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. www.opm.goy . www.usajobs.goy 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)