oversight

Audit of BlueCross BlueShield of Tennessee Chattanooga, Tennessee

Published by the Office of Personnel Management, Office of Inspector General on 2014-12-24.

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 TENNESSEE
                              CHATTANOOGA, TENNESSEE

                                              Report Number 1A-10-15-14-030
                                                    December 24, 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 (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                 EXECUTIVE SUMMARY 

                                     Audit ofBlueCross BlueShield ofTennessee

l{q'"'' ' " I\ Ill 1.::; I! 11.101                                                                  lh'H·rnhll !~.!Il l~



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

We conducted this limited scope audit         We questioned $5,824,432 in health benefit charges, administrative
to obtain reasonable assurance that           expenses, cash management activities, and lost investment income
BlueCross BlueShield of Tennessee             (LII). We also identified a procedural finding regarding the Plan' s
(Plan) is complying with the                  F&A Program. The BlueCross BlueShield Association
provisions of the federal Employees           (Association) and Plan agreed with the questioned amounts and
Health Benefits Act and regulations           generally disagreed with the procedural finding regarding the
that are included, by reference, in the       Plan's F&A Program. We noted that the Plan subsequently
Federal Employees Health Benefits             returned all of the questioned amounts to the FEHBP.
Program (FEHBP) contract.
Specifically, the objectives of our           Our audit results are summarized as foJlows:
audit were to determine if the Plan
charged costs to the FE HBP and               • 	 Miscellaneous Health Benefit Payments and Credits - We
provided services to FEHBP members                questioned $17,181, consisting of$16,547 for a medical drug
in accordance with the terms of the               rebate amount that had not been returned to the FEHBP and
contract.                                         $634 for applicable LII.

Wbat did we audit?                            • 	 Administrative Expenses - We questioned $3 1,022, consisting
                                                  of$29,580 for overcharges that were related to out-of-system
Our audit covered miscellaneous                   adj ustments and Association dues as well as $1 ,442 for
health benefit payments and credits               app licable LII.
from 2009 through Septem ber 30,
2013, as well as administrative               • 	 Statutory Reserve Payments - The audit disclosed no find ings
expenses and statutory reserve                    pertaining to statutory reserve payments.
payments from 2008 through 2012 as
reported in the Annual Accounting             • 	 Cash Management - We determined that the Plan held excess
Statements. In addition, we reviewed              FEHBP funds, totaling $5,776,229, in the Federal Employee
the Plan's cash management activities             Program investment account as of December 31, 2013.
and practices related to FEHBP funds
from 2009 through September 30,               • 	 Fraud and Abuse Program - The Plan is not in compliance with
201 3 and the Plan's Fraud and Abuse              the communication and reporting requirements for fraud and
                                                  abuse cases that are set forth in FEHBP Carrier Letter 2011-13 .
(F~~
 Michael R. E sser
 Assistllnt Inspector General
 forAudlU
                                                            1
                      ABBREVIATIONS

Association   BlueCross BlueShield Association
BCBS          BlueCross BlueShield
BCBSA         BlueCross BlueShield Association
BCBST         BlueCross BlueShield of Tennessee
CL            Carrier Letter
CFR           Code of Federal Regulations
EFT           Electronic Funds Transfer
FAR           Federal Acquisition Regulations
FEHB          Federal Employees Health Benefits
FEHBAR        Federal Employees Health Benefits Acquisition Regulations
FEHBP         Federal Employees Health Benefits Program
FEP           Federal Employee Program
FEPDO         Federal Employee Program Director’s Office
F&A           Fraud and Abuse
FIMS          Fraud Information Management System
HIO           Healthcare and Insurance Office
LOCA          Letter of Credit Account
LII           Lost Investment Income
Manual        FEP Fraud, Waste, and Abuse Program Standards Manual
OIG           Office of the Inspector General
OMB           U.S. Office of Management and Budget
OPM           U.S. Office of Personnel Management
OSA           Out-of-System Adjustment
Plan          BlueCross BlueShield of Tennessee
SERP          Supplemental Executive Retirement Plan
SIU           Special Investigations Unit
SPI           Special Plan Invoice




                                    ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS

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

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

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

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

III.   AUDIT FINDINGS AND RECOMMENDATIONS ....................................................7

       A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........7

            1. Medical Drug Rebates........................................................................................7

       B. ADMINISTRATIVE EXPENSES ..........................................................................9

            1. Out-of-System Adjustments...............................................................................9
            2. BlueCross BlueShield Association Dues .........................................................10

       C. STATUTORY RESERVE PAYMENTS .............................................................11

       D. CASH MANAGEMENT ......................................................................................12

            1. Excess Funds in the Federal Employee Program Investment Account ...........12

       E. FRAUD AND ABUSE PROGRAM ....................................................................16

            1. Special Investigations Unit ..............................................................................16

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ........................................................20

V.     SCHEDULES

       A. CONTRACT CHARGES
       B. QUESTIONED CHARGES

       APPENDIX (BlueCross BlueShield Association response, dated September 22, 2014,
       to the draft audit report)

       REPORT FRAUD, WASTE, AND MISMANAGEMENT
     IV. I.MAJOR
            INTRODUCTION
                 CONTRIBUTORS
                         AND BACKGROUND
                              TO THIS REPORT
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
BlueCross BlueShield of Tennessee (Plan). The Plan is located in Chattanooga, Tennessee.

The audit was performed by the U.S. 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 (BCBS) 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 BCBS plans throughout the United States to
process the health benefit claims of its federal subscribers. This Plan is one of approximately 64
local BCBS plans participating in the FEHBP.

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 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


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-10-15-14-030
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.

All findings from our previous audit of the Plan (Report No. 1A-10-15-09-009, dated June 16,
2009) for contract years 2004 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 July 15, 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                           Report No. 1A-10-15-14-030
   IV. OBJECTIVES,
   II.  MAJOR CONTRIBUTORS
                   SCOPE, ANDTO THIS REPORT
                             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.

       Statutory Reserve Payments

          To determine whether the Plan charged statutory reserve payments to the FEHBP in
           accordance with the contract and applicable laws and 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.




                                               3                          Report No. 1A-10-15-14-030
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 390 and 890 for contract years 2008 through 2012. During this period, the
Plan processed approximately $1.8 billion in FEHBP health benefit payments and charged the
FEHBP $81 million in administrative expenses (See Figure 1 and Schedule A). The Plan also
paid approximately $36 million in statutory reserve payments (See Schedule A).

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
provider audit recoveries, and drug rebates) and cash management activities from 2009 through
September 30, 2013, as well as administrative expenses and statutory reserve payments from
2008 through 2012. We also reviewed the Plan’s Fraud and Abuse (F&A) Program for 2013.

In planning and conducting our audit, we
obtained an understanding of the Plan’s                                    BlueCross BlueShield of Tennessee
internal control structure to help determine                                      Contract Charges

the nature, timing, and extent of our
                                                               $500
auditing procedures. This was determined
to be the most effective approach to select                    $400
                                                  $ Millions




areas of audit. For those areas selected, we                   $300
primarily relied on substantive tests of
                                                               $200
transactions and not tests of controls.
Based on our testing, we did not identify                      $100

any significant matters involving the Plan’s                    $0
                                                                          2008         2009         2010       2011         2012
internal control structure and its operations.
However, since our audit would not                                                            Contract Years

necessarily disclose all significant matters in
the internal control structure, we do not                             Health Benefit Payments         Administrative Expenses

express an opinion on the Plan’s system of
internal controls taken as a whole.                                            Figure 1 - Contract Charges

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



                                                  4                                               Report No. 1A-10-15-14-030
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 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 performed at the Plan’s office in Chattanooga, Tennessee on various dates from
March 11, 2014 through April 18, 2014. Audit fieldwork was also performed at our office in
Cranberry Township, Pennsylvania.

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. For the period
2009 through September 30, 2013, we also judgmentally selected and reviewed 96 high dollar
health benefit refunds, totaling $4,758,740 (from a universe of 48,473 refunds, totaling
$18,419,733); 42 high dollar provider audit recoveries, totaling $1,158,144 (from a universe of
20,289 recoveries, totaling $7,166,538); 36 high dollar hospital credit balance audit recoveries,
totaling $715,114 (from a universe of 1,104 recoveries, totaling $1,757,128); all FEP medical
drug rebate amounts, totaling $145,756; 6 high dollar fraud and abuse recoveries, totaling
$76,274 (from a universe of 19 recoveries, totaling $91,165); and 25 special plan invoices (SPI),
totaling $7,855,741 in net FEP payments (from a universe of 500 SPI’s, totaling $42,940,883 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.

2
  The sample of health benefit refunds included all refunds of $20,000 or more. For the sample of provider audit
recoveries, we selected all recoveries of $20,000 or more from the Plan’s “Exact” software listings and $5,000 or
more from the Plan’s “CAS” software listings. For the sample of hospital credit balance audit recoveries, we
selected all recoveries of $10,000 or more. For the sample of fraud and abuse recoveries, we selected all recoveries
of $5,000 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, if applicable, from each year in the audit scope.


                                                         5                                 Report No. 1A-10-15-14-030
We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2008 through 2012. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, pension, post-retirement, employee health benefits,
Association dues, non-recurring projects, and subcontracts. We also reviewed the statutory
reserve payments charged to the FEHBP for contract years 2008 through 2012. 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.
Specifically, we reviewed letter of credit account (LOCA) drawdowns, working capital
calculations, adjustments and/or balances, and interest income transactions from 2009 through
September 30, 2013, as well as the Plan’s dedicated FEP investment account balances as of
September 30, 2013 and December 31, 2013.

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.




                                               6                           Report No. 1A-10-15-14-030
  IV. AUDIT
 III.  MAJORFINDINGS
              CONTRIBUTORS TO THIS REPORT
                     AND RECOMMENDATIONS
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

  1. Medical Drug Rebates                                                               $17,181

     In one instance, the Plan had not returned a medical drug rebate amount to the FEHBP.
     As a result of this finding, the Plan returned $17,181 to the FEHBP, consisting of
     $16,547 for the questioned medical drug rebate amount and $634 for applicable lost
     investment income (LII).

     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.”

     Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and
     recoveries, including erroneous payment recoveries, must be deposited into the working
     capital or investment account within 30 days and returned to or accounted for in the
     FEHBP letter of credit account within 60 days after receipt by the Carrier.” Also, based
     on an agreement between OPM and the Association, dated March 26, 1999, BlueCross
     and BlueShield plans have 30 days to return health benefit refunds and recoveries to the
     FEHBP before LII will commence to be assessed.

     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.”

     Since 2011, the Plan has participated in a medical drug rebate program with the
     manufacturers of the [Redacted] and [Redacted] drugs. [Redacted] drug rebates are
     determined based on medical claims for these drugs, which are administered in
     physicians’ offices. The medical drug rebates are received multiple times a year (usually
     on a quarterly basis) by the Plan and credited to the participating groups, including the
     FEP. From January 1, 2011 through September 30, 2013, the Plan received 10 FEP
     medical drug rebate amounts totaling $145,756. We selected and reviewed all of the FEP
     medical drug rebate amounts for the purpose of determining if the Plan timely returned
     these rebates to the FEHBP.




                                          7                               Report No. 1A-10-15-14-030
Based on our review, we determined that the Plan had not returned a medical drug rebate
amount of $16,547 to the FEHBP. As a result of our finding, the Plan returned $17,181
to the FEHBP, consisting of $16,547 for the questioned medical drug rebate amount and
$634 for applicable LII. We reviewed and accepted the Plan’s LII calculation.

Additionally, the Plan made duplicate LOCA adjustments when returning four medical
drug rebate amounts to the FEHBP. As a result, these four medical drug rebate amounts,
totaling $46,428, were returned twice to the FEHBP. In theory, the impact of these
duplicate LOCA adjustments should have resulted in a shortage of FEHBP funds in the
Plan’s FEP investment account. However, based on our analysis of the funds maintained
in the FEP investment account as of September 30, 2013, we noted that there were excess
FEHBP funds of approximately $5.7 million in the account (See the “Excess Funds in the
Federal Employee Program Investment Account” audit finding (D1) on pages 11 through
15 for more details regarding these excess FEHBP funds). Due to this significant surplus
of FEHBP funds in the Plan’s FEP investment account, we did not question the monetary
impact to the FEHBP for these duplicate LOCA adjustments.

Association’s Response:

In an email (dated September 22, 2014), the Association agreed with this audit finding.

OIG Comments:

When responding to our initial audit inquiry, the Plan stated that procedures were added
to track rebate receipts and applicable credits to the FEHBP on a quarterly basis. Also,
the Plan stated that additional procedures are being implemented to ensure that LOCA
drawdowns are calculated correctly and to prevent duplicate LOCA adjustments.

Recommendation 1

We recommend that the contracting officer require the Plan to return $16,547 to the
FEHBP for the questioned drug rebate amount. Since we verified that the Plan returned
$16,547 to the FEHBP for the questioned drug rebate amount, no further action is
required for this amount.

Recommendation 2

We recommend that the contracting officer require the Plan to return $634 to the FEHBP
for LII on the questioned drug rebate amount. Since we verified that the Plan returned
$634 to the FEHBP for LII, no further action is required for this LII amount.



                                        8                           Report No. 1A-10-15-14-030
B. ADMINISTRATIVE EXPENSES

  1. Out-of-System Adjustments                                                          $27,380

     The Plan did not correctly calculate a year-end adjustment for the Supplemental
     Executive Retirement Plan (SERP) expenses that were charged to the FEHBP in 2011.
     As a result of this finding, the Plan returned $27,380 to the FEHBP, consisting of
     $26,181 for a SERP expense overcharge and $1,199 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.”

     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, there were 108 out-of-system adjustments (OSA)
     totaling $38,303,260 in net FEP credits. From this universe, we selected and reviewed a
     judgmental sample of 16 OSAs, totaling $27,653,301 in net FEP credits, to determine
     whether the Plan properly charged or credited these adjustments to the FEHBP. Our
     sample included the OSAs with the highest credit and/or charge amounts for each year as
     well as unusual OSAs identified from our nomenclature review.

     Based on our review of these OSAs, we determined that the Plan did not correctly
     calculate the SERP expense adjustment for 2011. The Plan’s procedure is to charge the
     FEHBP an accrued SERP expense amount through the cost accounting system and then
     make a year-end OSA to true-up the charge to the actual SERP expense amount. When
     making the SERP expense adjustment for 2011, the Plan used an incorrect amount for the
     actual SERP expense, resulting in an overcharge of $26,181 to the FEHBP. As a result of
     our finding, the Plan returned $27,380 to the FEHBP, consisting of $26,181 for the SERP
     expense overcharge and $1,199 for applicable LII. We reviewed and accepted the Plan’s
     LII calculation.

     Association’s Response:

     The Association agrees with this finding. The Association states that the Plan returned
     the overcharge of $26,181 to the FEHBP on July 15, 2014 through a prior period
     adjustment. The Plan also transferred LII of $1,199 to the FEHBP on July 15, 2014


                                              9                           Report No. 1A-10-15-14-030
   through an SPI. The Association also states, “The Plan’s internal job aides have been
   updated to reference the appropriate sources for adjustment calculations.”

   Recommendation 3

   We recommend that the contracting officer disallow $26,181 for the SERP expense
   overcharge in 2011. Since we verified that the Plan returned $26,181 to the FEHBP for
   the questioned SERP expense overcharge, no further action is required for this amount.

   Recommendation 4

   We recommend that the contracting officer require the Plan to return $1,199 to the
   FEHBP for LII on the questioned SERP expense overcharge. Since we verified that the
   Plan returned $1,199 to the FEHBP for LII on the SERP expense overcharge, no further
   action is required for this LII amount.

2. BlueCross BlueShield Association Dues                                             $3,642

   For 2010, the Plan did not allocate Association dues to the FEHBP in accordance with the
   agreement between the Association and OPM regarding dues chargeability. As a result
   of this finding, the Plan returned $3,642 to the FEHBP, consisting of $3,399 for
   Association dues overcharged to the FEHBP and $243 for applicable LII.

   FEP Memorandum #12-24PI (Memorandum), titled BCBSA Regular Member Plan Dues
   and Other Assessments: 2007-2012, dated February 15, 2012, provides guidance to the
   BCBS plans with respect to charging the FEHBP for Association dues. The
   Memorandum also includes specific guidance related to the chargeability of the 2010
   special dues assessment to the FEHBP. Specifically, the Memorandum states that this
   assessment is chargeable to the FEHBP after applying the allowability factor to the
   invoiced amount.

   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.”



                                          10                          Report No. 1A-10-15-14-030
     To determine the reasonableness of the amounts charged to the FEHBP, we reviewed
     each year within the audit scope and recalculated FEP’s share of the Association dues in
     accordance with the methods in the Memorandum. We found that the Plan overcharged
     the FEHBP $3,399 for Association dues in 2010. This error occurred because the Plan
     did not apply the allowability factor to the Association’s special dues assessment when
     determining the chargeable dues base for 2010. As a result of our finding, the Plan
     returned $3,642 to the FEHBP, consisting of $3,399 for Association dues overcharged to
     the FEHBP and $243 for applicable LII. We reviewed and accepted the Plan’s LII
     calculation.

     Association’s Response:

     The Association agrees with this finding. The Association states that the Plan returned
     the overcharge of $3,399 to the FEHBP on July 15, 2014 through a prior period
     adjustment. The Plan also transferred LII of $243 to the FEHBP on July 15, 2014
     through an SPI.

     Recommendation 5

     We recommend that the contracting officer disallow $3,399 for Association dues that
     were overcharged to the FEHBP in 2010. Since we verified that the Plan returned $3,399
     to the FEHBP for the questioned Association dues, no further action is required for this
     amount.

     Recommendation 6

     We recommend that the contracting officer require the Plan to return $243 to the FEHBP
     for LII on the questioned Association dues. Since we verified that the Plan returned $243
     to the FEHBP for LII on the questioned Association dues, no further action is required for
     this LII amount.

C. STATUTORY RESERVE PAYMENTS

  The audit disclosed no findings pertaining to statutory reserve payments. The Plan calculated
  and charged statutory reserve payments to the FEHBP in accordance with Contract CS 1039
  and applicable laws and regulations.




                                             11                          Report No. 1A-10-15-14-030
D. CASH MANAGEMENT

  1. Excess Funds in the Federal Employee Program Investment Account                 $5,776,229

     Our audit determined that the Plan held excess FEHBP funds, totaling $5,776,229, in the
     dedicated FEP investment account as of December 31, 2013.

     48 CFR 1632.170 (b)(2) states, "Withdrawals from the LOC account will be made on a
     checks-presented basis. Under a checks-presented basis, drawdown on the LOC is
     delayed until the checks issued for FEHB Program disbursements are presented to the
     carrier’s bank for payment."

     48 CFR 1632.771 (c) states, “FEHBP funds shall be maintained separately from other
     cash and investments of the carrier or underwriter.”

     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.”

     Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and
     recoveries, including erroneous payment recoveries, must be deposited into the working
     capital or investment account within 30 days and returned to or accounted for in the
     FEHBP letter of credit account within 60 days after receipt by the Carrier.” Also, as
     previously cited from Contract CS 1039, costs charged to the FEHBP must be actual,
     allowable, allocable, and reasonable.

     The Plan’s FEP investment account generally includes FEP working capital funds,
     approved LOCA drawdowns, health benefit refunds and recoveries from providers and
     subscribers, interest income earned, and other cash identified as due to the FEP. Based
     on Contract CS 1039, all funds deposited into the FEP investment account, such as health
     benefit refunds, interest income and excess working capital, should be returned to the
     FEHBP by adjusting the LOCA within 60 days after receipt by the BCBS plan.

     In our standard information request, dated October 1, 2013, we requested the Plan to
     provide a detailed itemization of the funds in the dedicated FEP investment account as of
     September 30, 2013. Based on our review of the Plan’s FEP investment account
     itemization, we determined that the Plan held a total of $5,729,621 in excess FEHBP
     funds as of September 30, 2013. We requested the Plan to research these excess FEHBP
     funds and provide us detailed explanations regarding the composition of these funds.




                                             12                           Report No. 1A-10-15-14-030
                                In response to our follow-up request, the Plan performed an
      BCBS of Tennessee
                                additional itemization of the funds held in the dedicated
    held nearly $5.8 million
                                FEP investment account as of December 31, 2013. Based
    in excess FEHBP funds
                                on our review of this FEP investment account itemization
    in the Plan’s dedicated
                                and documentation provided by the Plan, we determined
        FEP investment
                                that the Plan held excess FEHBP funds of $5,776,229 as of
            account.
                                December 31, 2013.

We noted the following issues regarding the excess FEHBP funds in the Plan’s dedicated
FEP investment account as of December 31, 2013:

     The Plan incorrectly withdrew $1,772,199 from the LOCA. Specifically, the Plan
      inadvertently made additional LOCA drawdowns for a Health Dialog reimbursement
      of $780,142 and electronic funds transfer (EFT) rejection errors of $992,057,
      resulting in the Plan being reimbursed twice for these health benefit charges. The
      following are the Plan’s explanations for these LOCA drawdown errors.

      Additional Health Dialog Reimbursement: “On July 25, 2013, BCBST drew down
      approximately $780,000 (total for both the Basic and Standard accounts) in
      anticipation of a reimbursement check issuance to the BCBST corporate account for
      the monthly Health Dialog payment. On July 29, 2013, this reimbursement check
      cleared and was included in the listing of cleared checks on the bank statement. On
      the following day, BCBST made a drawdown based on the cleared check total but
      was unaware that this total included this Health Dialog reimbursement (which had
      been previously drawn down). As a result, BCBST inadvertently made an additional
      drawdown on this Health Dialog payment.”

      EFT Rejection Errors: “The majority of FEP claims payments are made via
      electronic funds transfers (EFT) to providers. In certain instances, an EFT transaction
      may not fully clear to the provider and thus is considered to be a rejected EFT
      payment. BCBST receives a rejected EFT report from the issuing bank. BCBST’s
      Accounts Payable department will issue a manual check to replace the rejected EFT
      in order to ensure the provider receives the payment. BCBST identified instances
      where the appropriate accounting did not occur in the drawdown calculation for
      checks issued to replace rejected EFT transactions. In these situations, funds on
      rejected EFT’s were returned to the FEP Investment Account and a manual check was
      submitted to the provider. When these checks cleared, BCBST did not reduce the
      next drawdown by these amounts, and as a result, an additional drawdown was made
      on these items.”




                                          13                           Report No. 1A-10-15-14-030
    These specific LOCA drawdown errors totaled $1,772,199 of the excess FEHBP
    funds in the FEP investment account as of December 31, 2013.

   In 2010, the Plan received a refund of $223,664 from Magellan for FEP capitation
    overpayments applicable to contract years 2008 and prior. The Plan returned part of
    this refund, but did not return $113,772 of the refund amount to the FEHBP.

   According to the Plan, the remaining excess funds of $3,890,258 relate to periods
    prior to 2004, which is past the Plan’s record retention period. Therefore, the Plan
    could not specifically identify the transactions relating to these excess funds.

As a result of the LOCA drawdown errors of $1,772,199, a refund amount of $113,772
not returned to the FEHBP, and the unexplained excess funds of $3,890,258 in the FEP
investment account, we are questioning $5,776,229 in excess FEHBP funds held in the
FEP investment account as of December 31, 2013. As a result of our finding, the Plan
returned $1,885,971 of the questioned excess funds to the FEHBP on June 18, 2014. The
Plan also returned the remaining questioned excess funds of $3,890,258 to the FEHBP on
September 30, 2014.

Association’s Response:

The Association agrees with this finding. The Association states, “The Plan was able to
specifically identify $1,885,971 of excess funds held in the FEP investment account as of
December 31, 2013, related to transactions occurring between 2004 and 2013. The Plan
has provided OPM with supporting documentation and explanation[s] for these excess
funds which included a Care Management provider reimbursement of $780,142; EFT
rejection errors of $992,057; and Behavioral Health provider refunds of $113,772. The
total of $1,885,971 was returned to FEHBP in June 2014. The remaining amount of
excess funds of $3,890,258 relates to periods prior to 2004 which is beyond the Plan’s
record retention period. As a result, the Plan is unable to specifically identify the
transactions that might have caused these variances, and will return the total amount of
the excess funds to FEHBP.”

The Association also states, “The following corrective actions have been implemented to
prevent drawdown errors to the investment account:

   The working capital balance is now reconciled to the balance in the investment
    account on a monthly basis.




                                        14                           Report No. 1A-10-15-14-030
   A revision was made to the drawdown procedure to implement funds movement
    between the Plan Corporate account and FEP accounts via transfers. This change will
    eliminate the need for prefunding non-claims checks, thus eliminating the need for a
    future reduction and mitigating the risk of the aforementioned finding . . .

   As a result of the items identified above under ‘EFT Rejection Errors’, the drawdown
    procedure has been updated to include a line item to adjust the drawdown as needed
    based upon bank reporting of EFT returns.

   The monthly drawdown review has been expanded to give a more detailed and
    complete variance analysis of timing differences at the end of each period. The
    review now includes: a variance analysis of calculation to EFT deposit amount, an
    overnight sweep deposit versus withdrawal analysis and a rolling summary of
    identified variances to ensure resolution. The purpose of the expansion of the
    monthly review is to identify drawdown errors and correct them in a more expedient
    manner.”

OIG Comments:

We did not assess LII on this audit finding since the questioned excess FEHBP funds
were maintained in the Plan’s dedicated FEP investment account.

Recommendation 7

We recommend that the contracting officer require the Plan to return $5,776,229 to the
FEHBP for the questioned excess funds in the FEP investment account. Since we
verified that the Plan returned $5,776,229 to the FEHBP for these questioned excess
funds, no further action is required for this amount.

Recommendation 8

We recommend that the contracting officer require the Association to provide evidence or
supporting documentation ensuring that the Plan has implemented additional corrective
actions to prevent LOCA drawdown errors from occurring. (These corrective actions are
included in the Association’s response to the draft report.) Also, the contracting officer
should require the Association to provide evidence or supporting documentation ensuring
that the Plan has implemented corrective actions so that only necessary funds are
maintained in the FEP investment account.




                                        15                          Report No. 1A-10-15-14-030
E. 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 set forth in FEHBP Carrier Letter (CL) 2011-13. Specifically, the
     Plan did not report, or did not timely report, all fraud and abuse cases to the OIG. The
     Plan’s non-compliance may be due in part to incomplete and/or 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 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 December 31, 2013, the Plan opened 67 fraud
     and abuse cases that were identified as having FEP exposure. We reviewed these 67
     cases with FEP exposure to determine if the cases were reported to the OIG as required
     by CL 2011-13. Based on our review, we determined that notifications for only 3 of the
     67 fraud and abuse cases with FEP exposure were sent to the OIG. Because all of these
     cases have FEP exposure, and there is no dollar threshold for reporting suspected fraud
     against the FEHBP, these cases should have been reported to the OIG as required by CL
     2011-13. Moreover, the three notifications that the OIG received were sent 33 to 99 days
     after the Plan had identified the FEP exposure, which does not meet the 30-day timeliness
     requirement defined in 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 untimely
     communicating or not reporting potential FEP fraud and abuse     The Plan is not in
     cases to the FEPDO’s Special Investigations Unit (SIU). The     compliance with the
     FEPDO’s SIU sends notifications of fraud and abuse cases to     communication and
     the OIG on behalf of the Plan. However, the Plan must first           reporting
     report the fraud and abuse cases with FEP exposure to the         requirements for
     FEPDO’s SIU, which is accomplished when the Plan enters the       fraud and abuse
     cases into the FEPDO’s Fraud Information Management                     cases.



                                            16                           Report No. 1A-10-15-14-030
           System (FIMS).3 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 67 cases with FEP exposure
           during the period January 1, 2013 through December 31, 2013, we determined that only 7
           cases were entered into FIMS timely, 17 cases were entered into FIMS untimely, and 43
           cases were not entered into FIMS at all.


                      Cases Opened and/or Entered into FIMS with
                        FEP Exposure (as Identified by the Plan)

                                           7


                                                       17           Entered Timely
                                                                    Entered Late
                    43
                                                                    Not Entered




           Without timely FIMS case entries by the Plan, the FEPDO’s SIU cannot meet the
           FEHBP’s contractual communication and reporting requirements.

           In addition to the above, the Plan also opened 108 non-FEP fraud and abuse cases. We
           reviewed all of these cases to determine if there was FEP exposure. Based on our review,
           we determined that 49 of these cases had FEP exposure. After further review, we found
           that the Plan previously had identified FEP exposure for four of these cases but did not
           report them because the cases did not meet their investigative monetary thresholds.
           However, since there is no dollar threshold for reporting suspected fraud, waste and
           abuse issues against the FEHBP, these cases should have been reported to the OIG as
           required by CL 2011-13. Additionally, none of the 49 cases were added to FIMS or
           reported to the OIG as required by CL 2011-13.

           Ultimately, both the Plan’s 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 applicable 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

3
    FIMS is a multi-user, web-based case-tracking database that the FEPDO’s SIU developed in-house.


                                                        17                               Report No. 1A-10-15-14-030
whether other FEHBP Carriers are exposed to the identified provider committing fraud
against the 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 disagrees with the statement that the Plan is not in compliance with the
communication and reporting requirements set forth in CL 2011-13. The Association
also disagrees that controls for the Plan’s FIMS entries are inadequate.

The Association states, “The FEP Director’s Office (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.”

The Association also states that the Plan had been following the guidance provided by the
Association in the FEP Fraud, Waste, and Abuse Program Standards Manual (Manual).
The Plan is committed to complying with CL 2011-13 and will further modify procedures
as appropriate based on the Association’s review of the Manual or after the issuance of
updated guidelines by OPM.

OIG Comments:

Our review concluded that timeliness issues were in fact present regarding the
communication and reporting of fraud and abuse cases to the FEPDO’s SIU (via FIMS)
and to the OIG (via official notification). Whether or not the guidance provided by the
Association in the Manual is adequate, the Plan and Association are both responsible for
working together to meet the contractual requirements set forth in Contract CS 1039 and
CL 2011-13.

Note: In addition to the recommendations below, we also included the following
recommendation in our draft audit report: “We recommend that the contracting officer
direct the Association and/or Plan to provide OPM and the OIG an explanation and
supporting documentation for each of the 21 cases (7 cases entered into FIMS timely plus
17 cases entered into FIMS untimely minus 3 cases reported to the OIG) that were
entered into FIMS but not reported to the OIG. We also recommend that the contracting
officer review the explanation and supporting documentation for each of these cases, and
determine if these cases meet the communication and reporting requirements.”



                                        18                          Report No. 1A-10-15-14-030
The Association addressed this recommendation and provided supporting documentation
in response to our draft report. However, we will evaluate the Association’s response to
this recommendation during our current audit of the “Fraud and Abuse Case Reporting
Process at the BlueCross BlueShield Association” (Report No. 1A-99-00-14-069) and
report on the results accordingly.

Recommendation 9

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 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:

“BCBSA agrees with this recommendation and has reviewed the current BCBSA Fraud
Waste and Abuse manual to ensure that the manual addresses all of the Program
requirements. BCBSA is in the process of communicating the results of its review with
the Plan and will work with the Plan to modify their procedures, as appropriate. BCBSA
expects to complete this process by October 31, 2014.

BCBSA currently provides oversight to the Plan to ensure that entries into FIMS are
timely and complete, and expects to continue to do so in the future.”

The Association also states, “The Plan has now updated its procedure on entering cases in
the Federal Employee Program (FEP) Fraud Information Management System (FIMS) to
meet the communication and reporting requirements of fraud and abuse cases that are
contained in CL 2011-13 . . . .”




                                       19                          Report No. 1A-10-15-14-030
    IV. MAJOR CONTRIBUTORS TO THIS REPORT
Experience-Rated Audits Group

[Redacted] Lead Auditor

[Redacted] Auditor

[Redacted] Auditor

[Redacted] Auditor




[Redacted] Chief [Redacted]

[Redacted] Senior Team Leader




                                20   Report No. 1A-10-15-14-030
                                                                               V. SCHEDULES


                                                                                                                                                                 SCHEDULE A

                                                                BLUECROSS BLUESHIELD OF TENNESSEE
                                                                    CHATTANOOGA, TENNESSEE

                                                                              CONTRACT CHARGES


CONTRACT CHARGES*                                              2008                2009                 2010                2011                2012              TOTAL


A. HEALTH BENEFIT CHARGES

  PLAN CODES 390                                              $322,428,553        $338,270,721        $347,655,153         $372,828,523        $394,993,588       $1,776,176,538
  MISCELLANEOUS PAYMENTS AND CREDITS                             4,528,077           5,646,494           7,921,181            7,038,032           9,728,466           34,862,250

  PLAN CODES 890                                                         0                   0                    0                   0                67,888                67,888
  MISCELLANEOUS PAYMENTS AND CREDITS                                     0                   0                    0                   0                     0                     0

  TOTAL HEALTH BENEFIT CHARGES                                $326,956,630        $343,917,215        $355,576,334         $379,866,555        $404,789,942       $1,811,106,676

B. ADMINISTRATIVE EXPENSES

  PLAN CODE 390                                                $16,488,496         $16,892,384         $16,525,108          $16,609,216         $16,448,828             $82,964,032
  PRIOR PERIOD ADJUSTMENTS                                        (138,970)             49,271            (117,899)             (24,566)              3,989                (228,175)
  BUDGET SETTLEMENT REDUCTIONS                                    (385,304)         (1,090,162)           (423,093)                   0                   0              (1,898,559)

  TOTAL ADMINISTRATIVE EXPENSES                                $15,964,222         $15,851,493         $15,984,116          $16,584,650         $16,452,817             $80,837,298

C. STATUTORY RESERVE PAYMENTS

  PLAN CODE 390                                                 $7,966,512          $8,831,866                   $0          $9,068,255          $9,677,001             $35,543,634

TOTAL CONTRACT CHARGES                                        $350,887,364        $368,600,574        $371,560,450         $405,519,460        $430,919,760       $1,927,487,608

* This audit covered miscellaneous health benefit payments and credits and cash management activities from 2009 through September 30, 2013, as well as administrative
  expenses and statutory reserve payments from 2008 through 2012.
                                                                                                                                                                                      SCHEDULE B

                                                                          BLUECROSS BLUESHIELD OF TENNESSEE
                                                                              CHATTANOOGA, TENNESSEE

                                                                                     QUESTIONED CHARGES

AUDIT FINDINGS                                                    2008             2009             2010             2011             2012             2013             2014           TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
   AND CREDITS

    1. Medical Drug Rebates*                                             $0               $0               $0          $16,583               $311             $259              $28        $17,181

   TOTAL MISCELLANEOUS HEALTH BENEFIT
   PAYMENTS AND CREDITS                                                  $0               $0               $0          $16,583               $311             $259              $28        $17,181

B. ADMINISTRATIVE EXPENSES

    1. Out-of-System Adjustments*                                        $0               $0               $0          $26,181               $492             $409             $298        $27,380
    2. BlueCross BlueShield Association Dues*                             0                0            3,399               87                 64               53               39          3,642

    TOTAL ADMINISTRATIVE EXPENSES                                        $0               $0           $3,399          $26,268               $556             $462             $337        $31,022

C. STATUTORY RESERVE PAYMENTS                                            $0               $0               $0               $0                 $0               $0               $0             $0

D. CASH MANAGEMENT

    1. Excess Funds in the FEP Investment Account                        $0               $0               $0               $0                 $0     $5,776,229                 $0      $5,776,229

    TOTAL CASH MANAGEMENT                                                $0               $0               $0               $0                 $0     $5,776,229                 $0      $5,776,229

E. 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           $3,399          $42,851               $867     $5,776,950               $365      $5,824,432

* We included lost investment income (LII) within audit findings A1 ($634), B1 ($1,199), and B2 ($243). Therefore, no additional LII is applicable for these audit findings.
                                                                                             APPENDIX 





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

                                                                  Federal Employee Program
                                                                  1310 G Street, N .W.
September 22, 2014                                                Washington, D.C . 20005
                                                                  202.942 .1000
                                                                  Fax 202.942 .1125
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
                    Blue Cross Blue Shield of Tennessee (BCBST)
                    Audit Report No. 1A-10-15-14-030
                    (Dated July 15, 2014 and Received July 15, 2014)

Dear

This is Blue Cross Blue Shield of Tennessee's (Plan) 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

   1. Medical Drug Rebates 	                                                         $17,181


       Recommendation 1

       Since we verified that the Plan returned $16,547 to the FEHBP for the
       questioned drug rebate amount, no further action is required for this amount.

       Recommendation 2

       Since we verified that the Plan returned $634 to the FEHBP for Lll on the
September 22 , 2014
Page 2 of 8

      questioned drug rebate amount, no further action is required for this Lll amount.

B. ADMINISTRATIVE EXPENSES

   1. Out-of-System Adjustments                                                 $26,181

      Recommendation 3

      We recommend that the contracting officer disallow $26,181 for SERP expenses,
      and verify that these funds were returned to the FEHBP.

      Plan's Response:

      The Plan returned $26,181 to FEPHBP on July 15, 2014 by means of a prior
      period adjustment (PPA) #6350 submitted on July 1, 2014 . The lost investment
      income was assessed and transferred to FEHBP on July 15, 2014 in the amount
      of $1198.94 using SPI#1 00859-390. The Plan's internal job aids have been
      updated to reference appropriate sources for adjustment calculations.


   2. BlueCross BlueShield Association Dues                                       $3,399

      Recommendation 4

      We recommend that the contracting officer disallow $3,399 for Association dues
      that were overcharged to the FEHBP in 2010.

      Plan's Response:

      The Plan returned $3,399 to FEHBP on July 15, 2014 by means of a prior period
      adjustment #6349 submitted on July 1, 2014. The lost investment income was
      assessed and transferred to FEHBP on July 15, 2014 in the amount of $242.75
      using SPI#1 00858-390.

C. CASH MANAGEMENT

   1. Excess Funds in the FEP Investment Account                             $5,776,229

      Recommendation 5

      We recommend that the contracting officer instruct the Plan to immediately return
      the questioned excess funds of $5,776 ,229 to the FEHBP (unless the Plan can
      provide evidence or supporting documentation that these funds are not FEHBP
September 22, 2014
Page 3 of 8

     funds), as well as all additional excess and/or overdraw amounts (e.g., LOCA
     drawdown errors) identified while resolving this audit finding.

      Plan's Response

     The Plan was able to specifically identify $1,885,971 of excess funds held in the
     FEP investment account as of December 31, 2013, related to transactions
     occurring between 2004 and 2013. The Plan has provided OPM with supporting
     documentation and explanation for these excess funds which included a Care
     Management provider reimbursement of $780, 142; EFT rejection errors of
     $992,057; and Behavioral Health provider refunds of $113,772. The total of
     $1,885,971 was returned to FEHBP in June 2014. The remaining amount of
     excess funds of $3,890,258 relates to periods prior to 2004 which is beyond the
     Plan's record retention period. As a result, the Plan is unable to specifically
     identify the transactions that might have caused these variances, and will return
     the total amount of the excess funds to FEHBP.

      Recommendation 6

      We recommend that the contracting officer ensure that the Plan implements
      corrective actions to prevent these types of LOCA drawdown errors from
      occurring. The Plan should also implement corrective actions to ensure that only
      the necessary funds are maintained in the FEP investment account.

      Plan's Response

      The following corrective actions have been implemented to prevent drawdown
      errors to the investment account:

         • 	 The working capital balance is now reconciled to the balance in the
             investment account on a monthly basis.
         • 	 A revision was made to the drawdown procedure to implement funds
             movement between the Plan Corporate account and FEP accounts via
             transfers. This change will eliminate the need for prefunding non-claims
             checks, thus eliminating the need for a future reduction and mitigating the
             risk of the aforementioned finding specified in "Care Management provider
             reimbursement."
         • 	 As a result of the items identified above under "EFT Rejection Errors", the
             drawdown procedure has been updated to include a line item to adjust the
             drawdown as needed based upon bank reporting of EFT returns.
         • 	 The monthly drawdown review has been expanded to give a more detailed
             and complete variance analysis of timing differences at the end of each
             period. The review now includes: a variance analysis of calculation to
             EFT deposit amount, an overnight sweep deposit versus withdrawal
September 22, 2014
Page 4 of 8

            analysis and a rolling summary of identified variances to ensure
            resolution. The purpose of the expansion of the monthly review is to
            identify drawdown errors and correct them in a more expedient manner.

D. FRAUD AND ABUSE PROGRAM

   1. Special Investigations Unit                                          Procedural

      Plan's Comments

      As noted in the Plan's Response included in the body of the issue, the Plan had
      been following the guidance provided by the Blue Cross and Blue Shield
      Association (BCBSA) in the FEP FWA Manual. The Plan is committed to
      complying with CL 2011-13 and will further modify its procedures as appropriate
      based on BCBSA's review of the FWA manual as referenced in
      Recommendation 7 or upon the issuance of updated guidelines by OPM.

      BCBSA Comments

      BCBSA continues to disagree with the statement that the Plan 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 FEP Director's Office (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 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 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.
September 22, 2014
Page 5 of 8

      Plan's Response

     The Plan has now updated its procedure on entering cases in the Federal
     Employee Program (FEP) Fraud Information Management System (FIMS) to
     meet the communication and reporting requirements of fraud and abuse cases
     that are contained in CL 2011-13 See Attachment 1.

      BCBSA Response

      BCBSA agrees with this recommendation and has reviewed the current BCBSA
      Fraud Waste and Abuse manual to ensure that the manual addresses all of the
      Program requirements . BCBSA is in the process of communicating the results of
      its review with the Plan and will work with the Plan to modify their procedures, as
      appropriate. BCBSA expects to complete this process by October 31, 2014.

      BCBSA currently provides oversight to the Plan to ensure that entries into FIMS
      are timely and complete, and expects to continue to do so in the future.


      Deleted by the Office of the Inspector General - Not Relevant to the Final
      Report
September 22, 2014
Page 6 of 8

      Deleted by the Office of the Inspector General - Not Relevant to the Final
      Report
September 22, 2014
Page 7 of 8

      Deleted by the Office of the Inspector General - Not Relevant to the Final
      Report
September 22, 2014
Page 8 of 8

        Deleted by the Office of the Inspector General- Not Relevant to the Final
        Report

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

Sincerely,




            , CISA, CRMA
Managing Director, Program Assurance

lr/rj

cc:                  , Contracting Officer, OPM
                       , FEP
                    , BCBST
                                       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




                                                             -- 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 which 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 (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                Report No. 1A-10-15-14-030