oversight

Audit of Group Health Incorporated's Pharmacy Operations Contract Year 2009

Published by the Office of Personnel Management, Office of Inspector General on 2011-09-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                              u.s. OFFICE OF PERSON NEL MANAGEMENT
                                                                          OFF ICE OF THE INSPECTOR GENERAL
                                                                                            OFF ICE OF AUDITS




                                        Final Audit Report 

Subject:

                             AUDIT OF 

                    GROUP HEALTH INCORPORATED'S 

                       PHARMACY OPERATIONS 

                         CONTRACT YEAR 2009 




                                                  Report No. 1H-80-00-10-062


                                                 Date: September 8, 20 11




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                                   UNITED STATES OFFICE OF PERSONNEL. MANAGEMENT
                                                   W;'!shingIOo. DC 20415

  Olhce ofllw:
lnspector (iencr..1




                                                 AUDIT REPORT



                                        Audit of Group Health Incorporated's 

                                                Pharmacy Operations 

                                                 Contract Year 2009 

                                                  Contract CS 1056 



                                                   Plan Code 80 

                                                New York, New York 





                         REPORT NO. I H-80-00-1O-062                        DATE: Sept ember 8, 2011




                                                                     Michael R. Esser
                                                                     Assistant Inspector General
                                                                       for Audits




        ..........., opm.I(0'l 

                                     UNITED TATES OFFICE OF PERSONNEL MANAGEM ENT
                                                         Was hmglon , DC 204 15

   Oniceofthe
11l ~I)CCt cll" Gf'ru:r J.1




                                                  EXECUTIVE SUMMARY 





                                            Audit of Group Health Incorporated 's 

                                                    Pharmacy Operations 

                                                     Contract Year 2009 

                                                      Contract CS 1056 



                                                        Plan Code 80 

                                                     New York, New York 





                              REI'ORT NO. J H-80-00-1 0-062                       DATE: September 8 , 2011


          AI the request of lhe Office of Personnel Management's (O PM) contracting office. the Office of
          the Inspector General has completcd a perJonnance audit of Group Health Incorporated 's (0 1-11)
          Federal Employees Health Benefits Program (FE HBP) 2009 pharmacy operations. The primary
          objecti ve Of lhc a udit was to determine-ifG HI complied wi th the regulations and requi rements
          conta ined in Contract CS 1056. between O HI and OPM. We were al so asked by th e contracting
          office to verify whether a special drawdowl1 of $29 million: whic h was paid to GHI to cover its
          pharmacy cl ai m payments from January thro ugh September of 2009. was an amount that was
          tful y owed to GH.I and was suppo rted by s uftici ent documentation. The audi t was conducted in
          New York, New York from September 7 through September 24. 2010.

          The audit covered phamlacy cl aim s, drug manufactu rer rebates, and G Hl" s adherence to its
          contractual requirements for contract year 2009. Our review showed that the spec-ial drawdown
          of $29 million requested by GHl to pay it s January through September 2009 pharmacy cl aims
          was valid and was supported by adequate documentation. Our review al so showed that GHI
          charged the FEHBP the appropriate fees and ex penses related 10 its 2009 prescription drug
          benefit s except fo r the six find ings identified in thi s rep0l1.
This report questions $115,913 in improper payments for prescription drug benefits, which
includes $7,893 for lost investment income calculated through July 31, 2011. The results of our
audit have been summarized below.

                                   PHARMACY CLAIMS

•   Dependent Eligibility                                                               $53,726

    GHI processed 358 pharmacy claims, totaling $53,726, for 30 members age 22 and over
    whose eligibility could not be verified. GHI should not continue covering dependents age 22
    and over without proper documentation to show that these dependents remain eligible for
    FEHBP coverage.

•   Unallowable Charges for Nutritional Supplements                                     $29,814

    GHI processed 143 claims, totaling $29,814, for nutritional supplements without verifying
    that these drugs were a covered benefit under the FEHBP. Nutritional supplements are only
    covered for the treatment of phenylketonuria, branched chain ketonuria, galactosemia, and
    homocystinuria.

•   Pharmacy Claim Pricing                                                              $19,252

    GHI incorrectly priced 93 claims, which cost the FEHBP an additional $19,252 in 2009.
    These claims were priced higher than the agreed-upon price listed in each pharmacy’s
    contract.

•   Debarred Pharmacy Payments                                                          $3,789

    GHI paid an FEHBP debarred provider, Better Health Pharmacy Inc., $3,789 for 97 claims in
    2009. This pharmacy was debarred by OPM in 2004. Once a provider is debarred, it is
    GHI’s responsibility to ensure that the provider is flagged in its claims system to prevent
    future payments.

•   Claims Paid after Member Termination                                                $1,439

    GHI processed 14 claims for members after their termination date. These 5 members
    incurred $1,439 in prescription drug payments during 2009. GHI should have denied the
    claims since the members were no longer enrolled in the FEHBP.

                            DRUG MANUFACTURER REBATES

    The results of our review showed that drug manufacturer rebates received by GHI in 2009
    were properly allocated and returned to the FEHBP based on group specific member
    utilization.


                                               ii
         HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT

    The results of our review showed that GHI has policies and procedures in place to address
    the Health Insurance Portability and Accountability Act Standards for Electronic
    Transactions, Privacy Rules, and Security Rules.

                              FRAUD AND ABUSE PROGRAM

    The results of our review showed that GHI’s policies and procedures for fraud and abuse
    complied with section 1.9(c) of Contract CS 1056 and met all eight industry standards for
    fraud and abuse programs outlined in FEHBP Carrier Letter 2003-23.

                               LOST INVESTMENT INCOME

•   Lost Investment Income on Improper Payments                                           $7,893

    The FEHBP is due $7,893 for lost investment income on improper payments made for 2009
    prescription drug benefits, calculated through July 31, 2011. In addition, the contracting
    officer should recover lost investment income on amounts due for the period beginning
    August 1, 2011 until all questioned costs have been returned to the FEHBP.

                    LACK OF AUDITEE COOPERATION DURING AUDIT

    We experienced numerous difficulties in obtaining sufficient evidence from GHI to satisfy
    several of our audit objectives. Because we were unable to obtain information from GHI, we
    could not initially complete our work in several audit areas. Therefore, we strongly
    encourage the contracting office to work with GHI to ensure it understands its responsibilities
    relating to the Contract’s records retention and right to inspection requirements. We also
    encourage the contracting office to explore whatever remedies are at its disposal to penalize
    GHI for its inability to meet its contractual requirements.




                                                iii
                                                       CONTENTS
                                                                                                                             PAGE

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

  I.   INTRODUCTION AND BACKGROUND ......................................................................1

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

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

       A.     PHARMACY CLAIMS ............................................................................................ 6

              1.     Dependent Eligibility .......................................................................................6
              2.     Unallowable Charges for Nutritional Supplements ......................................... 7
              3.     Pharmacy Claim Pricing .................................................................................. 8
              4.     Debarred Pharmacy Payments .........................................................................8
              5.     Claims Paid after Member Termination .......................................................... 9

       B.     DRUG MANUFACTURER REBATES .................................................................10

       C.     HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT ......... 10

       D.     FRAUD AND ABUSE PROGRAM .......................................................................10

       E.     LOST INVESTMENT INCOME ............................................................................ 10

              1.     Lost Investment Income on Improper Payments ............................................10

IV.    LACK OF AUDITEE COOPERATION DURING AUDIT ........................................... 12

V.     MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 13

       SCHEDULE A – CONTRACT CHARGES
       SCHEDULE B – SUMMARY OF QUESTIONED COSTS
       SCHEDULE C – LOST INVESTMENT INCOME

       APPENDIX (GHI’s response to the draft report, issued May 31, 2011)
                     I. INTRODUCTION AND BACKGROUND
INTRODUCTION

At the request of the Office of Personnel Management’s (OPM) contracting office, we completed
an audit of Group Health Incorporated’s (GHI) Federal Employees Health Benefits Program
(FEHBP) pharmacy operations for contract year 2009. The audit was conducted pursuant to the
provisions of Contract CS 1056; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR)
Chapter 1, Part 890. The audit was performed by the OPM’s Office of the Inspector General
(OIG), as established by the Inspector General Act of 1978, as amended. The audit field work
took place at GHI’s office in New York, New York from September 7 through September 24,
2010. Additional audit work was completed in our Washington, D.C. and Cranberry Township,
Pennsylvania offices.

BACKGROUND

The 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. OPM’s Healthcare and Insurance
Office has overall responsibility for administration of the FEHBP. The provisions of the FEHB
Act are implemented by OPM through regulations codified in Title 5, Chapter 1, Part 890 of the
CFR. Health insurance coverage is made available through contracts with various health
insurance carriers that provide service benefits, indemnity benefits, or comprehensive medical
services.

In 1960, GHI entered into a government-wide contract (CS 1056) with OPM to provide health
insurance benefits as an Experience-Rated Health Maintenance Organization authorized by the
FEHB Act. In 2005, GHI and the Health Insurance Plan of New York (HIP) merged to form the
largest health insurer based in New York State with a combined membership of more than four
million members in the New York City metropolitan area and combined revenues of over $7
billion. In 2006, HIP and GHI affiliated as EmblemHealth companies. With the merger, GHI
and HIP continued to maintain separate contracts with OPM and offered separate health
insurance plans to FEHBP members.

This was our first audit of GHI’s pharmacy operations. The audit was initiated at the request of
OPM’s Contracting Office to help verify a special drawdown of $29 million from the Letter of
Credit (LOC) account. The single drawdown was made during the fourth quarter of 2009 in
order to reimburse GHI for pharmacy claim payments made from January 1, 2009 to
September 30, 2009. The late drawdown was a result of inter-office communication errors after
GHI ended its external Pharmacy Benefit Manager (PBM) contract with Express Scripts and
began processing pharmacy claims internally through EmblemHealth’s pharmacy claims system.

Because GHI administered its own pharmacy benefits in 2009, all pharmacy agreements were
fully transparent under the contract with OPM, including its agreement for mail order benefits
with Medco. Based on regulations, GHI is not allowed to profit on its pharmacy benefits, and all
prices should be passed through to the FEHBP.



                                               1
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary objectives of this audit were to:

   •     Obtain reasonable assurance that GHI complied with the provisions of the Federal
       Employees Health Benefits Act and regulations that are included, by reference, in the
       FEHBP contract.

   •     Determine whether GHI charged costs to the FEHBP and provided services to FEHBP
       members in accordance with the FEHBP contract.

   •     Ensure that the special drawdown of $29 million paid to GHI represented actual
       pharmacy claims cost and was supported by sufficient documentation.

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 audit 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 covered pharmacy claims, drug manufacturer rebates, and GHI’s
adherence to its contractual requirements for contract year 2009. The audit scope included a
review of GHI’s current Fraud and Abuse Program, Health Insurance Portability and
Accountability Act (HIPAA) Policies and Procedures, and Internal Controls related to its claim
processing system. In 2009, GHI paid $39,380,973 in prescription drug charges and received
manufacturer rebates of              related to these pharmacy costs (see Schedule A).

In planning and conducting the audit, we obtained an understanding of GHI’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. Based on our
testing, we did not identify any significant matters involving GHI’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 GHI’s system of internal controls
taken as a whole.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
GHI. 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 cause us to doubt its reliability. We believe
that the data was sufficient to achieve the audit objectives.




                                                 2
We also conducted tests to determine whether GHI had complied with the Contract, Service
Agreement, 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 audit indicate that, with respect to the
items tested, GHI complied with all provisions of the Contract, Service Agreement, and the
Federal procurement regulations, except for the six findings explained in detail in the “Audit
Findings and Recommendations” section of this report.

METHODOLOGY

To test whether GHI accurately charged the FEHBP for 2009 prescription drug benefits and
complied with its contractual requirements, we performed the following audit steps:

   Administrative Expense and Profit Review

     •   We reviewed the pharmacy claims data to determine if GHI added any additional fees
         for administrative expenses or profit.

   Pricing Review

     •   We selected 5 out of 110 pharmacies that received the highest dollar amount from GHI
         for retail pharmacy services and reviewed each of their claim payments to ensure that
         they were priced according to the pharmacy’s contract with GHI.
     •   We reviewed all claim payments made to Medco for FEHBP mail order pharmacy
         benefits to ensure that each claim was priced according to the pharmacy’s contract with
         GHI.

   Member Eligibility Review

     •   We selected the 50 oldest FEHBP members out of 26,334 who incurred prescription
         drug claims and compared their information to death records to ensure that drugs were
         being filled for active members.
     •   We selected all dependents age 22 and over to determine if each member was eligible
         for FEHBP coverage at the time of receiving pharmacy benefits.
     •   We reviewed the pharmacy claims data to determine if any payments were made to
         non-FEHBP members or members enrolled in another group or plan code.

   Debarred Pharmacy Review

     •   We compared the pharmacy claims data to the General Services
         Administration’s Excluded Parties List to determine if payments were made to
         pharmacies debarred by the Department of Health and Human Services or OPM.




                                               3
Claim System Review

 •   We reviewed all 701 claims over $3,000, totaling $3,457,615 out of a universe of
     611,619 claims totaling $39,380,973, to determine if GHI processed any duplicate
     claims or if claims contained duplicate therapy for an FEHBP member.
 •   We reviewed the pharmacy claims data to determine if GHI made payments for drugs
     that were never filled or were reported as having zero quantities dispensed.

Excluded Drug Review

 •   We reviewed the pharmacy claims data to determine if any claims were processed for
     drugs that were excluded from FEHBP Benefits, as listed in GHI’s Medical Plan
     Brochure.
 •   We reviewed the pharmacy claims data to determine if any claims were processed for
     drugs that have not been approved by the Federal Drug Administration.
 •   We reviewed all 143 pharmacy claims that had a quantity of over 5,000 units filled,
     totaling $29,814 out of a universe of 611,619 claims totaling $39,380,973, to determine
     if these drugs were covered under the FEHBP.

Manufacturer Rebate Review

 •   We reviewed all drug manufacturer rebates received by GHI and determined if the
     proper amount was allocated and returned to the FEHBP based on group specific
     member utilization.

Internal Control Review

 •   We reviewed GHI’s internal control policies and procedures that apply to its claims
     processing system to determine what controls were in place and if there were any
     significant deficiencies that required attention.
 •   We reviewed GHI’s claims system edits to determine if they were used by the carrier to
     effectively and efficiently process pharmacy claims.
 •   We observed the manual processing of a pharmacy claim to gain a better understanding
     of what data is populated, what data is entered, and how the adjudication process
     works.
 •   We tested the validity of the total 2009 pharmacy claim payments that were reported to
     OPM by observing a query direct from GHI’s data warehouse, where user access and
     edits are limited.

HIPAA Review

 •   We obtained all of GHI’s policies and procedures that address the HIPAA Standards for
     Electronic Transactions, Privacy Rules, and Security Rules to determine if the carrier
     has documented its compliance with this federal regulation.




                                           4
   Fraud and Abuse Program Review

     •   We reviewed GHI’s policies and procedures for fraud and abuse to determine if the
         carrier complied with section 1.9(c) of Contract CS 1056 and met all eight industry
         standards for fraud and abuse programs outlined in FEHBP Carrier Letter 2003-23.

The samples selected during our review 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 as a whole. We used Contract CS 1056 to determine if claim processing and
administrative fees charged to the FEHBP were in compliance with the terms of the Contract.

The initial results of the audit were provided to GHI in written inquiries and were discussed with
GHI officials throughout the audit and at the exit conference. In addition, a draft report, dated
April 18, 2011, was provided to GHI for review and comment. GHI’s comments on the draft
report were considered in preparing the final report and are included as an Appendix to this
report.




                                                  5
            III. AUDIT FINDINGS AND RECOMMENDATIONS

A. PHARMACY CLAIMS

  1. Dependent Eligibility                                                               $53,726

     We reviewed the 2009 pharmacy claims data to determine if any claims were paid for
     dependents age 22 and over. We identified 358 claims totaling $53,726 that were paid
     for services incurred by 30 overage dependents. We asked GHI to provide
     documentation showing how it determined that these dependents were still eligible for
     FEHBP coverage after turning age 22. GHI was unable to support that these claims were
     paid in accordance with the Contract.

     Page 62 of GHI’s 2009 FEHBP benefit brochure states that dependents are no longer
     eligible for coverage after they turn 22 years of age unless the individual is incapable of
     self-support, usually due to a mental or physical disability.

     Because GHI could not support the eligibility of the 30 overage dependents mentioned
     above, we were unable to determine if these claims were allowable charges to the
     FEHBP.

     GHI’s Comment:

     GHI disagrees with this finding. GHI’s computerized membership records going back to
     1988 reveal the enrollees to be classified as “permanently disabled”. Their status has not,
     to the plan’s knowledge, been changed and has not been questioned by OPM/OIG in
     previous (and now) closed audits. If OPM has records that indicate otherwise they
     should share them with GHI. In the event OPM’s records do indicate otherwise (or are
     not conclusive), then the plan can search its offsite paper records to document the basis
     for the permanent disability status.

     OIG’s Comment:

     We disagree with GHI’s response since the eligibility of these 30 members has not been
     validated with supporting documentation. Because the FEHBP paid for claims incurred
     by these individuals, GHI should be able to show why these dependents were covered as
     active enrollees after turning age 22. As stated above, page 62 of GHI’s 2009 FEHBP
     benefit brochure states that dependents are no longer eligible for coverage after they turn
     22 years of age unless the individual is incapable of self-support, usually due to a mental
     or physical disability. Proof of eligibility typically includes an evaluation by a physician
     showing that the individual is incapable of self support. A member’s eligibility should be
     verified every time a claim is processed. This means that eligibility should be maintained
     on file at all times to show that dependents over age 22 remain eligible for FEHBP
     coverage.




                                               6
   Recommendation 1

   We recommend that the contracting office require GHI to credit back to the FEHBP
   $53,726 for 358 improper claim payments.

   Recommendation 2

   We recommend that the contracting office require GHI to adopt new system controls that
   will verify and document a dependent’s eligibility for extended FEHBP coverage after
   turning age 22 or age 26 beginning January 1, 2011.

2. Unallowable Charges for Nutritional Supplements                                 $29,814

   We reviewed the 2009 pharmacy claims data to identify prescriptions with quantities over
   5,000 dispensed to determine if the identified drugs were for covered program benefits.
   We identified 143 claims totaling $29,814 that were paid for nutritional supplements.
   We asked GHI to provide documentation showing how it determined that these
   nutritional supplements were allowable program benefits. GHI was unable to support
   that these claims were paid in accordance with the Contract.

   Page 44 of GHI’s 2009 FEHBP benefit brochure states that nutritional supplements are
   only covered for the treatment of phenylketonuria, branched chain ketonuria,
   galactosemia, and homocystinuria. All other vitamins, nutrients and food supplements
   are not covered, even if a physician prescribes or administers them.

   Because GHI was unable to show that these nutritional supplements were prescribed as
   treatment for one of the four covered diseases, we were unable to determine if these
   claims were allowable charges to the FEHBP.

   GHI’s Comment:

   GHI agrees with this finding.

   Recommendation 3

   We recommend that the contracting office require GHI to credit back to the FEHBP
   $29,814 for claim overpayments.

   Recommendation 4

   We recommend that the contracting office require GHI to implement new system controls
   to prevent the payment of pharmacy claims for nutritional supplements unless the carrier
   can verify that the patient is being treated for one of the four covered diseases.




                                          7
3. Pharmacy Claim Pricing                                                                $19,252

   We reviewed all 2009 pharmacy claims paid to the mail order pharmacy (Medco) and the
   top 5 largest retail pharmacies (Walmart, CVS, Duane Reade, Rite Aid, and Walgreens) to
   determine if each claim was appropriately priced based on the contract agreement. We
   identified 93 out of 145,193 sampled claims, totaling $19,252 out of $8,316,666, that were
   priced at least $100 more than the contracted agreement. All pharmacies, except for
   Walmart, had one or more claims priced incorrectly. The breakdown of claims per
   pharmacy is listed below:

   •    Medco overpriced 10 claims for a total overcharge of $3,463;
   •    CVS overpriced 22 claims for a total overcharge of $3,700;
   •    Duane Reade overpriced 30 claims for a total overcharge of $5,136;
   •    Rite Aid overpriced 3 claims for a total overcharge of $780; and
   •    Walgreens overpriced 28 claims for a total overcharge of $6,173.

   Contract CS 1056, Section 3.2(b), states that costs to the FEHBP must be actual,
   allowable, allocable, and reasonable. Additionally, when errors are identified,
   Section 2.3(g) of the Contract requires GHI to make a prompt and diligent effort
   to recover the overpayments.

   Because GHI did not have proper controls in place to ensure that each claim is priced in
   accordance with its retail pharmacy contract, the FEHBP was overcharged $19,252 in
   2009.

   GHI’s Comment:

   GHI’s comments in its response to the draft report plus subsequent discussions with the
   audit staff show that it agrees with the amounts questioned.

   Recommendation 5

   We recommend that the contracting office require GHI to recover $19,252 for the 93
   claims that were overpriced, and return the full amount to the FEHBP.

   Recommendation 6

   We recommend that the contracting office require GHI to implement better system
   controls to ensure that all claims are priced at the agreed-upon rate listed in each retail
   pharmacy’s contract.

4. Debarred Pharmacy Payments                                                            $3,789

   As part of our debarment review, we compared GSA's Excluded Parties List to the 2009
   pharmacy claims data in order to identify any claims paid to debarred pharmacies.
   During our review, we identified one pharmacy, Better Health Pharmacy, Inc., that filled


                                             8
   97 scripts and received $3,789 in claim payments during 2009. This pharmacy was
   debarred by OPM in 2004. Once a provider is debarred, it is GHI’s responsibility to
   ensure that the provider is flagged in its claims system to prevent future payments.

   Chapter 2 of the Guidelines for Implementation of FEHBP Debarment and Suspension
   Orders requires FEHBP Carriers to establish a sanctions database that is updated monthly
   to include providers debarred by OPM. 5 CFR 890.1003 defines debarment as a decision
   by OPM's debarring official to prohibit payment of FEHBP funds to a health care
   provider. A health care provider includes any entity that, directly or indirectly, furnishes
   health care supplies including drugs and biologicals.

   Because GHI did not identify Better Health Pharmacy, Inc. as being debarred by OPM in
   2004, the pharmacy has continued to receive payment of FEHBP funds while in direct
   violation of federal laws and regulations. Additionally, the pharmacy’s continued
   participation in the FEHBP has created a safety risk for the Plan’s members.

   GHI’s Comment:

   GHI agrees with this finding.

   Recommendation 7

   We recommend that the contracting office require GHI to recover all payments to Better
   Health Pharmacy, Inc. subsequent to the effective date of its debarment from the FEHBP.
   At a minimum, $3,789 should be recovered and returned to the FEHBP for 2009.

   Recommendation 8

   We recommend that the contracting office require GHI to perform a monthly review of
   its provider databases to ensure that pharmacies currently filling scripts are not on the
   Excluded Parties List and have not been debarred by OPM.

5. Claims Paid after Member Termination                                                $1,439

   Our review of the 2009 pharmacy claims data showed that GHI processed 14 claims for 5
   members after their enrollment termination date. These five members incurred $1,439 in
   prescription drug payments during 2009. GHI should have denied the claims since the
   members were no longer enrolled in the FEHBP.

   Contract CS 1056, Section 3.2(b), states that costs to the FEHBP must be actual,
   allowable, allocable, and reasonable. Additionally, when errors are identified, Section
   2.3(g) of the Contract requires the Plan to make a prompt and diligent effort to recover
   the overpayments.

   Because GHI does not have proper controls in place to stop payments for members who
   terminate coverage, the FEHBP was overcharged $1,439 in 2009.



                                            9
     GHI’s Comment:

     GHI agrees with this finding.

     Recommendation 9

     We recommend that the contracting office require GHI to credit back to the FEHBP
     $1,439 for claim payments made on the behalf of the five members who were no longer
     enrolled in the FEHBP.

     Recommendation 10

     We recommend that the contracting office require GHI to implement additional system
     controls to identify members who are no longer enrolled in the FEHBP and prevent the
     payment of claims filed after the effective enrollment termination date.

B. DRUG MANUFACTURER REBATES

     Our review showed that GHI returned to the FEHBP all drug rebates and the associated
     administrative fees that were received from the drug manufacturers based on 2009
     FEHBP member utilization in compliance with Contract CS 1056 between GHI and
     OPM.

C. HEALTH INSURANCE PORTABILITY AND ACCOUNTABILTY ACT

     The results of our review showed that GHI has policies and procedures in place to
     address the Health Insurance Portability and Accountability Act Standards for Electronic
     Transactions, Privacy Rules, and Security Rules.

D. FRAUD AND ABUSE PROGRAM

     Our review of GHI’s policies and procedures related to its Fraud and Abuse Program
     showed that GHI complied with section 1.9(c) of Contract CS 1056 and met all eight
     industry standards for fraud and abuse programs outlined in FEHBP Carrier Letter 2003-
     23.

E. LOST INVESTMENT INCOME

  1. Lost Investment Income on Improper Payments                                        $7,893

     In accordance with the FEHBP regulations and Contract CS 1056 between OPM and
     GHI, the FEHBP is entitled to recover lost investment income on improper payments
     made for prescription drug benefits, which totaled $108,020 for contract year 2009.

    Contract CS 1056, Sections 3.4 (e) and (f), states that investment income lost as a result
    of failure to credit income due to the contract is due to the government based on a simple



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interest formula from the date the funds should have been credited to the date the funds
are returned.

We determined that the FEHBP is due $7,893 for lost investment income, calculated
through July 31, 2011 (see Schedule C). In addition, the FEHBP is entitled to recover
lost investment income on amounts due beginning on August 1, 2011 until all questioned
costs have been returned to the FEHBP.

Our calculation of lost investment income was based on the United States Department of
Treasury's semiannual cost of capital rates.

GHI’s Comment:

GHI agrees that there is lost investment income associated with each finding.

Recommendation 11

We recommend that the contracting officer require GHI to refund the FEHBP $7,893 for
lost investment income on improper payments related to the 2009 prescription drug
benefits calculated through July 31, 2011.

Recommendation 12

We recommend that the contracting officer recover lost investment income on amounts
due beginning August 1, 2011 until all questioned costs have been returned to the
FEHBP.




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          IV. LACK OF AUDITEE COOPERATION DURING AUDIT

At the request of OPM’s contracting office, we conducted this limited scope 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. However,
throughout the course of this audit we experienced numerous difficulties in obtaining sufficient
evidence from GHI to satisfy several of our audit objectives. In fact, after several attempts to
obtain information from GHI yielded no results, we solicited the assistance of the Contracting
Officer to encourage GHI’s cooperation. These efforts were again, in most cases, unsuccessful.
Because we were unable to obtain information from GHI, we could not initially complete our
work in several audit areas.

Section 1.11(b) of the Contract states:

“The Contractor shall maintain and the Contracting Officer, or an authorized representative of
the Contracting Officer, shall have the right to examine and audit all books and records relating
to the contract for purposes of the Contracting Officer’s determination of the Carrier’s
subcontractor or Large Provider’s compliance with the terms of the contract, including its
payment (including rebate and other financial arrangements) and performance provisions. The
Contractor shall make available at its office at all reasonable times those books and records for
examination and audit for the record retention period specified in the Federal Employees Health
Benefits Acquisition Regulation (FEHBAR), 48 CFR 1652.204-70. This subsection is applicable
to subcontract and Large Provider Agreements with the exception of those that are subject to the
“Audits and Records – Negotiation” clause, 48 CFR 52.215-2.”

48 CFR 1652.204-70 states:

“The carrier will retain and make available all records applicable to a contract term that support
the annual statement of operations and, for contracts that equal or exceed the threshold at FAR
15.403–4(a)(1), the rate submission for that contract term for a period of six years after the end
of the contract term to which the records relate. This includes all records of Large Provider
Agreements and subcontracts that equal or exceed the threshold requirements. In addition,
individual enrollee and/or patient claim records will be maintained for six years after the end of
the contract term to which the claim records relate. This clause is effective prospectively as of
the 2005 contract year.”

Recommendation 13

We strongly encourage the contracting office to work with GHI to ensure it understands its
responsibilities relating to the Contract’s records retention and right to inspection requirements.

Recommendation 14

We also encourage the contracting office to explore whatever remedies are at its disposal to
penalize GHI for its inability to meet its contractual requirements.


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              V. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                  , Auditor-In-Charge

             , Staff Auditor


                  , Group Chief

              , Senior Team Leader




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