions, and bid protest records bearing

on Concordia’s fee schedules and network. Concordia has used two sets of

fee allowances for participating and nonparticipating dentists since

starting work as the FMDP plan insurer: (1) initial fees from February

through July 1996 and (2) revised fees since August 1996. We analyzed

Concordia’s fees and charge data for 26 frequently incurred services

between February and June 1996. To evaluate the adequacy of Concordia’s

network, we compared the frequency of services needed by beneficiaries

with the number of participating dentists nationwide and at 21 military

bases. To evaluate Concordia’s claims processing timeliness, we analyzed

its computerized claims records for February through September 1996. We

also reviewed Concordia’s policy to limit payments for certain treatments

to less costly alternatives to determine whether it was consistent with

regulations and the contract, and we compared Concordia’s marketing

activities with contract requirements. Finally, to evaluate DOD’s oversight

of Concordia, we assessed the current level of effort at DOD headquarters

in Washington, D.C., and at the TRICARE Support Office (TSO) in Aurora,

Colorado. For additional discussion of our scope and methodology, see

appendix I.

Results in Brief Concordia has overcome numerous start-up problems and is now

performing the task areas we reviewed within the contract’s requirements.

DOD, however, has not yet taken a proactive role in overseeing the contract

Page 2 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

and thus far has not acted to assure itself and the Congress that the

contractor is performing as required.

Regarding fee appropriateness, neither applicable regulations nor the

contract establish how Concordia’s fees should be set nor whether or

when they should be revised. Thus, while contractually required to pay

dentists at certain fee levels based on “prevailing charges” (or less when

billed charges are lower), in effect, Concordia is left to determine whether

its fees are appropriate and whether and how such contractual

requirements are met.

Our analysis of Concordia’s fee-setting methods showed that its initial

February 1996 fees were based on less up-to-date charge data than were its

revised August 1996 fees. Lacking actual charge data experience,

Concordia based its initial fees on 1993 and 1994 industry data, the most

current data available when it submitted its January 1995 contract bid.

After the 6-month delay in the contract’s start, Concordia used these same

fees to reimburse dentists during the contract’s first 6 months. In

August 1996, Concordia revised many of the fees on the basis of its actual

claims experience during the first 6 months. Although not required to do

so, Concordia could have elected to update its initial fee schedules by

using a trend factor reflecting the estimated 1994 and 1995 dental charge

increase, thus making them about as up to date as its August 1996 fees.3

Had it done so, Concordia would have paid an estimated $2.5 million more

in fees nationwide to dentists during the contract’s first 6 months.

Concordia used up-to-date dental charge trends in projecting the

program’s premium revenue rate increases over the contract’s 5-year

period.

In the geographic areas we reviewed, Concordia has ample numbers of

network dentists within 35 miles of beneficiaries’ residences—one of two

access standards. Moreover, we estimated that, if optimally located,

Concordia would need only about 7,300 dentists to meet the 1.8 million

beneficiaries’ likely demand for dental services. As of November 1996,

Concordia’s network included almost 45,000 dentists. At two remote

military base areas, however, there are not enough dentists available for

Concordia to develop an adequate network. In a third area, Camp Lejeune

Marine Corps Base in Jacksonville, North Carolina, nearly all dentists have

declined to participate in Concordia’s network, for which DOD is now

considering several remedial interventions. Data were not available in time

with which to evaluate compliance with DOD’s other access standard—that

3

Recent dental charge increases have been fairly consistent at 5 to 6 percent per year.

Page 3 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

beneficiaries obtain an appointment with a participating general dentist

within 21 days. Concordia and DOD, however, plan to survey beneficiaries

about the timeliness of their appointments.

Although tardy during the early months of the contract, Concordia data

indicate that it is now processing dentists’ claims for payment within

required time limits. Also, Concordia had been processing

nonparticipating dentists’ claims somewhat slower than participating

dentists’ claims, but now is meeting the required time limit for both

groups. And Concordia’s data on processing predetermination claims4

show that it is now meeting the established time limit. Concordia’s

“optional or alternative treatment” policy allows payment for a less costly

treatment instead of a more costly treatment (removable denture instead

of a fixed bridge, or amalgam filling instead of a crown). While questioned

by some dentists, Concordia’s policy is permitted under the regulations

and contract when such alternatives meet acceptable dental standards.

Finally, Concordia’s marketing activities meet requirements.

Even though the fixed-price contract places the greatest risk on

Concordia, DOD’s oversight, generally relying on contractor self-reporting,

does not provide DOD adequate assurance that the contractor is performing

as required. To date, DOD has not conducted a contract performance

evaluation nor independently verified Concordia’s data. Responding to our

concerns, DOD officials told us they plan to conduct a performance

evaluation in the summer of 1997, but they have not yet defined what the

evaluation will entail. Also, the Deputy Assistant Secretary for Clinical

Services recently proposed, among other changes, creating an oversight

and advisory role for TRICARE regional dental officers regarding FMDP

beneficiary appeals.

Background The Congress established the FMDP in 1987 as a basic benefit program for

the eligible dependents of active duty members of the seven uniformed

services in the 50 states, the District of Columbia, Puerto Rico, Guam, and

the U.S. Virgin Islands.5

 The program is administered by TSO through the

insurer, Concordia, as a fixed-price, fee-for-service contract. Thus,

Concordia is “at risk” to pay all administrative and benefit costs for dental

4

Predeterminations authorize coverage, including the amount the beneficiary will have to pay, for

proposed dental services.

5

10 U.S.C. 1076a authorizes the Secretaries of Defense, Transportation, and Health and Human

Services to administer the Active Duty Dependents Dental Plan for the Army, Navy, Air Force, Marine

Corps, Coast Guard, and the Commissioned Corps of both the Public Health Service and National

Oceanic and Atmospheric Administration. The program was expanded to Canada in 1995.

Page 4 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

services provided under the contract. Initially, the dental plan benefits

specified by the Congress and administered by DDP*Delta provided only

basic coverage with a strong preventive focus. In 1993, the Congress

expanded the authorized benefits, effectively restructuring the dental plan

into a comprehensive program comparable to many plans offered to

private sector employees (covered dental benefits are shown in table II.1).

Participation in the FMDP is through voluntary enrollment by the active

duty member, whose monthly premium is paid in advance through a

payroll deduction. Single and family enrollment options are available

under defined circumstances. Family members who are eligible for FMDP

coverage are spouses and unmarried children under the age of 21 (or

under age 23 if in college and financially dependent). The FMDP benefit

year runs from August 1 through July 31, there is no deductible, and the

yearly maximum benefit payment is a total of $1,000 per family member

for all services except orthodontia (which has a separate lifetime

maximum of $1,200 per family member). The monthly premium cost is

shared by the government (60 percent) and the active duty member

(40 percent). On the basis of the premium rate projections in its final bid,

Concordia’s FMDP premiums are automatically increased at an average rate

of 5.7 percent each year to account for rising dental charges and other

costs. (See table II.2 for FMDP premiums, 1995-2001.)

Family members may receive dental care from a dentist of their choice but

will save money, time, and paperwork if they use Concordia dentists

participating in a developed network. Participating dentists are those who

have signed contracts with and accept Concordia’s fee allowances in full

for covered services, and they cannot charge family members for any

difference between their usual fee and Concordia’s allowance (other than

the applicable cost-share amount). In addition, participating dentists file

claims and accept payment directly from Concordia.6

 Concordia’s fee

allowances for reimbursing nonparticipating dentists are lower than those

for participating dentists, and nonparticipating dentists can bill the family

members the balance of payment between their usual charge and

Concordia’s fee allowance. This may lead to higher out-of-pocket costs for

family members.

Concordia’s succession as the FMDP contract insurer was delayed 6 months

following the unsuccessful bid protest by the incumbent contractor,

DDP*Delta. In February 1995, after TSO awarded the contract to Concordia

6

With the family member’s permission, nonparticipating dentists can file claims and accept payment

directly from Concordia.

Page 5 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

for the 5-year period August 1, 1995, to July 31, 2000, DDP*Delta filed a

protest of the award with GAO.

7

 The protest triggered a delay in

Concordia’s performance. It also caused DOD to allow DDP*Delta to

continue performing under its contract and to modify the Concordia

contract to change the period of performance to February 1, 1996, through

July 31, 2001. In June 1995, GAO denied the protest, upholding DOD’s

contract award to Concordia. DDP*Delta next sought a preliminary

injunction against DOD’s proceeding with Concordia as its contractor by

filing suit in the U.S. District Court in the Northern District of California. In

February 1996, the court denied DDP*Delta’s injunction request and

upheld DOD’s contract award to Concordia. While the legal challenges

played out during 1995 and 1996, Concordia and DOD encountered

considerable negative publicity that raised congressional and public

concerns about Concordia’s ability to administer the FMDP. Among other

impacts, the fallout from the publicity impeded Concordia’s recruitment of

dentists to join its network. DOD and Concordia responded to the criticisms

in part by citing substantial cost savings—$112 million—to the

government and beneficiaries as a result of awarding the contract to

Concordia instead of DDP*Delta.

No Regulatory or

Contractual Criteria

for Judging Fee

Appropriateness

While Concordia is required to pay dentists at certain fee levels (or less

when billed charges are lower), neither the regulations nor the FMDP

contract specify how such fees should be set, such as on the basis of

“prevailing charges” during a certain period of time, nor whether or when

fees should be reviewed or revised. As a result, the regulations and the

contract provide no assurance that fees paid are appropriate. We found,

moreover, that Concordia’s initial February 1996 fees, which were based

on prevailing charges in 1993 and 1994, were less up to date than its

August 1996 fees, which were based on Concordia’s own charge data

during the first 6 months.

Both DOD regulations and the FMDP contract have general requirements that

the insurer pay participating dentists at a level that provides financial

incentive for them to participate, when compared with the maximum fee

level paid to nonparticipating dentists. Concordia established a maximum

7

The Competition in Contracting Act of 1984 (31 U.S.C. 3551 et seq.) allows bidders to seek relief from

GAO when they have reason to believe that a federal contract has been awarded improperly or

illegally, or that they have been unfairly denied a contract. GAO considers the facts and legal issues

raised and issues a decision. GAO may sustain, deny, or dismiss the protest.

Page 6 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

fee level at a certain percentile8 in its final offer for participating dentists,

which is considered proprietary and thus is not discussed here. For

nonparticipating dentists, regulations and the contract require a maximum

fee level equivalent to the 50th percentile of prevailing fees charged by

dentists for similar services in the same region.

Concordia’s Initial Fees

Less Up to Date Than Its

Revised Fees

To determine initial fees, Concordia developed separate fee allowance

schedules for participating and nonparticipating dentists that

encompassed 192 dental procedures grouped in seven regions. These fees,

used to reimburse dentists during the contract’s first 6 months, were based

on 2-year-old insurance industry data on charges submitted by dentists.

Concordia used this method because it lacked its own charge data

experience with which to develop initial fees, so it used pooled industry

data from 1993 and 1994. Also, the delay in the contract’s start date,

caused by DDP*Delta’s unsuccessful bid protest, made the initial fees even

less current. Furthermore, Concordia was under no regulatory or

contractual obligation to adjust or trend the initial fees, such as through

the use of a trend factor based on historic annual dental charge increases.

Concordia revised its fees in August 1996. After 6 months of program

experience, Concordia used its own charge data to adjust its fee

allowances for many procedures, and it increased to 16 the number of fee

allowance regions from the 7 regions used in setting initial fees. Our

actuarial analysis showed that the revised fees are substantially higher

(about 10 percent, on average) and conform with more recent charge

practices. Lacking sufficient charge data, however, Concordia did not

revise fee allowances for the less frequently billed services, which account

for more than half of the 192 dental procedures in each of its schedules.

Thus, such fees remain based on prevailing 1993 and 1994 charge data,

now 2 to 3 years behind the trend.

Although not required, had Concordia’s initial fees been based on more

up-to-date charge data, the company would have paid out more in

maximum allowances to dentists during the contract’s first 6 months. For

example, recent dental charge increases have been fairly consistent at 5 to

6 percent per year. Approximating the effect of applying a 5-percent 1994

through 1995 dental charge trend increase to Concordia’s 1993 through

8

The use of percentiles, rather than averages of charges, is an established practice for setting health

care fee allowances. The reason is that use of a percentile, such as the 50th percentile, ensures that

50 percent of the claims will be at or below that charge amount. When using averages, a few outliers

(very high or very low charges by a few dentists) could result in a fee schedule that covers

substantially more or less than the desired percentage of claims from all dentists.

Page 7 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

1994 industry charge data, we estimated that such additional payments

would have been $2.5 million. Concordia used such dental charge trends in

setting the beneficiary and government premium increases for the

contract’s 5 years. Moreover, for the first year’s premium (originally

August 1995 through July 1996), Concordia used a 1993-to-1994 base

period. Then it adjusted the base for estimated annual increases in dental

use and charge practices through February 1996. Concordia established

annual premium increases through July 2001, the life of the contract, on

the basis of projected period increases in dental charges and other factors

affecting costs. In discussions with us, Concordia officials said that

trending fee allowances, rather than using empirical claims experience,

could inappropriately inflate the program’s costs because some dentists

submit bills at the maximum allowable charge. They also said that the

insurance industry does not trend fee schedules and uses a baseline period

that may be 1 to 2 years before the fee application period, and thus what

Concordia did is consistent with industry practice. In contrast, however,

they also said that projecting dental charge and related costs for purposes

of setting future-year premium rates is financially appropriate when

bidding on a fixed-price contract.

Not Clear Whether and

How Concordia Would

Update Fees in Future

Concordia officials told us that they planned to review their fees every 12

to 18 months throughout the contract, but are under no regulatory or

contractual obligation to do so, nor are they obligated to make

modifications. Concordia and DOD officials told us that the contract

provides Concordia the flexibility to develop and change fee allowances in

the manner it sees fit. Also, Concordia and DOD officials said that as long as

sufficient numbers of dentists accept its fees and participate in

Concordia’s network, the company in effect has satisfied the program’s

requirements. We question, however, whether such an interpretation

recognizes the regulatory and contractual requirements stating that the

contractor should cap its provider fees at certain percentiles based on

prevailing rates within a region. Hypothetically, a contractor could unfairly

enhance its profitability by holding dentist fee increases below historic

trends while enjoying premium increases that more closely track projected

dental charge trends during the contract’s option years. Also, paying fees

based on out-of-date dental charges could lead to higher out-of-pocket

costs for beneficiaries electing to use nonparticipating dentists (when

such dentists bill them for the balance of their full charges). But unless

DOD establishes how such requirements are to be met, the contractor in

effect is allowed to determine compliance and fee appropriateness. Thus,

Page 8 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

it is unclear whether and how Concordia might see fit to update its fees in

the future.

Along with agreeing with the contractor on what constitutes prevailing

charges for fee-setting purposes, there are several ways in which DOD

could consider establishing its fee requirements. One would be to require

that fee allowances be reviewed on some periodic basis over the

remainder of the contract, updating as necessary to ensure that the fees

are as close as possible to expected charges. The Medicare program offers

another way to determine fees: It uses a 12-month experience period

ending 6 months before the application period (thus, a lag of 12 months

from the midpoint of the prevailing charge base period and the start of the

fee application period). Alternatively, in the absence of actual claims

experience, an overall trend reflecting historic charge data could be used

to periodically update fees, similar to the way that Concordia fixed its

premium increases between 1996 and 2001 (such as the recent trend of 5-

to 6-percent annual increases).

Concordia’s Dental

Network Meets the

35-Mile Requirement

When Concordia took over the contract in February 1996, concerns were

raised that its initial network of about 31,000 dentists would be inadequate

compared with DDP*Delta’s reported network of 109,000 dentists. In the

areas we reviewed, however, Concordia’s network of participating dentists

easily meets DOD’s requirement for access to a general dentist within 35

miles of a beneficiary’s home. But in two remote military base areas in

Idaho and Nevada, the number of available dentists is insufficient for

Concordia to develop an adequate network. In a third area, Jacksonville,

North Carolina, nearly all dentists have declined to participate in

Concordia’s network. Data were not available in time for us to test

Concordia’s compliance with DOD’s second network requirement—that

participating general dentists give beneficiaries an appointment within 21

days.

Concordia Continues to

Expand Its Network of

Participating Dentists

Concordia is required to establish a network of participating general

dentists so that beneficiaries can obtain a routine dental appointment

within 35 miles of their residence and within 21 days.9

 Beneficiaries’

access to participating dentists is important because their out-of-pocket

9

Where these requirements are not met, Concordia must pay claims for all dental services based on the

dentist’s actual billed charge, less any applicable copayment. Concordia’s fee schedules for

participating and nonparticipating dentists do not apply. This situation applies to Fallon Naval Air

Station, Nev.; Mountain Home Air Force Base, Ind.; and Camp Lejeune Marine Base and Cherry Point

Marine Air Station, N.C.

Page 9 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

costs are lower when their care is obtained from a participating dentist.

Concordia has continued to recruit dentists for its network, and between

February and November 1996, increased the number of participating

dentists from about 31,000 to nearly 45,000, as shown in figure 1.

Figure 1: Expansion of Concordia’s

Participating Dentist Network,

February-November 1996

Number of Participating Dentists

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

February

May

August

November

Month

By November 1996, Concordia had successfully recruited about 8,100

dental specialists—about 18 percent of its total network (see fig. 2).

Moreover, according to Concordia, participating dentists delivered about

82 percent of the dental services provided to beneficiaries (see table 1 for

the numbers of participating and nonparticipating dentists as of

November 1996).

Page 10 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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Figure 2: Composition of Concordia’s

Network of Participating General and

Specialty Dentists as of

November 1996

82% • General Dentists

1%

Endodontists

•

5%

Oral Surgeons

•

6%

Orthodontists

•

3%

Pediatric Dentists

2%

Periodontists

1%

Prosthodontists

General Dentists

Specialists

Note: Periodontists specialize in treating gum disease; endodontists specialize in diseases of

tooth pulp and perform root canals; prosthodontists replace missing teeth with dentures or

bridges; and orthodontists correct misaligned teeth.

Page 11 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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Table 1: Concordia’s Participating and

Nonparticipating Dentists,

November 1996 Category of dentist

Number of participating

dentists

Number of

nonparticipating dentistsa

General 36,379 21,686

Endodontist 605 345

Oral surgeon 2,306 582

Orthodontist 2,773 1,900

Pediatric 1,177 462

Periodontist 1,023 409

Prosthodontist 205 68

Total 44,468 25,452

aThe number of nonparticipating dentists is based on analysis of the number who provided

services and submitted claims to Concordia through November 1996.

Taking into account the distribution of beneficiaries and dentists, we

reviewed the adequacy of Concordia’s network of dentists within 35 miles

of each beneficiary zip code at 21 military base areas (see table I.2 for a list

of the 21 areas we examined).10 At all 21 installations, we found overall

that Concordia’s network meets the 35-mile network requirement for

participating general dentists.11 Also, a more general analysis showed that

Concordia would only need a total network of about 7,300 dentists, if

optimally distributed, to meet the expected need for dental services by the

1.8 million beneficiaries.

Finally, in an effort to enhance beneficiary convenience, DOD is

considering alternatives to the current or future FMDP contract in the

35-mile network requirement for FMDP participating dentists. These

alternatives include reducing the distance in nonrural areas from 35 miles;

identifying maximum beneficiary drive time to reach the dentist; and using

proximity to dentists within residential zip codes. Along with enhanced

beneficiary access, we believe that DOD needs to consider ability to

measure contractor compliance with any new network standard. We

noted, moreover, that the distance between a beneficiary’s residence and a

dentist’s office is currently being measured by Concordia and would not

10Our estimates of needed dentists are based on conservative actuarial assumptions that participating

dentists would spend no more than 10 percent of their time treating all FMDP beneficiaries. Thus, in

the likely event that some of the participating dentists in these locations treat more FMDP

beneficiaries and that some beneficiaries would elect to use nonparticipating dentists, fewer

participating dentists would actually be needed.

11We found a shortage of four pediatric dentists at two zip code locations (Fort Stewart, Hinesville,

Ga.; and Fort Hood, Killeen, Tex.) serving 22,000 beneficiaries. This is not a contract violation, because

the 35-mile requirement does not apply to specialists. In addition, a general dentist can provide the

same services to children as a pediatric dentist.

Page 12 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

require any change in Concordia’s information system. But compliance

with a beneficiary travel time standard would be more difficult to

determine and may require beneficiary surveys.

Compliance With 21-Day

Appointment Requirement

Data were not available for us to reliably measure whether Concordia’s

network complied with the 21-day appointment requirement. Concordia

officials told us that, to satisfy this requirement, they rely in part on a

customer service phone number for beneficiary complaints about

scheduling dental appointments.12 Because both Concordia and DOD plan

beneficiary satisfaction surveys in 1997, more information should be

available about the beneficiaries’ ability to get appointments with

participating dentists within the 21-day standard.

Three Areas Still Have

Inadequate Provider

Networks

Concordia has been unsuccessful in establishing adequate networks at

three military base areas. Two of the areas, Mountain Home Air Force

Base, Mountain Home, Idaho; and Fallon Naval Air Station, Fallon,

Nevada, are in remote locations where access would remain inadequate

even if all available dentists participated. Also, despite continued

recruitment efforts, Concordia has not succeeded in establishing the

required network of participating dentists at the third area, Camp Lejeune

Marine Corps Base in Jacksonville, North Carolina, and nearby at Cherry

Point Marine Air Station in Havelock, North Carolina. Without an adequate

dental network, beneficiaries cannot realize cost savings from accessing a

participating dentist.

The Jacksonville and Havelock areas are unique in that about 57,000

beneficiaries and 70 dentists are located in these communities, but only

one Jacksonville dental office has signed on with Concordia and the others

have declined to participate. During August 1996 discussions with us,

many of the local dentists complained about Concordia’s general

management of the program, citing conflicts with Concordia’s

representatives and problems with its claims processing. Concordia

officials told us they had hoped to gain network participation in

Jacksonville and Havelock after they raised fees in August 1996, but to

date the situation has not changed.

In October 1996, the Assistant Secretary of Defense, Health Affairs,

directed his staff, in consultation with Concordia, to work on resolving the

12Concordia’s FMDP benefits booklet informs beneficiaries of the 21-day and 35-mile requirements for

accessing a participating general dentist and provides a toll-free customer service number to call if a

beneficiary has trouble scheduling an appointment.

Page 13 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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Jacksonville and Havelock impasse. As of January 1997, Health Affairs was

considering several remedial interventions but had not yet decided on a

course of action.

Claims Processing

and Marketing

Activities Meet

Contract

Requirements

During the contract’s early months, Concordia was not meeting the claims

processing time limit but is now doing so for all dentists. Likewise,

Concordia’s data on processing claims to authorize coverage for proposed

dental services (known as predeterminations) show that it did not meet

the established time limit in the early months of the contract. In addition,

Concordia’s policy to pay only for certain alternative less expensive

treatments is permitted under the contract and regulations. Finally,

Concordia’s marketing activities meet contract requirements.

Concordia Claims

Processing Is Now Timely

In evaluating contract bids, DOD ranked FMDP claims processing as the most

important factor. Concordia’s contract requires that it operate a single

processing, adjustment, development, and control system enabling it to

process claims through payment or denial. Ninety percent of claims must

be processed to completion within 21 days of receipt.13 Also, when

requested by a dentist or beneficiary, Concordia is required to provide a

predetermination—a written estimate of what it will pay and what the

beneficiary will be responsible for paying—for a proposed dental

treatment. Seventy-five percent of predeterminations must be processed to

completion within 21 days of receipt. In March 1996, as required,

Concordia began to self-report monthly statistics to TSO that the

Contracting Officer’s representative used to track compliance with the

claims processing requirements.

In response to concerns about the timeliness of Concordia’s claims

processing, we analyzed the claims records for all payments and

predeterminations from February through September 1996 and compared

our results with Concordia’s reported statistics.

Payment Claims Our review of February through September 1996 claims records showed

that Concordia has consistently processed claims from all participating

and nonparticipating dentists within the 90-percent, 21-day established

time limit since June 1996 (see fig. 3).

13Claims are processed to completion when all services and supplies on the claim have been settled;

payment has been determined on the basis of covered services; allowable charges have been applied to

maximums and/or denied; and checks and written explanation of benefits have been prepared for

mailing to providers and beneficiaries.

Page 14 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

Figure 3: Percentage of Claims

Processed Within the 90-Percent,

21-Day Requirement, 1996

Percentage

0

10

20

30

40

50

60

70

80

90

100

February

March

April

May

June

July

August

September

Month

As Reported by Concordia to TSO

GAO Analysis

Some nonparticipating dentists complained that Concordia was tardy in

processing and paying their claims. The contract’s timeliness requirements

for processing participating and nonparticipating dentists’ claims are the

same. Concordia met the timeliness requirement for processing

participating dentists’ claims in 5 of the 8 months analyzed, but processed

nonparticipating dentists’ claims on time in only 2 of the 8 months (see fig.

4). In January 1997, Concordia officials explained to us that these

differences, especially in the contract’s early months, were due in part to

the additional time it took to document that nonparticipating dentists were

authorized to provide dental care (that is, were licensed or certified).

Concordia is required to authorize all dentists and to not pay for any

service furnished by a dentist who is not authorized. In addition, they

explained that nearly all nonparticipating dentists submit paper claims

Page 15 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

rather than file them electronically, and paper claims typically take longer

to process.

Figure 4: Comparison of Claims

Processed Within the 90-Percent,

21-Day Requirement for Participating

and Nonparticipating Dentists, 1996

Percentage

0

10

20

30

40

50

60

70

80

90

100

February

March

April

May

June

July

August

September

Month

Participating Dentists

Nonparticipating Dentists

Predetermination Claims In the contract’s early months, Concordia encountered major difficulties in

its automated system for tracking predeterminations. As a result,

Concordia did not comply until July 1996 with the contract requirement

that it report predetermination timeliness statistics to TSO. DOD’s

Contracting Officer’s representative told us he was aware the company

was working on the problem, and thus held off formally citing Concordia

for the reporting deficiency. Our analysis showed that Concordia met the

required processing time limit in 4 of the 8 months (see fig. 5). The

representative, moreover, was unaware that Concordia had not met the

requirements during March, April, and May.

Page 16 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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Figure 5: Percentage of

Predeterminations Processed Within

the 75-Percent, 21-Day Requirement,

1996

Percentage

0

10

20

30

40

50

60

70

80

90

100

February

March

April

May

June

July

August

September

Month

Concordia’s Policy to Pay

for Less Costly Treatments

Is Consistent With

Requirements

Both DOD’s regulations and the contract authorize Concordia to limit

benefit payments to less expensive courses of treatment that meet

acceptable dental standards. In addition, Concordia defined this policy in

its benefits brochure distributed to all beneficiaries and dentists.14

Between April and September 1996, Concordia denied over 4,000 fixed

bridges and crowns, instead only allowing payment for less costly

treatments. Concordia’s application of this policy caused dissatisfaction

on the part of some dentists and was also the subject of criticism by the

previous contractor, DDP*Delta. All complained that more costly

treatments should be allowed as long as the treatments are appropriate

and necessary. These sources also cited Concordia’s statements published

shortly after taking over for DDP*Delta that there would be no change in

dental benefit coverage and that Concordia’s coverage would be the same

as DDP*Delta’s. The DDP*Delta executive in charge of the FMDP contract

through January 1996 told us that his company paid for all necessary

14Concordia’s policy, known as “optional or alternative treatment,” applies to prosthodontia services

(bridges and dentures) and other restorative services (crowns and cast restorations, onlays, and so

on). The policy allows payment for a less costly adequate treatment instead of a more costly treatment

(removable denture instead of a fixed bridge, or amalgam filling instead of a crown).

Page 17 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

services and, in his opinion, DOD and Concordia are inappropriately

reducing FMDP benefits.

Our review of the regulations and contract requirements does not support

a conclusion that Concordia is inappropriately reducing FMDP benefits.

According to the requirements, the authority to make benefit

determinations and authorize FMDP payments rests primarily with the

insurer, Concordia. In exercising this authority, Concordia may establish,

in accordance with generally acceptable dental benefit practices, an

alternative course of treatment policy that allows less costly treatment

than the treatment selected by the dentist and beneficiary. TSO officials

also agreed that Concordia’s practice to pay on the basis of less costly

treatments is consistent with DOD’s long-standing position that health care

delivery contractors implement such cost controls as utilization

management and limitations and exclusions in determining covered

benefits. Furthermore, TSO officials told us that Concordia’s alternative

treatment policy is not a reduction in FMDP benefits, since the basic benefit

structure is unchanged and, within each benefit category (for example,

restorative or prosthodontia services), a range of treatments can correct a

condition. Nonetheless, in response to the criticisms, Concordia officials

told us they obtained TSO agreement to modify the policy. Thus, since

October 1996, Concordia has been paying for fixed bridges in some

instances where previously it paid for removable dentures.

Concordia’s Marketing

Activities Comply With

Contract Requirements

Concordia is required to have a marketing program involving specific

activities to facilitate beneficiary and dental provider understanding of

program benefits, limitations and exclusions, and Concordia’s

administrative procedures. We found that Concordia has carried out these

required activities, which include

• developing and distributing an 88-page benefit brochure to beneficiaries,

dentists, and uniformed services’ health benefits advisors (HBA);

• publishing and distributing quarterly news bulletins to dentists,

congressional offices, and HBAs;

• establishing a network of professional dental relations representatives

who provide educational services to dentists by making personal visits and

giving annual half-day seminars,

• establishing a network of 10 dental benefit advisors who provide

representation at military installation briefings and workshops, and

educate HBAs about the dental program; and

Page 18 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

• developing, maintaining, and distributing quarterly update lists of

participating dentists to HBAs to assist beneficiaries in selecting a dentist.

Although not required to do so, Concordia also distributed to dentists a

reference guide giving detailed instructions and information on such

topics as claims submission, covered services, and the appeals process.

Concordia also produced a video for use at military installations to

educate beneficiaries about the program. Currently, to further encourage

enrollment, Concordia is targeting marketing efforts on active duty

sponsors and eligible family members returning from overseas

assignments where FMDP is unavailable.

DOD’s Oversight Is

Not Sufficient to

Ensure Compliance

Within DOD, there is shared organizational responsibility for overseeing all

health benefits programs, including FMDP. TSO has the authority for

day-to-day contract oversight, while the Office of the Assistant Secretary

of Defense, Health Affairs, provides policy guidance, management control,

and coordination. TSO appoints a contracting officer’s representative, who

has specific duties and functions. In addition, the contract requires that

TSO conduct periodic contract performance evaluations, but does not

specify how or when these evaluations are to be done.

To date, DOD’s level of effort to oversee Concordia’s contract performance

can be characterized as “hands off.” For the most part, the information DOD

uses to monitor contract performance (for example, monthly claims

processing reports statistics) is self-reported by Concordia and not

independently verified by the Contracting Officer’s representative. Also,

the representative spends much of his time on such other FMDP matters as

obtaining and incorporating the service branches’ comments on

Concordia’s draft FMDP publications and responding to external inquiries

and complaints about the program. Since April 1996, the Contracting

Officer’s representative has twice visited Concordia’s facility for 2-day

meetings and to observe claims and customer service operations.

DOD has also conducted two “in-progress reviews” with the contractor,

organized by Health Affairs. At these meetings, Concordia representatives

briefed DOD participants on the program’s status and the company’s

progress and performance in meeting the contract requirements. Also, the

Contracting Officer’s representative and DOD dental project officers have

met with Concordia to focus on internal administrative action items and

seek general information updates from the contractor. Health Affairs staff

Page 19 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

provided satisfactory appraisals of Concordia’s then-current performance

based on the meetings.

In our view, this is a “hands off” approach to oversight and does not

provide assurance that the contractor is performing as required in critical

task areas. In discussions with us, DOD officials pointed out that the

contract has a fixed price, such that the contractor bears most of the cost

risk associated with poor or nonperformance. Nonetheless, DOD officials

agreed with us that the contract’s human services nature requires that they

act to ensure satisfactory performance and compliance with key contract

requirements. Thus, they said they plan to conduct an evaluation of

Concordia’s performance in the summer of 1997 and will set about

defining what critical task areas to include and how the evaluation is to be

carried out.

Finally, as part of its ongoing effort to integrate military dental care into its

regional health care system, DOD is looking at expanding FMDP oversight

authority to local dental commanders and regional dental advisors. Among

other proposals, the Deputy Assistant Secretary, Clinical Services, wants

to require that all appeals of Concordia’s dental benefit decisions filed

with TSO be forwarded to TRICARE regional dental advisors for review and

recommendations.15 As described, however, the proposals do not address

oversight of Concordia’s performance in critical task areas, such as fee

appropriateness, network adequacy, and claims processing timeliness.

Conclusions The 5-year FMDP contract between DOD and Concordia will cost about $1.9

billion and deliver comprehensive dental health care to over 1.8 million

military family members. The changeover in FMDP contract administrator

from DDP*Delta to Concordia was accomplished with considerable

difficulty. Negative publicity brought concerns about whether Concordia

was providing satisfactory dental care to DOD beneficiaries and whether

DOD was acting to ensure that Concordia performed in accordance with

contract requirements.

While Concordia now pays dentists fees based on more up-to-date charge

data than the fees it paid during the contract’s first 6 months, neither the

regulatory nor contract requirements to pay dentists at certain maximum

levels (or less if billed charges are lower) are specific enough for DOD to

15If beneficiaries or participating dentists disagree with Concordia’s benefit decision, they may appeal

the decision through three levels in the appeals system: reconsideration by Concordia; formal review

by TSO of Concordia’s reconsideration decision on cases over $50; and a hearing by TSO on the result

of the formal review on cases over $300.

Page 20 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

determine the appropriateness of Concordia’s fees. Also, Concordia’s

network of participating dentists appears adequate now, but, without

reasonable fees and targeted DOD surveillance, installations could

gradually lose dentists and imperceptibly fail to meet local populations’

needs. Concordia’s claims processing and marketing functions are also

within contract requirements, but DOD needs, on an ongoing basis, to

assure itself that Concordia continues to satisfactorily administer these

critical tasks. Remaining to be seen is whether DOD’s planned evaluation of

Concordia or extension of oversight authority to regional and local dental

commanders will address the key contract areas discussed in this report.

Recommendations to

the Secretary of

Defense

To position DOD to ensure contractor compliance with the FMDP’s

requirements, we recommend that the Secretary of Defense direct the

Assistant Secretary of Defense, Health Affairs, to require that

• discussions be held with the contractor and, as appropriate, the contract

modified to clearly state how prevailing charges are to be established for

fee-setting purposes, including the method and frequency for reviewing

and, as appropriate, revising the fee schedules;

• future FMDP requests for proposals require that the contractor’s start-up

fees it pays to dentists reflect prevailing charges established in the same

manner as above or, if needed, be adjusted with a trend factor to

approximate such charges; and

• a contract oversight strategy be developed that efficiently targets the

(1) appropriateness of Concordia’s fee schedules; (2) adequacy of its

networks; (3) timeliness of its claims and predeterminations processing;

and (4) efficacy of its marketing activities.

Comments From

United Concordia

Companies, Inc., and

DOD and Our

Evaluation

We obtained written comments from Concordia and DOD on a draft of this

report.

Comments From

Concordia

Concordia stated that it was pleased with our findings about the

company’s performance in the task areas reviewed. But Concordia

objected to, among other matters, any suggestion that its initial fees

resulted in some underpayment. Our report merely illustrates what the

Page 21 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

effect may have been had Concordia’s initial fees been as up to date as its

August 1996 fees, but clearly acknowledges that the company was under

no regulatory nor contractual requirement to update them. While

Concordia is required to cap its provider fees at certain percentiles based

on prevailing rates within the region, neither the regulations nor the

contract establish how prevailing rates should be set or whether or how

often fees should be reviewed or revised.

Concordia commented further that if it had adjusted its initial fees as the

report suggests, it would not have made the August 1996 adjustments. And

it estimated that if the initial fees had remained in effect for the entire

year, the difference in fee payments from what were actually made would

have been negligible. But Concordia officials could not provide, when we

contacted them, enough detail about the estimate’s basis for us to judge its

validity. Although adjusting the fees as Concordia suggests might have

resulted in a more equitable fee spread throughout the year, further

analysis is needed to arrive at such a conclusion. Moreover, because

Concordia is not required to do so, it is unclear whether and how

Concordia might see fit to update its fees during the contract’s 4 remaining

option years.

Concordia also commented that its initial claims processing timeliness

problems resulted from the bid protest, which caused a 6-month delay in

starting work under the contract. We did not attempt to assess whether

the delayed contract start, in fact, led to such start-up problems, but the

delay actually added 6 weeks to the normal 6-month transition period.

Concordia also commented that the initial difference in processing times

for nonparticipating and participating dentists’ claims was not the result of

any discriminatory practices on its part. We have no basis for, nor does the

report draw, such a conclusion.

Concordia also referred in its comments to a beneficiary survey it did that

identified high levels of satisfaction among beneficiaries with their ability

to get appointments. We did not evaluate Concordia’s survey approach nor

its methodology. DOD’s beneficiary survey results, moreover, should be

available sometime this year and should provide independent information

with which to judge Concordia’s performance against the appointment

time standard.

Concordia also separately suggested some technical changes to the report,

which we incorporated as appropriate. Concordia’s comments are

presented in their entirety in appendix III.

Page 22 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

Comments From DOD In its overall comments, DOD stated that it concurs with the report’s

findings that Concordia currently meets contract requirements and that

this outcome is largely due to DOD’s proactive oversight of the contract. As

discussed below, we disagree with DOD’s view of its oversight role.

DOD did not concur with our first recommendation and partially concurred

with the second recommendation—both of which are aimed at clarifying

how Concordia and future contractors are to meet regulatory and

contractual requirements bearing on establishing dentist fees. DOD stated

that rather than imposing prescriptive, process-oriented requirements on

the contractor, it selected the firm, fixed-price contract and used an

outcomes-based approach to procure these services. DOD said that what

we have recommended would undermine that strategy, increase program

costs, and restrict the contractor’s ability to take advantage of innovative

financing methodologies.

An important outcome of the contract—like an adequate dentist network

and timely claims processing—is the establishment of appropriate dentist

fees. In fact, the contractor is required by regulation and the contract to

cap its fees at certain percentiles based on prevailing rates in the region.

But, while the contract provides standards for what constitutes an

adequate network and timely claims processing, in effect the contractor is

left to determine whether its fees are appropriate and how the fee

requirements are to be met. Rather than adding more process

requirements to the contract, our recommendations are aimed at clarifying

the current fee requirements so that both DOD and the contractor can

determine when fees comply with the requirements.

Moreover, we disagree that our recommendations would inappropriately

increase program costs. Rather, we believe the program’s integrity

requires that participating and nonparticipating dentists receive

reasonable fees commensurate with the winning bidder’s fee-level

proposals and applicable regulations. And, because Concordia’s annual

fixed premiums are based on projected dental charges and other factors

affecting its costs through 2001, we believe it is reasonable to assume that

such rates need not be affected and should provide sufficient revenue to

cover the costs of fair and reasonable dentists’ fees during the contract’s

option years. Contractor costs, and consequently beneficiary copayments,

could be somewhat higher if dentists’ fees are required to be more up to

date, but this would depend almost entirely upon the mutually agreed-to

basis for prevailing rates and the contractor’s current practices. While DOD

asserts that network adequacy is the true test for fee appropriateness, we

Page 23 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

believe that such an interpretation fails to recognize the separate

regulatory and contractual requirements that relate to dentists’ fees. In

addition, DOD’s concerns that the contractor may not use innovative

financing strategies if fee appropriateness is established appear baseless.

Rather, as stated in the report, the contractor now can innovatively,

though unfairly, enhance its profitability by holding dentist fee increases

below historic trends while enjoying fixed premium increases that more

closely track projected dental charge trends during the contract’s option

years. Thus, we believe that defining prevailing rates for fee-setting

purposes would help to ensure fairer, more equitable dentists’ payments

and contractor costs that legitimately reflect going market conditions.

DOD also commented that it chose the firm, fixed-price contract vehicle for

the FMDP contract to meet the tenets of the Federal Acquisitions

Streamlining Act of 1994 (FASA) to seek less prescriptive contract

requirements and readily available commercial services. But DOD’s FMDP

acquisition plan stated that the program had not been designated as

subject to acquisition streamlining and, according to DOD, the FMDP request

for proposals (RFP) was identical to the prior contract’s RFP, which

preceded FASA. Also, the FMDP RFP was more than 150 pages long, including

a 42-page statement of work. In contrast, an apparently streamlined RFP for

selected reserve personnel’s dental services released in December 1996

was 17 pages, including a 13-page work statement.

In partially concurring with our second recommendation about fee setting

in future FMDP RFPs, DOD said that future proposals would require that

initial fee schedules be based on prevailing charge data. But DOD continues

to assume a specification for establishing and reviewing prevailing charges

when none now exists in the regulations or the proposed RFP. Concordia,

for example, was also required to base its fees on prevailing charges, but

by the time its initial fees were applied, they were based on 2-year-old

data. Furthermore, DOD went on to temper its concurrence with our

recommendation by stating that including the new requirement in future

RFPs would cause bidders to build risk premiums into their bids. We

question DOD’s basis for this concern, however, and believe that the effects

of competition on bidders’ behavior remain to be seen. Thus, we continue

to believe that DOD should take the actions called for in our

recommendation.

While DOD said it concurred with our third recommendation to develop an

effectively targeted oversight strategy, it went on to say that its proactive

oversight strategy now assures it and the Congress that the contractor is

Page 24 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
B-276142 

performing as required. DOD concluded that our finding that the contractor

is performing within the contract’s requirements points out the efficacy of

its oversight.

We disagree with DOD’s assertions about its oversight role. As we point out

in the report, DOD has not independently verified contractor-reported data

on claims processing timeliness, network adequacy, or ongoing fee

appropriateness, and, without GAO’s findings, DOD lacks a credible basis for

concluding that the contractor is meeting contract requirements. DOD

commented that, in addition to its oversight activities discussed in the

report, it conducted a benchmark test of Concordia’s ability to process

claims before services were delivered. But this was a test of Concordia’s

potential, rather than actual, performance. Also, DOD commented that it

made a site visit shortly after service delivery began to Jacksonville, North

Carolina, to discuss concerns about the contract transition. But this visit

was in reaction to local dentists’ complaints that Concordia’s fees were

too low and about a host of other alleged contractor performance

problems. Therefore, we continue to believe that the report accurately

depicts DOD’s contract oversight thus far, and that DOD needs to begin to

proactively and independently monitor the appropriateness of Concordia’s

fee schedules, adequacy of its networks, timeliness of its claims

processing, and efficacy of its marketing activities.

DOD’s comments are presented in their entirety in appendix IV.

As arranged with your offices, we will distribute copies of this report to

the Senate Armed Services Committee and Senate and House

Appropriations committees; the Secretary of Defense; United Concordia

Companies, Inc.; the Director, Office of Management and Budget; and

other interested parties. Copies will also be made available to others upon

request.

Please contact me on (202) 512-7111 if you or your staff have any

questions concerning this report. Other GAO contacts and staff

acknowledgments are listed in appendix V.

Stephen P. Backhus

Director, Veterans’ Affairs and

 Military Health Care Issues

Page 25 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Contents

Letter 1

Appendix I 

Scope and

Methodology

28

Concordia Fee Schedules 28

Concordia Participating Dentists Network 31

Concordia Claims Processing and Marketing 33

Appendix II 

Information on FMDP

Benefits and

Premiums

35

Appendix III 

Comments From

United Concordia

Companies, Inc.

36

Appendix IV 

Comments From the

Department of

Defense

39

Appendix V 

GAO Contacts and

Staff

Acknowledgments

44

Tables Table 1: Concordia’s Participating and Nonparticipating Dentists,

November 1996

12

Table I.1: Dental Procedure Fees Analyzed by GAO 29

Table I.2: Military Base Areas Selected to Assess Concordia’s

Participating General Dentist Network’s Compliance With 35-Mile

Requirement

31

Table II.1: Benefits Covered by FMDP Program 35

Page 26 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Contents

Table II.2: FMDP Annual Premium Paid by Active Duty Sponsor

and Government, August 1995-July 2001

35

Figures Figure 1: Expansion of Concordia’s Participating Dentist

Network, February-November 1996

10

Figure 2: Composition of Concordia’s Network of Participating

General and Specialty Dentists as of November 1996

11

Figure 3: Percentage of Claims Processed Within the 90-Percent,

21-Day Requirement, 1996

15

Figure 4: Comparison of Claims Processed Within the 90-Percent,

21-Day Requirement for Participating and Nonparticipating

Dentists, 1996

16

Figure 5: Percentage of Predeterminations Processed Within the

75-Percent, 21-Day Requirement, 1996

17

Abbreviations

DOD Department of Defense

FASA Federal Acquisitions Streamlining Act of 1994

FMDP Family Member Dental Plan

HBA health benefits advisor

RFP request for proposals

TSO TRICARE Support Office

Page 27 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

In conducting our review, we examined FMDP program and contract

documents obtained from DOD and Concordia. We reviewed applicable

legislation, DOD regulations and policies, contract requirements, and

information on the 1995 through 1996 bid protest and district court lawsuit

by DDP*Delta. We interviewed Concordia, DOD, and military officials at

various locations. We also interviewed a limited number of participating

and nonparticipating dentists in North Carolina, Colorado, and Virginia

and representatives of DDP*Delta and the American Dental Association.

We conducted our work at the Office of the Assistant Secretary of

Defense, Health Affairs, Washington, D.C.; TSO, Aurora, Colorado; Camp

Lejeune Marine Corps Base, Jacksonville, North Carolina; Fort Bragg

Army Base, Fayetteville, North Carolina; Norfolk Naval Station, Norfolk,

Virginia; Langley Air Force Base, Hampton, Virginia; Fort Eustis Army

Base, Newport News, Virginia; Peterson Air Force Base and Fort Carson

Army Base, Colorado Springs, Colorado; and at Concordia’s Camp Hill,

Pennsylvania, office. We did our work from June 1996 through

January 1997 in accordance with generally accepted government auditing

standards.

Concordia Fee

Schedules

To do our work on Concordia’s fee allowances for dentists, we obtained

actuarial assistance from the Hay Group. To evaluate the adequacy of both

sets of fee allowances, we reviewed Concordia’s actuarial methodologies;

compared Concordia’s February and August 1996 fees for selected

procedures; and verified whether Concordia’s revised fees are set at the

required percentile levels for participating and nonparticipating dentists.

We analyzed claims data from Concordia reporting actual charges by

dentists for the period February 1 through June 30, 1996, for the 26

frequently incurred dental procedures listed in table I.1. We did not verify

Concordia’s data for accuracy or consistency. Claims that were reported

after August 31 but before October 24, 1996, were included in the data set

supplied by Concordia. Concordia provided the following data: (1) claim

number, (2) dollar charge submitted by dentist, (3) dental procedure code,

(4) date of service, (5) frequency of procedure, (6) dentist state and zip

code, (7) Concordia fee schedule region, and (8) dental specialty.

Page 28 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

Table I.1: Dental Procedure Fees

Analyzed by GAO Procedure code Dental procedure

Diagnostic

00110 Initial exam

00120 Periodic exam

00272 Two bitewing X rays

00274 Four bitewing X rays

00330 Panorex X ray

Preventive

01110 Adult prophylaxis

01120 Child prophylaxis

01203 Child fluoride

01204 Adult fluoride

01351 Sealant, per tooth

Basic restorative

02140 Amalgam restoration, one surface

02150 Amalgam restoration, two surfaces

02160 Amalgam restoration, three surfaces

Crowns

02750 P/m crown, high noble metal

02751 P/m crown, base metal

02752 P/m crown, noble metal

Root canal

03310 Root canal therapy, anterior tooth

03330 Root canal therapy, molar

Gum disease treatment

04341 Periodontal scaling & root planing,

quadrant

04210 Gingivectomy, quadrant

04260 Osseous surgery

Removable denture

05110 Complete upper denture

05214 Lower partial denture, cast metal base

Fixed bridge

06750 Abutment crown, porcelain fused to high

noble metal

Oral surgery

07110 Extraction, single tooth

07240 Extraction, complete bony impaction

Page 29 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

To verify how Concordia set its August 1996 fee allowance percentiles for

nonparticipating and participating dentists, we analyzed 2 million claims

for the 26 procedures listed in table I.1. For each procedure, we arrayed

the claims data from highest-dollar submitted charge to lowest-dollar

submitted charge and then numbered from one (being the lowest

submitted charge) up to the total number of claims (being the highest

submitted charge). We determined the 50th percentile as follows: The total

number of claims was multiplied by 0.5 to determine the position of the

50th percentile. That number is P(50). The actual charge amount at

P(50) was identified as the 50th percentile. If P(50) was a fraction, then the

50th percentile is the average of the charges just below and above P(50).

We also estimated how much more Concordia would have paid to dentists

between February and August 1996 if it had updated the initial fee

schedules using more recent charge data in the same way that it updated

fee schedules in August 1996, that is, using charge data from the 5-month

period of February through June 1996. The estimate was derived by

comparing Concordia’s actual claims expenses under the initial fee

schedules with the claims expenses that would have been paid under the

revised August 1996 fee schedules. We determined the weighted average

increase in fees for each of the 26 dental procedures shown in table I.1.

Then, to determine which claims would have been reimbursed in full (that

is, because the actual charge was at or below the trended maximum fee

allowance), we determined the percentage of claims that were at, above,

and below the February 1996 fee schedules for participating and

nonparticipating dentists. This resulted in an average increase of $1.71 per

claim to reflect Concordia’s actual claims expense if it had used the

revised August 1996, rather than the initial February 1996, fee schedules,

which yielded a total difference in payment of $3.5 million. We then

interpolated the $3.5 million to estimate what the payment difference

would have been if Concordia had used July 1995 through November 1995

charge data from the outset. This interpolation was done by calculating

the lag between the midpoint of the claims experience period used for the

initial February fee schedules (Mar. 1, 1994) and the revised August 1996

fee schedules (Apr. 15, 1996), which is 25.5 months. Next, we calculated

the lag between the midpoint of the claims experience period used for the

initial February 1996 fee schedule and the alternative July through

November 1995 claims experience period (Sept. 15, 1995), which is 18.5

months. Multiplying $3.5 million by 18.5/25.5 yields an estimate of

$2.5 million. This estimate approximates the results of applying a 5-percent

trend.

Page 30 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

Concordia

Participating Dentists

Network

To evaluate Concordia’s network, we obtained actuarial assistance from

the Hay Group. DOD regulations specify two requirements in order for the

insurer’s network to be in compliance with the FMDP contract: (1) a

beneficiary must be able to obtain an appointment within 21 days with a

participating general dentist and (2) the participating general dentist must

be within 35 miles of the beneficiary’s home. No similar requirements exist

regarding specialists. To determine whether Concordia’s network is

adequate, we analyzed detailed data on 21 military base areas (see table

I.2) and summary data on dentists and beneficiaries in the nationwide

FMDP service area. The 21 sites serve 37 percent of the total FMDP

beneficiary population and were judgmentally chosen in consultation with

DOD to provide a mix of (1) large and small beneficiary populations,

(2) adequate and potentially inadequate networks, and (3) rural and urban

locations.

Table I.2: Military Base Areas Selected

to Assess Concordia’s Participating

General Dentist Network’s Compliance

With 35-Mile Requirement

Military base area State

Enrolled

beneficiaries

San Diego Naval Station and Camp

Pendleton Marine Corps Base

California 119,292

Fort Carson Army Base and U.S. Air Force

Academy

Colorado 42,609

Fort Benning Army Base and Fort Stewart

Army Base

Georgia 50,304

Scott Air Force Base Illinois 13,345

Fort Campbell Army Base Tennessee and

Kentucky

35,463

Keesler Air Force Base Mississippi 17,075

McGuire Air Force Base and Fort Dix Army

Base

New Jersey 6,738

Fort Bragg Army Base and Seymour

Johnson Air Force Base

North Carolina 75,682

Fort Sam Houston Army Base, Lackland Air

Force Base, and Randolph Air Force Base

Texas 48,171

Fort Hood Army Base Texas 53,565

Norfolk Naval Station, Langley Air Force

Base, and Fort Eustis Army Base

Virginia 153,916

Fort Lewis Army Base Washington 46,766

Our analyses were based on (1) the number of beneficiaries, (2) the

number of dentists that have signed with the network, (3) the number of

dentists who have not signed with the network but have submitted claims

to Concordia, and (4) the frequency of services expected by the

Page 31 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

beneficiaries. To perform our analyses, we obtained from Concordia the

following information: (1) GeoNetworks16 reports consisting of dental

providers and beneficiaries at the 21 military bases as of October 1996,

(2) utilization reports on the frequency of visits per beneficiary as of

August 1996, (3) the number of services performed per dentist for claims

paid through August 1996, (4) nationwide data on the number of

participating providers as of November 1996, and (5) the total number or

beneficiaries enrolled nationwide in the FMDP as of November 1996. We

inflated the reported number of services provided to estimate the annual

amount; we did not adjust the data to reflect incurred but not billed

services. We did not verify Concordia’s source data for accuracy.

To determine whether Concordia’s network met DOD’s 35-mile standard at

21 selected military base areas, we analyzed Concordia’s GeoNetworks

system reports, which provide the proximity of dentists to beneficiaries

within specified distances. However, this analysis did not address

frequency of utilization or whether beneficiaries could obtain

appointments with participating general dentists within 21 days. Because

data were not available in time to assess Concordia’s compliance with the

21-day requirement, we adopted an alternative methodology to determine

the adequacy of the network, including both general dentists and

specialists, at the 5-digit zip code level for each of the 21 military base

areas. For this methodology, we projected the number of dental

procedures that beneficiaries could be expected to incur over a year and

organized them by type of specialty. For each type of dental specialist, we

estimated an individual dentist’s productivity with regard to treating FMDP

beneficiaries. We used individual dentist productivity rates with regard to

treating FMDP beneficiaries. We obtained these productivity rates from the

American Dental Association, and they represent the number of

procedures that a dentist could perform in a year, based on the type of

treatment specified.17

We then computed the number of dentists, by specialty, needed to supply

the services demanded by FMDP beneficiaries by dividing the annual

demand, by specialty, by the number of services a single dentist could

16GeoNetworks is a software system developed by GeoAccess Corporation that provides capability to

analyze the proximity and number of health care providers to beneficiaries. Concordia used this

software to measure the distance in miles between beneficiaries and participating and

nonparticipating dentists for the 21 military bases we selected for study.

17Bureau of Economic and Behavioral Research, Distribution of Dentists in the United States by

Region and State: 1991 (Chicago, Ill.: American Dental Association, 1993) as cited by Rosa G. Moy,

Gordon R. Trapnell, John C. Wilkin, and C. William Wrightson, Estimation of the Requirements for

Dentists in the TRICARE Active Duty Family Member Dental Plan (Annandale, Va.: Actuarial Research

Corporation, 1995), p. 8.

Page 32 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

complete in a year. We further modified this computation by assuming the

dentist would devote only 10 percent of his or her time to treating FMDP

patients. Although in some areas participating dentists may devote

significantly more time to care of FMDP patients, we used 10 percent as a

conservative assumption. That is, if Concordia’s network is adequate

under this conservative assumption, it likely would be adequate under

nearly all demand scenarios.

Finally, to address the question of whether Concordia has established an

adequate network of participating dentists nationwide, we used the

Concordia data on the total number of services provided by both

participating and nonparticipating dentists, and the estimated dental

provider productivity estimates discussed earlier to estimate the number

of network dentists needed to perform all the services (based on

nationwide utilization). We then compared these estimated needs for

dentists with the actual number of participating dentists in the nationwide

network to determine whether that total number is sufficient to service the

FMDP nationwide beneficiary population.

Concordia Claims

Processing and

Marketing

To evaluate Concordia’s claims processing performance, we focused on its

compliance with contract standards for timeliness. We did not evaluate the

accuracy of Concordia’s benefit determinations (that is, the amount paid

by Concordia as well as the amount not covered and why). We reviewed

Concordia’s monthly reports to TSO on payment and predetermination

claims processing timeliness from February through September 1996. In

addition, we obtained Concordia’s computerized records for 1.8 million

claims processed from February through September 1996 in order to

perform our own analysis of timeliness and verify the accuracy of

Concordia’s reported statistics to TSO. For payment claims, we calculated

the length of time it took to process the claims from the date of receipt to

the payment date. For predetermination claims, we used the date of

receipt to the finalized or settlement date to calculate timeliness because

these types of claims do not have a payment date. We also did analysis

comparing the timeliness of payment claims between participating and

nonparticipating dentists because some nonparticipating dentists

complained about delays in receiving payment for their services.

Regarding Concordia’s “optional or alternative treatment” policy, we

reviewed that policy against legal requirements set by DOD regulations and

contractual provisions, as well as Concordia’s technical proposal and

beneficiary and dental provider publications that describe the use of the

Page 33 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I 

Scope and Methodology

policy to limit benefit payments for certain dental services. We reviewed

Concordia statistics on the number of claims on which the policy was

applied between April and October 1996. In addition, we obtained the

views of officials from DOD, Concordia, DDP*Delta, and several dentists

about Concordia’s policy and whether or not it represents a reduction in

dental benefits.

To evaluate Concordia’s marketing performance, we reviewed the contract

requirements and collected publications and other communication

documents from Concordia to assess compliance with the contract terms.

Among the publications obtained and examined were the benefit booklet

(Your Dental Benefit Booklet: TRICARE Active Duty Family Member

Dental Plan); quarterly newsletters (FMDP Alliance and FMDP Dental

Courier); miscellaneous fact sheets; a draft dentist reference guide on

FMDP benefits, policies, and procedures; a 23-minute videotape (Active

Duty Family Member Dental Plan), and quarterly reports on the activities

of Concordia’s regional professional relations staff and dental benefits

advisors during their visits to dentist offices and military bases. In

addition, we observed two of Concordia’s 1/2-day professional relations

seminars for dental office staff in Williamsburg, Virginia, and Denver,

Colorado.

Page 34 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix II 

Information on FMDP Benefits and

Premiums

Table II.1: Benefits Covered by FMDP

Program

Dental treatment category

Percentage of treatment cost

covered by insurer

Routine oral exams and X raysa 100

Cleaning and fluoridationa 100

Sealantsb 80

Fillings and certain basic crowns 80

Root canal 60

Gum disease 60

Oral surgery 60

Other crowns, onlays, cast restorations 50

Removable dentures and fixed bridges 50

Braces 50

aLimited to two routine exams or treatments every 12 months. Other restrictions apply to X rays.

bOn permanent first molars through age 10 and on permanent second molars through age 15;

one sealant per tooth in a 3-year period.

Table II.2: FMDP Annual Premium Paid

by Active Duty Sponsor and

Government, August 1995-July 2001

Single enrollment Family enrollment Benefit year

ending Sponsor DOD Total Sponsor DOD Total

July 1996 $81.24 $121.80 $203.04 $203.04 $304.56 $507.60

July 1997 86.28 129.36 215.64 215.64 323.52 539.16

July 1998 91.68 137.40 229.08 229.08 343.68 572.76

July 1999 97.08 145.68 242.76 242.76 364.20 606.96

July 2000 102.36 153.60 255.96 255.96 384.00 639.96

July 2001 109.32 163.92 273.24 273.24 409.92 683.16

Page 35 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III 

Comments From United Concordia

Companies, Inc.

Page 36 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III 

Comments From United Concordia

Companies, Inc.

Page 37 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III 

Comments From United Concordia

Companies, Inc.

Page 38 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV 

Comments From the Department of Defense

Page 39 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV 

Comments From the Department of Defense

Now on p. 21.

Now on p. 21.

Page 40 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV 

Comments From the Department of Defense

Now on p. 21.

Now on pp. 19-20.

Page 41 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV 

Comments From the Department of Defense

Page 42 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV 

Comments From the Department of Defense

Page 43 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix V 

GAO Contacts and Staff Acknowledgments

GAO Contacts Daniel M. Brier, Assistant Director, (202) 512-6803

Carolyn R. Kirby, Evaluator-in-Charge, (202) 512-9843

Staff

Acknowledgments

In addition to those named above, the following individuals made

important contributions to this report: Bonnie Anderson, who evaluated

the adequacy of Concordia’s fees and participating dentist network; Jean

Chase and Darrell Rasmussen, who evaluated Concordia’s claims

processing and marketing performance and DOD’s oversight; Vanessa

Taylor and Robert DeRoy, who analyzed Concordia’s claims processing

timeliness; Dayna Shah, who provided legal analysis of Concordia’s

contract performance and DOD’s oversight; and Pamela Tumler and Nancy

Crothers, who provided writing assistance.

(101495) Page 44 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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