oversight

Audit of the Government Employees Hospital Association's Pharmacy Operations As Administered By Medco Health Solution, Inc.

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)

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                                                                                   .	        OFFICEOF THEIN SPECTOR GENERAL
                                                                                                             OFFICE OF AUDITS




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                           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 1063

                              Government Employees Hospital Association

                                            Plan Code 31



                                      Medco Health Solutions, Inc.

                                      Franklin Lakes, New Jersey




                    REPORT NO. IH-02-00-08-041                DATE: september 10,2009




                                                            %p~(l_

                                                            Michael R. Esser
                                                            Assistant Inspector General
                                                              for Audits



        www.opm.goY                                                                       www.usaJobs.goY
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                             Washington, DC 20415


   Office of the
Inspector General




                                     EXECUTIVE SUMMARY




                               Federal Employees Health Benefits Program

                                         Phannacy Operations

                                           Contract CS 1063

                               Government Employees Hospital Association

                                             Plan Code 31



                                       Medeo Health Solutions, Inc.
                                       franklin Lakes, New Jersey




                    REPORT NO. lH-02-00-08-041                   DATE: September 1 0, 2009

       The Office of the Inspector General has completed a perfonnance audit of the 2003 through 2007
       Government Employees Hospital Association's (GEHA) phannacy operations as administered
       by Medco Health Solutions, Inc. (Medco). The primary objective of the audit was to determine
       if Medco complied with the regulations and requirements contained within its contract with
       GEBA and Contract CS 1063 (between GEHA and the Office of PerSOlmel 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 GEHA pharmacy operations were in compliance
       with the contracts.




        www.opm.gov                                                                       www.lJsajobs.gov
                                 CONTENTS

                                                 PAGE

        EXECUTIVE SUMMARY	                         i


  I.    INTRODUCTION AND BACKGROUND	              1


 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 of the
2003 through 2007 Government Employees Hospital Association's (GEHA) phmmaey
operations as administered by Medeo Health Solutions, Inc. (Medco). The audit field work was
conducted at Medco's offices in Franklin Lakes, New Jersey, fromDecember 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, J959.
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 calTiers that provide service
benefits, indemnity benefits, or comprehensive medical services.

GEHA has entered into a government-wide contract (CS 1063) with OPM to provide a health
benefit plan authorized by the FEHB Act. GEHA has contracted directly with Medco to manage
the delivery and financing of prescription drug benefits for GEHA health benefit purchasers.

This is our first audit of the GEHA phmmacy benefit operations as administered by Medco
relating to claim payments.
                II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES

The objectives of our audit were to detennine 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 GEHA Annual Accounting Statements for contract years 2003 through 2007.
During this period, GEHA paid approximately $2.2 billion 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
detennined to be the most effective approach to select areas for audit. For those areas selected,
we primarily relied on substantive tests oftransactions and not tests of controls. Based on our
testing, we did not identify any significant matters involving Medeo'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 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 infonnation 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 detennine 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.




                                                 2

METHODOLOGY

To test Medco'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
through December 31, 2007:

   •	 We randomly selected 25 mail order claim lines for review, totaling $16,492, 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 froin a universe of 12,610,022 claim lines
      totaling $840,379,977. 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 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
      $104,769 (from a universe of 10,392 claim lines totaling $40,299,957). These claims
      were selected fyom Medco's specialty only Accredo mail order pharmacy.

   •	 We judgmentally selected 100 mail order claim lines for review, totaling $75,015, to
      determine if the claims were adjudicated conectly. This sample was selected from a
      universe of the top 100 mail order drug claims paid from 2003 through 2007, with
      5,123,696 claim lines totaling $1,049,757,695. Specifically, wejudgmentally selected
      the top 10 -mail order drugs (by highest amount paid) in 2003 through 200T 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 $365,645 (from a universe of the top 100 retail
       phmmacies paid from 2003 through 2007; 1,139,252 claim lines totaling $50,011,987).
       Specifically, our sample was made up of the two following selections:
               o	 We judgmentally selected the top 5 retail phannacies (by highest amount
                   paid) and randomly selected 25 claim lines from each pharmacy (for a total of
                   1?5 claim lines, totaling $325,881).
               o	 We judgmentally selected 7 retail phannacies which had 1,000 or fewer claim
                   lines and randomly selected 25 claim lines, totaling $39,764, 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 1063 and the contract between Medco and GEHA to detennine if the phannacy
benefits charged to the FEHBP were in compliance with the tenns of the contracts.




                                                  3

                                III. AUDIT RESULTS


Based on our review of claim payments we found that the GEHA phannacy 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 Team Leader

                  Group Chief




                                      5

                                                                                                           SCHEDULE A


                                            AUDIT OF THE

                           GOVERNMENT EMPLOYEES HOSPITAL ASSOCIATION'S

                                       PHARMACY OPERATIONS

                            AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS

                                         FRANKLIN LAKES~ NJ


                                             CONTRACT CHARGES

                                         REPORT NUMBER: 1H-02-00-08-041


CONTRACT CHARGES                  2003            2004           2005           2006           2007             TOTAL

A. PHARMACY BENEFIT PAYMENTS   $428~457,343    $464~674,226   $462,369~339   $424,487,769   $443,605,388    $2,223,594,065