oversight

Audit Of Bluecross Blueshield of North Carolina Durham, North Carolina

Published by the Office of Personnel Management, Office of Inspector General on 2012-01-25.

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 NORTH CAROLINA

        DURHAM, NORTH CAROLINA



                                          Report No. lA-lO-33-11-023



                                          Date: January                 25,     2012




                                                          --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 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 webpage, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                        UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                           Washington, 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 North Carolina

                                           Plan Code 310

                                       Durham, North Carolina





                      REPORT NO, IA-IO-33-11-023          DATE: 91/25/12





                                                            ------;:/ /~~) '?
                                                          L/~~t r-~
                                                           Michael R Esser
                                                           Assistant Inspector General
                                                             for Audits




        www.opm.gov                                                                      www.usajobs.gov
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                Washington, DC 20415


  Office of the
Inspector General




                                       EXECUTIVE SUMMARY



                                 Federal Employees Health Benefits Program

                                 Service Benefit Plan      Contract CS 1039

                                      BlueCross BlueShield Association

                                                 Plan Code 10



                                    BlueCross BlueShield of North Carolina

                                               Plan Code 310

                                          Durham, North Carolina





                        REPORT NO. IA-IO-33-11-023             DATE: 01/25/12


      This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
      BlueCross BlueShield of North Carolina (Plan), in Durham, North Carolina, questions $477,872
      in health benefit charges. The BlueCross BlueShield Association (Association) agreed (A) with
      these questioned charges.

      Our limited scope audit was conducted in accordance with Government Auditing Standards. The
      audit covered claim payments from January I, 2008 through December 31, 2010 as reported in
      the Annual Accounting Statements.

      The questioned health benefit charges are summarized as follows:

      •     Modifier 62 and 66 Review (A)                                                      $213,476

           The Plan incorrectly paid 138 multiple surgeon claim lines, resulting in net overcharges of
           $213,476 to the FEHBP. Specifically, the Plan overpaid 126 claim lines by $222,518 and
           underpaid 12 claim lines by $9,042.




                                                        1

          www.opm.gov                                                                         www.usajobs.gov
•   Omnibus Budget Reconciliation Act of 1990 Review (A)                                 $151,035

    The Plan incorrectly paid five claims that were priced under the Omnibus Budget
    Reconciliation Act of 1990 pricing guidelines, resulting in net overcharges of $151,035 to the
    FEHBP. Specifically, the Plan overpaid four claims by $153,973 and underpaid one claim by
    $2,938.

•   Omnibus Budget Reconciliations Act of 1993 Review (A)                                 $97,315

    The Plan incorrectly paid 161 claims that were priced under the Omnibus Budget
    Reconciliation Act of 1993 pricing guidelines, resulting in net overcharges of $97,315 to the
    FEHBP. Specifically, the Plan overpaid 144 claims by $106,285 and underpaid 17 claims by
    $8,970.

•   System and Discount Review (A)                                                        $18,980

    Based on our review of a judgmental sample of 100 claims, we determined that the Plan
    incorrectly paid 9 claims, resulting in overcharges of $18,980 to the FEHBP.

•   Non-Participating Professional Provider Claims (A)                                      ($105)

    During our review of claims submitted by non-participating professional providers, we
    determined that the Plan incorrectly paid three claims, resulting in net undercharges of $105
    to the FEHBP. Specifically, the Plan overpaid one claim by $798 and underpaid two claims
    by $903.

•   Continuous Stay Claims (A)                                                            ($2,829)

    During our review of continuous stay claims, we determined that the Plan incorrectly paid six
    claims, resulting in net undercharges of $2,829 to the FEHBP. Specifically, the Plan
    overpaid three claims by $20,476 and underpaid three claims by $23,305.




                                                ii
                                                   CONTENTS
                                                                                                                     PAGE

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


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


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


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


               HEALTH BENEFIT CHARGES.............................................................................5 


               1. Modifier 62 and 66 Review ...............................................................................5 


               2. Omnibus Budget Reconciliation Act of 1990 Review.......................................7 


               3. Omnibus Budget Reconciliation Act of 1993 Review.......................................9 


               4. System and Discount Review ..........................................................................12 


               5. Non-Participating Professional Provider Claims .............................................13 


               6. Continuous Stay Claims...................................................................................15 


IV.     MAJOR CONTRIBUTORS TO THIS REPORT...........................................................17 


V.      SCHEDULE A – HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED

        APPENDIX	 (BlueCross BlueShield Association response, dated September 19, 2011,
                  to the draft audit report)
                          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 North Carolina (Plan),
located in Durham, North 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 the Plan (Report No. 1A-10-33-06-037, dated August 28,
2007) for contract years 2002 through 2004 have been satisfactorily resolved.

The results of this audit were provided to the Plan in written audit inquiries; were discussed with
Plan and/or Association officials throughout the audit and at an exit conference; and were
presented in detail in a draft report, dated June 30, 2011. 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. Also, additional documentation provided by the Association and Plan
on various dates through October 27, 2011 was considered in preparing our final report.




                                                 2

                II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were to determine whether the Plan complied with contract provisions relative to
health benefit payments.

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 code 310 for contract years 2008 through 2010. During this period, the Plan paid
approximately $1.5 billion in health benefit charges (See Schedule A). Specifically, we reviewed
approximately $15.7 million in claim payments from January 1, 2008 through December 31, 2010
for proper adjudication.

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. This was
determined to be the most effective approach to select areas of audit. 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 operation. 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, the
applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal Employees
Health Benefits Acquisition Regulations, 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 did
not comply with all provisions of the contract and federal procurement regulations. Exceptions
noted in the areas reviewed are set forth in detail in the "Audit Findings and Recommendations"
section of this audit report. With respect to the items not tested, nothing came to our attention
that caused us to believe that the Plan had not complied, in all material respects, with those
provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by the
FEP Director’s Office, the FEP Operations Center, the Plan, and the Centers for Medicare and
Medicaid Services (CMS). Due to time constraints, we did not verify the reliability of the data


                                                 3

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 Durham, North Carolina from March 21 through
March 25, 2011. Audit fieldwork was also performed at our office in Cranberry Township,
Pennsylvania through June 30, 2011.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s claims processing system
by inquiry of Plan officials.

To test the Plan’s compliance with the FEHBP health benefit provisions, we selected and
reviewed samples of 829 claims. 2 We used the FEHBP contract, the Service Benefit Plan
brochure, the Plan’s provider agreements, and the Association’s FEP administrative manual to
determine the allowability of benefit payments. The results of these samples were not projected
to the universe of claims.




2
  See the audit findings for “Modifier 62 and 66 Review” (A1), “Omnibus Budget Reconciliation Act of 1990 Review”
(A2), “Omnibus Budget Reconciliation Act of 1993 Review” (A3), “System and Discount Review” (A4), “Non-
Participating Professional Provider Claims” (A5), and “Continuous Stay Claims” (A6) on pages 5 through 16 for
specific details of our sample selection methodologies.


                                                      4

          III. AUDIT FINDINGS AND RECOMMENDATIONS

HEALTH BENEFIT CHARGES

1.	 Modifier 62 and 66 Review                                                         $213,476

   The Plan incorrectly paid 138 multiple surgeon claim lines, resulting in net overcharges
   of $213,476 to the FEHBP. Specifically, the Plan overpaid 126 claim lines by $222,518
   and underpaid 12 claim lines by $9,042.

   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 . . . .”

   For the period January 1, 2008 through December 31, 2010, we identified 149 multiple
   surgeon claim groups, totaling $202,787 in potential “estimated” overpayments, that
   contained at least one claim line with co-surgeon procedure modifier “62” or surgical
   team procedure modifier “66”. From this universe, we selected and reviewed a
   judgmental sample of 17 groups (representing 34 claim lines), totaling $82,528 in
   potential overpayments, for the purpose of determining if these claim lines were correctly
   priced and paid by the Plan. Our sample included all groups with potential overpayments
   of $2,500 or more.

   Based on our review, we determined that 25 claim lines were paid incorrectly, resulting in
   overcharges of $81,128 to the FEHBP. These claim payment errors resulted from the
   following reasons:

   •	 The Plan priced 14 claim lines without applying the co-surgeon reimbursement rate to
      the procedure fee schedule amounts, resulting in overcharges of $40,880 to the FEHBP.

   •	 The Plan paid 10 claim lines even though the procedures were not medically
      necessary or the surgical assistants were not required for the surgeries, resulting in
      overcharges of $37,303 to the FEHBP. These claim lines were not deferred for
      medical review prior to payment.

   •	 In one instance, the Plan’s claims processing system did not defer a claim line as a
      duplicate billing, resulting in an overcharge of $2,945 to the FEHBP.

   Since most of the claim lines in our sample (claim lines in 14 of the 17 groups) were paid
   incorrectly, we requested that the Plan review the remaining 132 groups (representing 201
   claim lines) in the universe, and determine if those claim lines were paid correctly. After
   reviewing the Plan’s response to our expanded sample, we determined that 113 additional
   claim lines were paid incorrectly, resulting in net overcharges of $132,348 to the FEHBP.


                                             5

Specifically, 101 claim lines were overpaid by $141,390 and 12 claim lines were
underpaid by $9,042. These claim payment errors resulted from the following reasons:

•	 The Plan paid 97 claim lines even though the procedures were not medically
   necessary or the surgical assistants were not required for the surgeries, resulting in net
   overcharges of $130,596 to the FEHBP. Specifically, the Plan overpaid 92 claim
   lines by $135,238 and underpaid 5 claim lines by $4,642. These claim lines were not
   deferred for medical review prior to payment.

•	 The Plan priced 16 claim lines without applying the co-surgeon reimbursement rate to
   the procedure fee schedule amounts, resulting in net overcharges of $1,752 to the
   FEHBP. Specifically, the Plan overpaid nine claim lines by $6,152 and underpaid
   seven claim lines by $4,400.

Association’s Response:

In response to the amount questioned in the draft report for the initial sample, the
Association agrees with $81,823 of the questioned overpayments. The Association states
that the Plan has initiated recoveries for the confirmed overpayments. As of August 15,
2011, the Plan has recovered and returned $55,270 of the confirmed overpayments to the
FEHBP for the initial sample.

Regarding the expanded sample, the Association agrees with $141,390 of the questioned
overpayments and $9,041 of the questioned underpayments. The Association states that
the Plan has initiated recoveries for the confirmed overpayments and will issue additional
payments for the confirmed underpayments. As of August 30, 2011, the Plan has
recovered and returned $77,489 of the confirmed overpayments to the FEHBP for the
expanded sample.

The Association states, “These overpayments were the result of claim examiners' manual
processing errors in that the examiners did not send the claims to medical Review . . . The
following steps have been taken to address and decrease the number of claims payment
errors of this nature in the future:

•	 The Plan has created a cross-functional team to review the current Standard Operating
   Procedure (SOP) for the processing of these claims. Revisions have been made to the
   SOP to ensure that it provides a comprehensive end-to-end perspective process flow
   with clear and concise instructions.

•	 The Plan will create a new edit in its local system to auto defer all claims with
   modifiers 62 & 66 to Medical Review. This process will allow the pre-payment
   review to determine the medical appropriateness of the services and promote the
   accuracy of the payment. . . .




                                          6

   •	 The processing of these claims will now be handled by the Operations Specialists.
      This change will limit the processing of these claims to a small population of
      experienced staff in an effort to reduce overpayments.

   •	 The Plan will also provide . . . training to a targeted selection of team members to
      ensure they are aware of the requirements for reviewing and processing of these
      claims.”

   OIG Comments:

   Based on our review of the Association’s response and additional documentation
   provided by the Association and Plan, we revised the amount questioned from the draft
   report to $213,476. The Association’s response and/or additional documentation support
   concurrence with our revised questioned amount.

   Recommendation 1

   We recommend that the contracting officer disallow $222,518 for claim overcharges and
   verify that the Plan returns all amounts recovered to the FEHBP.

   Recommendation 2

   We recommend that the contracting officer allow the Plan to charge the FEHBP $9,042 if
   additional payments are made to the providers to correct the underpayment errors.
   However, before making any additional payment(s) to a provider, the contracting officer
   should require the Plan to first recover any questioned overpayment(s) for that provider.

   Recommendation 3

   We recommend that the contracting officer have the Association verify that the Plan’s
   corrective steps for improving the prevention of these types of claim payment errors are
   being implemented. These corrective steps are included in the Association’s response to
   the draft report.

2.	 Omnibus Budget Reconciliation Act of 1990 Review                                  $151,035

   The Plan incorrectly paid five claims that were priced under the Omnibus Budget
   Reconciliation Act of 1990 (OBRA 90) pricing guidelines, resulting in net overcharges of
   $151,035 to the FEHBP. Specifically, the Plan overpaid four claims by $153,973 and
   underpaid one claim by $2,938.

   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.



                                            7

OBRA 90 limits the benefit payments for certain inpatient hospital services provided to
annuitants age 65 or older who are not covered under Medicare Part A. The FEHBP
fee-for-service plans are required to limit the claim payment to the amount equivalent to
the Medicare Part A payment.

For the period May 1, 2009 through December 31, 2010, we identified 607 claims,
totaling $6,557,469 in payments, that were subject to OBRA 90 pricing guidelines. From
this universe, we selected and reviewed a judgmental sample of 57 claims, totaling
$2,103,253 in payments, to determine if these claims were correctly priced by the FEP
Operations Center and paid by the Plan. Our sample included all OBRA 90 claims with
amounts paid of $17,500 or more.

Using a program developed by CMS to price OBRA 90 claims, we recalculated the claim
payment amounts for the claims in our samples that were subject to and/or processed as
OBRA 90. Based on our review, we determined that five claims were paid incorrectly,
resulting in net overcharges of $151,035 to the FEHBP. Specifically, the Plan overpaid
four claims by $153,973 and underpaid one claim by $2,938.

These claim payment errors resulted from the following:

•	 The FEP Operations Center priced two claims using the incorrect Medicare diagnosis
   related grouping (DRG) codes, resulting in overcharges of $127,687 to the FEHBP. In
   each instance, the FEP Operations Center determined the DRG code without applying
   the “present on admission” indicators.

•	 The FEP Operations Center priced two claims prior to updating the OBRA 90 pricing
   software with the most current version. Consequently, the Plan overpaid one claim by
   $20,416 and underpaid one claim by $2,938, resulting in net overcharges of $17,478
   to the FEHBP.

•	 In one instance, the FEP Operations Center priced a claim using the incorrect
   allowable amounts, resulting in an overcharge of $5,870 to the FEHBP.

Association’s Response:

The Association agrees with this finding. The Association states that the Plan has
initiated recovery efforts for the overpayments and issued an additional payment to
correct the underpayment error.

The Association states that these pricing errors were due to manual processing issues.
The Association states that the Plan will take corrective action to improve the accuracy of
claims data submitted to the FEP Operations Center for OBRA 90 pricing. In addition,
the FEP Director’s Office has taken corrective action to improve the pricing accuracy of
OBRA 90 claims.



                                         8

   OIG Comments:

   Based on our review of the Association’s response and additional documentation, we
   revised the amount questioned from the draft report to $151,035. The Association’s
   response and/or additional documentation support concurrence with our revised
   questioned amount.

   Recommendation 4

   We recommend that the contracting officer disallow $153,973 for claim overcharges and
   verify that the Plan returns all amounts recovered to the FEHBP.

   Recommendation 5

   We recommend that the contracting officer allow the Plan to charge the FEHBP $2,938
   for the additional payment made to the provider to correct the underpayment error.
   However, before allowing this additional payment to the provider, the contracting officer
   should require the Plan to first recover any questioned overpayment(s) for that provider.

   Recommendation 6

   We recommend that the contracting officer have the Association verify that the Plan and
   FEP Director’s Office have implemented the corrective actions that are included in the
   Association’s response to the draft report.

3. Omnibus Budget Reconciliation Act of 1993 Review                                    $97,315

   The Plan incorrectly paid 161 claims that were priced under the Omnibus Budget
   Reconciliation Act of 1993 (OBRA 93) pricing guidelines, resulting in net overcharges of
   $97,315 to the FEHBP. Specifically, the Plan overpaid 144 claims by $106,285 and
   underpaid 17 claims by $8,970.

   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.

   OBRA 93 limits the benefit payments for certain 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
   equivalent to the Medicare Part B payment or billed charges.

   For the period January 1, 2008 through December 31, 2010, we identified 11,567 claims
   (35,318 claim lines), totaling $2,027,885 in payments, that were subject to OBRA 93
   pricing guidelines. From this universe, we selected and reviewed a judgmental sample of
   298 claims (393 claim lines), totaling $332,236 in payments, to determine if these claims


                                            9

were correctly priced by the FEP Operations Center and paid by the Plan. Our sample
included all claims with amounts paid of $4,000 or more, as well as all claim line
payments greater than $350 that were processed with an “OFMA” override code or a
procedure containing two or more modifiers.

Using a program developed by CMS to price OBRA 93 claims, we recalculated the claim
payment amounts for the claims in our sample that were subject to and/or processed as
OBRA 93. Based on our review, we determined that 161 claims were paid incorrectly,
resulting in net overcharges of $97,315 to the FEHBP. Specifically, the Plan overpaid
144 claims by $106,285 and underpaid 17 claims by $8,970.

These claim payment errors resulted from the following:

•	 The FEP Operations Center did not price 136 claims according to OBRA 93 pricing
   guidelines, resulting in net overcharges of $85,391 to the FEHBP. Specifically, the
   Plan overpaid 123 claims by $92,241 and underpaid 13 claims by $6,850. These
   errors resulted from the FEP national claims system, by design, automatically
   generating an “OFMA” override code when the system did not receive a timely
   response (i.e., within 15 days) from Palmetto (an OBRA 93 pricing vendor).
   Consequently, the FEP Operations Center used the allowable charge (covered charge
   minus preferred provider allowance/participating savings amount) instead of the
   Medicare allowance to calculate the claim line payments.

•	 The Plan incorrectly paid 10 surgery claims due to Palmetto not recognizing the
   multiple or bilateral procedures and erroneously calculating these payments.
   Consequently, the Plan overpaid nine claims by $8,018 and underpaid one claim by
   $218, resulting in net overcharges of $7,800 to the FEHBP.

•	 The Plan incorrectly paid eight claims due to Palmetto not recognizing the second and
   third procedure modifiers and erroneously calculating the payments, resulting in
   overcharges of $3,053 to the FEHBP.

•	 The Plan paid six claims using the incorrect local procedure allowances, pricing
   methods, or modifier reimbursement percentages, resulting in net overcharges of
   $1,305 to the FEHBP. Specifically, the Plan overpaid four claims by $2,973 and
   underpaid two claims by $1,668.

•	 In one instance, the Plan paid a claim using the incorrect Medicare pricing allowance,
   resulting in an undercharge of $234 to the FEHBP.




                                       10 

Association’s Response:

The Association agrees with this finding. The Association states that the Plan has
initiated refunds for the confirmed overpayments and issued additional payments to the
providers for the confirmed underpayments. As of August 15, 2011, the Plan has
recovered and returned $31,224 to the FEHBP.

To improve the pricing accuracy of OBRA 93 claims, the Association states that “the FEP
Director's Office has taken the following action:

•	 The FEP Director's Office is currently working with Palmetto to ensure that all
   applicable FEP claims are priced in accordance with Medicare pricing requirements.

•	 Established a chain of communication between the FEP Operations Center and
   Palmetto in an effort to improve the pricing process.

•	 Started including claims that were not OBRA '93 priced (Claims with the information
   Code OFMA) in the quarterly System-Wide Claims Review process. . . .

•	 Conducted Plan trainings on how OBRA '93 claims should be . . . coded and
   submitted to the Operations Center. . . .

•	 FEP is currently evaluating its OBRA '93 system edits to determine whether there are
   changes that can be made to further promote the accuracy of the claims selection that
   are sent to Palmetto for pricing. System enhancements in FEPExpress are scheduled
   to be implemented with the 2011 System Release 4 that will have an effective date of
   January 1, 2012.”

OIG Comments:

Based on our review of the Association’s response and additional documentation, we
revised the amount questioned from the draft report to $97,315. The Association’s
response and/or additional documentation support concurrence with our revised
questioned amount.

Recommendation 7

We recommend that the contracting officer disallow $106,285 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.




                                       11 

        Recommendation 8

        We recommend that the contracting officer allow the Plan to charge the FEHBP $8,970
        for additional payments made to the providers to correct the underpayment errors.
        However, before allowing any additional payment(s) to a provider, the contracting officer
        should require the Plan to first recover any questioned overpayment(s) for that provider.

        Recommendation 9

        We recommend that the contracting officer have the Association verify that the proposed
        corrective actions for improving the pricing accuracy of OBRA 93 claims are being
        implemented by the FEP Director’s Office. These corrective actions are included in the
        Association’s response to the draft report.

    4.	 System and Discount Review                                                                      $18,980

        The Plan incorrectly paid nine claims, resulting in overcharges of $18,980 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.

        For health benefit claims reimbursed during the period January 1, 2010 through
        December 31, 2010 (excluding OBRA 90, OBRA 93, and case management claims), we
        identified 5,270,572 claim lines, totaling $481,373,382 in payments, where the FEHBP
        paid as the primary insurer. From this universe, we selected and reviewed a judgmental
        sample of 100 claims (representing 1,010 claim lines), totaling $2,661,337 in payments,
        to determine if the Plan adjudicated these claims properly and/or priced them according to
        the provider contract rates. 3 As part of our review, we also selected 25 participating and
        preferred providers, which were associated with the highest reimbursed claims in our
        sample, for the purpose of verifying if these providers’ contract rates were accurately and
        timely updated in the Plan’s local network pricing system.

        Our review identified nine claim payment errors, resulting in overcharges of $18,980 to
        the FEHBP. These claim payment errors resulted from the following:

        •	 The Plan incorrectly paid four claims containing multiple procedures or procedures
           performed by co-surgeons, resulting in overcharges of $10,096 to the FEHBP. In
           each instance, the Plan did not apply the correct reimbursement percentage to the
           procedure’s fee schedule amount.


3
  We selected our sample from an OIG-generated “Place of Service Report” (SAS application) that stratified the
claims by place of service (POS), such as provider’s office and payment category, such as $50 to $99.99. We
judgmentally determined the number of sample items to select from each POS stratum based on the stratum’s total
claim dollars paid.


                                                       12 

   •	 The Plan incorrectly paid three claims due to manual pricing errors, resulting in
      overcharges of $4,092 to the FEHBP.

   •	 In one instance, the Plan paid a claim using the incorrect pricing method and
      allowance for hearing aids, resulting in an overcharge of $3,004 to the FEHBP.

   •	 In one instance, the claims processor did not defer the claim for a medical necessity
      review, resulting in an overcharge of $1,788 to the FEHBP. This claim should have
      been denied for payment because the procedure was not medically necessary.

   Association’s Response:

   The Association agrees with this finding. The Association states that the Plan has

   recovered and returned the questioned overpayments of $18,980 to the FEHBP. 


   The Association states, “These overpayments were caused by manual pricing errors. The
   Plan has taken the following actions to minimize these types of errors in the future:

   •	 A report noting the nature of the errors identified in this finding was sent to all Team
      Leads and Management in the FEP Department to review with the claims examiners.

   •	 Coaching clinics were conducted by the Team Leads with each of the Claims

      Professionals that had an error identified in the report. 


   •	 These confirmed errors will also be used as training tools during future refresher
      training for the claims staff.”

   Recommendation 10

   We recommend that the contracting officer disallow $18,980 for claim overcharges and
   verify that these funds were returned to the FEHBP.

   Recommendation 11

   We recommend that the contracting officer have the Association verify that the Plan’s
   corrective actions to minimize these types of claim payment errors in the future are being
   implemented. These corrective actions are included in the Association’s response to the
   draft report.

5.	 Non-Participating Professional Provider Claims                                        ($105)

   During our review of claims submitted by non-participating professional providers, we
   determined that the Plan incorrectly paid three claims, resulting in net undercharges of
   $105 to the FEHBP. Specifically, the Plan overpaid one claim by $798 and underpaid
   two claims by $903.


                                            13 

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.

The 2009 BlueCross and BlueShield Service Benefit Plan brochure, page 123, states,
“Non-participating providers – We have no agreements with these providers. We
determine our allowance as follows . . . For physicians and other covered health care
professionals that do not contract with your local Blue Cross and Blue Shield Plan, our
allowance is equal to the greater of 1) the Medicare participating fee schedule amount for
the service or supply in the geographic area in which it was performed or obtained (or
60% of the billed charge if there is no equivalent Medicare fee schedule amount) or 2)
100% of the 2009 Usual, Customary, and Reasonable (UCR) amount for the service or
supply in the geographic area in which it was performed or obtained.”

For the period January 1, 2008 through December 31, 2010, we identified 910,829 claim
lines (representing 392,887 claims), totaling $25,512,971 in payments, submitted by non­
participating professional providers. From this universe, we selected and reviewed a
judgmental sample of 139 claim lines (representing 25 claims), totaling $367,921 in
payments, to determine if these claim lines were correctly priced by the FEP Operations
Center and paid by the Plan. Our sample included the 10 highest dollar claims that were
not submitted by emergency transport providers, as well as an additional 15 randomly
selected claims.

Based on our review, we determined that three of these claims were paid incorrectly,
resulting in net undercharges of $105 to the FEHBP. Specifically, the Plan overpaid one
claim by $798 and underpaid two claims by $903. In each instance, the FEP Operations
Center priced the claim with the incorrect UCR or Medicare fee schedule amount.

Association’s Response:

The Association agrees with this finding. The Association states that the Plan has
initiated recovery for the overpayment and issued additional payments to correct the
underpayments.

The Association states that these claim payment errors were the result of manual pricing
errors. To minimize these types of errors in the future, the Plan has implemented
corrective actions.

Recommendation 12

We recommend that the contracting officer disallow $798 for a claim overcharge and
verify that the Plan returns the amount recovered to the FEHBP.




                                         14 

   Recommendation 13

   We recommend that the contracting officer allow the Plan to charge the FEHBP $903 for
   additional payments made to the providers to correct the underpayment errors. However,
   before allowing any additional payment(s) to a provider, the contracting officer should
   require the Plan to first recover any questioned overpayment(s) for that provider.

6.	 Continuous Stay Claims                                                             ($2,829)

   During our review of continuous stay claims, we determined that the Plan incorrectly paid
   six claims, resulting in net undercharges of $2,829 to the FEHBP. Specifically, the Plan
   overpaid three claims by $20,476 and underpaid three claims by $23,305.

   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.

   For the period January 1, 2008 through December 31, 2010, we identified 1,149 continuous
   stay claim groups (representing 2,392 claims), totaling $17,425,802 in payments. From this
   universe, we selected and reviewed a judgmental sample of 68 continuous stay claim
   groups (representing 165 claims), totaling $9,862,335 in payments, to determine if these
   claims were correctly priced and paid by the Plan. Our sample included groups with
   cumulative claim payment amounts of $50,000 or more. The majority of these claim
   groups contained claims with consecutive dates of service.

   Our review identified six claim payment errors, resulting in net undercharges of $2,829 to
   the FEHBP. Specifically, three claims were overpaid by $20,476 and three claims were
   underpaid by $23,305.

   These claim payment errors resulted from the following:

   •	 The Plan paid three claims using incorrect allowable amounts, resulting in net
      overcharges of $10,001 to the FEHBP. Specifically, the Plan overpaid two claims by
      $11,090 and underpaid one claim by $1,089.

   •	 In one instance, the Plan paid a claim using the incorrect pricing method, resulting in an
      overcharge of $9,386 to the FEHBP.

   •	 The Plan priced two claims using the incorrect DRG codes, resulting in undercharges
      of $22,216 to the FEHBP.




                                            15 

Association’s Response:

The Association agrees with this finding. The Association states that the Plan has
recovered and returned the overpayments of $20,476 to the FEHBP. The Plan has also
issued additional payments of $23,305 to the providers for the underpayments.

The Association states that these claim payment errors were caused by manual coding
errors. To minimize these types of errors in the future, the Plan has implemented
corrective actions.

Recommendation 14

We recommend that the contracting officer disallow $20,476 for claim overcharges and
verify that these funds were returned to the FEHBP.

Recommendation 15

We recommend that the contracting officer allow the Plan to charge the FEHBP $23,305
for additional payments made to the providers to correct the underpayment errors.
However, before allowing any additional payment(s) to a provider, the contracting officer
should require the Plan to first recover any questioned overpayment(s) for that provider.




                                       16 

              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experience-Rated Audits Group

                , Lead Auditor

               , Auditor


                    , Chief

Community-Rated Audits Group

          , Chief

Information Systems Audits Group

                    , Senior Information Technology Specialist

              Senior Information Technology Specialist




                                              17 

                                                     V. SCHEDULE A

                                         BLUECROSS BLUESHIELD OF NORTH CAROLINA
                                                DURHAM, NORTH CAROLINA

                                    HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED

HEALTH BENEFIT CHARGES                                            2008             2009           2010         TOTAL

     CLAIM PAYMENTS                                            $476,651,459     $500,971,454   $514,587,699   $1,492,210,612
     MISCELLANEOUS PAYMENTS*                                        696,103          783,045      1,468,412        2,947,560

     TOTAL HEALTH BENEFIT CHARGES
                             $477,347,562     $501,754,499   $516,056,111   $1,495,158,172


A
                                                                  2008             2009           2010         TOTAL
M

1.   MODIFIER 62 AND 66 REVIEW                                       $84,706        $50,633        $78,137         $213,476
2.   OMNIBUS BUDGET RECONCILIATION ACT OF 1990 REVIEW                      0        127,686         23,349          151,035
3.   OMNIBUS BUDGET RECONCILIATION ACT OF 1993 REVIEW                  2,747         63,370         31,198           97,315
4.   SYSTEM AND DISCOUNT REVIEW                                            0              0         18,980           18,980
5.   NON-PARTICIPATING PROFESSIONAL PROVIDER CLAIMS                     (448)             0            343             (105)
6.   CONTINUOUS STAY CLAIMS                                            2,072          8,296        (13,197)          (2,829)

     TOTAL QUESTIONED CHARGES
                                       $89,077       $249,985       $138,810         $477,872

* We did not audit the miscellaneous payments.
                                                                                              APPENDIX




                                                                   BlueCross BlueSh1eld
                                                                   Association
                                                                   An A.socIat1oo of Independent
                                                                   BlueCross and BlueShleld Plans
                                                                   Federal Employee Program
                                                                   1310 G Street, N.W.
                                                                   Washington, D.C. 20005
                                                                   202.942.1000
                                                                   Fax 202.942.1125
September 19, 2011



_ _ Group Chief
~tsGroup
Office of the Inspector General
U.S. Office of Personnel Management

1900 E Street, Room 6400

Washington, DC 20415-1100


Reference:	                 OPM DRAFT AUDIT REPORT

                            BlueCross BlueShield of North Carolina

                            Audit Report Number 1A-10-33-11-023

                            (Dated June 30, 2011 and Received June 30, 2011)


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 BlueCross BlueShield of North Carolina. Our comments concerning the
findings in this report are as follows:

A. HEALTH BENEFIT CHARGES

1. Modifier 62 and 66 Review	                                                        $215,111

The Plan disagrees that $13,030 in claims payments were incorrectly paid on the
original listing. However, the Plan does agree that claims totaling $81,823 may have
been paid incorrectly. The Plan has initiated recovery efforts on all of the confirmed
overpayments. As of August 15, 2011, the Plan has recovered and returned $55,270 to
the Program for this listing and will continue to show due diligence in its recovery efforts.

For the expanded listing, the Draft Audit Report indicated an estimated amount of
$120,000. However, after the Plan completed its review of this listing, it was determined
that the actual amount for the expanded listing is a net value of $240,517. The following
is the categorization of the questioned claims on this listing:
September 19, 2011
Page 2 of6


    •	 A total of $108,168 in claim payments were determined to be paid correctly after
       review by the Plan's medical staff;
    •	 Claims totaling $141,390 were confirmed as overpayments; and
    •	 Underpayments in the amount of 9,041were also confirmed.

The Plan has initiated recoveries on the confirmed overpayments and will issue the
additional payments for the confirmed underpayments. As of August 30, 2011, the Plan
has collected and returned to the Program a total of $77,489.29 of the confirmed
overpayments on the expanded listing. The Plan will continue its due diligence in this
recovery effort.

These overpayments were the result of claim examiners' manual processing errors in
that the examiners did not send the claims to medical Review to determine. The
following steps have been taken to address and decrease the number of claims
payment errors of this nature in the future:

   o	 The Plan has created a cross-functional team to review the current Standard
       Operating Procedure (SOP) for the processing of these claims. Revisions have
       been made to the SOP to ensure that it provides a comprehensive end-to-end
       perspective process flow with clear and concise instructions.

   o	 The Plan will create a new edit in its local system to auto defer all claims with
      modifiers 62 & 66 to Medical Review. This process will allow the pre-payment
      review to determine the medical appropriateness of the services and promote the
      accuracy of the payment. This system edits will be in place by December 31,
      2011.

   o	 The processing of these claims will now be handled by the Operations
      Specialists. This change will limit the processing of these claims to a small
      population of experience staff in an effort to reduce overpayments.

   o	 The Plan will also provide re-fresher training to a targeted selection of team
      members to ensure they are aware of the requirements for revieWing and
      processing of these claims.

2.	 Omnibus Budget Reconciliation Act of 1990 Review                          $180,987

The Plan disagrees that Sample # 15 for services rendered in the long term rehab
portion of Kindred Hospital for $28,527 should have been subject to OBRA '90 pricing.
Long term facilities are not subject to OBRA '90 pricing limitation. For Sample #45, the
FEP Mainframe OBRA '90 Pricer generated a different pricing of $58,316 for this claim.
As a result, the Plan disagrees with $1,424 of the question amount. The overpayment
amount for this claim is $107,784.
September 19, 2011
Page 30f6



However, the Plan does agree that $153,972 in claims payments were not issued in
accordance to the OBRA '90 requirements. Recovery efforts have been initiated for
these confirmed overpayments. For Sample # 89 with the $2,938 underpayment, the
Plan has now been corrected the claim on the FEP System and this additional payment
was issued to the provider.

The Plan indicated that these pricing errors were due to manual processing issues. The
Plan will take the following action to improve the accuracy of claims data submitted to
the FEP Operations Center for OBRA '90 pricing:

      o	 A report noting the nature of these errors identified in this finding was sent to
         all Team Leads and Management in the FEP Department to be used as
         training tools for the claim examiners.

      o Coaching clinics will be conducted by the Team Leads with the applicable
        Claims Staff that had an error identified in the report.

      o These confirmed errors will also be used during future re-fresher training for
        the claims staff.

      o	 In addition, the Plan will continue to randomly audit Claims Professionals
         monthly to ensure compliance with the processing guidelines.

To continue to enhance OBRA '90 claims pricing accuracy the FEP Director's Office has
taken the following action:

   o	 Includes all claims that were not OBRA '90 priced in the quarterly System-Wide
      Claims Review process.

   o	 Conducts Plan training on how OBRA '90 claims should be submitted to the
      Operations Center for adjudication. Training was completed at the 2009 Micro
      Regional Meetings (training sessions conducted by the Operations Center with
      small groups of Plans in three different locations throughout the country), the
      FEP Annual Operations and FEP Information System Meetings held during 2009.
      Additional training is targeted for 2010 that include meetings, correspondence
      and Webinar Sessions.
September 19, 2011
Page40f6


   o	 Modified the FEP Claims System OBRA '90 mainframe software to accept claims
      for all years that the data is retained by CMS instead of three years after the
      claims were incurred.

   o	 In 2011, FEP implemented an edit that will prevent claims from by-passing the
      OBRA '90 Pricer, regardless of the Process Code used to adjudicate the claims.

3. Omnibus Budget Reconciliation Act of 1993 Review	                         $100,932

The Plan disagrees that $2,349 should have been subject to OBRA '93 pricing because
Palmetto, the FEP OBRA '93 Vendor, did not apply Medicare pricing to these claim
lines. However, the Plan agrees that claim payments totaling $107,553 should have
been subject to OBRA'93.         Refunds have been initiated for the confirmed
overpayments. As of August 15, 2011, the Plan has recovered and returned $31,224 to
the Program. Also, the Plan has issued additional payments to the providers for the
confirmed $8,970 in underpayments.

To enhance OBRA '93 claims pricing accuracy the FEP Director's Office has taken the
following action:

   o	 The FEP Director's Office is currently working with Palmetto to ensure that all
      applicable FEP claims are priced in accordance with Medicare pricing
      requirements.

   o	 Established a chain of communication between the FEP Operations Center and
      Palmetto in an effort to improve the pricing process.

   o	 Started including claims that were not OBRA '93 priced (Claims with the
      information Code OFMA) in the quarterly System-Wide Claims Review process.
      These claims were included on the quarterly report starting during the 4th Quarter
      2010 and will continue to be included until it is determined that this is no longer a
      pricing issue.

   o	 Conducted Plan trainings on how OBRA '93 claims should be to coded and
      submitted to the Operations Center. The first training was held at the FEP 2010
      System Information Meeting in October 2010. Future trainings will be held via
      Webinars, and Plan meetings, visits and correspondence.

   o	 FEP is currently evaluating its OBRA '93 system edits to determine whether there
      are changes that can be made to further promote the accuracy of the claims
      selection that are sent to Palmetto for pricing. System enhancements in
      FEPExpress are scheduled to be implemented with the 2011 System Release 4
      that will have an effective date of January 1, 2012.
September 19,2011
Page 5 of6



   o	 Started including claims that were not OBRA '93 priced (Claims with the
      information Code OFMA) in the quarterly System-Wide Claims Review process.
      These claims were included on the quarterly report starting during the 4th Quarter
      2010 and will continue to be included until it is determined that this is no longer a
      pricing issue.

4.	 System and Discount Review                                                    $22,456

The Plan disagrees that claims payments totaling $3,476 were incorrectly paid.
Documentation to support the Plan's position for this finding has been submitted to the
auditors for review. However, the Plan does agree that $18,980 of the questioned
claims may have been over paid. These claims payments were caused by manual and
local system errors. Recoveries have been initiated on the confirmed overpayments.
As of August 15, 2011, the Plan has recovered and returned $18,980 to the Program.

These overpayments were caused by manual pricing errors. The Plan has taken the
following actions to minimize these types of errors in the future:

     o	 A report noting the nature of the errors identified in this finding was sent to all
        Team Leads and Management in the FEP Department to review with the claims
        examiners.
     o	 Coaching clinics was conducted by the Team Leads with each of Claims
        Professionals that had an error identified in the report.
     o	 These confirmed errors will also be used as training tools during future re­
        fresher training for the claims staff.

5.	 Non-Participating Professional Provider Claims                                  ($105)

   The Plan does not contest that $798 for one claim payment resulted in an
   overpayment. Recovery efforts have been initiated to recover this overpayment.
   Also, the Plan has issued additional payments to providers for the confirmed $903
   underpayments for two claims.

   These claim payment errors were caused by manual pricing errors. The Plan has
   taken the following actions to minimize these types of errors in the future:

    o	 A report noting the nature of the errors identified in this finding was sent to all
       Team Leads and Management in the FEP Department to review with the claims
       examiners.
September 19, 2011
Page 6 of6


        o	 Coaching clinics will be conducted by the Team Leads with each of Claims
           Professionals that had an error identified in the report.
        o	 These confirmed errors will also be used as training tools during future re­
           fresher training for the claims staff.

6.	 Continuous Stay Claims                                                          {$2,8291

The Plan agrees with this finding. These payment errors were caused by manual
coding errors. As of August 15, 2011, the Plan had recovered and returned to the
Program $20,476 and issued the additional payments to the providers for the confirmed
$23,305 in undercharges.

The Plan will take the following actions to minimize these types of errors in the future:

      o	 Conducted re-fresher training in those areas where these manual payment errors
         occurred. Special emphasis was placed on the correct pricing procedures for
         interim facility billings and the impact on the pricing requirements for the entire
         admission;

      o	 Reviewed the current SOP to ensure that the procedures included the conduction
         of research for the deferrals related to this admission type prior to the completion
         of the resolution process; and

      o	 Updated procedures for the manual pricing of these claims.

The FEP Director's Office also includes these claim types in its System-wide Review
process.

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




Executive Director
Program Integrity

cc:                   ,FEP
                      FEP
                      FEP