oversight

Audit of the American Postal Workers Union's Pharmacy Operations as Administered By Medco Health Solutions, Inc. 2003 - 2007

Published by the Office of Personnel Management, Office of Inspector General on 2009-09-15.

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




FlnalAudit Report
Subject: .


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                                           Report No• lH-02~OO~08-040


                                           Date:                    Septeml;:>er15, 2009




                                                           --CAUTION-­
This audil report hasbeen distributed to Federal offidals who are responsible for the administration OC1he auditedprogram.. This audit
report may :coniainproprielary data 'I'hieb is protected b)' Federal law (18 U.S.c. i905). Therefore, while Ibis audit ~epor1is available
under the Freedom of InformatlonAet and made available 10 thepublie on the OIG webpage, caution needs to beexercised before
releasing tbe report to tbe general public as it may contain proprietary infOJ'mJltioll thaI was redacted Irom the pllblidy' 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



                                      Medeo Health Solutions, Inc.

                                      Franklin Lakes, New Jersey




                    REPORT NO. IH-02-00-08-040               DATE: September 15, 2009




                                                        dtR/Ci
                                                           Michael R. Esser
                                                           Assistant Inspector General
                                                             for Audits



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                          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



                                       Medco Health Solutions, Inc.

                                       Franklin Lakes, New Jersey





                    REPORT NO. IH-02-00-08-040                  DATE: September 15, 2009

       The Office of the Inspector General has completed a performance audit of the 2003 through 2007
       American Postal Workers Union's (APWU) pharmacy operations as administered by Medea
       Health Solutions, Inc. (Medco). The primary objective of the audit was to determine if Medea
       complied with the regulations and requirements contained within its contract with APWU and
       Contract CS 1370 (between APWU and the Office of Personnel Management). The audit was
       conducted in Franklin Lakes, New Jersey, from December I through December 3, 2008.

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




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                                 CONTENTS

                                                  PAGE


        EXECUTIVE SUMMARY            _       _	     i


  1.    INTRODUCTION AND BACKGROUND	                1


 n.	    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 of the
2003 through 2007 American Postal Workers Union's (APWU) pharmacy operations as
administered by Medco Health Solutions, Inc. (Medeo). The audit field work was conducted at
Medea'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 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.

APWU has entered into a government-wide contract (CS 1370) with aPM 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 of the APWU pharmacy benefit operations as administered by Medeo
relating to claim payments.
                II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES

The objectives of our audit were to determine whether Medea's charges to the FEHBP and
services provided to FEHBP 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 APWU Annual Accounting Statements for contract years 2003 through 2007.
During this period, APWU paid approximately $624 million in pharmacy 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
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 our
testing, we did not identify any significant matters involving Medea'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 Medea's system ofintemal
controls taken as a whole.

In conducting the audit we relied to varying degrees on computer-generated data provided by
Medea. 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 Medeo 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.




                                                  2

METHODOLOGY


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

    •	 We randomly selected 30 mail order claim lines for review, totaling $7,431, which had
       indicators showing that either the physician or patient requested the prescription to be
       dispensed as written (DA W) (I.e., brand name dispensed with no option for generic
       substitution). This sample was selected from a universe of 4,628,891 claim lines totaling
       $227,287,202. Specifically, we reviewed 15 mail order claims with DA W code 1 (DA W
       requested by physician) and 15 mail order claims with DA W code 2 (DAW requested by
       patient).

    •	 To determine if mail 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 $21,038
       (from a universe of 1,027 claim lines totaling $2,199,506). These claims were selected
       from Medea's specialty only Accredo mall order pharmacy.

    •	   We judgmentally selected 100 mail order claim lines for review, totaling $27,293, 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
         1,454,511 claim lines totaling $231,727,402. 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 $87,622 (from a universe of the top 100 retail
       pharmacies paid from 2003 through 2007; 562,396 claim lines totaling $17,283,007).
       Specifically, our sample was made up of the following two selections:
               o	 We judgmentally selected the top 5 retail pharmacies (by highest amount
                   paid) and randomly selected 25 claim lines from each pharmacy (for 125
                   claim lines, totaling $43,218).
               o	 We judgmentally selected 16 retail pharmacies which had 1,000 or fewer
                   claim lines and randomly selected 25 claim lines, totaling $44,404, from this
                   universe.

The above samples that were selected -and reviewed in performing 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 1370 and the contract between Medco and APWU to determine if the pharmacy
benefits charged to the FEHBP were in compliance with the terms of the contracts.




                                                  3

                                m. AUDIT RESULTS

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

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





                                             4

             IV. MAJOR CONTRIBUTORS TO THIS REPORT


Special Audits Group

                Auditor



                 Senior Tearn Leader

                  Group Chief,




                                       5

                                                                                                           SCHEDULE A

                                          ,
                                              AUDIT OF THE
                                   AMERICAN POSTAL WORKERS UNION'S
                                         PHARMACY OPERATIONS
                              AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS
                                           FRANKLIN LAKES, NJ

                                          CONTRACT CHARGES
                                      REPORT NUMBER: IH-02-00-08-040

CONTRACT CHARGES                   2003           2004           2005           2006           2007           TOTAL

A. PHARMACY BENEFIT CHARGES     $120,050,664   $121,379,543   $116,073,052   $138,888,903   $127,688,165    $624,080,327