oversight

Audit of Independence Bluecross Philadelphia, Pennsylvania

Published by the Office of Personnel Management, Office of Inspector General on 2011-12-01.

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 INDEPENDENCE BLUECROSS

                 PHILADELPHIA, PENNSYLVANIA



                                            Report No. lA-lO-55-11-019



                                             Date:       December 1, 2011




                                                          --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 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 pu blicly distributed copy.
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                           Washington, DC 20415


  Office of the
Inspector General




                                        AUDIT REPORT




                              Federal Employees Health Benefits Program

                              Service Benefit Plan     Contract CS 1039

                                   BlueCross BlueShield Association

                                             Plan Code 10


                                       Independence BlueCross

                                            Plan Code 362

                                      Philadelphia, Pennsylvania





                      REPORT NO. lA-1O-55-11-019          DATE: December 1, 2011




                                                           Michael R. Esser
                                                           Assistant Inspector General
                                                             for Audits




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


  Of/ice of the
Inspector General




                                     EXECUTIVE SUMMARY




                                Federal Employees Health Benefits Program

                                Service Benefit Plan     Contract CS 1039

                                     BlueCross BlueShield Association

                                               Plan Code 10


                                         Independence BlueCross

                                              Plan Code 362

                                        Philadelphia, Pennsylvania





                      REPORTNO.1A-10-55-11-019              DATE:December 1, 2011

      This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
      Independence BlueCross (Plan), in Philadelphia, Pennsylvania, questions $166,337 in health
      benefit charges and lost investment income (LII). The BlueCross BlueShield Association agreed
      (A) with the questioned charges and LIl. Additional LIl on the questioned charges amounts to
      $1,304, calculated from January 1,2011 through August 15,2011.

      Our limited scope audit was conducted in accordance with Government Auditing Standards. The
      audit covered miscellaneous health benefit payments and credits from January 1,2005 through
      September 30, 2010 as reported in the Annual Accounting Statements. In addition, we reviewed
      the Plan's cash management practices related to FEHBP funds for contract years 2005 through
      September 30,2010.

      The audit results are summarized as follows:




        www.opm.gov                                                                       www.usajobs.gov
    MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

•   Health Benefit Refunds (A)                                                              $93,587

    The Plan had not returned 12 health benefit refunds, totaling $75,822, to the FEHBP as of
    September 30, 2010. As a result of this finding, the Plan returned $93,587 to the FEHBP,
    consisting of $75,822 for the questioned health benefit refunds and $17,765 for LII on these
    refunds.

•   Subrogation Recoveries (A)                                                              $65,950

    During the audit scope, the Plan returned three subrogation recoveries and the associated
    batch recoveries to the FEHBP in an untimely manner. As a result, the FEHBP was due LII
    of $65,950 since these recoveries were deposited untimely into the Federal Employee
    Program investment account, more than 30 days after receipt. After receiving our audit
    information request on January 21, 2011, the Plan returned this LII amount of $65,950 to the
    FEHBP.

•   Unidentified Refunds (A)                                                                    $4,205

    The Plan had not returned two health benefit refunds, totaling $4,074, to the FEHBP as of
    September 30, 2010. These refunds were initially classified by the Plan as unidentified
    refunds. As a result of this finding, the Plan returned $4,205 to the FEHBP, consisting of
    $4,074 for the questioned health benefit refunds and $131 for LII on these refunds.

•   Hospital Settlements (A)                                                                    $2,595

    The Plan returned two hospital settlement recoveries, totaling $154,456, untimely to the
    FEHBP. Since the Plan returned these hospital settlement recoveries to the FEHBP during the
    audit scope, we did not question this amount as a monetary finding. However, as a result of
    this finding, the Plan returned LII of $2,595 to the FEHBP calculated on these hospital
    settlement recoveries.

                                  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 Health Benefit Payments and Credits” section.

             LOST INVESTMENT INCOME ON AUDIT FINDINGS

    As a result of our audit findings presented in this audit report, the FEHBP is due LII of
    $1,304, calculated from January 1, 2011 through August 15, 2011.




                                                 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 .....................................................................................6
              2.   Subrogation Recoveries ....................................................................................7
              3.   Unidentified Refunds ........................................................................................8
              4.   Hospital Settlements .......................................................................................10

       B.     CASH MANAGEMENT ......................................................................................11

       C.     LOST INVESTMENT INCOME ON AUDIT FINDINGS ..................................11

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................13

 V.    SCHEDULES

       A.     HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED

       B.     LOST INVESTMENT INCOME CALCULATION

       APPENDIX           (BlueCross BlueShield Association response, dated July 29, 2011, 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
Independence BlueCross (Plan). The Plan is located in Philadelphia, Pennsylvania.

The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law
86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

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

The Association has established a Federal Employee Program (FEP 1) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP
Director’s Office coordinates the administration of the contract with the Association, member
BlueCross and BlueShield plans, and OPM.

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




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
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. 1A-10-55-04-010, dated
December 15, 2004) for contract years 2000 through 2002 have been satisfactorily resolved.

The results of this audit were provided to the Plan in written audit inquiries; were discussed with
Plan and/or Association officials throughout the audit and at an exit conference; and were
presented in detail in a draft report, dated June 3, 2011. The Association’s comments offered in
response to the draft report were considered in preparing our final report and are included as an
Appendix to this report. Also, additional documentation provided by the Association and Plan
on various dates through October 4, 2011 was considered in preparing our final report.




                                                 2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

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

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

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan code 362 for contract years 2005 through 2009. During this period, the Plan paid
approximately $484.6 million in health benefit charges (See Schedule A).

Specifically, we reviewed miscellaneous health benefit payments and credits, such as refunds
and subrogation recoveries, and cash management activities from January 1, 2005 through
September 30, 2010.

In planning and conducting our audit, we obtained an understanding of the Plan’s internal
control structure to help determine the nature, timing, and extent of our auditing procedures.
This was determined to be the most effective approach to select areas of audit. For those areas
selected, we primarily relied on substantive tests of transactions and not tests of controls. Based
on our testing, we did not identify any significant matters involving the Plan’s internal control
structure and its operation. However, since our audit would not necessarily disclose all
significant matters in the internal control structure, we do not express an opinion on the Plan’s
system of internal controls taken as a whole.



                                                 3
We also conducted tests to determine 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, as appropriate), and the laws and
regulations governing the FEHBP. The results of our tests indicate that, with respect to the items
tested, the Plan did not comply with all provisions of the contract and federal procurement
regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings
and Recommendations" section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director’s Office and the Plan. 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.

Audit fieldwork was performed at our Cranberry Township, Pennsylvania office on various dates
from February 3 through June 3, 2011.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial 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 36 high dollar FEP health benefit refunds, totaling $295,808
(from a universe of 105 FEP refunds, totaling $306,112); 100 high dollar corporate-wide refunds,
totaling $17,001,052 (no universe totals were obtained for these refunds); 17 high dollar
subrogation recoveries, totaling $528,518 (from a universe of 246 recoveries, totaling $833,013);
25 high dollar special plan invoices, totaling $3,685,218 in net payments (from a universe of 137
special plan invoices, totaling $14,993,836 in net payments); 24 high dollar provider audit
recoveries, totaling $1,227,722 (from a universe of 1,274 recoveries, totaling $2,736,831); 50
high dollar unidentified refunds, totaling $4,632,184 (from a universe of 7,023 unidentified
refunds, totaling $8,376,596); and 5 high dollar hospital settlements, totaling $343,544 in net
FEP payments (from a universe of 12 settlements, totaling $348,785 in net FEP payments), 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.




2
  See the audit findings for “Health Benefit Refunds” (A1), “Subrogation Recoveries” (A2), “Unidentified Refunds”
(A3), and “Hospital Settlements” (A4) on pages 6 through 11 for specific details of our sample selection
methodologies.




                                                        4
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.




                                            5
            III. AUDIT FINDINGS AND RECOMMENDATIONS

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

  1. Health Benefit Refunds                                                             $93,587

     The Plan had not returned 12 health benefit refunds, totaling $75,822, to the FEHBP as of
     September 30, 2010. As a result of this finding, the Plan returned $93,587 to the FEHBP,
     consisting of $75,822 for the questioned health benefit refunds and $17,765 for LII on
     these refunds.

     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 LII will commence to be assessed.

     FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall
     bear simple interest from the date due . . . The interest rate shall be the interest rate
     established by the Secretary of the Treasury as provided in Section 611 of the Contract
     Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the
     amount becomes due, as provided in paragraph (e) of this clause, and then at the rate
     applicable for each six-month period as fixed by the Secretary until the amount is paid.”

     For the period January 1, 2005 through September 30, 2010, we identified 105 FEP
     health benefit refunds totaling $306,112. From this universe, we selected and reviewed a
     judgmental sample of 36 refunds, totaling $295,808, for the purpose of determining if the
     Plan promptly returned these refunds to the FEHBP. Our sample included all refunds of
     $400 or more. In addition, we selected and reviewed a judgmental sample of 100 high
     dollar corporate-wide health benefit refunds from 2005 through 2008, totaling
     $17,001,052, to determine whether these refunds were FEP related, and if so, whether the
     FEP refunds were promptly returned to the FEHBP.

     Based on our review, we determined that the Plan had not returned 12 health benefit
     refunds, totaling $75,822, to the FEHBP as of September 30, 2010. We noted that the
     Plan received these 12 refunds in 2005, 2008, and 2009. However, these refunds were not
     deposited into the FEP investment account nor returned to the FEHBP letter of credit
     account (LOCA). As a result of this finding, the Plan returned these questioned refunds to
     the FEHBP on September 15, 2011 (i.e., from 702 to 2,367 days after receipt). Since



                                              6
   these refunds had not been deposited into the FEP investment account, we also calculated
   LII of $17,765 on these refunds through December 31, 2010. The Plan also returned this
   LII amount to the FEHBP. (Note: We calculated additional LII, accruing after December
   31, 2010 on these questioned refunds, in Schedule B of this report.)

   In total, we are questioning $93,587, consisting of $75,822 for health benefit refunds and
   $17,765 for LII calculated on these refunds.

   Association’s Response:

   The Association agrees with this finding. The Association states that the Plan will wire
   the questioned refunds and applicable LII to the FEP Director’s Office by July 30, 2011.

   The Association also states, “The Plan is currently reviewing their refund procedures to
   determine which controls to enhance to ensure accurate processing of health benefit
   refunds in the future. The Plan expects to complete their review by September 30, 2011
   and implement any necessary changes no later than December 31, 2011.”

   OIG Comments:

   The Association provided documentation supporting that the Plan wire transferred the
   questioned refunds and LII of $75,822 and $17,765, respectively, to the Association’s
   FEP joint operating account on August 15, 2011. The Association subsequently wire
   transferred these funds to OPM on September 15, 2011.

   Recommendation 1

   Since we verified that the Plan returned $75,822 to the FEHBP for the questioned health
   benefit refunds, no further action is required for this questioned amount.

   Recommendation 2

   Since we verified that the Plan returned $17,765 to the FEHBP for LII on the questioned
   health benefit refunds, no further action is required for this LII amount.

2. Subrogation Recoveries                                                            $65,950

   During the audit scope, the Plan returned three subrogation recoveries and the associated
   batch recoveries to the FEHBP in an untimely manner. As a result, the FEHBP was due
   LII of $65,950 since these recoveries were deposited untimely into the FEP investment
   account, more than 30 days after receipt. After receiving our audit information request
   on January 21, 2011, the Plan returned this LII amount of $65,950 to the FEHBP.

   As previously stated under audit finding A1, the Plan is required to promptly return
   subrogation recoveries to the FEHBP with applicable LII.




                                           7
   For the period January 1, 2005 through September 30, 2010, we identified 246
   subrogation recoveries totaling $833,013. From this universe, we selected and reviewed a
   judgmental sample of 17 subrogation recoveries, totaling $528,518, for the purpose of
   determining 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 determined that the Plan untimely deposited three subrogation
   recoveries into the FEP investment account and untimely returned these recoveries to the
   LOCA during the audit scope. Specifically, these recoveries were deposited into the FEP
   investment account from 1,039 to 1,105 days late. Although the Plan subsequently
   returned $26,349 to the FEHBP for LII calculated on these recoveries, we consider this to
   be a monetary finding since the Plan returned the LII to the LOCA after receiving our
   audit information request (dated January 21, 2011).

   In addition, these subrogation recoveries were included in batch recoveries that were
   untimely deposited into the FEP investment account. The Plan also returned $39,601 to
   the FEHBP for LII calculated on these batch recoveries (excluding the three subrogation
   recoveries noted above). Again, we consider this to be a monetary finding for the same
   reason as noted above.

   We tested and accepted the Plan’s LII calculations. We also verified that the Plan
   returned a total of $65,950 to the FEHBP for LII on the subrogation and batch recoveries
   that were deposited untimely into the FEP investment account.

   Association’s Response:

   The Association agrees with this finding. The Association states, “The Plan is currently
   reviewing its subrogation procedures to determine which controls to enhance to ensure the
   timely return of refunds from subrogation recoveries in the future. The Plan expects to
   complete their review by September 30, 2011 and implement any necessary changes no
   later than December 31, 2011.”

   Recommendation 3

   Since we verified that the Plan returned $65,950 to the FEHBP for LII on recoveries
   deposited untimely into the FEP investment account, no further action is required for this
   LII amount.

3. Unidentified Refunds                                                               $4,205

   The Plan had not returned two health benefit refunds, totaling $4,074, to the FEHBP as of
   September 30, 2010. These refunds were initially classified by the Plan as unidentified
   refunds. As a result of this finding, the Plan returned $4,205 to the FEHBP, consisting of
   $4,074 for the questioned health benefit refunds and $131 for LII on these refunds.




                                           8
As previously stated under audit finding A1, the Plan is required to promptly return refunds
to the FEHBP with applicable LII.

For the period January 1, 2005 through September 30, 2010, we identified 7,023
unidentified refunds totaling $8,376,596. From this universe, we selected and reviewed a
judgmental sample of 50 unidentified refunds, totaling $4,632,184, to determine whether
these refunds were FEP related, and if so, whether the Plan promptly returned the funds to
the FEHBP. Our sample included all unidentified refunds of $20,000 or more.

Based on our review, we determined that the Plan had not returned two of these health
benefit refunds, totaling $4,074, to the FEHBP as of September 30, 2010. We noted that
the Plan received these refunds in January 2009 and January 2010. However, these
refunds were not deposited into the FEP investment account nor returned to the LOCA.
As a result of this finding, the Plan returned these two questioned refunds to the FEHBP
on September 15, 2011, approximately 1 ½ and 2 ½ years late. Since these refunds had
not been deposited into the FEP investment account, we also calculated LII of $131 on
these refunds through December 31, 2010. The Plan also returned this LII amount to the
FEHBP. (Note: We calculated additional LII, accruing after December 31, 2010 on these
questioned refunds, in Schedule B of this report.)

In total, we are questioning $4,205, consisting of $4,074 for health benefit refunds and
$131 for LII calculated on these refunds.

Association’s Response:

The Association agrees with this finding. The Association states that the Plan will return
the questioned refunds and LII to the FEHBP by July 30, 2011. The Association also
states, “The Plan is currently reviewing their Unidentified Refund procedures to ensure
that refunds are identified timely and returned to the Program as specified in the
Contract.”

OIG Comments:

The Association provided documentation supporting that the Plan wire transferred $5,220
to the Association’s FEP joint operating account on August 15, 2011 for the questioned
refunds and applicable LII. The Association subsequently wire transferred these funds to
OPM on September 15, 2011. In this amount, the Plan included $1,015 in LII for part of
the draft report finding that was subsequently dropped from the final report because the
Plan provided documentation supporting that the refunds were not FEP related. We
notified the Association of the error.

Recommendation 4

Since we verified that the Plan returned $4,074 to the FEHBP for the questioned health
benefit refunds, no further action is required for this questioned amount.




                                         9
   Recommendation 5

   Since we verified that the Plan returned $131 to the FEHBP for LII on the questioned
   health benefit refunds, no further action is required for this LII amount.

4. Hospital Settlements                                                               $2,595

   The Plan returned two hospital settlement recoveries, totaling $154,456, untimely to the
   FEHBP. Since the Plan returned these hospital settlement recoveries to the FEHBP during
   the audit scope, we did not question this amount as a monetary finding. However, as a
   result of this finding, the Plan returned LII of $2,595 to the FEHBP calculated on these
   hospital settlement recoveries.

   As previously stated under audit finding A1, the Plan is required to promptly return
   hospital settlement recoveries to the FEHBP with applicable LII.

   For the period January 1, 2005 through September 30, 2010, we identified 12 hospital
   settlements totaling $348,785 in net FEP payments. From this universe, we selected and
   reviewed a judgmental sample of five hospital settlements totaling $343,544 in net FEP
   payments, for the purpose of determining if the Plan promptly returned or properly charged
   FEP’s allocable share for each of these settlements to the FEHBP. Our sample included
   the five highest dollar hospital settlement payments or recoveries.

   We determined that FEP’s allocable shares of the hospital settlements in our sample were
   returned or properly charged to the FEHBP. However, we found that two of these hospital
   settlements, totaling $154,456 in credit allocations to FEP, were deposited into the FEP
   investment account and returned to the LOCA in an untimely manner. Specifically, these
   two hospital settlement recoveries were deposited into the FEP investment account 111 and
   288 days late. As a result, we calculated LII of $2,595 on these hospital settlement
   recoveries since the funds were deposited untimely into the FEP investment account. The
   Plan returned this LII amount to the FEHBP as a result of this finding.

   Association’s Response:

   The Association agrees with this finding. The Association states that the Plan will return
   the questioned LII to the FEHBP by July 30, 2011. The Association also states, “The Plan
   is currently reviewing their Hospital Settlement procedures to ensure that all refunds are
   timely returned and that the LII is properly calculated.”

   OIG Comments:

   The Association provided documentation supporting that the Plan transferred the
   questioned LII to the Association’s FEP joint operating account on August 15, 2011. The
   Association subsequently transferred the funds to OPM on September 15, 2011.




                                           10
     Recommendation 6

     Since we verified that the Plan returned $2,595 to the FEHBP for LII on hospital settlement
     recoveries untimely deposited into the FEP investment account, no further action is
     required for this LII amount.

B. 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.

C. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                   $1,304

  As a result of the audit findings presented in this report, the FEHBP is due LII of $1,304 from
  January 1, 2011 through August 15, 2011.

  FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall bear
  simple interest from the date due . . . The interest rate shall be the interest rate established by
  the Secretary of the Treasury as provided in Section 611 of the Contract Disputes Act of
  1978 (Public Law 95-563), which is applicable to the period in which the amount becomes
  due, as provided in paragraph (e) of this clause, and then at the rate applicable for each six-
  month period as fixed by the Secretary until the amount is paid.”

  We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. Our computations show that the FEHBP is due
  LII of $1,304 from January 1, 2011 through August 15, 2011 (see Schedule B).

  Association’s Response:

  The draft audit report did not include an audit finding for LII. Therefore, the Association did
  not address this item in its reply.

  OIG Comments:

  The audit findings for “Health Benefit Refunds” (A1) and “Unidentified Refunds” (A3)
  already include LII through December 31, 2010. However, these audit findings are subject to
  our LII calculation in Schedule B through August 15, 2011, which is the date when the Plan
  wire transferred the questioned principal amounts for these findings into the Association’s
  FEP joint operating account.

  The audit findings for “Subrogation Recoveries” (A2) and “Hospital Settlements” (A4) are
  not subject to our LII calculation in Schedule B.




                                                11
Recommendation 7

We recommend that the contracting officer direct the Plan to credit $1,304 to the Special
Reserve for LII on audit findings.




                                           12
            IV. MAJOR CONTRIBUTORS TO THIS REPORT


             , Auditor-In-Charge

            , Auditor

             , Auditor
___________________________________________________________

                 , Chief (

            , Senior Team Leader




                                     13
                                                                                                                                                                                                                            SCHEDULE A
                                                                                                             V. SCHEDULES

                                                                                                   INDEPENDENCE BLUECROSS
                                                                                                  PHILADELPHIA, PENNSYLVANIA

                                                                                  HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED


HEALTH BENEFIT CHARGES*                                                                                 2005             2006              2007             2008             2009                                            TOTAL


A. HEALTH BENEFIT CHARGES

    PLAN CODE 362                                                                                    $66,210,890       $81,306,691      $89,084,485     $110,138,490     $128,123,891                                        $474,864,447
    MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS                                                    196,895           213,381        2,384,330        3,099,139        3,878,157                                           9,771,902

    TOTAL HEALTH BENEFIT CHARGES                                                                     $66,407,785       $81,520,072      $91,468,815     $113,237,629     $132,002,048                                        $484,636,349



AMOUNTS QUESTIONED**                                                                                    2005             2006              2007             2008             2009             2010              2011         TOTAL


A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

    1.   Health Benefit Refunds                                                                           $64,977           $3,424           $3,463            $5,616         $13,704            $2,403                $0        $93,587
    2.   Subrogation Recoveries                                                                                 0            5,379           10,327             7,764          42,480                 0                 0         65,950
    3.   Unidentified Refunds                                                                                   0                0                0                 0             373             3,832                 0          4,205
    4.   Hospital Settlements                                                                                   0                0                0               492           2,103                 0                 0          2,595

    TOTAL MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS                                               $64,977           $8,803          $13,790          $13,872          $58,660            $6,235                $0       $166,337

B. CASH MANAGEMENT                                                                                             $0                $0               $0               $0               $0               $0                $0             $0

C. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                                    $0                $0               $0               $0               $0               $0           $1,304           $1,304

    TOTAL AMOUNTS QUESTIONED                                                                              $64,977           $8,803          $13,790          $13,872          $58,660            $6,235           $1,304        $167,641


* This audit only covered miscellaneous health benefit payments and credits and cash management activities from January 1, 2005 through September 30, 2010.
** We included partial lost investment income (LII) within audit findings A1 and A3. We also calculated additional LII in Schedule B for audit findings A1 and A3. Audit findings A2 and A4 include only LII.
                                                                                                                                                                                                    SCHEDULE B
                                                                                        INDEPENDENCE BLUECROSS
                                                                                       PHILADELPHIA, PENNSYLVANIA

                                                                                 LOST INVESTMENT INCOME CALCULATION


LOST INVESTMENT INCOME                                                             2005             2006            2007             2008             2009            2010             2011            TOTAL


A. QUESTIONED CHARGES (Subject to Lost Investment Income)

    Miscellaneous Health Benefit Payments and Credits*                                    $0               $0              $0               $0               $0              $0         $79,896             $79,896

B. LOST INVESTMENT INCOME CALCULATION

    a. Total Questioned (Principal)                                                       $0               $0              $0               $0               $0              $0         $79,896
    b. Cumulative Total                                                                    0                0               0                0                0               0               0
    c. Total                                                                              $0               $0              $0               $0               $0              $0         $79,896

    d. Treasury Rate: January 1 - June 30                                             4.250%          5.125%           5.250%          4.750%           5.625%           3.250%          2.625%

    e. Interest (d * c)                                                                   $0               $0              $0               $0               $0              $0           $1,049             $1,049

    f. Treasury Rate: July 1 - December 31                                            4.500%          5.750%           5.750%          5.125%           4.875%           3.125%          2.500%

    g. Interest (f * c)                                                                   $0               $0              $0               $0               $0              $0            $255                $255

   Total Interest By Year (e + g)                                                         $0               $0              $0               $0               $0              $0           $1,304             $1,304


* Only the principal amounts of the audit findings for miscellaneous health benefit payments and credits in Schedule A are subject to LII. Specifically, the principal amounts for "Health Benefit Refunds" (A1)
  and “Unidentified Refunds” (A3) audit findings already include LII through December 31, 2010. However, these audit findings are also subject to our LII calculation in Schedule B through August 15, 2011,
  which is the date when Independence BlueCross wire transferred the questioned principal amounts for these findings into the Association's FEP joint operating account.