final report of routine examination of sharp · pdf fileplease indicate within ten (10) days...

January 24, 2011 via FedEx Delivery and eFile

Melissa Cook, President, and Chief Executive Officer SHARP HEALTH PLAN 4305 University Avenue, Suite 200 San Diego, CA 92105

FINAL REPORT OF ROUTINE EXAMINATION OF SHARP HEALTH PLAN

Dear Ms. Cook: Enclosed is the Final Report of a routine examination of the fiscal and administrative affairs of Sharp Health Plan (the “Plan”), conducted by the Department of Managed Health Care (the Department”), pursuant to Section 1382(a) of the Knox-Keene Health Care Plan Act of 1975.1 The Department issued a Preliminary Report to the Plan on October 11, 2010. The Department accepted the Plan’s electronically filed responses on November 23, 2010 and January 5, 2011 (collectively “responses”). This Final Report includes a description of the compliance efforts included in the Plan’s responses, in accordance with Section 1382(c). Section 1382(d) states “If requested in writing by the plan, the director shall append the plan’s response to the final report issued pursuant to subdivision (c). The plan may modify its response or statement at any time and electronically file modified copies to the department for public distribution not later than 10 days from the date of notification from the department that the final report will be made available to the public. The addendum to the response or statement shall also be made available to the public.” Please indicate within ten (10) days whether the Plan requests the Department to append its response to the Final Report. If so, please indicate which portions of the Plan’s response shall be appended, and electronically file copies of those portions of the Plan’s response exclusive of information held confidential pursuant to Section 1382(c), no later than ten (10) days from the date of the Plan’s receipt of this letter. If the Plan requests the Department to append a brief statement summarizing the Plan’s response to the report or wishes to modify any information provided to the Department in 1 References throughout this report to “Section” are to sections of the Knox-Keene Health Care Service Plan Act of 1975, California Health and Safety Code Section 1340, et seq. References to “Rule” are to the regulations promulgated pursuant to the Knox-Keene Health Care Service Plan Act, found at Title 28, Division 1, Chapter 1, California Code of Regulations, beginning with Section 1300.43.

Edmund G. Brown, Jr., Governor State of California Business, Transportation and Housing Agency 320 West 4th Street, Suite 880 Los Angeles, CA 90013-2344 213-576-7618 voice 213-576-7186 fax [email protected] e-mail

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of Routine Examination of Sharp Health Plan

its responses, please provide the electronically filed documentation no later than ten (10) days from the date of the Plan’s receipt of this letter through the eFiling web portal. Please file this addendum electronically via the Department's eFiling web portal https://wpso.dmhc.ca.gov/secure/login/, as follows:

• From the main menu, select “eFiling”. • From the eFiling (Home) menu, select “File Documents”. • From the File Documents Menu for:

1) File Type; select “Amendment to prior filing”; 2) Original Filing, select the “Filing No. 20092669”assigned by the Department; and 3) Click “create filing”.

• From the Original Filing Details Menu, click “Upload Amendments”; select # of documents; select document type: ““Plan addendum response to Final Report (FE5)"; then “Select File” and click “Upload”.

• Upload all documents then upload a cover letter as Exhibit E-1 that references to your response.

• After upload, then select “Complete Amendment”, complete “Execution” and then click “complete filing”.

As noted in the attached Final Report, the Plan’s responses did not fully respond to the deficiencies raised in the Preliminary Report issued by the Department on October 11, 2010. Pursuant to Rule 1300.82, the Plan is required to submit a response to the Department for any request for additional corrective action contained within the attached Final Report, within 30 days after receipt of the report. If the Plan fails to fully respond and/or resolve the deficiencies addressed in the Final Report, then a referral will be made to the Office of Enforcement for appropriate administrative action for any remaining, unresolved deficiencies. Please file the Plan's response electronically via the Department's eFiling web portal https://wpso.dmhc.ca.gov/secure/login/, as follows:

• From the main menu, select “eFiling”. • From the eFiling (Home) menu, select “File Documents”. • From the File Documents Menu for:

1) File Type; select “Amendment to prior filing”; 2) Original Filing, select the “Filing No. 20092669”assigned by the Department; and 3) Click “create filing”.

• From the Original Filing Details Menu, click “Upload Amendments”; select # of documents; select document type: "Plan’s Response to Final Report (FE10)",; then “Select File” and click “Upload”.

• Upload all documents then upload a cover letter as Exhibit E-1 that references to your response.

• After upload, then select “Complete Amendment”, complete “Execution” and then click “complete filing”.

Questions or problems related to the electronic transmission of the above responses should be directed to Rita Ultreras at (916) 322-5393 or email at [email protected]. You may also email inquiries to [email protected].

https://wpso.dmhc.ca.gov/secure/login/

https://wpso.dmhc.ca.gov/secure/login/

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of Routine Examination of Sharp Health Plan

The Department will make the attached Final Report available to the public in ten (10) days from the Plan’s receipt of this letter through the eFiling system. The report will be located at the Department’s web site at www.dmhc.ca.gov. If there are any questions regarding this report, please contact me. Sincerely, ORIGINAL SIGNED BY JOAN LARSEN Supervising Examiner Office of Health Plan Oversight Division of Financial Oversight Cc: Maureen McKennan, Assistant Deputy Director, Office of Health Plan Oversight Mike Cleary, Chief, Division of Financial Oversight Janet Nozaki, Supervising Examiner, Division of Financial Oversight Kim Malme, Senior Examiner, Division of Financial Oversight

Jamey Matalka, Examiner, Division of Financial Oversight Vasiliy Lopuga, Examiner, Division of Financial Oversight Linda Azzolina, Senior Counsel, Division of Licensing Marcy Gallagher, Chief, Division of Plan Surveys

SSTTAATTEE OOFF CCAALLIIFFOORRNNIIAA DDEEPPAARRTTMMEENNTT OOFF MMAANNAAGGEEDD HHEEAALLTTHH CCAARREE

DDIIVVIISSIIOONN OOFF FFIINNAANNCCIIAALL OOVVEERRSSIIGGHHTT

SHARP HEALTH PLAN

FILE NO. 933-0310

DDAATTEE OOFF FFIINNAALL RREEPPOORRTT:: JJAANNUUAARRYY 2244,, 22001111

SUPERVISING EXAMINER: JOAN LARSEN

EXAMINER-IN-CHARGE: KIM MALME

FINANCIAL EXAMINERS: SANG LE, JAMEY MATALKA, SUHAG PATEL & THOMAS ROEDL

BACKGROUND INFORMATION FOR SHARP HEALTH PLAN

Date Plan Licensed: September 17, 1992 Organizational Structure: The Plan was incorporated in California as a

nonprofit public benefit corporation to operate a health maintenance organization, to provide other managed health care services, and support the mission and programs of its sole member is Sharp Health Plan: San Diego Hospital Association, a California nonprofit public benefit corporation doing business as Sharp HealthCare (SHC). The Plan receives certain financial and administrative services from SHC pursuant to an administrative services agreement.

Type of Plan: The plan offers comprehensive health care services

to commercial enrollees. Provider Network: Sharp Health Plan contracts with IPAs, medical

groups, independent physicians, hospitals and ancillary providers to provide health care services to its enrollees. The provider network includes Sharp HealthCare affiliates (hospitals, medical groups and ancillary providers), and its associated medical groups.

Plan Enrollment: 47,406 as of December 31, 2009 Service Area: San Diego County, Southern Riverside County and

parts of Orange County Date of last Final Routine Examination Report: December 29, 2006

FINAL REPORT OF A ROUTINE EXAMINATION OF SHARP HEALTH PLAN This is the Final Report of a routine examination of the fiscal and administrative affairs of Sharp Health Plan (the “Plan”), conducted by the Department of Managed Health Care (the “Department”) pursuant to Section 1382(a) of the Knox-Keene Health Care Plan Act of 1975.1 The Department issued a Preliminary Report to the Plan on October 11, 2010. The Department accepted the Plan’s electronically filed responses on November 23, 2010 and January 5, 2011 (collectively “responses”). This Final Report includes a description of the compliance efforts included in the Plan’s responses, in accordance with Section 1382(c). The Plan’s response is noted in italics. We performed a routine examination of the financial report filed with the Department for the quarter ended December 31, 2009, as well as other selected accounting records and controls related to the Plan’s various fiscal and administrative transactions. Our findings are presented in this report as follows: Section I. Financial Report Section II. Calculation of Tangible Net Equity

Section III. Compliance Issues Section IV. Nonroutine Examination

Pursuant to Rule 1300.82, the Plan is required to submit a response to the Department for any requests for additional corrective action contained within this report, within 30 days after receipt of this report.

1 References throughout this report to “Section” are to sections of the Knox-Keene Health Care Service Plan Act of 1975, California Health and Safety Code Section 1340, et seq. References to “Rule” are to the regulations promulgated pursuant to the Knox-Keene Health Care Service Plan Act, found at Title 28, Division 1, Chapter 1, California Code of Regulations, beginning with Section 1300.43.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan SECTION I. FINANCIAL REPORT Our examination resulted in no adjustments or reclassifications to the Plan’s quarter ended December 31, 2009 financial statements filed with the Department. A copy of the Plan’s financial statements can be viewed at the Department’s website by typing the link http://wpso.dmhc.ca.gov/fe/search.asp and selecting Sharp Health Plan on the first drop down menu. No response required to this Section. SECTION II. CALCULATION OF TANGIBLE NET EQUITY (TNE) Tangible Net Equity and Net Worth as reported by the Plan as of Quarter Ended December 31, 2009 $ 27,354,878 Required TNE 3,578,894 Additional Required TNE per Undertaking 2 3,578,894 TNE Excess per Examination as of Quarter Ended December 31, 2009 $ 20,197,090 The Plan is in compliance with the TNE requirement of Section 1376 and Rule 1300.76 as of December 31, 2009. No response required to this Section. SECTION III. COMPLIANCE ISSUES A. CLAIM SETTLEMENT PRACTICES – “UNFAIR PAYMENT PATTERN” Section 1371.37 (a) prohibits a health care service plan from engaging in an unfair payment pattern. Subsection (c) includes the following claim settlement practices as “unfair payment patterns” in subparagraphs:

(1) Engaging in a demonstrable and unjust pattern, as defined by the department, of reviewing or processing complete and accurate claims that result in payment delays. (2) Engaging in a demonstrable and unjust pattern, as defined by the department, of reducing the amount of payment or denying complete and accurate claims.

2 On February 28, 2005, the Plan filed undertakings related to its Notice of Material Modification dated December 10, 2004. Undertaking No. 4 states that “The Plan will retain tangible net equity two times the minimum tangible net equity requirement, as set forth in the Knox-Keene Health Care Service Plan Act of 1975, as amended (Health and Safety Code Section 1340 et seq.) and its implementing regulations.”

http://wpso.dmhc.ca.gov/fe/search.asp

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan

(4) Failing on a repeated basis to automatically include the interest due on claims pursuant to Section 1371.

Rule 1300.71(a)(8) defines a "demonstrable and unjust payment pattern" or "unfair payment pattern" as any practice, policy or procedure that results in repeated delays in the adjudication and correct reimbursement of provider claims. The Department’s examination found that the Plan is engaging in “unfair payment patterns” as summarized in the following table:

Deficiency Type of Sample

Total in the Sample Population

Total Claims Reviewed

Number of Deficiencies Found

% of Compliance With the Act or Rule

Failure to reimburse claims accurately, including interest and $10 penalty.

Late 687 25 22 12%

Claim not entered into system timely for acknowledgement readiness.

Late 687 25 9 64%

Improper handling of request for recovery of an overpayment.

Late 687 25 3 88%

Failure to provide complete instruction to provider to bill the capitated provider.

Denied 2,297 50 16 68%

Failure to forward misdirected claims within 10 working days.

Denied 2,297 50 9 82%

Claim denied incorrectly. Denied 2,297 50 4 92%

Failure to provide accurate written explanation for denial of claim.

Denied 2,297 50 3 94%


Paid 8,236 50 8 84%

Date of receipt not entered correctly for timeliness and accurate interest calculation.

Paid 8,236 50 6 88%

Claim not entered into system timely for acknowledgement readiness.

Paid 8,236 50 3 94%

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan On August 25, 2010, the Plan filed a signed acknowledgement to the Department that stated the following: “Claim Payment Accuracy Sharp Health Plan (the “Plan”) acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in the Plan incorrectly paying on an unacceptable number of claims. The Plan has requested that the Department of Managed Health Care (the Department) discontinue its testing on late and paid claims in light of the Plan’s acknowledgement of these deficiencies and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting these deficiencies in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that these deficiencies have resulted in its violations of Health and Safety Code sections 1371, 1371.35 and 1371.37; and California Code of Regulations, Title 28, sections 1300.71(a)(8), 1300.71(i) and 1300.71(j). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rates of 88 percent found in the sample of 25 late claims and 16 percent found in the sample of 50 paid claims are conclusive evidence of the percentages of deficiencies present in the entire universe of late and paid claims adjudicated during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009. Acknowledgement of Claim Receipt The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in claims not being timely entered into its claims system for acknowledgement readiness on an unacceptable number of late and paid claims. The Plan has requested that the Department discontinue its testing on late and paid claims in light of the Plan’s acknowledgement of these deficiencies and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting these deficiencies in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that these deficiency have resulted in its violations of California Code of Regulations, Title 28, sections 1300.71 (a)(8)(E) and 1300.71 (c). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rates of 36 percent found in the sample of 25 late claims and 6 percent found in the sample of 50 paid claims are conclusive evidence of the percentages of deficiencies present in the entire universe of late and paid claims during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan Complete or Accurate Written Instruction or Explanation The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in the lack of complete instruction to bill the delegated provider accurate and a lack of complete or accurate written explanation of denial for an unacceptable number of denied claims. The Plan has requested that the Department discontinue its review of denied claims in light of the Plan’s acknowledgement of these deficiencies and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting these deficiencies in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that these deficiencies have resulted in its violation of California Code of Regulations, Title 28, sections 1300.71(a)(8)(F), 1300.71(b)(2) and 1300.71(d)(1). For purposes of assessing a penalty for these violation, the Plan agrees that the deficiency rates of 32 percent for incomplete billing instruction and 6 percent for incomplete written explanation found in the sample of 50 denied claims are conclusive evidence of the percentages of deficiency present in the entire universe of denied claims adjudicated during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009. Forwarding of Misdirected Claims The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in the untimely forwarding of misdirected claims for an unacceptable number of denied claims. The Plan has requested that the Department discontinue its review of denied claims in light of the Plan’s acknowledgement of this deficiency and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting this deficiency in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that this deficiency has resulted in its violation of California Code of Regulations, Title 28, sections 1300.71(a)(8)(B) and 1300.71(b)(2). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rate of 18 percent found in the sample of 50 denied claims is conclusive evidence of the percentage of deficiency present in the entire universe of denied claims adjudicated during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009. Date of Receipt The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in the recording of

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan incorrect receipt dates on an unacceptable number of paid claims. The Plan has requested that the Department discontinue its testing on paid claims in light of the Plan’s acknowledgement of this deficiency and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting this deficiency in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that this deficiency has resulted in its violations of California Code of Regulations, Title 28, section 1300.71(a)(6). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rate of 12 percent found in the sample of 50 paid claims is conclusive evidence of the percentage of deficiency present in the entire universe of paid claims during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009. Recovery of Overpayment The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in improper requests for recovery of overpayments on an unacceptable number of late claims. The Plan has requested that the Department discontinue its testing on late claims in light of the Plan’s acknowledgement of this deficiency and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting this deficiency in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that this deficiency has resulted in its violations of California Code of Regulations, Title 28, sections 1300.71 (d)(4) and 1300.71 (d)(6). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rates of 12 percent found in the sample of 25 late claims is conclusive evidence of the percentage of deficiency present in the entire universe of late claims during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009. Claim Denials The Plan acknowledges that it has deficiencies in its claims payment procedures, operations and related finalization processes which have resulted in incorrect denials for an unacceptable number of denied claims. The Plan has requested that the Department discontinue its review of denied claims in light of the Plan’s acknowledgement of this deficiency and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting this deficiencies in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Plan acknowledges that this deficiency has resulted in its violation of Health and Safety Code section 1371.37; and California Code of Regulations, Title 28, sections 1300.71(d). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rates of 8 percent found in the sample of 50 denied claims is conclusive evidence of the percentage of deficiency present in the entire universe of denied claims adjudicated during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009.”

The following details the unfair payment patterns found during the Department’s examination: 1. CLAIM PAYMENT ACCURACY Rule 1300.71(a)(8)(K) describes one unfair payment pattern as the failure to reimburse at least 95% of complete claims with the correct payment including the automatic payment of all interest and penalties due and owing over the course of any three-month period.

Section 1371 requires a health care service plan to reimburse uncontested claims no later than 45 working days after receipt of the claim. This section also requires that if an uncontested claim is not reimbursed within 45 working days after receipt, interest shall accrue at the rate of 15 percent per annum beginning with the first calendar day after the 45 working day period.

Section 1371 also requires that all interest that has accrued shall be automatically included in the claim payment. The penalty for failure to comply with this requirement shall be a fee of ten ($10) dollars paid to the claimant.

Section 1371.35, which refers to claims for emergency services, requires that if an uncontested claim is not reimbursed within 45 working days after receipt by a health care service plan, the plan shall pay the greater of $15 per year or interest at the rate of 15 percent per annum, beginning with the first calendar day after the 45 working-day period.

Rule 1300.71(i)(1) requires that late payments on complete claims for emergency services that are neither contested nor denied, shall automatically include the greater of $15 for each 12-month period or portion thereof on a non-prorated basis, or interest at the rate of 15% per annum for the period of time that the payment is late. The Department’s examination found that 22 out of 25 late claims reviewed were not paid the correct amount (a non-compliance rate of 88%). The examination also found that 8 out of 50 paid claims reviewed were not paid correctly (a non-compliance rate of 16%).

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan Examples of claims where interest and penalty were not paid or underpaid are as follows:

Claim

Sample No.

Date of Receipt of Original Claim

Date Claim Paid

Number of Days Late for Calculating

Interest

Interest Paid by

Plan

Interest That Should Have Been

Paid

$10 Fee

Amount of Interest

Underpaid Including Penalty

LP-20 8-7-09 11-3-09 30 $552.57 $ 612.84 $10.00 $71.27 LP-27 8-14-09 10-13-09 2 $0 $15.00 $10.00 $25.00 P-2 8-11-09 10-13-09 5 $0 $114.40 $10.00 $124.40 P-4 11-4-09 2-3-10 33 $0 $405.93 $10.00 $415.93

The violations cited above were referred to the Office of Enforcement for appropriate administrative action.

The Preliminary Report required the Plan to submit a detailed Corrective Action Plan (“CAP”) to bring the Plan into compliance with the above Sections and Rules that should include, but not be limited to, the following: a. Identification of all late claims, processed from August 1, 2006 through the date

corrective action was implemented by the Plan, where interest was not paid or underpaid.

b. Evidence that interest and penalties, as appropriate, were paid retroactively for the

claims identified in paragraph “a” above. The evidence was to include an electronic data file/schedule (Excel or dBase) that identified certain key data fields. The data file was also to provide the detail of all claims remediated; and, to include the total number of claims and the total additional interest and penalty paid, as a result of remediation.

c. Policies and procedures implemented to ensure that interest on claims is calculated and paid in compliance with the above Section and Rules.

d. Date the policies and procedures were implemented, the management position

responsible for overseeing the CAP, and a description of the monitoring system implemented to ensure ongoing compliance.

If the Plan was not able to complete the CAP or portions of the CAP within 45 days of receipt of the Preliminary Report, then the Plan was required to submit a timeline (that does not exceed 180 days from the receipt of the Preliminary Report) with its response to the Preliminary Report and was also required to submit monthly status reports until the CAP was completed. Sharp Health Plan (“SHP”) responded that it utilizes an automated system to calculate the required interest on applicable claims and automatically includes the accrued interest in the claim payment to achieve compliance with Section 1371 and 1371.35. SHP has identified that on several occasions, the mailing process within the Sharp system unexpectedly took longer than anticipated, resulting in claim payment dates that were

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan later than intended and for which low or no interest was paid. SHP rectified this situation and updated the automated system to begin the calculation of interest 55 calendar days (approximately 39 business days) after the date of receipt as opposed to 61 calendar days (approximately 43 business days) as was the previous process. The system was updated in February 2010. SHP’s CAP to further reinforce compliance in this area includes the following elements: • SHP submitted its monthly status report for December 2010 that identified 2,550

claims processed between August 1, 2006 and January 31, 2010 that were not paid interest correctly and resulted in additional interest payments of $25,588 and penalty payment of $25,500 for total remediation of $51,088. SHP will continue with data mining efforts to identify and reprocess any additional affected claims and update the Department of additional progress by January 31, 2011.

• SHP provided new and revised policies and procedures implemented to ensure

compliance with the outlined Section and Rules: Sharp Health Plan Claims Submission Policy: Effective September 1, 2003, last revised November 1, 2010; and, Sharp Health Plan Internal Claims Audit Policy: Effective October 1, 2010.

• Interest is automatically generated through SHP’s claims system, which was updated

on February 8, 2010 to begin the calculation of interest 55 calendar days after the date of receipt.

To ensure ongoing compliance SHP represented it began quarterly audits of all paid claims in December 2010. Quarterly audits will be conducted until SHP claims payment accuracy is compliant for four consecutive quarters. Once this is achieved, claim audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited but the corrective action required is not complete, as remediation efforts are still in process. The Plan is to remediate all claims through date of corrective action which is stated to be February 8, 2010. The Plan is to indicate a date certain (that does not exceed 180 days from the date of receipt of the Preliminary Report) for completion of this remediation with its monthly status report due January 31, 2011. The Department’s review of the spreadsheet for remediation finds that the Plan used 57 calendar days instead of the 55 calendar days after date of receipt stated in its revised policy and procedure. The Plan is to explain why the remediation did not comply with the Plan’s revised policy and procedure. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to submit complete, executed policy and procedures.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan 2. ACKNOWLEDGEMENT OF CLAIM RECEIPT Rule 1300.71 (c) requires health care service plans to identify and acknowledge the receipt of all claims and to disclose to the claimant the date of receipt. Electronically submitted claims must be acknowledged within two (2) working days of the date of receipt of the claim. In the case of paper claims, acknowledgement must be provided within fifteen (15) working days of the date of receipt. Rule 1300.71 (a)(8)(E) states that the failure to acknowledge the receipt of at least 95% of claims consistent with section (c) over the course of any three-month period is an unfair payment pattern. The Department’s examination found that 9 out of 25 late claims reviewed were not input timely in the Plan’s system for acknowledgement readiness (a non-compliance rate of 36%). The examination also found that 3 out of 50 paid claims reviewed were not entered timely into the Plan’s system for acknowledgement readiness (a non-compliance rate of 6%). The violation cited above was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit its policy and procedures to ensure that claims are inputted in the Plan’s system in a timely manner for acknowledgement readiness. The Plan was also required to provide the management position(s) responsible for compliance and a description of the monitoring system implemented to ensure continued compliance with this Rule. SHP responded that it investigated the instances where the Department stated that the SHP claims were not inputted in a timely manner for acknowledgment readiness. In the cited instances, SHP utilized the date when the claim arrived at SHP as the “receipt date” to trigger the start of the deadline for acknowledgement of claims under Rule 1300.71. During the Examination, the Department stated that SHP should instead use the date when the claim arrived at any entity associated with the Sharp HealthCare organization as the “receipt date”. This is a new requirement not previously applied to SHP during past Department reviews. SHP believes its practices have not been deficient with the requirements of the law and the classification of this item as a deficiency should be modified. However, the Plan stated that in a good faith effort to comply with the new direction given by the Department, SHP implemented the following actions in this area: • SHP provided new and revised policies and procedures implemented to ensure

compliance with the outlined Section and Rules: Sharp Health Plan Claims Submission


Policy: Effective September 1, 2003, last revised November 1, 2010; Sharp Health Plan Internal Claims Audit Policy: Effective October 1, 2010; and, Sharp HealthCare Claim Procedure: Receipt Dates – Senior and Commercial Policy: Effective November 4, 2010.

• The claims processing system automatically generates an acknowledgement letter when

the claim is entered into the system. Education was provided to the claims processors in December 2009 regarding the received date to be used for claims received by any Sharp HealthCare entity.

To ensure ongoing compliance SHP represented it began quarterly audits of all claims in December 2010. Quarterly audits will be conducted until SHP acknowledgement of claims receipts accuracy is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. .In its response to this report, the Plan is required to submit complete, executed policy and procedures. 3. COMPLETE, ACCURATE WRITTEN INSTRUCTION OR EXPLANATION

Section 1371 requires that if the claim is contested or denied by the plan, the claimant shall be notified, in writing, that the claim is contested or denied within 45 working days after receipt of the claim. The notice that a claim is being contested shall identify the portion of the claim that is contested and the specific reasons for contesting the claim.

Rule 1300.71 (b)(2)(B) requires that if a claim is sent to a plan that has contracted with a capitated provider that is responsible for adjudicating the claim, then the plan shall do the following:

(B) For a provider claim that does not involve emergency service or care: (i) if the provider that filed the claim is contracted with the plan's capitated provider, the plan within ten (10) working days of the receipt of the claim shall either: (1) send the claimant a notice of denial, with instructions to bill the capitated provider or (2) forward the claim to the appropriate capitated provider; (ii) in all other cases, the plan within ten (10) working days of the receipt of the claim incorrectly sent to the plan shall forward the claim to the appropriate capitated provider.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan Rule 1300.71(d) states that a plan shall not improperly deny, adjust, or contest a claim. For each claim that is either denied, adjusted or contested, the plan shall provide an accurate and clear written explanation of the specific reasons for the action taken within the timeframes specified in sections (g) and (h). The Department’s examination found that the Plan failed to provide complete instructions to the provider to bill the capitated provider for 16 out of 50 denied claims as capitated provider responsibility (a non-compliance rate of 32%). The examination also found that the Plan failed to give clear and accurate denial reasons in 3 out of the 50 denied claims reviewed (a non-compliance rate of 6%). The violations cited above will be referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to implement policies and procedures to ensure that complete instructions are provided to the provider to bill the capitated provider; as well as, policies and procedures to ensure that an accurate and clear description of the reason for denials are given to the provider in compliance with Rule 1300.71(d). The Plan was also required to provide the date the revised template letters were implemented, the management position(s) responsible for compliance, and a description of the monitoring system implemented to ensure continued compliance with this Rule. SHP stated that based on the new guidance given by the Department during the Examination process, SHP will modify its policies and procedures and template letters. However, SHP respectfully requests that the classification of this item as a deficiency be modified since SHP had a good faith and reasonable belief that its practices were in compliance with the requirements of the law. Rule 1300.71(b) (2)(B)(i) provides that the plan shall either: “(1) send the claimant a notice of denial, with instructions to bill the capitated provider or (2) forward the claim to the appropriate capitated provider” (emphasis added). As per the requirements of the law, SHP’s letters all included instructions to bill the capitated provider. There is no provision in the law which outlines additional information that must also be included in the letter. The new and additional information that the Department has requested SHP to include in its letters is not information outlined in the law nor is it a standard identified in past financial examinations, and therefore SHP could not reasonably have been aware of the Department’s preference that this information be included. However, in a good faith effort to comply SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp HealthCare Claim Procedure: Forwarding Misdirected Claims: Effective May 4, 2009, last revised October 1, 2010. As of, August 30, 2010, SHP identified and added new claim disposition codes that include detailed instructions to the billing provider and are compliant with the Department recommendations. The new denial language is linked to the status codes that

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan are currently used by the claims processors, so there are no changes to the policy and procedures. To ensure ongoing compliance SHP represented it began quarterly audits of all misdirected claims in December 2010. Quarterly audits will be conducted until SHP misdirected claims accuracy is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. 4. FORWARDING OF MISDIRECTED CLAIMS

Rule 1300.71 (a)(8)(B) states that the failure to forward at least 95% of misdirected claims consistent with sections (b)(2)(A) and (B) over the course of any three-month period is an unfair payment pattern. Rule 1300.71 (b)(2) states that if a claim is sent to a plan that has contracted with a capitated provider that is responsible for adjudicating the claim, then the plan shall do the following:

(A) For a provider claim involving emergency service and care, the plan shall forward the claim to the appropriate capitated provider within ten (10) working days of receipt of the claim that was incorrectly sent to the plan. (B) For a provider claim that does not involve emergency service or care: (i) if the provider that filed the claim is contracted with the plan's capitated provider, the plan within ten (10) working days of the receipt of the claim shall either: (1) send the claimant a notice of denial, with instructions to bill the capitated provider or (2) forward the claim to the appropriate capitated provider; (ii) in all other cases, the plan within ten (10) working days of the receipt of the claim incorrectly sent to the plan shall forward the claim to the appropriate capitated provider.

The Department’s examination found that the Plan failed to timely forward 9 out of 50 emergency service claims denied as capitated provider responsibility (a non-compliance rate of 18%). The examination also found that the Plan incorrectly forwarded claims to its delegated providers in 3 out of 50 paid claims that were the financial responsibility of the Plan (a non-compliance rate of 6%).

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The violations cited above were referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to implement policies and procedures to forward misdirected claims within ten working days of receipt in compliance with the above Rule. The Plan was also required to provide the date of implementation, the management position(s) responsible for compliance, and a description of the monitoring system implemented to ensure continued compliance with this Rule. The Plan was also required to implement policies and procedures to ensure that claims that are the financial responsibility of the Plan are not forwarded to the Plan’s delegated providers in error. The Plan was also required to provide the date of implementation, the management position(s) responsible for compliance, and a description of the monitoring system implemented to ensure continued compliance. SHP represented that it investigated the 9 instances where the Department stated that SHP did not forward the emergency service claims to the appropriate capitated provider in a timely manner. In the cited instances, SHP did forward the claims to the appropriate capitated provider. SHP utilized the date when the claim arrived at SHP as the “receipt date” to trigger the start of the 10 working day deadline. During the Examination, the Department stated that SHP should instead use the date when the claim arrived at any entity associated with the Sharp HealthCare organization as the “receipt date”. As noted in item 2 above, this is a new requirement not previously applied to SHP during past Department reviews. SHP believes its practices have not been deficient with the requirements of the law and the classification of this item as a deficiency should be modified. However, in a good faith effort to comply with the direction given by the Department, SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp HealthCare Claim Procedure: Forwarding Misdirected Claims: Effective May 4, 2009, last revised October 1, 2010; Sharp Health Plan Claims Submission Policy: Effective: September 1, 2003, last revised November 1, 2010; and, Sharp HealthCare Claim Procedure: Receipt Dates – Senior and Commercial Policy: Effective November 4, 2010.

To ensure ongoing compliance SHP began quarterly audits of all misdirected claims in December 2010. Quarterly audits will be conducted until SHP misdirected claims accuracy is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. 5. DATE OF RECEIPT OF CLAIM Rule 1300.71 (a)(6) defines the date of receipt as the working day when a claim is delivered to either the plan's specified claims payment site, post office box, or to its designated claims processor. Rule 1300.77.4 requires all plans to institute procedures whereby all claims received by the plan are maintained and accounted for in a manner which permits the determination of date of receipt of any claim, the status of any claim, the dollar amount of unpaid claims at any time and the rapid retrieval of any claim. The Department’s examination found that incorrect received dates were used to calculate interest resulting in underpayments for 6 out of 50 paid claims reviewed (a non-compliance rate of 12%). The violation cited above was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit a CAP to address the deficiency cited above that included the following: 1. Training procedures to ensure that claim processors have been properly trained on

determining the correct receive date of a completed claim to calculate interest correctly, when appropriate.

2. Audit procedures to ensure that the Plan is monitoring correct payment of

interest and penalties on late and late adjusted claims payments. SHP represented that it investigated the 5 instances where the Department stated that SHP utilized incorrect received dates to calculate interest on claims. In the cited instances, SHP did include interest on the claims; however SHP utilized the date when the claim arrived at SHP as the “receipt date” to trigger the start of the interest calculation. During the Examination, the Department stated that SHP should instead use the date when the claim arrived at any entity associated with the Sharp HealthCare organization as the “receipt date” to calculate interest. As noted in items 2 and 4 above, this is a new requirement not previously applied to SHP during past Department reviews. In a good faith effort to comply with the direction given by the Department, SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp Health Plan Claims Submission Policy: Effective:

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan September 1, 2003, last revised November 1, 2010; and, Sharp HealthCare Claim Procedure: Receipt Dates – Senior and Commercial Policy: Effective November 4, 2010. To ensure ongoing compliance SHP began quarterly audits of all claims in December 2010. Quarterly audits will be conducted until SHP date of claims receipts accuracy for late payments is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. 6. RECOVERY OF OVERPAYMENT Rule 1300.71(a)(8)(D) requires health care service plans to request reimbursement of the overpayment of a claim pursuant to sections (b)(5) and (d)(3), (4), (5) and (6) of the Rule at least 95% of the time over the course of any three-month period. Rule 1300.71 (d)(4) states that if the provider contests the plan's or the plan's capitated provider's notice of reimbursement of the overpayment of a claim, the provider, within 30 working days of the receipt of the notice of overpayment of a claim, shall send written notice to the plan or the plan's capitated provider stating the basis upon which the provider believes that the claim was not over paid. The plan or the plan's capitated provider shall receive and process the contested notice of overpayment of a claim as a provider dispute pursuant to Section 1300.71.38 of title 28. Rule 1300.71 (d)(6) states that a plan or a plan's capitated provider may only offset an uncontested notice of reimbursement of the overpayment of a claim against a provider's current claim submission when: (i) the provider fails to reimburse the plan or the plan's capitated provider within the timeframe of section (5) above and (ii) the provider has entered into a written contract specifically authorizing the plan or the plan's capitated provider to offset an uncontested notice of overpayment of a claim from the contracted provider's current claim submissions. In the event that an overpayment of a claim or claims is offset against a provider's current claim or claims pursuant to this section, the plan or the plan's capitated provider shall provide the provider a detailed written explanation identifying the specific overpayment or payments that have been offset against the specific current claim or claims.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Department’s examination found that the Plan failed to comply with the above requirements for requesting reimbursements for overpayments in 3 out of 25 late claims reviewed (a non-compliance rate of 12%). The violation cited above was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit policies and procedures to ensure that recoveries for overpayments are made in compliance with the above Rules. The Plan is also required to provide the management position(s) responsible for compliance and a description of the monitoring system implemented to ensure continued compliance with these Rules. SHP respectfully requests that the classification of this item as a deficiency be modified since SHP had a good faith and reasonable belief that its practices were in compliance with the requirements of the law. The 3 claims at issue are claims where SHP overpaid the provider and did not request any reimbursement from the provider. The Examiners did not cite any instances where SHP requested a reimbursement of an overpayment using methods that were not compliant with the law. The referenced Rules do not mandate that a plan request reimbursement from providers in the case of an unidentified overpayment – the rules merely outline the procedures for a plan to follow if a plan does request reimbursement of an overpayment from a provider. The fact that SHP did not request a reimbursement from providers on the 3 instances identified does not appear to run afoul of the requirements. However, in a good faith effort to comply with the direction given by the Department, SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp Health Plan Claims Overpayments and Retraction Policy: Effective January 1, 2004, last revised November 1, 2010; and, Sharp HealthCare Escheatment Process for Claims Checks Department Guideline: Effective November 1, 2010. To ensure ongoing compliance SHP began quarterly claims audits of all late paid claims beginning in December 2010. Quarterly audits will be conducted until SHP claims payment accuracy is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department wants to clarify that the above claim samples were from non-contracted providers that do not have a written contract in place with the Plan.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan Therefore, the Plan may not offset an overpayment of a claim against the non-contracted provider’s current claim submissions [Reference Rule 1300.71(d)(6)]. The Plan is required to clearly state its procedures for addressing an overpayment on a claim from a non-contracted provider. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. 7. CLAIM DENIALS Section 1371.37 (a) prohibits a health care service plan from engaging in an unfair payment pattern. Subsection (c) includes the following claim settlement practices as “unfair payment patterns”:

(2) Engaging in a demonstrable and unjust pattern, as defined by the department, of reducing the amount of payment or denying complete and accurate claims.

Rule 1300.71 (d) states that a plan shall not improperly deny, adjust, or contest a claim. For each claim that is either denied, adjusted or contested, the plan shall provide an accurate and clear written explanation of the specific reasons for the action taken within the timeframes specified in sections (g) and (h). The Department’s examination found that the Plan incorrectly denied claims in 4 out of 50 denied claims reviewed (a non-compliance rate of 8%). The violation cited above was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit a detailed CAP to bring the Plan into compliance with the above Section and Rules as cited below in paragraph 8. “Claims Filing Deadlines”. SHP investigated the 4 instances where the Department stated that SHP incorrectly denied claims. The internal investigation revealed that the claims in 2 of the 4 instances were denied due to the provider’s submission of a claim with an incorrect or missing W-9 form, 1 claim was denied as a duplicate, and 1 claim was denied due to a clerical error. Duplicate Claim Issue: The claim denied as a duplicate was for a claim SHP received on October 7, 2009 which was a duplicate of another claim received on September 29, 2009. While the claim was in fact a duplicate, the Department indicated during its examination that SHP should have denied the claim as a “claim in process” versus a “duplicate

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan claim”. The Department stated that denying the claim as a duplicate claim could be confusing to the provider. SHP respectfully asks the Department to provide the citation which distinguishes the cases where a claim must be labeled as a “claim in process” rather than a “duplicate claim”. Although SHP will revise its processes in accordance with this new information presented by the Department Examiners, SHP believes that issuing a denial of the claim in this case as a “duplicate claim” was reasonable action in compliance with Section 1371.37(a) and Rule 1300.71(d) based on the fact that the claim was a duplicate. W-9 Issue: In accordance with the law, SHP requires all information specified in Rule 1300.71(a)(2)(D) for a claim to qualify as a “complete claim”. Rule 1300.71(a)(2)(D) cites the National Uniform Claim Committee (NUCC) as an entity whose guidelines plans should follow. One element listed the NUCC guidelines as a “required element” for a complete claim is the provider’s Tax ID Number (TIN). As per general industry standards, to ensure accurate payment to the appropriate provider and in efforts to reduce cases of fraud, waste or abuse as required by Section 1348, SHP utilized W-9 forms to confirm the accuracy of the TIN provided. During the examination process the Department stated that SHP should instead utilize other methods of searching various databases to verify the accuracy of a provider’s TIN rather than using the W-9 form. SHP revised its policies in accordance with the direction provided by the Department during the examination. However, the Plan does not believe its former practice rises to the level of a deficiency. Other: Although SHP admits one of the claims denied in error was due to a clerical error, the Plan does not believe that an instance of 1 incorrectly denied claim out of 50 denied claims (a non-compliance rate of 2%) rises to the level of a deficiency in this area. SHP believes its practices have not been deficient with the requirements of the law and the classification of this item as a deficiency should be modified. However, in a good faith effort to comply with the direction given by the Department, SHP provided the revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp HealthCare Verification and Claim Denials Procedure: Effective April 1, 2003, last revised April 14, 2010; Sharp HealthCare W-9 Notification and Entry Process Department Guideline: Effective September, 2008, last revised September 2009; and, Sharp HealthCare How to Validate TINs on W-9s and NPI Number via Website Department Guideline: Effective September 2009. To ensure ongoing compliance SHP began quarterly audits of all denied claims in December 2010. Quarterly audits will be conducted until SHP claims denial accuracy is compliant for four consecutive quarters. Once achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited, but the corrective action required is not complete. The Plan did not provide a response as to the CAP requirements set forth in paragraph 8 below for the remediation efforts to identify and provide evidence that interest and penalty, as appropriate, were paid retroactively for the above claim denials. The Plan is to indicate a date certain (that does not exceed 180 days from the date of receipt of the Preliminary Report) for completion of this remediation in its monthly status report due January 31, 2011.

As to the duplicate claim issue: The Plan requested the Department provide a citation to distinguish between a claim denied as a “claim in process” verses a “duplicate claim”. The Department references to Rule 1300.71 (d)(1) that requires a plan to provide an accurate and clear written explanation for the denial of a claim. In this case, the provider needs to clearly understand that the reason the second claim was denied is due to the first claim still in the review process for payment.

As to the W-9 issue: The Department agrees with the Plan’s position that a tax identification number (“TIN”) is needed for a complete claim under Rule 1300.71(a)(2)(D). However, the Department disagrees that a W-9 is required to confirm the accuracy of a provider’s TIN. A W-9 is an IRS requirement and not a Federal billing guideline requirement. The Department does acknowledge the Plan’s right to request such information in the case where the Plan believes that the TIN is not accurate or when possible fraud exists. The Plan is again required to submit revised policy and procedures so that a W-9 is not routinely required to process a claim; and a claim with a TIN is not routinely denied because a W-9 is not on file. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. 8. CLAIMS FILING DEADLINES Rule 1300.71 (a)(8)(A) states that the imposition of a Claims Filing Deadline inconsistent with section (b)(1) in three (3) or more claims over the course of any three-month period is an unfair payment pattern. Rule 1300.71 (b)(1) states that neither the plan nor the plan's capitated provider that pays claims shall impose a deadline for the receipt of a claim that is less than 90 days for contracted providers and 180 days for non-contracted providers after the date of service, except as required by any state or federal law or regulation. If a plan or a plan's capitated provider is not the primary payer under coordination of benefits, the plan or the plan's capitated provider shall not impose a deadline for submitting supplemental or

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan coordination of benefits claims to any secondary payer that is less than 90 days from the date of payment or date of contest, denial or notice from the primary payer. The Department analysis of the claims data file, provided by the Plan, noted that eight (8) claims were denied incorrectly for timely filing during the period September 1, 2009 to October 1, 2009.

Type of Provider

Claim Number

Date of Service of Claim

Date of Receipt of Claim

Number of Day

Contracted 7510824 8/29/09 9/25/09 27 Contracted 7508806 6/29/09 9/8/09 71 Contracted 7508805 6/25/09 9/8/09 75 Contracted 7508802 6/22/09 9/8/09 78 Contracted 7508803 6/19/09 9/8/09 81 Contracted 7508804 6/18/09 9/8/09 82 Non-Contracted 7547862 6/29/09 10/5/09 98 Non-Contracted 7510080 5/2/09 9/14/09 135 The violation cited above was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit a detailed CAP to bring the Plan into compliance with the above Section and Rules cited above in paragraph 6. “Claim Denials” and in paragraph 7. “Claims Filing Deadlines” that should include, but not be limited to, the following: a. Identification of all claims incorrectly denied that were processed from August 1,

2006 through the date corrective action was implemented by the Plan. b. Evidence that interest and penalties, as appropriate, were paid retroactively for the

claims identified in paragraph “a” above. This evidence is to include an electronic data file/schedule (Excel or dBase) that identifies the following: • Claim number • Date of service • Date original claim received • Total billed • Total paid • Paid date • Interest amount paid • Date interest paid • Penalty amount paid • Additional Interest amount paid, if applicable • Date additional interest paid if applicable • Check Number for additional payment, interest and penalty paid • Provider name • Line of Business • ER or Non-ER indicator • Number of Late Days used to calculate interest


The data file is to provide the detail of all claims remediated; and, to include the total number of claims and the total additional interest and penalty paid, as a result of remediation

c. Policies and procedures implemented to ensure claims are paid correctly, including interest and penalty, if applicable, in compliance with the above Section and Rules.



If the Plan was not able to complete the CAP or portions of the CAP within 45 days of receipt of the Preliminary Report, then the Plan was required to submit a timeline (that does not exceed 180 days from the receipt of the Preliminary Report) with its response to the Preliminary Report and was also required to submit monthly status reports until the CAP was completed. SHP represented that it investigated the 8 instances where the Department stated that SHP incorrectly denied claims for timely filing. In a good faith effort to comply with the direction given by the Department, SHP implemented the following CAP to further reinforce compliance in this area: • SHP submitted its monthly status report for December 2010 that identified 22

contracted claims and 7 noncontracted claims that were potentially incorrectly denied for timely filing for claims processed between August 1, 2006 and January 31, 2010. These 29 claims are currently under review for denial accuracy. SHP will continue with data mining efforts to identify and reprocess any other similarly affected claims and update the Department of additional progress by January 31, 2011.

• SHP provided new and revised policies and procedures implemented to ensure

compliance with the outlined Section and Rules: Sharp Health Plan Claims Submission Policy: Effective September 1, 2003, last revised November 1, 2010; Sharp HealthCare Timely Filing Review for Claims Department Process: Effective October 1, 2009; and, Sharp HealthCare Claims Submitted with Proof of Timely Filing Department Guideline: Effective December 1, 2008, last revised October, 2009.

• SHP set the system up to auto-adjudicate for claim timely filing review on October 1,

2009. To ensure ongoing compliance SHP began quarterly audits of all paid claims in December 2010. Quarterly audits will be conducted until SHP claims denial accuracy is compliant for four consecutive quarters. Once achieved claim audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Department finds that the compliance effort is responsive to the deficiency cited but the corrective action required is not complete, as remediation efforts are still in process. The Plan is to indicate its progress to date and provide a date certain (that does not exceed 180 days from the date of receipt of the Preliminary Report) for completion of this remediation with its monthly status report due January 31, 2011. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to respond to this recommendation and to provide revised, complete, executed policy and procedures, as appropriate.

B. OTHER CLAIM SETTLEMENT DEFICIENCY The following is another claim settlement deficiency found during the Department’s examination: OVERSIGHT OF FORWARDED CLAIMS Rule 1300.71(e) states that a plan may contract with a claims processing organization for ministerial claims processing services or contract with capitated providers that pay claims, ("plan's capitated provider") subject to the following condition in subparagraph: (1) The plan's contract with a claims processing organization or a capitated provider shall obligate the claims processing organization or the capitated provider to accept and adjudicate claims for health care services provided to plan enrollees in accordance with the provisions of sections 1371, 1371.1, 1371.2, 1371.22, 1371.35, 1371.36, 1371.37, 1371.38, 1371.4, and 1371.8 of the Health and Safety Code and sections 1300.71, 1300.71.38, 1300.71.4, and 1300.77.4 of title 28. The Department’s examination determined that the Plan does not have policies and procedures in place to ensure that claims forwarded to plan’s capitated providers are processed in compliance with the requirements of Rule 1300.71(e). The Plan is to incorporate these procedures as part of its on-site and off-site monitoring of its capitated providers even if claims are forwarded correctly by the Plan to these capitated providers. The Preliminary Report required the Plan to submit its policies and procedures for ensuring that claims forwarded to capitated providers are received and processed in accordance with the above Rule. The Plan should state the date the policies and procedures were implemented, the management position responsible for overseeing the corrective action, and a description of the monitoring system implemented to ensure ongoing compliance with the corrective action. Based on the new guidance given to Sharp Health Plan by the Department during the Examination process, SHP will modify its policies and procedures as requested. However, SHP respectfully requests that the classification of this item as a deficiency be

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan modified since SHP had a good faith and reasonable belief that its practices were in compliance with the requirements of the law. SHP represents that it utilizes its annual delegation oversight process to audit any claims processing activities delegated to its capitated providers for compliance with the law. It is reasonable for SHP to rely on the fact that an item will be delivered as addressed when utilizing the postal service. The law does not go the further step of requiring a plan to track each forwarded claim to ensure it has actually arrived at the place it was sent. To do so would be redundant, wasteful and oversteps the bounds of what is outlined in the law. SHP’s delegation oversight audit process reviews a sample of all claims for compliance and that sample will reasonably include claims forwarded by SHP. SHP believes its practices have not been deficient with the requirements of the law and the classification of this item as a deficiency should be modified. However, in a good faith effort to comply with the direction given by the Department, SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp HealthCare Claim Procedure: Forwarding Misdirected Claims: Effective May 4, 2009, last revised October 1, 2010. SHP will no longer forward claims for non Emergency services and care, but will provide instructions to the provider via the remittance advice pursuant to Rule 1300.71(b)(2)(B). To ensure ongoing compliance SHP began quarterly audits of all misdirected claims in December 2010. Quarterly audits will be conducted until SHP misdirected claims accuracy is compliant for four consecutive quarters. Once this is achieved claims audits will move to an annual basis. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department recommends that the Plan continue to perform internal audits on a quarterly basis even after it achieves compliance for four consecutive quarters as a means to ensure continued compliance. In its response to this report, the Plan is required to provide complete, executed policy and procedures. C. PROVIDER DISPUTE VIOLATIONS

Rule 1300.71.38 (m)(2) states that the failure of a plan to comply with the requirements of a fast, fair and cost-effective dispute resolution mechanism shall be a basis for disciplinary action against the plan. The Department’s examination found that the Plan failed to comply with the requirements of a fast, fair and cost-effective resolution mechanism as summarized below:


Deficiency Type of Claim

Total in the Sample

Population

Total Claims

Reviewed

Number of Deficiencies

Found

% of Compliance With the Act

or Rule Determination letter is not accurate or complete.

PDR 85 50 18 64%


PDR 85 50 17 66%

Dispute paid date > 5 working days from determination date.

PDR 85 50 6 88%

Plan failed to resolve provider disputes within 45 working days.

PDR 85 50 3 94%

On August 25, 2010, the Plan filed a signed acknowledgement to the Department that stated the following: “The Plan acknowledges that it has deficiencies in its provider dispute resolution procedures, operations and related finalization processes which have resulted in the Plan issuing inaccurate or incomplete written determination letters of pertinent fact(s), underpaying late claims resulting from a dispute, failing to resolve provider disputes with 45 workings days; and failing to pay additional amounts owed with five (5) workings days from determination date on an unacceptable number of provider disputes. The Plan has requested that the Department discontinue its testing of provider disputes in light of the Plan’s acknowledgement of these deficiencies and the Plan acknowledges that the Department agreed to do so in reliance upon this document. The Plan further acknowledges its commitment to correcting these deficiencies in accordance with requirements stated in all Department reports, including examination reports, issued in connection with this routine examination. The Plan acknowledges that these deficiencies have resulted in its violation of Health and Safety Code sections 1371 or 1371.35 and violations of California Code of Regulations, Title 28, sections 1300.71.38 (f) and 1300.71.39 (g). For purposes of assessing a penalty for these violations, the Plan agrees that the deficiency rates of 36 percent for inaccurate or incomplete determination letters, 34 percent for incorrect payment, 6% for untimely resolution and 12 percent for untimely payment in the sample of 50 provider disputes are conclusive evidence of the percentages of deficiencies present in the entire universe of provider disputes adjudicated during the time frame defined by the Department’s examination, specifically October 1, 2009 to December 31, 2009.”

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The following details the provider dispute mechanism violations found during the Department’s examination:

1. ACCURATE OR COMPLETE DETERMINATION LETTERS Rule 1300.71.38(f) requires a plan to issue a written determination stating the pertinent facts and explaining the reasons for its determination within 45 working days after the date of receipt of the provider dispute. The Department’s examination found that the Plan failed to provide accurate descriptions of the dispute findings in its determination letters on 18 of the 50 provider disputes reviewed (a non-compliance rate of 36%). The violation cited above will be referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to implement policies and procedures to ensure that determination letters include a comprehensive and accurate description of the Plan’s reasons for upholding or overturning the provider dispute in compliance with the above Rule. The Plan was also required to provide the date of implementation, the management position(s) responsible for compliance, and a description of the monitoring system implemented to ensure continued compliance with this Rule. Based on the new guidance given to Sharp Health Plan by the Department during the Examination process, SHP will modify its policies and procedures as requested. However, SHP respectfully requests that the classification of this item as a deficiency be modified since SHP had a good faith and reasonable belief that its practices were in compliance with the requirements of the law. Rule 1300.71.38(f) requires a plan to issue a written determination stating the pertinent facts and explaining the reasons for its determination within 45 working days after the date of receipt of the provider dispute.” (emphasis added). SHP’s PDR determination letters do include the pertinent facts and an explanation of the reasons for the plan’s determination. The new and additional information that the Department requested SHP to include in its letters during this Examination process is not information outlined in the law nor are they standards that were identified in past financial examinations and therefore SHP could not reasonably have been aware ahead of time of the Department’s preference that this information be included. However, in a good faith effort to comply with the direction given by the Department, SHP provided revised policies and procedures implemented to ensure compliance with the outlined Section and Rules: Sharp Health Plan Provider Dispute Resolution Overview Policy and Procedure: Effective September 1, 2003, last revised June 1, 2010 and Sharp HealthCare Provider Dispute Resolution: Processing Department Guideline: Effective January 1, 2010, last revised November 12, 2010.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan To ensure ongoing compliance SHP will perform monthly PDR audits. The Contracts Finance Manager will be responsible for the oversight of these activities. The Department respectfully declines to modify this deficiency. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. 2. DISPUTED CLAIM PAYMENT ACCURACY

Section 1371 requires a health care service plan to reimburse uncontested claims no later than 45 working days after receipt of the claim. This section also requires that if an uncontested claim is not reimbursed within 45 working days after receipt, interest shall accrue at the rate of 15 percent per annum beginning with the first calendar day after the 45 working day period.

Section 1371 also requires that all interest that has accrued shall be automatically included in the claim payment. The penalty for failure to comply with this requirement shall be a fee of ten ($10) dollars paid to the claimant.

Section 1371.35, which refers to claims for emergency services, requires that if an uncontested claim is not reimbursed within 45 working days after receipt by a health care service plan, the plan shall pay the greater of $15 per year or interest at the rate of 15 percent per annum, beginning with the first calendar day after the 45 working-day period.

Rule 1300.71(i)(1) requires that late payments on complete claims for emergency services that are neither contested nor denied, shall automatically include the greater of $15 for each 12-month period or portion thereof on a non-prorated basis, or interest at the rate of 15% per annum for the period of time that the payment is late. Rule 1300.71.38 (g) states that if the provider dispute or amended provider dispute involves a claim and is determined in whole or in part in favor of the provider, the plan or the plan's capitated provider shall pay any outstanding monies determined to be due, and all interest and penalties required under Section 1371 and Rule 1300.71, within five (5) working days of the issuance of the Written Determination. The Department’s examination found that interest was not paid or underpaid on late claim payments that resulted from provider disputes in 17 out of 50 provider disputes reviewed (a non-compliance rate of 34%). A sample of disputes in which the Plan failed to pay the correct amount of interest is shown below:

PDR

Sample No.

Date Claim

Received Paid Date

Days to Calculate Interest

Interest Paid by

Plan

Interest calculated by DMHC

Penalty owed

Interest and penalties

due 12 05/26/09 11/17/09 117 $0.44 $0.48 $10.00 $10.04 29 08/10/09 11/22/09 46 $0.00 $155.79 $10.00 $165.79 44 07/29/09 11/16/09 52 $0.00 $4.98 $10.00 $14.98

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The violations cited above will be referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to submit a detailed CAP to bring the Plan into compliance with the above Sections and Rules that should include, but not be limited to, the following: a. Identification of all provider disputes, paid from August 1, 2006 through the date

corrective action has been implemented by the Plan, where interest was not paid or underpaid on late claim payments that resulted from provider disputes.

b. Evidence that interest and penalties, as appropriate, were paid retroactively for the

claims identified in paragraphs “a” above. This evidence is to include an electronic data file/schedule (Excel or dBase) that identifies certain specified data fields. The data file is to provide the detail of all claims remediated; and, to include the total number of claims and the total additional interest and penalty paid, as a result of remediation.

c. Policies and procedures implemented to ensure that the payment of all late adjusted

claims include interest and penalty, if applicable, in compliance with the above Sections and Rules.



If the Plan was not able to complete the CAP or portions of the CAP within 45 days of receipt of the Preliminary Report, then the Plan was required to submit a timeline (that does not exceed 180 days from the receipt of the Preliminary Report) with its response to the Preliminary Report and was also required to submit monthly status reports until the CAP was completed. In accordance with the direction of the Department, SHP’s CAP to further reinforce compliance in this area includes the following elements: • SHP submitted its monthly status report for December 2010 that identified 174

claims that resulted from disputes processed between August 1, 2006 and January 31, 2010 that were not paid interest correctly and resulted in additional interest payments of $441 and penalty payment of $1,740 for total remediation of $2,181. SHP will continue with data mining efforts to identify and reprocess any additional affected claims and update the Department of additional progress by January 31, 2011.

• SHP provided revised policies and procedures implemented to ensure compliance

with the outlined Section and Rules: Sharp Health Plan Provider Dispute Resolution


Overview Policy and Procedure: Effective September 1, 2003, last revised June 1, 2010 and Sharp HealthCare Provider Dispute Resolution: Processing Department Guideline: Effective January 1, 2010, last revised November 12, 2010.

• Additional staff training was completed in October 2010. To ensure ongoing compliance SHP will perform monthly PDR audits The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited but the corrective action required is not complete, as remediation efforts are still in process. The Plan is to remediate all claims paid as a result of the dispute process through date of corrective action which the Plan stated is February 2010. The Plan is to explain why remediation is only through February 2010 as the revised policy and procedures are dated June 1, 2010 and November 12, 2010; and, staff training wasn’t completed until October 2010. Based on these dates, it seems that remediation should continue from January 31, 2010 to November 12, 2010. The Plan is to indicate a date certain (that does not exceed 180 days from the date of receipt of the Preliminary Report) for completion of this remediation with its monthly status report due January 31, 2011. The Department reviewed the Plan’s policy and procedures and has the following comments: a. Language is not clear in Section VI. Responsibilities, paragraph G of Sharp

Health Plan Provider Dispute Resolution Overview Policy and Procedure: Effective September 1, 2003, last revised June 1, 2010.

b. Language should be added to perform claim sweeps when overturns are a result

of utilization review or contract review in Section V. Procedure, paragraph E (or paragraph C, subparagraphs 7 and 8) of Sharp HealthCare Provider Dispute Resolution: Processing Department Guideline: Effective January 1, 2010, last revised November 12, 2010.

In its response to this report, the Plan is required to provide revised, complete, executed policy and procedures. 3. TIMELY RESOLUTION OF PROVIDER DISPUTES Rule 1300.71.38 (f) requires a plan to issue a written determination stating the pertinent facts and explaining the reasons for its determination within forty-five working days after date of receipt of the provider dispute or amended provider dispute. The Department’s examination found that the Plan failed to timely send the determination letter on 3 out of 50 provider disputes reviewed (a non-compliance rate of 6%).

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan Examples of provider disputes that were not resolved in a timely manner are shown below:

PDR

Sample No.

Date Dispute

Received

Date of

Determination Letter

Number of Days Over 45 Working Days to Determine

Dispute 2 5/01/09 11/6/09 125

35 7/20/09 10/26/09 34 45 5/11/09 11/23/09 132

The violation cited above will be referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to implement policies and procedures to complete the determination of provider disputes within forty-five (45) working days of receipt in compliance with the above Rule. The Plan was also required to provide the date of implementation, the management position(s) responsible for compliance, and a description of the monitoring system implemented to ensure continued compliance with this Rule. In accordance with the direction of the Department, SHP’s CAP to further reinforce compliance in this area includes the following elements: • SHP provided revised policies and procedures implemented to ensure compliance

with the outlined Section and Rules: Sharp Health Plan Provider Dispute Resolution Overview Policy and Procedure: Effective September 1, 2003, last revised June 1, 2010 and Sharp HealthCare Provider Dispute Resolution: Processing Department Guideline: Effective January 1, 2010, last revised November 12, 2010.

• Additional staff training was completed in October 2010. To ensure ongoing compliance SHP will perform monthly PDR audits. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited and the corrective action required. 4. DATE OF RECEIPT OF PROVIDER DISPUTES – Repeat Deficiency Rule 1300.71.38 (a) (3) defines the “date of receipt” as the working day when the provider dispute or amended provider dispute, by physical or electronic means, is first delivered to the plan's designated dispute resolution office or post office box. The Department’s examination found that the Plan did not record the correct “date of receipt” for 6 out of the 50 provider disputes reviewed (a non-compliance rate of 12%).

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan This violation was also noted in the Final Report of Examination dated December 29, 2006. This repeat violation was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to state the reason why the corrective action implemented as a result of the prior examination was not fully effective in preventing this repeat deficiency and to state the measures taken to prevent further recurrence of noncompliance in this area. In addition, the Plan was required to submit a CAP to address the repeat deficiency cited above and include the following: a. Training procedures to ensure that claim processors have been properly trained on

determining the correct receive date of a completed claim to calculate interest correctly, when appropriate.

b. Audit procedures to ensure that the Plan is monitoring correct payment of

interest and penalties on late and late adjusted claims payments. SHP’s CAP to reinforce compliance in this area includes the following elements: • Previously, SHP relied on the individual claims processers to enter and maintain

accurate dates of receipt on PDRs. Due to staffing and resource issues, SHP was not able to meet all standards in this area at all times. SHP revised its policies and procedures and added more staffing and resources to the Claims Research Department. The Claims Research Department now has dedicated administrative support charged with the specific duty of ensuring compliance with accurate and timely entering of the “date of receipt” in the system and the monthly PDR audit process.



• Additional staff training was completed in October 2010. To ensure ongoing compliance SHP will perform monthly PDR audits and dedicate additional resources to monthly audits. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited and the corrective action required.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan 5. LATE PAYMENTS ON PROVIDER DISPUTES Rule 1300.71.38 (g) states, “If the provider dispute or amended provider dispute involves a claim and is determined in whole or in part in favor of the provider, the plan or the plan's capitated provider shall pay any outstanding monies determined to be due, and all interest and penalties required under sections 1371 and 1371.35 of the Health and Safety Code and section 1300.71 of title 28, within five (5) working days of the issuance of the Written Determination.” The Department’s examination found that the Plan failed to pay additional amounts due providers within five (5) working days from the determination letter date in 6 out of 50 provider disputes reviewed (a non-compliance rate of 12%). The following are examples of the lag time between the paid date and the determination letter date:

PDR Sample

No. Determination

Letter Date Paid Date Days To Pay Dispute

9 05/26/09 12/22/09 209 12 11/10/09 11/17/09 6 29 09/30/09 10/06/09 5

This violation was referred to the Office of Enforcement for appropriate administrative action. The Preliminary Report required the Plan to file with the Department its policy and procedures to ensure that payments are issued within five (5) working days of the determination letter date in compliance with the above Rule. The Plan was also required to provide the date of implementation and the management position(s) responsible for ensuring compliance with this Rule. SHP’s CAP to further reinforce compliance in this area includes the following elements: • SHP provided revised policies and procedures implemented to ensure compliance


• Additional staff training was completed in October 2010. To ensure ongoing compliance SHP will perform monthly PDR audits. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited and the corrective action required.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan D. OTHER PROVIDER DISPUTE DEFICIENCIES The following details other claim settlement deficiencies found during the Department’s examination: 1. CONTRACT LOADING ERRORS

Rule 1300.71.38 (g) states that if the provider dispute or amended provider dispute involves a claim and is determined in whole or in part in favor of the provider, the plan or the plan's capitated provider shall pay any outstanding monies determined to be due, and all interest and penalties required under Section 1371 and Rule 1300.71, within five (5) working days of the issuance of the Written Determination. The Department’s examination found that the Plan failed to reprocess previously processed claims for providers impacted by contract errors loaded in the Plan’s claim system. These contract errors were identified when the provider submit a dispute to the Plan. During the examination, the Plan stated that it does not have policy and procedures for reprocessing claims that were impacted by contract errors indentified in the provider dispute process. The Preliminary Report required the Plan to submit a CAP that includes the following: a. Identification of all claims processed, from August 1, 2006 through the date corrective

action was implemented by the Plan , that were impacted by contract errors indentified in the provider dispute process.

b. Evidence that these claims were reprocessed (paid or denied) and that applicable

interest and penalty were paid retroactively to the first calendar day after 45 working days from the execution date of the contract. This evidence was to include an electronic data file (Excel or Access) or schedule that identifies the following:

• Claim number • Date of service • Date original claim received • Total billed • Total paid • Paid date • Interest amount paid • Date interest paid • Penalty amount paid • Additional Interest amount paid, if applicable • Date additional interest paid if applicable • Check Number for additional payment, interest and penalty paid • Provider name • Line of Business • ER or Non-ER indicator • Number of Late Days used to calculate interest


The data file is to include the total number of claims and the total additional interest and penalty paid, as a result of remediation.

c. The Plan was required to implement a policy and procedures to reprocess claims from

providers that entered into a new compensation arrangement with a retroactive application date.

d. In addition, the Plan was required to indicate the date these policy and procedures

were implemented, the management position responsible for overseeing the corrective action, and a description of the monitoring system implemented to ensure ongoing compliance with the corrective action.

If the Plan was not able to complete the CAP or portions of the CAP within 45 days of receipt of the Preliminary Report, then the Plan was required to submit a timeline (that does not exceed 180 days from the receipt of the Preliminary Report) with its response to the Preliminary Report and was also required to submit monthly status reports until the CAP was completed. SHP’s CAP to further reinforce compliance in this area includes the following elements: • SHP submitted its monthly status report for December 2010 that identified 21

potential system issues affecting 15 different providers for claims processed between August 1, 2006 and January 31, 2010. SHP will continue with data mining efforts to identify and reprocess any affected claims as a result of this analysis and update the Department of additional progress by January 31, 2011.


with the outlined Section and Rules: Sharp HealthCare Provider Dispute Resolution: Processing Department Guideline: Effective January 1, 2010, last revised November 12, 2010.

To ensure ongoing compliance SHP will perform monthly PDR audits. The Contracts Finance Manager will be responsible for the oversight of the CAP. The Department finds that the compliance effort is responsive to the deficiency cited but the corrective action required is not complete, as remediation efforts are still in process. The Plan is to remediate all disputes for claims incorrectly paid, as a result of the contract load issues, through date of corrective action which the Plan stated is January 31, 2010. The Plan is to explain why remediation is only through January 2010 as the revised policy and procedures are dated November 12, 2010. Based on this date, it seems that remediation should continue from January 31, 2010 to November 12, 2010. The Plan is to indicate a date certain (that does not exceed 180 days from the date of receipt of the Preliminary Report) for completion of this remediation with its monthly status report due January 31, 2011.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan 2. COPAYMENTS The Department’s examination noted that the Plan’s computer system automatically deducted multiple copayments in error that resulted in a claim being underpaid. This issue was identified in provider dispute sample number 12. The Preliminary Report required the Plan to submit its correction action plan to resolve this computer system issue. SHP investigated the 1 instance identified by the Department where SHP’s computer system automatically deducted multiple copayments in error. SHP determined that the reason for the multiple copayment deduction on this claim was because the provider submitted 2 claims on the same day for the same date of service. SHP’s system automatically checks claims submitted on different days for the same dates of service. SHP established an ongoing audit system to identify the rare instance where 2 claims for the same date of service are submitted on the same day so that multiple copayments will not be deducted on these claims in the future. SHP's CAP to further reinforce compliance in this area includes the following elements: • As described above, SHP developed additional reporting elements to identify any

claims processed on the same day where multiple copays were taken in error. This report will be generated on a weekly basis and any affected claims will be adjusted prior to payment.

• SHP provided new policies and procedures implemented to ensure compliance with

the outlined Section and Rules: Sharp HealthCare Multiple Copayment Research and Reprocessing Department Guideline: Effective October 1, 2010.

The Department finds that the compliance effort is responsive to the deficiency cited and the corrective action required. E. MATERIAL MODIFICATIONS AND AMENDMENTS Section 1352 (a) and (b) and Rules 1300.52 and 1300.52.1 require all plans to file an amendment with the Director within 30 days after any change in the information contained in its application, other than financial and statistical. Material changes to the plan’s operations are required to be filed 20 days prior to any changes being implemented as specified in the Section and Rules noted above. Rule 1300.52.4 sets forth standards for amendment and notices of material modification filings. 1. Our examination determined that the Plan failed to comply with the filing

requirements of the above Section and Rules, as it did not file an amendment for the following third party administrative agreements:


2. Our examination determined that the Plan failed to comply with the filing

requirement of the above Section and Rule, as it did not file the amendments to the facility or provider group contracts with the following affiliated entities for the additional compensation at the end of the contract period; or, file an amendment to the original provider or facility agreement to revise the compensation language to allow for this additional compensation:

Contracting Parties

Type of Agreement

Effective Date

Sharp Health Care, Inc.

Facility Agreement-14th amendment

9/1/2009

Sharp Rees-Stealy Medical Group, Inc.

Provider Group Agreement—16th amendment

9/1/2009

Sharp Community Medical Group, Inc.

Provider Group Agreement—18th amendment

9/1/2009

The Preliminary Report required the Plan to file these agreements as amendments with the Department through the electronic filing process. The Plan was required to state the policies and procedures implemented to ensure that amendments are filed with the Department; the date of implementation; the board approved oversight functions to ensure compliance with these agreements; and, the management position(s) responsible for ensuring that the Plan understands and will comply with the filing requirements of the above Act and Rules and perform the oversight of these delegated functions.

Contracting Parties

Administrative Services

Performed/Received

Effective Date

The Plan and AIM HealthCare Services, Inc.

Comprehensive Claims Cost Management

6/1/2007


Overpayment Recovery Services Audits

6/1/2007


Medical Bill Audit Agreement

6/1/2007


Ancillary Recover Services

6/1/2007

The Plan and Multi Plan

Claims Repricing Services

4/14/2003

The Plan and Three Rivers

Claims Repricing Services

1/1/2009

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan SHP responded as follows: Administrative Services Agreements: On November 23, 2010, SHP filed with the Department under Filing Number 20102302 the agreements between SHP and AIM HealthCare Services, Inc., SHP and MultiPlan, and SHP and Three Rivers as Administrative Services Agreements. SHP respectfully requests that the classification of this item as a deficiency be modified since SHP had a good faith and reasonable belief that its practices were in compliance with the requirements of the law. Neither the Knox-Keene Act nor Title 28 of the California Code of Regulations provides a definition of an Administrative Services Agreement. SHP’s current practices already provide for executive level review of each new and amended agreement to identify when an agreement must be filed with the Department as a Provider Agreement, an Administrative Services Agreement or any other type of agreement; however, without a clear definition in the law as to the specific elements of an Administrative Services Agreement, SHP must rely on its good faith interpretation of the law’s intent. SHP analyzed each of the three identified Agreements and determined that the entities were serving in a capacity more akin to a vendor as opposed to an entity providing administrative services on behalf of SHP. The distinguishing factor in making this determination was the fact that these entities perform a type of service that SHP is not required to perform itself – they are supplemental services that assist SHP in its operations. The industry standard is that such Agreements qualify as Vendor Agreements as opposed to Administrative Services Agreements. Without a clear definition of an Administrative Services Agreement under the law or a publicly issued guidance document, SHP could not have reasonably known that such Agreements would meet the standard of an Administrative Services Agreement. Contract Amendments:

SHP represented that it implemented the following actions to ensure ongoing compliance in this area: On November 23, 2010, SHP filed with the Department under Filing Number 20102302 the amended agreements between SHP and its affiliates, Sharp HealthCare Inc., Sharp Rees-Stealy and Sharp Community. SHP provided amended policies and procedures to ensure compliance with the outlined Section and Rules: Sharp HealthCare New Provider Agreement Authorization Process Department Guideline: Effective December 2008, last revised October 2010. The Contracts Finance Manager will be responsible for the oversight of the policies and compliance with the filing requirements of the Act and Rules.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Department respectfully declines to modify the deficiency regarding the administrative agreements. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Department’s review of the above policy and procedure did not find a procedure for the filing of contracts with the Department, as appropriate. In its response to this report, the Plan is required to provide revised, complete, executed policy and procedures. The Department acknowledges that eFile number 20102302 was accepted on November 23, 2010 and is currently under review.

F. FINANCIAL STATEMENT PRESENTATION Rule 1300.84.2 sets forth the requirements for the filing of quarterly financial statements with the Department. The rule states that the quarterly financial statements (which need not be certified) are to be prepared in accordance with generally accepted accounting principles and on a basis consistent with the certified financial report furnished by the plan pursuant to Section 1384(c). This rule also refers to Rule 1300.84.06(b) that sets forth the requirements for the supplemental information that is to accompany the DMHC Reporting Format. The Department noted the following concerns with the DMHC Reporting Format and supplemental information filed for the quarter ended December 31, 2009:

1. The Plan incorrectly aggregates various investment and financing activity on Line 25 of Report #3: Statement of Cash Flows instead of reporting the details of investment activities on Lines 12 to 17, and the details of financing activities (i.e. affiliate payables) on Lines 19 to 25.

2. The Department reviewed Schedule G and compared the claims data reported by the Plan

in columns 3 and 4 with the claims data provided by the Plan in January 2010. The Plan appears to include encounter data in Schedule G which inflates the claim inventory reported. In addition, the claim inventory reported was not in agreement with the Quarterly Claims Settlement Practice Report as of December 31, 2009

3. The Plan is not reporting Schedule H in dollar amounts. The Preliminary Report required the Plan to state the corrective action taken to ensure that the DMHC Reporting Format and supplemental information is properly completed on all future financial statements and that the quarterly report for September 30, 2010 due to be filed on November 15, 2010 will demonstrate compliance. The Department recommended the Plan refer to the “General Information, Definition and Instruction” guide that provides instructions by line item for proper completion of the DMHC Report Forms and supplemental information.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan The Plan was also to state the management position(s) responsible for ensuring continued compliance. SHP stated it updated the financial reporting process to address the items identified above. These changes will be reflected on all future Department Reporting beginning with the quarterly report ending September 30, 2010. The management position responsible for this action is the Manager of Accounting and Finance. The Department finds that the compliance effort is not fully responsive to the deficiency cited and to the corrective action required. The claim data presented in Schedule G of the Plan’s quarterly report for September 30, 2010 still appears to include encounter data. In response to this report, the Plan is required to state the specific corrective action taken regarding paragraph 2 above. G. COMBINING FINANCIAL STATEMENTS

Rule 1300.84(c) requires a Plan file financial statements on a combining basis with an affiliate, if the plan or such affiliate is substantially dependent upon the other for the provision of health care, management or other services. An affiliate will normally be required to be combined, regardless of its form of organization, if the following conditions exist: (1) The affiliate controls, is controlled by, or is under common control with, the plan, either directly or indirectly (see subsections (c) and (d) of Section 1300.45), and (2) The plan or the affiliate is substantially dependent, either directly or indirectly, upon the other for services or revenue. The Department determined that the plan is not filing combining financial statements with its parent company, Sharp HealthCare. The Department finds that the Plan is under common control with Sharp HealthCare, and is substantially dependent on its parent and other affiliated entities for health care services. The Preliminary Report required the Plan to begin filing the annual Audited Combined Financial Statements for Sharp HealthCare beginning with the year ending September 30, 2010 due to be filed on January 31, 2011. The Plan is required to provide policy and procedures to ensure that the annual combined financial statements will be submitted. The Plan is also required to state the date of implementation and the management position(s) responsible to ensure continued compliance. SHP stated that effective October 11, 2010 it included the process of filing the annual Audited Combined Financial Statements for Sharp HealthCare within SHP’s Regulatory Affairs Calendar to ensure reporting. The management position responsible for this action is the Manager of Accounting and Finance.

Melissa Cook, President and Chief Executive Officer January 24, 2011 Re: Final Report of a Routine Examination of Sharp Health Plan SHP stated it provided the amended policies and procedures to ensure compliance with the outlined Section and Rules as Sharp Health Plan DMHC Self-Reporting Requirements Policy & Procedure: Effective April 1, 2006, last revised November 22, 2010. The Department finds that the compliance effort is responsive to the deficiency cited and to the corrective action required. The Plan stated it provided the above policy and procedure as Attachment 17 in its response to the Preliminary Report, but this attachment was not located. In its response to this report, the Plan is required to provide the complete, executed policy and procedure. SECTION V. NON-ROUTINE EXAMINATION The Plan is advised that the Department may conduct a non-routine examination, in accordance with Rule 1300.82.1, to verify representations made to the Department by the Plan in response to this report. The cost of such examination will be charged to the Plan in accordance with Section 1382 (b). No response is required for this Section.