Defense Health Care: Dental Contractor Overcome Obstacles, But More
Proactive Oversight Needed (Letter Report, 02/28/97, GAO/HEHS-97-58).
Pursuant to a legislative requirement, and congressional request, GAO
reviewed several issues regarding the Department of Defense's (DOD)
TRICARE Active Duty Family Member Dental Plan (FMDP), focusing on
whether: (1) the contractor's, United Concordia Companies, Inc., 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.
GAO noted that: (1) Concordia has overcome numerous start-up problems
and is now performing the task areas GAO reviewed within the contract's
requirements; (2) 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; (3) 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; (4) GAO's
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; (5) 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; (6) in the geographic areas GAO reviewed, Concordia has ample
numbers of network dentists within 35 miles of beneficiaries'
residences, one of the two access standards; (7) at two remote military
base areas, however, there are not enough dentists available for
Concordia to develop an adequate network; (8) 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; (9) data were not
available in time with which to evaluate compliance with DOD's other
access standard, that beneficiaries obtain an appointment with a
participating general dentist within 21 days; (10) 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;
(11) Concordia's marketing activities meet requirements; (12) 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; and (13) responding to GAO's concerns, DOD officials told GAO
they plan to conduct a performance evaluation in the summer of 1997, but
they have not yet defined what the evaluation will entail.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-97-58
TITLE: Defense Health Care: Dental Contractor Overcome Obstacles,
But More Proactive Oversight Needed
DATE: 02/28/97
SUBJECT: Insurance companies
Department of Defense contractors
Contractor performance
Dental fees
Claims processing
Health insurance
Dental services
Marketing
Employee medical benefits
Contract specifications
IDENTIFIER: DOD Family Member Dental Plan
Jacksonville (NC)
Havelock (NC)
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Cover
================================================================ COVER
Report to Congressional Requesters
February 1997
DEFENSE HEALTH CARE - DENTAL
CONTRACTOR OVERCOME OBSTACLES, BUT
MORE PROACTIVE OVERSIGHT NEEDED
GAO/HEHS-97-58
DOD Dental Contractor's Performance
(101495)
Abbreviations
=============================================================== ABBREV
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
Letter
=============================================================== LETTER
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 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.
--------------------
\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.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
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 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
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 claims\4
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.
--------------------
\3 Recent dental charge increases have been fairly consistent at 5 to
6 percent per year.
\4 Predeterminations authorize coverage, including the amount the
beneficiary will have to pay, for proposed dental services.
BACKGROUND
------------------------------------------------------------ Letter :2
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 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 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.
--------------------
\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.
\6 With the family member's permission, nonparticipating dentists can
file claims and accept payment directly from Concordia.
\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.
NO REGULATORY OR CONTRACTUAL
CRITERIA FOR JUDGING FEE
APPROPRIATENESS
------------------------------------------------------------ Letter :3
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 fee level at a certain percentile\8 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.
--------------------
\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.
CONCORDIA'S INITIAL FEES
LESS UP TO DATE THAN ITS
REVISED FEES
---------------------------------------------------------- Letter :3.1
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 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
---------------------------------------------------------- Letter :3.2
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, 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
------------------------------------------------------------ Letter :4
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
---------------------------------------------------------- Letter :4.1
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 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
(See figure in printed
edition.)
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).
Figure 2: Composition of
Concordia's Network of
Participating General and
Specialty Dentists as of
November 1996
(See figure in printed
edition.)
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.
Table 1
Concordia's Participating and
Nonparticipating Dentists, November 1996
Number of Number of
Category of participating nonparticipating
dentist dentists dentists\a
------------------ ------------------ ------------------
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
----------------------------------------------------------
\a The 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 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.
--------------------
\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.
\10 Our 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.
\11 We 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.
COMPLIANCE WITH 21-DAY
APPOINTMENT REQUIREMENT
---------------------------------------------------------- Letter :4.2
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.
--------------------
\12 Concordia'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.
THREE AREAS STILL HAVE
INADEQUATE PROVIDER NETWORKS
---------------------------------------------------------- Letter :4.3
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 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
------------------------------------------------------------ Letter :5
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
---------------------------------------------------------- Letter :5.1
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.
--------------------
\13 Claims 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.
PAYMENT CLAIMS
-------------------------------------------------------- Letter :5.1.1
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).
Figure 3: Percentage of Claims
Processed Within the
90-Percent, 21-Day Requirement,
1996
(See figure in printed
edition.)
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 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
(See figure in printed
edition.)
PREDETERMINATION CLAIMS
-------------------------------------------------------- Letter :5.1.2
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.
Figure 5: Percentage of
Predeterminations Processed
Within the 75-Percent, 21-Day
Requirement, 1996
(See figure in printed
edition.)
CONCORDIA'S POLICY TO PAY
FOR LESS COSTLY TREATMENTS
IS CONSISTENT WITH
REQUIREMENTS
---------------------------------------------------------- Letter :5.2
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 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.
--------------------
\14 Concordia'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).
CONCORDIA'S MARKETING
ACTIVITIES COMPLY WITH
CONTRACT REQUIREMENTS
---------------------------------------------------------- Letter :5.3
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
-- 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
------------------------------------------------------------ Letter :6
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 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.
--------------------
\15 If 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.
CONCLUSIONS
------------------------------------------------------------ Letter :7
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 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
------------------------------------------------------------ Letter :8
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
------------------------------------------------------------ Letter :9
We obtained written comments from Concordia and DOD on a draft of
this report.
COMMENTS FROM CONCORDIA
---------------------------------------------------------- Letter :9.1
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 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.
COMMENTS FROM DOD
---------------------------------------------------------- Letter :9.2
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 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 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.
---------------------------------------------------------- Letter :9.3
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
SCOPE AND METHODOLOGY
=========================================================== Appendix I
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
--------------------------------------------------------- Appendix I:1
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.
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
----------------------------------------------------------
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.
CONCORDIA PARTICIPATING
DENTISTS NETWORK
--------------------------------------------------------- Appendix I:2
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
Enrolled
Military base area State beneficiaries
---------------------------- ------------ --------------
San Diego Naval Station and California 119,292
Camp Pendleton Marine Corps
Base
Fort Carson Army Base and Colorado 42,609
U.S. Air Force Academy
Fort Benning Army Base and Georgia 50,304
Fort Stewart Army Base
Scott Air Force Base Illinois 13,345
Fort Campbell Army Base Tennessee 35,463
and
Kentucky
Keesler Air Force Base Mississippi 17,075
McGuire Air Force Base and New Jersey 6,738
Fort Dix Army Base
Fort Bragg Army Base and North 75,682
Seymour Johnson Air Force Carolina
Base
Fort Sam Houston Army Base, Texas 48,171
Lackland Air Force Base,
and Randolph Air Force Base
Fort Hood Army Base Texas 53,565
Norfolk Naval Station, Virginia 153,916
Langley Air Force Base, and
Fort Eustis Army Base
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 beneficiaries. To perform our analyses, we obtained from
Concordia the following information: (1) GeoNetworks\16 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 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.
--------------------
\16 GeoNetworks 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.
\17 Bureau 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.
CONCORDIA CLAIMS PROCESSING AND
MARKETING
--------------------------------------------------------- Appendix I:3
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 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.
INFORMATION ON FMDP BENEFITS AND
PREMIUMS
========================================================== Appendix II
Table II.1
Benefits Covered by FMDP Program
Percentage of treatment
Dental treatment category cost covered by insurer
-------------------------------- ------------------------
Routine oral exams and X rays\a 100
Cleaning and fluoridation\a 100
Sealants\b 80
Fillings and certain basic 80
crowns
Root canal 60
Gum disease 60
Oral surgery 60
Other crowns, onlays, cast 50
restorations
Removable dentures and fixed 50
bridges
Braces 50
----------------------------------------------------------
\a Limited to two routine exams or treatments every 12 months. Other
restrictions apply to X rays.
\b On 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 Sponso Sponso
ending r DOD Total r DOD Total
---------- ------ ------ ====== ------ ------ ======
July 1996 $81.24 $121.8 $203.0 $203.0 $304.5 $507.6
0 4 4 6 0
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
----------------------------------------------------------
(See figure in printed edition.)Appendix III
COMMENTS FROM UNITED CONCORDIA
COMPANIES, INC.
========================================================== Appendix II
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
=========================================================== Appendix V
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.
*** End of document. ***