oversight

Audit of Health Care Service Corporation Chicago, Illinois

Published by the Office of Personnel Management, Office of Inspector General on 2014-03-28.

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
             HEALTH CARE SERVICE CORPORATION
                    CHICAGO, ILLINOIS


                                           Report No. 1A-10-17-13-019


                                            Date: March 28, 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


                                             Health Care Service Corporation
                                  Plan Codes 121/621, 290/790, 340/840, and 400/900
                                      Illinois, New Mexico, Oklahoma, and Texas




                     REPORT NO. 1A-10-17-13-019                                 March 28, 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


                                   Health Care Service Corporation
                        Plan Codes 121/621, 290/790, 340/840, and 400/900
                            Illinois, New Mexico, Oklahoma, and Texas




              REPORT NO. 1A-10-17-13-019                    March 28, 2014
                                                     DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at the Health Care Service Corporation (Plan), which included the BlueCross BlueShield (BCBS)
plans of Illinois, New Mexico, Oklahoma and Texas, questions $14,413,248 in health benefit
charges, cash management activities, and lost investment income (LII). The report also includes
a procedural finding regarding the Plan’s Fraud and Abuse (F&A) Program. The BlueCross
BlueShield Association (Association) agreed (A) with $12,776,725 and disagreed (D) with
$1,636,523 of the questioned amounts, and partially agreed 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 2009 through
September 30, 2012, as well as administrative expenses from 2009 through 2011 as reported in
the Annual Accounting Statements for the BCBS plans of Illinois, New Mexico, Oklahoma, and
Texas. In addition, we reviewed the Plan’s cash management activities and practices related to
FEHBP funds from 2009 through September 30, 2012 and the Plan’s F&A Program from
January 1, 2013 through June 30, 2013. Due to a significant error identified in the Plan’s letter
of credit account (LOCA) drawdown adjustment process, we expanded our scope for this
specific LOCA drawdown error to cover the period April 1, 2002 through June 30, 2013.

The audit results are summarized as follows:



                                                 i
    MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

   Unidentified Refunds (A)                                                                 $81,555

    Our audit determined that the Plan had not returned unidentified refunds of $75,472 to the
    FEHBP. As a result of this finding, the Plan returned $81,555 to the FEHBP, consisting of
    $75,472 for the questioned unidentified refunds and $6,083 for applicable LII on these funds
    not previously returned to the FEHBP.

   Medical Drug Rebates (A)                                                                 $14,642

    Our audit determined that the Plan returned medical drug rebates, totaling $2,373,700, to the
    FEHBP in an untimely manner during the audit scope. As a result of this finding, the Plan
    returned $14,642 to the FEHBP for applicable LII on these medical drug rebates.

                             ADMINISTRATIVE EXPENSES
    The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded
    that the Plan’s administrative expenses charged to the FEHBP were actual, allowable,
    necessary, and reasonable expenses incurred in accordance with Contract CS 1039 and
    applicable laws and regulations.

                                  CASH MANAGEMENT

   Letter of Credit Account Overdraws                                                  $14,317,051

    The Plan inadvertently overdrew $12,236,424 in funds from the LOCA during the period
    April 1, 2002 through June 12, 2013. In addition, LII totaled $2,080,627 on these LOCA
    overdraws. As a result of this finding, the Plan returned $12,680,528 to the FEHBP,
    consisting of $12,236,424 for the questioned LOCA overdraws and $444,104 of the
    questioned LII. However, the Plan still owes the FEHBP $1,636,523, which is the remaining
    balance of the questioned LII. The Association agreed with $12,680,528 (A) and disagreed
    with $1,636,523 (D) of these questioned amounts.

                            FRAUD AND ABUSE PROGRAM

   Special Investigations Department                                                    Procedural

    The Plan is not in compliance with the communication and reporting requirements for fraud
    and abuse cases that are set forth in Contract CS 1039 and FEHBP Carrier Letter 2011-13.
    Specifically, the Plan did not report, or did not timely report, all fraud and abuse 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 incomplete and/or 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.



                                                   ii
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 partially agreed with this procedural finding.




                                           iii
                                                    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

              1. Unidentified Refunds .........................................................................................6
              2. Medical Drug Rebates........................................................................................8

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

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

              1. Letter of Credit Account Overdraws..................................................................9
       D.     FRAUD AND ABUSE PROGRAM ....................................................................13

              1. Special Investigations Department ..................................................................13

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................18

 V.    SCHEDULES

       A.     CONTRACT CHARGES
       B.     QUESTIONED CHARGES
       APPENDIX           (BlueCross BlueShield Association response, dated December 23, 2013,
                          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
the Health Care Service Corporation (HCSC or Plan) pertaining to the BlueCross BlueShield
(BCBS) plans of Illinois, New Mexico, Oklahoma, and Texas. The Plan’s headquarters are
located in Chicago, Illinois.

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 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. HCSC includes 4 of the 64 local BCBS 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.



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
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.

The following were the most recent audit reports issued for HCSC pertaining to the BCBS plans
of Illinois, New Mexico, Oklahoma, and/or Texas:

 Report No. 1A-10-83-08-018, HCSC (BCBS of Oklahoma), dated January 9, 2009
 Report No. 1A-99-00-07-043, HCSC (BCBS of Illinois and Texas), dated September 5, 2008
 Report No. 1A-10-03-06-079, HCSC (BCBS of New Mexico), dated June 5, 2007

All findings from these previous audits of HCSC, covering various contract years from 2002
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 on September 26,
2013; and were presented in detail in a draft report, dated October 9, 2013. The Association’s
comments offered in response to this draft report were considered in preparing our final report
and are included as an Appendix to this report. Also, additional documentation provided by the
Association and Plan on various dates through January 27, 2014 was considered in preparing our
final 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 121/621 (BCBS of Illinois), 290/790 (BCBS of New Mexico), 340/840
(BCBS of Oklahoma), and 400/900 (BCBS of Texas) for contract years 2009 through 2012.
During this period, the Plan paid approximately $10.3 billion in health benefit charges and $536
million in administrative expenses for these four BCBS plans (See Figure 1 and Schedule A).


                                                3
Specifically, we reviewed miscellan eous health benefit payments and credits (e.g. , refunds,
medical dmg rebates, and fraud recoveries) and cash management activities from 2009 through
September 30, 2012 for these fom BCBS plans, as well as administrative expenses from 2009
through 2011. We also reviewed the Plan's F&A Program practices for the BCBS plans of
lllinois and Texas fi:om Janmuy 1, 2013 through June 30, 2013. Due to a significant enor
identified in the Plan 's letter of credit account (LOCA) drawdown adjustment process, we
expanded om audit scope for this specific LOCA drawdown adjustment enor to cover the period
April1 , 2002 through Jlme 30, 2013 .

In planning an d conducting om audit, we
obtained an understanding of the Plan 's                          H ealth Care Senice Corporation
intemal conu·ol sti11ctme to help detennine                               Contract Charges
the natme, timing, and extent of om
auditing procedmes. This was detennined                 $5
to be the most effective approach to select             $4
areas of audit. For those areas selected, we      "'=
                                                  0

primarily relied on substantive tests of         =
                                                 =
                                                        $3

u·ansactions an d not tests of conu·ols.         617    $2
Based on om testing, we did not identify                $1
any significant matters involving the Plan 's
                                                        $0
intemal conu·ol sti11ctme and its operations,                     2009          2010          2011        2012
except for the Plan 's processing of LOCA
                                                                                Contract Years
drawdown adjustments (See the audit
finding for the "Letter of Credit Account
                                                        Eii Health Benefit Payments    • Administrative Expenses
Overdraws" (C 1) on pages 9 through 13).

                                                                 Figme 1 - Conu·act Charges

However, since om audit would not necessarily disclose all significant matters in the intemal
control sti11ctme, we do not express an opinion on the Plan's system of intemal conu·ols taken as
a whole.

We also conducted tests to detennine whether the Plan had complied with the conu·act, the
applicable procmement regulations (i.e. , Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations govem ing the FEHBP. The results of om tests indicate that, with respect to the
items tested, the Plan did not comply with all provisions of the conu·act and federal procmement
regulations. Exceptions noted in the areas reviewed are set f01th in detail in the "Audit Findings
and Recommendations" section of this audit rep01t. With respect to the items not tested, nothing
came to om attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.

In conducting om audit, we relied to vaty ing 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 inf01mation systems involved. However, while utilizing the




                                                 4

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 offices in Chicago, Illinois and Richardson, Texas on
various dates from May 7, 2013 through July 26, 2013. Audit fieldwork was also performed at
our offices in Jacksonville, Florida; Cranberry Township, Pennsylvania; and Washington, D.C.

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 300 high dollar health benefit refunds, totaling $37,026,330
(from a universe of 354,308 refunds, totaling $260,417,858); 16 special plan invoices (SPI),
totaling $23,930,051 in net FEP credits (from a universe of 513 SPI’s, totaling $33,787,193 in
net FEP credits); all FEP medical drug rebate amounts, totaling $3,259,340; 10 high dollar fraud
recoveries, totaling $1,001,106 (from a universe of 66 recoveries, totaling $1,364,903); and all
unidentified refunds allocated to the FEP, totaling $230,813, for the purpose of determining 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
2009 through 2011. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement,
executive compensation, non-recurring projects, mergers and acquisitions, gains and losses,
return on investment, inter-company profits, subcontracts, 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 Department regarding the effectiveness of
the F&A Program. For the BCBS plans of Illinois and Texas, we also 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 health benefit refunds included the 15 highest dollar refund receipts and the 5 highest dollar
provider offsets from each year in the audit scope for each of the BCBS plans in Illinois, Oklahoma, and Texas. The
sample of health benefit refunds also included the 10 highest dollar refund receipts and the 5 highest dollar provider
offsets from each year in the audit scope for BCBS of New Mexico. For the SPI sample, we selected the SPI with
highest miscellaneous FEP payment or credit amount from each year in the audit scope for each BCBS plan. For the
sample of fraud recoveries, we selected all recoveries of $40,000 or more.


                                                          5
            III. AUDIT FINDINGS AND RECOMMENDATIONS

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

  1. Unidentified Refunds                                                               $81,555

     Our audit determined that the Plan had not returned unidentified refunds of $75,472 to
     the FEHBP. As a result of this finding, the Plan returned $81,555 to the FEHBP,
     consisting of $75,472 for the questioned unidentified refunds and $6,083 for applicable
     LII on these funds.

     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.”

     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 January 1, 2009 through September 30, 2012, the Plan’s unidentified
     refunds totaled $3,191,182. The Plan allocates the unidentified refunds to all lines of
     business, including FEP on a quarterly basis. For the scope of the audit, the Plan
     allocated a total of $230,813 of these unidentified refunds to the FEHBP. We selected
     and reviewed all of the unidentified refunds for the purpose of determining if the Plan
     properly allocated and promptly returned these refunds to the FEHBP.

     Based on our review, we determined that the Plan had not returned $75,472 in quarterly
     unidentified refund amounts to the FEHBP. The following summarizes the questioned
     unidentified refund amounts and applicable LII by BCBS plan:

        For BCBS of Texas, the Plan had not returned five quarterly unidentified refund
         allocation amounts, totaling $35,840, to the FEHBP. As a result of this finding, the
         Plan returned $38,725 to the FEHBP, consisting of $35,840 for these questioned
         unidentified refunds and $2,885 for applicable LII. We reviewed and accepted the
         Plan’s LII calculation.




                                              6
   For BCBS of Illinois, the Plan had not returned five quarterly unidentified refund
    allocation amounts, totaling $26,273, to the FEHBP. As a result of this finding, the
    Plan returned $28,391 to the FEHBP, consisting of $26,273 for these questioned
    unidentified refunds and $2,118 for applicable LII. We reviewed and accepted the
    Plan’s LII calculation.

   For BCBS of Oklahoma, the Plan had not returned five quarterly unidentified refund
    allocation amounts, totaling $10,514, to the FEHBP. As a result of this finding, the
    Plan returned $11,365 to the FEHBP, consisting of $10,514 for these questioned
    unidentified refunds and $851 for applicable LII. We reviewed and accepted the
    Plan’s LII calculation.

   For BCBS of New Mexico, the Plan had not returned five quarterly unidentified
    refund allocation amounts, totaling $2,845, to the FEHBP. As a result of this finding,
    the Plan returned $3,074 to the FEHBP, consisting of $2,845 for these questioned
    unidentified refunds and $229 for applicable LII. We reviewed and accepted the
    Plan’s LII calculation.

In total, the Plan returned $81,555 to the FEHBP as a result of this finding, consisting of
$75,472 ($35,840 plus $26,273 plus $10,514 plus $2,845) for the questioned unidentified
refunds and $6,083 ($2,885 plus $2,118 plus $851 plus $229) for applicable LII on these
funds not previously returned to the FEHBP.

Association’s Response:

The Association agrees with this finding. The Association states that the Plan returned
the questioned unidentified refunds to the FEHBP on October 11, 2013. The Association
also states that the Plan submitted SPI’s to the Association on December 18, 2013 to
return the applicable LII to the FEHBP.

OIG Comments:

The Plan provided documentation supporting that the questioned unidentified refunds of
$75,472 were returned to the LOCA on October 9, 2013. Also, the Plan wire transferred
LII of $6,083 to the Association’s FEP joint operating account on January 15, 2014. The
Association then wired transferred this LII amount to OPM on January 23, 2014.

Recommendation 1

Since we verified that the Plan returned $75,472 to the FEHBP for the questioned
unidentified refunds, no further action is required for this amount.

Recommendation 2

Since we verified that the Plan returned $6,083 to the FEHBP for the questioned LII on
the unidentified refunds, no further action is required for this LII amount.



                                         7
2. Medical Drug Rebates                                                               $14,642

   Our audit determined that the Plan returned medical drug rebates, totaling $2,373,700, to
   the FEHBP in an untimely manner during the audit scope. As a result of this finding, the
   Plan returned $14,642 to the FEHBP for applicable LII on these medical drug rebates.

   As previously stated under A1, the Plan is required to promptly return these medical drug
   rebates to the FEHBP with applicable LII.
   The Plan participates in a medical drug rebate program with the manufacturers of the
                                .                             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,
   2009 through September 30, 2012, the Plan received medical drug rebates totaling
                 The Plan allocated $3,259,340 of these medical drug rebates to the FEP.
   We selected and reviewed all of the FEP medical drug rebate amounts for the purpose of
   determining if the Plan properly allocated and promptly returned these rebates to the
   FEHBP.

   The following are the exceptions noted (itemized by BCBS plan):

      For BCBS of Texas, the Plan returned medical drug rebates, totaling $1,317,149,
       untimely to the FEHBP during the audit scope. Therefore, we calculated LII of
       $8,410 on these medical drug rebates. As a result of this finding, the Plan returned
       this LII amount to the FEHBP.

      For BCBS of Illinois, the Plan returned medical drug rebates, totaling $504,831,
       untimely to the FEHBP during the audit scope. Therefore, we calculated LII of
       $2,960 on these medical drug rebates. As a result of this finding, the Plan returned
       this LII amount to the FEHBP.

      For BCBS of Oklahoma, the Plan returned medical drug rebates, totaling $459,399,
       untimely to the FEHBP during the audit scope. Therefore, we calculated LII of
       $2,740 on these medical drug rebates. As a result of this finding, the Plan returned
       this LII amount to the FEHBP.

      For BCBS of New Mexico, the Plan returned medical drug rebates, totaling $92,321,
       untimely to the FEHBP during the audit scope. Therefore, we calculated LII of $532
       on these medical drug rebates. As a result of this finding, the Plan returned this LII
       amount to the FEHBP.

   In total, the Plan returned LII of $14,642 ($8,410 plus $2,960 plus $2,740 plus $532) to
   the FEHBP as a result of this finding.




                                            8
     Association’s Response:

     The Association agrees with this finding. The Association states that the Plan submitted
     SPI’s on October 29, 2013 to return the questioned LII to the FEHBP. The Association
     also states that the Plan is reviewing its procedures for the timely allocation of medical
     drug rebates to the FEP and will make any necessary updates to the procedures by
     March 31, 2014.

     OIG Comments:

     The Plan provided documentation supporting that the questioned LII amounts, totaling
     $14,642, were returned to the FEHBP through LOCA drawdown adjustments on
     November 18 and November 19, 2013.

     Recommendation 3

     Since we verified that the Plan returned $14,642 to the FEHBP for the questioned LII on
     the untimely medical drug rebates, no further action is required for this LII amount.

B. ADMINISTRATIVE EXPENSES

  The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded
  that the Plan’s administrative expenses charged to the FEHBP were actual, allowable,
  necessary, and reasonable expenses incurred in accordance with Contract CS 1039 and
  applicable laws and regulations.

C. CASH MANAGEMENT

  1. Letter of Credit Account Overdraws                                             $14,317,051

     The Plan inadvertently overdrew $12,236,424 in funds from the LOCA during the period
     April 1, 2002 through June 12, 2013. In addition, LII totaled $2,080,627 on these LOCA
     overdraws. As a result of this finding, the Plan returned $12,680,528 to the FEHBP,
     consisting of $12,236,424 for the questioned LOCA overdraws and $444,104 of the
     questioned 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.”

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

     As previously stated under section A1, the Plan is required to promptly return these
     LOCA overdraws to the FEHBP with applicable LII.



                                              9
                   For the period 2009 through September 30, 2012, the Plan withdrew $9,610,317,852
                   from the LOCA for the BCBS plans of Illinois, New Mexico, Oklahoma, and Texas.
                   From this universe, we selected and reviewed a judgmental sample of 120 LOCA
                   drawdown amounts, totaling $363,456,789 in reimbursements, for the purpose of
                   determining if these drawdown amounts were appropriate and adequately supported.3

                   While reviewing the audit sample and the Plan’s LOCA drawdown worksheets, we
                   identified unusual or non-typical adjustments on the drawdown worksheets. These
                   adjustments were referred to as “non-pursue” amounts on the Plan’s LOCA drawdown
                   worksheets. We immediately followed-up with the Plan to obtain an understanding of
                   these adjustments as well as applicable supporting documentation. After receiving our
                   follow-up requests on May 15, 2013 regarding these adjustments, the Plan researched and
                   identified an error in the LOCA drawdown adjustment process for the “non-pursue”
                   amounts. This error resulted from the Plan’s attempt to reverse non-FEP refunds that
                   were originally credited to the FEHBP. In each instance, while attempting to recover
                   these non-FEP refunds from the LOCA, the Plan inadvertently reversed the amount twice
                   during the LOCA drawdown adjustment process, resulting in a LOCA overdraw.

                   The Plan performed a thorough analysis of this error and implemented corrective actions
                   immediately in June and July 2013, changing the LOCA drawdown adjustment process
                   and returning $12,236,424 to the FEHBP for the applicable LOCA overdraws. Based on
                   the Plan’s analysis, these LOCA overdraws occurred from April 1, 2002 through June 12,
                   2013 for the BCBS plans of Illinois and New Mexico; July 1, 2003 through June 12, 2013
                   for BCBS of Texas; and September 1, 2006 through June 12, 2013 for BCBS of
                   Oklahoma.4 The Plan also calculated LII of $2,080,627 on these LOCA overdraws.

                   The following is a summary of the Plan’s analysis of the LOCA overdraws and calculated
                   LII amounts for the BCBS plans of Illinois, New Mexico, Oklahoma, and Texas.

                      LOCA                    LOCA                    LOCA                   Total                 Total             Total
 BCBS Plan           Overdraws               Overdraws               Overdraws           LOCA Overdraws          Calculated   Questioned by OIG
                 (Apr 2002 – Dec 2008)   (Jan 2009 – Sep 2012)   (Oct 2012 – Jun 2013)   (Apr 2002 – Jun 2013)      LII       (LOCA Overdraws + LII)
Illinois                 $2,510,641              $2,619,334                $698,454              $5,828,429      $1,002,809             $6,831,238
Texas                     2,315,830               2,416,366                 387,081               5,119,277         835,872              5,955,149
New Mexico                  369,085                 254,323                  26,289                 649,697         178,983                828,680
Oklahoma                    232,080                 328,203                  78,738                 639,021          62,963                701,984
   Total                 $5,427,636              $5,618,226              $1,190,562             $12,236,424      $2,080,627           $14,317,051

           3
             For the BCBS plans of Illinois and Texas, we selected 10 LOCA drawdown amounts from each year in the audit
           scope for each of these plans. For the BCBS plans of New Mexico and Oklahoma, we selected five LOCA
           drawdown amounts from each year in the audit scope for each of these plans. In total, we selected 40 LOCA
           drawdown amounts, totaling $102,633,645 (from a total of $2,299,459,975) for BCBS of Illinois; 20 LOCA
           drawdown amounts, totaling $9,328,213 (from a total of $421,155,270) for BCBS of New Mexico; 20 LOCA
           drawdown amounts, totaling $29,838,831 (from a total of $1,521,613,941) for BCBS of Oklahoma; and 40 LOCA
           drawdown amounts, totaling $221,656,100 (from a total of $5,368,088,666) for BCBS of Texas.
           4
             Although we initially expanded the audit scope to also include the LOCA drawdowns from January 2007 through
           December 2008 and October 2012 through June 2013 with this specific type of LOCA drawdown adjustment error,
           the Plan took the initiative to also identify all LOCA overdraws from April 2002 through December 2006 with this
           error.


                                                                         10
We reviewed and accepted the Plan’s analysis of the LOCA overdraws for the BCBS
plans of Illinois, New Mexico, Oklahoma, and Texas as well as the Plan’s calculated LII
amounts. As part of our review, we also verified the following corrective actions by the
Plan:

   For BCBS of Illinois, the Plan returned the questioned overdraws of $5,828,429 to the
    FEHBP through LOCA drawdown adjustments on July 8 and July 10, 2013. Also,
    the Plan returned LII of $153,940 to the FEHBP through multiple LOCA drawdown
    adjustments from August 6 through October 18, 2013.

   For BCBS of Texas, the Plan returned the questioned overdraws of $5,119,277 to the
    FEHBP through LOCA drawdown adjustments on July 5 and July 10, 2013. Also,
    the Plan returned LII of $229,449 to the FEHBP through multiple LOCA drawdown
    adjustments from August 22 through October 18, 2013.

   For BCBS of New Mexico, the Plan returned the questioned overdraws of $649,697
    to the FEHBP through multiple LOCA drawdown adjustments from July 5 through
    July 15, 2013. Also, the Plan returned LII of $22,849 to the FEHBP through multiple
    LOCA drawdown adjustments from August 6 through October 18, 2013.

   For BCBS of Oklahoma, the Plan returned the questioned overdraws of $639,021 to
    the FEHBP through multiple LOCA drawdown adjustments from July 5 through
    July 15, 2013. Also, the Plan returned LII of $37,866 to the FEHBP through multiple
    LOCA drawdown adjustments from August 6 through October 18, 2013.

As a result of this finding, the Plan returned $12,680,528 to the FEHBP, consisting of
$12,236,424 ($5,828,429 plus $5,119,277 plus $649,697 plus $639,021) for the
questioned LOCA overdraws and $444,104 ($153,940 plus $229,449 plus $22,849 plus
$37,866) for LII. However, the Plan still owes the FEHBP $1,636,523, which is the
remaining balance of the questioned LII.

Association’s Response:

The Association agrees with $12,236,424 for the questioned LOCA overdraws and
$444,104 of the questioned LII. However, the Association disagrees with $1,636,523
($2,080,627 minus $444,104) of the questioned LII.

The Association states, “The Plan feels it is important to note that HCSC was the party
that actually discovered the LOCA draw errors and notified OPM OIG . . . of the issue.
While reviewing the requested audit samples and worksheets, the OIG auditors asked
some preliminary questions regarding those LOCA worksheets. The Plan provided the
answers to these questions and proactively performed some additional research which
identified the error in the LOCA draws. The Plan then brought this to the attention of the
OIG auditors. If the Plan had not performed this additional research, it is uncertain
whether the OIG auditors would have identified this issue. The Plan went beyond the
audit inquiry and performed additional research and then voluntarily communicated this



                                        11
issue to OIG . . . We do not dispute the description of the error. We also do not dispute
the calculations of the total LOCA overdraw amounts and associated LII amounts
covering the period beginning in April 2002. LII was returned to the FEHBP on
October 21, 2013, and based on the contract, we disagree with how much LII OIG claims
should be returned to the Program.

Contract CS 1039 requires LII to be paid to FEHBP in the event of an improper
allocation or draw from the LOCA. The Plan acknowledges that inadvertent overdraws
occurred, and agrees with OIG’s calculations of total LII applicable to the mistaken
overdraws from April 2002 to June 12, 2013.

To date, the Plan has paid $444,104, representing LII calculations from January 1, 2008
to July 10, 2013 . . . This repayment represents the amount that OPM can legally claim
under Contract CS 1039. The Contract does not obligate the return of any funds, whether
unsupported LOCA draws or applicable LII, that arose outside the contractual audit
disputes limitations period. Specifically, Section 4.4 . . . of CS 1039 provides in
pertinent part that a claim seeking money ‘shall not be made more than five years
following the last day prescribed by the contract for filing the calendar year Annual
Accounting Statement for the year with respect to which the claim arises.’ Based on this
contractual limitation, the correct starting point for return of mistaken LOCA overdraws
as well as payment of associated LII would be for claims subject to and contained in the
Annual Accounting Statement for calendar year beginning January 1, 2008, the last date
to file such statement being April 30, 2009. As such, the Plan has paid all that is
recoverable by OPM relating to LII on the inadvertent LOCA overdraws, and the LOCA
overdraws and LII prior to January 1, 2008, are contractually barred from claim by OPM.
Notwithstanding, the Plan has already returned the LOCA overdraws for the entire time
frame extending back to April 2002, and we do not intend to disturb that repayment.
However, the clear terms of the contract with respect to the non-recoverable LII for dates
preceding January 1, 2008 bar further claim by OPM for such amounts.”

OIG Comments:

Just to reiterate, these questioned LOCA overdraws by the Plan were identified as a result
of our audit. It is true that these LOCA overdraw errors were found by the Plan while
doing additional research. However, this research was a direct result of questions from
the OIG auditors.

We verified that the Plan returned the questioned LOCA overdraws of $12,236,424 to the
FEHBP via multiple LOCA drawdown adjustments from July 5 through July 15, 2013.
Additionally, we verified that the Plan returned $444,104 of the questioned LII to the
FEHBP via multiple LOCA drawdown adjustments from August 6 through October 18,
2013 to the FEHBP.

Regarding the contested LII amount of $1,636,523, we disagree with the Plan’s position
that the LOCA overdraws from April 2002 through December 2007 are not subject to LII
repayment because these overdraws occurred outside the contractual “audit disputes”



                                        12
     limitation period. The Association’s cited clause from Section 4.4 of Contract CS 1039
     does not negate the LII owed by the Plan on these LOCA overdraws, but only limits in
     most circumstances the government’s ability to obtain a judgment. The Plan maintained
     these LOCA overdraws in a corporate account(s) and earned interest (probably
     comparable to the contested LII amount) on these FEHBP funds. The Plan should not be
     unduly enriched by funds that did not actually belong to them. Therefore, we will
     continue to question this contested LII amount applicable to the LOCA overdraws that
     occurred from April 2002 through December 2007.

     Recommendation 4

     Since we verified that the Plan returned $12,236,424 to the FEHBP for the questioned
     LOCA overdraws, no further action is required for this amount.

     Recommendation 5

     We recommend that the contracting officer require the Plan to return $2,080,627 to the
     FEHBP for LII on the questioned LOCA overdraws. (Note: We already verified that the
     Plan has returned $444,104 of the questioned LII to the FEHBP. Thus, the remaining
     amount due is $1,636,523.)

D. FRAUD AND ABUSE PROGRAM

  1. Special Investigations Department                                              Procedural

     The Plan is not in compliance with the communication and reporting requirements for
     fraud and abuse cases that are set forth in Contract CS 1039 and 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’s Special Investigations
     Unit (SIU) to monitor and communicate the Plan’s FEP fraud and abuse cases to the OIG.
     Without awareness of existing potential fraud and abuse issues, the OIG cannot
     investigate the broader impact of these potential issues on the FEHBP as a whole.

     Contract CS 1039 Section 1.9 (a) requires the Plan to “operate a system designed to
     detect and eliminate fraud and abuse . . . by providers providing goods or services to
     FEHB Members, and by individual FEHB Members.” Section 1.10 (a)(12) requires the
     Carrier to notify the contracting officer of any significant events, which includes
     instances of fraud, within 10 working days after they become aware of it.

     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




                                             13
           that a fraud has occurred or is occurring against the Federal Employees Health Benefits
           (FEHB) Program.” There is no dollar threshold for this requirement.

           We reviewed the Plan’s Special Investigations Department pertaining to the BCBS plans
           of Illinois and Texas. During the period January 1, 2013 through June 30, 2013, BCBS
           of Illinois opened 45 fraud and abuse cases. Of these, we identified and reviewed 27
           cases with FEP exposure. BCBS of Texas only opened 12 fraud and abuse cases.
           However, all 12 of these cases were reported as having FEP exposure. For the BCBS
           plans of Illinois and Texas, we reviewed all of these fraud and abuse cases for the
           purpose of determining if the cases were properly reported to the OIG as required by
           Contract CS 1039 and CL 2011-13.

           The following exceptions were noted (itemized by BCBS plan):

              For BCBS of Illinois, we determined that notifications for only 2 of the 27 fraud and
               abuse cases with FEP exposure were sent to the OIG. Because all of these cases had
               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.

               BCBS of Illinois’ non-compliance with the reporting and communication
               requirements in Contract CS 1039 and CL 2011-13 may be due, in part, to this plan’s
               untimely or inadequate communication of potential FEP fraud and abuse cases to the
               FEPDO’s SIU. The FEPDO sends notifications of fraud and abuse cases to the OIG
               on behalf of the Plan. To that end, the Plan must first report the fraud and abuse cases
               with FEP exposure to the FEPDO’s SIU, which is accomplished via entry of the case
               into the Fraud Information Management System (FIMS).5 The FEPDO’s internal
               policies and procedures require the Plan to enter cases into FIMS as soon as an
               investigation is opened and/or within 30 days of any relevant FEP fraud activity.
               However, of the 27 cases with FEP exposure, we determined that 11 cases were
               entered into FIMS untimely. Without timely FIMS case entries by the Plan and/or
               BCBS of Illinois, the FEPDO’s SIU cannot meet the FEHBP’s contractual reporting
               and communication requirements. As a result of our audit, we noted that BCBS of
               Illinois updated its fraud and abuse policies and procedures to report all FEP fraud
               and abuse cases to the FEPDO as soon as there is reason to believe that fraud exists.

              For BCBS of Texas, we determined that notifications for only 4 of the 12 fraud and
               abuse cases with FEP exposure were sent to the OIG. We noted that this plan enters
               all preliminary inquiries, regardless of dollar amount, into FIMS as required by
               Contract CS 1039 and CL 2011-13. Although this plan is meeting its contractual
               obligations, the FEPDO is not notifying the OIG of these cases. Because all of the
               cases had 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.


5
    FIMS is a multi-user, web-based case-tracking database developed in-house by the FEPDO’s SIU.


                                                        14
   BCBS of Texas’ non-compliance with the reporting and communication requirements
   in Contract CS 1039 and CL 2011-13 may be due, in part, to this plan’s untimely or
   inadequate communication of potential FEP fraud and abuse cases to the FEPDO. Of
   the 12 cases with FEP exposure, we determined that 2 cases were entered into FIMS
   untimely. Without timely FIMS case entries by the Plan and/or BCBS of Texas, the
   FEPDO cannot meet the FEHBP’s reporting and communication requirements. We
   also determined that the remaining 10 cases with FEP exposure were entered into
   FIMS timely, but the FEPDO did not report most of these cases to the OIG as
   required by CL 2011-13.

Ultimately, the Plan’s untimely reporting of potential FEP cases to the FEPDO’s SIU and
the FEPDO’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 Contract CS 1039 and CL 2011-13. The
lack of referrals 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 FEHBP. It 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 to 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:

We disagree that, during the audit scope, the Plan was in compliance with the
communication and reporting requirements that are set forth in the FEHBP contract and
CL 2011-13. For example, we identified 39 cases with FEP exposure during the period
January 1, 2013 through June 30, 2013 for the BCBS plans of Illinois and Texas. Of
these, we determined that 13 cases were entered untimely into FIMS. As a result, these
cases were communicated untimely to the OIG. Additionally, many of the cases with
FEP exposure were entered timely into FIMS by the plans, but were not communicated to
the OIG in a timely manner by the FEPDO. However, we acknowledge that the Plan is
implementing corrective actions to improve their policies and procedures.




                                         15
The Association states that they have created a system of controls and processes that
monitor, identify, investigate and recover fraudulent and abusive payments of FEP funds.
We disagree. The FEPDO has not provided any specific details as to what oversight
function they perform of this Plan, including the timely reporting of cases in FIMS and
the reporting of financial impacts in FIMS.

Recommendation 6

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 Contract CS 1039 and 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, “On May 20th, 2013, the Plan’s Special Investigations
Department (SID) updated their internal Policy and Procedure manual with regard to the
notification of investigative activities. Specifically, this approved change will direct SID
investigators in all HCSC plans to promptly report information into FIMS wherein there
is a reasonable suspicion of fraud involving FEHBP claims. This would include both
preliminary and full investigations regardless of the dollar amount of FEHBP claims.”

The Association also states, “In order to ensure that the Plan implements policy changes
made during the review BCBSA implemented a revised Plan monitoring process as of
October 31, 2013. The BCBSA FEPDO will review the Plan’s SIU activities and revised
policies and procedures by February 15, 2014 and work with the Plan to implement any
additional corrective actions necessary.”

Recommendation 7

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 states, “BCBSA agrees with this recommendation and will work with
the contracting officer to develop guidance of definitions . . . A meeting was held with
OPM on December 4, 2013 to discuss these and other definitions.”




                                         16
Recommendation 8

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 partially 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. Before
cases can be forwarded to OPM/OIG, they are reviewed and evaluated by BCBSA
consultants. The consultants work with Local Plans to ensure the proper data elements
are entered. As such, unlimited access by the OIG to the system at this time would result
in potential inefficiencies for both OPM/OIG and FEP. However, in order to provide the
OPM OIG investigators with efficient, effective and faster access to cases, BCBSA
initiated a process where BCBSA and OPM OIG staff meet on a monthly basis . . . to
review case activity.”

OIG Comments:

We continue to recommend that the contracting officer direct the Association to provide
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
Association’s fraud and abuse activity and the FEPDO’s oversight, and will allow the
OIG to make inquiries when we notice non-compliance by a BCBS plan and/or the
FEPDO such as untimely reporting. In addition, it 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 39 cases with FEP exposure during the
period January 1, 2013 through June 30, 2013 for the BCBS plans of Illinois and Texas,
we determined that 13 cases were entered into FIMS untimely. If the OIG had full access
to FIMS, at least 13 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.




                                       17
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

                , Lead Auditor

                              , Auditor

             , Auditor

                , Auditor

                  , Auditor



                  , Chief (

                Senior Team Leader




                                          18
                                                                                                                                                                             SCHEDULE A
                                                                                       V. SCHEDULES

                                                                     HEALTH CARE SERVICE CORPORATION
                                                                             CHICAGO, ILLINOIS

                                                                                  CONTRACT CHARGES

CONTRACT CHARGES*                                                              2009                     2010                     2011                    2012                    TOTAL

A. HEALTH BENEFIT CHARGES**

    CLAIM PAYMENTS                                                         $2,386,916,498           $2,518,651,684          $2,673,196,131           $2,796,498,433            $10,375,262,746
    MISCELLANEOUS PAYMENTS AND CREDITS                                             93,899               (7,627,227)            (12,124,239)             (16,177,698)               (35,835,265)

    TOTAL HEALTH BENEFIT CHARGES                                           $2,387,010,397           $2,511,024,457          $2,661,071,892           $2,780,320,735            $10,339,427,481

B. ADMINISTRATIVE EXPENSES**

    ADMINISTRATIVE CHARGES                                                   $154,356,215             $149,439,246            $151,764,200             $152,797,620                   $608,357,281
    PRIOR PERIOD ADJUSTMENTS                                                       45,935                        0                       0                        0                         45,935
    BUDGET SETTLEMENT REDUCTIONS                                              (24,437,072)             (25,037,566)            (12,467,843)             (10,469,979)                   (72,412,460)

    TOTAL ADMINISTRATIVE EXPENSES                                            $129,965,078             $124,401,680            $139,296,357             $142,327,641                   $535,990,756

TOTAL CONTRACT CHARGES                                                     $2,516,975,475           $2,635,426,137          $2,800,368,249           $2,922,648,376            $10,875,418,237

*   This audit covered miscellaneous health benefit payments and credits and cash management activities from January 1, 2009 though September 30, 2012 and administrative expenses
    from 2009 through 2011.


** The health benefit charges and administrative expenses include all amounts reported in the Annual Accounting Statements for Plan codes 121/621 (Illinois), 290/790 (New Mexico),
    340/840 (Oklahoma), and 400/900 (Texas).
                                                                                                                                                                                       SCHEDULE B

                                                                         HEALTH CARE SERVICE CORPORATION
                                                                                 CHICAGO, ILLINOIS

                                                                                     QUESTIONED CHARGES

AUDIT FINDINGS                                                                       2009                 2010                2011                2012                 2013              TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
   AND CREDITS

    1. Unidentified Refunds                                                             $19,785             $44,616             $17,154                   $0                   $0                $81,555
    2. Medical Drug Rebates                                                               4,936               5,684               2,877                1,145                    0                 14,642

    TOTAL MISCELLANEOUS HEALTH BENEFIT
    PAYMENTS AND CREDITS                                                                $24,721             $50,300             $20,031               $1,145                   $0                $96,197

B. ADMINISTRATIVE EXPENSES                                                                    $0                  $0                   $0                  $0                  $0                      $0

C. CASH MANAGEMENT

    1. Letter of Credit Account Overdraws*                                          $6,175,540          $1,713,117           $1,771,482          $1,806,131          $2,850,781             $14,317,051

    TOTAL CASH MANAGEMENT                                                           $6,175,540          $1,713,117           $1,771,482          $1,806,131          $2,850,781             $14,317,051

D. FRAUD AND ABUSE PROGRAM

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

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

TOTAL QUESTIONED CHARGES                                                            $6,200,261          $1,763,417           $1,791,513          $1,807,276          $2,850,781             $14,413,248

* For simplicity, contract year 2009 includes the questioned overdraws for the period April 1, 2002 through December 31, 2009. Also, contract year 2013 includes the questioned overdraws of $770,154 for
the period January 1, 2013 through June 12, 2013 plus the total questioned lost investment income of $2,080,627 for this finding.
                                                                                          APPENDIX
 




December 23, 2013

                         , Group Chief
Experience-Rated Audits Group
Office of the Inspector General                                Federal Employee Program
U.S. Office of Personnel Management                            1310 G Street, N.W.
1900 E Street, Room 6400                                       Washington, D.C. 20005
                                                               202.942.1000
Washington, DC 20415-11000                                     Fax 202.942.1125

Reference:          OPM DRAFT AUDIT REPORT
                    Health Care Services Corporation (HCSC)
                    Audit Report No. 1A-10-17-13-019
                    (Dated September 9, 2013 and Received September 9, 2013)

Dear                 :
This is Health Care Service Corporation’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. Health Benefit Refunds                                            $75,472

Recommendation 1:

OPM OIG recommended that $75,472 in unidentified health benefit refunds be returned
to the FEHBP.

Plan Response:

The Plan agreed with this recommendation and, on October 11, 2013, returned the
entire amount to the FEHBP. Documentation to support the return of these funds to the
Program is included as Attachment 1.
December 23, 2013
Page 2 of 6



Recommendation 2:

OPM OIG also recommended that Lost Investment Income also be assessed and
returned to the Program for the unidentified refunds not returned to the Program timely.

Plan Response:

The Plan agreed with this recommendation and submitted Special Plan Invoices to
BCBSA on December 18, 2013 to return the recommended LII to the Program.

2. Medical Drug Rebates

Recommendation 3

OPM OIG recommended that the Plan return $14,642 to the FEHBP for LII on medical
drug rebates returned untimely to the FEHBP.

Plan Response:

The Plan agreed with this finding and submitted Special Plan Invoices to BCBSA on
October 29, 2013 to return the recommended LII to the Program. The Plan also stated
that it is reviewing its procedures for the timely allocation to FEP for medical drug
rebates and will make any necessary updates to the procedures by the end of 1st
quarter 2014.

B.   ADMINISTRATIVE EXPENSES – No Findings


C.   CASH MANAGEMENT

1. Letter of Credit Overdraws                                              $14,317,051

Recommendation 5

OPM OIG recommended that the Plan return $2,080,627 to the FEHBP for LII on the
questioned LOCA overdraws.

Plan’s Response


                                             

 
December 23, 2013
Page 3 of 6

The Plan generally concurs with the majority of this audit finding. However, the Plan
would like to clarify that it does not agree with the OPM OIG’s claim that the FEHBP is
due $2,080,627 for Lost Investment Income (“LII”) under the parameters of Contract
CS1039.

The Plan feels it is important to note that HCSC was the party that actually discovered
the LOCA draw errors and notified OPM OIG (“OIG”) of the issue. While reviewing the
requested audit samples and worksheets, the OIG auditors asked some preliminary
questions regarding those LOCA worksheets. The Plan provided the answers to these
questions and proactively performed some additional research which identified the error
in the LOCA draws. The Plan then brought this to the attention of the OIG auditors. If
the Plan had not performed this additional research, it is uncertain whether the OIG
auditors would have identified this issue. The Plan went beyond the audit inquiry and
performed additional research and then voluntarily communicated this issue to OIG. We
feel that the written record should indicate this fact. We do not dispute the description of
the error. We also do not dispute the calculations of the total LOCA overdraw amounts
and associated LII amounts covering the period beginning in April 2002. LII was
returned to the FEHBP on October 21, 2013, and based on the contract, we disagree
with how much LII OIG claims should be returned to the Program.

Contract CS 1039 requires LII to be paid to FEHBP in the event of an improper
allocation or draw from the LOCA. The Plan acknowledges that inadvertent overdraws
occurred, and agrees with OIG’s calculations of total LII applicable to the mistaken
overdraws from April 2002 to June 12, 2013.

To date the Plan, has paid $444,104.00, representing LII calculations from January 1,
2008 to July 10, 2013. As stated earlier, the Plan provided supporting documentation
to OIG on October 4, 2013 to support the return of $380,727 in lost investment income
to the FEHBP for Letter of Credit Overdraws. See Attachment 2 for documentation to
support the additional return of $63,377 in lost investment income to the FEHBP.
This repayment represents the amount that OPM can legally claim under Contract CS
1039. The Contract does not obligate the return of any funds, whether unsupported
LOCA draws or applicable LII, that arose outside the contractual audit disputes
limitations period. Specifically, Section 4.4 (“Audit Disputes”) of CS 1039 provides in
pertinent part that a claim seeking money “shall not be made more than five years
following the last day prescribed by the contract for filing the calendar year Annual
Accounting Statement for the year with respect to which the claim arises.” Based on this
contractual limitation, the correct starting point for return of mistaken LOCA overdraws

                                               

 
December 23, 2013
Page 4 of 6

as well as payment of associated LII would be for claims subject to and contained in the
Annual Accounting Statement for calendar year beginning January 1, 2008, the last
date to file such statement being April 30, 2009. As such, the Plan has paid all that is
recoverable by OPM relating to LII on the inadvertent LOCA overdraws, and the LOCA
overdraws and LII prior to January 1, 2008, are contractually barred from claim by OPM.
Notwithstanding, the Plan has already returned the LOCA overdraws for the entire time
frame extending back to April 2002, and we do not intend to disturb that repayment.
However, the clear terms of the contract with respect to the non-recoverable LII for
dates preceding January 1, 2008 bar further claim by OPM for such amounts.

It should be noted that the Audit Disputes limitations period has previously been held by
the Board of Contract Appeals to apply to limit OPM’s recovery of sums outside the 5
year limitations period. See ASBCA, No. 53632, October 28, 2003.

D.   FRAUD AND ABUSE PROGRAM

1.   Fraud and Abuse Program                                  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 to 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 6:

OPM OIG recommended that the Association ensure that the Plan is implementing
policy changes made during our review of BCBSIL SIU. In addition, OIG recommended
that the Association provide the Plan with better oversight regarding compliance with
communication and reporting policies and procedures.

Plan Response:


                                             

 
December 23, 2013
Page 5 of 6

On May 20th, 2013, the Plan’s Special Investigations Department (SID) updated their
internal Policy and Procedure manual with regard to the notification of investigative
activities. Specifically, this approved change will direct SID investigators in all HCSC
plans to promptly report information into FIMS wherein there is a reasonable suspicion
of fraud involving FEHBP claims. This would include both preliminary and full
investigations regardless of the dollar amount of FEHBP claims. See Attachment 3 for
a copy of the revised policy.

BCBSA Response:

In order to ensure that the Plan implements policy changes made during the review
BCBSA implemented a revised Plan monitoring process as of October 31, 2013. The
BCBSA FEPDO will review the Plan’s SIU activities and revised policies and procedures
by February 15, 2014 and work with the Plan to implement any additional corrective
actions necessary.

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.

Recommendation 7

The OIG recommended the contracting officer provide or issue guidance on the
definitions of Fraud, Waste and Abuse, as well as “reasonable suspicion” in order for
the Association and the local BCBS plans to have consistent guidance on the
expectations of OPM for reporting purposes.

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.
A meeting was held with OPM on December 4, 2013 to discuss these and other
definitions.

Recommendation 8

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

                                             

 
BCBSA Response:

BCBSA continues to partially disagree w ith the recommendation to provide the OPM
OIG fu ll access to FIMS. FIMS is an internal management reporting system used by
BCBSA and Local Plans to report Fraud , Waste and Abuse cases. Before cases can be
fo rwarded to OPM/OIG , they are review ed and evaluated by BCBSA consultants. The
consultants work w ith Local Plans to ensure the proper data elements are entered. As
such , unlimited access by the OIG to the system at th is time w ould res ult in potential
inefficiencies for both OPM/OIG and FEP. However, in order to provide the OPM OIG
investigators w ith efficient, effective and faster access to cases, BCBSA initiated a
process w here BCBSA and OPM OIG staff meet on a month ly basis at the FEPOC
Director's office to rev iew case activity.

We appreciate the opportun ity to provide our response to th is Draft Aud it Report and
req uest that our comments be incl uded in their entirety as an amendment to the Final
Aud it Report.

Sincerely,




-             · CISA, CRMA
~ector, Program Assurance

II
cc:                  Contracting Officer, OPM
                       FEP