NORTH CAROLINA TEACHERS AND STATE EMPLOYEES COMPREHENSIVE MAJOR MEDICAL PLAN Recommendation Follow-Up

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1 NORTH CAROLINA TEACHERS AND STATE EMPLOYEES COMPREHENSIVE MAJOR MEDICAL PLAN Recommendation Follow-Up RECOMMENDATION We recommend that the Plan continue to make biennium budget requests in keeping with the state budget cycle. However, the Plan's budget should be reviewed and revised every 12 months rather than 24 months. This method of approval would necessitate budgetary approval of the Plan in both the long and short sessions of the General Assembly. The annual approval process would have the advantage of an annual projection as its basis. This annual projection should provide a more accurate reflection of probable expenses to the Plan for the upcoming year. This change should improve the efficiency of the state's cash management through a more timely evaluation of Plan needs. We recommend the legislation be changed to shorten the period for filing of claims from eighteen months to six months. This change would better reflect the true financial position of the Plan and allow for more accurate funding projections. Procedures should be established to handle extraordinary circumstances when the time needed to file a claim extends beyond the six-month period. Yes (18) No t implemented This is a legislative decision, not an administrative one. The Administrator does monitor revenues and expenses monthly and provides the legislative fiscal office with periodic financial reports. Finally, the Board of Trustees receives financial reports quarterly. t implemented The Administrator would recommend shortening the filing period to twelve months. However, he is not aware that the eighteen-month period has caused any funding projection problems. 1

2 We recommend the legislation be changed to clearly assign both the authority and responsibility of administration for the Plan. To accomplish this, it is our opinion that the Governor should have responsibility for the appointment of the Executive Administrator. The composition of the Board of Trustees should remain as defined in the legislation, with the Governor's Policy Advisor for Medical and Health Benefits serving as the Chair. The Board should have the responsibility for interviewing all candidates for the position of Executive Administrator and making a recommendation to the Governor on the most qualified candidate for the position. Yes A t implemented This is a legislative decision. No Additionally, the Board of Trustees should have the responsibility for development of Plan policies, identification and recommendation of benefits changes, and responsibility for the review of and decision on appealed cases. Policy and benefits changes which would have a financial impact on the state budget would be approved by the General Assembly in the budget process. The Executive Administrator should have day-to-day responsibility for implementing the policies and procedures approved by the Board. We recommend that the State Health Benefits Office be moved to the Office of State Personnel to become a section within a division which coordinates all employee benefits. This move would provide the necessary daily oversight of office functions which is now lacking, would provide a structure for accountability of both administrative and operational decisions, and would promote organizational responsiveness to immediate concerns. Yes t implemented The responsibilities of the Executive Administrator are shown in A, and powers and duties are shown in The Board shares the same powers and duties as those of the Executive Administrator. The Administrator does not recommend any change in the statutes. However, this is a legislative decision. t implemented This is legislative decision. No 2

3 We recommend the establishment of a position in the Governor's Office for a Policy Advisor on Medical Issues. The major responsibility of this position would be to advise the Governor on issues related to health care. Yes t implemented This is a legislative decision. No GS 135 should be revised to require the Policy Advisor to serve as the Chair of the Board of Trustees for the Plan to assure coordination with other health related efforts of the State. Yes t implemented This is a legislative decision. No We further recommend that the role of the Committee on Employee Hospital and Medical Benefits be redefined. In our opinion, the Committee should have the responsibility of approving broad policy decisions and of reviewing changes in the Plan which would have a direct impact on the state budget and making recommendations on those changes to the General Assembly. As stated above, the Board of Trustees should have the responsibility for researching and approving detailed policy and benefits changes. The Executive Administrator should have day-to-day responsibility for implementing the policies and procedures as approved by the Board. t implemented This is a legislative decision. 3

4 We recommend Article 3, GS 135 be rewritten to remove the detailed listing of covered benefits as noted in the report. We further recommend that this level of detail be the responsibility of the Board of Trustees. The Executive Administrator and the Board should bring an approved program to the General Assembly annually which includes the scope of benefits changes and the tentatively negotiated costs for all such revisions. This procedure would reduce the time necessary to legally execute contracts for Plan changes and give a more open opportunity to consider the financial implications of the administrative costs before they become law. Yes t implemented This is a legislative decision. No We recommend the legislative definition of "the Plan" be expanded to encompass all options currently available to employees as approved in GS 135. Further, we recommend the legislation be revised to specifically require coordination of all options under the Plan. Yes t implemented This is a legislative decision. No We recommend management reassess current staffing levels and organizational structure. In our opinion, the two vacant accountant/auditor positions need to be filled immediately in order to perform the required financial oversight of contractors. The EDP Systems Auditor position should also be filled to facilitate the use of technology in the oversight function. (See page 47 of report for a discussion.) Additionally, we recommend a clear definition of the duties assigned to each person, as well as a clear definition of reporting responsibilities within the SHBO. t implemented The Plan contracts with an independent audit firm whose reports are distributed to the Board. The Administrator does not agree with the recommendation to internalize this function. 4

5 To address the communications problems, we recommend staff meetings be held at least monthly to update staff on new assignments and to share status reports regarding on-going assignments. Each staff member should have input into these meetings and should be made aware of how his/her actions relate to and impact other staff of not report We recommend the employees involved in the instances not recording leave immediately revise their time sheets to accurately reflect leave taken. Further, we recommend management examine time recording procedures currently in use. In our opinion, a standard time recording format should be developed and implemented. The format should allow for identification of hours worked, projects worked on, and leave hours taken by type. Also, the format should include a statement to be signed by both the employee and supervisor which indicates the time worked and leave taken is true and accurate. OSP regulations state it is the responsibility of the individual employee and the supervisor to assure that time is properly recorded. We recommend management develop a formal compensatory time policy which complies with the requirements of the FLSA. The policy should clearly identify which employees, if any may participate in the compensatory leave program. Additionally, the policy should clearly define the circumstances under which compensatory leave may be earned, how and when it is to be approved, and how it is to be accounted for. Management should also institute a procedure for accurately accounting for compensatory leave earned and taken. Monthly staff meetings in process. Standard time sheet developed. Comp time policy established by memorandum on January 7,

6 We recommend management review its Performance Management Policy as well as OSP regulations pertaining to employee performance evaluations and performance salary increases. Each employee should have an annual written work plan established at the beginning of the work cycle. Further, OSP policy requires a performance evaluation be completed annually for each employee. The completed and signed evaluation should become a part of each employee s personnel file. SHBO management should immediately take steps to comply with regulations. We recommend management review OSP regulations regarding the selection of applicants. Formal, written criteria for evaluating/ selecting applicants for each vacancy should be developed and implementation should be documented based on job description. Also, we further recommend the SHBO maintain a central file for all applicants for vacancies. We recommend the SHBO, together with the Board of Trustees, institute procedures for a comprehensive short-term and long-term planning process. The short-term plan should address annual needs of the Plan, as well as specific policy and benefits changes for that year. The long-term plan should address broad ranging needs and changes to the Plan. Additionally, the long-term plan should contain specific procedures and steps to be taken by the SHBO to achieve the specific goals and objectives required by the legislation and include all options offered to employees. Partially implemented 20%complete The Administrator intends to have a formal performance evaluation system with annual work plans in place by February Developed forms for criteria documentation. Partially implemented 75% complete The Administrator intends to develop both short and long term plans and review them with the Board and Oversight Committee by July This will be an annual activity.. 6

7 We recommend the SHBO develop a formal internal policies and procedures manual addressing the daily operational issues for the office. The manual should contain clearly stated policies and the specific steps or procedures required to be in compliance with each policy. Management should also institute a system for distributing and updating the manuals. We recommend management immediately take steps to centralize vital Plan records. All documents relating to a specific area, contract, type of transaction, etc. should be maintained in a concise, centralized file. Files relative to general operations should be maintained in such a manner as to allow easy retrieval of relevant documents. The permanent contractor files should be reconstructed as completely as possible from other sources. Responsibility for these permanent files should be vested in one individual and the actual files made secure from random access, preferably in fireproof cabinets. Partially implemented 50% complete Policy manual developed in January HMO contracts located in file cabinet in central corridor. The Administrative Assistant to the Executive Administrator is responsible for these files. The cabinet will be locked and a log maintained noting the usage of these contracts. The Claims Processing Contractor contracts are maintained in the Executive Administrator's office by the Administrative Assistant who also maintains a log. The Claims Auditor contract and the Long-Term Care contract are in a file cabinet in the central corridor. The Administrative Secretary to the Deputy Executive Administrator is responsible for these files. The cabinet will be locked and a log maintained noting the usage of these contracts. 7

8 We recommend that the Executive Administrator fill the vacant EDP Auditor position. This person's duties should include reviewing all CPC system reports and programs, and making recommendations for implementing improvements to the access and format of data coming from the CPC and other contractors. Additionally, the EDP Auditor should have the responsibility of extracting data from CPC and other contractor supplied computer tapes for purposes of oversight and analyses. We recommend management reassess the assignment of duties in order to improve segregation of duties. Additionally, management should immediately update the "Self Assessment of Internal Controls" and relay the updated information to the Office of State Controller. All invoices should be approved for payment prior to writing the check, and a restrictive endorsement should be placed on checks as soon as they are received in the Office. We recommend SHBO management implement procedures to comply with all budget regulations. Each employee should become familiar with State Budget regulations governing travel, transportation, and allowances. Training and assistance should be sought from the Office of State Budget and Management when questions arise regarding travel reimbursements. t implemented The independent auditor and actuary have access to the Claims Processing Contractor s data. The Administrator does not see a need for an EDP Auditor internal position. Implemented and audited by State Auditor Financial audit staff. Travel regulations given to all staff. Travel reimbursements audited against regulations. 8

9 Management should immediately take steps to implement accounting procedures which will prevent duplicate payments. Additionally, management should enforce the responsibility of the approving supervisor to closely review all reimbursement requests prior to approval. All invoices should be approved prior to issuance of the check. Based on our review, the State should be reimbursed the total amounts shown in Table 10 of the report ($1,530.93) by the employees identified. We recommend management review all of its internal procedures which guard the use of state funds. Better planning of trips should be employed in order to get the best rate for the Plan. A clear policy should be established on the reimbursement of mileage for business lunches and dinners. Management should enforce the legislation which prohibits personal use of state equipment and supplies by employees. All staff should be instructed in the proper use of the State Telephone Network and should clearly understand which calls are long distance and which are local. All staff should also be reminded that personal calls are not allowed on the State Telephone Network. The Executive Administrator should immediately see to the reimbursement of the $ for personal calls. We recommend the Executive Administrator and the Board of Trustees determine what substantive information is necessary for the evaluation of any service being solicited by the Plan and require that it be supplied by all contractors. Such information should be structured to allow for the on-going comparisons of costs over the life of the contract. In our opinion, this change should be implemented immediately as part of the current contract and included as part of any contract extension to be negotiated. Reimbursement received. State Auditor Financial audit has found no problems. To prevent duplicate payments, all invoices are approved prior to payment, payments are made from original invoices and never from duplicates or statements, and checks are signed by the Executive Administrator and Deputy Executive Administrator. Memoranda to all staff addressed these problems. 9

10 We recommend that the Executive Administrator consistently involve the Division of Purchase and Contract in all Plan contract negotiations and renegotiations to ensure the integrity of the contracting process. To this end, we recommend amending GS A(f) to require such involvement. We recommend that the Executive Administrator take immediate steps to come into compliance with GS (7). A summary of performance under all of the performance criteria, as contained in the contract should be presented to the Board at each meeting. An annual summary of performance should be filed as a part of the minutes to meet the statutory responsibilities of the Administrator and the Board. Consideration should be given to identifying and using more definitive performance criteria as a means of offering financial incentives to the CPC. However, these incentives should be offered only in conjunction with a review of the details of the CPC's current reports to ensure their accuracy, and the assumption of financial liability by the CPC of any errors by it as determined by the Executive Administrator. Further, the performance criteria should be adjusted upward as the level of contractor performance improves. Such incentives would not become a permanent part of the compensation as a result. They would be payable only as the overall level of performance increases. Yes No Where required by statute, the Administrator involves the Division of Purchase and Contracts in Plan negotiations. This is a legislation decision. Partially implemented 10% complete The Administrator will present a summary of the performance criteria at the Board s April 2000 meeting and an annual summary at the September 2000 meeting. t implemented The Administrator believes the current reimbursement program for the Claims Processing Contractor is appropriate. 10

11 The Executive Administrator should move expeditiously to fill the vacant auditor positions and utilize them as originally justified to maintain the on-going review of contractor performance. This would be critical if a system of incentives is incorporated in the contract. These individuals would be charged with providing direct monitoring of the activity levels reported by the CPC under such an arrangement. We recommend that the newly constituted Board address the issue of disclosure of cost information to employees. In our opinion, all future provider contracts should provide for the release of cost information so that subscribers can gain access to relevant cost information before making service decisions. Further, the SHBO should work with the CPC to develop a means for subscribers to readily obtain cost information on services. The existence of comparative cost data should be communicated to all subscribers. We recommend that the SHBO and the CPC clearly define and cost and commitments made by the CPC as part of the original contract prior to amending the contract for "additional" work. Further, the SHBO should develop procedures to more completely define and cost any multi-phased work effort prior to requesting contracts. The entire scope of work should be addressed and cost estimates supplied by potential contractors prior to entering into a contract for the first phase of work. Any negotiations for a new contract should clearly establish contract requirements both in terms of what is to be delivered, and when, and any associated cost commitments. t implemented The Administrator does not agree with this recommendation. t implemented CostWise and other contracting providers do not balance bill. Thus there is no need for employees using these providers to obtain cost information. New contract addresses this recommendation. 11

12 We recommend the SHBO revamp its methods for providing the necessary training for HBRs. In our opinion, the SHBO should utilize available technologies such as video and interactive teleconferences for training and communication purposes. Assistance should be sought from the Agency for Public Telecommunications. We estimate the production costs for a live, interactive video teleconference would be approximately $3,500 to $5,000. Such a production would potentially reach considerably more people at a lower cost per person in one afternoon than the current series of 40+ meetings conducted across the state each year. HBRs should be surveyed at least every two years to determine operational issues, benefit perceptions, and general concerns. This information should serve as the basis for preparing meaningful training sessions on the issues of greatest importance. Further, to support the role of the HBRs, we recommend the SHBO clearly define the HBR job responsibilities and communicate these to OSP and all agency management. We recommend that the SHBO immediately begin periodic audits of source documentation for the Plan membership as reported by the CPC. The audit procedures should include: A standard time for completing the audits of the CPC Detailed audit steps on data to be examined Establishment of a time frame for completion of the report after the audit Establishment of a time frame for the CPC to respond to findings We recommend that the SHBO review in detail the reporting requirements contained in the contract. Any reports which are not specifically used by SHBO staff in the monitoring of the CPC should be eliminated as standard reports. Additionally, the SHBO should survey all outside report recipients for confirmation of need and adjust the distribution list accordingly. Partially implemented 40% complete The Administrator believes that HBRs should be trained in the most costeffective way. The stated recommendation may or may not be the most cost-effective training method without further input from the HBRs. Currently the Plan has 7-9 meetings. HBRs are surveyed.. Partially implemented 10% complete The next contract with the independent auditor will include these audits. The required reports were revised in the current contract. 12

13 Further, we recommend all requests for special reporting from the CPC should be made only with the written approval of the Executive Administrator. Monthly report summaries of special report programming hours should be provided to the SHBO with a sufficient level of detail to allow the SHBO to determine whether the charges are appropriate. Any hours not utilized in a particular year should also accrue for use in subsequent fiscal years. We recommend that the SHBO take several steps to reduce the number of delinquent payments to the Plan. First, the contract requirements for payment and problems created from late payments should be communicated to all agency heads. Second, this same information should be communicated to the HBRs through the newsletter and other training materials. Third, the SHBO should establish a formal notification process to agency heads when a payment is late. These notices should also offer technical assistance as may be necessary. Fourth, the billing statements from the CPC should be pre-printed with the contractual due date of the 5th of each month. We further recommend that quarterly summaries of delinquent agencies and the outstanding amounts should be sent to the Office of the State Auditor to become part of the review of agency financial operations. We recommend the SHBO modify its current written procedures to reflect the current practices and that these be formally conveyed to the CPC. We further recommend closer monitoring and tracking of A/R account status by the SHBO staff. The current system should be modified to include the following fields of information: debtor's name and claim number, coded actions taken, date of actions, and the unpaid A/R balance. Additionally, we recommend the CPC provide a true cumulative A/R cleared report (current report with addition of date of any accounts dropped due to clearing during the month). Executive Administrator reviews all report requests. Follow-up is done monthly to agencies that are late. Technical assistance is provided as necessary. Accounts receivable procedures are included in current contract 13

14 We recommend the SHBO contract, for a set per case fee, for an independent review of medical decisions made by the CPC. In addition to an independent review of the medical decisions on appeals case which reach the Board, we recommend the use of an independent medical review panel for policy changes for the Plan. One possibility would be to contract with the medical schools within the University of North Carolina System to provide medical experts as needed to serve on the medical review panel. We recommend management take steps to more accurately record all appeals for administrative review. First, we recommend a computerized log system be set up. Case numbers should be issued sequentially, with all relevant identifying data entered into the log upon receipt. Additional data fields should be added to the log to track the case status until final resolution. Each case should be assigned a unique case number regardless of the time required to resolve the case. Management should also develop a checklist of the data each case file should contain and maintain the checklist at the front of the file. Additionally, we recommend management enforce the central file system and utilize some type of "out card" when a file is removed for any reason. We recommend that the Executive Administrator immediately execute his authority and require detailed cost/personnel allocation information for the Fraud Unit. Further, we recommend the vacant auditor positions be filled in order to actively and directly monitor the CPC's operations. The SHBO should be aware of the dollars actually recovered, the reasons for the review of potentially fraudulent cases, the case backlog, and the magnitude of potential recoveries to better ascertain the efficiency and effectiveness of this unit. The current contract has a full time Medical Director. The Claims Processing Contractor utilizes independent medical review from community providers. t implemented One employee controls appeals. There are approximately 40 appeals annually which does not necessitate an automated system. Partially implemented 50% complete Administrator s staff attorney is performing this function. The attorney is working with the Claims Processing Contractor fraud unit to obtain Plan objectives. The activity should be fully functional by February

15 We recommend the collection of fraudulent claims be handled by the CPC's Adjustments and Recoveries Unit. This change in procedure would provide a centralized location for all recoveries for the Plan, as well as increase the time available for investigation and determination of potential fraudulent claims. A report of the progress of the collections should be forwarded to the Fraud Unit to insure the unit's files and reports to the SHBO are current and accurate. We recommend the CPC establish an annual formalized training schedule for all its employees assigned to the Plan. We recommend the SHBO establish follow-up procedures to ensure all CPC employees assigned to the Plan are given the fraud detection training on an annual basis. In our opinion, the cost of this training is already covered in the monthly fee being paid the CPC for the Fraud Unit. We recommend a revision of the foreign claims policy to require the original bill be attached to the translated version. We further recommend that the SHBO contract with local universities to provide experts to translate foreign claims and needed for a set fee per claim. Another possibility would be to contract with the CPC to perform a review of the translation as it now does with its other claims., t implemented The Administrator believes fraud cases are best handled by the fraud unit. Fraud training is a part of each employee s training. Partially implemented 70% complete There are fewer than 500 claims per year from which translation is done on the original bill. The Claims Processing Contractor has employees that speak 6 languages. 15

16 We recommend that the SHBO take steps to implement GS (21) and define the level of activity expected of the CPC in performing provider bill audits. Such parameters should be consistent with the performance standards set for the hospital bill audit program and subject to the same independent review that is recommended elsewhere in this report. We recommend the Executive Administrator require the CPC to immediately begin remitting all interest earned on recoveries for the Plan. Further, we recommend the Executive Administrator and the CPC investigate changing the accounting system to easily handle the remittance of partial payments to the Plan as recoveries are received from the hospitals. We recommend that the SHBO immediately institute a plan for periodic audits of source documentation for the HMO membership and fee records. The audit procedures should include: A standard time frame for completing the audits of all HMOs Detailed audit steps on data to be examined Establishment of a time frame for completion of the report after the audit Establishment of a time frame for HMOs to respond to findings Partially implemented 70% complete Audits have changed since reimbursement to hospitals is now based on DRGs. t implemented Due to the change in hospital audits there are no partial recoveries. Partially implemented 50% complete HMO membership is reviewed in house monthly. The next independent auditor contract will include these audits. 16

17 We recommend that management insist on keeping the penalty clause in the most current contract. Further, management should strictly enforce the penalty. Management should consider requiring automatic draft as the method of payment for the fees from the HMOs. This would allow for timely payments from the HMOs and a more efficient use of time for processing the payments for both the HMOs and the SHBO staffs. We recommend that the Board review the relevance of both the $1.00 per month per subscriber administrative fee and the risk adjustment fees currently charged the HMOs. The Executive Administrator should include as part of the audit of membership data a procedure which would allow staff to fully understand the rate setting procedures employed by each HMO Additionally, staff should include procedures in the review which would allow them to more fully understand the overall operations of each HMO. Partially implemented 50% complete The penalty is in the current HMO contract. Late payments will be assessed a $500 per day pentalty. Automatic draft is not required. Not implemented The Administrator has asked the actuary to review the risk adjustment fee. Costs are tracked and accumulated to support an HMO administrative fee. The Administrator believes that HMO ratesetting procedures are the preview of the Insurance Commissioner. All Plan staff except the receptionist position have the necessary understanding of HMO operations. 17

18 We recommend that the Executive Administrator take immediate steps to develop a method of assessing the level and quality of services offered by the HMOs as compared to the level and quality of services offered under the Plan. The assessment procedures should clearly define the performance indicators by which the SHBO will judge the performance of the individual HMOs. We recommend the Executive Administrator take immediate steps to include HMOs in the overall planning process and to involve the HMOs in identifying potential cost containment measures. We recommend that the PPO contract be re-written to clearly reflect the effect of all cost containment measures. This change would allow the Plan to better estimate the savings to be realized from discounts offered by the hospitals to the Plan. Partially implemented complete t implemented This is a function performed by the Insurance Commissioner s staff. Performance results are available from that agency. Our assessment is limited to evaluation of their proposal in relation to our contract requirements. HMOs have input into the planning process. HMO cost containment measures are reviewed. However, any cost containment measures would require legislative approval prior to enactment.. t implemented The hospital PPO contracts have been redone to reflect DRG reimbursement. 18

19 We recommend SHBO staff work with VBH staff to refine VBH's computer program in order to more accurately capture total savings from the mental health case management function. SHBO should identify all potential categories of savings which are directly related to the contract. These savings estimations should be used in reporting contract status to the Board and the legislature. We recommend the Executive Administrator immediately address the problems detailed regarding potential mental health case fraud. Immediate programming changes should be implemented to prevent excess claims from being paid. Diversions are now recognized in the savings data. Claims Processing Contractor and Mental Health Case Manager have made programming changes. 19