oversight

Supplemental Report on the Audit of CareFirst BlueCross BlueShield Owings Mills, Maryland

Published by the Office of Personnel Management, Office of Inspector General on 2014-03-14.

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:


    SUPPLEMENTAL REPORT ON THE AUDIT OF

       CAREFIRST BLUECROSS BLUESHIELD 

          OWINGS MILLS, MARYLAND





                                             Report No. 1A-10-85-14-011


                                             Date:             March 14, 2014




                                                          --CAUTION-­

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                                                     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

                                      Plan Codes 080/081/190/580/582/690 

                                             Owings Mills, Maryland





                       REPORT NO. 1A-10-85-14-011                                     03/14/2014
                                                                              DATE: ______________




                                                                               __________________
                                                                               Michael R. Esser
                                                                               Assistant Inspector General
                                                                                 for Audits

                                                          --CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                               EXECUTIVE SUMMARY




                          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

                            Plan Codes 080/081/190/580/582/690

                                   Owings Mills, Maryland





               REPORT NO. 1A-10-85-14-011                      03/14/2014
                                                       DATE: ______________

This supplemental final 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, questions $1,865,071 in health benefit charges.
The BlueCross BlueShield Association (Association) and/or Plan agreed with $1,402,741 and
disagreed with $462,330 of the questioned charges.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered claim payments from June 2010 through February 2013 as reported in the Annual
Accounting Statements.

The questioned health benefit charges are summarized as follows:

•   Bundle Pricing Error (System Error #2)                                           $1,652,087

    Based on our review of the bundle pricing processing error, we determined the Plan
    incorrectly paid 3,763 claims, resulting in net overcharges of $1,652,087 to the FEHBP.
    Specifically, the Plan overpaid 3,761 claims by $1,652,127 and underpaid 2 claims by $40.

•   Non-Covered Services (System Error #1 and #3)                                      $212,984

    Based on our review of the non-covered services processing errors, we identified the Plan
    incorrectly paid 273 claims, resulting in overcharges of $212,984 to the FEHBP.


                                                i
                                                  CONTENTS

                                                                                                                         PAGE

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


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


II.     OBJECTIVE, SCOPE, AND METHODOLOGY ............................................................3


III.	   AUDIT FINDING AND RECOMMENDATIONS .........................................................6


               HEALTH BENEFIT CHARGES ............................................................................6


               1. Bundle Pricing Error ..........................................................................................6


               2. Non-Covered Services .......................................................................................7


IV.     MAJOR CONTRIBUTORS TO THIS REPORT...........................................................10


V.      SCHEDULE A – HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED




                                                             i
                         I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This supplemental final audit report details the findings, conclusions, and recommendations
resulting from our limited scope audit of the Federal Employees Health Benefits Program
(FEHBP) operations at CareFirst BlueCross BlueShield (Plan), pertaining to the Washington,
D.C. and Maryland Service Areas. The Plan is located in Owings Mills, Maryland.

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

BACKGROUND

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

The BlueCross BlueShield Association (Association), on behalf of participating BlueCross and
BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039)
with OPM to provide a health benefit plan authorized by the FEHB Act. The Association
delegates authority to participating local BlueCross and BlueShield plans throughout the United
States to process the health benefit claims of its federal subscribers. The Plan includes 2 of the
64 local BCBS plans participating in the FEHBP.

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

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




1
  Throughout this report, when we refer to "FEP", we are referring to the Service Benefit Plan lines of business at
the Plan. When we refer to the "FEHBP", we are referring to the program that provides health benefits to federal
employees.




                                                          1

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

During our recent global audit of claims where the amounts paid exceeded covered charges
(Report No.1A-99-00-13-003, dated November 22, 2013), we determined that CareFirst BCBS
did not identify, review and/or adjust the claims that were potentially affected by three local
system                 processing errors and/or initiate recoveries for the actual overpayments.
Due to the potential impact of these system errors, we requested the Plan to identify and/or
review all FEP claims that were potentially processed and paid incorrectly.

We did not issue a draft audit report for this supplemental audit. However, we did communicate
the results of this audit to the Plan in written audit inquiries and through a formal exit conference
with the Plan and BCBS Association officials on February 21, 2014. The Plan’s responses to our
information requests and audit inquiries were considered in preparation of this final audit report.




                                                 2

                 II. OBJECTIVE, SCOPE, AND METHODOLOGY


OBJECTIVE


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

SCOPE

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

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they
pertain to Plan codes 080, 081, 190, 580, 582, and 690 for contract years 2010 through 2012.
During this period, the Plan paid approximately $5.2 billion in health benefit charges (See
Schedule A).

The scope of this audit was limited to the review of claims paid for the            processing
errors identified on the global amounts paid exceeded covered charges audit. For each claims
system processing error, we identified the review period as the date             began
processing claims incorrectly through the date the              system corrections were
implemented. We reviewed the following claims for the scope of this audit:

•	 “System Error #1” - Outpatient claims paid from June 2010 through April 2012 that
   contained non-covered services.

•	 “System Error #2” - Outpatient claims paid from June 2010 through September 2012 that
   contained bundle pricing methods.

•	    “System Error #3” - Inpatient claims paid from June 2010 through February 2013 that
     contained non-covered services.

Using these search criteria, we identified 4,994 claims, totaling $8,345,822 in charges for
“System Error #1”; 77,505 claims, totaling $185,936,084 in charges for “System Error #2”; and
841 claims, totaling $8,711,019 in charges for “System Error #3”. In total, we identified 83,340
claims, totaling $202,992,925 in charges to the FEHBP, related to the               claims
processing errors.

Due to the limited scope of this audit, we did not consider the Plan’s internal control structure in
planning and conducting our auditing procedures. For the areas selected for review, our audit
approach consisted mainly of substantive tests of transactions and not tests of controls.



                                                 3

Therefore, we do not express an opinion on the Plan’s system of internal controls taken as a
whole.

We also conducted tests to determine whether the Plan had complied with the contract and the
laws and regulations governing the FEHBP as they relate to claim payments. The results of our
tests indicate that, with respect to the items tested, the Plan did not fully comply with the
provisions of the contract relative to claim payments. Exceptions noted in the areas reviewed are
set forth in detail in the “Audit Finding 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, and the Plan. The BCBS claims data is
provided to us on a monthly basis by the FEP Operations Center, and after a series of internal
steps, uploaded into our data warehouse. Through audits and a reconciliation process, we have
verified the reliability of the claims data in our data warehouse. However, due to time
constraints, we did not verify the reliability of the data generated by the Plan’s local claims
system, which was used to identify the universe of claims for each type of review. While
utilizing the computer-generated data during our audit testing, nothing came to our attention to
cause us to doubt its reliability. We believe that the data was sufficient to achieve our audit
objectives.

The audit was performed at our offices in Washington, D.C.; Cranberry Township, Pennsylvania;
and Jacksonville, Florida from October 2013 through February 2014.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s claims processing system by
inquiry of Plan officials.

To test the Plan’s compliance with the FEHBP health benefit provisions related to the 3
       claims processing errors identified during our audit, we selected for review all 4,994
outpatient claims, totaling $8,345,822 in charges, related to “System Error #1” and all 841
inpatient claims, totaling $8,711,019 in charges, related to “System Error #3”. Additionally, we
selected for review all claims with amounts paid of $500 or more for “System Error #2”. Our
sample included 48,760 claims, totaling $175,631,104 in charges (out of 77,505 claims, totaling
$185,936,084 in charges). In total, we selected for review 54,595 claims, totaling $192,687,945 in
charges to the FEHBP.

The sample selections were submitted to the Plan for their review and response. We then
conducted a limited review of the Plans’ “paid incorrectly” responses and an expanded review of
the Plan’s “paid correctly” responses. Specifically, we verified the supporting documentation, the
accuracy and completeness of the Plan’s responses, determined if the claims were paid correctly,
and/or calculated the appropriate questioned amounts for the claim payment errors.




                                                4

We used the FEHBP contract, the 2010 through 2013 Service Benefit Plan brochures, 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.




                                              5

                 Ill. AUDIT FINDING AND RECOMMENDATIONS 

HEALTH BENEFIT CHARGES

1. Bundle Pricing Error                                                                         $1,652,087

    During our global audit of facility claims where the amounts paid exceeded covered charges
    (APG) , we detennined the Plan's local claims processing system                 was
    incon ectly bundling the pricing allowan ce on outpatient claims    van ous pn cing methods .
    Based on our expanded review of this en or, we detennined that the Plan incon ectli paid an
    additional 3,763 claims, resulting in net overcharges of$1,652,087 to the FEHBP.
    Specifically, the Plan ovetpaid 3,76 1 claims by $1,652, 127 and undetpaid 2 claims by $40.

    Contract CS 1039, Pati III, section 3.2 (b)(1) states "The CatTier may chru·ge a cost to the
    contract for a contract term if the cost is actual, allowable, allocable , and reasonable." Pati
    II, section 2.3(g) states, "If the CatTier [or OPM] detennines that a Member's claim has been
    paid in en or for any reason ... the CatTier shall make a prompt and diligent eff01i to recover
    the enoneous payment .... The recovety of any ovetpayment must be treated as an
    en oneous benefit payment, ovetpayment, or duplicate payment .... regardless of any time
    period limitations in the written agreement with the provider ."

    While reviewing the claims for the global APG audit, we identified an enor in the Plan ' s
    local claims systen~Tor #2"). This enor resulted from the Plan 's local claims
    processing system - incon ectly blmdling the pricing allowance on outpatient
    claims for vru·ious pricing methods. According to the ~em en or statt ed in Jlme
    2010, when the Plan switched to a new claims system - The Plan states that the
    en or was identified in March 2012 and con ective actions were implemented in September
    2012 to fix this              system en or. Although con ective actions were implemented to
    fix the                      the Plan did not identify, review and/or adjust the claims that

    overpayments until after the strut of our global APG audit.

    In July 2013 , the Plan inf01m ed us that approximately 77,505 claims, totaling approximately
    $186 million in health benefit chru·ges to the FEHBP, were potentially affected by these
    system en ors for the period June 2010 through September 2012 . Due to the possible
    significant impact of this system en or, we expanded our review an d requested the Plan to
    identify an d/or review claims with atnounts paid of $500 or more that were potentially
    processed an d paid inconectly. We submitted these additional 48,760 claims, totaling
    $175 ,631 ,104, to the Plan for their review and response. As a result of our expanded review,
    we identified an additional 3,763 claims, totaling $1,652,087 in net overchru·ges to the
    FEHBP.




2
 During om global APG audit, we questioned two claims, totaling $23,217 in overcharges to the FEHBP. These
overcharges are not included in the questioned costs ofthis supplemental fmal report.




                                                     6

  Plan's Response:

  The Plan has not had the opportunity to respond to this finding. However, they did submit
  documentation in response to our information request related to this issue.

  OIG Comments:

  Based on our review ofthe Plan's supporting documentation submitted in response to our
  information requests, we determined the Plan agrees with $1,316,894 and disagrees with
  $335,193 ofthe questioned charges. For the contested overpayments, the Plan agrees these
  claims were paid incorrectly. However, due to overpayment recovery time limitations with
  providers, the Plan states that these overpayments are uncollectible. Since these
  overpayments were identified as a result of our audit, we are continuing to question this
  amount in the final report. Ifthe Plan had timely identified and/or initiated recovery for
  these overpayments when the system error was identified (March 2012), the Plan's recovery
  efforts would have been within the applicable time limitations and the overpayments would
  have been recoverable.

  Recommendation 1

  We recommend that the contracting officer disallow $1 ,652,127 for claim overcharges and
  verify that the Plan returns all amounts recovered to the FEHBP.

  Recommendation 2

   We recommend that the contracting officer allow the Plan to charge the FEHBP $40 if an
   additional payment is made to the provider to correct the underpayment error.

   Recommendation 3

   Although the Plan updated their post-installation standard operating procedures to identify,
   review, and/or adjust the claims that are impacted when system errors are identified and fixes
   are installed on the Plan's local claims processing system, we recommend that the
   contracting officer require the Plan to provide evidence or documentation supporting that the
   Plan's updated standard operating procedures are being implemented.

   Recommendation 4

   For the $335,193 in claim overpayments where the provider's contract deems the
   overpayments uncollectible due to time limitations, we recommend that the contracting
   officer require the Plan to repay these claim overpayments, as they did not make a prompt
   and diligent effort to recover these overpayments as specified in Contract CS 1039.

2. Non-Covered Services                                                                 $212,984

   During our global APG audit, we determined the Plan's local claims processing system,
   -           was incorrectly allowing payment for non-covered services during the pricing of



                                               7

    inpatient and outpatient claims ("System Enor #1" and "System Enor #3"). Based on om
    expanded review of this enor, we determined that the Plan inconectly paid an additional 273
    claims, resulting in overcharges of$212,984 to the FEHBP. 3

    As previously stated, a cost char ged to the contract must be actual, allowable, allocable, and
    reasonable. Additionally, the Plan is required to make a diligent eff01i to recover an
    overpayment promptly to the FEHBP.

    While reviewing the claims for the global APG audit, we identified two enors in the Plan's
    local claims system ("System Enor #1" and "System Enor #3"). These enors resulted from
    inpatient and       ·    claims containing non-covered services that were not defening for
    review in the              system. According to the P~m en ors started in June
    2010, when            sw1tched to a new claims system - The Plan states that the
    outpatient processing en or ("System Enor # 1") was identifie~ 2012 and
    conective actions were implemented in April2012 to fix this -             system enor.
    Additionally, the inpatient processing enor ("System Enor #3") was identified in October
    2012 and conective actions were implemented in Febmmy 2013 to fix this
    system en or. Although conective actions were implemented to fix the
                                  .            .        .
    these enors and/or initiate recoveries for the actual ove1payments until after the strut of om
    global APG audit.

    In July 2013 , the Plan inf01med us that approximately 4,994 outpatient claims totaling
    $8,345 ,822 in chm·ges from June 2010 through April2012 were potentially processed and
    paid inconectly for "System Error #1", and 841 inpatient claims, totaling $8,711,019 in
    chm·ges from Jlme 2010 through Febmmy 2013 were potentially processed and paid
    inconectly for "System Enor #3". In total, we identified 5,835 claims totaling $17,056,841
    in chm·ges to the FEHBP that were potentially priced and paid inconectly. Due to the
    possible significant impact of these system enors, we subinitted these 5,835 claim samples to
    the Plan for their review and response. As a result of om expanded review, we identified an
    additional273 claims, resulting in overchm·ges of $212,984 to the FEHBP.

    Plan's Response:

    The Plan agrees to initiate recove1y on all impacted claims that are not subject to provider
    contract time limitations. The Plan states it is lmable to pmsue the recove1y of overpayments
    to pmticipating providers at this time because of provisions in the provider contracts that
    limit ove1payment recove1y efforts to two years after the claim has been paid. The Plan
    agrees that system scans were not immediately initiated to identify potential ove1payments
    when the system issue was identified and conected. Additionally, procedm es have been
    strengthened to ensme that such recove1y takes place promptly to the extent pennitted by the
    pmt icipating provider agreements. Also, the Plan states that an attempt to recover
    ove1payments outside of the two year recove1y window will result in breaching its provider
    agreements and will ultimately cost the FEHBP fm· more than any benefit received from

3
 During om global APG audit, we questioned 19 claims, totaling $232,484 in overcharges to the FEHBP. These
overcharges are not included in the questioned costs ofthis supplemental fmal report.




                                                      8

these recoveries, by damaging the strength of the provider network and in the loss of
substantial provider discounts. Accordingly, the Plan believes that allowing these charges
ultimately benefits the FEHBP more than attempting to recover the overpayment and
breaching the Plan’s provider agreements.

On September 19, 2013, the Plan implemented a new procedure to identify potential claim
payment errors after system corrections have been applied. The Plan states that this new
procedure ensures that claim scans are conducted to identify potentially impacted claims, and
that adjustments of claims are completed timely.

OIG Comments:

Based on our review of the Plan’s response to our audit inquiries, the Plan agrees with
$85,847 and disagrees with $127,137 of the questioned charges. For the $127,137 contested
overpayments, the Plan agrees these claims were paid incorrectly. However, due to
overpayment recovery time limitations with providers, the Plan states that these
overpayments are uncollectible. Since these overpayments were identified as a result of our
audit, we are continuing to question this amount in the final report. If the Plan had timely
identified these overpayments when the errors were identified in March 2012 (“System Error
#1”) and October 2012 (“System Error #3”), the Plan’s recovery efforts would have been
within the applicable time limitations and the overpayments would have been recoverable.

Recommendation 5

We recommend that the contracting officer disallow $212,984 for claim overcharges and
verify that the Plan returns all amounts recovered to the FEHBP.

Recommendation 6

Although the Plan updated their post-installation standard operating procedures to identify,
review, and/or adjust the claims that are impacted when system errors are identified and fixes
are installed on the Plan’s local claims processing system, we recommend that the
contracting officer require the Plan to provide evidence or documentation supporting that the
Plan’s updated standard operating procedures are being implemented.

Recommendation 7

For the $127,137 in claim overpayments where the provider’s contract deems the
overpayments uncollectible due to time limitations, we recommend that the contracting
officer require the Plan to repay these claim overpayments, as they did not make a prompt
and diligent effort to recover these overpayments as specified in Contract CS 1039.




                                            9

              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Information Systems Audits Group

                , Chief, Information Systems Audits Group

              , Senior Team Leader

                , Lead Auditor

                          , Auditor


Office of Management

                    Senior Information Technology Specialist

              Senior Information Technology Specialist




                                            10

                                                                 V. SCHEDULE A

                                                CAREFIRST BLUECROSS BLUESHIELD

                                           WASHINGTON, D.C. AND MARYLAND SERVICE AREAS


                                        HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED



HEALTH BENEFIT CHARGES                                                          2010             2011             2012          TOTAL

   DC SERVICE AREA:
   PLAN CODES 80/81/580/582:                                                 $928,393,362    $1,040,386,071   $1,154,308,259   $3,123,087,692
   MISCELLANEOUS PAYMENTS                                                       8,843,947         8,632,091        8,634,028       26,110,066
   TOTAL                                                                     $937,237,309    $1,049,018,162   $1,162,942,287   $3,149,197,758

   MARYLAND SERVICE AREA
   PLAN CODES 190/690:                                                        616,648,774      666,917,203      707,633,614     1,991,199,591
   MISCELLANEOUS PAYMENTS                                                       6,245,258        6,729,869        6,950,914        19,926,041
   TOTAL                                                                     $622,894,032     $673,647,072     $714,584,528    $2,011,125,632


   TOTAL HEALTH BENEFIT CHARGES                                             $1,560,131,341   $1,722,665,234   $1,877,526,815   $5,160,323,390


AMOUNTS QUESTIONED                                                              2010             2011             2012          TOTAL

1. IMPROPER BUNDLED PRICING (SYSTEM ERROR #2)                                      74,365          596,239          981,483         1,652,087
2. NON-COVERED SERVICES (SYSTEM ERROR #1 AND #3)                                  $60,962         $101,021          $51,001          $212,984

    TOTAL QUESTIONED CHARGES                                                     $135,327         $697,260       $1,032,484       $1,865,071

* We did not review the miscellaneous payments and credits on this audit.