oversight

Audit of Regence Portland, Oregon

Published by the Office of Personnel Management, Office of Inspector General on 2015-01-20.

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

          U.S. OFFICE OF PERSON NEL MANAGEMENT 

             OFFICE OF THE IN SPECTOR GEN ERAL 

                      OFFICE OF AUDITS 





                                                  AUDIT OF REGENCE 

                                                 PORTLAND, OREGON 


                                             Rep o rt Number 1A-10-69-14-01 2 

                                                      January 20, 2015 





                                                              -- CAUTION -­
This audit •·eport has been distributed to Federal officials who are responsible fo1· the administr ation of the audited program. T his audit report may
contain proprietary data that is protected by Federal law (18 U.S.C. 1905). T herefon, while this audit •·eport is available under th e Fr eedom of
Information Act and made available to the public on the OI G webpage (http://wn~v.opm.go•>lour-inspector-geuernl), caution needs to be exercised
before releasing the •·eport to the general public as it may contain propl'ietuy information that was redacted from the publicly distributed copy.
              EXECUTIVE SUMMARY 

                                             Audit ofRegence

Repot·t ~o. 1A 10 69 14 012                                                                      Januat·y 20, 2015



Why did we conduct the audit?             What did we fmd ?

We conducted this limited scope audit     We questioned $ 1,066,072 in medical dmg rebates, cash
to obtain reasonable assmance that        management activities, and lost investment income (LII) . We also
Regence (Plan) is complying with the      identified multiple procedmal findings regarding the Plan' s cash
provisions of the Federal Employees       management activities and F&A Program . The BlueCross
Health Benefits Act and regulations       BlueShield Association and Plan agreed with $1,029,469 and
that are included, by reference, in the   disagreed with $36,603 of th e questioned am mmts, partially agreed
Federal Employees Health Benefits         with th e procedm al finding regarding the Plan's cash management
(FEHBP) contract. The obj ectives of      activities, and generally disagreed with th e procedm al finding
om audit were to detennine if the         regar ding the Plan's F&A Program .
Plan charged costs to the FEHBP and
provided setvices to FEHBP members        Om audit results are summarized as fo llows:
in accordance with the tetms of the
contract.                                 • 	 Miscellaneous Health Benefi t Pavments and Credits - We
                                              questioned $8 1,849 for medical dmg rebates that had not been
What did we audit?
                                              retumed to the FEHBP as of September 30,2013, and $1,330
We audited the FEHBP operations at            for LIT on dm g rebates retmned untimely to the FEHBP.
Regence pel1aining to the BlueCross
and/or BlueShield (BCBS) plans of         • 	 Adtninistrative Expenses - The audit disclosed no findings
Idaho, Oregon, Utah, and                      petiaining to adtninistrative expenses.
Washington. Specifically, om audit
covered Iniscellaneous health benefit     • 	 Cash Management - We questioned $915,296 in overchar ges
payments and credits from 2010                that were related to bank fees and special plan invoices and
through September 30, 2013, as well           $67,597 for applicable LIT on these overcharges. We also
as adtninistrative expenses from 2010         detetmined that the Plan held excess corporate fimds in the
through 2012. We also reviewed the            Federal Employee Program investment accmmts for the
Plan's cash management activities             Regence BCBS plans of Idaho, Oregon, Utah, and Washington .
and practices related to FEHBP fimds
from 2010 through September 30,           • 	 Fraud and Abuse Program - The Plan is not in compliance with
20 13 and the Plan's Fraud and Abuse          the communication an d rep01iing requirements for fraud and
(F&A) Program for 2013.                       abuse cases that are set f01ih in FEHBP CatTier Letter 2011-1 3.




 Michael R. Esser
Assistant Inspector General
for Audits
                     ABBREVIATIONS

Association   BlueCross BlueShield Association
BC            BlueCross
BCBS          BlueCross BlueShield or BlueCross and/or BlueShield
BCBSA         BlueCross BlueShield Association
BS            BlueShield
CL            Carrier Letter
CFR           Code of Federal Regulations
EFT           Electronic Funds Transfer
FAR           Federal Acquisition Regulations
FEHB          Federal Employees Health Benefits
FEHBAR        Federal Employees Health Benefits Acquisition Regulations
FEHBP         Federal Employees Health Benefits Program
FEP           Federal Employees Program
FEPDO         Federal Employees Program Director’s Office
F&A           Fraud and Abuse
FIMS          Fraud Information Management System
FWA           Fraud, Waste, and Abuse
HIO           Healthcare and Insurance Office
LOCA          Letter of Credit Account
LII           Lost Investment Income
OIG           Office of the Inspector General
OMB           U.S. Office of Management and Budget
OPM           U.S. Office of Personnel Management
OSA           Out-of-System Adjustment
Plan          Regence
PPA           Prior Period Adjustment
SIU           Special Investigations Unit
SPI           Special Plan Invoice




                                    ii
                             TABLE OF CONTENTS 


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


       ABBREVIATIONS ................................................................................................ ...... ii 


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


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


III.   AUDIT FINDINGS AND RECOMMENDATIONS ................................ ....................? 


       A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........7 


            1. Medical D1ug Rebates ................................ ........................................................? 


       B. ADMINISTRATIVE EXPENSES ................................ ........................................ 10 


       C. CASH MANAGEMENT ................................ ...................................................... 10 


            1. Duplicate Bank Fees ................................ ........................................................ 10 

            2. Special Plan Invoices ................................ ....................................................... 13 

            3. Excess Funds in the Federal Employee Program Investment Accounts ..........15 


       D . FRAUDANDABUSEPROGRAM ................................ .................................... 18 


            1. Special Investigations Unit ................................ .............................................. 18 


IV.    MAJOR CONTRIBUTORS TO THIS REPORT ........................................................22 


V.     SCHEDULES

       A . CONTRACTCHARGES
       B. QUESTIONED CHARGES

       APPENDIX (BlueCross BlueShield Association response, dated October 14, 2014, to
       the draft audit rep01t)

       REPORT FRAUD, WASTE, AND MISMANAGEMENT
         I. INTRODUCTION AND BACKGROUND 


INTRODUCTION

This final audit rep01t details the findings, conclusions, an d recommendations resulting from om
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
Regence (Plan), pe1taining to the BlueCross (BC) an d/or BlueShield (BS) plans ofldaho,
Oregon, Utah, and Washington. The Plan's headquarters are located in P01tland, Oregon .

The audit was perf01m ed by the U.S . Office of Personnel Man agement'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 insmance
benefits for federal employees, annuitants, an d dependents. OPM's Healthcare and Insm ance
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 T itle 5, Chapter 1, Prut
890 of the Code of Federal Regulations (CFR). Health insmance coverage is made available
through contracts with various health insmance caniers.

The BlueCross BlueShield Association (Association), on behalf of paiticipating local BlueCross
and/or BlueShield (BCBS) plans, has entered into a Govemment-wide Service Benefi t Plan
contract (CS 1039) with OPM to provide a health benefit plan authorized by the FEHB Act. The
Association delegates authority to pmticipating local BCBS plans throughout the United States to
process the health benefi t claims of its federal subscribers. Regence includes 4 of the 64 local
BCBS plans patticipating 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 Se1vice Benefit Plan. The FEP
Director 's Office coordinates the administration of the contract with th e 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 perf01m ed by Cm·eFirst BlueCross BlueShield, located in Washington,
D .C. These activities include acting as fiscal intermedia1y between the Association an d member
plans, verifying subscriber eligibility, approving or disapproving the reimbmsement of local plan
1
  Throughout this repmt, when we refer to "FEP", we are refetr ing to the Service Benefit Plan lines ofbusiness at
the Plan. When we refer to the "FEHBP", we are refen·ing to the program that provides health benefits to federal
employees.


                                                          1                                Rep01t No. 1A-10-69-14-0 12
payments of FEHBP claims (using computerized system edits), maintaining a history file of all
FEHBP claims, and maintaining an accounting of all program funds.

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

The following were the most recent audit reports issued for Regence pertaining to the BCBS
plans of Idaho, Oregon, Utah, and Washington:

   Report No. 1A-10-43-01-089, Regence (BS of Idaho), dated September 19, 2001
   Report No. 1A-10-66-04-022, Regence (BCBS of Utah), dated June 7, 2004
   Report No. 1A-10-69-06-025, Regence (BS of Washington), dated January 3, 2007
   Report No. 1A-10-58-06-038, Regence (BCBS of Oregon), dated January 31, 2007

All findings from these previous audits of the Regence BCBS plans, covering various contract
years from 1998 through 2004, were 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 on June 27,
2014; and were presented in detail in a draft report, dated August 12, 2014. The Association’s
comments offered in response to the draft report were considered in preparing our final report
and are included as an Appendix to this report.




                                                 2                           Report No. 1A-10-69-14-012
 II. OBJECTIVES, SCOPE, AND METHODOLOGY 


OBJECTIVES

The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided setv ices to FEHBP members in accordance with the tenns of the contract. Specifically,
our obj ectives were as follows:

       Miscellaneous Health Benefit Payments and Credits

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

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

       Administrative Expenses

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

       Cash Management

       • 	 To detennine whether the Plan handled FEHBP ftmds in accordance with applicable
           laws and regulations conceming cash management in the FEHBP.

       Fraud and Abuse Program

       • 	 To detennine whether the Plan's coiiliilunication and rep01iing of fraud and abuse
           cases were in compliance with the tetms of Contract CS 1039 and the applicable
           FEHBP CatTier Letters.

SCOPE

We conducted our limited scope perf01mance audit in accordance with generally accepted
govemment auditing standards. Those standru·ds require that we plan and perfonn 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.



                                               3	                          Rep01i No. 1A-10-69-14-012
We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 350/851 (BCBS of Oregon), 410/910 (BCBS of Utah), 611 (BS of Idaho),
and 932 (BS of Washington) for contract years 2010 through 2012. During this period, the Plan
paid approximately $1.8 billion in health benefit charges and $127 million in administrative
expenses for these four BCBS plans (See Figure 1 and Schedule A).

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
provider offsets, subrogation recoveries, medical drug rebates, and fraud recoveries) and cash
management activities from 2010 through September 30, 2013 for these four BCBS plans, as
well as administrative expenses (e.g., pension and post-retirement benefit costs) from 2010
through 2012. We also reviewed the Plan’s F&A Program activities and practices relating to
BCBS of Oregon for 2013.

In planning and conducting our audit, we
obtained an understanding of the Plan’s                                                    Regence
internal control structure to help determine                                           Contract Charges

the nature, timing, and extent of our
                                                               $800
auditing procedures. This was determined
to be the most effective approach to select                    $600
                                                  $ Millions




areas of audit. For those areas selected, we
primarily relied on substantive tests of                       $400

transactions and not tests of controls.
                                                               $200
Based on our testing, we did not identify
any significant matters involving the Plan’s                    $0
                                                                              2010                2011               2012
internal control structure and its operations.
However, since our audit would not                                                          Contract Years

necessarily disclose all significant matters in
the internal control structure, we do not                             Health 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 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 (FEHBAR), 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.



                                                  4                                             Report No. 1A-10-69-14-012
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.

The audit was performed at the Plan’s office in Portland, Oregon on various dates from
March 11, 2014 through May 9, 2014. Audit fieldwork was also performed at our office in
Jacksonville, Florida.

METHODOLOGY

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

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. For the period
2010 through September 30, 2013, we also judgmentally selected and reviewed 143 high dollar
health benefit refunds, totaling $8,041,647 (from a universe of 45,471 refunds, totaling
$25,433,182); 16 high dollar provider offsets, totaling $492,695 (from a universe of 19,197
offsets, totaling $5,670,291); 29 high dollar subrogation recoveries, totaling $1,349,675 (from a
universe of 1,170 recoveries, totaling $5,174,116); 44 high dollar hospital bill audit recoveries,
totaling $838,979 (from a universe of 1,328 recoveries, totaling $2,198,943); all FEP medical
drug rebate amounts, totaling $662,323; 18 high dollar fraud recoveries, totaling $297,271 (from
a universe of 72 recoveries, totaling $370,482); and 25 special plan invoices (SPI), totaling
$4,643,667 in net FEP payments (from a universe of 565 SPI’s, totaling $15,558,912 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
  The sample of heath benefit refunds included the following selections from the Plan’s “Miscellaneous Cash” files
for the audit scope: all refunds greater than $40,000 for the BCBS plans of Oregon and Utah from 2010, 2011, and
2013; all refunds greater than $30,000 for BCBS of Oregon and greater than $10,000 for BCBS of Utah from 2012;
all refunds greater than $10,000 for BS of Washington from 2010 through 2012 and greater than $20,000 from 2013;
and all refunds greater than $1,500 for BS of Idaho from 2010 and 2011 and greater than $1,000 from 2012 and
2013. The sample of health benefit refunds also included the following selections from the Plan’s “Refund Account
Transfer” files for 2010: all refunds greater than $5,000 for the BCBS plans of Oregon and Utah and all refunds
greater than $1,000 for the BS plans of Idaho and Washington. From each year in the audit scope, the sample of
provider offsets included a high dollar offset for each of the plans. For the sample of subrogation recoveries, we
selected all recoveries of $40,000 or more for the BCBS plans of Oregon and Utah, all recoveries of $15,000 or
more for BS of Washington, and all recoveries of $3,000 or more for BS Idaho. For the sample of hospital bill audit
recoveries, we selected all recoveries of $10,000 or more for the BCBS plans of Oregon and Utah and all recoveries
of $1,500 or more for BS of Washington. For the sample of fraud recoveries, we selected all recoveries of $5,000 or
more for each of the plans. For the SPI sample, we judgmentally selected SPI’s with high FEP payment and/or
credit amounts for each of the plans.


                                                        5                                Report No. 1A-10-69-14-012
We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2010 through 2012. Specifically, we only reviewed the Plan’s administrative expenses relating
to pension and post-retirement benefits for the Idaho, Oregon, Utah, and Washington plans; and
gains from the sale of buildings by the Oregon and Washington plans. We used the FEHBP
contract, the FAR, and the FEHBAR to determine the allowability, allocability, and
reasonableness of charges.

We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 1039 and applicable laws and regulations.
Specifically, we reviewed the Plan’s letter of credit account (LOCA) drawdowns, working
capital calculations, adjustments and/or balances, and interest income transactions from 2010
through September 30, 2013, as well as the Plan’s dedicated FEP investment account balances as
of September 30, 2013 for the Idaho, Oregon, Utah, and Washington plans.

We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
F&A Program. For BCBS of Oregon, we also reviewed the Plan’s communication and reporting
of fraud and abuse cases to test compliance with Contract CS 1039 and the applicable FEHBP
Carrier Letters.




                                               6                          Report No. 1A-10-69-14-012
III. AUDIT FINDINGS AND RECOMMENDATIONS 


A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

  1. Medical Drug Rebates                                                               $83,179

     Our audit detennined that the Plan had not retumed m edical dm g rebates, totaling
     $81 ,849, to the FEHBP as of September 30, 2013. The Plan retumed these questioned
     medical dm g rebates to the FEHBP on November 20, 2013, more than 60 days after
     receipt and after receiving our audit notification letter. Additionally, the Plan lmtimely
     retumed m edical dm g rebates of $270,241 to the FEHBP during the audit scope. As a
     result, we are questioning $83,179 for this audit fmding, consisting of $81 ,849 for
     medical dm g rebates an d $1,330 for LII on medical dmg rebates retumed untim ely to the
     FEHBP.

     48 CFR 31.201-5 states, "The applicable p01tion of any income, rebate, allowan ce, or
     oth er credit relating to any allowable cost and received by or accming to the contractor
     shall be credited to the Govemment either as a cost reduction or by cash refund."

     Contract CS 1039, Palt II, Section 2 .3(i) states, "All health benefit reftmds and
     recoveries, including en onem1s payment recoveries, must be deposited into the working
     capital or investment accmmt within 30 days and retumed to or accounted for in the
     FEHBP letter of credit accmmt within 60 days after receipt by the Canier."

     Regarding rep01table monetmy findings, Contract CS 1039, Pmt III, section 3.16, states,
     "Audit fmdings ... in the scope of an OIG audit are rep01table as questioned charges
     unless the CmTier provides documentation supp01ting that the fmdings were identified
     and con ected (i.e. , ... untimely health benefit reftmds were ah·eady processed and
     retumed to the FEHBP) prior to audit notification ."

     FAR 52.232-17(a) states, "all ammmts that becom e payable by the Contractor ... shall
     hem· simple interest fr om the date due ... The interest rate shall be the interest rate
     established by the Secretary of the Treasmy 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
     am mmt becomes due, as provided in par agraph (e) of this clause, and then at the rate
     applicable for each six-month period as fixed by the Secretary lmtil the am mmt is paid."

    The Plan pmticipates in a medical dm g rebate program with th e manufacturer of the
    . . . dm g. The . . . dm g rebates are deten nined based on medical claims
    processed for this dm g, which is administered in a physician 's office. These dm g rebates



                                           22                             Rep01t No. 1A-10-69-14-0 12
are received multiple times a year (usually on a quarterly basis) by the Plan and credited
to the participating groups, including the FEP. For the period January 1, 2010 through
September 30, 2013, the Plan received 49              drug rebate amounts, totaling
$8,667,931, for the Idaho, Oregon, Utah, and Washington plans. The Plan allocated
$662,323 of these medical drug rebate amounts to the FEP. We selected and reviewed all
of the            drug rebate amounts that were allocated to the FEP, and specifically
determined if the Plan properly allocated and timely returned these drug rebate amounts
to the FEHBP.

The following summarizes the exceptions noted (itemized by BCBS plan):

		   For BS of Washington, the Plan returned a medical drug rebate amount, totaling
      $30,118, to the FEHBP on November 20, 2013. This was more than 60 days after
      receipt and after receiving our audit notification letter (dated October 1, 2013).
      Therefore, we are questioning this amount as a monetary finding. Additionally, the
      Plan returned four medical drug rebate amounts, totaling $90,692, untimely to the
      FEHBP during the audit scope. In total, we are questioning $30,604 for BS of
      Washington, consisting of $30,118 for the rebate amount returned after our audit
      notification date and $486 for LII on the rebate amounts returned untimely to the
      FEHBP.

		 For BCBS of Utah, the Plan returned a medical drug rebate amount, totaling $26,451,
    to the FEHBP on November 20, 2013. This was more than 60 days after receipt and
    after receiving our audit notification letter. Therefore, we are questioning this amount
    as a monetary finding. Additionally, the Plan returned four medical drug rebate
    amounts, totaling $82,698, untimely to the FEHBP during the audit scope. In total,
    we are questioning $26,872 for BCBS of Utah, consisting of $26,451 for the rebate
    amount returned after our audit notification date and $421 for LII on the rebate
    amounts returned untimely to the FEHBP.

		 For BCBS of Oregon, the Plan returned a medical drug rebate amount, totaling
    $23,095, to the FEHBP on November 20, 2013. This was more than 60 days after
    receipt and after receiving our audit notification letter. Therefore, we are questioning
    this amount as a monetary finding. Additionally, the Plan returned four medical drug
    rebate amounts, totaling $94,982, untimely to the FEHBP during the audit scope. In
    total, we are questioning $23,488 for BCBS of Oregon, consisting of $23,095 for the
    rebate amount returned after our audit notification date and $393 for LII on the rebate
    amounts returned untimely to the FEHBP.




                                          8		                         Report No. 1A-10-69-14-012
		 For BS of Idaho, the Plan returned a medical drug rebate amount, totaling $2,185, to
    the FEHBP on November 20, 2013. This was more than 60 days after receipt and
    after receiving our audit notification letter. Therefore, we are questioning this amount
    as a monetary finding. Additionally, the Plan returned a medical drug rebate amount,
    totaling $1,869, untimely to the FEHBP during the audit scope. In total, we are
    questioning $2,215 for BS of Idaho, consisting of $2,185 for the rebate amount
    returned after our audit notification date and $30 for LII on the rebate amounts
    returned untimely to the FEHBP.

In total, we are questioning $81,849 ($30,118 plus $26,451 plus $23,095 plus $2,185) for
medical drug rebates returned to the FEHBP on November 20, 2013, more than 60 days
after receipt and after receiving our audit notification letter. We are also questioning
$1,330 ($486 plus $421 plus $393 plus $30) for applicable LII on medical drug rebates
returned untimely to the FEHBP.

Association’s Response:

In the draft report response, the Association only disagreed with the questioned LII of
$1,330. The Association states, “The Plan disagrees with the recommendation. Due to
excess funds in the FEP Investment Account as of October 21, 2011 any LII would have
been satisfied by interest earned and already paid on a quarterly basis to the Program.
Therefore, no LII is due the Program.”

OIG Comments:

We verified that interest earned on the Plan’s corporate funds held in the dedicated FEP
investment accounts was also returned to the FEHBP. Therefore, we offset the contested
LII of $1,330 against the interest earned and already returned to the FEHBP relating to
the Plan’s corporate funds.

Recommendation 1

We recommend that the contracting officer require the Plan to return $81,849 to the
FEHBP for the questioned medical drug rebates. Since we verified that the Plan returned
$81,849 to the FEHBP for the questioned drug rebates, no further action is required for
this amount.




                                         9		                         Report No. 1A-10-69-14-012
     Recommendation 2

     We recommend that the contracting officer require the Plan to return $1,330 to the
     FEHBP for LII calculated on medical drug rebates that were returned untimely to the
     FEHBP. However, since we were able to offset the questioned LII of $1,330 against the
     interest earned on the Plan’s corporate funds that were held in the dedicated FEP
     investment accounts, no further action is required for this LII amount.

B. ADMINISTRATIVE EXPENSES

  We reviewed the Plan’s administrative expenses relating to pension and post-retirement
  benefits for the Idaho, Oregon, Utah, and Washington plans, and gains from the sale of
  buildings by the Oregon and Washington plans. The audit disclosed no findings pertaining to
  these administrative expenses.

C. CASH MANAGEMENT

  1. Duplicate Bank Fees                                                               $546,721

     The Plan inadvertently charged $507,922 in bank fees to the FEHBP twice. The Plan
     withdrew these bank fees from the dedicated FEP investment accounts and also charged
     these fees to the FEHBP as administrative expenses, resulting in duplicate charges to the
     FEHBP. As a result of our audit, the Plan returned these duplicate bank fee charges to
     the FEHBP. In total, we are questioning $546,721 for this audit finding, consisting of
     $507,922 for duplicate bank fee charges and $38,799 for applicable LII on these
     duplicate charges.

     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.”

     Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16, states,
     “Audit findings . . . in the scope of an OIG audit are reportable as questioned charges
     unless the Carrier provides documentation supporting that the findings were identified
     and corrected (i.e., . . . overcharges . . . were already processed and returned to the
     FEHBP) prior to audit notification.”

     As previously cited from FAR 52.232-17(a), all amounts that become payable by the
     Contractor should include simple interest from the date due.




                                             10                           Report No. 1A-10-69-14-012
        While preparing for the audit and responding to our standar d inf01m ation request (SIR)
        (dated October 1, 2013 and covering a scope of2010 through September 30, 2013), the
        Plan identified bank fees of $122,698 and $189,3 17 that were inadvertently charged twice
        to the FEHBP in 2010 and 2011 , respectively, for the Idaho, Oregon, an d Utah plans.
        Based on the Plan 's an alysis, these duplicate charges occurred on December 20, 2010 and
        December 30, 2011. Due to the m ateriality of these duplicate bank fee charges, we
        expan ded our audit scope for this specific en or to also include 2008 and 2009 . As a
        result, the Plan identified additional duplicate bank fee charges of $66,457 for 2008 and
        $129,450 for 2009.

                                           In total, the Plan overcharged the FEHBP $507,922
             In total, Regence             ($66,457 plus $129,450 plus $122,698 plus $189,317) for
              overcharged the              bank fees from 2008 through 2011 for the Idaho, Oregon,
            FEHBP $507,922 for             an d Utah plans.3 The Plan calculated LII of $38,799 on
            bank fees from 2008            these bank fee overcharges. We reviewed and accepted the
               through 2011.               Plan 's calculated LII amounts for the Idaho, Oregon , and
                                           Utah plans.

        The following summarizes the exceptions noted (itemized by BCBS plan):

         • 	 For BCBS of Oregon, the Plan charged bank fees, totaling $284,995 , to the FEHBP
             twice from 2008 through 2011 . As result of our audit, the Plan retumed these
             questioned duplicate charges to the FEHBP on April 9, 2014 an d May 16, 2014 . In
             total, the Plan retumed $306, 122 to the FEHBP for the Oregon plan, consisting of
             $284,995 for the duplicate bank fee charges and $2 1,127 for applicable LII.

         • 	 For BCBS ofUtah, the Plan charged bank fees, totaling $195 ,346, to the FEHBP
             twice from 2008 through 2011 . As result of our audit, the Plan retumed these
             questioned duplicate charges to the FEHBP on April9, 2014 and May 16, 2014 . In
             total, the Plan retumed $211 , 103 to the FEHBP for the Utah plan, consisting of
             $195 ,346 for th e duplicate bank fee charges and $ 15,757 for applicable LII.

         • 	 ForBS ofldaho, the Plan charged bank fees, totaling $27,58 1, to the FEHBP twice
             from 2008 through 2011 . As result of our audit, the Plan retumed these questioned
             duplicate charges to the FEHBP on Mar ch 3, 201 4 and May 16, 2014. In total, th e
             Plan retumed $29,496 to the FEHBP for the Idaho plan, consisting of $27,581 for th e
             duplicate bank fee charges and $1,915 for applicable LII.


3
 We verified that the Plan did not charge duplicate bank fees in 2012 and 2013 for the Idaho, Oregon, and Utah
plans. We also verified that the Plan did not charge duplicate bank fees to the FEHBP for the Washington plan.


                                                        11 	                             Rep01i No. 1A-10-69-14-0 12
In total, the Plan returned $546,721 to the FEHBP, consisting of $507,922 for the
duplicate bank fee charges and $38,799 for applicable LII on these duplicate charges.

Association’s Response:

In the draft report response, the Association disagreed with $35,273 of the questioned
LII. The Association states, “The Plan partially disagrees with the recommendation. Due
to excess funds in the FEP Investment Account as of October 21, 2011, LII of $35,273
would have been satisfied by interest earned and already paid to the FEP Program on a
quarterly basis. However, the Plan agrees to pay $3,526.32 in applicable lost investment
income (LII), which was not satisfied by the excess funds in the FEP Investment Account
as of October 21, 2011. A Special Plan Invoice totaling $3,526.32 was submitted to the
FEP Director’s Office on October 1, 2014 and the funds were wired to BCBSA on
October 8, 2014.”

OIG Comments:

The Plan provided documentation supporting that the duplicate bank fee charges, totaling
$507,922, were returned to the FEHBP through multiple deposits into the FEP investment
accounts from March 3, 2014 through May 16, 2014.

Regarding the contested LII amount, we verified that interest earned on the Plan’s
corporate funds held in the FEP investment accounts was also returned to the FEHBP.
Therefore, we offset the contested LII of $35,273 against the remaining balance of
interest earned and already returned to the FEHBP relating to the Plan’s corporate funds.

For the uncontested LII, we verified that the Plan wire transferred $3,526 to the
Association’s FEP joint operating account on October 8, 2014. The Association then
wire transferred this LII amount to OPM on October 15, 2014.

Recommendation 3

We recommend that the contracting officer disallow $507,922 for the duplicate bank fee
charges from 2008 through 2011. Since we verified that the Plan returned $507,922 to
the FEHBP for the questioned duplicate bank fee charges, no further action is required
for this amount.




                                        12                          Report No. 1A-10-69-14-012
   Recommendation 4

   We recommend that the contracting officer require the Plan to return $38,799 to the
   FEHBP for LII on the duplicate bank fee charges. However, since we were able to offset
   the contested LII of $35,273 against the interest earned on the Plan’s corporate funds that
   were held in the dedicated FEP investment accounts, no further action is required for this
   contested LII amount. Since we also verified that the Plan returned $3,526 to the FEHBP
   for the uncontested LII on the duplicated bank fee charges, no further action is required
   for this LII amount.

2. Special Plan Invoices                                                            $436,172

   As of September 30, 2013, the Plan had not deposited $407,374 into the FEP investment
   accounts for several credit amounts reported on SPI’s in 2010. As a result of our audit,
   the Plan returned $436,172 to the FEHBP, consisting of $407,374 for the SPI credit
   amounts not previously deposited into the FEP investment accounts and $28,798 for
   applicable LII on these funds.

   As previously cited from Contract CS 1039, costs charged to the FEHBP must be actual,
   allowable, allocable, and reasonable.

   Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16, states,
   “Audit findings . . . in the scope of an OIG audit are reportable as questioned charges
   unless the Carrier provides documentation supporting that the findings were identified
   and corrected . . . prior to audit notification.”

   As previously cited from FAR 52.232-17(a), all amounts that become payable by the
   Contractor should include simple interest from the date due.

   While preparing for the audit and responding to our SIR (dated October 1, 2013), the
   Plan identified several SPI credit amounts, totaling $407,374, where the Plan
   inadvertently had not deposited the funds into the FEP investment accounts. These credit
   amounts were for prior period adjustments (PPA) and interim administrative cost
   settlements reported on SPI’s processed in 2010. We verified that these funds were
   actually returned to the LOCA via multiple drawdown adjustments from March 1, 2010
   through April 14, 2014, but not deposited into the Plan’s dedicated FEP investment
   accounts.




                                           13                           Report No. 1A-10-69-14-012
As a result of this audit finding, the Plan also calculated LII of $28,798 on these
questioned SPI credit amounts. We reviewed and accepted the Plan’s calculated LII
amounts for the Idaho, Oregon, Utah, and Washington plans.

The following summarizes the exceptions noted (itemized by BCBS plan):

		 For BCBS of Utah, the Plan had not deposited $243,924 into the FEP investment
    account for credit amounts reported on four SPI’s in 2010. These SPI’s included
    three PPA’s ($160,644) and one interim administrative cost settlement ($83,280). As
    a result of our audit, the Plan deposited these funds into the FEP investment account
    on April 9, 2014 and April 17, 2014. In total, the Plan returned $261,425 to the
    FEHBP for the Utah plan, consisting of $243,924 for the questioned SPI amounts and
    $17,501 for applicable LII.

		 For BCBS of Oregon, the Plan had not deposited $95,833 into the FEP investment
    account for credit amounts reported on two SPI’s in 2010. These SPI’s included
    PPA’s to credit the FEHBP for overcharges because 2008 managed care rates were
    incorrectly used to calculate the 2009 managed care expenses. As a result of our
    audit, the Plan deposited these funds into the FEP investment account on April 17,
    2014. In total, the Plan returned $102,079 to the FEHBP for the Oregon plan,
    consisting of $95,833 for the questioned SPI amounts and $6,246 for applicable LII.

		 For BS of Idaho, the Plan had not deposited $36,345 into the FEP investment account
    for credit amounts reported on two SPI’s in 2010. These SPI’s were for interim
    administrative cost settlements to credit the FEHBP $36,345 because the year-end
    filed costs for 2009 were less than the approved budget costs. As a result of our
    audit, the Plan deposited these funds into the FEP investment account on March 3,
    2014. In total, the Plan returned $39,420 to the FEHBP for the Idaho plan, consisting
    of $36,345 for the questioned SPI amounts and $3,075 for applicable LII.

		 For BS of Washington, the Plan had not deposited $31,272 into the FEP investment
    account for a credit amount reported on an SPI in 2010. The SPI included a PPA to
    credit an overcharge to the FEHBP for Preferred Provider Organization directories.
    As a result of our audit, the Plan deposited these funds into the FEP investment
    account on April 17, 2014. In total, the Plan returned $33,248 to the FEHBP for the
    Washington plan, consisting of $31,272 for the questioned SPI amount and $1,976 for
    applicable LII.

In total, the Plan returned $436,172 to the FEHBP for this audit finding, consisting of
$407,374 for the questioned SPI amounts and $28,798 for LII on these funds.



                                        14		                         Report No. 1A-10-69-14-012
   Association’s Response:

   Regarding the questioned LII, the Association states that the Plan submitted an SPI to the 

   FEP Director’s Office on October 1, 2014 and then wire transferred the funds to the 

   Association’s FEP joint operating account on October 8, 2014. 


   OIG Comments:

   The Plan provided documentation supporting that the questioned SPI amounts, totaling
   $407,374, were returned to the FEHBP through multiple deposits into the FEP investment
   accounts from March 3, 2014 through April 17, 2014. Also, we verified that the Plan
   wire transferred LII of $28,798 to the Association’s FEP joint operating account on
   October 8, 2014 and the Association then wired transferred this LII amount to OPM on
   October 15, 2014.

   Recommendation 5

   We recommend that the contracting officer require the Plan to return $407,374 to the 

   FEHBP for the questioned SPI credit amounts. Since we verified that the Plan returned 

   $407,374 to the FEHBP for these questioned SPI amounts, no further action is required 

   for this amount. 


   Recommendation 6

   We recommend that the contracting officer require the Plan to return $28,798 to the


   FEHBP for LII on the questioned SPI credit amounts. Since we verified that the Plan 

   returned $28,798 to the FEHBP for LII on these questioned SPI amounts, no further


   action is required for this LII amount.



3. Excess Funds in the Federal Employee Program Investment Accounts                  Procedural

   Our audit determined that the Plan held excess funds in the FEP investment accounts for 

   the Oregon, Utah, Idaho, and Washington plans. Specifically, the Plan held a total of 

   $8,327,444 in corporate funds in these dedicated FEP investment accounts as of 

   September 30, 2013. Most of these corporate funds were transferred into the Plan’s 

   dedicated FEP investment accounts in October 2011. 


   48 CFR 1632.771 (c) states, "FEHBP funds shall be maintained separately from other 

   cash and investments of the carrier or underwriter." 





                                           15                           Report No. 1A-10-69-14-012
Contract CS 1039, Pali III, Section 3.5 (a) states, "The CmTier and/or its lmde1w riter shall
keep all FEHBP funds for this contract (cash and investments) physically separate from
funds obtained from other sources."

The Plan's FEP investment accooots generally include FEP working capital funds,
approved LOCA drawdowns, health benefi t refunds and recoveries from providers and
subscribers, interest income eamed, and other cash identified as due to the FEP. Based
on Contract CS 1039, all funds deposited into the FEP investm ent accmmt, such as health
benefi t reftm ds, interest income and excess working capital , should be retumed to the
FEHBP by adjusting the LOCA within 60 days after receipt by the BCBS plan . Also,
approved reimbursements from the LOCA and/or FEP Director 's Office that are
deposited into the FEP investment accooot should be timely transferred from the FEP
investment accooot to the Plan 's c01p orate accooot.

                             In our SIR (dated October 1, 2013), we requested the Plan
 Regence held over $8.3      to provide detailed itemizations of the ftmds in the 

   million in corporate 
     dedicated FEP investment accooots as of September 30,
   funds in the Plan' s      20 13 for the Idaho, Oregon, Utah, and Washington plans.
     dedicated FEP            Based on our review of these itemizations, we detennined
  investment accounts.       that the Plan held a total of $8,327,444 in c01porate ftmds in
                             these FEP investment accmmts as of September 30,2013 .
Most of these c01porate ftmds had been held in the Plan's dedicated FEP investment
accooots for nearly two yem·s (as of September 30, 2013).

The following summarizes the exceptions noted (itemized by BCBS plan) :

• 	 For BCBS of Ore gon, the Plan held c01p orate ftm ds of $3,622,199 in the FEP
    investment accooot as of September 30,2013 . Most of these ftmds ($3,01 5,541)
    represented an approved reimbursement transaction for pension costs that were
    deposited into the FEP investment accooot on October 25, 20 11. There were also
    several SPI payment reimbursements ($606,658) remaining in the accooot.

• 	 ForBS of Washington, the Plan held c01p orate ftmds of $2,404,730 in the FEP
    investment accooot as of September 30,2013 . Most of these funds ($2, 142,6 10)
    represented an approved reimbursement transaction for pension costs th at were
    deposited into the FEP investment accooot on October 25, 20 11. There were also
    several SPI payment reimbursements ($262, 120) remaining in the accooot.




                                         16 	                         Rep01i N o. 1A-1 0-69-1 4-0 12
	 For BCBS of Utah, the Plan held corporate funds of $2,288,993 in the FEP
   investment account as of September 30, 2013. Most of these funds ($2,102,688)
   represented an approved reimbursement transaction for pension costs that were
   deposited into the FEP investment account on October 25, 2011. There were also
   several SPI payment reimbursements ($186,305) remaining in the account.

	 For BS of Idaho, the Plan held corporate funds of $11,522 in the FEP investment
   account as of September 30, 2013. These funds represented an approved
   reimbursement transaction for pension costs that were deposited into the FEP
   investment account on October 25, 2011.


            Excess Corporate Funds in the FEP Investment Accounts
                          As of September 30, 2013



                                 $2,404,730


                                                                    BCBS of Oregon

                                               $2,288,993           BS of Washington
         $3,622,199
                                                                    BCBS of Utah
                                                                    BS of Idaho



                                    $11,522




In total, nearly $7.3 million of the excess corporate funds in the FEP investment accounts
(as of September 30, 2013) were for approved pension cost reimbursements that were
deposited into these FEP accounts on October 25, 2011 (almost two years prior). Also,
approximately $1.1 million of the excess corporate funds in the FEP investment accounts
were for SPI payment reimbursements remaining in the accounts.

Association’s Response:

The Association states, “The Plan continues to partially agree with this finding. Internal
controls are being strengthened to ensure timely transfers in compliance with 48 CFR
1632.771 (c) and that the Plan is on target to fully implement these additional controls by
November 30, 2014.”



                                        17 	                         Report No. 1A-10-69-14-012
     The Association also states, “The Plan disagrees that FEHBP funds were not properly
     managed in compliance with Contract CS 1039, Part III, Section 3.5(a). It is customary
     for FEHBP related operating expenses to be initially paid for using corporate funds. The
     FEHBP authorized deposits to reimburse those corporate funds were properly deposited
     into the FEP investment accounts, as it was for the deposits noted above. Regence has
     properly managed funds by segregating FEHBP and non-FEHBP sourced deposits into
     the correct separately established bank accounts. In addition, Regence maintained
     adequate controls to identify the corporate funds in order to accurately determine the
     FEHBP cash balance at any given time.”

     OIG Comments:

     After reviewing the Association’s draft report response, we revised the audit finding from
     the draft report to exclude the statement that the Plan is not properly managing the
     FEHBP funds in the Plan’s dedicated FEP investment accounts for the Idaho, Oregon,
     Utah, and Washington plans. However, as a cash management “best” practice, the Plan
     should timely transfer all excess corporate funds (such as approved LOCA drawdown
     reimbursements) from the FEP investment accounts to the Plan’s corporate account. The
     Plan should not maintain excess corporate (non-FEHBP) or FEHBP funds in the
     dedicated FEP investment accounts.

     Recommendation 7

     We recommend that the contracting officer require the Association to provide evidence or
     supporting documentation ensuring that the Plan has implemented corrective actions to
     improve its internal controls over the dedicated FEP investment accounts. Also, the
     contracting officer should require the Association to provide evidence or supporting
     documentation ensuring that the Plan has implemented corrective actions so that only
     necessary funds are maintained in the FEP investment accounts, and corporate funds
     (such as approved LOCA drawdown reimbursements) are timely transferred to the Plan’s
     corporate account.

D. FRAUD AND ABUSE PROGRAM

  1. Special Investigations Unit                                                      Procedural

     The Plan is not in compliance with the communication and reporting requirements for
     fraud and abuse cases that are set forth in FEHBP Carrier Letter (CL) 2011-13.
     Specifically, the Plan did not report, or did not timely report, all fraud and abuse cases to
     the OIG. The Plan’s non-compliance may be due in part to incomplete and/or untimely
     reporting of fraud and abuse cases to the Association’s FEP Director’s Office (FEPDO),


                                              18                            Report No. 1A-10-69-14-012
           as well as inadequate controls at the FEPDO to m onitor and communicate the Plan's
           cases to the OIG. Without awareness of these existing potential fraud and abuse issues,
           the OIG cannot investigate the broader impact of these potential issues on the FEHBP as
           a whole.

           CL 2011-13 (Mandat01y Infonnation Sharing via Written Case Notifications to OPM 's
           Office of the Inspector General), dated June 17, 2011 , states that all Caniers " are
           required to submit a written notification to the OPM OIG ... within 30 working days of
           becoming aware of a fraud, waste or abuse issue where there is a reasonable suspicion
           that a fraud has occmTed or is occmTing against the Federal Employees Health Benefits
           (FEHB) Program ." There is no dollar threshold for this requirement.

           We reviewed the Plan's Special Investigations Unit pertaining to BCBS of Oregon.
           During the period J anua1y 1, 2013 through December 31, 2013, BCBS of Oregon opened
           11 fraud and abuse cases that were identified as having FEP exposure. We reviewed
           these 11 cases with FEP exposure to detennine if the cases were reported to the OIG as
           required by CL 2011-13. Based on our review, we detennined that notifications for only
           2 of the 11 fraud and abuse cases with FEP exposure were sent to the OIG. Because all
           of these cases have FEP exposure, and there is no dollar threshold for rep01ting suspected
           fraud against the FEHBP, these cases should have been rep01ted to the OIG as required
           by CL 2011-13.

           The Plan's non-compliance with the communication and rep01ting requirements in CL
           2011 -1 3 may be due, in prut, to the Plan lmtimely
           communicating or not rep01t ing potential FEP fraud and abuse           The Plan is not in
           cases to the FEPDO's Special Investigations Unit (SIU) . The             compliance with
           FEPDO's SIU sends notifications of fraud and abuse cases to the       the communication
           OIG on behalf of the Plan. However, the Plan must first report            and reporting
           the fraud and abuse cases with FEP exposure to the FEPDO's              requirements for
           SIU, which is accomplished when the Plan enters the cases into           fraud and abuse
                                                                           4
           the FEPDO's Fraud Infonnation Management System (FIMS).                       cases.
           The Plan and the FEPDO 's intemal policies and procedures
           require the Plan to enter a case into FIMS as soon as an investigation is opened and/or
           within 30 days of any relevant FEP fraud activity. However, of the 11 cases with FEP
           exposure during the period Januruy 2013 through December 2013, we determined that 9
           cases (82 percent) were entered into FIMS timely and 2 cases (18 percent) were entered
           into FIMS untimely. Without timely FIMS case entries by the Plan, the FEPDO's SIU
           cannot meet the FEHBP ' s contractual communication and rep01ting requirements.


4
    FIMS is a multi-user, web-based case-tracking database that the FEPDO' s SIU developed in-house.


                                                         19                              Rep01t No. 1A-10-69-14-012
Ultimately, both the Plan’s untimely reporting of potential FEP cases to the FEPDO’s
SIU and the FEPDO SIU’s inadequate controls to monitor the Plan’s FIMS entries and
notify the applicable entities of these cases have resulted in a failure to meet the
communication and reporting requirements that are set forth in CL 2011-13. The lack of
notifications and/or untimely case notifications did not allow the OIG to investigate
whether other FEHBP Carriers are exposed to the identified provider committing fraud
against the FEHBP. This also does not allow the OIG’s Administrative Sanctions Group
to be notified timely. Consequently, this non-compliance by the Plan and FEPDO may
result in additional improper payments being made by other FEHBP Carriers.

Association’s Response:

The Association states, “The Plan and BCBSA continue to disagree with the statement
that the Plan is not in compliance with the communication and reporting requirements set
forth in Contract CS 1039 and . . . Carrier letter (CL) 2011-13.” The Association also
disagrees that controls for the Plan’s FIMS entries are inadequate.

The Association states, “The FEPDO and the Plan have created a system of controls to
monitor, identify, investigate and recover fraudulent and abusive payments of FEHBP
funds and is substantially in compliance with the requirements of CS 1039. Further, the
Plan’s FEP Fraud and Abuse Program is designed to protect patient safety and the health
care assets of Federal beneficiaries.”

OIG Comments:

Our review concluded that timeliness issues were in fact present regarding the
communication and reporting of fraud and abuse cases to the FEPDO’s SIU (via FIMS)
and to the OIG (via official notification). The Plan and Association are both responsible
for working together to meet the contractual requirements set forth in Contract CS 1039
and Carrier Letter 2011-13.

Note: In addition to the recommendations below, we also included the following
recommendation in our draft audit report: “We recommend that the contracting officer
direct the Association and/or Plan to provide OPM and the OIG an explanation and
supporting documentation for each of the 9 cases (9 cases entered into FIMS timely plus
2 cases were entered into FIMS untimely minus 2 cases reported to the OIG) that were
entered into FIMS but not reported to the OIG. We also recommend that the contracting
officer review the explanation and supporting documentation for each of these cases, and
determine if these cases meet the communication and reporting requirements.”




                                        20                          Report No. 1A-10-69-14-012
The Association addressed this recommendation and provided documentation in response
to our draft audit report. However, we will evaluate the Association’s response to this
recommendation during our current audit of the “Fraud and Abuse Case Reporting
Process at the BlueCross BlueShield Association” (Report No. 1A-99-00-14-069) and
report on the results accordingly.

Recommendation 8

We recommend that the contracting officer require the Association to provide evidence or
supporting documentation ensuring that the Plan has implemented the necessary
procedural changes to meet the communication and reporting requirements of fraud and
abuse cases that are contained in CL 2011-13. We also recommend that the contracting
officer instruct the Association to provide the Plan with more oversight to ensure the
timely and complete entry of all FEP fraud and abuse cases into FIMS, and concurrently,
timely and complete communication of those cases to the OIG.

Association’s Response:

The Association agrees with this recommendation and states, “BCBSA will work with
the Plan to confirm that the Plan’s FEP Fraud Waste and Abuse activities remain in
compliance with FEP Program requirements. BCBSA will work with the Plan to make
changes as necessary if any process gaps are identified. BCBSA expects to complete this
process by November 30, 2014.

BCBSA currently provides oversight to the Plan to ensure that entries into FIMS are
timely and complete, and expects to continue to do so in the future.”




                                       21                          Report No. 1A-10-69-14-012
 IV. MAJOR CONTRIBUTORS TO THIS REPORT 



Experience-Rated Audits Group

               , Lead Auditor

             , Auditor

               , Auditor




                  , Chief

              , Senior Team Leader




                                     22   R ep01i No. 1A-10-69-14-012
                                                                          V. SCHEDULES


                                                                                                                                                        SCHEDULE A
                                                                            REGENCE
                                                                        PORTLAND, OREGON

                                                                       CONTRACT CHARGES


CONTRACT CHARGES*                                                              2010                      2011                      2012                    TOTAL


A. HEALTH BENEFIT CHARGES**

   CLAIM PAYMENTS                                                             $551,855,421               $602,470,192              $628,318,631            $1,782,644,244
   MISCELLANEOUS PAYMENTS AND CREDITS                                            8,814,664                  3,791,405                 1,660,844                14,266,913

   TOTAL HEALTH BENEFIT CHARGES                                               $560,670,085               $606,261,597              $629,979,475            $1,796,911,157

B. ADMINISTRATIVE EXPENSES**

   ADMINISTRATIVE CHARGES                                                      $45,075,847                $39,313,433               $44,648,549              $129,037,829
   PRIOR PERIOD ADJUSTMENTS                                                       (127,105)                 7,324,162                   113,449                 7,310,506
   BUDGET SETTLEMENT REDUCTION                                                  (1,205,580)                (8,379,646)                        0                (9,585,226)

   TOTAL ADMINISTRATIVE EXPENSES                                               $43,743,162                $38,257,949               $44,761,998              $126,763,109

TOTAL CONTRACT CHARGES                                                        $604,413,247               $644,519,546              $674,741,473            $1,923,674,266


 * This audit covered miscellaneous health benefit payments and credits and cash management activities from 2010 though September 30, 2013 and administrative expenses
    from 2010 through 2012.

** The health benefit charges and administrative expenses include all amounts reported in the Annual Accounting Statements for the Regence plan codes 350/851 (Oregon),
    410/910 (Utah), 611 (Idaho), and 932 (Washington).
                                                                                                                                                                                            SCHEDULE B
                                                                                              REGENCE
                                                                                          PORTLAND, OREGON

                                                                                         QUESTIONED CHARGES

AUDIT FINDINGS                                                                             2010                 2011                 2012              2013                 2014               TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
   AND CREDITS

    1. Medical Drug Rebates**                                                                       $0                   $0            $82,050             $1,129                    $0                $83,179

    TOTAL MISCELLANEOUS HEALTH BENEFIT
    PAYMENTS AND CREDITS                                                                            $0                   $0            $82,050             $1,129                    $0                $83,179

B. ADMINISTRATIVE EXPENSES                                                                          $0                   $0                   $0                $0                   $0                      $0

C. CASH MANAGEMENT

    1. Duplicate Bank Fees*                                                                 $318,605             $189,317                     $0                $0             $38,799                $546,721
    2. Special Plan Invoices**                                                               407,374                    0                      0                 0              28,798                 436,172
    3. Excess Funds in the FEP Investment Accounts (Procedural)                                    0                    0                      0                 0                   0                       0

    TOTAL CASH MANAGEMENT                                                                   $725,979             $189,317                     $0                $0             $67,597                $982,893

D. FRAUD AND ABUSE PROGRAM

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

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

TOTAL QUESTIONED CHARGES                                                                    $725,979             $189,317              $82,050             $1,129              $67,597              $1,066,072

* For 2010, we included the questioned bank fees for 2008, 2009, and 2010. For 2014, we included lost investment income (LII) of $38,799 calculated on the questioned bank fees. Therefore, no additional LII is
    applicable for this audit finding.

** We included LII within audit findings A1 ($1,330) and C2 ($28,798). Therefore, no additional LII is applicable for these audit findings.
                                                                                    APPENDIX




                                                               BlueCross BlueShield
                                                               Association
                                                               An Association of Independent
October 14, 2014                                               Blue Cross and Blue Shield Plans
                                                               Federal Employee Program
                         , Group Chief                         1310 G Street, N.W.
                                                               Washington, D.C. 20005
Experience-Rated Audits Group                                  202.942.1000
Office of the Inspector General                                Fax 202.942.1125
U.S. Office of Personnel Management
1900 E Street, Room 6400 Washington,
DC 20415-11000

Reference:		        OPM DRAFT AUDIT REPORT
                    Regence
                    Audit Report No. 1 A-10-69-14-012
                    (Dated August 12, 2014 and Received August 12, 2014)

Dear                 :

This is Regence Plan's (Plan) response to the above referenced U.S. Office of
Personnel Management (OPM) Draft Audit Report covering the Federal
Employees' Health Benefits Program (FEHBP). The Blue Cross and Blue Shield
Association (BCBSA) and the Plan are committed to enhancing existing
procedures on issues identified by OPM. Please consider this feedback when
updating the OPM Final Audit Report.

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

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

   1. Medical Drug Rebates                                                            $83.179

       Recommendation 1

       Since we verified that the Plan returned $81,849 to the FEHBP for the
       questioned drug rebate amount, no further action is required for this
       amount.

       Recommendation 2

       We recommend that the contracting officer require the Plan to return $1,330 to
       the FEHBP for Lll on medical drug rebates returned untimely.

       Plan Response

       The Plan disagrees with the recommendation. Due to excess funds in the


       FEP Investment Account as of October 21, 2011 any Lll would have been


Regence Plan
Draft Report Response
Page 2

      satisfied by interest earned and already paid on a quarterly basis to the
      Program. Therefore, no Lll is due the Program.


B. ADMINISTRATIVE EXPENSES

  The audit disclosed no findings pertaining to administrative expenses. Overall, we
  concluded that the Plan's 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.

C. CASH MANAGEMENT

   1. Duplicate Bank Fees                                                    $ 546,721

      Recommendation 3

      Since we verified that the Plan returned $507,922 to the FEHBP for the
      questioned duplicate bank fees, no further action is required for this questioned
      amount.

      Recommendation 4

      We recommend that the contracting officer require the Plan to return
      $38,799 to the FEHBP for Lll on the questioned bank fees.

      Plan response

      The Plan partially disagrees with the recommendation. Due to excess funds in the
      FEP Investment Account as of October 21, 2011, Lll of $35,273 would have been
      satisfied by interest earned and already paid to the FEP Program on a quarterly
      basis. However, the Plan agrees to pay $3,526.32 in applicable lost investment
      income (Lll), which was not satisfied by the excess funds in the FEP Investment
      Account as of October 21, 2011. A Special Plan Invoice totaling $3,526.32 was
      submitted to the FEP Director's Office on October 1, 2014 and the funds were wired
      to BCBSA on October 8, 2014. A copy of the completed Special Plan Invoice and
      evidence that the funds were wired to BCBSA to be returned to the Program are
      attached.
Regence Plan
Draft Report Response
Page 3

   2. Special Plan Invoices                                                  $ 436.172

     Recommendation 5

      Since we verified that the Plan returned $407,374 to the FEHBP for the
      questioned special plan invoices, no further action is required for this
      questioned amount.

      Recommendation 6

      We recommend that the contracting officer require the Plan to return
      $28,798 to the FEHBP for Lll on the questioned special plan invoices

      Plan Response

      The Plan agrees with this recommendation. A Special Plan Invoice totaling
      $29,798 was submitted to the FEP Director's Office on October 1, 2014 and the
      funds were wired to BCBSA on October 8, 2014. A copy of the completed
      Special Plan Invoice and evidence that the funds were wired to BCBSA to be
      returned to the Program are attached.

   3. Excess Funds in the FEP Investment Account                         Procedural

     Recommendation 7

      We recommend that the contracting office verify if the Plan has implemented
      procedures to improve its internal controls over FEHBP funds.

      Plan Response

      The Plan continues to partially agree with this finding. The Plan stated that
      internal controls are being strengthened to ensure timely transfers in compliance
      with 48 CFR 1632.771(c) and that the Plan is on target to fully implement these
      additional controls by November 30, 2014.

      However, the Plan disagrees that FEHBP funds were not properly managed in
      compliance with Contract CS 1039, Part III, Section 3.5(a). It is customary for
      FEHBP related operating expenses to be initially paid for using corporate funds.
      The FEHBP authorized deposits to reimburse those corporate funds were
      properly deposited to the FEP investment accounts, as it was for the deposits
      noted above. Regence has properly managed funds by segregating FEHBP and
      non-FEHBP sourced deposits into the correct separately established bank
      accounts. In addition, Regence maintained adequate controls to identify the
      corporate funds in order to accurately determine the FEHBP cash balance at
      any given time."
Regence Plan
Draft Report Response
Page 4

   D. FRAUD AND ABUSE PROGRAM
                                                                              Procedural
   1. Special Investigations Unit

      The Plan and BCBSA continue to disagree with the statement that the Plan is not
      in compliance with the communication and reporting requirements set forth in
      Contract CS 1039 and the Federal Employee Health Benefit Program (FEHBP)
      Carrier Letter (CL) 2011-13. BCBSA also disagrees that controls regarding Plans
      FIMS entries are inadequate.

      The FEPDO and the Plan have created a system of controls to monitor, identify,
      investigate and recover fraudulent and abusive payments of FEHBP funds and is
      substantially in compliance with the requirements of CS 1039. Further, the Plan's
      FEP Fraud and Abuse Program is designed to protect patient safety and the health
      care assets of Federal beneficiaries.

      Recommendation 8

      We recommend that the contracting officer require the Association to provide
      evidence or supporting documentation ensuring that the Plan has implemented the
      necessary procedural changes to meet the communication and reporting
      requirements of fraud and abuse cases that are contained in CL 2011-13. We also
      recommend that the contracting officer instruct the Association to provide the Plan
      with more oversight to ensure the timely and complete entry of all FEP fraud and
      abuse cases into FIMS, and concurrently, timely and complete communication of
      those cases to the OIG.

      BCBSA Response

      BCBSA agrees with this recommendation. BCBSA will work with the Plan to confirm that
      the Plan's FEP Fraud Waste and Abuse activities remain in compliance with FEP
      Program requirements. BCBSA will work with the Plan to make changes as necessary if
      any process gaps are identified. BCBSA expects to complete this activity by
      November 30, 2014.

      BCBSA currently provides oversight to the Plan to ensure that entries into FIMS are
      timely and complete, and expects to continue to do so in the future.


      Deleted by the Office of the Inspector General - Not Relevant to the Final
      Report
Regence Plan
Draft Report Response
Page 5

     Deleted by the Office of the Inspector General - Not Relevant to the Final Report
Regence Plan
Draft Report Response
Page 6

      Deleted by the Office of the Inspector General - Not Relevant to the Final Report
Regence Plan
Draft Report Response
Page 7

Thank you for this opportunity to provide an update on recommendations included in this report. If
you have any questions, please contact me at               .

Sincerely,




            , CISA 

Managing Director, Program Assurance

Attachments

cc:           , Regence
                , FEP
                  , FEP 

                                        Report Fraud, Waste, and 

                                            Mismanagement


                                                  Fraud, waste, and mismanagement in
                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                     By Internet:                  http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:		               Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                            By Mail:               Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100




                                                             -- 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 (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                 Report No. 1A-10-69-14-012