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Health Care Case Study

Case #3664: Diagnostic Assessment of an HMO for its Board of Directors

After the leadership of a provider-owned HMO notified its Board in December 2003 that year-end results would be profitable, retroactive IBNR and Premium Deficiency Reserve (PDR) 'surprises' caused actual year-end results to be significantly unprofitable, a new PDR to be established and the 2003 year-end filing with the local Department of Insurance to be recast and re-filed. Concerned about these events, the Board caused HMO leadership to engage Questas to assess what went wrong and why, predict implications it would have on financial and strategic plans going forward and note any other issues it might find.

Questas undertook an 8-week engagement to assess and diagnose specific issues regarding management and financial oversight of the HMO and to form and offer an 'operating opinion' about the HMO.

Working in teams of two, the Questas cadre assessed and diagnosed the HMO. The first team addressed four key items in the critical Oversight & Management aspects of the Health Plan. The second team conducted a broad assessment of 14 groupings of HMO functions/processes spanning the entire Health Plan in order to form an 'Operating Opinion' about the HMO.

Engagement Highlights

  • Industry:
  • Health Insurance - HMO
  • Client:
  • A provider-owned, for-profit Health Maintenance Organization (HMO)
  • Assignment:
  • Assess oversight & management issues identified in the EOY 2003 financial close - IBNR, PDR, large group risk pool, financial and management reporting (with added review of RBC), role of Internal Audit
  • Review and assess all major functional areas/processes of the HMO
  • Develop and cast all findings/observations and recommendations into a work plan template - with Questas' assessment of risk and priority for each
  • Provide the template to HMO leadership with discussion regarding the process for completing actionable remedial plans
  • Develop an operating opinion about the HMO
  • Approach:
  • 1 Questas team for oversight & management issues; 1 team for operating opinion issues
  • Analyze and diagnose the HMO end-to-end; develop findings/observations and recommendations; prioritize by risk; load project plan template; discuss with leadership to gain input and insights; incorporate where necessary
  • Conduct analysis of top four 3rd party vendor contracts; make recommendations
  • Conduct interim briefings with acting CEO, COO and the Board - as needed
  • Duration:
  • 8 weeks


  • 52 significant findings in Oversight & Management areas; and 78 observations about the Operating Condition of the HMO - with appropriate recommendations for remedies
  • An Operating Opinion, with noted exceptions, vulnerabilities and reservations
  • Templates for the work plan that Client executives would complete and present to the CEO and Board; Client remedial program began in 4Q2004
  • Vendor Contract analyses - of major contracts - noting material shortcomings in several areas - which HMO leadership began to fix in 4Q2004
  • Briefed the HMO leadership, the Board and then, in a follow-on Board session, the new incoming CEO about the engagement and its findings & recommendations.

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