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Audit of the National Asscociation of Letter Carriers' Pharmacy Operations as Administered by CareMark, Inc. Northbrook, Illinois 2003-2005

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)

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                         UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                           Washington, DC 20415



  Office of the
Inspector Gener~1



                                         AUDIT REPORT




                               Federal Employees Health Benefits Program

                                        Phannacy Drug Program

                                           Contract CS 1067

                                 National Association of Letter Carriers

                                             Plan Code 32



                                            Caremark, Inc.

                                          Northbrook, Illinois




                    REPORT NO. IH-OI-OO-07-014                DATE: 03/17/2009





                                                            Michael R. Esser
                                                            Assistant Inspector General
                                                              for Audits



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                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                             Washington, DC 20415


   Office of the
Inspeclor General




                                     EXECUTIVE SUMMARY



                               Federal Employees Health Benefits Program

                                        Phamlacy Drug Program

                                          . Contract CS 1067

                                 National Association of Letter Carriers

                                             Plan Code 32



                                              Caremark, Inc.

                                            Northbrook, Illinois





                    REPORT NO. IH-OI-00-07-014                   DATE: 03/17/2009

       The Office of the Inspector General has completed a performance audit of the 2003 through 2005
       National Association of Letter Carriers (NALC) pharmacy operations as administered by
       Caremark, Inc. The primary objective of the audit was to detennine ifCaremark complied with
       the regulations and requirements contained within its contract with NALC and Contract CS 1067
       (between NALC and the Office of Personnel Management). The audit was conducted in
       Northbrook, Illinois from January 22 through February 2,2007 and from February 26 through
       March 23,2007.

       The audit showed that the 2003 through 2005 NALC pharmacy operations were in compliance
       with the contracts.




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                                CONTENTS
                                            PAGE


       EX·EC1J'rIVE SUMMARY                   i


  I.   INTRODUCTION AND BACKGROUND            1


 II.   OBJECTIVES, SCOPE, AND METHODOLOGY    2


III.   AUDIT RESULTS                         5


IV.    MAJOR CONTRIBUTORS TO THIS REPORT     6


V.     SCHEDULE A- CONTRACTCHARGES
                    I. INTRODUCTION AND BACKGROUND


INTRODUCTION


As authorized by the Inspector General Act of 1978, as amended, we conducted an audit of the
2003 through 2005 National Association of Letter Carriers' (NALe) 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 2, 2007 and from February 26
through March 23,2007. Additional audit work was completed at our Washington, D.C. office.

BACKGROUND

The Federal Employees' Health Benefit Program (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. The Office of Personnel Management's (OPM) Center for Retirement and
Insurance Services has overaJJ responsibility for administration of the FEHBP. The provisions of
the FEHB Act are implemented by aPM 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 that provide service
benefits, indemnity benefits, or comprehensive medical services.

NALC has entered into a Government-wide contract (CS 1067) with the OPM to provide a
health benefit plan authorized by the FEHB Act. NALC has contracted directly with Caremark
to manage the delivery and financing of prescription drug benefits for NALC health benefit
purchasers.

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




                                               1

                II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES

The objectives of our audit were to detennine whether Caremark's charges to the FEHBP and

services provided to FEHBP members were in accordance with the tenns of the contracts.

Specifically, our objectives were as follows:


   Claim Payments

       •	 To detennine whether Caremark complied with contract provisions stated in its
          contract with NALC relative to benefit payments, and to detennine if claims were
          properly adjudicated.

   Processing and Administrative Fees

       •	 To detennine whether processing and administrative fees charged to the FEHBP were
          in compliance with the terms of the contract between Caremark and NALC.

       •	 To identify areas of the contract between Caremark and NALC which require
          improvement.

   Clinical Management Savings

       •	 To determine if costs charged to the FEHBP for Clinical Management Programs were
          charged in accordance with the terms of the contract between Caremark and NALC.

       •	 To determine if savings amounts reported were properly calculated.

.SCOPE-

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

We reviewed the NALe Annual Accounting Statements for contract years 2003 through 2005.
During this period, Caremark paid approximately $692 million in prescription drug charges (see
Schedule A).

In planning and conducting our audit, we obtained an understanding of Caremark'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 for audit. For those areas
selected, we primarily relied on substantive tests of transactions and not tests of controls. Based
on OUT testing, we did not identify any significant matters involving Caremark's internal control




                                                 2

structure and its operation. However, since our audit would not necessarily disclose all
significant matters in the internal control structure, we do not express an opinion on Caremark's
system of intemal controls taken as a whole.

In conducting the audit we relied to varying degrees on computer-generated data provided by
Caremark. 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 audit testing, nothing came to our attention to doubt its reliability. We believe that the
data was sufficient to achieve the audit objectives.

We also conducted tests to determine whether Caremark had complied with the 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, Caremark
complied with all provisions ofthe contract and Federal procurement regulations.

METHODOLOGY

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

For our review of claim payments we selected the following judgmental samples to determine if
the claims were properly paid by Caremark (all samples were selected from claims billed from
July 1 through December 31, 2005):

    •	 We initially selected a judgmental sample 100 mail order drug claims (totaling $537,719)
       by selecting every 10th claim (until we had chosen 100 claims) from a listing sorted from
       highest to lowest of "client due amount" of $3,000 or greater. This universe included
       1,058 claims totaling $5,401,133. Caremark informed us that this sample encompassed
       "specialty" drug claims (specialty drugs are prescription medications that require special
       handling, administration, or monitoring) only. As a result, we reduced the sample to the
       top 20 high dollar claims selected (totaling $212,685).

    •	 We judgmentally selected a sample of 80 mail order claims (totaling $46,222) by
       selecting every loth claim (until we had chosen 80 claims) with a high "client due
       amount" between $500 and $600. This sample was selected from a universe of 2,747
       mail order claims totaling $1,497,980.

    •	 We judgmentally selected the top five retail pharmacies based on the highest total "client
       due amount" by pharmacy. For each retail phannacy selected, we judgmentally selected
       every lOth claim from a listing of "client due amount" sorted from highest to lowest, until
       we had chosen 30 claims for each phannacy. Specifically, we selected the following:
              1.	 30 CVS claims totaling $27,552, from a tmiverse of 4,550 claims totaling
                   $804,219;
              2.	 30 Wal-Mmi claims totaling $12,930, from a universe of314 claims totaling
                   $134,144;




                                                3

               3.	 30 Rite Aid claims totaling $14,281, from a universe of 405 claims totaling
                   $169,324;
               4.	 30 Eckerd claims totaling $6,573, from a universe of 349 claims totaling
                   $73,340;
               5.	 3D Kroger claims totaling $8,055, from a universe of 699 claims totaling
                   $123,547.

    •	 We judgmentally selected 60 mail order claims (totaling $37,290) from a universe of761
       claims (totaling $384,174) with indicators to dispense the drug as written (DAW) to
       detennine if the indicators were valid. We selected every 10th claim (until we had chosen
       50 claims) from a listing sorted from highest to lowest of "client due amount" where the
                                                                                   th
       DAW code was 1 (DAW specified by physician), and we selected every 10 claim (until
       we had chosen 10 claims) from a listing sorted from highest to lowest of "client due
       amount" where the DAW code was 2 (DAW specified by patient).

For our review of the processing and administrative fees, we judgmentally selected the month of
December from the years of the audit scope (2003-2005) for review. Specifically, we reviewed
the information to determine if the individual fees charged to the FEHBP were COlTect according
to the contract between NALC and Caremark and if the claim counts quoted on the billings were
correct.

For our review of the clinical management savings, we judgmentally selected 60 claims (totaling
$107,203) from the 3rd and 4 lh qua11ers of2005 (16,564 claims, totaling $4,685,128) to determine
if the savings calculated by Caremark was correct. Specifically, from each quarter we selected
every lO tll claim based on the highest (positive savings) "client savings amount" until we had
chosen 25 claims and every 5lh claim based on the lowest (negative savings) "client savings
amount" until we had chosen 5 claims.

 The above samples that were selected and reviewed in performing the audit were not statistically
.based.· Consequently, the results could not be projected to the universe since it is unlikely that
 the results are representative ofthe universe taken as a whole. We used the Contract CS 1067
 and the contract between NALC and Caremark to determine if processing and administrative
 fees charged to the FEHBP were in compliance with the terms of the contract.




                                                 4

                                III. AUDIT RESULTS


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




                                            5

               IV. MAJOR CONTRIBUTORS TO THIS REPORT


Special Audits Group

                  Auditor

                Auditor


                   Senior Team Leader

Jill S. Henderson, Deputy Assistant Inspector General for Management

                    Chief, Special Audits Group




                                              6

                                                                                          SCHEDULE A

                                       AUDIT OF THE

                             NATIONAL ASSOCIATION OF LETTER

                             CARRIERS' PHARMACY OPERATIONS

                            AS ADMINISTERED BY CAREMARK, INC.

                                  NORTHBROOK, ILLINOIS


                                  CONTRACT CHARGES

                              REPORT NUMBER: 1H-01-00-07-014


CONTRACT CHARGES                                 2003            2004          2005        TOTAL

PHARMACY BENEFIT PAYMENTS                I   $211,015,524   $232,239,643   $248,364,306   $691,619,473   II