High

The Comptroller’s Office should improve controls related to key fields in VPTS. Auditors analyzed vendor performance reports submitted to VPTS from September 1, 2017, through December 31, 2018, and determined that 9 of 12 key data fields contained unexpected or unreasonable entries. Examples of those entries include blank vendor performance report grades and contract amount entries and unreasonable date and dollar amount entries. Errors in key VPTS fields increase the risk that state agencies will use inaccurate, inconsistent, or incomplete information to make vendor selection decisions. The Comptroller’s Office should improve its controls to ensure that access to VPTS is appropriate. Unauthorized access to VPTS increases the risk of unauthorized or inaccurate information being reported in VPTS.

High

The Comptroller’s Office conducts VPTS outreach and training to state agencies, and it reviews some vendor performance reports that state agencies submit to VPTS. However, there are opportunities for the Comptroller’s Office to improve its review processes. The Comptroller’s Office should improve its processes for reviewing reports submitted to VPTS to help improve the accuracy and consistency of the information in VPTS that state agencies use to make vendor selection decisions. As of May 2019, the Comptroller’s Office did not review vendor performance reports that state agencies submitted with an A or B performance grade. Instead, VPTS automatically publishes those reports. However, automatically publishing vendor performance reports with A or B report grades without review creates a risk that inaccurate or inconsistent vendor performance report grades are published in VPTS. The Comptroller’s Office reviews submitted vendor performance reports with performance grades of C through F. However, those reviews did not always identify instances in which the assigned report grades did not align with the criteria.

Low

The Commission has implemented processes and controls to address identified MCO noncompliance with contract requirements primarily through the assessment and collection of liquidated damages, and the development and implementation of corrective action plans. Specifically, the Commission had (1) assessed and collected 1,455 liquidated damages totaling $28 million for noncompliance identified in fiscal year 2017 and (2) tracked the status of 321 corrective action plans for noncompliance identified from September 2016 through May 2019. While the Commission established processes for applying corrective action plans and liquidated damages, it did not have a process to determine under what circumstances it would consider initiating other remedies available in its contract.

Medium

The Commission had a significant backlog of unassessed liquidated damages. Liquidated damages are important to address and resolve MCOs’ contractual noncompliance. Continued backlogs (1) prevent the Commission from providing adequate notice to MCOs and (2) limit its ability to compel MCOs to meet contractual requirements and prevent continued or worsening noncompliance. For noncompliance it had identified since September 2017, the Commission had not finalized its calculations of liquidated damages as of July 2019. For example, at that time, the Commission had not finalized liquidated damages for noncompliance it identified 20 months previously during the first quarter of fiscal year 2018.

Medium

The Commission followed its process for calculating liquidated damages. While the Commission made several errors in its individual calculations, those errors did not significantly affect the total amount of liquidated damages calculated.

High

The Commission performed monitoring for several types of significant contract deliverables, and it applied contract remedies based on the results of that monitoring. However, the Commission was unable to apply contract remedies for certain contract requirements because it did not have processes to identify MCO noncompliance for those requirements. That included not performing utilization reviews for most Medicaid programs and not monitoring to identify MCO noncompliance related to specific pharmacy performance standards. In addition, for some other areas, the Commission did not incorporate the results of its monitoring into its contract remedies process, and it did not consistently ensure that it applied contract remedies for MCO noncompliance related to certain access-to-care requirements.

Low

The Commission established a process to require MCOs to complete corrective action plans to address identified noncompliance and it promptly requested MCOs to complete those plans. Specifically, the Commission opened corrective action plans within four months for noncompliance tested. In addition, the Commission consistently verified MCOs’ implementation of corrective action prior to closing each of the 18 closed corrective action plans tested.

Low

The Commission relies on audit activities to verify the accuracy and reliability of program and financial information reported by MCOs and it developed and implemented an overall strategy for planning, managing, and coordinating audit resources as required by S.B. 894. The Commission also established a corrective action plan process to (1) document how it follows up on negative performance audit findings and (2) verify that MCOs implement performance audit recommendations.

Medium

As of February 2018, the Commission had completed a risk assessment to determine which MCOs it would select for upcoming performance audits, as required by S.B. 894. Using its risk assessment, the Commission developed an audit plan that prioritized auditing the highest risk MCOs and included conducting performance audits of MCOs’ pharmacy benefit managers. However, as of November 2018, the Commission had not started the performance audits in that most recent audit plan. The Commission developed policies and procedures specifying when a corrective action plan should be issued based on the results of an AUP engagement; however, as of November 2018, the Commission had not issued any corrective action plans based on its AUP engagements.

Low

The Commission developed, documented, and implemented a billing process for MCOs to reimburse the Commission for audit-related services as required by S.B. 894.

Medium

The Commission developed, documented, and implemented a process to identify experience rebates deposited in its suspense account and it timely transferred those rebates when appropriate, as required by S.B. 894. However, the Commission had not established a process for resolving disputes over experience rebates claimed by MCOs.

Medium

The Commission developed a plan to enhance its monitoring of MCOs using external quality review organization (EQRO) information as required by S.B. 894. Specifically, the Commission established minimum performance standards for MCOs based on its EQRO’s Medicaid survey results for three Medicaid programs. According to the Commission’s Uniform Managed Care Manual, it will begin holding MCOs accountable for meeting minimum performance standards related to Medicaid survey results (1) reported in 2019 for three Medicaid programs and (2) reported in 2020 for its STAR Kids program. As of October 2018, the Commission had not established minimum performance standards for MCOs based on the EQRO’s encounter data validation. According to the Commission, it plans to begin enforcing its minimum performance standards for (1) Dental Maintenance Organization results reported in 2020 and (2) MCO results reported in 2021.

Priority

The cost principles in the Commission’s contract with Superior state that “bonuses paid or payable to affiliates are unallowable.” However, the Commission allowed Superior to report bonus and incentive payments paid to its affiliates’ employees as costs to deliver Texas Medicaid programs. In its financial statistical report for fiscal year 2016, Superior reported $29,574,454 of bonus and incentive payments paid to employees of affiliate companies.

Priority

The Commission did not require Superior to follow the approval process outlined in its cost principles for reporting affiliate profits even though it was aware that Superior included affiliate profits in its financial statistical reports. By not enforcing the written requirements related to reporting affiliate profits, the Commission weakens its ability to effectively oversee its managed care contracts.

Priority

The Commission’s Uniform Managed Care Manual incorporates a federal acquisition regulation that includes a limitation on executive compensation. However, that federal acquisition regulation (Title 48, Code of Federal Regulations, Part 31) related to the executive compensation limitation is applicable only to cost-based contracts. In its cost principles, which are part of its contract with Superior, the Commission explicitly defined its contract with Superior as a fixed-price contract. As a result, the Commission’s limitation for reporting the cost of executive compensation may not be enforceable.

Priority

The Commission lacks a documented process to show how it determines which MCOs to audit. Although the Commission paid contracted audit firms a total of $1,337,525 to assess the risks of each MCO in fiscal years 2011, 2013, and 2015, it did not document how those risk assessments were used to select which MCOs to audit. The risk assessments identified risk areas for all of the MCOs reviewed. However, the Commission did not audit 12 (52 percent) of the 23 MCOs that provided Medicaid services from fiscal year 2011 through fiscal year 2015.

The Commission does not have a documented process for how it should follow up on performance audit findings. For performance audits covering fiscal year 2011 through May 2016, the Commission did not verify or track whether MCOs corrected findings for 11 (92 percent) of 12 performance audits conducted.

High

When performing AUP engagements for the Commission, both contracted audit firms have the same objective of validating MCOs’ financial statistical reports that the Commission uses to verify the amount of “experience rebates”1 that MCOs owe. However, the Commission’s requirements for the audit firms to expand certain tests were different for each of the two firms. The Commission did not require each audit firm to expand those tests to determine whether identified errors were systemic within an MCO’s operations and could materially affect the accuracy of financial statistical reports.

The Commission does not have a process to issue corrective action plans to correct performance or noncompliance issues identified in AUP engagements.

Priority

In addition, since fiscal year 2012 the Commission has not conducted performance audits of the services that MCOs’ pharmacy benefit manager contractors provide. Pharmacy benefit manager contractors administer the prescription drug benefits of MCOs. From March 2012 to August 2015, MCOs reported they paid $235,199,287 to pharmacy benefit manager contractors to administer $7.4 billion in prescription benefits.

High

The Office of Inspector General conducted performance audits on the financial statistical reports of 6 of the 8 MCOs that had been previously evaluated by contracted audit firms during AUP engagements. The Commission paid those contracted audit firms a total of $236,415 to evaluate those financial statistical reports.

Medium

The Commission did not collect $2,022,025 (41 percent) of the $4,950,664 in costs that it incurred for fiscal years 2011 through 2015 for audit-related services for which MCOs were required to reimburse the Commission.

Low

The Commission collected $787,077,260 (99.6 percent) of the $789,862,545 in experience rebates that MCOs were contractually required to pay the Commission for fiscal years 2011 through 2014. However, it did not resolve in a timely manner the experience rebates that certain MCOs disputed. Specifically, the Commission did not collect $3,458,395 in required rebates from 3 MCOs for fiscal years 2011, 2012, and 2013 as a result of unresolved disputes.

Low

The Commission’s Health Plan Management unit indicated that it did not receive detailed information available from the Commission’s External Quality Review Organization. The Health Plan Management unit could use that detailed information to strengthen its monitoring efforts. Specifically, the detailed information includes performance information on MCOs from Medicaid client surveys, such as ratings on access to urgent care or Medicaid clients’ ratings of their health plans.

Medium

The Health Plan accurately reported its STAR Kids medical (fee-for-service) expenses totaling $435.6 million on its fiscal year 2018 FSRs and in its encounter data submitted to the Commission. However, the Health Plan should strengthen controls to ensure that it pays provider claims accurately. In addition, the Health Plan did not have a documented process to periodically evaluate its compliance with the Commission's fair market value reporting requirements for affiliate provider claims.

Low

The Health Plan accurately reported STAR Kids prescription expenses in its fiscal year 2018 FSRs and in its encounter data submitted to the Commission.

Medium

The Health Plan accurately reported administrative expenses totaling $88.4 million and quality improvement costs totaling $32.5 million in its fiscal year 2018 FSRs. However, the Health Plan should strengthen certain processes and controls to ensure that the data it uses to prepare its reports is complete and expenses reported are allowable.

Low

The $1.3 billion in paid medical expenses that Amerigroup reported in its financial statistical report for fiscal year 2016 matched the amounts in Amerigroup’s claims processing system within less than 1.0 percent. In addition, the $364.4 million in reported paid prescription expenses matched the amounts in Amerigroup’s claims data within less than 0.5 percent. Generally, Amerigroup paid medical providers for services according to its contract with each provider. For Amerigroup’s prescription expenses, Amerigroup’s pharmacy benefits manager ensured that it paid its providers according to contract requirements for all 30 claims tested.

Medium

Amerigroup reported $41.7 million in Other Medical Expenses in its STAR+PLUS financial statistical report for fiscal year 2016. However, it included expenses that did not occur in the fiscal year, and it misclassified certain expenses.

Amerigroup reported $397,054 in Personal Attendant Services expenses in the Other Medical Expenses line item. However, $395,825 of that reported amount was for allowable medical claims payments that occurred outside the reporting period resulting in unallowable costs in the financial statistical report for fiscal year 2016, according to the Uniform Managed Care Manual.

Amerigroup also misclassified $2.4 million in allowable costs related to service coordinator salaries in Administrative Expenses. As a result, Amerigroup understated its Other Medical Expense line item by $2.4 million and overstated the Administrative Expenses by the same amount.

High

Auditors performed data analysis and tested samples of the administrative expenses that Amerigroup reported in its fiscal year 2016 financial statistical report. That testing identified $8.7 million in unallowable administrative expenses and $78,930 in questioned costs.

In its fiscal year 2016 financial statistical report, Amerigroup reported administrative expenses that were allocated from 649 cost centers. Auditors reviewed the definitions (activity descriptions) for those cost centers and identified approximately $6.3 million in unallowable administrative expenses.

In addition, auditors performed data analysis on the entire population of administrative expenses that Amerigroup reported in its fiscal year 2016 financial statistical report. That analysis identified an additional $473,399 in expenses that were unallowable under the contract, such as lobbying costs, litigation expenses, charitable contributions, entertainment costs, and employee event expenses.

Auditors also tested a risk-based sample of 60 administrative expenses allocated from the cost centers to Amerigroup. That testing identified an additional $400,301 in unallowable expenses and $78,930 in questioned costs.

Amerigroup inappropriately included $1.5 million in unallowable executive compensation because the salaries for the top 5 executives at Anthem, Amerigroup’s parent company, that Amerigroup reported in the corporate allocation line item exceeded the limit on executive compensation that a MCO can report in its financial statistical report.

Amerigroup reported some allowable expenses in the wrong line item in its financial statistical report.

Medium

Anthem’s allocation methodology did not always ensure that allocated administrative expenses were calculated accurately, were sufficiently supported, or included only reasonable costs. Auditors identified $119,425 in unallowable allocated corporate costs and $6.9 million in questioned allocated corporate costs that Amerigroup reported in its 2016 financial statistical report.

Low

Auditors determined that Amerigroup paid STAR+PLUS medical and prescription claims for eligible members by comparing medical and prescription claims that it paid in fiscal year 2016 to the Commission’s eligibility data.

Also, Amerigroup paid STAR+PLUS medical and prescription claims to enrolled providers. Amerigroup made payments to approximately 10,000 medical providers and approximately 4,000 pharmacy providers in fiscal year 2016.

Medium

Amerigroup generally paid its medical providers within the required timeframes in fiscal year 2016. However, it should work with its pharmacy benefits manager to ensure that it consistently pays prescription claims within the required timeframes.

Amerigroup paid 99.9 percent of the approximately 3.8 million medical claims within the required timeframe in fiscal year 2016.

Amerigroup paid more than 98.4 percent of 72,632 nursing facility claims within the required timeframe in fiscal year 2016.

Amerigroup’s pharmacy benefits manager paid about 3.5 million prescription claims totaling approximately $406.2 million in fiscal year 2016. It paid 90.6 percent of those claims within the required timeframe. The pharmacy benefits manager paid 327,311 prescription claims totaling approximately $54.9 million after the 18-day payment requirement.

Low

Auditors reconciled the reported $1.6 billion in paid medical expenses to Superior’s claims processing system and matched the amount to within less than 1 percent. Auditors also reconciled the $362.7 million in paid prescription expenses to Superior’s pharmacy claims data and matched the amount to within less than 1 percent.

In addition, auditors compared medical and prescription claims for the STAR+PLUS program that Superior paid in fiscal year 2016 to eligibility data from the Commission and determined that Superior paid medical and prescription claims to eligible members.

Medium

Auditors tested random samples of expenditures that Superior reported in its fiscal year 2016 financial statistical report. That expenditure testing identified $331,123 in unallowable costs and $433,909 in questioned costs. The inaccuracies identified may affect the calculation of Superior’s net income, which the Commission uses to determine whether Superior owes money to the Commission under the experience rebate profit-sharing requirement.

Low

Superior paid prescription claims for the STAR+PLUS program for drugs covered by the Commission’s Vendor Drug Program’s drug formulary. Of the approximately 3.3 million prescription claims for $362.7 million paid during fiscal year 2016 that auditors reviewed, more than 99 percent were for drugs covered by the drug formulary. In addition, Superior ensured that medical claims for the STAR+PLUS program were adjudicated within the required time frames.

Medium

Superior did not consistently respond to appeals and notify providers as required by its contract.

Low

HealthSpring’s financial reporting processes and controls provided reasonable assurance that the $601,313,929 in medical claims and prescription drug claims it paid in fiscal year 2015 were accurately calculated and reported on its financial statistical reports to the Commission. Auditors tested samples of HealthSpring’s medical claims and vendor payments to its pharmacy benefit manager that were reported as paid during fiscal year 2015 (see text box for additional details on the medical claims and pharmacy claims tested). The tested medical claims and pharmacy claims were accurate, supported by documentation, and submitted for eligible STAR+PLUS members.

High

HealthSpring included unallowable costs and questioned costs on its financial statistical reports for fiscal year 2015. Auditors identified $786,457 in bonuses that HealthSpring should not have reported on its financial statistical reports for fiscal year 2015. The amount that HealthSpring reported was for bonuses that were paid to staff employed by its affiliate companies. The Commission’s reporting requirements specify that bonuses paid to affiliates are unallowable costs.

In addition, auditors identified $33,679,703 in questioned salaries and other medical expenses (see Table 3). HealthSpring did not prepare certifications and personnel activity reports to show that the amounts reported for salaries and other medical expenses were for staff who worked on STAR+PLUS as required by the Commission.

The unallowable costs and questioned costs that auditors identified affect the Commission’s calculation of the experience rebate amount that HealthSpring may owe the Commission for fiscal year 2015. (See Appendix 5 for more information about how the Commission calculates the experience rebate amounts that an MCO may owe it.)

High

HealthSpring's methodology for calculating allocated corporate costs, totaling $15,355,392, reported on its financial statistical reports for fiscal year 2015 was not in compliance with the Commission's requirements. The Commission's Uniform Managed Care Manual requires an MCO to ensure that:

- It develops a written allocation methodology policy.

- Costs clearly represent specifically identified operating services provided.

- Services directly benefit the Commission or its clients/customers.

However, HealthSpring did not have a written allocation methodology policy in place for fiscal year 2015 as required. In addition, its methodology for calculating allocated corporate costs included certain costs that were not allowable by the Commission. As a result, HealthSpring included $2,881,358 in unallowable costs in the allocated corporate cost it reported (see Table 4).

Medium

HealthSpring did not consistently maintain documentation to support the reasonableness and appropriateness of the vendor payment amounts that it used to calculate and report its legal and professional services costs, totaling $3,680,042, on its financial statistical reports for fiscal year 2015. Auditors tested a sample of 26 vendor payments that totaled $934,227 and identified unallowable costs and questioned costs (see Table 5).

Specifically, 10 (38.5 percent) of those 26 vendor payments tested were for services provided in fiscal year 2014 but paid for in fiscal year 2015. Those 10 payment totaled $163,997. The Commission’s Uniform Managed Care Manual requires administrative expenses to be reported based on the date incurred rather than the date paid. It also requires prior quarters’ data to be updated as needed.

In addition, 6 (23.1 percent) of the 26 vendor payments tested did not have documentation to show that the vendor payment was related to STAR+PLUS (see text box for information about the sample tested). Those 6 payments totaled $359,912. The Commission’s Uniform Managed Care Manual specifies that a cost is allowable only to the extent of the benefits the Commission received under the contract.

Medium

HealthSpring reported inaccurate information about its affiliate companies involved with the services provided for its STAR+PLUS contracts with the Commission. The Commission’s contract requires that an MCO submit an annual affiliate report that provides organizational and financial information on affiliate companies involved with the services provided under managed care contracts.

In addition, HealthSpring did not provide the Commission with copies of its contracts with its affiliate companies that provide administrative services under its STAR+PLUS contracts with the Commission. The Commission’s contract specifies that an MCO must submit to the Commission a copy of its contract agreements with affiliate companies.

Auditors also identified payments to affiliate companies that did not have documentation to support amounts paid or were not calculated according to contract requirements.

The Commission uses the affiliate information and copies of affiliate company contracts with MCOs to support its monitoring efforts to ensure the transparency and reasonableness of an MCO’s related-party transactions.

High

Auditors tested a sample of 61 post-payment adjustments to medical claims, totaling $52,209 that HealthSpring reported to the Commission (see text box for more information about the claims tested). The post-payment adjustments tested resulted in HealthSpring reversing the original payment amount to a provider. For 27 (44 percent) of 61 medical claims tested, totaling $32,067, HealthSpring did not record the reason it made the post-payment adjustment in its claims processing system. The Commission’s Uniform Managed Care Claims Manual requires an MCO’s claims system to maintain adequate audit trails and report accurate medical provider service data on paid medical claims to the Commission.

In addition, HealthSpring did not document the reason it adjusted a claim on the Explanation of Payment (EOP) for 9 (33 percent) of those 27 medical claims. An EOP notifies a medical provider about the processing status of a medical claim that HealthSpring has received. Those 9 medical claims totaled $12,780. For the other 18 medical claims tested, the EOP included a code that indicated only that the medical claim was adjusted. The code did not provide any details about the reason the medical claim was adjusted.

Medium

Auditors tested a sample of 77 paid medical claims that totaled $786,889 (see text box for more information about the claims tested). HealthSpring did not process 15 (20 percent) of the 77 paid medical claims tested within 30 days of receipt of a clean claim as required (see Table 6). Those 15 claims totaled $386,779.