oversight

Audit on Global Claims Where Amounts Paid Exceeded Covered Charges for BlueCross and BlueShield Plans

Published by the Office of Personnel Management, Office of Inspector General on 2013-11-22.

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 CLAIMS WHERE 

 AMOUNTS PAID EXCEEDED COVERED CHARGES 

   FOR BLUECROSS AND BLUESHIELD PLANS 





                                             Report No. lA-99-00-13-003


                                             Date: November 22, 2013




                                                          --<:JllJl[l()~--


This audit report has been distributed to Federal officials who are responsible fot· the administration of the audited program. This audit
t·eport may contain pt·op.-ietat·y data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Ft·eedom of Infor mation Act and made available to the public on the OIG webpage, caution needs to be exercised before
t·eleasing 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

                       Global Claims where Amounts Paid Exceeded Covered Charges
                                     BlueCross and BlueShield Plans




                       REPORT NO. 1A-99-00-13-003                               DATE: 11/22/13                       _




                                                                               __________________
                                                                               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

                Global Claims where Amounts Paid Exceeded Covered Charges
                              BlueCross and BlueShield Plans




                REPORT NO. 1A-99-00-13-003                DATE: 11/22/13           _


This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at all BlueCross and BlueShield (BCBS) plans questions $4,077,968 in health benefit charges.
The BlueCross BlueShield Association (Association) and/or BCBS plans agreed with $2,090,681
and disagreed with $1,987,287 of the questioned charges. For substantially all of the contested
charges, while the Association and/or BCBS plans disagree with our questioning of these
charges, the Association and/or plans in fact agree that these were actual overcharges to the
FEHBP, and as a result, the plans have initiated recovery efforts for these overpayments.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered health benefit payments from February 1, 2010 through July 31, 2012 as reported
in the plans’ Annual Accounting Statements. Specifically, we performed a computer search on
the BCBS claims database, using our SAS data warehouse function, to identify facility claims
that were reimbursed during this period where the amounts paid exceeded covered charges (also
referred to as potential overpayments or variances). We selected for review all inpatient facility
claims that were reimbursed during this period where the amounts paid exceeded covered
charges by $10,000 or more. Additionally, we selected for review all outpatient facility claims
where the amounts paid exceeded covered charges by $4,000 or more. Our sample included
5,341 facility claims, totaling $105,407,606 in potential overpayments, for 52 of the 64 BCBS
plans. Based on our review of this sample, we determined that the BCBS plans incorrectly paid
217 claims, resulting in net overcharges of $4,077,968 to the FEHBP. Specifically, the BCBS
plans overpaid 195 claims by $4,422,397 and underpaid 22 claims by $344,429.


                                                i
                                                 CONTENTS
                                                                                                                 PAGE

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

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

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

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

           Claims where Amounts Paid Exceeded Covered Charges .........................................6

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ...........................................................13

V.     SCHEDULES

       A. SUMMARY OF SAMPLE SELECTIONS BY PLAN

       B. SUMMARY OF QUESTIONED CHARGES BY PLAN

       APPENDIX           (BlueCross BlueShield Association reply, dated February 4, 2013, 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 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
BCBS 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.

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.




                                                          1
Findings from our previous global audit of claims where amounts paid exceeded covered charges
(Report No. 1A-99-00-10-030, dated January 11, 2011), covering inpatient facility claims
reimbursed from January 1, 2008 through January 31, 2010 for all BCBS plans, have been
satisfactorily resolved.

Our sample selections, instructions, and preliminary results for this audit were presented in a
draft report, dated September 28, 2012, and discussed in detail with Association and BCBS plan
officials during the entrance conference on October 18, 2012. 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 September 27, 2013 was considered in
preparing our final report.




                                               2
                   II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit were to determine whether the BCBS plans 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 BCBS plans complied with contract
provisions relative to claims where the amounts paid exceeded covered charges.

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 objectives.

The audit covered claim payments from February 1, 2010 through July 31, 2012 as reported in the
plans’ Annual Accounting Statements. Using our SAS data warehouse function, we performed a
computer search on the BCBS claims database to identify inpatient and outpatient facility claims
during this period where the amounts paid exceeded covered charges. Based on this computer
search, we identified 150,221 facility claims for this period where the amounts paid exceeded
covered charges by a total of $221,799,437 (also referred to as potential overpayments or
variances). 2 From this universe, we selected and reviewed a judgmental sample of 3,542 inpatient
facility claims, totaling $89,907,050 in potential overpayments, where the amounts paid exceeded
covered charges by $10,000 or more. Additionally, we selected and reviewed a judgmental
sample of 1,799 outpatient facility claims, totaling $15,500,556 in potential overpayments, where
the amounts paid exceeded covered charges by $4,000 or more. In total, our sample selections
included 5,341 facility claims, totaling $105,407,606 in potential overpayments, for 52 of the 64
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 claim payments where the
amounts paid exceeded covered charges. 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
claim payments where the amounts paid exceeded covered charges. 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


2
 This universe included 33,963 inpatient facility claims and 116,258 outpatient facility claims, totaling
$170,294,031 and $51,505,406 in potential overpayments, respectively.



                                                          3
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 Operations Center and the BCBS plans. Through audits and a reconciliation process, we
have verified the reliability of the BCBS claims data in our data warehouse, which was used to
identify the universe of facility claims where the amounts paid exceeded covered charges. The
BCBS claims data is provided to us on a monthly basis by the FEP Operations Center, and after a
series of internal steps, uploaded into our data warehouse. However, due to time constraints, we
did not verify the reliability of some of the data generated by the BCBS plans’ local claims
systems. 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 September 2012 through May 2013.

METHODOLOGY

To test each BCBS plan’s compliance with the FEHBP health benefit provisions related to claims
where the amounts paid exceed covered charges, we selected for review all inpatient facility claims
where the amounts paid exceeded covered charges by $10,000 or more that were identified in a
computer search. Additionally, we selected for review all outpatient facility claims where the
amounts paid exceeded covered charges by $4,000 or more. Specifically, we selected for review a
sample of 5,341 facility claims, totaling $105,407,606 in potential overpayments (out of 150,221
facility claims, totaling $221,799,437 in potential overpayments). Our sample included 3,542
inpatient facility claims, totaling $89,907,050 in potential overpayments (out of 33,963 inpatient
facility claims, totaling $170,294,031 in potential overpayments). Our sample also included 1,799
outpatient facility claims, totaling $15,500,556 in potential overpayments (out of 116,258
outpatient facility claims, totaling $51,505,406 in potential overpayments). (See Schedule A for a
summary of the sample selections of inpatient and outpatient facility claims by BCBS plan)

The sample selections were submitted to each applicable BCBS plan for their review and
response. We then conducted a limited review of the plans’ “paid incorrectly” responses and an
expanded review of the plans’ “paid correctly” responses, including the supporting
documentation, to verify the accuracy and completeness of the plans’ responses, determine if the
claims were paid correctly, and/or calculate the appropriate questioned amounts for all claim
payment errors. For each BCBS plan, we also reviewed the facility contracts for a sample of
providers (a maximum of 10 providers for each plan) with the highest claims utilization to
determine if the applicable claims in our sample were priced correctly based on the providers’
contract terms. 3 Additionally, we verified on a limited test basis if the plans had initiated
recovery efforts, adjusted or voided the claims, and/or completed the recovery process by the
audit request due date (i.e., January 18, 2013) for claim payment errors in our sample. As part of
our audit, we also reviewed the status of corrective actions that have been or are in the process of

3
  In total for all BCBS plans, we reviewed the facility contracts for 335 providers (from a total of 784 providers),
that were reimbursed for claims in our sample.



                                                           4
being implemented by the Association, FEP Operations Center and/or BCBS plans, as a result of
our previous global audit, to reduce claim payment errors related to claims where the amounts
paid exceeded covered charges. We did not project the sample results to the universe of claims
where the amounts paid exceed covered charges.

The determination of the questioned amount is based on the FEHBP contract, the 2010 through
2012 Service Benefit Plan brochures, and the Association’s FEP Administrative Manual.




                                              5
                  III. AUDIT FINDING AND RECOMMENDATIONS
Claims where Amounts Paid Exceeded Covered Charges                                                   $4,077,968

During our audit of facility claims where the amounts paid exceeded covered charges, we
determined that the BCBS plans incorrectly paid 217 claims, resulting in net overcharges of
$4,077,968 to the FEHBP. Specifically, the BCBS plans overpaid 195 claims by $4,422,397 and
underpaid 22 claims by $344,429.

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 . . . .” Also, 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 . . . [and]
on request, document and make available accounting support for the cost to justify that the cost
is actual, reasonable and necessary; and (ii) determine the cost in accordance with: (A) the
terms of this contract . . . .”

In addition, Contract CS 1039, 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 . . . .”

Section 6(h) of the FEHBP Act provides rates should reasonably and equitably reflect the cost of
benefits provided.

For the period February 1, 2010 through July 31, 2012, we identified 150,221 facility claims
where the amounts paid exceeded covered charges by a total of $221,799,437 (potential
overpayments). This universe included 33,963 inpatient facility claims and 116,258 outpatient
facility claims, totaling $170,294,031 and $51,505,406 in potential overpayments, respectively.
From this universe, we selected and reviewed a judgmental sample of 3,542 inpatient facility
claims, totaling $89,907,050 in potential overpayments, where the amounts paid exceeded
covered charges by $10,000 or more. Additionally, we selected and reviewed a judgmental
sample of 1,799 outpatient facility claims, totaling $15,500,556 in potential overpayments, where
the amounts paid exceeded covered charges by $4,000 or more. In total, our sample selections
included 5,341 facility claims, totaling $105,407,606 in potential overpayments, for 52 of the 64
BCBS plans. We determined if the claims in our sample were correctly priced and paid by the
BCBS plans.

Our sample included 217 claim payment errors by 41 BCBS plans, resulting in net overcharges
of $4,077,968 to the FEHBP. 4 Specifically, these BCBS plans overpaid 195 claims by
$4,422,397 and underpaid 22 claims by $344,429 (See Schedule B for a summary of the claim
payment errors by BCBS plan).
4
 In addition, there were 18 claim payment errors, totaling $440,727 in overpayments, that were identified by the
BCBS plans before our audit notification date (i.e., August 1, 2012) and adjusted and returned to the FEHBP by the
audit request due date (i.e., January 18, 2013). Since these overpayments were already identified by the BCBS plans
before our audit notification date and adjusted and returned to the FEHBP by the audit request due date, we did not
question these overpayments in the final report.



                                                        6
Our audit disclosed the following for these claim payment errors:

•   The BCBS plans incorrectly paid 141 claims due to manual processing errors, such as
    incorrect coding, overriding system edits, and using incorrect allowances. Consequently, the
    BCBS plans overpaid 124 claims by $2,788,732 and underpaid 17 claims by $309,755,
    resulting in net overcharges of $2,478,977 to the FEHBP.

•   The BCBS plans incorrectly paid 11 claims due to provider billing errors, resulting in net
    overcharges of $566,301 to the FEHBP. Specifically, the BCBS plans overpaid nine claims
    by $566,875 and underpaid two claims by $574.

•   For 13 claims, the paid amounts were higher in the FEP Direct Claims System than in the
    plans’ local claims systems. As a result, the paid amounts for these claims are overstated in
    the FEP Direct Claims System by $339,133. Consequently, the health benefit payments for
    these BCBS plans were overstated in the applicable Annual Accounting Statements (AAS).
    Since claims expense is considered when developing premium rates, overstating the claims
    expense in the AAS may increase future rates.

•   The BCBS plans did not properly coordinate six claims with Medicare or the patient’s
    primary insurance carrier, resulting in overcharges of $311,127 to the FEHBP.

•   CareFirst BCBS (CareFirst) incorrectly paid 21 claims due to 2 local claims system
    processing errors, resulting in overcharges of $255,701 to the FEHBP. Specifically,
    CareFirst’s local claims processing system (“FEP Thin”) did not defer 19 outpatient facility
    claims for review that contained non-covered services, resulting in overcharges of $232,484
    to the FEHBP (“System Error #1”). Additionally, CareFirst’s “FEP Thin” incorrectly
    calculated two outpatient facility claims due to the incorrect bundling of multiple pricing
    methods, resulting in overcharges of $23,217 to the FEHBP (“System Error #2”).

    According to CareFirst, these system errors started in June 2010, when CareFirst switched to
    a new claims system (“FEP Thin”). CareFirst states that “System Error #1” was identified in
    February 2012 and corrective actions were implemented in April 2012 to fix this “FEP Thin”
    system error. CareFirst also states that “System Error #2” was identified in March 2012 and
    corrective actions were implemented in September 2012 to fix this “FEP Thin” system error.
    Although corrective actions were implemented to fix these “FEP Thin” system errors,
    CareFirst did not identify, review and/or adjust the claims that were potentially affected by
    these errors and/or initiate recoveries for the actual overpayments until after the start of our
    audit. (Note: For the overpayments in our sample due to these system errors, we noted that
    CareFirst adjusted or voided the applicable claims in the FEP Direct Claims System and/or
    initiated overpayment recoveries after receiving our audit request (i.e., sample of facility
    claims) on September 28, 2012.)

    Due to the possible significant impact of these system errors, we requested CareFirst to
    identify and/or review all FEP claims that were potentially processed and paid incorrectly
    because of “System Error #1” from June 2010 through April 2012 and “System Error #2”
    from June 2010 through September 2012. In July 2013, CareFirst informed us that



                                                 7
    approximately 80,500 claims were potentially affected by these system errors (5,000 claims
    for “System Error #1” and 75,500 claims for “System Error #2”). CareFirst is in the process
    of identifying and reviewing the impact of these potential claim payment errors as well as
    initiating recoveries for the overpayments that are considered collectible. After completing
    our review of CareFirst’s analysis of these potential claim payment errors, we will issue a
    supplemental final report if there were significant overcharges to the FEHBP as a result of
    these system errors.

•   For seven of the claim payment errors, the BCBS plans did not correctly load the contract
    rates into their local claims systems. Consequently, these BCBS plans overpaid four claims
    by $92,340 and underpaid three claims by $34,100, resulting in net overcharges of $58,240 to
    the FEHBP.

•   The BCBS plans inadvertently paid two claims twice, resulting in duplicate charges of
    $46,091 to the FEHBP.

•   The FEP Operation’s Center incorrectly applied the subscriber liability amounts for 16
    claims, resulting in overcharges of $22,398 to the FEHBP.

Of the $4,077,968 in net overcharges to the FEHBP:

•   $2,429,814 (60 percent) represents 179 claim payment errors that were identified as a result
    of our audit. Specifically, the BCBS plans overpaid 157 of these claims by $2,774,243 and
    underpaid 22 of these claims by $344,429. We noted that the BCBS plans initiated
    corrective actions for these claim payment errors after receiving our audit request (i.e.,
    sample of facility claims) on September 28, 2012.

•   $862,656 (21 percent) represents 21 claim overpayments where the BCBS plans initiated
    recovery efforts on or after our audit notification date (i.e., August 1, 2012) but before
    receiving our audit request (i.e., September 28, 2012), and also completed the recovery
    process and adjusted or voided these claims by the audit request due date (i.e., January 18,
    2013). However, since the recoveries for these overpayments were initiated on or after our
    audit notification date, we are continuing to question these claim payment errors.

•   $785,498 (19 percent) represents 17 claim overpayments where the BCBS plans initiated
    recovery efforts before receiving our audit request (i.e., September 28, 2012) but had not
    recovered the overpayments and/or adjusted or voided the claims by the audit request due
    date (i.e., January 18, 2013). Since these overpayments had not been recovered and returned
    to the FEHBP by the audit request due date, we are continuing to question these claim
    payment errors.

Association's Response:

The Association agrees with $882,034 of the net questioned charges. The Association states that
the BCBS plans have recovered and returned $699,109 of the overpayments to the FEHBP as of
February 1, 2013. To the extent that claim payment errors did occur, the Association also states



                                                8
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 BCBS plans are unable to recover are
allowable charges to the FEHBP as long as the plans demonstrate due diligence in the recovery
of these overpayments. As good faith erroneous payments, lost investment income is not
applicable to the claim payment errors identified in this finding.

Regarding the contested claim payment errors, the Association states the following:

   •   The majority of the claims were paid correctly according to the BCBS plans’ pricing
       methodologies.
   •   The remaining claims were initially paid incorrectly but the BCBS plans are in the
       process of or have resolved recovery of the overpayment amounts.

The Association states, “In order to prevent these types of overpayments from occurring,
BCBSA implemented the System Wide Claims Review (SWCR) process which includes APG
[amounts paid greater than covered charges] claims. As part of this process, we monitored Plan
review of the claims and we re-audited a sample of claims as part of our Control Performance
Review (CPR) process to ensure that the claims were evaluated correctly. In October 2012, the
Association transitioned the SWCR process to an on-line claims monitoring tool that includes
inpatient APG claims. We continue to monitor the application to ensure that these claims are
being worked and paid correctly. We currently do not include outpatient APG claims in the
AMT [Claims Audit Monitoring Tool] . . . We will evaluate inclusion of outpatient APG claims
in our processes as well as continue to evaluate additional opportunities to improve the
prevention and detection of both inpatient and outpatient APG claim overpayments.”

In addition, the Association states that “the main reasons for the overpayments were caused by
Processor Coding Errors. Further analysis identified that processor insufficient investigation of
FEP Deferrals was also a cause of errors. In order to prevent these error causes, we will perform
the following by June 30, 2013:

Examiner Coding Errors - FEP will request that the Plans use these confirmed payment errors
as training tools in any re-fresher and new claims examiner training sessions with instructions on
how to re-check the payment amounts for DRG, Per Diem and Per Case types of
reimbursements.

Insufficient Investigation of FEP Deferrals - A number of the confirmed overpayments had
deferred by FEP requesting that the Plans verify that the payments were correct because of the
payment amount (High Dollar Edit). Due to the sign-off process that these deferrals require
other characteristics of the payments were not properly investigated. FEP will look to expand
this edit to include verification of APG amount, if the reimbursement type is DRG or a Per Case
Rate. A team of experts from the various departments within FEP will conduct an assessment of
the existing edits that impact these payment types to determine what if any changes can be made
to identify the types of confirmed payment errors identified in this audit in an effort to correct on
a pre-payment basis.”




                                                  9
OIG Comments:

After reviewing the Association’s response and additional documentation provided by the BCBS
plans, we determined that 41 BCBS plans incorrectly paid 217 claims, resulting in net
overcharges of $4,077,968 to the FEHBP. If the BCBS plans identified the claim payment errors
and initiated recovery efforts before our audit notification date (i.e., August 1, 2012) and
completed the recovery process (i.e., adjusted or voided the claims and recovered and returned
the overpayments to the FEHBP) by the audit request due date (i.e., January 18, 2013), 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 $2,090,681 and disagree with $1,987,287 of these net questioned overcharges.
Although the Association only agrees with $882,034 of these net questioned overcharges in its
response, the BCBS plans’ documentation supports concurrence with $2,090,681.

Based on the Association’s response and/or the BCBS plans’ documentation, the contested
amount of $1,987,287 represents the following items:

•   $862,656 of the contested amount represents 21 claim overpayments where the BCBS plans
    initiated recovery efforts on or after our audit notification date (i.e., August 1, 2012) but
    before receiving our audit request (i.e., September 28, 2012), and also completed the
    recovery process and adjusted or voided the claims by the audit request due date (i.e.,
    January 18, 2013). However, since the recoveries for these overpayments were initiated on
    or after our audit notification date, we are continuing to question this amount in the final
    report.

•   $682,871 of the contested amount represents nine claim overpayments where the BCBS
    plans initiated recovery efforts before receiving our audit request (i.e., September 28, 2012)
    but had not recovered the overpayments and/or adjusted or voided the claims by the audit
    request due date (i.e., January 18, 2013). 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.

•   $339,133 of the contested amount represents 13 claims that Independence BC and the BCBS
    plans of Arizona, Kentucky, New Jersey, and New Mexico state were charged correctly to
    the FEHBP. Although these plans made the correct payments to the providers, the paid
    amounts for these claims were higher in the FEP Direct Claims System than in the plans’
    local claims systems. As a result, the health benefit payments for these plans were overstated
    in the applicable AAS’s. Since claims expense is considered when developing premium
    rates, overstating the claims expense in the AAS may increase future rates.

•   $102,627 of the contested amount represents eight claim overpayments that the BCBS plans
    agree were paid incorrectly. However, since all recovery efforts have been exhausted, the
    plans state that these claim overpayments are uncollectible. The plans did not provide
    sufficient documentation to support that all recovery efforts have been exhausted. Therefore,
    we are continuing to question this amount in the final report.




                                                10
Recommendation 1

We recommend that the contracting officer disallow $4,422,397 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
$344,429 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

We recommend that the contracting officer instruct the Association to have the FEP Operation’s
Center develop an edit in the FEP Direct Claims System that defers a claim when the BCBS
plan’s allowed amount exceeds the claim covered charges (such as by $10,000 or more for an
inpatient facility claim and $4,000 or more for an outpatient facility claim) and requires the plan
to perform an additional review before payment of the claim. The contracting officer should also
require the Association to provide evidence or supporting documentation ensuring that this
system edit has been implemented.

Recommendation 4

Although the Association has developed a corrective action plan to reduce claim payment errors
where the amounts paid exceeded covered charges, we recommend that the contracting officer
instruct the Association to provide evidence or supporting documentation ensuring that all BCBS
plans are following the corrective action plan. Also, we recommend that the contracting officer
verify that the additional corrective actions included in the Association’s draft report response
are being implemented.

Recommendation 5

For the claim payment errors where the provider contract rates were loaded incorrectly into the
BCBS plans’ local claims systems, we recommend that the contracting officer require the
Association to provide evidence or supporting documentation ensuring that these plans have
implemented controls for properly updating their local claims systems with the provider contract
rates. We noted these exceptions with BC of California and the BCBS plans of Maine,
Massachusetts, and Western New York.




                                                11
Recommendation 6

Due to amount paid variances that were identified between the plans’ local claims systems and
the FEP Direct Claims System for Independence BC and the BCBS plans of Arizona, Kentucky,
New Jersey and New Mexico, we recommend that the contracting officer require the Association
to provide evidence or supporting documentation ensuring that all BCBS plans are performing
regular reconciliations between their local claim systems and the FEP Direct Claims System.
Additionally, the BCBS plans with the questioned variances should adjust the applicable claims
in the FEP Direct Claims System to reflect the actual amounts paid to the providers.




                                             12
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

              , Lead Auditor

                 Auditor

              , Auditor

                , Auditor

                  , Auditor
___________________________________________________________

                  , Chief

Information Systems Audits Group

                  , Information Technology Project Manager

            , Senior Information Technology Specialist




                                            13
                                                                                           V. SCHEDULES                                                                              SCHEDULE A
                                                                                                                                                                                        Page 1 of 2
                                                       GLOBAL AUDIT OF CLAIMS WHERE AMOUNTS PAID EXCEEDED COVERED CHARGES
                                                                          BLUECROSS AND BLUESHIELD PLANS

                                                                          SUMMARY OF SAMPLE SELECTIONS BY PLAN

                                                                             SAMPLE - INPATIENT FACILITY CLAIMS                   SAMPLE - OUTPATIENT FACILITY CLAIMS
                                                                                  Variances of $10,000 or More                           Variances of $4,000 or More                   TOTAL
                                                                                                                  Potential                                           Potential       Potential
 Site                                                                            Total Covered Total Amounts     Overcharges           Total Covered Total Amounts   Overcharges     Overcharges
Number                          Plan Name                         State Claims     Charges          Paid         (Variances)    Claims   Charges          Paid       (Variances)     (Variances)
  003    BlueCross BlueShield of New Mexico (HCSC)                 NM     22           $154,471       $494,092        $339,621     0               $0           $0              $0       $339,621
  005    WellPoint BlueCross BlueShield of Georgia                 GA     41         $1,749,509     $2,557,710        $808,201     4          $11,754      $47,893        $36,139        $844,340
  006    CareFirst BlueCross BlueShield (Maryland Service Area)    MD     2             $19,782        $47,137         $27,356     7          $13,358     $164,431       $151,073        $178,429
  007    BlueCross BlueShield of Louisiana                         LA     4            $101,444       $400,200        $298,756     4         $109,601     $174,875        $65,274        $364,030
  009    BlueCross BlueShield of Alabama                           AL    120         $3,747,066     $6,738,962      $2,991,897     0               $0           $0              $0      $2,991,897
  010    BlueCross of Idaho Health Service                         ID     50         $1,340,386     $2,159,445        $819,059    19         $172,994     $308,398       $135,404        $954,463
  011    BlueCross BlueShield of Massachusetts                     MA    583        $21,124,897   $37,593,388      $16,468,491     1          $10,595      $15,048         $4,453      $16,472,944
  012    BlueCross BlueShield of Western New York                  NY     60         $1,111,795     $2,646,945      $1,535,150     3          $18,095      $32,578        $14,484       $1,549,633
  013    Highmark BlueCross BlueShield                             PA     13           $228,229       $649,465        $421,236     0               $0           $0              $0       $421,236
  015    BlueCross BlueShield of Tennessee                         TN     55         $1,500,506     $2,520,206      $1,019,701     8         $126,244     $181,590        $55,346       $1,075,047
  016    BlueCross BlueShield of Wyoming                           WY     40           $779,609     $1,532,325        $752,717     0               $0           $0              $0       $752,717
  017    BlueCross BlueShield of Illinois (HCSC)                   IL     0                  $0             $0               $0    0               $0           $0              $0              $0
  021    WellPoint BlueCross BlueShield of Ohio                    OH     80           $861,668     $2,282,753      $1,421,085    26         $200,210     $461,515       $261,305       $1,682,390
  024    BlueCross BlueShield of South Carolina                    SC     0                  $0             $0               $0    0               $0           $0              $0              $0
  027    WellPoint BlueCross BlueShield of New Hampshire           NH     29         $1,390,952     $1,920,733        $529,781    22          $97,791     $216,583       $118,792        $648,573
  028    BlueCross BlueShield of Vermont                           VT     19           $193,723       $470,045        $276,322     0               $0           $0              $0       $276,322
  029    BlueCross BlueShield of Texas (HCSC)                      TX     37         $1,585,686     $2,400,080        $814,395    13         $193,534     $333,227       $139,693        $954,087
  030    WellPoint BlueCross BlueShield of Colorado                CO     5            $162,129       $240,315         $78,186     3          $46,925      $83,508        $36,583        $114,770
  031    Wellmark BlueCross BlueShield of Iowa                     IA     64         $1,834,116     $3,341,068      $1,506,953 320        $1,886,420    $4,872,213     $2,985,793       $4,492,746
  032    BlueCross BlueShield of Michigan                          MI     0                  $0             $0               $0    0               $0           $0              $0              $0
  033    BlueCross BlueShield of North Carolina                    NC    190         $5,294,611     $8,964,104      $3,669,493     7          $17,440      $80,854        $63,414       $3,732,906
  034    BlueCross BlueShield of North Dakota                      ND     20           $387,133       $739,839        $352,706     0               $0           $0              $0       $352,706
  036    Capital BlueCross                                         PA     67         $1,949,967     $3,662,223      $1,712,256    36         $227,531     $415,043       $187,512       $1,899,769
  037    BlueCross BlueShield of Montana                           MT     0                  $0             $0               $0    0               $0           $0              $0              $0
  038    BlueCross BlueShield of Hawaii                            HI     15           $417,130       $751,285        $334,155     0               $0           $0              $0       $334,155
  039    WellPoint BlueCross BlueShield of Indiana                 IN    123         $2,369,621     $4,773,128      $2,403,507    19         $112,974     $225,700       $112,726       $2,516,234
  040    BlueCross BlueShield of Mississippi                       MS     0                  $0             $0               $0    0               $0           $0              $0              $0
  041    Florida Blue                                              FL     64         $2,093,670     $4,069,808      $1,976,138    23         $156,468     $349,035       $192,567       $2,168,706
  042    BlueCross BlueShield of Kansas City (Missouri)            MO     0                  $0             $0               $0    0               $0           $0              $0              $0
  043    Regence BlueShield of Idaho                               ID     0                  $0             $0               $0    0               $0           $0              $0              $0
  044    BlueCross BlueShield of Arkansas                          AR     1             $45,153       $122,782         $77,629     0               $0           $0              $0         $77,629
  045    WellPoint BlueCross BlueShield of Kentucky                KY     8            $156,084       $295,108        $139,023     1           $3,792      $12,690         $8,898        $147,922
  047    WellPoint BlueCross BlueShield United of Wisconsin        WI     6            $162,158       $287,529        $125,371     0               $0           $0              $0       $125,371
  048    Empire BlueCross BlueShield (WellPoint)                   NY    266        $14,499,596   $23,731,575       $9,231,979    74         $403,611     $918,912       $515,301       $9,747,279
  049    Horizon BlueCross BlueShield of New Jersey                NJ     14           $397,934       $600,937        $203,003     9         $113,269     $166,772        $53,503        $256,506
  050    WellPoint BlueCross BlueShield of Connecticut             CT     40         $1,242,290     $2,203,500        $961,209    26         $286,174     $563,242       $277,068       $1,238,277
  052    Wellpoint BlueCross of California                         CA     39         $3,369,890     $4,774,798      $1,404,908    10          $70,803     $179,494       $108,691       $1,513,599
                                                                                                                                                                                     SCHEDULE A
                                                                                                                                                                                        Page 2 of 2
                                                        GLOBAL AUDIT OF CLAIMS WHERE AMOUNTS PAID EXCEEDED COVERED CHARGES
                                                                           BLUECROSS AND BLUESHIELD PLANS

                                                                          SUMMARY OF SAMPLE SELECTIONS BY PLAN

                                                                                SAMPLE - INPATIENT FACILITY CLAIMS                SAMPLE - OUTPATIENT FACILITY CLAIMS
                                                                                     Variances of $10,000 or More                        Variances of $4,000 or More                   TOTAL
                                                                                                                  Potential                                           Potential       Potential
 Site                                                                            Total Covered Total Amounts     Overcharges           Total Covered Total Amounts   Overcharges     Overcharges
Number                            Plan Name                       State Claims     Charges          Paid         (Variances)    Claims   Charges          Paid       (Variances)     (Variances)
  053    BlueCross BlueShield of Nebraska                          NE     1            $212,159       $277,545         $65,386     0               $0           $0              $0         $65,386
  054    Mountain State BlueCross BlueShield                       WV    100         $2,408,147     $4,459,717      $2,051,569 768        $4,411,968   $10,997,516     $6,585,548       $8,637,117
  055    Independence BlueCross                                    PA     24           $946,388     $1,411,723        $465,335    62      $1,462,169    $2,186,963       $724,794       $1,190,129
  056    BlueCross BlueShield of Arizona                           AZ    107         $2,396,393     $6,278,652      $3,882,259     0               $0           $0              $0      $3,882,259
  058    Regence BlueCross BlueShield of Oregon                    OR    111         $3,201,353     $7,935,665      $4,734,312    20         $216,645     $423,974       $207,329       $4,941,640
  059    WellPoint BlueCross BlueShield of Maine                   ME     45           $705,767     $1,552,433        $846,666    22         $426,237     $670,389       $244,152       $1,090,818
  060    BlueCross BlueShield of Rhode Island                      RI     23           $530,242       $898,907        $368,665     9          $44,366      $94,400        $50,033        $418,698
  061    WellPoint BlueCross BlueShield of Nevada                  NV     6          $1,061,705     $1,547,333        $485,628     0               $0           $0              $0       $485,628
  062    WellPoint BlueCross Blue Shield of Virginia               VA    406        $13,111,630   $21,359,475       $8,247,844     6           $4,850      $59,051        $54,201       $8,302,046
  064    Excellus BlueCross BlueShield of the Rochester Area       NY     14           $475,731       $891,914        $416,183    16          $90,951     $222,978       $132,027        $548,210
  066    Regence BlueCross BlueShield of Utah                      UT     2             $34,163       $118,105         $83,943     0               $0           $0              $0         $83,943
  067    BlueShield of California                                  CA     0                  $0             $0               $0    0               $0           $0              $0              $0
  068    Triple-S Salud, Inc. of Puerto Rico                       PR     1                $897        $32,208         $31,311     1           $4,582      $17,925        $13,343          $44,653
  069    Regence BlueShield of Washington                          WA     0                  $0             $0               $0    0               $0           $0              $0              $0
  070    BlueCross BlueShield of Alaska                            AK     1             $70,547       $211,132        $140,585     0               $0           $0              $0       $140,585
  074    Wellmark BlueCross BlueShield of South Dakota             SD     0                  $0             $0               $0    0               $0           $0              $0              $0
  075    Premera BlueCross                                         WA     0                  $0             $0               $0    2          $71,638      $97,624        $25,986          $25,986
  076    WellPoint BlueCross BlueShield of Missouri                MO     4            $381,750       $435,352         $53,602     1             $285       $6,709         $6,424          $60,026
  078    BlueCross BlueShield of Minnesota                         MN     2              $1,078        $25,496         $24,418     1           $1,566       $6,130         $4,564          $28,982
  079    Excellus BlueCross BlueShield of Central New York         NY     20           $772,714     $1,365,767        $593,053     9          $59,431     $152,385        $92,954        $686,008
  082    BlueCross BlueShield of Kansas                            KS     0                  $0             $0               $0    0               $0           $0              $0              $0
  083    BlueCross BlueShield of Oklahoma (HCSC)                   OK     68         $1,381,007     $2,559,132      $1,178,125    29         $167,173     $357,514       $190,341       $1,368,466
  084    Excellus BlueCross BlueShield of Utica-Watertown          NY     7            $101,756       $202,350        $100,594 133           $835,155   $1,737,742       $902,587       $1,003,181
  085    CareFirst BlueCross BlueShield (DC Service Area)          DC    508        $17,357,817   $30,488,831      $13,131,014    84         $673,755   $1,405,896       $732,141      $13,863,155
  088    BlueCross of Northeastern Pennsylvania                    PA     13           $176,872       $447,542        $270,670     1             $217      $10,330        $10,114        $280,784
  089    BlueCross BlueShield of Delaware                          DE     0                  $0             $0               $0    0               $0           $0              $0              $0
  092    Carefirst BlueCross BlueShield (Overseas)                 DC     2             $11,354        $46,960         $35,606     0               $0           $0              $0         $35,606

                                  Totals                                3,542      $115,610,674   $205,517,724     $89,907,050 1,799     $12,750,570   $28,251,126    $15,500,556     $105,407,606

                               Number of BCBS Plans in Sample =    52
                                                                                                                                                           SCHEDULE B
                                                                                                                                                              Page 1 of 2
                                     GLOBAL AUDIT OF CLAIMS WHERE AMOUNTS PAID EXCEEDED COVERED CHARGES
                                                        BLUECROSS AND BLUESHIELD PLANS

                                                          SUMMARY OF QUESTIONED CHARGES BY PLAN

                                                                            Inpatient Facility     Outpatient Facility     Total Questioned
 Site                                                                              Questioned              Questioned             Questioned                      Plan
Number                         Plan Name                          State   Claims     Charges     Claims     Charges      Claims    Charges      Plan Agrees    Disagrees
  003    BlueCross BlueShield of New Mexico (HCSC)                 NM        4         $129,225     0                 $0    4        $129,225       $22,672     $106,553
  005    WellPoint BlueCross BlueShield of Georgia                 GA        4             $395     1            $6,754     5           $7,148         $395        $6,754
  006    CareFirst BlueCross BlueShield (Maryland Service Area)    MD        0                $0    7          $163,833     7        $163,833       $63,533     $100,300
  007    BlueCross BlueShield of Louisiana                         LA        1          ($3,665)    1             ($173)    2          ($3,838)     ($3,838)           $0
  009    BlueCross BlueShield of Alabama                           AL        1           $7,897     0                 $0    1           $7,897           $0        $7,897
  010    BlueCross of Idaho Health Service                         ID        0                $0    3           ($6,855)    3          ($6,855)     ($6,855)           $0
  011    BlueCross BlueShield of Massachusetts                     MA       10         $206,327     0                 $0   10        $206,327      $134,024       $72,303
  012    BlueCross BlueShield of Western New York                  NY        2         ($13,234)    0                 $0    2        ($13,234)     ($13,234)           $0
  013    Highmark BlueCross BlueShield                             PA        0                $0    0                 $0    0               $0           $0            $0
  015    BlueCross BlueShield of Tennessee                         TN        0                $0    7           $50,364     7         $50,364       $50,364            $0
  016    BlueCross BlueShield of Wyoming                           WY        2          $12,022     0                 $0    2         $12,022       $12,022            $0
  017    BlueCross BlueShield of Illinois (HCSC)                   IL        0                $0    0                 $0    0               $0           $0            $0
  021    WellPoint BlueCross BlueShield of Ohio                    OH        5          $51,837     2           $22,086     7         $73,923       $69,367        $4,556
  024    BlueCross BlueShield of South Carolina                    SC        0                $0    0                 $0    0               $0           $0            $0
  027    WellPoint BlueCross BlueShield of New Hampshire           NH        0                $0    0                 $0    0               $0           $0            $0
  028    BlueCross BlueShield of Vermont                           VT        1          $15,250     0                 $0    1         $15,250       $15,250            $0
  029    BlueCross BlueShield of Texas (HCSC)                      TX        0                $0   10          $260,425    10        $260,425      $246,047       $14,379
  030    WellPoint BlueCross BlueShield of Colorado                CO        0                $0    0                 $0    0               $0           $0            $0
  031    Wellmark BlueCross BlueShield of Iowa                     IA        0                $0    3           $12,522     3         $12,522       $12,522            $0
  032    BlueCross BlueShield of Michigan                          MI        0                $0    0                 $0    0               $0           $0            $0
  033    BlueCross BlueShield of North Carolina                    NC       10         $167,699     6           $22,422    16        $190,121      $190,121            $0
  034    BlueCross BlueShield of North Dakota                      ND        1          $17,286     0                 $0    1         $17,286            $0       $17,286
  036    Capital BlueCross                                         PA        0                $0   15            $5,309    15           $5,309       $5,309            $0
  037    BlueCross BlueShield of Montana                           MT        0                $0    0                 $0    0               $0           $0            $0
  038    BlueCross BlueShield of Hawaii                            HI        1          $18,775     0                 $0    1         $18,775            $0       $18,775
  039    WellPoint BlueCross BlueShield of Indiana                 IN        1          $25,114     0                 $0    1         $25,114       $25,114            $0
  040    BlueCross BlueShield of Mississippi                       MS        0                $0    0                 $0    0               $0           $0            $0
  041    BlueCross BlueShield of Florida                           FL        3         $286,308     7          $117,456    10        $403,764      $117,456     $286,308
  042    BlueCross BlueShield of Kansas City (Missouri)            MO        0                $0    0                 $0    0               $0           $0            $0
  043    Regence BlueShield of Idaho                               ID        0                $0    0                 $0    0               $0           $0            $0
  044    BlueCross BlueShield of Arkansas                          AR        0                $0    0                 $0    0               $0           $0            $0
  045    WellPoint BlueCross BlueShield of Kentucky                KY        0                $0    1           $12,690     1         $12,690            $0       $12,690
  047    WellPoint BlueCross BlueShield United of Wisconsin        WI        0                $0    0                 $0    0               $0           $0            $0
  048    Empire BlueCross BlueShield (WellPoint)                   NY        2          $65,666     4           $23,915     6         $89,581       $64,927       $24,654
  049    Horizon BlueCross BlueShield of New Jersey                NJ        1          $18,510     1           $14,017     2         $32,527            $0       $32,527
  050    WellPoint BlueCross BlueShield of Connecticut             CT        1          ($3,951)    0                 $0    1          ($3,951)     ($3,951)           $0
                                                                                                                                                                SCHEDULE B
                                                                                                                                                                   Page 2 of 2
                                     GLOBAL AUDIT OF CLAIMS WHERE AMOUNTS PAID EXCEEDED COVERED CHARGES
                                                        BLUECROSS AND BLUESHIELD PLANS

                                                           SUMMARY OF QUESTIONED CHARGES BY PLAN

                                                                          Inpatient Facility       Outpatient Facility       Total Questioned
 Site                                                                            Questioned                Questioned               Questioned                       Plan
Number                           Plan Name                      State   Claims     Charges       Claims     Charges        Claims    Charges       Plan Agrees    Disagrees
  052    Wellpoint BlueCross of California                       CA        0                $0      2           $27,371       2         $27,371        $21,692        $5,679
  053    BlueCross BlueShield of Nebraska                        NE        0                $0      0                 $0      0               $0            $0            $0
  054    Mountain State BlueCross BlueShield                     WV        0                $0      0                 $0      0               $0            $0            $0
  055    Independence BlueCross                                  PA        3         $122,924      10          $162,801      13        $285,726         $1,097     $284,629
  056    BlueCross BlueShield of Arizona                         AZ        1          $29,311       0                 $0      1         $29,311             $0       $29,311
  058    Regence BlueCross BlueShield of Oregon                  OR       22         $716,942       1            $5,048      23        $721,990       $127,007     $594,983
  059    WellPoint BlueCross BlueShield of Maine                 ME        1          $29,615       0                 $0      1         $29,615        $29,615            $0
  060    BlueCross BlueShield of Rhode Island                    RI        2           $3,142       3           $12,674       5         $15,816        $15,816            $0
  061    WellPoint BlueCross BlueShield of Nevada                NV        0                $0      0                 $0      0               $0            $0            $0
  062    WellPoint BlueCross Blue Shield of Virginia             VA        3         $425,801       1           $23,358       4        $449,159       $433,260       $15,900
  064    Excellus BlueCross BlueShield of the Rochester Area     NY        1          $28,895       0                 $0      1         $28,895             $0       $28,895
  066    Regence BlueCross BlueShield of Utah                    UT        0                $0      0                 $0      0               $0            $0            $0
  067    BlueShield of California                                CA        0                $0      0                 $0      0               $0            $0            $0
  068    Triple-S Salud, Inc. of Puerto Rico                     PR        1          $26,910       1           $10,633       2         $37,543        $10,633       $26,910
  069    Regence BlueShield of Washington                        WA        0                $0      0                 $0      0               $0            $0            $0
  070    BlueCross BlueShield of Alaska                          AK        1         $210,000       0                 $0      1        $210,000             $0     $210,000
  074    Wellmark BlueCross BlueShield of South Dakota           SD        0                $0      0                 $0      0               $0            $0            $0
  075    Premera BlueCross                                       WA        0                $0      1           $14,713       1         $14,713        $14,713            $0
  076    WellPoint BlueCross BlueShield of Missouri              MO        0                $0      1            $6,618       1           $6,618        $6,618            $0
  078    BlueCross BlueShield of Minnesota                       MN        0                $0      0                 $0      0               $0            $0            $0
  079    Excellus BlueCross BlueShield of Central New York       NY        1           $1,478       0                 $0      1           $1,478            $0        $1,478
  082    BlueCross BlueShield of Kansas                          KS        0                $0      0                 $0      0               $0            $0            $0
  083    BlueCross BlueShield of Oklahoma (HCSC)                 OK        2          $62,159       1            $6,861       3         $69,019        $69,019            $0
  084    Excellus BlueCross BlueShield of Utica-Watertown        NY        0                $0      3            $1,351       3           $1,351        $1,351            $0
  085    CareFirst BlueCross BlueShield (DC Service Area)        DC        4          $29,153      31          $375,312      35        $404,466       $358,616       $45,850
  088    BlueCross of Northeastern Pennsylvania                  PA        0                $0      0                 $0      0               $0            $0            $0
  089    BlueCross BlueShield of Delaware                        DE        0                $0      0                 $0      0               $0            $0            $0
  092    Carefirst BlueCross BlueShield (Overseas)               DC        2          $38,672       0                 $0      2         $38,672             $0       $38,672

                                TOTALS                                    94       $2,726,462     123        $1,351,506     217      $4,077,968    $2,090,681     $1,987,287

                            Number of BCBS Plans in Sample =     52

          Number of BCBS Plans with Claim Payment Errors =       41
February 4, 2013                                                 Federal Employee Program
                                                                 1310 G Street, N.W.
                     , Group Chief                               Washington, D.C. 20005
                                                                 202.942.1000
Experience-Rated Audits Group                                    Fax 202.942.1125
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
                    Global Audit on Claims Where Amounts Paid Exceeded
                    Covered Charges
                    Audit Report #1A-99-00-13-003
                    (Report dated and received 09/28/2012)

Dear                :

This is in response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report concerning the Global Audit on Claims Where Amounts
Paid Exceeded Covered Charges for claims paid from February 1, 2010 through
July 31, 2012, with potential overpayments totaling $105,407,606 in both inpatient
and outpatient facility claims. Our comments concerning the findings in this report
are as follows:

The OPM OIG auditors recommended that the Association and/or BCBS Plans
review the sample of 5,341 inpatient and outpatient facility claims, totaling potential
overpayments of $105,407,606, to determine whether the claims were paid properly.
For all claim payment errors, the BCBS plans should initiate recovery efforts
immediately as required by the FEHBP contract, and return all amounts recovered to
the FEHBP.

BCBSA Response:

After reviewing the listings of Amount Paid Exceeded Covered Charges (APG)
potential overpayments totaling $105,407,606, the Association does not contest 185
overpayments totaling $1,213,578 and 27 underpayments totaling $331,544, for a
net overpayment amount of $882,034. As of February 1, 2013, the Plans have
February 4, 2013
Page 2 of 3


recovered and returned $699,109 to the Program of the identified overpayments.
See Attachment A (Inpatient) and C (Outpatient) for a listing of contested and
uncontested amounts per Plan and Schedule B (Inpatient) and Schedule D
(Outpatient) for a listing of the reasons the claims were paid incorrectly.

To the extent that claim payment errors did occur or were not identified, these
payments were good faith erroneous benefit payments and fall within the context of
CS 1039, Section 2.3 (g). Any benefit payments the Plans are unable to recover are
allowable charges to the Program as long as the Plan is able to demonstrate due
diligence in collection of the overpayments. In addition, as good faith erroneous
payments, lost investment income is not applicable to these confirmed
overpayments.

We contest the remaining 5,220 claims totaling $104,198,160 in potential claim
payment errors (support provided) for the following reasons:

   •   $102,850,243 in potential claim payment errors were paid correctly according
       to the Plan’s pricing methodology;
   •   $1,347,917 in claims that were initially paid incorrectly but the Plan is in the
       process of or has resolved recovery of the overpayment amount.

Documentation to support the contested amounts and the initiation of overpayment
recovery before the audit has been provided.

In order to prevent these types of overpayments from occurring, BCBSA
implemented the System Wide Claims Review (SWCR) process which includes APG
claims. As part of this process, we monitored Plan review of the claims and we re-
audited a sample of claims as part of our Control Performance Review (CPR)
process to ensure that the claims were evaluated correctly. In October 2012, the
Association transitioned the SWCR process to an on-line claims monitoring tool that
includes inpatient APG claims. We continue to monitor the application to ensure that
these claims are being worked and paid correctly. We currently do not include out-
patient APG claims in the AMT. These types of errors represented .49% of the
identified errors. We will evaluate inclusion of outpatient APG claims in our
processes as well as continue to evaluate additional opportunities to improve the
prevention and detection of both inpatient and outpatient APG claim overpayments.

Based upon Attachment B, the main reasons for the overpayments were caused by
Processor Coding Errors. Further analysis identified that processor insufficient