oversight

Audit of Triple-S Salud, Inc. San Juan, Puerto Rico

Published by the Office of Personnel Management, Office of Inspector General on 2013-03-18.

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
Subject:



                                        AUDIT OF
                                   TRIPLE-S SALUD, INC.
                                  SAN JUAN, PUERTO RICO


                                           Report No. 1D-89-00-12-036


                                            Date: March 18, 2013




                                                          --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, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                                                     AUDIT REPORT



                                  Federal Employees Health Benefits Program
                               Experience-Rated Health Maintenance Organization


                                                 Triple-S Salud, Inc.
                                       Contract CS 1090       Plan Codes 85/89
                                                San Juan, Puerto Rico




                      REPORT NO. 1D-89-00-12-036                                   03/18/13
                                                                             DATE: ______________




                                                                               ______________________
                                                                               Michael R. Esser
                                                                               Assistant Inspector General
                                                                                 for Audits




                                                          --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, caution needs to be exercised before
releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.
                                EXECUTIVE SUMMARY



                         Federal Employees Health Benefits Program
                      Experience-Rated Health Maintenance Organization


                                      Triple-S Salud, Inc.
                            Contract CS 1090       Plan Codes 85/89
                                     San Juan, Puerto Rico




                REPORT NO. 1D-89-00-12-036                   03/18/13
                                                       DATE: ______________

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations
at Triple-S Salud, Inc. (Plan), located in San Juan, Puerto Rico, questions $2,394,593 in health
benefit charges, administrative expenses, cash management activities, and lost investment
income (LII). The Plan agreed (A) with this questioned amount.

Our limited scope audit was conducted in accordance with Government Auditing Standards. The
audit covered miscellaneous health benefit payments and credits, such as refunds and pharmacy
drug rebates, and administrative expenses from 2007 through 2011 as reported in the Annual
Accounting Statements. In addition, we reviewed the Plan’s cash management activities and
practices related to FEHBP funds for contract years 2007 through 2011.

The audit results are summarized as follows:




                                                i
    MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS

•   Pharmacy Drug Rebates (A)                                                       $2,325,196

    Our audit determined that the Plan had not returned pharmacy drug rebates of $2,004,583 to
    the FEHBP. Additionally, we determined that the Plan untimely returned pharmacy drug
    rebates of $1,075,837 to the FEHBP. As a result of this finding, the Plan returned
    $2,325,196 to the FEHBP, consisting of $2,004,583 for the questioned pharmacy drug
    rebates and $320,613 for LII on the drug rebates returned untimely or not previously returned
    to the FEHBP.

•   Health Benefit Refunds and Recoveries (A)                                          $34,386

    Our audit determined that the Plan had not returned subrogation and other health benefit
    recoveries, totaling $30,183, to the FEHBP. Additionally, we determined that the Plan
    untimely returned subrogation recoveries, totaling $68,550, to the FEHBP. As a result of this
    finding, the Plan returned $34,386 to the FEHBP, consisting of $30,183 for the questioned
    recoveries and $4,203 for LII on the recoveries returned untimely or not previously returned
    to the FEHBP.

                           ADMINISTRATIVE EXPENSES

•   Unallowable Interest Expenses (A)                                                  $11,916

    The Plan charged the FEHBP $11,916 for unallowable interest expenses in 2009. As a result
    of this finding, the Plan returned these questioned charges to the FEHBP.

                                 CASH MANAGEMENT

•   Duplicate Letter of Credit Drawdown (A)                                            $23,095

    The Plan inadvertently withdrew $20,270 for system access fees from the letter of credit
    account (LOCA) twice, resulting in a duplicate charge to the FEHBP. As a result of this
    finding, the Plan returned $23,095 to the FEHBP, consisting of $20,270 for the duplicate
    LOCA drawdown and $2,825 for LII on these funds.




                                                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

              1. Pharmacy Drug Rebates.....................................................................................6
              2. Health Benefit Refunds and Recoveries ............................................................7

       B.     ADMINISTRATIVE EXPENSES ........................................................................10

              1. Unallowable Interest Expenses .......................................................................10

       C.     CASH MANAGEMENT ......................................................................................11

              1. Duplicate Letter of Credit Drawdown .............................................................11
IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................13

 V.    SCHEDULES

       A.     CONTRACT CHARGES
       B.     QUESTIONED CHARGES

       APPENDIX           (Triple-S Salud, Inc. response, dated December 11, 2012, 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
Triple-S Salud, Inc. (Plan). The Plan is located in San Juan, Puerto Rico.

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 wholly owned subsidiary of the Triple-S Management Corporation. 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 Puerto Rico and the Virgin Islands.

The Plan’s contract (CS 1090) 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.

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.




1
 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
of the charges and benefits available may be less comprehensive.

                                                       1
All findings from our previous audit of the Plan (Report No. 1D-89-00-06-043, dated March 26,
2008) for contract years 2000 through 2004 have been satisfactorily resolved. 2

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 October 12, 2012. The Plan’s comments offered in response to the draft
report were considered when preparing our final report and are included as an Appendix to this
report. Also, additional documentation provided by the Plan on various dates through
February 25, 2013 was considered in preparing our final report.




2
  The previous audit (Report No.1D-89-00-06-043) disclosed several audit findings, including pharmacy drug
rebates of $342,263 that had not been returned to the FEHBP. In an OPM Audit Resolution letter, dated June 23,
2008, we noted that OPM closed the monetary recommendation for these questioned drug rebates because the Plan
submitted a certification for the return of these funds to the FEHBP. However, during our review of prior period
adjustments, we noted that these previously questioned drug rebates had not been returned to the FEHBP letter of
credit account (LOCA). We advised the Plan of this situation and recommended that the Plan adjust a LOCA
drawdown to return these previously questioned drug rebates to the FEHBP. As part of our review, we verified that
the Plan subsequently returned these funds to the FEHBP through a LOCA drawdown adjustment on July 12, 2012.

                                                        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.

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 Accounting Statements for contract years 2007 through 2011.
During this period, the Plan paid approximately $596 million in health benefit charges and $33
million in administrative expenses (See Figure 1 and Schedule A). Also, the Plan charged the
FEHBP $4.9 million in other expenses and retentions during this period (See Schedule A). 3

Specifically, we reviewed miscellaneous health benefit payments and credits (e.g., refunds,
subrogation recoveries, and pharmacy drug rebates), administrative expenses, and cash
management activities for 2007 through 2011.

3
 We did not review other expenses and retentions for contract years 2007 through 2011, except for the cash
management of these funds.

                                                        3
In planning and co nduc ting our audit, we
obtained an understanding of the Plan' s                                     Triple-S Sahid, IDC.
interual co ntro l structure to help det ermine                               Courr a cr C ha rg es
the nature , timing, and extent of our
auditing procedures. This wa s determined                $200

to be the most effective approach to select
                                                    ~    $150

area s of audit. For those area s selected, we      .s
primarily reli ed on subs tantive te sts of
transactions and not te sts of co ntrols.
                                                    •
                                                    ~
                                                         $100

Based on our testing, we did not identify                 $50

any significant matters involving the Plan 's
                                                           $0

interual co ntro l structure and its ope rations.
Ho we ver, since our audit wo uld not
                                                                                  Contract Years
necessarily discl ose all sign ificant matters
in the internal co ntro l stru cture, we do not
                                                           I:IHeal1hBenefit Paymerts   . Administrative Expenses
expre ss an op inion on the Plan 's system of
interual co ntro ls tak en a s a whole.
                                                                    Figure I - Contrac t Cha rge s

We also conduc ted tests to determine whe the r the Plan had complied w ith the co ntrac t, the
applica ble procurement regul ati ons (i.e., Fed eral Ac quisitio n Regulati ons (FAR) and Federal
Employe es Health Benefits Ac quisition Re gulations (FE HBAR) as appropriate), and the laws
and regulati ons gove rning the FEHBP. TIle results of our tests indicate that, with respect to the
items te sted , the Plan did not co mply with all provisions of the co ntrac t and federal procurement
regulati ons. Exceptions noted in the area s reviewed are set forth in det ail in the "Audit Findings
and Recommendations" section of thi s audit report. W ith respect to the items not tested , nothing
came to our atte ntion that caused us to beli eve that the Plan had not complied, in all material
respects, with those provi sions.

In co nduc ting our audit, we relied to varying degrees on computer-ge ne rated da ta provided by
the Plan . Due to time co nstraints, we did not verify the reli ability of the data genera ted by the
various systems invol ved . However , while utilizing the computer-gene rated dat a during om
audit te sting, nothing came to om atte ntion to cause us to do ubt its reli ab ility. We believe that
the da ta available wa s sufficient to ac hieve om audit objective s.

The audit wa s performed at the Plan 's office in San Jua n, Puerto Rico from June 4, 20 12 through
June 29 , 20 12. Audit fieldwork wa s also performed at our office in Jacksonvi lle , Florida.
Throughout the audit process, we encountere d mnnerous instan ces where the Plan respon ded
Imtimely, or initiall y provided incomplete responses, to various requests for support ing
doclUllentati on . As a result, completion of om audit work and issuance of om draft repOit were
delayed .

METHODOLOGY

We ob taine d an understanding of the intemal co ntro ls over the Plan 's financial, co st accounting,
and ca sh mana gement sys tems by inquiry of Plan offic ials.


                                                    4
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 13 months with health benefit refunds, totaling $20,245
(from a universe of 50 months with refunds, totaling $35,702); all subrogation recoveries,
totaling $80,707; all unidentified refunds, provider audit recoveries, and fraud recoveries,
totaling $260,654; and all pharmacy drug rebate allocations, totaling $              to determine
                                                                  4
if refunds and recoveries were promptly returned to the FEHBP. 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
2007 through 2011. Specifically, we reviewed administrative expenses relating to natural
accounts, out-of-system adjustments, prior period adjustments, pension, employee health
benefits, executive compensation, subcontracts, gains and losses, benefit plan brochures, and the
Health Insurance Portability and Accountability Act of 1996. We used the FEHBP contract, the
FAR, and the FEHBAR to determine the allowability, allocability, and reasonableness of
charges.

We also reviewed the Plan’s cash management activities and practices from 2007 through 2011
to determine whether the Plan handled FEHBP funds in accordance with Contract CS 1090 and
applicable laws and regulations.




4
    The sample of health benefit refunds included all months with total refund receipts of $950 or more.

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

  1. Pharmacy Drug Rebates                                                           $2,325,196

     Our audit determined that the Plan had not returned pharmacy drug rebates of $2,004,583
     to the FEHBP. Additionally, we determined that the Plan untimely returned pharmacy
     drug rebates of $1,075,837 to the FEHBP. As a result of this finding, the Plan returned
     $2,325,196 to the FEHBP, consisting of $2,004,583 for the questioned pharmacy drug
     rebates and $320,613 for LII on the drug rebates returned untimely or not previously
     returned to the FEHBP.

     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.”

     Contract CS 1090, Part II, Section 2.3 (i) states, “All health benefit refunds and
     recoveries . . . must be deposited into the working capital or investment account within 30
     days and returned to or accounted for in the FEHBP letter of credit account within 60
     days after receipt by the Carrier.”

     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.”

     The Plan’s pharmacy drug claims are processed by MC-21 (the Plan’s Pharmacy Benefit
     Manager). Pharmacy drug rebates are received on a monthly basis from MC-21 and
     credited to participating groups on a quarterly basis. For the period January 1, 2007
     through December 31, 2011, the Plan received pharmacy drug rebates, totaling
                    for the participating groups. The Plan allocated $            of these drug
     rebates to the FEHBP. We selected and reviewed all of these drug rebates for the
     purpose of determining if the Plan properly allocated and timely returned these funds to
     the FEHBP.

     The following summarizes the exceptions noted:

     •   In seven instances, the Plan had not returned pharmacy drug rebate amounts, totaling
         $2,004,583, to the FEHBP. As a result of the finding, the Plan returned $2,297,099 to
         the LOCA, consisting of $2,004,583 for these questioned drug rebates and $292,516
         for applicable LII. We reviewed and accepted the Plan’s LII calculation.



                                              6
   •   In one instance, the Plan returned a pharmacy drug rebate amount of $1,075,837
       untimely to the FEHBP (i.e., 173 days late). As result of the finding, the Plan
       calculated LII of $28,097 on these funds and returned this LII amount to the LOCA.
       We reviewed and accepted the Plan’s LII calculation.

   In total, the Plan returned $2,325,196 to the FEHBP as a result of this finding, consisting
   of $2,004,583 for the questioned pharmacy drug rebates and $320,613 ($292,516 plus
   $28,097) for applicable LII on the drug rebates returned untimely or not previously
   returned to the FEHBP.

   Plan’s Response:

   The Plan states, “The Plan reported correctly in its financial statements and in the
   FEHBP Annual Accounting Statements the above mentioned pharmacy rebates; as a
   credit to the FEHBP Health Benefit claims expense account and as a reduction of the
   amount owed by the FEHBP to the Plan. The Plan is owed funds since it operates on a
   checks presented basis method. Under this method, the Plan pays claims and expenses
   and requests funds to the FEHBP line of credit based on the checks that cleared (paid by
   bank). The Plan financial statements include correctly the amounts owed to and from
   FEHBP.

   The Plan inadvertently did not credit timely the FEHBP line of credit account for the
   rebates. As a result, the Plan was charged for LII of $320,613.”

   OIG Comments:

   The Plan provided documentation supporting that the questioned pharmacy drug rebates
   of $2,004,583 and applicable LII of $320,613 were returned to the LOCA. In an email
   (dated February 25, 2013), the Plan agreed with this finding.

   Recommendation 1

   Since we verified that the Plan returned $2,004,583 to the FEHBP for the questioned
   pharmacy drug rebates, no further action is required for this amount.

   Recommendation 2

   Since we verified that the Plan returned $320,613 to the FEHBP for applicable LII on the
   pharmacy drug rebates that were returned untimely or not previously returned to the
   FEHBP, no further action is required for this LII amount.

2. Health Benefit Refunds and Recoveries                                              $34,386

   Our audit determined that the Plan had not returned subrogation and other health benefit
   recoveries, totaling $30,183, to the FEHBP. Additionally, we determined that the Plan
   untimely returned subrogation recoveries, totaling $68,550, to the FEHBP. As a result of


                                            7
this finding, the Plan returned $34,386 to the FEHBP, consisting of $30,183 for the
questioned recoveries and $4,203 for LII on the recoveries returned untimely or not
previously returned to the FEHBP.

As previously stated under audit finding A1, the Plan is required to return refunds and
recoveries to the FEHBP with applicable LII.

Contract CS 1090, Part III, Section 3.6 states: “Payment of checks issued pursuant to this
contract shall be voided if the checks have been outstanding for two (2) years.”

The following summarizes our reviews for health benefit refunds and recoveries:

Other Health Benefit Recoveries

For the period 2007 through 2011, there were 60 months with other health benefit
recovery receipts, totaling $260,654, for the FEHBP. These other recoveries included
items such as unidentified refunds, provider audit recoveries, and fraud recoveries. We
selected and reviewed the entire universe of other health benefit recoveries for the
purpose of determining if the Plan timely returned these recoveries to the FEHBP.

We identified six months of other recovery receipts, totaling $18,026, that had not been
returned to the FEHBP. Since these other recoveries had not been returned to the
FEHBP, we also calculated LII of $2,699 on these recoveries. As a result of the finding,
the Plan returned $20,725 to the LOCA, consisting of $18,026 for the questioned
recoveries and $2,699 for the applicable LII.

Subrogation Recoveries

For the period 2007 through 2011, there were six months with subrogation recovery
receipts, totaling $80,707, for the FEHBP. We selected and reviewed the entire universe
of subrogation recoveries for the purpose of determining if the Plan timely returned these
recoveries to the FEHBP.

We identified five months of subrogation recovery receipts, totaling $12,157, that had not
been returned to the FEHBP. Since these subrogation recoveries had not been returned to
the FEHBP, we also calculated LII of $881 on these recoveries. Additionally, the Plan
returned one month of subrogation recovery receipts, totaling $68,550, to the FEHBP in
an untimely manner, resulting in LII of $623. As result of the finding, the Plan returned
$13,661 to the LOCA, consisting of $12,157 for the subrogation recoveries not
previously returned to the FEHBP and $1,504 for the applicable LII on the recoveries
returned untimely or not previously returned to the FEHBP.




                                         8
Health Benefit Refunds

For the period 2007 through 2011, there were 50 months with health benefit refund
receipts, totaling $35,702, for the FEHBP. From this universe, we selected and reviewed
a sample of 13 months of refund receipts, totaling $20,245, for the purpose of
determining if the Plan timely returned these funds to the FEHBP. Our sample included
all months with total refund receipts of $950 or more.

We determined that the Plan returned 12 months of refund receipts, totaling $19,002, to
the FEHBP in an untimely manner. We calculated LII on these refunds since the funds
were returned untimely to the FEHBP. However, since we determined that the LII
amount is immaterial, we did not question this amount.

Uncashed Health Benefit Checks

During our review of the Plan’s cash management activities, we noted instances where
the Plan voided uncashed health benefit checks and then returned the funds to the FEHBP
through LOCA drawdown adjustments. Since the Plan withdraws funds from the LOCA
on a checks-presented basis, the Plan is only required to void these uncashed checks if
outstanding for more than two years, but not required to return the funds for these
uncashed checks to the FEHBP. During on-site fieldwork, we discussed the Plan’s
procedures for uncashed checks with the Plan’s audit coordinator and Vice President of
Finance and Administration, and recommended that the Plan revise them since the Plan is
not required to return uncashed checks to the FEHBP under the checks-presented basis.

Summary of Questioned Amounts

In total, we are questioning $34,386, representing $30,183 ($18,026 plus $12,157) for
subrogation and other recoveries not previously returned to the FEHBP and $4,203
($2,699 plus $1,504) for LII on recoveries returned untimely or not previously returned
to the FEHBP.

Plan’s Response:

The Plan states that “all findings that include amounts were credited to the LOCA.”

OIG Comments:

The Plan provided documentation supporting that the questioned subrogation and other
recoveries of $30,183 and applicable LII of $4,203 were returned to the LOCA. In an
email (dated February 25, 2013), the Plan agreed with this finding.

Recommendation 3

Since we verified that the Plan returned $30,183 to the FEHBP for the questioned
subrogation and other recoveries, no further action is required for this amount.


                                        9
     Recommendation 4

     Since we verified that the Plan returned $4,203 to the FEHBP for LII on the subrogation
     and other recoveries returned untimely or not previously returned to the FEHBP, no
     further action is required for this LII amount.

B. ADMINISTRATIVE EXPENSES

  1. Unallowable Interest Expenses                                                    $11,916

     The Plan charged the FEHBP $11,916 for unallowable interest expenses in 2009. As a
     result of this finding, the Plan returned these questioned charges to the FEHBP.

     48 CFR 31.205-20 states that interest on borrowings (however represented) and directly
     associated costs are unallowable charges.

     For the period 2007 through 2011, the Plan allocated administrative expenses of
     $30,417,036 (before adjustments) to the FEHBP from 104 natural accounts. From this
     universe, we selected a judgmental sample of 23 natural accounts to review, which
     totaled $13,084,866 in expenses allocated to the FEHBP. We selected the natural
     accounts based on high dollar amounts, significant amount fluctuations from year to year,
     and/or our nomenclature review. From these natural accounts in our sample, we also
     selected and reviewed a judgmental sample of 22 general ledger expense transactions.
     We reviewed the expenses from these natural accounts for allowability, allocability, and
     reasonableness. For natural account “62100” (Legal Services), we identified
     unallowable interest expenses of $11,916 that were allocated to the FEHBP in 2009.

     Plan’s Response:

     The Plan states that “all findings that include amounts were credited to the LOCA.”

     OIG Comments:

     The Plan provided documentation supporting that the questioned charges of $11,916 were
     returned to the LOCA. In an email (dated February 25, 2013), the Plan agreed with this
     finding.

     We also calculated LII on these unallowable charges, but determined this LII amount to
     be immaterial.

     Recommendation 5

     Since we verified that the Plan returned $11,916 to the FEHBP for the unallowable
     interest expenses, no further action is required for this questioned amount.




                                            10
C. CASH MANAGEMENT

  1. Duplicate Letter of Credit Drawdown                                                   $23,095

     The Plan inadvertently withdrew $20,270 for system access fees from the LOCA twice,
     resulting in a duplicate charge to the FEHBP. As a result of this finding, the Plan
     returned $23,095 to the FEHBP, consisting of $20,270 for the duplicate LOCA
     drawdown and $2,825 for LII on these funds.

     Contract CS 1090, Part III, Section 3.2 (b)(1) states, “The Carrier may charge a cost to
     the contract for a contract term if the cost is actual, allowable, allocable, and reasonable.”

     FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall
     bear simple interest from the date due . . . .”

     For the period 2007 through 2011, the Plan made 249 LOCA drawdowns totaling
     $625,064,122. From this universe, we selected and reviewed a sample of 60 drawdowns,
     totaling $228,806,942, for the purpose of determining if the Plan properly withdrew
     funds from the LOCA (e.g., on a checks-presented basis) in accordance with Contract
     CS 1090 and applicable laws and regulations.

     During our review, we noted that system access fees are also included in the amounts the
     Plan withdraws from the LOCA. These access fees are the expenses incurred for
     processing claims using the Interactive BlueCross System. In one instance, we identified
     that the Plan inadvertently withdrew a partial amount of the October 2007 access fees,
     totaling $20,270, twice from the LOCA. Specifically, the Plan included this partial
     access fee amount in a November 2007 LOCA drawdown and again in an August 2008
     drawdown, resulting in a duplicate charge of $20,270 to the FEHBP.

     In total, we are questioning $23,095, consisting of $20,270 for the duplicate LOCA
     drawdown of system access fees and $2,825 for LII on these funds.

     Plan’s Response:

     The Plan states that “all findings that include amounts were credited to the LOCA.”

     OIG Comments:

     The Plan provided documentation supporting that the duplicate LOCA drawdown of
     $20,270 for system access fees and applicable LII of $2,825 were returned to the LOCA.
     In an email (dated February 25, 2013), the Plan agreed with this finding.




                                               11
Recommendation 6

Since we verified that the Plan returned $20,270 to the FEHBP for the duplicate LOCA
drawdown of system access fees, no further action is required for this questioned amount.

Recommendation 7

Since we verified that the Plan returned $2,825 to the FEHBP for LII on the duplicate
LOCA drawdown of system access fees, no further action is required for this LII amount.




                                       12
              IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group

                , Lead Auditor

                              , Auditor

             , Auditor

                , Auditor



                  , Chief (

               , Senior Team Leader




                                          13
                                                                                                                                                                SCHEDULE A
                                                                                V. SCHEDULES

                                                                          TRIPLE-S SALUD, INC.
                                                                         SAN JUAN, PUERTO RICO

                                                                           CONTRACT CHARGES


CONTRACT CHARGES*                                                2007               2008               2009                  2010                  2011          TOTAL



A. HEALTH BENEFIT CHARGES

  PLAN CODES 85/89                                            $116,099,471 $119,671,998              $119,543,953           $123,630,169        $128,367,238     $607,312,829
  OTHER MISCELLANEOUS ADJUSTMENTS                               (1,634,609)  (2,925,224)               (2,226,680)            (1,450,002)         (2,831,752)     (11,068,267)

  TOTAL HEALTH BENEFIT CHARGES                                $114,464,862      $116,746,774         $117,317,273           $122,180,167        $125,535,486     $596,244,562


B. ADMINISTRATIVE EXPENSES                                       $6,388,736       $5,695,140           $6,337,328              $6,965,727          $7,498,902     $32,885,833


C. OTHER EXPENSES AND RETENTIONS                                   $895,592         $930,921             $988,242                $997,793          $1,038,296      $4,850,844


TOTAL CONTRACT CHARGES                                        $121,749,190      $123,372,835         $124,642,843           $130,143,687        $134,072,684     $633,981,239

* This audit only covered miscellaneous health benefit payments and credits, administrative expenses, and cash management activities from 2007 through 2011.
                                                                                                                                                                      SCHEDULE B
                                                                              TRIPLE-S SALUD, INC.
                                                                             SAN JUAN, PUERTO RICO

                                                                              QUESTIONED CHARGES


AUDIT FINDINGS*                                                             2007             2008            2009           2010         2011           2012           TOTAL


A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS
   AND CREDITS

    1. Pharmacy Drug Rebates                                               $2,013,927         $67,596       $105,340       $63,946       $51,418         $22,969          $2,325,196
    2. Health Benefit Refunds and Recoveries                                        0          18,566         13,062         1,674           769             315              34,386

   TOTAL MISCELLANEOUS HEALTH BENEFIT
   PAYMENTS AND CREDITS                                                    $2,013,927         $86,162       $118,402       $65,620       $52,187         $23,284          $2,359,582

B. ADMINISTRATIVE EXPENSES

    1. Unallowable Interest Expenses                                                $0              $0       $11,916               $0           $0               $0         $11,916

    TOTAL ADMINISTRATIVE EXPENSES                                                   $0              $0       $11,916               $0           $0               $0         $11,916

C. CASH MANAGEMENT

    1. Duplicate Letter of Credit Drawdown                                          $0        $20,646          $1,057         $643          $516            $233            $23,095

    TOTAL CASH MANAGEMENT                                                           $0        $20,646          $1,057         $643          $516            $233            $23,095


TOTAL QUESTIONED CHARGES                                                   $2,013,927       $106,808        $131,375       $66,263       $52,703         $23,517          $2,394,593

* We included lost investment income (LII) within audit findings A1 ($320,613), A2 ($4,203), and C1 ($2,825). No additional LII is due for the audit findings.
 III TRIPLE-S SALUD ~,                   Illu.l ·, ... ~ Ilh.c"hiol<l .. l "." h. Hko




            Decemb er 11, 2012




           ~I                      Managem enUOIG

           701 San Marco Boulevard, Suite 1/1207

           Jacksonville, FL 32207


           RE: Report No. 10-89-00-12-36



           We are including our responses to the Audit Report No. 10-89-00- 12-36, in accordance to your
           request dated October 12, 2012. Addit ional supporting documents are included for L1 1 of
           $327,641 due to FEHBP that was returned by the Plan on December 11, 2012. As can be
           noted, all amounts required to be credited to the FEHBP have been returned. Therefore all
           aud it recommendations included in the draft report were completed in accordance with your
           recom menda tions.

           Also, we reviewed the report and are providing our comments and suggestions to changes in
           the report . All of these comments have been respectfully submilled 10 obla in your comments
           before preparing the final report.

           A. Comm ents:

                 1.	 The report includes in the Executive Summa ry the word "questions" and the amount of
                       "$2,394,593". It also states that, "the plan agreed wilh this quest ioned amount". We
                       request the word "questions" be removed from the report. The plan agrees that the
                       amount charg ed to operations was $359,827 and not $2,394,593. Please note that the
                       word "questions" and "questioned" may have many connotations and may be misleading
                       to the user, therefore should not be included in lhe report.

                       As TSM (TSS Parent Company) is a public company, the user may unders tand we did
                       not account for these transactions correctly in our Annual Audited financial stalements
                       (AA FS) or SEC filings or in the FEHBP Annual Accounting Statement. The user may
                       understand that a possible prior period restatement of these reports is required, when in
                       fact we accounted for these correctly.

                       Rebates, recoveries and subroqations for $2,034,766 (included within the $2,394,593)
                       were correctly reported as a reduction to claims expense, in both statements, the AAFS
                       and the FEHBP Annual Accoun ting Statement. This audit brough t to our attention, that
                       the paymenU credit had not been made to the LOCA and lost interest (L1I ) had to be
                       paid. This represents a balance sheet entry and has no impact or charge to our
                       ope rating result s, except for the L1 1. Therefore it is not correct to "question" the
                       $2,034,766 when in fact it had no "charges" to operating results.




Triple-S Salud" lnc. An lrldepE-odenl t .censee of the 11lue Crossand Blue ~ ip ld ASWCkltoo ·I~O. Box361618, San Juon, PR 00936-)628 ' Td. 787 ' 149' 4949 · \'II'ww.s..spe.com
Page 2

         The remaining amount of $359,827 is composed of lost interest (LII) of $327,641,
         unallowable charges to adm expenses of $11,916 and a duplicate LOCA drawdown of
         $20,270. These amounts resulted in a charge to the 2012 Plan operating results
         $359,827.

   2. On Page ii and Page 6: (Pharmacy Drug Rebates). We recommend to include the
      following: “The Plan reported the above pharmacy rebates in the Annual Accounting
      Statements as a credit to the FEHBP Health Benefit claims expense account and as a
      reduction of the amount owed by FEHBP to the Plan. Although the amount was recorded
      in the Annual Accounting Statements, it was returned untimely or not returned to the
      FEHBP letter of credit account (LOCA). As a result, the FEHBP letter of credit account
      is due … ”.

   3. The word “questioned charges” is used in the “Contents” and in the title of Schedule B.
      Schedule B should not be included as part of the report.


   4. The page 2, states the following: “All findings from our previous audit of the Plan (Report
      No. 1D-89-00-06-043, dated March 26, 2008) for contract years 2000 through 2004 have
      been satisfactorily resolved. We request the footnote to be excluded, since these were
      “resolved”.

   5. The page 3, states the following: “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”. It is confusing whether this is a except for opinion or an
      adverse opinion. We request this phrase to be explained or excluded from the report.

         Also, please explain further what are the “items tested” and why we did not comply with
         “all provisions” of the contract and federal procurement, related to those items tested.
         What are all the provisions in which we did not comply?

   6. The page 3, states the following: “Throughout the audit process, we encountered
      numerous instances where the Plan responded untimely, or initially provided incomplete
      responses, to various requests for supporting documentation. As a result, completion of
      our audit work and issuance of our draft report were delayed”.

         We request this phrase to be excluded from the report. It blames the Plan for the delays
         including the timing of the report. We do not agree.

   7. The word “questioned” should be removed from the page 7, see comment number 1.

   8. The word “questioned” should be removed from the page 9, see comment number 1.



B. Audit Findings Response:

         1. Pharmacy Rebates- ‘’The Plan reported correctly in its financial statements and in
            the FEHBP Annual Accounting Statements the above mentioned pharmacy rebates;
            as a credit to the FEHBP Health Benefit claims expense account and as a reduction
            of the amount owed by FEHBP to the Plan. The Plan is owed funds since it operates
Page 3

             on a check presented basis method. Under this method, the Plan pays claims and
             expenses and requests funds to the FEHBP line of credit based on the checks that
             cleared (paid by bank). The Plan financial statements include correctly the amounts
             owed to and from FEHBP.


             The Plan inadvertently did not credit timely the FEHBP line of credit account for the
             above rebates. As a result, the Plan was charged for LII of $320,613”.

         2. All other findings. Please note that all findings that include amounts were credited to
            the LOCA.


We thank you and your audit team for the review of all our comments. We have respectfully
included all our comments on the draft report attached, for your consideration and to facilitate
you review.

Cordially,




Finance & Administration Division


Enclosure


f Mr. Pablo Almodóvar, President & CEO

         Sales and Account Management Division