Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management

Audit of Premera Blue Cross

Published by the Office of Personnel Management, Office of Inspector General on 2017-10-02.

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

Audit of Premera Blue Cross

Report Number 1A-10-70-17-019
October 2, 2017

-- CAUTION --
This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public
version may contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. §
1905, and the Privacy Act, 5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of
Information Act and made publicly available on the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version
should not be further released unless authorized by the OIG.
EXECUTIVE SUMMARY
Audit of Premera Blue Cross

Report No. 1A-10-70-17-019 October 2, 2017

Why Did We Conduct the Audit? What Did We Find?

The objectives of our audit were to Our limited scope performance audit identified minimal exceptions and
determine whether Premera Blue determined that Premera Blue Cross is generally pricing claim
Cross (Plan) charged costs to the payments properly on behalf of the FEHBP. Therefore, we conclude
Federal Employees Health Benefits that Premera Blue Cross appears to be in compliance with the terms of
Program (FEHBP) and provided its contract with the U.S. Office of Personnel Management and industry
services to FEHBP members in standards.
accordance with the terms of its
contract with the U.S. Office of
Personnel Management.
Specifically, our objective was to
determine whether the Plan
complied with contract provisions
relative to claim payments.

What Did We Audit?

The Office of the Inspector General
(OIG) has completed a limited scope
performance audit of the FEHBP
operations of Premera Blue Cross.
The audit covered claim payments
from January 1, 2014, through
December 31, 2016, as reported in
the Blue Cross and Blue Shield
Association’s (Association) Federal
Employee Program Government-
wide Service Benefit Annual
Accounting Statements.

_______________________
Michael R. Esser
Assistant Inspector General
for Audits

This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
ABBREVIATIONS

Association Blue Cross Blue Shield Association
BCBS Blue Cross and Blue Shield
FEHB Federal Employee Health Benefits
FEHBP Federal Employee Health Benefit Program
FEP Federal Employee Program
OBRA 93 Omnibus Budget Reconciliation Act of 1993
OIG Office of the Inspector General
OPM U.S. Office of Personnel Management
Plan Premera Blue Cross

ii
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary information that may be
protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
TABLE OF CONTENTS

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

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

I. BACKGROUND.......................................................................................1

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

III. AUDIT REVIEWS AND CONCLUSION .............................................5

A. System Pricing Review .........................................................................5

B. Omnibus Budget Reconciliation Act of 1993 .......................................5

APPENDIX A: Blue Cross Blue Shield Association’s August 3, 2017, response
to the Draft Audit Report, issued July 31, 2017.

REPORT FRAUD, WASTE AND MISMANAGEMENT

This final report details the audit reviews and conclusion resulting from our limited scope audit
of the Federal Employees Health Benefits Program (FEHBP) operations at Premera Blue Cross
(Plan). The Plan is located in Mountlake Terrace, Washington. The audit was performed by the
U.S. Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as
authorized by the Inspector General Act of 1978, as amended.

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, Part 890 of the
Code of Federal Regulations (CFR). Health insurance coverage is made available through
contracts with various health insurance carriers.

The Blue Cross Blue Shield Association (Association), on behalf of participating Blue Cross and
Blue Shield (BCBS) 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 BCBS plans throughout the United States to
process the health benefit claims of its federal subscribers. There are 64 BCBS plans
participating in the FEHBP.

The Association has established a Federal Employee Program (FEP1) 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
BCBS plans, and OPM.

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst Blue Cross Blue Shield, 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 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
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 most recent audit report issued that covered claim payments for Premera Blue Cross was
Report No. 1A-10-70-04-021, dated October 19, 2004. All findings from the previous audit have
been resolved.

The results of this current audit were discussed with Plan and Association officials throughout
the audit and at an exit conference dated July 31, 2017. 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-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
IV. OBJECTIVES,
II. MAJOR CONTRIBUTORS
SCOPE, ANDTO THIS REPORT
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 objective was to determine whether the Plan complied with contract provisions relative to
health benefit payments.

SCOPE AND METHODOLOGY

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 Blue Cross and Blue Shield Association’s Government-wide Service Benefit
Plan Annual Accounting Statements as they pertain to Plan codes 430, 439, 934 and 936
(Premera Blue Cross) for contract years 2014 through 2016 (see Exhibit I) and determined the
Plan paid approximately $1.6 billion in health benefit charges. From this universe, we
judgmentally selected various samples for review. We reviewed approximately 127 claims,
totaling $7.7 million in payments, for the period of January 1, 2014, through December 30, 2016,
for proper adjudication. The determination of our audit findings is based on the FEHBP
contract, the 2014 through 2016 Service Benefit Plan brochures, the Plan’s provider agreements,
and the Association’s FEP Administrative Procedures Manual. The results of these samples
were not projected to the universe of claims.

Exhibit I – Health Benefit Charges

Premera Blue Cross
Health Benefit Charges
$600
$500
$ Millions

$400 Health Benefit
$300 Payments
$200
$100
$‐
2014 2015 2016

3 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
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. Our audit
approach consisted mainly of 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 operations. However, since our audit would not necessarily disclose all
significant matters in the internal control structure, we do not express an opinion on the Plan’s
system of internal controls taken as a whole.

We also conducted tests to determine whether the Plan had complied with the contract and the
laws and regulations governing the FEHBP as they relate to claim payments. The results of our
tests indicate that, with respect to the items tested, the Plan is in compliance with the provisions
of the contract relative to claim payments. A summary of our reviews was noted and explained
in detail in the “Audit Reviews and Conclusion” section of this audit report. With respect to the
items not tested, nothing came to our attention that caused us to believe that the Plan had not
complied, in all material respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
the FEP Director’s Office, the FEP Operations Center, and the Plan. Through audits and a
reconciliation process, we have verified the reliability of the BCBS claims data in our data
warehouse, which was used to identify the universe of claims for each type of review. The
BCBS claims data is provided to us on a monthly basis by the FEP Operations Center, and after a
series of internal steps, uploaded into our data warehouse. However, due to time constraints, we
did not verify the reliability of the data generated by the Plan’s local claims system. While
utilizing the computer-generated data during our audit, 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 offices in Washington, D.C.; Cranberry Township,
Pennsylvania; and Jacksonville, Florida from May through July 2017.

4 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
IV. III.
MAJOR CONTRIBUTORS
AUDIT REVIEWS ANDTO THIS REPORT
CONCLUSION

The sections below summarize the results of the reviews we performed on claim payments made
by Premera Blue Cross. As mentioned in the “scope” section above, all of our samples were
selected from claim payments for services reimbursed between January 1, 2014, and
December 31, 2016.

A. SYSTEM PRICING REVIEW

We reviewed a sample of claims where the FEHBP paid as the primary insurer to determine
whether the Plan’s local claims adjudication system properly processed and priced these claims
in accordance with contract CS 1039. See Exhibit II for a summary of our System Pricing
Review.
Exhibit II – Summary of System Pricing Review

Universe of Universe Dollar Sampled Sampled Dollar
Claim Lines Total Claims Total
107 $ 7,729,248

Sample Selection Criteria
We selected 107 claims that were stratified by place of service (such as provider’s office or
inpatient hospital) and payment category (such as $50 to $99). Our sample size was
judgmentally determined by the number of sample items from each place of service stratum
based on the stratum’s total claim dollars paid.

Review Summary
Our review did not identify any claim payment errors.

B. OMNIBUS BUDGET RECONCILIATION ACT OF 1993 (OBRA 93)

OBRA 93 limits the benefit payment to physicians for services provided to annuitants age 65 or
older who are not covered under Medicare Part B. The FEHBP fee-for-service plans are required
to limit the claim payment to the lesser of the billed charges or the amount equivalent to the
Medicare Part B payment. The FEP Operations Center contracts with Palmetto (an OBRA 93
pricing vendor) to calculate the pricing amounts for FEHBP claims subject to OBRA 93 pricing
regulations.

We reviewed a sample of OBRA 93 claim lines that contained procedure code modifiers 62, 66,
AS, 50 and 51. Based on our audit experience, we consider these claim lines to be at high risk

5 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
for claim payment error since the FEP Express – FEHBP national claims system – was not
configured to apply the Medicare modifier discount percentages. See Exhibit III for a summary
of our OBRA 93 review.

Exhibit III – Summary of OBRA 93 Review

Universe of Universe Dollar Sampled Sampled Dollar
Claim Lines Total Claims Total
20 $21,317

Sample selection Criteria
All claim lines with amounts paid of $400 or more.

Review Summary
Our review determined the Plan incorrectly paid four claims due to the fact that the FEP Express
system was not configured to apply the correct modifier reimbursement percentage discounts for
these claims. The Plan has already taken the necessary action and these overcharges of $2,314
have been returned to the FEHBP. Therefore, no further action is required.

Overall Audit Conclusion

Our audit review did not detect any significant concerns with the Plan’s process for pricing and
paying FEHBP claims, and the Plan appears to be in compliance with the terms of its contract
with the U.S. Office of Personnel Management and industry standards.

6 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
APPENDIX A

August 3, 2017

Senior team Leader
Information System Audit group
OPM Office of the Inspector General

Re: Draft Audit Report No. 1A-10-70-17-019

Dear :

Thank you for the time your team has spent working with our plan. It has been a pleasure
working with all of you.

I am writing you concerning the Office of the Inspector General Draft Audit Report, which
included claim payments from January 1, 2014 through December 31, 2016.

We have reviewed the Draft Audit Report that identified minimal exceptions. We are very
pleased with the conclusion that Premera Blue Cross appears to be in compliance with the terms
of our contract and is generally properly pricing claim payments on behalf of the Federal
Employees Health Benefits Program.

Premera takes any potential findings seriously and we appreciate every opportunity to provide
peace of mind to all of our customers.

Sincerely,

, Manager
Quality Review & Reporting
Premera Blue Cross

cc:
, BCBSA
, Premera Blue Cross
, Premera Blue Cross
, Premera Blue Cross

7 Report No. 1A-10-70-17-019
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.

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