Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of Florida Blue Jacksonville, Florida

Audit of Florida Blue Jacksonville, Florida

Published by the Office of Personnel Management, Office of Inspector General on 2013-09-10.

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
FLORIDA BLUE
JACKSONVILLE, FLORIDA

Report No. 1A-10-41-12-050

September 10, 2013
Date:

--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 that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, 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.
AUDIT REPORT

Federal Employees Health Benefits Program
Service Benefit Plan Contract CS 1039
BlueCross BlueShield Association
Plan Code 10

Florida Blue
Plan Codes 90/590
Jacksonville, Florida

REPORT NO. 1A-10-41-12-050 September 10, 2013
DATE: ______________

______________________
Michael R. Esser
Assistant Inspector General
for Audits

Federal Employees Health Benefits Program
Service Benefit Plan Contract CS 1039
BlueCross BlueShield Association
Plan Code 10

Florida Blue
Plan Codes 90/590
Jacksonville, Florida

REPORT NO. 1A-10-41-12-050 September 10,2013
DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at Florida Blue (Plan), located in Jacksonville, Florida, questions $1,768,338 in health benefit
charges and administrative expenses. The report also includes a procedural finding regarding the
Plan’s Fraud and Abuse (F&A) Program. The BlueCross BlueShield Association (Association)
agreed (A) with $383,983 and disagreed (D) with $1,384,355 of the questioned charges, and
generally disagreed (D) with the procedural finding regarding the Plan’s F&A Program.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered miscellaneous health benefit payments and credits from 2010 through February 29,
2012, as well as administrative expenses from 2009 through 2011 as reported in the Annual
Accounting Statements. In addition, we reviewed the Plan’s cash management activities and
practices related to FEHBP funds and the Plan’s F&A Program from 2010 through February 29,
2012.

The audit results are summarized as follows:

i
MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS
• Health Benefit Refunds and Recoveries (A) $70,787

In three instances, the Plan had not returned health benefit refunds, totaling $264,900, to the
FEHBP. The Plan also inadvertently returned two health benefit refunds, totaling $158,693,
and one subrogation recovery, totaling $35,420, to the FEHBP twice. As a result of this
finding, the Plan returned $70,787 (net) to the FEHBP for the questioned health benefit
refunds and subrogation recovery.

ADMINISTRATIVE EXPENSES
• Post-Retirement Benefit Costs $1,623,435

The Plan overcharged the FEHBP $1,623,435 for post-retirement benefit costs from 2009
through 2011. The Association agreed with $239,080 (A) and disagreed with $1,384,355 (D)
of the questioned charges.

• Unallowable and/ or Unallocable Expenses (A) $74,116

The Plan charged the FEHBP $74,116 for unallowable and/or unallocable administrative
expenses in 2009.

CASH MANAGEMENT
Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract
CS 1039 and applicable laws and regulations, except for the audit findings pertaining to cash
management noted in the “Miscellaneous Health Benefit Payments and Credits” section.

FRAUD AND ABUSE PROGRAM
• Special Investigations Unit (D) Procedural

The Plan’s Special Investigations Unit is not in compliance with contract CS 1039, the
FEHBP Carrier Letters issued by the Office of Personnel Management (OPM), and guidance
provided by the Association’s Federal Employee Program Director’s Office, which are
related to F&A Programs and notifying OPM’s Office of the Inspector General of fraud and
abuse cases in the FEHBP. As a result of the Plan’s non-compliance, fraud and abuse may
go undetected and unreported within the FEHBP, and the overall effectiveness of the Plan’s
F&A Program cannot be accurately measured.

ii
CONTENTS
PAGE

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

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

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

III. AUDIT FINDINGS AND RECOMMENDATIONS .......................................................6

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........6

1. Health Benefit Refunds and Recoveries ............................................................6

B. ADMINISTRATIVE EXPENSES ..........................................................................8

1. Post-Retirement Benefit Costs ...........................................................................8
2. Unallowable and/or Unallocable Expenses .....................................................10

C. CASH MANAGEMENT ......................................................................................12

D. FRAUD AND ABUSE PROGRAM ....................................................................12

1. Special Investigations Unit ..............................................................................12

IV. MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................29
V. SCHEDULES

A. CONTRACT CHARGES
B. QUESTIONED CHARGES
APPENDIX (BlueCross BlueShield Association response, dated April 16, 2013, to
the draft audit report)
I. INTRODUCTION 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
Florida Blue (Plan). The Plan is located in Jacksonville, Florida.

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 64 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-10-41-10-012, dated May 12,
2011) for contract years 2006 through 2009 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 March 1, 2013. The Association’s comments offered
in response to this 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 as follows:

Miscellaneous Health Benefit Payments and Credits

• To determine whether miscellaneous payments charged to the FEHBP were in
compliance with the terms of the contract.

• To determine whether credits and miscellaneous income relating to FEHBP benefit
payments were returned promptly to the FEHBP.

Administrative Expenses

• To determine whether administrative expenses charged to the contract were actual,
allowable, necessary, and reasonable expenses incurred in accordance with the terms
of the contract and applicable regulations.

Cash Management

• To determine whether the Plan handled FEHBP funds in accordance with applicable
laws and regulations concerning cash management in the FEHBP.

Fraud and Abuse Program

• To determine if the Plan operates an effective Fraud and Abuse (F&A) Program for
the prevention, detection, and/or recovery of fraudulent claims as required by the
FEHBP contract.

SCOPE

We conducted our limited scope performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 90 and 590 for contract years 2009 through 2012. During this period, the
Plan paid approximately $3.6 billion in health benefit charges and $168 million in administrative
expenses (See Figure 1 and Schedule A).

3
Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refi.mds,
subrogation recoveries, provider audit recoveries, medical dmg rebates and fraud recoveries),
cash management activities, and the Plan's F&A Program for 2010 through Febmmy 29, 2012.
We also reviewed administrative expenses for 2009 through 2011 .

fu plmming and conducting our audit, we
obtained an understanding of the Plan' s Florida Blue
intemal control stmcture to help dete1mine Contract Charges

the nature, timing, and extent of our
auditing procedures. This was dete1mined
to be the m ost effective approach to select $ 1,200 +----...11--------11~,._----r
areas of audit. For those m·eas selected, we
$900
primm·ily relied on substantive tests of
transactions and not tests of controls. $600
Based on our testing, we did not identify
any significant matters involving the Plan 's
intem al control stm cture and its operations. 2009 2010 2011
However, since our audit would not
Contract Years
necessarily disclose all significant matters
in the intem al control stm cture, we do not
a Health Benefit Payments •Administrative Expenses
express an opinion on the Plan's system of
intem al controls taken as a whole.
Figure 1 - Contract Chm·ges

We also conducted tests to dete1mine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e. , Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefi ts Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations goveming 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 f01ih in detail in the "Audit Findings
and Recommendations" section of this audit rep01i. 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.

fu conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director 's Office and the Plan. Due to time constraints, we did not verify the reliability
of the data generated by the various inf01mation 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 perf01med at the Plan's office in Jacksonville, Florida from October 1, 2012
through December 12, 20 12 . Audit fieldwork was also perf01med at our offices in Jacksonville,
Florida; Cranben y Township, Pennsylvania; and Washington, D .C.

METHODOLOGY

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

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. We also
judgmentally selected and reviewed 156 health benefit refunds and adjustments, totaling
$10,698,037 (from a universe of 188,010 refunds and adjustments, totaling $73,730,038); 106
provider audit recoveries, totaling $8,097,048 (from a universe of 16,266 recoveries, totaling
$27,642,826); 28 subrogation recoveries, totaling $1,517,543 (from a universe of 1,448
recoveries, totaling $5,717,387); 25 fraud recoveries, totaling $25,106, (from a universe of 70
recoveries, totaling $31,100); 19 special plan invoices (SPI), totaling $3,766,059 in net FEP
credits (from a universe of 349 SPI’s, totaling $6,192,412 in net FEP credits); and all FEP drug
rebate amounts, totaling $196,404, to determine if refunds and recoveries were promptly
returned to the FEHBP and if miscellaneous payments were properly charged to the FEHBP. 2
The results of these samples were not projected to the universe of miscellaneous health benefit
payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2009 through 2011. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement,
employee health benefits, executive compensation, non-recurring projects, gains and losses,
intercompany profits, and the Health Insurance Portability and Accountability Act of 1996. We
used the FEHBP contract, the FAR, and the FEHBAR to determine the allowability, allocability,
and reasonableness of charges.

We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 1039 and applicable laws and regulations.
We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
F&A Program, as well as reviewed case recoveries to test compliance with Contract CS 1039
and the FEHBP Carrier Letters.

2
The sample of health benefit refunds and adjustments included the following: 81 refunds, totaling $10,795,935,
representing all refunds of $75,000 or more; 60 randomly selected refunds, totaling $427,147, from the stratification
of $74,999.99 or less; and 15 adjustments, totaling $525,045 in reductions to the refund universe, representing the
five highest dollar adjustments from each year in the audit scope. The sample of provider audit recoveries included
the following: 66 recoveries, totaling $7,176,155, representing all recoveries of $50,000 or more; 20 randomly
selected recoveries, totaling $738,837, from the stratification of $25,000 to $49,999.99; and 20 randomly selected
recoveries, totaling $182,056, from the stratification of $5,000 to $24,999.99. For subrogation recoveries, the
sample consisted of all recoveries of $30,000 or more. For fraud recoveries, the sample consisted of all recoveries
of $300 or more. For the SPI sample, we judgmentally selected 8 SPI’s with miscellaneous FEP payments, totaling
$1,799,022, and 11 SPI’s with miscellaneous FEP credits, totaling $5,565,081.

5
III. AUDIT FINDINGS AND RECOMMENDATIONS
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

1. Health Benefit Refunds and Recoveries $70,787

In three instances, the Plan had not returned health benefit refunds, totaling $264,900, to
the FEHBP. The Plan also inadvertently returned two health benefit refunds, totaling
$158,693, and one subrogation recovery, totaling $35,420, to the FEHBP twice. As a
result of this finding, the Plan returned $70,787 (net) to the FEHBP for the questioned
health benefit refunds and subrogation recovery.

48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or
other credit relating to any allowable cost and received by or accruing to the contractor
shall be credited to the Government either as a cost reduction or by cash refund.”

Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and
recoveries, including erroneous payment recoveries, must be deposited into the working
capital or investment account within 30 days and returned to or accounted for in the
FEHBP letter of credit account within 60 days after receipt by the Carrier.” Also, based
on an agreement between OPM and the Association, dated March 26, 1999, BlueCross
and BlueShield plans have 30 days to return health benefit refunds and recoveries to the
FEHBP before lost investment income (LII) will commence to be assessed.

Health Benefit Refunds and Adjustments

For the period January 1, 2010 through February 29, 2012, there were 188,010 health
benefit refunds and adjustments, totaling $73,730,038. From this universe, we selected
and reviewed a judgmental sample of 156 health benefit refunds and adjustments, totaling
$10,698,037, for the purpose of determining if the Plan promptly returned these funds to
the FEHBP. Our sample consisted of the following: 81 refunds, totaling $10,795,935,
representing all refunds of $75,000 or more; 60 randomly selected refunds, totaling
$427,147, from the stratification of $74,999.99 or less; and 15 adjustments, totaling
$525,045 in reductions to the refund universe, representing the Plan’s five highest dollar
adjustments from each year in the audit scope. These adjustments to the refund universe
were for refunds that the Plan stated were returned as a result of the prior OIG audit, and
therefore, should not be included in the “current” universe.

Based on our review, we identified the following exceptions:

• The Plan had not returned three health benefit refunds, totaling $264,900, to the
FEHBP.

• The Plan inadvertently returned two health benefit refunds, totaling $158,693, to the
FEHBP twice.

6
In total, we are questioning $106,207 ($264,900 minus $158,693) for health benefit
refunds not returned to the FEHBP. We did not question LII on these funds since the
estimated LII amount is considered immaterial. Additionally, the Plan makes a cash
advance to the FEHBP letter of credit account (LOCA), which also covers the untimely
return of health benefit refunds to the FEHBP.

Subrogation Recoveries

For the period January 1, 2010 through February 29, 2012, there were 1,448 subrogation
recoveries totaling $5,717,387. From this universe, we selected and reviewed a
judgmental sample of 28 subrogation recoveries, totaling $1,517,543, for the purpose of
determining if the Plan promptly returned these recoveries to the FEHBP. Our sample
included all subrogation recoveries of $30,000 or more.

Based on our review, we identified the following exceptions in our sample:

• The Plan returned 22 subrogation recoveries, totaling $727,689, to the LOCA during
the audit scope, but deposited these funds untimely into the FEP investment account.
Specifically, these recoveries were deposited into the FEP investment account from 3
to 211 days late. However, we verified that the Plan properly calculated and returned
LII on these recoveries to the FEHBP.

• In one instance, the Plan returned a subrogation recovery of $35,420 to the FEHBP
twice. Therefore, the Plan should recover $35,420 from the LOCA since these funds
were credited to the FEHBP twice.

Provider Audit Recoveries

For the period January 1, 2010 through February 29, 2012, there were 16,266 provider
audit recoveries totaling $27,642,826. From this universe, we selected and reviewed a
judgmental sample of 106 provider audit recoveries, totaling $8,097,048, for the purpose
of determining if the Plan promptly returned these recoveries to the FEHBP. Our sample
consisted of the following: 66 recoveries, totaling $7,176,155, representing all recoveries
of $50,000 or more; 20 randomly selected recoveries, totaling $738,837, from the
stratification of $25,000 to $49,999.99; and 20 randomly selected recoveries, totaling
$182,056, from the stratification of $5,000 to $24,999.99.

We identified five provider audit recoveries in our sample, totaling $423,130, that were
returned to the LOCA during the audit scope but were not deposited timely into the FEP
investment account. Specifically, these recoveries were deposited into the FEP
investment account from 1 to 39 days late. We did not question LII on these funds since
the estimated LII amount is considered immaterial.

7
Fraud Recoveries

For the period January 1, 2010 through February 29, 2012, there were 70 FEP fraud
recoveries totaling $31,100. From this universe, we selected and reviewed a judgmental
sample of 25 fraud recoveries, totaling $25,106, for the purpose of determining if the
Plan promptly returned these recoveries to the FEHBP. Our sample included all fraud
recoveries of $300 or more.

We identified 22 fraud recoveries in our sample, totaling $6,447, that were returned to the
LOCA during the audit scope but were not deposited timely into the FEP investment
account. Specifically, these recoveries were deposited into the FEP investment account
from 7 to 137 days late. We did not question LII on these funds since the estimated LII
amount is considered immaterial.

Association Response:

The Association agrees with this finding. The Association states that the Plan returned
$70,787 (net) to the FEHBP for the questioned health benefit refunds and subrogation
recovery.

OIG Comments:

The Association provided documentation supporting that the Plan wire transferred
$70,787 (net) for the questioned health benefit refunds and subrogation recovery into the
Association’s FEP joint operating account on February 12, 2013. The Association then
wire transferred these funds to OPM on February 21, 2013.

Recommendation 1

Since we verified that the Plan returned $70,787 (net) to the FEHBP for the questioned
refunds and subrogation recovery, no further action is required for this amount.

B. ADMINISTRATIVE EXPENSES

1. Post-Retirement Benefit Costs $1,623,435

The Plan overcharged the FEHBP $1,623,435 for post-retirement benefit (PRB) costs
from 2009 through 2011.

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.”

48 CFR 31.205-6(o)(2) states, “To be allowable, PRB costs must be reasonable and
incurred pursuant to law, employer-employee agreement, or an established policy of the
contractor. In addition, to be allowable, PRB costs must also be calculated in accordance
with paragraphs (o) (2) (i), (ii), or (iii) of this section.”

8
Other post-retirement employee benefits (OPEB) include all benefits, other than cash or
life insurance, that are paid by a pension plan and provided to employees and dependents
after the employees' retirements. OPEB includes post-retirement health care, life
insurance and other welfare services, such as day care provided after retirement. Only
those OPEB provided in accordance with an established policy of the Plan are chargeable
to the FEHBP.

During the period 2009 through 2011, the Plan used a “modified” version of Financial
Accounting Standard (FAS) 715-60, formerly FAS 106, to calculate PRB expenses
charged to the FEHBP. For our review, we limited FEP’s allocable PRB costs to the
lower of the FAS 106 amount or funded amount based on the Voluntary Employees'
Beneficiary Association (VEBA) wire. Since the Plan funds the VEBA for retiree
medical benefits only, we used the FAS 106 amount, which represented the retiree
medical benefit costs. As a result, we determined that the FEHBP was overcharged
$1,384,355 ($554,765 in 2009, $350,620 in 2010, and $478,970 in 2011) for unallocable
PRB costs during the audit scope.

The Plan also identified that the FEHBP was overcharged $239,080 in PRB costs due to
an error in the allocation rate used to calculate FEP’s share of PRB expenses recorded in
“Cost Center 39 – Corporate Benefits” for 2009. Therefore, the FEHBP was overcharged
a total of $1,623,435 ($1,384,355 plus $239,080) for PRB costs from 2009 through 2011.

Association Response:

The Association agrees with $239,080 and disagrees with $1,384,355 of the questioned
charges.

For the agree amount, the Association states, “On February 15, 2013, the Plan submitted
Prior Period Adjustments in the amount of $239,080, to return to the FEHBP the agreed
upon portion of the questioned costs. However, Contract Year 2009 was an under-funded
year for the Plan and the amount of the CY2009 unreimbursed costs exceeded the amount
of the submitted credit Prior Period Adjustment. Because the Plan’s total unreimbursed
costs exceeded the amount of the credit Prior Period Adjustment, the result is that the
Plan remains under-funded and the credit Prior Period Adjustment merely reduces the
total amount of unfunded costs. . . .

Procedures have been updated, explaining that the allocation to FEP from the Post-
Retirement Benefit (PRB) GL Account, 612025, in cost center 0039 (Corporate Benefits)
should be used to calculate chargeable PRB expense.”

For the disagree amount, the Association states, “The Plan continues to state that its cost
accounting practices for its Post Retirement Benefit (PRB) plan complies in all material
respects with FAR 31.205-6(o) Compensation/Post Retirement Benefits Other Than
Pensions (‘PRB’). ‘Modified’ FAS 106 calculations provided by the Plan's independent
pension actuaries are reasonable because the differences between the PRB, for financial
reporting and government cost accounting purposes, are due primarily to the different

9
starting points for the GAAP accrual accounting for financial reporting and the
conversion to GAAP accrual accounting for government cost accounting (referred to as
‘Modified’ FAS 106). Additionally, cash contributions in excess of the current year's
accrued cost are accounted for as prepayment credits that may be carried over to future
periods up to the amount of the ‘Modified’ FAS 106 expense amount.”

OIG Comments:

Since the Plan’s total unreimbursed costs for 2009 exceed the uncontested questioned
costs, we agree that the prior period adjustment should be netted against the Plan’s
unfunded costs. Therefore, there is no impact on the amount charged to the FEHBP,
which makes an LII calculation unnecessary for this finding.

In response to the contested amount, “modified” FAS 106 is not mentioned in the federal
regulations covering PRB costs and is simply a “modified” method developed by the
Plan. This method is not consistent with the government regulations covering PRB costs,
and therefore unacceptable. Additionally, there is no authoritative source to support the
Plan’s “modified” method. The Plan should be required to follow the applicable federal
regulations and not be allowed to develop their own “modified” method for calculating
PRB costs. The Plan’s “modified” method resulted in additional PRB cost allocations of
$1,384,355 to the FEP from 2009 through 2011.

Recommendation 2

We recommend that the contracting officer disallow $1,384,355 for PRB cost
overcharges from 2009 through 2011, as a result of the Plan’s “modified” method of
calculating PRB expenses charged to the FEHBP.

Recommendation 3

We recommended that the contracting officer verify that the Plan submitted a prior period
adjustment of $239,080 to properly reduce the filed costs on the Plan’s annual cost
submission for 2009. (Note: The Plan submitted this prior period adjustment as a result
of an error in the allocation rate used to calculate FEP’s share of PRB expenses recorded
in “Cost Center 39 – Corporate Benefits” for 2009.)

2. Unallowable and/or Unallocable Expenses $74,116

The Plan charged the FEHBP $74,116 for unallowable and/or unallocable expenses in
2009.

As previously stated under finding B1, costs charged to the FEHBP must be actual,
allowable, allocable, and reasonable.

10
48 CFR 31.201-4 states, “A cost is allocable if it is assignable or chargeable to one or
more cost objectives on the basis of relative benefits received or other equitable
relationship. Subject to the foregoing, a cost is allocable to a Government contract if it-
a) Is incurred specifically for the contract;
b) Benefits both the contract and other work, and can be distributed to them in
reasonable proportion to the benefits received; or
c) Is necessary to the overall operation of the business, although a direct relationship
to any particular cost objective cannot be shown.”

For the period 2009 through 2011, we selected and reviewed a judgmental sample of 15
high dollar out-of-system adjustments (OSA), totaling $3,965,921 in net credits (from a
universe of 97 OSA’s, totaling $6,544,411 in net credits), to determine if the adjustments
were allowable, allocable and reasonable, as well as properly charged and/or credited to
the FEHBP. We selected the OSA’s based on high dollar amounts and a nomenclature
review.

During our review of the OSA’s for 2009, we found that the Plan overcharged the
FEHBP $74,116 for unallowable and/or unallocable project costs. Specifically, the Plan
credited the FEHBP $2,046,673 for unallowable and/or unallocable project costs through
an OSA in 2009. In March 2010, the Plan performed a follow-up review of these project
costs and determined that the FEHBP should have been credited a total of $2,117,164 for
unallowable and/or unallocable project costs, requiring an additional adjustment of
$70,491 ($2,117,164 minus $2,046,673) to the FEHBP. In June 2010, the Plan also
found a mathematical error, requiring an adjustment of $3,625 to the FEHBP.

Although the Plan identified these errors, the Plan did not make the necessary
adjustments to FEP costs. Therefore, the FEHBP was overcharged a total of $74,116
($70,491 plus $3,625) for the unallowable and/or unallocable project costs in 2009.

Association Response:

The Association agrees with this finding. The Association states, “The Plan agreed
with this finding and submitted a Prior Period Adjustment (PPA) to return the funds
in the amount of $74,116. However, as stated in OPM’s Draft Audit Report,
Contract Year 2009 was an under-funded year for the Plan and the amount of the
CY2009 unreimbursed costs exceeded the amount of the submitted credit Prior
Period Adjustment. Because the Plan’s total unreimbursed costs exceeded the
amount of the credit Prior Period Adjustment, the result is that the Plan remains
under-funded and the credit Prior Period Adjustment merely reduces the total
amount of unfunded costs.”

The Association also states, “Procedures have been updated with checks and
balances to ensure the appropriate adjustment is being made. An out-of-balance
will be a warning that there is an error in the excel spreadsheet.”

11
OIG Comments:

Since the Plan’s total unreimbursed costs for 2009 exceed the questioned costs, we agree
that the prior period adjustment should be netted against the Plan’s unfunded costs.
Therefore, there is no impact on the amount charged to the FEHBP, which makes an LII
calculation unnecessary for this finding.

Recommendation 4

We recommend that the contracting officer verify that the Plan submitted a prior period
adjustment for $74,116 to properly reduce the filed costs on the Plan’s cost submission.

C. CASH MANAGEMENT

Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract
CS 1039 and applicable laws and regulations, except for the audit findings pertaining to cash
management noted in the “Miscellaneous Health Benefit Payments and Credit” section.

D. FRAUD AND ABUSE PROGRAM

1. Special Investigations Unit Procedural

The Plan’s Fraud and Abuse (F&A) Program is not in compliance overall with contract
CS 1039, and other guidance issued by OPM and the Association’s FEP Director’s Office
(FEPDO), in relation to F&A Programs and notifying OPM’s Office of the Inspector
General (OIG) of fraud and abuse cases in the FEHBP. Specifically, we determined that
the Plan did not report or timely report all potential FEP fraud and abuse cases to the
FEPDO and/or OIG. Also, the Plan’s reported recoveries and savings were inaccurate
and/or incomplete. Furthermore, from the information provided, we could not determine
if the FEHBP derived the full benefits from this Plan’s F&A Program activities.
Ultimately, the Plan’s non-compliance is a result of the Plan’s policies and procedures
that do not specifically address the FEHBP, as well as the FEPDO’s lack of oversight,
direction, and guidance provided to the Plan. As a result of the Plan’s non-compliance,
fraud and abuse may go undetected and unreported within the FEHBP, and the overall
effectiveness of the F&A Program cannot be accurately measured.

Incomplete and Untimely Reporting – FEHBP Fraud Cases

Our review of the Plan’s Special Investigations Unit (SIU) revealed that the Plan did not
report all potential FEP fraud and abuse cases to the FEPDO and the OIG and that many
of the cases that were reported to the FEPDO were reported untimely. In addition, the
FEPDO did not report to the OIG all of the cases that the Plan’s SIU reported to the
FEPDO that met specific contractual requirements and OPM Carrier Letter guidance.
The Plan reported 116 cases to the FEPDO from January 2010 through February 2012,
but only 14 of those cases were reported to the OIG. This lack of referrals and/or
untimely reporting of investigations do not allow the OIG to investigate whether other

12
FEHBP carriers are exposed to the identified provider committing fraud against the
FEHBP. It also does not allow the OIG’s Administrative Sanctions Group to be notified
timely. This may result in additional improper payments being made by other FEHBP
carriers to these unscrupulous providers.

Contract CS 1039 Section 1.9(a) requires the Plan to “operate a system designed to detect
and eliminate fraud and abuse . . . by providers providing goods or services to FEHB
Members, and by individual FEHB Members.”

Carrier Letter (CL) Number 2007-12 states “All carriers must send a written
notification/referral to the OPM-OIG within 30 days of becoming aware of any cases
involving suspected false, fictitious, fraudulent, or misleading insurance claims . . .”
which meet a specific potential claims exposure threshold of $20,000 or more for
providers and $10,000 or more for FEHB Members.

CL Number 2011-13, effective June 17, 2011, states that all Carriers “are required to
submit a written notification to the OPM OIG . . . within 30 working days of becoming
aware of a fraud, waste or abuse issue where there is a reasonable suspicion that a fraud
has occurred or is occurring against the Federal Employees Health Benefits (FEHB)
Program.” There is no dollar threshold for this CL requirement.

The primary vehicle for the local BCBS plan’s anti-fraud unit to report potential FEP
fraud and abuse cases and other anti-fraud activities to the FEPDO is the Fraud
Information Management System (FIMS). FIMS is a multi-user web-based case tracking
database, developed by the FEPDO to facilitate and monitor FEP-related investigations.
Local BCBS plans began using FIMS in January 2007, and since the inception of FIMS,
the Association has charged the FEHBP more than $1.5 million to build and implement
this system.

The Plan did not enter all of its FEP potential fraud and abuse cases into FIMS as
required. In order to test the Plan’s compliance with the reporting requirements in
OPM’s Carrier Letters and applicable FEPDO guidance, we requested the Plan’s provider
and pharmacy related fraud complaints and cases, as well as FEP subscriber complaints
and cases, for the period January 1, 2010 through February 29, 2012. The Plan’s SIU
stated that they had a total of 2,551 complaints/cases in its own case tracking system for
that time period. We actually identified a total of 2,967 complaints/cases from the
information provided by the Plan. Of these complaints/cases, 1,834 had unique Tax
Identification Numbers (TIN). We entered the 1,834 complaints/cases into the FEHBP
data warehouse and identified matches for 1,151 of these complaints/cases. We added 51
cases that were provided to us as open investigations during the audit scope, but were not
found in the 2,967 complaints/cases obtained from the Plan’s tracking system. We
removed all duplicate items, resulting in a final total of 1,032 complaints/cases. All but 4
of the 1,032 complaints/cases had FEHBP exposure of $1 or more and therefore should
have been entered into FIMS. In addition, we determined that 670 of these fraud and
abuse complaints/cases contained FEHBP exposure greater than $20,000. An additional

13
84 complaints/cases were initiated after June 17, 2011. 3 As such, all 754 of these
complaints/cases should have been entered into FIMS and reported to OPM and the OIG
(based on CL 2011-13). As previously stated, only 14 cases were reported to the OIG
during the audit scope.

The FIMS Plan SIU User Guide (FIMS Guide) states that the FEPDO SIU expects the
local BCBS plans’ SIU’s to include FEP claims in all investigations/reviews and to report
investigations/reviews that involve FEP timely regardless of the outcome and/or dollar
threshold (Emphasis added). The FIMS Guide further advises to not wait until the
investigation is complete and/or until fraud is proven before entering it into the tracking
system. Lastly, FIMS Guide, Section 3.3.1, states, “Anything reported in a Plan’s data
entry system should be reported concurrently in FIMS in order to comply with OPM’s
contract with BCBSA.”

Our review of the FIMS cases entered by the Plan showed that the Plan’s SIU reported a
total of 120 cases to the FEPDO via FIMS. We found 4 duplicate FIMS cases that were
entered under the same case name, reducing the total number of unique cases entered in
FIMS to 116. Of the 116 unique cases that the Plan entered into FIMS, the cases were
entered, on average, approximately 195 days after the case was initiated. In addition,
for the 14 cases that were actually reported to the OIG during the audit scope, the
FEPDO’s SIU took an additional 71 days, on average, to submit these cases to the OIG.

Our analysis also revealed that 82 of the 116 FIMS entered cases met CL 2007-12 and
CL 2011-13 requirements for notification/referral to the OIG based on the FEP exposure
provided in FIMS. We also identified an additional nine cases entered into FIMS by the
Plan that met the financial threshold based on our review of the OPM data warehouse.
These nine cases either did not list any FEP exposure or the exposure provided by the
Plan did not meet the CL 2007-12 financial thresholds. Thus, at a minimum, 91 of the
116 cases entered into FIMS met the financial threshold of CL 2007-12 or were entered
after CL 2011-13 became effective and should have triggered an OIG case notification
and/or referral. As previously stated, the FEPDO and/or Plan only submitted 14 cases to
the OIG.

We also judgmentally selected four of the Plan’s SIU investigation files to review. We
noted that the Plan’s SIU provides a complete, well documented, and thorough report of
investigation. Two types of reports were included, “Investigative Summary Report” and
“Plan of Action Closing Report”. Both were professionally written and well documented.
These reports are not included but would be an excellent supplement to a case
notification or referral provided by the FEPDO to the OIG.

Further review of the Plan’s structure revealed that the Plan’s SIU only performs fraud
related investigations. Waste and abuse related issues are reviewed by the Plan’s
Healthcare Provider Audit (HPA) group. HPA defined waste as any overpayment
resulting from an error made by the Plan and abuse as any overpayment resulting from an

3
OPM issued Carrier Letter 2011-13 (dated June 17, 2011) requiring Carriers to report all potential FEHBP fraud
cases, regardless of dollar amount, to the OIG.

14
error made by the provider. We do not agree with these broad definitions. Many
overpayments (as well as underpayments) are made for various reasons, such as coding
and keying errors. We do not believe that these scenarios meet the requirements of either
waste or abuse. However, we do acknowledge that neither OPM nor the OIG has
provided definitions for waste and abuse that the local BCBS plans must comply with.

We reviewed he Plan SIU’s annual reports for 2010 and 2011 and noted that the SIU
made 33 internal referrals to HPA. Our analysis found that 8 of these 33 complaints/
cases (internal referrals) were entered into FIMS, but only 2 of them were reported to the
OIG. Although some of the HPA cases involved billing errors, there were also
allegations of inappropriate use of modifiers, abuse of evaluation and management codes,
billing anomalies, diagnosis abuse, cloning of records, no signature authentication,
insufficient documentation, and possible overutilization.

We can appreciate that some of the cases the SIU referred to HPA were billing errors and
isolated overpayments that were not fraud and abuse related issues and were
appropriately referred outside the SIU. However, the noted allegations of abusive billing
practices and ineligible members referred by the SIU (internally) to HPA are all potential
fraud and abuse cases/issues that should have been entered into FIMS. Based on our
analysis, we determined that at a minimum 13 of the 33 HPA-referred cases should have
been entered into FIMS, but we found that only 5 were. Also, only 4 of these 13 HPA
cases were referred by the SIU after the effective date of CL 2011-13, of which only 1 of
these 4 cases was entered into FIMS.

As a result, the Plan is not in compliance with the FEHBP contract, CL 2007-12, and CL
2011-13 for reporting potential fraud and abuse cases and/or reporting potential fraud and
abuse cases timely to the OIG.

In part, the Plan’s incomplete and untimely reporting is due to a lack of FEHBP-specific
policies and procedures. In the two SIU policy manuals we reviewed, we found no
references made to any actual FEHB fraud and abuse program contract requirement or
FEHBP fraud and abuse case reporting requirements. In addition, the Plan’s SIU policy
manuals made no reference to the FEPDO’s roles and responsibilities related to FEHBP
fraud and abuse activities, including the FIMS User Guide and the FEP Standards Manual
for Prevention, Detection and Investigation. Without references in the Plan’s policy and
procedure manuals to the relevant standards and requirements, it is uncertain how the
Plan’s fraud and abuse activities address the FEHBP effectively.

The Plan’s incomplete and untimely reporting is also a result of the FEPDO’s lack of
oversight and proper guidance. The Plan stated that during the audit period of January 1,
2010 thru February 29, 2012 , the Plan’s SIU and a FEPDO case worker met on
numerous occasions to discuss several topics, such as FIMS training, FIMS entries, case
work/collaboration, on-site investigations, and SIU performance. Again, it is unclear
what guidelines the FEPDO is utilizing or what oversight the FEPDO is providing when
only 116 of 1,032 initiated complaints/cases were actually entered into FIMS.

15
Furthermore, the FEPDO provided no written guidance or presented no written
notification to the Plan’s FEP Executives related to non-compliance with contract CS
1039 or CL requirements. This is in clear contrast to the FEPDO’s own policies and
procedures, and is not in compliance with contract CS 1039. Therefore, we cannot
determine what criteria the FEPDO used to determine the Plan’s compliance with
contract CS 1039.

Ultimately, the Plan’s untimely reporting to the FEPDO, the FEPDO’s lack of oversight
of the Plan, and the lack of reporting to the OIG, has caused an unknown amount of
financial damage to the FEHBP. At least 102 cases were entered into FIMS and not
reported to the OIG. Of these, 91 cases met either the dollar threshold or other criteria
for reporting to the OIG and 11 cases were for providers that were related to allegations
of health care fraud. As a result, there could be providers who received health benefit
payments from other FEHBP carriers without the benefit of a preliminary review (by the
OIG and other FEHBP carriers) to determine whether benefits were being applied
appropriately. As a result of the non-reporting of these potential fraud and abuse cases,
improper payments may have been made by other FEHBP carriers.

Incomplete and/or Inaccurate Reporting - FEHBP Fraud and Abuse Recoveries

Our review of the Plan’s reporting of FEHBP fraud and abuse recoveries, savings, and
dollar loss was incomplete since the Plan’s HPA performed reviews and audits of cases
that were deemed as abuse issues. The Plan’s SIU only reported recoveries and savings
in FIMS for fraud related cases.

Contract CS 1039, Section 1.9(a) requires the Plan to submit reports to OPM annually
that identify dollars as lost and recovered, as well as actual and projected savings related
to fraud and abuse.

In response to our request for total FEP actual fraud and abuse related recoveries, the
Plan stated that their SIU only performs fraud related investigations. Abuse related issues
are reviewed by the Plan’s HPA. Recoveries related to HPA were reported to OPM in
another area outside of the SIU’s reporting of recoveries. However, within the Plan’s
SIU annual reports for 2010 and 2011, we noted the SIU made 33 total internal referrals
to HPA. Based on our analysis of these referrals, we identified two financial recoveries
directly related to two FEP ineligible member cases that should have been reported in
FIMS, accounting for $11,046 in potential fraud and abuse recoveries. Although these
funds were reported to OPM as recoveries under the Plan’s HPA, these recoveries were
not reported in FIMS as fraud and abuse related recoveries, and as such, the annual report
provided to OPM by the FEPDO is an inaccurate representation of actual fraud and abuse
recoveries.

Although we did not request additional information from the Plan, we noted that the SIU
made a total of 340 internal referrals to other departments within the Plan in 2010 and
2011. We believe this process and tracking to be a best practice, revealing the SIU’s
ability to work with other internal partners and follow through with the completion of all

16
allegations, regardless of the outcome. The Plan’s other internal departments include
legal, compliance, network, provider credentialing, pharmacy, and other departments
with noted acronyms that we could not decipher. It is unclear how many of the 340 cases
may have included an element of fraud and abuse that went unreported in FIMS by the
Plan.

As a result of the Plan separating its fraud and abuse functions into two separate
departments, SIU and HPA, it is unclear how the FEPDO’s required annual fraud and
abuse reporting to OPM can be accurate and authenticated. Our analysis clearly showed
that more than a third of the cases referred by the SIU to HPA were related to potential
fraud and abuse issues and most of those cases were not even entered into FIMS.

Costs and Benefits of Plan’s Fraud and Abuse Activities

We could not determine if the FEHBP is deriving the full benefit from the Plan’s fraud
and abuse activities. Based on the information provided by the Plan, the return on
investment (ROI) for the Plan’s F&A Program was between a positive $1.29 and a
negative $8.88 per dollar spent.

Contract CS 1039 requires that the “Carrier must submit to OPM an annual analysis of
the costs and benefits of its fraud and abuse program.”

From January 1, 2010 through December 31, 2011, the Plan charged the FEHBP a
minimum of $235,993 to perform activities related to its FEP F&A Program. Although
we found additional costs beyond the Plan’s SIU, the Plan was unable to provide accurate
total costs related to its total F&A Program.

The Plan’s SIU only performs actual fraud investigations, but has responsibility for the
Plan’s complete corporate-wide fraud, waste and abuse program. The FEHBP was
charged $235,993 for the SIU. All of these charges were related to the Plan’s F&A
Program.

Other Plan departments, including HPA, Legal Affairs, and Clinical Operations also have
responsibility for parts of the Plan’s fraud and abuse activities. We could not determine
and/or the Plan could not provide the costs for Legal Affairs and Clinical Operations.
However, the Plan provided total allocated costs for HPA of $2,476,815 to the FEHBP
during the audit scope. We recognize that not all costs allocated from HPA were for
fraud and abuse activities. However, despite guidance within the FEP Standards Manual
to budget in all departments for fraud and abuse activities, the Plan could not provide
documentation or determine what portion of the $2,476,815 in HPA’s allocated costs
were associated with the Plan’s F&A Program activities. Therefore, we determined the
total range of costs to be between $235,993 and $2,712,808 for fraud and abuse activities.

The Plan’s SIU personnel also gave a demonstration of their proactive fraud detection
tools. The SIU uses two systems, the first known as the Fraud and Abuse Data System
(FADS), and the second know as the Fraud and Abuse Management System (FAMS).

17
The FADS system extracts claims from the Plan’s data warehouse and exports the results,
based on set criteria (such as an allegation), directly to an SIU investigator or analyst.
SIU staff reviews and manipulates the data looking for patterns and clues of potential
fraud and abuse billing. The FAMS system analyzes data using behavior analytics to
identify healthcare providers exhibiting suspicious actions or billing patterns to uncover
fraud, waste and abuse schemes. FAMS contains integrated data mining, business logic,
interactive data visualization reports and can display these reports in different fashions,
such as spreadsheets, graphs and scatter plots, for presentation and referral purposes.

The Plan’s demonstration of these tools indicated that the SIU personnel were well
versed in the use and operation of these tools. We believe that the proper use of these
proactive fraud detection tools, such as FAMS and FADS, provides a benefit to the Plan’s
overall F&A Program. However, we could not determine what costs for these systems
are actually being charged to the FEHBP and whether the FEHBP benefits from the
Plan’s use of these tools.

Next, we identified total recoveries and actual savings for the FEHBP based on the Plan’s
information. According to the Plan, the actual recoveries and actual savings related to
fraud totaled $305,157 in 2010 and 2011. This consists of actual FEHBP fraud
recoveries of $30,293 as well as $274,864 in actual savings for the FEHBP, all of which
could be tracked to an SIU fraud and abuse activity or case. Finally, the Plan’s SIU
defined projected savings as follows: “Projected savings, cost avoidance, and/or
prevented loss are calculated as the amount of claims that would probably have been
billed and paid for one year had the anti-fraud unit not intervened and stopped the
fraudulent behavior.” The Plan reported projected savings of $1,253,368 in 2010 and
2011. However, based on our review, we noted that the Plan only reported a total of
$305,157 in total recoveries and actual savings in 2010 and 2011. We would expect this
total of recoveries and actual savings to be higher based on the Plan’s projected savings.

Based on the Plan’s reported information related to costs, recoveries, and actual savings,
the ROI was between a positive $1.29 and a negative $8.88 per dollar spent. Although
the calculation includes a potential positive ROI, the Plan could not provide all costs for
the fraud and abuse activities. Therefore, the FEHBP does not appear to be deriving a
benefit from the Plan’s current structure and fraud and abuse activities as they relate to
the FEHBP.

Association’s Response:

The Association states, “The Plan continues to disagree with the statement of
non-compliance with contract CS 1039 and other guidance issues by OPM and the
FEPDO, and whether FEHBP is deriving the full benefits of the plan’s fraud and
abuse activities. The FEPDO and the Plan have created a system of controls to
monitor, identify, investigate and recover fraudulent and abusive payments of
FEHBP funds and is substantially in compliance with the requirements of CS 1039.
The Plan’s FEP Fraud and Abuse Program is designed to protect patient safety and
the health care assets of Federal beneficiaries.

18
The Plan disagrees with the statement noted within the draft report, ‘As a result of the
Plan’s non-compliance, fraud and abuse may go undetected and unreported within the
FEHBP . . .’ During the audit scope of 2010 and 2011, the Plan’s fraud & abuse program
activities resulted in over $7.7 million dollars of actual recoveries and savings, ensuing in
a positive return on investment (ROI) between $1.29 and $6.19. However, the goal of the
Fraud and Abuse Program is focused on the proactive prevention and detection of fraud
on a national basis, i.e., to prevent fraudulent claims from being paid at the outset.

Additionally, the plan disagrees with the statement noted within the draft report, ‘Plan’s
reported recoveries and savings were inaccurate’. No evidence was provided by the
auditors as a result of this audit to reflect that recoveries and savings that were reported
were inaccurate.”

In response to the finding for incomplete and untimely reporting of FEHBP fraud cases,
the Plan disagrees that it did not enter all of its cases into FIMS, as required by OPM and
FEPDO guidance. The Plan believes that the OIG uses an overly broad definition of
exposure that results in the inputting of complaints in which a preliminary review has not
been completed to determine whether there is reasonable suspicion that a fraud has
occurred. The Plan does not believe that the 754 cases noted in the OIG report should
have been submitted into FIMS. It believes that of the 314 cases that were opened, the
cases potentially affecting the FEHBP were entered into FIMS in accordance with the
Association’s defined criteria.

The Plan also disagrees that the 33 internal complaints/cases referred to HPA should have
been entered into FIMS. The Plan believes that only the 12 actual cases should have
been entered into FIMS. Of those 12 cases, the Plan entered 9 cases into FIMS.
According to the Plan, one of the cases did not meet the defined criteria and the
remaining two cases should have been entered into FIMS but were not.

Furthermore, the Association states, “The Plan maintains a local database in which we
record all related complaint and case activity. It would be duplicative and an inefficient
use of Program funds for Plans to maintain case information in their local databases and
FIMS for every case, allegation, billing error, etc. that is investigated. It is the intent of
the FEPDO that the Plans only enter case information once they have confirmed that
there is FEP exposure to the original accusation, complaint, billing error, or fraudulent
activity.”

The Plan also disagrees with the statement that the OIG could find no reference to the
FEHBP F&A Program in either of the two policy manuals provided by the Plan. The
Association states, “The Plan’s SIU manuals do contain references to the actual FEHB
fraud and abuse program; however, the Plan did not receive an information request to
obtain SIU manuals from the OIG auditors.”

The Association does agree, however, that FEPDO policies and procedures can be further
refined regarding the specific criteria that BCBS plans should use to report cases.
Accordingly, the FEPDO updated its policies and procedures as of December 31, 2012.

19
The Plan will receive training at the upcoming BCBS conferences. Furthermore, the Plan
stated it would reference the FEHBP fraud and abuse program within the corporate wide
policy and ensure that current infrastructure can accommodate the updates.

Regarding the finding of incomplete and/or inaccurate reporting of FEHBP fraud and
abuse recoveries, the Association states that “the Plan agrees in part and disagrees in part.
Per CS 1039, the FEPDO must provide reporting to OPM annually. The Plan
acknowledges that 2 cases were not reported per the defined FEPDO criteria; however,
no evidence was provided that cases were reported inaccurately. The Plan agrees the
Plan is only reporting recoveries and savings from fraud related cases in FIMS as
required by FEPDO criteria.

As the draft audit report results noted, the OIG auditors acknowledged that neither OPM
nor the OPM OIG has provided definitions for waste and abuse applicable to Plan
reporting. The Plan will change its reporting processes, as necessary, consistent with
revised direction to report defined abuse cases, e.g., using the updated criteria provided
by FEPDO as of December 28, 2012.”

Regarding the costs and benefits of the Plan’s fraud and abuse activities, the Association
states, “The Plan disagrees with OIG’s position that the FEHBP is not deriving the full
benefit from the Plan’s fraud and abuse program. The FEP Fraud Control Program is
designed to protect patient safety and the health care assets of Federal beneficiaries and
the Federal Government. The goal of the Program is primarily on the proactive
prevention and detection of fraud on a national basis, i.e., to prevent fraudulent claims
from being paid at the outset. This goal is accomplished by various methods, including
utilizing anti-fraud software; by reviewing tips, leads and referrals from different sources;
and by coordinating efforts and sharing information on current schemes and industry
trends with other Plans, law enforcement, prosecutorial agencies, industry associations,
medical/licensing boards and other health insurance carriers.

The Plan’s SIU is focused on fraud prevention, in part, due to the difficulty of recovering
program’s funds through restitution. Therefore, the Plan would encourage reviewing
OPM’s benefit of each plan’s fraud and abuse activities by also taking into account
projected medical savings, which is projected savings calculated as the amount of claims
that would have been billed had the SIU not intervened and stopped the fraudulent
behavior, an industry accepted metric.

As stated above, the Plan disagrees with the accuracy of the Return on Investment (ROI)
calculation by OIG for the Program . . . BCBSA provides an overall ROI calculation for
the entire SIU program to OPM, in order for OPM to determine whether [they are]
deriving full benefit. However, if Florida Blue were to calculate a ROI it would be
between a positive $1.29 and $6.19.

The OIG’s ROI calculation incorrectly included the entire costs for HPA . . . and did not
consider HPA recoveries . . . HPA reviews both waste and abuse related cases, therefore
the ROI calculation provided above excluded costs and recoveries associated with waste

20
and cases not identified as ‘Provider Billing error’ categories. The calculation provided
by the Plan is conservative and may be understated, due to HPA cases [that] were not
classified as ‘abuse’ or ‘waste’ for the entire audit period reviewed.”

In summary, the Association states that “the Plan disagrees with specific assertions in the
draft audit report and the general assertion that the FEHBP is not deriving the full benefit
from the Plan’s fraud and abuse activities. It is the Plan’s belief that some of the reasons
for the findings are a result of ambiguous terminology being used in relation to reporting
SIU activities and the Plan looks forward to remedying this matter in coordination with
the OIG, as appropriate, and the FEPDO. Additionally, the Plan seeks to continuously
improve its program and will work with the FEPDO to make appropriate adjustments to
processes.”

OIG Comments:

The Association states that they have created a system of controls and processes that
monitor, identify and recover fraudulent and abusive payments of FEP funds. We
disagree. The FEPDO has failed to provide any specific details as to what oversight
function they perform of this Plan, including the timely reporting of cases in FIMS and
the reporting of financial impacts in FIMS.

The Association disagrees with the OIG’s position that all complaints should be entered
into FIMS. However, we continue to believe that the Plan did not input all applicable
complaints and cases into FIMS. As the FEPDO guidance states, FEP claims should be
included in all reviews and Plans should report all cases involving FEP timely, regardless
of outcome and/or dollar threshold. In addition, the FIMS user guide clearly advises the
local BCBS plan to not wait until the investigation is complete and/or until fraud is
proven before entering it (cases, complaints, etc.) into the tracking system. Anything
reported in the Plan’s data entry system should be reported concurrently in FIMS. The
Plan should not be investigating cases through to the end and then determining if FEP
dollars are involved. Furthermore, the criteria for reporting potential fraud and abuse
cases to the OIG are included in CL 2007-12 and CL 2011-13. These Carrier Letters
require all plans to report potential fraud and abuse cases when there is a reasonable
suspicion that fraud has occurred against the FEHBP. Nowhere in these Carriers Letters
does it state that the fraudulent activity must be confirmed. Therefore, we continue to
believe that the 754 cases we found that had FEHBP exposure should have been reported
into FIMS, not the 116 cases that were entered into FIMS by the Plan. Moreover, at least
91 of the 116 cases entered into FIMS met the financial threshold of CL 2007-12 or were
entered after CL 2011-13 became effective and should have triggered an OIG case
notification and/or referral. As stated in the report, we found only 14 cases that were
submitted to us either by the Plan or the FEPDO. The Plan did not comment on these
issues or our finding regarding the untimely FIMS submissions. Therefore, we do not
know the Plan’s positions on those findings.

Regarding the Plan’s SIU policy manuals, the Plan states that the manuals do contain
references to the FEHBP F&A Program and that the auditors did not request these
manuals through a formal information request. Whether the manuals were obtained

21
through a formal information request is irrelevant. The Plan provided the manuals while
we were on-site conducting our audit. So they were fully aware that we were reviewing
the manuals. Moreover, we stand by our original statement that the two policy manuals
did not contain any reference to actual FEHBP contract requirements or fraud and abuse
case reporting requirements. If these manuals are the primary source of information for
an SIU staff person performing investigations, they should contain the requirements of
the FEHBP. Overall, the Plan disagrees with the OIG’s interpretation of what
information should be submitted into FIMS. However, the Plan will integrate revised
criteria for reporting the cases into FIMS.

The Plan also disagrees that it provided inaccurate information on its annual fraud and
abuse reports submitted to OPM. The Plan does acknowledge that two cases were not
included using the FEPDO criteria. We continue to assert that the reports were
inaccurate because the FEPDO could not support the numbers during the audit that were
submitted on the annual OPM reports. Furthermore, the FEPDO could not link the
numbers it provided either at the time of the audit or on the annual reports to any actual
investigative activity. We continue to acknowledge that work needs to be done to
provide better definitions and instructions to carriers on how to properly complete the
annual fraud and abuse reports. We look forward to working with the Association and
OPM’s contracting officers on this continuing endeavor.

Regarding the benefit this Plan is providing the FEHBP, we continue to believe that the
FEHBP is not receiving the full benefit of this Plan’s SIU anti-fraud program. We agree
that fraud prevention is an important component of any anti-fraud program. However,
the Plan should not focus solely on this one avenue to achieve a truly effective F&A
Program. Moreover, it would be impossible for a Plan’s SIU to provide the full benefits
of its F&A Program to the FEHBP with the level of non-compliance discussed in this
report. However, we applaud the Plan’s willingness to change its policies and procedures
and to work with the Association and OPM to develop a more effective SIU in addressing
the FEHBP.

Lastly, the Plan disagrees with our ROI calculation. The Plan states that the OIG
incorrectly included the entire costs for HPA but did not consider all of the HPA
recoveries. The Plan is correct. We only included recoveries it could identify as being
part of the Plan’s anti-fraud program activities as it related to the SIU referrals made to
HPA. In addition, not all HPA recoveries were related to fraud and abuse issues. We
also did not include all of the costs associated with this Plan’s anti-fraud program because
the Plan did not capture those costs even though that is a requirement of the FEHBP
contract. We acknowledged in the report that the ROI calculation is not perfect and that
is why a range is provided. Furthermore, we look forward to working with the
Association and OPM’s contracting officers in developing an ROI calculation that all
parties can agree to.

22
Even though the Association and/or Plan generally disagreed with most of the findings in
this section, we are pleased to note that the Association is taking steps to improve the
FEP and local Plan’s F&A Programs, and is currently working with OPM to achieve
consistency in BCBS and OPM guidance.

Recommendation 5

We recommend that the contracting officer require the Association to provide evidence or
supporting documentation ensuring that the Plan has implemented a policy to review and
investigate all FEHBP potential exposure upon the initiation of any and all fraud, waste,
and abuse allegations and/or issues within the SIU. The Plan should timely report all
fraud, waste, and abuse allegations and/or issues in FIMS, whether substantiated or not,
based on the guidelines established by the Association’s FEP SIU and required by
applicable FEHBP Carrier Letters.

Association’s Response:

The Association disagrees that all cases with potential FEP exposure should be included
in FIMS. It states that the policy is for Plans to enter a case into FIMS after they
complete their initial assessment and confirm that evidence exists to support the
allegation. The Local Plans maintain a database for all case activity. The Association
states, “It would be duplicative and an inefficient use of FEP funds for Plans to maintain
case information in their local databases and FIMS for every case or allegation they
investigate.”

However, the Association agrees that the guidelines for reporting fraud, waste, and abuse
activity into FIMS may not have been clear enough to ensure full compliance with the
applicable Carrier Letters. The Association has developed a corrective action plan which
includes a revised FEP Fraud, Waste and Abuse Program Standards Manual that includes
enhanced definitions and clearer FEP requirements and FIMS training for the Plan’s staff.

In addition, “The Plan currently has a policy in place to review and investigate all
FEHBP potential exposure upon the initiation of any and all fraud, waste and abuse
allegations and/or issues within the SIU. The Plan will timely report all fraud, waste and
abuse allegations and/or issues in FIMS as defined within FEPDO’s FEP Standards
Manual for Fraud, Waste & Abuse.”

OIG Comments:

As stated earlier, Carrier Letters 2007-12 and 2011-13 require all plans to report fraud
and abuse cases where there is a reasonable suspicion that a fraud has occurred or is
occurring against the FEHBP. Nowhere in these letters does it state that the Plan must
confirm the initial complaint of fraudulent activity.

We are pleased that the Association has developed a corrective action plan and a revised
manual to train the plans’ staff on when to enter complaints/cases into FIMS. However,

23
we do not agree with all of the items in these documents. We agree to work with the
Association, the FEPDO, and OPM’s contracting officers to develop agreed-upon
definitions and clearer guidance regarding the reporting of fraud and abuse cases to the
OIG.

We are also pleased that the Plan’s SIU has developed a policy to investigate and report
all complaints with FEHBP exposure into FIMS in accordance with the FEPDO’s
updated FEP Standards Manual for Fraud, Waste, and Abuse. However, as noted above,
we do not necessarily agree with all FEP manual updates, especially those that redefine
when complaints/cases are to be reported to OPM and the OIG.

Recommendation 6

We recommend that the contracting officer require the Association to provide evidence or
supporting documentation ensuring that the Plan has implemented a process to track all
instances of SIU-initiated recoveries, claim denials and cost avoidance. The process
should include linking the recoveries, actual savings, and cost avoidance to the initiated
cases and/or investigations in order to accurately report FEP recoveries and actual and/or
projected savings to the Association and OPM annually, as required by Carrier Letter
2003-25 (Revised FEHB Quality Assurance and Fraud and Abuse Reports).

Association’s Response:

The Association agrees with this recommendation.

The Association states, “BCBSA staff has initiated a revised Local Plan monitoring
approach, which will ensure that there is appropriate focus with responsible staff at every
Plan, and where appropriate, implement additional BCBSA monitoring activities. This
enhanced monitoring activity is scheduled to be fully implemented by June 30, 2013.

The Plan currently has a process in place to track all instances of SIU initiated recoveries,
claim denials and cost avoidance and link the recoveries, actual savings and cost
avoidance to the initiated cases and/or investigations in FIMS in order to accurately
report FEP related recoveries, actual and/or projected savings to BCBSA.”

Recommendation 7

We recommend that the contracting officer instruct the Association and Plan to update
their F&A policy and procedure manuals to accurately reflect the requirements of the
FEHBP, industry standards, case sharing and reporting guidelines, as well as the annual
reporting requirements of Carrier Letters 2003-23 (Fraud and Abuse Industry Standards),
2003-25 (Revised FEHB Quality Assurance and Fraud and Abuse Reports), and 2011-13
(Mandatory Information Sharing via Written Case Notifications to OPM’s Office of the
Inspector General).

24
Association’s Response:

The Association agrees with this recommendation. The Association has updated its
fraud, waste and abuse manual and distributed this revised manual to all BCBS plans on
December 28, 2012. The Association states, “The revised manual makes FEP
requirements clearer and should result in greater adherence to requirements for case
input.

The Plan has updated its F&A policy and procedure manual to accurately reflect the
requirements of the FEHBP as reflected within the FEPDO’s FEP Standards Manual for
Fraud, Waste and Abuse.”

OIG Comments:

We are pleased that the Association has proactively updated and distributed its revised
manual related to FEP fraud, waste and abuse. However, we do not necessarily agree
with all of the updates that were made to the manual. We look forward to working with
OPM’s contracting officers, as well as the Association, in developing guidance all parties
agree on.

Recommendation 8

We recommend that the contracting officer direct the Association to provide OPM and
the OIG full access to FIMS and the BCBSA National Anti-Fraud Advisory Board
(NAAB) meetings.

Association’s Response:

The Association partially disagrees with this recommendation to provide full access to
FIMS and NAAB meetings.

The Association states that “unlimited access by the OIG to the system at this time would
result in potential inefficiencies for FEP. However, in order to provide the OPM OIG
investigators with efficient, effective and faster access to cases, BCBSA will submit
alternative processes for sharing relevant case information with OPM OIG on an
established and timely basis.

In addition, because of the detailed operational nature of the agenda, the NAAB meetings
are task oriented sessions for Local Plan and BCBSA members only. However, we will
invite the OPM OIG to participate in select portions of the agenda regarding case sharing
and items specific to FEP for each NAAB meeting. This was already initiated with the
recently completed January 2013 NAAB meeting, which included an OPM OIG
representative.”

25
OIG Comments:

We continue to recommend that the contracting office direct the Association to provide
OPM and the OIG with full access to FIMS, a program fully paid for by OPM with
FEHBP funds. Full access is necessary for OPM and the OIG to monitor the
Association’s fraud and abuse activity and the FEPDO’s oversight, and will allow the
OIG to make inquiries when we notice non-compliance by a BCBS plan such as untimely
reporting. In addition, it will provide necessary information for analysis purposes prior to
future OIG audits. This alone will save time and money for the local BCBS plans and the
FEPDO.

The analysis of this Plan’s FIMS entries showed that only 14 of the 116 unique cases
entered by the Plan were reported to the OIG. It also showed that the Plan’s entries into
FIMS had significant timeliness issues. If the OIG had full access to FIMS, those 116
cases would have been reviewed and investigated by us. Also, we would have notified
the Plan and FEPDO of the untimely reporting issue in real time and resolved the issue
much earlier.

We are pleased that the Association has agreed to have an OIG representative participate
in the NAAB meetings. We agree that our participation should be limited to the FEHBP
portion of those meetings.

Recommendation 9

We recommend that the contracting officer direct the Association to provide OPM and
the OIG an annual report of their oversight activities related to the FEHBP’s F&A
Program activities. The report should discuss all compliance issues, as well as the
corrective actions that the Association has implemented with the local BCBS plans to
correct all deficiencies (i.e., areas of non-compliance).

Association’s Response:

The Association partially agrees with this recommendation. The Association states,
“BCBSA will design and prepare an annual compliance oversight report by
September 30, 2013 with the goal of submitting the final report to the Contracting Officer
on or about March 31, 2014 to reflect on the 2013 calendar year results.”

OIG Comments:

We are pleased that the Association has agreed to prepare an oversight report for its 2013
calendar year results. However, we continue to recommend that the contracting officer
require these reports to be submitted on an annual basis. We are available to work with
the contracting officer and the Association to determine exactly what information should
be included in these reports.

26
Recommendation 10

We recommend the contracting officer direct the Association to provide OPM an annual
report identifying and detailing all costs associated with the Association’s FEP F&A
Program. These costs should be identified by department (e.g., legal, compliance, claims
utilization, and provider audits).

Association’s Response:

The Association partially agrees with this recommendation. The Association states, “In
most situations, it is not possible to distinguish the FEP vs. Non-FEP anti-fraud related
costs system wide . . . given the variety of allocation and tracking methodologies that
may be used and in some cases the small amount of the charge. As a result, tracking any
and all costs associated with the Association’s FEHB fraud and abuse program is likely
not possible in many instances. However, BCBSA is committed to developing an
acceptable format to report readily definable and available relevant costs. We expect to
complete the report for submission with the 2013 Fraud and Abuse Report.”

OIG Comments:

The Association’s FEHBP contract with OPM requires them to capture and report all
costs associated with their anti-fraud and abuse activities, so we expect the Association to
do a better job of this in the future. We are pleased that the Association is developing a
format to include more relevant costs and look forward to working with them and OPM’s
contracting officer in determining an acceptable methodology and procedures for
capturing these costs.

Recommendation 11

We recommend that the contracting officer require the Plan to provide the methodology
and a measure of performance (based on industry standards) ensuring that the F&A
Program is a benefit to the FEHBP, in accordance with Contract CS 1039, Section 1.9(a).

Association’s Response:

The Association disagrees with this recommendation. The Association states that the
FEHBP contract only requires the Association, as the Carrier, to calculate and report an
aggregate ROI to OPM. The Association will calculate ROI for the 2012 contract year
for all local BCBS plans using the following standard:

Recoveries + Claims Denied + Investigative Expenses Recovered / Actual Fraud
Expenses incurred

The Association also states, “For the 2013 contract year, BCBSA will work with all
Local Plans to identify a standard methodology for reporting SIU initiated fraud, waste

27
and abuse cases, recoveries, savings and related costs, including those handled by other
departments outside the SIU at the direction of the SIU.”

OIG Comments:

We disagree that the FEHBP contract states that the Carrier must provide “an aggregate
ROI to OPM.” The contract states that the Carrier must submit to OPM an annual
analysis of the costs and benefits of its F&A Program. Therefore, we continue to
recommend that the contracting officer require the Association to provide the
methodology and a measure of performance to ensure its fraud, waste, and abuse program
is a benefit to the FEHBP. We believe it is imperative that the Plan be able to track and
provide all costs associated with its fraud, waste, and abuse program and that those costs
be provided on the annual fraud and abuse report.

We accept the Association’s ROI formula/calculation as long as the amounts used in the
calculation are easily traceable and supportable to specific complaints, cases,
investigations, and/or claims.

Recommendation 12

To ensure that all FEHBP Carriers are reporting statistics to OPM based on the same
definitions, we recommend that the contracting officers prepare and distribute to all
Carriers the definitions for the terms “fraud”, “waste”, and “abuse”.

Association’s Response:

The Association agrees with this recommendation and will also propose definitions to
OPM by September 30, 2013.

Recommendation 13

We recommend that the contracting officer direct the Association to perform a study to
determine how many local BCBS plans actually utilize proactive fraud detection
software; determine what systems are being utilized; provide descriptions of the systems’
capabilities; and determine the total costs and benefits of these systems to the FEHBP.
The results of this analysis should be provided to the contracting officer.

Association’s Response:

The Association agrees with this recommendation and will evaluate the feasibility of
obtaining all of this information. The Association will provide the results of the study to
the contracting officer by December 31, 2013.

28
IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

Lead Auditor

, Auditor

, Chief

, Senior Team Leader

Office of Investigations

, Special Agent-In-Charge

, Senior Audit Advisor to the Assistant Inspector General for Investigations

29
SCHEDULE A
V. SCHEDULES

FLORIDA BLUE
JACKSONVILLE, FLORIDA

CONTRACT CHARGES

CONTRACT CHARGES* 2009 2010 2011 TOTAL

A. HEALTH BENEFIT CHARGES

PLAN CODE 90 $616,844,084 $637,742,834 $682,942,668 $1,937,529,586
MISCELLANEOUS PAYMENTS AND CREDITS 2,107,205 501,088 (2,004,401) 603,892

PLAN CODE 590 566,320,418 564,237,987 578,302,946 1,708,861,351
MISCELLANEOUS PAYMENTS AND CREDITS 0 0 0 0

TOTAL HEALTH BENEFIT CHARGES $1,185,271,707 $1,202,481,909 $1,259,241,213 $3,646,994,829

B. ADMINISTRATIVE EXPENSES

PLAN CODE 90 $60,774,604 $54,597,931 $55,796,509 $171,169,044
PRIOR PERIOD ADJUSTMENTS ($1,000) ($216,808) $709,315 $491,507
BUDGET SETTLEMENT ($2,096,719) ($1,475,612) $0 ($3,572,331)

TOTAL ADMINISTRATIVE EXPENSES $58,676,885 $52,905,511 $56,505,824 $168,088,220

TOTAL CONTRACT CHARGES $1,243,948,592 $1,255,387,420 $1,315,747,037 $3,815,083,049

* This audit covered miscellaneous health benefit payments and credits and cash management activities from January 1, 2010 through
February 29, 2012, as well as administrative expenses from 2009 through 2011.
SCHEDULE B
FLORIDA BLUE
JACKSONVILLE, FLORIDA

QUESTIONED CHARGES

AUDIT FINDINGS 2009 2010 2011 TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
AND CREDITS*

1. Health Benefit Refunds and Recoveries $0 $70,787 $0 $70,787

TOTAL MISCELLANEOUS HEALTH BENEFIT
PAYMENTS AND CREDITS $0 $70,787 $0 $70,787

B. ADMINISTRATIVE EXPENSES

1. Post-Retirement Benefit Costs $793,845 $350,620 $478,970 $1,623,435
2. Unallowable and/or Unallocable Expenses 74,116 0 0 74,116

TOTAL ADMINISTRATIVE EXPENSES $867,961 $350,620 $478,970 $1,697,551

C. CASH MANAGEMENT $0 $0 $0 $0

D. FRAUD AND ABUSE PROGRAM

1. Special Investigations Unit (Procedural) $0 $0 $0 $0

TOTAL FRAUD AND ABUSE PROGRAM $0 $0 $0 $0

TOTAL QUESTIONED CHARGES $867,961 $421,407 $478,970 $1,768,338
Apri l 16, 20 13
....

BlueCross BlueSbield
Association
An Association ofInde penden t
Group Chief Blue Cross and Blue Shield Plans
Group
Office of the Inspector General Fed eral Employee Program
U.S. Office of Personnel Management 13 10 G Street, N.W.
1900 E Street, Room 6400 Washington, D .C . 20005
202.942.1000
Washington , DC 20415-11000 Fax 202 .942. 1125

Reference: OPM DRAFT AUDIT REPORT
BlueCross BlueShield of Florida
Audit Report Number 1A-10-41-12-050
(Dated March 1, 2013 and Received March 1, 2013)

Dear
T his is Blue Cross and Blue Sh ield of Florida, Inc.'s (Plan) response to the above
referenced U.S. Office of Personnel Management (OPM) Draft Audit Report covering
the Federal Employees' Health Benefits Program (FEHBP) . The Blue Cross and Blue
Shield Association (BCBSA) and the Plan are comm itted to enhancing existing
procedures on issues identified by OPM. Please consider this feedback when updating
the OPM Final Aud it Report.

Our comments concerning the findings in the report are as follows :

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

1. Health Benefit Refunds $70 ,787

OPM questioned $70,787 in health benefit refunds that had not been returned to the
FEHBP . The Plan agreed with this finding and , on February 13, 2013, returned the
entire amount to the FEHBP. Documentation that supported the return of these funds
was forwarded to the OPM OIG for their review and confirmation.

B. ADMINISTRATIVE EXPENSES

1. Post Retirement Benefit Costs $1 ,623,435

OPM questioned $1 ,623,435 in Post Ret irement Benefit costs charged to the FEHBP
during the period 2009 - 201 1. The Plan ag reed that, during th is period , the FE HBP
April 16, 2013
Page 2 of 13

was overcharged by $239,080, due to an allocation error but disagrees with $1,384,355
due to the method used by the OIG in its calculation of the Post Retirement Benefit
costs charged to the FEHBP. The Plan continues to state that its cost accounting
practices for its Post Retirement Benefit (PRB) plan complies in all material respects
with FAR 31.205-6(o) Compensation/Post Retirement Benefits Other Than Pensions
("PRB"). "Modified" FAS 106 calculations provided by the Plan's independent pension
actuaries are reasonable because the differences between the PRB, for financial
reporting and government cost accounting purposes, are due primarily to the different
starting points for the GAAP accrual accounting for financial reporting and the
conversion to GAAP accrual accounting for government cost accounting (referred to as
"Modified" FAS 106). Additionally, cash contributions in excess of the current year's
accrued cost are accounted for as prepayment credits that may be carried over to future
periods up to the amount of the “Modified” FAS 106 expense amount. FAR 31.205-6(o)
(2)(iii)(F). The OIG stated that it was in the process of further reviewing the Plan’s
response in the draft report.

On February 15, 2013, the Plan submitted Prior Period Adjustments in the amount of
$239,080, to return to the FEHBP the agreed upon portion of the questioned costs.
However, Contract Year 2009 was an under-funded year for the Plan and the amount of
the CY2009 unreimbursed costs exceeded the amount of the submitted credit Prior
Period Adjustment. Because the Plan’s total unreimbursed costs exceeded the amount
of the credit Prior Period Adjustment, the result is that the Plan remains under-funded
and the credit Prior Period Adjustment merely reduces the total amount of unfunded
costs. (Please see Attachment A)

2. Unallowable and/or Unallocable Costs $74,116

OPM questioned $74,116 in unallowable/unallocable project costs charged in error
to the FEHBP in 2009. The Plan agreed with this finding and submitted a Prior
Period Adjustment (PPA) to return the funds in the amount of $74,116. However,
as stated in OPM’s Draft Audit Report, Contract Year 2009 was an under-funded
year for the Plan and the amount of the CY2009 unreimbursed costs exceeded the
amount of the submitted credit Prior Period Adjustment. Because the Plan’s total
unreimbursed costs exceeded the amount of the credit Prior Period Adjustment,
the result is that the Plan remains under-funded and the credit Prior Period
2
April 16, 2013
Page 3 of 13

Adjustment merely reduces the total amount of unfunded costs. (Please see
Attachment A).

Procedures have been updated with checks and balances to ensure the
appropriate adjustment is being made. An out-of-balance will be a warning that
there is an error in the excel spreadsheet.

C. CASH MANAGEMENT – No findings

D. FRAUD AND ABUSE PROGRAM

1. Fraud and Abuse Program Procedural

The Plan continues to disagree with the statement of non-compliance with contract
CS 1039 and other guidance issues by OPM and the FEPDO, and whether
FEHBP is deriving the full benefits of the plan’s fraud and abuse activities.
The FEPDO and the Plan have created a system of controls to monitor, identify,
investigate and recover fraudulent and abusive payments of FEHBP funds and is
substantially in compliance with the requirements of CS 1039.The Plan’s FEP
Fraud and Abuse Program is designed to protect patient safety and the health
care assets of Federal beneficiaries.

The Plan disagrees with the statement noted within the draft report, “As a result of
the Plan’s non-compliance, fraud and abuse may go undetected and unreported
within the FEHBP…” During the audit scope of 2010 and 2011, the Plan’s fraud &
abuse program activities resulted in over $7.7 million dollars of actual recoveries
and savings, ensuing in a positive return on investment (ROI) between $1.29 and
$6.19. However, the goal of the Fraud and Abuse Program is focused on the
proactive prevention and detection of fraud on a national basis, i.e., to prevent
fraudulent claims from being paid at the outset.

Additionally, the plan disagrees with the statement noted within the draft report,
“Plan’s reported recoveries and savings were inaccurate”. No evidence was
provided by the auditors as a result of this audit to reflect that recoveries and
savings that were reported were inaccurate.

3
April 16, 2013
Page 4 of 13

Incomplete and Untimely Reporting – FEHBP Fraud Cases

The draft audit report results include statements purporting to direct what information
should be included in the FIMS system. In response, the Plan disagrees with OIG’s
interpretation of FEPDO’s internal policies and procedures regarding the criteria for
reporting of the Plan’s complaints and cases into FIMS. Based on the finding, the OIG
interprets the FEP policy as requiring Plans to enter all complaints and cases in which
FEP may have exposure into FIMS, regardless of whether that exposure is related to
the initial allegation, compliance, billing error, or fraudulent activity. The OIG is
determining exposure simply as a dollar of Program funds paid to a provider in question.
However, this definition of exposure is overly broad and would result in the inputting of a
substantial number of complaints in which a preliminary review has not been completed
in order to determine whether there is reasonable suspicion that a fraud has occurred
or is occurring.

Carrier Letter Number 2011-13 effective June 17, 2011, states that all Carriers “are
required to submit a written notification to the OPM OIG (“OIG”) within 30 working days
of becoming aware of a fraud, waste or abuse issue where there is a reasonable
suspicion (emphasis added) that a fraud (emphasis added) has occurred or is
occurring against the Federal Employees Health Benefits (FEHB) Program.”

Therefore, the Plan disagrees with the statement noted in the audit results of “2551
cases/complaints were provided.” As requested by the OIG auditors, the data file
provided consisted of complaints during the audit period, in which 314 cases were
opened. Further, the Plan disagrees with the Draft Report statement “754 of those
cases should have been entered into FIMS and reported to OPM and OIG” due to the
fact that these were complaints and a reasonable suspicion that a fraud had occurred
or was occurring against the FEHBP had not been established. To the best of our
ability, the Plan believes that of the 314 cases that were opened, the cases potentially
affecting FEBHP were entered into FIMS using the BCBSA’s defined criteria. The
remaining complaints did not meet the standards that would have required reporting
under the FEHBP guidelines.

Furthermore, the Plan disagrees with the accuracy of the Draft Report regarding the
internal referrals to Healthcare Provider Audit (HPA), specifically the statement “Our
analysis of these 33 complaints/cases [referred to HPA] found that 8 of the 33 cases
were entered in FIMS, and 2 of the 8 cases entered in FIMS were reported to the OIG.”
The Plan noted out of the 33 referrals to HPA, 12 were identified as cases and 21 were
identified as complaints. The Plan disagrees that complaints should be entered into
FIMS due to the lack of a reasonable suspicion that a fraud has occurred or is occurring
4
April 16, 2013
Page 5 of 13

against the FEHBP. Of the 12 cases that were referred over to HPA, 9 cases were
entered into FIMS, and 1 case did not fit the criteria as defined by the FEPDO. The
Plan agrees that 2 of the cases should have been entered into FIMS based on the
criteria defined by the FEPDO.

The intent of the FEPDO’s policy is not for the Plan to enter every complaint or case
they initiate with potential FEP exposure as defined by OPM OIG, but for Plans to enter
a case into FIMS once they have completed their initial review of the issue and
confirmed the details of the initial complaint occurred, billing error, or fraudulent activity.
BCBSA defines exposure as a dollar amount paid in which a confirmed issue exists.
Page 22 of the FEP Fraud Prevention and Reporting Manual states (used for the scope
of this audit), “Local Plans are required to notify the FEP SIU of potential fraud cases”
however it refers the reader to Section 3.3 of the FEP FIMS manual for further
clarification. Section 3.3 (Page 11) of the FIMS manual states that FIMS is a system for
reporting FEP fraud cases. It also states that FIMS serves as the primary vehicle to
report FEP Fraud related cases. Cases in which a Plan confirms that there is not a
fraud issue or that the issue is unrelated to FEP are not required to be entered into
FIMS.

The Plan maintains a local database in which we record all related complaint and case
activity. It would be duplicative and an inefficient use of Program funds for Plans to
maintain case information in their local databases and FIMS for every case, allegation,
billing error, etc. that is investigated. It is the intent of the FEPDO that the Plans only
enter case information once they have confirmed that there is FEP exposure to the
original accusation, complaint, billing error, or fraudulent activity.

The Plan disagrees with the accuracy regarding the statement “In the two policy
manuals we reviewed provided by the Plan, we found no references made to any actual
FEHB fraud and abuse program contract requirement or FEHBP fraud and abuse case
reporting requirements.” The Plan’s SIU manuals do contain references to the actual
FEHB fraud and abuse program; however, the Plan did not receive an information
request to obtain SIU manuals from the OIG auditors.

However, based on the findings, we do agree that FEPDO policies and procedures can
be further refined regarding the specific criteria Plans should use to report cases and,
accordingly, the FEPDO has updated policies and procedures as of December 31,
2012. The Plan will receive training regarding the updated policies and procedures
through written communications from the FEPDO and at Blue Cross Blue Shield
conferences. Additionally, the Plan will reference the FEHBP fraud and abuse program

5
April 16, 2013
Page 6 of 13

within the corporate wide policy and ensure current infrastructure can support the
updates.

In summary, although the Plan disagrees with OIG’s interpretation of the criteria used to
input data into FIMS, the Plan will integrate revised criteria for reporting more
specifically defined cases into FIMS.

Incomplete and/or Inaccurate Reporting - FEHBP Fraud and Abuse Recoveries

The draft audit report results states the Plan is providing incomplete and/or inaccurate
reporting per the Contract, which requires the Plan to submit reports to OPM annually
that identify dollars as lost and recovered, as well as, actual and projected savings
related to fraud and abuse.

In response, the Plan agrees in part and disagrees in part. Per CS 1039, the FEPDO
must provide reporting to OPM annually. The Plan acknowledges that 2 cases were not
reported per the defined FEPDO criteria; however, no evidence was provided that cases
were reported inaccurately. The Plan agrees the Plan is only reporting recoveries and
savings from fraud related cases in FIMS as required by FEPDO criteria.

Costs and Benefits of Plan’s Fraud and Abuse Activities

The draft audit report results include statements purporting that the FEHBP does not
appear to be deriving the full benefit from the Plan’s fraud and abuse activities.

The Plan disagrees with OIG’s position that the FEHBP is not deriving the full benefit
from the Plan’s fraud and abuse program. The FEP Fraud Control Program is designed
to protect patient safety and the health care assets of Federal beneficiaries and the
Federal Government. The goal of the Program is primarily on the proactive prevention
and detection of fraud on a national basis, i.e., to prevent fraudulent claims from being
paid at the outset. This goal is accomplished by various methods, including utilizing anti-
fraud software; by reviewing tips, leads and referrals from different sources; and by
coordinating efforts and sharing information on current schemes and industry trends
with other Plans, law enforcement, prosecutorial agencies, industry associations,
medical/licensing boards and other health insurance carriers.
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The Plan’s SIU is focused on fraud prevention, in part, due to the difficulty of recovering
program’s funds through restitution. Therefore, the Plan would encourage reviewing
OPM’s benefit of each plan’s fraud and abuse activities by also taking into account
projected medical savings, which is projected savings calculated as the amount of
claims that would have been billed had the SIU not intervened and stopped the
fraudulent behavior, an industry accepted metric.

As stated above, the Plan disagrees with the accuracy of the Return on Investment
(ROI) calculation by OIG for the Program was between a positive $1.29 and a negative
($8.88). BCBSA provides an overall ROI calculation for the entire SIU program to OPM,
in order for OPM to determine whether deriving full benefit. However, if Florida Blue
were to calculate a ROI it would be between a positive $1.29 and $6.19.

The OIG’s ROI calculation incorrectly included the entire costs for HPA of $2,476,815
and did not consider HPA recoveries of $18,168,722 for 2010 & 2011. As mentioned
within the Draft Report, HPA reviews both waste and abuse related cases, therefore the
ROI calculation provided above excluded costs and recoveries associated with waste
and cases not identified as “Provider Billing error” categories. The calculation provided
by the Plan is conservative and may be understated, due to HPA cases were not
classified as “abuse” or “waste” for the entire audit period reviewed.

As described in the Plan’s response above, the Plan disagrees with specific assertions
in the draft audit report and the general assertion that the FEHBP is not deriving the full
benefit from the Plan’s fraud and abuse activities. It is the Plan’s belief that some of the
reasons for the findings are a result of ambiguous terminology being used in relation to
reporting SIU activities and the Plan looks forward to remedying this matter in
coordination with the OIG, as appropriate, and the FEPDO. Additionally, the Plan seeks
to continuously improve its program and will work with the FEPDO to make appropriate
adjustments to processes.

Please see responses to the following recommendations:

Recommendation 4:

We recommend that the contracting officer have the Association verify that the Plan
implements a policy to review and investigate all FEHBP potential exposure upon the
initiation of any and all fraud, waste, and abuse allegations and/or issues within the SIU.
The Plan should timely report all fraud, waste, and abuse allegations and/or issues in
FIMS, whether substantiated or not, based on the guidelines established by the
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Association’s FEP SIU and required by OPM’s Carrier Letter 2011-13 (Mandatory
Information Sharing via Written Case Notifications to OPM’s Office of the Inspector
General).

In response, BCBSA disagrees with the OIG’s recommendation to include all cases with
potential exposure in FIMS. The intent of FIMS is not that Local BCBS Plans enter
every case or project they record with potential FEP exposure as defined by OPM OIG
into FIMS, but for Plans to enter a case into FIMS once they have completed their initial
assessment of the issue and confirmed that the claims or other evidence supports the
allegation and/or raises a reasonable suspicion that fraud, waste or abuse is involved.
Cases in which a Local Plan confirms that there is no reasonable suspicion to believe
that there is a fraud issue, or where the issue is unrelated to FEP are not required to be
entered into FIMS.

Additionally, Local Plans maintain a local case or project database in which they record
all the related case activity. It would be duplicative and an inefficient use of FEP funds
for Plans to maintain case information in their local databases and FIMS for every case
or allegation they investigate. It is the intent of BCBSA that Local Plans only enter case
information once they have confirmed that there is exposure to the original accusation,
complaint, or fraudulent activity.

However, BCBSA agrees that the guidelines for reporting fraud, waste and abuse
activity into FIMS may not have been clear enough to fully ensure compliance with the
relevant Carrier letters. As a corrective action plan:

• BCBSA conducted a thorough examination of available industry definitions of Fraud,
Waste and Abuse. The resulting enhanced definitions were included in the Revised
FEP Fraud, Waste and Abuse Program Standards Manual that was issued to Plan
SIU departments on December 28, 2012. The revised manual was also issued to
Persons with Primary FEP Responsibility and Primary Internal Audit Responsibility
on February 15, 2013. The revised manuals make FEP requirements clearer and
should result in greater adherence to requirements for case input. BCBSA will also
continue to evaluate the FEP Fraud, Waste and Abuse Program Standards Manual
to determine if any additional guidance is required on how Local Plans should report
fraud, waste and abuse cases in FIMS.

• BCBSA has updated its policy to require Plan staff to attend training that is specific
to FIMS reporting or other contractually mandated requirements. Roll-out scheduled
completion date is June 30, 2013.

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The Plan currently has a policy in place to review and investigate all FEHBP potential
exposure upon the initiation of any and all fraud, waste and abuse allegations and/or
issues within the SIU. The Plan will timely report all fraud, waste and abuse allegations
and/or issues in FIMS as defined within FEPDO’s FEP Standards Manual for Fraud,
Waste & Abuse.

Recommendation 5:

We recommend that the contracting officer have the Association verify that the Plan
implements a process to track all instances of SIU initiated recoveries, claim denials
and cost avoidance, and link the recoveries, actual savings, and cost avoidance to the
initiated cases and/or investigations in FIMS in order to accurately report FEP related
recoveries and actual and/or projected savings to the Association and OPM annually, as
required in Carrier Letter 2003-25 (Revised FEHB Quality Assurance and Fraud and
Abuse Reports).

In response, BCBSA agrees with the recommendation to enhance monitoring of Local
Plan initiated recoveries, claim denials and cost avoidance activities, and link the
activities to the initiated cases and/or investigations.

BCBSA staff has initiated a revised Local Plan monitoring approach, which will ensure
that there is appropriate focus with responsible staff at every Plan, and where
appropriate, implement additional BCBSA monitoring activities. This enhanced
monitoring activity is scheduled to be fully implemented by June 30, 2013.

The Plan currently has a process in place to track all instances of SIU initiated
recoveries, claim denials and cost avoidance and link the recoveries, actual savings and
cost avoidance to the initiated cases and/or investigations in FIMS in order to accurately
report FEP related recoveries, actual and/or projected savings to BCBSA.

Recommendation 6:

We recommend that the contracting officer instruct the Association and the Plan to
update its F&A policy and procedure manual to accurately reflect the requirements of
the FEHBP, industry standards, case sharing and reporting guidelines, as well as the
annual reporting requirements of Carrier Letters 2003-23 (Fraud and Abuse Industry
Standards), 2003-25 (Revised FEHB Quality Assurance and Fraud and Abuse Reports),
and 2011-13 (Mandatory Information Sharing via Written Case Notifications to OPM’s
Office of the Inspector General).

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In response, BCBSA agrees with the recommendation to update its fraud, waste and
abuse policy and procedure manual to consistently reflect the requirements of the
FEHBP and updated its manual and distributed the revised manual to all Plans on
December 28, 2012. The revised manual was also issued to Persons with Primary FEP
Responsibility and Primary Internal Audit Responsibility on February 15, 2013. The
revised manual makes FEP requirements clearer and should result in greater
adherence to requirements for case input.

The Plan has updated its F&A policy and procedure manual to accurately reflect the
requirements of the FEHBP as reflected within the FEPDO’s FEP Standards Manual for
Fraud, Waste and Abuse.

Recommendation 7:

We recommend that the contracting officer direct the Association to provide OPM and
OPM’s OIG full access to FIMS. We also recommend that the contracting officer direct
the Association to invite a staff member from OPM OIG’s Office of Investigations to
attend the BCBSA National Anti-Fraud Advisory Board meetings.

In response, BCBSA partially disagrees with the recommendation to provide full access
to FIMS and NAAB meetings. FIMS is an internal management reporting system used
by BCBSA and Local Plans to report Fraud, Waste and Abuse cases. Before cases can
be accepted into FIMS, they must be reviewed and evaluated by BCBSA consultants,
who then work with Local Plans to ensure the proper data elements are entered. As
such, unlimited access by the OIG to the system at this time would result in potential
inefficiencies for FEP. However, in order to provide the OPM OIG investigators with
efficient, effective and faster access to cases, BCBSA will submit alternative processes
for sharing relevant case information with OPM OIG on an established and timely basis.

In addition, because of the detailed operational nature of the agenda, the NAAB
meetings are task oriented sessions for Local Plan and BCBSA members only.
However, we will invite the OPM OIG to participate in select portions of the agenda
regarding case sharing and items specific to FEP for each NAAB meeting. This was
already initiated with the recently completed January 2013 NAAB meeting, which
included an OPM OIG representative.

Recommendation 8:

We recommend that the contracting officer direct the Association to provide OPM and
OPM OIG an annual report of their oversight activities related to the FEHB fraud and

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abuse program. The report should discuss any and all compliance issues, as well as,
the action plan the Association implemented with the local Plan to correct all
deficiencies (i.e. areas of non-compliance).

In response, BCBSA partially agrees with this recommendation. BCBSA will design and
prepare an annual compliance oversight report by September 30, 2013 with the goal of
submitting the final report to the Contracting Officer on or about March 31, 2014 to
reflect on the 2013 calendar year results.

Recommendation 9:

We recommend the contracting officer direct the Association to provide OPM an annual
report identifying and detailing any and all costs associated with the Association’s FEHB
fraud and abuse program. These costs should be identified by department (i.e. legal,
compliance, claims utilization, provider audit, etc.).

In response, BCBSA partially agrees with this recommendation. In most situations, it is
not possible to distinguish the FEP vs. Non-FEP anti-fraud related costs system wide for
other, peripheral departments, (e.g. Legal, Claims Utilization, Provider Audit etc.), given
the variety of allocation and tracking methodologies that may be used and in some
cases the small amount of the charge. As a result, tracking any and all costs
associated with the Association’s FEHB fraud and abuse program is likely not possible
in many instances. However, BCBSA is committed to developing an acceptable format
to report readily definable and available relevant costs. We expect to complete the
report for submission with the 2013 Fraud and Abuse Report.

Recommendation 10:

In response, there are no industry standards currently; therefore, BCBSA disagrees with
the recommendation to require the BCBSFL Plan to provide a methodology and
measure for determining the benefits of the Plan’s fraud program based on industry
standards. CS 1039 Section 1.9(a) states that the Carrier must submit to OPM an
annual analysis of the costs and benefits of its fraud and abuse program. For this
reference, the Carrier is the Blue Cross Blue Shield Association. To ensure that an
appropriate, industry standard based ROI is reported, FEP will calculate ROI for the
2012 contract year for all Local Plans as follows:
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Recoveries + Claims Denied + Investigative Expenses Recovered / Actual Fraud
Expenses incurred.

For the 2013 contract year, BCBSA will work with all Local Plans to identify a standard
methodology for reporting SIU initiated fraud waste and abuse cases, recoveries,
savings and related costs, including those handled by other departments outside the
SIU at the direction of the SIU.

Recommendation 11:

We recommend that the contracting office develop and distribute to all FEHBP Carriers
definitions for the terms “fraud”, “waste” and “abuse” so that all Carriers are reporting
statistics to OPM based on the same definitions.

In response, BCBSA agrees with this recommendation and will prepare proposed
definitions and provide our recommendations to the Contracting Officer by September
30, 2013.

Recommendation 12:

We recommend that the contracting officer direct the Association to perform a study to
determine how many local plans utilize proactive fraud detection software; determine
what system is being utilized; provide a description of the systems capabilities; and
determine the total costs and benefit of these systems to the FEHBP.

In response, BCBSA agrees with this recommendation and will evaluate the feasibility of
obtaining all of the requested information by June 30, 2013. We will provide the results
of the study to the Contracting Officer by December 31, 2013.

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Page 13 of 13

We appreciate the opportunity to prov ide our response to th is Draft A udit Report and
req uest that our comments be included in the ir entirety as an amendment to the Final
Aud it Report.

Sincere ly,

•
cc : Contracting Officer, OPM
ce Pres ident, FEP
FEP
, BCBSFL