oversight

Audit of the Federal Employees Health Benefits Program's Pharmacy Operations as Administered by Blue Shield of California Access+ HMO For Contract Years 2011 through 2013

Published by the Office of Personnel Management, Office of Inspector General on 2016-07-19.

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
                      Audit of the Federal Employees
              Health Benefits Program’s Pharmacy Operations
               as Administered by Blue Shield of California
                               Access+ HMO
                   For Contract Years 2011 through 2013

                                          Report Number 1H-03-00-15-045
                                                   July 19, 2016


                                                              -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY
        Audit of the Federal Employees Health Benefits Program’s Pharmacy Operations
                   as Administered by Blue Shield of California Access+ HMO
Report No. 1H-03-00-15-045                                                                           July 19, 2016




Why Did We Conduct the Audit?            What Did We Find?

The objective of the audit was to        We determined that the Plan needs to strengthen its procedures and
determine whether costs charged to the   controls related to dependent eligibility and the reporting of
Federal Employees Health Benefits        pharmacy claims.
Program (FEHBP) and services
provided to its members were in          Specifically, our audit identified the following two deficiencies
accordance with the U.S. Office of       that require corrective action:
Personnel Management Contract
Number CS 2639 and applicable             1.	 The Plan paid $12,748 in pharmacy claims for 11 dependents
Federal regulations.                          age 26 and older whose eligibility to participate in the
                                              FEHBP could not be supported.
What Did We Audit?
                                          2.	 The Plan overstated pharmacy claims paid by $2,974,655 in
The Office of the Inspector General           its 2011 through 2013 annual accounting statements.
has completed a performance audit of
Blue Shield of California Access+
HMO’s (Plan) fraud and abuse
program, pharmacy claims eligibility
and pricing, and pharmacy rebates as
they related to the FEHBP’s pharmacy
operations for contract years 2011
through 2013. Our audit was
conducted from August 17 through
August 21, 2015, at the Plan’s offices
in San Francisco, California.
Additional audit work was completed
at our offices in Washington, D.C. and
Cranberry Township, Pennsylvania.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                       i
                  ABBREVIATIONS

AAS        Annual Accounting Statements
Carrier    Blue Shield of California
Contract   Contract Number CS 2639
FEHBP      Federal Employees Health Benefits Program
HIO        HealthCare and Insurance Office
OIG        Office of the Inspector General
OPM        U.S. Office of Personnel Management
Plan       Blue Shield of California Access+ HMO




                                ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                      Page 

       EXECUTIVE SUMMARY .......................................................................................... i 


       ABBREVIATIONS ..................................................................................................... ii 


I.     BACKGROUND ..........................................................................................................1 


II.    OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................2 


III.   AUDIT FINDINGS AND RECOMMENDATIONS.................................................6


       A. FRAUD AND ABUSE PROGRAM REVIEW.......................................................6 


       B. PHARMACY CLAIMS ELIGIBILITY REVIEW ..................................................6 

          1. Overage Dependents ..........................................................................................6 


       C. PHARMACY CLAIMS PRICING REVIEW .........................................................8 

          1. Overstated Pharmacy Claims.............................................................................8 


       D. PHARMACY REBATES REVIEW........................................................................9 


IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................10 


       APPENDIX (Blue Shield of California Access+ HMO’s Response to the Draft
       Report, received March 23, 2016)

       REPORT FRAUD, WASTE, AND MISMANAGEMENT
 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This report details the results of our audit of the Federal Employees Health Benefits Program
(FEHBP) pharmacy operations as administered by Blue Shield of California Access+ HMO
(Plan) for contract years 2011 through 2013. This audit was conducted pursuant to the
provisions of Contract Number CS 2639 (Contract) and Title 5, Code of Federal Regulations,
Chapter 1, Part 890 (5 CFR 890). The audit was performed by the U.S. Office of Personnel
Management’s (OPM) Office of the Inspector General (OIG), as authorized by the Inspector
General Act of 1978, as amended. The audit was performed at the Plan’s office in
San Francisco, California from August 17 through August 21, 2015.

The FEHBP was established by the Federal Employees Health Benefits 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. OPM’s Healthcare and Insurance Office
(HIO) has overall responsibility for administration of the FEHBP, including the publication of
program regulations and agency guidance. As part of its administrative responsibilities, the HIO
contracts with various health insurance carriers that provide service benefits, indemnity benefits,
and/or comprehensive medical services. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in 5 CFR 890.

OPM entered into the Contract with Blue Shield of California (Carrier) to provide health
insurance benefits, including prescription drug coverage, to enrollees under the Plan. The Plan is
an experience rated Health Maintenance Organization offering benefits to Federal employees and
retirees in the Southern California region. The Carrier also participates in the FEHBP through
the Blue Cross and Blue Shield Service Benefit Plan. Section 1.6 of the Contract includes a
provision which allows for audits of the program’s operations.

This was the OIG’s first audit of the Plan’s pharmacy operations. The initial results of this audit
were discussed with Plan officials during an exit conference on December 8, 2015. A draft
report was provided to the Plan on February 24, 2016, for its review and comment. The Plan’s
response to the draft report was considered in preparation of this final report and is included as
an Appendix to the report.




                                                 1                           Report No. 1H-03-00-15-045
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objectives
The primary objective of the audit was to determine whether pharmacy costs charged to the
FEHBP and services provided to its members were in accordance with the contract and
applicable Federal regulations.

Specifically, our audit objectives were to determine if:

   Fraud and Abuse Program Review
   	 The Plan had a fraud and abuse program, reported fraud cases to OPM, and properly
      accounted for its Special Investigations Unit expenses and recoveries for 2011
      through 2013.

   Pharmacy Claims Eligibility Review
    Claims were paid for dependents over age 26. 

    Claims were paid for deceased members. 

    Claims were paid for non-FEHBP members or members enrolled in an alternative plan 

      code under Blue Shield of California.
    Claims were paid for any drugs excluded by the Plan.
    Claims were paid that had a zero quantity.
    Mail order prescriptions were being filled within the allowable day supply as stated in the
      benefit brochure. 

    Any scripts were filled with an unusually high quantity.

    The Plan paid claims to debarred pharmacies. 

    High dollar claims were valid and properly supported. 


   Pharmacy Claims Pricing Review
    The Plan accurately reported the claims paid in its annual accounting statements (AAS)
      submitted to OPM for contract years 2011 through 2013.
    The pricing elements for retail pharmacy claims were transparent and the claims were
      properly paid.
    The pricing elements for mail order pharmacy claims were properly paid and transparent.

   Pharmacy Rebates Review
   	 Rebates billed to manufacturers were accurate and if the rebates were returned to the
      FEHBP.




                                                 2	                       Report No. 1H-03-00-15-045
Scope and Methodology
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 and 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.

This performance audit included, but was not limited to, a review of the Plan’s fraud and abuse
program, pharmacy claims eligibility and pricing, and pharmacy rebates for contract years 2011
through 2013. An audit survey was conducted at the Plan’s office in San Francisco, California,
from August 17 through 21, 2015. Additional audit work was completed at our Cranberry
Township, Pennsylvania, and Washington, D.C. offices.

The Plan is responsible for providing FEHBP members with medical and prescription drug
benefits. To meet this responsibility, the Plan collected premiums totaling approximately $309
million from 2011 through 2013, of which two-thirds was paid by the government on behalf of
Federal employees. In addition to the premium collected, program income was also generated
from the investment of program funds. From the premiums collected and investment income
earned during this time period, the Plan reported the following amounts disbursed for
prescription drug benefits:

                                  Premium            Pharmacy          Pharmacy
                  Year
                                  Collected         Benefits Paid     Claim Lines
                 2011            $92,388,211        $
                 2012           $103,660,119        $
                 2013           $112,912,202        $
                 Total          $308,960,532        $

In planning and conducting the audit, we obtained an understanding of the Plan’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. Additionally,
since our audit would not necessarily disclose all significant matters in the internal control
structure, we do not express an opinion on the Plan’s system of internal controls taken as a
whole.

We also conducted tests to determine whether the Plan complied with the Contract and 5 CFR
890. Exceptions noted in the areas reviewed are set forth in the “Audit Findings and
Recommendations” section of this report. With respect to the items not tested, nothing came to



                                                3                          Report No. 1H-03-00-15-045
our attention that caused us to believe that the Plan had not complied, in all material respects,
with those provisions.

In conducting the audit, we relied to varying degrees on computer-generated data provided by
the Plan. Due to the 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 our audit, nothing came to our attention to cause us to doubt its reliability. We believe
that the data was sufficient to achieve our audit objectives.

To determine whether costs charged to the FEHBP and services provided to its members were in
accordance with the terms of the Contract and Federal regulations, we performed the following
audit steps for contract years 2011 through 2013, unless noted otherwise:

Fraud and Abuse Program Review
   	 We reviewed the Plan’s fraud and abuse program and reconciled its list of fraud cases to
      those referred to the OIG’s Office of Investigations to ensure that fraud cases were
      reported and costs were properly accounted for.

Pharmacy Claims Eligibility Review
   	 We reviewed all dependents age 26 and older with pharmacy claims to determine if they
      were incapable of self-support due to a disability.

   	 We selected the 50 oldest members, out of the universe of 50,806 members, to determine
      if any claims were paid for deceased members.

   	 We reviewed all claims to ensure that none were paid for non-FEHBP members or
      members enrolled in an alternative plan code under the Carrier.

   	 We selected a judgmental sample of 10 generic drugs and 10 brand drugs not covered by
      the Plan, out of a total universe of 53 excluded generic drugs and 97,625 excluded brand
      drugs, to determine if any claims were paid for the excluded drugs. Our sample was
      based on the first 10 alphabetical generic drugs and the lowest 10 National Drug Codes
      for brand drugs that were on the exclusions list provided by the Plan.

   	 We reviewed all claims to ensure that none were paid with a zero quantity dispensed.

   	 We selected all pharmacy claims with a supply over 90 days to determine if the 

      prescriptions were being filled within the allowable time limit stated in the benefit 

      brochure. 





                                                  4	                          Report No. 1H-03-00-15-045
   	 We reviewed all claims with a quantity greater than 1,000 to determine if the Plan paid
      the claims appropriately.

   	 We obtained a list of debarred pharmacies from the OIG’s Administrative Sanctions
      Group and compared all debarred pharmacies located in California to the Plan’s claims
      data to determine if any payments were made to debarred pharmacies.

   	 We judgmentally selected all claims with a total paid amount greater than $10,000 to
      determine if the high dollar claims were allowable and properly supported.

   Pharmacy Claims Pricing Review

   	 We reconciled the pharmacy claims reported in the Plan’s AAS to the actual claims data
      generated from the Plan’s claims system and followed up on any discrepancies.

   	 From a retail pharmacy universe of          claims totaling approximately $          million,
      we randomly selected a sample of 50 claims from each contract year from the top four
      retail pharmacies (as provided by the Plan), for a total of 150 retail claims, totaling
      $38,762, to determine if the claims were paid correctly.

   	 From a mail order pharmacy universe of           claims totaling approximately $
      million, we randomly selected a sample of 50 claims from each contract year, for a total
      of 150 mail order claims, totaling $51,907, to determine if the claims were paid correctly.

   Pharmacy Rebates Review

   	 We selected all 2012 pharmacy rebates from one manufacturer for review to determine if
      they were billed in accordance with the manufacturer rebate agreements and properly
      credited to the FEHBP. This manufacturer was judgmentally selected due to it having the
      largest decrease in quarterly rebates.

The 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.




                                                 5	                           Report No. 1H-03-00-15-045
    IV. AUDIT
  III.   MAJOR  CONTRIBUTORS
              FINDINGS       TO THIS REPORT
                       AND RECOMMENDATIONS

A. FRAUD AND ABUSE PROGRAM REVIEW

  The results of our review showed that the Plan had sufficient policies and procedures in place to
  help prevent fraud and abuse.

B. PHARMACY CLAIMS ELIGIBILITY REVIEW

  1. Overage Dependents                                                                      $12,748

      The Plan paid $12,748 in pharmacy claims for 11 dependents age 26 and older whose
      eligibility to participate in the FEHBP could not be supported.

      We found 11         Title 5, Code of Federal Regulations, Section 890.302 allows dependent
        ineligible        children under the age of 26 and dependents age 26 or older who are
   dependents age 26      incapable of self-support due to a disability to be covered by the
    or older enrolled     enrollment of a Federal employee or annuitant in the FEHBP. The
     in the FEHBP.        regulation also requires certification from a physician and a decision by
                          the Federal employment office showing that the dependent is incapable of
      self-support due to a disability in order for the Plan to continue providing coverage to that
      member beyond their 26th birthday.

      Section 3.8 of the Contract, Contractor Records Retention, requires the Plan to maintain
      documentation that supports costs for a period of six years after the end of the contract term
      for which the records relate.

      We reviewed the pharmacy claims paid for 2011 through 2013 to determine if any
      dependents remained enrolled in the FEHBP beyond their 26th birthday. Our review showed
      that the Plan paid claims for 16 dependents age 26 or older which the Plan stated were
      designated as permanently disabled in its system. The Plan provided sufficient support for 5
      of the 16 dependents that showed the member as incapable of self-support due to a disability.
      However, the Plan was unable to provide evidence to support that the other 11 dependents
      were eligible for FEHBP coverage beyond their 26th birthday.

      Without adequate controls in place to terminate ineligible dependents at age 26, or to
      maintain the necessary documentation to show dependent eligibility beyond age 26, the risk
      of overcharges to the FEHBP is significant.




                                                   6                           Report No. 1H-03-00-15-045
Recommendation 1

We recommend that the contracting officer require the Plan to provide evidence to support
that the 11 dependents were eligible to remain enrolled in the FEHBP due to a disability and
incapable of self-support, or return $12,748 to the program.

Plan Response:

The Plan partially agreed with our recommendation and provided, what it believed to be,
documentation for 9 of the 11 dependents in question. It will continue to pursue the
eligibility information for the final two members and will reach out to OPM for assistance.

OIG Comment:

We reviewed the additional documentation provided by the Plan and found it to be
inadequate since it belonged to the wrong members or did not show the dependent as being
incapable of self-support due to a disability. OPM should work with the Plan to obtain
documentation showing each of the 11 dependents are incapable of self-support due to a
disability. A certification from a physician or the subscriber’s employing agency should
have been provided.

Recommendation 2

We recommend that the contracting officer require the Plan to review its system controls for
terminating dependents upon turning age 26 to ensure that ineligible members are not
enrolled in the FEHBP.

Plan Response:

The Plan disagreed with this recommendation and provided its policies and procedures for
terminating members.

OIG Comment:

We understand that the Plan has policies and procedures in place, but we cannot determine if
the processes are being followed until we verify the eligibility for the 11 dependents being
questioned.




                                            7                          Report No. 1H-03-00-15-045
     Recommendation 3

     We recommend that the contracting officer require the Plan to maintain proof of dependent
     eligibility for a period of six years after claims are paid in accordance with its records
     retention clause. This means it should maintain evidence to support the eligibility for
     disabled dependents for up to six years after they are no longer enrolled in the FEHBP.

     Plan Response:

     The Plan agrees with this recommendation and updated its policy to maintain a copy of the
     Disabled Certificate and have it readily available.

C. PHARMACY CLAIMS PRICING REVIEW

  1. Overstated Pharmacy Claims                                                        Procedural

     The Plan overstated pharmacy claims by $2,974,655 in its 2011 through 2013 AAS reported
     to OPM.

     Section 3.2 of the Contract requires the Plan to submit AAS to OPM that accurately
     summarize FEHBP operations.

     During our audit, we reconciled the pharmacy claims reported in the Plan’s AAS to the actual
     claims data generated from the Plan’s claims system for contract years 2011 through 2013.
     Our review found that the Plan overstated the pharmacy claims in its AAS by $2,974,655
     over all three years.
                                                                                       Pharmacy claims
     When we identified the overstatement, the Plan admitted that it                   were overstated
     misreported the AAS and provided a revised breakout of the pharmacy              by  approximately
                                                                                           $3 million.
     claims for 2011 through 2013. The error was due to the Plan accidently
     including ancillary and other paid claims within the pharmacy claims
     total. Additionally, the Plan stated that it erroneously used a proration for reporting the
     pharmacy claims in the 2011 through 2013 AAS when the exact dollar amount for paid drugs
     was available. To ensure that the pharmacy claims were only misstated, and that the
     questioned costs were not unsupported charges, we matched the total health benefit charges
     (medical and pharmacy) reported in the AAS to the Plan’s audited financial statements and
     found the Plan’s explanation to be reliable.




                                                 8                           Report No. 1H-03-00-15-045
     As a result of the Plan overstating its pharmacy claims by $2,974,655 from 2011 to 2013,
     OPM relied on inaccurate information in its administration of the FEHBP, which might have
     adversely affected FEHBP members and other carriers.

     Recommendation 4

     We recommend that the contracting officer ensure that the Plan implements new policies and
     procedures to properly report pharmacy claims in its AAS.

     Plan Response:

     “The Plan agrees with this recommendation and has initiated a corrective action to report
     actual and verifiable drug claims paid on its 2015 and all future AAS reports.”

D. PHARMACY REBATES REVIEW

  The results of our review showed that pharmacy rebates were calculated correctly and remitted to
  the FEHBP in accordance with the Contract and prescription drug manufacturer agreements.




                                                 9                          Report No. 1H-03-00-15-045
 IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                , Auditor-In-Charge




               , Group Chief           


              , Senior Team Leader 





                                       10   Report No. 1H-03-00-15-045
                                     APPENDIX


                                                                        Received March 23, 2016

OPM - Office of the Inspector General
800 Cranberry Woods Drive, Suite 270
Cranberry Township, PA 16066

Dear          :

The following is our response to the recent audit of our FEHBP Access+ HMO Pharmacy claims
operations. We have received and reviewed OPM’s draft report, which contained two potential
findings.

Below are Blue Shield of California’s responses to these findings.

   1. OVERAGE DEPENDENTS:

       Recommendation 1:

       The Plan partially agrees with this recommendation. The Plan was able to find
       documentation for 9 of the 11 outstanding unidentified members. Blue Shield sent the
       documentation for the 9 members to OPM on March 22, 2016.

       The Plan continues to pursue documentation for the final 2 members and will provide as
       soon as possible. Previous efforts to contact both members and providers for
       documentation have been unsuccessful. The Plan will reach out to OPM for assistance.

       Recommendation 2:

       The Plan disagrees with this recommendation. The Plan has attached its “Terminations
       and Voids” Policy and Procedure Document, which details Blue Shield of California’s
       process for termination off all members. Page 10 of the document details the process
       necessary for the disenrollment of ineligible members.

       Recommendation 3:

       The Plan AGREES with this recommendation and has instituted a corrective action plan.
       Rather than rely on a members payroll office to be the sole possessor of the eligible


                                                                         Report No. 1H-03-00-15-045
  dependent documentation, the Plan has updated its policy to require a copy of the
  Disabled Certificate for our records. We will house this information on an internal share
  drive were it will be readily available when needed.

2.	 OVERSTATED PHARMACY CLAIMS

                                  Deleted by OIG
                            Not Relevant to Final Report 


  Recommendation 4 (draft report recommendation 5): 


  The Plan AGREES with this recommendation and has initiated a corrective action to
  report actual and verifiable drug claims paid on its 2015 and all future AAS reports.

                                  Deleted by OIG 

                            Not Relevant to Final Report 


  Please don’t hesitate to contact me with any further questions at                or at
              @blueshieldca.com.

                                                       Sincerely,




                                                       Senior Manager, FEP
                                                       Blue Shield of California




                                                                      Report No. 1H-03-00-15-045
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

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                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                        By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:                 Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                           By Mail:                Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100
                     
                                                                                                                         
                                                                                                                         




                                                             -- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                   Report No. 1H-03-00-15-045