The Committee on Benefits does not use appropriate practices to manage its contracts. Poor planning, improper award practices, and inadequate monitoring of contractor activities have led to breakdowns in key functions such as claims processing. Financial losses suffered from claims processing failures alone will total in the millions of dollars. Yet, the inappropriate contract management practices that led to these losses have not been corrected. Because nearly all of the activities related to the program are performed through contracts, the Committee must establish and follow proper contract management practices. Because of severe data limitations, we could not determine the extent of unprocessed claims inventory from July 1997 to May 1998. The current third-party claims administrator (TPA) has not retained key documents needed to verify the accuracy of inventory reported to the State. In addition, the TPA has poor controls over claims received, claims processed, and calculating the claim inventory information it receives is accurate. Although key inventory documents were not retained, our analysis of available information indicates the inventory reported to the State from July 1997 to May 1998, was understated.
 

Principal Findings

 

• The existing structure of the State’s Group Health Insurance Program has significant organizational and management weaknesses. Although the Committee on Benefits has overall responsibility, it lacks control over many program activities. In addition, the program lacks a management structure to ensure operations are properly planned, controlled, and reviewed. These weaknesses result from confusion about organizational responsibilities and reporting relation-ships, and the fragmented structure that currently exists. (page 16)

• Current duties and authority for the GHIP are established in various sections of Nevada law. However, the way these laws have been applied has created confusion about program responsibilities and reporting relationships. Differing responsibilities and lines of authority have also been created through contracts and other documents, adding to the confusion. (page 18)

• Strategic planning documents for the Committee on Benefits and the Risk Management Division do not provide direction or clarify organizational responsibilities. If done properly, the strategic planning process should leave no doubt about what an organization is, what it hopes to accomplish, and how its goals will be accomplished. However, strategic plans related to the GHIP only further confuse the issue of program responsibilities. (page 26) 

• Although there have been a number of attempts to establish a management function within the GHIP, these efforts have not been successful. During the 1995 Legislative Session, the Committee on Benefits sought to establish a chief executive position to manage the GHIP. However, because of the late timing of the request and other concerns, the position was not approved in the budget. Instead, the Legislature recommended the Committee on Benefits further consider how the position would be used and how it would fit into the overall plan of organization for the program. However, the Committee on Benefits did not incorporate plans for a chief executive position in its 1997 biennial budget request, and its 1999 budget plans are still uncertain. (page 28)

• The current configuration of the Committee on Benefits and methods of appointing members as provided in statute does not provide a strong system of accountability. In addition, it creates the potential for conflicting responsibilities and authority. Officials entrusted with the expenditure of public resources must be answerable to the public for applying those resources efficiently and effectively. If such a system is not in place, accountability is diminished or non-existent. (page 32)

• Inadequate planning has led to contract provisions that cost the GHIP millions of dollars. For instance, the Committee was forced to pay the current TPA $1.6 million to process claims incurred under the previous TPA contract period. In addition, contract terms provided no incentive to prevent claims from being processed more than once. Based on claims we tested, more than half the fees paid to the current TPA for processing claims incurred prior to July 1, 1997, were for duplicate claims. (page 35)

• Millions of dollars in duplicate payments and other payment errors have been made by TPA's. Although the total amount is unknown, more than $2 million has been returned to the State voluntarily by participants and providers. Of the $1.9 million in April 1997 claims processed by the current TPA, we identified $38,000 of unreimbursed duplicate payments. Duplicate payments were still occurring in July 1998. (page 40)

• Poor contract planning has hampered the Committee's ability to respond to problems, and left it vulnerable to poorly performing contractors. For example, TPA contracts did not: (1) provide the Committee with sufficient time to replace TPA's, (2) require a backup of computerized claims data and system documentation, and (3) ensure proper controls over unprocessed claims. These contract deficiencies contributed to transition problems when the TPA was replaced in July 1997, ultimately costing the program millions of dollars. (page 41)

• Some of the Committee's contracts do not contain adequate performance requirements, and some provisions actually promote poor claims processing practices. Although the Committee penalized TPA's for not processing claims timely, penalties have not been effective at improving TPA performance. Three different TPA's processed claims timely only 13 of 48 months or 27% of the time over the past 4½ years that performance requirements were in effect. (page 43)

• Practices used to solicit and evaluate proposals raise concerns about the appropriateness of the contract award process. The Committee did not follow appropriate evaluation practices when selecting the new TPA. Instead, the Committee deviated from the information provided to vendors in the request for proposal and followed the recommendation of its consultant for selecting finalists. In addition, the consultant made errors when preparing their analysis of vendor cost proposals. As a result, the top ranked firm selected by the evaluation committee was excluded from further consideration. (page 48)

• The Committee did not adequately oversee contractors to ensure required services were performed, and problems were identified and quickly resolved. Because of breakdowns in the contract monitoring process, claims processing activity reports were not submitted to the Committee as required by the contract. In addition, inadequate monitoring has allowed improper or questionable contract payments to occur. An effective contract monitoring process should ensure contractors comply with the terms of the contract, that performance expectations are achieved, and that any problems are identified and resolved quickly. (page 58)

• The backlog of claims left by the former TPA has contributed to the current TPA's problems reporting accurate inventory information. Although the former TPA reported 14,111 unprocessed claims as of June 27,1997, subsequent processing of old claims by the current TPA revealed the claim backlog was understated by tens of thousands. (page 62)

• We identified numerous weaknesses in the way the current TPA documented and its computer system. Without adequate controls, the TPA cannot ensure that all controlled the claims it received. These weaknesses encompass the entire process from manually counting the claims in the mailroom to ensuring the date received was correctly entered into claims it receives are processed. (page 63)

• Significant variances exist between the number of claims the current TPA reported as processed compared to their computer records. They reported processing 479,085 claims from July 1997 to May 1998; however, their computer records indicate that 427,622 claims were processed. (page 64)

 
Recommendation
Number                                                                                             Accepted         Rejected

    1             Legislation be obtained to overhaul the current
                    program structure. The legislation should
                    provide a program management structure that
                    ensures program duties, responsibilities, authority,
                    and reporting relationships are clearly identified,
                    adequately defined, and properly aligned..................              X 

      2           Legislation be obtained to revise the composition and
                    methods of appointing members to the Committee on
                    Benefits to ensure a proper system of accountability
                    is maintained.........................................................             X 

      3            Ensure management functions such as organizational
                     planning, directing and controlling program operations,
                     and reviewing performance are carried out................            X 

      4            Ensure proper planning takes place before requesting
                      proposals from potential contractors.........................         X 

      5            Improve the financial terms in contracts to ensure
                     Group Health Insurance Program resources are
                     adequately protected................................................        X 

      6            Include terms in contracts that ensure the State is
                     prepared to replace contractors................................         X 

      7            Establish contract performance requirements sufficient
                       to hold contractors accountable for delivery of quality
                       services................................................................        X 

      8            Clarify RFP notice requirements of NAC 287.050(1) to
                        ensure contractors receive adequate time to prepare
                        proposals.............................................................       X 

      9             Develop a contract assignment process that ensures
                        contracts are assigned only to contractors that can
                        meet the needs of the Group Health Insurance
                        Program..............................................................       X 

      10            Ensure contracts are prepared and maintained with
                        all participating public agencies in accordance with
                        NRS 287.043(2)...................................................       X 
 
       11           Establish a fair and objective contract award process
                        that ensures the State is getting the most qualified
                        contractor at the best price...................................       X 

Recommendation
Number                                                                                         Accepted         Rejected

    12     Establish a contract monitoring process that ensures
                contractors comply with contract terms, performance
                expectations are achieved, and problems are
                identified and resolved quickly...................................             X   

    13     Ensure third-party administrator contracts contain ade-
                quate provisions for inventory controls, inventory
                reporting, and record retention...................................             X 

 
                                                                            TOTALS                  13                    0