Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the American Foreign Service Protective Association's Pharmacy Operations As Administered Medco Health Solutions,Inc 2003-2007

Audit of the American Foreign Service Protective Association's Pharmacy Operations As Administered Medco Health Solutions,Inc 2003-2007

Published by the Office of Personnel Management, Office of Inspector General on 2009-09-10.

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 THE

AMERICAN FOREIGN SERVICE· .
.PROTECTIVE ASSOCIATION'S PHARMACY·

OPERATIONS AS .ADMINISTERED. BY

MEDCO HEALTH SOLUTIONS; INC.

2003 -'2007

Report No. IH-02-00-08-039·

Date: September lQ, 2009

--CAUTION-
This audit reporl has beeD distributed to Federal oflici::tls who arerespousible ror the lIdministrafiori ortbe audited program. This::tudi.l
reporlmay contain proprielary data whicb is protec"ted .by Federal law (18 U.S.C.1905). TbcTI'Jore, while tbis audil report is available
under the Freedom of.]uform::ttion Act.::tDd made anilabk to the public on lhe OIG webpage, caution needs to be exercised before
releasing Ibe report to tbe general public ::ts it may 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

Federal Employees Health Benefits Program

Pharmacy Operations

Contract CS 1062

American Foreign Service Protective Association

Plan Code 40

Medco Health Solutions, Inc.

Franklin Lakes, New Jersey

REPORT NO. IH-02-00-08-039 DATE: September 10, 2009

Michael R. Esser
Assistant Inspector General
for Audits

www.opm.gov www.~saJobs.gov
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 1062

American Foreign Service Protective Association

Plan Code 40

Medco Health Solutions, Inc.

Franklin Lakes, New Jersey

REPORT NO. IH-02-00-08-039 DATE: September 10, 2009

The Office of the Inspector General has completed a performance audit of the 2003 through 20P?
American Foreign Service Protective Association's (AFSPA) phalmacy operations as
administered by Medeo Health Solutions, Inc. (Medeo). The primary objective of the audit was
to determine if Medeo complied with the regulations and requirements contained within its
contract with AFSPA and Contract CS 1062 (between AFSPA and the Office of Personnel
Management). The audit was conducted in Franklin Lakes, New Jersey, from December 1
through December 3, 2008.

The audit showed that the 2003 through 2007 AFSPA pharmacy operations were in compliance
with the contracts.

www.opm.goy www.usajobS.goy
CONTENTS
PAGE
EXECUTIVE SUMMARY , ~ i

I. INTRODUCTION AND BACKGROUND I

II. OBJECTIVES, SCOPE, AND METHODOLOGY 2

III. AUDIT RESULTS 4

IV. MAJOR CONTRIBUTORS TO THIS REPORT 5

SCHEDULE A - CONTRACT CHARGES

I. INTRODUCTION AND BACKGROUND

INTRODUCTION

As authorized by the Inspector General Act of 1978, as amended, we conducted an audit ofthe
2003 through 2007 American Foreign Service Protective Association's (AFSPA) pharmacy
operations as administered by Medco Health Solutions, Inc. (Medco). The audit field work was
conducted at Medco's offices in Franklin Lakes, New Jersey, from December 1 through
December 3,2008. 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 ofthe FEl-IBP. 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.

AFSPA has entered into a government-wide contract (CS 1062) with aPM to provide a health
benefit plan authorized by the FEHB Act. AFSPA has contracted directly with Medco to
manage the delivery and financing of prescription drug benefits for AFSPA health benefit
purchasers.

This is our first audit of the AFSPA pharmacy benefit operations as administered by Medco
relating to claim payments.

II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES

The objectives of our audit were to determine whether Medco's charges to the FEHBP and
services provided toFEHBP members, relative to benefit payments, Were in accordance with the
terms of the contracts.

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 our findings and conclusionS based on the audit objectives.

We reviewed the AFSPA claim tapes as provided by Medco for contract years 2003 through
2007. During this period, AFSPA paid approximately $104 million in phannacy drug charges
(see Schedule A).

In planning and conducting our audit, we obtained an understanding ofMedco's internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
deternlined 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 our .
testing, we did riot 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 opinionoD Medco's system ofintemal
controls taken as a whole.

In c6ilducting 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 tests to 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 of the contract and the federal procurement regulations.

METHODOLOGY
To test Medea's compliance with the contracts regarding claim payments, we reviewed the
following samples of pharmacy claims adjudicated by Medco and billed from July 1, 2006
tluough December 31, 2007:

• We randomly selected 25 mail order claim lines for review, totaling $12,784, which had
indicators showing that either the physician or patient requested the prescription to be
dispensed as written (DAW) (i.e., brand name dispensed with no option for generic
substitution). This sample was selected from a universe of 546,112 claim lines totaling
$47,147,196. Specifically, we reviewed 15 mail order claims with DAW code 1 (DAW
requested by physician) and 10 mail order claims with DAW code 2 (DAW requested by
. patient).

• To determine ifmail order specialty drugs (specialty drugs are prescription medications
that require special handling, administration, or monitoring) were properly adjudicated,
we judgmentally selected 25 specialty mail order claim lines for review, totaling
$100,187 (from a universe of 582 claim lines totaling $2,212,318). These claims were
selected from Medco's specialty only Accredo mail order phannacy.

• We judgmentally selected 100 mail order claim lines for review, totaling $94,607, to
determine if the claims were adjudicated correctly. This sample was selected from a
universe of the top 100 mail order drug claims paid from 2003 through 2007, with
183,395 claim lines totaling $45,544,840. Specifically, we judgmentally selected the top
10 mail order drugs (by highest amount paid) in 2003 through 2007 and randomly
selected 10 claims from each drug (for a total of 100 claim lines).

• To determine if retail drug claims were properly adjudicated, we judgmentally selected
150 retail claim lines for review, totaling $59,658 (from a universe of the top 100 retail
pharmacies paid from 2003 through 2007; 250,610 claim lines totaling $10,213,005).
Specifically, our sample was made up of the following two selections:
o We judgmentally selected the top 5 retail phmmacies (by highest amount
paid) and randomly selected 25 claim lines from each pharmacy (for a total of
125 claim lines, totaling $42,314).
o We judgmentally selected 8 retail phmmacies which had 1,000 or fewer claim
lines and randomly selected 25 claim lines, totaling $17,344, from this
UnIverse.

The above samples that were selected and reviewed in perfonning the audit were not entirely
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 1062 and the contract between Medco and AFSPA to determine if the phannacy
benefits charged to the FEHBP were in compliance with the tenns of the contracts.

III. AUDIT RESULTS

Based on our review of claim payments we found that the AFSPA pharmacy operations for 2003

through 2007, as administered by Medco, were administered in accordance with the contracts.

IV. MAJOR CONTRIBUTORS TO'THIS REPORT

Special Audits Group

Auditor

Senior Team Leader

Group Chief,

SCHEDULE A

AUDIT OF THE

AMERICAN FOREIGN SERVICE PROTECTIVE ASSOCIATION'S

PHARMACY OPERAnONS

AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS

FRANKLIN LAKES, NJ

CONTRACT CHARGES

REPORT NUMBER: 1H-02-00-08-039

CONTRACT CHARGES 2003 2004 2005 2006 2007 TOTAL

A. PHARMACY BENEFIT PAYMENTS $16.405,009 $19,801,896 $21,132.150 $23,178,060 $23,969,137 $104,486,252