oversight

Audit of Bluecross Blueshield of Arkansas Little Rock, Arkansas

Published by the Office of Personnel Management, Office of Inspector General on 2009-02-25.

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

                                                         US OFFICE OF PERSONNEL MANAGEMENT
                                                             OFFICE OF THE INSPECTOR GENERAL
                                                                              OFFICE OF AUDITS




··.FinaIAudif Report 



AUDIT:OFBLUE·CROSSBElJESH1ELD OF ARKANSAS .
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                              .. ....         ..,.
                                          It()CKARKANSAS
                                            . . . . . . ..   .   .....             :..   ....    ..




                                             Report No. lA-JO-44-08-,046


                                                                   ..        .

                                             . Date: :. FebruafY 25,2009·




                                                             --CAUTION-­
 This audit reportbas been distrib!Jttd to Federal officials wbo are responsible for the adminiSlration oftbe audited program. Tbisauditreport
 may tonta.in proprietuy data wbicb is protected by FederaUaw (18 U.S.C. 1905); therdore, wbile this audit report is available under the
 Freedom on 0 formation Act, eaution needs to be exercised before releasing the report to tbe geoe'ral pu blic.
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                          Washington, DC 20415 



  Office of the
Inspector General




                                       AUDIT REPORT



                             Federal Employees Health Benefits Program 

                             Service Benefit Plan     Contract CS 1039 

                                  BlueCross BlueShield Association 

                                            Plan Code 10 


                                  BlueCross BlueShield of Arkansas 

                                        Plan Codes 0201520 

                                       Little Rock, Arkansas 





                      REPORT NO. IA-1O-44-08-046          DATE:February 25, 2009




                                                           Michael R. Esser
                                                           Assistant Inspector General
                                                             for Audits




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

                                             Washington, DC 20415 



   Office of the
Inspector General




                                    EXECUTIVE SUMMARY



                               Federal Employees Health Benefits Program 

                               Service Benefit Plan     Contract CS 1039 

                                    BlueCross BlueShield Association 

                                              Plan Code 10 


                                    BlueCross BlueShield of Arkansas 

                                          Plan Codes 020/520 

                                         Little Rock. Arkansas 





                       REPORT NO. lA-10-44-08-046           DATE: February 25, 2009

      This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
      BlueCross BlueShield of Arkansas (Plan) in Little Rock, Arkansas questions $255,472 in health
      benefit charges. The BlueCross BlueShield Association (Association) agreed (A) with $224,548
      and disagreed (D) with $30,924 of the questioned charges.

      Our audit was conducted in accordance with Government Auditing Standards. The audit covered
      Claim payments from 2005 through 2007, as well as miscellaneous payments and credits and
      administrative expenses from 2003 through 2007 as reported in the Annual Accounting
      Statements. In addition, we reviewed the Plan's cash management practices related to FEHBP
      funds for contract years 2003 through 2007.

      Questioned items are summarized as follows:




        www.opm.go\l                                                                      www.usajobs.gov
                            HEALTH BENEFIT CHARGES 


Claim Payments

•   Omnibus Budget Reconciliation Act of 1990 Review                                     $131,555

    The Plan incorrectly paid 26 claims that were priced or potentially should have been priced
    under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines. Specifically, the
    Plan overpaid 21 claims by $147,576 and underpaid 5 claims by $16,021, resulting in net
    overcharges of$131,555 to the FEHBP. The Association agreed with $100,631 (A) and
    disagreed with $30,924 (D) of the questioned charges.

•   Claim Payment Errors fA)                                                              $99,004

    The Plan incorrectly paid 99 claims, resulting in overcharges of $99,004 to the FEHBP.

Miscellaneous Payments and Credits

•   Subrogation Recoveries fA)                                                            $24,913

    In one instance, the Plan did not return a subrogation recovery of $9,862 to the FEHBP. Also,
    the Plan inadvertently increased a letter of credit (LOC) drawdown, instead of decreasing the
    drawdown, to return subrogation recoveries to the FEHBP, resulting in a drawdown error of
    $9,983. As a result, the FEHBP is due $24,913; consisting of $9,862 for the subrogation
    recovery not returned to the FEHBP, $9,983 for the LOC drawdown error, and $5,068 for LII
    on these exceptions.

                            ADMINISTRA TIVE EXPENSES

    The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded
    that the administrative expenses charged to the FEHBP were actual, allowable, necessary,
    and reasonable expenses incurred in accordance with the tenns of the contract and applicable
    laws and regulations.

                                  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 findings pertaining to cash
    management noted in the "Miscellaneous Payments and Credits" section.




                                                11
                                                     CONTENTS 

                                                                                                                           PAGE

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


 1.    INTRODUCTION AND BACKGROUND ............................................. " ...................... 1 


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


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


       A.     HEALTH BENEFIT CHARGES ............................................................................. 6 


              1.    Claim Payments ............................................................................................... 6 


                    a. Omnibus Budget Reconciliation Act of 1990 Review ............................... 6 

                    b. Claim Payment Errors ................................................................................ 9 


              2.    Miscellaneous Payments and Credits ............................................................. 12 


                    a. Subrogation Recoveries ........................................................................... 12 


       B.     ADMINISTRATIVE EXPENSES ......................................................................... 14 


       C.     CASH MANAGEMENT ....................................................................................... 14 


 IV.   MAJOR CONTRIBUTORS TO THIS REPORT ........................................................... 15 


 V.    SCHEDULES

       A.     CONTRACT CHARGES AND AMOUNTS QUESTIONED
       B.     QUESTIONED CHARGES

       APPENDIX 	 (BlueCross BlueShield Association reply, dated December 9, 2008, to
                  the draft audit report)
                         I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


This final audit report details the findings, conclusions, and recommendations resulting from our
audit of the Federal Employees Health Benefits Program (FEHBP) operations at BlueCross
BlueShield of Arkansas (Plan). The Plan is located in Little Rock, Arkansas.

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

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




I 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

Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, management of the Plan is responsible for establishing
and maintaining a system of internal controls.

All findings from our previous audit of the Plan (Report No. lA-l 0-44-02-097, dated July 29,
2003) for contract years 1999 through 2001 have been satisfactorily resolved.

The results of this audit were provided to the Plan in written audit inquiries; were discussed with
Plan andlor Association officials throughout the audit and at an exit conference; and were
presented in detail in a draft report, dated October 10,2008. The Association's comments offered
in response to the draft report were considered in preparing our final report and are included as the
Appendix to this report_




                                                 2

               II. ·OBJECTIVES, SCOPE, AND METHODOLOGY 


OBJECTIVES 


The objectives of our audit were to detennine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the tenns ofthe contract. Specifically,
our objectives were as follows:

       Health Benefit Charges

       • 	 To detennine whether the Plan complied with contract provisions relative to benefit
           payments.

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

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

       Administrative Expenses

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

       Cash Management

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

SCOPE

We conducted our performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
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 020 and 520 for contract years 2003 through 2007. During this period, the
Plan paid approximately $563 million in health benefit charges and $36 million in administrative
expenses (See Figure 1 and Schedule A).




                                               3

Specifically~we reviewed approximately $8 million in claim payments made from 200S through
2007 for proper adjudication. In addition, we reviewed miscellaneous payments and credits, such
as refunds and subrogation recoveries, administrative expenses, and cash management for 2003
through 2007.

In planning and conducting our audit, we
                                                                  BlueCross BlueShield of Arkansas
obtained an understanding of the Plan's                                  Contract Charges
internal control structure to help determine
the nature, timing, and extent of our                 $200 - r - - - - - - - - - - - - - - - - - - ,
auditing procedures. This was detennined
to be the most effective approach to select     III   $150   +----~~~~-~~--~----I
                                                c
areas of audit. For those areas selected, we    .9
primarily relied on substantive tests of        ~ $100
                                                ~
transactions and not tests of controls.
Based on our testing, we did not identify              $50
any significant matters involving the Plan's
internal control structure and its operation.
However, since our audit would not                            2003      2004        2005        2006   2007
                                                                               Contract Years
necessarily disclose all significant matters
in the internal control structure, we do not            rJHeallh Benefit Payments    _Administrative Expenses
express an opinion on the Plan's system of
internal controls taken as a whole.                          Figure 1 - Contract Charges

We also conducted tests to detennine whether the Plan had complied with the contract, the
applicable procurement regulations (i:e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items test~d, the Plan did not comply with all provisions of the contract and federal procurement
regUlations. Exceptions noted in the areas reviewed are set forth in detail in the ItAudit Findings
and Recommendations lt section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.

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

The audit was performed at the Plan's office in Little Rock, Arkansas from August 4 through
August 15. 2008 and September 15 through September 26, 2008. Audit fieldwork was also
performed at our offices in Washington, D.C. and Jacksonville, Florida.




                                                 4

METHODOLOGY 

                                                                        /
We obtained an understanding of the internal controls over the Plan's claims processing, cost
accounting, and financial systems by inquiry of Plan officials.

To test the Plan's compliance with the FEHBP health benefit provisions, we selected and
reviewed samples of 535 claims? We used the FEHBP contract, the Service Benefit Plan
brochure, the Plan's provider agreements, and the Association's FEP administrative manual to
determine the allowability of benefit payments. The results of these samples were not projected
to the universe of claims.

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting
records during our audit of miscellaneous payments and credits. We also judgmentally selected
and reviewed 59 health benefit refunds, totaling $2,270,131 (from a universe of 8,875 refunds,
totaling $3,827,527)~ 50 subrogation recoveries, totaling $1,920,719 (from a universe of2,831
subrogation recoveries, totaling $15,815,747); and 15 Special Plan Invoices, totaling $1,634,447
in net payments (from a universe of 97 Special Plan Invoices, totaling $4,815,982 in net
payments) to determine if refunds and recoveries were promptly returned to the FEHBP and if
miscel1aneous payments were properly charged to the FEHBP. The results of these samples were
not projected to the universe of miscellaneous payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 2003
through 2007. Specifically, we reviewed administrative expenses relating to cost centers, natural
accounts, pension, post-retirement, employee health benefits, executive compensation, lobbying,
non-recurring projects, and Health Insurance Portability and Accountability Act of 1996
compliance. We used the FEHBP contract, the FAR, and the FEHBAR to determine the
allowability, allocability, and reasonableness of charges.

We also reviewed the Plan's cash management to determine whether the Plan handled FEHBP
funds in accordance with Contract CS 1039 and applicable laws and regulations.




2See the audit findings for "Omnibus Budget Reconciliation Act of 1990 Review" (Al.a) and "Claim Payment
Errors" (A1.b) on pages 6 through 12 for specific details of our sample selection methodologies.
          III. AUDIT FINDINGS AND RECOMMENDATIONS 


A. HEALTH BENEFIT CHARGES

  1. Claim Payments

    a. Omnibus Budget Reconciliation Act of 1990 Review                              $131,555

       The Plan incorrectly paid 26 claims that were priced or potentially should have been
       priced under the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) pricing
       guidelines. Specifically, the Plan overpaid 21 claims by $147,576 and underpaid 5
       claims by $16,021, resulting in net overcharges of$131,555 to the FEHBP.

       Contract CS 1039, Part III, section 3.2 (b)(1) states, "The Carrier may charge a cost
       to the contract for a contract term if the cost is actual, allowable, allocable, and
       reasonable." Part II, section 2.3(g) states, "Ifthe Carrier or OPM determines that a
       Member's claim has been paid in error for any reason, the Carrier shall make a
       diligent effort to recover an overpayment ...."

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

       Using a program developed by the Centers for Medicare and Medicaid Services (CMS)
       to price OBRA 90 claims, we recalculated the claim payment amounts for the claims in
       our samples that were subject to and/or processed as OBRA 90.

       The following summarizes the claim payment errors.

       OBRA 90 Claim Pricing Errors

       For the period of 2005 through 2007, we identified 731 claims, totaling $5,719,515 in
       payments, that were subject to OBRA 90 pricing guidelines. From this universe, we
       selected and reviewed a judgmental sample of 145 claims, totaling $2,738,964 in
       payments, to determine if these claims were correctly priced by the FEP Operations
       Center and paid by the Plan. Our sample included all OBRA 90 claims with amounts
       paid of$IO,OOO or more.

       Based on our review, we determined that 16 claims were paid incorrectly, resulting in
       net overcharges of $] 26,040 to the FEHBP. Specifically, the Plan overpaid 14 claims
       by $139,316 and underpaid 2 claims by $13,276.




                                            6

The claim payment errors resulted from the following:

• 	 The Plan inadvertently did not price eight claims under OBRA 90, resulting in
    overcharges of $93,362 to the FEHBP".

• 	 The FEP Operations Center priced seven claims using incorrect Medicare
    Diagnostic Related Group (DRO) codes. Consequently, the Plan overpaid five
    claims by $39,318 and underpaid two claims by $13,276, resulting in net
    overcharges of $26,042 to the FEHBP.

• 	 The Plan paid one claim using the incorrect local pricing amount, resulting in an
    overcharge of $6,636 to the FEHBP.

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

For the period of 2005 through 2007, we identified 126 claims, totaling $187,791 in
payments, that were potentially subject to OBRA 90 pricing guidelines but appeared to
be priced under the Plan's standard pricing procedures. From this universe, we selected
and reviewed ajudgmental sample of 79 claims, totaling $185,208 in payments, to
determine if the Plan paid these claims properly. Our sample included all possible
OBRA 90 claims with amounts paid of $100 or more.

Based on this review, we detennined that 10 claims were paid incorrectly, resulting in
net overcharges of $5,515 to the FEHBP. Specifically, the Plan overpaid seven claims
by $8,260 and underpaid three claims by $2,745.

The claim payment errors resulted from the following:

• 	 The Plan paid one claim using the incorrect billed charges, resulting in an
    overcharge of $2,022 to the FEHBP.

• 	 The Plan paid three claims using incorrect local pricing amounts, resulting in
    overcharges of $1 ,907 to the FEHBP.

• 	 The Plan inadvertently did not price six claims under OBRA 90, resulting in net
    overcharges of$I,586 to the FEHBP. Specifically, the Plan overpaid three claims
    by $4,331 and underpaid three claims by $2,745.

Association's Res ponse:

In response to the amount questioned in the draft report, the Association agrees with
$100,631 ($95,116 + $5,515) and disagrees with $37,209 ($30,924 + $6,285) of the net
overcharges. The Association states that the Plan has perfonned adjustments to correct
the underpayments and initiated recovery efforts for the uncontested overpayments.
The Association also states that these payments were good faith erroneous benefit




                                     7

payments and fall within the context of CS 1039, Part II, section 2.3(g). Any payments
the Plan is unable to recover are allowable charges to the FEHBP. As good faith
erroneous payments, lost investment income (LIl) does not apply to the claim payment
errors identified in this finding.

For the "OBRA 90 Claim Pricing Errors" finding, the Association states, "The Plan
contests $30,924 but does not contest $95,116 in questioned costs. The questioned
amount is contested because when the claims were re-processed with the FEP OBRA
'90 Mainframe Pricer the new price was different than the price that was obtained by
OPM OIG's use ofthe PC Pricer." Regarding the "Possible OBRA 90 Claims" finding,
the Association states that the Plan does not contest $5,515 in questioned costs.

In addition, the Association states, "To reduce these types of payment errors in the
future, the FEP Director's Office has implemented the following corrective action
plan:

• 	 Identify all claims that were not OBRA '90 priced and provide to Plans for
    correction as part of the new FEP System-wide Claims review process.

• 	 Modify FEP claims system to defer claims whenever a Plan indicates that a
    provider is not an approved provider. This will ensure that the Plan has submitted
    the proper information.

• 	 Modify the FEP claims system to override Plan's indication of whether or not the
    Provider is a Medicare approved provider and validate the status through the FEP
    OBRA '90 software."

OIG Comments:

After reviewing the Association's response, we revised the amount questioned from
the draft report to net overcharges of $131,555. Based on the response, the
Association agrees with $100,631 and disagrees with $30,924 of these net overcharges.

For the contested amount, the FEP Operations Center's OBRA 90 pricing amounts
differed from the eMS Pricer amounts. Based on our experience with auditing
BlueCross and BlueShield plans, we have found that these pricing differences occur
because the mainframe pricing software used by the FEP Operations Center is not
always up-to-date. Therefore, we will continue to use the latest version of the eMS
Pricer program, which includes up-to-date pricing, to detennine if claims paid under
OBRA 90 were correctly priced by the FEP Operations Center and paid by the Plan.

Recommendation 1

We recommend that the contracting officer disallow $147,576 in claim overcharges,
and verify that the Plan returns all amounts recovered to the FEHBP.




                                     8

   Recommendation 2

    We recommend that the contracting officer allow the Plan to charge the FEHBP
  . $16,021 if additional payments are made to the providers to correct the underpayment
    errors.

   Recommendation 3

   Although the Association has developed a corrective action plan to reduce OBRA 90
   findings, we recommend that the contracting officer instruct the Association to ensure
   that the Plan is following the corrective action plan.

b. 	 Claim Payment Errors                                                         $99,004

   The Plan incorrectly paid 99 claims, resulting in overcharges of $99,004 to the
   FEHBP.

   As previously cited from Contract CS 1039, costs charged to the FEHBP must be
   actual, allowable, allocable, and reasonable. If errors are identified, the Plan is
   required to make a diligent effort to recover the overpayments.

   The following summarizes the claim payment errors.

   Amounts Paid Greater than Covered Charges

   For the period of 2005 through 2007, we identified 188 claims where the amounts
   paid were greater than the covered charges by a total of$71,860. From this universe,
   we selected and reviewed a judgmental sample of 46 claims with a total variance of
   $68,698, and determined if the Plan paid these claims properly. Our sample included
   all claims where the amounts paid exceeded covered charges by $100 or more. Based
   on our review, we identified 20 claim payment errors, resulting in overcharges of
   $61,568 to the FEHBP.


   The claim payment errors resulted from the following:

   • 	 The Plan inadvertently paid for unallowable incidental procedures on four claims,
       resulting in overcharges of $34,226 to the FEHBP.

   • 	 The Plan paid five claims using incorrect allowances, resulting in overcharges of
       $12,256 to the FEHBP.

   • 	 The Plan paid five claims without applying the provider discount, resulting in
       overcharges of$7,491 to the FEHBP.




                                        9

• 	 The Plan made four duplicate claim payments, resulting in overcharges of $6,472
    to the FEHBP.

• 	 The Plan inadvertently paid two claims incorrectly, resulting in overcharges of
    $1,123 to the FEHBP. These overcharges were due to the Plan not pricing the
    claims in accordance with the provider contract, which required these claims to be
    paid at the lower of billed charges or contract allowance. In each instance, the
    Plan paid the claim at the higher amount (billed charges).

Assistant Surgeon Review

For the period 2005 through 2007, we identified 262 assistant surgeon claim groups,
totaling $70,085 in potential ovetpayments, that may not have been paid in
accordance with the Plan's assistant surgeon pricing procedures. From this universe,
we selected and reviewed a judgmental sample of 165 assistant surgeon claim groups,
totaling $65,698 in potential overpayments, to determine if the Plan paid these claims
properly. Our sample included all assistant surgeon claim groups with potential
overpayments of$100 or more. The majority ofthese claim groupings contained one
primary surgeon and one assistant surgeon claim. Based on our review, we
determined that 74 claims were paid incorrectly, resulting in overcharges of $29,798
to the FEHBP.

The claim payment errors resulted from the following:

• 	 The Plan inadvertently priced 55 claims incorrectly, resulting in overcharges of
    $20,833 to the FEHBP. These overcharges were due to a Plan system limitation
    that did not recognize the assistant surgeon modifier.

• 	 The Plan incorrectly paid nine assistant surgeon claims that were subject to
    Omnibus Budget Reconciliation Act of 1993 (OBRA 93) pricing guidelines,
    resulting in overcharges 0[$4,330 to the FEHBP. These errors were due to
    Palmetto (OBRA 93 pricing vendor) not recognizing the assistant surgeon pricing
    modifier and erroneously calculating the assistant surgeon allowance. The
    assistant surgeon allowance should have been priced at 16 percent of the primary
    surgeon's Medicare allowed amount.

• 	 The Plan paid seven claims using incorrect allowances, resulting in overcharges of
    $4,069 to the FEHBP.

• 	 The Plan incorrectly paid one claim due to a processor inadvertently pricing
    incidental procedures, resulting in an overcharge of $317 to the FEHBP.

• 	 The Plan paid one claim without applying the assistant surgeon pricing percentage,
    reSUlting in an overcharge of $218 to the FEHBP.




                                    10 

             • 	 Due to a biUing error, the Plan priced one claim using an incorrect modifier,
                 resulting in an overcharge of $31 to the FEHBP.

             System Review Overpayments

             For health benefit claims incurred and reimbursed during the period January 1, 2007
             through December 31, 2007, we identified 1,181,1 09 claim lines, totaling
             $102,897,619 in payments, using a standard criteria based on our experience. From
             this universe, we judgmentally selected and reviewed a sample of 100 claims
             (representing 1,116 claim lines), totaling $5,043,738 in payments, to determine if the
             Plan adjudicated these claims properly.) Based on this review, we identified five
             claim payment errors, resulting in overcharges of $7,638 to the FEHBP. In each
             instance, the Plan paid the claim using the incorrect allowance.

             Association's Response:

            The Association agrees with this finding. The Association states that the Plan has
            initiated recoveries for these claim overpayments. The Association also states that
            these payments were good faith erroneous benefit payments and fall within the
            context ofCS 1039, Part II, section 2.3(g). Any payments the Plan is unable to
            recover are allowable charges tothe FEHBP. As good faith erroneous payments, LII
            does not apply to these claim payment errors.

             For the "Amounts Paid Greater than Covered Claims" finding, the Association states,
             "The incorrectly paid claims ... were the result of Examiner error. ... To reduce
             overpayments in the future, the Plan will provide additional training to claims
             examiner staff on a quarterly basis. The Plan also completes the FEPDO System­
             wide Claims Review (which includes a listing of Amounts Paid Greater than Charges
             Claims). These items combined should reduce payment errors ofthis nature in the
             future."

             Regarding the "Assistant Surgeon Review" finding, the Association states, "The Plan
             reviewed the errors and determined that the errors were caused by a Local Plan system
             limitation that did not recognize the Assistant Surgeon Modifier. In addition,
             Examiner error contributed to this finding." The Association also states that the Plan
             implemented correction action to prevent these types of claim payment errors.

             Regarding the "System Review Overpayments" finding, the Association states. "The
             Plan has reviewed the incorrectly paid claims and determined that the errors were the
             result of Examiner error.... To reduce overpayments in the future, the Plan will work
             with claims examiner staff to focus on specific issues noted from external audits and

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




                                                       11
      overpayment identification methods to minimize the likelihood of recurrence. The
      Plan employs several methods to identify overpayments."

      Recommendation 4

      We recommend that the contracting officer disallow $99,004 in claim overcharges, and
      verify that the Plan returns all amoWlts recovered to the FEHBP.

      Recommendation 5

      We recommend that the contracting officer instruct the Association to ensure that the
      Plan implemented and/or is implementing corrective actions to prevent these types of
      claim payment errors in the future.

2. Miscellaneous Payments and Credits

   a. Subrogation Recoveries                                                           $24,913

      The Plan did not return one subrogation recovery of$9,862 to the FEHBP. Also, the
      Plan inadvertently increased a letter of credit (LOC) drawdoWll, instead of decreasing
      the drawdoWll, to return subrogation recoveries to the FEHBP, resulting in a
      drawdown error of$9,983. As a result, the FEHBP is due $24,913; consisting of
      $9,862 for the subrogation. recovery not returned to the FEHBP, $9,983 for the LOC
      drawdown error, and $5,068 for LII on these exceptions.

       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 Govenunent either as a cost reduction or by cash refund."

      FEP Financial Policies and Procedures Bulletin Number 54, Refunds to FEP Letter of
      Credit Account, states: "A Plan receiving routine refunds is responsible for crediting
      the funds to the FEP Letter of Credit Account (LOCA) and investing the funds until
      the credit occurs. The Plan invests the refunds for the benefit of the FEHBP in the
      Plan's dedicated FEP Investment Account. Plans may be liable for lost investment
      income if the funds are not invested or returned within 30 days of receipt...."

      Also, based on an agreement between OPM and the Association, dated March 26,
      1999, BlueCross and BlueShield plans have 30 days to return refunds and recoveries
      to the FEHBP if received after March 31, 1999 before LII will be assessed.

      48 CFR 1652.215-71 (e) states that investment income lost on these funds must be
      credited to the FEHBP. In addition, section (f) of this regulation states, "All lost
      investment income payable shall bear simple interest at the quarterly rate determined
      by the Secretary of the Treasury ...."




                                            12 

For the period 2003 through 2007, we identified 2,831 subrogation recoveries totaling
$15,815,747. From this universe, we se1ected and reviewed a judgmental sample of
50 subrogation recoveries, totaling $1,920,719, for the purpose of detennining if the
Plan promptly returned these recoveries to the FEHBP. Our sample included all
subrogation recoveries of $10,000 or more.

Based on our review, we noted the following exceptions:

• 	 In one instance, the Plan did not return a subrogation recovery from 2003, totaling
    $9,862, to the FEHBP.

• 	 The Plan inadvertently increased the LOe drawdown on April 15, 2003, instead
    of decreasing the drawdown, to return subrogation recoveries to the FEHBP. As a
    result, the Plan overdrew $9,983 from the LOe account.

In total, the Plan owes the FEHBP $24,913; consisting of$9,862 for the subrogation
recovery not returned to the FEHBP, $9,983 for the Loe drawdown error, and $5,068
for LII on these exceptions. As part of this finding, we calculated LII through
September 29,2008 on these exceptions.

Association's Response:

The Association agrees with this finding. The Association states that the Plan
submitted a Special Plan Invoice (SPI) to the FEP Director's Office for this audit
finding and wire transferred $24,944 to FEP on October 10, 2008. The SPI included
additional LII of $31.

Recommendation 6

We recommend that the contracting officer verifY that the Plan credited the FEHBP
$19,845 ($9,862 + $9,983) for the subrogation recovery not returned and the Loe
drawdown error.

Recommendation 7

We recommend that the contracting officer verify that the Plan credited the FEHBP
$5,068 (plus interest accruing after September 29,2008) for LII on the subrogation
recovery not returned to the FEHBP and the LOC drawdown error.
B. ADMINISTRATIVE EXPENSES

  The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded
  that the administrative expenses charged to the FEHBP were actual, allowable, necessary,
  and reasonable expenses incurred in accordance with the terms of the contract and applicable
  laws and regulations.

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 findings pertaining to cash
  management noted in the "Miscellaneous Payments and Credits" section.




                                             14 

              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experienced-Rated Audits Group

              Auditor.,In-Charge

              Auditor

             Auditor

                 Auditor




                Senior Team Leader




                                     1 /;\
                                                                                                                                                                                                                                                                   SCHEDULE A
                                                                ,,   !
                                                                    V. SCHEDULES 

                                                          BLUECROSS BLUESHIELD OF ARKANSAS 

                                                               LITTLE ROCK, ARKANSAS 


                                              CONTRACT CHARGES AND AMOUNTS QUESTIONED


CONTRACT CHARGES                                      2003                              2004                              2005                                                   2006               2007                                                                TOTAL


A. HEALTH BENEFIT CHARGES

  PLAN CODE 020                              $50,727,046                         $57,254,559                          $58,262,200                                      $62,607,507             $70,560,848                                                             $299,412,160
  MISCELLANEOUS PAYMENTS                         375,702                             360,551                              348,154                                        1,413,432               2,032,668                                                                4,530,507

  PLAN CODE 520                                  41,662,319                          48,132,780                         51,980,000                                         55,362,816             62,327,308                                                             259,465,223
  MISCELLANEOUS PAYMENTS                                  0                                   0                                  0                                                  0                      0                                                                       0

  TOTAL HEALTH BENEFIT CHARGES    I          $92,765,067                      $105,747,890
                                                                            ~;IiI~1 1~1f;H~I~mii\"lU'WI~mlllJm~mll
                                                                                                                     $110,590,354                                  $119,383,755
                                                                                                                                   IlIl1Im~I!H~im~I'lImWIOO'rrnII;fltiiIl:lINI
                                                                                                                                                                                              $134,920,824
                                                                                                                                                                                                                                            ,,,.""...   ,,
                                                                                                                                                                                                                                                                       $563,407,890
                                                                                                                                                                                                                                                                        ,                     ",,,.re
                                                                                                                                                                                                                                                                                                        ~


B. ADMINISTRATIVE EXPENSES

  PLAN CODES 020/520                                  $6,516,766                       $6,795,594                         $7,216,551                                             $7,632,044         $8,347,395                                                           $36,508,350
  PRIOR PERIOD ADJUSTMENTS                                     0                                0                           (13,959)                                                     0                  0                                                                (13,959)

  TOTAL ADMINISTRATIVE EXPENSES   I             $6,516,766                           $6,795,594                         $7,202,592                               $7,632,044
                                                                                                                          ,,,,,,,,.,,,,,'0,,,,,,.,,,,•••""'''.'''',1,...,,,,,••,,,,,,,,,      , $8,347,395
                                                                                                                                                                                                       ,
                                                                                                                                                                                                                                                                     $36,494,391 it
                                      m~,,~L'4lnmiH                      ,''' '' "mmmmm••"."""".,"',••"',,, , ••••,,....
                                                                                                                                                                                                       "
                                                                                                                                                                                                                                           ••••••"".,IIl'"""••"""",OO1'••"••"".,,,',,,wl'mru!l "I

  TOTAL CONTRACT CHARGES          I          $99,281,833                      $112,543,484                           $117,792,946                                  $127,015,799               $143,268,219                                                             $599,902,281 Ii



AMOUNTS QUESTIONED
                                                      2003                              2004                              2005                                                   2006               2007                                 2008                           TOTAL
(PER SCHEDULE B)

A. HEALTH BENEFIT CHARGES                               $20,331                                        $842                 $133,101                                               $25,870                 $74,610                                   $718                       $255,472
B. ADMINISTRATIVE EXPENSES                                    0                                           0                        0                                                     0                       0                                      0                              0
C. CASH MANAGEMENT                                            0                                           0                        0                                                     0                       0                                      0                              0

  TOTAL QUESTIONED CHARGES        I               $20,331                                       $842                              $133,101                            $25,870                     $74,610                                      $718                             $255,472 !~
                                      "",",••••••",••,,,,__,,,,",111,,,11.,,,,_,,,.,,,,,,,",.,,"",,,,.,.,,,,,.,,,'"' ' ,. "".," ,,",,,•••,,,,,",," ••••,"""".,.".""••••'••,1.1 m'••••••"••"•••'"""••• "'~, '",••,"'.,,,,,,,,,,,,•••,,,.,,,,.""...,,,,,,,.',,,,,,"',,,,,.,,,,••,,•••••,,"""'".'.,!II' 1,1
                                                                                                                                                                                                                                                                                         SCHEDULEB
                                                                 BLUECROSS BLUESHIELD OF ARKANSAS
                                                                      LITTLE ROCK, ARKANSAS


,
                                                                                      QUESTIONED CHARGES
,



    AUDIT FINDINGS                                                              2003                                  2004                                   ·2005                                       2006                             2007               2008                                TOTAL

    A. HEALTH BENEFIT CHARGES

      l.   Claim Payments
           a. Omnibus Budget Reconciliation Act of 1990 Review                                  SO                                    $0                       5108,419                                    $12,284                         $10,852                              $0                 $131,555
           b. Claim Payment Errors                                                                 0                                   0                         23,818                                     12,513                          62,673                               o·                  99,004

           Total Claim Payments                                  I                              $0                                    $0                       $132,237                                    $24,797                         S73,525                              SO                 $230,559

      2.   Miscellaneous Payments and Credits
            Subrogation Recoveries
           B.                                                                      $20,331                                      $842                                      $864                                $1,073                        $1,085                      $718                        $24,913

           Total Miscellaneous Payments and Credits              I                 $20,331                                      $842                                      $864                                Sl,073                        $1,085                     $718                         $24,913

      TOTAL HEALTH BENEFIT CHARGES                               I ,,,,,,,""""IIlI"""'
                                                                                $20,331
                                                                                      " ,
                                                                                                                                $842
                                                                                                                                             •"., m
                                                                                                                                                               S133,101
                                                                                                                                                                                     III'i"•••••ru""""m
                                                                                                                                                                                                           S25,870                         $74,610
                                                                                                                                                                                                                                            ,II,",,,,
                                                                                                                                                                                                                                                                        $718
                                                                                                                                                                                                                                                                         1111
                                                                                                                                                                                                                                                                                                   $255,472
                                                                                                                                                                                                                                                                                                             I,,,,,,,,....
                                                                                                                                                                                                                                                                                                                             @



    B. ADMINISTRATIVE EXPENSES                                   I                              $0                                    $0                                        $0                                        SO                     $0                             $0                                 SO        W.
                                                                     11~1'IJ~'m~~'""""'lliil"","lim.li.m••• "i.II""'~lm~llI\IIIImmKl!11                          '.                         ~illlll'~1                I                                 mm~~mml~                             i




    C. CASH MANAGEMENT                                           I                              SO                                    SO
                                                                                               rn"",,,,.,"I"wml.".."."'h.","I""",".'lIlmmlllJmlllll~~mlm
                                                                                                                                                                                $0                                        $0
                                                                                                                                                                      I~YIID~I~~Wlillll\llm.,lm"ml.HlII.rnmmwwmiWlllllillmml" ••••""II.....m
                                                                                                                                                                                                                                                 SO
                                                                                                                                                                                                                                                             ~lIilllm~!OOl1l1
                                                                                                                                                                                                                                                                                SO
                                                                                                                                                                                                                                                                                                   . ii i
                                                                                                                                                                                                                                                                                                                  SO il


    TOTAL QUESTIONED CHARGES                                     I Immw"mmmm S20,331                                            $842                           $133,101                                    $25,870
                                                                                                                                          .1",wmwllwl~i!lmrnW~IIIIlI.'~"" ••• """'WIIIIIII'''"I~mill!llHlIlllllrnrnmmOOmlllJlillilOOilW
                                                                                                                                                                                                                                           $74,610                     $718
                                                                                                                                                                                                                                                                                ' "11,••,,
                                                                                                                                                                                                                                                                                                   $255,472 m
                                                                                                                                                                                                                                                                                                            m,m.IIll1II"rnl ~I
                                                                                                       "'"
                                                                                                   APPENDIX 




                                                                        ••
                                                                         BlueCross BlueShield
                                                                         Association
                                                                         An ,\s$qciali(]n uf Independent
                                                                         Blue Cr')" IOml Blue Shiel,l Plans




                                                                          1.~10   G Strt<el, N.W
December 9,2008                                                          Waslling1.OJl. D.C. 20005
                                                                         202.626.4780
                                                                          Fax 202.626.4855

Group Chief, Experienced Rated Audit Groups
Insurance Services Programs
U.S. Office of Personnel Management
1900' E. Street, N.W., Room 6400
Washington, D.C. 20415-1100

Reference: 	          OPM Draft AudIt Report
                      Arkansas BlueCross BlueShield
                      Audit Report Number 1A-1044-08-046
                      (Dated 10/10/2008 and received 10110/2008)

Dear

This is in response to the above referenced U.S. Office of Personnel
Management (OPM) Draft Audit Report concerning Arkansas BlueCross
BlueShield. Our comments concerning the findings in the report are as follows:

A. HEALTH BENEFIT CHARGES

   1. Claim Payment Errors

       a. Omnibus Budget Reconciliation Act of 1990                    $137,840

       The Plan overpaid 23 claims for $165,321 and underpaid 7 claims for
       $27,481 for a net overpayment amount of $137,840.

       •   Claims Not Priced Under OBRA '90 	                           $11,800

       The Plan contests $6,285 but does not contest that a net of $5,515 in claim
       payments may have been paid in error. The questioned amount is contested
       based on the fact that four claims questioned in the sample are not subject to
       OBRA '90 pricing. since another insurance carrier was primary for three
       cJaims and one claim contained a mental health diagnosis.

       Adjustments have been performed to correct the underpayments and
       recovery efforts have been initiated on the agreed overpayments.
                           Chief
OPM Draft Report Audit Response
December 10,2008
Page 2



    • 	 OBRA 90 Claim Pricing Errors                                $126.040

    The Plan contests $30,924 but does not contest $95,116 in questioned
    costs. The questioned amount is contested because when the claims were
    re-processed with the FEP OBRA '90 Mainframe Pricer the new price was
    different than the price that was obtained by OPM DIG's use of the PC
    Pricer.

    Adjustments have been peiformed to correct the underpayments and
    recovery efforts have been initiated on the agreed overpayments.

    To reduce these types of payment errors in the future, the FEP Director's
    Office implemented the following corrective action plan:

    • 	 Identify all claims that were not OBRA '90 priced and provide to Plans
        for correction as part of the new FEP System-wide Claims review
        process.
    • 	 Modify FEP claims system to defer claims whenever a Plan indicates
        that a provider is not an approved provider. This will ensure that the
        Plan has submitted the proper information.
    • 	 Modify the FEP claims system to override Plan's indication of whether or
        not the Provider is a Medicare approved provider and validate the status
        through the FE? OSRA '90 software.
    The Plan also has several methods in place to identify overpayments.
    These methods include, but are not limited to the FEP System-wide Claim
    Review, COB and Duplicate claims reports provided by the FEP Director's
    Office, and routine audits performed by the Plan's internal claims staff.
    While these measures are not absolute, they provide reasonable
    assurances that such items will be identified. Accordingly, to the extent that
    errors did occur, the payments are good faith erroneous benefits payments
    and fall within the context of CS 1039, Section 2.3(g). Any benefit payments
    the Plan is unable to recover are allowable charges to the Program. In
    addition, as good faith erroneous benefits payments, lost investment income
    does not apply to the payments identified in this finding.

    b. 	 Claim Payment Errors                                        $99.004

    We do not contest the questioned claim overpayment amount totaling
    $99,004 to the FEHBP.
                    Group Chief
OPM Draft Report Audit Response
December 10, 2008
Page 3


    •   Amount Paid Greater than Charges                              $61,568

    The incorrectly paid claims for Amount Greater than Charges were the
    result of Examiner error. The Plan has initiated recovery on all
    overpayments and $58,052 has been returned· to the Program as of
    November 30,2008. To reduce overpayments in the future, the Plan will
    provide additional training to claims examiner staff on a quarterly basis. The
    Plan also completes the FEPDO System-wide Claims Review (which
    includes a listing of Amount Paid Greater than Charges Claims). These
    items combined should reduce payment errors of this nature in the future.


    •   Assistant Surgeon                                             $29,798

    We do not contest this finding. The Plan reviewed the errors and
    determined that the errors were caused by a Local Plan system limitation
    that did not recognize the Assistant Surgeon Modifier. In addition, Examiner
    error contributed to this finding. The Plan has initiated recovery on all
    overpayments.

    The Plan implemented the following corrective action:

    Corrective Action

    The Plan's local Claims System was modified through system configuration
    and edit changes to support proper processing of claims submitted with the
    AS modifier.

    The Plan will complete the System-wide Claim Review Report provided by
    the FEPDO when it is received which includes assistant surgeon claims.


    System Review Overpayments                                          $7,638

    The Plan does not contest this finding. The Plan has reviewed the
    incorrectly paid claims and determined that the errors were the result of
    Examiner error. The Plan has initiated recovery on all overpayments.

    To reduce overpayments in the future, the Plan will work with claims
    examiner staff to focus on specific issues noted from external audits and
    overpayment identification methods to minimize the likelihood of
    recurrence. The Plan employs several methods to identify overpayments.
    These methods include, but are not limited to the, FEP System-wide Claim
    Review, COB and Duplicate claims reports provided by the FEP Director's
    Office, and routine audits pertormed by the Plan's internal claims staff.
                    Group Chief
OPM Draft Report Audit Response
December 10, 2008
Page 4


      While these measures are not absolute, they provide reasonable
      assurances that such items will be identified. Accordingly, to the extent
      that errors did occur, the payments are good faith erroneous benefits
      payments and fall within the context of CS 1039, Section 2.3(g). Any
      benefit payments the Plan is unable to recover are allowable charges to
      the Program. In addition, as good faith erroneous payments, lost
      investment income does not apply to the payments identified in this
      finding.

 2. Miscellaneous Payments and Credits

      a. Subrogation Recoveries                                       $24.913

      The Plcm does not contest the questioned amount of $24,913 related to
      Subrogation Recoveries. The Plan submitted a Special Plan Invoice to
      the FEP Director's Office and wired $24,944 to FEP on October 10,
      2008, which included additional lost investment income of $31.

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




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