oversight

Audit of Capital BlueCross Harrisburg, Pennsylvania

Published by the Office of Personnel Management, Office of Inspector General on 2009-02-05.

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

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                          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


                                            Capital BlueCross

                                              Plan Code 361

                                         Harrisburg, Pennsylvania





                        REPORT NO. IA-IO-36-08-043          DATE:February 5, 2009




                                                             Michael R. Esser
                                                             Assistant Inspector General
                                                               for Audits




                     ~~-""-'--'--------------------..,.------------
        www.opm.gov                                                                        www.uslllobs.gov
                            UNITED STAT.ES 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


                                              Capital BlueCross

                                                Plan Code 361

                                           Harrisburg, Pennsylvania





                          REPORT NO. IA-IO-36-08-043          DATE: February 5. 2009

     This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
     Capital BlueCross (Plan) in Harrisburg, Pennsylvania questions $24,259 in health benefit charges.
     The BlueCross BlueShield Association (Association) agreed (A) with $12,160 and disagreed (D)
     with $12,099 ofthe questioned charges.

     Our limited scope audit was conducted in accordance with Government Auditing Standards. The
     audit covered claim payments from 2005 through 2007 as reported in the Annual Accounting
     Statements.

     Questioned health benefit charges are summarized as follows:

     e     Omnibus Budget Reconciliation Act of 1990 Review                                        $19,700

           The Plan incorrectly paid two claims, resulting in overcharges of$19,700 to the FEHBP. The
           Association agreed with $12,160 (A) and disagreed with $7,540 (D) of the questioned charges.

     •     Claim Payment Errors (D)                                                                $4,559

           The Plan incorrectly paid six claims, resulting in overcharges of$4,559 to the FEHBP.




         wlI/w.oprn.gov                                                                      www.usajobs.gov
                                       CONTENTS

                                                                                 PAGE

       EXECUTIVE SUMMARY	                                                   ,           i


 I.    INTRODUCTION AND BACKGROUND "                 ,	                             ,.1

II.    OBJECTIVES, SCOPE, AND METHODOLOGY	                                              3


III.   AUDIT FINDINGS AND RECOMMENDATIONS                            ,	                 5


       A.   HEALTH BENEFIT CHARGES	                                                     5


            1.   Omnibus Budget Reconciliation Act of 1990 Review	                      5


            2. .Claim Payment Errors                      ,	                            8


IV.    MAJOR CONTRIBUTORS TO THIS REPORT	                                           ll

 V.    SCHEDULE A -HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED

       APPENDIX	 (BlueCross BlueShield Association reply, dated December 15, 2008, to
                 the draft audit report)
                         I. INTROnUCTION AND BACKGROUND


INTRODUCTION


This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
Capital BIueCross (Plan). The Plan is located in Harrisburg, Pennsylvania.

The audit was performed by the Office of Personnel Management's (OPM) Office ofthe 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 Center for Retirement and
Insurance Services has overall responsibility for administration ofthe 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 (Flil") 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 ofFEHBP 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.



                                                          I

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.

All findings from our previous audit ofthe Plan (Report No. lA-1O-36-02-031. dated
November 25,2002) for contract years 1998 through 2000 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 October 3. 2008. 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

                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 361 for contract years 2005 through 2007. Duringthis period, the Plan paid
approximately $244 million in health benefit charges (See Schedule A). Specifically, we
reviewed approximately $9 million in claim payments made froni. 2005 through 2007 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. Due to time constraints, we did not verify the reliability of the data generated



                                                 3

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 Harrisburg, Pennsylvania from August 13
through. August 15, 2008. Audit fieldwork was also performed at our office in Cranberry
Township, Pennsylvania.

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 403 claims? 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 "Omnibus Budget Reconciliation Act of 1990 Review" (AI) and "Claim Payment Errors"
(A2) on pages 5 through 10 for specific details of our sample selection methodologies.



                                                      4

            III. AUDIT FINDINGS AND RECOMMENDATIONS


A. HEALTH BENEFIT CHARGES


  1. Omnibus Budget Reconciliation Act of 1990 Review                                     $19,700

     The Plan incorrectly paid two claims, resulting in overcharges of $19,700 to the FEHBP.

     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 diligent effort to recover an
     overpayment ...."

     The 2007 BlueCross and BlueShield (BCBS) Service Benefit Plan brochure, section 10,
     states, "Our allowance ... is the negotiated amount that Preferred providers ... have
     agreed to accept as payment in full ...."

     The Omnibus Budget Reconciliation Act of 1990 (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.

     Using a program developed by the centers for Medicare and Medicaid Services 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.

     The following summarizes the claim payment errors.

     Claims Not Priced Under OBRA 90 (Possible OBRA 90 Claims)

     For the period 2005 through 2007, we identified 1,288 claims, totaling $463,018 in
     payments, that were potentially subject to OBRA 90 pricing guidelines but appeared to be
     priced under the Plan's standard pricing procedures. From this universe, we selected and
     reviewed ajudgmental sample of24 claims, totaling $238,592 in payments, to determine
     if the Plan paid these claims properly. Our sample included all possible OBRA 90 claims
     with amounts paid of $5,000 or more.

     Based on our review, we determined that one claim was not subject to OBRA 90 pricing
     but contained a Plan pricing error, resulting in an overcharge of$17,620 to the FEHBP.
     The error was due to an examiner oversight causing the claim to be priced at billed
     charges rather than the applicable per diem amount.




                                               5

OBRA 90 Claims

For the period 2005 through 2007, we identified 1,303 claims, totaling $10,467,115 in
payments, that were subject to OBRA 90 pricing guidelines. From this universe, we
selected and reviewed a judgmental sample of 121 claims, totaling $3,128,911 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 $15,000 or more.

Based on our review, we determined that one claim was not subject to OBRA 90 pricing
but contained a pricing variance, resulting in an overcharge of $2,080 to the FEHBP.
This overcharge was due to the Plan pricing a claim, which was incurred in 2005, with a
2006 per diem rate of $1,541 rather than the 2005 per diem rate of $1,476. Refer to audit
finding A2 of this report for additional details regarding this Plan pricing issue.

Associa lion's Response:

The Association agrees with $12,160 and disagrees with $7,540. The Association states
that these payments were good faith erroneous benefit payments and fall within the
context of CS 1039, Part II, section 2.3(g). Any payments the Plan is unable to recover
are allowable charges to the FEHBP.. As good faith erroneous payments, lost investment
income does not apply to the claim payment errors identified in this finding.

For the claim overpayment questioned under the "Claims Not Priced Under OBRA 90"
review, the Association agrees with $12,160 and disagrees with $5,460. The Association
states that the repricing of the claim showed an overpayment amount of$12,160 instead
of the questioned amount of$17,620. For the claim overpayment questioned under the
"OBRA 90 Claim" review, the Association disagrees with the entire questioned amount
of $2,080.

In reference to the total contested amount, the Association states, "Claims were priced
properly based on the setup and configuration of the Legacy system, which had been used
by Capital Blue Cross (CBC) to pay facility claims for over 20 years .... Within the
Legacy system, pricing is based on either a 'claims priced on or after' or 'admissions on
or after' basis. Facilities using interim percentage rate arrangements will use a 'claims
priced on or after' rate screen and providers using contract rates will reflect an
'admissions on or after' rate screen. For claims processed using 'admissions on or after'
rates, the pricing is dependent on both the admission date and the pricing/paid date. With
this screen there is a 60-day or '2-month' run out for the processing of claims incurred in
the previous period, but not paid until the next period. If a prior period claim is processed
after the run out period, the claim is processed at the current year rate. Providers are
aware of and accept this pricing methodology."




                                          6

The Association also states, "Further validation of the effectiveness of the Plan's system
of internal controls over the process is evidenced by a low volume of errors (lout of 355
or .3%) identified during this audit. Because the error was due to examiner oversight,
follow up training and counseling will be provided.

In addition, the Plan has several methods in place to identify overpayments. These
methods include, but are not limited to the System Wide Claims Reports; COB claims
reports and Duplicate claims reports provided by the FEP Director's Office and routine
claims quality assurance audits performed by the Plan's Internal Auditors. While these
measures are not absolute, they provide reasonable assurances that such items will be
identified. Efforts will be made to periodically examine existing procedures and add
additional controls where necessary."

OIG Comments:

For the claim overpayment questioned under our "Claims Not Priced Under OBRA 90"
review, we will continue to question $17,620. Our overpayment amount is different from
the Plan's overpayment amount because the Plan repriced the claim, which was incurred
in 2003, with a 2007 per diem rate of $1 ,050 rather than the applicable 2003 per diem rate
of $630.

For the claim overpayment questioned under our "OBRA 90 Claims" review, we will
continue to question $2,080. As we previously stated, this overpayment resulted from the
Plan pricing a claim, which was incurred in 2005, with a 2006 per diem rate of$I,541
rather than the applicable 2005 per diem rate of$I,476.

We will continue to question the above claim overpayments using the effective contract
rates as stated within the provider agreements. Furthermore, when providers negotiate
new contract period rates that are greater than prior contract period rates, the FEHBP and
its subscribers are adversely affected by the "two-month run out". Based on our
experience with auditing other BCBS plans, we have found that this "two-month run out"
is not common practice.

Also, as previously cited, the 2007 benefit plan brochure states that the Plan allowance is
the negotiated amount that prefered providers have agreed to accept as payment, The
Plan's provider agreements do not address a "two-month run out" for prior period
contract rates. Therefore, when claims with dates of service for a prior contract period
are priced with the new contract period's rates, the Plan's allowances do not reflect the
negotiated amounts stated within the provider agreements.

Recommendation 1

We recommend that the contracting officer disallow $19,700 in claim overcharges, and
verify that the Plan returns all amounts recovered to the FEHBP.




                                         7

    2. Claim Payment Errors                                                                              $4,559

        The Plan incorrectly paid six claims, resulting in overcharges of $4,559 to the FEHBP.

        As previously cited from CS 1039, costs charged to the FEHBP must be actual,
        allowable, allocable, and reasonable. If errors are identified, the Plan is required to make
        a diligent effort to recover the overpayments. Also, the 2007 BeBS Service Benefit Plan
        brochure states that the Plan allowance is the negotiated amount that preferred providers
        have agreed to accept as payment in full.

        The following summarizes the claim payment errors.

        System Review

        For health benefit claims reimbursed during the period January 1, 2007 through
        December 31, 2007, we identified 463,376 claim lines, totaling $82,547,157 in payments,
        using a standard criteria based on our audit experience. From this universe, we selected
        and reviewed a judgmental sample of 100 claims (representing 1,637 claim lines),
        totaling $4,384,891 in payments, to determine if the Plan adjudicated these claims
        properly.' Based on our review, we determined that one claim was paid incorrectly,
        resulting in an overcharge of$2,312 to the FEHBP. This overcharge was due to the Plan
        pricing a claim, which was incurred in 2006, with a 2007 per diem rate of $1,609 rather
        than the 2006 per diem rate of $1,541.

         Both rates were correctly loaded into the Plan's Legacy claims processing system;
         however, the Plan programmed its claims system to exercise a "two-month run out"
         period for contract rates. Specifically, when new contract rates were entered into the
         Legacy system, the old contract rates would only be used to price claims for an additional
       . two months after the contract rates were tenninated. After the two months, a claim with
         dates of service for the prior contract period would be priced with the new contract
         period's rates. The Plan utilized this approach with all providers that were reimbursed
         based on admission dates rather than process date.

        Because the Plan's Legacy claims processing system incorrectly applied a "two-month
        run out" for contract rates, we requested that the Plan identify all claims that were
        potentially associated with this "two-month run out" issue, and determine if the claims
        were priced and paid according to provider contract rates effective for each claim's
        admission date. Due to the voluminous claims data, the Plan submitted a listing of its top
        10 FEP providers. From this listing, we selected the top two providers, Pinnacle and
        Reading Hospitals, for review.



3 We selected our sample from an DIG-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.



                                                        8

We selected and reviewed an additional sample of 48 claims, totaling $534,384 in
payments, to determine if the Plan paid these claims properly. Our sample included all
claims with amounts paid of$1 ,000 or more. Based on our review, we determined that
five of these claims were paid incorrectly, resulting in additional overcharges of $2,247 to
the FEHBP. These overcharges were due to the Plan programming its claims system to
exercise a "two-month run out" period for contract rates.

On June 1, 2008, the Plan changed its claims system to Facets, which does not apply the
"two-month run out" period for contract rates. Therefore, this issue will not affect future
FEHBP claims.

Amounts Paid Greater than Covered Charges

For the period 2005 through 2007, we identified 1,908 claims where the amounts paid
were greater than the covered charges by a total of $725,825. From this universe, we
selected and reviewed a judgmental sample of 110 claims with a total variance of
$484,739, and determined if the Plan paid these claims properly. Our sample included all
claims where the amounts paid exceeded covered charges by $2,000 or more. We
identified immaterial claim payment errors, which are not being questioned.

Association's Response:

The Association disagrees with this finding.

In response to the questioned amount of $2,312 in the draft report, the Association states,
"The claim was priced properly based on the setup and configuration of the Legacy
system, which had been used by Capital Blue Cross (CBC) to pay facility claims for over
20 years.... Within the Legacy system, pricing is based on either a 'claims priced on or
after' or 'admissions on or after'basis. Facilities using interim percentage rate
arrangements will use a 'claims priced on or after' rate screen and providers using
contract rates will reflect an 'admissions on or after' rate screen. For claims processed
using <admissions on or after' rates, the pricing is dependent on both the admission date
and the pricing/paid date. With this screen there is a 60-day or '2-month' run out for the
processing of claims incurred in the previous period, but not paid until the next period. If
a prior period claim is processed after the run out period, the claim is processed at the
current year rate. Providers are aware ofand accept this pricing methodology."

In response to the expanded sample, the Association states, "The result of the expanded
review continues to support the Plans method of claims payment. . . For claims
processed using 'admissions on or after' rates, the pricing is dependent on both the
admission date and the pricing/paid date. With this screen there is a 60-day or '2-month'
run out for the processing of claims incurred in the previous period, but not paid until the
next period. If a prior period claim is processed after the run out period, the claim is
processed at the current year rate. Providers are aware of and accepted this pricing
methodology." .



                                          9

OIG Comments:

We.will continue to question the overcharge of $2,312 from the draft report, as well as
the overcharges of $2,247 identified in the expanded sample. Also, we will continue to
use the effective contract rates, as stated within the provider agreements, as the basis for
determing these overcharges. Furthermore, when providers negotiate new contract period
rates that are greater than the prior contract period rates, the FEHBP and its subscribers
are adversely affected by the "two-month run out" period. Based on our experience with
auditing other BeaS plans, we have found that this "two-month run out" period is not
common practice.

Also, as previously cited, the 2007 benefit brochure states that the Plan allowance is the
negotiated amourit that preferred providers have agreed to accept as payment. The Plan's
provider agreements do not mention a "two-month run out" for prior period contract rates.
Therefore, when claims with dates of service for a prior contract period are priced with
the new contract period's rates, the Plan's allowances do not reflect the negotiated
amounts stated within the provider agreements.

Recommendation 2

We recommend that the contracting officer disallow $4,559 in claim overcharges, and
verify that the Plan returns all amounts recovered to the FEHBP.




                                         10

               IV. MAJOR CONTRIBUTORS TO THIS REPORT


;Experience-Rated Audits Group

               Auditor-In-Charge

              Auditor


                    Chief

              , Senior Team Leader




                                     11

                                     ,   .
                                             v.   SCHEDULE A

                                        CAPITAL BLUECROSS
                                     HARRISBURG, PENNSYLVANIA

                          HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED


HEALTH BENEFIT CHARGES                                           2005          2006          2007         TOTAL

  PLAN CODE 361                                               $69,116,336    $79,344,737   $94,285,626   $242,746,699
  MISCELLANEOUS PAYMENTS                                         (265,081)       194,440     1,105,537      1,034,896

  TOTAL HEALTH BENEFIT CHARGES                            I   $68,851,255    $79,539,177   $95,391,163   $243,781,595 •



AMOUNTS QUESTIONED                                               2005           2006         2007         TOTAL


1. OMNIBUS BUDGET RECONCILIATION ACT OF 1990 REVIEW                     $0        $2,080      $17,620        $19,700
2. CLAIM PAYMENT ERRORS                                                  0         1,777        2,782          4,559

 TOTAL AMOUNTS QUESTIONED                                 I             $0        $3,857      $20,402        $24,259 II
                 ,
                                                                                                APPENDIX





December 3, 2008                              (Revised 12/15/08)
                                                                      ••
                                                                       BhleCross BlueShield
                                                                       Association
                                                                       An A.ssoci.,tioll of JnrJt~pendl.!n{
                                                                       BIlJe Cross and Blue Shield Plans


• • • • • • Group Chief
Experience-Rated Audits Group·
                                                                       Federal Employee Program
Office of the Inspector General                                        1510 G Street, N.W.
U.S. Office of Personnel Management                                    Washington. D.C. 20005
1900 E Street, Room 6400                                               202.942.1000
Washington, DC 20415~11 00                                             Fax 202.942.1125


Reference:         OPM DRAFT AUDIT REPORT
                   Capital Blue Cross
                   Audit Report Number 1A-10-53-08-045
                   (Dated and received October 3, 2008)



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) operations for Capital Blue Cross. Our comments
concerning the findings in the report are as follows:

B. HEALTH BENEFIT CHARGES

1. Omnibus Budget Reconciliation Act of 1990                     $19.700

   The Plan contests $7,540 of questioned costs but does not contest that
   $12,160 may have been paid in error. One claim (Claim Sample # 24), in the
   amount of $17,620 was questioned as a possible OBRA '90 claim payment
   error. The Plan agrees that the claim was paid in error but does not agree
   with the amount questioned. The re-priclnq of the claim showed an
   overpayment amount of $12.160 instead of the OPM questioned amount of
   $17,620. Therefore, the Plan agrees that $12,160 of this claim was overpaid
   but contests the remaining balance of $5,460. The Plan stated that the claim
   overpayment was caused by a manual error. Additionally, the Plan contests
   the entire $2.080 for Claim Sample Number 25 from the OBRA '90 Claims
   Pricing Errors listing.

   In reference to the total contested amount, the Plan stated that. "Claims were
   priced properly based on the setup and configuration of the Legacy system,
   which had been used by Capital Blue Cross (CSC) to pay facility claims for
   over 20 years." The Plan further stated that. "Within the Legacy system,
   pricing is based on either a 'claims priced on or after' or 'admissions on or
                  Group Chief
OPM Draft Audit Response
December 3, 2008
Page 2

   after' basis. Facilities using interim percentage rate arrangements will use a
   'claims priced on or after' rate screen and providers using contract rates will
   reflect an 'admissions on or after' rate screen. For claims processed using
   'admissions on or after' rates, the pricing is dependent on both the admission
   date and the pricing/paid date. With this screen there is a 60-day or '2­
   month' run out for the processing of claims incurred in the previous period,
   but not paid until the next period. If a prior period claim is processed after the
   run out period, the claim is processed at the current year rate. Providers are
   aware of and accept this pricing methodology."

   Further validation of the effectiveness of the Plan's system of internal controls
   over the process is evidenced by a low volume of errors (1 out of 355 or .3%)
   identified during this audit. Because the error was due to examiner oversight,
   follow up training and counseling will be provided.

   In addition, the Plan has several methods in place to identify overpayments.
   These methods include, but are not limited to the System Wide Claims
   Reports: COB claims reports and Duplicate claims reports provided by the
   FEP Director's Office and routine claims quality assurance audits performed
   by the Plan's Internal Auditors. While these measures are not absolute, they
   provide reasonable assurances that such items wifl be identified. Efforts wifl
   be made to periodically examine existing procedures and add additional
   controls where necessary. Accordingly, to the extent that errors did occur,
   the payments are good faith erroneous benefits payments and fall within the
   context of CS 1039, Section 2.3(g). Any benefit payments the Plan is unable
   to recover are allowable charges to the Program. In addition, as good faith
  .erroneous payments, lost investment income does not apply to the payments
   identified in this finding.

2. System Review                                                        $2.312

   The Plan contests the entire amount of Claim Sample # 94 in the amount of
   $2,312. The Plan stated that, "The claim was priced properly based on the
   setup and configuration of the Legacy system, which had been used by
   Capital Blue Cross (CaC) to pay facility claims for over 20 years." The Plan
   further stated that, "Within the Legacy system, pricing is based on either a
   'claims priced on or after' or 'admissions on or after' basis. Facilities using
   interim percentage rate arrangements will lise a 'claims priced on or after'
   rate screen and providers using contract rates will reflect an 'admissions on or
   after' rate screen. For claims processed using 'admissions on or after' rates,
   the pricing is dependent on both the admission date and the pricing/paid date.
   With this screen there is a 60-day or '2-month' run out for the processtnq of
   claims incurred in the previous period, but not paid until the next period. If a
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                      Group Chief



                                                                                      I
aPM Draft Audit Response
December 3, 2008
Page 3

   prior period claim is processed after the run out period, the.c1aim is processed
   at the current year rate. Providers are aware of and accept this pricing
   methodology."

   Expanded System Review

   The Plan was instructed to identify all claims paid from January 1, 2005
   through May31, 2008 that were potentially associated with the "two-month
   run out" issue and determine if the claims were priced and paid according to
   provider contract rates effective for each claim's admission date. The result
   of the expanded review continues to support the Plans method of claims
   payment (Attachment A). For claims processed using 'admissions on or after'
   rates, the pricing is dependent on both the admission date and the
   pricing/paid date. With this screen there is a 50-day or '2-month' run out for
   the processing of claims incurred in the previous period, but not paid until the
   next period. If a prior period claim is processed after the run out period, the
   claim is processed at the current year rate. Providers are aware of and
   accept this pricing methodology."

We appreciate the opportunity to provide our response to each of the findings
and request that our comments be included in their entirety as part of the Final
Audit Report.




 Executive Director
 Program Integrity



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