oversight

Audit of Highmark Inc. Camp Hill, Pennsylvania

Published by the Office of Personnel Management, Office of Inspector General on 2014-08-22.

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

Subject:



                                    AUDIT OF
                                 HIGHMARK INC.
                             CAMP HILL, PENNSYLVANIA


                                           Report No. 1A-10-13-14-003


                                           Date:            August 22, 2014




                                                          --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                     Federal Employees Health Benefits Program
                                     Service Benefit Plan     Contract CS 1039
                                          BlueCross BlueShield Association
                                                    Plan Code 10


                                                       Highmark Inc.
                                                    Plan Codes 363/865
                                                  Camp Hill, Pennsylvania




                      REPORT NO. 1A-10-13-14-003                                   August 22, 2014
                                                                             DATE: ______________




                                                                               ______________________
                                                                               Michael R. Esser
                                                                               Assistant Inspector General
                                                                                 for Audits




                                                          --CAUTION--
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                               EXECUTIVE SUMMARY



                          Federal Employees Health Benefits Program
                          Service Benefit Plan     Contract CS 1039
                               BlueCross BlueShield Association
                                         Plan Code 10


                                        Highmark Inc.
                                     Plan Codes 363/865
                                   Camp Hill, Pennsylvania




                REPORT NO. 1A-10-13-14-003                  August 22, 2014
                                                      DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at Highmark Inc. (Plan), located in Camp Hill, Pennsylvania, questions $8,672 in administrative
expenses and lost investment income (LII). The report also includes a procedural finding for the
Plan’s Fraud and Abuse (F&A) Program. The BlueCross BlueShield Association (Association)
agreed (A) with the questioned amounts and generally disagreed with the procedural finding
regarding the Plan’s F&A Program.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered miscellaneous health benefit payments and credits from 2008 through May 31,
2013 and administrative expenses from 2008 through 2012 as reported in the Annual Accounting
Statements. In addition, we reviewed the Plan’s cash management activities and practices
related to FEHBP funds from 2008 through May 31, 2013 and the Plan’s F&A Program from
2008 through August 31, 2013.

The audit results are summarized as follows:




                                                i
    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 returned health benefit refunds and recoveries,
    including medical drug rebates, to the FEHBP in a timely manner, and properly charged
    miscellaneous payments to the FEHBP.

                            ADMINISTRATIVE EXPENSES

•   Unallocable Cost Centers (A)                                                            $6,025

    The Plan charged unallocable cost center expenses of $5,871 to the FEHBP in 2012. As a
    result of this finding, the Plan returned $6,025 to the FEHBP, consisting of $5,871 for these
    questioned cost center expenses and $154 for applicable LII.

•   Unallowable and/or Unallocable Expense Account (A)                                      $2,647

    The Plan charged the FEHBP $2,584 for an unallowable and/or unallocable expense account
    in 2012. As a result of this finding, the Plan returned $2,647 to the FEHBP, consisting of
    $2,584 for the questioned expense account amount and $63 for applicable LII.

                                  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.

                           FRAUD AND ABUSE PROGRAM

•   Special Investigations Unit                                                       Procedural

    The Plan is not in compliance with the communication and reporting requirements for fraud
    and abuse cases that are set forth in FEHBP Carrier Letter 2011-13. Specifically, the Plan
    did not report one fraud and abuse case and did not timely report three cases to the Office of
    Personnel Management’s Office of the Inspector General (OIG). The Plan’s non-compliance
    may be due in part to untimely reporting of fraud and abuse cases to the Association’s
    Federal Employee Program Director’s Office (FEPDO), 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. The Association generally disagreed with
    this procedural finding.




                                                ii
                                                   CONTENTS
                                                                                                                     PAGE

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

 I.    INTRODUCTION AND BACKGROUND .....................................................................1

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

III.   AUDIT FINDINGS AND RECOMMENDATIONS .......................................................6

       A.     MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........6

       B.     ADMINISTRATIVE EXPENSES ..........................................................................6

              1. Unallocable Cost Centers ...................................................................................6
              2. Unallowable and/or Unallocable Expense Account ..........................................8

       C.     CASH MANAGEMENT ........................................................................................9

       D.     FRAUD AND ABUSE PROGRAM ......................................................................9

              1. Special Investigations Unit ...............................................................................9

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................14

 V.    SCHEDULES

       A.     CONTRACT CHARGES
       B.     QUESTIONED CHARGES

       APPENDIX           (BlueCross BlueShield Association response, dated June 27, 2014, to the
                          draft audit report)
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

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
Highmark Inc. (Plan). The Plan is located in Camp Hill, Pennsylvania.

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.

BACKGROUND

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

The Association has established a Federal Employee Program (FEP 1) 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
BlueCross and BlueShield plans, and OPM.

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst BlueCross BlueShield, located in Washington,
D.C. These activities include acting as fiscal intermediary between the Association and member
plans, verifying subscriber eligibility, approving or disapproving the reimbursement of local plan
payments of FEHBP claims (using computerized system edits), maintaining a history file of all
FEHBP claims, and maintaining an accounting of all program funds.

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, management of the Plan is responsible for establishing
and maintaining a system of internal controls.
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
All findings from our previous audit of the Plan (Report No. 1A-10-13-09-001, dated
June 15, 2009) for contract years 2003 through 2007 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; and were
presented in detail in a draft report, dated March 5, 2014. 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
               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 promptly 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 and the applicable
           FEHBP Carrier Letters.

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 363 and 865 for contract years 2008 through 2012. During this period, the
Plan paid approximately $1.8 billion in health benefit charges and $127 million in administrative
expenses (See Figure 1 and Schedule A).


                                                3
Specifically, we reviewed miscellaneous health benefit payments and credits (e.g. , refunds,
subrogation recoveries, medical dmg rebates, and fi:aud recoveries) and cash management
activities for 2008 through May 31, 2013, as well as the Plan 's F&A Program for 2008 through
August 31, 2013. We also reviewed adminisu·ative expenses for 2008 through 2012.

In planning and conducting our audit, we
obtained an lmderstanding of the Plan's                                      Highmark Inc.
intem al conu·ol sti11cture to help detennine                               Contract Charges
the nature, timing, and extent of our
auditing procedures. This was determined                 $500
to be the m ost effective approach to select             $400
areas of audit. For those areas selected, we      "'=
primarily relied on substantive tests of          §      $300
                                                  ~
u·ansactions and not tests of conu·ols.           !;')   $200
Based on our testing, we did not identify                $100
any significant matters involving the Plan's
                                                           $0
intemal conu·ol sti11cture and its operations.                   2008       2009      2010        2011     2012
However, since our audit would not
                                                                                 Contract Years
necessarily disclose all significant matters in
the intemal conu·ol structure, we do not
                                                           DHealth Benefit Payments   •Administrative Expenses
express an opinion on the Plan's system of
intemal conu·ols taken as a whole.
                                                                  Figure 1 - Conu·act Charges

We also conducted tests to determine whether the Plan had complied with the conu·act, 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 goveming 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 conu·act and federal procurement
regulations. Exceptions noted in the areas reviewed are set f01th 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 consu·aints, 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 testing, 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 perfonned at the Plan's office in Camp Hill, Pennsylvania from October 2 1, 2013
through November 15, 2013. Audit fieldwork was also perf01med at our office in Cranbeny
Township, Pennsylvania.




                                                  4

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. We also
judgmentally selected and reviewed 50 high dollar provider offsets, totaling $5,534,317 (from a
universe of 245,673 offsets, totaling $46,200,031); 111 high dollar health benefit refunds,
totaling $3,980,031 (from a universe of 22,917 refunds, totaling $9,404,871); 52 high dollar
subrogation recoveries, totaling $1,187,774 (from a universe of 1,777 recoveries, totaling
$3,676,753); all FEP medical drug rebate amounts, totaling              10 high dollar provider
audit recoveries, totaling $314,415 (from a universe of 91 recoveries, totaling $642,052); 6 fraud
and abuse recoveries, totaling $55,315 (from a universe of 17 recoveries, totaling $61,739); 24
high dollar hospital settlements, totaling $2,793,331 in FEP payments (from a universe of 333
settlements, totaling $5,684,009 in net FEP payments); and 22 special plan invoices (SPI),
totaling $6,601,413 in net FEP payments (from a universe of 375 SPI’s, totaling $12,256,622 in
net FEP payments), to determine if refunds and recoveries were promptly returned to the FEHBP
and if miscellaneous payments were properly charged to the FEHBP. 2 The results of these
samples were not projected to the universe of miscellaneous health benefit payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2008 through 2012. Specifically, we reviewed administrative expenses relating to cost centers
and pools, detailed and summary expense accounts, out-of-system adjustments, prior period
adjustments, pension, post-retirement, employee health benefits, non-recurring projects, return
on investment, subcontracts, Association dues, and the Health Insurance Portability and
Accountability Act of 1996. We used the FEHBP contract, the FAR, and the FEHBAR to
determine the allowability, allocability, and reasonableness of 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.
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 the applicable FEHBP Carrier Letters.




2
  The sample of provider offsets included all offsets of $39,000 or more. For the sample of health benefit refunds,
we selected all refunds of $15,000 or more. For the sample of subrogation recoveries, we selected all recoveries of
$10,000 or more. For the sample of provider audit recoveries, we selected all recoveries of $20,000 or more. For
the sample of fraud and abuse recoveries, we selected all recoveries of $2,000 or more. For the sample of hospital
settlements, we selected all payment amounts of $68,000 or more. For the SPI sample, we selected three SPI’s with
the highest miscellaneous payment amounts and three SPI’s with the highest miscellaneous credit amounts from
each year in the audit scope.

                                                         5
            III. AUDIT FINDINGS AND RECOMMENDATIONS

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 returned health benefit refunds and recoveries,
  including medical drug rebates, to the FEHBP in a timely manner, and properly charged
  miscellaneous payments to the FEHBP.

B. ADMINISTRATIVE EXPENSES

  1. Unallocable Cost Centers                                                              $6,025

     The Plan charged unallocable cost center expenses of $5,871 to the FEHBP in 2012. As
     a result of this finding, the Plan returned $6,025 to the FEHBP, consisting of $5,871 for
     these questioned cost center expenses and $154 for applicable 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 31.201-4 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.”

     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 Section 611 of the Contract
     Disputes Act of 1978 (Public Law 95-563), 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.”

     For the period 2008 through 2012, the Plan allocated administrative expenses of
     $191,778,264 (before adjustments) to the FEHBP from 108 cost pools. From this
     universe, we selected a judgmental sample of 22 cost pools to review, which totaled
     $159,715,760 in expenses allocated to the FEHBP. We selected the cost pools based on
     high dollar amounts and our trend analysis. Additionally, because the Plan rolls up the
     individual cost centers into cost pools, we also selected a judgmental sample of 32 cost
     centers to review, from a universe of 248 cost centers. We selected these cost centers
     based on a nomenclature review. We reviewed the expenses from these cost pools and
     cost centers for allowability, allocability, and reasonableness.


                                               6
Based on our review, we determined that the Plan allocated $5,871 to the FEP from two
cost centers that did not benefit the FEHBP. The Plan included these cost centers (CC) in
cost pools (CP) that allocated costs to the FEP in 2012. The following is a summary of
the unallocable CC expenses charged to the FEHBP:
                                                                            Amount
CP              CC Number CC Name                                           Charged
P0122           01847          Vice President, Health Services-Marketing      $5,632
P0256           04454          Corporate Taxes                                   239
                                                                              $5,871

According to the Plan, these errors were caused by the Plan incorrectly assigning CC
01847 to CP P0122 and incorrectly coding a direct charge in CC 04454 to CP P0256. As
a result of this finding, the Plan returned $6,025 to the FEHBP, consisting of $5,871 for
these questioned cost center expenses and $154 for applicable LII. We reviewed and
accepted the Plan’s LII calculation.

Association’s Response:

The Association agrees with this finding. The Association states, “One cost pool
allocated $239 to FEP based on an incorrect coding of a direct charge and the other cost
pool allocated $5,632 to FEP based on an unallowable cost center that was assigned to an
incorrect cost pool for 2012. The Plan moved the cost center to a cost pool that does not
allocate to FEP. The Plan will submit Prior Period Adjustment forms, along with
applicable Special Plan Invoices for lost investment income to FEP by June 30, 2014 and
funds will be returned to OPM by July 31, 2014.”

OIG Comments:

The Association provided documentation supporting that the Plan returned $6,025 to the
FEHBP, consisting of $5,871 for the questioned cost center expenses and $154 for LII.

Recommendation 1

Since we verified that the Plan returned $5,871 to the FEHBP for the questioned cost
center expenses, no further action is required for this amount.

Recommendation 2

Since we verified that the Plan returned $154 to the FEHBP for LII on the questioned
cost center expenses, no further action is required for this LII amount.




                                        7
2. Unallowable and/or Unallocable Expense Account                                       $2,647

   The Plan charged the FEHBP $2,584 for an unallowable and/or unallocable expense
   account in 2012. As a result of this finding, the Plan returned $2,647 to the FEHBP,
   consisting of $2,584 for the questioned expense account amount and $63 for LII.

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

   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 Section 611 of the Contract
   Disputes Act of 1978 (Public Law 95-563), 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.”

   For the period 2008 through 2012, the Plan allocated administrative expenses of
   $191,767,157 (before adjustments) to the FEHBP from 33 summary expense accounts.
   From this universe, we selected a judgmental sample of 12 summary expense accounts to
   review, which totaled $185,671,394 in expenses allocated to the FEHBP. We selected
   the summary expense accounts based on high dollar amounts and our trend analysis.
   Additionally, because the Plan rolls up the detailed expense accounts into these summary
   expense accounts, we also selected a judgmental sample of 23 detailed expense accounts
   to review, from a universe of 213 accounts. We selected these detailed expense accounts
   based on a nomenclature review. We reviewed the expenses from these accounts for
   allowability, allocability, and reasonableness.

   Based on our review, we determined that the Plan charged the FEHBP for detailed
   expense account “706701” (Advertising) in 2012. Although Plan did not charge the
   entire amount in this expense account to the FEHBP, the FEP received an indirect
   allocation of $2,584 from this account, which should have been charged directly to the
   “Comprehensive Preferred Provider Organization” line-of-business. As a result of this
   finding, the Plan returned $2,647 to the FEHBP, consisting of $2,584 for the questioned
   expense account amount and $63 for applicable LII. We reviewed and accepted the
   Plan’s LII calculation.

   Association’s Response:

   The Association agrees with this finding. The Association states, “The Plan . . . filed a
   Prior Period Adjustment for $2,584 and an SPI for $63 in lost investment income. The
   funds were wired to OPM on June 4, 2014.”

   OIG Comments:

   The Association provided documentation supporting that the Plan returned $2,647 to the
   FEHBP, consisting of $2,584 for the questioned expense account amount and $63 for LII.

                                            8
        Recommendation 3

        Since we verified that the Plan returned $2,584 to the FEHBP for the questioned expense
        account amount, no further action is required for this amount.

        Recommendation 4

        Since we verified that the Plan returned $63 to the FEHBP for LII on the questioned
        expense account amount, no further action is required for this LII amount.

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 is not in compliance with the communication and reporting requirements for
        fraud and abuse cases that are set forth in FEHBP Carrier Letter (CL) 2011-13.
        Specifically, the Plan did not report one fraud and abuse case and did not timely report
        three cases to the OIG. The Plan’s non-compliance may be due in part to untimely
        reporting of fraud and abuse cases to the Association’s FEP Director’s Office (FEPDO),
        as well as inadequate controls at the FEPDO to monitor and communicate the Plan’s FEP
        fraud and abuse 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 2011-13 (Mandatory Information Sharing via Written Case Notifications to OPM’s
        Office of the Inspector General), dated June 17, 2011, states that all Carriers “are
        required to submit a written notification to the OPM OIG . . . within 30 working days of
        becoming aware of a fraud, waste or abuse issue where there is a reasonable suspicion
        that a fraud has occurred or is occurring against the Federal Employees Health Benefits
        (FEHB) Program.” There is no dollar threshold for this requirement.

        During the period January 1, 2013 through August 31, 2013, the Plan entered 136 FEP
        cases into the FEPDO’s Fraud Information Management System (FIMS). 3 We
        judgmentally selected 49 cases with high dollar FEP exposure. Of these, only six cases
        were related to fraud and abuse. 4 We reviewed these six cases to determine if they were
        reported to the OIG as required by CL 2011-13.

3
  FIMS is a multi-user, web-based case-tracking database that the FEPDO’s SIU developed in-house.
4
 The Plan’s Financial Investigations and Provider Review Department does not distinguish between provider audit
cases and fraud and abuse cases in their tracking system. Therefore, we could not determine which cases were
related to fraud and abuse until after we had selected our sample.

                                                       9
Based on our review, we determined the following:

•   Five of the six fraud and abuse cases were reported to the OIG; however, notifications
    for three of these five cases were reported untimely to the OIG. Specifically, the OIG
    received these notifications from 104 to 252 days after the Plan had identified FEP
    exposure, which does not meet the 30-day timeliness requirement in CL 2011-13.

•   One of the six cases was not reported to the OIG. Since this case had FEP exposure,
    and there is no dollar threshold amount for reporting suspected fraud against the
    FEHBP, the case should have been reported to the OIG as required by CL 2011-13.

The Plan’s non-compliance with the communication and reporting requirements in CL
2011-13 may be due, in part, to the Plan’s untimely communication of FEP fraud and
abuse cases to the FEPDO’s Special Investigation’s Unit (SIU). The FEPDO’s SIU sends
notifications of fraud and abuse cases to the OIG on behalf of the Plan. However, the
Plan must first report the fraud and abuse cases with FEP exposure to the FEPDO’s SIU,
which is accomplished when the Plan enters the cases into the FEPDO’s FIMS. The Plan
and the FEPDO’s internal policies and procedures require the Plan to enter a case into
FIMS as soon as an investigation is opened and/or within 30 days of any relevant FEP
fraud activity. However, of the six fraud and abuse cases reviewed, we determined that
three of these cases were entered into FIMS untimely by the Plan. Specifically, these
cases were entered into FIMS from 102 to 825 days after the Plan had identified the FEP
exposure. Without timely FIMS case entries by the Plan, the FEPDO’s SIU cannot meet
the FEHBP’s contractual communication and reporting requirements.

In addition, the inclusion of provider audits into FIMS may also hinder compliance with
the communication and reporting requirements. As previously noted, only 6 of the 49
cases we sampled for review were related to fraud and abuse issues; the remaining cases
were provider audits, which were unrelated to fraud and abuse issues. Although both
provider audits and fraud investigations are performed by the same department, that does
not mean that every provider audit should be entered into FIMS. Because FIMS is a
database for tracking and reporting fraud and abuse activities performed by the BCBS
plans, FIMS should not include provider audits unless or until those audits lead to the
identification of reportable fraud and abuse issues that potentially expose FEP dollars. If
the Plan is entering provider audits that are no more than “routine” hospital or provider
audits, then not only does this confuse what is a reportable issue to the OIG, but also
potentially delays the reporting of actual fraud and abuse cases. Moreover, this may also
result in overstating the Plan’s fraud and abuse cases, recoveries, and/or savings that the
FEPDO annually reports to OPM.

Ultimately, both the Plan’s untimely reporting of FEP cases to the FEPDO’s SIU and the
FEPDO SIU’s inadequate controls to monitor the Plan’s FIMS entries and notify the
appropriate entities of these cases have resulted in a failure to meet the communication
and reporting requirements that are set forth in CL 2011-13. The lack of notifications
and/or untimely case notifications did not allow the OIG to investigate whether other
FEHBP Carriers are exposed to the identified provider committing fraud against the

                                        10
FEHBP. This also does not allow the OIG’s Administrative Sanctions Group to be
notified timely. Consequently, this non-compliance by the Plan and FEPDO may result
in additional improper payments being made by other FEHBP Carriers.

Association’s Response:

The Association states, “The Plan continues to disagree with the statement that it is
not in compliance with the communication and reporting requirements set forth in
Contract CS 1039 and the Federal Employee Health Benefit Program (FEHBP)
Carrier Letter (CL) 2011-13. BCBSA also disagrees that controls regarding Plans
FIMS entries are inadequate.

The FEPDO and the Plan have created a system of controls to monitor, identify,
investigate and recover fraudulent and abusive payments of FEHBP funds and is
substantially in compliance with the requirements of CS 1039. Further, the Plan’s
FEP Fraud and Abuse Program is designed to protect patient safety and the health
care assets of Federal beneficiaries.”

OIG Comments:

Based on the results of our review, we continue to conclude that the Plan’s reporting of
fraud of abuse cases is not in compliance with the communication and reporting
requirements set forth in CL 2011-13.

Recommendation 5

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 set forth in CL 2011-13. 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.

Association’s Response:

The Association states, “The Plan developed the following Corrective Action Plan to
address the recommendations:

1. The Plan through its Financial Investigations and Provider Review (FIPR) area will
   develop and implement a quality review process to monitor compliance with
   guidance contained in the FEP Standards for Fraud Identification Prevention and
   Reporting Manual by June 30, 2014.

2. The Plan through its FIPR area will notify the FIPR employees of audit findings and
   use this as training for future enhancements to the program.”


                                        11
The Association also states, “The BCBSA SIU staff provided on-site FIMS training to all
Highmark FIPR staff on April 30, 2014.”

Recommendation 6

To ensure that all FEHBP Carriers are reporting statistics to OPM based on the same
definitions, we recommend that the contracting officers prepare and distribute to all
Carriers the definitions for the terms “fraud,” “waste,” “abuse,” and “reasonable
suspicion.”

Association’s Response:

The Association agrees with this recommendation and will work with the contracting
officer to develop guidance for definitions of fraud, waste, abuse, and reasonable
suspicion.

Recommendation 7

We recommend that the contracting officer direct the Association to provide OPM and
the OIG full access to FIMS.

Association’s Response:

The Association states, “BCBSA continues to disagree with the recommendation to
provide the OPM OIG full access to FIMS. FIMS is an internal management reporting
system used by BCBSA and Local Plans to report Fraud, Waste and Abuse cases. The
FIMS system resides on a secured proprietary platform accessible to Blue Plan
employees only. It would be physically impossible for the OPM/OIG to have access to
FIMS. Also, before cases can be fully accepted into FIMS, they must be reviewed and
evaluated by BCBSA consultants, who then work with Local Plans to ensure the proper
data elements are entered. As such, unlimited access by the OIG to the system would
result in potential inefficiencies for FEP. However, in order to provide the OPM OIG
investigators with more effective access to underlying case data, BCBSA developed and
the contracting officer has agreed to the following process:

BCBSA will provide a monthly report on cases that have been referred to OPM OIG each
month. The report would include cases sent during the preceding month. (The report
provided in July would capture cases reported June 1 to June 30). A spread sheet would
also be provided showing cases that were reported into FIMS but not sent to OPM OIG.
The spread sheet would indicate why the case(s) was not referred to OPM/OIG.”

OIG Comments:

We continue to recommend that the contracting officer direct the Association to provide
the OPM and the OIG with full access to FIMS, a program fully paid for by OPM with
FEHBP funds. Full access is necessary for OPM and the OIG to monitor the


                                        12
Association’s fraud and abuse activity and the FEPDO’s oversight, and will allow the
OIG to make inquiries when we identify non-compliance by a BCBS plan and/or the
FEPDO such as untimely reporting. In addition, full access will provide necessary
information for analysis purposes prior to future OIG audits. This alone will save time
and money for the local BCBS plans and the FEPDO.

The analysis of this Plan’s fraud and abuse cases showed that the Plan’s entries into
FIMS had significant timeliness issues. Of the six fraud and abuse cases that we
reviewed for the period January 1, 2013 through August 31, 2013, we determined that
three cases were entered into FIMS timely and three cases untimely. If the OIG had full
access to FIMS, all six cases would have been reviewed and investigated by us. Also, we
would have notified the Plan and FEPDO of the untimely reporting issue in real time and
resolved the issue sooner.




                                        13
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

                 Lead Auditor

                 , Auditor

                , Auditor

                  , Auditor



                  , Chief (

             , Senior Team Leader




                                    14
                                                                                  V. SCHEDULES


                                                                                                                                                                  SCHEDULE A
                                                                              HIGHMARK INC.
                                                                          CAMP HILL, PENNSYLVANIA

                                                                            CONTRACT CHARGES


CONTRACT CHARGES*                                                  2008                2009                2010               2011                2012             TOTAL


A. HEALTH BENEFIT CHARGES

   PLAN CODES 363                                                  $59,535,705        $67,789,294         $64,145,109         $74,626,487         $81,238,626       $347,335,221
   MISCELLANEOUS PAYMENTS AND CREDITS                                  809,807          1,322,504             931,284             885,467           1,157,722          5,106,784

   PLAN CODES 865                                                  237,196,104        255,657,132         291,589,605         318,904,990         321,315,579       1,424,663,410
   MISCELLANEOUS PAYMENTS AND CREDITS                                  809,676          1,196,987           2,159,468           2,881,523            (625,447)          6,422,207

   TOTAL HEALTH BENEFIT CHARGES                                   $298,351,292       $325,965,917        $358,825,466        $397,298,467        $403,086,480      $1,783,527,622

B. ADMINISTRATIVE EXPENSES

   PLAN CODE 865                                                   $23,346,076        $25,959,361         $28,568,689         $24,653,092         $25,654,832       $128,182,050
   PRIOR PERIOD ADJUSTMENTS                                           (829,678)             1,506                   0             (25,085)            (27,131)         ($880,388)
   BUDGET SETTLEMENT REDUCTIONS                                       (300,000)                 0            (391,985)                  0                   0          ($691,985)

   TOTAL ADMINISTRATIVE EXPENSES                                   $22,216,398        $25,960,867         $28,176,704         $24,628,007         $25,627,701       $126,609,677

TOTAL CONTRACT CHARGES                                            $320,567,690       $351,926,784        $387,002,170        $421,926,474        $428,714,181      $1,910,137,299

* This audit covered miscellaneous health benefit payments and credits and cash management activities from January 1, 2008 through May 31, 2013, as well as administrative
  expenses from 2008 through 2012.
                                                                                                                                                        SCHEDULE B
                                                                      HIGHMARK INC.
                                                                  CAMP HILL, PENNSYLVANIA

                                                                    QUESTIONED CHARGES

AUDIT FINDINGS*                                                    2008        2009         2010        2011        2012        2013        2014         TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
   AND CREDITS                                                            $0          $0           $0          $0          $0          $0          $0              $0

B. ADMINISTRATIVE EXPENSES

    1. Unallocable Costs Centers                                          $0          $0           $0          $0    $5,871         $92         $62             $6,025
    2. Unallowable and/or Unallocable Expense Account                      0           0            0           0     2,584          40          23              2,647

    TOTAL ADMINISTRATIVE EXPENSES                                         $0          $0           $0          $0    $8,455        $132         $85             $8,672

C. CASH MANAGEMENT                                                        $0          $0           $0          $0          $0          $0          $0              $0

D. FRAUD AND ABUSE PROGRAM

    1. Special Investigations Unit (Procedural)                           $0          $0           $0          $0          $0          $0          $0              $0

    TOTAL FRAUD AND ABUSE PROGRAM                                         $0          $0           $0          $0          $0          $0          $0              $0

TOTAL QUESTIONED CHARGES                                                  $0          $0           $0          $0    $8,455        $132         $85             $8,672

* We included lost investment income (LII) within audit findings B1 ($154) and B2 ($63). Therefore, no additional LII is applicable for these audit findings.
                                                                                              APPENDIX



                                                              BlueCross BlueShield
                                                              Association
                                                              An Association of Independent
                                                              Blue Cross and Blue Shield Plans

                                                              Federa l Em ployee Program
                                                              1310 G Street, N.W.
June 27, 2014                                                 Washington , D.C. 20005
                                                              202 942. 1000
                                                              Fax 202.942.1125
                          Group Chief
Experience-Rated Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, Room 6400
Washington, D.C. 20415-11000

Reference: OPM Revised DRAFT AUDIT REPORT
           Highmark Blue Cross Blue Shield of Pennsylvania (The Plan)
           Revised Response to Audit Report Number 1A-10-13-14-003
           (Dated and received on March 5, 2014 and amended on 6/18/2014)

Dear

This is Highmark Blue Cross Blue Shield of Pennsylvania's revised 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 Blue Shield Association (BCBSA or Association) and the Plan are
committed to enhancing our 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-No Findings

B. Administrative Expenses

   1. Unallocable Costs                                                     $5,871

       The Plan allocated $5,871 to FEP from two cost centers that did not benefit
       the FEHBP. The Plan included these cost centers in Cost Pools P0256 and
       P0122 that allocated costs to FEP in 2012..
June 27, 2014
Page 2 of 5

      Recommendation 1:

      OPM recommends that the contracting officer disallows $5,871 for unallowable
      and/or unallocable charges in 2012 , and verify that these funds were returned to
      the FEHBP.

      Plan's Response:

      The Plan agrees with the OPM finding that the Plan incorrectly allocated $5, 871
      to FEP from two Cost Pools. One cost pool allocated $239 to FEP based on an
      incorrect coding of a direct charge and the other cost pool allocated $5,632 to
      FEP based on an unallowable cost center that was assigned to an incorrect cost
      pool for 2012. The Plan moved the cost center to a cost pool that does not
      allocate to FEP. The Plan will submit Prior Period Adjustment forms , along with
      applicable Special Plan Invoices for lost investment income to FEP by June 30,
      2014 and funds will be returned to OPM by July 31, 2014.

   2. Unallowable and/or Unallocable Expense Account                       $2,584

      Based on OPM's review, it was determined that the Plan charged the FEHBP for
      detailed expense account "706701 Advertising" in 2012.

      Recommendation 2:

      OPM recommends that the contracting officer disallows $2,584 for unallowable
      and/or unallocable charges in 2012, and verify that these funds were returned to
      the FEHBP.

      Plan Response:
      The Plan agreed with this finding and filed a Prior Period Adjustment for $2,584
      and an SPI for $63 in lost investment income. The funds were wired to OPM on
      June 4, 2014.

C. Cash Management - No findings
June 27, 2014
Page 3 of 5

D. Fraud and Abuse Program

     1. Special Investigations Unit                                         Procedural

      The Plan continues to disagree with the statement that it is not in
      compliance with the communication and reporting requirements set forth in
      Contract CS 1039 and the Federal Employee Health Benefit Program
      (FEHBP) Carrier Letter (CL) 2011-13. BCBSA also disagrees that controls
      regarding Plans FIMS entries are inadequate.

      The FEPDO and the Plan have created a system of controls to monitor,
      identify, investigate and recover fraudulent and abusive payments of
      FEHBP funds and is substantially in compliance with the requirements of
      CS 1039. Further, the Plan's FEP Fraud and Abuse Program is designed
      to protect patient safety and the health care assets of Federal beneficiaries .

      Recommendation 3

      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 set forth in CL 2011-13.

      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 developed the following Corrective Action Plan to address the
      recommendations:

      1.     The Plan through its Financial Investigations and Provider Review (FIPR)
             area will develop and implement a quality review process to monitor
             compliance with guidance contained in the FEP Standards for Fraud
             Identification Prevention and Reporting Manual by June 30, 2014.
June 27, 2014
Page 4 of 5

      2.     The Plan through its FlPR area will notify the FlPR employees of audit
             findings and use this as training for future enhancements to the program.

      BCBSA Response:

      The BCBSA SIU staff provided on-site FIMS training to all Highmark FIPR staff
      on April 30, 2014.

      Recommendation 4

      To ensure that all FEHBP Carriers are reporting statistics to OPM based on the
      same definitions, OPM recommends that the contracting officers prepare and
      distribute to all Carriers the definitions for the terms "fraud", "waste", "abuse", and
      “reasonable suspicion."

      BCBSA Response:

      BCBSA agrees with this recommendation and will work with the contracting
      officer to develop guidance of definitions of Fraud, Waste and Abuse and
      reasonable suspicion. The FEPDO will continue to update BCBSA FEP Fraud
      Waste and Abuse manual as needed based on guidance received from the
      contracting officer.

      Recommendation 5

      OPM recommended that the contracting officer direct the Association to provide
      OPM and the OIG full access to FIMS.

      BCBSA Response:

      BCBSA continues to disagree with the recommendation to provide the OPM OIG
      full access to FIMS. FIMS is an internal management reporting system used by
      BCBSA and Local Plans to report Fraud, Waste and Abuse cases. The FIMS
      system resides on a secured proprietary platform accessible to Blue Plan
      employees only. It would be physically impossible for the OPM/OIG to have
      access to FIMS. Also, before cases can be fully accepted into FIMS, they must
      be reviewed and evaluated by BCBSA consultants, who then work with Local
June 27, 2014
Page 5 of 5

      Plans to ensure the proper data elements are entered. As such, unlimited access
      by the OIG to the system would result in potential inefficiencies for FEP.
      However, in order to provide the OPM OIG investigators with more
      effective access to underlying case data, BCBSA developed and the contracting
      officer has agreed to the following process:

      BCBSA will provide a monthly report on cases that have been referred to OPM
      OIG each month. The report would include cases sent during the preceding
      month. (The report provided in July would capture cases reported June 1 to
      June 30). A spread sheet would also be provided showing cases that were
      reported into FIMS but not sent to OPM OIG. The spread sheet would indicate
      why the case(s) was not referred to OPM/OIG.

We appreciate the opportunity to provide our response to this revised Draft Audit Report
and request that our comments be included in their entirety as an amendment to the
Final Audit Report.

Sincerely,




            , CISA, CSM
Managing Director, Program Assurance



Attachments

cc:               , FEP
                    , Contracting Officer ,
      OPM                   , Highmark Inc.
                       , FEP