Audit of The Rural Carrier Benefit Plan's Pharmacy Operations

Published by the Office of Personnel Management, Office of Inspector General on 2009-03-17.

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

                                                                    US OFFICE OF PERSONNEL MA NAGEMENT
                                                                        OfFICE OF THE INSPECTOR GENERAL
                                                                                         OFFICE OF AUDITS

Final Audit Report

                      AUDIT OF THE 


                  PHARMACY OPERATIONS 


                        2003 - 2005 

                                                    Report No.                    1H-01-00-07-013

                                                    Date:                       March 1 7 , 2009

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                             UNITED STATES OFF1CE OF PERSONN EL MA NAGEMENT 

                                                Washington, DC 20415 

   Office of tlle
Inspc.:lOr Ge ueral

                                              AUDIT REPORT 

                                   Federa l Employees Health Benefits Program 

                                             Pharmacy Drug Program 

                                                Conlract CS 1073 

                                             Rural Carrier Benetit Plan 

                                                   Plan Code 38 

                                                 Caremark , In c. 

                                               Northbrook, Illinois 

                        REPORT NO. l H-OI-OO-07-0Ll                 DATE: March 1 7 JQQ9

                                                                 Michad R. Esscr
                                                                 Assistant Inspector General
                                                                    for A ud its

         www. (l pm .go v                                                                      _w. usaJobs. goy

                                                Wash ingto n, DC 20415 

  Office of Ihe
Inspector Generlll

                                        EXECUTIVE SUMMARY

                                 Federal Employees Health Benellts Prog ram 

                                          Pharmacy Drug Prog ram 

                                             Contract CS 1073 

                                          Rural Ca rrier Be nefit Plan 

                                                Plan Code 38 

                                                  Caremark, Inc. 

                                                Northbrook, Illinois 

                     REPORT NO . IH-O I-OO-07-0IJ                     DAT E:   March 1 7. 2 0 09

        The Onice orthe Inspector Genera l has comple ted a pcrtonnance audit orl he 2003 through 2005
        Rural Carrier Benefi t Pl an phamlacy o pe rati ons as admin istered by Caremark . rne. The primary
        o bj ective o flh e a udit was to determine ifCarcmark compli ed with the regulat ions and
        req uircmcnls contained within its cOnlracl wi th RCBP and ('ol1 lra<:1 CS 1073 (between RCBP
        and the Ofticc o f Personnel Management). Th(,., a udit was cond ucted in No rth brook_Illinois from
        January 12 through February 2. 2007 and fro m February 26 thro ug h Marc h 23. 2007.

        The aud it showed that the 2003 through 2005 RC BP pharm ac y o peratio ns we re in co mpliance
        with the cont ract s.

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      EXECUI'IVE SUTV1MARY ............................................................................................... i 

 I.   INTRODUCTJON AND BACKGROUND ..................................................................... 1 

II.   OBJECTIVES, SCOPE. AND METHODOLOGY ......................................................... 2 

TIL   AlJDrr RESlJLTS ........................................................................................................... 5 

IV.   MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6 

                    I. INTRODUCTION AND BACKGROUND 


As authorized by the Inspector General Act of 1978, as amended, we conducted an audit of the
2003 through 2005 Rural Carrier Benefit Plan's (RCBP) phannacy operations as administered by
Caremark, Inc. (Caremark). The audit field work was conducted at Caremark's offices in
Northbrook, Illinois, from January 22 through February 2007 and from February 26 through
March 23,2007. Additional audit work was completed at our Washington, D.C. office.


The Federal Employees' Benefit Plan (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 benetits for federal employees, annuitants, and
dependents. The Office of Personnel Management's (OPM) Center for Retirement and
Insurance Services has overall responsibility for administration of the FEHBP. The provisions of
the FEHB Act are implemented by OPM through regulations, which are codified in Title
Chapter 1, Part 890 of the Code of Federal Regulations (CFR). Health insurance coverage is
made available through contracts with various health insurance carriers that provide service
benefits, indemnity benefits, or comprehensive medical services.

RCBP has entered into a Government-wide contract (CS 1073) with the OPM to provide a hea1th
benefit plan authorized by the FEHB Act. RCBP has contracted directly with Caremark to
manage the delivery and financing of prescription drug benefits for RCBP health benefit

This is our first audit of the RCBP phmmacy benefit operations as administered by Caremark.




The obj ec tives of our aud it were to detenninc whether Carem ark's c harges to the FEI-! BP and
serv ice s provided to FEHBP mem bers were in accordance with the terms o flhe contracts.
Speci fi call y. o ur obj ectives were as ta llows:

   Claim Payments

        • 	 To determine whethe r Caremark com plied with contract provisions stated in it s
            contract wit h ReB!' relative to benctit payment s. and to determ ine jf cla im s were
            properly adjud icated.

    Processing and Admini strative Fees

        • 	 To detenninc whether processing and adm inistra ti ve fees charged to the FEHBP were
            in compliance with the temlS of the contract between Carcmark and RC BP .

        • 	 To identify area s o flh e contract between Carcmark and ReBP \-vhich require
            im provement.

    Clinil.:al Management Savi ngs

        • 	 To dete rm ine if costs charged to the FEHBP lo r Cl ini cal Management Program s were
            charged in acco rdance \vi th the tenn s of the contract between Carema rk and RCB P.

        • 	 To determine if savings a mounts reported were properl y calc ul ated .


We co nduc ted th is pcrto rmancc aud il in accordance with generall y accepted governm ent
auditin g standards. Those standards require that we plan and perfo nn the audit to obtain
su t1ici cnt appropriate ev idence to provide a reasonable basis lor o ur find ings and conclus io ns
based on the audit obj ectivt:s. We believe that the ev idence obta ined provides a reasonabl e basis
for o ur fin d ings and concl us io ns based on the audit objectives.

We reviewed l he Re BI) Annua l Accounti ng St.1.tements fo r contract yt:ars ~00 3 th ro ugh 2005.
During Ihis period, Carcmark paid                                in prescri ption drug charges (see
Sc hedul e A).

In plannin g: and conduct ing o ur audit, we obtained an understandin g o f Carelllork's intcm a l
co ntrol structure to hel p delcmline the nature. liming, and ex tcnt of our auditing procedures.
This was dctcnnined 10 bc the most effective a pproach to sel ect arcas for audit. For those areas
selected. we primarily r..:1ied on substanti ve tests o f transacti o ns and not tests controls. Based


on our testing, we did not identify any significant matters in volving Caremark's intemal control
structure and its operation. However, since ollr aud it would not necessarily disclose all
signitlcant matters in the internal contTOI structure, ..ve do 1101 express an opinion on Caremark's
system of internal con tro ls taken as a whole.

In conduct ing the audit we relied to varyi ng degrees on computcr+ gcnerated data provided by
Carcmark. Due to time constraints, we did not verily the reliability of the data generated by the
various infonnation systems involved. However, while utilizing the computer-generated data
during aud it testing. nothing came to our attent ion to doubt its reliability. We believe that the
data was sufficienl to achieve the audit object ives.

We also conducled tests to detennine whether Care1llark had complied with the contract, thc
applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal Employees
Health Bcnelits Acquisit ion Regulations, as appropriate). and the laws and regUlations governing
the FEHB P. The results of Ollr tests indicate that, with respect to the items tested, Caremark
comp lied with all prov isions oflhe contract and Federal procurement regulati ons.


To test Carcmark's compliance with the contracts we reviewed the following areas:

For a Uf re view of claim payments we selected the following samples to determine if the claims
were properly paid by Caremark (all samples ..vere selected from claims billed from July I
through December 31. 2005):

    • 	 We in itiall y selected a judgmental sa mple of 100 mail order drug cl aims (totaling
        $358,746) by se lecting cvery IO lh claim (unti l we had chosen 100 claims) from a li st ing
        sorted from highest to lowest of ·'c lient due amount" 01'$500 or greater. This universe
        included ~lajms lotaling _ . Caremark infonned us that this sampl e
        encompassed "specialty" drug claims (specialty drugs arc prescription medications mat
        require special hand ling, administration, or monitoring) onl y. As a resu lt. we reduced the
        sample to the top 20 high do ll ar claims selected (tota ling $1 56.287).

    • 	 We judgmental1y selected a sample or80 mail order claims (totaling $46.173) by
        se lecting every 10lh claim (until we had chosen 80 claims) based on high "client due
        amount" between $500 and $600. Thi s sample was selected from a universe or llll
        mail order claims totaling _ .

    • 	 We judgmental!y sclected the top [-jvc retail pharm acies based on the highest total "c1icnt
        due amount" by phamlacy. For each retail pharmacy selected. we judgmentally selected
        every 10lh claim from a li sting of ·'cli ent due amoun t" sorted from highest to lowest until
        \\'c had chosen 30 claims for each pharmacy. Specilicall y. we selected the tollowing:

                 1. 	 30 CYS claims totaling $9,750. from a uni verse of ~ Jaims totaling

               2. 	 30 Wal-Mal1 claim s totaling $6,638. from a uni verse of _        claims tota ling


                2. 	 30 Wal~Mal1 claim s tota ling $6,638. fro m a universe   01'_       c laims totaling

                3. 	 30 Wal greens claims totali ng $ 10.008. !i'om a un iverse o f ~ lai m s
                     total ing _      ;
                4. 	 30 Rite~Aid claims totaling $5 .5 5 1. from a universe o f - = l aims totaling
                   _           and

                5. 	 30 Kroger claim s totaling $3,566. from a lInivers~ of~ claim s totaling

    • 	 We judgmentally sel ected GO mail order claim s (tota ling S38,743) from a uni verse of
        - =laims (totaling _                 ) with ind icators to dispense the drug as written ( DA W)
        to detcmline irthe indica tors \verl! valid, We se lected eve ry loth c laim (until we had
        chosen 50 cla ims) from a listing sorted from highest to lowest o r "c lient due amount"
        where thc DA W code was I (DA W specified by physic ian). and ......e selected every 10
        claim (unt il ,.,ie had chosen 10 claim s) from a listing sorted lyOOl highest to lowest of
        "c lie nt due amoun t" where the DAW code was:! (DA W sJJCci li cd by pati ent ),

For our review of the processing. and admin istmt ive ICes. we j udgme ntall y selected the mo nth or
December from each yea r o f the audit scope (2003-2005) ror review, Spcc ilically. we reviewed
the info rmatio n h ) dete rm inc if the individua l fees charged to the FL~ HB P wcre correct according
to the contract bct\....cen Caremark and RCB I) and if the claim counts quoted o n the billings werc

For our review of the clinical management savings. we judgmental ly selec ted 60 claim s (totaling
$80,693 in sav ings) from the ]!d and 4th quarters o f 2005 _           claims, tota ling _          ) to
determ ine if the sav ings calc ulated by Carcmark was COlTcel , S peei lieaHy . from each qu.'1 rter we
selected every 1Olll cla im based o n the highest (posi tive savi ngs) ·'c·lien! savings amount" until
we had c hosen 25 claims and every 5th claim based on the lmvest (negative savings) "client
savi ngs amo unt" until we had c hosen 5 claim s.

The above samples that were selected a nd rev iewed in performing the audi t were not statistiL:ally
based. Consequentl y. the results could not be proj cct\!d to the uni verse since it is unlikely that
the results are representati ve orlilc uni verse ta ken as a whn le. We used the Contrac t CS 107]
and the contrae,t between Caremark and Re BP to determine if process ing and adm inistrati ve tees
c harged to the FEI-lBP were in compli ance with the terms of the contract.


                                III. AUDIT RESULTS 

Based on our review of claim payments, processing and administrative fees, and clinical
management savings, we found that the RCBP pharmacy operations for 2003 through 2005, as
administered by Caremark, were administered in accordance with the contracts.



Special Audits Gro up



                   Seni or Team Leader

•               Deputy Assistant Inspector General lor Management

                   Ch ief, S pecial Audits Group



                                            A UDIT OF THE
                                    RURAL CARRIER .BENEFTT PLAN'S 

                                       PIIARMACY OPERATIONS 

                                 AS ADMJNISTERED BY CAREMARK. INC. 

                                       NORTlIBROOK, ILLINOIS 

                                       CO:"lTRACT CHARGES 

                                   REPORT NUMBER ; JH-OI-OO-07-013