u.s. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS Final Audit Report Subject: AUDIT OF CAREFIRST BLUECHOICE OWINGS MILLS, MARYLAND Report No. ID-2G-OO-09-028 Date: February 25, 2010 --CAUTION- This audit report has bun distributed to Feder"l officials who are responsible for the administrMion of Ihe audiled program. This audit r~lI(Jrt rna)' contain propric'uy data which is protected by Federal law (18 U.S,c. 1<.105). The'"dore, while this audit report is ""ailable under the Freedom ofloformation Act and made a~"ailable to the public on the OIG webpage, caution needs to be exercised before releasing the repor'lo lite general public as it may c(lntaiD proprietary information tltal was redaCled from the publicly distribuled copy. C: UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the Inspector General AUDIT REPORT Federal Employees Health Benefits Program Experience-Rated Health Maintenance Organization CareFirst BlueChoice Contract CS 2879 Plan Code 2G Owings Mills, Maryland REPORT NO. ID-2G-OO-09-028 DATE: February 25, 2010 %f?RCL Michael R. Esser Assistant Inspector General for Audits -- ----------._-----------~------~------------- www.opm.gov www.usajobs.gov UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washington, DC 20415 Office of the Inspector General EXECUTIVE SUMMARY Federal Employees Health Benefits Program Experience-Rated Health Maintenance Organization CareFirst BlueChoice Contract CS 2879 Plan Code 2G Owings Mills, Maryland REPORT NO. ID-2G-00-09-028 DATE: February 25, 2010 This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at CareFirst BlueChoice (Plan) in Owings Mills, Maryland questions $107,358 in administrative expenses and lost investment income. The Plan agreed (A) with this questioned amount. OUT limited scope audit was conducted in accordance with Government Auditing Standards. The audit covered miscellaneous health benefit payments and credits and administrative expenses for 2004 through 2008 as reported in the Annual Accounting Statements. In addition, we reviewed the Plan's cash management practices related to FEHBP funds for contract years 2004 through 2008. Questioned items are summarized as follows: 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. www_opm.gov www.usajobs.gov B. ADMINISTRATIVE EXPENSES • Unallowable and/or Unallocable Cost Centers fA) $107,358 The Plan charged the FEHBP for two unallowable and/or unallocable cost centers, resulting in overcharges of $1 00,234 to the FEHBP. Subsequent to us identifYing these overcharges, the Plan returned $107,358 to the FEHBP, consisting of$100,234 for the overcharges and $7,124 for lost investment income. 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 2879 and applicable laws and regulations. II CONTENTS PAGE EXECUTIVE SUM·MARY i 1. INTRODUCTION AND BACKGROUND I II. OBJECTIVES, SCOPE, AND tvfETHODOLOGY 3 III. AUDIT FINDINGS AND RECOMMENDATIONS 6 A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 6 B. ADMINISTRATIVE EXPENSES 6 1. Unallowable and/or Unallocable Cost Centers 6 C. CASH MANAGEMENT 8 IV. MAJOR CONTRIBUTORS TO THIS REPORT. 9 V. SCHEDULE A - CONTRACT CHARGES AND AMOUNTS QUESTIONED APPENDIX (CareFirst BlueChoice reply, dated October 9,2009, to the audit inquiry) 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 CareFirst BlueChoice (Plan). The Plan is located in Owings Mills, Maryland. The audit was perfonned 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 Retirement and Benefits 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 I, 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 an experience-rated health maintenance organization (HMO) that provides health benefits to federal enrollees and their families. l Emollment is open to all federal employees and annuitants in the Plan's service area, which includes Maryland, Northern Virginia, and Washington, D.C. The Plan's contract (CS 2879) 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 tennination, 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's management. Also, management of the Plan is responsible for establishing and maintaining a system of internal controls. I Members of an experience-rated HMO have the option of using a designated network of providers or using non network providers. A member's choice in selecting one healthcare provider over another has monetary and medical implications. For example, if a member chooses a non-network provider, the member will pay a substantial portion ofthe charges and benefits available may be less comprehensive. 1 This is our first audit ofthis Plan as an experience-rated HMO, The results of this audit were provided to the Plan in a written audit inquiry (finding) during fieldwork, and were discussed with Plan officials throughout the audit and at an exit conference. The Plan's comments offered in response to our audit inquiry were considered in preparing our final report and are included as an Appendix to this report. Since the- Plan agreed with our audit inquiry, we bypassed the draft report and only issued a final report. The Plan agreed with this decision. 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 tenus of the contract. Specifically, our objectives were as follows: Miscellaneous Health Benefit Payments and Credits • To detennine whether miscellaneous payments charged to the FEHBP were in compliance with the terms of the contract. • To detennine whether credits and miscellaneous income relating to FEHBP benefit payments were returned promptly to the FEHBP. Administrative Expenses • To detennine whether administrative expenses charged to the contract were actual, allowable, necessary and reasonable expenses incurred in accordance with the tenns 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 limited scope perfonnance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perfonn 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 Plan's Annual Accounting Statements for contract years 2004 through 2008. During this period, the Plan paid approximately $235 million in health benefit charges and $15 million in administrative expenses (See Figure 1 and Schedule A). The Plan also paid approximately $1 million in other expenses and retentions (See Schedule A). Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds, subrogation recoveries, provider audit recoveries, fraud recoveries and prescription drug rebates), administrative expenses, and cash management for 2004 through 2008. 3 In planning and conducting our audit, we CareFirst BlueChoice obtained an understanding of the Plan's internal Summary of Contract Charges control structure to help determine the nature, timing, and extent of our auditing procedures. $100 This was detennined to be the most effective approach to sele~t areas of audit. For those III $75 c areas selected, we primarily relied on 0 substantive tests of transactions and not tests of :i $50 ~ controls. Based on our testing, we did not identify any significant matters involving the $25 Plan's internal control structure and its $0 operation. Howevei,~since our audit would not 2004 2005 2006 2007 2008 necessarily disclose all significant matters in Contract Years the internal control structure, we do not express r.iI Health Benefit Payments .Administrative Expenses an opinion on the Plan's system of internal controls taken as a whole. Figure I - Contract Charges We also conducted tests to detennine 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 c~hducting 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 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 available was sufficient to achieve our audit objectives. The audit was performed at the Plan's office in Owings Mills, Maryland on various dates from May 4, 2009 though August 7, 2009. Audit fieldwork was also performed at our offices in Washington, D.C.; Cranberry Township, Pennsylvania; and Jacksonville, Florida. 4 METHODOLOGY We obtained an understanding ofthe 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 10 health benefit refund adjustments, totaling $120,194 (from a universe of23 health benefit refund adjustments, totaling $138,978); 10 provider audit recoveries, totaling $68,783 (from a universe of86 provider audit recoveries for selected months, totaling $123,223); 15 subrogation recoveries, totaling $145,608 (from a universe of93 subrogation recoveries, totaling $187,000); 10 fraud recoveries, totaling $28,992 (from a universe of 26 fraud recoveries, totaling $33,433); and 15 prescription drug rebate adjustments, totaling $2,045,868 (from a universe of 61 prescription drug rebate adjustments, totaling $3,981,297), 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 payments and credits. We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 2004 through 2008. Specifically, we reviewed administrative expenses relating to cost centers, expense accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement, employee health benefits, executive compensation, subcontracts, lobbying, benefit plan brochures, and Health Insurance Portability and Accountability Act of 1996 Compliance. We used the FEHBP contract, the FAR, and the FEHBAR to determine the allowability, allocability, and reasonableness of charges. The results of the testing were not projected to the universe of administrative expenses. We also reviewed the Plan's cash management to determine whether the Planhandled FEHBP funds in accordance with Contract CS 2879 and applicable laws and regulations. 2 The sample of health benefit refund adjustments consisted of the two highest adjustments for each year from 2004 through 2008. The sample of provider audit recoveries consisted of all recoveries greater than $2,000 for selected months in 2004 through 2008. The sample of subrogation recoveries consisted of all recoveries greater than $2,500 from 2004 through 2008. The sample of fraud recoveries consisted of all recoveries greater than $1,000 from 2004 through 2008. The sample of prescription drug rebate adjustments consisted of the three highest adjustments for each year from 2004 through 2008. 5 III. AUDIT FINDINGS AND RECOMMENDATIONS A. MISCELLANEOUS HEALTH BENEFIT FAYMENTS 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. Unallowable and/or Unallocable Cost Centers $107,358 The Plan charged the FEHBP for two unallowable and/or unallocable cost centers, resulting in overcharges of $1 00,234 to the FEHBP. Subsequent to us identifying these overcharges, the Plan returned $107,358 to the FEHBP, consisting of $100,234 for the overcharges and $7,124 for lost investment income (LII). Contract CS 2879, Part III, Section 3.2(b)(l) states, "The Carrier may charge a cost to the contract for a contract tenn 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 of relative 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 52.232-17(a) states, "all amounts that become payable by the Contractor ... shall bear simple interest from the date dOe ... 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." For the period 2004 through 2008, the Plan allocated administrative expenses of $11,540,003 to the FEHBP from] ,838 cost centers. From this universe, we selected a judgmental sample of38 cost centers to review, which totaled $3,597,285 in expenses allocated to the FEHBP. We selected the cost centers based on high dollar amounts, our nomenclature review, and significant dollar amount fluctuations from year to year. We reviewed the expenses from these cost centers for allowability, allocability, and reasonableness. 6 Based on our review, we identified two cost centers that were unallowable and/or did not benefit the FEHBP. • For cost center "00757" (Individual Telesales), the Plan allocated corporate advertising expenses, totaling" $97,503, to the FEHBP from 2006 through 2008. Specifically, these advertising expenses were for telesales to "Market all product lines to increase enrollment" and internet sales to "Educate internet prospects". Regarding advertising expenses charged to the FEHBP, 48 CFR 31.205-1 and 48 CFR 1631.205-70 provide specific criteria on the extent to which such expenses are chargeable. Generally, these regulations state that such expenses are unallowable. • For cost center "00106" (Broker Compensation System Replacement), the Plan allocated broker expenses of $2,731 to the FEHBP in 2008. The Plan stated that these expenses were inadvertently allocated to the FEHBP. In total, the Plan charged the FEHBP $100,234 for these unallowable and/or unallocable cost center expenses. After receiving our audit inquiry, the Plan returned the questioned cost center charges of $1 00,234 and applicable LII of $7,124 to the FEHBP. As part of our review, we verified that the Plan returned these funds to the FEHBP letter of credit account on October 1, 2009. Plan's Response: The Plan agrees with this finding. The Plan returned the questioned cost center charges and applicable LII to the FEHBP on October 1, 2009. In reference to cost center "00757" (Individual Telesales), the Plan states, "In September 2006, the Account Product Specialist Manager tenninated employment with CareFirst, and the FEHBP HMO Field Service activities were transitioned to another Account Manager residing in a different cost center. However, the Plan identified that a mapping of the FEHBP HMO contracts to the Account Product Specialist Manager's marketing representative number continued through the present and resulted in the incorrect allocation of $97,503 from September 2006 through December 2008. Since the incorrect mapping has been identified, the Plan has correctly mapped the FEHBP HMO contracts to the current Account Manager marketing representative." In reference to cost center "001D6" (Broker Compensation System Replacement), the Plan agrees that the expenses related to this cost center were inadvertently allocated to the FEHBP. Recommendation 1 We verified that the Plan returned $100,234 to the FEHBP for the questioned cost center charges. Therefore, no further action is required for these questioned charges. 7 Recommendation 2 We verified that the Plan returned $7,124 to the FEHBP for LLI on the questioned cost center charges. Therefore, no further action is required for this LII amount. C. CASH MANAGEMENT The audit disclosed no findings pertaining to cash management. OveraIJ, we concluded that the Plan handled FEHBP funds in accordance with Contract CS 2879 and applicable laws and regulations. 8 IV. MAJOR CONTRIBUTORS TO THIS REPORT Experience-Rated Audits Group Auditor-In-Charge , Auditor Auditor Auditor Auditor Chief Senior Tearn Leader 9 , V. SCHEDULE A , CAREFIRST BLUECHOICE OWINGS MILLS, MARYLAND CONTRACT CHARGES AND AMOUNTS QUESTIONED CONTRACT CHARGES* 2004 2005 2006 2007 2008 TOTAL HEALTH BENEFIT CHARGES $31,119,521 $35,068,755 $41,131,980 $53,197,740 $74,208,829 $234,726,825 ADMINISTRATIVE EXPENSES 2,496,340 2,170,846 2,607,078 3,256,008 4,166,604 14,696,876 OTHER EXPENSES AND RETENTIONS 268,954 68,353 92,083 224,062 324,621 978,073 TOTAL CONTRACT CHARGES I $33,884,815 $37,307,954 $43,831,141 $56,677,810 $78.700,054 $250,401,774 I AMOUNTS QUESTIONED 2004 2005 2006 2007 2008 TOTAL MISCELLANEOUS HEALTH BENEFIT PAYMENTS A. ' AND CREDITS SO SO SO SO SO $0 .B. ADMINISTRATIVE EXPENSES 1. Unallowable and/or Unallocable Cost Centers** 0 0 13,581 43,412 50,365 107,358 C. CASH MANAGEMENT 0 0 0 0 0 0 TOTAL AMOUNTS QUESTIONED I $0 SO S13,581 $43,412 S50,365 S107,358 I * We did not review claim payments and other expenses and retentions. "* This audit finding also includes lost investment income of$7,124. APPENDIX CureFJrst BlueCross BlueShJeld 10455 Milt Run Circle Owings Mills, MD 21117-5559 October 9, 2009 CareRrst.•' BlueCross BlueShield ce 0 Personnel Management . Office of Inspector General Auditor - Experience Rated Audits Group 800 Ctanberrry Woods Drive Suite .130 Cranberry Township; PA 16066 Dear_ This is in response to the OPM OIG revised Audit Inquiry #1, which was issued on October 6, 2009. In the inquiry, the OIa indicated that CareFirst charged the FEHBP for two unallowable and lor unallocable cost centers, resulting in overcharge:;; ofSlOO,234 to the FEHBP. CareFirst is providing the following response to each cost center issue: Cost Center 00757 - Individual Telesales - $97~503 The Plan agrees with this section related to expenses charged from September 2006 to December 2008. In September 2006, the Account Product Specialist Manager tenninated employment with CareFirst, and the FEHBP HMO Field Service activities were transitioned to another Account Manager residing in a different cost center.· However, the Plan identified that a mapping of the FEHBP HMO contracts to the Account Product Specialist Manager's marketing representative number continued through the present and resulted in the incorrect allocation of $97,503 from September 2006 through December 2008. Since the incorrect mapping has been identified, the Plan" has correctly mapped the FEHBP HMO contracts to the current Account Manager marketing representative. The Plan has returned the principal amount of $97,503 and lost investment income of $7,017.49 to the Program on OctOber 1, 2009. Supportitig docUmentation is attached ,for your review. In addition, the misallocation for the Year 2009 was corrected during~e August 2009 financial close process. Cost Center 001D 6 - Broker .Compensation System Replacement - $2,731 The· Plan agrees that the project expenses related to this cost center were inadvertently misallocated to the FEHBP HMO in the amount of $2,731. The Plan has returned the principal amount of $2~731 and lost investn::lent income of $106.44Jto the Program·on . October I, 2009.· Supporting documentation is attached for your review. . • Ca/efir>ll llluoCross BlueShield is en Independent lioonsse of the Blue Cross and Blue ShlQld Asooci.lion. Ill) Re9i~red 1l1ldemD/~ of 1M Blue Cross and Blu9 Shield AssoclRtlon. W Ile'gisrered Iredemario of CareFirst 01 Ma/yland. II'IG. .... . ..: -. . ." . . ., . " . October 9. 2009 Page2of2 We request that CareFirst's comments be included in their entirety in the OPM Final Audit Report. Sincerely, .6.. o .. cc:
Audit of Carefirst BlueChoice - Owings Mills, Maryland
Published by the Office of Personnel Management, Office of Inspector General on 2010-02-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)