Health Service System : the System is not structured, governed or managed effectively to ensure equitable and cost-effective health benefits for all members and their employers PDF
Preview Health Service System : the System is not structured, governed or managed effectively to ensure equitable and cost-effective health benefits for all members and their employers
SANFRANCISCOPUBLICLIBRARY 3 1223 07513 5062 City and County of San Francisco OFFICE OF THE CONTROLLER CITY SERVICES AUDITOR Health Service System: The System is Not Structured, Governed or Managed Effectively to Ensure Equitable and Cost-Effective Health Benefits for All Members and Their Employers DOCUMENTS DEPT. JUL - 5 2005 SAN FRANCISCO PUBLIC LIBRARY Number04002P June29,2005 REF 352.4 Sa578h City and County of San Francisco OFFICE OF THE CONTROLLER CITY SERVICES AUDITOR Health Service System: The System is Not Structured, Governed or Managed Effectively to Ensure Equitable and Cost-Effective Health Benefits for All Members and Their Employers Audit Number 04002P June 29, 2005 1 ) CITYANDCOUNTYOFSAN FRANCISCO OFFICE OFTHE CONTROLLER Fd Harrin»ton Controller MoniqueZmuda DeputyController June29.2005 ReportNumber04002P BartDuncan Director. HealthServiceSystem 1145 MarketStreet.2nd Floor San Francisco.California94103 Scott Heldfond President. HealthServiceBoard OneMaritime Plaza. Suite 1600 San Francisco.California9411 DearMr. DuncanandMr. Heldfond: The Controller's Office. City Services Auditor, presents its audit report concerning governanceofthe Health Service System(FISS). The audit objectives werethree-fold: (1 to assess the extent to which the annual rate-setting process has resulted in obtaining affordable and cost-effective health care benefits for its members; 2) to evaluate the appropriatenessand managementofthe Trust Fund balance (netassets available for health benefits) considering the purposes of HSS; and (3) to review best practices in public employee health benefit programs and whetherHSS management and governance policies areconsistentwithcurrentindustrystandards. Themajoraudit findingsinclude: • The annual process to design health care benefits foremployees, retirees and their dependents does not result in rates and premiums that are accurate, cost-effective, and affordable. Despite an accumulating surplus in the HSS Trust Fund indicating that amounts collected for health care benefits exceeded costs and medical claims, the Health Service Boarddoesnot conduct sufficient and effectiveoversight ofthe contractorsprovidingservicestoHSS. • The Health Service Board does not sufficiently emphasize cost containment strategies, despite consistent increases in health care costs over the past several years. Over the last five years, the cost ofhealth care benefits to employers and members has risen by 85 percent and 39 percent, respectively. We note that much ofthis increase is driven by the market itself, however, the Health Service Board can act to limit some cost impacts. In the eleven Board and Rates and Benefits Committee meetings we attended between November 2004 and March 2005. we observedvervlittlediscussionorfocusonthecontainmentofhealthcarecosts. Cil> II.ill•1Dr.CarltonB.GimdlcllI'lace•Koom316•Sanhum- CA941l):->6')4 FAX*15-S54-74W June29. 2005 Page : • The Charter-mandated method for setting employer health contributions has resulted in over $10 million in overpayments (i.e., gap dollars) to the Trust Fund since 2002. These excess payments are costly to employers and are partly responsibleforthesignificantsurplusintheTrustFund. • Overpayments from both members and employers have accumulated in the Trust Fund, such that as of June 30, 2004. net assets available for health benefits exceeded $41 million. Because the Board has not developed formal policies to addresstheseexcessmonies,thesurplushasbecomeamanagementproblem forthe Board, with differing expectations debated among Board members. HSS members, andothers. • Reserveamounts in theTrust Fund arenotbased on a formal policy, have not been subjected to aregularand formal evaluation, and are not monitored throughout the year. • The Board's meetings and decision-making processes focus on operational detail, with little participation from HSS staff. Without a definition ofappropriate roles and responsibilities among Board members, staffand consultants, the Board has become involved in detailed decisions without the appropriate tools, such as staff analysisandrecommendations,tocarryout itsresponsibilities. • HSS and the Board lack a long-term business plan or goals to guide activities and identify areas needing focus, planning or change. Such a plan is critical to help prioritize issues that HSS will face on an annual and multi-year basis, and is an importantprocessforthenewlyindependentstatusofHSS. • Outdated Charter provisions that narrowly define the requirements for some appointed membersaffectthe Board'sabilityto governeffectively. Specifically,the requirement that a medical doctorand a memberofthe Board ofSupervisors serve should be made more flexible. Further. Charterrequirementsthat restrict HSS from funding administrative costs through its rates are preventing needed improvements intechnology,training,andprofessional managementsystems. • From our research ofbest practices for fiduciary boards, surveys we conducted in California counties and other local and state municipalities throughout the United States, and interviewswithexperts inthis field, we identifiedcommonelements for awell-functioningfiduciaryboard. WhilethesefindingspointtochangesthatareneededattheHealth Service System,wealso would like to emphasize that the management and the Board have made major improvements over the last three years. Flealth Service has an updated membership accounting system and has strengthened its internal controls and financial reporting, resulting inanannual financial audit from itsexternal auditors forFiscal Year2003-04that is freeofmaterial weaknesses. June29. 2005 Pfcge 3 In addition. HSN has transitioned the administration ofclaims processing for the City's self-insured health plan (City Plan) to a third-party administrator, which has greatly improved theefficiency ofclaimsprocessingand servicetothe members. This audit report provides the managementand the Board ofthe Health Service System an opportunity to augment the recent improvements and is especially important given the recent changes in status to an independent City department, the election ofa new Board member, and theappointmentofanew HSS Director. The overall audit conclusions are that improvements are needed in the governance ofthe Health Service System, including the Health Service Board's oversight ofthe annual rate- setting process, management of the Trust Fund, and monitoring of its contractors. In addition. HSS needs to better define appropriate roles and responsibilities among Board members. HSS staffand contractors, and adopt long-term business planning to guide its activities. Finally, changes are needed in Charter language that affects the Board and Systems ability to function effectively. Improvements in these areas will ensure that health care benefits are provided at affordable and cost-effective rates, the Trust Fund is managed prudently and in accordance with FISS goals and industry standards, and HSS is well positioned to address significant long-term cost management and other health care policyissues. The Department's response to the audit concurred with all ofthe recommendations and is attachedasAppendix Xofthisreport. We acknouledge the assistance and cooperation provided to the audit staffby the Health Service Svstem. the Department of Human Resources, and by the Health Service Board members. The Controller's Office will work with the department's management and the Boardto followupontherecommendationsmade inthisreport. Respectfullysubmitted. Fd Harrington Controller Digitized by the Internet Archive 2013 in http://archive.org/details/healthservicesys292005san TABLE OF CONTENTS ExecutiveSummary 1 Introduction 9 Chapter 1 15 The Rate-Setting Structure and ProcessisNot Effectivein Designing HealthCareBenefitsat Affordable, Cost-Effective Rates Chapter2 27 The Health Service Board is Not Sufficiently Focusedon Broad Policy Issues and Risk Management Chapter3 35 A Model foraMore Effective Health ServiceBoard AppendixA A-l Best Practices Survey Findings Appendix B B-l TermsofReference AppendixX Health Service SystemResponsetotheAudit X-l
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