oversight

Audit of Bluecross and Blue Shield's Mail Order Pharmacy Operations As Administered by CVS Caremark in 2006 and 2007

Published by the Office of Personnel Management, Office of Inspector General on 2012-02-02.

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 BLUE CROSS AND BLUE SHIELD'S

   MAIL ORDER PHARMACY OPERATIONS

AS ADMINISTERED BY CVS CAREMARK IN 2006

                AND 2007





                                            Report No. IH-OI-OO-ll-Oll


                                           Date:       february            2     2012




                                                           --CAUTION-­
This audit report has been distributed (0 Federal officials who are responsible for the administration of the audited program. This audit
report rna)' contain proprietary data which is protected by Federal law (18 LS.C. 1905). Therefore. while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG web page. caution needs (0 be exercised before
releasing the report to the general public as it rna)' contain proprietary information that was redacted from the publicly distributed copy.
                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 20415


   Office of the
Inspector General




                                            AUDIT REPORT





                       AUDIT OF BLUE CROSS AND BLUE SHIELD'S MAIL

                      ORDER PHARMACY OPERATIONS AS ADMINISTERED

                            BY CVS CAREMARK IN 2006 AND 2007



                                          CONTRACT CS 1039

                                            PLAN CODE 10




                      Report No. IH-OI-OO-ll-Oll                  Date:   02/02/12




                                                               Michael R. Esser
                                                               Assistant Inspector General
                                                                 for Audits




       www.o nm.gov                                                                      www.us aj oba.gov
                             UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                Washington, DC 2041.')


  Office of the
Inspector General




                                         EXECUTIVE SUMMARY





                     AUDIT OF BLUE CROSS AND BLUE SHIELD'S MAIL

                    ORDER PHARMACY OPERATIONS AS ADMINISTERED

                          BY CVS CAREMARK IN 2006 AND 2007



                                           CONTRACT CS 1039

                                             PLAN CODE 10




                        Report No. IH-OI-OO-II-Oll                       Date:   02/02/12

      The enclosed audit report details the results of our audit of Blue Cross and Blue Shield's (Plan)
      mail order pharmacy operations as administered by CYS Caremark, the Plan's pharmacy benefit
      manager (PBM), in 2006 and 2007. The primary objective of our audit was to determine if the
      Plan complied with the regulations and requirements contained within Contract CS 1039, between
      the Plan and the Office of Personnel Management, and the requirements within its contract with
      the PBM. The audit was performed at the PBM's location in Scottsdale, Arizona, from February
      14 through March 4, 2011.

      The audit covered mail order pharmacy claims and the Plan's adherence to its contractual
      requirements for contract years 2006 and 2007. This report questions $325,378 in prescription
      drug overpayments. The results of our audit have been summarized below.

                                             PHARMACY CLAIMS

           With the exception of the issues specified below, the results of our audit showed that the Plan
           complied with the contractual requirements contained within Contract CS 1039 and the
           requirements within its contract with the PBM, as they relate to the payment of pharmacy
           claims and program performance.




        www.op rn.gov                                                                          www.usejcbs.gov
•   Recoverable Claim Payments                                                          $304,616

    After receiving notice of 197 members who terminated coverage, the Plan failed to go back
    and recover 367 improper claim payments totaling $304,616.

•   Ineligible Member Claims                                                            $20,762

    The PBM filled 78 prescriptions and charged the FEHBP $20,762 for 33 members who were
    reported by the Plan as ineligible at the time the claim was adjudicated.

         HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT

    The results of our review showed that the PBM, administrator of the mail order pharmacy
    benefits for the Plan, had policies and procedures in place to address the Health Insurance
    Portability and Accountability Act’s Standards for Electronic Transactions, Privacy Rules, and
    Security Rules.

                              FRAUD AND ABUSE PROGRAM

    The results of our review showed that the PBM’s policies and procedures for fraud and abuse
    complied with section 1.9(c) of Contract CS 1039, and met all eight industry standards for
    fraud and abuse programs outlined in FEHBP Carrier Letter 2003-23.




                                                ii
                                               CONTENTS
                                                                                                                         PAGE

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

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

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

III.   AUDIT FINDINGS AND RECOMMENDATIONS ........................................................7

       A.     PHARMACY CLAIMS ............................................................................................ 7

              1.     Recoverable Claim Payments .......................................................................... 7
              2.     Ineligible Member Claims ............................................................................... 8

       B.     HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT ......... 10

       C.     FRAUD AND ABUSE PROGRAM ....................................................................... 10


IV.    MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 11

       SCHEDULE A – CONTRACT CHARGES
       SCHEDULE B – QUESTIONED COSTS

       APPENDIX A (Plan’s response to the draft report, dated November 11, 2011)
       APPENDIX B (Plan’s response to the draft report, dated December 13, 2011)
                 I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the results of our audit of Blue Cross and Blue Shield’s (Plan) Federal
Employees Health Benefits Program (FEHBP) mail order pharmacy operations as
administered by CVS Caremark, the Plan’s pharmacy benefit manager (PBM), in 2006
and 2007. The audit was conducted pursuant to the provisions of Contract CS 1039; Title
5, United States Code, Chapter 89; and Title 5, Code of Federal Regulations, Chapter 1,
Part 890 (5 CFR 890). 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. The audit fieldwork took place at the PBM’s
office in Scottsdale, Arizona from February 14 through March 4, 2011. Additional audit
work was completed in our Washington, D.C. and Cranberry Township, Pennsylvania
offices.

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 (HIO) has overall responsibility for
administration of the FEHBP. The provisions of the FEHB Act are implemented by
OPM through regulations codified in 5 CFR 890. Health insurance coverage is made
available through contracts with various health insurance carriers that provide service
benefits, indemnity benefits, or comprehensive medical services.

The Blue Cross and Blue Shield Association (Association), on behalf of participating
Blue Cross and Blue Shield plans, has entered into a Government-wide Service Benefit
Plan contract (CS 1039) with OPM to provide a health benefit plan authorized by the
FEHB Act. The Association delegates authority to participating local Blue Cross and
Blue Shield plans throughout the United States to process the health benefit claims of its
federal subscribers.

The Association has established a Federal Employee Program (FEP) Director’s Office in
Washington, D.C. to provide centralized management for the Service Benefit Plan. The
FEP Director’s Office coordinates the administration of the contract with the Association,
Blue Cross and Blue Shield plans, and OPM. The Association has also established an
FEP Operations Center. The activities of the FEP Operations Center are performed by
CareFirst BlueCross BlueShield, located in Washington, D.C. These activities include
acting as fiscal intermediary between the Association and member plans, verifying
subscriber eligibility, approving or disapproving the reimbursement of local plan
payments of FEHBP claims (using computerized system edits), maintaining a history file
of all FEHBP claims, and maintaining an accounting of all program funds.




                                             1
Pharmacy Benefit Managers (PBMs) are primarily responsible for processing and paying
prescription drug claims. The services typically include both retail and mail order drug
benefits. For drugs acquired through the “local” drugstore, the PBMs contract directly
with the approximately 50,000 retail pharmacies located throughout the United States.
For maintenance prescriptions that typically do not need to be filled immediately, PBMs
offer the option of mail order pharmacies. The PBM is used by the Plan to develop,
allocate, and control costs related to the pharmacy claims program.

OPM’s HIO has overall responsibility for administering the FEHBP, including the
publication of program regulations and agency guidelines. As part of its administrative
responsibilities, the HIO contracts with various health insurance carriers that provide
service benefits, indemnity benefits, and/or comprehensive medical services.
Compliance with the laws and regulations applicable to the FEHBP is the responsibility
of the Plan’s management, which includes establishing and maintaining a system of
internal controls.

The Plan’s pharmacy operations and responsibilities under contract CS 1039 are carried
out by the PBM, which is located in Scottsdale, Arizona. Contract CS 1039 section 1.11
includes a provision which allows for audits of the program’s operations. Our
responsibility is to review the performance of this PBM to determine if the Plan charged
costs to the FEHBP and provided services to its members in accordance with this
contract.




                                            2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary objectives of this audit were to:

•   Obtain reasonable assurance that the Plan complied with the provisions of the FEHB Act and
    regulations that are included, by reference, in the FEHBP contract.

•   Determine whether costs charged to the FEHBP and services provided to its members were
    in accordance with the terms of the FEHBP contract and federal regulations.

SCOPE

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our audit 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.

This performance audit covered pharmacy claims and the Plan’s adherence to its contractual
requirements for contract years 2006 and 2007. The audit scope included a review of the PBM’s
compliance with the Health Insurance Portability and Accountability Act (HIPAA), its Fraud and
Abuse Program, and Internal Controls related to its claim processing system. In 2006 and 2007,
the Plan paid $4,452,949,964 in prescription drug charges to the PBM (see Schedule A).

In planning and conducting the 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 operation. 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.

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 audit testing, nothing came to our attention to cause us to doubt its reliability. We believe
that the data was sufficient to achieve the audit objectives.

We also conducted tests to determine whether the Plan had complied with the Contract, Service
Agreements, 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. Exceptions noted in the areas reviewed are set forth in the
“Audit Findings and Recommendations” section of this report. With respect to the items not


                                                 3
tested, nothing came to our attention that caused us to believe that the Plan and the PBM had not
complied, in all material respects, with those provisions.

METHODOLOGY

To test whether the Plan accurately charged the FEHBP for 2006 and 2007 prescription drug
benefits and complied with its contractual requirements, we performed the following audit steps:

   Member Eligibility Review

     •   We reviewed all 954 claims over $100 out of a universe of 8,195 claims that were
         identified as having eligibility issues to determine if the member was enrolled at the
         time of service.
     •   We selected the 100 oldest FEHBP members, out of 3,996,311 members for 2006 and
         3,949,928 members for 2007, who incurred prescription drug claims and compared
         their information to death records to ensure that pharmacy claims were not being paid
         for deceased members.
     •   We selected 150 dependents age 22 and over (the first 50 from each age group; 22-30,
         31-50 and 51-79) out of a universe of 3,820 dependents to determine if each member
         was eligible for FEHBP coverage at the time of receiving pharmacy benefits.
     •   We reviewed the pharmacy claims data to determine if any payments were made to
         non-FEHBP members, or to members enrolled in another group or plan code.

   Covered Drug Review

     •   We reviewed the pharmacy claims data to determine if any claims were processed for
         drugs that were excluded from FEHBP benefits, as listed in the Plan’s Benefit
         Brochure.
     •   We reviewed the pharmacy claims data to determine if any claims were processed for
         drugs that have not been approved by the Federal Drug Administration.
     •   We queried claims over $50,000 from the pharmacy claims data and reviewed all 192
         claims over $50,000 to ensure that they were properly supported by the original script.

   Adjudication Review

     •   We reviewed the pharmacy claims data to determine if any payments were made for a
         duplicate claim.
     •   Out of a universe of 52,484 claims totaling $390,780,778, that represented members
         age 100 and older and claims over $5,000, we reviewed 5,008 claims totaling
         $2,726,359 to determine if any prescriptions were being refilled too soon.
     •   We queried claims over $5,000 that had a day supply greater than 90 days from the
         pharmacy claims data and reviewed all 50 claims to determine if mail order
         prescriptions were being filled with the appropriate day supply.




                                                4
Prescription Review

 •   We reviewed the pharmacy claims data to determine if any claims were paid for
     prescriptions showing a zero quantity dispensed.
 •   We reviewed 25,384 prescriptions out of a universe of 22,758,178 prescriptions with
     standard drug packaging sizes to determine if the proper amounts were dispensed.
 •   We reviewed all claims to determine if payments were made for nutritional
     supplements, which is an excluded benefit for most members.
 •   We selected 50 claims that were designated as “Dispense as Written” out of a universe
     of 605 claims and verified the requirement on the original scripts to ensure that generic
     substitution was not an option.
 •   We reviewed claims paid for controlled substances to determine if the prescriptions
     were refilled according to the Controlled Substance Act.

Pricing Review

 •   We reviewed a third party audit report, performed by Mercer, to determine if the
     pharmacy claims were priced according to the overall effective discount listed in the
     contract between the Plan and the PBM.
 •   We reviewed an independent financial analysis, performed by Mercer, of all bids for
     mail order pharmacy services to determine if the PBM offered the best rate and if the
     overall effective discount was more beneficial than receiving rebates.
 •   We reviewed the 2006 and 2007 Annual Accounting Statements and Year End
     Adjustments to determine what recoveries, settlement, and price adjustments were
     made by the PBM and if the amounts were credited back to the FEHBP.

Performance Review

 •   We obtained the FEP’s Annual Control and Performance Review of Caremark’s Mail
     Service Program for 2006 and 2007 and reviewed the Performance Penalty Reports to
     determine if the PBM met the performance standards set by the Plan and OPM.
 •   We surveyed the Plan’s initiatives to determine if any value-based benefits have been
     implemented and if the initiatives decreased costs or increased benefits to FEHBP
     members.
 •   We reviewed several drug utilization reports to determine if the Plan is using the
     information provided by the PBM to help reduce program costs.

Compliance Review

 •   We reviewed prior audits on internal controls related to the Quantum Leap mail order
     claims processing system to determine the existence and effectiveness of internal
     control policies on segregation of duties, claims processing, payments, claim system
     edits, high dollar reviews, etc.
 •   We reviewed the information provided by the PBM in response to our Claims
     Processing Questionnaire to help assess its internal controls.


                                            5
     •   We conducted a walkthrough of one of the PBM’s mail order facilities to observe the
         claims processing system, how prescriptions are filled, and to determine if the
         procedures match the Plan’s response to our questionnaire.
     •   We obtained all of the PBM’s policies and procedures that address the HIPAA
         Standards for Electronic Transactions, Privacy Rules, and Security Rules to determine
         if the carrier has documented its compliance with this Federal regulation.
     •   We reviewed the PBM’s policies and procedures for fraud and abuse to determine if the
         Plan complied with section 1.9(c) of Contract CS 1039 and met all eight industry
         standards for fraud and abuse programs outlined in FEHBP Carrier Letter 2003-23.

The samples selected during our review were not statistically based. Consequently, the results
could not be projected to the universe since it is unlikely that the results are representative of the
universe as a whole. We used Contract CS 1039 to determine if claim processing and
administrative fees charged to the FEHBP were in compliance with the terms of the Contract.

The results of our audit were discussed with Plan officials throughout the audit and at the exit
conference. In addition, a draft report, dated September 23, 2011, was provided to the Plan for
review and comment. The Plan’s response and the PBM’s comments on the draft report were
considered in preparing the final report and are included as Appendices to this report.




                                                  6
             III. AUDIT FINDINGS AND RECOMMENDATIONS

A. PHARMACY CLAIMS

  With the exception of the issues specified below, the results of our audit showed that the Plan
  complied with the contractual requirements contained within Contract CS 1039 and the
  requirements within its contract with the PBM, as they relate to the payment of pharmacy
  claims and program performance.

  1. Recoverable Claim Payments                                                        $304,616

     We reviewed all 2006 and 2007 mail order pharmacy claims equal to or greater than $100
     to determine if the member was eligible at the time the claim was processed. During our
     review, we identified 367 claims totaling $304,616 that were paid after 197 members
     terminated coverage. Because these claims were processed prior to the Plan being
     notified of the member’s termination, the Plan is responsible for initiating recovery on
     these claims after receiving retro-effective eligibility updates.

     Contract No. CS 1039, Section 2.3(g) Erroneous Payments, states that “If the carrier or
     OPM determines that a Member's claim has been paid in error for any reason (except
     fraud and abuse), the Carrier shall make a prompt and diligent effort to recover the
     erroneous payment to the member from the member or, if to the provider, from the
     provider.”

     Because the Plan did not initiate recovery on these claims after receiving retro-effective
     eligibility updates, the FEHBP was overcharged $304,616.

     The Plan’s Comments:

     The Plan responded that the PBM will initiate recovery efforts on the identified claims
     and noted that the Refund Recovery process is not a FEP Financial responsibility but is a
     function of the PBM.

     The PBM’s Comments:

     The PBM disagreed with this finding and maintains its position that the claims in
     question were allowed to process because the PBM’s system showed that the member
     was covered on the date the prescription was filled. The PBM received a retro-effective
     eligibility update terminating the member’s coverage subsequent to filling the
     prescription.

     When retroactive eligibility updates are received CVS Caremark applies the
     modifications to the member eligibility in the CVS Caremark system. From the date
     Caremark receives a termination update, claims no longer process for that member. Any
     claims that were paid between the actual termination date and the date Caremark received


                                               7
   notification of termination should be identified in the FEP Operations Center Refund
   Recovery Process.

   The FEP sends the PBM two Refund Recovery tapes, one for Mail and one for Retail.
   Each tape contains any Mail or Retail specific claims that need to be voided due to a
   retroactive eligibility transaction. Because none of the identified claims were included
   with the recovery tapes sent by the FEP, the PBM did not initiate a refund recovery for
   these claims. It should be noted that the Refund Recovery process is the complete
   responsibility of the FEP Financial group and applies to both Mail and Retail Claims.

   OIG Comments:

   The Plan agrees that the claims need to be recovered and states that it will have the PBM
   initiate recovery efforts on the claims in question. Because OPM maintained the contract
   with the Plan, we want to clarify that it was ultimately the Plan’s responsibility to initiate
   recovery on these claims. If recovery services are contracted out to the PBM, then the
   Plan is responsible for adding any requirements from Contract CS 1039 to its contract
   with the PBM. This includes the requirement to make a prompt and diligent effort to
   recover erroneous payments. In addition, due to the delay in initiating refund recovery
   and the expectation that the claim payments will be difficult to recover, the FEHBP
   should not be held responsible for these erroneous payments.

   Recommendation 1

   We recommend that the contracting office require the Plan to credit back to the FEHBP
   $304,616 for 367 claims paid for ineligible members, in which refund recovery was not
   initiated.

   Recommendation 2

   We recommend that the contracting office require the Plan to do a thorough review of its
   records and initiate and document the recovery of erroneous payments related to
   ineligible members in 2006 and 2007.

   Recommendation 3

   We recommend that the Plan have clear policies and procedures in place to show when
   the recovery process for erroneous payments is initiated and how refund recoveries are
   handled after the PBM’s service agreement expires.

2. Ineligible Member Claims                                                              $20,762

   We reviewed all 2006 and 2007 mail order pharmacy claims over $100 to determine if
   members were eligible for coverage at the time the claim was processed. During our
   review, we identified 78 claims totaling $20,762 that were paid for 33 ineligible



                                             8
members. The Plan's enrollment system listed each of the members as ineligible for
coverage at the time the PBM processed the claims.

Schedule D, Section 1.1a of the 2005 - 2007 Mail Service Prescription Drug Benefit
Contract between the Plan and the PBM, states that the PBM shall determine if the
individual submitting the prescription is a member who is eligible for coverage on the
date the prescription is received. Section 1.2 states that if a member fails to meet any
eligibility criteria, the PBM shall deny or reject the prescription and classify each such
prescription as a claim line denied or a claim line rejected.

Additionally, Schedule D, Section 8.1 of the 2005 - 2007 Mail Service Prescription Drug
Benefit Contract between the Plan and the PBM, states that the FEP Operations Center
may send the PBM a notice of Erroneous Prescriptions Dispensed indicating that the Plan
has determined that the benefits previously provided to a member have changed due to
either an eligibility processing error by the FEP Operations Center or an enrollment
termination. Contract CS 1039 requires the Plan to make a diligent effort to recover any
corresponding overpayment to the member. The PBM agrees to promptly implement
effective overpayment recovery procedures that are mutually acceptable to the parties and
in compliance with the provisions of Contract CS 1039.

Because the eligibility of 33 members was not properly updated and verified prior to
filling these prescriptions, the FEHBP was overcharged $20,762.

The Plan’s Comments:

The Plan did not respond to this finding. Instead, the Plan forwarded the PBM’s official
response listed below.

The PBM’s Comments:

The PBM disagrees with this finding. It has reviewed the claims in question and
maintains its position that the claims were processed because the PBM’s system showed
that the member was covered on the date the prescription was filled. The PBM
subsequently received a retro-effective eligibility update terminating the member’s
coverage.

OIG’s Comment:

We acknowledge the PBM’s response and hold the Plan responsible for initiating refund
recovery on these claims. Although the PBM maintains that its system indicated eligible
members at the time the claims were processed, supporting documentation obtained from
both the FEP’s eligibility database and enrollment files sent to the OIG indicated that the
members were ineligible at the time the claims were processed. The PBM and the Plan
have not provided a response as to why their member eligibility records didn’t match.
Regardless of any delay between the two systems, recovery on these claims should have
been initiated once retro-effective eligibility updates were processed.


                                          9
     Recommendation 4

     We recommend that the contracting office require the Plan to credit back to the FEHBP
     $20,762 in ineligible claim payments.

     Recommendation 5

     We recommend that the contracting office require the Plan to adopt a better system of
     controls for sending eligibility updates to the PBM and ensure that the PBM verifies each
     member’s eligibility at the time a prescription is received.

B. HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT

  The results of our review showed that the PBM has policies and procedures in place to
  address the HIPAA Standards for Electronic Transactions, Privacy Rules, and Security
  Rules.

C. FRAUD AND ABUSE PROGRAM

 The results of our review showed that the PBM’s policies and procedures for fraud and abuse
 complied with section 1.9(c) of Contract CS 1039 and met all eight industry standards for
 fraud and abuse programs outlined in FEHBP Carrier Letter 2003-23.




                                            10
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                  , Auditor-In-Charge

             , Staff Auditor


                  , Group Chief

              , Senior Team Leader




                                        11
                                                           SCHEDULE A

                   AUDIT OF BLUE CROSS AND BLUE SHIELD'S
                    MAIL ORDER PHARMACY OPERATIONS
                    AS ADMINISTERED BY CVS CAREMARK
                         CONTRACT YEARS 2006 - 2007

                           CONTRACT CHARGES
                      REPORT NUMBER 1H-01-00-11-011

PRESCRIPTION DRUG BENEFITS

A. PHARMACY CLAIMS

   2006 MAIL ORDER PRESCRIPTION DRUG CLAIM PAYMENTS        $2,033,185,377
   2007 MAIL ORDER PRESCRIPTION DRUG CLAIM PAYMENTS        $2,419,764,587


TOTAL CONTRACT CHARGES                                     $4,452,949,964
                                                               SCHEDULE B

                       AUDIT OF BLUE CROSS AND BLUE SHIELD'S
                        MAIL ORDER PHARMACY OPERATIONS
                        AS ADMINISTERED BY CVS CAREMARK
                             CONTRACT YEARS 2006 - 2007

                                QUESTIONED COSTS
                          REPORT NUMBER 1H-01-00-11-011

AUDIT FINDINGS                                                  2006 - 2007

A. PHARMACY CLAIMS

   1. Recoverable Claim Payments                                $304,616
   2. Ineligible Member Claims                                   $20,762


TOTAL QUESTIONED COSTS                                          $325,378
                                                                        Appendix A



November 11, 2011

[redacted], Chief
Special Audits Group
Office of Personnel Management
                                                                   Federal Employee Program
1900 E Street, N.W., Room 6400                                     1310 G Street, N.W.
Washington, D.C. 20415                                             Washington, D.C. 20005
                                                                   202.942.1000
                                                                   Fax 202.942.1125
Reference: OPM DRAFT EDP AUDIT REPORT
           CVS/Caremark- Blue Cross Blue Shield
           Mail Service Pharmacy Vendor
           Audit Report Number 1H-01-00-11-011

Dear [redacted],:

This report is in response to the above-referenced U.S. Office of Personnel
Management (OPM) Draft Audit Report covering the Federal Employees’ Health
Benefits Program (FEHBP) Audit of CVS Caremark’s Mail Service Pharmacy
Benefit Administration for 2006 through 2007. Our comments regarding the
findings in this report are as follows:

A. Pharmacy Claims

     1. Recoverable Claim Payments                                       $304,616

        Recommendation 1 & 2
        OIG recommended that CVS Caremark provide documentation the
        recovery efforts were initiated to recover payments payment to ineligible
        members.

        CVS Caremark Response to Recommendation 1 & 2: CVS Caremark
        reviewed the claims in question and maintains its position that the claims
        in question were allowed to process because the CVS Caremark system
        showed that the member was covered on the date of fill. CVS Caremark
        received a retro-effective eligibility update terming the members coverage
        subsequent to filling the prescription.

        Refund recovery was not initiated for these claims. When eligibility
        updates are received with retroactive changes, CVS Caremark applies
        these modifications (terminations, enrollment changes, member status
        changes, etc.) to the member’s eligibility in the CVS Caremark system
        upon receipt of the change. From the date Caremark receives the
        termination update, claims will no longer process for that member. Any
[redacted],
Draft Response
CVS/Caremark Mail Service Audit
Page 2


       claims that were paid prior to the actual date of termination and the date
       Caremark received notification should be identified in the FEP Operations
       Center Refund Recovery Process.
       At the beginning of each month, the FEP Operations Center performs a
       sweep of enrollment or benefit changes on a monthly basis. This sweep
       identifies any member ID’s in which termination dates were processed for
       the contract. Any claims paid past the termination date are flagged and
       identified to systematically void the identified claims. Based on these
       results, FEP sends Caremark two Refund Recovery tapes, one for Mail &
       one for Retail. Each tape contains any Mail or Retail specific claims that
       need to be voided due to a retroactive eligibility transaction.

       On approximately the first Sunday of the month, the Refund Recovery files
       are fed into the CVS Caremark (automated Refund Recovery system),
       which uses the files to create the necessary void transactions,
       subsequently generating a single Refund Recovery letter to the subscriber
       that lists out all (Mail & Retail) claims that were voided and asks for a
       refund of the total dollars involved. Once the initial Refund Recovery
       letter is sent, the claims are put into suspense to see if a response from
       the member is received. Beginning in April 2007, after 30 days, if funds
       had not been received a second (30 day) letter is generated. This is
       repeated at the 60 and 90 day intervals per member as appropriate. If
       after 110 days CVS Caremark has not received a refund from the
       member, and an open balance on the member history will be created at
       FEP. If CVS Caremark receives a check before that 110 day timeframe,
       the FEP Claims unit will complete an R-transaction (i.e. a systematic
       financial transaction that tells the FEPOC that Caremark has received the
       member’s refund), with a request to apply the refund amount to the open
       balance. These funds are deposited into the FEP Wells Fargo Bank
       Account.

       It should be noted that the Refund Recovery process is 100% FEP
       Financial responsibility and applies to both Mail & Retail Claims. All
       returned funds are handled via the Retail plan code (089). In the case of a
       partial payment, R-transactions and claims activity will only be released to
       cover the amount submitted by the member.
[redacted],
Draft Response
CVS/Caremark Mail Service Audit
Page 3


                                 Deleted by the OIG
                           Not Relevant to the Final Report
[redacted],
Draft Response
CVS/Caremark Mail Service Audit
Page 4


                                 Deleted by the OIG
                           Not Relevant to the Final Report
[redacted],
Draft Response
CVS/Caremark Mail Service Audit
Page 5


     3. Ineligible Members                                                $20,762

        Recommendation 5 & 6
        OIG recommended that CVS Caremark credit back the $20,762 payments
        made for drugs dispensed to members no longer eligible for cover under
        the Federal Employee Program. In addition, the auditors recommended
        that FEP adopt a better system of controls for sending eligible updates to
        the PBM and ensure the PBM verifies each member’s eligibility at the time
        the prescription request is received..

        CVS/Response to Recommendation 5 & 6
        CVS Caremark reviewed the claims in question and maintains its position
        that the claims in questions were allowed to process because the CVS
        Caremark system showed that the member was covered on the date of fill.
        CVS Caremark received a retro-effective eligibility update terming the
        members coverage.



                               Deleted by the OIG
                         Not Relevant to the Final Report



We appreciate the opportunity to provide our response to this Draft Audit Report
and request that our comments be included in their entirety as an amendment to
the Final Audit Report.

Sincerely,




[redacted],
Executive Director, Program Integrity

rcm/jb
cc:    [redacted],, OPM
       [redacted],, CVS/Caremark
       [redacted],, FEP
       [redacted],, FEP
                                                                           Appendix B

December 13, 2011


[redacted],, Senior Team Leader
Office of the Inspector General
U. S. Office of Personnel Management
800 Cranberry Woods Drive, Suite 130
Cranberry Township, PA 16066                                               Federal Employee Program
Email: luke.johnson@opm.gov                                                1310 G Street, N.W.
                                                                           Washington, D.C. 20005
                                                                           202.942.1000
                                                                           Fax 202.942.1125
Reference: OPM DRAFT EDP AUDIT REPORT
           CVS/Caremark- Blue Cross Blue Shield
           Mail Service Pharmacy Vendor
           Audit Report Number 1H-01-00-11-011

Dear [redacted],:

This letter is in follow-up to the Draft Response to the above audit report. The
following responses are addendum to Recommendations 1 & 2 and a response
to Finding # 4.

Recommendation 1 & 2
OIG recommended that CVS Caremark provide documentation the recovery
efforts were initiated to recover payments payment to ineligible members.

Response to Recommendation 1&2
Caremark will initiate recovery efforts on the identified claims. In addition, it
should be noted that the Refund Recovery process is not FEP Financial
responsibility but is a function of the vendor.




                                Deleted by the OIG
                          Not Relevant to the Final Report
                               Deleted by the OIG
                         Not Relevant to the Final Report




If you have any questions, please feel free to contract me at 202.942.1159.

Sincerely,


[redacted],
Director, Program Assurance

cc:   [redacted],, OPM
      [redacted],, FEP
      [redacted],, FEP