U.S. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERAL
OFFICE OF AUDITS
Final Audit Report
AUDIT OF BLUE CROSS BLUE SHIELD OF
MICHIGAN
Report Number 1A-10-32-17-009
April 24, 2018
EXECUTIVE SUMMARY
Audit of Blue Cross Blue Shield of Michigan
Report No. 1A-10-32-17-009 April 24, 2018
Why Did We Conduct the Audit? What Did We Find?
The objectives of our audit were to Our audit identified several minor incidents of erroneous claim
determine whether Blue Cross Blue payments, but we do not believe that the errors are indicative of major
Shield of Michigan (Plan) charged system control problems. Therefore, we conclude that the Plan’s
costs to the Federal Employees processing of FEHBP claims generally complies with the terms of its
Health Benefits Program (FEHBP) contract with the U.S. Office of Personnel Management and industry
and provided services to FEHBP standards. The report questions $27,745 in health benefit charges
members in accordance with the summarized as follows:
terms of the Blue Cross Blue Shield
Association’s (Association) contract A. System Pricing Review
with the U.S. Office of Personnel
The Plan incorrectly paid five claims resulting in
Management. Specifically, our
overcharges of $13,918.
objective was to determine whether
the Plan complied with contract
B. Omnibus Budget Reconciliation Act of 1993 (OBRA 93)
provisions relative to health benefit
Review
payments.
The Federal Employee Program Operations Center did not
What Did We Audit? properly price 30 claim lines in accordance with OBRA
93 pricing guidelines, resulting in overcharges of $9,671.
The Office of the Inspector General
has completed a limited scope C. Non-Participating Provider Review
performance audit of the FEHBP The Plan incorrectly paid 13 claims to providers that are
operations of Blue Cross Blue not part of the plan’s provider network, resulting in
Shield of Michigan. The audit overcharges of $4,156.
covered claim payments from
January 1, 2013, through
September 30, 2016, as reported in
the Association’s Government-wide
Service Benefit Plan Annual
Accounting Statem
ccounting Statements.
Michael R. Esser
Assistant Inspector General
for A adits i
ABBREVIATIONS
The Act Federal Employees Health Benefits Act
Association Blue Cross Blue Shield Association
BCBS Blue Cross and Blue Shield
FEHBP Federal Employees Health Benefits Program
FEP Federal Employee Program
Non-par Non-Participating
OBRA 93 Omnibus Budget Reconciliation Act of 1993
OIG Office of the Inspector General
OPM U.S. Office of Personnel Management
Plan Blue Cross Blue Shield of Michigan
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. System Pricing Review ............................................................................................5
B. Omnibus Budget Reconciliation Act of 1993 ..........................................................7
C. Non-Participating Providers Review .......................................................................9
APPENDIX: Blue Cross Blue Shield Association’s February 9, 2018, response
to the Draft Audit Report, issued December 13, 2017.
REPORT FRAUD, WASTE AND MISMANAGEMENT
I. BACKGROUND
This final report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
Blue Cross Blue Shield of Michigan (Plan). The Plan is located in Detroit, Michigan. 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 Act (the Act), 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 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 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 36 BCBS companies participating in
the FEHBP. The 36 companies are comprised of 64 local BCBS plans.
The Association has established a Federal Employee Program (FEP1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BCBS plans, and OPM.
The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are managed by CareFirst Blue Cross Blue Shield, located in Owings Mills,
Maryland. 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-10-32-17-009
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, Plan management is responsible for establishing and
maintaining a system of internal controls.
The most recent audit report issued that covered claim payments for Blue Cross Blue Shield of
Michigan was Report No. 1A-10-32-05-034, dated March 24, 2006. All findings from the
previous audit have been resolved.
The results of this current audit were discussed with Plan and Association officials throughout
the audit and at an exit conference dated September 22, 2017. 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-10-32-17-009
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 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 Association’s Government-wide Service Benefit Plan Annual Accounting
Statements as they pertain to Plan codes 210 and 710 (Blue Cross Blue Shield of Michigan) for
contract years 2013 through 2016 (see Exhibit I) and determined the Plan paid approximately
$1.2 billion in health benefit charges. From this universe, we judgmentally selected various
samples for review. We reviewed approximately 429 claims, totaling $5.4 million in payments,
for the period of January 1, 2013, through September 30, 2016, for proper adjudication. The
determination of our audit findings is based on the FEHBP contract, the 2013 through 2016
Service Benefit Plan brochures, the Plan’s provider agreements, and the Association’s FEP
Administrative Procedures Manual. The results of these samples were not projected to the
universe of claims.
Exhibit I – Health Benefit Charges
BlueCross BlueShield of Michigan
Health Benefit Charges
$300
$295
$ Millions
Health Benefit
$290 Payments
$285
$280
2013 2014 2015 2016
3 Report No. 1A-10-32-17-009
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. Our audit
approach consisted mainly of 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 is generally in compliance with the
provisions of the contract relative to claim payments. A summary of our reviews was noted and
explained in detail in the “Audit Reviews and Conclusion” section of this audit report. With
respect to the items not tested, nothing came to our attention that caused us to believe that the
Plan had not complied, in all material respects, with those provisions.
In conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director’s Office, the FEP Operations Center, 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 Operations Center, 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 from May through September 2017.
4 Report No. 1A-10-32-17-009
III. AUDIT FINDINGS AND RECOMMENDATIONS
Our audit identified several minor incidents of erroneous claim payments, but we do not believe
that the errors are indicative of major system control problems. Therefore, we conclude that the
Plan’s processing of those FEHBP claims generally complies with the terms of its contract with
the U.S. Office of Personnel Management and industry standards.
The sections below summarize the improper overpayment results identified in the reviews we
performed on claim payments made by Blue Cross Blue Shield of Michigan. As mentioned in
the “scope” section above, all of our samples were selected from claim payments for services
reimbursed between January 1, 2013, and September 30, 2016.
A. System Pricing Review $13,918
We reviewed a sample of claims where the FEHBP paid as the primary insurer to determine
whether the Plan’s local claims adjudication system properly processed and priced these claims
in accordance with contract CS 1039. See Exhibit II for a summary of our System Pricing
Review.
Exhibit II – Summary of System Pricing Review
Population Sample Errors
Claim Amount Claim Amount Claim
Count Paid Count Paid Count Overcharges
8,478,209 $985,474,689 200 $3,686,363 5 $13,918
Sample Selection Criteria
We selected 200 claims that were stratified by place of service (such as provider’s office or
inpatient hospital) and payment category (such as $50 to $99). Our sample size was
judgmentally determined by the number of sample items from each place of service stratum
based on the stratum’s total claim dollars paid.
Review Summary
The Plan’s local system incorrectly processed four claims for professional therapy services
that were billed by a skilled nursing facility, resulting in overcharges of $13,495 to the
FEHBP.
5 Report No. 1A-10-32-17-009
The Plan incorrectly paid one claim where the incorrect rate was loaded to the Plan’s local
system, resulting in an overcharge of $423.
Criteria
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.”
Additionally, 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 … .”
Recommendation 1
We recommend that the contracting officer disallow $13,918 for claim overcharges and verify
that the Plan returns all amounts recovered to the FEHBP.
Recommendation 2
We recommend that the contracting officer require the Plan to provide evidence that skilled
nursing facilities are properly educated on how to submit claims.
Plan’s Response:
The Plan agrees with this finding and states, $13,495 in overcharges has been returned to the
FEHBP and the remaining $423 will be returned by March 31, 2018.
Regarding the OIG’s recommendation related to skilled nursing facilities, the Plan “will
educate providers on how to properly submit these specific types of claims.”
OIG Comments:
The Plan’s response to the draft report and supporting documentation did not contain sufficient
documentation to show the Plan returned the overcharged funds to the FEHBP. Therefore, we
continue to recommend that the contracting officer disallow $13,918 in claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.
As part of the audit resolution process, we recommend that the Plan provide OPM’s Healthcare
and Insurance Office with evidence that it has provided training to ensure that skilled nursing
facilities are properly educated on how to submit claims.
6 Report No. 1A-10-32-17-009
B. Omnibus Budget Reconciliation Act of 1993 $9,671
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) limits the benefit payments for
physician services provided to annuitants age 65 or older who are not covered under Medicare
Part B. The FEHBP fee-for-service plans are required to limit the claim payment to the lesser of
the amount billed by the provider or the amount equivalent to the Medicare Part B payment. The
FEP Operations Center contracts with Palmetto (an OBRA 93 pricing vendor) to calculate the
pricing amounts for FEHBP claims subject to OBRA 93 pricing regulations. See Exhibit III for
a summary of our OBRA 93 Review.
Exhibit III – Summary of OBRA 93 Review
Population Sample Errors
Claim Amount Claim Amount Claim
Count Paid Count Paid Lines Overcharges
92 $72,279 30 $9,671
Sample Selection Criteria
We reviewed a sample of claim lines subject to OBRA 93 pricing with amounts paid of $400 or
more that also contained procedure code modifiers 50, 51, 62, 66, 80, 81, or AS. Based on our
audit experience, we consider these claim lines to be at high risk for claim payment error since
the Association’s nationwide claims adjudication system (FEP Express) was not configured to
apply the Medicare modifier discount percentages.
Review Summary
Our review determined the Plan incorrectly paid 30 claim lines, totaling $9,671 in overcharges to
the FEHBP. These claim overcharges were the result of the FEP Express system not deferring
claims with modifier 59 for medical review. Based on the American Medical Association
guidelines, modifier 59 indicates that a procedure separate and distinct from the primary
procedure was performed, and additional documentation is required for the provider to receive a
full payment of the distinct service. For these 30 claim lines, the Plan was unable to provide
documentation to indicate that the separate and distinct procedure was medically necessary.
Therefore, these multiple procedures should have paid at a discounted rate instead of the full
Medicare allowance.
7 Report No. 1A-10-32-17-009
Criteria
As previously cited from contract CS1039, 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 limitations in written provider
agreements.
Recommendation 3
We recommend that the contracting officer disallow $9,671 for claim overcharges and verify that
the Plan returns all amounts recovered to the FEHBP.
Recommendation 4
We recommend that the contracting officer require the Association to enhance the FEP Express
system to defer all claims with modifier 59 for medical review before allowing the BCBS Plans to
process the claims for payment.
Plan’s Response:
The Plan agrees with this finding and states $6,173 has been returned to the FEHBP and the
remaining $3,498 in overcharges will be returned by March 31, 2018.
Association’s Response:
“BCBSA [Association] will evaluate the feasibility of implementing the recommendation by
March 31, 2018.”
OIG Comments:
The Plan’s response to the draft report and supporting documentation did not contain sufficient
documentation to show the Plan returned the overcharged funds to the FEHBP. Therefore, we
continue to recommend that the contracting officer disallow $9,671 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.
8 Report No. 1A-10-32-17-009
C. Non-Participating Providers Review $4,156
Non-Participating (non-par) providers are those that do not have a contract with the Plan and
have not agreed to accept the Plan’s standard rates as payment in full. See Exhibit IV for a
summary of our non-par providers review.
Exhibit IV – Summary of Non-Par Provider Review
Population Sample Errors
Claim Amount Claim Amount Claim
Count Paid Count Paid Count Overcharges
14,816 $1,946,611 146 $56,041 13 $4,156
Sample Selection Criteria
We judgmentally selected claims from the 21 non-par providers that received the highest
payments from the FEHBP, and where the amount paid on the claim was greater than or equal to
the amount billed.
Review Summary
We determined the Plan did not coordinate claims for one patient in our sample review with
the member’s primary insurer. As a result, the Plan incorrectly paid 10 claims, totaling
$2,221 in overcharges to the FEHBP.
The Plan incorrectly paid two claims due to a processor applying the incorrect pricing
methodology while calculating the claims, resulting in overcharges of $926 to the FEHBP.
The Plan incorrectly paid one claim to a provider who was not medically licensed during the
patient’s dates of service, resulting in an overcharge of $1,009 to the FEHBP.
Criteria
As previously cited from CS1039, 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 limitations in written provider agreements.
9 Report No. 1A-10-32-17-009
Recommendation 5
We recommend that the contracting officer disallow $4,156 for claim overcharges and verify that
the Plan returns all amounts recovered to the FEHBP.
Plan’s Response:
The Plan agrees with this finding and states $2,221 has been returned to the FEHBP and the
remaining $1,935 in overcharges will be returned by March 31, 2018.
OIG Comments:
The Plan’s response to the draft report and supporting documentation did not contain sufficient
documentation to show the Plan returned the overcharged funds to the FEHBP. Therefore, we
continue to recommend that the contracting officer disallow $4,156 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.
10 Report No. 1A-10-32-17-009
APPENDIX
Federal Employee Program
1310 G Street, N.W.
Washington, D.C. 20005
February 9, 2018
202.626.4800
Senior Team Leader
Claims & IT Audits Group
U.S. Office of Personnel Management
1900 E. Street, Room 6400
Washington, D.C. 20415-1100
Reference: OPM DRAFT AUDIT REPORT
Blue Cross Blue Shield of Michigan
Audit Report Number 1A-10-32-17-009
(Dated and Received December 13, 2017)
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 Blue Cross Blue Shield of Michigan (Plan). Our comments concerning the
recommendations in this report are as follows:
A. System pricing Review $13,918
Recommendation 1
We recommend that the contracting office disallow $13,918 for claim overcharges
and verify that the Plan returns all amounts recovered to the FEHBP.
Plan Response
The Plan agrees with this error. $13,495 was returned to the Program through claim
adjustments. The remaining balance of $423 will be return by March 31, 2018.
Documentation to support the Letter Of Credit Account (LOCA) adjustment will also
be submitted by March 31, 2018.
Recommendation 2
We recommend that the contracting office require the Plan to modify the local
system to recognize when multiple professional therapy services are billed on the
11 Report No. 1A-10-32-17-009
same day by skilled nursing facilities. The local system should process the
professional therapy claims according to the date of service for each service
provided, as applicable to the providers’ contracts and/or payment policy.
Plan Response
To prevent future occurrences of this issue, the Plan will educate providers on how
to properly submit these specific types of claims.
[Redacted by OIG – not relevant to final report]
Recommendation 3
We recommend that the contracting office require the Plan to correct the rate loading
error identified in our review.
Plan Response
The Plan agrees this was a manual error and that the system has been corrected.
See attachment 1 showing the correct rate.
B. Omnibus Budget Reconciliation Act of 1993 (OBRA 93) $9,671
Recommendation 4
We recommend that the contracting office disallow $9,671 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.
Plan Response
The Plan agreed with this recommendation. Nine claims totaling $6,173 have been
adjusted to pay correctly. The remaining $3,498 will be credited to FEP by March 31,
2018. Documentation to support the LOCA adjustment will also be submitted by
March 31, 2018.
Recommendation 5
We recommend that the contracting office require the Association to
enhance the FEP Express system to defer all claims containing
Report No. 1A-10-32-17-009
modifier 59 for medical review before allowing the BCBS Plans to
process the claims for payment.
BCBSA Response
BCBSA will evaluate the feasibility of implementing the recommendation by
March 31, 2018.
C. Non-Participating Providers Review $5,267
Recommendation 6
We recommend that the contracting office disallow $5,267 for claim overcharges
and verify that the Plan returns all amounts recovered to the FEHBP.
Plan Response
The Plan agrees to overpayments totaling $4,156 and contests questioned
claims totaling $1,111. The questioned amount represents the difference
between questioned subrogation claims totaling $3,332 and the amount agreed
to as a settlement with the other insurance carrier totaling $2,221.
See attachment 2 verifying the $2,221 check copies returning funds to the
Program. The balance of $1,935 will be returned to the Program and
documentation to support the LOCA adjustment will be submitted by March 31,
2018.
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 at
.
Sincerely,
Executive Director, FEP Program Integrity
cc: , BCBSM
Report No. 1A-10-32-17-009
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
Audit of Blue Cross Blue Shield of Michigan
Published by the Office of Personnel Management, Office of Inspector General on 2018-04-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)