oversight

Audit of BlueCross BlueShield of Massachusetts Boston, Massachusetts

Published by the Office of Personnel Management, Office of Inspector General on 2017-03-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

        U.S. OFFICE OF PERSONNEL MANAGEMENT
           OFFICE OF THE INSPECTOR GENERAL
                    OFFICE OF AUDITS




                       Final Audit Report

                               AUDIT OF
                BLUECROSS BLUESHIELD OF MASSACHUSETTS
                       BOSTON, MASSACHUSETTS

                                             Report Number 1A-10-11-16-027
                                                     March 27, 2017



                                                             -- CAUTION --
This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public version may
contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. § 1905, and the Privacy Act,
5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of Information Act and made publicly available on
the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version should not be further released unless authorized by the OIG.
                EXECUTIVE SUMMARY
                                       Audit of BlueCross BlueShield of Massachusetts

Report No. 1A-10-11-16-027                                                                                                                      March 27, 2017



 Why did we conduct the audit?                               What did we find?

 We conducted this limited scope audit                       We questioned $111,434 in administrative expense overcharges
 to obtain reasonable assurance that                         and lost investment income (LII). We also identified a procedural
 BlueCross BlueShield of                                     finding regarding the Plan’s F&A Program. The BlueCross
 Massachusetts (Plan) is complying                           BlueShield Association (Association) and Plan agreed with all of
 with the provisions of the Federal                          the questioned amounts and partially agreed with the procedural
 Employees Health Benefits Act and                           finding regarding the F&A Program.
 regulations that are included, by
 reference, in the Federal Employees                         Our audit results are summarized as follows:
 Health Benefits Program (FEHBP)                             	 Miscellaneous Health Benefit Payments and Credits – The
 contract. Specifically, the objectives                         audit disclosed no findings pertaining to miscellaneous health
 of our audit were to determine if the                          benefit payments and credits. Overall, we concluded that the
 Plan charged costs to the FEHBP and                            Plan timely returned health benefit refunds and recoveries to
 provided services to FEHBP members                             the FEHBP and properly charged miscellaneous payments to
 in accordance with the terms of the                            the FEHBP.
 contract.
                                                             	 Administrative Expenses – We questioned $111,434 in
 What did we audit?                                             administrative expenses and LII, consisting of $88,323 for idle
                                                                facility cost overcharges, $14,794 for unallowable and/or
 Our audit covered miscellaneous                                unallocable natural account expenses, $2,445 for a share of an
 health benefit payments and credits                            administrative expense reimbursement credit, $1,262 for post-
 and administrative expenses from                               retirement benefit cost overcharges, and $4,610 for LII on the
 2011 through 2015 as reported in the                           questioned overcharges. We verified that the Plan has returned
 Annual Accounting Statements.                                  these questioned amounts to the FEHBP.
 We also reviewed the Plan’s cash
                                                             	 Cash Management – The audit disclosed no findings pertaining
 management activities and practices
                                                                to the Plan’s cash management activities and practices.
 related to FEHBP funds from 2011
                                                                Overall, we determined that the Plan handled FEHBP funds in
 through 2015, as well as the Plan’s
                                                                accordance with Contract CS 1039 and applicable laws and
 Fraud and Abuse (F&A) Program
                                                                regulations.
 activities from January 1, 2015,
 through March 31, 2016.                                     	 Fraud and Abuse Program – The Association and Plan are not
                                                                in total compliance with the communication and reporting
                                                                requirements for fraud and abuse cases that are set forth in
                                                                FEHBP Carrier Letter 2014-29.
  _______________________
  Michael R. Esser
  Assistant Inspector General
  for Audits                                                                   i
         This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
         information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                             ABBREVIATIONS


   Association                    BlueCross BlueShield Association
   BCBS                           BlueCross BlueShield or BlueCross and/or BlueShield
   CL                             Carrier Letter
   CFR                            Code of Federal Regulations
   Contract                       Contract CS 1039
   FAR                            Federal Acquisition Regulations
   FEP                            Federal Employee Program
   FEPDO                          Federal Employee Program Director’s Office
   FEHB                           Federal Employees Health Benefits
   FEHBAR                         Federal Employees Health Benefits Acquisition Regulations
   FEHBP                          Federal Employees Health Benefits Program
   F&A                            Fraud and Abuse
   FIMS                           Fraud Information Management System
   HPCM                           Hyperion Profitability Cost Management
   LOCA                           Letter of Credit Account
   LII                            Lost Investment Income
   NASCO                          National Account Service Company
   OIG                            Office of the Inspector General
   OPM                            Office of Personnel Management
   Plan                           BlueCross BlueShield of Massachusetts
   SIU                            Special Investigations Unit
   SPI                            Special Plan Invoice
   TPS                            Total Processing System




                                                                        ii
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                    TABLE OF CONTENTS

                                                                                                                                          Page

                EXECUTIVE SUMMARY ......................................................................................... i 


                ABBREVIATIONS ..................................................................................................... ii 


     I.         BACKGROUND ..........................................................................................................1 


     II.        OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................3 


     III.       AUDIT FINDINGS AND RECOMMENDATIONS.................................................8


                A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........8


                B. ADMINISTRATIVE EXPENSES...........................................................................8 


                      1.    Idle Facility Costs ..............................................................................................8 

                      2.    Unallowable and/or Unallocable Natural Accounts ........................................11 

                      3.    Administrative Expense Reimbursement Credit ..............................................13 

                      4.    Post-Retirement Benefit Costs .........................................................................15 


                C. CASH MANAGEMENT .......................................................................................17 


                D. FRAUD AND ABUSE PROGRAM .....................................................................17 


                      1. Special Investigations Unit ..............................................................................17 


     IV.        SCHEDULE A – QUESTIONED CHARGES

                APPENDIX: BlueCross BlueShield Association’s Draft Report Response, dated
                February 6, 2017

                REPORT FRAUD, WASTE, AND MISMANAGEMENT




This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                            I. BACKGROUND

This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
BlueCross BlueShield of Massachusetts (Plan). The Plan is located in Boston, Massachusetts.

The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law
86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

The BlueCross BlueShield Association (Association), on behalf of participating local BlueCross
and/or BlueShield (BCBS) plans, has entered into a Government-wide Service Benefit Plan
contract (contract or CS 1039) with OPM to provide a health benefit plan authorized by the
FEHB Act. The Association delegates authority to participating local BCBS plans throughout
the United States to process the health benefit claims of its federal subscribers. The Plan is one
of 36 BCBS companies participating in the FEHBP. These 36 companies include 64 local BCBS
plans.

The Association has established a Federal Employee Program (FEP1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BCBS plans, and OPM.

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst BCBS, located in Owings Mills, Maryland and
Washington, D.C. These activities include acting as intermediary for claims processing between
the Association and local BCBS plans, processing and maintaining subscriber eligibility,
adjudicating member claims on behalf of BCBS plans, approving or disapproving the

1
  Throughout this report, when we refer to "FEP", we are referring to the Service Benefit Plan lines of business at
the Plan. When we refer to the "FEHBP", we are referring to the program that provides health benefits to federal
employees.


                                                                         1                            Report No. 1A-10-11-16-027
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information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
    reimbursement of local plan payments of FEHBP claims (using computerized system edits),
    maintaining a history file of all FEHBP claims, and maintaining claims payment data and related
    financial data in support of the Association’s accounting of all program funds.

    Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
    Association and Plan management. Also, working in partnership with the Association,
    management of the Plan is responsible for establishing and maintaining a system of internal
    controls.

    All findings from our previous audit of the Plan (Report No. 1A-10-11-11-058, dated June 14,
    2012), for contract years 2006 through 2010 have been satisfactorily resolved.

    The results of this audit were provided to the Plan in written audit inquiries; were discussed with
    Plan and/or Association officials throughout the audit and at an exit conference on November 15,
    2016; and were presented in detail in a draft report, dated December 15, 2016. The
    Association’s comments offered in response to the draft report were considered in preparing our
    final report and are included as an Appendix to this report.




                                                                             2                            Report No. 1A-10-11-16-027
    This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
    information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
.
II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were as follows:

           Miscellaneous Health Benefit Payments and Credits

           	 To determine whether miscellaneous payments charged to the FEHBP were in
              compliance with the terms of the contract.

           	 To determine whether credits and miscellaneous income relating to FEHBP benefit
              payments were returned timely to the FEHBP.

           Administrative Expenses

           	 To determine whether administrative expenses charged to the contract were actual,
              allowable, necessary, and reasonable expenses incurred in accordance with the terms
              of the contract and applicable regulations.

           Cash Management

           	 To determine whether the Plan handled FEHBP funds in accordance with applicable
              laws and regulations concerning cash management in the FEHBP.

           Fraud and Abuse Program

           	 To determine whether the Plan's communication and reporting of fraud and abuse
              cases were in compliance with the terms of Contract CS 1039 (contract) and FEHBP
              Carrier Letter 2014-29.




                                                                         3	                           Report No. 1A-10-11-16-027
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information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
SCOPE

We conducted our limited scope performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 200 and 700 for contract years 2011 through 2015. During this period, the
Plan paid approximately $2.5 billion in FEHBP health benefit payments and charged the FEHBP
$152.5 million in administrative expenses.


                                             BlueCross BlueShield of Massachusetts
                                                       Contract Charges

                                           600


                                           400
                              $ Millions




                                           200


                                             0
                                                  2011       2012         2013          2014         2015
                                                                    Contract Years
                                                 Health Benefit Payments          Administrative Expenses


Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
provider settlements, fraud recoveries, and special plan invoices), cash management activities,
and administrative expenses from 2011 through 2015. We also reviewed the Plan’s Fraud and
Abuse (F&A) Program activities from January 1, 2015, through March 31, 2016.

In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving the Plan’s internal control structure
and its operations. However, since our audit would not necessarily disclose all significant

                                                                         4                            Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
matters in the internal control structure, we do not express an opinion on the Plan’s system of
internal controls taken as a whole.

We also conducted tests to determine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items tested, the Plan did not comply with all provisions of the contract and federal procurement
regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings
and Recommendations" section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director’s Office and the Plan. Due to time constraints, we did not verify the reliability
of the data generated by the various information systems involved. However, while utilizing the
computer-generated data during our audit, nothing came to our attention to cause us to doubt its
reliability. We believe that the data was sufficient to achieve our audit objectives.

The audit was performed at the Plan’s office in Boston, Massachusetts on various dates from
July 25, 2016, through September 30, 2016. Audit fieldwork was also performed at our offices
in Jacksonville, Florida and Washington, D.C. through November 15, 2016. Throughout the
audit process, the Plan did an excellent job providing complete and timely responses to our
numerous requests for supporting documentation. We greatly appreciated the Plan’s exceptional
cooperation and responsiveness during the pre-audit and fieldwork phases of this audit.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial, cost accounting,
and cash management systems by inquiry of Plan officials.

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. From 2011
through 2015, the Plan processed health benefit payments and recoveries using the Total
Processing System (TPS). In May 2014, the Plan started transitioning the health benefit payment
and recovery processing functions to the National Account Service Company (NASCO) System.
For the audit scope, we judgmentally and/or statistically selected and reviewed the following
FEP items from both systems:



                                                                         5                            Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
     Health Benefit Refunds – TPS

     	 A high dollar sample of 44 FEP health benefit refunds returned via auto recoupments,
        totaling $5,746,836 (from a universe of        FEP health benefit refunds returned via
        auto recoupments, totaling $            ). Our high dollar sample included all auto
        recoupments of $         or more.

     	 A high dollar sample of 65 FEP health benefit refund cash receipts, totaling $3,887,506,
        and a statistical sample of 76 FEP health benefit refund receipts, totaling $527,486 (from
        a universe of         FEP refund receipt amounts, totaling $              ). Our high dollar
        sample included all refund receipt amounts of $30,000 or more and our statistical sample
        included refunds selected from a stratification of receipt amounts from $250 through
        $30,000.

     Health Benefit Refunds – NASCO System

     	 A high dollar sample of 31 FEP health benefit refunds returned via auto recoupments,
        totaling $2,701,735 (from a universe of        FEP health benefit refunds returned via
        auto recoupments, totaling $            ). Our high dollar sample included all auto
        recoupments of $         or more.

     	 A high dollar sample of 22 FEP health benefit refund cash receipts, totaling $1,085,012,
        and a statistical sample of 72 FEP health benefit refund receipts, totaling $650,276 (from
        a universe of        FEP refund receipt amounts, totaling $            ). Our high dollar
        sample included all refund receipt amounts of $15,000 or more and our statistical sample
        included refunds selected from a stratification of receipt amounts greater than $250 but
        less than $15,000.

     Other Health Benefit Payments, Credits, and Recoveries

     	 20 high dollar special plan invoices (SPI), totaling $10,578,773 in net FEP payments,
        from a universe of      SPI’s, totaling $            in net FEP payments. Based on our
        nomenclature review, we selected 15 SPI’s with high dollar charge amounts and 5 SPI’s
        with high dollar credit amounts for SPI pay codes related to miscellaneous health benefit
        payments and credits.

     	 8 hospital settlements, totaling $1,736,718 in net credits, from a universe of   hospital
        settlements, totaling $           in net credits. For this sample, we selected two hospital
        settlement amounts that were charged to the FEHBP and six hospital settlement amounts


                                                                         6	                           Report No. 1A-10-11-16-027
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information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           that were credited to the FEHBP. We selected both charge and credit amounts that were
           greater than $100,000.

     	 8 fraud settlement recoveries, totaling $541,687, from a universe of    fraud settlement
        recoveries, totaling $       . Our sample included all fraud settlement recovery
        amounts that were greater than $         .

We reviewed these samples to determine if health benefit refunds and recoveries were timely
returned to the FEHBP and if miscellaneous payments were properly charged to the FEHBP.
The results of these samples were not projected to the universe of miscellaneous health benefit
payments and credits, since there were no exceptions.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2011 through 2015. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, pension, post-retirement, non-recurring projects, out-of-system adjustments,
and prior period adjustments.2 We also reviewed administrative expenses relating to the
Patient Protection and Affordable Care Act that were allocated and charged to the FEHBP
(i.e., health insurance provider, transitional reinsurance, and “Patient-Centered Outcomes
Research Institute” fees). We used the FEHBP contract, the FAR, the FEHBAR, and/or the
Affordable Care Act (Public Law 111-148) to determine the allowability, allocability, and
reasonableness of the charges.

We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 1039 and applicable laws and regulations.
Specifically, we reviewed letter of credit account (LOCA) drawdowns, working capital
calculations, adjustments and/or balances, and interest income transactions from 2011 through
2015, as well as the Plan’s dedicated FEP investment account activity during the scope and
balance as of December 31, 2015.

We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
F&A Program, as well as reviewed the Plan’s communication and reporting of fraud and abuse
cases to test compliance with Contract CS 1039 and FEHBP Carrier Letter 2014-29.


2
  The Plan allocated administrative expenses of $              to the FEHBP from      cost centers and      natural
accounts. From this universe, we selected and reviewed a judgmental sample of 45 cost centers, which totaled
$60,727,967 in expenses allocated to the FEHBP. We also selected and reviewed a judgmental sample of 28 natural
accounts, which totaled $24,159,087 in expenses allocated to the FEHBP. We selected these cost centers and
natural accounts based on high dollar amounts, high dollar allocation methods, and our nomenclature review and
trend analysis. We reviewed the expenses from these cost centers and natural accounts for allowability, allocability,
and reasonableness. The results of these samples were not projected to the universe of administrative expenses.

                                                                         7	                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
III.
  IV. AUDIT
       MAJORFINDINGS AND RECOMMENDATIONS
             CONTRIBUTORS  TO THIS REPORT
 A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

      The audit disclosed no findings pertaining to miscellaneous health benefit payments and
      credits. Overall, we concluded that the Plan timely returned health benefit refunds and
      recoveries to the FEHBP and properly charged miscellaneous payments to the FEHBP.

 B. ADMINISTRATIVE EXPENSES

      1.	 Idle Facility Costs                                                                                                          $91,809

            During our pre-audit phase, the Plan self-disclosed overcharges of $88,323 to the FEHBP
            for idle facility costs that were incurred from 2012 through 2015. As a result, the Plan
            returned $91,809 to the FEHBP for this audit finding, consisting of $88,323 for idle
            facility cost overcharges and $3,486 for applicable lost investment income (LII).

            Contract CS 1039, Part III, Section 3.2 (b)(1) states, “The Carrier may charge a cost to
            the contract for a contract term if the cost is actual, allowable, allocable, and reasonable.”

            48 CFR 31.205-17(b) states, “The costs of idle facilities are unallowable unless the
            facilities -
            1.	 Are necessary to meet fluctuations in workload; or
            2.	 Were necessary when acquired and are now idle because of changes in requirements,
                production economies, reorganization, termination, or other causes which could not
                have been reasonably foreseen. (Costs of idle facilities are allowable for a reasonable
                period, ordinarily not to exceed 1 year, depending upon the initiative taken to use,
                lease, or dispose of the idle facilities . . . .”

            FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall
            bear simple interest from the date due . . . The interest rate shall be the interest rate
            established by the Secretary of the Treasury as provided in 41 U.S.C. 7109, which is
            applicable to the period in which the amount becomes due, as provided in paragraph (e)
            of this clause, and then at the rate applicable for each six-month period as fixed by the
            Secretary until the amount is paid.”

            Regarding reportable monetary findings, Contract CS 1039, Part III, Section 3.16 (a),
            states, “Audit findings . . . in the scope of an OIG audit are reportable as questioned
            charges unless the Carrier provides documentation supporting that the findings were

                                                                          8	                           Report No. 1A-10-11-16-027
 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           already identified and corrected (i.e., administrative expense overcharges . . . were
           already . . . returned to the FEHBP) prior to audit notification.”

                                              While preparing for our audit, the Plan determined that
              The Plan overcharged the
                                              the occupancy costs that were allocated and charged to
               FEHBP $88,323 for idle
                                              the FEHBP for 2012 through 2015 included
               facility costs during the
                                              adjustments that were calculated using incorrect
                      audit scope.
                                              vacancy rates. The Plan performed an analysis of
           vacant space for three of the company’s facilities in Massachusetts. The Plan
           recalculated the FEP’s vacant space adjustments using industry standard rates (as
           determined by Colliers International). We reviewed and accepted the Plan’s analysis and
           recalculations of the vacant space adjustments for FEP.

           The following summarizes the exceptions noted:

           	 In 2012, the Plan allocated and charged occupancy costs to the FEHBP for the
              company’s Landmark building, which also included an adjustment for a 13 percent
              vacancy rate. During our pre-audit phase, the Plan recalculated this adjustment using
              an industry standard vacancy rate of 7 percent, resulting in an occupancy cost
              overcharge of $19,133 to the FEHBP. As a result, we are questioning $20,578 for
              this exception, consisting of $19,133 for the idle facility cost overcharge and $1,445
              for applicable LII.

           	 In 2013, the Plan allocated and charged occupancy costs to the FEHBP for the
              company’s Landmark building, which also included an adjustment for a 10 percent
              vacancy rate. During our pre-audit phase, the Plan recalculated this adjustment using
              an industry standard vacancy rate of 6 percent, resulting in an occupancy cost
              overcharge of $10,116 to the FEHBP. As a result, we are questioning $10,723 for
              this exception, consisting of $10,116 for an idle facility cost overcharge and $607 for
              applicable LII.

           	 In 2014, the Plan allocated and charged occupancy costs to the FEHBP for the
              Landmark and One Enterprise buildings. These occupancy costs also included
              adjustments for 11 percent and 18 percent vacancy rates by the Landmark and One
              Enterprise buildings, respectively. During our pre-audit phase, the Plan recalculated
              these adjustments using industry standard vacancy rates of 6 percent for the
              Landmark building and 16 percent for the One Enterprise building, resulting in
              occupancy cost overcharges of $19,016 to the FEHBP for these buildings. As a



                                                                         9	                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                result, we are questioning $19,766 for these exceptions, consisting of $19,016 for idle
                facility cost overcharges and $750 for applicable LII.

           	 In 2015, the Plan allocated occupancy costs to the FEHBP for the Huntington, One
              Enterprise, and Hingham buildings. These occupancy costs also included adjustments
              for 21 percent, 20 percent, and 21 percent vacancy rates by the Huntington, One
              Enterprise, and Hingham buildings, respectively. During our pre-audit phase, the
              Plan recalculated these adjustments using industry standard vacancy rates of 15
              percent for the Huntington building, 12 percent for the One Enterprise building, and
              12 percent for the Hingham building. The Plan’s recalculated adjustments resulted in
              occupancy cost overcharges of $40,058 to the FEHBP for these buildings. As a
              result, we are questioning $40,742 for these exceptions, consisting of $40,058 for idle
              facility cost overcharges and $684 for applicable LII.

           In total, we are questioning $91,809 for this audit finding, consisting of $88,323 ($19,133
           plus $10,116 plus $19,016 plus $40,058) for idle facility cost overcharges and $3,486
           ($1,445 plus $607 plus $750 plus $684) for LII calculated through September 30, 2016.

           Association Response:

           The Association and Plan agree with this finding.

           OIG Comment:

           As part of our review, we verified that the Plan returned $91,809 to the FEHBP in
           September and October 2016 for this audit finding, consisting of $88,323 for the
           questioned idle facility costs and $3,486 for applicable LII.

           Recommendation 1

           We recommend that the contracting officer require the Plan to return $88,323 to the
           FEHBP for the questioned idle facility costs. However, since we verified that the Plan
           returned $88,323 to the FEHBP for these questioned idle facility costs, no further action
           is required for this amount.




                                                                         10 	                         Report No. 1A-10-11-16-027
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information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           Recommendation 2

           We recommend that the contracting officer require the Plan to return $3,486 to the
           FEHBP for LII on the questioned idle facility costs. However, since we verified that the
           Plan returned $3,486 to the FEHBP for the questioned LII, no further action is required
           for this LII amount.

     2. Unallowable and/or Unallocable Natural Accounts                                                                               $15,918

           During our pre-audit phase, the Plan self-disclosed that unallowable and/or unallocable
           natural account expenses of $14,794 were charged to the FEHBP in 2012. As a result,
           the Plan returned $15,918 to the FEHBP for this audit finding, consisting of $14,794 for
           these unallowable and/or unallocable natural account expenses and $1,124 for applicable
           LII.

           As previously citied from Contract CS 1039, costs charged to the FEHBP must be actual,
           allowable, allocable, and reasonable.

           48 CFR 31.201-4 states, “A cost is allocable if it is assignable or chargeable to one or
           more cost objectives on the basis of relative benefits received or other equitable
           relationship. Subject to the foregoing, a cost is allocable to a Government contract if it -
               (a) Is incurred specifically for the contract;
               (b) Benefits both the contract and other work, and can be distributed to them in
                   reasonable proportion to the benefits received; or
               (c) Is necessary to the overall operation of the business, although a direct relationship
                   to any particular cost objective cannot be shown.”

           As previously cited from FAR 52.232-17(a), all amounts that become payable by the
           Carrier should include simple interest from the date due.

           Regarding reportable monetary findings, Contract CS 1039, Part III, Section 3.16 (a),
           states, “Audit findings . . . in the scope of an OIG audit are reportable as questioned
           charges unless the Carrier provides documentation supporting that the findings were
           already identified and corrected (i.e., administrative expense overcharges . . . were
           already . . . returned to the FEHBP) prior to audit notification.”




                                                                         11                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           For the period 2011 through 2015, the Plan allocated administrative expenses of
           $117,149,816 (before adjustments) to the FEHBP from 235 natural accounts. From this
           universe, we selected a judgmental sample of 28 natural accounts to review, which
           totaled $24,159,087 in expenses allocated to the FEHBP. We selected these natural
           accounts based on high dollar amounts, a nomenclature review, and our trend analysis.
           We reviewed the expenses from these natural accounts for allowability, allocability, and
           reasonableness.

           While preparing for the audit, the Plan identified several natural account expense
           amounts, totaling $14,794, from the company’s global account exclusion listing that were
           incorrectly allocated and charged to the FEP in November 2012. The Plan stated, “When
           the final November 2012 administrative cost allocation run was executed, the global
           exclusion list file that was loaded to the
                     allocation system was not properly updated to reflect the correct code and
           period for the November 2012 administrative expense processing. The file should have
           included the code ‘Actual’ and the period ‘NOV-12’. Instead the global account
           exclusion file contained the code ‘Budget’ and the period ‘JAN-13’ (used for the
           financial plan processing). This error caused the          system to not appropriately
           apply the global account exclusion logic.”

           The following schedule is a summary of these questioned natural account expenses that
           were inappropriately charged to the FEHBP in 2012.


             Natural Account                                      Natural Account                                         Amount
                Number                                                Name                                               Questioned
                     63450                 Cafe Expenses                                                                    $
                     61643                 Retiree – FASB 106
                     66103                 Promotional Literature, Other
                     65015                 Legal Consulting
                     63436                 Municipal Taxes
                     61221                 Massachusetts State Unemployment Insurance
                     66080                 Public/Account Relations
                     65645                 NASCO Transaction Charges
                     61930                 Bank Fees - Other Banks
                     63099                 Government - Non-Allowable Travel
                     61800                 RIT/Savings Plan
                     Total                                                                                                  $14,794

                                                                         12                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           For our sample of natural accounts, we did not identify additional unallowable and/or
           unallocable charges. In total, we are questioning $15,918 for this audit finding,
           consisting of $14,794 for unallowable and/or unallocable natural account charges that
           were self-disclosed by the Plan and $1,124 for applicable LII (calculated through
           September 30, 2016).

           Association Response:

           The Association and Plan agree with this finding.

           OIG Comment:

           As part of our review, we verified that the Plan returned $15,918 to the FEHBP in 

           September and October 2016 for this audit finding, consisting of $14,794 for the 

           questioned natural account expenses and $1,124 for applicable LII.


           Recommendation 3

           We recommend that the contracting officer require the Plan to return $14,794 to the
           FEHBP for the questioned natural account expenses. However, since we verified that the
           Plan returned $14,794 to the FEHBP for these questioned expenses, no further action is
           required for this amount.

           Recommendation 4

           We recommend that the contracting officer require the Plan to return $1,124 to the
           FEHBP for LII on the questioned natural account expenses. However, since we verified
           that the Plan returned $1,124 to the FEHBP for the questioned LII, no further action is
           required for this LII amount.

     3. Administrative Expense Reimbursement Credit                                                                                     $2,445

           Our audit determined that the Plan had not credited the FEHBP a share of an
           administrative expense reimbursement applicable to support activities provided by the
           Plan to NASCO. As a result of this audit finding, the Plan returned $2,445 to the FEHBP
           for FEP’s allocable share of this administrative expense reimbursement credit.




                                                                         13                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or
           other credit relating to any allowable cost and received by or accruing to the contractor
           shall be credited to the Government either as a cost reduction or by cash refund.”

           For 2015, the Plan allocated administrative expenses of $           to the FEHBP using
              direct and non-direct allocation methods. From this universe, we selected a
           judgmental sample of five non-direct allocation methods to review, which totaled
           $3,152,366 of the expenses allocated to the FEHBP. We selected these non-direct
           allocation methods based on high dollar amounts. We reviewed these allocation methods
           for reasonableness and verified that the methods were adequately supported.

                                              During our review, we identified that the Plan had not
             The Plan had not credited        credited the FEHBP an allocable share of an
               the FEHBP $2,445 for a         administrative expense credit in 2015. The Plan stated
             share of an administrative       that an expense credit of $        was received from
                expense credit in 2015.       NASCO in 2015 for support activities a Plan employee
                                              provided to NASCO.3 As part of the agreement for a
           Plan employee to perform NASCO support activities, NASCO provided a monthly credit
           to reimburse the Plan for these services. The natural account used to capture this expense
           credit in the “Claims Operations Management” cost center is included in the company’s
           global account exclusion that does not allocate expenses to the FEP. Therefore, there was
           no allocation to the FEP for the reimbursement of this monthly credit. The Plan stated
           that the expenses for the employee performing these services were captured in the
           “External Partnerships” cost center that had an FEP allocation of      percent in 2015.
           This NASCO expense credit should also have been recorded in the “External
           Partnerships” cost center but was not.

           As a result of our discovery, the Plan calculated FEP’s allocable share of this NACSO
           administrative expense credit to be $2,445 (      percent of $        ). We reviewed and
           accepted the Plan’s calculation. Since the calculated LII on this questioned amount is
           immaterial, we did not include LII for this audit finding.

           Association Response:

           The Association and Plan agree with this finding.




3
    NASCO provides claims processing solutions to BCBS plans.

                                                                         14                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           OIG Comment:

           As part of our review, we verified that the Plan returned $2,445 to the FEHBP on 

           November 1, 2016, for this audit finding.


           Recommendation 5

           We recommend that the contracting officer require the Plan to return $2,445 to the
           FEHBP for the questioned administrative expense reimbursement credit. However, since
           we verified that the Plan returned $2,445 to the FEHBP for this questioned
           reimbursement credit, no further action is required for this amount.

     4. Post-Retirement Benefit Costs                                                                                                   $1,262

           During our pre-audit phase, the Plan self-disclosed overcharges of $1,262 (net) to the
           FEHBP for post-retirement benefit (PRB) costs that were incurred from 2013 through
           2015. As a result, the Plan returned $1,262 (net) to the FEHBP for these questioned PRB
           overcharges.

           As previously citied from Contract CS 1039, costs charged to the FEHBP must be actual,
           allowable, allocable, and reasonable.

           48 CFR 31.205-6(o) states, “(1) PRB covers all benefits, other than cash benefits and life
           insurance benefits paid by pension plans, provided to employees, their beneficiaries, and
           covered dependents during the period following the employees' retirement. Benefits
           encompassed include, but are not limited to, postretirement health care; life insurance
           provided outside a pension plan; and other welfare benefits such as tuition assistance, day
           care, legal services, and housing subsidies provided after retirement. (2) To be allowable,
           PRB costs shall be incurred pursuant to law, employer-employee agreement, or an
           established policy of the contractor, and shall comply with paragraphs (o)(2)(i), (ii), or
           (iii) of this subsection.”

           Regarding reportable monetary findings, Contract CS 1039, Part III, Section 3.16 (a),
           states, “Audit findings . . . in the scope of an OIG audit are reportable as questioned
           charges unless the Carrier provides documentation supporting that the findings were
           already identified and corrected (i.e., administrative expense overcharges . . . were
           already . . . returned to the FEHBP) prior to audit notification.”




                                                                         15                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           The Plan used the cash (or pay-as-you-go) method to charge the FEHBP for PRB costs
           from 2011 through 2015. A few of the PRB’s offered by the Plan included retiree
           medical health plans, retiree dental health plans, and retiree group life insurance.

                                     While preparing for our audit, the Plan determined that the
                  The Plan
                                     FEHBP was overcharged $1,262 (net) for PRB costs in 2013,
              overcharged the
                                     2014, and 2015. Specifically, the Plan calculated that the
             FEHBP $1,262 (net)
                                     FEHBP was undercharged by $6,452 in 2013, overcharged by
               for PRB costs.
                                     $6,175 in 2014, and overcharged by $1,539 in 2015. We
           reviewed and accepted the Plan’s calculations of these PRB over- and undercharges to
           the FEHBP. We also reviewed the Plan’s calculations of the PRB costs charged to the
           FEHBP in 2011 and 2012 and determined that these costs were calculated in accordance
           with 48 CFR 31.205-6(o).

           Since LII is immaterial on the PRB overcharges, we did not question LII for this audit
           finding.

           Association Response:

           The Association and Plan agree with this finding.

           OIG Comment:

           As part of our review, we verified that the Plan returned $1,262 ($6,175 plus $1,539
           minus $6,452) to the FEHBP in September 2016 for the questioned PRB net overcharges.

           Recommendation 6

           We recommend that the contracting officer require the Plan to return $7,714 ($6,175 plus
           $1,539) to the FEHBP for the questioned PRB overcharges in 2014 and 2015. However,
           since we verified that the Plan returned $7,714 to the FEHBP for these PRB overcharges,
           no further action is required for this questioned amount.

           Recommendation 7

           We recommend that the contracting officer allow the Plan to charge the FEHBP $6,452
           for PRB costs that were undercharged to the FEHBP in 2013. However, since we
           verified that the Plan already charged $6,452 to the FEHBP for this PRB undercharge, no
           further action is required for this questioned amount.


                                                                         16                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
C. CASH MANAGEMENT

     The audit disclosed no findings pertaining to the Plan’s cash management activities and
     practices. Overall, we concluded that the Plan handled FEHBP funds in accordance with
     Contract CS 1039 and applicable laws and regulations.

D. FRAUD AND ABUSE PROGRAM

     1. Special Investigations Unit                                                                                             Procedural

                                                The Plan and the Association’s FEP Director’s Office
              The Plan and FEPDO did
                                                (FEPDO) are not in total compliance with the
                not report, or did not
                                                communication and reporting requirements for fraud and
             timely report, all fraud and
                                                abuse cases that are set forth in FEHBP Carrier Letter
               abuse cases to the OIG.
                                                (CL) 2014-29. Specifically, the Plan and FEPDO did not
           report, or did not timely report, all fraud and abuse cases to the OIG. This non-compliance
           may be due in part to incomplete and/or untimely reporting of fraud and abuse cases to the
           FEPDO by the Plan, as well as inadequate controls at the FEPDO to monitor and
           communicate the Plan’s cases to the OIG. Without awareness of these existing potential
           fraud and abuse issues, the OIG cannot investigate the broader impact of these potential
           issues on the FEHBP as a whole.

           CL 2014-29 (Office of Personnel Management Federal Employees Health Benefits Fraud,
           Waste and Abuse), dated December 19, 2014, states that all Carriers “are required to
           submit a written notification to the OPM-OIG within 30 working days when there is
           potential reportable FWA that has occurred against the FEHB Program. OPM-OIG
           considers a potential reportable FWA as, after preliminary review of the complaint the
           carrier takes an affirmative step to investigate the complaint.” There is no dollar threshold
           for this requirement.

           The FEPDO is primarily responsible for timely reporting fraud and abuse cases to the
           OIG (i.e., within 30 working days of becoming aware of a fraud or abuse issue). In order
           to comply with this timeliness requirement, the FEPDO requires the BCBS plans to enter
           fraud and abuse cases into the Fraud Information Management System (FIMS). FIMS is
           a multi-user, web-based FEP case-tracking database that the FEPDO’s Special
           Investigations Unit (SIU) developed in-house. FIMS is used by the BCBS plans’ SIUs
           and the FEPDO’s SIU to track and report potential fraud and abuse activities. The
           FEPDO is responsible for the maintenance and oversight of this system as well as
           reporting to the OIG all fraud and abuse cases that are entered into FIMS by the plans.

                                                                         17                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           For the period January 1, 2015, through March 31, 2016, the Plan opened 36 fraud and
           abuse cases with potential FEP exposure. Based on our review of these 36 cases, we
           determined that the FEPDO did not report 1 case to the OIG and untimely reported 9 cases.
           The remaining 26 cases were timely reported to the OIG. In addition, although the Plan is
           substantially compliant, we found that the Plan had not reported one of the opened cases
           into FIMS and also untimely reported one of these opened cases into FIMS, which may
           have contributed to the FEPDO not reporting or not timely reporting cases to the OIG.

                             Cases Opened with FEHBP Exposure (as Identified by the Plan)


                                                     9
                                                                                                               Not Reported
                                               1
                                                                     26                                        Reported Late
                                                                                                               Reported Timely




           Ultimately, both the Plan’s not reporting or untimely reporting of potential FEP cases to
           the FEPDO’s SIU and the FEPDO SIU’s inadequate controls to monitor the Plan’s FIMS
           entries, and notify the OIG, have resulted in a failure to meet the communication and
           reporting requirements that are set forth in CL 2014-29. Timely case notifications allow
           the OIG to investigate whether other FEHBP Carriers are exposed to the identified
           fraudulent activity. Consequently, the untimely or lack of OIG notification may result in
           additional improper payments being made by other FEHBP Carriers.

           Recommendation 8

           We recommend that the contracting officer require the Association to provide evidence or
           supporting documentation ensuring that the Plan has implemented the necessary
           procedural changes to meet the communication and reporting requirements of fraud and
           abuse cases that are contained in CL 2014-29. We also recommend that the contracting
           officer instruct the Association to provide the Plan with more oversight to ensure the
           timely and complete entry of all FEP fraud and abuse cases into FIMS, and concurrently,
           timely and complete communication of those cases to the OIG.




                                                                          18                          Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           Association Response:

           The Association states, “The Plan’s policies and procedures are in accordance with the
           FEPDO Fraud Waste and Abuse Manual which is compliant with CL 2014-29. A
           manual processing error resulted in one case not being reported in FIMS and one case
           that was not reported timely. As a corrective action; the Plan provided training to the
           affected staff on the FWA Manual and FIMS reporting process and the case OIG cited
           as not being reported was subsequently reported in FIMS.”

           Recommendation 9

           We recommend that the contracting officer require the Association to provide evidence or
           supporting documentation ensuring that the FEPDO’s SIU has implemented the
           necessary procedural changes to meet the communication and reporting requirements of
           fraud and abuse cases that are contained in CL 2014-29.

           Association Response:

           The Association states, “BCBSA respectfully disagrees with this recommendation.
           BCBSA reviewed and modified its processes and revised its Fraud Waste and Abuse
           Manual in order to ensure compliance with CL 2011-13 and CL 2014-29 (Federal
           Employees Health Benefits Fraud, Waste, and Abuse).”

           The Association also states, “BCBSA agrees that 9 cases out of 36 cases (with FEP
           exposure), or 25%, were not reported timely, ranging from 2 to 112 days after the case
           entry into FIMS. This determination is based on the authoritative guidance given to
           BCBS Plan SIUs, to calculate timeliness from the date of FIMS entry (as evidence of
           an affirmative action being taken) and the number of working days, excluding federal
           holidays, to the OPM OIG notification date. BCBSA continues to disagree that two
           cases were not reported timely based on the FEPDO FWA Manual instructions to the
           Plans.”




                                                                         19                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
           OIG Comment:

           We continue to recommend that the contracting officer direct the Association to provide
           evidence or supporting documentation ensuring that the FEPDO’s SIU has implemented
           the necessary procedural change to ensure that all fraud and abuse cases are timely
           submitted to the OIG. Our analysis of this Plan’s fraud and abuse cases clearly
           demonstrates that the FEPDO’s SIU continues to report cases late to the OIG. Of the 36
           cases with FEP exposure during the period January 1, 2015, through March 31, 2016, we
           determined and the FEPDO agreed that 9 cases were untimely reported to the OIG.




                                                                         20                           Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                            IV. SCHEDULE A – QUESTIONED CHARGES

                                                                   BLUECROSS BLlJESHIELD OF MASSACHUSETTS
                                                                                 BOSTON, MASSACHUSETTS

                                                                                          QUESTIONED CHARGES

   AUDIT FINDINGS                                                                            2011          2012             2013             2014             2015             2016      TOTAL


   A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
         At"I D CREDITS                                                              I        $0             $0               $0               $0               $0               $0               $0   Im
   B . ADMINISTRATIVE EXPENSES
         ]. Idle Facility Costs*                                                              $0       $19,133         $10,414          $19,616            41,138           $1,508         $91,809
         2. Unallowable and/or Una llocable Natura l Accounts*                                 0        14,794             23]               305               333              255          15,918
        3. Adminish-ative Expense Reimbmsement Ci-edit                                         0              0                0                0           2,445                 0           2,445
        4. Post-Retii-ement Benefit Costs                                                      0              0          (6,452)           6,175            1,539                  0          1,262

        TOTAL ADMINISTRATIVE EXPENSES                                            I            $0      $33.927            $4.193         $26,096            45.455           $1,763        $111,434
                                                                                                                                                                                                       '"
   C. CASH MANAGEMENT                                                            I            $0             $0               $0               $0               $0                 0               on
   D. FRAUD AND ABUSE PROGRAM

         1. Special Investigations Unit (PJ"Ocedural)                                         $0             $0               $0               $0               $0               $0                0

        TOTAL FRAUD AND ABUSE PROGRAM
                                                                                I    ii
                                                                                              $0             $0               $0                0               $0               $0
                                                                                                                                                                                                   0 ~


   TOTAL QUESTIONED CHARGES                                                     I             $0      $33,927            $4,193         $26,096            45,455           $1,763        $111,434     bl

   * We included lost investment income (LO) nithin audit findings Bl ($3,486) and B2 ($1,124). The1-efo1-e, no additional LTI is applicable for these audit findings .




                                                                                                                                                              Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary information that may be protected by the Trade Secrets
Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
APPENDIX 

                                                                                                                               Federal Employee Program
February 6, 2017                                                                                                               1310 G Street, N.W.
                                                                                                                               Washington, D.C. 20005
                                                                                                                               202.626.4800
                         , Group Chief
Experience-Rated Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, Room 6400
Washington, DC 20415-11000

Reference:                       OPM DRAFT AUDIT REPORT
                                 BlueCross BlueShield of Massachusetts
                                 Report Number 1A-10-11-16-027 (December 15, 2016)

Dear                               :

This is BlueCross BlueShield of Massachusetts’s response to the above referenced
U.S. Office of Personnel Management (OPM) Draft Audit Report covering the Federal
Employees’ Health Benefits Program (FEHBP). The Blue Cross and Blue Shield
Association (BCBSA) and the Plan are committed to enhancing existing procedures on
issues identified by OPM. Please consider this feedback when updating the OPM Final
Audit Report.

Our comments concerning the findings in the report are as follows:

A.         MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

           The audit disclosed no findings pertaining to miscellaneous health benefit
           payments and credits Plan

           Response:
           No Plan Response required.




                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
B.         ADMINISTRATIVE EXPENSES

           1. 	 Idle Facility Costs                                                                                      $91,809

                  Recommendation 1

                  We recommend that the contracting officer require the Plan to return $88,323
                  to the FEHBP for the questioned idle facility costs. However, since we
                  verified that the Plan returned $88,323 to the FEHBP for these questioned
                  idle facility costs, no further action is required for this amount.

                  Plan Response

                  The Plan agrees with this Recommendation

                  Recommendation 2

                  We recommend that the contracting officer require the Plan to return $3,486
                  to the FEHBP for LII on the questioned idle facility costs. However, since we
                  verified that the Plan returned $3,486 to the FEHBP for the questioned LII,
                  no further action is required for this LII amount.

                  Plan Response

                  The Plan agrees with this Recommendation.

            2. Unallowable and/or Unallocable Natural Accounts 	                                                         $15,918

                  Recommendation 3

                  We recommend that the contracting officer require the Plan to return $14,794
                  to the FEHBP for the questioned natural accounts. However, since we
                  verified that the Plan returned $14,794 to the FEHBP for these questioned
                  natural account expenses, no further action is required for this amount.

                  Plan Response

                  The Plan agrees with this Recommendation.



                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                  Recommendation 4

                  We recommend that the contracting officer require the Plan to return $1,124
                  to the FEHBP for LII on the questioned natural accounts. However, since we
                  verified that the Plan returned $1,124 to the FEHBP for the questioned LII,
                  no further action is required for this LII amount.

                  Plan Response

                  The Plan agrees with this Recommendation.

           3. 	 Administrative Expense Reimbursement Credit                                                                $2,445

                  Recommendation 5

                  We recommend that the contracting officer require the Plan to return $2,445
                  to the FEHBP for the questioned reimbursement credit. However, since we
                  verified that the Plan returned $2,445 to the FEHBP for this questioned
                  amount, no further action is required for this amount.

                  Plan Response

                  The Plan agrees with this Recommendation.

            4. Post Retirement Benefit Costs 	                                                                             $1,262


                  Recommendation 6 


                  We recommend that the contracting officer require the Plan to return $1,262
                  to the FEHBP for the questioned PRB costs. However, since we verified that
                  the Plan returned $1,262 to the FEHBP for these questioned PRB costs, no
                  further action is required for this amount.

                  Plan Response

                  The Plan agrees with this Recommendation.




                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
C.         CASH MANAGEMENT

           The audit disclosed no findings pertaining to the Plan’s cash management
           activities and practices. Overall, we concluded that the Plan handled FEHBP
           funds in accordance with Contract CS 1039 and applicable laws and regulations.

           Plan Response

           No Plan Response required

D.         FRAUD AND ABUSE

           1.     Special Investigations Unit                                                                      Procedural

                  Recommendation 7

                  We recommend that the contracting officer require the Association to provide
                  evidence or supporting documentation ensuring that the Plan has
                  implemented the necessary procedural changes to meet the communication
                  and reporting requirements of fraud and abuse cases that are contained in
                  CL 2014-29 (Federal Employees Health Benefits Fraud, Waste, and Abuse).
                  We also recommend that the contracting officer instruct the Association to
                  provide the Plan with more oversight to ensure the timely and complete entry
                  of all FEP fraud and abuse cases into FIMS, and concurrently, timely and
                  complete communication of those cases to the OIG.

                  Plan Response

                  The Plan’s policies and procedures are in accordance with the FEPDO
                  Fraud Waste and Abuse Manual which is compliant with CL 2014-29. A
                  manual processing error resulted in one case not being reported in FIMS and
                  one case that was not reported timely. As a corrective action; the Plan
                  provided training to the affected staff on the FWA Manual and FIMS
                  reporting process and the case OIG cited as not being reported was
                  subsequently reported in FIMS.




                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                  Recommendation 8

                  We recommend that the contracting officer require the Association to provide
                  evidence or supporting documentation ensuring that the FEPDO’s SIU has
                  implemented the necessary procedural changes to meet the communication
                  and reporting requirements of fraud and abuse cases that are contained in
                  CL 2011-13 and CL 2014-29 (Federal Employees Health Benefits Fraud,
                  Waste, and Abuse).

                  BCBSA Response

                  BCBSA respectfully disagrees with this recommendation. BCBSA reviewed
                  and modified its processes and revised its Fraud Waste and Abuse Manual
                  in order to ensure compliance with CL 2011-13 and CL 2014-29 (Federal
                  Employees Health Benefits Fraud, Waste, and Abuse).

                  The BCBSA disagreement stems from the underlying finding that gave rise
                  to this recommendation, which centers around the FEPDO SIU 2015 FEP
                  FWA Program Standards Manual instruction to the Plans on reporting cases
                  in FIMS. The Manual instructs BCBS Plans to enter cases into FIMS within
                  20 working days of the Plan SIU taking an affirmative step to pursue a
                  provider or member for potential fraud waste or abuse and involving FEP
                  claims.

                  The determination of FEP paid claims and/or exposure is a routine part of
                  the preliminary review stage, or triage. Carrier Letter 2014-29 does not
                  make reference to a time limit for the preliminary review stage of a complaint.
                  The BCBSA Manual instruction is consistent with the guidance of the OIG
                  Task Force as referenced in the Presentation of the OIG Task Force Meeting
                  on January 28, 2016 which states that after the preliminary review or triage is
                  complete, and an affirmative step is taken to further review the complaint or
                  allegation for potential FWA against FEP, the case becomes reportable to
                  OPM OIG.

                  Please note that the range stated in the draft report is based on calculating
                  the number of calendar days between the actual OPM OIG notification date
                  and the OIG calculated OPM OIG notification due date (based on the date
                  FEP exposure was identified).



                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                  BCBSA agrees that 9 cases out of 36 cases (with FEP exposure), or 25%,
                  were not reported timely, ranging from 2 to 112 days after the case entry into
                  FIMS. This determination is based on the authoritative guidance given to
                  BCBS Plan SIUs, to calculate timeliness from the date of FIMS entry (as
                  evidence of an affirmative action being taken) and the number of working
                  days, excluding federal holidays, to the OPM OIG notification date. BCBSA
                  continues to disagree that two cases were not reported timely based on the
                  FEPDO FWA Manual instructions to the Plans.

Thank you for this opportunity to respond to the recommendations included in this draft 

report. If you have any questions, please contact me at               



Sincerely, 





            , CISA, CRMA, 

Managing Director, FEP Program Assurance 





                                                                                                                 Report No. 1A-10-11-16-027
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                                                                                  



                                Report Fraud, Waste, and
                                    Mismanagement 

                                            Fraud, waste, and mismanagement in
                                         Government concerns everyone: Office of
                                             the Inspector General staff, agency
                                          employees, and the general public. We
                                        actively solicit allegations of any inefficient
                                              and wasteful practices, fraud, and
                                         mismanagement related to OPM programs
                                        and operations. You can report allegations
                                                    to us in several ways:


                  By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                             report-fraud-waste-or-abuse


                   By Phone:                 Toll Free Number:                               (877) 499-7295
                                             Washington Metro Area:                          (202) 606-2423


                     By Mail:                Office of the Inspector General
                                             U.S. Office of Personnel Management
                                             1900 E Street, NW
                                             Room 6400
                                             Washington, DC 20415-1100
               
                                                                                                                  
                                                                                                                  




                                                                                          Report No. 1A-10-11-16-027
                                                      -- CAUTION --
This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public
version may contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. §
1905, and the Privacy Act, 5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of
Information Act and made publicly available on the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version
should not be further released unless authorized by the OIG.