THE MISSISSIPPI LEGISLATURE

Background

MISS. CODE ANN. § 25-25-5 and § 25-15-253 (1972) authorize the Department of Finance and Administration (DFA) to administer the State Employees' Health Insurance Plan and the Public School Employees Health Insurance Plan (hereafter referred to as the "Plan" or "Plans"). State law further authorizes DFA to contract the administration and service of the self-insured plans to a third-party administrator. Effective July 1, 1994, DFA contracted with CENTRA Benefit Services to serve as the third-party administrator for the plans.

State law directs the Joint Legislative PEER Committee to contract with an accounting firm or other professionals to conduct a compliance and performance audit of DFA's third-party administrator. Through a competitive process, PEER entered into a contract with The Segal Company, a national employee benefit consulting and actuarial firm, to conduct the audit. Segal's audit covered CENTRA's claims processing activity for the period January 1, 1996, through June 30, 1996.

Contractual Performance Criteria

DFA's Administrative Services Agreement with CENTRA Benefits Services requires that, commencing January 1, 1995, CENTRA's claims processing performance meet or exceed the following performance criteria:

(i) Claims Turnaround: Ninety percent of routine claims should be processed to approval within 14.3 calendar days [ten working days on average] of receipt.

(ii) Financial Accuracy: Ninety-nine and one-half percent of amounts for claims processed should be paid accurately in accordance with DFA's master plan document.

(iii) Payment Accuracy: Ninety-seven percent of the number of claims processed should be paid accurately in accordance with DFA's master plan document.

DFA measures CENTRA's performance relative to these criteria based on reports provided by CENTRA. In the event that CENTRA fails to achieve the performance criteria set forth, the Administrative Services Agreement authorizes DFA to impose a financial penalty in an amount equal to one percent of the fees paid to CENTRA for a given twelve-month period.

Segal's Audit Results

To confirm CENTRA's compliance with the contractual performance criteria, The Segal Company audited a statistically valid sample of 405 medical and pharmacy claims and extrapolated the results of the sample to the total population of claims processed during the audit period, with the following results:

(i) Claims Turnaround: Segal estimates that the proportion of claims paid by CENTRA within fourteen days or less is 87.7%. The confidence interval for Segal's estimate is 85.1% to 90.2%. CENTRA did not achieve the 90% turnaround criterion, based on Segal's sample. Although the turnaround performance criterion falls within Segal's confidence interval, it is so close to the endpoint of that interval that, in Segal's opinion, it is very unlikely that the true proportion of claims paid by CENTRA within fourteen days is 90% or more.

(ii) Financial Accuracy: Segal estimates that the proportion of claims dollars paid accurately by CENTRA is 94.2%. The confidence interval for Segal's estimate is 89.6% to 98.7%. CENTRA did not achieve the 99.5% financial accuracy criterion, based on Segal's sample.

(iii) Payment Accuracy: Segal estimates that the proportion of the number of claims paid accurately by CENTRA is 95.5%. The confidence interval for Segal's estimate is 89.1% to 99.1%. CENTRA did not achieve the 97% payment accuracy criterion, based on Segal's sample. However, since the payment accuracy criterion falls well within Segal's confidence interval, it is possible that the true proportion of claims paid accurately by CENTRA may be 97% or more.

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