oversight

Audit of CareFirst BlueChoice Owings Mills, Maryland

Published by the Office of Personnel Management, Office of Inspector General on 2015-06-19.

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

         U.S. OFFICE OF PERSONNEL MANAGEMENT
            OFFICE OF THE INSPECTOR GENERAL
                     OFFICE OF AUDITS




            Final Audit Report

                                             AUDIT OF
                                       CAREFIRST BLUECHOICE
                                      OWINGS MILLS, MARYLAND

                                           Report Number 1D-2G-00-14-054
                                                    June 19, 2015




                                                             -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY 

                                        Audit of CareFirst BlueChoice

Report No. 1D-2G-00-14-054                                                                            June 19, 2015



Why did we conduct the audit?              What did we find?

We conducted this limited scope audit      Our limited scope audit disclosed no significant findings pertaining
to obtain reasonable assurance that        to prescription and medical drug rebates and the Plan’s cash
CareFirst BlueChoice (Plan) is             management activities and practices. Accordingly, this final report
complying with the provisions of the       contains no questioned charges or recommendations.
Federal Employees Health Benefits
Act and regulations that are included,     Our audit results are summarized as follows:
by reference, in the Federal
Employees Health Benefits Program          	 Prescription and Medical Drug Rebates – We determined that
(FEHBP) contract. Specifically, the           the Plan returned prescription and medical drug rebates to the
objectives of our audit were to               FEHBP in a timely manner.
determine if the Plan charged costs to
the FEHBP and provided services to         	 Cash Management – We determined that the Plan handled
FEHBP members in accordance with              FEHBP funds in accordance with Contract CS 2879 and
the terms of the contract.                    applicable laws and regulations concerning cash management
                                              in the FEHBP.
What did we audit?

Our audit of the Plan’s FEHBP
operations covered prescription and
medical drug rebates from 2011
through April 30, 2014 as reported in
the Annual Accounting Statements.
In addition, we reviewed the Plan’s
cash management activities and
practices related to FEHBP funds
from 2011 through April 30, 2014.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits

                                                        i
                ABBREVIATIONS

CFR      Code of Federal Regulations
FAR      Federal Acquisition Regulations
FEHB     Federal Employees Health Benefits
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
HMO      Health Maintenance Organization
LOCA     Letter of Credit Account
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     CareFirst BlueChoice




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

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


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


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


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


III.	   RESULTS OF AUDIT...................................................................................................6 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT..........................................................7 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT ..........................................8 

    IV. I.MAJOR
           INTRODUCTION
                CONTRIBUTORS
                        AND BACKGROUND
                             TO THIS REPORT
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 performed by the U.S. 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. 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.1 Enrollment 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 that 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.




1
 Members of an experience-rated HMO plan have the option of using a designated network of providers or using
out-of-network providers. A member’s choice in selecting one healthcare provider over another has monetary and
medical implications. For example, if a member chooses an out-of-network provider, the member will pay a
substantial portion of the charges and covered benefits may be less comprehensive.



                                                       1                       Final Report No. 1D-2G-00-14-054
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.

All findings from our previous audit of the Plan (Report No. 1D-2G-00-09-028, dated
February 25, 2010) for contract years 2004 through 2008 have been satisfactorily resolved.

The results of this audit were discussed with Plan officials throughout the audit and at an exit
conference on April 1, 2015. Since our audit disclosed no significant findings, a draft report was
not issued.




                                                2                     Final Report No. 1D-2G-00-14-054
 IV.
 II. OBJECTIVES,
     MAJOR CONTRIBUTORS
                 SCOPE, AND TO
                            METHODOLOGY
                               THIS REPORT
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:

       Prescription and Medical Drug Rebates

       	 To determine whether prescription and medical drug rebates were returned timely to
          the FEHBP.

       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 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 Plan’s Annual
                                                                                  CareFirst BlueChoice
Accounting Statements for contract years                                           Contract Charges
2011 through 2013. During this period,                     $300
the Plan processed approximately $608
                                              $ Millions




million in FEHBP health benefit payments                   $200

and charged the FEHBP $40 million in                       $100
administrative expenses (See Figure 1).
Specifically, we reviewed prescription and                  $0
                                                                           2011              2012              2013
medical drug rebates and cash                                                          Contract Years
management activities, such as letter of
                                                                  Health Benefit Payments      Administrative Expenses
credit account (LOCA) drawdowns, from
2011 through April 30, 2014.
                                                                     Figure 1 - Contract Charges




                                                      3	                                    Final Report No. 1D-2G-00-14-054
In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving the Plan’s internal control structure
and its operations. However, since our audit would not necessarily disclose all significant
matters in the internal control structure, we do not express an opinion on the Plan’s system of
internal controls taken as a whole.

We also conducted tests to determine whether the Plan had complied with the FEHBP contract,
the applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal
Employees Health Benefits Acquisition Regulations, 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 complied with all applicable provisions of the contract and federal procurement
regulations. 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.

The audit was performed at the Plan’s office in Owings Mills, Maryland on various dates from
September 9, 2014 through November 14, 2014. Audit fieldwork was also performed at our
office in Cranberry Township, Pennsylvania.

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial 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 prescription and medical drug rebates. For the period 2011 through
April 30, 2014, we also judgmentally selected and reviewed all 26 prescription drug rebate
amounts, totaling $9,587,196, and 15 medical drug rebate amounts, totaling $150,804 (from a
universe of 76 medical drug rebate amounts, totaling $194,054), to determine if these rebate
amounts were timely returned to the FEHBP.2

2
  For the sample of medical drug rebate amounts, we selected all rebate amounts of $1,000 or more. The results of
this sample were not projected to the universe of medical drug rebates.


                                                        4                        Final Report No. 1D-2G-00-14-054
For the period 2011 through April 30, 2014, we reviewed the Plan’s cash management activities
and practices to determine if the Plan handled FEHBP funds in accordance with Contract CS
2879 and applicable laws and regulations. Specifically, we selected and reviewed 59 LOCA
drawdowns, totaling approximately $116 million (from a universe of 808 LOCA drawdowns,
totaling $737 million), for the purpose of determining if the Plan’s drawdowns were appropriate
and adequately supported.3 We also reviewed the Plan’s working capital calculations,
adjustments, and/or balances. Additionally, we reviewed a detailed itemization of exactly what
funds were in the Plan’s dedicated FEHBP investment account as of April 30, 2014, as well as
the interest income earned in the dedicated investment account and/or returned to the FEHBP
during the audit scope.




3
  The sample consisted of LOCA drawdowns for a judgmentally selected week from each calendar quarter during
the period 2011 through March 2014. The results of this sample were not projected to the universe of LOCA
drawdowns.


                                                      5                       Final Report No. 1D-2G-00-14-054
 IV. MAJORIII.
           CONTRIBUTORS    TO THIS REPORT
               RESULTS OF AUDIT
The audit disclosed no significant findings pertaining to prescription and medical drug rebates
and the Plan’s cash management activities and practices. Overall, we concluded that the Plan
returned prescription and medical drug rebates to the FEHBP in a timely manner. We also
concluded that the Plan handled FEHBP funds in accordance with Contract CS 2879 and
applicable laws and regulations concerning cash management in the FEHBP.




                                            6                        Final Report No. 1D-2G-00-14-054
 IV. MAJOR CONTRIBUTORS TO THIS REPORT
Experience-Rated Audits Group

               , Lead Auditor

               , Auditor

              , Auditor




                 , Chief             


            , Senior Team Leader 





                                     7   Final Report No. 1D-2G-00-14-054
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

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


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


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


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


                                                             -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                       8                               Final Report No. 1D-2G-00-14-054