This review focuses on the performance of PEIA's administration and oversight of third party administrator (TPA) contracts. Over the past five and a half fiscal years, PEIA has spent $64 million for professional and contractual services. This amount represents 77% of administrative expenses over this time. With such a large percentage of administrative costs dedicated to outsourcing important administrative functions, PEIA needs to provide adequate oversight of these contracts to ensure customer satisfaction. The finding of this review is that although there is evidence that the PEIA monitors its contracts, in some respects the oversight is reactionary, undocumented, and unclear. The effect of this is that a reactionary approach allows poor performance to exist for relatively long periods of time. Undocumented oversight presents problems in resolving disputes with vendors which could become a more serious problem if the dispute goes to court. Unclear oversight creates a problem for the agency when an individual is absent or leaves the agency and the employees' responsibilities cannot be easily assumed by someone else.

Based on our review, the contracts appear to be the only written document by which the PEIA employees have guidance in monitoring contracts and vendor performance. The Legislative Auditor found there to be few individuals within the agency delegated to vendor performance monitoring and contract compliance assurance. There are only three individuals who are specifically assigned to contract administration of the four contracts reviewed. Their abilities to monitor TPA performance are hindered since they also handle tasks that range from plan development to customer service. For example, the person assigned to monitoring the Claims Administration contract is also responsible for customer service for claims, the Retiree Premium Assistance program, and Life Insurance. The person assigned to monitoring the Pharmacy Benefits contract is also responsible for answering correspondence concerning prescription drugs and benefits, customer service for drug benefits, attend fairs and hearings, and act as a liaison between PEIA and contractors.

Our review noted evidence of the results of contract monitoring. However, in some cases it is unclear the method in which these results were accomplished and additional supporting documentation was not available. The outcome is that PEIA's allegations of deficient TPA performance can and have been disputed. Concern also lies in whether these results were from diligent contract administration or after the fact customer complaints of the contractor's performance.

In addition to internal monitoring of contracts, PEIA requires its third party administrators (TPA) to have an independent review (SAS 70's) of their internal controls annually.

These reports are provided following the fiscal year and review the TPA's multiple control procedures in regards to claims processing, rebate processing services, eligibility files, etc. However, the meaningfulness of SAS 70 reviews of contractors' internal controls depends on the effectiveness of PEIA's internal controls. The SAS 70's noted were performed on TPA's that are no longer contracted with the PEIA, and the reports were submitted to PEIA subsequent to the expiration of the contracts. Therefore, SAS 70 audit's effectiveness is contingent upon PEIA's controls and whether the terms of the contracts are for one or multiple years.