Transcription
AUDITORS REPORTCALENDAR YEAR 2017KERN HEALTH SYSTEMSRATE DEVELOPMENTTEMPLATEJune 25, 2020
Contents1. Executive Summary . 12. Procedures and Results . 23. Summary of Findings . 6
Kern 2017 RDT AuditJune 25, 20201Executive SummaryPursuant to federal requirements under Title 42 of the Code of Federal Regulations 438.602(e), theCalifornia Department of Health Care Services (DHCS) must periodically, but no less frequently thanonce every three years, conduct, or contract for the conduct of, an independent audit of the accuracy,truthfulness, and completeness of the encounter and financial data submitted by, or on behalf of eachManaged Care Organization (MCO) 1. DHCS contracted with Mercer Government Human ServicesConsulting (Mercer) to fulfill this requirement for the financial data submitted in the Medi-Cal RateDevelopment Template (RDT) for calendar year (CY) 2017 by Kern Health Systems (Kern). Mercerdesigned and DHCS approved procedures to test the accuracy, truthfulness and completeness of selfreported financial data in the RDT.The specific financial schedules selected for testing are used by Mercer as a critical part of the basedata development process for capitation rate development related to the Bridge Year rating period(July 1, 2019 – December 31, 2020). The RDT tested was the final version, including any revisionsstemming from resubmissions as a result of the RDT Q&A discussion guide process with the MCO.The key schedules subject to testing from the RDT include, but were not limited to: Schedule 1 Utilization and Cost Experience Schedule 1A – Global Subcontracted Health Plan Information Schedule 1C – Base Period Enrollment by Month Schedule 5 – Large Claims Report Schedules 6a and 6b – Financial Reports Schedule 7 – Lag Payment InformationThe data collected in the RDT is reported on a modified accrual (incurred) basis for CY 2017 and doesnot follow Generally Accepted Accounting Principles with regards to retroactivity from prior yearactivity, including claim or capitation accruals, retroactive enrollment or termination of enrollment ofmembers from prior years. The data provided is designed to report only financial and enrollmentactivity incurred for the calendar year reported.The procedures and results of the test work are enumerated in Table 1 of Section 2.142 CFR 438.602(e)1
Kern 2017 RDT AuditJune 25, 20202Procedures and ResultsWe have performed the procedures enumerated in Table 1 below, which were designed by Mercerand were reviewed and agreed to by DHCS, solely to test the completeness, accuracy andtruthfulness of information reported in the Medi-Cal RDT from Kern for the CY 2017. Kern’smanagement is responsible for the content of the RDT and responded timely to all requests forinformation.Table 1: ProceduresCategoryDescriptionResultsUtilization and CostExperienceWe compared summarized total net cost data fromamounts reported in Schedule 1 to Direct Medi-Calcategory of service (COS) totals from Schedule 6aand to total incurred claims by COS for Schedule 7for consistency.No variance noted betweenSchedule 1 and Schedule 7.Schedule 6a overstated by0.01% when compared toSchedule 7.Global SubcontractedPaymentsWe reviewed the contractual arrangement withKern’s global subcontractor and tested the overallpayments made to the global subcontractor bycomparing results against amounts reported inSchedule 1A. Kern inadvertently reported theamounts in Schedule 1A net of supplementalpayments.Variance: Reported capitationamounts are understated by8.86%, or 1.3 million.Not Peer ReviewedWe selected the three highest months of paymentNo FFS claims paid. Alland five randomly selected additional months ofsampled members eligible.payment to obtain membership rosters for eachmonth selected. Twenty randomly selected membersfrom each month were checked to ensure eligibility.The same members were compared against claimsincluded in the fee-for-service (FFS) data providedby Kern to see if both Kern and the globalsubcontractor paid claims.We reviewed members included on the memberroster to ensure there were no Coordinated CareInitiative members or payments provided in the stepabove.Member MonthsNone identified.We compared MCO reported member months fromVariance: RDT overstated bySchedule 1C to eligibility and enrollment information 0.08% in total.provided by the State. Our procedures are to requestexplanations for any member months with greaterthan 1% variance in total or greater than 2% varianceby major category of aid.2
Kern 2017 RDT AuditJune 25, 2020CategoryDescriptionResultsCapitation RevenueWe discussed how capitation was recorded. Kernrecords capitation revenue on an accrual basis usingeligibility from the 834 data multiplied by ratesestablished on the most current rate sheet receivedfrom DHCS.RDT understated by 2.38%based on estimated revenuecalculation using the knowncapitation rates in place during2017.Interest andInvestment IncomeWe requested interest and investment income for the Variance: RDT is understatedMCO entity as a whole and information regardingby 2.46%, or 57K.how the income provided in Schedule 6a wasallocated to the Medi-Cal line of business.Fee For ServiceMedical ExpenseUsing data files (paid claims files) provided by Kern,we sampled and tested transactions for each majorcategory of service (COS) (Inpatient, Outpatient,Physician, Pharmacy, Facility-Long Term Care(LTC), and All Others) and traced sampletransactions through Kern’s claims processingsystem, the payment remittance advice, and thebank statements.No variance observed.We compared detailed lag tables for each majorVariance: RDT understated inCOS (Inpatient, Outpatient, Physician, Pharmacy,total by 0.04%.Facility- (LTC), and All Others) created from the datafiles provided by Kern and compared the informationreported in Schedule 7. We compared the paidclaims amounts from Schedule 7, line 35 to total paidclaims prior to the additional runout detail included inthe data files, expecting no changes.We compared total final incurred amounts includingincurred but not reported (IBNR) estimates fromSchedule 7 to total paid amounts from all monthsreported in the data files to verify theaccuracy/reasonableness of IBNR for each COS.Allowable absolute value variances were deemed tobe not greater than 2% for inpatient claims and 1%for all other COS.Variance: RDTover/(understated):Inpatient 0.76%;Outpatient 0.49%;LTC 2.23%;Physician 0.04%;Pharmacy 0.01%;All Other (0.11%);In Total 0.34%.We reviewed a sample of claims from each COS toverify control totals, verify eligibility, confirm the COSgrouping was correct, and confirm the year reportedwas correct.Control totals: No variancenoted. Eligibility: Verified for allmembers selected. COS Map:No variance noted. ServiceYear: No variance noted.Sub-capitated Medical We compared reported sub-capitation payments toExpenseamounts reported in Schedule 7.Variance: RDT overstated by0.46% when compared tosupporting documentation.3
Kern 2017 RDT AuditJune 25, 2020CategoryDescriptionResultsWe sampled membership from three subcontractors,verified eligibility of members and analyzed claims toverify none of the FFS claims paid should have beenpaid by the subcapitated provider.No variance noted.We reviewed subcontract agreements andrecalculated payment amounts for reasonableness.No variances noted.We observed proof of payments for a sample of subcapitated provider payments.Variance: Sub-capitatedmedical expense paymentsupport is understated by0.01% based on proof ofpayments.Provider IncentiveArrangementsWe reviewed incentive arrangements and observedsample calculations for contractual compliance andreasonableness.No variance noted.ReinsuranceWe reviewed the reinsurance contract and compared No variance noted.the amount on the RDT to the requested supportingschedule.AdministrativeExpensesWe recalculated reinsurance premiums, based on2017 membership as of April 2019, to compare toreported amounts.No variance noted.We recalculated recoveries for a sample ofmembers.No variance noted.We benchmarked administrative expenses as apercentage of capitation across all Two-Plan/GMCplans and compared to the amount reported inSchedule 6a, taking into consideration themembership size of the plan under review whenreviewing the results.The benchmark administrativepercentage was 5.50% andKern reported 5.42%.4
Kern 2017 RDT AuditJune 25, 2020CategoryDescriptionResultsWe compared detailed line items from the plan’s trialbalance mapped to line items in Schedule 6a forreasonableness. We reviewed allocationmethodologies and recalculated for reasonableness.No variance noted.We interviewed financial management to determinehow health care quality improvement activities suchas care coordination are isolated from generaladministrative expenses in the general ledger. Wecompared UM/QA/CC costs as a percentage ofrevenue to benchmark for reasonableness.Confirmed with Kern management via interview thatUM/QA/CC costs were not also included in generaladministrative expenses.The benchmark UM/QA/CCpercentage was 2.26% andKern reported 1.23%.PharmacyWe confirmed and observed pharmacy benefitmanager fees were recorded as administrativeexpenses and not included in pharmacy claimsexpenses in the RDT.No variance noted.Other InformationWe reviewed the audited financial statements for theplan for the CY 2017 for a clean audit opinion oridentification of significant deficiencies or materialweaknesses.No variance noted.We compared reported expenses, including IBNRand administrative expenses, to audited financialstatements for consistency.No material variances noted.We inquired how hospital-acquired conditions(HACs) were treated in the RDT and policies forpayment.Kern screens for HACs andfollows required DHCSprocedures for reportingprovider preventable conditions(PPC). If PPCs are found,related claims are sent to theFinance department forreconciliation and recoupmentas appropriate.UtilizationManagement, QualityAssurance, CareCoordination(UM/QA/CC)5
Kern 2017 RDT AuditJune 25, 20203Summary of FindingsBased on the procedures performed, the total amount of gross medical expenditures in the RDT wereunderstated by 797,793 or 0.13% of total medical expenditures in the CY 2017 RDT.Based on the procedures performed, administrative expenditures in the CY 2017 RDT showed novariance.Based on the defined variance threshold, the results of the audit are determined to be immaterial anddo not warrant corrective action.Kern has reviewed this report and had no comments.6
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stemming from resubmissions as a result of the RDT Q&A discussion guide process with the MCO. The key schedules. subject to testing from the RDT include, but were not limited to: Schedule 1 Utilization and Cost Experience Schedule 1A - Global Subcontracted Health Plan Information Schedule 1C - Base Period Enrollment by Month
