US OFFICE OF PERSONNEL MANAGEMENT 

OfFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF THE 


RURAL CARRIER BENEFIT PLAN'S 


PHARMACY OPERATIONS 


AS ADMINISTERED BY CAREMARK, INC. 


2003 - 2005 


Report No. 1 H-01-00-07-013 

Date: March 1 7 , 2009 

·-CAUTION-­

Th is /lu,lil rf l"..-t Ius hUll t1isirih"ifd to .... dent .,m";"ls whn arc rts[lQnsil)lr for Ih. "dmi" iM r~lion <or Ih r ~"ditnl pr",,:r " " ,, Th is a~d jl 

rrflOrllll~Y ro nl:oi" I)rOI)l"i txr~ lbla .. I,ith is pruil'flcd hJ r~ J law (18 p.s.c. 1905); [lindon". wll ilr Ihis antli. ~,rt is ~\ ,,; Iahl t 

under Ibr .. ·rccd ....u or '"(on'''';''''' Art. u.tin" "H"ds 1(> h," n trd ..:d IM'f'lrr rd usinl!. Ihr rrpo>rt I" Ih.- ::rncral ['"blit. 
UNITED STATES OFF1CE OF PERSONN EL MA NAGEMENT 


Washington, DC 20415 


Office of tlle 

Inspc.:lOr Geueral 

AUDIT REPORT 


Federa l Employees Health Benefits Program 


Pharmacy Drug Program 


Conlract CS 1073 


Rural Carrier Benetit Plan 


Plan Code 38 


Caremark, Inc. 


Northbrook, Illinois 


REPORT NO. l H-OI-OO-07-0Ll DATE: March 1 7 JQQ9 

Michad R. Esscr 

Assistant Inspector General 

for Audits 

www.(l pm.gov _w. usaJobs.goy 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 


Wash ington, DC 20415 


Office of Ihe 

Inspector Generlll 

EXECUTIVE SUMMARY 

Federal Employees Health Benellts Program 


Pharmacy Drug Program 


Contract CS 1073 


Rural Carrier Benefit Plan 


Plan Code 38 


Caremark, Inc. 


Northbrook, Illinois 


REPORT NO. IH-O I-OO-07-0IJ DATE: March 17. 20 09 

The Onice orthe Inspector Genera l has comple ted a pcrtonnance audit orlhe 2003 through 2005 

Rural Carrier Benefit Pl an phamlacy ope rati ons as administered by Caremark. rne. The primary 

obj ective o flhe audit was to determine ifCarcmark compli ed with the regulations and 

req uircmcnls contained within its cOnlracl with RCBP and ('ol1lra<:1 CS 1073 (between RCBP 

and the Ofticc o f Personnel Management). Th(,., audit was cond ucted in North brook_Illinois from 

January 12 through February 2. 2007 and from February 26 through March 23. 2007. 

The aud it showed that the 2003 through 2005 RCBP pharmac y operations we re in compliance 

with the contracts. 

www.opm·co¥ 
CONTENTS 


PAGE 

EXECUI'IVE SUTV1MARY ...............................................................................................i 


I. INTRODUCTJON AND BACKGROUND ..................................................................... 1 


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


TIL AlJDrr RESlJLTS ........................................................................................................... 5 


IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6 


V. SCHEDULE A - CONTRACT CHARGES 
I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


As authorized by the Inspector General Act of 1978, as amended, we conducted an audit ofthe 

2003 through 2005 Rural Carrier Benefit Plan's (RCBP) phannacy operations as administered by 

Caremark, Inc. (Caremark). The audit field work was conducted at Caremark's offices in 

Northbrook, Illinois, from January 22 through February 2007 and from February 26 through 

March 23,2007. Additional audit work was completed at our Washington, D.C. office. 

BACKGROUND 

The Federal Employees' Benefit Plan (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 benetits for federal employees, annuitants, and 

dependents. The Office of Personnel Management's (OPM) Center for Retirement and 

Insurance Services has overall responsibility for administration of the FEHBP. The provisions of 

the FEHB Act are implemented by OPM through regulations, which are codified in Title 

Chapter 1, Part 890 of the Code of Federal Regulations (CFR). Health insurance coverage is 

made available through contracts with various health insurance carriers that provide service 

benefits, indemnity benefits, or comprehensive medical services. 

RCBP has entered into a Government-wide contract (CS 1073) with the OPM to provide a hea1th 

benefit plan authorized by the FEHB Act. RCBP has contracted directly with Caremark to 

manage the delivery and financing of prescription drug benefits for RCBP health benefit 

purchasers. 

This is our first audit of the RCBP phmmacy benefit operations as administered by Caremark. 

1 

II. OB.IECTIVES, SCOPE, AND METHODOLOGY 


Oll,/ECTIVES 

The obj ec tives of our aud it were to detenninc whether Caremark's c harges to the FEI-! BP and 

service s provided to FEHBP members were in accordance with the terms oflhe contracts. 

Specifi call y. our obj ectives were as ta llows: 

Claim Payments 

• 	 To determine whethe r Caremark complied with contract provisions stated in its 

contract with ReB!' relative to benctit payments. and to determine jf cla ims were 

properly adjudicated. 

Processing and Administrative Fees 

• 	 To detenninc whether processing and administra ti ve fees charged to the FEHBP were 

in compliance with the temlS of the contract between Carcmark and RCBP. 

• 	 To identify area s o flhe contract between Carcmark and ReBP \-v hich require 

improvement. 

Clinil.:al Management Savings 

• 	 To dete rm ine if costs charged to the FEHBP lo r Cl ini cal Management Programs were 

charged in acco rdance \vi th the tenns of the contract between Carema rk and RCBP. 

• 	 To determine ifsavings amounts reported were properl y calc ul ated. 

SCOPE 

We conduc ted th is pcrto rmancc aud il in accordance with generall y accepted government 

auditin g standards. Those standards require that we plan and perfonn the audit to obtain 

sut1ici cnt appropriate ev idence to provide a reasonable basis lor our findings and conclusions 

based on the audit obj ectivt:s. We believe that the evidence obta ined provides a reasonabl e basis 

for our findings and concl usions based on the audit objectives. 

We reviewed lhe Re BI) Annua l Accounti ng St.1.tements fo r contract yt:ars ~00 3 th rough 2005. 

During Ihis period, Carcmark paid in prescri ption drug charges (see 

Schedul e A). 

In plannin g: and conducting our audit, we obtained an understandin g o f Carelllork's intcma l 

control structure to hel p delcmline the nature. liming, and ex tcnt of our auditing procedures. 

This was dctcnnined 10 bc the most effective a pproach to sel ect arcas for audit. For those areas 

selected. we primarily r..:1 ied on substanti ve tests of transacti ons and not tests or controls. Based 

2 

on our testing, we did not identify any significant matters in volving Caremark's intemal control 

structure and its operation. However, since ollr aud it would not necessarily disclose all 

signitlcant matters in the internal contTOI structure, ..ve do 1101 express an opinion on Caremark's 

system of internal con trols taken as a whole. 

In conducting the audit we relied to varyi ng degrees on computcr+gcnerated data provided by 

Carcmark. Due to time constraints, we did not verily the reliability of the data generated by the 

various infonnation systems involved. However, while utilizing the computer-generated data 

during audit testing. nothing came to our attention to doubt its reliability. We believe that the 

data was sufficienl to achieve the audit objectives. 

We also conducled tests to detennine whether Care1llark had complied with the contract, thc 

applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal Employees 

Health Bcnelits Acquisit ion Regulations, as appropriate). and the laws and regUlations governing 

the FEHBP. The results of Ollr tests indicate that, with respect to the items tested, Caremark 

complied with all provisions oflhe contract and Federal procurement regulati ons. 

METHODOLOGY 

To test Carcmark's compliance with the contracts we reviewed the following areas: 

For a Uf re view of claim payments we selected the following samples to determine if the claims 

were properly paid by Caremark (all samples ..vere selected from claims billed from July I 

through December 31. 2005): 

• 	 We initially selected a judgmental sample of 100 mail order drug claims (totaling 

$358,746) by selecting cvery IOlh claim (until we had chosen 100 claims) from a listing 

sorted from highest to lowest of ·'client due amount" 01'$500 or greater. This universe 

included ~lajms lotaling _. Caremark infonned us that this sampl e 

encompassed "specialty" drug claims (specialty drugs arc prescription medications mat 

require special handling, administration, or monitoring) onl y. As a result. we reduced the 

sample to the top 20 high do ll ar claims selected (tota ling $1 56.287). 

• 	 We judgmental1y selected a sample or80 mail order claims (totaling $46.173) by 

se lecting every 10lh claim (until we had chosen 80 claims) based on high "client due 

amount" between $500 and $600. Thi s sample was selected from a universe orllll 

mail order claims totaling _. 

• 	 We judgmental!y sclected the top [-jvc retail pharmacies based on the highest total "c1icnt 

due amount" by phamlacy. For each retail pharmacy selected. we judgmentally selected 

every 10lh claim from a listing of ·'client due amoun t" sorted from highest to lowest until 

\\'c had chosen 30 claims for each pharmacy. Specilicall y. we selected the tollowing: 

1. 	 30 CYS claims totaling $9,750. from a uni verse of Jaims totaling 

2. 	

-

30 Wal-Mal1 claims totaling $6,638. from a uni verse of_ claims tota ling 

-

3 

2. 	 30 Wal~Mal1 claims tota ling $6,638. from a universe 01'_ claims totaling 

3. 	

-

30 Walgre; ens claims totaling $10.008. !i'om a un iverse lai s 

totaling _ ; 

4. 	 30 Rite~Aid claims totaling $5.551. from a universe of-=l aims totaling 

_ and 

5. 	 30 Kroger claims totaling $3,566. from a lInivers~ of claims totaling 

• 	 We judgme

-

ntally sel ected GO mail order claims (tota ling S38,743) from a uni verse of 

-=laims (totaling _ ) with indicators to dispense the drug as written (DA W) 

to detcmline irthe indica tors \verl! valid, We se lected eve ry loth claim (until we had 

chosen 50 claims) from a listing sorted from highest to lowest or "client due amount" 

where thc DA W code was I (DA W specified by physician). and ......e selected every 10th 

claim (until ,.,ie had chosen 10 claims) from a listing sorted lyOOl highest to lowest of 

"client due amoun t" where the DAW code was:! (DA W sJJCci li cd by pati ent), 

For our review of the processing. and admin istmtive ICes. we j udgme ntall y selected the month or 

December from each yea r o f the audit scope (2003-2005) ror review, Spccilically. we reviewed 

the information h) dete rm inc if the individual fees charged to the FL HB P wcre correct according 

to the contract bct\....cen Caremark and RCBI) and if the claim counts quoted on the billings werc 

correct. 

For our review of the clinical management savings. we judgmental ly selec ted 60 claims (totaling 

$80,693 in sav ings) from the ]!d and 4th quarters o f 2005 _ claims, tota ling _ ) to 

determine if the savings calculated by Carcmark was COlTcel, SpeeilieaHy . from each qu.'1rter we 

selected every 1 Olll claim based on the highest (positive savings) ·'c·lien! savings amount" until 

we had chosen 25 claims and every 5th claim based on the lmvest (negative savings) "client 

savings amount" until we had chosen 5 claims. 

The above samples that were selected and rev iewed in performing the audit were not statistiL:ally 

based. Consequentl y. the results could not be proj cct\!d to the uni verse since it is unlikely that 

the results are representati ve orlilc uni verse ta ken as a whn le. We used the Contrac t CS 107] 

and the contrae,t between Caremark and Re BP to determine if processing and adm inistrati ve tees 

charged to the FEI-lBP were in compli ance with the terms of the contract. 

4 

III. AUDIT RESULTS 


Based on our review of claim payments, processing and administrative fees, and clinical 

management savings, we found that the RCBP pharmacy operations for 2003 through 2005, as 

administered by Caremark, were administered in accordance with the contracts. 

5 

IV. MAJOR CO NTRIBUTORS TO T HIS REPORT 

Special Audits Group 

Auditor 

Aliditor 

• 

Senior Team Leader 

Deputy Assistant Inspector General lor Management 

Chief, Special Audits Group 

6 

A 

A UDIT OF THE 

RURAL CARRIER .BENEFTT PLAN'S 


PIIARMACY OPERATIONS 


AS ADMJNISTERED BY CAREMARK. INC. 


NORTlIBROOK, ILLINOIS 


CO:"lTRACT CHARGES 


REPORT NUMBER; JH-OI-OO-07-013 


PIIIA~:~"'CY BENEFIT CHARGES