oversight

Audit of the Special Agents Mutual Benefit Association's Pharmacy Operations As Administered By Medco Health Solutions, Inc.

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




Final Audit Report
Subject:

                                  .            AUDIT OF THE
      . . . . . . $PJtQIALi\GENTS.lVIuTUAL~ENEJfIT      .

      ASSOCIATION'SPHARMA·CYOPERATIONS

           ..... . ... AS ADMINISTERED BY .. ... .. . 

                  MEDCOHEALTlISQLUTIONS, INC.
                                                      2003·-2007



                                          Report No.              IH-02-00'-OS..,042


                                          Date:                   September 1 5 I               2009




                                                          --CAUTION-­
This ~1Jdjt nport bas betn distributed 10 Federal offici~ls.who ~re responsible for the ~dlJ1inistr~rion oflbe ~udiled program. This audit
reporf may cont~in proprietary dala wbich is protected by J~edCJ"all:iw (18 U.S.c. 19{)5):Thererore, wbile Ihis audit reporl is availalJle .
under the Freedom orlnrormationAct aDd made available to the public 011 tbe OJG wehpage, caution needs 10 be exercised before
releasing Ihe report to the general public asH may contain proprietary inJoHlJation that was redacted from the p.ubJidy distributed copy.
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                             Washington, DC 20415


   Offic,e of the
Inspector General




                                         AUDIT REPORT





                               Federal Employees Health Benefits Program

                                         Pharmacy 'Operations

                                           Contract CS 1074

                               Special Agents Mutual Benefits Association

                                              Plan Code 44



                                      Medeo Health Solutions, Inc.

                                      Franklin Lakes, New Jersey




                    REPORT NO. IH-02-00-08-042                DATE: September 15, 2009




                                                           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

                                         Phannacy Operations

                                           Contract CS 1074

                               Special Agents Mutual Benefits Association

                                              Plan Code 44



                                      Medco Health Solutions, Inc.

                                      Franklin Lakes, New Jersey





                    REPORT NO. IH-02-00-08-042                DATE: September 15, 2009

    The Office of the Inspector General has completed a performance audit of the 2003 through 2007
    Special Agents Mutual Benefits Association's (SAMBA) pharmacy 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
    SAMBA and Contract CS 1074 (between SAMBA 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 SAMBA pharmacy operations were in compliance
    with the contracts.




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                                 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 Special Agents Mutual Benefits Association's (SAMBA) 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 of the FEHBP. The provisions of
the FEHB Act are implemented by aPM through regulations, which are codified in Title 5,
Chapter I, Part 890 ofthe 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.

SAMBA has entered into a government-wide contract (CS ]074) with OPM to provide a health
benefit plan authorized by the FEHB Act. SAMBA has contracted directly with Medco to
manage the delivery and financing of prescription drug benefits for SAMBA health benefit
purchasers.

This is om first audit of the SAMBA 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 Medco's charges to the FEHBP and
services provided to FEHBP members, relative to benefit payments, were in accordance with the
tem1s of the contracts.

SCOPE

Weeonducted 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 SAMBA claim tapes as provided by Medco for contract years 2003 through
2007. During this period, SAMBA paid approximately $168 miUion in pharmacy dmg charges
(see Schedule A).

In planning and conducting our audit, we obtained an understanding of Medea's internal control
structme to help detem1ine 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 of transactions and not tests of controls. Based on our
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 Medea's system of internal
controls taken as a 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 infonnation systems inVOlved. However, while utilizing the computer-generated data
during audittesting, 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, Medeo
complied with all provisions of the contract and the federal procurement regulations.




                                                 2

METHODOLOGY

To test Medea's compliance with the contracts regarding claim payments, we reviewed the
following samples of phannacy 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 $7,341, 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 908,636 claim lines totaling
      $77,250,887. 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
      $111,749 (from a universe of699 claim lines totaling $2",892,106). These claims were
      selected from Medea's specialty only Accredo mail order phallnacy.

   •	 We judgmentally selected 100 mail order claim lines for review, totaling $73,081, 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 tm·ough 2007, with
      328,643 claim lines totaling $70,277,080. 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 detelmine if retail drug claims were properly adjudicated, we judgmentally selected
      130 retail claim lines for review, totaling $693,947 (from a universe of the top 100 retail
      phalmacies paid from 2003 through 2007; 31,822 claim lines totaling $3,870,807).
      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 2 pharmacies which had
                  more than 25 rep0l1ed claim lines and all reported claim lines from the
                  remaining 3 pharmacies (for a total of 105 claim lines, totaling $635,686).
              o	 We judgmentally selected 5 retail phmmacies, excluding those selected above,
                  with the fewest reported claim lines and randomly selected 25 claim lines,
                  totaling $58,260, from this universe.

The above sanlples that were selected and reviewed in performing the audit were not entirely
statistica]]y 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 1074 and the contract between Medeo and SAMBA to detelmine if the pharmacy
benefits charged to the FEHBP were in compliance with the telms of the contracts.
                               III. AUDIT RESULTS


Based on our review of claim payments we found that the SAMBA pharmacy operations for
2003 through 2007, as administered by Medeo, 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
                               SPECIAL AGENTS MUTUAL BENEFIT ASSOCIATION'S

                                          PHARMACY OPERATIONS

                               AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS

                                            FRANKLIN LAKES, NJ

                                            CONTRACT CHARGES
                                        REPORT NUMBER: 1H-02-00-08-042

CONTRACT CHARGES                    2003            2004          2005          2006          2007             TOTAL

A. PHARMACY BENEFIT PAYMENTS      $25,048,733     $30,132,430   $35,509,298   $37,536,411   $39,714,477     $167,941,349