oversight

Audit of the Federal Employees Dental and Vision Insurance Program Operations as Administered by FEP BlueVision for 2008 through 2010

Published by the Office of Personnel Management, Office of Inspector General on 2013-09-17.

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 FEDERAL EMPLOYEES DENTAL
AND VISION INSURANCE PROGRAM OPERATIONS
    AS ADMINISTERED BY FEP BLUEVISION
           FOR 2008 THROUGH 2010




                                           Report No. 1J-0C-00-13-025

                                                        September 17, 2013
                                           Date:




                                                            --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, 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.
                                                     AUDIT REPORT


                AUDIT OF THE FEDERAL EMPLOYEES DENTAL AND
                  VISION INSURANCE PROGRAM OPERATIONS AS
                       ADMINISTERED BY FEP BLUEVISION
                            FOR 2008 THROUGH 2010


                               CONTRACT NUMBER: OPM-06-00060-2



               Report No. 1J-0C-00-13-025                                         Date: September 17, 2013




                                                                                     ____________________________
                                                                                     Michael R. Esser
                                                                                     Assistant Inspector General
                                                                                       for Audits



                                                            --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, 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 DENTAL AND
             VISION INSURANCE PROGRAM OPERAIONS AS
                 ADMINISTERED BY FEP BLUEVISION
                       FOR 2008 THROUGH 2010


                      CONTRACT NUMBER: OPM-06-00060-2




           Report No. 1J-0C-00-13-025                    Date: September 17, 2013

The enclosed audit report details the results of our audit of the Federal Employees Dental and
Vision Insurance Program Operations as Administered by FEP BlueVision (Plan) for contract
years 2008 through 2010. The primary objective of our audit was to determine whether the Plan
complied with the requirements in its contract with the Office of Personnel Management (OPM).
We conducted preliminary surveys at the Plan’s locations in Chicago, Illinois and Latham, New
York from November 26, 2012 to December 6, 2012, and in San Antonio, Texas from January
15, 2013 to January 18, 2013. Additional audit fieldwork was performed at our offices in
Washington, D.C. and Cranberry Township, Pennsylvania from January 28, 2013 to
May 1, 2013.

The results of our audit have been summarized below.

            UNDERWRITING AND PRICE REDETERMINATION REVIEW

The results of our review showed that the Plan followed the applicable guidelines for annual
underwriting submissions and price redeterminations.




                                                i
                              CASH MANAGEMENT REVIEW

The results of our review showed that the Plan had adequate policies and procedures in place to
pay administrative expenses, process claim payments, and handle un-cashed checks.

                          ADMINISTRATIVE EXPENSE REVIEW

The results of our review showed that the Plan had controls in place to ensure that administrative
expenses were allowable and accurate.

                                       CLAIMS REVIEW

The results of our review showed that the Plan had the appropriate policies and procedures in
place to process high dollar claims and deny duplicate claims.

                                  PERFORMANCE REVIEW

•   Compliance with Performance Standards                                              Procedural

The Plan did not meet all of the customer service performance standards required by Contract
OPM-06-00060-2 for 2010.

                                   COMPLIANCE REVIEW

The results of our review showed that the Plan had sufficient internal controls in place to meet its
annual reporting requirements and to prevent and detect fraud, waste, and abuse.




                                                 ii
                                                     CONTENTS
                                                                                                                          PAGE

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

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

 II.   OBJECTIVES, SCOPE, AND METHODOLOGY ...........................................................3

III.   AUDIT FINDINGS AND RECOMMENDATIONS ........................................................7

        A.      UNDERWRITING AND PRICE REDETERMINATION REVIEW ................... 7

        B.      CASH MANAGEMENT REVIEW....................................................................... 7

        C.      ADMINISTRATIVE EXPENSE REVIEW .......................................................... 7

        D.      CLAIMS REVIEW ................................................................................................ 7

        E.      PERFORMANCE REVIEW.................................................................................. 7

                1. Compliance with Performance Standards ........................................................ 7

        F.      COMPLIANCE REVIEW ..................................................................................... 9

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

       APPENDIX (Plan’s response to the draft report, dated May 24, 2013)
                     I. INTRODUCTION AND BACKGROUND
INTRODUCTION

This report details the results of our audit of the Federal Employees Dental and Vision Insurance
Program (FEDVIP) Operations as Administered by FEP BlueVision (Plan) for contract years
2008 through 2010. The audit was conducted pursuant to the provisions of Contract OPM-06-
00060-2 (the Contract); and Title 5, Code of Federal Regulations, Chapter 1, Part 894 (5 CFR
894). The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General, as established by the Inspector General Act of 1978, as amended. We
conducted preliminary surveys at the Plan’s locations in Chicago, Illinois and Latham, New
York from November 26, 2012 to December 6, 2012, and in San Antonio, Texas from January
15, 2013 to January 18, 2013. Additional audit fieldwork was performed at our offices in
Washington, D.C. and Cranberry Township, Pennsylvania from January 28, 2013 to
May 1, 2013.

BACKGROUND

The Federal Employees Dental and Vision Benefits Enhancement Act of 2004, Public Law 108-
496, 118 Statute 4001, was signed into law on December 23, 2004. This law established a dental
and vision benefits program for federal employees, annuitants, and their eligible family
members.

The duties and responsibilities of insurance carriers participating in the FEDVIP program include
the following:

   1. To provide payments or benefits to an eligible individual if such individual is entitled
      thereto under the terms of the contract;
   2. With respect to disputes regarding claims for payments or benefits under the terms of the
      contract –
          a. to establish internal procedures designed to expeditiously resolve such disputes;
          b. to establish, for disputes not resolved through procedures mentioned above,
              procedures for one or more alternative means of dispute resolution involving
              independent third-party review under appropriate circumstances by entities
              mutually acceptable to OPM and the carrier;
   3. To make available to each individual eligible to enroll in a vision benefits plan,
      information on services and benefits to enable the individual to make an informed
      decision about electing coverage;
   4. To maintain accounting records that contain such information and reports as OPM may
      require;
   5. To furnish such reasonable reports as OPM determines to be necessary to enable it to
      carry out its functions; and
   6. To permit OPM and representatives of the Government Accountability Office to examine
      such records of the carrier as may be necessary to carry out the purposes of the contract.




                                                1
OPM’s Contracting Office contracts with the Blue Cross and Blue Shield Association (BCBSA),
on behalf of and as an agent for participating Blue Cross and Blue Shield Plans, to provide vision
insurance coverage to federal beneficiaries under the Plan. BCBSA serves as the chief liaison to
OPM and provides contract oversight, field services for members, consumer education,
reporting, and actuarial and financial services, with locations in Chicago, Illinois and
Washington, D.C. BCBSA’s responsibilities for administering the Plan under the contract are
carried out by Davis Vision, a wholly owned subsidiary of Highmark, Inc., with locations in
Latham, New York and San Antonio, Texas.

Section I.11 52.246-4 of OPM’s contract with BCBSA allows for audits of the program’s
operations. Additionally, Section 5(a)(i) of the Agreement for Services Between BCBSA and
Davis Vision allows for audits of Davis Vision’s administration of the Plan. There were 495,565
members enrolled in the Plan in 2008; 605,347 members enrolled in 2009; and 711,527 members
enrolled in 2010. This was our first audit of the FEDVIP operations as administered by FEP
BlueVision.




                                                2
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
OBJECTIVES

The primary objectives of this audit were to:

   •   Obtain reasonable assurance that BCBSA and Davis Vision administered the Program in
       compliance with Contract OPM-06-00060-2 and 5 CFR 894.

   •   Obtain reasonable assurance of Davis Vision’s compliance with the provisions of the
       Agreement for Services between BCBSA and Davis Vision.

   •   Ensure that premium rate changes, experience, underwriting methodology, and actuarial
       assumptions were compliant with the terms of the contract and federal regulations.

   •   Ensure that the Plan had adequate controls in place to handle member’s premiums,
       accounts payable, and accounts receivable.

   •   Ensure that monthly administrative expenses were properly verified, reported, and in
       accordance with Subpart 31.2 of the Federal Acquisition Regulations (FAR 31.2).

   •   Ensure that costs charged and services provided to Plan members were in accordance
       with the terms of the contract and federal regulations.

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 the Plan’s adherence to its contractual requirements for contract
years 2008 through 2010. The audit scope included a review of the Plan’s premium
underwriting, price redeterminations, administrative expenses, performance standards, fraud and
abuse policies and procedures, internal controls related to its claim processing system, and cash
management.

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. Based on our
testing, we did not identify any significant matters involving the Plan’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 the Plan’s system of internal
controls taken as a whole.

                                                 3
In conducting our audit, we relied to varying degrees on computer-generated data provided by
the Plan. 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.

We also conducted tests to determine whether the Plan had complied with the contract and the
laws and regulations governing the FEDVIP. 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 our attention that caused us to believe that the Plan had not
complied, in all material respects, with those provisions.

METHODOLOGY

To determine whether the Plan’s administration of the FEDVIP was in compliance with the
contract and 5 CFR 894, we performed the following audit steps:

   Premium Underwriting and Price Redetermination Review

       •   We conducted a meeting with Plan personnel to obtain an understanding of the Plan’s
           premium underwriting methodology and price redetermination process.
       •   We reviewed documentation to determine if the Plan negotiated any price changes
           with OPM and if the claims experience was submitted to OPM on an annual basis as
           required by the contract.
       •   We reviewed supporting documentation for the components included within Davis
           Vision’s administrative expense loading to determine if it complied with the contract
           and FAR 31.2.

   Cash Management Review

       •   We reviewed bank statements and enrollment files from the first quarter of 2008, the
           second quarter of 2009, and the third quarter of 2010 to determine if premium income
           received by the Plan from BENEFEDS reconciled to the enrollment files.
       •   We reviewed the Plan’s bank statements to determine if premium income was held in
           an interest-bearing account, separate from its other assets.
       •   We obtained the Plan’s bank statements to determine if interest income earned on
           premium income was transferred back to the FEDVIP.
       •   We reviewed administrative expense invoices and claim expense invoices to
           determine if they reconciled with disbursements from the Plan’s bank accounts for the
           first quarter of 2008, the second quarter of 2009, and the third quarter of 2010.
       •   We held a meeting with Plan personnel and reviewed its policies and procedures for
           un-cashed checks to determine if un-cashed checks were returned to the designated
           bank account.




                                                 4
Administrative Expense Review

   •   We reviewed the 2010 expense invoices from BCBSA and the 2009 expense invoices
       from Davis Vision to determine if they reconciled with the Plan’s Annual Accounting
       Statements and enrollment files. These years were selected for review since they
       were the most recent contract years in our audit scope.
   •   To determine if BCBSA’s administrative expenses were actual, allocable, reasonable,
       and allowable in compliance with the contract and FAR 31.2, we reviewed supporting
       documentation for a sample of 25 direct expenses, totaling $215,758, out of a
       universe of 1,095 expenses totaling $974,513. We judgmentally selected this sample
       by choosing the highest expense from each administrative cost center. Additionally,
       1 of the 25 expenses selected for review contained 168 individual travel expenses,
       totaling $8,511. From those 168 travel expenses, we selected 42 expenses, totaling
       $4,510, to review. This judgmental sample was selected based on the highest expense
       and auditor judgment.

Claims Review

   •   We reviewed high dollar claims greater than $650 (114 claims totaling $86,257 out of
       1,441,133 claims totaling $120,355,161) to determine if they were properly paid and
       supported.
   •   We reviewed all claims from 2008 through 2010 (1,441,133 claims, totaling
       $120,355,161) to ensure that the Plan was not processing duplicate claims.

Performance Review

   •   We conducted a meeting with Plan personnel to determine if its quality assurance
       program provided reasonable oversight of customer service and claims processing
       activities.
   •   We reviewed the Plan’s 2010 performance reports to determine if it met the customer
       service and claims processing performance standards required by the contract.
       Contract year 2010 was selected for review since it was the most recent year in our
       audit scope.

Compliance Review

   •   We reviewed the Plan’s response to our Fraud and Abuse Questionnaire to determine
       if the Plan had policies and procedures in place to prevent, detect, and disclose fraud
       and abuse activities.
   •   We held meetings with Plan personnel and reviewed documentation to determine if
       the Plan submitted reports to OPM in compliance with the contract.
   •   We reviewed the Plan’s response to our internal control and claims processing
       questionnaires to determine if the Plan developed safeguards in its FEDVIP
       operations and implemented proper edits for claims processing.



                                            5
The samples selected during our review were not statistically based. Consequently, the results
could not be projected to the universe since it was unlikely that the results were representative of
the universe as a whole.

The results of our audit were discussed with Plan officials throughout the audit and during an
exit conference. In addition, a draft report was provided to the Plan for review and comment on
May 1, 2013. The Plan’s response and comments to our draft report were considered in
preparing the final report and are included as an Appendix.




                                                 6
             III. AUDIT FINDINGS AND RECOMMENDATIONS
A. UNDERWRITING AND PRICE REDETERMINATION REVIEW

  The results of our review showed that the Plan followed the applicable guidelines for annual
  underwriting submissions and price redeterminations.

B. CASH MANAGEMENT REVIEW

  The results of our review showed that the Plan had adequate policies and procedures in place
  to pay administrative expenses, process claim payments, and handle un-cashed checks.

C. ADMINISTRATIVE EXPENSE REVIEW

  The results of our review showed that the Plan had controls in place to ensure that
  administrative expenses were allowable and accurate.

D. CLAIMS REVIEW

  The results of our review showed that the Plan had the appropriate policies and procedures in
  place to process high dollar claims and deny duplicate claims.

E. PERFORMANCE REVIEW

  1. Compliance with Performance Standards                                          Procedural

     The Plan did not meet all of the customer service performance standards required by
     Contract OPM-06-00060-2 for 2010.

     As part of its response to Solicitation Number OPM-RFP-06-0060, the Plan guaranteed
     its ability to meet the following customer service performance standards under Contract
     OPM-06-00060-2, Section 7(B) Answer 2.b.i and 2.c.i:

         1. 90 percent of written inquiries answered within 2 business days from receipt; and
         2. >99 percent of email inquiries answered within 1 business day from receipt.

     We reviewed the Plan’s 2010 performance reports to determine if it met all of the
     standards required by the contract. During our review, we found that its level of
     customer service performance did not meet the contract’s requirements. Specifically, the
     Plan’s performance results were as follows:

         1. 90 percent of written inquiries answered within 5 business days from receipt; and
         2. >99 percent of email inquiries answered within 5 business days from receipt.

     We asked the Plan why it did not meet the required performance standards and found that
     the discrepancies in the performance measures between the two contracts were due to the

                                              7
time requirements to have the Davis Vision Agreement for Services in place prior to
OPM awarding the vision contract to BCBSA. Once Contract OPM-06-00060-2 was
awarded, a comparison between the agreements was not completed due to an oversight.
BCBSA believes this was an isolated event and has adopted new sign-off procedures
between procurement and legal as an added control for future contract agreements.

Because the Plan did not meet the required performance standards that were guaranteed
under its fixed price contract agreement with OPM, federal employees participating in the
Plan are not receiving the level of customer service for which they are paying.

Plan Comments:

BCBSA acknowledges the differences in performance standards between Contract OPM-
06-00060-2 and its Agreement for Services with Davis Vision. An amendment will be
added to the Davis Vision Agreement for Services to change the performance standards
to those reflected within Contract OPM-06-00060-2, effective with the June 2013
performance reporting. Additionally, BCBSA has modified its quarterly reporting to the
Contracting Officer to include these measures, effective for the second quarter reporting.

BCBSA also stated that it has a commitment to providing excellent customer service to
its members, and that it believes the terms of the Agreement for Services between
BCBSA and Davis Vision did not compromise its service to its members as demonstrated
by the Plan’s member satisfaction scores. The average member satisfaction score for the
prior six years, 2007 through 2012, was 81 percent.

OIG Comments:

We accept the BCBSA’s corrective action plan to modify the performance standards
within the Agreement for Services with Davis Vision to match the performance standards
required by Contract OPM-06-00060-2 and to modify its quarterly reporting to the
Contracting Officer to include the higher performance measures. While we also
acknowledge the Plan’s response about its member satisfaction scores, this report is not
questioning the level of satisfaction of its members. We are only attempting to ensure
that the members serviced by this plan are receiving the level of customer service that is
guaranteed as part of their premium payments.

Recommendation 1

We recommend that the Contracting Officer verify that the Plan has met the higher level
of customer service required by Contract OPM-06-00060-2 in its second quarter
performance reporting.




                                        8
     Recommendation 2

     We recommend that the Contracting Officer verify that BCBSA has modified its
     Agreement for Services with Davis Vision to reflect the higher performance standards
     required by Contract OPM-06-00060-2.

     Recommendation 3

     We recommend that the Contracting Officer ensure that the original performance
     standards are met on an annual basis.

F. COMPLIANCE REVIEW

  The results of our review showed that the Plan had sufficient internal controls in place to
  meet its annual reporting requirements and to prevent and detect fraud, waste, and abuse.




                                               9
             IV. MAJOR CONTRIBUTORS TO THIS REPORT
Special Audits Group

                , Auditor-In-Charge

                   , Staff Auditor



                  Group Chief (

              , Senior Team Leader




                                      10
                                                                                     Appendix


                                                              BlueCross BlueSbield
                                                              Association
                                                              An AsBociation of Independent
                                                              Blue Cross and Blue Shield Plans


May 24, 2013                                                  f'ederal Employee Program
                                                              13 10 G Street,N.W.
                                                              Washington, D.C. 20005
                                                              202.942. 1000
                                                              Fax 202 .942. 1125

             , Special Audits Group
Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, Room 6400
Washington, DC 20415-1100


Reference:      OPM DRAFT AUDIT REPORT
               FEP BLUEVISION
               Audit Report Number 1 J-OC-00-13-025
               (Dated May 1, 2013 and Received May 1, 2013)


Dear-:
This is our response to the above referenced U.S. Office of Personnel Management
(OPM) Draft Audit Report covering the Federal Employees Dental and Vision Insurance
Program Operations as Administered by FEP BlueVision fo r the period of 2008 through
2010. Our comments are as follows:




                              Deleted by the OIG 

                        Not Relevant to the Final Report 

May 24,2013
FEP BlueVision Draft Response
Page 2 of 4




                              Deleted by the OIG 

                        Not Relevant to the Final Report 





A. PERFORMANCE REVIEW

1. Compliance with Performance Standard                                   Procedural

The OIG Auditors recommended the Plan increase its customer service performance to
ensure that the level of performance guaranteed by Contract OPM-06-00060-2 is met,
regardless of cost, since these performance standards were implemented under a fixed
price contract agreement. The auditors also recommended that BCBSA modify its
agreement for services with Davis Vision so that the performance standards required by
Davis Vision match the performance standards required by Contract OPM-06-00060-2.
May 24,2013
FEP BlueVision Draft Response
Page 3 of 4

The auditors also recommended that the Contracting Officer ensure that the original
performance standards are met on an annual basis. Any additional failure to meet the
required performance standards should be considered a breach of contract, requiring
immediate corrective action under the Contract's Correction of Deficiencies clause
(Section 1.23).

BCBSA Response

BCBSA acknowledges that there were differences in the performance measures as
stated in Contract OPM-06-00060-2 and FEP's contract with Davis Vision. An
amendment is being added to the Davis Vision Contract that changes the Performance
Measures to reflect those stated in Contract OPM-06-00060-2. This change is effective
with the reporting of the June 2013 performance.

The discrepancies in the performance measures between FEP's response to the RFP
and the Davis Vision Contract was due to the time requirements to have the Davis
Vision contract in place prior to OPM making the award. Once the contract was
awarded, a comparison between the agreements was not done due to an oversight.
We believe this to be an isolated event but as such have added a sign-off procedure
between procurement and legal to our process as an added control.

BCBSA has also modified the quarterly reporting to the Contracting Officer to include
these measures. These reporting changes will be effective with the report for the
second quarter (includes June when the Amendment becomes effective) and will
continue with future reports.

We reiterate our commitment to providing excellent customer service to our members
and believe that the terms of the contract in no way compromised our service to
members as demonstrated by our performance in the following table:

               Year                         Member Satisfaction Score
             i 2007                                  72.4%
             • 2008                                  81.7%
             . 2009                                  79.4%
               2010                                 81.1%
               2011                                  87.0%
               2012                                  86.3%
               Average                              81.32%
May 24, 2013
FEP BlueVision Draft Response
Page 4 of 4

We appreciate the opportunity to provide our response to this Draft Audit Report and
request that our comments be included in their entirety as an amendment to the Final
Audit Report.

Sincerely,




Attachment

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