oversight

Audit of CareFirst BlueCross BlueShield Owings Mills, Maryland

Published by the Office of Personnel Management, Office of Inspector General on 2010-05-21.

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

                                                      U.S. OFFICE OF PERSONNEL MANAGEMENT
                                                            OFFICE OF THE INSPECTOR GENERAL
                                                                             OFFICE OF AUDITS




Final Audit Report

Subject:



  AUDIT OF CAREFIRST BLUECROSS BLUESHIELD

          OWINGS MILLS, MARYLAND



                                            Report No. lA-10-85-09-023



                                             Date:         May 21,          2010




                                                           ':-CAUTION-­
This audit report has been distributed to federal officials wbo are responsible for the administration of lhe audited program. This audit
report nlaY (ontain proprietary data which is pr'oteeted by Federal law (/8 U.S.C. 19115). , Therefore, while thisandil report is available
'under the Freedom of Information Act a.id made available to'jhe public on tile OIG wcbpage,: caution needs to be exercised before
releasing the reporl to the general public as itmaycontain propriety informati~n that was red,acfed from the publicly distributed cop~'.
                       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



                                     CareFirst BlueCross BlueShield

                    Washington, D.C. and Maryland Service Areas and Overseas Claims

                                Plan Codes 080108110821190/580/582/690

                                        Owings Mills, Maryland





                     REPORT NO. IA-1O-85-09-023             DATE:    May 21, 2010




                                                           ~~

                                                             Assistant lnspector General
                                                               for Audits



                                                                                           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 BIueShield Association

                                                Plan Code 10



                                       CareFirst BIueCross BlueShield

                      Washington, D.C. and Maryland Service Areas and Overseas Claims

                                  Plan Codes 080/081/082119015801582/690

                                          Owings Mills, Maryland





                       REPORT NO. lA-1O-85-09-023             DATE: May 21, 2010


      This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
      CareFirst BlueCross BlueShield (Plan), which specifically included the Washington, D.C. and
      Maryland Service Areas and Overseas claims, questions $1,304,034 in health benefit charges and
      $60,561 in administrative expenses. The BlueCross BlueShield Association (Association) andlor
      Plan agreed (A) with $1,333,921 and disagreed (D) with $30,674 of the questioned charges. Lost
      investment income (LII) on the questioned charges amounts to $1,554.

      Our audit was conducted in accordance with Government Auditing Standards. The audit covered
      claim payments from January I, 2006 through October 31, 2008, as well as miscellaneous
      payments and credits and administrative expenses from 2004 through 2008 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 2008. Due to certain errors identified
      during our review of claim payments, we expanded our audit scope to also include additional
      claims potentially paid incorrectly during various periods from January 1, 2006 through
      September 30,2009.

      Questioned items are summarized as follows:



        www.opm.gDv                                                                       www.usajobs.gov
                             HEALTH BENEFIT CHARGES


Claim Payments

•   Amounts Paid Greater than Covered Charges fA)                                        $684,657

    During our review of claims where the amounts paid were greater than the covered charges,
    we determined that the Plan incorrectly paid 164 claims, resulting in overcharges of $684,657
    to the FEHBP.

•   Inpatient Facility Claims - Duplicate or Overlapping Dates of Service                $297,735

    The Plan incorrectly paid 124 inpatient facility claims, resulting in net overcharges of
    $297,735 to the FEHBP. Specifically, the Plan overpaid 120 claims by $298,204 and
    underpaid 4 claims by $469. The Association agreed with $267,061 (A) and disagreed with
    $30,674 (D) of the questioned charges.

•   Omnibus Budget Reconciliation Act of 1990 Review fA)                                 $169,397

    The Plan incorrectly paid 12 claims that were priced or potentially should have been priced
    under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines, resulting in net
    overcharges of$169,397 to the FEHBP. Specifically, the Plan overpaid 10 claims by
    $220,139 and underpaid 2 claims by $50,742.

•   Assistant Surgeon Review fA)                                                         $116,348 .

    The Plan incorrectly paid 146 assistant surgeon claims, resulting in net overcharges of
    $1l6,348 to the FEHBP. Specifically, the Plan overpaid 133 claims by $127,100 and
    underpaid 13 claims by $10,752.

•   Debarred Provider Payments      (A)                                                   $15,564

    The Plan made 205 claim payments, totaling $15,564, to 3 debarred providers.

•   System Review fA)

    Based on our review ofjudgmental samples of 301 claims, we determined that the Plan
    incorrectly paid 5 claims, resulting in net undercharges of$52 to the FEHBP. Specifically, the
    Plan overpaid four claims by $1,948 and underpaid one claim by $2,000.




                                                 11
Miscellaneous Payments and Credits

•	 Provider Audit Vendor Fees (A)                                                           $15,249

   The Plan paid commission fees to a vendor for Federal Employee Program (FEP) recoveries
   that were not realized, resulting in overcharges of $15,249 to the FEHBP.

•	 Fraud Recovery Returned Untimely (A)                                                      $5,136

   In one instance, the Plan did not timely return a fraud recovery to the FEHBP. As a result of
   this finding, the Plan credited the FEHBP $5,136 for LIl on this recovery.


                            ADMINISTRATIVE EXPENSES


•	 BluesNet Charges Cf4)                                                                    $60,561

   The Plan charged the FEHBP for BluesNet expenses that had already been charged to the
   FEHBP by the FEP Operations Center. As a result, the FEHBP is due $60,561, consisting of
   $56,846 for duplicate BluesNet charges and $3,715 for LIl on these charges.

                                  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 of our audit findings presented in this audit report, the FEHBP is due LIl of
$1,~, calculated through December 31, 2009.




                                                 J1]
                                        CONTENTS

                                                                                        PAGE

       EXECUTIVE SUMMARY	                                                                        i


 I.    INTRODUCTION AND BACKGROUND	                                                              I


II.    OBJECTIVES, SCOPE, AND METHODOLOGY	                                                       3


III.   AUDIT FINDINGS AND RECOMMENDATIONS	                                                       6


       A.   HEALTH BENEFIT CHARGES	                                                              6


            I. Claim Payments	                                                              '    6


               a.   Amounts Paid Greater than Covered Charges	                                   6

               b.   Inpatient Facility Claims - Duplicate or Overlapping Dates of Service       11

               c.   Omnibus Budget Reconciliation Act of 1990 Review	                           15

               d.   Assistant Surgeon Review	                                                   17

               e.   Debarred Provider Payments	                                                 21

               f.   System Review	                                                              23


            2. Miscellaneous Payments and Credits	                                              25


               a. Provider Audit Vendor Fees	                                                   25

               b. Fraud Recovery Returned Untimely	                                             26


       B.   ADMINISTRATIVE EXPENSES	                                                            27


            1. BluesNet Charges	                                                                27


       C.   CASH MANAGEMENT	                                                                    28


       D.   LOST INVESTMENT INCOME ON AUDIT FINDINGS	                                           28


IV.    MAJOR CONTRIBUTORS TO THIS REPORT.	                                                      30


 V.    SCHEDULES

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

       APPENDIX	 (BlueCross BlueShield Association response, dated February 19,2010,
                 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 CareFirst
BlueCross BlueShield (Plan), pertaining to the Washington, D.C. (DC) and Maryland Service
Areas and Overseas claims. The Plan is located in Owings MiJJs, Maryland.

The audit was perfonned by the Office of Personnel Management's (OPM) Office of the
Inspector General (DIG), 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 Retirement and Benefits
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations, which are codified in Title 5, Chapter 1, Part
890 of the Code of Federal Regulations (CFR). Health insurance coverage is made available
through contracts with various health insurance carriers.

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

The Association has established a Federal Employee Program (FEP ' ) 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 perfonned by CareFirst BlueCross BlueShield, located in Washington,
D.C. These activities include acting as fiscal intennediary between the Association and member
plans, verifYing subscriber eligibility, approving or disapproving the reimbursement ofloeal 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.
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
                 a
and maintaining system of internal controls.

All findings from our previous audits of the Plan, pertaining to the DC and Maryland Service
Areas and Overseas claims (Report No. lA-10-85-03-103, dated August 19,2005, and Report
No. lA-10-06-03-033, dated December 1,2004), for contract years 1999 through 2002 have
been satisfactorily resolved.

The results of this audit were provided to the Plan in written audit inquiries; were discussed with
Plan and/or Association officials throughout the audit and at an exit conference; and were
presented in detail in a draft report, dated December 3, 2009. The Association's comments
offered in response to the draft report were considered in preparing our final report and are
included as an Appendix to this report. Also, additional documentation provided by the
Association and Plan on various dates through March 9, 2010, was considered in preparing our
final report.




                                                 2

               II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


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

       Health Benefit Charges

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

       •	 To detennine whether miscellaneous payments charged to the FEHBP were in
          compliance with the 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 detennine whether administrative expenses charged to the contract were actual,
          allowable, necessary, and reasonable expenses incurred in accordance with the tenus
          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 perfonnance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perfonn the audit to obtain sufficient and
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 080, 081, 082, 190,580,582, and 690 for contract years 2004 through
2008. During this period, the Plan paid approximately $6.8 billion in health benefit charges and
$412 million in administrative expenses for the DC and Maryland Service Areas and Overseas
claims (See Figure 1 and Schedule A).




                                                3

Specifically, we reviewed approximately $54 million in claim payments made from January],
2006 through October 31, 2008 for proper adjudication, and from various periods from January 1,
2006 through September 30, 2009 for our expanded reviews of certain claim payment errors. In
addition, we reviewed miscellaneous payments and credits, such as refunds and subrogation
recoveries, administrative expenses, and cash management for 2004 through 2008.

In planning and conducting our audit, we
                                                                       CareFirst Blue Cross B1ueShield
obtained an understanding of the Plan's                                      Contract Charges
internal control structure to help detennine           $2.0

the nature, timing, and extent of our
auditing procedures. This was detennined               $1.5

                                                 III
to be the most effective approach to select      c
                                                 .Q
areas of audit. For those areas selected, we     iii $1.0
primarily relied on substantive tests of        M


transactions and not tests of controls.
                                                       $0.5
Based on our testing, we did not identify
any significant matters involving the Plan's
internal control structure and its operation.          $0.0
                                                                     2004       2005        2006        2007    2008
However, since our audit would not                                                     Contract Years
necessarily disclose all significant matters
                                                          r;I   Health Benefit Payrrents   _ Admnistralive Expenses
in the internal control structure, we do not
express an opinion on the Plan's system of
internal controls taken as a whole.                                     Figure 1 - Contract Charges

We also conducted tests to detennine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
item~-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 infonnation 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 perfonned at the Plan's office in Owings Mills, Maryland on various dates from
May 4,2009 through August 7, 2009. Audit fieldwork was also perfonned at our offices in
Washington, D.C.; Cranberry Township, Pennsylvania; and Jacksonville, Florida.




                                                 4

METHODOLOGY

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

To test the Plan's compliance with the FEHBP health benefit provisions, we selected and
reviewed samples of 2,287 claims? These claim samples include our expanded reviews of
certain errors identified during our evaluation of claim payments. We used the FEHBP contract,
the Service Benefit Plan brochure, the Plan's provider agreements, and the Association's FEP
administrative manual to determine the allowability of benefit payments. The results of these
samples were not projected to the universe of claims.

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting
records during our audit of miscellaneous payments and credits. We also judgmentally selected
and reviewed 133 health benefit refunds, totaling $10,602,342 (from a universe of73,223
refunds, totaling $42,448,024); 97 subrogation recoveries, totaling $5,789,590 (from a universe
of 5,636 subrogation recoveries, totaling $13,939,217); 69 provider audit recoveries, totaling
$3,426,753 (from a universe of 1,751 provider audit recoveries, totaling $10,445,902); 102
special plan invoices, totaling $7,518,783 in net payments (from a universe of 2,212 special plan
invoices, totaling $65,126,329 in net payments); 80 provider advance adjustments and balances,
totaling $202,855,400 (from a universe of 614 provider advance adjustments and balances,
totaling $444,578,300); and 30 fraud recoveries, totaling $3,060,473 (from a universe of 534
fraud recoveries, totaling $4,555,776), to determine if refunds and recoveries were promptly
returned to the FEHBP and if miscellaneous payments were properly charged to the FEHBP. The
results of these samples were not projected to the universe of miscellaneous payments and
credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2004 through 2008. 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, Association dues, lobbying, return on
investment, subcontracts, and Health Insurance Portability and Accountability Act of 1996
compliance. We used the FEHBP contract, the FAR, and the FEHBAR to determine the
allowability, allocability, and reasonableness of charges. The results of the testing were not
projected to the universe of administrative expenses.

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.




2 See the audit findings for "Amounts Paid Greater than Covered Charges" (A l.a), "Inpatient Facility Claims ­
Duplicate or Overlapping Dates of Service" (A1.b), "Omnibus Budget Reconciliation Act of 1990 Review" (A I.e),
"Assistant Surgeon Review" (AI.d), "Debarred Provider Payments" (A I.e), and "System Review" (Al.f) on pages 6
through 24 for specific details of our sample selection methodologies.




                                                      5
           III. AUDIT FINDINGS AND RECOMMENDATIONS


A.	 HEALTH BENEFIT CHARGES

  1.	 Claim Payments

     a.	 Amounts Paid Greater than Covered Charges                                     $684,657

        The Plan incorrectly paid 164 claims, resulting in overcharges of $684,657 to the
        FEHBP.

        Contract CS 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." Part II, section 2.3(g) states, "If the Carrier or OPM determines that a
        Member's claim has been paid in error for any reason ... the Carrier shall make a
        prompt and diligent effort to recover the erroneous payment ...."

        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 ...."

        Contract CS 1039, Part III, section 3.8 states, "the Carrier will retain and make
        available all records applicable to a contract term ...."

        The following summarizes our review of claims whe.re amounts paid were greater
        than covered charges.

        DC Service Area

        For the period January 1, 2006 through October 31,2008, we identified 14,163 claims
        where the amounts paid were greater than the covered charges by a total of
        $18,524,241. From this universe, we selected and reviewed a judgmental sample of
        192 claims with a total variance of $6,419,838, and determined if the Plan paid these
        claims properly. Our sample included all claims where the amounts paid exceeded
        covered charges by $15,000 or more. Based on our review, we determined that four
        of these claims were paid incorrectly, resulting in overcharges of $596,153 to the
        FEHBP.

        The claim payment errors resulted from the following reasons:

        •	 In one instance, a claims processor entered incorrect pricing information when
           resolving a deferred claim, resulting in an overcharge of $512,739 to the FEHEP.




                                             6

e	   In one instance, a claims processor did not enter a year-end split claim override
     code, resulting in an overcharge of$83,075 to the FEHBP.

•	 The Plan did not reject two claims with inaccurate information, resulting in
   overcharges of $339 to the FEHBP. In each instance, the claim contained a claim
   line with revenue code 360 representing "operating room services" and procedure
   code 95991 representing "other procedures administered by a physician." Since
   procedure 95991 is not an operating room service, these claims should have been
   rejected by the claims processors.

     When we initially identified this error, we concluded that the error could have
     impacted more claims resulting in significant overcharges to the FEHBP.
     Therefore, we requested the Plan to identifY all claims paid from January 1, 2006
     through June 30, 2009 that were potentially processed with this type of error, and
     determine if the claims were paid correctly. The Plan identified 97 claims,
     totaling $17,693 in payments, that were potentially processed with this type of
     error. We reviewed these claims and determined that 77 additional claims were
     paid incorrectly, resulting in overcharges of $10,052 to the FEHBP.

Maryland Service Area

For the period January 1,2006 through October 31,2008, we identified 252 claims
where the amounts paid were greater than the covered charges by a total of $53,520.
From this universe, we selected and reviewed a judgmental sample of 34 claims with
a total variance of $41,533, and determined if the Plan paid these claims properly.
Our sample included all claims where the amounts paid exceeded covered charges by
$250 or more. Based on our review, we determined that 15 of these claims were paid
incorrectly, resulting in overcharges of $25,841 to the FEHBP.

The claim payment errors resulted from the foHowing reasons:

•	 The Plan incorrectly paid five claims, resulting in overcharges of $11,350 to the
   FEHBP. These errors occurred due to claims processors entering incorrect units
   or not correctly processing claims with occupational therapy services that were
   billed by a home health agency.

•	 In two instances, the Plan's claims processing system did not deduct the Medicare
   payments, resulting in overcharges of$6,665 to the FEHBP.

     Because this is a claims system error, we requested the Plan to identifY all claims
     paid from January 1,2006 through June 30,2009 that were potentially processed
     with this type of error and detennine if these claims were paid correctly. The Plan
     identified 126 claims, totaling $97,491 in payments, that were potentially
     processed with this type of error. We reviewed these claims and detennined that
     21 additional claims were paid incorrectly, resulting in overcharges of $1 0,342 to




                                       7

   the FEHBP. As of October 9, 2009, the Plan is working to correct this system
   error.

•	 The Plan did not properly coordinate five claims with Medicare, resulting in
   overcharges of$5,362 to the FEHBP.

•	 The Plan paid three claims using the 2006 non-participating (par) surgery
   allowances even though the billed charges were less, resulting in overcharges of
   $2,464 to the FEHBP. These errors occurred because the FEP national claims
   system was programmed to pay the 2006 non-par surgery allowance rather than the
   lesser of the non-par surgery allowance or billed charges.

   Since this system error potentially also affected the DC Service Area and Overseas
   claims, we expanded our review of this error to include the DC and Maryland
   Service Areas and Overseas claims (See "Expanded Review ofthe 2006 Non-Par
   Surgery Allowance" below). According to the FEP Director's Office, this non-par
   system error has been corrected.

Overseas Claims

For the period January 1, 2006 through October 31,2008, we identified 30 claims
where the amounts paid were greater than the covered charges by a total of $39,704.
From this universe, we selected and reviewed a judgmental sample of eight claims
with a total variance of $32,599, and determined if the Plan paid these claims
properly. Our sample included aU claims where the amounts paid exceeded covered
charges by $1,000 or more. Based on our review, we determined that four of these
claims were paid incorrectly, resulting in overcharges of$II,881 to the FEHBP.

The claim payment errors resulted from the following reasons:

•	 The Plan processed three claims using the incorrect number of days, resulting in
   overcharges of $7,501 to the FEHBP.

•	 The Plan paid one claim at the incorrect per diem rate, resulting in an overcharge
   of$4,380 to the FEHBP.

Expanded Review of the 2006 Non-Par Surgery AUowance

Since additional claims may have been affected by the 2006 non-par surgery allowance
error noted under the "Maryland Service Area", we identified all claims for the DC and
Maryland Service Areas and Overseas claims with dates of service from January 1,
2006 tluough December 31, 2006 that were subject to the 2006 non-par surgery
pricing. We identified 153 claims, totaling $520,920 in payments, that were
potentially processed incorrectly. We requested the Plan to review these claims and
dctennine if they were paid correctly. After reviewing the Plan's response, we




                                    8

determined that 43 additional claims were paid incorrectly, resulting in overcharges of
$30,388 to the FEHBP.

The following summarizes the overcharges:

•	 For the DC Service Area, the Plan incorrectly paid 12 claims, resulting in
   overcharges of $2,772 to the FEHBP. The claim payment errors resulted from the
   following reasons:

   :>	 The Plan paid eight claims using the 2006 non-par surgery allowances even
       though the billed charges were less, resulting in overcharges of$1,624 to the
       FEHBP.

   :>	 The Plan incorrectly priced four claims due to claims processor errors, resulting
       in overcharges of$I,148 to the FEHBP.

•	 For the Maryland Service Area, the Plan incorrectly paid seven claims, resulting
   in overcharges of $7,314 to the FEHBP. The claim payment errors resulted from
   the folJowing reasons:

   :>	 The Plan paid five claims using the 2006 non-par surgery allowances even
       though the billed charges were less, resulting in overcharges of $3,090 to the
       FEHBP.

    :>	 The Plan incorrectly priced two claims due to claims processor errors, resulting
       in overcharges of $4,224 to the FEHBP.

•	 For the Overseas claims, the Plan incorrectly paid 24 claims, resulting in
   overcharges of $20,302 to the FEHBP. The claim payment errors resulted from
   the following reasons:

   :>	 The Plan did not provide a response or supporting documentation for five
       claims, resulting in unsupported charges of $11,149 to the FEHBP.

   :>	 The FEP national claims system did not calculate the appropriate co-insurance
       for 18 claims, resulting in overcharges of $6,604 to the FEHBP. We expanded
       our review of this potential system error under the "System Review" (Al.f)
       audit finding.

    :>	 The Plan incorrectly priced one claim due to a claims processor error, resulting
       in an overcharge of $2,549 to the FEHBP.




                                     9

 Association's Response:

 In response to the amount questioned in the draft report, the Association agrees with
 $680,153 ($605,925 + $25,841 + $10,342 + $11,881 + $2,772 + $3,090 + $20,302)
 and disagrees with $105,127 ($71,321 + $2,492 + $31,314).

 The Association states that the Plan has initiated recovery efforts for the confinned
 overpayments and has returned various amounts recovered to the FEHBP. To the
 extent that errors did occur, 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.

 In reference to the overpayments caused by claims processor errors, the Association
 states, "The overpayments were the results of Claims Examiner errors and were used
 as training tools in the recent re-fresher training session. In addition, the Plan has a
 quality review area that reviews claims and identifies payment errors. The identified
 payment errors are then discussed with the management in the Operations Areas. The
 objective is to determine whether individual examiners may need further training or if
 there is a pattern of inconsistency in the adjudication process for multiple Claims
 Examiners. The identified errors are used to determine the focus ofthe training for the
 group."

  As part of its FEP overpayment recovery action plan, the Association states that "the
  FEP Director's Office sends the System-wide Claims Review Listing to the Plan
  which also includes an AmoWlt Paid Greater Than Covered Charges Listing. The

. Plan ... reviews and returns the results of its review to the FEP Director's Office as

  required. Where appropriate, refunds are initiated. However, there appears to be a

  difference in the claim selection criteria used to select these claims for aPM and the
  selection criteria used to generate the FEP Director's Office System-wide Claims
  Review Listing. We will re-evaluate our selection criteria to determine if any changes
  are required to bring it more in line with the aPM claim selection criteria."

 OIG Comments:

 Based on our review of the Association's response and additional documentation
 provided by the Plan, we revised the amount questioned from the draft report to
 $684,657. Subsequent to receiving the Association's response, the Plan provided
 additional documentation supporting concurrence with the revised questioned
 amount.




                                      10

   Recommendation 1

   We recommend that the contracting officer disallow $684,657 for claim overcharges
   and verify that the Plan returns all amounts recovered to the FEHBP.

b.	 Inpatient Facility Claims - Duplicate or Overlapping Dates of Service         $297,735

   The Plan incorrectly paid 124 inpatient facility claims, resulting in net overcharges of
   $297,735 to the FEHBP. Specifically, the Plan overpaid 120 claims by $298,204 and
   underpaid 4 claims by $469.

   As prevtously cited from CS 1039, costs charged to the FEHBP must be actual,
   allowable, allocable, and reasonable. If errors are identified, the Plan is required to
   make a diligent effort to recover the overpayments. The Carrier shall retain and make
   available all records applicable to a contract term. Also, the Plan must coordinate the
   payment of benefits with Medicare.

   The following summarizes our review of inpatient facility claims with duplicate or
   overlapping dates of service.

   Overseas Claims

   We performed a computer search for potential duplicate payments on inpatient facility
   claims paid during the period January 1,2006 through August 31, 2009. We
   identified 44 groups of claims with duplicate or overlapping dates of service. These
   44groups included 89 claims with total amounts paid of$616,079. Based on our
   review, we determined that 29 of these claims were paid incorrectly, resulting in
   overcharges of $166,965 to the FEHBP.

   These claim payment errors resulted from the following:

   •	 The Plan paid 21 duplicate claims, resulting in overcharges of $98,238 to the
      FEHBP. These claims did not defer on the claims system as potential duplicates
      for review by the processors.

   •	 The Plan reprocessed six claims with revised charges but did not adjust or void
      the previous claim payments, resulting in overcharges of $33,497 to the FEHBP.

   •	 In one instance, the Plan did not provide a complete response and/or
      documentation to support a claim payment of $30,674. SpeCifically, the Plan
      could not locate the wire transfer documentation supporting the actual amount
      paid to the provider.

   •	 In one instance, a claims processor keying error caused a duplicate claim not to
      defer on the claims system, resulting in an overcharge of $4,556 to the FEHBP.




                                        11
Due to the munber of claim payment errors identified from this review of Overseas
claims, we expanded our review to also include the DC and Maryland Service Areas.
We also expanded our audit scope for these service areas to cover inpatient facility .
claims paid through September 30, 2009.

DC Service Area

We perfonned a computer search for potential duplicate payments on inpatient facility
claims paid during the period January 1,2006 through September 30, 2009. We
identified 138 groups of claims with duplicate or overlapping dates of service. The
138 groups included 285 claims with total amounts paid of$I,968,743. From this
universe, we selected and reviewed a judgmental sample of 128 groups (representing
263 claims), totaling $1,964,223 in payments, to detennine if the Plan paid these
claims properly. Our sample included all groups with potential duplicate claim
payments of $100 or more.

Based on our review, we detennined that 61 of these claims were paid incorrectly,
resulting in net overcharges of $82,023 to the FEHBP. Specifically, the Plan overpaid
58 claims by $82,323 and underpaid 3 claims by $300. These claim payment errors
resulted from the following:

•	 The Plan paid 16 duplicate claims, resulting in overcharges of $35,729 to the
   FEHBP. Since the Plan processed these claims under different or incorrect
   provider identification numbers, the claims did not defer on the claims system as
   potential duplicates for review by the processors.

•	 The Plan processed 17 claims with unauthorized days of service, resulting in
   overcharges of$18,031 to the FEHBP (non-duplicate errors).

•	 The Plan reprocessed eight claims with revised charges but did not adjust or void
   the previous claim payments, resulting in overcharges of$13,285 to the FEHBP.

•	 The Plan paid eight duplicate claims, resulting in overcharges of$7,039 to the
   FEHBP. Due to various claims processor keying errors, these claims did not defer
   on the claims system as potential duplicates for review by the processors.

•	 The Plan incorrectly paid six claims due to providers submitting claims with
   incorrect dates of service, resulting in overcharges of$5,137 to the FEHBP (non­
   duplicate errors).

•	 The Plan paid three duplicate claims, resulting in overcharges of $3, I 02 to the
   FEHBP. Since these claims were processed on the same day as the original
   claims, the claim system did not defer these claims as potential duplicates for
   review by the processors.




                                     12

o	   The Plan paid three claims that contained other Plan payment errors, resulting in
     undercharges of$300 to the FEHBP (non-duplicate errors).

Maryland Service Area

We performed a computer search for potential duplicate payments on inpatient facility
claims paid during the period January 1, 2006 through September 30, 2009. We
identified 61 groups with duplicate or overlapping dates of service. The 61 groups
included 129 claims with total amounts paid of $459,560. From this universe, we
selected and reviewed a judgmental sample of 57 (representing 121 claims), totaling
$456,979 in payments, to determine if the Plan paid these claims properly. Our
sample included all groups with potential duplicate claim payments of $1 00 or more.

Based on our review, we determined that 34 of these claims were paid incorrectly,
resulting in net overcharges of $48,747 to the FEHBP. Specifically, the Plan overpaid
33 claims by $48,916, and underpaid 1 claim by $169. These claim payment errors
resulted from the following:

•	 The Plan reprocessed nine claims with revised charges but did not adjust or void
   the previous claim payments, resulting in overcharges of $20,000 to the FEHBP.

•	 The Plan paid 11 duplicate claims, resulting in overcharges of$14,737 to the
   FEHBP. Since the Plan processed these claims under different or incorrect
   provider identification numbers, the claims did not defer on the claims system as
   potential duplicates for review by the processors.

•	 In six instances, the Plan reimbursed the State of Maryland (Medicaid program)
   for claims where Medicaid paid as the primary insurer when the FEHBP was the
   primary insurer. The Plan also paid the providers for these claims, resulting in
   duplicate charges of $5,887 to the FEHBP.

•	 The Plan paid five duplicate claims, resulting in overcharges of $5,220 to the
   FEHBP. Since these claims were processed on the same day as the original claims,
   the claim system did not defer these claims as potential duplicates for review by
   the processors.

•	 In one instance, the Plan incorrectly processed a case management claim, resulting
   in duplicate charges of $1,020 to the FEHBP.

•	 The Plan did not properly coordinate two claims with Medicare, resulting in net
   overcharges of $1,883 to the FEHBP (non-duplicate errors). Specifically, the Plan
   overpaid one claim by $2,052 and underpaid one claim by $169.




                                      13

Association's Response:

In response to the amount questioned in the draft report, the Association agrees with
$250,299 ($136,291 + $82,023 + $31,985), is reviewing $11,541, and disagrees with
the remaining questioned amount.

The Association states that the Plan has initiated recovery efforts for the confinued
overpayments and has returned various amounts recovered to the FEHBP. To the
extent that errors did occur, 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, LII does not apply to the claim
payment errors identified in this finding.

The Association also states, "The FEP Claims System includes an edit that is
designed to defer inpatient claims with overlapping dates of services. However, a
review of this issue indicates that this edit only generates a deferral if the claims are
from the same provider. As a result of this finding, the FEP Director's Office is
modifying this edit to defer all inpatient claims with overlapping dates of service
regardless ofwhether the Provider is the same or not. We expect this system
enhancement to be implemented later in 2010.

In addition, the Plan has included the claims that were incorrectly coded as part of the
training program for the Claims Examiners. Lastly, the Plan will provide additional
training to all Claims Examiners by the second quarter of201 0 with an emphasis on
the importance of coding claims correctly. The FEP Director's Office will also add
these claim types to its System-wide claims listings that are sent to all Plans."

.Regarding the contested overpayments, the Association states that the services were for
 different patients or coded incorrectly, or the dates of services were coded incorrectly.

DIG Comments:

Based on our review of the Association's response and additional documentation
provided by the Plan, we revised the amount questioned from the draft report to
$297,735. Subsequent to receiving the Association's response, the Plan provided
additional documentation supporting agreement with $267,061 and disagreement with
$30,674 of the revised questioned amount. The contested amount pertains to an
overseas claim where the Plan could not locate the wire transfer documentation
supporting the actual amount paid to the provider. We will continue to question this
claim until the Association or Plan provides adequate documentation supporting the
amount paid to the provider.




                                      14

   Recommendation 2

   We recommend that the contracting officer disallow $298,204 for claim overcharges
   and verify that the Plan returns aU amounts recovered to the FEHBP.

   Recommendation 3

   We recommend that the contracting officer allow the Plan to charge the FEHBP $469
   if additional payments are made to the providers to correct the underpayment errors.

   Recommendation 4

   We recommend that the contracting officer ensure that the Association and Plan have
   implemented corrective procedures to prevent these types of errors in the future.

c. Omnibus Budget Reconciliation Act of 1990 Review                                $169,397

   The Plan incorrectly paid 12 claims that were priced or potentially should have been
   priced under the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) pricing
   guidelines, resulting in net overcharges of $169,397 to the FEHBP. SpecificaUy, the
   Plan overpaid 10 claims by $220,139 and underpaid 2 claims by $50,742.

   As previously cited from 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. Also, the Plan must coordinate
   the payment of benefits with Medicare.

   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. However, the claims for the Maryland
   Service Area and Overseas are not subject to OBRA 90 pricing.

   Using a program developed by the Centers for Medicare and Medicaid Services 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 our OBRA 90 review for the DC Service Area.

   OBRA 90 Claim Pricing Errors

   For the period January 1, 2006 through October 31, 2008, we identified 3,657 claims,
   totaling $42,169,361 in payments, that were subject to OBRA 90 pricing guidelines.
   From this universe, we selected and reviewed a judgmental sample of 95 claims,
   totaling $8,482,494 in payments, to determine if these claims were correctly priced by




                                         15

 the FEP Operations Center and paid by the Plan. Our sample included all OBRA 90
 claims with amounts paid of $40,000 or more.

 Based on our review, we determined that eight of these claims were paid incorrectly,
 resulting in net overcharges of$150,325 to the FEHBP. Specifically, the Plan
 overpaid seven claims by $161,342 and underpaid one claim by $11,017.

 These claim payment errors resulted from the following:

 •	 In two instances, the claims processors incorrectly priced split claims, resulting in
    net overcharges of$80,818 to the FEHBP. Specifically, the Plan overpaid one
    claim by $91,835 and underpaid one claim by $11,017.

 •	 The Plan did not properly coordinate six claims with Medicare, resulting in

    overcharges 0[$69,507 to the FEHBP.


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

 For the period January 1, 2006 through October 31, 2008, we identified 7,414 claims,
 totaling $27,093,377 in payments, that were potentially subject to OBRA 90 pricing
 guidelines but appeared to be paid under the Plan's standard pricing procedures. From
 this universe, we selected and reviewed a judgmental sample of 175 claims, totaling
 $8,268,888 in payments, to determine if the Plan paid these claims properly. Our
 sample included all possible OBRA 90 claims with amounts paid of$25,000 or more.

  Based on our review, we determined that four of these claims were paid incorrectly,
  resulting in net overcharges of $19,072 to the FEHBP. Specifically, the Plan overpaid
. three claims by $58,797 and underpaid one claim by $39,725.

 These claim payment errors resulted from the following:

 •	 In one instance, a claims processor inadvertently made an unnecessary claim

    adjustment, resulting in an overcharge of $23,294 to the FEHBP.


 •	 The Plan did not properly coordinate three claims with Medicare, resulting in net
    undercharges of$4,222 to the FEHBP. Specifically, the Plan overpaid two claims
    by $35,503 and underpaid one claim by $39,725.

 Association's Response:

 The Association agrees with the finding. The Association states that the Plan has
 initiated recovery efforts for the confirmed overpayments, and as of February 1,2010,
 the Plan had recovered and returned $86,617 to the FEHBP. 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




                                      16

   re,cover are allowable charges to the FEHBP. As good faith erroneous payments, LII
   does not apply to the claim payment errors identified in this finding.

   The Association states, "When the claims were originalJy submitted to the Operations
   Center, there were coding discrepancies. These payment differences occurred because
   the examiners did not submit the correct infonnation when the claims were initially
   manually processed. The claims were paid in error because Claims Examiners
   entered incorrect fields for Medicare Part B payment infonnation; incorrectly coded
   split admission between two claims and adjusted an original OBRA 90 priced claim
   incorrectly. To reduce these types of pricing errors in the future, the Plan has
   implemented and updated its Policy & Procedure for OBRA '90 claim processing....
   Also, the FEP Director's Office includes potential OBRA '90 priced claims in its
   periodic System-wide Claims Review to facilitate early identification and recovery of
   OBRA '90 claim payment errors. Completion of these periodic reports assists in the
   timely identification and recovery of OBRA '90 claim payment errors."

   Recommendation 5

   We recommend that the contracting officer disallow $220,139 for claim overcharges
   and verifY that the Plan returns all amounts recovered to the FEHBP.

   Recommendation 6

   We recommend that the contracting officer allow the Plan to charge the FEHBP
   $50,742 if additional payments are made to the providers to correct the underpayment
   errors.

d. Assistant Surgeon Review                                                        $116.348

   The Plan incorrectly paid 146 assistant surgeon claims, resulting in net overcharges of
   $116,348 to the FEHBP. Specifically, the Plan overpaid 133 claims by $127,100 and
   underpaid 13 claims by $10,752.

   As previously cited from 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. Also, the Plan must coordinate
   the payment of benefits with Medicare.

   The following summarizes our review of potential assistant surgeon overpayments.

   DC Service Area

   For the period January 1,2006 through October 31, 2008, we identified 1,170
   assistant surgeon claim groups, totaling $235,547 in potential overpayments, that may
   nol have been paid in accordance with the Plan's assistant surgeon pricing procedures.




                                         17

From this universe, we selected and reviewed a judgmental sample of 84 assistant
surgeon claim groups, totaling $77,781 in potential overpayments, to detennine if the
Plan paid these claims properly. Our sample included all assistant surgeon claim
groups with potential overpayments of $500 or more. The majority of these claim
groups contained one primary surgeon and one assistant surgeon claim.

Based on our review, we determined that 40 claims were paid incorrectly, resulting in
net overcharges of $56,963 to the FEHBP. Specifically, the Plan overpaid 39 claims
by $57,332 and underpaid 1 claim by $369.

The claim payment errors resulted from the following:

•	 The Plan incorrectly paid 29 claims that were subject to the Omnibus Budget
   Reconciliation Act of 1993 (OBRA 93) pricing guidelines, resulting in
   overcharges of $47,822.

   }- Seventeen of the claims were paid in error due to Palmetto (OBRA 93 pricing
      vendor) not recognizing the physician assistant pricing modifier "AS" and
      erroneously calculating the physician assistant fee. These physician assistant
      claims should have been priced according to the Medicare fee schedule (13.6
      percent of the primary surgeon fee). Consequently, the Plan overpaid these
      claims, resulting in overcharges of $30,602 to the FEHBP.

    );>	   Twelve of the claims were paid in error due to a Palmetto claims processing
           system error which caused an incorrect calculation of the assistant surgeon fee
           for claims containing assistant surgeon pricing modifiers 80, 81, or 82. These
           assistant surgeon claims should have been priced according to the Medicare fee
           schedule (16 percent of the primary surgeon fee). Consequently, the Plan
           overpaid these claims, resulting in overcharges of $17,220 to the FEHBP.

•	 The Plan incorrectly paid five assistant surgeon claims, resulting in overcharges of
   $3,901 to the FEHBP. These overcharges were due to the claim system's incorrect
   calculation of the assistant surgeon or physician assistant fees, which should have
   been priced at 20 percent of the primary surgeon allowed amount.

•	 In three instances, the claims processors entered incorrect pricing infonnation,
   resulting in overcharges of$3,787 to the FEHBP.

•	 In three instances, the claims processors overrode system edits, resulting in net
   overcharges of $1 ,453 to the FEHBP. Specifically, the Plan overpaid two claims
   by $1,822 and underpaid one claim by $369.




                                       18

Maryland Service Area

For the period January 1, 2006 through October 31, 2008, we identified 2,938
assistant surgeon claim groups, totaling $300,036 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 a judgmental sample of 68 assistant
surgeon claim groups, totaling $65,764 in potential overpayments, to determine if the
Plan paid these claims properly. Our sample included all assistant surgeon claim
groups with potential overpayments of $500 or more. The majority of these claim
groups contained one primary surgeon and one assistant surgeon claim.

Based on our review, we determined that 54 claims were paid incorrectly, resulting in
net overcharges of $53,501 to the FEHBP. Specifically, the Plan overpaid 51 claims
by $55,022 and underpaid 3 claims by $1,521.

The claim payment errors resulted from the following:

•	 The Plan incorrectly paid 34 assistant surgeon claims, resulting in overcharges of
   $38,068 to the FEHBP. These overcharges were due to the claim system's
   incorrect calculation of the assistant surgeon or physician assistant fees, which
   should have been priced at 20 percent of the primary surgeon allowed amount.

•	 The Plan incorrectly paid 15 claims that were subject to OBRA 93 pricing
   guidelines, resulting in overcharges of $15,365.

    ~	   Twelve of the claims were paid in error due to Palmetto not recognizing the
         physician assistant pricing modifier "AS" and erroneously calculating the
         physician assistant fee. These physician assistant claims should have been
         priced according to the Medicare fee schedule (13.6 percent of the primary
         surgeon fee). Consequently, the Plan overpaid these claims, resulting in
         overcharges of $13,170 to the FEHBP.

    ~	   Three of the claims were paid in error due to a Palmetto claims processing
         system error which caused an incorrect calculation of the assistant surgeon fee
         for claims containing assistant surgeon pricing modifiers 80, 81, or 82. These
         assistant surgeon claims should have been priced according to the Medicare
         fee schedule (16 percent of the primary surgeon fee). Consequently, the Plan
         overpaid these claims, resulting in overcharges of $2,195 to the FEHBP.

•	 In one instance, the Plan did not properly coordinate a claim with Medicare,
   resulting in an overcharge of $1,022 to the FEHBP.

•	 In one instance, the Plan used an incorrect rate to price a claim, resulting in an
   undercharge of $426 to the FEHBP.




                                      19

•	 In three instances, the claims processors entered incorrect pricing information,
   resulting in net undercharges of $528 to the FEHBP. Specifically, the Plan overpaid
   one claim by $567 and underpaid two claims by $1,095.

Due to the high error rate, we selected for review an additional 340 assistant surgeon
claim groups with potential overpayments totaling $98,718. Our expanded sample
included all assistant surgeon claim groups with potential overpayments equal to or
greater than $200 and less than $500. Based on our review, we identified 52
additional claim payment errors, resulting in net overcharges of $5,884 to the FEHBP.
Specifically, the Plan overpaid 43 claims by $14,746 and underpaid 9 claims by
$8,862. These overcharges were primarily due to errors in the calculation of the
assistant surgeon fee, which should have been priced at either 13.6 percent, 16
percent, or 20 percent of the primary surgeon allowed amount.

Overseas Claims

For the period January 1, 2006 through October 31, 2008, we identified no assistant
surgeon claim groups with potential overpayments.

Association's Response:

The Association agrees with this finding. The Association states that the Plan has
initiated recovery efforts for the confirmed overpayments, and as of February 1, 2010,
the Plan had recovered and returned $95,450 ($46,081 for the DC Service Area and
$49,369 for the Maryland Service Area) to the FEHBP.

 The Association also states, "The overpayments related to the non-OBRA '93
 assistant surgeon claims were the result of a local Plan system issue for both the
.Maryland and DC Plans. This system issue was identified by the Plan before the audit
 began and corrected in the second Quarter of 2009. The payments related to OBRA
 '93 priced Assistant Surgeon Claims were sent to the Plan as a part of the FEP
 Director's Office System-wide Claims Review Listing."

Recommendation 7

We recommend that the contracting officer disallow $127,100 for claim overcharges
and verify that the Plan returns all amounts recovered to the FEHBP.

Recommendation 8

We recommend that the contracting officer allow the Plan to charge the FEHBP
$10,752 if additional payments are made to the providers to correct the underpayment
errors.




                                    20
   Recommendation 9

  We recommend that the contracting officer instruct the Association to ensure that the
  Plan corrected the local claim system issue of not applying the 20 percent
  reimbursement rate when pricing assistant surgeon and/or physician assistant claims.

e. Debarred Provider Payments                                                    $15,564

   The Plan made 205 claim payments, totaling $15,564, to 3 debarred providers from
   January 1,2006 through October 31, 2008.

  Contract CS 1039, Part II, Section 2.7 states that if a provider has been barred from
  participating in the FEHBP under Title 5 of the U.S. Code, or the provider's services
  under the Code are excluded, the carrier agrees to withhold payments to that provider.

   OPM periodically provides the FEP Director's Office with a list of debarred providers.
   According to the FEP Administrative Manual, the listing is forwarded to the FEP
   Operations Center. The FEP Operations Center will then provide these listings to the
   local Blue Cross and Blue Shield plans and request updates, such as provider
   identification numbers. Based on the updates received from the local plans, the FEP
   Operations Center updates the debarred provider file on the FEP national claims
   system.

  For the period 2006 through October 31,2008, we identified 44 DC and Maryland
  providers that were debarred. From this universe, we selected and reviewed a
  judgmental sample of32 providers for the purpose of determining if the Plan paid any
  claims to these providers after the debarment dates. Based on our review, we
  determined that the Plan made 205 claim payments, totaling $15,564, to 3 providers
  after their debarment dates. The Administrative Sanctions Branch confinued that
  these three debarred providers were posted on OPM's debarred provider website and
  available to the FEP Operations Center to download and distribute to the BlueCross
  BlueShield plans on June 1, 2006, July 6, 2006, and October 2, 2008.

   The Plan stated that the FEP Operations Center did not provide debarred information
   for one of the providers. Therefore, the Plan did not provide an updated provider file
   to the FEP Operations Center to reflect the debarment status, and the FEP Operations
   Center did not make the necessary system changes to the FEP national claims system
   to recognize this provider as debarred and suspend the claims. Consequently, the Plan
   paid 119 claims, totaling $8,069, to this debarred provider.

   In addition, the Plan stated that the FEP Operations Center provided debarred
   information for two of the providers; however, the Plan did not provide an updated
   provider file to the FEP Operations Center to reflect the debarment status. Therefore,
   the FEP Operations Center did not make the necessary system changes to the FEP
   national claims system to recognize these providers as debarred and suspend the




                                       21

 claims. Consequently, the Plan paid 86 claims, totaling $7,495, to these debarred
 providers.

 Association's Response:

 The Association agrees with this finding. The Association 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, LIl does not apply to the

 claim payment errors identified in this finding.


 For the two providers that were not updated on the debarred provider listings generated
 by the FEP Operations Center, the Association states, "As a result, no member
 notification was issued; therefore, the refund recovery effort cannot be initiated for the
 affected claims since the members did not receive the required notification. The Plan
 is currently validating the control changes necessary to prevent the updating of these
 providers on the FEP Claims System with a target completion date of first quarter
 2010."

 For the provider that was omitted in error from the debarred provider listing generated
 by the FEP Operations Center, the Association states, "The Plan updated its provider
 file as of October 2009 with the debarred status for the Provider in question. However,
 no member notification was issued; therefore, the refund recovery effort cannot be
 initiated for the affected claims since the members did not receive the required
 notification that the Provider was debarred as required by OPM."

  The Association also states, "FEP has implemented additional controls at the
  Operations Center for the generation of the Debarred Provider Listings to Plans.
. Under the enhanced controls, when the listing is received from CMS and updated on
  the FEP System, it cannot be sent to Plans until the Plan's internal audit department
  has validated that all providers have been included on the listings. This control is
  being implemented during the first quarter 2010."

 Recommendation 10

 We recommend that the contracting officer disallow $15,564 for payments made to
 three debarred providers.

 Recommendation 11

 We recommend that the contracting officer verify that corrective actions were
 implemented by the Association to prevent further payments to these or other debarred
 providers.




                                      22

        f.   fu:.stem Review

             The Plan incorrectly paid five claims, resulting in net undercharges of $52 to the
             FEHBP. Specifically, the Plan overpaid four claims by $1,948 and underpaid one
             claim by $2,000.

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

             The following summarizes our system review of claims.

             DC Service Area

             For health benefit claims reimbursed during the period January 1,2008 through
             October 31,2008, we identified 6,959,851 claim lines, totaling $706,014,430 in
             payments, using a standard criteria based on our audit experience. From this
             universe, we selected and reviewed a judgmental sample of 151 claims (representing
             1,536 claim lines), totaling $7,730,798 in payments, to determine if the Plan
             adjudicated these claims properly? Our review identified one claim payment error,
             resulting in an undercharge of $2,000 to the FEHBP. This error resulted from a
             claims processor incorrectly pricing the procedure code.

             MD Service Area

             For health benefit claims reimbursed during the period January 1,2008 through
             October 31, 2008, we identified 4,836,420 claim lines, totaling $436,108,524 in
             payments, using a standard criteria based on our audit experience. From this
             universe, we selected and reviewed a judgmental sample of 100 claims (representing
             898 claim lines), totaling $5,519,400 in payments, to determine if the Plan
             adjudicated these claims properly (see footnote 3). Based on our review, we
             determined the Plan properly paid these claims.

             Overseas Claims

             For health benefit claims reimbursed during the period January 1,2008 through
             October 31, 2008, we identified 352,748 claim lines, totaling $52,772,528 in
             payments, using a standard criteria based on our audit experience. From this
             universe, we selected and reviewed a judgmental sample of 50 claims (representing
             364 claim lines), totaling $3,065,582 in payments, to determine if the Plan
             adjudicated these claims properly (see footnote 3). Our review identified four claim

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




                                                       23
payment errors, resulting in overcharges of$1,948 to the FEHBP. The claim payment
errors resulted from the following:

•	 In one instance, the claims processor overrode the system edits when pricing the
   claim, resulting in an overcharge of $1,663 to the FEHBP.

•	 The Plan did not apply the deductible when pricing two claims, resulting in
   overcharges of $200 to the FEHBP.

•	 In one instance, the FEP national claims system did not calculate the appropriate
   co-insurance, resulting in an overcharge of$85 to the FEHBP. We found that the
   FEP national claims system did not apply the correct co-insurance amoWlt to
   outpatient facility claims with 2007 or 2008 dates of service, revenue codes 490 or
   499 (ambulatory surgical care), and an alternate provider network status of"PI"
   (Preferred) or "P2" (Member) when the subscriber had standard option coverage
   and had not met the catastrophic maximum amount for the year.

   Because this is a system error, we requested the Plan to identify all claims that
   were potentially affected by this type of error. Since the total amounts paid for the
   identified claims were immaterial, we did not select additional claims to review.
   Also, the Plan stated that this system eITor was corrected in June 2008.

Association's Response:

The Association agrees with this finding. The Association states that the Plan has
initiated recovery efforts for the confirmed overpaYlllents, and as of February 1, 2010,
the Plan had recovered and returned $1,748 to the FEHBP. 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 the claim payment errors identified in this finding.

In reference to the $2,000 undercharge (DC Service Area), the Association states that
the claim has been adjusted appropriately to pay the correct amount.

Recommendation 12

We recommend that the contracting officer disallow $1,948 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.

Recommendation 13

We recommend that the contracting officer allow the Plan to charge the FEHBP
$2,000 if an additional payment is made to the provider to correct the underpayment
error.




                                     24

2< Miscellaneous Payments and Credits

   a. Provider Audit Vendor Fees                                                      $15,249

      The Plan paid commission fees to a vendor for FEP recoveries that were not realized,
      resulting in overcharges of$15,249 to the FEHBP.

      The provider audit services contract, effective November 20,2001, between the Plan
      and AIM HeaIthcare Services, Inc. (vendor) states, "Fees shall be ... for
      overpayments identified and recovered tluough the on-site credit balance review
      process ...."

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

      The Plan's vendor audit fees are calculated by applying a predetermined commission
      percentage to the overpayments identified and recovered. Therefore, the vendor
      should only charge the Plan for audits resulting in actual claim recoveries. If there are
      no claim overpayment recoveries, then there should be no charge to the Plan and no
      charge to the FEHBP. During our review of provider audit recoveries, we identified
      two audited FEP claims (from the DC Service Area) where the commission
      percentage was applied to the identified overpayments, however, no recovery or only
      a partial recovery occurred. Since there was no recovery or only a partial recovery for
      these two overpayments, the vendor charges of $15,249 are not chargeable to the
      FEHBP.

      Association's Response:

      The Association agrees with this finding. The Association states, "The Plan has
      recovered the vendor overpayment. A Special Plan Invoice (SPI) was submitted on
      February 19,2010. The funds were wired to the BCBSA Joint Operating Account on
      February 18, 20ID."

      Recommendation 14

      We recommend that the contracting officer disallow $15,249 for the provider audit
      vendor overcharges and verify that the Association returned these funds to the
      FEHBP.




                                           25

b. Fraud Recovery Returned Untimely                                                 $5,136

   In one instance. the Plan did not timely return a fraud recovery to the FEHBP. As a
   result of this finding. the Plan credited the FEHBP $5.136 for LII on this recovery.

   Based on an agreement between aPM and the Association. dated March 26, 1999,
   BlueCross and BlueShield plans have 30 days to return health benefit refunds and
   recoveries to the FEHBP if received after March 31, 1999.

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

   For the period 2004 through 2008, there were 534 fraud recoveries totaling
   $4,555,776 for the DC and Maryland Service Areas and Overseas claims. From this
   universe, we judgmentally selected a sample of 30 fraud recoveries, totaling
   $3,060,473, for the purpose of determining whether the Plan returned these recoveries
   to the FEHBP in a timely maImer. Our sample included all fraud recoveries with
   recovery amounts of $40,000 or more.

   Based on our review, we determined that the Plan did not timely return one fraud
   recovery (from the Maryland Service Area) to the FEHBP. Specifically, although the
   Plan returned this fraud recovery to the FEHBP letter of credit account (LOCA), the
  .funds were not timely deposited into the FEP investment account. Therefore, we
   calculated that the FEHBP is due $5,136 for LII on this untimely returned fraud
   recovery.

   Association's Response:

   The Association agrees with this finding. The Association states, "The Plan
   submitted a Special Plan Invoice (SPI) to BCBSA for the Lost Investment Income
   (LII) due the FEHBP. The funds were transferred to the Plan's FEP investment
   account on June 25,2009 and adjusted against the LOCA on July 7, 2009."

   Recommendation 15

   Since we verified that the Plan credited the LOCA $5,136 for LII on the untimely
   returned fraud recovery, no further action is required for this questioned amount.




                                        26

B. ADMINISTRATIVE EXPENSES

  1. BluesNet Charges                                                                   $60,561

     The Plan charged the FEHBP for BluesNet expenses that had already been charged to the
     FEHBP by the FEP Operations Center. As a result, the FEHBP is due $60,561,
     consisting of$56,846 for duplicate BIuesNet charges and $3,715 for LIl on these charges.

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

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

     For the period 2004 through 2008, the Plan allocated administrative expenses of
     $393,375,343 to the FEHBP from 1,834 cost centers. From this universe, we selected a
     judgmental sample of 58 cost centers to review, which totaled $153,990,363 in expenses
     allocated to the FEHBP. We selected the cost centers 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 for allowability, allocability, and
     reasonableness. Based on our review, we identified one cost center that included BluesNet
     charges, totaling $56,846 ($37,677 for the DC Service Area and $19,169 for the Maryland
     Service Area), that had already been charged to the FEHBP by the FEP Operations Center.

     The Association operates a telecommunication system called BluesNet. BluesNet is a
     BlueCross BlueShield system-wide data communications network utility. The network
     uses data communication equipment and telecommunication carrier services to provide the
     physical cOJUlection and communication protocols necessary to exchange information
     among the local BCBS plans. The Association's expenses for maintaining the BluesNet
     system are allocated and charged to the FEP Operations Center through baseline charges.

     From 2002 through 2006, the Association individually charged each Plan for BluesNet
     baseline charges. Effective January 2007, the Association began charging the FEP
     Operations Center for FEHBP's portion of the BluesNet baseline charges. Therefore, the
     BeBS plans may not allocate BluesNet baseline charges to the FEHBP after 2006.
     Through cost center 13133 (DC data hardware), the Plan charged the FEHBP $27,808
     and $29,038 in years 2007 and 2008, respectively, for BluesNet base line charges.

     As a result of this oversight, the Plan inappropriately charged the FEHBP $56,846 for
     BluesNet base line charges that were already charged to the FEHBP by the FEP
     Operations Center. The Plan also determined that the FEHBP is due $3,715 for LII on




                                             27
     these duplicate charges. Based on our review of the Plan's LIl calculation, we agree with
     the amount determined by the Plan and will not assess additional LH.

     Association's Response:

     The Association agrees with this finding. The Association states, "The Plan submitted
     the necessary Prior Period Adjustments (PPA's) and SPI's for the LIl due the FEHBP to
     BCBSA on September 29,2009. The funds were wired to the BCBSA Joint Operating
     account on September 29,2009."

     Recommendation 16

     We recommend that the contracting officer disallow $56,846 for duplicate BluesNet
     charges and verify that the Association returned these funds to the FEHBP.

     Recommendation 17

     We recommend that the contracting officer verify that the Plan returned $3,715 to the
     FEHBP for LII on the duplicate BluesNet charges.

C. CASH MANAGEMENT

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

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                              $1,554

  As a result of the audit findings presented in this report, the FEHBP is due LIl of$1,554 from
  January 1, 2008 through December 31, 2009.

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

  We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. Our computations show that the FEHBP is due
  LII of$I,554 from January 1,2008 through December 31, 2009 on questioned costs for
  contract year 2007 (see Schedule C).




                                              28

Association's Response:

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

Recommendation 18

We recommend that the contracting officer direct the Plan to credit $1,554 (plus interest
accruing after December 31, 2009) to the Special Reserve for LB on audit findings.




                                            29

              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Experience-Rated Audits Group

               Lead Auditor

               Auditor

               Auditor

            Auditor

              Auditor

             Auditor

               Auditor



                   Chief

              Senior Team Leader




                                   30

                                                                                                                                                                      SCHEDULE A
                                                                                  V. SCHEDULES

                                                               CAREFIRST BLUECROSS BLUESHIELD

                                              WASHINGTON, D.C. AND MARYLAND SERVICE AREAS AND OVERSEAS CLAIMS

                                                                   OWINGS MILLS, MARYLAND


                                                                              CONTRACT CHARGES


CONTRACT CHARGES                                                              2004                2005              2006             2007               2008             TOTAL

A. HEALTH BENEFIT CHARGES"

   DC SERVICE AREA:
   PLAN CODES 080/0811580/582                                               $723,239,877      $779,156,681       $808,539,914      $881,811,033       $950,884,620     $4,143,632,125
   MISCELLANEOUS PAYMENTS                                                      4601943           6559,136           3660507           5187558            7841131           27850275
   TOTAL                                                               I    $727,841,820      $785 715.817       $812,200 421      $886998591         $958725751       $4 171 482 400 •

    MARYLAND SERVICE AREA:
    PLAN CODES 190/690                                                       388,749,424       434,921,166        467,856,613       523,890,148        572,976,865     2,388,394,216
    MISCELLANEOUS PAYMENTS                                                     2742.835          4096714            4195539           3741 464           5311391          20.087943
    TOTAL                                                              I    $391 492.259      $439017880         $472.052 152      $527631612         $578 288.256    $2 408,482 159    II


   OVERSEAS CLAIMS:
   PLAN CODE 082                                                              35,003.937          40,389,347       44,181,062        52,104,727         58,486,709       230,165,782
   MISCELLANEOUS PAYMENTS                                                              0                   0           0.656)                 0                  0            (1656
   TOTAL                                                               I     $35.003.937         $40,389347       $44179.406        $52104727          $58486.709       $230,164 126 :.

   TOTAL HEALTH BENEFIT CHARGES                                        I   $1 154338016     $I   265123.044     $1.328431.979    $1 466 734 930     $1 595 500 116    $6810.128685      I


B. ADMINISTRATlVE EXPENSE CHARGES

   PLAN CODES 080/190''''                                                    $77,280,430         $76,912,687      $81,196,640       $85,345,703        $83,697,824      $404,433,284
   PRIOR PERIOD ADJUSTMENTS                                                      (96.125)           (310,308)       9,805,212                 0           (244,413)        9,154,366
   BUDGET SETTLEMENT REDUCTION                                                         0          (1,960,193)      (1,557,054)                0                  0        (3,517,247)
   BUDGET SETTLEMENT REVISION                                                          0            (817,406)       3,067,585                 0                  0         2,250,179

   TOTAL ADMINISTRATIVE EXPENSE CHARGES                                I     $77,184305          $73824.780       $92512 383        $85.345703         $83453411        $412 320 582 II


   TOTAL CONTRACT CHARGES                                              I   $1 231,522321    $1 338947,824       $1 420.944 362   $1552.080633       $1 678,954 127    $7 222 449 267 ill


" We reviewed claim payments from January 1,2006 through October 31,2008 (through September 30, 2009 for expanded claim reviews).

** Plan code 080 includes administrative expense charges for the DC Service Area and Overseas Claims; and Plan code 190 only includes the Maryland Service Area.

                                                                                                                                                                     SCHEDULED
                                                                           ,CAREFIRST BLUECROSS BLUESHIELD

                                                           WASHINGTON, D.C.AND MARYLAND SERVICE AREAS AND OVERSEAS CLAIMS

                                                                               OWINGS MILLS, MARYLAND


                                                                                        QUESTIONED CHARGES


AUDIT FINDINGS                                                                          2004        2005        2006        2007        2008           2009            TOTAL


A. HEALTH BENEFIT CHARGES

    1. Claim Payments
       a. Amounts Paid Greater than Covered Charges                                            $0          SO     $38,395     532,453    $612,649         $1,160         $684,657
       b. Inpatient Facility Payments - Duplicate or Overlapping Dates of Service               0           0      39,618      64,698     141,558         51,861          297,735
       c. Omnibus Budget Reconciliation Act of 1990 Review                                      0                  73,596      49,747      46,054              0          169,397
       d. Assistant Surgeon Review
       e. Debarred Provider Payments
                                                                                                0
                                                                                                0
                                                                                                           °0
                                                                                                            0
                                                                                                                   19,083
                                                                                                                    8,706
                                                                                                                               44,292
                                                                                                                                3,647
                                                                                                                                           52,973
                                                                                                                                            2,999
                                                                                                                                                               0
                                                                                                                                                             212
                                                                                                                                                                          116,348
                                                                                                                                                                           15,564
       f. System Review                                                                         0           0           0           0         (52)             0              (52)

       Total Claim Payments                                                         I          $0          $0    5179,398   Sl94,837     $856,181        $53,233        $1,283,649

    2. Miscellaneous Payments and Credits
       a. Provider Audit Vendor Fees*                                                          SO          $0          $0     515,249             SO           SO         $15,249
       b. Fraud Recovery Returned Untimely**                                                    0           0           0       3,407          1,729            0           5,136

       Total Miscellaneous Payments and Credits                                     I          $0          SO          SO     518,656      51,729               $0        $20,385

    TOTAL HEALTH BENEFIT CHARGES                                                    I          SO          $0    5179,398    5213 493    5857.910        553.233        51,304034

B. ADMINISTRATIVE EXPENSES

    1. BluesNet Charges***                                                                     SO          SO          SO     527,808     530,430         52,323          560,561

    TOTAL ADMINISTRATIVE EXPENSES                                                   I          SO          SO          SO     $27808      530.430         $2.323          S60561


C. CASH MANAGEMENT                                                                  I          SO          SO          $0          SO            SO             $0              SO


D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                    SO          SO          SO          $0          $753           $801          SI,554


TOTAL QUESTIONED CHARGES                                                            I          SO          SO    $179.398    5241,301    $889093         $56.357        $1.366149


* This audit finding is subject to lost investment income (LIl).
** No additional LII is applicable for this audit finding.
*** This audit finding also includes LII of53,715.
                                                                                                                                                     SCHEDULEC
                                                                  CAREFlRST BLUECROSS BLUESHIELD
                                                 WASHINGTON, D.C. AND MARYLAND SERVICE AREAS AND OVERSEAS CLAIMS
                                                                      OWINGS MILLS, MARYLAND

                                                              LOST INVESTMENT INCOME CALCULAnON


                                                                   2004         2005         2006         2007          2008           2009            TOTAL

A. QUESTIONED CHARGES (Subject to Lost Investment Income)

   Provider Audit Vendor Fees                                 I           SO           SO           SO      SIS 249              SO             SO       SIS 249

B. LOST INVESTMENT INCOME CA LCULAnON

   a. Prior Years Total Questioned (Principal)                            SO           SO           SO             SO     S15,249               SO
   b. Cumulative Total                                                    Q            Q            !!             !!             !!      15,249
   c. Total                                                               SO           SO           SO             SO     S15,249        $1"5,249

   d. Treasury Rate: January I - June 30                              4.000%       4.250%       5.125%       5.250%        4.750%         5.625%

   e. Interest (d * c)                                                    SO           SO           SO             SO          S362           $429         S791

   f. Treasury Rate: July 1 • December 31                             4.500%       4.500%       5.750%       5.750%        5.125%         4.875%

   g. Interest (f * c)                                                    SO           $0           SO             SO          $391           S372         5763

  Total Interest By Year (e + g)                              I           SO           SO           SO             SO          5753           $801        S1554
                                                                                              APPENDIX


                                                                            BlueCros8 BlueSWeld
                                                                            Association
                                                                            An As.sodalion ofIndependent
                                                                            Blue Cross and Blue ShIeld Plans
February 19, 2010

                          Group Chief                                       Federal Employee Program
Experience-Rated Audits Group                                               1310 G Street, N.W.
Office of the Inspector General	                                            Washington, D.C. 20005
                                                                            2.02.942.1000
U.S. Office of Personnel Management                                         Fax 202.942.1125
1900 E Street, Room 6400
Washington, DC 20415-1100


Reference:	                OPM DRAFT AUDIT REPORT
                           Carefirst Blue Cross Blue Shield
                           Audit Report Number 1A-1 0-85-09-023
                           (Dated December 3. 2009 and Received December 4. 2009)

Dear

This is our response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report covering the Federal Employees' Health Benefits Program
(FEHBP) concerning CareFirst BlueCross BlueShield. Our comments concerning the
findings in the report are as follows:

General Plan Comment:
OPM questioned a total of $1,585,661 as incorrect charges to the FEHBP. These
charges relate to (1) health benefit payments covering 2006-09, and (2) miscellaneous
payments and administrative charges covering 2004;..08. These questioned charges
equate to 0.0113% of the total claims payments/administrative charges during the audit
period. .	                                                                     .

A. HEALTH BENEFIT CHARGES
   1) Claim Payment Errors

       a) Amount Paid Greater than Covered Charges

       DC Service Area

       The Plan contests $71,321 of the questioned amount but does not contest $605,925.
       There were two claims that comprised the total questioned dollar amount-. The Plan
       contests a portion of the questioned overpayment amount for the following reasons:
       (1) on the first claim, the OIG auditors questioned billed charges ($563,760) instead
       of the Plan's DRG allowance ($512,739) for this admission. This resulted in a
       variance of $71,041. (2) The second incorrect dollar amount was cited as $83,075
       instead of the Plan's DRG allowance. This resulted in a variance of $280. The total
       variance equals $71,321 ($71,041 + $280).
                          Group Chief
February 19, 2010
Page 2


  The confirmed overpayment of $605,925 has been adjusted and credited to the

  Program.


   The overpayments were the results of Claims Examiner errors and were used as
   training tools in the recent re-fresher training session. In additic;m, the Plan has a quality
   review area that reviews claims and identifies payment errors. The identified payment
   errors are then discussed with the management in the Operations Areas. The objective
   is to determine whether individual examiners may need further training or if there is a
   pattern of inconsistency in the adjudication process for multiple Claim Examiners. The
   identified errors are used to determine the focus of the training for the group.

   In addition, the FEP Director's Office sends the System-wide Claims Review Listing to
   the Plan which also includes an Amount Paid Greater Than Covered Charges Listing.
   The Plan in compliance with the "FEP Overpayment Recovery Action Plan," reviews
   the listing and returns the results of its review to the FEP Director's Office as required.
   Where appropriate, refunds are initiated. However, there appe~rs to be a difference in
   the claim selection criteria used to select these claims for OPM and the criteria used to
   generate the System-wide Claims Listing. We will re-evaluate our selection criteria to
   determine if any changes are required to bring it more in line with the OPM claim
   selection criteria.

   Maryland Service Area

  The Plan does not contest $25,841 from the original sample and $10,342 from the
  expanded Medicare Claims Review. The Plan has initiated Refund recovery efforts
  where appropriate for the confirmed overpayments. As of February 1, 2010, the Plan
  has recovered and returned $14,000 to the Program from the original sample and
  $1,386 from the expanded claims review.

   Overseas Claims

  The Plan does not contest this finding. The Plan has initiated Refund recovery efforts
  where appropriate for the confirmed overpayments. The overpayments were the result
  of Claims Examiner error and were used as training tools in the recent re-fresher
  training session. In addition, the Plan has a quality review area that reviews claims and
  identifies payment errors. The identified payment errors are then discussed with the
  management in the Operations Areas. The objective is to determine whether individual
  examiners may need further training or if there is a pattern of inconsistency in the
  adjudication process for multiple Claims Examiners. The identified errors are used to
  determine the focus of the training for the group.
                         Group Chief
February 19, 2010
Page 3


   In addition, the FEP Director's Office sends the System-wide Claims Review Listing to
   the Plan which also includes an Amount Paid Greater Than Covered Charges Listing.
   The Plan reviews and returns the results of its review to the FEP Director's Office as
   required. Where appropriate, refunds are initiated. However, there appears to be a
   difference in the claim selection criteria used to select these claims for OPM and the
   selection criteria used to generate the FEP Director's Office System-wide Claims
   Review Listing. We will re-evaluate our selection criteria to determine if any changes
   are required to bring it more in line with the OPM claim selection criteria.

   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 payments, the Plan continues to initiate recovery in a timely
   manner for confirmed overpayments. Because these are good faith erroneous
   payments, they are not subject to lost investment income.

   1a All Service Areas - Expanded Review of 2006 Non-Par Provider
      Maryland Service Area

      The Plan contests $31,314 of the questioned amount as one claim was for an
      inpatient admission that was coded incorrectly ($31,314). The necessary
      documentation to support the Plan's position was provided to the OPM auditors
      with the overlapping Spreadsheet on February 9,2010.

      The Plan does not contest $3,090. The Plan has initiated and recovered the
      confirmed overpayment. As of February 1, 2010, the funds have been returned to
      the Program

      Overseas Claims

      The Plan does not contest this finding. The Plan has initiated refund rec()very
      efforts where appropriate for the confirmed overpayment. As of
      February 1, 2010, the Plan has recovered and returned $2,772 to the Program.

      DC Service Area

      The Plan contests one claim totaling $2,492 because this is a claim for service in
      the Maryland designated service area. It was also included in the Maryland listing.
      However, the Plan does not contest that 12 claims totaling $2,772 for the DC
      service area were overpaid. The Plan has initiated recovery efforts for the
      overpayments. As of February 1, 2010, $1,615 has been recovered and returned
      to the Program.
                         Group Chief
February 19, 2010
Page 4


      b) Duplicate Claim Payment'Overlapping Dates of Service               $421,315

         Overseas Claims

         The Plan contests $285,024 of the questioned amount based on the fact that
         the services were for different patients or the dates of services were incorrectly
         coded. However, the Plan does not contest that $136,291 was overpaid. The
         Plan has initiated refund recovery efforts where appropriate for the confirmed
         overpayments. As of February 1, 2010, the Plan had recovered and returned
         $4,556 to the Program.

         Expanded Listings

         DC Service Area                       $1.964.223

         The Plan contests $1,882,200 of the questioned amount based on the fact that
         these services were for different patients or were coding errors. The necessary
         documentation to support the Plan's position was provided to the aPM auditors
         with the overlapping Spreadsheet on February 9,2010. The Plan does not
         contest $82,023 that may have been overpaid. The Plan has initiated refund
         recovery efforts where appropriate for the confirmed overpayments. As of
         February 1, 2010. the Plan had recovered and returned $22,040 to the
         Program.

         Maryland Service Area                 $456,979

         The Plan contests $413,453 of the questioned amount based on the fact that
         these services were for different patients or were coded incorrectly. The Plan
         does not contest $31,985. The necessary documentation to support the Plan's
         position was prOVided to the aPM auditors with the overlapping Spreadsheet
         on February 9,2010.                                                    .

         The Plan has initiated Refund recovery efforts where appropriate for the
         confirmed overpayments. As of February 1, 2010, the Plan had recovered and
         returned $31,985 to the Program. The Plan is still reviewing the remaining
         questioned amount of $11,541 to determine whether the claims were paid
         correctly. This review should be completed by February 16,2010 and will be
         submitted at that time.

         The FEP Claims System includes an edit that is designed to defer inpatient
         claims with overlapping dates of services. However, a review of this issue
         indicates that this edit only generates a deferral if the claims are from the same
         provider. As a result of this finding, the FEP Director's Office is modifying this
         edit to defer all inpatient claims with overlapping dates of service regardless of
                 Group Chief




  whether the Provider is the same or not. We expect this system enhancement
  to be implemented later in 2010.

  In addition, the Plan has included the claims that were incorrectly coded as part
  of the training program for the Claims Examiners. Lastly, the Plan will provide
  additional training to all Claims Examiners by the second quarter of 2010 with
  an emphasis on the importance of coding claims correctly. The FEP Director's
  Office will also add these claim types to its System-wide claims listings that are
  sent to all Plans.                                        .

  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 payments, the Plan
  continues to initiate recovery in a timely manner for confirmed overpayments.
  Because these are good faith erroneous payments, they are not subject to lost
  investment income.

c) Omnibus Budget Reconciliation Act of 1990 Review                 $169.397

  DC Service Area

  The Plan does not contest this finding and refund recovery efforts have been
  initiated where appropriate for confirmed overpayments. As of February 1,
  2010, the Plan had recovered and returned $86,617 to the Program.

   When the claims were originally submitted to the Operations Center, there were
   coding discrepancies. These payment differences occurred because the
   examiners did not submit the correct information when the claims were initially
   manually processed. The claims were paid in error because Claims Examiners
   entered incorrect fields for Medicare Part B payment information; incorrectly
   coded split admission between two claims and adjusted an original OBRA '90
   priced claim incorrectly. To reduce these types of pricing errors in the future,
   the Plan has implemented and updated its Policy & Procedure for OBRA '90
   claim processing. Request for refunds have been initiated to recover payment
   errors and any amounts recovered will be returned to the Program. Also, the
   FEP Director's Office includes potential OBRA '90 priced claims in its periodic
 . System-wide Claims Review to facilitate early identification and recovery of
   OBRA '90 claim payment errors. Completion of these periodic reports assists
   in the timely identification and recovery of OBRA '90 claim payment errors.
   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(9). Any benefit payments the Plan is unable to recover
   are allowable charges to the Program. In addition, as good faith payments, the
                       Group Chief
February 19,2010
Page 6


        Plan continues to initiate recovery in a timely manner for confirmed .
        overpayments. Because these are good faith erroneous payments, they are
        not subject to lost investment income.

     d) Assistant Surgeon Review                                        $116,926

        DC Service Area

        The Plan does not contest this finding. Refund recovery efforts have been
        initiated where appropriate for the confirmed overpayments. As of
        February 1, 2010, the Plan had recovered and returned $46,081 to the
        Program.

        MaryJand Service Area

        The Plan contests $578 based on the fact that a different claim was adjusted.
        The spreadsheet to support the Plan's position is included as Attachment I.
        However, the Plan does not contest $59,385. Refund recovery efforts have
        been initiated where appropriate for the confirmed overpayments. As of
        February 1,2010, the Plan had recovered and returned $49,369 to the
        Program.

        The overpayments related to the non-OBRA '93 Assistant Surgeon claims were
        the result of a local Plan system issue for both the Maryland and DC Plans.
        This system issue was identified by the Plan before the audit began and
        corrected in the second quarter of 2009. The payments related to OBRA '93
        priced Assistant Surgeon claims were sent to the Plan as a part of the FEP
        Director's Office System-wide Claims Review Listing. Refund recovery efforts
        have been initiated where appropriate for the confirmed overpayments.

     e) Debarred Provider Payments                                      $15,564

        DC SelVice Area

        The Plan does not contest this finding. The Plan has updated the Provider
        Files with the debarred status of the two providers for which the incorrect
        payments were made.

        Upon investigation, it was determined that the two debar.red providers were not
        updated on the Debarred Provider Listing generated by the Operations Center.
        As a result, no member notification was issued; therefore, the refund recovery
        effort cannot be initiated for the affected claims since the members did not
        receive the required notification. The Plan is currently validating the control
        changes necessary to prevent the updating of these providers on the FEP
        Claims System with a target completion date of first quarter 2010.
                        Group Chief
February 19, 2010
Page?



         Maryland Service Area

         The Plan does not contest this finding. The Provider in question for this finding
         was omitted in error from the Debarred Provider Listing generated by·the
         FEP Operations Center. The Plan updated its provider file as of October 2009
         with the debarred status for the Provider in question. However, no member
         notification was issued; therefore, the refund recovery effort cannot be initiated
         for the affected claims since the members did not receive the required
         notification that the Provider was debarred as required by OPM.

         FEP has implemented additional controls at the Operations Center for the
         generation of the Debarred Provider Listings to Plans. Under the enhanced
         controls, when the listing is received from eMS and updated on the FEP
         System, it cannot be sent to Plans until the Plan's internal audit department has
         validated that all proViders have been included on the listings. This control is
         being implemented during the first quarter 2010.

         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 payments, the Plan
         continues to initiate recovery in a timely manner for confirmed overpayments.
         Because these are good faith erroneous payments, they are not subject to lost
         investment income.

      f) System Review

         The Plan does not contest this finding which is a net of an Overseas claim and
         a DC Plan claim.

         Overseas Claims

         The Plan has initiated recovery efforts for the confirmed overpayments. As of
         February 1,2010, the Plan had recovered and returned $1,748 of the $1,948
         questioned amount to the Program

         DC Service Area

         The Plan does not contest the $2,000 undercharge for this finding. This claim
         has been adjusted appropriately to pay the correct amount. The errors were
         the result of the Claims Examiners incorrectly coding the claims. The Plan has
         provided additional training to Claims Examiners in an effort to reduce future
         errors.
                         Group Chief
February 19, 2010
Page 8


      Accordingly, to the extent that errors did occur, for findings 1a - 1f, the payments
      are good faith erroneous benefit 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 payments, the Plan
      continues to initiate recovery in a timely manner for confirmed overpayments.
      Because these are good faith erroneous payments, they are not subject to lost
      investment income.

      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 payments, the Plan continues to initiate
      recovery in a timely manner for confirmed overpayments. Because these are good
      faith erroneous payments, they are not subject to lost investment income.

   2) Miscellaneous Payments and Credits


      a) Provider Audit Vendor Fees                                         $15.249

         The Plan does not contest this finding. The Plan has recovered the vendor
         overpayment. A Special Plan Invoice (SPI) was submitted on February 19,
         2010. The funds were wired to the SCBSA Joint Operating Account on
         February 18, 2010.

      b) Fraud Recovery Returned Untimely                                   $5.136

         The Plan does not contest this finding. The Plan submitted a Special Plan
         Invoice (SPI) to BCBSA for the Lost Investment Income (L1I) due the FEHBP.
         The funds were transferred to the Plan's FEP investment account on June 25,
         2009 and adjusted against the LOCA on July 7, 2009. The documentation that
         supports the transfer of the funds is included as Attachment II.

8. ADMINISTRATIVE EXPENSES

   1) BluesNet Charges                                                      $56.846

      The Plan does not contest this finding. The Plan submitted the necessary Prior
      Period Adjustments (PPA's) and SPI's for the LIt due the FEHBP to BCSSA on
      September 29, 2009. The funds were wired to the SeSSA Joint Operating account
      on September 29, 2009. The supporting documentation relating to this finding is
      included as Attachment III.
                         Group Chief




We appreciate the opportunity to provide our response to this Draft Audit Report and
request that our comments be included in their entirety as an amendment to the Final




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Attachments