oversight

Global Audit of Veterans Affairs Claims for Blue Cross and Blue Shield Plans

Published by the Office of Personnel Management, Office of Inspector General on 2018-02-28.

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

 GLOBAL AUDIT OF VETERANS AFFAIRS CLAIMS
  FOR BLUE CROSS AND BLUE SHIELD PLANS
           Report Number 1A-99-00-16-021
                  February 28, 2018
              EXECUTIVE SUMMARY
                                                    Global Audit of Veterans Affairs Claims

Report No. 1A-99-00-16-021                                                                                      February 28 , 2018

Why Did We Conduct the Audit?                              What Did We Find?

The objectives of our audit were to                        Veterans that are also enrolled in the FEHBP may use their
determine whether the Blue Cross and                       FEHBP benefits at VA medical service providers (e.g., a VA
Blue Shield (BCBS) plans charged costs                     hospital). Our audit identified claim payment errors that we
to the Federal Employees Health Benefits                   believe are indicative of systemic problems with the Association’s
Program (FEHBP) and provided services
                                                           administrative procedures for the processing of FEHBP claims
to FEHBP members in accordance with
                                                           paid to VA medical providers. We are recommending several
the terms of the BCBS Association’s
(Association) contract with the U.S.
                                                           system and policy enhancements that would result in significant
Office of Personnel Management.                            cost savings to the FEHBP.
Specifically, our objective was to
determine whether the BCBS plans                           Our audit concludes that the overall processing of FEHBP VA
complied with contract provisions with                     claims by the BCBS plans does not appear to comply with the
regard to claims paid to the U.S.                          terms of its contract with the U.S. Office of Personnel
Department of Veterans Affairs (VA).                       Management and the Federal Acquisition Regulation. The
                                                           Association and the BCBS plans lack the necessary controls to
What Did We Audit?                                         ensure that reasonable rates are paid to VA providers on behalf of
                                                           the FEHBP. We determined that the Association and/or plans paid
The Office of the Inspector General has                    77 percent of the VA claims reviewed during our audit at or above
completed a limited scope performance                      the full amount billed by the provider - even though they had the
audit of the FEHBP operations at all
                                                           option to pay the claims at a lower rate. Specifically, the BCBS
BCBS plans. The audit covered claim
                                                           plans could have paid these claims using the plan’s local “usual,
payments from January 1, 2013, through
October 31, 2015, as reported in the
                                                           customary, and reasonable” rate or by negotiating a lower payment
Association’s Government-wide Service                      rate with the VA.
Benefit Plan Annual Accounting
Statements. Specifically, we identified                    This report questions $58,023,161 in health benefit charges, the
claims from this period that were made                     majority of which relate to the BCBS plans unreasonably paying
to VA medical providers where the                          VA claims.
amount paid to the provider was greater
than or equal to the amount billed by the
provider.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits                                                             i
        This report is non-public and should not be furt
                        information that may be pr
              ABBREVIATIONS

APM            Administrative Procedures Manual
Association    Blue Cross Blue Shield Association
BCBS           Blue Cross Blue Shield
CFR            Code of Federal Regulations
FAM            Federal Employee Program Administrative Manual
FAR            Federal Acquisition Regulation
FEHB           Federal Employees Health Benefits
FEHBP          Federal Employees Health Benefits Program
FEP            Federal Employee Program
FEP Express    Association’s nation-wide claims processing system
Non-Par        Providers that do not contract with BCBS
OBRA 90        Omnibus Budget Reconciliation Act of 1990
OIG            Office of the Inspector General
OPM            U.S. Office of Personnel Management
Plans          Blue Cross and Blue Shield Plan(s)
PPO            Preferred Provider Organization
UCR            Usual, Customary, and Reasonable
VA             U.S. Department of Veterans Affairs




                           ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS

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

          ABBREVIATIONS ..................................................................................................... ii 


  I.	     BACKGROUND ..........................................................................................................1 


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


  III.	   AUDIT FINDINGS AND RECOMMENDATIONS.................................................6


          Veterans Affairs Claims Review ...................................................................................6


          APPENDIX A: Blue Cross Blue Shield Association’s May 23, 2017, response
                      to the Second Draft Audit Report, issued April 25, 2017.

          APPENDIX B: Blue Cross Blue Shield Association’s April 15, 2016, response
                      to the Draft Audit Report, issued February 4, 2016.

          REPORT FRAUD, WASTE, AND MISMANAGEMENT
IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                       TO THIS REPORT

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
Blue Cross and/or Blue Shield (BCBS) plans. The audit was performed by the U.S. Office of
Personnel Management’s (OPM) Office of the Inspector General (OIG), as authorized by the
Inspector General Act of 1978, as amended.

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. Health insurance coverage is made available through
contracts with various health insurance carriers.

The Blue Cross Blue Shield 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 36 BCBS companies participating in the FEHBP.
The 36 companies are comprised of 64 local BCBS plans.

The Association has established a Federal Employee Program (FEP1) 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 managed by CareFirst Blue Cross Blue Shield, located in Owings
Mills, Maryland. These activities include acting as fiscal intermediary between the Association
and member plans, verifying subscriber eligibility, approving or disapproving the reimbursement
of local plan payments of FEHBP claims (using computerized system edits), maintaining a
history file of all FEHBP claims, and maintaining an accounting of all program funds.



1
  Throughout this report, when we refer to “FEP,” we are referring to the Service Benefit Plan lines of business at
the Plan(s). When we refer to the “FEHBP,” we are referring to the program that provides health benefits to federal
employees.
                                                         1                       Report No. 1A-99-00-16-021
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the
Association and each Plan’s management. Also, management of each BCBS plan is responsible
for establishing and maintaining a system of internal controls.

This is our first global audit of claims paid to the U.S. Department of Veterans Affairs (VA).
Therefore, there were no previous findings to resolve.

Our sample selections and preliminary audit results of the potential claim errors paid to VA
service providers were presented to the Association in a draft report, dated February 4, 2016.
We issued a second draft audit report, dated April 25, 2017, to provide the Association and
BCBS plans an additional opportunity to more directly address our concerns. The Association’s
comments offered in response to the draft reports were considered in preparing our final report
and are included as Appendices to this report. Also, additional documentation provided by the
Association and BCBS plans on various dates through July 7, 2017, was considered in preparing
our final report.




                                                2                   Report No. 1A-99-00-16-021
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          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 objective was to determine whether the BCBS plans complied with contract
 provisions with regard to claims paid to the VA.

 SCOPE

 The audit covered health benefit payments from January 1, 2013, through October 31, 2015, as
 reported in the Blue Cross and Blue Shield Association’s Government-wide Service Benefit Plan
 FEP Annual Accounting Statements. We performed a computer search on BCBS claims data to
 identify all claim payments made to VA medical providers where the amount paid to the provider
 was greater than or equal to the amount billed by the provider, and the potential overpayment2
 was $500 or more. The overpayment threshold of $500 was judgmentally selected; we did not
 calculate the total universe of claims paid to VA medical providers. We consider these claims as
 high risk for payment errors because paying a claim at or above the billed amount could indicate
 the FEP did not receive a discount during the pricing of that claim. We reviewed these claims to
 test each BCBS plan’s compliance with the FEHBP health benefits provisions related to the
 processing and payment of claims paid to VA service providers. See Exhibit I for a summary of
 the scope of our VA claims review. The results of our review were not projected to the universe
 of potentially overpaid claims.

           Exhibit I – Summary of Veterans Affairs Claims Review Sample Selection
                                                                                           Total Amount
     VA Claims Review                        Criteria                 Total Claims
                                                                                               Paid
     Claim paid at or above      Potential overpayment of $500
                                                                          9,098            $105,371,534
         billed charges.                    or more.

 METHODOLOGY

 We selected a sample of claims (see Exhibit 1) and submitted them to each BCBS plan for
 review on December 17, 2015. Our analysis of the Association’s and plans’ responses
 determined that we were not provided with enough information to accurately calculate the claim
 overpayments for a final audit report. After reviewing the information provided in response to

 2
  The potential overpayment amount was calculated by comparing the amount paid to the standard FEP non-
 participating provider rates.
                                                        3                    Report No. 1A-99-00-16-021
the initial draft report, we issued a second draft audit report designed to allow the Association
and plans an additional opportunity to more directly address our concerns. We considered our
review of the Association’s responses to both draft reports in preparing the specific audit
findings and recommendations contained in this final report.

The determination of the questioned amount is based on the FEHBP contract, the 2013 through
2015 Service Benefit Plan brochures, the Association’s FEP Administrative Procedures Manual
(APM), and other documents, such as the BCBS plans’ contracts and various manuals.

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

We 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 the pricing of claims paid to
VA service providers. 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 with regard to VA claim
payments. Exceptions noted are explained in detail in the “Audit Findings and
Recommendations” section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the 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, 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 potential VA claim payment errors. The
BCBS claims data is provided to us on a monthly basis by the FEP Operation’s 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 the data generated by the BCBS plans’ local claims systems.
While utilizing the computer-generated data during our audit, nothing came to our attention to
cause us to doubt its reliability. We believe that the data was sufficient to achieve our audit
objectives.

                                                 4                    Report No. 1A-99-00-16-021
Audit fieldwork was performed at our offices in Washington, D.C.; Cranberry Township,
Pennsylvania; and Jacksonville, Florida through July 2017.




                                             5                  Report No. 1A-99-00-16-021
  IV. AUDIT
III.   MAJORFINDINGS
             CONTRIBUTORS  TO THIS REPORT
                     AND RECOMMENDATIONS

 The sections below detail the results of our global audit of Veterans Affairs claim payments. As
 mentioned in the Scope section above, our review consisted of 9,098 claims, totaling
 $105,371,534 in payments (see Exhibit I on page 3).

 Veterans Affairs Claim Review	                                                                     $58,023,161

 Our review determined that the BCBS plans incorrectly paid 6,989 claims, resulting in
 $58,023,161 in overcharges to the FEHBP. See Exhibit II for a summary of questioned claims.

                              Exhibit II – Summary of Questioned Claims
                  Total                                Total                                 Total
            Claims Questioned                        Amount Paid                          Overcharges
                    6,989                             $89,593,467                         $58,023,161


 Detail of Claim Overcharges

 These claim payment errors are comprised of the following (See Exhibit III for a summary of
 questioned costs by cause of error):

 	 26 of the 64 BCBS plans entered into contracts with VA providers to pay FEP claims at rates
    that violated the “reasonableness” requirements of the Federal Acquisition Regulation3
    (FAR) 31.201-3. With respect to these 26 plans, our review identified 4,361 claims paid
    using the VA’s full billed charges, indicating that the FEP did not receive a discount in the
    pricing of these claims. The plans had several cost-saving pricing options available to pay
    these VA providers, such as 1) market rates, 2) the plan’s preferred provider organization
    (PPO) rates, 3) usual, customary, and reasonable (UCR) rates, or 4) Medicare rates. In the
    conduct of competitive business, a financially responsible organization would reimburse the
    provider using the lowest obtainable rate. As a result of the unreasonable pricing
    methodology used by the plans, the FEHBP was overcharged $35,224,974.

     We submitted multiple requests asking the Association                     The BCBS Association
     and/or plans to provide documentation indicating that these               failed to meet its burden to
     claim payments were compliant with FAR guidelines, as                     demonstrate that claim
     the FAR places the burden of demonstrating reasonableness                 payments were reasonable.

 3
   The FAR is codified at Title 48, Chapter 1 of the Code of Federal Regulations (CFR). An analysis of the FAR
 reasonableness requirements is detailed starting on page 13 of this report.
                                                         6                      Report No. 1A-99-00-16-021
   with the government contractor. Of these 4,361 claims, the Association or BCBS plans did
   not provide any documentation for 4,195 claims demonstrating why the plans contracted
   using the VA facilities’ billed charges, and/or whether the processing of FEP’s claims was
   consistent with the treatment of the local plans’ other lines of business.

	 5 of the 64 BCBS plans incorrectly paid 2,215 claims because the Association’s FEP Express
   nation-wide claims processing system (FEP Express) automatically paid the full amount
   billed instead of appropriately applying the plans’ local pricing allowance for similar services
   (e.g., a UCR or PPO rate). In most instances, the claims automatically paid at billed charges
   because the plans had failed to load a UCR or PPO rate to the FEP Express system, and
   therefore the claim did not defer for a manual review in order to obtain the proper rate prior
   to payment. As a result, the FEHBP was overcharged $21,248,686.

	 The BCBS plans incorrectly paid 154 claims due to various FEP Express system errors,
   resulting in overcharges of $736,999. These system errors included, but were not limited to
   the following:

       o	 UCR allowances not properly identified by the system;
       o	 Pricing allowances required by the Omnibus Budget Reconciliation Act of 1990
          (OBRA 90) were not appropriately applied;
       o	 Payments made for non-covered services; and
       o	 Processing of duplicate claims.

   In general, the FEP Express system contains automatic processes for these type of quality
   control reviews. However, the system is designed to allow VA claims to bypass these
   controls.

	 157 claims were paid incorrectly due to manual processing errors such as incorrect coding,
   overriding system edits, and using incorrect allowances or billed amounts, resulting in
   overcharges of $581,227 to the FEHBP.

	 102 claims were paid incorrectly due to provider billing errors, resulting in overcharges of
   $231,275 to the FEHBP. In these instances, the type of bill included on the claim was
   incorrectly coded as a hospital instead of a clinic. If these claims had been properly coded as
   clinics, it likely would have resulted in a lower payment.




                                                7                    Report No. 1A-99-00-16-021
                            Exhibit III – Questioned Cost by Cause of Error

                                                                 Total         Total            Amount
                       Cause of Error
                                                                Claims       Amount Paid       Questioned
      Unreasonable Contracted Rates                              4,361          $53,540,555      $35,224,974
      Unreasonable Non-Par Rates4                                2,215          $32,557,088      $21,248,686
      FEP Express System Error - Various                          154            $1,159,628         $736,999
      Manual Processing                                           157            $1,946,985         $581,227

      Provider Billing                                            102              $389,211         $231,275

      Total                                                      6,989          $89,593,467      $58,023,161


Further Discussion of Claims Paid in Violation of FAR Reasonableness Standards

Our review determined that 41 of the 64 BCBS plans are             BCBS plans unreasonably
paying claims to VA service providers at rates that are            paid claims using the full
considered unreasonable per the FAR. We acknowledge                amount billed by the provider
that a separate regulation related to VA claim payments (38        instead of opting to use a
CFR 17.106) includes the word “reasonable” in its language, lower available rate, as
but assert that this regulation in no way overrides a              allowed by 38 CFR 17.101.
government contractor’s obligation to adhere to the
requirements of the FAR. 38 CFR 17.106 states that the “reasonable charges subject to
recovery” are established by another VA-promulgated regulation - 38 CFR 17.101. That
provision states that “[a] third-party payer liable under a health plan contract has the option
[emphasis added] of paying either the billed charges . . . or the amount the health plan
demonstrates is the amount it would pay for care or services furnished by providers . . . for the
same care or services in the same geographic area. If the amount submitted by the health plan
for payment is less than the amount billed, VA will accept the submission as payment, subject to
verification at VA’s discretion in accordance with this section.”

The Association and/or BCBS plans paid most of the claims questioned in this report using the
full amount billed by the provider (a violation of FAR 48 CFR 31.201-3), instead of opting to
use a lower available rate, such as the plan’s local UCR (which is expressly allowed by VA
regulation 38 CFR 17.101).




4
    Non-participating or “non-par” refers to providers that do not contract with BCBS.
                                                           8                       Report No. 1A-99-00-16-021
Our review also determined that the Association and BCBS plans lack the necessary controls to
obtain the most reasonable pricing rate for VA providers on behalf of the FEHBP. We identified
the following control issues:

	 The Association does not have oversight procedures in place to ensure that VA claims are
   being properly processed and paid. Although the Association has developed a policy to
   provide guidance on how the plans should price VA claims (i.e., the FEP Administrative
   Manual or FAM, Volume II, Chapter 24), the Association has no procedures or controls to
   monitor whether the BCBS plans actually operate in compliance with the FEP policy.
   Therefore, the Association is unable to produce any attestation that VA claims are being
   properly paid, as required by the FAR - which places the burden of proving reasonableness
   on the Government contractor.

	 The BCBS plans that contracted with the VA service providers do not have oversight
   procedures to ensure that the VA providers comply with the plans’ contracts. If the plans had
   such procedures in place, they could have identified cost savings such as obtaining lower
   rates or identifying provider billing errors.

	 48 CFR 31.201-3 states “No presumption of reasonableness shall be attached to the
   incurrence of costs by a contractor . . . the burden of proof shall be upon the contractor to
   establish that such cost is reasonable.” In this case, the contractor has the burden to
   demonstrate why claims paid at billed charges should be considered reasonable. In an effort
   to gain an understanding as to why the BCBS plans considered the full billed charges to be
   reasonable, we issued a second draft report (see Appendix A) to obtain documentation (e.g.,
   actuarial analysis or provider negotiation standards) demonstrating how the providers’
   allowances were determined. However, despite multiple requests, the Association and plans
   failed to provide any evidence that it was paying claims in a reasonable manner.

Due to the lack of oversight of the processing and payment        The lack of oversight of claim
of VA claims by the Association and BCBS plans, the               payments to the VA indicates
Association is unable to offer any information indicating         that the BCBS Association has
whether the claims cost is “actual, allowable, allocable, and not made a good faith effort to
reasonable.” In conclusion, we determined that the                pay these claims correctly.
Association did not make a good faith effort to pay these
claims accurately, as required by contract CS 1039. Therefore, the FEHBP should be reimbursed
for all of these claim overcharges, regardless of the plans’ ability to collect the funds from the
providers or members.




                                                9                   Report No. 1A-99-00-16-021
The following criteria supports our position that these claims were priced incorrectly and that the
overcharges should be returned to the FEHBP:

	 FAR 31.201-3 outlines four elements that government contractors must demonstrate when
   determining reasonableness, as follows: “Determining reasonableness. (a) A cost is
   reasonable if, in its nature and amount, it does not exceed that which would be incurred by a
   prudent person in the conduct of competitive business. Reasonableness of specific costs
   must be examined with particular care in connection with firms or their separate divisions
   that may not be subject to effective competitive restraints. No presumption of reasonableness
   shall be attached to the incurrence of costs by a contractor. If an initial review of the facts
   results in a challenge of a specific cost by the contracting officer or the contracting officer’s
   representative, the burden of proof shall be upon the contractor to establish that such cost is
   reasonable. (b) What is reasonable depends upon a variety of considerations and
   circumstances, including - (1) Whether it is the type of cost generally recognized as ordinary
   and necessary for the conduct of the contractor’s business or the contract performance; (2)
   Generally accepted sound business practices, arm’s length bargaining, and Federal and State
   laws and regulations; (3) The contractor’s responsibilities to the Government, other
   customers, the owners of the business, employees, and the public at large; and (4) Any
   significant deviations from the contractor’s established practices.”

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

	 Contract CS 1039, Part II, section 2.3(g) states, “[i]f 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 . . . regardless of any time period
   limitations in the written agreement with the provider.”

	 The Association’s FAM, Volume II, Chapter 12, states, “In processing . . . claims for services
   provided by Non-preferred VA facilities, the Local Plan should base its reimbursement on
   the lower of [for emphasis] … [t]he VA’s reasonable charge [or] [t]he Local Plan’s
   allowance for Preferred providers – if that allowance is the same as the amount the Plan
   would allow for the same care or services in the same geographic area furnished by Preferred
   providers other than the VA … if the Plan bases its payment on a [Preferred Provider
   Allowance] that is lower than the VA’s reasonable charge, the Plan must be prepared to
   provide documentation to the VA to support its action.”

	 The 2015 BCBS Service Benefit Brochure provides general guidance on the FEP’s policy for
   pricing and paying claims to non-par providers.

                                                10 	                 Report No. 1A-99-00-16-021
Association Response:

In response to the draft audit report, which questioned $66,114,167 in potential overpayments, 

the Association stated that the BCBS plans agreed that claim payments totaling $13,193,965 

were paid in error due to the following: 


   $11,773,964 was paid in error due to a contract rate loading error. 

   $854,077 was paid in error due to manual processing errors. 

   $247,501 was paid in error because the Plan did not properly load a preferred provider 

    indicator (into the FEP Express system)
   $318,423 was due to other miscellaneous reasons.

The plans stated that the remaining $52,920,202 in claim payments were paid correctly and
that recovery had been initiated on payment errors identified in accordance with CS1039
Section 2.3(g). As of May 19, 2017, $1,614,271 in overpayments have been returned to the
FEHBP.

Regarding corrective actions, the Association disagrees that improvements to prevent and
detect claims paid in error to VA providers is necessary, because the BCBS plans:

   “Have provider contracts with the VA where payment is based upon various
    reimbursement methodologies
   Have provider contracts with the VA where the payment is based upon charges and the
    contract is used to pay all lines of business, including FEP
   Do not have contracts with the VA, nor do they have an allowance that is paid for the same
    service in the geographic area, and as a result, pay the VA billed charges
   Pay billed charges for all lines of business, including FEP, when they do not have a
    provider contract with the VA

All [four] of the above reimbursement methods result in reasonably priced VA claims
payments.”

The Association also states, “Chapter 31 of Title 48 of the Code of Federal Regulations
contains cost principles and procedures for the pricing of contracts and the determination,
negotiation or allowance of costs when required by a contract clause. Pursuant to §201.3 of
that chapter, costs must be reasonable to be reimbursed. Section 201.3 provides that a “cost is
reasonable, if in its nature and amount, it does not exceed that which would be incurred by a
prudent person in the conduct of competitive business”. Section 201 goes on to state that what
is reasonable depends on a variety of considerations and circumstances, including:

                                              11                  Report No. 1A-99-00-16-021
(1) Whether it is the type of cost generally recognized as ordinary and necessary for the
conduct of the contractor's business or the contract performance;
(2) Generally accepted sound business practices, arm's length bargaining, and Federal and
State laws and regulations;
(3) The contractor's responsibilities to the Government, other customers, the owners of the
business, employees, and the public at large; and
(4) Any significant deviations from the contractor's established practices.”

The BCBS plans believe that its provider contracts with VA providers, and the plans’
procedures for allowing non-contracted providers to pay at billed charges, did in fact satisfy
the criteria for determining reasonableness. . . . In regards to the OIG’s recommendations to
develop corrective actions to reduce claim payment errors paid to VA service providers the
Association states, “The BCBSA [Association] will work with Plans to ensure that they
continue to pay VA claims in good faith, in accordance with VA laws and regulations. In
addition, BCBSA [Association] will work with the Contracting Officer to implement any
changes required.”

OIG Comments:

After reviewing the Association’s response to the draft audit report, we revised the questioned
charges to $58,023,161. The documentation provided by the Association and/or BCBS plans
indicate that the Association concurred with $13,840,916 of the questioned overpayments, but it
disagrees with the remaining questioned costs. Despite multiple requests, the Association has
not provided evidence supporting its position that the remaining $44,182,245 was paid correctly.
The Association also disagrees with all of the OIG recommendations provided in the draft report.

In most instances, we used a conservative methodology for calculating overpayments by using
the FEP non-par pricing allowances instead of an estimated percentage using the BCBS plans’
PPO allowances. Since the Association failed to comply with our request to provide the PPO or
UCR allowance for each plan, we were unable to calculate overpayments using these figures. If
we had this information available, the questioned overpayment would have been a more accurate
(and likely a significantly larger) number.

Lack of Oversight of Program Funds                            The BCBS Association had
                                                              minimal oversight over $1.7
Before outlining the specific reasons we continue to          billion in claim payments
question the contested overcharges, we would like to          made to VA service providers
address our concern regarding the Association’s overall       during the scope of this audit.
management of the BCBS plans’ payments to VA service
providers. The Association performs no audits or reviews of VA claim payments. Although the
                                              12                   Report No. 1A-99-00-16-021
Association has guidance and procedures for the BCBS plans to follow, it has no controls in
place to validate that these procedures are being followed or that they are effective for
controlling costs charged to the FEHBP. Due to this lack of oversight, the FEHBP was
overcharged a substantial amount for costs that could have been controlled. The Association’s
minimal oversight is particularly concerning when considering the enormous volume of claim
payments made by the plans to VA service providers, which totaled approximately $1.7 billion
during the 34-month scope of this audit.

In response to our recommendations, the Association disagrees that it needs to implement
corrective actions to prevent VA claims from being incorrectly priced and paid. The fact that the
Association recognizes that over $13 million was paid in error, yet does not think that corrective
actions to prevent future VA claims from paying in error is necessary, is fundamentally
concerning to the overall operation of the Association in providing services on behalf of the
Federal Government. As of 2011, VA regulations no longer allow carriers to offset VA claim
payment errors (i.e., recoveries) from future claim payments; therefore, we believe it is
imperative that the Association and plans have functional controls in place to ensure that claims
paid to VA service providers are paid correctly on the first submission of payment.

The Association is the organization that directly contracts with OPM, and it allows the individual
BCBS plans to process claims on behalf of the FEHBP. The BCBS plans assume minimal risk
while acting as third-party administrators for the FEHBP, meaning that all claims expenses and
the associated administrative costs are drawn directly from the Federal FEHBP trust fund, as
opposed to the plans’ commercial funds. We do not believe that any competitive business would
voluntarily pay unreasonable costs if the funds were paid exclusively from its own commercial
lines of business, as opposed to Federal funds that the plans do not have the same vested interest
in protecting. In the conduct of competitive business, a prudent business would perform due
diligence to minimize cost and maximize savings. As previously stated, the plans had multiple
pricing options to pay VA claims but elected to pay VA claims at the highest possible rate.

Unreasonable Rates Paid to Contracted VA Providers

This section specifically relates to the questioned claim payments made by plans that entered into
contracts with the VA to pay claims at the full billed amount. The Association’s response to our
draft audit report outlines the cost principles from FAR 31.201-3 and states that “BCBS Plans
believe that its provider contract with VA providers did in fact satisfy the criteria for
determining reasonableness.” The Association also states the OIG’s standards and
methodologies used in this audit do not comply with applicable regulations. The sections below
address the Association’s specific concerns and explain why we continue to question these
overcharges:

                                               13                   Report No. 1A-99-00-16-021
1.	 The Association states, “[t]he VA Contracts were ordinary and necessary for the conduct of
    BCBS Plan business and performance.” We acknowledge that contracting with VA service
    providers or any other health care provider is a routine and accepted part of conducting
    business on behalf of the FEHBP. Our audit determined that multiple BCBS plans
    contracted with many VA service providers to pay claims at reasonable (i.e., lower than
    billed charges) rates. This report does not take issue with such claims; rather, the costs
    questioned in this report strictly relate to the inflated contract rates used by 26 BCBS plans.
    While reimbursing health care expenses is ordinary and necessary, doing so at a rate
    significantly higher than other available rates is not. The CFR expressly allows VA
    providers to enter into provider agreements with plans and allows the plans to pay lower
    rates. It is the OIG’s assertion that the VA collections regulation (38 CFR 17.106) in no way
    applies to nor overrules the reasonableness requirements outlined in the FAR (48 CFR
    31.201-3) or the Association’s contract with the U.S. Office of Personnel Management –
    contract CS 1039.

2.	 The Association states, “Plan VA Contracts were established through an arm’s length
    transaction, complied with federal and state laws and regulations, and were the product of
    generally accepted business practices.” We recognize that the BCBS plans’ provider
    contract arrangements incorporate multiple factors in determining reimbursement rates, such
    as the type of member receiving the services, market conditions, and operational and
    administrative costs. However, like most medical providers, the VA bills for its services
    using inflated rates in an effort to maximize its revenue. The generally accepted business
    practice is for insurance companies to establish standard contract rates to avoid paying
    excessive and uncontrolled claims costs. As such, we disagree with the notion that the
    contracts to pay the full amount billed by a provider are a product of generally accepted
    business practices. Furthermore, the VA billed charge rate schedules include procedure
    bundling and special arrangement methodologies built into the service fees, which are not
    accounted for unless the BCBS plans make internal arrangements to properly recognize these
    standard pricing arrangements. Our review determined that the BCBS plans did not apply
    industry standard contractual arrangements with regards to the VA, including standard
    practices such as bundling services, applying special and multiple-procedure discounts,
    removing non-covered FEP services, and using one Diagnostic Related Grouper (DRG) per
    diem rate per episode of care.

3.	 The Association states that “[t]he BCBS Plan VA Contracts furthered Plans’
    responsibilities to the Government, other customers, the owners of the business, employees,
    and the public at large . . . .” Our review determined that the Association’s practice of
    allowing plans to pay the VA at the highest possible rates is harmful to the Federal
    government as a whole. We agree that overpaying the VA at the expense of OPM’s FEHBP
    may result in a net wash for the Government as a whole. However, this practice also results

                                                14                   Report No. 1A-99-00-16-021
   in the plans collecting additional administrative reimbursement fees from the FEHBP, as
   many of its administrative cost allocation methods are based on claims expense volume.
   Furthermore, the impact of increasing claims costs has a direct negative impact on premiums
   paid by FEP members (i.e., Federal employees, retirees, and their families), and also
   increases the coinsurances and deductibles paid by veterans that are enrolled in the FEHBP.

4.	 The Association states that “BCBS Plan contracts with VA Providers were for All Plans’
    Lines of Business.” As part of the second draft report, we asked the plans to perform a cost
    analysis using all lines of business, places of service (i.e., inpatient, outpatient, and
    physician), and service types to determine what rates are reasonable for the FEHBP to pay
    VA facilities. However, the Association refused to provide this cost analysis. Additionally,
    after multiple requests, 17 plans did not provide any documentation to support why it
    contracted using the VA facilities’ billed charges and/or whether the processing of FEP’s
    claims were consistent with the local plan’s other lines of business.

Unreasonable Rates Paid to Non-Par Providers

This section specifically relates to the questioned claim payments made by plans that do not have
a contractual agreement with the VA, but still paid claims at the full billed charge instead of a
lower reasonable rate. With regards to these claims, the Association states that “Plan payment
of VA billed charges where the Plan does not have provider contracts with the VA and does
not have an allowance for the same service for the same geographic area are also reasonable.”
In general, the Association states paying the claims at billed charges were:

 “1) Ordinary and necessary;
  2) Complied with federal laws and regulations;
  3) The Plans’ responsibilities to the Government;
 4) The same charge in the geographic area; and
 5) Consistent with all lines of business.”


However, the plans’ policies of paying claims to these non-par providers at full billed charges is,
in fact, a direct violation of FEP’s non-par pricing procedures. The Association’s procedures for
paying non-par providers (per the APM) state that plans should price claims using the local
plan’s UCR. However, the Association’s automatic claims processing system is not configured
to adhere to these procedures. Had the non-par rates been automatically applied, there would
have been significant savings to the FEHBP. The Association allowed these claims to pay at
billed charges, but has not provided sufficient documentation to support why these payments
should be considered reasonable in nature when compared to payments made to non-VA
providers using the UCR rate, as required by the APM.


                                                15 	                 Report No. 1A-99-00-16-021
Summary

We recognize that Federal regulation prohibits third-party carriers from performing offset
recoveries against VA facilities. However, we again emphasize the reasons why the BCBS plans
should be accountable for their actions to both the VA and FEHBP:

	 The plans that contracted with the VA to pay claims at full billed charges did so in violation
   of the FAR.

	 The plans that did not have a contract with the VA did not appropriately pay claims at the
   UCR rate, as required by the APM.

For these reasons, we conclude that the plans did not make a “good faith” effort to reasonably
pay claims to VA service providers on behalf of the FEHBP. Regardless of the plans’ ability to
recover these overpayments from the VA, the plans should be responsible for returning these
overpayments to the FEHBP, since costs determined to be unreasonable are not allowable
charges to the contract. In addition, the contracting officer should ensure that all OIG
recommendations are addressed and implemented in a timely manner. These recommendations
are designed to prevent future waste of Federal funds, and should be implemented regardless of
the Association’s opinions about the reasonableness of historical payments.

Recommendation 1

We recommend that the contracting officer disallow $58,023,161 for claim overcharges and that
all overcharges be returned to the FEHBP, regardless of the BCBS plans’ ability to collect the
funds from the providers or members.

Recommendation 2

We recommend that the contracting officer ensure that the Association develops corrective
actions for improving the prevention and detection of VA claims that are not reasonably priced
and paid by the BCBS plans.

Recommendation 3

We recommend that the contracting officer require the BCBS plans to perform a cost analysis
using all lines of business, places of service (i.e., inpatient, outpatient, and physician), and
service types to determine what rates are reasonable for the FEHBP to pay VA facilities. Once
this analysis is complete, we recommend that the contracting officer require the BCBS plans to

                                                16                   Report No. 1A-99-00-16-021
pay VA claims using the lower of the VA’s reasonable charge or the local plan’s allowance that
it would pay for the same care or services in the same geographic area, for all VA providers.

Recommendation 4

We recommend that the contracting officer require the Association to enhance the FEP Express
system to automatically defer VA claims when a local UCR or average market rate has not been
provided for non-par VA claims. These system enhancements should ensure that standard
quality control reviews for VA claims (i.e., duplicate edits, OBRA 90 pricing) are being properly
applied during the pricing of the claim.

Recommendation 5

We recommend that the contracting officer require the Association to develop auditing and/or
oversight procedures to monitor the processing of VA claims. These procedures should include
ongoing monitoring of changes to the FEP Express system that impact VA claim pricing and
ongoing claim cost rate analysis by VA regions and/or provider types.




                                               17                   Report No. 1A-99-00-16-021
                                    APPENDIX A




May 23, 2017


                                                           Federal Employee Program
Senior Team Leader                                         1310 G Street, N.W.
Experience-Rated Audits Group 	                            Washington, D.C. 20005
Office of the Inspector General 	                          202.942.1000
                                                           Fax 202.942.1125
U.S. Office of Personnel Management
1900 E Street, N.W., Room 6400
Washington, D.C. 20415

Reference:	               OPM DRAFT AUDIT REPORT
                          Global Veteran’s Administration Audit
                          Audit Report 1A- 99-00-16-021

Dear              :

This is in response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report concerning the Global Veterans Administration (VA) Claim
Payments Audit of the FEP Blue Cross Blue Shield Plans. Our comments concerning
the recommendations in the report are as follows:

Recommendation 1

We recommend that the contracting officer disallow $66,114,167 for VA claim payments
and have the BCBS plans return all amounts recovered to the FEHBP.

BCBSA Response

After reviewing 8,880 VA claims totaling $66,114,167 in questioned claims, BCBS Plans
determined that $13,193,965 was paid in error due to the following:

 $11,773,964 was paid in error due to a contract rate loading error.
 $854,077 was paid in error due to manual processing errors.
 $247,501 was paid in error because the Plan did not properly load a preferred
    provider indicator (into the FEP Express system)
 $318,423 was due to other miscellaneous reasons.

Questioned claims totaling $52,920,202 were paid correctly. Recovery has been
initiated on payment errors identified in accordance with CS1039 Section 2.3g. As of
May 19, 2017, overpayments totaling $1,614,271 have been returned to the Program.
Any additional overpayments recovered will be returned to the Program.


                                                            Report No. 1A-99-00-16-021
Recommendation 2

We recommend that the contracting officer ensure that the Association develops
corrective actions for improving the prevention and detection of VA claims that are not
reasonably priced and paid by the BCBS plans

BCBSA Response

BCBSA disagrees with this recommendation. BCBS Plans responded that they:

   have provider contracts with the VA where payment is based upon various
    reimbursement methodologies
   have provider contracts with the VA where the payment is based upon charges and
    the contract is used to pay all lines of business, including FEP
   do not have contracts with the VA, nor do they have an allowance that is paid for the
    same service in the geographic area, and as a result, pay the VA billed charges
   pay billed charges for all lines of business, including FEP, when they do not have a
    provider contract with the VA

All three of the above reimbursement methods result in reasonably priced VA claims
payments.

Chapter 31 of Title 48 of the Code of Federal Regulations contains cost principles and
procedures for the pricing of contracts and the determination, negotiation or allowance
of costs when required by a contract clause. Pursuant to §201.3 of that chapter, costs
must be reasonable to be reimbursed. Section 201.3 provides that a “cost is
reasonable, if in its nature and amount, it does not exceed that which would be incurred
by a prudent person in the conduct of competitive business”. Section 201goes on to
state that what is reasonable depends on a variety of considerations and
circumstances, including:

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the
conduct of the contractor's business or the contract performance;
(2) Generally accepted sound business practices, arm's length bargaining, and Federal
and State laws and regulations;
(3) The contractor's responsibilities to the Government, other customers, the owners of
the business, employees, and the public at large; and
(4) Any significant deviations from the contractor's established practices.

BCBS Plans believe that its provider contracts with VA providers did in fact satisfy the
criteria for determining reasonableness, as supported below.

Plans with contracts to pay the VA at billed charges

(1) The VA Contracts were ordinary and necessary for the conduct of BCBS Plan
business and performance.
                                                        Report No. 1A-99-00-16-021
BCBS Plans enter into contracts with providers in order to arrange for the provision of
medical and behavioral health services for FEP members as encouraged in guidance.
Contracting with medical and behavioral health providers is a normal part of the
business of benefit administration for insurers and third party administrators. BCBS
Plan contracts with VA providers were entered into in the ordinary course of business.
Further, the rates the Plans paid the VA under their provider contracts were reasonable
under the law and in done in the ordinary course of BCBS Plan business.
(2) Plan VA Contracts were established through an arm’s length transaction,
complied with federal and state laws and regulations, and were the product of
generally accepted business practices.
Plan contracts with the VA are compliant with federal and state laws and regulations.
Entering into such contracts is also the product of generally accepted business
practices as insurers routinely enter into such contracts in the normal course of
business.
The contracts were entered into in as a result of arm’s length negotiations. BCBS Plans
base its decision to contract with the VA facilities, and at the reimbursement terms set
forth in the agreements based upon a number of factors, including the benefits to the
members who receive services at such facilities, the market conditions and the
operational and administrative issues relating to paying claims to those facilities as
contracted providers versus non-contracted providers.
According to the applicable regulations for VA providers, the VA is authorized to set
rates that it can bill for services that are paid by third party payors. 38 CFR 17.101.
The preface to the applicable VA regulations notes that the rates to be charged by the
VA are intended to be reasonable and are designed to replicate, as much as
possible, the 80th percentile of the community charges for such services. 68 Fed.
Reg. 56876. BCBS Plans have determined that based upon a review of the rates, the
manner in which the rates were published and implemented by the federal government,
and in accordance with the regulations thereunder, such rates were reasonable in
nature for the marketplace, and Plans exercised its reasonable and prudent business
decision to agree to the terms. BCBS Plans’ business decision to contract with the VA
facilities for reimbursement at billed charges is justified by the fact that federal
regulations are in place to provide protections as to the reasonableness of such billed
charges.
(3) The BCBS Plan VA Contracts furthered Plans’ responsibilities to the
Government, other customers, the owners of the business, employees, and the
public at large and (4) BCBS Plan contracts with VA Providers were for All Plans’
Lines of Business.
BCBS Plans seek to provide all of its customers and employer groups with access to
affordable and quality healthcare. As such, BCBS Plans do not make it a normal
business practice to contract with providers for a specific employer group, such as the
FEHBP, but rather it enters into contracts with providers that cover all of commercial
business for specific product lines such as PPO and HMO products. This is an
important consideration since the rates negotiated in the contracts with the provider
impact the rates that the Plans would charge to all of its customers and the general
public for its insurance products. This is the case with the Plan VA facility contracts as
they apply to all of Plan PPO insurance products and are not specific to FEHBP.
                                                                   Report No. 1A-99-00-16-021
Plans without contracts with the VA

Plan payment of VA billed charges where the Plan does not have provider contracts
with the VA and does not have an allowance for the same service for the same
geographic area are also reasonable. The payments at billed charges were also
reasonable because:

(1) The VA payments were ordinary and necessary for the conduct of BCBS Plan
business and performance

(2) The VA payments were based on and complied with federal laws and regulations.

(3) The VA payments furthered Plans’ responsibilities to the Government, other
customers, the owners of the business, employees, and the public at large and

(4) The Plans pay billed charges for all lines of business where the Plan did not have a
provider contract or an allowance for the same charge for the same geographic area

(5) The Plans treated FEP consistent with all lines of business and paid the claims at
billed charges


Recommendation 3

We recommend that the contracting officer require the plans to perform a cost analysis
using all lines of business, places of services, (i.e., inpatient, outpatient, and physician)
and service types to determine what rates are reasonable for the FEHBP to pay VA
facilities. Once this analysis is complete, we recommend that the contracting office
require the BCBS plans to pay VA claims using the lower of the VA’s reasonable charge
or the local plan’s allowance that it would pay for the same care or services in the same
geographic area, for all VA providers.

BCBSA Response

BCBSA will work with Plans to ensure that they continue to pay VA claims in good faith,
in accordance with VA laws and regulations. In addition, BCBSA will work with the
Contracting Officer to implement any changes required.

Recommendation 4

We recommend that the contracting officer require the Association to enhance the FEP
Express system to automatically defer VA claims when a local UCR has not been
provided for non-par VA claims. These system enhancements should ensure that
standard quality control reviews for VA claims (i.e., duplicate edits, OBRA 90 pricing)
are being properly applied during the pricing of the claim.
                                                                 Report No. 1A-99-00-16-021
BCBSA Response

BCBSA will work with Plans to ensure that they continue to pay VA claims in good faith,
in accordance with VA laws and regulations. In addition, BCBSA will work with the
Contracting Officer to implement any changes required.

Recommendation 5

We recommend that the contracting officer require the Association to develop auditing
and/or oversight procedures to monitor the processing of VA claims. These procedures
should include ongoing monitoring of changes to the FEP Express system that impact
VA claim pricing and ongoing claim cost rate analysis by VA regions and/or provider
types.

BCBSA Response

BCBSA will work with the Contracting Officer to implement any changes required.

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

Sincerely,




Managing Director, FEP Program Assurance
Attachment




                                                             Report No. 1A-99-00-16-021
                                     APPENDIX B





                                                                            Federal Employee Program
April 15, 2016                                                              1310 G. Street, NW
                                                                            Washington, DC 20005
                                                                            202.942.1000
                                                                            Fax 202.942.1125

Senior Team Leader
Experience-Rated Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, N.W., Room 6400
Washington, D.C. 20415

Reference:	                OPM DRAFT AUDIT REPORT
                           Global Veteran’s Administration Audit
                           Audit Report 1A- 99-00-16-021

Dear              :

This is in response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report concerning the Global Veterans Administration (VA) Claim
Payments Audit of the FEP Blue Cross Blue Shield Plans. Our comments concerning
the recommendations in the report are as follows:

Recommendation 1:

We recommend that the contracting officer disallow $65,596,157 for VA claim payments
and have the BCBS plans return all amounts recovered to the FEHBP.

BCBSA Response

After reviewing 9,098 VA claims totaling $105,371,534 BCBS Plans determined that
$1,919,894 was paid in error due to the following:

   $932,000 was paid in error due to manual processing errors.
   $403,000 was paid in error because the Plan did not properly load a preferred
    provider indicator (into the FEP Express system)
   $584,894 was due to other miscellaneous reasons.




                                                             Report No. 1A-99-00-16-021
Questioned claims totaling $66,946,356 were paid correctly. Recovery has been
initiated on payment errors identified in accordance with CS1039 Section 2.3g. Any
overpayments recovered will be returned to the Program.

Recommendation 2

We recommend that the contracting officer ensure that the Association develops
corrective actions for improving the prevention and detection of VA claims that are not
reasonably priced and paid by the BCBS plans

BCBSA Response

BCBSA disagrees with this recommendation. BCBS Plans responded that they:

   have provider contracts with the VA where payment is based upon various
    reimbursement methodologies
   have provider contracts with the VA where the payment is based upon charges
   do not have contracts with the VA, nor do they have an allowance that they pay for
    the same service in the geographic area, and as a result, pay the VA billed charges.

All three of the above reimbursement methods result in reasonably priced VA claims
payments.

Chapter 31 of Title 48 of the Code of Federal Regulations contains cost principles and
procedures for the pricing of contracts and the determination, negotiation or allowance
of costs when required by a contract clause. Pursuant to §201.3 of that chapter, costs
must be reasonable to be reimbursed. Section 201.3 provides that a “cost is
reasonable, if in its nature and amount, it does not exceed that which would be incurred
by a prudent person in the conduct of competitive business”. Section 201goes on to
state that what is reasonable depends on a variety of considerations and
circumstances, including:

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the
    conduct of the contractor's business or the contract performance;
(2) Generally accepted sound business practices, arm's length bargaining, and Federal
    and State laws and regulations;
(3) The contractor's responsibilities to the Government, other customers, the owners of
    the business, employees, and the public at large; and
(4) Any significant deviations from the contractor's established practices.

BCBS Plans believe that its provider contracts with VA providers did in fact satisfy the
criteria for determining reasonableness, as supported below.

Plans with contracts with the VA to pay billed charges


                                                               Report No. 1A-99-00-16-021
(1) The VA Contracts were ordinary and necessary for the conduct of BCBS Plan
business and performance.

BCBS Plans enter into contracts with providers in order to arrange for the provision of
medical and behavioral health services for FEP members as encouraged in guidance.
Contracting with medical and behavioral health providers is a normal part of the
business of benefit administration for insurers and third party administrators. BCBS
Plan contracts with VA providers were entered into in the ordinary course of business.
Further, the rates the Plans paid the VA under their provider contracts were reasonable
under the law and in done in the ordinary course of BCBS Plan business.

(2) Plan VA Contracts were established through an arm’s length transaction,
complied with federal and state laws and regulations, and were the product of
generally accepted business practices.

Plan contracts with the VA are compliant with federal and state laws and regulations.
Entering into such contracts is also the product of generally accepted business
practices as insurers routinely enter into such contracts in the normal course of
business.
The contracts were entered into in as a result of arm’s length negotiations. BCBS Plans
base its decision to contract with the VA facilities, and at the reimbursement terms set
forth in the agreements based upon a number of factors, including the benefits to the
members who receive services at such facilities, the market conditions and the
operational and administrative issues relating to paying claims to those facilities as
contracted providers versus non-contracted providers.

According to the applicable regulations for VA providers, the VA is authorized to set
rates that it can bill for services that are paid by third party payors. 38 CFR 17.101.
The preface to the applicable VA regulations notes that the rates to be charged by the
VA are intended to be reasonable and are designed to replicate, as much as
possible, the 80th percentile of the community charges for such services. 68 Fed.
Reg. 56876. BCBS Plans have determined that based upon a review of the rates, the
manner in which the rates were published and implemented by the federal government,
and in accordance with the regulations thereunder, such rates were reasonable in
nature for the marketplace, and Plans exercised its reasonable and prudent business
decision to agree to the terms. BCBS Plans’ business decision to contract with the VA
facilities for reimbursement at billed charges is justified by the fact that federal
regulations are in place to provide protections as to the reasonableness of such billed
charges.

(3) The BCBS Plan VA Contracts furthered Plans’ responsibilities to the
Government, other customers, the owners of the business, employees, and the
public at large and (4) BCBS Plan contracts with VA Providers were for All Plans’
Lines of Business.


                                                             Report No. 1A-99-00-16-021
BCBS Plans seek to provide all of its customers and employer groups with access to
affordable and quality healthcare. As such, BCBS Plans do not make it a normal
business practice to contract with providers for a specific employer group, such as the
FEHBP, but rather it enters into contracts with providers that cover all of commercial
business for specific product lines such as PPO and HMO products. This is an
important consideration since the rates negotiated in the contracts with the provider
impact the rates that the Plans would charge to all of its customers and the general
public for its insurance products. This is the case with the Plan VA facility contracts as
they apply to all of Plan PPO insurance products and are not specific to FEHBP.

Plans without contracts with the VA

Plan payment of VA billed charges where the Plan does not have provider contracts
with the VA and does not have an allowance for the same service for the same
geographic area are also reasonable. The payments at billed charges were also
reasonable because:

(1) The VA payments were ordinary and necessary for the conduct of BCBS Plan
    business and performance.

(2) The VA payments were based on and complied with federal laws and regulations.

(3) The VA payments furthered Plans’ responsibilities to the Government, other
    customers, the owners of the business, employees, and the public at large and

(4) The Plans pay billed charges for all lines of business where the Plan did not have a
    provider contract or an allowance for the same charge for the same geographic
    area.

Further, FEP Benefit Policy Manual, Chapter 12, page 25, states, “In processing claims
for services provided by non-preferred VA facilities, the local Plan should base its
reimbursement on the lower of, the VA’s reasonable charge or the local Plan’s
allowance for Preferred providers – if that allowance is the same as the amount the Plan
would allow for the same care or services in the same geographic area furnished by
Preferred providers other than the VA . . . . If the Plan bases its payment on a PPA
allowance that is lower than the VA’s reasonable charge, the Plan must be prepared to
provide documentation to the VA to support its action.”

The key phrase is “if the Plan has an allowance that is the same amount the Plan would
allow for the same care or services in the same geographic area". In those cases
where Plans did not have a provider contract with the VA, the Plans paid charges as
stated above. As a result, these Plans could not have paid less than billed charges and
been able to support that payment with the VA because it did not have a preferred
provider allowance that could be applied. As such, these Plans correctly responded
that they do not contract with the VA and paid billed charges as there was no alternative
payment capable of meeting the requirements of the VA regulation. As a result,
                                                               Report No. 1A-99-00-16-021
payment of billed charges is consistent with the BPM requirement to pay the lesser of
the billed charge, or pay the allowance, which in this case did not exist. And, as stated
previously, paying the VA’s Reasonable Charge would, per the VA payment regulation,
be reasonable. Since the VA billed charge is set by OMB at a discount of the
geographic average, Plans who do not contract with the VA and do not have an
allowance that is paid for the same service in the same geographic area were, in paying
the billed charge, and by virtue of the applicable federal regulation, automatically
obtaining the regional discount and paying a reasonable reimbursement rate. As a
result, no additional action plans are required.

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

Sincerely,




Managing Director, Program Assurance
Federal Employee Program

Attachment




                                                              Report No. 1A-99-00-16-021
                                                                             



               Report Fraud, Waste, and
                   Mismanagement 

                        Fraud, waste, and mismanagement in
                     Government concerns everyone: Office of
                         the Inspector General staff, agency
                      employees, and the general public. We
                    actively solicit allegations of any inefficient
                          and wasteful practices, fraud, and
                     mismanagement related to OPM programs
                    and operations. You can report allegations
                                to us in several ways:


     By Internet:        http://www.opm.gov/our-inspector-general/hotline-to-
                         report-fraud-waste-or-abuse


      By Phone:          Toll Free Number:                  (877) 499-7295
                         Washington Metro Area:             (202) 606-2423


        By Mail:         Office of the Inspector General
                         U.S. Office of Personnel Management
                         1900 E Street, NW
                         Room 6400
                         Washington, DC 20415-1100