MANAGEMENT RESPONSE 
TO THE INSPECTOR GENERALS SEMIANNUAL REPORT 
TO CONGRESS

JUNE 2003

Contents

1.	Message from the Director								1

2.	Health and Life Insurance Carrier Audits						2

3.	Collection of Disallowed Costs								2

4.	Management Report on Final Action on Audits with Disallowed Costs 
	for the Period Ending March 31, 2003

5.	Status of the Insurance Audits Highlighted in the Office of the Inspector		4
	Generals Report

6.	Management Decisions Over One Year					      	        6

7.	Comments on Unresolved Management Decisions Over One Year Old				7

8.	Significant Management Decisions on Reports Issued for the Period Ending 
               March 31, 2003                                                                   8

 
MESSAGE FROM THE DIRECTOR

The Office of the Inspector General (OIG) of the U.S. Office of Personnel Management (OPM)
has completed its Semiannual Report for the period October 1, 2002 to March 31, 2003. I am 
transmitting the Report to Congress as required by law, along with the Management Response 
containing additional information on certain portions of the report where further clarification may 
be helpful.

The Office of the Inspector General continues to play a critical role in the management and 
operations of the Office of Personnel Management, especially the Federal Employees Health 
Benefits Program (FEHBP).  We have pursued opportunities whenever they were available to 
strengthen and enhance OPMs OIG, including, as the Inspector Generals report references, 
promulgating final regulations to implement provisions of the Federal Employees Health Care 
Protection Act which address OPMs new administrative sanctions authority, and proposing 
regulations implementing the Acts civil monetary penalty provisions. The FEHBP is greatly 
improved by making these additional authorities available to protect Federal enrollees from 
unscrupulous health care providers.  

We recently acknowledged the OIG capacity to ensure that FEHB carriers maximize savings 
associated with the effective use of pharmacy benefits managers through which pass $6 billion in 
prescription drug costs.  Our recent Call Letter to FEHB carriers highlighted an expanded OIG 
oversight role to ensure their ability to conduct independent audits of plan pharmacy benefits 
managers.

The Office of the Inspector Generals value reaches well beyond the FEHBP however, and this 
reporting period they played a critical role in identifying insufficient internal controls at the 
United Way of the National Capital Area which served as the fiscal manager for the Combined 
Federal Campaign (CFC).  The OIG audit findings provided assurance to the thousands of donors 
in the National Capital Area that their contributions would be safeguarded, and contributed 
significantly to the development of new uniform accounting guidelines and the strengthening of 
accountability for all 362 CFCs around the country.

I look back with pride in our accomplishments to date in meeting the Presidents goals to best 
serve the American people, while at the same time looking forward with confidence that, with the 
joint efforts of the Office of the Inspector General, we are on a solid path to meet the 
challenges of the future. 

Kay Coles James
Director
 

HEALTH AND LIFE INSURANCE CARRIER AUDITS

AUDIT RESOLUTION

The resolution of audit report findings issued by the OIG continues to be a priority.  The charts 
at the end of this management report summarize insurance audit resolution activity for the period
October 1, 2002, through March 31, 2003.

We began this period with 10 audit reports pending agency decisions totaling $8 million.  The OIG 
issued 16 new reports with unresolved monetary findings totaling $32.6 million, bringing the 
work-in-process to $40.6 million.  Managements decisions on OIG recommendations during this period 
were $9.3 million.  This amount is a combination of $8.7 million in disallowed costs 
(requiring payment to OPM) and $.6 million in costs not disallowed (no required payment to OPM).  
It should be noted that the disallowed costs does not include $65,711 in additional interest 
assessed by the Program Office.  The balance at the end of the period totals $31.3 million and 
relates to 15 audit reports.

One of the 15 outstanding audit reports, which totals $2.1 million, exceeded the six-month standard
for resolving audit findings in accordance with OMB Circular A-50.  The OIG has requested that we 
postpone resolution of this audit report.

COLLECTION OF DISALLOWED COSTS

At the beginning of the period there were 43 audit reports which had been previously resolved, with 
$125.9 million to be collected from the insurance carriers.  Management decisions were made on four 
reports requiring the insurance carriers to pay $7.2 million.  This brought the number of audit 
reports with collection action to 47, totaling $133.1 million including interest and adjustments.  
During this period, we collected $16 million relating to seven audit reports.  We also adjusted 
three audit reports totaling $77.8 million, which leaves a balance of 37 audit reports and $39.3 
million to be collected.

The following table on final action of audits with disallowed costs provides a summary of 
collection activity for the period October 1, 2002, through March 31, 2003.

 
MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH DISALLOWED COSTS

REPORTING PERIOD ENDING
March 31, 2003

A.	Audit reports with management decisions on which final action had not been taken at the 
beginning of the period (10/01/02)

Number of Audit Reports 43 Disallowed Costs (in thousands) $125,920

B.	1.	Audit reports on which management decisions were made during the period 
(10/01/02 - 03/31/03)

Number of Audit Reports 4 Disallowed Costs (in thousands) $7,192

2.  Interest assessed during period

C.	Total audit reports pending final action during period (total of A and B)

Number of Audit Reports 47 Disallowed Costs (in thousands) $133,112

D.	Audit reports on which final action was taken during the period

1.  Recoveries
  (a)  Collections and offsets

Number of Audit Reports 7 Disallowed Costs (in thousands) $16,021

 (b)  Property

   Number of Audit Reports 0 Disallowed Costs (in thousands) 0

 (c)  Other

Number of Audit Reports 3 Disallowed Costs (in thousands) 77,833 

2.  Write-offs, waiver

Number of Audit Reports 0 Disallowed Costs (in thousands) 0

3.  Total of 1 and 2

Number of Audit Reports 10 Disallowed Costs (in thousands) $93,854

E.	Audit reports needing final action at the end of the period (03/31/03) (subtract D3 from C)

Number of Audit Reports 37 Disallowed Costs (in thousands) $39,258

STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT

REPORT, REPORT NUMBER, AND DATE
Aetna U.S. Healthcare  Ohio
Blue Bell, Pennsylvania
1C-RD-00-01-076
October 16, 2002

STATUS
All outstanding audit issues have been resolved and the FEHB Program has been reimbursed $5,597,915.

REPORT, REPORT NUMBER, AND DATE
HealthPartners, Inc.
Minneapolis, Minnesota
1C-HQ-00-02-019
January 8, 2003

STATUS
Reviewing Plans response to the outstanding issues.  We expect to resolve all outstanding 
issues within the 180 day standard.

REPORT, REPORT NUMBER, AND DATE
BlueCross BlueShield of Michigan
Detroit, Michigan
1A-10-32-02-003
February 10, 2003

STATUS
Awaiting Plans response to the outstanding issues.  We expect to resolve all outstanding 
issues within the 180 day standard.

REPORT, REPORT NUMBER, AND DATE
National Alliance of Postal and Federal Employees 
as Sponsor for the Alliance Health Benefit Plan
Washington, D.C.
1B-YQ-00-02-028
February 11, 2003

STATUS
Awaiting Plans response to the outstanding issues.  We expect to resolve all outstanding 
issues within the 180 day standard.

REPORT, REPORT NUMBER, AND DATE
KPS Health Plans
Bremerton, Washington
1D-VT-00-02-004
November 25, 2002

STATUS
Awaiting Plans response to the outstanding issues.  We expect to resolve all outstanding 
issues within the 180 day standard.

STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT

REPORT, REPORT NUMBER, AND DATE
Audit of Information System General  and Application Controls at Merck-Medco Managed Care 
(presently, Medco Health Solutions, Inc.) A BlueCross BlueShield Association Contractor
Franklin Lakes, New Jersey
1A-10-00-02-039
February 4, 2003

STATUS
Reviewing Plans response to the outstanding issues. We will coordinate corrective actions 
taken by the Plan on a quarterly basis until all recommendations have been completed.  

MANAGEMENT DECISIONS NOT IMPLEMENTED WITHIN ONE YEAR

Blue Cross and Blue Shield Audits

Report Date 07/25/2001
Determination Date 10/12/2001
Audit Number 10-03-01-027
Audit Name New Mexico
Receivables as of March 31, 2003 $258,598

Report Date 11/13/2000
Determination Date 08/31/2001
Audit Number 10-06-99-055
Audit Name Maryland
Receivables as of March 31, 2003 $2,820,466

Report Date 12/16/1999
Determination Date 07/25/2000
Audit Number 10-13-98-001
Audit Name BS of Highmark, Inc. 
Receivables as of March 31, 2003 $300,000

Report Date 06/02/1999
Determination Date 03/31/2000
Audit Number 10-18-97-004
Audit Name Community Mutual Insurance Co.
Receivables as of March 31, 2003 $734,723

Report Date 06/21/2001
Determination Date 12/01/2001
Audit Number 10-24-01-031
Audit Name South Carolina
Receivables as of March 31, 2003 $5,832

Report Date 08/27/2001
Determination Date 12/11/2001
Audit Number 10-30-01-018
Audit Name Colorado
Receivables as of March 31, 2003 $787,864

Report Date 01/06/2000
Determination Date 09/06/2000
Audit Number 10-39-98-012
Audit Name Kentucky & Indiana
Receivables as of March 31, 2003 $1,809,781

Report Date 05/10/2000
Determination Date 02/05/2001
Audit Number 10-41-99-017
Audit Name Florida
Receivables as of March 31, 2003 $6,048,396

Report Date 02/10/2000
Determination Date 08/31/2000
Audit Number 10-44-99-048
Audit Name Arkansas
Receivables as of March 31, 2003 $30,342

Report Date04/04/2000
Determination Date02/05/2001
Audit Number10-49-99-016
Audit Name New Jersey
Receivables as of March 31, 2003 4,008,401

Report Date 10/18/2000
Determination Date 09/26/2001
Audit Number 10-55-96-032
Audit Name Philadelphia, Pennsylvania
Receivables as of March 31, 2003 $2,000,000

Report Date 12/10/2001
Determination Date 12/18/2001
Audit Number 10-58-01-079
Audit Name Oregon
Receivables as of March 31, 2003 $307,022

Report Date 05/14/2001
Determination Date 10/12/2001
Audit Number 10-59-01-022
Audit Name Maine
Receivables as of March 31, 2003 $210,834

Report Date 02/22/2001
Determination Date 08/08/2001
Audit Number 10-69-01-001
Audit Name Regence Blue Shield
Receivables as of March 31, 2003 $22,331

Report Date 07/18/2000
Determination Date 12/27/2000
Audit Number 10-78-99-049
Audit Name Minnesota
Receivables as of March 31, 2003 $333,426

Report Date 02/15/2001
Determination Date 08/31/2001
Audit Number 10-84-01-002
Audit Name Utica, New York
Receivables as of March 31, 2003 $23,107

Report Date 02/23/2000
Determination Date 09/15/2000
Audit Number 10-85-98-043
Audit Name Letter of Credit Account
Receivables as of March 31, 2003 $214,904

Report Date 12/20/2000
Determination Date 08/31/2001
Audit Number 10-85-99-054
Audit Name Washington, DC
Receivables as of March 31, 2003 $398,186

Report Date 05/07/2001
Determination Date 09/30/2001
Audit Number 10-88-01-021
Audit Name Northeast Pennsylvania
Receivables as of March 31, 2003 $153,424

Subtotal $20,467,637

Other Insurance Carriers

Report Date 08/04/1999
Determination Date 03/31/2000
Audit Number Y7-03-98-006
Audit Name BCBSNCA
Receivables as of March 31, 2003 $413,646

Report Date 07/30/1999
Determination Date 03/31/2000
Audit Number YA-03-98-007
Audit Name BCBSNCA
Receivables as of March 31, 2003 $6,123,288

Report Date 08/03/1999
Determination Date 03/31/2000
Audit Number YP-03-98-009
Audit Name BCBSNCA
Receivables as of March 31, 2003 $1,554,325

Report Date 01/22/1998
Determination Date 09/30/1998
Audit Number R8-00-96-031
Audit Name TakeCare Health Plan
Receivables as of March 31, 2003 $62,204

Subtotal $8,153,463
Grand Total $28,621,100

The information above comes from OPMs Audit and Receivables Tracking System (AARTS) reports.  
The receivables listed were determined more than one year and one month prior to 3/31/03, 
making them over one year delinquent.

COMMENTS ON UNRESOLVED MANAGEMENT DECISIONS OVER ONE YEAR OLD

Of the $22,941,333 for which a management decision was not implemented within one year, 39 percent, 
or $8,888,186, relate to appealed cases.  These cases have been appealed either to the Armed 
Services Board of Contract Appeals or to the United States Court of Claims.  Eight percent, or 
$1,809,781, relate to cases that the resolution has been postponed at the request of the Office 
of the Inspector General.  The remaining 53 percent, or $12,243,366, relate to health benefit 
overpayment issues and the Carriers are in the process of collecting them.  Contractually, the 
Carriers must follow normal business practices and make a concerted attempt to collect the 
overpayments.  Therefore, until the funds have been recovered or until it has been determined 
that the funds are uncollectible and must be written-off, the receivable must remain on OPMs 
book of record.
 
SIGNIFICANT MANAGEMENT DECISIONS OCTOBER 1, 2002 THROUGH MARCH 31, 2003 ON FINAL REPORTS 
ISSUED BY THE OFFICE OF THE INSPECTOR GENERAL

REPORT AND REPORT NUMBER
Humana Medical Plan, Inc.
Miami, Florida
1C-EE-00-01-025
April 4, 2002

AUDIT FINDINGS
Defective Pricing
Lost Investment Income

MANAGEMENT RESULTS
Initial negotiations with the Carrier were not successful. As a result, the Contracting 
Officer issued a Final Decision Based upon the findings in the Office of the Inspector Generals 
Final resolution through continued Negotiations or the legal process.

RECOVERED AMOUNT
We have not determined total amount to be recovered on these audits because negotiations are 
still in progress. We will attain Final audit report.