oversight

Audit of Health Care Service Corporation

Published by the Office of Personnel Management, Office of Inspector General on 2015-11-19.

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

                                            Audit of Health Care Service Corporation
Report No. 1A-99-00-14-046                                                                                                            July 29, 2015




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




                   Final Audit Report

                              Audit of Health Care Service Corporation
                                               Report Number 1A-10-17-14-037
                                                     November 19, 2015




                                                                   -- CAUTION –
       This audit report has been distributed to Federal officials who are responsible for the administration of the audit 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.
          EXECUTIVE SUMMARY 

                                Audit of Health Care Service Corporation
Report No. 1A-10-17-14-037                                                                                  November 19, 2015

Why Did We Conduct the Audit?               What Did We Find?

The objectives of our audit were to         Our limited scope audit was conducted in accordance with Government
determine whether Health Care Service       Auditing Standards. The report questions $35,759,457 in health benefit charges.
Corporation (HCSC or Plan) charged costs    The questioned health benefit charges are summarized as follows:
to the Federal Employees Health Benefits
Program (FEHBP) and provided services to    A. 	 Veterans Affairs Claim Review
the FEHBP members in accordance with             	 The Plan incorrectly paid 13,108 claims to U. S. Department of
the terms of its contract with the U.S.              Veterans Affairs service providers, resulting in overcharges of
Office of Personnel Management.                      $35,562,962 to the FEHBP.
Specifically, our objectives were to        B. 	 Retroactive Enrollment Review
determine whether the Plan complied with          The Plan incorrectly paid 74 claims requiring retroactive enrollment
contract provisions relative to claim                adjustments, resulting in overcharges of $97,510 to the FEHBP.
payments.                                   C. 	 Modifier and Review
                                                 	 The Plan incorrectly paid 39 claim lines that contained a procedure
What Did We Audit?                                   code modifier or , resulting in net overcharges of $35,393 to the
                                                     FEHBP.
The Office of the Inspector General has     D. 	 System Pricing Review
completed a limited scope audit of the           	 The Plan incorrectly paid four claims where the FEHBP paid as
FEHBP operations at Health Care Service              primary insurer, resulting in overcharges of $30,018 to the FEHBP.
Corporation. The audit covered Health       E. 	 Debarred Provider Review
Care Service Corporation claim payments          	 The Plan incorrectly paid 163 claims that were billed by providers
from January 1, 2011 through                         debarred by the FEHBP, resulting in overcharges of $14,959 to the
January 31, 2014, as reported in the Blue            FEHBP.
Cross and Blue Shield Association’s         F. 	 Modifier Review
Government-wide Service Benefit Plan             	 The Plan incorrectly paid four claim lines that contained procedure
Annual Accounting Statements.                        code modifier , resulting in overcharges of $11,700 to the FEHBP.
                                            G.	 Multiple Procedure Review
                                                 	 The Plan incorrectly paid seven claims that contained a multiple
                                                     procedure, resulting in net overcharges of $5,979 to the FEHBP.
                                            H.	 Non-Participating Provider Review
                                                 	 The Plan incorrectly paid one claim to a non-participating service
                                                     provider, resulting in overcharges of $936 to the FEHBP.




_______________________
Michael R. Esser
Assistant Inspector General
for Audits
                                                         i
               ABBREVIATIONS

Association    Blue Cross Blue Shield Association
APM            Administrative Procedures Manual
BCBS           Blue Cross Blue Shield
CFR            Code of Federal Regulations
DO             Director’s Office
FEHB           Federal Employee Health Benefits
FEHBP          Federal Employee Health Benefits Program
FEP            Federal Employee Program
FEP OC         Federal Employee Program Operations Center
HCSC or Plan   Health Care Service Corporation
IHS            Indian Health Services
OIG            Office of the Inspector General
OPM            U.S. Office of Personnel Management
VA             U.S. Department of Veterans Affairs




                         ii
                                          TABLE OF CONTENTS
............................................................................................................................................................
                                                                                                                                               Page

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


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


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

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

     III.        AUDIT FINDINGS AND RECOMMENDATIONS .............................5 

                 A. Veterans Affairs Review .....................................................................5 

                 B. Retroactive Enrollment Review ........................................................13 

                 C. Modifier and       Review ...............................................................15 

                 D. System Pricing Review......................................................................17

                 E. Debarred Provider Review ................................................................17 

                 F. Modifier    Review ...........................................................................18 

                 G. Multiple Procedure Review ...............................................................19 

                 H. Non-Participating Provider Review ..................................................20 


    IV.          MAJOR CONTRIBUTORS TO THIS REPORT ...............................22 


      V.	        SCHEDULE A – HEALTH BENEFIT CHARGES AND AMOUNTS
                              QUESTIONED

                 APPENDIX:	 Blue Cross Blue Shield Association’s July 31, 2015
                            response to the Draft Audit Report, issued June 2, 2015.

                 REPORT FRAUD, WASTE, AND MISMANAGEMENT
IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                       TO THIS REPORT

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
Health Care Service Corporation (HCSC or Plan). The Plan’s primary location for claims
processing is located in Abilene, Texas. The audit was performed by the U.S. Office of
Personnel Management’s (OPM) Office of the Inspector General (OIG), as authorized by the
Inspector General Act of 1978, as amended.

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

The Blue Cross Blue Shield Association (Association), on behalf of participating Blue Cross and
Blue Shield (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. There are 64 BCBS plans
participating in the FEHBP.

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

The Association has also established an FEP Operations Center (OC). The activities of the
FEP OC 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                                     Report No.1A-10-17-14-037
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 that covered claim payments for HCSC 

service areas: 


   Report No. 1A-10-03-06-079 (BCBS of New Mexico), dated June 5, 2007; 

   Report No. 1A-99-00-07-043 (BCBS of Illinois and Texas), dated September 5, 2008; and

   Report No. 1A-10-83-08-018 (BCBS of Oklahoma), dated January 9, 2009. 


All findings from these previous audits of HCSC 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 audit report, dated June 2, 2015. 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-10-17-14-037
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 objective was to determine whether the Plan complied with contract provisions relative to
 health benefit payments.

 Scope and Methodology
 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 Blue Cross Blue Shield Association’s Government-wide Service Benefit Plan
 Annual Accounting Statements as they pertain to Plan codes 121/621 (BCBS of Illinois),
 250/751 (BCBS of Montana), 290/790 (BCBS of New Mexico), 340/840 (BCBS of Oklahoma),
 and 400/900 (BCBS of Texas) for contract years 2011 through 2014. During this period, the
 Plan paid approximately $10.6 billion in health benefit charges (See Figure 1 and Schedule A).
 From this universe, we judgmentally selected various samples for review. We reviewed
 approximately 2,022 claims, totaling $15.5 million in payments, for the period January 1, 2011
 through January 31, 2014, for proper adjudication. In addition, we performed an expanded
 review of approximately 14,426 claims, totaling $66 million in payments to the U.S. Department
 of Veterans Affairs service providers, for the period January 1, 2012 through December 31,
 2014. We used the FEHBP contract, the 2011 through 2014 Service Benefit Plan brochures, the
 Plans’ provider agreements, and the Association’s FEP Administrative Procedures Manual


                                    Figure 1 – Health Benefit Charges

                                 Health Care Services Corporation
                                      Health Benefit Charges
                          $3.0
             $ Billions




                          $1.5

                          $0.0
                                  2011        2012         2013         2014
                                                                                  Health Benefit
                                                                                  Payments




                                                3                              Report No.1A-10-17-14-037
(APM) to determine the allowability of benefit payments. The results of these samples were not
projected to the universe of claims.

In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. For those
areas selected, we primarily relied on substantive tests of transactions and not tests of controls.
Based on our testing, we did not identify any significant matters involving the Plan’s internal
control structure and its operations. However, since our audit would not necessarily disclose all
significant matters in the internal control structure, we do not express an opinion on the Plan’s
system of internal controls taken as a whole.

We also conducted tests to determine whether the Plan had complied with the contract and the
laws and regulations governing the FEHBP as they relate to claim payments. The results of our
tests indicate that, with respect to the items tested, the Plan did not fully comply with the
provisions of the contract relative to claim payments. Exceptions noted are explained 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 DO, the FEP OC, and the Plan. Through audits and a reconciliation process, we have
verified the reliability of the BCBS claims data in our data warehouse, which was used to
identify the universe of claims for each type of review. The BCBS claims data is provided to us
on a monthly basis by the FEP OC, and after a series of internal steps, uploaded into our data
warehouse. However, due to time constraints, we did not verify the reliability of the data
generated by the Plan’s local claims system. While utilizing the computer-generated data during
our audit, nothing came to our attention to cause us to doubt its reliability. We believe that the
data was sufficient to achieve our audit objectives.

Audit fieldwork was performed at our offices in Washington, D.C.; Cranberry Township,
Pennsylvania; and Jacksonville, Florida through April 2015.




                                             4                               Report No.1A-10-17-14-037
III. AUDIT FINDINGS AND RECOMMENDATIONS

A. Veterans Affairs Claim Review                                                          $35,562,962

   Our review of claims paid to non-participating (non-par) providers detected significant problems 

   with claims paid by HCSC to U.S. Department of Veterans Affairs (VA) medical providers. The 

   full results of our non-par provider review are detailed in section H below. However, due to the 

   significant number of claim payment errors paid to VA providers, we performed an expanded 

   review of VA claims and separated this audit finding from the non-par review for reporting 

   purposes. 


   For the scope of January 1, 2012 through December 31, 2014, we identified 542,650 claims

   totaling $232,910,665 in payments that were paid to VA service providers. From this universe, 

   we selected to review a sample of claims paid for the following periods from each Plan site: 


      Illinois - January 1, 2012 through December 31, 2014; 

      Montana - January 1, 2012 through December 31, 2014; 

      New Mexico - January 1, 2012 through December 31, 2014; 

      Oklahoma - January 1, 2012 through January 31, 2014 (minimal claim payment errors 

       identified); and
      Texas - January 1, 2012 through January 31, 2014 (minimal claim payment errors identified).

   Our sample selection contained all claim payments of $1,000 or more where the amount paid to
   the provider was greater than or equal to the amount billed by the provider. We consider these
   claims to be high risk for payment error because paying a claim at or above billed charges could
   indicate that the FEP did not receive a discount in the pricing of that claim. We reviewed the
   14,426 claims, totaling $65,953,793 in payments that met this criteria to determine if the claims
   were properly priced and paid by the Plan.

   Our review determined that the VA’s billed charge was substantially higher than the local Plans’
   preferred provider pricing allowances and the FEP reasonable rates. In July 2011, the Code of
   Federal Regulations (CFR) was modified to allow VA providers to bill third-party payers for
   services that were not related to a military service connected injury. The regulation states that
   VA providers can accept payment for these services using either the limited charge of a
   geographic area (e.g., preferred provider pricing allowance) or the VA’s “reasonable charge”
   (i.e., billed charges). The VA’s reasonable charge is determined by the Office of Management
   and Budget and is designed for VA facilities to use these rates to bill third-party payers, such as
   HCSC. As a result of the July 2011 regulation change, the FEP Administrative Procedures
   Manual (APM), which provides guidance to all BCBS Plans on how to process and pay FEP


                                                 5                               Report No.1A-10-17-14-037
claims, was modified. The APM, Chapter 12, provides guidance to Plans on how to process and
pay FEP claims billed by VA providers. This guidance from the APM states that:

	 Plans are “Encouraged to take the initiative” to contract with VA service providers using
   preferred or member level benefits;
	 Plans are suggested “to keep in mind that VA claims are subject to limitations, exclusions,
   and cost-sharing provisions as claims from non-VA providers”; and
	 The Plan should price VA claims using the lesser of the VA’s reasonable charge for non-
   preferred VA providers or the preferred provider pricing allowance.

HCSC is a fee-for-service Plan, meaning the benefit structure is
designed for the Plan to develop reasonable compensation rates (e.g.,
preferred provider allowances) with providers, such as VA providers,
on behalf of the FEHBP. If a provider does not contract with the Plan,
FEP’s policy is to apply non-par rates, which are limited to local
preferred pricing allowances. For most of the claims we reviewed, the
Plan did not provide sufficient documentation to support how the Plan
determined that paying these claims using the VA’s reasonable charge
and/or billed charges was cost effective and advantageous to the FEHBP. As a result, we
determined these health benefit charges to be unreasonably priced and overcharged to the
FEHBP.

Our review concluded that the Plan incorrectly paid 13,108 VA claims, resulting in overcharges
of $35,562,962 to the FEHBP. Specifically, these claim payment errors resulted from the
following:

a) Claims Paid at an Unreasonably High Rate
   For 11,579 claims, totaling $30,603,012 in overpayments, the Plan paid the claims at the
   billed charges, which is substantially higher than FEP’s non-par pricing allowances and the
   Plans’ preferred pricing allowances.

   Based on the various criteria from the CFR and APM, the Plan had the option to pay these
   claims using the following methods:

      The Plans’ preferred provider pricing allowances; 

      FEP’s non-par rates; or 

      The VA’s reasonable charge (i.e., billed charges).


   For two of the five HCSC service areas, the Plan made the most cost effective choice and
   contracted with VA providers using preferred provider pricing allowances. For the


                                            6                               	Report No.1A-10-17-14-037
   remaining three service areas, the Plan had the same option to pay at a lower rate, but instead
   deliberately forced these claims to pay at the highest possible option of billed charges instead
   of the lower FEP non-par rates or preferred provider pricing allowances.

   If the Plan had not intervened with the pricing of these claims at all, a
   more reasonable discounted rate using the FEP non-par pricing
   guidelines would have been automatically applied by the
   Association’s FEP Express nation-wide claims processing system -
   which would have resulted in savings to the FEHBP. Since the Plan
   did not provide a preferred provider allowance rate, we calculated the
   Plan’s approximate overpayment amounts using the FEP non-par
   pricing allowances.

   In addition to paying these claims at unreasonably high rates, the Plan’s local system
   incorrectly allowed these VA claims to bypass automatic claim reviews that ensure proper
   billing, such as identifying duplicate payments and non-covered services. APM Chapter 12
   states that “Local Plans should make sure that the facility claim does not include professional
   service fees that duplicate those reported on the professional claim.” It also states that the
   Plan should verify the services billed by the VA are covered benefits of the FEHBP. Despite
   this guidance, the Plan continued to process these claims without reviewing for potential
   provider billing errors.

b)	 Preferred Provider Indicator
    For 1,512 claims, totaling $4,934,372 in overpayments, the Plan did load a preferred pricing
    allowance to the FEP Express System, but did not properly load a preferred provider
    indicator to ensure proper payment on the claim. As a result, the FEP Express System
    overrode the Plan’s allowance and the Plan inadvertently paid the claim line at billed
    charges.

c)	 Erroneous Processing Errors
    For 17 claims, totaling $25,578 in overpayments, the Plan contracted with the VA providers;
    however, the claim processed incorrectly due to a local system processing error, fee schedule
    rate loading error, or manual processing error.

The following criteria supports our position that these claims were priced incorrectly and that the
overcharges should be returned to the FEHBP:

	 48 CFR 31.201-3 states, “(a) cost is reasonable if, in its nature and amount, it does not
   exceed that which would be incurred by a prudent person in the conduct of competitive
   business.”



                                              7                                	Report No.1A-10-17-14-037
	   48 CFR 17.101-4 states, “(a) A third-party payer liable under a health plan contract has the
     option of paying either the billed charges. . . or the amount the health plan demonstrates is
     the amount it would pay for care or services furnished by providers . . . for the same care or
     services in the same geographic area. If the amount submitted by the health plan for payment
     is less than the amount billed, VA will accept the submission as payment, subject to
     verification at VA’s discretion in accordance with this section.”

 	 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.” Part
    II, section 2.3(g) states, “If the Carrier or OPM determines that a Member’s claim has been
    paid in error for any reason . . . the Carrier shall make a prompt and diligent effort to recover
    the erroneous payment . . . . The recovery of any overpayment must be treated as an
    erroneous benefit payment, overpayment, or duplicate payment . . . regardless of any time
    period limitations in the written agreement with the provider.”

	   APM, Volume II, Chapter 12, page 25, states, “In processing . . . claims for services provided
     by non-preferred VA facilities, the local Plan should base its reimbursement on the lower of,
     the VA’s reasonable charge or the local Plan’s allowance for Preferred providers – if that
     allowance is the same as the amount the Plan would allow for the same care or services in the
     same geographic area furnished by Preferred providers other than the VA . . . . If the Plan
     bases its payment on a PPA allowance that is lower than the VA’s reasonable charge, the
     Plan must be prepared to provide documentation to the VA to support its action.”

	   The 2014 BCBS Service Benefit Brochure provides general guidance on the FEP’s policy for
     pricing and paying non-participating provider claims.

 HCSC’s Response:
 In response to the draft report which questioned $48,491,213 in overpayments, the Plan agrees
 with $11,543,846 in overpayments and states, “The Plan identified a number of claims in
 which the amount billed by the VA providers exceeded the reasonable amount that the VA
 could charge based upon the applicable federal regulations . . . . The Plan[‘s] contest[ed]
 charges are within the Plan’s allowance and reflect the correct payments for the billed
 services. For the remaining questioned claims, the Plan did provide a pricing allowance to
 the FEP Express System and systematically placed the preferred provider network status code
 in the FEP Express Systems alternate network status field. During the scope of this audit the
 FEP Express System did not read the alternate network status field resulting in billed charges
 being used as the allowed amount. Enhancements were implemented by the FEP Operations
 Center in April of 2015 to ensure local Plan allowances are applied appropriately based on the
 alternate network status field. Where possible, recovery was initiated on the confirmed
 overpayments and the Plan will return all refunds received to the FEP Program.”


                                               8                                R
                                                                                	 eport No.1A-10-17-14-037
In regards to the contested overcharges the Plan states, “The Plan respectfully disagrees that the
FEP was overcharged $36,947,367 in VA claim payments . . . .

The Plan disagrees that an overpayment occurred due to physician outpatient contracted rates
not being properly loaded into the local Plan’s system . . . . The Plan’s payments were
consistent with industry and governmental practices, which allow for payments to hospitals for
the technical component of physician services when the services are performed at the hospital
facility or the physician practice is owned by the hospital . . . . In addition . . . it is equally
important to note that there are no OPM or FEHBP rules that prohibit such payments . . . the
findings and related recommendation to disallow the charges . . . for OIG’s stated reason
should be stricken . . . .

The Plan disagrees that the contracted rate paid [to] the VA is unreasonable and outside of the
FEP contracting limits. The OIG appears to rely heavily on specifications in the FAM [APM]
. . . . The claims at issue in the findings at hand are Illinois VA claims, and . . . the Plan is
contracted with the Illinois VA. OIG has mistakenly applied the referenced FAM [APM]
section and requirements of “lower of” reimbursement, which applies to NON-preferred VA
facilities . . . the finding is erroneous and the finding and related recommendation should be
stricken . . . .

To the extent that OIG is attempting to substitute its judgment for the Plan’s on the amount
the Plan should pay its contracted provider, there is no authority under law or contract for
such a position. There is no support for the finding that the payment of billed charges to the
contracted Illinois VA is inappropriate as long as the amounts paid did not exceed the Federal
Register reasonable charge rates that can be charged by the VA as determined by the Office of
Management and Budget (“OMB”). According to the applicable regulations for VA
providers, the VA is authorized to set rates that it can bill for services that are paid by third
party payers. 38 CFR 17.101. The preface to the applicable VA regulations notes that the
rates to be charged by the VA are intended to be reasonable and are designed to replicate, as
much as possible, the 80th percentile of the community charges for such services. 68 Fed.
Reg. 56876 (October 2, 2003). The government cannot on one hand say that its VA provider
rates are reasonable and simultaneously assert that the rates are unreasonable when the
government itself is asked to pay such charges.
The finding of the Draft Report with respect to the VA’s charge rates is therefore inconsistent
with the U.S. government’s own regulations that set the VA charges at a reasonable rate, and
such findings and associated recommendations should be stricken . . . .

For contested claims totaling for the New Mexico Plan, the charges are within the Plan’s
allowance and reflect the correct payments for the billed services. For contested claims paid



                                             9                               Report No.1A-10-17-14-037
by the Montana Plan, Montana does not have a Plan allowance for preferred providers that
would be applicable to VA facilities. The Plan based its pricing for facility providers on the
VA’s Reasonable Charge which was submitted on the claim by the VA facility provider and
payable consistent with 38 CFR Chapter 17. This pricing methodology is utilized by the Plan
across all lines of business including FEP. . . .”

Association’s Response:
“When the FEP Claims System was modified to apply VA pricing, Plans were notified that the
system was unable to apply Plan local allowances unless the Plan submitted the VA claims
with a PPO network status; however, the claim overpayments questioned during this audit
were submitted with an alternate network status, resulting in the claim overpayments.
Enhancements were made to the FEP Operations Center in April of 2015 to ensure local Plan
allowances are applied appropriately based on either the alternate network status field or the
PPO network status field . . . .”

OIG Comments:
After reviewing the Plan’s response and additional documentation, we revised our questioned
charges from our draft report to $35,562,962. The Plan agrees with $11,543,846 and disagrees
with $24,019,116 of the questioned charges. The $24,019,116 in contested overcharges mostly
represents the difference between the amount the Plan paid at billed charges and the amount
calculated by the OIG using the FEP non-par allowances. Also, the variance in questioned
charges between the draft and final report represents a more conservative calculation using the
FEP non-par pricing allowances instead of an estimated percentage using the Plan’s local pricing
allowances.

Before outlining the specific reasons we continue to question the contested overcharges, we
would like to address our concern regarding HCSC’s overall management of VA service
providers in the Illinois, Montana and New Mexico service areas. In its response to our draft
report, the Plan stated, “to the extent that OIG is attempting to
substitute its judgment for the Plan’s on the amount the Plan
should pay its contracted provider, there is no authority under
law or contract for such a position.” In our opinion, it appears
the Plan did not practice good judgement or provide proper
oversight for payments made to VA service providers on behalf
of the FEHBP. As a result of the Plan’s poor oversight of these
claims, the FEHBP was overcharged substantially for claim
expenses, and FEP members faced an average 60 percent increase in their out-of-pocket
expenses. In such a situation, it is absolutely our responsibility to substitute our judgment for the
Plan’s. As referenced above, the CFR states that a cost is reasonable if it does not exceed that
which would be incurred by a prudent business person in the conduct of competitive business.



                                              10                               Report No.1A-10-17-14-037
HCSC is a third-party administrator for the FEHBP, meaning that all claims expenses and the
associated administrative costs are drawn from the Federal FEHBP trust fund, as opposed to
HCSC’s commercial funds. The Plan assumes minimal risk while acting as a third-party
administrator for the FEHBP.

We do not know the volume of claims HCSC paid to VA service providers for its commercial
lines of business, but they paid over $105 million from FEHBP funds to VA providers between
2012 and 2014 for Illinois, Montana, and New Mexico alone (VA claims in Texas and Oklahoma
were appropriately paid at a discount rate using local plan allowances). We do not believe that
any competitive business would unnecessarily pay these claims at a higher rate if the funds were
exclusively paid from its commercial lines of business, as opposed to Federal money that it does
not have the same vested interest in protecting.

We acknowledge the VA is supposed to limit its billing to the “reasonable charge” as set by the
CFR. However, the CFR also allows VA providers to enter into provider agreements with the
Plan and to accept lower payment rates. The fact that the VA’s billing practices are subject to
regulation does not exempt HCSC from implementing controls that ensure claims are paid at
competitive rates.

Specific examples of the Plan’s mismanagement of VA claims include:

	 As previously cited, if the Plan had simply taken no action to intervene with the payment to
   the VA service providers, the FEP non-contracted rates (i.e., non-par) would have
   automatically been applied and resulted in significant savings to the FEHBP. The Plan
   deliberately paid these claims at the higher billed charges, but has not provided sufficient
   documentation to support why these payments were considered reasonable in nature in
   comparison to other contracted providers. Therefore, we conclude that HCSC’s management
   exercised poor judgement in determining what is considered a reasonable pricing allowance
   when a much lower rate was available.

	 Throughout the audit, the Plan provided inconsistent documentation which made it difficult
   to understand fact from intent throughout our review. During the initial phases of our audit
   the Plan stated multiple times that it did not contract with VA facilities in the Illinois service
   areas. Subsequently, in its response to the draft report the Plan stated that it did, in fact,
   contract with VA facilities in the Illinois service areas to pay claims at billed charges.
   However, the contracts with the VA service areas provided by the Plan appeared to be
   severely out-of-date. The Plan’s contracts dated as far back as February 1993, contained no
   interim contract addendums, and did not contain any statements from the VA stating the
   contractual intent. As previously cited, the APM was updated in 2011 to reflect changes to



                                               11                               R
                                                                                	 eport No.1A-10-17-14-037
   the CFR related to third-party (such as the FEP) payments to VA service providers. Despite
   the notification from the Association, the Plan did not update and/or renegotiate its VA
   facility contracts that were established in 1993. It appears HCSC’s management has either
   provided little oversight to its VA service area contracts or the Plan and the VA service areas
   were not in a binding contract for the scope of our audit.

In addition to the above examples highlighting the unreasonable nature of HCSC’s management
of VA claims for FEP members, we continue to question these claims for the following reasons:

	 Regardless of whether the Plan did or did not contract with the VA service providers, the
   Plan paid these VA claims at a much higher rate than FEP’s reasonable rates. In its response
   to our draft report, the Plan stated, “the OIG has mistakenly applied the referenced FAM
   [APM] section and requirements of “lower of” reimbursement, which applies to NON-
   preferred VA facilities.” We appropriately applied the referenced APM guidance only to
   non-preferred VA facilities, and our review determined that for the Illinois non-preferred VA
   facilities, the Plan did not use the lower of the VA’s “reasonable charge” or preferred
   provider pricing allowance. For the facilities that the Plan had contracted with, we applied
   the appropriate preferred provider APM criteria, which provides guidance to the Plan to
   contract using the Plan's preferred pricing allowances. Our review determined that for the
   Illinois preferred VA facilities the Plan contracted at an unreasonably high rate (i.e., billed
   charges), instead of preferred pricing allowances

	 We concur with the Plan that the VA’s billing practices are used by Medicare and industry
   standards. However, our review of the VA billing rate schedules indicated that they are
   developed using an Ambulatory Payment Classification (APC) pricing methodology. The
   APC methodology bundles the payment for dependent, ancillary, supportive, and adjunctive
   items and services into the payment for the primary independent service. Also, the VA rates
   often include the professional and technical components within the billed services. As
   previously cited above, the Plan’s local system incorrectly allowed these VA claims to
   bypass automatic claim reviews that ensure proper billing, such as identifying duplicate
   payments and non-covered services. The billing rates developed for the VA include bundled
   and professional component services that were clearly not excluded during the pricing of
   these claims, resulting in duplicate overpayments.

	 In instances where the Plan did not have any contract in place with a VA provider (i.e., the
   VA was a non-participating provider), the Plan’s policy of paying the claims at billed charges
   is, in fact, a direct violation of FEP’s non-par pricing guidelines.




                                             12                              R
                                                                             	 eport No.1A-10-17-14-037
   Recommendation 1
   We recommend that the contracting officer disallow $35,562,962 for claim overcharges and
   verify that the Plan returns all amounts recovered to the FEHBP. Due to the nature of this
   finding and the substantial amount questioned, we also recommend that the contracting officer
   contact the Illinois, Montana, and New Mexico VA service areas to discuss a practical approach
   for recovery of these claims. Based on regulations, the contracting office should not allow the
   Plan to offset these recoveries against future payments.

   Recommendation 2
   We recommend that the contracting officer ensure the Plan is properly negotiating and/or
   contracting reasonable rates with VA providers on behalf of the FEHBP. Additionally, the
   contracting office should ensure the Plan updates its policy to limit VA non-par providers to the
   FEP’s non-par rates.

   Recommendation 3
   We recommend that the contracting officer ensure the Association instructs the FEP Operations
   Center to determine why the FEP Express System is overriding the local plans’ preferred
   provider pricing allowances for VA claims and ensure the system is properly limiting the
   allowances to the FEP benefit brochure guidelines when a VA provider is non-par.

   Recommendation 4
   Due to the amount of claim overcharges identified in this finding, we recommend that the
   contracting officer request the Association to perform a risk assessment on the Plan to determine
   FEP’s impact for administrative cost (e.g., cost allocation methods and indirect expenses) and
   service charge. Any material differences identified should be properly adjusted in the Plan’s
   accounting records and returned to the FEHBP.

B. Retroactive Enrollment Review                                                             $97,510

   The retroactive enrollment report identifies paid claims that
   are potentially affected by enrollment changes (i.e., claims
   paid before the member’s eligibility status is updated in the
   FEP Express enrollment system). The report is generated by
   the FEP OC and is distributed to the Plan on a daily basis.
   For the period of December 1, 2013 through
   January 31, 2014, this report identified 14,974 claims, totaling
   $5,447,558 in potential overpayments to the FEHBP. From
   this universe, we judgmentally selected 100 high dollar claims,
   totaling $696,442 in potential overpayments, to determine if the Plan properly identified claims
   requiring retroactive adjustments and promptly initiated recovery from the providers.



                                                13                              Report No.1A-10-17-14-037
Our review determined the Plan did not initiate recovery and/or return 74 claim payment errors,
resulting in overcharges of $97,510 to the FEHBP. These claim payment errors resulted from
the following:

	 The Plan’s local processors did not initiate recovery and/or complete the recovery process for
   18 claims that required retroactive adjustments, which resulted in overcharges of $81,235 to
   the FEHBP.

   Of these claims, 15 displayed a “trans” field code of 80 (allows a 31-day grace period after
   the member’s termination) or 90 (coverage termination) in the FEP Express System. In
   general, the Plan has up to 60 days to initiate recovery if a “trans” field code of 80 or 90 is
   present in the FEP Express System. However, we determined that on average the Plan did
   not initiate recovery for 138 days from the initial date the claim payment error was identified
   on the retroactive report. Although the Plan initiated recovery for these claim payment
   errors, the Plan did not make a “prompt” effort to recover these overpayments as required by
   contract CS 1039.

	 For three members, the Plan and/or FEP OC did not ensure that the member’s termination
   adjustments were properly updated in the FEP Express System, which caused claims to be
   paid after these members’ termination date. As a result, the Plan incorrectly paid 56 claims,
   totaling $16,275 in overcharges to the FEHBP.

Contract CS 1039, Part III, section 3.16 (b) states, “Claim payment findings (i.e., claim
overpayments) in the scope of an OIG audit are reportable as questioned charges unless the
Carrier provides documentation supporting that these findings were already identified (i.e.,
documentation that the Plan initiated recovery efforts) prior to audit notification and corrected
(i.e., claims were adjusted and/or voided and overpayments were recovered and returned to the
FEHBP) by the original due date of the draft report response.”

As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
recover the overpayments. Also, the recovery of any overpayment must be treated as an
erroneous benefit payment, regardless of any time period limitations in the written provider
agreement.

HCSC’s Response:
The Plan agrees with this finding. The Plan states that where possible recovery has
been initiated and all funds recovered will be returned to the FEP Program.




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                                                                                	 eport No.1A-10-17-14-037
   Regarding corrective actions the Plan states, “Retroactive Enrollment Reports are worked daily
   by the Plan. Effective September 27, 2014 memberships with a transaction code of 80 or 90
   are systematically tracked by the FEP Express system and are populated on the Retroactive
   Enrollment Report on day 61 if the cancellation is still effective. This enhancement will help
   ensure that Plans appropriately and timely initiate recovery on retroactive enrollment
   activity.”

   Recommendation 5
   We recommend that the contracting officer disallow $97,510 for claim overcharges and verify
   that the Plan returns all amounts recovered to the FEHBP.

   Recommendation 6
   We recommend that the contracting officer ensure the Association’s process for tracking “trans”
   codes of 80 or 90 is an effective procedure to timely initiate recovery on retroactive claim
   payment errors and ensure the FEP Express enrollment system is being timely updated to reflect
   proper enrollment termination.

C. Modifier     and     Review 	                                                              $35,393

   From the universe of health benefit claims reimbursed between January 1, 2013 and
   January 31, 2014, we identified       claims, totaling $       in payments, that contained a
   procedure code modifier       or    (                    ). From this universe, we reviewed a
   random selection of 125 claims with amounts paid of $100 or more to determine if the Plan
   properly applied its local pricing discounts related to                       (modifier   and
     ). These 125 claims represent 261 claim lines, totaling $324,808 in payments.

   Our review determined that the Plan incorrectly paid 39 

   claim lines, resulting in net overcharges of $35,393 to the 

   FEHBP. Specifically, the Plan overpaid 32 claim lines by 

   $36,805 and underpaid 7 claim lines by $1,412. These 

   claim payment errors resulted from the following: 


   	 The Plan incorrectly paid 31 claim lines due to
      processors manually applying the incorrect pricing allowance, resulting in net overcharges of
      $33,183 to the FEHBP. Specifically, the Plan overpaid 24 claim lines, totaling $34,595 and
      underpaid 7 claim lines, totaling $1,412.

   	 The Plan incorrectly priced one claim line due to a provider billing error, resulting in an
      overcharge of $1,160 to the FEHBP.




                                                 15                              	Report No.1A-10-17-14-037
	 For seven claim lines, the FEP Operations Center did not apply the Basic members’ copay of
   $150, resulting in overcharges of $1,050 to the FEHBP.

As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
recover the overpayments. Also, the recovery of any overpayment must be treated as an
erroneous benefit payment, regardless of any time period limitations in the written provider
agreement.




HCSC’s Response:
The Plan agrees with this finding. The Plan states that they will conduct refresher training for all
local Plan staff that performs manual pricing functions by the third quarter of 2015.

Association’s Response:
Regarding corrective actions related to claims where the Basic member’s copay of $150 was not
properly applied when a              was billed the Association states, “claims related to this
activity are currently under review and evaluation. Once the [Association’s] review/evaluation
is completed, appropriate corrective action will be developed and implemented.”

Recommendation 7
We recommend that the contracting officer disallow $36,805 for claim overcharges and verify
that the Plan returns all amounts recovered to the FEHBP.

Recommendation 8
We recommend that the contracting officer allow the Plan to charge the FEHBP $1,412 if
additional payments are made to the providers to correct the underpayment errors. However,
before making any additional payment(s) to the provider, the contracting officer should require
the Plan to first recover any questioned overpayments from this provider.

Recommendation 9
We recommend that the contracting officer require the Association to instruct the FEP OC to
determine why the Basic member’s copay of $150 was not applied when a                  was billed
and implement corrective actions to prevent these types of errors from occurring in the future.




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                                                                                	 eport No.1A-10-17-14-037
D. System Pricing Review                                                                                   $30,018

   From January 1, 2013 through January 31, 2014, the FEHBP paid as the primary insurer for
               claim lines, totaling $              in payments. We judgmentally selected and
   reviewed 385 claims (representing 3,283 claim lines and totaling $10,768,321 in payments), to
   determine if the Plan adjudicated these claims properly and/or priced them according to the
   provider contract rates.2 We also selected 89 participating and preferred providers that were
   associated with the highest reimbursed claims in our sample for the purpose of verifying if these
   providers’ contracted rates were accurately and timely updated in the Plan’s local pricing system.

   Our review determined that the local Plan processors incorrectly priced four claims, resulting in
   overcharges of $30,018 to the FEHBP.

   As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
   allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
   recover the overpayments. Also, the recovery of any overpayment must be treated as an
   erroneous benefit payment, regardless of any time period limitations in the written provider
   agreement.

   HCSC’s Response:
   The Plan agrees with this finding. The Plan states that they will conduct refresher training for all
   local Plan staff that performs manual pricing functions by the third quarter of 2015.

   Recommendation 10
   We recommend that the contracting officer disallow $30,018 for claim overcharges and verify
   that the Plan returns all amounts recovered to the FEHBP.

E. Debarred Provider Review                                                                                $14,959

   There were 284 providers debarred from the FEHBP during the period 

   of January 1, 2013 through January 31, 2014. From this universe, we 

   randomly selected 86 debarred providers for review to determine 

   whether these debarred providers had received payments for services 

   provided after they were debarred.


   Our review determined the Plan incorrectly allowed payment to three providers in our sample
   after their debarred date. We identified 163 claims incorrectly paid to these three providers


   2
     We selected our sample from an OIG-generated “Place of Service Report” that stratified the claims by place of
   service (POS), such as provider’s office, and payment category, such as $50 to $99. We judgmentally determined
   the number of sample items to select from each POS stratum based on the stratum’s total claim dollars paid.


                                                       17                                   Report No.1A-10-17-14-037
   during the period of January 1, 2011 through January 31, 2014, resulting in overcharges of
   $14,959 to the FEHBP.

   These claim payment errors resulted from the following:

   	 The Plan incorrectly paid 162 claims, totaling $13,720 in overcharges to the FEHBP for two
      debarred providers.




   	 For one provider, a processor overrode system edits on a claim, resulting in an overcharge of
      $1,239 to the FEHBP.

   As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
   allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
   recover the overpayments. Also, the recovery of any overpayment must be treated as an
   erroneous benefit payment, regardless of any time period limitations in the written provider
   agreement.

   HCSC’s Response:
   The Plan agrees with this finding. The Plan states that where possible recovery has 

   been initiated and all funds recovered will be returned to the FEP Program. 


   Recommendation 11
   We recommend that the contracting officer disallow $14,959 for claim overcharges and verify
   that the Plan returns all amounts recovered to the FEHBP.

F. Modifier     Review 	                                                                        $11,700

   From the universe of health benefit claims reimbursed during the period between
   January 1, 2013 and December 31, 2014, we identified 3,410 claim lines, totaling $515,584 in
   potential overcharges to the FEHBP, that contained procedure code modifier . From this
   universe, we selected 204 claim lines for review, totaling $200,590 in potential overpayments, to
   determine if the Plan properly priced and paid these claims. This was a judgmental sample of
   claims with potential overpayments of $500 or more. In general, the Plan’s local pricing system
   allows an additional payment when modifier       is billed and properly supported for the
   additional procedure performed.

   Our review determined that the local Plan processors incorrectly priced four claim lines, 

   resulting in overcharges of $11,700 to the FEHBP. 



                                                  18                               R
                                                                                   	 eport No.1A-10-17-14-037
   As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
   allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
   recover the overpayments. Also, the recovery of any overpayment must be treated as an
   erroneous benefit payment, regardless of any time period limitations in the written provider
   agreement.

   HCSC’s Response:
   The Plan agrees with this finding. The Plan states, where possible, recovery has been 

   initiated and all funds recovered will be returned to the FEP Program.


   Recommendation 12
   We recommend that the contracting officer disallow $11,700 for claim overcharges and verify
   that the Plan returns all amounts recovered to the FEHBP.

G. Multiple Procedure Review                                                                      $5,979

   Using the Plan’s universe of claims from January 1, 2013 through 

   January 31, 2014, where the FEHBP paid as the primary insurer 

   (previously sited in finding “D”), we selected and reviewed 302 

   claims (representing 789 claim lines), totaling $270,816 in payments, 

   to determine if the Plan properly priced and paid claims related to 

   multiple and bilateral procedures. Our sample selections were a 

   result of the following: 


      Random selection of 226 claims, totaling $167,457 in payments, with amounts paid of $100
       or more that contained a bilateral or multiple procedure pricing indicator.
      Random selection of 76 claims, totaling $103,359 in payments, with amounts paid of $100 or
       more that did not contain a bilateral or multiple procedure pricing indicator.

   Our review determined that the local Plan processors incorrectly priced seven claims, resulting in
   net overcharges of $5,979 to the FEHBP. Specifically, the Plan overpaid six claims by $6,279
   and underpaid one claim by $300.

   As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
   allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to
   recover the overpayments. Also, the recovery of any overpayment must be treated as an
   erroneous benefit payment, regardless of any time period limitations in the written provider
   agreement.




                                                  19                               Report No.1A-10-17-14-037
   HCSC’s Response:
   The Plan agrees with this finding. The Plan states that they will conduct refresher training for all
   local Plan staff that performs manual pricing functions by the third quarter of 2015.

   Recommendation 13
   We recommend that the contracting officer disallow $6,279 for claim overcharges and verify that
   the Plan returns all amounts recovered to the FEHBP.

   Recommendation 14
   We recommend that the contracting officer allow the Plan to charge the FEHBP $300 if
   additional payments are made to the providers to correct the underpayment errors. However,
   before making any additional payment(s) to the provider, the contracting officer should require
   the Plan to first recover any questioned overpayments from this provider.

H. Non-Participating Provider Review	                                                               $936

   We performed a computer search to identify all claims paid to non-participating (non-par)
   providers between January 1, 2013 and January 31, 2014. This search identified           claims
   totaling $             in payments. Non-par providers are those that do not have a contract with
   HCSC, and have not agreed to accept the HCSC allowed amount as payment in full. From this
   universe, we selected and reviewed 296 claims, totaling $787,366 in payments, to determine if
   the claims were properly priced by the FEP Operations Center and paid by the Plan. Our random
   sample selection included:

   	 50 claims for a medical emergency and with amounts paid greater than $100;
   	 123 non-emergent claims where the amount paid was $100 or more and the member was
      enrolled with the Standard option; and
   	 123 non-emergent claims where the amount paid was $100 or more and the member was
      enrolled with the Basic option.

   Our review determined that the local Plan processors incorrectly priced one claim, resulting in an
   overcharge of $936 to the FEHBP.

   In addition to this questioned cost, our review determined that the APM guidance related to
   Indian Health Services (IHS) for payment to third party providers no longer reflects recent
   changes in federal regulations as described in the Indian Health Care Improvement
   Reauthorization and Extension Act.

   As previously cited from CS 1039, costs charged to the FEHBP must be actual, allowable,
   allocable, and reasonable. If errors are identified, the Plan is required to make a diligent effort to



                                                  20                               R
                                                                                   	 eport No.1A-10-17-14-037
recover the overpayments. Also, the recovery of any overpayment must be treated as an
erroneous benefit payment, regardless of any time period limitations in the written provider
agreement.

48 CFR 18.1621e -a states, “(f) An Indian tribe, or tribal organization shall have the right to
recover . . . the reasonable charges billed by the Secretary, an Indian tribe, or tribal organization
in providing health services through the Service, an Indian tribe, or tribal organization, or, if
higher, the highest amount the third party would pay for care and services furnished by providers
other than governmental entities. . . .”

HCSC’s Response:
The Plan disagrees with these questioned charges. In addition, since the procedural finding was
as a result of the Plan’s response to the draft report, the Plan and/or Association has not had the
opportunity to provide an official response to the procedural finding.

OIG Comments:
After reviewing the Plan’s responses and additional documentation, we revised our questioned
charges from our draft report to $936. Although the Plan contested this amount, we continue to
question this claim due to the fact that these services were not provided by an IHS facility and
the non-par claim was manually processed incorrectly. Additionally, we conclude that IHS
claims are being properly priced and paid by the Plan; however, the Association’s APM
guidance for processing IHS claims should be updated to reflect the recent changes in federal
regulations.

Recommendation 15
We recommend that the contracting officer disallow $936 for claim overcharges and verify that
the Plan returns all amounts recovered to the FEHBP.

Recommendation 16
We recommend that the contracting officer ensure the Association updates the APM’s guidance
to reflect the proper pricing for IHS as stated in the Plan’s draft report response. Additionally,
the contracting office should ensure that all BCBS Plans are properly notified of the changes for
processing IHS claims.




                                              21                               Report No.1A-10-17-14-037
IV. MAJOR CONTRIBUTORS TO THIS REPORT

Information Systems Audits Group

                             , Auditor

                  , Auditor

            , Auditor

             , Auditor

                 , Auditor


           , Senior Team Leader

             , Group Chief




                                         22   Report No.1A-10-17-14-037
V. SCHEDULE A




                Report No.1A-10-17-14-037
                                         APPENDIX 





July 31, 2015
                                                                    Federal Employee Program
                , Group Chief 	                                     1310 G Street, N.W.
                                                                    Washington, D.C. 20005
Claims & IT Audits Group                                            202.942.1000
U.S. Office of Personnel Management                                 Fax 202.942.1125
1900 E Street, Room 6400
Washington, D.C. 20415-1100

Reference:	           OPM DRAFT AUDIT REPORT
                      Health Care Service Corporation (HCSC)
                      AuditReport Number 1A-10-17-14-037
                      (Dated and Received June 2, 2015)

Dear             :

This is our response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report covering the Federal Employees’ Health Benefits Program
(FEHBP) for HCSC. Our comments concerning the findings in this report are as follows:

A.     Veteran’s Administration (VA) Claim Review	                               $48,491,213

       Recommendation 1

       We recommend that the contracting officer disallow $48,491,213 for 

       VA claim overcharges and verify that the Plan returns all amounts 

       recovered to the FEHBP. 


       Plan Response

       The Plan respectfully disagrees that the FEP was overcharged $36,947,367 in VA
       claim payments and agrees that $11,543,846 in VA claims were paid in error as
       explained below.

       For 41,221 claim lines totaling $19,718,413, the Plan disagrees that an
       overpayment occurred due to physician outpatient contracted rates not being
       properly loaded into the local Plan’s system. OIG acknowledged that the Plan had
       contracts with the Illinois VA but found that the Plan failed to apply its contracted
       rates for physician outpatient services. The Illinois VA billed the technical
       component of the professional services rendered by VA physicians that provided
       services in VA facilities. The Plan appropriately paid such claims according to its


                                                                         Report No.1A-10-17-14-037
Illinois VA facility contracts. The contract the Plan has for VA physician services is
not relevant to these technical component claims billed through the VA facility and
paid pursuant to the VA facility contract. The Illinois VA’s claims submission for
the physician’s technical component was appropriate, and payment under the
Plan’s Illinois VA facility contract was also appropriate. The Plan’s payments were
consistent with industry and governmental practices, which allow for payments to
hospitals for the technical component of physician services when the services are
performed at the hospital facility or the physician practice is owned by the hospital.

In addition to these billing and payment practices being consistent with industry
and government practices, it is equally important to note that there are no OPM or
FEHBP rules that prohibit such payments. Conversely and instructive, under
Medicare rules, hospitals may bill and be reimbursed for the technical component
of a physician visit to allow the hospital to recover some of its cost related to
providing the facility, 42 CFR 413.65. See also Medicare Claim Processing
Manual, Ch. 4, 250.01. These same principles of reimbursement are used by
many other health insurers, in addition to the Plan. Considering that the payment
practices are consistent with industry and government practices, and that there is
no prohibition on such payment practices under OPM and FEHBP rules, the
findings and related recommendation to disallow the charges under bullet one
above for OIG’s stated reason should be stricken.

For 8,544 claim lines totaling $17,079,923, the Plan disagrees that claims totaling
$12,239,017 were paid in error and agrees that claims totaling $4,840,906 were
paid in error. For the contested amount totaling $12,239,017, the Plan disagrees
that the contracted rate paid the VA is unreasonable and outside of the FEP
contracting limits. The OIG appears to rely heavily on specifications in the FAM,
Volume II, Chapter 12, page 25, which states “In processing . . . claims for services
provided by non-preferred VA facilities, the local Plan should base its
reimbursement on the lower of the VA’s reasonable charge or the local Plan’s
allowance for preferred providers . . . “. The claims at issue in the findings at hand
are Illinois VA claims, and as noted above, the Plan is contracted with the Illinois
VA. OIG has mistakenly applied the referenced FAM section and requirements of
“lower of” reimbursement, which applies to NON-preferred VA facilities, to the
contracted and preferred provider claims of the Illinois VA. Since the “lower of”
payment is not applicable in this context, and per 38 CFR Chapter 17, section
101(a)(4) the Plan has the option of paying the VA’s billed charges, the finding is
erroneous and the finding and related recommendation should be stricken.

To the extent that OIG is attempting to substitute its judgment for the Plan’s on the
amount the Plan should pay its contracted provider, there is no authority under law
or contract for such a position. There is no support for the finding that the payment
of billed charges to the contracted Illinois VA is inappropriate as long as the
amounts paid did not exceed the Federal Register reasonable charge rates that
can be charged by the VA as determined by the Office of Management and Budget
(“OMB”). According to the applicable regulations for VA providers, the VA is



                                                                  Report No.1A-10-17-14-037
authorized to set rates that it can bill for services that are paid by third party
payors. 38 CFR 17.101. The preface to the applicable VA regulations notes that
the rates to be charged by the VA are intended to be reasonable and are designed
to replicate, as much as possible, the 80th percentile of the community charges for
such services. 68 Fed. Reg. 56876 (October 2, 2003). The government cannot on
one hand say that its VA provider rates are reasonable and simultaneously assert
that the rates are unreasonable when the government itself is asked to pay such
charges.

The finding of the Draft Report with respect to the VA’s charge rates is therefore
inconsistent with the U.S. government’s own regulations that set the VA charges at
a reasonable rate, and such findings and associated recommendations should be
stricken.

Notwithstanding the preceding, the Plan identified a number of claims in which the
amount billed by the VA providers exceeded the reasonable amount that the VA
could charge based upon the applicable federal regulations. For claims totaling
$4,840,906, the Plan agrees that the difference in the payments that were made to
the VA and the reasonable charge established in regulation constitute
overpayments that should not have been charged to the FEP.

For 9,323 claim lines totaling $8,626,632 in overpayments, the Plan disagrees that
claims totaling $2,163,326 were paid in error and agrees that claims totaling
$6,463,307 were paid in error. The Plan contest $2,163,326 in claim payments as
these charges are within the Plan’s allowance and reflect the correct payments for
the billed services. For the remaining questioned claims, the Plan did provide a
pricing allowance to the FEP Express System and systematically placed the
preferred provider network status code in the FEP Express Systems alternate
network status field. During the scope of this audit the FEP Express System did
not read the alternate network status field resulting in billed charges being used as
the allowed amount. Enhancements were implemented by the FEP Operations
Center in April of 2015 to ensure local Plan allowances are applied appropriately
based on the alternate network status field.

For 4,191 claim lines, totaling $2,961,039 in overpayments, the Plan disagrees
with overpayments totaling $2,769,320 and agrees that overpayments totaling
$191,719 were made. For contested claims totaling $11,391 for the New Mexico
Plan, the charges are within the Plan’s allowance and reflect the correct payments
for the billed services. For contested claims totaling $2,757,929 paid by the
Montana Plan, Montana does not have a Plan allowance for preferred providers
that would be applicable to VA facilities. The Plan based its pricing for facility
providers on the VA’s Reasonable Charge which was submitted on the claim by
the VA facility provider and payable consistent with 38 CFR Chapter 17. This
pricing methodology is utilized by the Plan across all lines of business including
FEP.




                                                                 Report No.1A-10-17-14-037
Also, the Plan also disagrees with OIG’s methodology used to determine
allowances. For the majority of the Montana Plan claims that were reviewed, OIG
states that their methodology “utilized a designated discount percentage using
PPO data”. This percentage discount of price ranged from 46% to 54%. The
Montana Plan does not have any PPO facility contracts with this type or amount of
discount.

For the claims overpayments totaling $191,719:

	 $163,823 in claim overpayments was the result of the New Mexico VA facilities
   billing in excess of the Plan’s UCR allowances.

	 $27,896 in claim overpayments was the result of the Montana VA facilities
   billing in excess of the Federal Register reasonable charge rates as determined
   by OMB.

For 70 claim lines, totaling $105,206 in overpayments, the Plan disagrees that
$57,292 was paid in error and agrees that $47,915 was paid incorrectly. The Plan
contests claims totaling $57,292, as these charges are within the Plan’s allowance
and reflect the correct payments for the billed services.

The Plan has determined that the $47,915 in claim overpayments occurred due to
errors within the Plan. The Plan will conduct refresher training for all local Plan staff
that performs these functions.

Where possible, recovery was initiated on the confirmed overpayments and the
Plan will return all refunds received to the FEP Program.

Recommendation 2

We recommend the contracting officer ensure the Plan is properly
negotiating and/or contracting reasonable rates with VA providers on the
behalf of the FEHBP.

Plan Response

As stated in the response to recommendation 1 above, to the extent that OIG is
attempting to substitute its judgment for the Plan’s on the amount the Plan should
pay its contracted provider, there is no authority under law or contract for such a
position. There is no support for the finding that the payment of billed charges to
the contracted Illinois VA is inappropriate as long as the amounts paid did not
exceed the Federal Register reasonable charge rates that can be charged by the
VA as determined by the Office of Management and Budget (“OMB”). According to
the applicable regulations for VA providers, the VA is authorized to set rates that it
can bill for services that are paid by third party payors. 38 CFR 17.101. The
preface to the applicable VA regulations notes that the rates to be charged by the


                                                                    Report No.1A-10-17-14-037
     VA are intended to be reasonable and are designed to replicate, as much as
     possible, the 80th percentile of the community charges for such services. 68 Fed.
     Reg. 56876 (October 2, 2003). The government cannot on one hand say that its
     VA provider rates are reasonable and simultaneously assert that the rates are
     unreasonable when the government itself is asked to pay such charges.

     Recommendation 3

     We recommend the contracting officer ensure the Association instructs the FEP
     Operations Center to determine why the FEP Express System is overriding the
     local plans’ preferred provider pricing allowances for VA claims.

     BCBSA Response

     When the FEP Claims System was modified to apply VA pricing, Plans were
     notified that the system was unable to apply Plan local allowances unless the Plan
     submitted the VA claims with a PPO network status; however, the claim
     overpayments questioned during this audit were submitted with an alternate
     network status, resulting in the claim overpayments. Enhancements were made to
     the FEP Operations Center in April of 2015 to ensure local Plan allowances are
     applied appropriately based on either the alternate network status field or the PPO
     network status field. See Attachment 1 for current guidance on processing VA
     claims.

B.   Retroactive Enrollment Review                                              $97,510

     Recommendation 4

     We recommend that the contracting officer disallow $97,510 for claim overcharges
     and verify that the Plan returns all amounts recovered to the FEHBP.

     Plan Response:

     The Plan agrees that $97,510 in claim overpayments resulting from retroactive
     enrollment terminations were made. Where possible the Plan initiated recovery
     and all funds recovered will be returned to the FEP Program.

     Recommendation 5

     We recommend that the contracting officer require the Association to ensure on an
     ongoing basis that the Plan is identifying and properly returning claim payment
     errors identified on the FEP Operations Center daily retroactive reports.




                                                                     Report No.1A-10-17-14-037
     BCBSA and Plan Response

     Retroactive Enrollment Reports are worked daily by the Plan. Effective September
     27, 2014 memberships with a transaction code of 80 or 90 are systematically
     tracked by the FEP Express system and are populated on the Retroactive
     Enrollment Report on day 61 if the cancellation is still effective. This enhancement
     will help ensure that Plans appropriately and timely initiate recovery on retroactive
     enrollment activity.

C.   Modifier    and     Review                                                    $35,393

     Recommendation 6

     We recommend that the contracting officer disallow $36,805 for claim 

     overcharges and verify that the Plan returns all amounts recovered to 

     the FEHBP. 


     Plan Response

     The Plan agrees to $36,805 in claim overpayments. Where possible, 

     recovery has been initiated and any refunds received will be returned to 

     the FEP Program. 


     Recommendation 7

     We recommend that the contracting officer allow the Plan to charge the
     FEHBP $1,412 if additional payments are made to the providers to
     correct the underpayment errors. However, before making any additional
     payment(s) to the provider, the contracting officer should require the Plan
     to first recover any questioned overpayments from this provider.

     Plan Response

     The Plan agrees that $1,412 in claim underpayments were made and will 

     issue payment to the provider as appropriate.



     Recommendation 8

     We recommend that the contracting officer require the Plan to determine 

     the cause of error for claims where the multiple procedure discounts 

     were not properly applied, and implement corrective actions to prevent 

     these types of errors from occurring in the future. 




                                                                      Report No.1A-10-17-14-037
    Plan Response

    The Plan determined that the cause of these errors was due to incorrect 

    manual pricing by local Plan processors. The Plan will conduct refresher 

    training for all local Plan staff that performs manual pricing functions by 

    third quarter 2015. 


    Recommendation 9

    We recommend that the contracting officer require the Association to
    determine the reason why the Basic member’s copay of $150 was not
    applied when a              was billed and implement corrective actions to
    prevent these types of errors from occurring in the future.

    BCBSA Response

    The claims related to this activity are currently under review and 

    evaluation. Once BCBSA’s review/evaluation is completed, appropriate 

    corrective action will be developed and implemented.


D. 	 System Pricing                                                                 $30,018

    Recommendation 10

    We recommend that the contracting officer disallow $30,018 for claim 

    overcharges and verify that the Plan returns all amounts recovered to 

    the FEHBP. 


    Plan Response

    The Plan agrees with $30,018 in claim overpayments. The Plan has 

    determined that the cause of these errors was due to incorrect manual 

    pricing by local Plan processors. The Plan will conduct refresher training 

    for all local Plan staff that performs manual pricing functions by third 

    quarter 2015. 


    Where possible, the Plan initiated recovery on the identified overpayments
    and will return all refunds received to the FEP Program.

E. 	 Debarred Provider                                                              $14,959

    Recommendation 11

    We recommend that the contracting officer disallow $14,959 for claim


                                                                       Report No.1A-10-17-14-037
     overcharges and verify that the Plan returns all amounts recovered to 

     the FEHBP. 


     Plan Response
     The Plan agrees to $14,959 in claim overpayments. Where possible, the 

     Plan initiated recovery on the identified overpayments and will return all 

     refunds received to the FEP Program.


     Recommendation 12

     We recommend that the contracting officer ensure the debarred provider listing
     provided by OPM to the Association includes the NPI number during distribution to
     the BCBS Plans.

     BCBSA and Plan Response

     BCBSA and the Plan supports the recommendation to include the NPI on
     the debarred provider listing. This will prevent providers from bypassing
     the Plan’s system edits.

F.   Modifier     Review                                                             $11,700

     Recommendation 13

     We recommend that the contracting officer disallow $11,700 for claim 

     overcharges and verify that the Plan returns all amounts recovered to 

     the FEHBP. 


     Plan Response

     The Plan agrees that $11,700 in claim overpayments were made. The 

     Plan has determined that the cause of these errors was due to incorrect 

     manual pricing by local Plan processors. The Plan will conduct refresher 

     training for all local Plan staff that performs manual pricing functions by 

     third quarter 2015. 


     Where possible, recovery was initiated on the confirmed overpayments 

     and the Plan will return all refunds received to the FEP Program. 





                                                                        Report No.1A-10-17-14-037
G. Non-Participating Provider Review                                                $6,815

    Recommendation 14

    We recommend that the contracting officer disallow $6,815 for claim
    overcharges made to Indian Health Services Providers and verify that the
    Plan returns all amounts recovered to the FEHBP.

    Plan Response

    The Plan contests overpayments totaling $6,815. Section 125 of the Indian Health
    Care Improvement Reauthorization and Extension Act (IHCIREA), enacted through
    the ACA, completely revised and replaced Section 206 of the Indian Health Care
    Improvement Act (IHCIA), 25 U.S.C. § 1621e, entitled “REIMBURSEMENT FROM
    CERTAIN THIRD PARTIES OF COSTS OF HEALTH SERVICES”. The
    applicable portion of this federal law reads as follows:
    (a) Right of recovery - Except as provided in subsection (f), the United States, an
    Indian tribe, or tribal organization shall have the right to recover from an insurance
    company, health maintenance organization, employee benefit plan, third-party
    tortfeasor, or any other responsible or liable third party (including a political
    subdivision or local governmental entity of a State) the reasonable charges billed
    by the Secretary, an Indian tribe, or tribal organization in providing health services
    through the Service, an Indian tribe, or tribal organization, or, if higher, the highest
    amount the third party would pay for care and services furnished by providers other
    than governmental entities, to any individual to the same extent that such
    individual, or any nongovernmental provider of such services, would be eligible to
    receive damages, reimbursement, or indemnification for such charges or expenses
    if (1) such services had been provided by a nongovernmental provider; and (2)
    such individual had been required to pay such charges or expenses and did pay
    such charges or expenses.
    As a result, Plans are no longer required to pay the lower of the Plan’s allowance
    or the Indian Health Services Providers charges and amounts paid to the provider
    are correct.
    Recommendation 15

    We recommend the contracting officer instruct the Plan to identify why the
    Plan’s local system is not properly pricing and paying IHS claims.
    Additionally, the Plan should perform a cost analysis to determine the
    impact of this system error and implement local system edits if determined
    necessary to prevent future overpayments.




                                                                       Report No.1A-10-17-14-037
     BCBSA Response

     BCBSA contests this recommendation as the claims were paid correctly in
     accordance with Section 125 of the IHCIREA. FEP will enhance its
     guidance on payment of Indian Health Claims by December 31, 2015 to
     reflect the appropriate requirements.

H.   Multiple Procedure Review                                              $5,979

     Recommendation 16

     We recommend that the contracting officer disallow $6,279 for claim
     overcharges and verify that the Plan returns all amounts recovered to the
     FEHBP.

     Plan Response

     The Plan agrees to $6,279 in claim overpayments and $300 in claim
     underpayments. Where possible, recovery was initiated on the confirmed
     overpayments and the Plan will return all refunds received to the FEP Program.

     The Plan determined that the cause of these errors was due to incorrect
     manual pricing by local Plan processors. The Plan will conduct refresher
     training for all local Plan staff that performs manual pricing functions by
     third quarter 2015.

     Recommendation 17

     We recommend that the contracting officer allow the Plan to charge the
     FEHBP $300 if additional payments are made to the providers to correct
     the underpayment errors. However, before making any additional
     payment(s) to the provider, the contracting officer should require the Plan
     to first recover any questioned overpayments from this provider.

     Plan Response

     The Plan agrees to $300 in claim underpayments and will issue payment to the
     provider as appropriate.

We appreciate the opportunity to provide our response to each of the findings
in this report and request that our comments be included in their entirety and
are made a part of the Final Audit Report. If you have any questions, please
contact me at 202.942.1285 or Connie Woodard at 202.942.1159.




                                                                        Report No.1A-10-17-14-037
Sincerely, 




Managing Director, Program Assurance




                                       Report No.1A-10-17-14-037
                                                                                                                         



                                       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
                     
                                                                                                                         
                                                                                                                         


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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
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