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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspet:tor General
AUDIT REPORT
Federal Employees Health Benefits Program
Employee Organization Plan
Coventry Health Care
as Underwriter and Administrator for the
Mail Handlers Benefit Plan
Contract CS 1146 Plan Codes 45 and 48
Rockville, Maryland
REPORT NO. IB-45-00-08-016 DATE: March 26,2009
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Michael R. Esser
Assistant Inspector General
for Audits
www.opm.goY www.usajobs.goY
UNITED STATES OFFICE·OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspector General
EXECUTIVE SUMMARY
Federal Employees Health Benefits Program
Employee Organization Plan
Coventry Health Care
as Underwriter and Administrator for the
Mail Handlers Benefit Plan
Contract CS 1146 Plan Codes 45 and 48
Rockville, Maryland
REPORT NO. IB-45-00-08-016 DATE:March 26, 2009
This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at
Coventry Health Care (Plan), as underwriter and administrator for the Mail Handlers Benefit Plan,
questions $7,813,325 in health benefit charges, $6,000,000 in excess working capital funds, and
$108,015 in administrative expenses. The Plan agreed (A) with $11,921,340 and disagreed (D)
with $2,000,000 of the questioned charges. Lost investment income (LII) on the questioned
charges amounts to $31,454.
Our audit was conducted in accordance with Government Auditing Standards. The audit covered
claim payments from 2005 through September 30, 2007, as well as miscellaneous payments and
credits and administrative expenses from 2002 through 2006 as reported in the Annual
Accounting Statements. In addition, we reviewed the Plan's cash management practices related
to FEHBP funds for contract years 2002 through 2006.
Questioned items are summarized as follows:
www.opm.gDv www.usajobs.gov
HEALTH BENEFIT CHARGES
Claim Payments
• Coordination of Benefits with Medicare fA) $4,392,402
The Plan incorrectly paid 7,378 claim lines, resulting in overcharges of $4,392,402 to the
FEHBP. Specifically, the Plan did not properly coordinate 6,550 claim line payments with
Medicare as required by the FEHBP contract. As a result, the FEHBP paid as the primary
insurer for these claims when Medicare was the primary insurer. Therefore, we estimate that
the FEHBP was overcharged by $4,279,856 for these claim lines. The remaining 828 claim
line payments were not coordination of benefit errors but contained other Plan payment errors,
resulting in overcharges of$112,546 to the FEHBP.
• Claims Paid for Ineligible Patients fA) $2,529.912
The Plan paid 10,275 claim lines that were incurred during gaps in patient coverage or after
termination of patient coverage with the Mail Handlers Benefit Plan, resulting in overcharges
of$2,411,097 to the FEHBP. In addition, the Plan paid 2,167 claim lines for patients with no
enrollment identification numbers, resulting in overcharges of$118,815 to the FEHBP. In:
total, the FEHBP is due $2,529,912·for claim overcharges.
• Omnibus Budget Reconciliation Act of 1990 Review fA) $443,265
The Plan incorrectly paid 13 claims that were priced or potentially should have been priced
under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines, resulting in net
overcharges of $443,265 to the FEHBP. Specifically, the Plan overpaid 11 claims by
.$446,625 and underpaid 2 claims by $3,360.
• Duplicate Claim Payments fA) $335,561
The Plan improperly charged the FEHBP for 527 duplicate claim payments.
• Claim Payment Errors fA) $98.608
The Plan incorrectly paid 36 claims, resulting in overcharges to the FEHBP.
Miscellaneous Payments and Credits
• Health Benefit Recovery fA) $13,577
The Plan did not return one health benefit recovery to the FEHBP. As a result, the FEHBP is
due $13,577, consisting of $12,607 for the recovery not returned and $970 for LII on this
recovery.
11
ADMINISTRATIVE EXPENSES
• Unallowable and/or Unallocable CNA Overhead Costs (A) $108,015
CNA (former underwriter of the Mail Handlers Benefit Plan) charged the FEHBP for
unallowable and/or unallocable costs that were included in overhead cost pools, resulting in
overcharges to the FEHBP for 2002.
CASH MANAGEMENT
• Working Capital Deposit $6,000,000
At the end ofthe audit scope (as ofpecember 31, 2006), the Plan held a working capital(WC)
deposit with an excess amount of $4,000,000 over the amount needed to meet the Plan's daily
cash needs for FEHBP claim payments and administrative expenses. In response to our initial
audit inquiry, the Plan provided a WC calculation showing that the Plan held an excess
amount of $6,000,000 in FEHBP funds as of August 31, 2008.
The Plan agreed (A) with $4,000,000 and disagreed (D) with $2,000,000 of the questioned
charges. Although the Plan made an adjustment of $6,000,000 to the we deposit as a result
of our audit, the Plan did not agree with the inclusion of the additional $2,000,000 in the audit
finding because the amount was not related to the current audit period.
LOST INVESTMENT INCOME ON AUDIT FINDINGS
As a result of the audit findings presented in this audit report, the FEHBP is due LII of
$31gS4, calculated through December 31, 2008.
111
CONTENTS
PAGE
EXECUTIVE SUMMARY i
I. INTRODUCTION AND BACKGROUND 1
II. OBJECTIVES, SCOPE, AND METHODOLOGY 3
III. AUDIT FINDINGS AND RECOMMENDATIONS 6
A. HEALTH BENEFIT CHARGES 6
t. Claim Payments 6
a. Coordination of Benefits with Medicare 6
b. Claims Paid for Ineligible Patients 10
c. Omnibus Budget Reconciliation Act of 1990 Review 12
d. Duplicate Claim Payments 15
e. Claim Payment Errors 16
2. Miscellaneous Payments and Credits ., 18
a. Health Benefit Recovery ~ 18
B. ADMINISTRATIVE EXPENSES 20
1. Unallowable and/or Unallocable CNA Overhead Costs 20
C. CASH MANAGEMENT 21
1. Working Capital Deposit 21
D. LOST INVESTMENT INCOME ON AUDIT FINDINGS 23
IV. MAJOR CONTRIBUTORS TO THIS REPORT 24
V. SCHEDULES
A. CONTRACT CHARGES AND AMOUNTS QUESTIONED
B. QUESTIONED CHARGES
C. LOST INVESTMENT INCOME CALCULATION
APPENDIX (Claims Administration Corp's reply, an affiliate of Coventry Health
Care, dated December 18,2008, to the draft audit report)
I. INTRODUCTION AND BACKGROUND
INTRODUCTION
This final audit report details the findings, conclusions, and recommendations resulting from our
audit ofthe Federal Employees Health Benefits Program (FEHBP) operations at Coventry Health
Care (Plan) as underwriter and administrator for the Mail Handlers Benefit Plan (MHBP). The
Plan is located in Rockville, Maryland.
The audit was performed by the Office of Personnel Management's (OPM) Office of the Inspector
General (OIG), as established by the Inspector General Act of 1978, as amended.
BACKGROUND
The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law
86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents. OPM's Center for Retirement and
Insurance Services 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.
MHBP is an experience-rated employee organization plan offering health care benefits to its
subscribers. MHBP is open to all Federal employees and annuitants who are eligible to enroll in
the FEHBP and who are, or become, members or associate members of the National fostal Mail
Handlers Union (Union). The Union is the sponsor of the MHBP, operating under Contract CS
1146 to provide a health benefits plan authorized by the FEHB Act.
The following contractual relationships existed during the audit period:
• The Union contracted with Niagara Fire Insurance Company (Niagara) to perform the
underwriting and administrative responsibilities through June 30, 2002. Niagara was part of
a group of companies, referred to collectively as CNA. Niagara delegated the administrative
functions to an affiliate, Claims Administration Corp (CAC), and CAC entered into contracts
for pharmacy benefit management and managed care services for the MHBP.
• Effective July 1, 2002, First Health Life and Health Insurance Company and Cambridge Life
Insurance Company (jointly referred to as First Health Life) assumed the responsibilities for
underwriting and administering the contract. In addition, First Health Group Corporation
(First Health), the parent company of First Health Life, acquired CAC.
• Effective January 1,2003, the Union contracted with First Health Life to underwrite the
MHBP and with CAC to perform the administrative functions. In addition, the Union
contracted with First Health to provide pharmacy benefit management and health benefit
servIces.
I
• On January 28, 2005, First Health was acquired by Coventry Health Care. The Union has the
following contractual arrangements with affiliates of Coventry Health Care:
)- First Health Life underwrites the MHBP;
)- CAC performs the administrative functions; and
)- First Health provides pharmacy benefit management and health benefit services.
The MHBP's contract (CS 1146) with aPM is experience-rated. Thus, the costs of providing
service benefits in the prior years are reflected in current and future year's premium rates. In
addition, the contract provides that in the event of termination, unexpended program funds revert
to the Federal Government (FEHBP Trust Fund). In recognition of these provisions, the contract
requires an accounting of program funds to be submitted at the end of each contract year. The
accounting is made on a statement of operations known as the Annual Accounting Statement.
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the Plan
management. Also, management of the Plan is responsible for establishing and maintaining a
system of internal controls.
The findings from our previous audit of the MHBP (Report No. IB-45-02-02-069, dated
September 22, 2004), covering CNA administrative expenses for contract years 1999 through
2001, have been satisfactorily resolved. During this period, CNA was the underwriter for the
MHBP.
The results of our audit were provided to the Plan in written audit inquiries; were discussed with
Plan officials throughout the audit and at an exit conference; and were presented in detail in a
draft report, dated October 23, 2008. The Plan's comments offered in response to the draft report
were considered in preparing our final report and are included as an Appendix to this report.
2
II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES
The objectives of our audit were to determine whether the Plan charged costs to the FEHBP and
provided services to FEHBP members in accordance with the terms of the contract. Specifically,
our objectives were as follows:
Health Benefit Charges
• To determine whether the Plan complied with contract provisions relative to benefit
payments.
• To determine whether miscellaneous payments charged to the FEHBP were in
compliance with the terms of the contract.
• To determine whether credits and miscellaneous income relating to FEHBP benefit
payments were returned promptly to the FEHBP.
Administrative Expenses
• To determine whether administrative expenses charged to the contract were actual,
allowable, necessary, and reasonable expenses incurred in accordance with the terms
of the contract and applicable regulations.
Cash Management
• To determine whether the Plan handled FEHBP funds in accordance with applicable
laws and regulations concerning cash management in the FEHBP.
SCOPE
We conducted our performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient and
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
We reviewed the MHBP's FEHBP Annual Accounting Statements for contract years 2002
through 2006. During this period, the Plan paid approximately $9.8 billion in health benefit
charges and $977 million in administrative expenses (See Figure 1 and Schedule A). The Plan
also paid approximately $88 million in other expenses and retentions (See Schedule A).
3
Specifically, we reviewed approximately $54 million in claim payments made from 2005 through
September 30, 2007 for coordination of benefits, duplicate payments, and proper adjudication. In
addition, we reviewed miscellaneous payments and credits (Le., refunds, subrogation recoveries,
provider audit recoveries, fraud recoveries, and phannacy drug rebates), administrative expenses,
and cash management for 2002 through 2006.
In planning and conducting our audit, we
Conventry Health Care as
obtained an understanding of the Plan's
UndelWriter and Administrator for the MHBP
internal control structure to help determine Summary of Contract Charges
the nature, timing, and extent of our
$2.5
auditing procedures. This was determined
to be the most effective approach to select $2.0
CIl
areas of audit. For those areas selected, we I:
o $1.5
primarily relied on substantive tests of ~
transactions and not tests of controls. ~ $1.0
Based on our testing, we did not identify
$0.5
any significant matters involving the Plan's
internal control structure and its operation. $0.0
However, since our audit would not 2002 2003 2004 2005 2006
Contract Years
necessarily disclose aU significant matters
in the internal control structure, we do not r:l Health Benefit Payments • Admin istrative Expenses
express an opinion on the Plan's system of
internal controls taken as a whole. Figure 1 - Contract Charges
We also conducted tests to determine whether the Plan had complied with the contract, the
applicable procurement regulations (i.e., Federal Acquisition Regulations (FAR) and Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
items-'tested, the Plan did not comply with all provisions of the contract and federal procurement
regulations. Exceptions noted in the areas reviewed are setforth in detail in the "Audit Findings
and Recommendations" section of this audit report. With respect to the items not tested, nothing
came to our attention that caused us to believe that the Plan had not complied, in all material
respects, with those provisions.
In conducting our audit, we relied to varying degrees on computer-generated data provided by the
Plan and the Centers for Medicare and Medicaid Services. Due to time constraints, we did not
verify the reliability of the data generated by the various information systems involved.
However, while utilizing the computer-generated data during our audit testing, nothing came to
our attention to cause us to doubt its reliability. We believe that the data was sufficient to
achieve our audit objectives.
The audit was performed at the Plan's officein Rockville, Maryland from May 13,2008 through
June 20, 2008. Audit fieldwork was also performed at our offices in Washington, D.C. and
Cranberry Township, Pennsylvania through October 23,2008.
4
The Plan did a great job supporting our audit and promptly responded to our questions, samples,
infonnation requests, and audit inquiries. Also, the Plan was very cooperative and well prepared
for our audit.
METHODOLOGY
We obtained an understanding of the internal controls over the Plan's claims processing,
financial, and cost accounting systems by inquiry of Plan officials.
To test the Plan's compliance with the FEHBP health benefit provisions, we selected and
reviewed samples of 11,121 claims. I We used the FEHBP contract, the benefit plan brochure,
and the Plan's provider agreements to detennine the allowability of benefit payments. The
results of these samples were not projected to the universe of claims.
We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting
records during our audit of miscellaneous payments and credits. We also selected and reviewed
health benefit refunds, subrogation recoveries, provider audit recoveries, fraud recoveries, and
pharmacy drug rebates to detennine if refunds, recoveries, and rebates were returned to the
FEHBP in a timely manner. 2
We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2002 through 2006. Specifically, we reviewed administrative expenses relating to cost centers,
departments, natural accounts, out-of-system adjustments, prior period adjustments, pension,
employee health benefits, post-retirement benefits, executive compensation, gains and losses,
return on investment, subcontracts, benefit plan brochure costs, and Health Insurance Portability
and Accountability Act of 1996 compliance. We used the FEHBP contract, the FAR, and the
FEHBAR to deternHne the allowability, allqcability, and reasonableness of charges.
We also reviewed the Plan's cash management to determine whether the Plan handled FEHBP
funds in accordance with Contract CS 1146 and applicable laws and regulations.
I See the audit findings for "Coordination of Benefits with Medicare" (Al.a), "Claims Paid for Ineligible Patients"
(Al.b), "Omnibus Budget Reconciliation Act of 1990 Review" (A] .c), "Duplicate Claim Payments" (A I.d), and
"Claim Payment Errors" (AI.e) on pages 6 through 18 for specific details of our sample selection methodologies.
2 See the audit finding for "Health Benefit Recovery" (A2.a) on pages 18 through 20 for specific details of our
sample selection methodologies.
5
III. AUDIT FINDINGS AND RECOMMENDATIONS
A. HEALTH BENEFIT CHARGES
1. Claim Payments
a. Coordination of Benefits with Medicare $4,392,402
The Plan incorrectly paid 7,378 claim lines, resulting in overcharges of $4,392,402 to
the FEHBP. Specifically, the Plan did not properly coordinate 6,550 claim line
payments with Medicare as required by the FEHBP contract. As a result, the FEHBP
paid as the primary insurer for these claims when Medicare was the primary insurer.
Therefore, we estimate that the FEHBP was overcharged by $4,279,856 for these claim
lines. The remaining 828 claim line payments were not coordination of benefit errors
but contained other Plan payment errors, resulting in overcharges of$112,546 to the
FEHBP.
The 2007 Mail Handlers Benefit Plan brochure, page 126, Primary Payer Chart,
illustrates when Medicare is the primary payer. In addition, page 22 of that brochure
states, "We limit our payment to an amount that supplements the benefits that Medicare
would pay under Medicare Part A (Hospital Insurance) and Medicare Part B (Medical
Insurance), regardless of whether Medicare pays."
Contract CS 1146, 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)(I) states, "The
. Carrier may charge a cost to the contract for a contract term if the cost is actual,
allowable, allocable, and reasonable ...."
In addition, Contract CS 1146, Part II, section 2.3(g) states, "If the Carrier or aPM
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 ."
For claims incurred and paid from October 1, 2005 through September 30, 2007, we
performed a computer search and identified 362,781 claim lines, totaling $28,315,090
in payments, that potentially were not coordinated with Medicare. From this
universe, we selected for review a sample of 19,571 claim lines, totaling $12,599,311
in payments, to determine whether the Plan complied with the contract provisions
relative to coordination of benefits (COB) with Medicare. When we submitted our
sample of potential COB errors to the Plan on November 15,2007, the claims were
within the Medicare timely filing requirement and could be filed with Medicare for
coordination of benefits.
6
The following table is a summary of the claim lines that were selected for review:
Claim Type Claim Amounts Sample Selection
Lines Paid Methodology
Medicare Part A Primary for 1,181 $6,017,539 Patients with cumulative
Inpatient (lIP) Facility claims of $750 or more
Medicare Part A Primary for 337 $428,114 Patients with cumulative
Skilled Nursing, Home Health claims of $2,500 or more
Care (HHC), and Hospice Care
Medicare Part B Primary for 168 $1,234,806 .Patients with cumulative
Certain lIP Facility Charges claims of $5,000 or more
Medicare Part B Primary for 0 $0 The potential COB errors
Skilled Nursing, HHC, and were immaterial. Therefore,
Hospice Care no claim lines were selected.
Medicare Part B Primary for 3,029 $2,548,641 Patients with cumulative
Outpatient Charges claims of $2,500 or more
Medicare Part B Primary for 14,856 $2,370,211 Patients with cumulative
Professional Charges claims of$4,000 or more
Total 19,571 $12,599,311
Generally, Medicare Part A covers 100 percent of inpatient care in hospitals, skilled
nursing facilities, hospice care, and home health care. For each Medicare Benefit
Period, there is a one-time deductible, followed by a daily copayment beginning with
the 61 sl day. Beginning with the 91 st day of the Medicare Benefit Period, Medicare
Part A benefits may be exhausted, depending on whether the patient elects to use their
Lifetime Reserve Days. For the uncoordinated Medicare Part A claims, we estimate
that the FEHBP was overcharged for the total chum payment amounts. When
applicable, we reduced the questioned amount by the Medicare deductible andlor
Medicare copayment.
Medicare Part B pays 80 percent of most outpatient charges and professional claims
after the calendar year deductible has been met. Also, Medicare Part B covers a
portion of inpatient facility charges for ancillary services such as durable medical
equipment, medical supplies, diagnostic tests, and clinical laboratory services. Based
on our experience, ancillary items account for approximately 30 percent of the total
inpatient claim payment. Therefore, we estimate that the FEHBP was overcharged 25
percent for these inpatient claim lines (0.30 x 0.80 = 0.24 ~ 25 percent).
Based on our review of the potential COB errors in our sample, we identified 7,378 claim
lines that were paid incorrectly, resulting in overcharges of $4,392,402 to the FEHBP. 3
JIn addition, there were 225 claim lines, totaling $405,042 in payments, with COB errors that were identified and
adjusted by the Plan prior to receiving our sample of potential COB errors. Since these COB errors were identified
and adjusted by the Plan prior to receiving or sample, we did not question these COB errors in the final report.
7
The following table details the questioned payments by claim type:
Claim Type Claim Amounts Amounts
Lines Paid Questioned
Medicare Part A Primary for 201 $3,093,263 $2,725,919
UP Facility
Medicare Part A Primary for 32 $28,608 $28,608
Skilled Nursing, HHC, and
Hospice Care
Medicare Part B Primary for 4 $79,170 $18,890
Certain IIP Facility Charges
Medicare Part B Primary for 0 $0 $0
Skilled Nursing, HHC, and
Hospice Care
Medicare Part B Primary for 1,038 $966,989 $731,476
Outpatient Charges
Medicare Part B Primary for 6,103 $972,347 $887,509
Professional Charges
Total 7,378 $5,140,377 $4,392,402
Our audit disclosed the following for the· claim payment errors:
• For 6,243 (85 percent) of the claim lines questioned, there was incorrect or no
Medicare COB information on the Plan's claims system to identify Medicare as
the primary payer when the claims were paid. However, when the correct
Medicare COB information was subsequently added to the claims system, the
Plan did not review andlor adjust the patient's prior claims back to the Medicare
effective dates. As a result, we estimate that the FEHBP was overcharged
$4,238,407 for these claim lines that were not coordinated with Medicare.
• For 828 (11 percent) of the claim lines questioned, we found that these claim lines
were not actually COB errors but contained other Plan payment errors. As a .
result, we detennined that the FEHBP was overcharged $112,546 for these claim
payment errors.
• For 307 (4 percent) of the claim lines questioned, the correct Medicare
information was present on the Plan's claims system to identify Medicare as the
primary payer when the claims were paid. The exact reason(s) why these claims
were not coordinated with Medicare could not be identified. As a result, we
estimate that the FEHBP was overcharged $41,449 for these claim lines that were
not coordinated with Medicare.
Of the $4,392,402 in questioned charges, $150,950 or 3 percent were identified by the
Plan prior to receiving our sample of potential COB errors on November 15, 2007.
However, since the Plan had not completed the recovery process andlor adjusted these
8
claims by November 15, 2007, we are continuing to question these COB errors. The
remaining questioned charges 0[$4,241,452 (97 percent) were identified as a result of
our audit.
Plan's Response:
The Plan agrees with this finding and states that these payments were good faith
erroneous benefit payments. The Plan immediately initiated efforts to recover these
overpayments in accordance with CS 1146, Part II, section 2.3(g). As part of the
Plan's recovery process, the Plan returns all overpayment recoveries to the FEHBP
promptly after being received.
The Plan also states, "a significant majority of the claim lines paid in error ... involved
coordination of benefits with a member's Medicare Part B primary coverage. Unlike
Medicare Part A, in which the MHBP can assume a member is enrolled as of the month
they tum age 65, enrollment in Medicare Part B not only is voluntary, but can be
deferred at the enrollee's election. In addition, the MHBP's ability to determine COB
status with Medicare Part B depends on its timely receipt of conversi~n to annuitant
status from the government payroll offices. In other words, obtaining credible evidence
demonstrating both (1) a member's annuitant status, and (2) hislher enrollment in
Medicare Part B is largely outside the MHBP's control, making COB errors extremely
difficult to avoid where that evidence is not timely furnished.
To facilitate it in avoiding Medicare COB errors to the greatest extent possible, the
MHBP participates in a Voluntary Data Sharing Agreement ("VDSA") with CMS.
Through that arrangement, the MHBP obtains the most up-to-date Medicare Part B
enrollment information available from CMS for uploading into its member eligibility
files."
Recommendation 1
We recommend that the contracting officer disallow $4,279,856 for uncoordinated
claim payments, and verify that the Plan returns all amounts recovered to the FEHBP.
Recommendation 2
We recommend that the contracting officer ensure that the Plan has procedures in
place to review all claims incurred back to the Medicare effective dates when
updated, other party liability information is added to the Plan's claims system. When
Medicare eligibility is subsequently reported, the Plan is expected to immediately
detennine if already paid claims are affected and, if so, to initiate the recovery process
within 30 days.
9
Recommendation 3
We recommend that the contracting officer disallow $112,546 in claim overcharges
resulting from other Plan payment errors, and verify that the Plan returns all amounts
recovered to the FEHBP.
b. Claims Paid for Ineligible Patients $2,529,912
The Plan paid 10,275 claim lines that were incurred during gaps in patient coverage or
after termination of patient coverage with the Mail Handlers Benefit Plan, resulting in
overcharges of $2,411 ,097 to the FEHBP. In addition, the Plan paid 2,167 claim lines
for patients with no enrollment identification (lD) numbers, resulting in overcharges of
$118,815 to the FEHBP. In total, the FEHBP is due $2,529,912 for claim overcharges.
As previously cited from Contract CS 1146, costs charged to the FEHBP must be
actual, allowable, allocable, and reasonable. If errors are identified, the Plan is
required to make a diligent effort to recover the overpayments.
Enrollees with No Coverage during Dates of Service
We performed a computer search to identify claims that were incurred and paid
during gaps in patient coverage or after tennination of patient coverage with the Mail
Handlers Benefit Plan. For the period January I, 2005 through September 30, 2007,
we identified claim payments, totaling $5,716,775, for 7,472 patients that met this
search criterion.
From this universe of 7,472 patients, we selected all patients with cumulative claim
. lines of $2,500 or more. This sample included 15,865 claim line payments, totaling
$4,212,231, for 330 patients. Our review of the sample identified 10,275 claim lines,
totaling $2,411,097 in payments, that were incurred and paid during gaps in patient
coverage or after termination of coverage. As a result, the FEHBP is due $2,411,097
for these improper payments.
patients with No Enrollment Record
We perfonned a computer search to identify claims incurred and paid for patients with
no enrollment ID numbers. For the period January 1, 2005 through September 30,
2007, our search identified claim payments, totaling $5,386,641, for 1,174 patients with
no enrollment ID numbers.
From this universe of 1,174 patients, we selected all patients with cumulative claim
lines of $2,000 or more. This sample included 26,826 claim line payments, totaling
$4,995,049, for 285 patients. Our review ofthe sample identified 2,167 claim lines,
totaling $118,815 in payments, that were made for patients with no enrollment ID
number. As a result, the FEHBP is due $118,815 for these improper payments.
10
Summary of Claims Paid to Ineligible Patients
In total, the Plan charged the FEHBP $2,529,912 for 12,442 claim line payments
made for ineligible patients. 4 Our audit disclosed the fonowing reasons for the errors:
• For 12,217 of the claim lines questioned, the Plan received retroactive termination
of patient coverage from the Federal agency's payroll office. However, when the
termination dates were subsequently received, the Plan did not review and/or adjust
the patient's prior claims back to the termination date. As a result, the FEHBP was
overcharged $2,415,908 in claim payments for patients not eligible for benefits.
• For 63 of the claim lines questioned, there were various eligibility errors. For
example, we identified an instance where the patient's coverage terminated during
an inpatient hospital stay and the Plan erroneously paid for all dates of service under
this claim. As a result, the FEHBP was overcharged $90,665 in claim payments for
patients not eligible for benefits.
• For 21 of the claim lines questioned, the claim processors entered incorrect data.
As a result, the FEHBP was overcharged $19,108 in claim payments for patients
not eligible for benefits.
• For 141 of the claim lines questioned, the Plan used incorrect social security
numbers to determine whether the patients were eligible for coverage. As a result,
the FEHBP was overcharged $4,231 in claim payments for patients not eligible
for benefits.
Of the $2,529,912 in questioned charges, $841,711 (33 percent) was identified by the
Plan prior to receiving our samples on February 28, 2008. However, since the Plan had
not completed the recovery process and/or adjusted these claim lines by February 28,
2008, we are continuing to question these eligibility errors. The remaining questioned
charges of $1 ,688,201 (67 percent) were identified as a result of our audit.
Plan's Response:
The Plan agrees with this finding and states, "12,217 of the 12,422 claim lines that we
concur were paid erroneously but in good faith, or 98%, were attributable to
Government agency payroll office delays in notifying the MHBP of an individual's
termination ofMHBP coverage. Section 1.5 of Contract No. CS 1146 provides that
benefit payments made as a result of such payroll office errors are valid charges
against that Contract." The Plan immediately began making efforts to recover the
4 In addition, there were 1,160 claim lines, totaling $733,453 in payments, with eligibility errors that were identified
and adjusted or voided by the Plan priorlo receiving our samples on February 28, 2008. Since these eligibility
errors were identified and adjusted or voided prior to receiving our samples, we did not question these claim line
payments in the final report.
11
overpayments as required by CS 1146, Part II, section 2.3(g). As part of the Plan's
recovery process, all amounts recovered on these overpayments will be credited to the
FEHBP promptly upon receipt.
The Plan also states, "payment of the overwhelming majority of the questioned claifll
lines is attributable to payroll office reporting delays. In short, the MHBP did not '
receive agency notification of the member's tennination until after the date on which it
adjudicated and issued payment on the claim line, i.e., circumstances that are beyond
the MHBP's ability to control and/or correct. That said, we plan to implement
procedures to ensure that upon receiving payroll office notice of an individual's
tennination of coverage, the MHBP identifies any and all post-tennination claims paid
under that enrollment and initiates overpayment recovery efforts on them as required
under Section 2.3(g) of Contract No. CS 1146, as supplemented by our OPM-approved
overpayment recovery guidelines."
Recommendation 4
We recommend that the contracting officer disallow $2,529,912 in claim overcharges,
and verify that the Plan returns all amounts recovered to the FEHBP.
Recommendation 5
We recommend that the contracting officer verify that the Plan implemented
procedures to ensur~ that when a payroll office notice of an individual's termination
of coverage is received, the Plan identifies all post-tennination claims paid under that
enrollment and immediately initiates overpayment recovery efforts.
c.. Omnibus, Budee. Reconciliation Act of 1990 Review $443.265
The Plan incorrectly paid 13 claims that were priced or potentially should have been
priced under the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) pricing
guidelines, resulting in net overcharges of$443,265 to the FEHBP. Specifically, the
Plan overpaid 11 claims by $446,625 and underpaid 2 claims by $3,360.
As previously cited from Contract CS 1146, costs charged to the FEHBP must be
actual, allowable, allocable, and reasonable. If errors are identified, the Plan is
required to make a diligent effort to recover the overpayments. Also, the Plan must
coordinate the payment of benefits with Medicare.
OBRA 90 limits the benefit payments for certain inpatient hospital services provided
to annuitants age 65 or older who are not covered under Medicare Part A. The
FEHBP fee-for-service plans are required to limit the claim payment to the amount
equivalent to the Medicare Part A payment.
12
Using a program developed by the Centers for Medicare and Medicaid Services
(CMS) to price OBRA 90 claims, we recalculated the claim payment amounts for the
claims in our samples that were subject to and/or processed as OBRA 90.
The following summarizes the claim payment errors.
Claims Not Priced Under OBRA 90
For the period 2005 through September 30,2007, we identified 5,374 claims, totaling
$37,583,828 in payments, that were potentially subject to OBRA 90 pricing guidelines
but appeared to be paid under the Plan's standard pricing procedures. From this
universe, we selected and reviewed a judgmental sample of274 claims, totaling
$19,424,926 in payments, to determine if the Plan paid these claims properly. Our
sample included all possible OBRA 90 claims with amounts paid of $30,000 or more.
Based on our review, we determined that nine of these claims were paid incorrectly,
resulting in overcharges of $396,381 to the FEHBP.
These claim payment errors resulted from the following:
• The Plan did not properly coordinate four claims with Medicare, resulting in
overcharges of $195,008 to the FEHBP. We determined that these claims should
not have been priced under OBRA 90 but should have been coordinated with
Medicare. These claim payment errors occurred because the Plan's claims system
contained incorrect Medicare COB information to identify Medicare as the
primary payer when the claims were paid. (These questioned overcharges are not
included in the "Coordination of Benefits with Medicare" finding (A 1. a).)
• The Plan did not price four claims under OBRA 90, resulting in overcharges of
$177,290 to the FEHBP. These claim errors occurred because the Plan's claims
system contained incorrect Medicare COB or subscriber retirement information
when the claims were paid.
• The Plan inadvertently did not price one claim under OBRA 90, resulting in an
over~harge of $24,083 to the FEHBP. The exact cause of this claim payment
error could not be identified".
OBRA 90 Claim Pricing Errors
For the period 2005 through September 30, 2007, we identified 2,075 claims, totaling
$18,366,598 in payments, that were" subject to OBRA 90 pricing guidelines. From
this universe, we selected and reviewed a judgmental sample of 100 claims, totaling
$4,522,005 in payments, to determine if these claims were correctly priced and paid
by the Plan. Our sample included all OBRA 90 claims with amounts paid of $23,400
or more.
13
Based on our review, we determined that four of these claims were paid incorrectly,
resulting in net overcharges of $46,884 to the FEHBP. Specifically, the Plan ov.erpaid
two claims by $50 1244 and underpaid two claims by $3,360.
These claim payment errors resulted from the following:
• The Plan did not properly coordinate one claim with Medicare, resulting in an
overcharge of $47,599 to the FEHBP. We detennined that this claim should not
have been priced under OBRA 90 but should have been coordinated with
Medicare. This claim payment error was identified by the Plan prior to receiving
our sample on December 14,2007. However, since the Plan did not complete the
recovery process and/or adjust this claim prior to receiving our sample, we are
continuing to question this claim payment error. (This questioned overcharge is
not included in the "Coordination of Benefits with Medicare" finding (A 1. a).)
• The Plan priced two claims using an earlier version of the eMS Pricer, resulting
in net undercharges of $21 0 to the FEHBP. Specifically, the Plan overpaid one
claim by $2,645 and underpaid one claim by $2,855.
• The Plan incorrectly priced one claim due to a manual pricing error, resulting in
an undercharge of$505 to the FEHBP. Specifically, the Plan incorrectly reduced
the diagnostic related grouping (DRG) payment by subtracting the difference
between the private room rate and the semi-private room rate. Under DRG
pricing guidelines, this difference should not be excluded from the total billed
amount.
Plan's Response:
The Plan agrees with this finding and states that these payments were good faith
erroneous benefit payments. The Plan immediately began making efforts to recover
the overpayments as required by CS 1146, Part III section 2.3(g). As part of the
Plan's recovery process, all amounts recovered on these overpayments will be
credited to the FEHBP promptly upon receipt.
The Plan also states that to the extent that several of the subject claims involve
Medicare COB issues, those claims will be subject to the corrective measures the Plan
implements as recommended under the "Coordination of Benefits with Medicare l l
finding (AI.a).
Recommendation 6
We recommend that the contracting officer disallow $446,625 in claim overcharges,
and verify that the Plan returns all amounts recovered to the FEHBP.
14
Recommendation 7
We recommend that the contracting officer allow the Plan to charge the FEHBP
$3,360 if additional payments are made to the providers to correct the underpayment
errors.
d. Duplicate Claim Payments $335,561
The Plan improperly charged the FEHBP $335,561 for 527 duplicate claim payments
from 2005 through September 30, 2007. These payments were unnecessary and
unallowable charges to the FEHBP.
As previously cited from Contract CS 1146, costs charged to the FEHBP must be
actual, allowable, allocable, and reasonable. If errors are identified, the Plan is
required to make a diligent effort to recover the overpayments.
Section 6(h) of the FEHB Act provides that rates should reasonably and equitably
reflect the costs of benefits provided.
We performed a computer search for potential duplicate payments on claims paid
during the period January 1,2005 through September 30, 2007. We selected and
reviewed 1,159 groups, totaling $1,625,030 (out of25,959 groups, totaling
$1,758,856) in potential duplicate payments, under our "best matches" criteria. We
also selected and reviewed 658 groups, totaling $1,170,820 (out of91,985 groups,
totaling $3,258,561) in potential duplicate payments, under our "near matches"
criteria. Our samples included all groups with potential duplicate payments of $250
or more under the "best matches" criteria and $500 or more under the "near matches"
criteria.
Based on our review, we determined that 468 claim payments in our "best matches"
sample were duplicates, resulting in overcharges of $291,526 to the FEHBP. Also,
we determined that 59 claim payments in our "near matches" sample were duplicates,
resulting in overcharges of $44,035 to the FEHBP. In total, the Plan charged the
FEHBP $335,561 for these 527 duplicate claim payments from 2005 through
September 30,2007.5 These duplicate claim payments occurred when the claims
were deferred as potential duplicates on the claims system, but were overridden by the
processors.
5 In addition, there were 35 duplicate claim payments, totaling $36,747, that were identified and adjusted or voided
by the Plan prior to receiving our samples on November 15,2007. Since these duplicate claim payments were
identified .!!cnd adjusted or voided by the Plan prior to receiving our samples, we did not question these duplicate
claim payments in the final report.
15
Plan's Response:
The Plan agrees with this finding and states that these payments were good faith
erroneous benefit payments. The Plan immediately began making efforts to recover
the overpayments as required by CS 1146, Part II, section 2.3(g). As part ofthe
.Plan's recovery process, all amounts recovered on these overpayments will be
credited to the FEHBP promptly upon receipt.
Recommendation 8
We recommend that the contracting officer disallow $335,561 for duplicate claim
payments charged to the FEHBP, and verify that the Plan returns all amounts
recovered to the FEHBP.
Recommendation 9
We recommend that the contracting officer instruct the Plan to identify the root
cause(s) of the claim payment errors and develop an action plan to prevent these types
of errors in the future.
e. Claim Payment Errors $98,608
The Plan incorrectly paid 36 claims, resulting in overcharges of $98,608 to the
FEHBP.
As previously cited from Contract CS 1146, costs charged to the FEHBP must be
actual, allowable, allocable, and reasonable. If errors are identified, the Plan is
.required to make a diligent effort to recover the overpayments.
The following summarizes the claim payment errors.
Assistant Surgeon Review
For the period January 1,2005 through September 30, 2007, we identified 2,883
assistant surgeon claim groups, totaling $564,728 in potential overpayments, that may
not have been paid in accordance with the Plan's assistant surgeon pricing procedures.
From this universe, we selected and reviewed a judgmental sample of 86 assistant
surgeon claim groups, totaling $174,812 in potential overpayments, to determine if
the Plan paid these claims properly. Our sample included all assistant surgeon claim
groups with potential overpayments of$l,OOO or more. The majority of these claim
groups contained one primary surgeon and one assistant surgeon claim. Based on our
review, we determined that 23 claims were paid incorrectly, resulting in overcharges
of $53,611 to the FEHBP.
16
The claim payment errors resulted from the following:
• The Plan paid 12 claims to non-covered providers, resulting in overcharges of
$35,514 to the FEHBP. Specifically, these providers were physician assistants
that were not covered for surgery.
• The Plan incorrectly paid six claims due to various manual pricing errors,
resulting in overcharges of $7,965 to the FEHBP. For example, the Plan paid one
claim without applying the 10 percent co-insurance amount.
• The Plan did not limit the allowable charge to the Plan's allowance when pricing
three Non-Preferred Provider Organization (non-PPO) claims, resulting in
overcharges of $7,465 to the FEHBP.
• The Plan incorrectly paid two assistant surgeon claims, resulting in overcharges of
$2,667 to the FEHBP. These overcharges were due to errors in the calculation of
the assistant surgeon fee, which should have been priced at 16 percent of the
primary surgeon allowed amount.
In addition to the above sample, the Plan identified six additional assistant surgeon
claims that were paid incorrectly due to errors in the calculation of the assistant
surgeon fee. As a result, the FEHBP was overcharged an additional $3,802.
System Review
For health benefit claims reimbursed during the period January 1,2007 through
September 30, 2007, we identified 7,025,774 claim lines, totaling $899,648,442 in
payments, using a standard criteria based on our audit experience. From this
universe, we selected and reviewed a judgmental sample of 125 claims (representing
323 claim lines), totaling $5,106,844 in payments, to detennine if the Plan
adjudicated these claims properly.6 Based on our review, we detennined that seven
claims were paid incorrectly, resulting in overcharges of $41,195 to the FEHBP.
The claim payment errors resulted from the following:
• The Plan did not limit the allowable charge to the Plan's allowance when pricing
three non-PPO claims, resulting in overcharges of$34,738 to the FEHBP.
6 We selected our sample from an DIG-generated "Place of Service Report" (SAS application) that stratified the
claims by place of service (POS), such as provider'S office and payment category, such as $50 to $99.99. We
judgmentally determined the number of sample items to select from each POS stratum based on the stratum's total
claim dollars paid.
17
• The Plan incorrectly paid three claims due to various manual pricing errors,
resulting in overcharges of $4,963 to the FEHBP. As an example, the Plan
entered an incorrect allowable amount when pricing a claim.
• In one instance, the Plan erroneously adjusted a claim that was priced correctly,
resulting in an overcharge of $1 ,494 to the FEHBP.
Plan's Response:
The Plan agrees with this finding and states that these payments were good faith
erroneous benefit payments. The Plan immediately began making efforts to recover
the overpayments as required by CS 1146, Part II, section 2.3(g). As part of the
Plan's recovery process, all amounts recovered on these overpayments will be
credited to the FEHBP promptly upon receipt.
Recommendation 10
We recommend that the contracting officer disallow $98,608 in claim overcharges,
and verify that the Plan returns all amounts recovered to the FEHBP.
2. Miscellaneous Payments and Credits
a. Health Benefit Recovery $13,577
The Plan did not return one health benefit recovery to the FEHBP. As a result, the
FEHBP is due $13,577, consisting of$12,607 for the recovery not returned and $970
for lost investment income (LII) on this recovery.
48 CFR 31.201-5 states, "The applicable portion of any income, rebate, allowance, or
other credit relating to any allowable cost and received by or accruing to the
contractor shall be credited to the Government either as a cost reduction or by cash
refund." Based on insurance industry practice, the Plan should have returned the
recovery to the FEHBP within 30 days after being received.
48 CFR 1652.215-71 (e) states that investment income lost on these funds should be
credited to the FEHBP. In addition, section (f) ofthis regulation states, "All lost
investment income payable shall bear simple interest at the quarterly rate determined
by the Secretary of the Treasury ...."
For the period 2002 through 2006, there were 255,937 health benefit refunds and
recoveries (i.e., claim overpayment refunds, subrogation recoveries, provider audit
recoveries, fraud recoveries, and pharmacy drug rebates) totaling $259,807,213. From
this universe, we judgmentaUy selected and reviewed 161 health benefit refunds and
recoveries, totaling $63,994,475, to determine if the Plan returned these funds to the
FEHBP in a timely manner.
18
Our sample selections included the following:
• From 2002 through 2004, we selected the 30 highest recovery check amounts for
each year.
• During 2005, the Plan changed the reporting format of tracking health benefit
refunds and recoveries. Therefore, we adjusted our sample selection methodology
as follows:
» From January 2005 through May 2005, we selected the 10 highest recovery
check amounts.
» From June 2005 through December 2005, we selected the 10 highest recovery
check amounts, all pharmacy drug rebates, the 5 highest subrogation recovery
amounts, and the 5 highest provider audit recovery amounts.
» From 2005, we also judgmentally selected six high dollar fraud recovery amounts.
• From 2006, we selected the 10 highest recovery check amounts, all pharmacy drug
rebates, the 5 highest subrogation recovery amounts, and the 5 highest provider
audit recovery amounts. We also judgmentally selected six high dollar fraud
recovery amounts.
Based on our review, we determined that the Plan did not return one health benefit
recovery of $12,607 to the FEHBP. The Plan did not return this amount to the FEHBP
because it inadvertently did not cash the provider's refund check. As a result, the
FEHBP is due $13,577, consisting of$12,607 for the recovery not returned and $970
for LII on this recovery. Subsequent to our identification of this oversight, the Plan
requested and received a replacement check from the provider, and returned the funds
to the FEHBP on July 10, 2008.
As part of this finding, we calculated LII through December 31,2006 on the health
benefit recovery that was not returned to the FEHBP. In schedule C of this report, we
calculated additional LII from January 1,2007 through July 9, 2008.
Plan's Response:
The Plan agrees with this finding.
Recommendation 11
We verified that the Plan returned $12,607 to the FEHBP on July 10,2008 for the
questioned health benefit recovery. Therefore, no further action is required for this
questioned amount.
19
Recommendation 12
We recommend that the contracting officer direct the Plan to credit the FEHBP $970
for LII on the questioned health benefit recovery.
B. ADMINISTRATIVE EXPENSES
1. Unallowable and/or Unallocable CNA Overhead Costs $108,015
CNA (the former underwriter of the Mail Handlers Benefit Plan) charged the FEHBP for
unallowable and/or unallocable costs that were included in overhead cost pools, resulting
in overcharges of $108,015 to the FEHBP for 2002. 1
Contract CSI 146, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the
contract for a contract term if the cost is actual, allowable, allocable, and reasonable."
48 CFR 31.201-4 states, "A cost is allocable if it is assignable or chargeable to one or
more cost objectives on the basis ofrelative benefits received or other equitable
relationship. Subject to the foregoing, a cost is allocable to a Government contract if it
a) Is incurred specifically for the contract;
b) Benefits both the contract and other work, and can be distributed to them in
reasonable proportion to the benefits received; or
c) Is necessary to the overall operation ofthe business, although a direct relationship to
any particular cost objective cannot be shown."
48 CFR 31 205-27(a)(I) states, "planning or executing the organization or reorganization
of the corporate structure of a business, including mergers and acquisitions ... are
:unallowable...."
We reviewed the prior audit of the MHBP (Report No. 1B-45-02-02-069, dated
September 22,2004), covering contract years 1999 though 2001, and determined ifCNA
continued to allocate any of the previously disallowed costs to the FEHBP. Based on our
review, we found that CNA charged $108,015 to the FEHBP for unallowable and/or
unallocable costs in 2002. Specifically, CNA charged the following unallowable and/or
unallocable costs to the FEHBP:
• Cost Center "0006252" (Casualty Actuarial): CNA allocated $79,252 to the FEHBP
through service codes "1630" (Corporate Finance G&A) and "1640" (Corporate
Finance Insurance).
7 Prior to July 1,2002, CNA was the underwriter for the Mail Handlers Benefit Plan.
20
• Cost Center "0009009" (Business Decision Support - Mergers and Acquisitions): CNA
allocated $25,016 to the FEHBP through service code "1640" (Corporate Finance
Insurance).
• Natural Account "6306371" (Corporate Indemnity Expense): CNA allocated $3,747
to the FEHBP through service code "1700" (Corporate Services).
These unallowable and/or unallocable costs were charged to the FEHBP through overhead
cost pools that were allocated to the FEHBP. Although these costs were disallowed on the
prior audit, CNA did not remove these costs from the 2002 cost filings. As a result, the
FEHBP is due $108,015 for unallowable and/or unallocable costs charged to the FEHBP.
Plan;s Response:
The Plan agrees with this finding.
Recommendation 13
We recommend that the contracting officer disallow $108,015 for unallowable and/or
unallocable costs that were charged to the FEHBP.
C. CASH MANAGEMENT
1. Working Capital Deposit $6,000,000
At the end of the audit scope (as of December 31, 2006), the Plan held a working capital
(WC) deposit with an excess amount of $4,000,000 over the amount needed to meet the
Plan's daily cash needs for FEHBP claim payments and administrative expenses.
Based on our audit experience of other FEHBP fee-for-service plans, the WC deposit
should be recalculated on an ongoing basis to detennine if the amount currently
maintained is adequate to meet the Plants daily cash needs for FEHBP claim payments
and/or administrative expenses. If the deposit is not adequate, the Plan should make an
appropriate adjustment.
During the audit scope, the Plan evaluated the WC deposit amount on several occasions,
and, made one adjustment. This adjustment was made by the Plan in March 2004 to
increase its WC balance to $47,000,000. To detennine if the Plan maintained an adequate
WC deposit, we recalculated what the Plan's fourth quarter 2006 WC balance should have
been and determined that, as of December 31, 2006, the Plan should have maintained a
WC balance of $43,000,000. Therefore, at the end of the audit scope, the Plan held a WC
balance with an excess amount of $4,000,000 over the amount needed to meet the Plan's
daily cash needs for FEHBP claim payments and administrative expenses.
21
In response to our initial audit inquiry, the Plan provided a more recent WC calculation of
claims clearing and administrative expenses showing that the Plan held an excess amount
of $6,000,000 in FEHBP funds as of August 31, 2008. We reviewed and agreed with the
Plan's we calculation.
Since the Plan maintained these excess funds in an interest-bearing account and timely
credited the interest earned on these funds to the FEHBP, no LII is due the FEHBP.
However, the Plan needs to make an adjustment to return the excess we funds of
$6,000,000 to the FEHBP letter of credit (LOC) account.
Plan's Response:
The Plan agrees that on the last day ofthe period under audit, December 31, 2006, the
we deposit was approximately $4,000,000 greater than the amount needed to satisfy
daily cash requirements at that time. The Plan also agrees that the $6,000,000 amount
later credited to the FEHBP reflects the extent to which the we deposit exceeded the
Plan's daily cash requirements as of August 31,2008. However, for purposes of
historical accuracy, the Plan does not agree that $6,000,000 should be reported in this
final report since the additional amount of $2,000,000 was not related to the current audit
period.
The Plan currently has procedures in place to monitor the we balance ensuring that
sufficient cash is available to meet the Plan's cash obligations. In addition, the Plan
states, "as part of its resolution of OPM OIG Audit No. 1B-45..00-00-064 for the period
ending December 31, 2001, the MHBP agreed to recalculate that balance requirement
annually and readjust it as necessarY, which we in fact did during the initial years of the
current audit period, typically during the first calendar year quarter. We inadvertently
failed to do this recalculation in 2006, however, because the first quarter time frame
coincided with a change in the MHBP's underwriter and administrator that resulted in
attentions being focused elsewhere...."
DIG Comments:
We will continue to question $6,000,000 since this was the excess amount held by the
Plan as of August 31, 2008, which was deteTIllined as a result of our audit and during our
audit fieldwork. In the audit finding, we also clearly point out the excess amounts held by
the Plan as of December 31, 2006 and August 31, 2008.
Recommendation 14
We verified that the Plan returned the excess WC funds of $6,000,000 (as of August 31,
2008) to the LOe account on October 8, 2008. Therefore, no further action is required for
these funds.
22
Recommendation 15
We recommend that the contracting officer verify that the Plan has proper procedures in
place to evaluate and adjustthe WC deposit on an annual basis, or more frequently should
a material change occur in the amount needed to meet the Plan's daily cash requirements.
D. LOST INVESTMENT INCOME ON AUDIT FINDINGS . $31,454
As a result of the audit findings presented in this report, the FEHBP is due LJI of$31,454
from January 1, 2003 through December 31, 2008.
48 CFR 1652.215-71 requires the carrier to invest and reinvest all excess FEHBP funds on
hand, and to credit all investment income earned on those funds to the Special Reserve on
behalf of the FEHBP. When the carrier fails to comply with these requirements, the carrier
shall credit the Special Reserve with investment income that would have been earned at the
rates specified by the Secretary of the Treasury. LJI payable on questioned costs bears simple
interest.
We computed investment income that would have been earned using the semiarumal rates
specified by the Secretary of the Treasury. Our computations show that the FEHBP is due
LII of $31 ,454 from January 1, 2003 through December 31, 2008 on questioned costs for
contract years 2002 through 2006 (see Schedules B and C).
Plan's Response:
The draft audit report did not include an audit finding for LII. Therefore, the Plan did not
address this item in its reply.
Recommendation 16
We recommend that the contracting officer direct the Plan to credit $31,454 (plus interest
accruing after December 31, 2008) to the Special Reserve for LII on audit findings.
23
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Experienced-Rated Audits Group
Auditor-In-Charge
, Auditor
, Auditor
Auditor
Chief
Senior Team Leader
24
SCHEDULE A
. V. SCHEDULES
COVENTRY HEALTH CARE AS UNDERWRITER AND ADMINISTRATOR
FOR THE MAIL HANDLERS BENEFIT PLAN
ROCKVILLE, MARYLAND
CONTRACT CHARGES AND AMOUNTS QUESTIONED
CONTRACf CHARGES· 2002 2003 2004 2005 2006 TOTAL
A. HEALTH BENEFIT CHARGES 52,164,583,386 $2,134,300,262 52,000,969,679 $1,825,275,686 51,713,363,109 59,838,492,122
B. ADMINISTRATIVE EXPENSES 225,911,478 206,070,709 196,764,755 180,395,104 168,147,032 977,289,078
C. OTHER EXPENSES AND RETENTIONS 18,464,509 19,689,041 17,512,269 17,357,200 15,224,427 88,247,446
TOTALCO~TRACTCHARGES I 52408959.373 52 360 060 012 52 215 246 703 52 023 027 990 51 896.734 568 510904028646
AMOUNTS QUESTIONED
2002 2003 2004 2005 2006 2007 2008 TOTAL
I(PER SCHEDULE B)
A. HEALTH BENEFIT CHARGES $0 SO 50 5821,277 52,408,758 54,583,290 SO S7,813,325
B. ADMINISTRATIVE EXPENSES 108,015 0 0 0 0 0 0 108,015
C. CASH MANAGEMENT 0 0 0 0 0 0 6,000,000 6,000,000
D. LOST INVESTMENT INCOME ON AUDIT FINDINGS 0 3,983 4,590 4,725 5,873 6,634 5,649 31,454
TOTAL QUESTIONED CHARGES I SI08015 S3983 S4590 5826002 52414631 54589924 56005.649 513 952.794
• We did not review claim payments for contract years 2002 through 2004 and other expenses and retentions for 2002 through 2006.
, SCHEDULED
COVENTRV H~ALTH CARE AS UNDERWRITER AND ADMINISTRATOR
. FOR mE MAIL HANDLERS BENEFIT PLA.!\'
ROCKVILLE, MARYLAND
~ QUESTIONED CHARGES
AUDIT FINDINGS 2002 2003 2004 2005 2006 2007 .2008 TOTAL
A. HEALTH BENEFIT CHARGES
1, Claim Pa)'ments
II. Coordination of Benefits witb Medicare SO SO SO $363,327 52,160,699 51,868,376 SO 54,392,402
b. Claims Paid for Ineligible Patients 0 0 0 0 2,529,912 0 2,529,912
c. Omnibus Budget Reconciliation Act of 1990 Review 0 °0 0 295,118 100,758 47,389 0 443,265
d. Duplicate aaim Payments 0 0 0 123,790 126,354 85.417 0 335,561
e. Claim Payment Errors 0 0 26,150 20,262 52,196 0 98,608
°
Total Claim PaymentS I SO SO SO $808,385 $2,408,073 $4,583,290 SO $7,799748
2. Mbcellaneous Payments and Credits
a. Health Benefit Recovery· SO SO SO S12,892 5685 SO $0 $13,577
Total Mbcellaneous Payments and Credits I SO SO SO S12,892 $685 SO SO 513577
TOTAL HEALTH BENEFIT CHARGES I SO SO SO S821277 S2 408 758 S4 583290 SO 57813325
B. ADMINISTRATIVE EXPENSES
1. Unallowable and/or Unallocable CNA Overbead Costs S108,015 SO SO SO SO SO SO Sl08,015
TOTAL ADMINISTRATIVE EXPENSES I $108015 SO SO SO $0 $0 SO S108015
C. CASH MANAGEMENT
1. Working Capital Deposit·· SO $0 SO SO SO SO $6,000.000 $6,000,000
TOTAL CASH MANAGEMENT I SO SO SO $0 SO SO $6,000,000 S6,ooo,ooo
D. LOST INVESTMENT INCOME ON AUDIT FINDINGS I SO S3983 $4590 54725 S5873 56634 55649 S31454
TOTAL QUESTIO~'EDCHARGES I S108.015 $3983 $4590 S826 002 $2414631 $4589924 S6oo5649 $13952794
• Only the principal amount of tbis audit Iinding is subject to lost investment income.
ow Audit finding is not subject to lost investment income since the Plan maintained the questioned funds in an interest-bearing account and credited tbe interest earned on these fundS to the letter of credit account.
SCHEDULEC
COVENTRY HEALTIl CARE AS UNDERWRITER AND ADMINISTRATOR
FOR THE MAIL HANDLERS BENEFIT PLAN
ROCKVILLE, MARYLAl\'D
LOST INVESTMENT INCOME CALCULATION
2002 2003 2004 2005 2006 2007 2008 TOTAL
A. QUESTIONED CHARGES (Subject to Lost In"estment Income)
Miscellaoeous Paymeots and Credits· SO SO SO SO 512,607 SO SO 512,607
Admioistrati"e Expeo5es 0 0
108,015 0
° 0 0 108.015
TOTAL I 5108015 SO SO SO 512607 SO SO S)20622
B. LOST INVESTMENT INCOME CALCULATION
a. Prior Years Total Questioned (principal) SO S108,015 SO SO SO 512,607 SO
b. Cumulati"e Total !! !! 108,015 108,015 108.015 108,015 120,622
Co Total SO S108.015 S108,015 5108,015 $108,015 5)20,622 S120,622
d. Treasury Rate: January 1. June 30 5.500% 4.250% 4.000% 4.250% 5.125°/0 5.250% 4.750%
e. Interest (d • c) SO $2,295 S2,160 $2,295 52,768 53,166 $2,865 S15,549
f. Tre:llsury Rate: July 1 - December 31 5.250% 3.125% 4.500% 4.500% 5.750% 5.750% 5.125%
g. Interest (f· c) SO 51,688 S2,430 52,430 $3,105 $3,468 52,784 515,905
Total Interest By Year (e + g) I SO 53983 S4,590 S4725 $5,873 $6634 $5649 531454
. Ouly the principal amount of the audit finding for miscellaneous payments aDd credits 00 Schedule B is subject to lost investment income.
Also, we only calculated lost investment income tbrougb July 9, 2008 on the principal amount since the Plan returned the questioned funds to the letter of credit account on July 10, 2008.
APPENDIX
CAe Claims Administration Corp
15400 Calhoun Drive, Rockville. Maryland 20855 Thomas R. Kirkparrick
CFO. Group Health 5etvices
Telephone· 301·517-2012
Fac.sim~: 301·511·2122
December 18. 2008
Chief
Experience-Rated Audits Group
U.S. Office of Personnel Management
Office of the Inspector General
1900 E Street, NW. Room 6400
Washington, DC 204] 5
Enclosed is the response of the Mail Handlers Benefit Plan ("'MHBP") to the U.S. Office
of Personnel Management Office of the Inspector General's Draft Audit Report No. IB
45-00-08-016 for the MHBP dated October 23,2008. A copy of this report is also being
furnished electronically_ on the enclosed flash drive. As we recently have advised OPM
OlG Auditor-in-Charge the enclosed flash drive also contains the
documentary support that constitutes Appendix A to said response. Please let me know if
you have any problems using the flash drive, or questions concerning the MHBP's
response.
The MHBP appreciates the courtesy and professionalism the entire O]G audit team
displayed during the audit, and looks forward to its resolution. On the MHBP's behalf, I
.wish all OfYOll a happy holidays.
Enclosure
cc:
I. AUDIT FINDINGS AND RECOMMENDATIONS
1. AUDIT FINDINGS AND RECOMMENDATIONS
A. HEALTH BENEFIT CHARGES
t. Claim Payments
a. Coordimltion of Benefits with Medicare $4.609.490
The Plan incorrectly paid /0,027 claim lines, resulting in overcharges of
S4,609, 490 to the FEHBP. Specifically, the Plan did not properly coordinate
6,,555 claim line payments wi/h Medicare as required by/he FEHBP contract.
As a result, the FEHBP paid as the primary insurer for these claims when
Medicare was the primmy insurer. Therefore, we estimate that/he FEHBP
was overcharged by $4,280. 737for these claim lines. The remaining 3.472
claim line payments were not coordination ofbenefit errors but comained
other Plem payment errors, resulting in overcharges of5328, 753 to the
FEHBP.
The 2007 Mail Handlers Benefit Plan brochure. page J26, PrimQlY Payer
Chart. illustrates when Medicare is the primwy payer. /n addition. page 22 of
that brochure states, .. We Umit our payment 10 an amount that supplements the
benefits that Medicare would pay under Medicare Part A (Hospital Insurance)
and Medicare Part B (Medical Insurance), regardless ofwhether Medicare
pays. "
Contract CS 1146. Part II, sectio112.6 slt1Ies, "(a) The Carrier shoJI
coordinClte the payment ofbenefits 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 primaly carrier . ..... A/so.
Part JII, section 3.2 (b)(l) states, "The Carrier may charge a cost 10 the
contract for a con/ract term if the cost is actual, allowable, allocable. and
reasonable . .....
In addition. Contract CS J /46. Partll. section 2.3(g)s/ates, "If the Carrier or
OPM determines that a Member's claim has been paid in errorfor any reason
.. ". lhe Car,;er shall make (, prompt and diligent effort to recover the
erroneous paymeJ1f .... "
For claims incllned a/Jd paidfrom Ot.'tober J, 2005 through September 30.
2007, we peJformed a compl4ter search and identified 362. 781 claim lines.
totaling 528,315.090 in payments that potentially were not coordinated with
AJedicare. From this universe, we selectedfor review a sample of /9,571
claim lines, totaling $12.599.31 J in payments. to determine whether (he Plan
complied with the contract provisions relative (0 coordinCltion ofbenefits
(COB) with Medicare. When we submitted our sample ofpOIentiaI COB
errors to the Plan on November J5. 1007. the claims were within the
2
J'yfedicare timelyfiling requirement and could befiled with Medicare for
coordinalion ofbenefirs.
The/allowing wble is a slImmGlyofthe claim lines that were selectedfor
review:
Claim Type Claim AmOllnls Sample Selection
Lines Paid MethadoloJ{JJ
Medicare Part A Primary for 1,181 56.017,539 Patients wi/h cumulative
Inpatient (lIP) Facility claims ofS750 or more
Medic.:,we Part A Primatyfor 337 S428.1 U Patients with cumulative
Skilled Nursing, Home Health or
claims of$2.500 more
Care (HHC), and Hospice
Care
Medicare Pari B Primaryfor 168 51,23./,806 Patients with cumulative
Certain liP Facility CharKes claims of$5,000 or more
Medicare Part B Primaryfor 0 SO The pOlen/ial COB errors
Skilled Nursing, HHC, and were immaterial. Therefore,
Hospice Care ' no claim lines were selected.
Medicc".e Part B Primary for 3,029 $2.548,641 Patients with cumulative
Ourpatient Charj!es claims 0/$2,50001' more
Medicm'e Petrt B PrimGly jor 14.856 $2,370.211 Patients wi/h cumulative
Professional Char1!es claims (~f$4,OOO or more
Total /9,571 $12.599.311
Generally. Medicare Part A covers 100 percent ofinpatient care in hospitals,
skilled nursing/acilities, hospice care, and home hea/lh care services. For
each Medicare Benefit Period, there isa one-time deductible, followed by a
daily copaymem beginning wi/h the 6r'day, Beginning with the 9jS' day of
the Medicare Benefit Period, Medicare Part A benefil.') may be exhausted,
depending on whether the patient elects to lise their Lifetime Reserve Days,
For the uncoordinated Medicare Part A claims, we estimate that the FEHBP
was o\'erchargedfor the total claim payment amolints. When applicable, we
reduced the questioned amount by the Medicare deductible andlor Medicare
copayment.
Medicare Part B pays 80 percent ofmost outpatient charges and profe~'sional
claims after the calendar year deductible has been met. Also, Medicare Part
B covers a portion ofinpatientfacility charges for ancillary services such as
durable medical equipment. medical supplies. diagnostic tes/s. and clinical
laboratDlY services. Based on our experience, ancillary items account for
approximately 30 percent ofthe total inpa/iem claim payment. Therefore. we
estimate that the FEHBP was overcharged 25 percen/ for these inpaTient
claim lines (0.30 x 0.80 = 0.24 - 25 percent).
3
Based on 0/11' review ofthe potential COB errors in our sample, we identified
10.027 claim Hnes that were paid incorrectly,resulting in overcharges of
S4~609.-I90 tv {he FENBP./
The following fable details the questionedpayments by claim type:
Claim Type Claim Amounts Amounts
Line:;' Paid Questioned
MedicGt'e Pan A Primary for 201 53.093.263 $2.725,919
Inpatient (lIP) Facility
Medicare Part A Primary for 32 528.608 528,608
Skilled Nursing. HHe. and
Hospice Care
Medicare Part B Primaryfor 4 S79,170 S18, 890
Certain UP FlIcility Char2es
,\.<'edicare Part B Primary/or 0 $0 SO
Skilled Nursing, HHe. and
Hospice Care
,\tIedicare Pari B Primatyfor 1,038 $966.989 $731,476
Owpalient CharKes
Medic(lre P(m B Primmyfor 8,752 $1.189,788 SI,104.597
Pf'O(essiunai Charges
Total 10.027 $5.357.8/8 $4.609,490
Our ell/di! disclosed the follo'wing/or the claim paymenl error.O;.'
• For 6,248 (62 percent) o/the claim lines questioned. there was incorrect
or no Medicare COB information on the Plan's claims system to identify
Medicare as the primaty payer when the claims were paid. However,
when the correct Medicare information was subsequently added to the
claims system. the Plan did not review andlor adjust the patient's prior
claims back to the Medicare effective dates. As a result, we estimate that
the FEHBP was overcharged 54.239. 288for these claims thai were not
coordinated with Medicare.
• For 3.472 (35 percent) ofthe claim lines questioned, wefound that these
clclim lines were not COB errors but contained other Plan payment errors.
As a result, we determined rhat the FEHBP was overcharged $328.753 for
these claim payment errors.
• For 307 (3 percent) ofthe claim lines questioned 'he correct Medicare
COB i11.formation was present on Ihe Plan 's cI£~ims system to ident!1Y
1 In addition. there were 232 claim lines with COB errors, totaling $409.981 in payments, lhat were
identified and adjusted by the Plan prior 10 the date ofour information request (i.e.. November 15,2007).
Since these COB errors were identified M!l adjusted by the Plan prior to the date ofour information
request. we did not question these COB errors in the draft. repon.
4
Medicare as the primwy payer when the claims were paid. The exact
reason(s) for these claim payment errors could not be identified As a
. result, we estimate thotthe FEHBP was overcharged $41, 449 for these
claims that were not coordinated with Medicare.
Ofthe S4, 609, 490 in questioned charges, S150,950 (3 percenr) were identified
by Ihe Plan prior to the date 0/Ollr in/orilla/ion request (i. e., November J5,
2007). However. since /he Plan had nol completed the recovery process
and/or ac!iusled these claims by November 15, 2007 we are continuing to
question these COB errors. The remaining questioned charges of$4.458,540
(97 percent) were identified as a result ofour audit.
Plan's Response:
The Plan agrees with this finding.
Recommendation J
We recommend thaI the contractillg officer disallow $4,280, 737 for
uncoordinated claim payments, and have the Plan return all amounts
recovered to the FEHBP.
MliBP Response: Following its investigation of the questioned claim lines
and identification of those on which it determined benefits were issued
erroneously but in good faith, the MHBP immediately initiated efforts to
recoup those overpayments in accordance with Section 2.3(g) of Contract No.
es 1146, and the procedures stated in its OPM-approved overpayment
recovery guidelines. 2 As part of that established recovery process, which is
ongoing, the MHBP returns all overpayment recoveries to the FEHBP
promptly following their receipt.
Moreover. in the course of reexamining the 10,027 claim lines referenced in
the above table, the MHBP has concluded that it must revise its prior
agreement that 8,752 claim lines totaling $1, 104,597 described as "Medicare
Part B Primary for Professional Charges," were paid erroneously. The MHBP
has determined that 2.613 of those 8,752 claim lines, totaling $217,088 in
payments, were processed correctly, thus reducing the number of claim lines
and dollar amounts in this category that it agrees were paid in error to 6,139
and $887,509, and the total nwnber of Medicare COB claim lines and dollar
amounts that it agrees were paid in ~rror to 7.414 and $4,392,402. The MHBP
2 We disagree with the Inspector General's characterization orthe questioned health benefit charges
referenced in this Section A. of the Draft Audit Report paymems as ··unallowable." Section 2.3(g)(1)(i)
states that "[t]he Carrier may charge the contract ror benefit paymcnls made erroneously but in good faith
provided thaI it can document that it acted with prompt and due diligence as described above:' The MHBP
has acted in Ihe prescribed marmer here.
5
has enclosed with this response (as Appendix A) a revised spreadsheet
itemizing these changes in its position, together with extensive supporting
documentation from the individual claims themselves. The MHBP therefore
requests that the OIG modify the dollar amount specified in this
recommendation to reflect this change.)
Recommendation 2
We recommend that the contrac(jng officer require the Plan to ensure that Ihe
Plan has procedures in place to review all claims incurred back to the
Medicare effictive dates when updated, other party liability information is
added to the Plan's claims system. When Medicare eligibility is subsequently
reported. Ihe Plan is expected to immediately determine if already paid claims
are af/ee/ed and, if so, to initiate Ike recovery process within 30 days.
MIIBI) Response: The MHBP concurs with this recommendation.
Recommemfal;oll 3
We recommend Ihal the contracting officer disallow $328.753 for claim
overcharges resullingfrom other Plan payment errors. and hClVe the Plan
re/urn all amolln/s recovered 10 the FEHBP.
J By way of brief explanation. the 8,152 claim lines referred to above were the cumulative totals
..enumerated in the calegories denoted as "Category F" and "Category F Expanded" on the attached
-~ spreadsheet. The 2,613 claim lines totaling $217,088 on which the MHBP has changed its position are all
part of Category F Expanded, which questioned 3.469 claim lines totaling $322.071 in payments. The
revised Category F Expanded tOlals. then. are 856 claim lines totaling S104.983 that the MHBP concurs
were paid in error. Set Forth below is how the revised table should read:
Claim Type Claim Lines Amounts Paid Amounts
Ouestioned
Medicare Pan A Primary for 201 S3,093.263 $2,725.919
Inpatient (lIP) Facility
Medicare Pan A Primary for Skilled 32 $28.608 $28,608
Nursin!!, ItHC, and Hospice Care
Medicare Part B Primary for Certain 4 $79.170 $18,890
lIP Facility Charges
Medicare Part B Primary for Skilled 0 $0 SO
Nursin2. /-IHe. and Hospice Care
Medicare Part B Primary for 1,038 $966,989 $131,476
Outpatient Charl!es
Medicare Pan B Primary for 6.139 $1,189,188 $887.509
ProFessional Charl!es
TOlal 7.414 $S,357,818 $4.392,402
6
MHBP Response: Followjng its investigation of the questioned claim lines
and identification of those on which it detcnnined benefits were issued
erroneously but in good faith. the MHBP immediately initialed efforts 10
recoup those overpayments in accordance with Section 2.3(g) of Contract No.
CS 1146. and the procedures stated in its OPM-approved overpayment
recovery guidelines. As part of that established recovery process, which is
ongoing, the MHBP returns all overpayment recoveries to the FEHBP
promptly following their receipt.
Recommendation 4
We recommend that the contracting officer instruct the Plan 10 identify the
rool causers) ofthe claim payment errors and develop all action plan /0
prevent these types oferrors ill the future.
MHBP Response: As evidenced by the above responses, a significant
majority of the claim lines paid in error here (7,138 out of7,414, or 96.3%)
involved coordination of benefits with a member's Medicare Part B primary
coverage. Unlike Medicare Part A, in which the MHBP can assume a
member is enrolled as of the month they turn age 65, enrollment in Medicare
Part B not only is voluntary, but can be deferred at the enrollee's election. In
addition, the MHBP's ability to detennine COB status with Medicare Part B
depends 011 its timely receipt of conversion to 31illuitant status from the
government payroll offices. In other words, obtaining credible evidence
demonstrating both (1) a member's annuitant status, and (2) hislher
enrollment in Medicare Part B is largely outside the MHBP's control, making
COB errors extremely difficult to avoid where that evidence is not timely
furnished.
To facilitate it in avoiding Medicare COB errors to the greatest extent
possible. the MlIBP participates in a Voluntary Data Sharing Agreement
("VOSA') with eMS. Through that arrangement. the MHBP obtains the
most up-to-date Medicare Part B enrollment infonnation available from eMS
for uploading into its member eligibility files. It therefore is unclear to the
MHBP what additional steps are available to it that might further assist it in
preventing future Medicare COB errors from occurring. It likewise is unclear
to the MHBP what kind of additional action, if any, the DIG contemplates in
its recommendation.
That said, the MHBP reiterates its concurrence with the DIG's
Recommendation 2 concerning the retrospective handling of such claims
payments when evidence ofa member's Medicare Part B coverage comes to
its attention at a later date. .
7
b. Claims Paid for Ineligible Patients $2,529,912
The Plan paid J0,275 claim lines that were incurred during gaps in patient
coverage or after termination a/patient ("overage with the Mail Handlers
Benefit Plan. resulting in overcharges 0/$2,411,097 to the FEHBP. In
addition, the Plan paid 2, 167 claim lines/or patients wilh no enrollment
identification (ID) numbers,· resulting in overcharges 0/S118,815 to the
FEHBP. In total. the FEHBP is due $2,529,912.
Contract CS 1146. Part III. section 3.2 (b)(l) states, "The Carrier may charge
a cost to the contractjor a contract IeI'm if the cost is actual. allowable.
allocable, and reasonable. Pari II. section 2.3(g) states, "lfthe Currier or
I'
OPM determines thaI 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 . ... "
Enrollees with No Coverage durillg Dates ofService
We pelformed a computer search to identify claims paid during gaps in
patiem coverage or claims paid after terminatiOt'I ofpatient coverage with the
Mail Handlers Benefit Plan. The search covered the period Janumy 1, 2005
Ihrough September 30, 2007. The search identified claim payments. totaling
$5, 716, 775. for 7,472 patienls with gaps in coverage or patients Ihat were
terminated.
From this universe 0/7.472 patients. we selected all patients with cumulative
claim lines 0/$2,500 or more. This sample inclllded 15,865 claim line
payments, totaling 54. 212. 231.for 330 patients. Our review ofthe sample
idenlified 10.275 claim lines. totaling 52.411,097 in payments. that were paid
during gaps in palienl coverage or after termination ofcoverage. As a result.
Ihe FEHBP is due S2,41 1.097for these improper payments.
Patients with No Enrollment Record
We performed a computer search to identify claims paid/or patients wilh no
enrol/men! ID numbers. The search covered the period January 1, 2005
through September 30. 2007. The search identified claim payments. totaling
S5.386,641,jol" 1,174 ptllients with no enrol/men! ID numbers.
From thi:; universe of I, 174patienIS, we selected all patients with cllmulative
claim lines 0/$2.000 or more. This sample included 26,826 claim line
payments, totaling $4,995,049. for 285 patients. Our review ofthe sample
identified 2.167 claim lines, totaling S1 18.815 in payments, that were made
for palienrs lvUh no enrol/menl ID number. As a result, the FEHBP is due
SI /8.815 for these improper payments.
8
Summary arC/aims Paid to Ineligible Patients
In total, the Plan charged the FEHBP $2.529. 912for 12,442 claim line
payments madefor ineligible patients. J QUI' audit disclosed the following
errors:
• For 12.217 a/the claim lines questioned. the Plan received retroacti,'e
termination ofpatient coverage from the Federal agency's payroll office.
However, when termination dates were subsequently received, the Plan did
not review and/or adju.Jllhe patient's prior claims back to the termination
dale. Asa result. the FEHBP was overcharged $2,415,908 in claim
payments for patients not eligible for benefits.
• For 63 oflhe cloim lines questioned, there were various eligibility errors.
For example, we identified one patient where COl'erage terminated during
an inpatient hospital stay and the Plan erroneously paidfor all dales of
service under this claim. As a result. Ihe FEHBP was overcharged $90,665
in claim payments for parients not eligible for benefils.
• For 21 ofthe claim lines questioned, the claim processors entered
incorrect data. As a result, the FEHBP was overcharged 519,108 in claim
payments for parients 110t eligible for benefits.
• For 14/ ofthe claim lines questioned, the Plan utilized incorrect ~'oci(tl
securiry numbers to determine whether the patient was eligible for
coverage. As a result, the FEHBP was overcharged $4,231 in claim
payments for patients nol eligible for benefits.
Ofthe S2,529.912 in queslioned charges. 5841.71 J (33 percent) were
identified prior to the dafe we issued aliI' information request (i. e.. February
28. 2008). However, since the Plan had nor completed Ihe recovery process
andlor adjusted these claim lines by February 28, 2008, we are continuing 10
question these eligibility errors. The remaining questioned charges of
$1,688,201 (67 percent) were identified as a result ofour audit,
Plall's Respollse:
. The Plan agrees with this finding.
~ In addition. there were 1,160 eligibility errors. totaling $733,453 in payments, that were identified and
adjusted or voided prior to the date of our information request (i.e.. February 28. 2008). Since these
eligibility errors were identified and adjusted or voided prior to the date of our information request. we did
not question these claim line payments in the draft report.
9
Recommendatioll 5
We recommend thai the contracting officer disallow $2.529.912/01" claim
o\'ercharges, and have the Plew return all amounts recovered fo/he FEHBP.
MHBP Response: As illustrated in our Audit Inquiry #3 response, 12,217 of
the 12,422 claim lines that we concur were paid erroneously but in good faith,
or 98%, were attributable to Govenunent agency payroll office delays in
notifying the MHBP of an individual's termination ofMHBP coverage.
Section 1.5 of Contract No. CS 1146 provides that benefit payments made as a
result of such payroll office errors are valid charges against that Contract.
Notwithstanding that fact, following investigation of the questioned claim
lines and identification of those on which benefits were issued erroneously but
in good faith, the MHBP, as required by Section 2.3(g) of Contract No. CS
1146, immediately began making efforts to recoup those overpayments
pursuant to the procedures enumerated in our OPM-approved overpayment
recovery guidelines.. As a routine part of that established process, which is
ongoing, the overpayments were introduced into the MHBP's normal
exception processing workstream. and all amounts recovered on them will be
credited to the FEHBP promptly upon receipt.
Recommendation 6
We recommend that the contracting officer instruct the Plan to identify the
root causers) a/the claim payment errors and develop an action plan/o
prevetll /hese /ypes of errors in the fll/ure.
MlIBP Response: As evidenced in our response to Recommendation 5
above, payment of the overwhelming majority of the questioned claim lines is
attributable to payroll office reporting delays. In short, the MHBP did not
receive agency notification of the member's termination until after the date on
which it adjudicated and issued payment on the claim line. i.e., circumstances
that are beyond the MHBP's ability to control and/or correct. That said. we
plan to implement procedures to ensure that upon receiving payroll office
notice of an individual's tennination ofcoverage, the MHBP identifies any
and all post-termination claims paid under that enrollment and initiates
overpayment recovery efforts on them as required under Section 2.3(g) of
Contract No. CS 1146, as supplemented by our OPM-approved overpayment
recovery guidelines.
10
c. Omnibus Budget Reconciliation Act of 1990 Review $443,265
The Plan incorrecily paid J3 cllJims that were priced or potentially should
have been priced under the Omnibus Budget Reconcilialion ACI of1990
(OBRA 90) pricing guidelines. resulting in nel overcharges 0/$443,265 to the
FEHEP. Specifically. the Plan overpaid 11 claims by $446,625 and
undelpaid 2 claims by 53.360.
Contract CS J146. Part lJl. section 3.2 (b)(I) states, "The Carrier may charge
II cosl to the contract for a contract term if the cost is aCfUaf, allowable,
allocable, and reasonable." Part II, section 2.3(g) Slates, "If/he Carrier or
OPM determines that a Member's claim has been paid in error jOr any reason
... the Carrier shall make a prompt and diligent effort to recover the
erroneous payment . ... ,.
/n addition, Contract CS 1146, Part /I. section 2.6 states. "(a) The Carrier
shall coordinate the payment ofbenefits under Ihis contract with Ihe paymenl
a/benefits under Medicare. ... (b) The Carrier shall not pay benefits under
this contractllnli! it has determined whether il is Ihe primmy carrier . ... "
OBRA 90 limits Ihe benefit paymentsfor cerlain inpatient hospital services
provided to annuitants age 65 or older who are nOI covered under Medicare
Pari A. The FEHBP fee-far-service plans are required to limit the claim
paymen/to Ihe amount equivalent to the Medicare Part A payment.
Using a program dereloped by Ihe Centers/or Medicare and Medicaid
Services (eMS) ro price OBRA 90 claims, we recalculated the claim payment
amounts forlhe claims in ow' samples that were subject (a andlor processed
asOBRA 90.
The following summarizes the claim payment errors.
Claims Nol Priced Under OBRA 90
For the period 2005 Ihrough September 30. 2007, we identified 5,374 claims,
totaling $37.583.828 in paymenls. that were potemfally subject to OBNA 90
pricing guidelines bill appeared 10 be paid under the Plan's standard pricing
procedures. From Ihis unil1erse, we selected and reviewed ajlldgme11lal
sample 0/274 claims, totaling 5/9,42-1,926 in payments, 10 delermine if the
Plan paid these claims properly. Our sample included all possible OBRA 90
claims with amounts paid of S30, 000 or more, Based on our review, we
determined Ihal nine a/these claims were paid incorrectly. resulJing in
overcharges 0/$396,381 to thePEHBP.
These claim paymenl errors reslliledfrom (he following:
11
• The Plan did not properly coordinate four claims with Medicare, resulting
in overcharges 0/S195.008'-0 the FENSP. We determined that these
claims should not have been priced under ORRA 90 but should have been
coordina/ed wilh Medicare. These claim errors occurred because the
Plan 's claims system contained incorrect Medicare COB information 10
identify Medicare as the primary payer when Ihe claims were paid.
• The Plan did not price fOllr claims under OBRA 90. resulting in
overcharges ofSI77,290 to the FEHBP. These claim errors occurred
because the Plan's claims system contained incorrect Medicare COB 01'
subscriber retirement information when the claims were paid.
• The Plan inadvertemly did not price one claim under OBRA 90. resulting
. in an overcharge 0/$24.083 to the FEHBP. The exact cause ofthis claim
payment error could not be identified
OORA 90 Claim Pricing Errors
For the period 2005 through September 30. 2007, we identified 2.075 claims.
totaling $/8.366.598 in payments, that were subject /0 ORRA 90 pricing
guidelines. From this universe. we selected and reviewed a judgmental
sample of100 claims, totaling $4,522,005 in paymen/s. to de/ermine if these
claims were correcrly priced andpaid by the Plan. Our sample included all
OBRA 90 claims with amounts paid ofS23. 400 or more.
Based on our review, we determined (hat four of/hese claims were paid
incorrectly, resulting in net overcharges 0/$46,884 /0 the FEHBP.
Specifically, two claims were overpaid by $50,244 and two claims were
underpaid by 53.360.
These claim payment errors resultedfrom (he/ollowing:
• The Plan did nol properly coordinate one claim with Medicare, resulting
in an overcharge of $47,599 to the FEHBP. We determined that this
claim should not have been priced under OBRA 90 but should have been
coordinated wUh Medicare. This claim payment error was identified by
the Plan before receiving our information request (audit sample) on
December 14, 2007. However. since the Plan did not comple/e the
recovery process andlor adjust the claim prior to Ihe date o/emr
in/ormation request, we lire con/im/ing /0 question this error.
• The Plan priced two claims using an earlier version ofthe eMS Pricer,
resulting in net undercharges ofS21O to !he FEHBP. Specifically, the
Plan overpaid one claim by 52,645 (lnd underpaid one claim by 52.855.
12
• The Plan incorrecily priced one claim due 10 a manual pricing error,
resulting in an undercharge 0[$505 to the FEHBP. Specifically. the Plan
incorrectly reduced the diagnostic rela/ed grouping (DRG) payment by
subtracting the difference between the private room rate and the semi
private room rOle. Under DRG pricing guidelines. fhis difference should
not be excludedfrom the lolal billed amount.
Plall's Respollse:
The Plan agrees with Ihisfinding..
Recommelldation 7
We recommend thai the contracling officer disallow $446,625 for claim
overcharges, and have Ihe Plan refilm all lIInounts recovered 10 Ihe FEHBP.
MHBP Response: Following investigation of the questioned claim lines and
identification of those on which benefits were issued erroneously but in good
faith, the MHBP, as required by Section 2.3(g) of Contract No. CS 1146,
immediately began making efforts to recoup those overpayments pursuant to
the procedures enumerated in our OPM·approved overpayment recovery
guidelines. As a routine part of that established process, which is ongoing, the
overpayments were introduced into the MHBP's normal exception processing
workstream, and all amounts recovered on them will be credited to the
FEHBP promptly upon receipt.
Recommelldation 8
We recommend fhat the contracling officer allow Ihe Plan to charge the
FEHBP $3,360 ifCldditionalpayments are made 10 the providers to correct
the u17derpllymem errors.
MH8P Response: We concur with this recommendation.
Recommendation 9
We recommend tlwt the contracling officer instruct the Plan to identify the
root causers) oflhe claim payment errors and develop an action plan to
prevent these types oferrors in theII/Ilire.
·MHBP Response: ASlhe above narrative illustrates, the 13 erroneous claims
payments that comprise this proposed audit finding generally cannot be
attributed to a discrete. identifiable cause (or set of causes), and consequently
[3
do not lend themselves to an action plan of the kind the 010 contemplates in
this Recommendation. s .
, To the extent that several of the subject claims involve Medicare COB issues. those claims will be
subject to the corrective measures the MHBP implements as recommended in Section I,a of this draft
report.
14
d. Duplicate Claim Payments $335.561
The Plan improperly charged the FEHBP $335,561 for 527 duplicate claim
paymentsfrom 2005 through September 30, 2007. These payments we"e
unnecessary and unClllowable charges to the FEHBP.
Contract CS J146. Part lIf. section 3.2 (b)(1) states, "The Carrier may ch,wge
a cost to the con/ractfor a contract term iflhe cost is actual, allowable.
allocable, and reasonable. ., Part /J. section 2.3(g) slates. "If the Carrier or
OPM determines that a Member's ci,lim has been paid in error for any reason
... the Carrier shall make a prompt and diligent efforl to recover the
erroneous payment . .....
Section 6(h) ofthe FEHB Act provides that rates should reasonably and
equitably reflect lhe co.itS ofbenefits provided.
We pel/armed a computer search for potential duplicate payments on claims
paid during the period JamtalY J. 2005 through September 30. 2007. We
selected and reviewed 1, 159 groups, totaling $J,625,030 (out 0125,959
groups. totaling $1.758.856) in potential duplicate payments. under our "best
matches ,. criteria. We a/so selected and reviewed 658 groups, totaling
S1.170.820 (Olll of91,985 groups, totaling $3,258,56J) in potential duplicate
payments. under our "near matches ,. criteria. Our samples included ull
groups with potential duplicate payments of$250 or more under the "best
matches '.' criteria and 5500 or more under the "near matches' criteria. j
Based on our review, we determined that 468 claim payments in our "best
matches ,. sample were duplicates. resulting in overcharges 01$291.,526 to lhe
FEHBP. Also. we determined that 59 claim payments in Ollr "near matches"
sample were duplicates, resulting in overciwrges of$44,03j 10 the FEHBP.
In IOlal, {he Plan charged the FEHBP 5335.561 for these 527 duplicate claim
payments from 2005 through September 30, 2007. 6 These duplicate claim
payments occurred when the claims were deferred as potentiaJ duplicates on
the claims system, but were overridden by Ihe processors.
Pia" 's Response:
The Plan agrees with this finding.
6 In addition. there were 35 duplicate claim payments. totaling $36.747 that were identified and adjusted or
voided by the Plan prior to the date of our infomlalion request (Le., November 15,2007). Since these
duplicate claim payments were identified and adjusted or voided by the Plan prior to the date of our
information request. we did not question these duplicate claim payments in the draft report.
15
Recommettdalioll 10
We recommend that the contracting officer disallow $335,561 for dllplicate
clli;,n paymentscharged 10 the FEHBP, and have Ihe Plan retllrn all amounts
recovered to the FEHBP.
MHBP Response: Following investigation of the questioned claim lines and
identification of those on which benefits were issued erroneously but in good
faith,the MHBP, as required by Section 2.3(g) of Contract No. CS 1146,
immediately began making efforts to recoup those overpayments pursuant to
the procedures enumerated in our OPM-approved overpayment recovery
guidelines. As a routine part of that established process, which is ongoing, the
overpayments were introduced into the MHBP's nonnal exception processing
workstream, and all amounts recovered on them will be credited to the
FEHBP promptly upon receipt.
Recommendation II
We recommend Ihat the conlracting officer instrllcl Ihe Plan to identify Ihe
roO/ causers) a/the claim payment errors and develop an ac(ionplan 10
prevent Ihese types oferrors in the/wIII'e.
MHBP Response: We concur with this recommendation.
16
e.Claim Payment Errors S98,608
The Plan incorrectly paid 36 claims. resulting in overcharges 0/$98,608 to
theFEHBP.
Contract CS 1146, Part Ill. seclion 3.2 (b)(l) states. "The Carrier may charge
(I cost to the conn'act for a contract term if the cost is actual, allowable.
allocable. and reasonable. " Part I/, section 2.3(g) states. ··lfthe.Carrier or
OPM determines that a Membe,.'s claim has beenpaid in error for any reason
· .. the Carrier shall make a prompt and diligent effort to recover the
erroneous payment . ... "
The follOWing summarizes the claim payment errors.
Assistant Surgeon Review
For the period January I. 2005 through September 30, 2007, we identified
2,883 assistant surgeon claim groups. IDuding $564. 728 in po/ential
.overpayments. that may not have been paid in accordance with the Plan's
assistant surgeon pricing procedures. From this universe, we selected and
reviewed ajudgmental sample 0/86 assistant surgeon claim groups. totaling
$174,812 in poteh/ial overpayments, to determine if the Plan paid these
c:laims properly. Our sample included all assistant surgeon claim groups with
pOlenJial overpayments of$I.000 or more. The majority o/these claim
groups contained one priJ;wry surgeon and one assistant surgeon claim.
Based 0]1 our review, we determined that 23 claims were paid incorrectly.
resulting in overcharges of$53,61 1 to the FEHBP.
The claim payment errorsresultedfrom (he following:
• The Plan paid J2 claims to non-covered providers, resulting in
overcharges 0/$35.514 to the FEHBP. Specifically, these providers were
physician assiSlal1lS and were not covered/or surgery.
• The Plan incorrectly paid six claims due (0 various manual pricing errors.
resulting in overcharges ofS7, 965 to the FEHBP. For example. (he Plan
did not apply a 10 pe"cent co-insurance to a claim.
• The Plan did not limit/he allowable charge 10 the Plan's allowance when
pricing three Non-Preferred Provider Organization (non-PPO) claim:;.
resulting in overcharges ofS7,46j to the FEHBP.
• The Plan incorrectly paid two assistant surgeon claims. resulting in
overcharges of$2,667to the FEHBP. These overcharges were due to .
en·ors in the calculiJtion ofthe assistant surgeonfte. which should have
17
been priced at /6 percent ofthe primary surgeon allowed amount.
In add;,;on 10 the above sample, the Plan identified six additional assistant
surgeon claims that 11;ere paid incorrectly for this same reason as the
above two claims. As-a result, ,he FEHBP was overcharged an additional
$3.802.
81's/em Review
For health benefit claims reimbursed during the period January i, 2007
through Septeinber 30, 2007. we identified 7,025.774 claim lines, folaling
5899,648,442 in payments, lising a standard criteria based on our audit
experience. From this universe. we seiected and reviewed a judgmental
sample of J25 claims (representing 323 cla;,n lines). totaling $5,106,844 in
payments, to determine if the Plan adjudicated these claims properly. 7 Based
on our review, we determined that seven claims were paid incorrectly.
resulting in overcharges of$41,19510 the FEHBP.
The claim paymem errors resultedfrom thefollowing:
• The Plan did not limit the allowable charge 10 the Plan's allowance when
pricing three non-PPO claims, resulting in overcharges 01S34, 738 to the
FEHBP.
• The Plan incorrectly paid three claims due to various manual pricing
errors, resulting in overcharges of$4.963 to the FEHBP. As an example.
"'2
the Pltm entered incorrect allowable amollnt for a claim.
• In one instance, the Plan erroneously adjusted a claim that was priced
(md paid correctly, resulting in an overcharge of$1,494 {Q the FEHBP.
Plait's Respollse:
The Plan agrees 'with this finding.
ReCOmmf!lldatioll J1
We recommend tha/the contracting officer disallow 598,608 for claim
overcharges, and have the Plan return all amounts recovered to the FEHBP.
MHBP Response: Following investigation of the questioned claim lines and
identification of those on which benefits were issued erroneously but in good
7 We selected our sample from an OIG-generated "Place of Service Report" (SAS application) that
stratilied the claims by place of service (POS). such as provider's office and payment category. such as $50
to $99.99. Wejudgmentally detemlined the number ofsample items to select from each POS stratum
based on the Siratum's tOlal claim dollars paid.
18
faith, the MHBP. as required by Section 2.3(g) of Contract No. CS 1146,
immediately began making efforts to recoup those overpayments pursuant to
the procedures enumerated in our OPM-approved overpayment recovery
guidelines. As a routine part of that established process, which is ongoing. the
overpayments were introduced into the MHBP's nonnal exception processing
workstream, and all amounts recovered on them will be credited to the
FEHBP promptly upon receipt.
Recommendation 13
We recommend that the contracting officer instrllclthe Plan to identify the
root callse(s) o/the claim payment errors and develop em action plan fo
prevent these types oferrors inlhe/lIll1re.
MHBP Response: As the above narrative illustrates. the erroneous claims
payments that comprise this proposed audit finding generally are not
attributable to a discrete,identifiable cause (or set of causes), but rather were
primarily the result of manual error by individual claims processors.
Correction of those errors therefore does not lend itself to a specific action
plan of the kind the OIG contemplates in this recommendation. Nonetheless,
MHBP claims processors will be furnished with additional training in order to
minimize the likelihood of similar claims payment errors in the future.
19
2. Miscellaneolls Pavmellls alUl Credits
a. Healtlr Benefit Recoverie!J' S15.270
The Plan did not return or support the return aftwo health benefit recoveries,
totaling 514,159, to the FEHBP. As a result. the FEHBP is due 515,270.
consisting 0/SI4, 159for recoveries not returned or supported and SI, I I I for
lost investment income (UI) on these recoveries.
Contract CS 1146. Part III section 3.8 states, "the carrier will reWin and
make available all records applicable to a contract term . ... "
48 CFR 31.20I -5 states, ''The applicable portion ofany income, rebate,
allowance, or other credit relating to any allowable cost and received by or
accruing /0 the con fracto;' shall be credited to the Government either (IS a cost
reduction or by cash refund." Based on insurance industry practice, the Plan
should have returned the recoveries to the FEHBP within 30 days after being
received. 0
48 CFR J652.215-7J (e) states that investment income lost on these funds
should be credited to the FEHBP. In addilion. section (f) ofthis regulation
states, "All lost investment income payable shall bear simple interest ar the
quarterly rare determined by the Secretary ofthe Treasury . ... "
For the period 2002 through 2006, there were 255,937 health benefit recoveries
(e.g., claim overpayment refunds. subrogation recoveries, and pharmacy drug
rebates) totaling 5259,807.2 I 3. From this universe, we judgmentally selected
'md reviewed 161 health benefit recDvuies. totaling $63,994,475. to determine
if the Plan returned these recoveries to the FEHBP in a timely manner. Our
sample selections included the following:
• From 2002 through 2004, we selected the 30 highest recovery check
amounts/or each year.
• During 2005, the Plan's reporting/armor a/tracking health benefit
recoveries changes. Therefore. we adjusted our sampling methodology.
0" From January 2005 through May 2005, we selected the 10 highest
recovery check amounts.
~ From June 2005 through December 2005, we selected the 10 highest
reeovelY check amounts. all phamUicy drug rebates, the 5 highest
subrogation recovery amounts, and the 5 highesl provider audit
TeeOl'ery amounts.
~ From 2005. we also jlldgmentally selected six high dollar fraud
reeovelyamounts.
19
• From 2006, we selected the /0 highest recovelY check amounts, all
pharmacy drug rebates, the 5 highest subrogation recovery amOllnts, and
the 5 highest provider audit recol'elY amounts. We also judgmenlal/y
selected six high dollar fraud recovelY amoul1ts.
Based on our review, we noted the following exceptions:
• In one instance, the Plan did not return a health benefit recoveryo/S/2,607
to the FEHBP. The Plan did not relllrn this amount to the FEHBP because
it inadvertently did not cash the provider's refund check Subsequenl fo our
identification o/this oversight. the Plan requested and received a
replacement checkfrom the provider. and returned thefimds to the FEHBP
on July 10, 2008.
• In one instance. the Plan did not provide sufficient documentation to
support the rerurn o/a health benefit recovery o/S/, 552 to the FEHBP.
In total. the FEHBP is due $15.270, consisting ofS14.159 for recoveries nol
returned or supported and $1.1/ J for LIlon these recoveries. As part o/this
finding, we calculated Ll/ through December 31. 2006 on the questioned
heailh benefit recoveries. In the filial audit report, we will calculate
additional III accruing after December 3/, 2006.
Plan's Response:
The Plan agrees with lhisjinding.
RecommeudalioJl14
We verified thaI the Plan returned 512.607 to Ihe FEHBP on July 10, 2008/or
one a/the questioned health benefit recoveries. There/ore, no further action
is required/or this questioned amOlll1t.
MOOP Response: The MHBP concurs with this recommendation.
Recommendation J 5
Deleted by the Office of the Inspector General - Not Relevant
to the Final Report
20
Deleted by the Office of the Inspector General - Not Relevant
to the Final Report
Recommendation 16
We recommend that rhe conJracting officer direct the Plan to credit the
FEHBP $1./1 J (plus interest accruing after December 31, 2006)for LlJ on
the questioned health bene}it recoveries.
I\1HBP Response: We concur with the OlG's recommendation that the
Contracting Officer assess lost investment income against the $12.607 amount
referenced in its Recommendation 14. Based on its Recommendation 15
response, however, lost investment income should not be assessed against the
$J,522 refund that the MHBP timely credited to the FEI-IBP. The DIG
therefore should modify its proposed finding of$1,111 in lost investment
income to reflect that fact.
21
B. ADMINlsrRA rIVE EXPENSES
1. Unallowable and/or UlUll/ocable CNA Overheat! Costs
$/08.015
CNA (Ihe/ormer lmden"r;ler ofthe Mail Handlers Benefil Plan) charged Ihe
FEHBP for unallowable andiol' unallocable costs thaI were included in overhead
cost pools, resulting in O)'ercharges 0/S108,015 to the FEHBPfor 2002.
Contract CS J146, P'lrt Ill, section 3.2 (b)(I) .slate:;, "The Carrier may charge a
cost to the contract/or a contractterm if the cost is actual, allowable. allocable,
and reasonable. ..
48 CFR 31.201-4 states. "A cost is allocable ifit is assignable or chargeable to
one or more CO.ft objectives on the basis ofreialive benefits received or other
eq14Uable relationship. SubjeCt to the foregoing, a cost is allocable to a
Governmenl contract if it
a) Is incurred specificallyfor tile contract;
b) Benefils both the contract und other work, and can be distributed to them in
reasonable proportion to the benefits received; or
c) Is necessary to the overall operation ofthe business, althollgh a direct
relaliol7ship to any particular cosl objective cannot be shown. "
48 CFR.31 205-27(0) (1), "Planning or executing Ihe organization ur
reorganization o/the corp0relte siructure ofa business. including mergers and
acquisitions, .. , are unallowable. , ....
We reviewed Ihe prior CNA audit report (Report #IB-45-02·02-069). covering
contract yeclrs 1999 though 2001. and determined i/CNA continued to charge any
ofthe previously disallowed cost.\'. Based on our review, we found Ihat CNA
charged to the FEHBP S/08,0/5 for unallowable and/or unallocable costs in
2002. Spec~{ically, CNA charged the fOllowing unallowable and/or unallocable
costs to the FEHBP:
• Cos/ Center 0006252 (CasllllltyActuaria/J- CNA allocated 579,252 to the
FEHBP through service code 1630 (Corporate Finance G&A) and service code
1640 (Corporate Finance Insurance).
• Cost Center 0009009 (Business Decision Suppo,.t Lead - Mergers &
Acquisitions) - CNA al/occlfed 525.016 to Ihe FEHBP through service code
1640 (Corporate Finance Insurance).
• Account 6306371 (Corporate Indemnitv Expense) - CNA allocaled $3. 74710
the FEHBP through service code 1700 (Corporate Services).
22
The above unallowable andlor unallocable costs were charged to the FEHBP
through overhead cos/ pools /hm were alfocated 10 the FEHBP. Although /hese
costs were disallowed on the prior audit. CNA did not remove these cosisfrom the
2002 cos/filings. As a result, the FEHBP is due $108,015 for IInallowable andlor
unallocable costs charged to 'he FEHD?
Plall's Respollse:
The Plan agrees with this finding.
Recommendation J 7
We recommend that the contracting officer disallow S108, 015 for unallowable
andlor urwllocable costs.
MHBP Response: We concur with this recommendation.
23
C. CASH MANAGEMENT
J. Worki"g Capital Deposit $6.000,000
A1 the end ofthe audit scope (as ofDecember 31, 2006). the Plan held a working
capital (We) deposit with an excess amount 0/$4 million over the amounl needed
to meet the Plan's daily cash needsfor FEHBP claim payments and
administrative expenses.
Based on our audil experience ofother FEHBP fee-for-service plans, the we
deposit should be recalculated on an ongoing basis to determine if the amount
currently maintained is adequate to meet the Plan's daily cash needs/or FEHBP
claim payments andlor administrative expenses, If the deposit is not adequate.
the Plan should make an appropriate adjustmenl.
During the audit scope, the Plan evaluated the we deposit amount on several
occasions, and made one adjustment. . This adjustment was made by the Plan in
March 2004 to increase its we balance to $47 million. To delermine if the Plan
maintained an adequate we deposit, we recalculated what lhe Plan's fourth
quarter 2006 we balance should have been and determined that, as ofDecember
31, 2006. the Plan should have maintained a we balance of$43 million.
Therefore, at the end o/the audit scope, the Plan held a we balance with an
excess amount 0/$4 million over the amount needed to meet the Plan's daily cash
needsfor FEHBP claim payments and administrative expenses.
In response to our audit finding, the Plan provided a more recent we calculation
ofclaims clearing and administrative expenses showing thalthe Plan currently
holds an excess amount ofS6million in FEHBP funds as ofAugust 31, 2008. We
agree with the Plan's recent we calculation.
Since the Plan maintained these excess funds in an interest-bearing account and
timely credited the interest earned on thesefimds to the FEHBP, no III is due the
FEHBP. However. the Plan needs to make an adjustment to return the exce:;'s we
funds 0/$6 million to the FEHBP feller ofcredit (LOC) account.
Plan 's Response:
The Pia" agrees with this finding.
MHBP Response: For clarification purposes, in our September 30,2008,
response to Audit Inquiry #8 concerning this issue we concurred with the OIO's
determination that on the last day of the period under audit. December 31, 2006,
the MHBP's working capital deposit was approximately $4,000,000 greater than
the amount needed to satisfy daily cash requirements at that time. As further
reflected in both that Audit Inquiry #8 response and the above narrative, the
$6,000,000 amount later credited to the FEHBP reflects the extent to which the
24
MHBP's working capital deposit exceeded its daily cash requirements as of
August 31,2008, Le., some 20 months after this audit's closing date. For
purposes of historical accuracy, then, we request that the OIG modify this finding
in the Final Audit Report to reflect the correct amount of $4,000,000. 8
RecoII,,;,cl1dation J8
We verified thatthe Plan returned the excess WCfimds 0[$6.000.000 fa Ihe LOC
account on October 8, 2008. Therefore, no further action is requiredfor these
funds.
MHBP Response: As clarified above, we concur with this recommendation.
Recommendation 19
We recommend that the contracting officer instruct the Plan to implemenl
procedures to ensure that adjustments are made /0 the we deposit when the
Plan's cash requirements change.
MHBP Response: While we concur generally with this recommendation, we are
concerned that as worded - i.e., that the MHBP should adjust the amollnt of its
working capital deposit "when [its] cash requirements change" - the
recommendation is unduly vague and open-ended. As ow Audit Inquiry #8
response demonstrated, the MHBP needs to - and does - monitor its working
capital balance daily in the routine course of business to ensure that it always has
sufficient cash on hand to meet its obligations. Furthermore, as part of its
resolution of OPM OIG Audit No. 13-45-00-00-064 for the period ending
December 31, 2001, the MHBP agreed to recalculate that balance requirement
annually and readjust it as necessary. which we in fact did during the initial years
of the current audit period, typically during the first calendar year quarter. We
inadvertently failed to do this recalculation in 2006, however, because the first
quarter time frame coincided with a change in the MHBP's underwriter and
administrator that resulted in attentions being focused elsewhere. In other words,
the procedure the 01G recommends already exists, though in 2006 and subsequent
years the MHBP did not adhere to it. We further believe that except in the event
of an intervening material change in financial circumstances, it would be
inefficient and not in accordance with standard business practice to recalculate
and readjust that amount more frequently than annually. This is particularly true
given the fact that we continue to maintain those funds in an interest-bearing
account and credit 100% of the interest thereon to the FEHBP (see n. 8 below).
• The MHBP appreciates the OIO's recognition in the Draft Audit Report of the fact that because (I) it
maintained the MHBP's working capital balance in an interest-bellring account, lind (2) it credited 100% of
the interest earned on that account to the FEHBP. the FEHBP sustained no financial hann as a consequence
of the MHBP's retention of these excess funds.
25
The MHBP therefore suggests that the OIG modify this recommendatiollto
reiterate its prior recommendation that the MHBP recalculate and adjust its
working capital balance as needed on an annual basis, or more frequently should
an intervening material change in financial circumstances dictate that it do so.
26
Audit of Coventry Health Care As Underwriter And Administrator For The Mail Handlers Benefit Plan, Rockville, Maryland
Published by the Office of Personnel Management, Office of Inspector General on 2009-03-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)