oversight

Audit of Bluecross Blueshield of South Carolina Columbia, South Carolina

Published by the Office of Personnel Management, Office of Inspector General on 2012-02-07.

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 BLUECROSS BLUESHIELD OF

                       SOUTH CAROLINA

                 COLUMBIA, SOUTH CAROLINA



                                            Report No. lA-lO-24-11-059



                                            Date:       February 7. 2012




                                                           --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the aud ited program. Thi s audit
report may contain proprietary data which is protected by Federal law (18 V.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 web page, 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.
                        UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                           Wash in gt on, DC 20415



   Office of the
Inspector General




                                        AUDIT REPORT




                              Federal Employees Health Benefits Program

                              Service Benefit Plan     Contract CS 1039

                                   BlueCross BlueShield Association

                                             Plan Code 10



                               BlueCross BlueShield of South Carolina

                                        Plan Codes 380/880

                                     Columbia, South Carolina





                      REPORT NO. IA-IO-24-11-059            DATE: February 7 , 2012




                                                             Michael R. Esser
                                                             Assistant Inspector General
                                                               for Audits




        www.opm.goY                                                                        www.usajobs .gov
                         UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washingt on , DC 204 15



   Office of the
Inspector General




                                      EXECUTIVE SUMMARY




                                Federal Emplo yees Health Benefits Program

                                Service Benefit Plan      Contract CS 1039

                                     BlueCross BlueShield Association

                                               Plan Code 10



                                  BlueCross BlueShield of South Carolina

                                           Plan Codes 380/880

                                        Columbia, South Carolina





                       REPORT NO. 1A-1O-24-11-059               DATE: February 7, 2012


      We conducted a limited scope audit of the Federal Employees Health Benefits Program (FEHBP)
      operations at BlueCross BlueShield of South Carolina (Plan) in Columbia, South Carolina. The
      audit was conducted in accordance with Government Auditing Standards. The audit covered
      miscellaneous health benefit payments and credits from 2006 through February 28, 2011, as well
      as administrative expenses from 2006 through 2010 as reported in the Annual Accounting
      Statements. In addition, we reviewed the Plan's cash management practices related to FEHBP
      funds for contract years 2006 through February 28,2011 .

      The audit did not disclose any findings. Accordingly, this final audit report contains no
      questioned charges and recommendations.




        www.cpm .gov                                                                          www.usajob s. go Y
                                                    CONTENTS
                                                                                                                      PAGE

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

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

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

III.   RESULTS OF AUDIT ......................................................................................................6

IV.    MAJOR CONTRIBUTORS TO THIS REPORT .............................................................7

V.     SCHEDULE A - CONTRACT CHARGES
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the results from our limited scope audit of the Federal Employees
Health Benefits Program (FEHBP) operations at BlueCross BlueShield of South Carolina (Plan).
The Plan is located in Columbia, South Carolina.

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

BACKGROUND

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

The BlueCross BlueShield Association (Association), on behalf of participating BlueCross and
BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039)
with OPM to provide a health benefit plan authorized by the FEHB Act. The Association
delegates authority to participating local BlueCross and BlueShield plans throughout the United
States to process the health benefit claims of its federal subscribers. The Plan is one of
approximately 63 local BlueCross and BlueShield plans participating in the FEHBP.

The Association has established a Federal Employee Program (FEP 1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BlueCross and BlueShield plans, and OPM.

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

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, management of the Plan is responsible for establishing
and maintaining a system of internal controls.
1
 Throughout this report, when we refer to "FEP", we are referring to the Service Benefit Plan lines of business at the
Plan. When we refer to the "FEHBP", we are referring to the program that provides health benefits to federal employees.


                                                          1
All findings from our previous audit of this Plan (Report No. 1A-10-24-05-004, dated
November 21, 2005) for contract years 2000 through 2003 have been satisfactorily resolved.

The results of this audit were discussed with the Plan and/or Association officials throughout the
audit and at an exit conference on January 23, 2012. Since our audit disclosed no significant
findings, we bypassed the draft report and issued this 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.

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 380 and 880 for contract years 2006 through 2010. During this period, the
Plan paid approximately $1.2 billion in health benefit charges and $65 million in administrative
expenses (See Figure 1 and Schedule A).

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
subrogation recoveries, and fraud recoveries) and cash management activities from 2006 through
February 28, 2011. We also reviewed administrative expenses from 2006 through 2010.




                                               3
In planning and conducting our audit, we obtained
an understanding of the Plan’s internal control                             BlueCross BlueShield of South Carolina
                                                                                Sum m ary of Contract Charges
structure to help determine the nature, timing, and
extent of our auditing procedures. This was
                                                                     $350
determined to be the most effective approach to




                                                        $ Millions
select areas of audit. For those areas selected, we                  $250
primarily relied on substantive tests of transactions
                                                                     $150
and not tests of controls. Based on our testing, we
did not identify any significant matters involving                   $50
the Plan’s internal control structure and its                                2006    2007    2008   2009     2010
operation. However, since our audit would not                                          Contract Year
                                                                                    Adm inistrative Expenses
necessarily disclose all significant matters in the
                                                                                    Health Benefit Charges
internal control structure, we do not express an
opinion on the Plan’s system of internal controls
taken as a whole.                                                            Figure 1 – Contract Charges

We also conducted tests to determine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items tested, the Plan complied with all provisions of the contract and federal procurement
regulations. With respect to the items not tested, nothing came to our attention that caused us to
believe that the Plan had not complied, in all material respects, with those provisions.

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

The audit was performed at the Plan’s office in Columbia, South Carolina from October 4
through October 21, 2011 and November 7 through November 18, 2011. Audit fieldwork was
also performed at our office in Jacksonville, Florida.

We would like to point out that the Plan did a great job supporting our audit and promptly
responded to our questions, information requests, and samples. Also, the Plan was very
cooperative and well prepared for our audit.

METHODOLOGY

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

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. We also


                                                 4
judgmentally selected and reviewed 138 high dollar health benefit refunds, totaling $4,006,218
(from a universe of 60,558 refunds, totaling $19,307,477); 69 high dollar subrogation recoveries,
totaling $2,285,191 (from a universe of 109,672 recoveries, totaling $6,142,115); 37 high dollar
provider credit balance audit recoveries, totaling $1,015,717 (from a universe of 1,355
recoveries, totaling $1,411,684); 24 high dollar hospital bill audit recoveries, totaling $164,815
(from a universe of 180 recoveries, totaling $304,624); 9 high dollar fraud recoveries, totaling
$33,737 (from a universe of 1,097 recoveries, totaling $102,506); and 14 special plan invoices
(SPI), totaling $1,127,902 in net payments (from a universe of 261 SPI’s, totaling $2,021,795 in
net payments), to determine if refunds and recoveries were promptly returned to the FEHBP and
if miscellaneous payments were properly charged to the FEHBP. 2 The results of these samples
were not projected to the universe of miscellaneous health benefit payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2006 through 2010. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement,
employee health benefits, executive compensation, subcontracts, non-recurring projects, return
on investment, Association dues, and Health Insurance Portability and Accountability Act of
1996 compliance. 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 to determine whether the Plan handled FEHBP funds
in accordance with Contract CS 1039 and applicable laws and regulations.




2
  The sample of health benefit refunds included all refunds greater than $3,500. For subrogation, the sample
consisted of all recoveries greater than $15,000. For provider credit balance audit recoveries, the sample consisted of
all recoveries greater than $10,000. For hospital bill audit recoveries, the sample consisted of all recoveries greater
than $2,500. The sample of fraud recoveries consisted of all recoveries greater than $900. For the SPI sample, we
selected 10 SPI’s with high dollar miscellaneous payments totaling $1,331,496, as well as 4 SPI’s with high dollar
miscellaneous credits totaling $203,594.


                                                          5
                               III. RESULTS OF AUDIT
Our audit disclosed no findings pertaining to miscellaneous health benefit payments and credits,
administrative expenses, and the Plan’s cash management practices. Overall, we concluded that
the Plan promptly returned health benefit refunds and recoveries to the FEHBP and properly
charged miscellaneous payments to the FEHBP. We also concluded that the Plan’s
administrative expenses charged to the contract were actual, allowable, necessary, and
reasonable expenses incurred in accordance with the terms of the contract and applicable regula-
tions. In addition, we determined that the Plan handled FEHBP funds in accordance with
Contract CS 1039 and applicable laws and regulations.




                                               6
              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experience-Rated Audits Group

                , Lead Auditor

                , Auditor

             , Auditor

                , Auditor



                  , Chief

                Senior Team Leader




                                     7