oversight

Audit of American Postal Workers Union Health Plan Glen Burnie, Maryland

Published by the Office of Personnel Management, Office of Inspector General on 2011-09-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

    MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS
The audit disclosed no findings pertaining to miscellaneous health benefit payments and credits.
Overall, we concluded that the Plan returned health benefit refunds and recoveries, including
prescription drug rebates, to the FEHBP in a timely manner.

                            ADMINISTRATIVE EXPENSES

•   Travel Costs (A)                                                                       $17,314

    The Plan charged the FEHBP actual travel costs incurred without limiting these charges to
    the maximum per diem rates, as required by the federal regulations. As a result, the Plan
    overcharged the FEHBP $17,314 for travel costs from 2005 through 2009.

                                  CASH MANAGEMENT
The audit disclosed no findings pertaining to cash management. Overall, we concluded that the
Plan handled FEHBP funds in accordance with Contract CS 1370 and applicable laws and
regulations.

                           FRAUD AND ABUSE PROGRAM

•   Notification of Fraud and Abuse Cases (D)                                          Procedural

    The Plan has not fully implemented a comprehensive F&A program. As a result, the Plan
    did not refer any potential F&A cases from 2005 through 2009 to the Office of Personnel
    Management’s Office of the Inspector General (OPM/OIG).

•   Fraud and Abuse Annual Reports (D)                                                 Procedural

    The Plan did not provide the OPM/OIG complete F&A annual reports from 2005 through
    2009. By not including all F&A reporting requirements, we could not determine the overall
    outcome of the Plan’s prevention, detection, and F&A program activities.

             LOST INVESTMENT INCOME ON AUDIT FINDINGS
As a result of our audit finding presented in this audit report, the FEHBP is due LII of
$2,642, calculated through June 30, 2011.




                                                 ii
                                               CONTENTS
                                                                                                                   PAGE

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

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

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

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

       A.     MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ............6

       B.     ADMINISTRATIVE EXPENSES...........................................................................6

              1. Travel Costs ........................................................................................... 6

       C. CASH MANAGEMENT ............................................................................................7

       D. FRAUD AND ABUSE PROGRAM ................................................................. 7

              1. Notification of Fraud and Abuse Cases .............................................................7
              2. Fraud and Abuse Annual Reports ....................................................................12

       E.     LOST INVESTMENT INCOME ON AUDIT FINDINGS .................................13

IV.    MAJOR CONTRIBUTORS TO THIS REPORT ...........................................................15

 V.    SCHEDULES

       A.     CONTRACT CHARGES AND AMOUNTS QUESTIONED
       B.     LOST INVESTMENT INCOME CALCULATION

       APPENDIX (The American Postal Workers Union Health Plan reply, dated April 6,
                2011, to the draft audit report)
                     I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This final audit report details the findings, conclusions, and recommendations resulting from our
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
the American Postal Workers Union Health (Plan). The Plan is located in Glen Burnie,
Maryland.

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

BACKGROUND

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

The Plan is a fee-for-service plan. The Plan enrollment is open to all postal service employees
who are members of the American Postal Workers Union (APWU) and all other federal
employees and annuitants that elect to become associate members of APWU. APWU is the
sponsor of the Plan, operating under Contract CS 1370 to provide a health benefits plan
authorized by the FEHB Act. Members have a choice of enrollment in a High Option or a
Consumer Driven Health Plan.

APWU’s contract with OPM is experience-rated. Thus, the costs of providing benefits in the
prior year, including underwritten gains and losses which have been carried forward, are
reflected in current and future years’ premium rates. In addition, the contract provides that in the
event of termination, unexpended program funds revert to the FEHBP Trust Fund. In
recognition of these provisions, the contract requires an accounting of program funds 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.

All findings from our previous audit of the Plan (Report No. 1B-47-00-01-080, dated August 20,
2002) for contract years 1998 through 2000 have been satisfactorily resolved.




                                                 1
The results of this 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 March 4, 2011. 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:

       Miscellaneous Health Benefit Payments and Credits

       •   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.

       Fraud and Abuse Program

       •   To determine if the Plan operates an effective Fraud and Abuse (F&A) program for
           the prevention, detection, and/or recovery of fraudulent claims as required by the
           FEHBP contract.

SCOPE

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




                                               3
We reviewed the Plan’s Annual Accounting Statements for contract years 2005 through 2009.
During the period, the Plan paid approximately $2.6 billion in health benefit charges and $249
million in administrative expenses (See Figure 1 and Schedule A). The Plan also paid
approximately $24 million in other expenses and retentions (See Schedule A). 1

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
subrogation recoveries, fraud recoveries, and prescription drug rebates), administrative expenses,
and cash management activities from 2005 through 2009.

In planning and conducting our audit, we obtained
                                                                   APWU Health Plan
an understanding of the Plan’s internal control              Summary of Contract Charges
structure to help determine the nature, timing, and
                                                          $650
extent of our auditing procedures. This was
determined to be the most effective approach to




                                                              $ Millions
                                                          $550
select areas of audit. For those areas selected, we
primarily relied on substantive tests of                  $450
transactions and not tests of controls. Based on
our testing, we did not identify any significant          $350
                                                                 2005 2006 2007 2008 2009
matters involving the Plan’s internal control
structure and its operation. However, since our                          Contract Year
audit would not necessarily disclose all significant                Health Benefit Charges
matters in the internal control structure, we do not                Administrative 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 set forth 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. 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.




1
 We did not review other expenses and retentions for contract years 2005 through 2009, except for the cash
management of these funds.




                                                        4
The audit was performed at the Plan’s office in Glen Burnie, Maryland from October 25 through
November 19, 2010 and December 6 through December 17, 2010. Audit fieldwork was also
performed at our offices in Washington, D.C. and Cranberry Township, Pennsylvania.

In addition, we would like to note that the Plan did a great job supporting the audit by promptly
responding to our information requests, samples, questions, and audit inquiries (findings). Also,
the Plan was very cooperative and well prepared for this audit.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial, cost accounting
and cash management systems by inquiry of Plan officials.

We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. We also
judgmentally selected and reviewed 115 high dollar health benefit refunds, totaling $6,952,946
(from a universe of 38,445 refunds, totaling $27,186,311); 27 high dollar subrogation recoveries,
totaling $1,493,507 (from a universe of 819 recoveries, totaling $3,452,572); 6 high dollar fraud
recoveries, totaling $32,438 (from a universe of 83 recoveries, totaling $39,345); and 10
quarterly drug rebates, totaling $27,416,858 (from a universe of 37 quarterly retail and mail
order drug rebates, totaling $64,898,370) to determine if refunds and recoveries were promptly
returned to the FEHBP and if miscellaneous payments were properly charged to the FEHBP. 2
The results of these samples were not projected to the universe of miscellaneous health benefit
payments and credits.

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years
2005 through 2009. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement,
executive compensation, lobbying, vendor cost containment, and Health Insurance Portability
and Accountability Act of 1996 (HIPAA) compliance. We used the FEHBP contract, the FAR,
and the FEHBAR to determine the allowability, allocability, and reasonableness of charges.

We reviewed the Plan’s cash management to determine whether the Plan handled FEHBP funds
in accordance with Contract CS 1370 and applicable laws and regulations.

We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
Plan’s F&A program.




2
  The sample of health benefit refunds included all refunds greater than $25,000. For subrogation, the sample
consisted of all recoveries greater than $25,000. The sample of fraud recoveries consisted of the three highest dollar
recoveries from each year in 2008 and 2009. For drug rebates, the sample consisted of the two highest dollar
quarterly drug rebates from each year.




                                                          5
            III. AUDIT FINDINGS AND RECOMMENDATIONS
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

  The audit disclosed no findings pertaining to miscellaneous health benefit payments and
  credits. Overall, we concluded that the Plan returned health benefit refunds and recoveries,
  including prescription drug rebates, to the FEHBP in a timely manner.

B. ADMINISTRATIVE EXPENSES

  1. Travel Costs                                                                       $17,314

     The Plan did not calculate travel costs in accordance with the FAR. The FAR limits the
     amount of travel costs for lodging, meals, and incidental expenses that may be charged to
     a government contract to the maximum federal per diem rates on a daily basis. Despite
     the regulation, the Plan charged the FEHBP actual travel costs incurred without limiting
     these charges to the maximum federal per diem rates. As a result, the Plan overcharged
     the FEHBP $17,314 for travel costs from 2005 through 2009.

     48 CFR 31.205-46(a)(2) states that “costs incurred for lodging, meals, and incidental
     expenses . . . shall be considered to be reasonable and allowable only to the extent that
     they do not exceed on a daily basis the maximum per diem rates in effect at the time of
     travel as set forth in the . . . Federal Travel Regulation, prescribed by the General
     Services Administration . . . .”

     In 2009, the Plan charged administrative expenses of $57,606,837 to the FEHBP. From
     this universe, we selected a judgmental sample of 62 general ledger transactions to
     review, which totaled $3,662,046 in expenses charged to the FEHBP. We judgmentally
     selected these transactions from the five highest dollar cost centers charged to the
     FEHBP. In addition, we judgmentally selected six transactions, totaling $7,470, to
     review from the largest HIPAA cost center charged to the FEHBP from 2005 through
     2009. We reviewed these general ledger transaction expenses for allowability,
     allocability, and reasonableness.

     Based on our review, we determined that the Plan’s travel costs were based on actual
     costs incurred without consideration to the maximum daily federal per diem rates. As a
     result of this finding, we expanded our general ledger transaction review to include all
     travel vouchers from 2005 through 2009. From 2007 through 2009, the Plan processed
     211 travel vouchers, totaling $540,185, which were charged to the FEHBP. Because of
     time and cost considerations, we did not have the Plan pull documentation for the 2005
     and 2006 travel costs, but instead we averaged the unallowable travel costs identified for
     2007 through 2009 and applied this average to 2005 and 2006.

     Our review of documentation concluded that the Plan did not properly calculate 72 travel
     vouchers (2007 through 2009), resulting in overcharges of $10,388 to the FEHBP. In
     addition, based on the three-year average (i.e., $3,463) of unallowable travel costs




                                              6
     identified from 2007 through 2009, we estimate that the FEHBP was overcharged $6,926
     for 2005 and 2006. In total, the FEHBP is due $17,314 for travel costs that exceeded the
     maximum federal per diem rates.

     Plan’s Response:

     The Plan agrees with this finding. The Plan states, “APWU Health Plan . . . has
     established policies and procedures to comply with this regulation in the future. The
     funds will be reimbursed to FEHBP once the lost investment income is calculated in the
     final report.”

     Recommendation 1

     We recommend that the contracting officer disallow $17,314 for travel costs overcharged
     to the FEHBP.

C. CASH MANAGEMENT

  The audit disclosed no findings pertaining to cash management. Overall, we concluded that
  the Plan handled FEHBP funds in accordance with Contract CS 1370 and applicable laws
  and regulations.

D. FRAUD AND ABUSE PROGRAM

  1. Notification of Fraud and Abuse Cases                                            Procedural

     The Plan has not fully implemented a comprehensive Fraud and Abuse (F&A) program.
     As a result, the Plan did not refer any potential F&A cases from 2005 through 2009 to the
     Office of Personnel Management’s Office of the Inspector General (OPM/OIG).

     The Plan has developed policies and procedures that represent components of an F&A
     program to address health care fraud and abuse. However, the Plan’s F&A program does
     not appear to follow written procedures or all elements of a comprehensive F&A
     program, as required by Carrier Letter 2003-23 (“Industry Standards for Fraud & Abuse
     Programs”).

     Furthermore, the Plan has not fully adopted Carrier Letter 2007-12 (“Notifying OPM’s
     Office of the Inspector General Concerning Fraud and Abuse Cases in the FEHBP
     Program”), which states, “All carriers must send a written notification/referral to the
     OPM-OIG within 30 days of becoming aware of any cases involving suspected false,
     fictitious, fraudulent, or misleading insurance claims, when . . . conditions are met . . .
     All carriers must also send a prompt written notification/referral to their Contracting
     Officer and OPM-OIG for any cases, regardless of the dollar amount of claims paid, if
     there is an indication of patient harm, potential for significant media attention, or other
     exceptional circumstances.”




                                               7
Carrier Letter 2003-23 defines indicators of areas that contain patient harm or patient
safety issues to include, but not limited to: (1) pharmaceuticals, such as altered
prescriptions, illegal refills, prescription splitting, and abuse of controlled substances, (2)
medical errors in both inpatient and outpatient care, resulting in unfavorable outcomes,
and (3) improper settings for procedures and services that result in poor outcomes.

For the period 2005 through 2009, we reviewed the Plan’s F&A program to determine if
the Plan had complied with Carrier Letters 2003-23 and 2007-12. Based on our review, we
determined that the Plan did not refer any cases to the OPM/OIG during this period nor
follow all of the Carrier Letter 2007-12 guidelines for notification of potential fraud issues.
Specifically, the Plan’s F&A program does not include complete program management of
potential F&A issues regarding the referral of cases to OPM/OIG indicating areas of patient
harm or safety issues, member related issues, including pharmaceutical F&A, and other
pharmacy benefit manager referrals.

The following summarizes our concerns with the Plan’s F&A program.

Program Management

In a meeting to discuss the Plan’s F&A program, the Plan provided an overview of the
services performed by Ingenix, a contractor that performs claim review services. The
Plan stated that Ingenix does not provide any post-payment reviews, collection services,
or recovery/repayment collections. Furthermore, the Plan stated that the F&A program
only includes post-payment reviews for providers on a claim-by-claim basis. The Plan
did not recognize that a post-payment review of all claims should be performed when a
provider’s claims are identified as potentially fraudulent to determine the potential
maximum loss or dollar exposure.

The Plan’s entire F&A program consists of only one analyst and the program is based
solely on pre-payment claim-by-claim reviews performed by an outside source (Ingenix).
The analyst tracks potential fraud cases using a spreadsheet. There is no evidence that
proactive investigations are being performed by the Plan’s analyst. The Plan’s analyst
handles the OPM/OIG data requests and reviews potential F&A issues from internal
sources, which are then referred to Ingenix.

From the information provided by the Plan, the analyst performs very limited, if any,
actual fraud investigation. Since the Plan’s F&A program does not review providers or
members for post-payments nor collect overpayments as a result, no actual fraud
investigation can be taking place. While Ingenix may find a provider to be billing for
medically unnecessary services, the Plan does not act on that information to review the
provider for potential overpayments or potential F&A issues. By focusing on medical
necessity issues only, potential F&A practices are going unnoticed that may lead to areas
of weaknesses within the F&A program at the Plan.

Since the Plan has not reported any potential member related F&A cases on the annual
reports to OPM from 2005 through 2009, there appears to be no actual program in place




                                           8
for the detection and prevention of member related F&A issues, such as doctor shopping
for pharmaceuticals/drugs and/or membership eligibility issues.

The services provided by Ingenix to identify potential F&A cases and the post-payment
reviews performed on a claim-by-claim basis do not constitute an entire F&A program.
Carrier Letter 2003-23 states that the FEHBP plans should use fraud protection software
to analyze claims data, which includes evaluating on a prospective claim-by-claim basis
(i.e., pre-payment review) and through the retrospective analysis of claim trends from
either providers and/or members (i.e., post-payment review).

Patient Harm or Safety Issues

The Plan suggested a reason for the lack of fraud referrals was that cases did not meet the
following notification thresholds: “the suspected health care provider has been paid over
$20,000 in claims for the FEHB Program Enrollees, or . . . the suspected FEHB Program
enrollee has been paid over $10,000, or . . . the entire scope of the investigation exceeds
$50,000 and includes claims for FEHB Program enrollees and the carrier is coordinating
its investigation with any other Federal law enforcement agency,” as described in Carrier
Letter 2007-12.

The Plan should refer potential patient harm or patient safety cases, regardless of
monetary amounts, to the OPM/OIG so that issues related to pharmaceutical abuse and
medical errors do not go undetected.

Pharmacy Benefit Manager

The Plan stated that Medco Health (Medco) is the contracted Pharmacy Benefit Manager
(PBM). The Plan’s Fraud Detection and Prevention Program Manual (Manual) describes
Medco’s Special Investigations Unit (SIU) as investigating “cases of suspected fraud by
members and physicians on behalf of our clients.” The Plan’s Manual also states that
Medco’s SIU works closely with the Federal, state and local law enforcement to ensure
the successful prosecution of individuals involved with fraudulent activity.

We recognize the existence and capabilities of Medco’s F&A program. However, the
Plan did not report any member fraud case during the audit scope and it appears that the
Plan does not obtain any information from Medco related to Medco’s F&A activities on
the Plan’s behalf. Furthermore, the Plan stated that even though they contract directly
with Medco, they believed Medco communicated directly to OPM and OPM/OIG related
to the notification/referral of potential F&A cases. As far as pharmacy-related cases,
there was no evidence or indication that Medco had provided notification or referral of
any pharmacy-related fraud issue to OPM and OPM/OIG on behalf of the Plan.




                                         9
General Comments

The Plan did implement some of the requirements in Carrier Letter 2007-12, such as the
requirement to respond to OPM/OIG requests for information, and the requirement in
Carrier Letter 2003-23 to establish written policies and procedures to be followed by all
personnel for the deterrence and detection of fraud.

However, by failing to implement all elements of a comprehensive F&A program, issues
related to F&A may have gone undetected because the Plan did not do the following:

•   Incorporate an F&A program within the Plan to proactively prevent, detect and
    investigate all potential F&A;

•   Incorporate a process for obtaining, tracking and reporting information related to all
    Medco F&A activities;

•   Incorporate a review process to determine if notification to the OPM/OIG is required;
    and

•   Require its PBM to report any potential F&A cases related to pharmacies, abnormally
    high prescribing physicians of narcotics, member drug misuse/abuse, and other
    potential fraud related reporting issues.

Until the Plan adopts all of their F&A program policies and procedures, they will not be
able to implement all components of Carrier Letter 2007-12.

Plan’s Response:

The Plan disagrees with the audit finding. The Plan states, “The primary reason cases
were not referred to the OPM/OIG was because they did not meet the reporting threshold
as detailed in Carrier Letter 2007-12. If the plan had identified cases that met the
OPM/OIG criteria it would have referred them directly to the OIG.”

The Plan also states, “The report above also highlights that the Plan did not refer cases to
the OPM/OIG in regard to ‘patient harm and safety issues: (1) pharmaceuticals, such as
altered prescriptions, illegal refills, prescription splitting, and abuse of controlled
substances, (2) medical errors in both inpatient and outpatient care, resulting in
unfavorable outcomes, and (3) improper settings for procedures and services that result in
poor outcomes.’ The APWU Health Plan’s Pharmacy Benefit Manager, Medco Health,
has a robust fraud and abuse program in place to ensure patient safety. While no cases
were referred to the OPM/OIG concerning patient harm, any investigation or review
relating to this issue was handled by Medco Health through preventative measures and
continued monitoring. Medco has several complementary programs and initiatives to
identify and deter potential abuse patterns by members; over prescribing by doctors; and
fraud by dispensers and/or consumers.”




                                         10
Program Management

The Plan states, “APWU Health Plan’s post payment reviews are performed on a claim
by claim basis. Referrals to the Fraud and Abuse Analyst come from APWUHP internal
sources, customer service, claims, quality assurance audits, etc. Leads on suspected
providers also come from external fraud prevention organizations and are investigated for
potential exposure. The recovery of benefit dollars that should not have been paid are
pursued internally and reported in the yearly OPM Fraud and Abuse report. When these
types of providers are identified, they are then flagged in our system and their claims are
reviewed on a pre-payment review basis.”

Patient Harm or Safety Issues

The Plan states, “APWU Health Plan acknowledges that claims that could cause patient
harm, potential for significant media attention or other exceptional circumstances should
be referred to OPM/OIG. In the future, the APWU Health Plan will proactively refer any
questionable issue to the OPM/OIG regardless of dollar value.”

Pharmacy Benefit Manager

The Plan states that the “Pharmacy Benefit Manager, Medco Health, has a robust F&A
program in place to ensure patient safety. While no cases were referred to the OPM/OIG
concerning patient harm, any investigation or review relating to this issue was handled
internally by Medco Health through preventative measures and continued monitoring.
From 2005-2009, APWUHP authorized Medco to place 17 members on pharmacy
restriction (limit to one pharmacy) as part of this program. During the defined time period,
we had one member related fraud case that was not reported to OPM/OIG because it did
not meet the dollar threshold criteria set forth by OPM in the 2007-12 Carrier Letter. In the
future, all cases identified through Medco Health will be sent to OPM/OIG regardless of
dollar threshold.”

OIG Comments:

We continue to question whether the Plan has implemented all components of a complete
and comprehensive F&A program, as described in Carrier Letters 2003-23 and 2007-12,
and whether the Plan has proper program management over F&A program components
related to patient safety issues and its’ contracted PBM. The Plan’s F&A program is
managed by only one F&A analyst. The Plan provided no notifications/referrals to the
OPM/OIG during the audit period from 2005 through 2009, although the Plan stated that
during this period it had authorized its PBM to put 17 members on pharmacy restriction.
None of those 17 members were referred to OPM/OIG for pharmaceutical abuse issues,
as required by Carrier Letters 2003-23 and 2007-12. The Plan only performs post-
payment reviews on a claim-by-claim basis, and not on a total historical claim basis as
required in Carrier Letter 2003-23.




                                        11
   Recommendation 2

   We recommend that the contracting officer ensure that the Plan implements all
   components of Carrier Letters 2003-23 (“Industry Standards for Fraud & Abuse
   Programs”) and 2007-12 (“Notifying OPM’s Office of the Inspector General Concerning
   Fraud and Abuse Cases in the FEHBP Program”).

2. Fraud and Abuse Annual Reports                                                 Procedural

   The Plan did not provide the OPM/OIG complete F&A annual reports from 2005 through
   2009.

   Carrier Letter 2007-12 states that F&A annual reports, as described in Carrier Letter
   2003-25 (“Revised FEHB Quality Assurance and Fraud and Abuse Reports”), are
   required.

   Carrier Letter 2003-25 (“Revised FEHB Quality Assurance and Fraud and Abuse
   Reports”) states, “The . . . F&A Report will now include collecting the following
   information:

   •   Cases Opened – only cases opened within report period
   •   Total Dollars Identified as Loss – total dollar amount verified as a loss
   •   Total Dollars Recovered – dollars actually received
   •   Actual Savings – dollars saved due to a claim rejection, prepayment review, etc.
   •   Projected Savings – calculated based on the amount of loss that would have been
       incurred had the fraudulent conduct not been stopped due to anti-fraud efforts – 12
       month period
   •   Number of Cases referred to Law Enforcement – total cases referred to local, state, or
       federal law enforcement agencies
   •   Number of Cases Resolved through negotiated settlement – cases resolved via
       settlement negotiation
   •   Number of Arrests – number of cases that resulted in an arrest
   •   Number of Criminal Convictions – number of cases that resulted in criminal
       convictions”

   Although the Plan implemented some of the F&A report requirements, we could not find
   any information related to “Projected Savings” and “Cases Resolved through Negotiated
   Settlement”, except for comments stating that these items were not required. While the
   Plan is not required to provide totals by the provider, member, and other categories, this
   does not release the Plan from reporting the total “Projected Savings” and “Cases
   Resolved through Negotiated Settlement” by year. The F&A report provided by OPM to
   the Carriers includes instructions on how to calculate the required fields and a legend that
   provides formatting for user entries. From 2005 through 2009, the Plan reported 1,765
   cases that were opened, none of which resulted in referrals to law enforcement, including
   the OPM/OIG.




                                            12
      By not including all F&A report requirements, we could not determine the overall
      outcome of the Plan’s prevention, detection, and F&A program activities.

      Plan’s Response:

      The Plan disagrees with this finding because the report supplied by OPM, for the sections
      “Projected Savings” and “Cases Resolved Through Negotiated Settlement,” was
      preprinted “Not Required.” Therefore, the Plan did not complete these sections. In the
      future, the Plan will report on all data elements outlined in Carrier Letter 2003-25.

      OIG Comments:

      We accept the Plan’s response to report on all data elements in the future that are required
      in the annual F&A report.

      Recommendation 3

      We recommend that the contracting officer ensure that the Plan implements all
      components of the F&A report, as required and described in Carrier Letter 2003-25
      (“Revised FEHB Quality Assurance and Fraud and Abuse Reports”).

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                   $2,642

  As a result of the monetary audit finding presented in this report, the FEHBP is due lost
  investment income (LII) of $2,642 from January 1, 2006 through June 30, 2011.

  FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall bear
  simple interest from the date due . . . The interest rate shall be the interest rate established by
  the Secretary of the Treasury as provided in Section 611 of the Contract Disputes Act of
  1978 (Public Law 95-563), which is applicable to the period in which the amount becomes
  due, as provided in paragraph (e) of this clause, and then at the rate applicable for each six-
  month period as fixed by the Secretary until the amount is paid.”

  We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. Our computations show that the FEHBP is due
  LII of $2,642 from January 1, 2006 through June 30, 2011 on questioned costs for contract
  years 2005 through 2009 (see Schedule B).

  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.




                                                13
Recommendation 4

We recommend that the contracting officer direct the Plan to credit $2,642 (plus interest
accruing after June 30, 2011) to the Special Reserve for LII on audit findings.




                                            14
                IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

                     , Auditor-In-Charge

                  , Auditor

               , Auditor
___________________________________________________________

                    , Chief (

               , Senior Team Leader

Office of Investigations

                  , Special Agent-In-Charge

                 , Special Agent




                                              15
                                                                                                                                                                                                SCHEDULE A
                                                                                                     V. SCHEDULES

                                                                                AMERICAN POSTAL WORKERS UNION HEALTH PLAN
                                                                                          GLEN BURNIE, MARYLAND

                                                                                 CONTRACT CHARGES AND AMOUNTS QUESTIONED

CONTRACT CHARGES*                                                                     2005             2006              2007           2008           2009         2010          2011            TOTAL

HEALTH BENEFIT CHARGES                                                             $477,980,320     $513,568,644       $474,705,231   $519,681,548   $581,657,312                                $2,567,593,055

ADMINISTRATIVE EXPENSES                                                              42,378,215       46,686,009         50,204,487     52,139,963     57,606,837                                  249,015,511

OTHER EXPENSES AND RETENTIONS                                                         4,435,903        4,764,872          5,141,852      4,677,849      4,719,698                                   23,740,174

    TOTAL CONTRACT CHARGES                                                         $524,794,438     $565,019,525       $530,051,570   $576,499,360   $643,983,847                                $2,840,348,740



AMOUNTS QUESTIONED                                                                    2005             2006              2007           2008           2009         2010          2011            TOTAL

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS                                         $0                $0                $0             $0             $0            $0            $0               $0

B. ADMINISTRATIVE EXPENSES

    1. Travel Costs                                                                       3,463            3,463              4,849          1,788          3,751             0             0           17,314

C. CASH MANAGEMENT                                                                            0                 0                 0              0              0             0             0                0

D. FRAUD AND ABUSE PROGRAM (Procedural)

    1. Notification of Fraud and Abuse Cases                                                  0                 0                 0              0              0             0             0                0
    2. Fraud and Abuse Annual Reports                                                         0                 0                 0              0              0             0             0                0

E. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                   0               188               381            581            712           552           227            2,642

    TOTAL AMOUNTS QUESTIONED                                                             $3,463           $3,651            $5,230         $2,369         $4,463           $552          $227          $19,956

* We did not review claim payments and other expenses and retentions, except for the cash management of these funds.
                                                                                                                                                               SCHEDULE B
                                                            AMERICAN POSTAL WORKERS UNION HEALTH PLAN
                                                                      GLEN BURNIE, MARYLAND

                                                               LOST INVESTMENT INCOME CALCULATION

                                                               2005        2006          2007          2008          2009          2010          2011            TOTAL

A. QUESTIONED CHARGES (Subject to Lost Investment Income)

   Administrative Expenses                                        $3,463      $3,463       $4,849        $1,788        $3,751               $0            $0        $17,314

   TOTAL                                                          $3,463      $3,463       $4,849        $1,788        $3,751               $0            $0        $17,314

B. LOST INVESTMENT INCOME CALCULATION

   a. Prior Years Total Questioned (Principal)                        $0      $3,463       $3,463         $4,849       $1,788        $3,751            $0
   b. Cumulative Total                                                 0           0        3,463          6,926       11,775        13,563        17,314
   c. Total                                                           $0      $3,463       $6,926        $11,775      $13,563       $17,314       $17,314

   d. Treasury Rate: January 1 - June 30                         4.250%      5.125%        5.250%        4.750%        5.625%        3.250%        2.625%

   e. Interest (d * c)                                                $0           $89          $182          $280          $381          $281          $227         $1,440

   f. Treasury Rate: July 1 - December 31                        4.500%      5.750%        5.750%        5.125%        4.875%        3.125%

   g. Interest (f * c)                                                $0          $100          $199          $302          $331          $271                       $1,202

  Total Interest By Year (e + g)                                      $0          $188          $381          $581          $712          $552          $227         $2,642