oversight

Audit of Health Care Service Corporation(Bluecross Blueshield of Oklahoma) Tulsa, Oklahoma

Published by the Office of Personnel Management, Office of Inspector General on 2009-01-09.

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

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                                                  Date:        Jahuary9, 2909




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     Thisauditrejlort bas beendilitributed to Federalofflcials                    for the administration ofthe audited program. Tbis audit report. .
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   . Freedom oflnformatioll, Act, caution needs to be exereised before releasing tbe report to the general publk.        .
                       UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                          Washington, DC 20415


  Office of the
Inspector General




                                       . AUDIT REPORT



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

                                   Health Care Service Corporation
                                        Plan Codes 340/840

                                          Tulsa, Oklahoma




                      REPORT NO. IA-1O-83-08-018         DATE:January 9, 2009




                                                        ~c;,
                                                          Michael R. Esser
                                                          Assistant Inspector General
                                                            for Audits




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

   Office of the
Inspector General




                                      EXECUTIVE SUMMARY



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

                                      Health Care Service Corporation
                                           Plan Codes 340/840

                                             Tulsa, Oklahoma




                      REPORT NO. lA-10-83-08-018            DATE:    January      9, 2009

       This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
       Health Care Service Corporation (Plan), which only included BlueCross BlueShield of
       Oklahoma, questions $2,049,313 in health benefit charges and $171,670 in administrative
       expenses. The BlueCross BlueShield Association (Association) and/or Plan agreed (A) with
       $1,724,824 and disagreed (D) with $496,159 of the questioned costs. Lost investment income
       (LII) on the questioned costs amounts to $22,175.

       Our audit was conducted in accordance. with Government Auditing Standards. The audit covered
       claim payments from 2005 through 2007, as well as miscellaneous payments and credits and
       administrative expenses from 2004 through 2006 as reported in the Annual Accounting
       Statements. In addition, we reviewed the Plan's cash management practices related to FEHBP
       funds for contract years 2004 through 2006.

       Questioned items are summarized as follows:




        www.opm.gov                                                                      www.usaJobs.gov
                            HEALTH BENEFIT CHARGES

Claim Payments

•   Indian Hospital Facilities - Claim Overpayments (A)                                $1,382,373

    The Plan overcharged the FEHBP for hospital level reimbursements made for professional
    services from January 2004 through July 2008.

•   Omnibus Budget Reconciliation Act of 1990 Review                                     $485,319

    The Plan incorrectly paid 52 claims that were priced or potentially should have been priced
    under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines. Specifically, the
    Plan overpaid 43 claims by $528,790 and underpaid 9 claims by $43,471, resulting in net
    overcharges of$485,319 to the FEHBP. The Association agreed with $70,146 (A) and
    disagreed with $415, 173 (D) of the net overcharges.

•   Claim Payment Errors                                                                 $177,982

    The Plan incorrectly paid 85 claims, resulting in net overcharges of $177,982 to the FEHBP.
    Specifically, the Plan overpaid 74 claims by $181,247 and underpaid 11 claims by $3,265.
    The Association agreed with $96,996 (A) and disagreed with $80,986 (D) ofthe net
    overcharges.

Miscellaneous Payments and Credits

•   Refund Advances - Lost Investment Income (A)                                           $3,639

    The Plan did not properly invest on average $331,426 in Federal Employee Program refund
    advances from October 2006 through December 2006. As a result, the FEHBP is due LII of
    $3,639 on refund advances.

                            ADMINISTRATIVE EXPENSES

•   Unallowable Cost Center and Natural Account Expenses (A)                             $108,220

    The Plan charged unallowable cost center and natural account expenses to the FEHBP from
    2004 through 2006.

•   Pension Costs (A)                                                                     $96,632

    The Plan overcharged the FEHBP for pension costs in 2006.




                                                II
•   Limits on Executive Compensation fA)                                                   ($33.182)

    The Plan overcharged the FEHBP $2,047 for executive compensation in 2004, and
    undercharged the FEHBP $35,229 in 2005 and 2006.

                                  CASH MANAGEMENT

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

              LOST INVESTMENT INCOME ON AUDIT FINDINGS

    As a result or our audit findings presented in this audit report, the FEHBP is due LII of
    $22,175, calculated through December 31, 2008.




                                                 11l
                                      CONTENTS

                                                                                   PAGE

       EXECUTIVE SUMMARy	                                                                  i

 1.    INTRODUCTION AND BACKGROUND	                                                        1

II.    OBJECTIVES, SCOPE, AND METHODOLOGy	                                                 3

III.   AUDIT FINDINGS AND RECOMMENDATIONS	                                                 6

       A.   HEALTH BENEFIT CHARGES                        :	                               6

            1.   Claim Payments	                                                           6

                 a. Indian Hospital Facilities - Claim Overpayments	                     6
                 b. Omnibus Budget Reconciliation Act of 1990 Review	                    7
                 c. Claim Payment Errors	                                               11

            2.   Miscellaneous Payments and Credits	                                    15

                 a. Refund Advances - Lost Investment Income	                           15

       B.   ADMINISTRADVE EXPENSES	                                                     16

            1.   UnaIJowable Cost Center and Natural Account Expenses	                  16
            2.   Pension Costs	                                                         18
            3.   Limits on Executive Compensation	                                      19

       C.   CASH MANAGEMENT	                                                            20

       D.   LOST INVESTMENT INCOME ON AUDIT FINDINGS	                                   20

 IV.   MAJOR CONTRIBUTORS TO THIS REPORT	                                               21

 V.    SCHEDULES

       A.   CONTRACT CHARGES
       B.   QUESTIONED CHARGES
       C.   LOST INVESTMENT INCOME CALCULATION

       APPENDIX A	 (BlueCross BlueShield Association reply, dated August 19, 2008, to
                   the draft audit report)

       APPENDIX B	 (Health Care Service Corporation reply, dated October 8, 2008, to the
                   draft audit report)
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our
audit of the Federal Employees Health Benefits Program (FEHBP) operations at Health Care
Service Corporation (plan or HCSC) pertaining to BlueCross BlueShield of Oklahoma. The Plan
includes the Illinois, New Mexico, Oklahoma, and Texas BlueCross and BlueShield plans. The
BlueCross BlueShield of Oklahoma plan is located in Tulsa, Oklahoma.

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

BACKGROUND

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

The BlueCross BlueShie1d Association (Association), on behalf of participating BlueCross and
BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039)
with OPM to provide a health benefit plan authorized by the FEHB Act. The Association
delegates authority to participating local BlueCross and BlueShield plans throughout the United
States to process the health benefit claims of its federal subscribers. The Plan is one of
approximately 63 local BlueCross and BlueShield plans participating in the FEHBP.

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

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



I Throughout this report, when we refer to "FEP" we are referring to the Service Benefit Plan lines of business at the
Plan. When we refer to the "FEHBP" we are referring to the program that provides health benefits to federal employees.




                                                          1
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and Plan management. Also, management of the Plan is responsible for establishing
and maintaining a system of internal controls.

All findings from our previous audit of the Oklahoma plan (Report No. IA-IO-83-05-002, dated
October 17, 2005) for contract years 1999 through 2003 have been satisfactorily resolved, except
for two findings. The resolution of these audit issues is still ongoing.

The results ofthis audit Were provided to the Plan in written audit inquiries; were discussed with
Plan and/or Association officials throughout the audit and at an exit conference; and were
presented in detail in a draft report, dated June 20, 2008. The Association's comments offered in
response to the draft report were considered in preparing our final report and are included as
Appendix A to this report. Also, additional comments provided by the Plan were considered in
preparing our final report and are included as Appendix B to this report.




                                                2
                 II. OBJECTIVES, SCOPE, AND METHODOLOGY

 OBJECTIVES

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

        Health Benefit Charges

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

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

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

        Administrative Expenses

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

        Cash Management

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

 SCOPE

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

 We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
 pertain to Plan codes 340/840 (Oklahoma plan) for contract years 2004 through 2007. During
 this.period, the Plan paid approximately $1.2 billion in health benefit charges and $75 million in
 administrative expenses for the Oklahoma plan (See Figure 1 and Schedule A).




                                                 3
Specifically, we reviewed approximately $12 million in claim payments made from 2005 through
2007 for proper adjudication. In addition, we reviewed miscellaneous payments and credits, such
as refunds and subrogation recoveries, administrative expenses, and cash management for 2004 .
through 2006.

In planning and conducting our audit,
we obtained an understanding of the                               Health Care Service Corporation
                                                                (BlueCross BlueShield of Oklahoma)
Plan's internal control structure to help                                Contract Charges
determine the nature, timing, and extent           $400
of our auditing procedures. This was
determined to be the most effective
                                                   $300
approach to select areas of audit. For       III
                                             C
those areas selected, we primarily relied    ~
on substantive tests of transactions and     :i $200
                                             ~
not tests of controls. Based on our
testing, we did not identify any
                                                   $100
significant matters involving the Plan's
internal control structure and its
operation. However, since our audit                  $0
would not necessarily disclose all                           2004             2005           2006          2007
                                                                                 Contract Years
significant matters in the internal
control structure, we do not express an                   I!".iI Hearth Benefit Payments   .Administrative Expenses
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~ieguJations governing the FEHBP. The results of our tests indicate that, with respect to the
 items tested, the Plan did not comply with all provisions of the contract and federal procurement
 regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings
 and Recommendations" section of this audit report. With respect to the items not tested, nothing
 came to Our attention that caused us to believe that the Plan had not complied, in all material
 respects, with those provisions.

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

The audit was perfOlmed at the Plan's office in Tulsa, Oklahoma from March 10 through
March 21, 2008 and April 14 through May 2, 2008. Audit fieldwork was also performed at our
offices in Washington, D.C. and Jacksonville, Florida.




                                                     4

METHODOLOGY

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

To test the Plan's compliance with the FEHBP health benefit provisions, we selected and
reviewed samples of 519 claims. 2 We used the FEHBP contract, the Service Benefit Plan
brochure, the Plan's provider agreements, and the Association's FEP administrative manual to
detennine the allowability of benefit payments. The results of these samples were not projected
to the universe of claims.

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting
records during our audit of miscellaneous payments and credits. We also judgmentally selected
and reviewed 75 health benefit refunds, totaling $1,096,795 (from a universe of 14,640 .refunds,
totaling $8,597,247); 45 subrogation recoveries, totaling $1,469,061 (from a universe of 1,406
subrogation recoveries, totaling $3,029,543); and 15 Special Plan Invoices, totaling $873,494 in
net payments (from a universe of74 Special Plan Invoices, totaling $2,801,563 in net payments)
to determine if refunds and recoveries were promptly returned to the FEHBP and if
miscellaneous payments were properly charged to the FEHBP.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 2004
through 2006. Specifically, we reviewed administrative expenses relating to cost centers, natural
accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement, employee
health benefits, executive compensation, subcontracts, non-recurring projects, lobbying, return on
investment, Association dues, and Health Insurance Portability and Accountability Act of 1996
compliance. We used the FEHBP contract, the FAR, and the FEHBAR to detennine the
alJowability, allocability, and reasonableness of charges.

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




2See the audit findings for "Omnibus Budget Reconciliation Act of 1990 Review" (AI.b) and "Claim Payment
Errors" (A1.c) on pages 7 through 15 for specific details of our sample selection methodologies.




                                                      5
           III. AUDIT FINDINGS AND RECOMMENDATIONS

A. HEALTH BENEFIT CHARGES

  1. Claim Payments

     a. Indian Hospital Facilities - Claim Overpayments	                            $1,382,373

        The Plan overcharged the FEHBP $1,382,373 for hospital level reimbursements made
        for professional services from January 2004 through July 2008.

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

         While conducting a medical review, the Plan's Special Investigation Unit (SIU) found
         that certain Indian Hospital Facilities (i.e., Lawton Indian Hospital, Anadarko,
         Carnegie, Choctaw Nation, Chickasaw, and WW Hastings) were billing for hospital-
         based outpatient clinic services by submitting a facility evaluation and management
         charge on the UB-92 fonn (billing fonn for hospital claims) instead of a professional
         evaluation and management charge on the CMS 1500 fonn (billing fonn for
         professional claims). The Plan's payment methodology requires professional services
         to be billed on a CMS 1500 form for proper reimbursement. Consequently,
         overpayments resulted from professional services being billed on outpatient hospital
         claim fonns (UB-92) instead of professional claim forms (eMS 1500). There were also
      .	 instances were facilities submitted both types of claim fonns and received duplicate
         reimbursements.

        For the period January 2004 through May 2006, the Plan's SIU identified overcharges
        of$588,328 to the FEHBP as a result of these claim payment errors. In the draft
        report, we requested the Plan to also identify and review all claims reimbursed for the
        period June 2006 through July 2008 with this type of potential claim payment error.
        As a result, the Plan identified additional claim overpayments of $794,045 during the
        period June 2006 through July 2008. In total, the FEHBP is due $1,382,373 for claim
        overcharges from January 2004 through July 2008.

        Association's Response (Appendix A):

        The Association agrees with the questioned overpayments of $588,328 for the period
        January 2004 through May 2006. The Association states that the Plan is in the process
        of initiating recoveries for these overpayments. The Association also states that the
        Plan has developed a corrective action plan to prevent this type of claim payment error
        in the future.




                                             6
   Plan's Response (Appendix B):

   "HCSC has identified and processed recovery requests for claims with this payment
   error reimbursed during the period June 2006 through July 2008. The refund amount
   requested for Indian Hospitals is $794,045. All money recovered will be returned to the
   FEHBP."

   Recommendation 1

   We recommend that the contracting officer disallow $1,382,373 for claim overcharges,
   and verify that the Plan returns all amounts recovered to the FEHBP.

   Recommendation 2

   We recommend that the contracting officer instruct the Association to verify that the
   Plan has implemented a corrective action plan to prevent this type of claim payment
   error in the future.

b. Omnibus Budget Reconciliation Act of 1990 Review                               $485,319

   The Plan incorrectly paid 52 claims that were priced or potentially should have been
   priced under the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) pricing
   guidelines. Specifically, the Plan overpaid 43 claims by $528,790 and underpaid 9
   claims by $43,471, resultingin net overcharges of$485,319 to the FEHBP.

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

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

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

   The following summarizes the claim payment errors.

   OBRA 90 Claim Pricing Errors

   For the period 2005 through 2007, we identified 1,928 claims, totaling $15,863,071 in
   payments, that were subject to OBRA 90 pricing guidelines. From this universe, we
   selected and reviewed a judgmental sample of III claims, totaling $4,126,780 in




                                        7
payments, to determine if these claims were correctly priced by the FEP Operations
Center and paid by the Plan. Our sample included all OBRA 90 claims with amounts
paid of $20,000 or more.

Based on our review, we determined that 30 claims were paid incorrectly, resulting in
net overcharges of $342,882 to the FEHBP. Specifically, the Plan overpaid 24 claims
by $377,507 and underpaid 6 claims by $34,625.

The claim payment errors resulted from the following:

•	 The Plan paid 18 claims that were not priced correctly in accordance with OBRA
   90 pricing, resulting in net overcharges of $248,827 to the FEHBP. Specifically,
   the Plan overpaid 16 claims by $270,433 and underpaid 2 claims by $21,606.

•	 The Plan paid three claims using incorrect local pricing amounts, resulting in
   overcharges of $70,714 to the FEHBP.

•	 The Plan paid three claims using incorrect reimbursement rates, resulting in net
   overcharges of$12,043 to the FEHBP. Specifically, the Plan overpaid one claim
   by $18,953 and underpaid two claims by $6,910.

•	 In one instance, the FEP Operations Center priced the OBRA 90 claim using an
   incorrect patient status code, resulting in an overcharge of$5,717 to the FEHBP.

•	 The FEP Operations Center priced five claims using incorrect Medicare
   Diagnostic Related Group (DRG) codes. Consequently, the Plan overpaid three
   claims by $11,690 and underpaid two claims by $6,109, resulting in net
   overcharges of $5,581 to the FEHBP.

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

For the period 2005 through 2007, we identified 187 claims, totaling $2,336,858 in
payments, that were potentially subject to OBRA 90 pricing guidelines but appeared
to be priced under the Plan's standard pricing procedures. From this universe, we
selected and reviewed a judgmental sample of78 claims, totaling $1,380,471 in
payments, to determine if the Plan paid these claims properly; Our sample included
all possible OBRA 90 claims with amounts paid of $5,000 or more.

Based on this review, we determined that 22 claims were paid incorrectly, resulting in
net overcharges of$142,437 to the FEHBP. Specifically, the Plan overpaid 19 claims
by $151,283 and underpaid 3 claims by $8,846.




                                     8
The claim payment errors resulted from the following:

•	 The Plan inadvertently did not price 18 claims under OBRA 90, resulting in net
   overcharges of $117,973 to the FEHBP, Specifically, the Plan overpaid 15 claims
   by $126,819 and underpaid 3 claims by $8,846.

•	 In one instance, the Plan split a claim and paid twice for one continuous admission,
   resulting in an overcharge of $13,744 to the FEHBP. The Plan should have paid
   one DRG amount for the entire length of stay.

•	 The Plan paid three claims using incorrect local pricing amounts, resulting in
   overcharges of $1 0,720 to the FEHBP.

Association's Res ponse:

In response to the amount questioned in the draft report, the Association agrees with
$70,146 and disagrees with $473,438 of the net overcharges. The Association states
that the Plan has initiated recoveries for the uncontested claim overpayments. The
Association also states that these payments were good faith erroneous benefit
payments and fall within the context ofCS 1039, Part II, section 2.3(g). Any
payments the Plan is unable to recover are allowable charges to the FEHBP. As good
faith erroneous payments, lost investment income (LII) does not apply to the claim
payment errors identified in this finding.

For the "OBRA 90 Claim Pricing Errors" finding, the Association states, "We do not
contest ... a net overpayment of$9,331. We do contest 18 claims that were overpaid
by $446,084. The Plan identified these claims and requested refunds prior to
receiving the audit sample.... The Plan also disagrees with underpayments of
$15,288 for a net contested amount of $430,795."

Regarding the "Possible OBRA Claims" finding, the Association states, "We do not
contest ... a net overpayment of$60,815. We do contest 3 claims totaling $25,295
because the Plan identified and requested the refunds prior to the audit sample being
received and one claim for $22 because the amount was allowed by FEPOC ... We
also contest 2 claims totaling$17,327·because when re-priced by the Operations
Center OBRA 90 pricing software, the resulting price was different than the price
calculated by the aPM auditors using the CMS PC pricer. The Operations Center
OBRA 90 pricing software is the official OPM approved source for FEP OBRA 90
pricing and must be used to detennine payment. The claims were repriced with the
most up-to-date version of the Operations Center OBRA '90 pricer software. Because
the final updated version ofthe Operations Center ORRA '90 pricer is the tool used to
price Medicare Part A claims by the Medicare Part A Intermediaries and the fact that
the PC Pricer was developed for providers to use to check the amount that they may
receive when the claim is processed by the Medicare Part A Intermediary, FEP
continues to believe that the pricing differences obtained by the Operations Center




                                     9
OBRA '90 Mainframe pricer is the most accmate. Also, since 2005, the Operations
Center updates the OBRA '90 pricing software on a quarterly basis. This has
minimized pricing differences."

In addition, the Association states, "To reduce the occurrence of Plan OBRA '90
pricing errors in the future, the FEPDO has implemented the foHowing action plan:

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

•	 Modify FEP claims system to defer claims whenever the Plan indicates the
   provider is not an approved facility ...

•	 Override Plan's indication of whether or not the Provider is a Medicare approved
   provider and validate status through the FEP OBRA '90 software; and

•	 Detennine the feasibility of using the eMS PC Pricer in our current OBRA '90
   Mainframe Pricing process."

OIG Comments:

After reviewing the Association's response and documentation provided by the
Plan, we revised the amount questioned from the draft report to net overcharges of
$485,319. Based on the response, the Association agrees with $70,146 and
disagrees with $415,173 of these net overcharges.

Based on the Association's response andlor the Plan's documentation, the contested
amount represents claim payment errors where recovery efforts were initiated by the
Plan before receiving our information req:uests/audit samples. However, the Plan
had not recovered these overpayments and adjusted the claims by the response due
date (March 21,2008) to our samples. Since these overpayments bad not been
recovered and returned to the FEHBP by March 21, 2008, we are continuing to
question this amount in the final report. .Of this contested amount, we verified that
the Plan subsequently recovered and returned $263,449 of these overpayments to
the FEHBP.

Recommendation 3

We verified that the Plan returned $263,449 of the questioned overcharges to the
FEHBP. For these overpayments, the Plan returned the funds to the FEHBP and
adjusted the claims after March 21, 2008 (plan's response due date to the audit
samples). No further action is required for these overpayments.




                                    10
  Recommendation 4

  We recommend that the contracting officer disallow $265,341 ($528,790 overcharges-
  $263,449 amount previously returned) in claim overcharges, and verify that the Plan
  returns all amounts recovered to the FEHBP.

  Recommendation 5

  We recommend that the contracting officer allow the Plan to charge the FEHBP
  $43,471 if additional payments are made to the providers to correct the underpayment
  errors.

  Recommendation 6

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

c. Claim Payment Errors                                                           $177,982

  The Plan incorrectly paid 85 claims, resulting in net overcharges of$177,982 to the
  FEHBP. Specifically, the Plan overpaid 74 claims by $181,247 and underpaid 11
  claims by $3,265.

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

   In addition, Contract CS 1039, Part II, section 2.6 states, "(a) The Carrier shall
   coordinate the payment of benefits under this contract with the payment of benefits
   under Medicare ... (b) The Carrier shall not pay benefits under this contract until it
   has determined whether it is the primary carrier ...."

   The following summarizes the claim payment errors.

   Amounts Paid Greater than Covered Charges

  For the period of2005 through 2007, we identified 15,436 claims where the amounts
  paid were greater than the covered charges by a total of$12,568,722. From this
  universe, we selected and reviewed a judgmental sample of 90 claims with a total
  variance of $3,868,041, and determined if the Plan paid these claims properly. Our
  sample included all claims where the amounts paid exceeded the amounts covered by
  $15,000 or more. Based on our review, we identified five claim payment errors,
  resulting in overcharges of $93,664 to the FEHBP.




                                        11
                The claim payment errors resulted from the following reasons:

                •	 The Plan paid one claim at an incorrect per diem amount, resulting in an'
                   overcharge of $29,950 to the FEHBP.

                •	 The Plan did not coordinate one claim with Medicare, resulting in an overcharge
                   of$26,188 to the FEHBP.

                •	 In one instance, the Plan incorrectly paid a continuous stay claim due to a
                   processing error, resulting in an overcharge of $18,434 to the FEHBP.

                •	 The Plan paid one claim using an incorrect ORO code, resulting in an overcharge
                   of $17,724 to the FEHBP.

                •	 The Plan paid one claim using an incorrect allowance, resulting in an overcharge
                   of$I,368 to the FEHBP. Although the Plan initiated recovery on this
                   overpayment prior to receiving our audit sample, the Plan had not recovered the
                   overpayment and adjusted the claim by the response due date (March 10, 2008) to
                   the sample. Therefore, we are continuing to question this overpayment in the final
                   report.

                Sy~tem   Review

               For health benefit claims incurred and reimbursed during the period January 1, 2007
               through December 31,2007, we identified 2,466,467 claim lines, totaling
               $256,561,518 in payments, using a standard criteria based on our experience. From
               this universe, we judgmentally selected and reviewed a sample of 100 claims
               (representing 988 claim Jines), totaling $2,742,772 in payments, to determine if the
               Plan adjudicated these claims properly.3

                Our review identified 10 claim payment errors, resulting in net overcharges of
                $43,986 to the FEHBP. Specifically, the Plan overpaid nine claims by $46,162 and
                underpaid one claim by $2,176.

                The claim payment errors resulted from the following:

                •	 The Plan paid eight claims at incorrect allowed amounts, resulting in net
                   overcharges of $35,439 to the FEHBP. Specifically, the Plan overpaid seven claims
                   by $37,615 and underpaid one claim by $2,176.



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




                                                           12
•	 The Plan inadvertently paid double the DRG amount for one claim, resulting in an
   overcharge of $8,380 to the FEHBP.

•	 The Plan did not coordinate one claim with Medicare, resulting in an overcharge of
   $167 to the FEHBP.

Assistant Surgeon Review

For the period 2005 through 2007, we identified 1,261 assistant surgeon claim groups,
totaling $231,441 in potential overpayments, that may not have been paid in
accordance with the Plan's assistant surgeon pricing procedures. From this universe,
we selected and reviewed ajudgmental·sample of 140 assistant surgeon claim groups,
totaling $85,841 in potential overpayments, to determine if the Plan paid these claims
properly. Our sample included.all assistant surgeon claim groups with potential
overpayments of $400 or more.

Based on our review, we identified 70 claim payment errors, resulting in net
overcharges of $40,332 to the FEHBP. Specifically, the Plan overpaid 60 claims by
$41,421 and underpaid 10 claims by $1,089.

The claim payment errors resulted from the following:

•	 The Plan incorrectly paid 27 assistant surgeon claims that were.->subject to Omnibus
   Budget Reconciliation Act of 1993 (OBRA 93) pricing guidelines, resulting in
   overcharges of $19,262 to the FEHBP. These errors were due to Palmetto (OBRA
   93 pricing vendor) not recognizing the assistant surgeon pricing modifier and
   erroneously calculating the assistant surgeon fee.

•	 The Plan paid 32 claims using the incorrect assistant surgeon pricing percentage,
   resulting in net overcharges of$14,320 to the FEHBP. Specifically, the Plan
   overpaid 22 claims by $15,409 and underpaid 10claims by $1,089.

•	 The Plan paid seven claims without applying the multiple surgery reduction,
   resulting in overcharges of $3,999 to the FEHBP.

•	 The Plan incorrectly paid two claims due to processor errors on the medical review
   pricing, resulting in overcharges of$I,847 to the FEHBP.

•	 The Plan did not properly coordinate one claim line with Medicare Part B, resulting
   in an overcharge of $467 to the FEHBP.

•	 The Plan made one duplicate claim payment, resulting in an overcharge of $437 to
   the FEHBP.




                                    13
Association's Response:

The Association agrees with $96,996 ($36,158, $20,506 and $40,332) and disagrees
with $80,986 of the net overcharges. The Association states that the Plan has initiated
recoveries for the uncontested claim overpayments. For the contested claim payment
errors, the Association states that Plan had already identified and requested refunds for
these overpayments before receiving the audit samples. The Association also states
that these payments were good faith erroneous benefit payments and fall within the
context of CS 1039, Part II, section 2.3(g). Any payments the Plan is unable to recover
are allowable charges to the FEHBP. As good faith erroneous payments, LII does not
apply to these claim payment errors.

In addition, the Association states that the FEP Director's Office and Plan have
implemented correction action plans to prevent these types of claim payment errors.

DIG Comments:

After reviewing the Association's response and documentation provided by the Plan,
we revised the amount questioned from the draft report to net overcharges of
$177,982. Based on the response, the Association agrees with $96,996 and disagrees
with $80,986 of these net overcharges.

Based on the Association's response and/or the Plan's documentation, the contested
amount represents claim payment errors where recovery efforts were initiated by the
Plan before receiving our information requests/audit samples. However, the Plan had
not recovered these overpayments and adjusted the claims by the response due date
(March 10, 2008) to our samples. Since these overpayments had not been recovered
and returned to the FEHBP by March 10, 2008, we are continuing to question this
amount in the final report. Of this contested amount, we verified that the Plan
subsequently recovered and returned $13,630 of these overpayments to the FEHBP.

Recommendation 7

We verified that the Plan retmned $13,630 of the questioned overcharges to the
FEHBP. For these overpayments, the Plan returned the funds to the FEHBP and
adjusted the claims after March 10,2008 (plan's response duedate to the audit
samples). Therefore, no further action is required for these overpayments.

Recommendation 8

We recommend that the contracting officer disallow $167,617 ($181,247 questioned -
$13,630 amount previously returned) in claim overcharges, and verify that the Plan
returns all amounts recovered to the FEHBP.




                                     14
      Recommendation 9

      We recommend that the contracting officer allow the Plan to charge the FEHBP
      $3,265 if additional payments are made to the providers to correct the underpayment
      errors.

      Recommendation 10

      We recommend that the contracting officer instruct the Association to verify that the
      Plan is following the corrective action plan to prevent these types of claim payment
      errors in the future.

2. Miscellaneous Payments and Credits

   a. Refund Advances - Lost Investment Income                                        $3,639

      The Plan did not properly invest on average $331,426 in FEP refund advances from
      October 2006 through December 2006. As a result, the FEHBP is due LII of $3,639
      on refund advances.

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

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

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

      For the period 2004 through 2006, we reviewed the Plan's refund advance calculations
      to determine if the advances were properly calculated and invested. From January 2004
      through October 2006, the Oklahoma plan consistently maintained a refund advance
      balance of $60,000. In 2005, the Oklahoma plan merged with the Plan (Health Care
      Service Corporation). Starting in October 2006, the Plan calculated a refund advance
      balance, totaling $416,764, for the Oklahoma plan. We found that the Plan did not
      maintain the stated refund advance balance in the FEP investment account during the
      period October 2006 through December 2006. We performed our own calculations to
      determine how much of the advance was actually being invested; In our calculations,




                                          15
        we used the stated refund advance amount and any deposits into the FEP investment
        account and working capital. For each month, we detennined what the average daily
        investment balance should have been, and then calculated the difference between the
        investment balance per the bank statement and the investment balance that should have
        been maintained. We detennined that on average $331,426 in FEP refund advances
        were not being invested properly. As a result, the FEHBP is due LII of $3,639 on these
        refund advances.

        Association~s   Response:

        The Association agrees with this finding. The Association states that Plan will submit
        a Special Plan Invoice to credit the LII to the FEHBP by August 29, 2008.

        Recommendation 11

        We recommend that the contracting officer verify that the Plan credited the FEHBP
        $3,639 for LII on refund advances.

B. ADMINISTRATIVE EXPENSES

  1. Unallowable Cost Center and Natural Account Expenses                               $108,220

     The Plan charged unallowable cost center and natural account expenses of $108,220 to
     the FEHBP from 2004 through 2006.

     Contract CS 1039, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the
     contract for a contract tenn if the cost is actual, allowable, allocable, and reasonable."
     p.art III, section 3.8 states, "the Carrier shall retain and make available all records
     applicable to a contract term. , .."

     48 CFR 31.205-19(e)(2)(vi) states, "Cost of insurance on the lives of officers, partners, or
     proprietors are allowable only to the extent that the insurance represents additional
     compensation."

    For the period 2004 through 2006, the Plan allocated administrative expenses of
    $40,267A17 (before adjustments) to the FEHBP from 1,058 cost centers and 416 natural
    accounts. From this universe, we selected a judgmental sample of 53 cost centers to
    review, which totaled $20,976,830 in expenses allocated to the FEHBP. We also selected a
    judgmental sample of26 natural accounts to review, which totaled $6,142,465 in expenses
    allocated to the FEHBP. We selected the cost centers and natural accounts based on high
    dollar amounts, our nomenclature review, and significant dollar amount fluctuations from
    year to year. We reviewed the expenses from these cost centers and natural accounts for
    allowability, allocability, and reasonableness. Based on our review, we identified
    unallowable expenses of$108,220 from two cost centers and four natural accounts that
    were charged to the FEHBP.




                                              16
The following is a summary of the unallowable cost center (CC) and natural account (NA)
expenses that were charged to the FEHBP:

   •   NA 623800 (Life Insurance) - $53,466
   •   NA 680002 (Auditing Services) - $39,000
   •   CC 400950 (Oklahoma Marketing Development) - $14,439
   •   CC 400178 (Oklahoma Caring Foundation) - $1,095
   •   NA 690041 (Finance Charges) and NA 690042 (Interest and Penalties)"' $220

In 2006, the Plan charged the FEHBP $53,466 from NA 623800 for the cost of life
insurance for its officers. Prior to the merger with HCSC, the Oklahoma plan did not
charge the FEHBP for this expense. However, when the accounts migrated to HCSC, the
expense was classified as split-dollar life insurance, which may be allowable depending
on the agreement between the employer and employee. Based on our discussions with the
Plan, we determined that this is "Key-Man" life insurance and the Plan is the beneficiary.
As a result, since this expense does not represent additional compensation to the
employee, the charge is unallowable under 48 CFR 31.205-] 9(e)(2)(vi).

In 2006, the Plan charged the FEHBP $60,000 from NA 680002 for auditing services
related to an Independent Public Accountant audit. However, the Plan only provided
documentation to support $21,000 of these charges, resulting in unsupported charges of
$39,000 to the FEHBP.

In 2005 and 2006, the Plan incorrectly allocated $14,439 in manager salary expenses to
the FEHBP from CC 400950. Based on discussions with the Plan, we determined that
these expenses should not have been charged to the FEHBP since the manager position
was phased-out in 2005 and there were no actual work hours recorded in this CC.

In 2005, the Plan aJlocated unallowable charitable contributi(:ms of$I,095 to the FEHBP
from CC 400178. 48 CFR 31.205-8 states "Contributions or donations, including cash,
property and services, regardless of recipient, are unallowable, except as provided in 48
CFR 31.205-1 (e)(3)." The activities in this CC are not consistent with the exceptions in
48 CFR 31.205-1(e)(3).

In 2004 and 2005, the Plan allocated unallowable finance and interest charges of $220 to
the FEHBP from NA's 69004] and 690042. 48 CFR 31.205-20 states, "Interest on
borrowings (however represented) ... are unallowable ...."

In total, the FEHBP is due $108,220 for unallowable CC and NA expenses that were
charged to the FEHBP from 2004 through 2006.




                                        17
   Association's Response:

   The Association agrees with this finding. The Association states that the Plan will submit
   a prior period adjustment by August 20, 2008.

   Recommendation 12

   We recommend that the contracting officer verify that the Plan returned $108,220 to the
   FEHBP for unallowable CC and NA expenses that were charged to the FEHBP.

2. Pension Costs                                                                      $96,632

   The Plan overcharged the FEHBP $96,632 for pension costs in 2006.

   48 CFR 31.205-60) (2) states, "The cost of all defined-benefit pension plans shall be
   measured, allocated, and accounted for in compliance with the provisions of 48 CFR
   9904.412 ... and 48 CFR 9904.413 ... The costs of all defined-contribution pension plans
   shall be measured, allocated, and accounted for in accordance with the provisions of 48
   CFR 9904.412 and 48 CFR 9904.413. Pension costs are allowable subject to the referenced
   standards and the cost limitations and exclusions set forth in paragraph (j)(2)(i) .and in
   paragraphs (j)(3) through (8) of this subsection."

   ContractCS 1039, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the
   contract for a contract term if the cost is actual, allowable, allocable, and reasonable."

   As a result of an FEP Director's Office audit in 2006, the Plan was instructed to allocate
   pension costs based on an actual FEP salary ratio (FEP allocated salaries to total corporate
   s~laries). Therefore, the Plan recalculated the FEHBP pension costs for 2004 and 2005, and
 . submitted prior period adjustments to the FEP Director's Office in January 2007. We
   reviewed the Plan's prior period adjustments, and verified that these adjustment amounts
   were processed to the FEHBP. Therefore, these adjustment amounts were not included in
   this audit finding.

   However, we noted that the Plan did not use an acceptable or reasonable method of
   allocating pension costs to the FEHBP in 2006. In accordance with Federal regulations, a
   salary ratio is a reasonable allocation methodology for pension costs. As a result of our
   audit, the Plan recalculated the FEHBP pension costs for 2006 in accordance with the
   regulations. We reviewed the Plan's revised pension cost calculation noting that the
   FEHBP was overcharged $96,632 for 2006.

   Association's Response:

   The Association agrees with this finding. The Association states that the Plan will submit a
   prior period adjustment.




                                            18
   Recommendation 13

   We recommend that the contracting officer ensure that the Plan returns $96,632 to the
   FEHBP for pension cost overcharges.

3.	 Limits on Executive Compensation                                                 ($33,182)

   The Plan overcharged the FEHBP $2,047 for executive compensation in 2004, and
   undercharged the FEHBP $35,229 in 2005 and 2006.

   48 CFR 31.205-6(p) limits the allowable compensation costs for senior executives to a
   benchmark amount established each year by the Office of Federal Procurement Policy.
   This limit is applicable to the five most highly compensated employees in management
   positions at each home office and each segment ofthe Plan, whether or not the home
   office or segment reports directly to the Plan's headquarters. The benchmark
   compensation amounts were $432,851 in 2004, $473,318 in 2005, and $546,689 in 2006.

   48 CFR 31.205-6(p)(2)(i) states, '''Compensation' means the total amount of wages,
   salary, bonuses, deferred compensation ... and employer contributions to defined
   contribution pension plans ... for the fiscal year, whether paid, earned, or otherwise
   accruing, as recorded in the contractor's cost accounting records for the fiscal year."

   To detennine the allowability of the amounts charged to the FEHBP for executive
   compensation, we reviewed the Plan's allocations for 2004 through 2006 to detennine if
   the executives compensation amounts were limited to the amounts set forth in 48 CFR
   31.205-6(p). We noted the following exceptions:

   •	 For 2004, the Plan understated the executive compensation adjustment by inadvertently
      excluding the executives' 401K benefits in the calculation, resulting in an overcharge of
      $2,047 to the FEHBP.

   •	 For 2005, the Plan inadvertently applied the 2004 adjustment to the 2005 calculation.
      Also, the Plan did not include the executives' 40lK benefits in the 2005 calculation. As
      a result, the Plan undercharged the FEHBP $25,673 for executive compensation.

   •	 For 2006, the Plan did not charge the FEHBP for one executive's salary, resulting in an
      undercharge of$9,556 to the FEHBP.

   In total, the FEHBP was undercharged $33,182 (net) for executive compensation from 2004
   through 2006.

   Association's Response:

   The Plan agrees with this finding.




                                            19
        Recommendation 14

        We recommend that the contracting officer disallow $2,047 for executive compensation
        overcharges in 2004.

        Recommendation 15

        We recommend that the contracting officer allow the Plan to charge the FEHBP $35,229
        for executive compensation undercharges in 2005 and 2006.

C. CASH MANAGEMENT

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

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                              $22,175

  As a result of the audit findings presented in this report, the FEHBP is due LII of $22,175
  from January 1, 2005 through December 31, 2008.

  48 CFR 1652.215-71 requires the carrier to invest and reinvest all excess FEHBP funds on
  hand, and to credit all investment income earned on those fllnds to the Special Reserve on
  behalf of the FEHBP. When the carrier fails to comply with these requirements, the carrier
  shall credit the Special Reserve with investment income that would have been earned at the
  rates specified by the Secretary of the Treasury. LII payable on questioned costs bears simple
  interest.

 -~We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. Our computations show that the FEHBP is due
  LII of$22,175 from January 1, 2005 through December 30, 2008 on questioned costs for
  contract years 2004 through 2006 (see Schedule C).

  Association's Response:

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

  Recommendation 16

  We recommend that the contracting officer direct the Plan to credit $22,175 (plus interest
  accruing after December 31, 2008) to the Special Reserve for LII on audit findings.




                                              20
              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experienced-Rated Audits Group

                 Auditor-In-Charge

              Auditor

             Auditor

              Auditor


                   Chief

                Senior Team Leader




                                     21
                                                                                                                                                                                                                               SCHEDULE A
                                                                         HElAtTH CARE SERVICE CORPORAnON
                                                                       (BLUECROSS BLUESHIELD OF OKLAHOMA)
                                                                                  TULSA, OKLAHOMA

                                                                                         CONTRACT CHARGES

CONTRACT CHARGES                                                                  2004                                             2005                                         2006                    2007                    TOTAL

A. HEALTH BENEFIT CHARGES*

   PLAN CODE 340                                                                  $152,602,529                                     $173,457,867                                 $166,917,425            $182,539,806              $675,517,627
   MISCELLANEOUS PAYMENTS AND CREDITS                                                  734,915                                          944,966                                      622,815                 841,632                 3,144,328

   PLAN CODE 840                                                                   112,899,640                                      132,131,039                                  149,417,666             157,596,987               552,045,332
   MISCELLANEOUS PAYMENTS AND CREDITS                                                        0                                                0                                            0                       0                         0

   TOTAL HEALTH BENEFIT CHARGES                                   I   . ...
                                                                      ..,
                                                                                  $266,237,085
                                                                                             g l,   1hIUIlIfII~lId~Will   i ilil
                                                                                                                                   $306,533,871
                                                                                                                                                l!h",lllltru~\II~'_W~'»l",[jj
                                                                                                                                                                                $316,957,906
                                                                                                                                                                                                rnWml
                                                                                                                                                                                                        $340,978,425
                                                                                                                                                                                                                           I
                                                                                                                                                                                                                                $1,230,707,287    ~


B. ADMINISTRATIVE EXPENSES**

   PLAN CODES 340/840                                                              $14,472,912                                      $16,351,662                                  $23,216,817             $21,923,147               $75,964,538
   PRIOR PERIOD ADJUSTMENTS                                                            (14,627)                                         (76,618)                                     (31,422)               (40,607)                  (163,274)
   COST SETTLEMENT REDUCTIONS                                                                0                                                0                                   (1,195,907)                                       (1,195,907)

   TOTAL ADMINISTRATIVE EXPENSES                                  I "".0.,.••,.    $14,458,285                                      $16,275,044                                  $21,989,488             $21,882,540               $74.605.357 !!
                                                                                         I                         b I I                   ••••••""'•••••••••'".'""".'.....~",,' I                                                       •

                                                                                                                                                                                                        $362,860,965            $1,305,312,644
TOTAL CONTRACT CHARGES                                            I
                                                                                   ..
                                                                                  $280,695,370
                                                                                   "
                                                                                                                                   $322,808,915
                                                                                                                                                                        ,1••1
                                                                                                                                                                                $338947,394
                                                                                                                                                                                        "        I             I       I                          ~
* We did not review claim payments for contract year 2004 and miscellaneous payments and credits for contract year 2007.
** We did not review administrative expenses for contract year 2007.
                                                                                                                                                                                                                                                                                                         SCHEDULEB
                                                                         HEALTH CARE SERVICE CORPORATION
                                                                       (BLUECROSS BLUESHIELD OF OKLAHOMA)
                                                                                 TULSA, OKLAHOMA

                                                                                           QUESTIONED CHARGES

AUDIT FINDINGS                                                                                       2004                                              2005                                                     2006                               2007                                    2008           TOTAL

A. HEALTH BENEFIT CHARGES

     1. Claim Payments
         a. Indian Hospital Facilities - Claim Overpayments                                                             $0                                           SO                                             S588,328                              SO                               S794,045              SI,382,373
         b. Omnibus Budget Reconciliation Act of 1990 Review                                                                0                                    92,987                                              122,978                         269,354                                      0                 485,319
         c. Claim Payment Errors                                                                                            0                                     7,450                                               62,025                         108,507                                      0                 177,982

         Total Claim Payments                                                    I                                      SO                               5100,437                                                   5773,331                      5377,861                                 5794,045              S2,045,674

     2. Miscellaneous Payments and Credits
         a. Refund Advances - Lost Investment Income                                                                    SO                                                   SO                                          $3,639                                     SO                              SO                  $3,639

         Total Miscellaneous Payments and Credits                                1                                      so                                                   $0                                          $3,639                                     SO                              SO                  $3,639

     TOTAL HEALTH BENEFIT CHARGES                                                I                                      SO                               S100.437                                                   $776970                       $377.861                                 $794045               S2 049 313
                                                                                     ~"'lw",m'.~'<II.'IIWI.~1                                                                                                       II......,N••,,'                                                                       I                             ~
B. ADMINISTRATIVE EXPENSES*

     1. Unallowable Cost Center and Natural Account Expenses                                                   $524                                            $6,005                                               5101,691                                        SO                              $0              5108,220
     2. Pension Costs                                                                                              0                                                0                                                 96,632                                         0                               0                96,632
     3. Limits on Executive Compensation                                                                       2,047                                          (25,673)                                                (9,556)                                        0                               0               (33,182)

     TOTAL ADMINISTRATIVE EXPENSES                                               I                         52571                                          ($19668)                                                  S188.767                                       $0                               SO              $171670 II
                                                                                     ~   ••',rnl'ffi",",""'".m.""'." •••rn,,m.I'~ ••""'!lIl..mIS""'"'ilOl.......'1
 ~III!JJ_                                                                                                                                             I
C. CASH MANAGEMENT                                                                                                                                                           SO
                                                                                 I
                                                                                     \l[l;lm~mnllf!liii
                                                                                                                        SO
                                                                                                                                             ~tG~Ummll~lIItl1~~W~~wcaqCllm~Mrnl           i   111t.'l111\<l\lll.Hml~ml         ,SO                                 SO
                                                                                                                                                                                                                                                          ~19'~Iw.mlNm~~I!lWi~mm
                                                                                                                                                                                                                                                                                                    $0
                                                                                                                                                                                                                                                                                                          ,                    SO
                                                                                                                                                                                                                                                                                                                                        ~
D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                      I                                      SO                                            S113                                                  S467                     Sl1,379                               $10 216
                                                                                     'Ii'liffilmi~lm~m,~llj.mUll~lllnllllllllrul!dFllllNlml~illl~lIIllffiHlItlll~~lmmtlllllmtlictltlltlltli~l                   ,                     Iil<lll3l1WI~llIIOOlMl~~amI~II'IIiIIl'1   ml D   '   ,                    , ~.~::~~,5
TOTAL QUESTIONED CHARGES                                                         I                         S2,571                                            S80882                                                 $966204                      S389.240                                  $804261               S2 243.158 ~
                                                                                     I "."1 I"••'' ••••               ".i~"."m.m,'.mmm.,,,~~,,,".,,,,,                             ••'' ••      M,"II~                                           :UI~I                          , I            ..             I""•••••Mm,,"'.' ' ••''
* QlIly the administrati'\le expense overcbarges are subject to lost investment income.
                                                                                                                                                                       SCHEDULEC
                                                                    HEALTH CARE SERVICE CORPORATION
                                                                   (BLU~CROSSBLUESHIELD OF OKLAHOMA)
                                                                            TULSA, OKLAHOMA

                                                                   LOST INVESTMENT INCOME CALCULATION

                                                                                              2004        2005             2006       2007           2008                   TOTAL

A. QUESTIONED CHARGES (Subject to Lost Investment Income)

     Administrative Expenses*                                                                   $2,571     $6,005          $198,323             $0            $0              $206,899

    TOTAL                                                                              I        $2,571     $6,005          $198,323             SO            $0              $206,899      im
                                                                                                                       ,                    •                  lUl~l                I   •



B. LOST INVESTMENT INCOME CALCULATION

    a. Prior Years Total Questioned (principal)                                                      $0    $2,571            $6,005   $198,323                SO
    b. Cumulative Total                                                                              !!           !!          2,571      8,576        206,899
    c. Total                                                                                         $0    $2,571            $8,576   $206,899       $206,899

    d. Treasury Rate: January 1- June 30                                                        4.000%     4.250%           5.125%         5.250%     4.750%

    e. Interest (d * c)                                                                              $0          $55          $220         $5,431      $4,914                  $10,620

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

    g. Interest (f * c)                                                                              $0          $58          $247         S5,948      S5,302                  $11,555

    Total Interest By Year (e + g)                                                     1             so      SIB              $467     $11,379        $10,216                  $22,175      1111
                                                                                                                              m        I                 ~I             i


* Only the administrative expense overcharges on Schedule B are SUbject to lost investment income.
                                                                                         APPENDIX A




                                                              BlueCross BlueShield
                                                              Assoclation
                                                              An A.ssociHtlon of Independent
                                                              Blue Cro5S and Blue Shield 'Plans

                                                              Fedcml Employee Program
                                                              13 LO G Street, N. W.
                                                              Washington. D.C. 20005
                                                              202.942.1000
                                                              Fax 202.942.1125
August 19, 2008


Group Chief
BCSS Audits Group
U.S. Office of Personnel Management
1900 E Street, N.W., Room 6400
Washington, D.C. 20415-1100

Reference:	        OPM DRAFT AUDIT REPORT
                   HEALTH CARE SERVICE CORPORATION-HCSC
                   OKLAHOMA
                   Audit Report Number -1A-10-83-08-018
                   (Dated and received June 20, 2008)



This is in response to the above referenced U.S. Office of Personnel
Management (OPM) Final Audit Report concerning Health Care Service
Corporation-HCSC. Our comments concerning the findings in the report are as
follows:

A.    HEALTH BENEFIT CHARGES

      1. Claim Payments

      a. Indian Hospital HH) Facilities· Claim Overpayments        $588.328

         We do not contest the identified overpayment of $588,328. These
         overpayments resulted from physician (professional) services being
         billed on outpatient hospital claims (U8-92) instead of professional
         claim forms (CMS-1500). Some IH facilities sent in both types of claim
         forms and received duplicate reimbursement. However, the
         overpayment was identified by the Plan's Special Investigation Unit as
         determined from the hospitallevet reimbursements made for physician
         services. The Plan's payment methodology requires professional
         services to be billed on a CMS-1500 for proper reimbursement. The
Hese Oklahoma Draft Report
Page 2

        overpayment due the FEBHP is not necessarily the result of duplicate
        payments.
        The recovery process included coordination with the Special
        Investigations Unit of the Federal Employee Health Benefit Program,
        Blue Cross and Blue Shield Association. An attempt was made by
        the BCBSOK Special Investigation Division to recover the
        overpayments from the IH facilities but was disputed by their
        Regional Director. Since the overpayments involved two feder'al
        agencies, BCSSOK requested the BCSSA FEP Special
        Investigations Unit Director coordinate a resolution at the federal
        level. A final decision and authorization to proceed with collection
        efforts was received May 8.2008, by the FEP Director's Office.
        HCBC Corrective Action:

        A claims lock was put in place for FEP Indian Health Services claims
        in June 2008. The claims are being manually adjudicated until a
        system fix can be implemented in the Blue Chip system. The system
        fix to the Oklahoma .APG pricing module will prevent future claims
        payment errors and allow for systematic adjudication.        .

        Hese is currently in the process of initiating the refund request for the
        January 2004 - May 2006 claims.

        Corrective Action to prevent future overpayments:

        •	 When a system problem is discovered, a listing of impacted claims
           will be generated within 30 days of discovery of the problem to
           determine the number of claims and dollar impact.
        •	 Upon receipt of the listing, claims will be reviewed to determine the
           amount of overpayment and recovery of the overpayments will be
           initiated within 30 days of receiving the listing.
        •	 Interim processing steps for the situation will be identified and
           implemented to ensure correction.
        •	 Once the system problem has been corrected, a complete audit of
           all claims affected by the system error will be performed to ensure
           that these claims have been correctly adjudicated.


      b. Omnibus Budget Reconciliation Act of 1990 Review $543.584

         OBRA 90 ClaIm Pricing Errors

        We do not contest that an overpayment totaling $30,220 (3 claims) and
                           of
        an underpayment $20.889 (2 claims). for a net overpayment of
HCSC Oklahoma Draft Report
Page 3

        $9,331. We do contest 18 claims that were overpaid by $446,084.
        The Pfan identified these claIms and requested refunds prior to
        receiving the audit sample. Supporting documentation was submitted
        to the auditors prior to their arriving on-site. We can supply this
        information again. if needed. The Plan also disagrees with
        underpayments of $15,288 for a net contested amount of $430,795.

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

        We do not contest an overpayment of $69,661 (14 claims) and an
        underpayment of $8,846 (3 claims), for a net overpayment of
        $60,815. We do contest 3 claims totaling $25,295 because the Plan
        identified and requested the refunds prior to the audit sample being
        received and one claim for $22 because the amount was allowed by
        FEPOC. The supporting documentation can be resubmitted if
        needed. We also contest 2 claims totaling $17,327 because when
        re-priced by the Operations Center OBRA 90 pricing software, the
        resulting price was different than the price calculated by the OPM
        auditors using the CMS PC pricer. The Operations Center OBRA 90
        pricing software is the official OPM approved source for FEP OBRA
        90 pricing and must be used to determine payment. The claims were,
        repriced with the most up-tO-date version of the Operations Center
        OBRA '90 pricer software. Because the final updated version of the
        Operations Center OBRA '90 pricer is the tool used to price Medicare
        Part A claims by the Medicare Part A I,ntermediaries and the fact that
        the PC Pricer was developed for proViders to use to check the
        amount that they may receive when the claim is processed by the
         Medicare Part A Intermediary, FEP continues to believe that the
         pricing differences obtained by the Operations Center OBRA '90
         Mainframe pricer is the most accurate. Also, since 2005. the
        Operations Center updates the OBRA '90 pricing software on a
        quarterly basis. This has minimized pricing differences.

         HCSC Corrective Action:

         Initiation of recoveries has been made on all claims identified as
         having been paid incorrectly. The Plan also completes the periodic
         FEP System-Wide Claims review process, which includes Possible
         OBRA'90 claims. Completing this report will minimize OBRA '90 claim
         errors in the future.

         FEP DO Corrective Action:

         To reduce the occurrence of Plan OBRA '90 pricing errors in the future,
         the FEPDO has implemented the following action plan:
.. ..
Page 4
                       '
                           Report



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

         •	 Modify FEP claims system to defer claims whenever the Plan
            indicates the provider is not an approved facility this will force the
            Plan to ensure that the proper information has been submitted;

         •	 Override Plan's indication of whether or not the Provider is a
            Medicare approved provider and validate status through the FEP
            OBRA '90 software; and

         •	 Determine the feasibility of using the eMS PC Pricer in our current
            OBRA 'gO Mainframe pricing process.

         Accordingly, to the extent that errors did occur, the payments are good
         faith erroneous benefits payments and fall within the context of
         CS	 1039, Section 2,3(g). Any benefit payments the Plan is unable to
         recover are allowable charges to the Program. In addition, as good faith
         erroneous payments, lost investment income does not apply to the
         payments identified in this finding.

     c. CI.aim Payment Errors	                                          $260,954

          Amounts Paid Greater than Covered Charges
          We do not contest an overpayment totaling $36,158 (2 Claims). We
          do contest 5 claims that were overpaid by $140,387 because the
          Plan identified and requested refunds prior to the audit sample being
          received. We can prOVide this documentation again if needed.

           The errors were caused due to the following reasons:

           •	 Duplicate payment issued
           •	 Incorrect allowed amount due to processor manually paying claim
           •	 Medicare Part A primary at time of service

           Initiation of recoveries has been made on all claims identified as
           having been paid incorrectly.

           System Review

           Plan agrees to an overpayment of $22,682 (8 Claims) and an
           underpayment of $2,176 (1 claim), for a net overpayment of $20,506.
           The Plan disagrees that 2 claims were overpaid by $23,571 because
HCSC Oklahoma Draft Report
Page 5

        the plan identified and requested refunds prior to the audit sampJe
        being received. We can provide this documentation again if needed.

        The errors were caused due to the following reasons:

        •	 Incorrect allowed amount due to processor manually paying claim;
        •	 Incorrect at/owed amount due to processor not pricing correctly on
           Premier Pricing system; and
        •	 Medicare files not updated at time claim payment issued

        Initiation of recoveries has been made on all claims identified as

        having been paid incorrectly.


        Assistant Surgeon Review

        The Plan agrees with this audit finding of an overpayment of $40,332.


        The errors were caused due to the following reasons:


        •	 OBRA 93 software issue for Modifier AS (these claims were not on
           the FEP provided OBRA '93 AS Modifier listing we received);
        •	 Incorrect allowed amount due to processor manually paying claim;
           and
        •	 Incorrect allowed amount due to processor not pricing correctly on
           Premier Pricing system.

         Initiation of recoveries has been made on all claims identified as
         having been paid incorrectly.

         HCSC Corrective Action:

        The Plan has limited the number of users who can do manual
        calculations. The Plan al·so works the new Assistant Surgeon listing
        included in the FEP Director's Office periodic System-Wide Claims
        Review process.

         FEPDO Corrective Action:

         In addition, for assistant surgeon claim errors noted during the audit,
         the FEPDO implemented the following:

         o	 The OBRA '93 vendor, Palmetto, corrected pricing of the assistant
            surgeon modifier during May 2008.
          o	 A final comprehensive list that identifies all unadjusted assistant
             surgeon claims will be issued by September 30,2008 so that
             claims can be adjusted as necessary.

          o	 Assistant Surgeon (non-OBRA '93) claims are now included in the
             FE? System-Wide Claims Review process for Plans to review for
             accuracy.

       Accordingly, to the extent that errors did occur, the payments are good
       faith erroneous benefits payments and fait within the context of
       CS 1039. Section 2.3(g). Any benefit payments the Plan is unable to
       recover are allowable charges to the Program. In addition, as good faith
       erroneous payments, lost investment income does not apply to the
       payments identified in this finding.

     2.    Miscellaneous Payments and Credits

           a.	 Refund Advance                                         $3,639

           We do not contest this audit finding of $3,639 and the Plan will be
           submitting a Special Plan Invoice by August 29, 2008.

B.   ADMINISTRATIVE EXPENSES
               I




      1. Pension Costs	                                               $342,508

          HCSC agrees with the finding but not the amount. This is for two
          reasons.

          First, we used an amount of $1,308,184 as the "FEP Charges in Cost
          System" when we made our year end adjustment. This is the amount
          that was charged from the Oklahoma pool cost center to FEP products
          in the four HCSC states. This method is consistent with the adjustment
          made for the other HCSC states. Therefore, when this amount is
          added to the year end adjustment of $311,549, the "Total FEP
          Charges" are $1.619,733.

          Second, we believe our method of calculating the FEP salary ratio is
          consistent with that used for the other HCSC states, and should not be
          compared to the method used for 2004 and 2005 since the 2006
          period was post merger and therefore using the HCSC account
          structure is appropriate. We believe that an average of the FEP salary
          ratios used for 2004 and 2005 is not relevant for 2006, and is therefore
          not appropriate. We believe the correct method, consistent with the
HCSC Oklahoma Draft Report
Page 7

        method used for other HCSC states for 2006, results in an FEP salary
        ratio of 13.24%.

        Based on the above facts, we believe the FEHBP was overcharged by
        $96,632 for 2006. When a mutual amount is agreed upon, the Plan
        will submit a Prior Period Adjustment.

    2. Unallowable Expenses                                      1118.809

        The Plan concurs with the audit findings totaling $108,220 in
        unallowable expenses and will file a Prior Period Adjustment by August
        20,2008 for processing.

        The Plan contests the $10,589 audit finding for cost centers 0058 and
        0059, United Way cost centers. The FAR states in part 31.205 that the
        cost of participation in community service activities such as charity
        drives are allowable.



    Deleted by the Office of the Inspector General - Not Relevant to the
    Final Report
HCSC Oklahoma Draft Report

Page 8



      Deleted by the Office of the Inspector General - Not Relevant to the
      Final Report




       4. Limits on Executive Compensation                           ($33.182)

          The Plan concurs with this finding

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




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