Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit on Global Omnibus Bubget Reconciliation Act of 1993 Claims for BlueCross and BlueShield Plans

Audit on Global Omnibus Bubget Reconciliation Act of 1993 Claims for BlueCross and BlueShield Plans

Published by the Office of Personnel Management, Office of Inspector General on 2012-07-16.

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 ON GLOBAL
OMNIBUS BUDGET RECONCILIATIO N AC T
OF 1993 CLAIMS
FOR BLUECROS S AN D BLUESHIEL D PLANS

Report No. lA-99-00-12-001

Date: July 16, 2012

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AUDIT REPORT

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BlueShield Association

Plan Code 10

Global Omnibus Budget Reconciliation Act of 1993 Claims

BlueCross and BlueShield Plans

REPORT NO. 1A-99-00-12-001 DATE: July 16, 2012

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 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.
EXECUTIVE SUMMARY

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BlueShield Association

Plan Code 10

Global Omnibus Budget Reconciliation Act of 1993 Claims

BlueCross and BlueShield Plans

REPORT NO. 1A-99-00-12-001 DATE: July 16, 2012

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at all BlueCross and BlueShield (BCBS) plans questions $631,605 in health benefit charges. The
BlueCross BlueShield Association and/or BCBS plans agreed with $377,845 and disagreed with
$253,760 of the questioned charges.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered health benefit payments from August 1, 2008 through July 31, 2011 as reported in
the Annual Accounting Statements. Specifically, we reviewed claims paid from August 1, 2008
through July 31, 2011 that were subject to the Omnibus Budget Reconciliation Act of 1993
(OBRA 93) pricing guidelines and potentially paid incorrectly.

We determined that the BCBS plans incorrectly paid 2,114 claim line payments that were priced
or potentially should have been priced under the OBRA 93 pricing guidelines, resulting in net
overcharges of $566,609 to the FEHBP. Specifically, the BCBS plans overpaid 1,825 claim lines
by $643,932 and underpaid 289 claim lines by $77,323. In addition, we identified 330 claim lines
requiring retroactive overpayment adjustments of $87,283 and 135 claim lines requiring
retroactive underpayment adjustments of $22,287 due to OBRA 93 pricing changes not being
updated timely in the claims pricing system, resulting in net overpayments of $64,996. In total,
we determined that 2,155 claim lines were overpaid by $731,215 and 424 claim lines were
underpaid by $99,610, resulting in net overcharges of $631,605 to the FEHBP for these 2,579
claim lines.

CONTENTS
PAGE

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

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

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

III. AUDIT FINDING AND RECOMMENDATIONS .........................................................5

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

IV. MAJOR CONTRIBUTORS TO THIS REPORT...........................................................11

V. SCHEDULE A - SUMMARY OF QUESTIONED CHARGES BY PLAN

APPENDIX (BlueCross BlueShield Association reply, dated February 10, 2012, to
the draft audit report)
I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This 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 all
BlueCross and BlueShield (BCBS) plans.

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

The Association has also established an FEP Operations Center. The activities of the FEP
Operations Center are performed by CareFirst BCBS, 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.

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

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.

This is our first global audit of Omnibus Budget Reconciliation Act of 1993 (OBRA 93) claims
for the BCBS plans. Our preliminary results of the potential OBRA 93 claim payment errors
were presented in detail in a draft report, dated September 30, 2011. The Association’s
comments offered in response to the draft report were considered in preparing our final report
and are included as the Appendix to this report. Also, additional documentation provided by the
Association and BCBS plans on various dates through May 29, 2012 was considered in
preparing our final report.

II. OBJECTIVE, SCOPE, AND METHODOLOGY

OBJECTIVE

The objective of this audit was to determine whether the BCBS plans complied with contract
provisions relative to claims that were subject to the OBRA 93 pricing guidelines.

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 objective. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objective.

The audit covered health benefit payments from August 1, 2008 through July 31, 2011 as reported
in the Annual Accounting Statements. Using our data warehouse function, we performed a
computer search on the BCBS claims database to identify claim lines paid from August 1, 2008
through July 31, 2011 that were subject to the OBRA 93 pricing guidelines and potentially paid
incorrectly. Based on our claim error reports, we identified 469,082 claim lines, totaling
$45,861,887 in payments, that met this search criteria. 2 From this universe, we selected and
reviewed a judgmental sample of 26,374 claim lines, totaling $17,822,178 in payments, for the
purpose of determining if these claim lines were correctly priced by Palmetto GBA (Palmetto),
processed by the FEP Operations Center, and/or paid by the BCBS plans. 3 Our sample included
all claim lines from this universe with amounts paid of $350 or more and consisted of claim lines
for 58 of the 63 BCBS plans.

We did not consider each BCBS plan’s internal control structure in planning and conducting our
auditing procedures. Our audit approach consisted mainly of substantive tests of transactions
and not tests of controls. Therefore, we do not express an opinion on each BCBS plan’s system
of internal controls taken as a whole.

We also conducted tests to determine whether the BCBS plans had complied with the contract
and the laws and regulations governing the FEHBP as they relate to OBRA 93 claim payments.
The results of our tests indicate that, with respect to the items tested, the BCBS plans did not
fully comply with the provisions of the contract relative to OBRA 93 claim payments.

2
This universe excludes potential OBRA 93 claim payment errors for BCBS plans that were previously audited by

the OIG during this period.

3
Palmetto (an OBRA 93 pricing vendor) calculates the pricing amounts for the OBRA 93 claim lines on behalf of

the FEP Operations Center.

Exceptions noted in the areas reviewed are set forth in detail in the “Audit Finding and
Recommendations” section of this report. With respect to the items not tested, nothing came to
our attention that caused us to believe that the BCBS plans 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 BCBS plans, Palmetto, and the
Centers for Medicare and Medicaid Services (CMS). Due to time constraints, we did not verify
the reliability of the data generated by the various information systems involved. However,
while utilizing the computer-generated data during our audit testing, nothing came to our
attention to cause us to doubt its reliability. We believe that the data was sufficient to achieve
our audit objective.

The audit was performed at our offices in Washington, D.C.; Cranberry Township, Pennsylvania;
and Jacksonville, Florida from September 2011 through May 2012.

METHODOLOGY

To test each BCBS plan’s compliance with the FEHBP health benefit provisions, we selected a
judgmental sample of claim lines that were subject to the OBRA 93 pricing guidelines and
potentially paid incorrectly, which were identified in a computer search of the BCBS claims
database. Specifically, we selected for review 26,374 claim lines, totaling $17,822,178 in
payments (from a universe of 469,082 claim lines, totaling $45,861,887 in payments), that were
subject to the OBRA 93 pricing guidelines and potentially paid incorrectly. Our sample consisted
of all claim lines with amounts paid of $350 or more that met our search criteria.

The sample selections were submitted to each applicable BCBS plan for their review and
response. For each plan, we then conducted a limited review of their agreed responses and an
expanded review of their disagreed responses to determine the appropriate questioned amount.
We did not project the sample results to the universe of claim lines that were subject to the
OBRA 93 pricing guidelines and potentially paid incorrectly.

The determination of the questioned amount is based on the FEHBP contract, the Service Benefit
Plan brochure, the Association’s FEP administrative manual, the FEP Operations Center’s
OBRA 93 pricing amounts (calculated by Palmetto), and various manuals and other documents
available from CMS that explain Medicare/OBRA 93 pricing.

III. AUDIT FINDING AND RECOMMENDATIONS

Omnibus Budget Reconciliation Act of 1993 Review $631,605

The BCBS plans incorrectly paid 2,114 claim lines that were priced or potentially should have
been priced under the OBRA 93 pricing guidelines, resulting in net overcharges of $566,609 to the
FEHBP. Specifically, the BCBS plans overpaid 1,825 of these claim lines by $643,932 and
underpaid 289 of these claim lines by $77,323. In addition to these claim payment errors, we
identified 330 claim lines requiring retroactive overpayment adjustments of $87,283 and 135 claim
lines requiring retroactive underpayment adjustments of $22,287 due to OBRA 93 pricing changes
not being updated timely in Palmetto’s pricing system, resulting in net overpayments of $64,996.
In total, we determined that 2,155 claim lines were overpaid by $731,215 and 424 claim lines were
underpaid by $99,610, resulting in net overcharges of $631,605 to the FEHBP for these 2,579
claim lines.

The 2011 BlueCross and BlueShield Service Benefit Plan brochure, page 122, Primary Payer
Chart, illustrates when Medicare is the primary payer. In addition, page 24 of the brochure
states, “We limit our payment to an amount that supplements the benefits that Medicare would
pay under . . . Medicare Part B (Medical Insurance), regardless of whether Medicare pays.”

Contract CS 1039, Part II, section 2.6 (g) states, “The benefits payable by this Plan shall be
determined, on a claim by claim basis, only for those claims in excess of $100, except where
Medicare is the primary payer of benefits.”

Contract CS 1039, Part III, section 3.2 (b)(1) states, “The Carrier may charge a cost to the
contract for a contract term if the cost is actual, allowable, allocable, and reasonable.” 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 . . . .”

OBRA 93 limits the benefit payment for certain physician services provided to annuitants age 65
or older who are not covered under Medicare Part B. The FEHBP fee-for-service plans are
required to limit the claim payment to the lesser of the amount equivalent to the Medicare Part B
payment or billed charges. Palmetto (an OBRA 93 pricing vendor) calculates the pricing
amounts for the OBRA 93 claim lines on behalf of the FEP Operations Center.

We performed a computer search on the BCBS claims database to identify claim lines paid from
August 1, 2008 through July 31, 2011 that were subject to the OBRA 93 pricing guidelines and
potentially paid incorrectly. Specifically, we identified all OBRA 93 claim line payments that
were processed with an “OFMA” override code or a procedure containing two or more
modifiers. In total, we identified 469,082 claim lines, totaling $45,861,887 in payments, that met
this search criteria. From this universe, we selected for review a judgmental sample of 26,374
claim lines, totaling $17,822,178 in payments, for the purpose of determining if these claim lines
were correctly priced by Palmetto, processed by the FEP Operations Center, and/or paid by the
BCBS plans. Our sample included all claim line payments of $350 or more from this universe
and consisted of claim line payments for 58 of the 63 BCBS plans.

Using a program developed by CMS to price OBRA 93 claims, we recalculated the claim
payment amounts for the claim lines in our sample that were subject to and/or processed as
OBRA 93. We also reviewed the BCBS plans’ responses for the claim lines in our sample as
well as the FEP Operations Center’s OBRA 93 pricing amounts, which were calculated by
Palmetto on behalf of the FEP Operations Center. Based on our review, we determined that
2,114 claim lines were paid incorrectly, resulting in net overcharges of $566,609 to the FEHBP.
Specifically, the BCBS plans overpaid 1,825 claim lines by $643,932 and underpaid 289 claim
lines by $77,323.

The claim payment errors resulted from the following:

• The FEP Operations Center did not price 1,436 claim lines according to the OBRA 93
pricing guidelines, resulting in net overcharges of $443,497 to the FEHBP. Specifically, the
BCBS plans overpaid 1,300 claim lines by $488,075 and underpaid 136 claim lines by
$44,578. These errors resulted from the FEP Direct System generating the incorrect
“OFM(x)” override code when the system did not receive a pricing amount from Palmetto.
Consequently, these claim lines inadvertently bypassed the OBRA 93 pricing, resulting in
incorrect pricing by the FEP Operations Center. In each instance, the FEP Operations Center
used the allowable charge (covered charge minus preferred provider allowance/participating
savings amount) instead of the Medicare allowance to calculate the claim line payment.

• The BCBS plans incorrectly paid 527 claim lines due to Palmetto’s system using the
incorrect procedure allowances, pricing methods, or modifier reimbursement percentages
when pricing these OBRA 93 claim lines. Consequently, the BCBS plans overpaid 380
claim lines by $94,703 and underpaid 147 claim lines by $30,985, resulting in net
overcharges of $63,718 to the FEHBP.

• The BCBS plan incorrectly paid 121 claim lines twice due to Palmetto’s system pricing
claims on a claim line by claim line basis and the FEP Direct System not properly bundling
the multiple procedure claim line charges. In each instance, Palmetto priced the first
procedure code, identified by modifier 50, at 150 percent and the second procedure code
incorrectly at 100 percent (instead of pricing the second procedure code at $0).
Consequently, the BCBS plans overpaid 117 claim lines by $51,428 and underpaid 4 claim
lines by $1,062, resulting in net overcharges of $50,366 to the FEHBP.

• The BCBS plans incorrectly paid 30 claim lines due to the plan’s local processing systems
using the incorrect procedure allowances, pricing methods, or modifier reimbursement
percentages when pricing these claim lines. Consequently, the BCBS plans overpaid 28
claim lines by $9,726 and underpaid 2 claim lines by $698, resulting in net overcharges of
$9,028 to the FEHBP.

In addition to these claim payment errors, we identified 465 claim lines requiring retroactive
payment adjustments due to CMS OBRA 93 pricing changes not being updated timely in
Palmetto’s pricing system. After Palmetto repriced these claim lines on behalf of the FEP
Operations Center, using the applicable CMS pricing updates, we determined that 330 of these
claim lines required overpayment adjustments of $87,283 and 135 of these claim lines required

underpayment adjustments of $22,287, resulting in net overpayment adjustments of $64,996 to
the FEHBP. The BCBS plans are required to pursue due diligence and initiate overpayment
recoveries for the retroactive adjustments.

In total, we determined that 2,155 claim lines were overpaid by $731,215 and 424 claim lines
were underpaid by $99,610, resulting in net overcharges of $631,605 to the FEHBP for these
2,579 claim lines (See Schedule A for a summary of these questioned charges by BCBS plan for
the OBRA 93 sample). 4 Of these questioned charges:

• $56,385 (or 9 percent), representing 382 claim line overpayments, were already identified by
the BCBS plans before receiving our audit request (i.e., sample of OBRA 93 claims) on
September 16, 2011. However, since the BCBS plans had not completed the recovery
process and/or adjusted these claims by the audit request due date (i.e., December 16, 2011),
we are continuing to question these claim payment errors.

• $55,734 (or 9 percent), representing 155 claim line overpayments, were identified by the
BCBS plans after the end of our audit scope (i.e., July 31, 2011) but before receiving our
audit request on September 16, 2011, and also recovered and returned to the FEHBP by the
audit request due date (i.e., December 16, 2011). However, since the BCBS plans had not
identified these overpayments and initiated recovery efforts by the end of our audit scope, we
are continuing to question these claim payment errors. 5

• $519,486 (or 82 percent), representing 2,042 claim line overpayments, were identified as a
result of our audit.

In addition to the questioned charges, we identified the following procedural issue requiring
corrective action by the Association and/or FEP Operations Center:

For the period August 1, 2008 through February 29, 2012, the BCBS plans processed
$12,914,382 in payments for OBRA 93 claim lines that contained procedure modifier 51, 62, or
66. Under the OBRA 93 pricing guidelines, the Medicare Part B payment limits the Medicare
allowance for multiple procedures (modifier 51) to 50 percent and multiple surgeons (modifiers
62 and 66) to 62.5 percent. From this universe, we calculated potential estimated savings of
$6,338,238 to the FEHBP, if the FEP Operations Center would have applied the multiple
procedure or surgeon discount to the Medicare allowance. Specifically, we calculated
$5,981,378 in potential estimated savings for claim lines with modifier 51 and $356,860 in
potential estimated savings for claim lines with modifiers 62 and/or 66. As a result, we estimate
potential savings of $1.8 million a year to the FEHBP if the FEP Operations Center would start
applying the multiple procedure and surgeon discounts to claim lines subject to OBRA 93
pricing.

4
In addition, there were 75 claim line overpayments, totaling $59,880, that were identified by the BCBS plans by

the end of our audit scope (i.e., July 31, 2011) and adjusted by the audit request due date (i.e., December 16, 2011).

Since these overpayments were already identified by the BCBS plans before the end of our audit scope and adjusted

by the audit request due date, we did not question these claim payments errors in the final report.

5
These claim line overpayments were also identified by the BCBS plans after the Association received our audit

notification letter, dated July 1, 2011.

During the implementation of OBRA 93, OPM approved the Association’s contract with the
Travelers Insurance Company (an OBRA 93 pricing vendor) to price OBRA 93 claims on a
line-by-line basis. Since the inception of that contract, OPM has continued to approve this same
type of pricing methodology used by the OBRA 93 pricing vendors, including Palmetto. 6 The
current contract with Palmetto states that Palmetto will not apply special pricing discounts for
multiple procedures (modifier 51) or surgeons (modifiers 62 and 66). Although OPM approved
this contract pricing methodology used by Palmetto, the BCBS plans are required to limit the
claim payment to the amount equivalent to the Medicare Part B payment under the OBRA 93
pricing guidelines, which includes applying multiple procedure and surgeon discounts.

Association's Response:

In response to the draft report, the Association states, “After reviewing the OIG listing of
potential OBRA ’93 claim payment errors . . . BCBSA agrees that a net total of $304,442 in
OBRA ’93 overpayments occurred ($212,652 in underpayments and $517,094 in overpayments).
Where possible, recovery has been initiated on these claim overpayments.”

For the contested amount, the Association states that $331,201 of the questioned charges were
claim overpayments, but these errors were identified and/or corrected by the BCBS plans before
the audit started. The Association also contests the overpayments where the BCBS plans state
the claims were correctly OBRA 93 priced when initially paid.

Regarding corrective actions, the Association states, “To reduce the OBRA 93 pricing errors
from occurring in the future, FEP modified the FEP Claims System as of January 1, 2012 to
provide Plans with detail instructions on how to correct various OBRA ’93 pricing errors . . . The
FEP Director’s Office System Wide Claims Review process was updated to include OBRA ’93
claims that could not be priced by Palmetto for Plan review and resubmission for pricing to
Palmetto. Also, during 2012, the FEP Operations Center added Plan OBRA 93 training to the
FEPOC regional training program. To further reduce system OBRA ’93 claim payment errors,
the FEP Claims System will be updated by 4th quarter 2012 to provide Plans the proper
instructions for correcting situations where claims cannot be priced by Palmetto (i.e., when Plans
submit inconsistent modifiers).”

OIG Comments:

After reviewing the Association’s response and additional documentation provided by the BCBS
plans, we revised the questioned charges from our draft report to $631,605. If the BCBS plans
identified the OBRA 93 claim payment errors and initiated recovery efforts by the end of our
audit scope (i.e., by July 31, 2011) and completed the recovery process (i.e., adjusted and/or
voided the claims and recovered and returned the overpayments to the FEHBP) by the audit
request due date (i.e., by December 16, 2011), we did not question these claim payment errors in
the final report. Based on the Association’s response and the BCBS plans’ additional
documentation, we determined that the Association and/or plans agree with $377,845 and
disagree with $253,760 of the revised questioned charges. Although the Association only agrees

6
The original OBRA 93 pricing vendor was Travelers Insurance Company. However, Palmetto is the current OPM
approved vendor that is used to price OBRA 93 claims by all of the FEHBP fee-for-service plans.

with $304,442 in its written response, the BCBS plans’ documentation supports concurrence
with $377,845.

Based on the Association’s response and/or the BCBS plans’ documentation, the contested
amount of $253,760 represents the following items:

• $78,198 of the contested amount represents 202 claim line overpayments that the BCBS plans
agree were paid incorrectly. However, due to overpayment recovery time limitations with
providers, the plans state that these overpayments are uncollectible. The plans did not provide
sufficient documentation to support the overpayment recovery time limitations with providers
or the attempted recovery efforts for these overpayments. Therefore, we are continuing to
question this amount in the final report.

• $63,443 of the contested amount represents 188 claim line overpayments where Palmetto
and/or the FEP Operations Center incorrectly calculated the claim line amounts. In most
instances, these calculation errors resulted in claim lines being paid twice by BCBS plans, due
to the FEP Direct System not properly bundling the multiple procedure (modifier 50) claim
line charges. When responding to our audit request, the BCBS plans stated that these claim
lines were paid correctly. However, since the plans did not provide sufficient documentation
to support these contested items, we are continuing to question this amount in the final report.

• $56,385 of the contested amount represents 382 claim line overpayments where the BCBS
plans initiated recovery efforts before receiving our audit request (i.e., September 16, 2011) but
had not recovered the overpayments and/or adjusted the claims by the audit request due date
(i.e., December 16, 2011). Since these overpayments had not been recovered and returned to
the FEHBP by the audit request due date, we are continuing to question this amount in the final
report.

• $55,734 of the contested amount represents 155 claim line overpayments where the BCBS
plans initiated recovery efforts after the end of our audit scope (i.e., July 31, 2011) but before
receiving our audit request (i.e., September 16, 2011), and also completed the recovery process
and adjusted the claims by the audit request due date (i.e., December 16, 2011). However,
since the recoveries for these overpayments were initiated after the end of our audit scope, we
are continuing to question this amount in the final report.

Recommendation 1

We recommend that the contracting officer disallow $643,932 for claim overcharges and verify
that the BCBS plans return all amounts recovered to the FEHBP.

Recommendation 2

We recommend that the contracting officer allow the BCBS plans to charge the FEHBP $77,323
if additional payments are made to the providers to correct the underpayments. However, before
making any additional payment(s) to a provider, the contracting officer should require the BCBS
plan to first recover any questioned overpayment(s) for that provider.

Recommendation 3

For the claims requiring retroactive overpayment adjustments due to the CMS OBRA 93 pricing
updates, we recommend that the contracting officer require the BCBS plans to initiate recoveries
of $87,283 for these overpayments and verify that the BCBS plans return all amounts recovered
to the FEHBP.

Recommendation 4

For the claims requiring retroactive underpayment adjustments due to the CMS OBRA 93
pricing updates, we recommend that the contracting officer allow the BCBS plans to charge the
FEHBP $22,287 if additional payments are made to the providers to correct these
underpayments. However, before making any additional payment(s) to a provider, the
contracting officer should require the BCBS plan to first recover any questioned overpayment(s)
for that provider.

Recommendation 5

Although the Association has developed a corrective action plan to reduce the OBRA 93 claim
payment errors, we recommend that the contracting officer instruct the Association to ensure that
all BCBS plans are following this action plan. We also recommend that the contracting officer
ensure that the Association’s corrective actions for improving the prevention and detection of the
OBRA 93 claim payment errors are being implemented. These corrective actions are included in
the Association’s response to the draft report.

Recommendation 6

Due to the potential estimated savings to the FEHBP, we recommend that the contracting officer
instruct the Association to have the FEP Operations Center develop edits in the FEP Direct
System that apply the applicable multiple procedure (modifier 51) and surgeon (modifiers 62 and
66) discounts to OBRA 93 claim lines, after receiving the OBRA 93 pricing amounts from
Palmetto. The FEP Operations Center should also develop an additional edit for processing
OBRA 93 claims with multiple procedures (modifier 50) to prevent duplicate payments.

IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

, Lead Auditor

, Auditor

, Auditor
_______________________________________________________

, Chief

Information Systems Audits Group

, Chief

, Information Technology Project Manager

, Senior Information Technology Specialist

February 10, 2012
Federal Employee Program
1310 G. Street, NW
[redacted] Washington, DC 20005
Group Chief 202.942.1000
Fax 202.942.1125
Experience-Rated Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, Room 6400
Washington, DC 20415-1100

Reference: OPM DRAFT AUDIT REPORT RESPONSE
Global OBRA ’93 Audit
Report No. 1A-99-00-12-001

Dear [redacted]:

This is in response to the above - referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report concerning the Global Coordination of Benefits Audit for
claims paid from August 1, 2008 through July 31, 2011. Our comments concerning
the findings in the report are as follows:

Recommendation 1 and 2:

Global OBRA ’93 Questioned Amount $17,822,178

OPM OIG recommended that the contracting officer disallow the claim
overpayments and have the BCBS plans return all amounts recovered to the
FEHBP. After reviewing the OIG listing of potential OBRA ’93 claim payment errors
totaling $17,822,178 (26,374 line items), BCBSA agrees that a net total of $304,442
in OBRA ’93 overpayments occurred ($212,652 in underpayments and $517,094 in
overpayments). Where possible, recovery has been initiated on these claim
overpayments. These OBRA ’93 net claim overpayments occurred as a result of
the following:

 System pricing errors occurred where the OBRA ’93 vendor Palmetto was unable
to price the claim because the correct information needed to price the claim was
not provided by the FEP Claims System for $236,217 in net overpayments.
 Incorrect local Plan fee schedule amount was applied to the claim for $28,631 in
net overpayments.
 Provider billing errors caused payment errors for $7,514 in net overpayments.
 Processor errors caused payment errors for $8,030 in net overpayments.
 Pricing updates from Palmetto occurred subsequent to initial payment that
resulted in updated pricing for $19,852 in net overpayments.
[redacted]
February 10, 2012
Page 2

 Modifier pricing was incorrectly applied by Palmetto for $4,198 in net
overpayments.

To reduce the OBRA ’93 pricing errors from occurring in the future, FEP modified the
FEP Claims System as of January 1, 2012 to provide Plans with detail instructions
on how to correct various OBRA ’93 pricing errors (i.e., on instructions on correcting
addresses needed to properly OBRA ’93 price claims, the OBRA ’93 vendor pricing
all applicable modifiers, etc.). The FEP Director’s Office System Wide Claims
Review process was updated to include OBRA ’93 claims that could not be priced by
Palmetto for Plan review and resubmission for pricing to Palmetto. Also, during
2012, the FEP Operations Center added Plan OBRA ’93 training to the FEPOC
regional training program. To further reduce system OBRA ’93 claim errors, the FEP
Claims System will be updated by 4th quarter 2012 to provide Plans the proper
instructions for correcting situations where claims cannot be priced by Palmetto (i.e.,
when Plans submit inconsistent modifiers).

For the remaining $17,305,207 in potential claim overpayments identified by the
OIG, $16,974,006 in claim payments were paid correctly and $331,201 were initially
paid in error but the error was identified and/or corrected before the audit notification
letter was received on September 15, 2011. Plans disagreed that the remaining
claims were paid in error due to the following:

 Plan local allowance correctly used because the provider was not an approved
Medicare provider or the procedure code is not on the CMS fee schedule for
claims totaling $3,352,505.
 Claims totaling $13,621,501 were correctly OBRA ’93 priced when initially paid.

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

Sincerely,

[redacted]
Executive Director
FEP Program Integrity

cc: [redacted], OPM
[redacted], FEP
[redacted], FEP

Attachment