u.s. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERAL
OFFICE OF AUDITS
Final Audit Report
Subject:
. .
AUDIT ·OF THE.
AlVIERICAN>POSTALW:01U(ERSUNION'S· .
PtIARl\t1ACYOPERATIONS . .
. . ASA])1VIINISTERED BY·
MEDCOHEAt THSOLUTIONS
2t103- ,2006
Report No. IH-02-00-08-002
- " .
Date: Atlgust±4, 2009
~-CAUTI0N..
This jludit report has been distrlbuted to Federal officlals who are responsible for the administration of the audited program. This audit
report may contain proprietary dala which is protected by Federal law (18 u.s.c. 1905). Therefore, while this audit report is available
underthe Freedom oflnformation Act and made available to the public on theOIG webp:\g~, caution needs to be exercised before
releasiag the report to the general public as it maycontain proprietary iuformatlon that was redacted from the.publicly distributed copy.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington. DC 20415
Office of the
Inspector General
AUDIT REPORT
Federal Employees Health Benefits Program
Pharmacy Operations
Contract CS 1370
American Postal Workers Union
Plan Code 47
Medco Health Solutions
Franklin Lakes, New Jersey
REPORT NO. IH-02-00-08-002 DATE: August 14, 2009
Michael R. Esser
Assistant Inspector General
for Audits
www.opm.gov www.usejobs.gcv
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspector General
EXECUTIVE SUMMARY
Federal Employees Health Benefits Program
Pharmacy Operations
Contract CS 1370
American Postal Workers Union
Plan Code 47
Medeo Health Solutions
Franklin Lakes, New Jersey
REPORT NO. IH-02-00-08-002 DATE: August 14. 2009
The Office of the Inspector General has completed a performance audit of the 2003 through 2006
American Postal Workers Union's (APWU) pharmacy operations as administered by Medco
Health Solutions (Medco). The primary objective of the audit was to determine if Medco
complied with the regulations and requirements contained within its contract with APWU and
Contract 1370 (between APWU and the Office ofPersormel Management). The audit was
conducted in Franklin Lakes, New Jersey from September 24 through September 28,2007, and
from October 15 through November 16, 2007.
The audit showed that the 2003 through 2006 APWU pharmacy operations were in compliance
with the contracts.
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CONTENTS
PAGE
EXECUTIVE SUtvfI\.1ARY i
1. INTRODUCTION AND BACKGROUND 1
II. OBJECTIVES, SCOPE, AND METHODOLOGY 2
III. AUDIT RESULTS 5
IV. MAJOR CONTRIBUTORS TO THIS REPORT 6
SCHEDULE A - CONTRACT CHARGES
I. INTRODUCTION AND BACKGROUND
INTRODUCTION
As authorized by the lnspector General Act of 1978, as amended, we conducted an audit of the
2003 through 2006 American Postal Workers Union (APWU) pharmacy operations as
administered by Medco Health Solutions (Medco). The audit field work was conducted at
Medco's offices in Franklin Lakes, New Jersey, from September 24 through September 28,2007,
and from October 15 through November 16,2007. Additional audit work was completed at our
Washington D.C. office.
BACKGROUND
The Federal Employees Health Benefits 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 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 that provide service
benefits, indemnity benefits, or comprehensive medical services.
APWU has entered into a government-wide contract (CS 1370) with OPM to provide a health
benefit plan authorized by the FEHB Act. APWU has contracted directly with Medco to manage
the delivery and financing of prescription drug benefits for APWU health benefit purchasers.
This is our first audit ofthe APWU pharmacy benefit operations as administered by Medco.
1
II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES
The objectives of our audit were to determine whether Medco's charges to the FEHBP and
services provided to FEHBP members were in accordance with the terms of the contracts.
Specifically, our objectives were as follows:
Rebates·
• To determine whether pharmaceutical manufacturer rebates were correctly calculated
and returned to the FEHBP in accordance with the Medco and APWU contracts.
Payment Reconciliation
• To determine whether APWU paid for only those items billed/charged by Medea.
Processing and Administrative Fees
• To determine whether processing and administrative fees charged to the FEHBP were
in compliance with the terms of the contract between Medco and APWU .
• To identify areas of the contract between Medco and APWU requiring improvement.
Drug Interchange Program
• To determine whether costs charged to the FEHBP for Drug Interchange Programs
were charged in accordance with the APWUlI\.1edco contracts.
• . To determine if savings amounts reported by Medco were properly calculated.
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 findings and conclusions based on the
audit objectives. We believe that the evidence obtained provides a reasonable basis for am
findings and conclusions based on the audit objectives.
We reviewed the APWU Annual Accounting Statements for contract years 2003 through 2006.
During this period, Medco paid approximately $496 million in retail pharmacy drug charges (See
Schedule A) .
In planning and conducting the audit, we obtained an understanding ofMedco'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
2
testing, we did not identify any significant matters involving Medco'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 Medco's system of internal
. controls taken asa whole.
In conducting the audit we relied to varying degrees on computer-generated data provided by
Medco. 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 teststo determine whether Medco 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, Medco
complied with all provisions ofthe contract and federal procurement regulations.
METHODOLOGY
To test Medco's compliance with the contracts we reviewed the following areas:
};> For our review ofrebates, we reviewed the entire universe of rebates paid by Medea to
APWU for 2003 through 2006, to determine whether rebates were correctly calculated and
returned to the FEHBP.
};> For our payment reconciliation review, we judgmentally selected five invoices (totaling
$18,991,371) from Medco to APWU (the first payment each year for 2003 through 2006 and
the last payment in 2006) to verify the correct amount was paid. This universe included 100
. invoices with payments totaling $440,220,252.
) For our processing and administrative fees review, we judgmentally selected certain charges
from Medea invoices to determine whether the fees charged were in compliance with the
Medco/APWU contracts. Specifically, we selected 10 invoices (five 2005 invoices and five
2006 invoices) paid to APWU totaling $483,494, based on high dollar amounts. The
universe included 25 invoices totaling ($1,221,083). Our sample review consisted of:
• Copay Reviews, RationalMed payments, and Medicaid fee reviews related to invoice
dates of June 21, September 13, and December 6 of2005;
• RationalMed payment reviews for invoice dates of July 19 and November 8 of2005;
• RationalMed payments and Medicaid fee reviews related to invoice dates of January 31,
September 12, and November 7 of2006; and
• Medicaid fee reviews related to invoice dates of January 3 and May 23 of2006.
;.. Finally, for our drug interchange review, we judgmentally selected interchange samples to
determine whether the costs charged were in accordance with the Medco/APWU contracts
3
and whether the savings amounts reported by Medco were properly calculated. Specifically,
we chose every 10lh line item starting from line 2 ofAPWU's interchange universe
spreadsheet for a total sample size of 100 interchanges totaling $8,376. The universe
included 16,988 interchange samples totaling $1,573,404.
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 of the universe taken as a whole. We used the Contract CS 1370
. and the contract between Medco and APWU to determine if processing and administrative fees
charged to the FEHBP were in compliance with the tenus of the contract.
4
III. AUDIT RESULTS
Based on our review of rebate payments, processing and administrative fees, drug interchanges,
and payment reconciliations, we found that the APWU pharmacy operations-for 2003 through
2006, as administered by Medeo, were administered in accordance with the contracts.
5
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group
~uditor
Auditor
Auditor
Senior Team Leader
Chief, Special Audits Grou
Deputy Assistant Inspector General for Management
6
SCHEDULE A
AUDIT OF THE
AMERICAN POSTAL WORKERS UNION'S
PHARMACY OPERATIONS
AS ADMmlSTERED BY MEDCO HEALTH SOLUTIONS
FR~NKLm LAKES, NEW JERSEY
CONTRACT CHARGES
REPORT NUMBER: IH-02-00-08-002
CONTRACT CHARGES 2003 2004 2005 2006 TOTAL
A. PHARMACY BENEFIT PAYMENTS I $120,050,664 $121,379,543 $116,073,052 $138888903 $496,392,162
Audit of the American Postal Workers Union's Pharmacy Operations As Administered By Medco Health Solutions 2003-2006
Published by the Office of Personnel Management, Office of Inspector General on 2009-08-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)