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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector Gener~1

AUDIT REPORT 

Federal Employees Health Benefits Program
 

Phannacy Drug Program
 

Contract CS 1067
 

National Association of Letter Carriers
 

Plan Code 32
 

Caremark, Inc.
 

Northbrook, Illinois
 

REPORT NO. IH-OI-OO-07-014 DATE: 03/17/2009
 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.gov www.usajobs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspeclor General 

EXECUTIVE SUMMARY 

Federal Employees Health Benefits Program
 

Phamlacy Drug Program
 

. Contract CS 1067
 

National Association ofLetter Carriers
 

Plan Code 32
 

Caremark, Inc.
 

Northbrook, Illinois
 

REPORT NO. IH-OI-00-07-014 DATE: 03/17/2009 

The Office ofthe Inspector General has completed a performance audit ofthe 2003 through 2005 

National Association ofLetter Carriers (NALC) pharmacy operations as administered by 

Caremark, Inc. The primary objective of the audit was to detennine ifCaremark complied with 

the regulations and requirements contained within its contract with NALC and Contract CS 1067 

(between NALC and the Office of Personnel Management). The audit was conducted in 

Northbrook, Illinois from January 22 through February 2,2007 and from February 26 through 

March 23,2007. 

The audit showed that the 2003 through 2005 NALC pharmacy operations were in compliance 

with the contracts. 

www.opm.goY www.usajobs.gov 
CONTENTS 

PAGE
 

EX·EC1J'rIVE SUMMARY i
 

I. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY 2
 

III. AUDIT RESULTS 5
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 6
 

V. SCHEDULE A- CONTRACTCHARGES 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

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

2003 through 2005 National Association of Letter Carriers' (NALe) phannacy operations as 

administered by Caremark, Inc. (Caremark). The audit field work was conductedat Caremark's 

offices in Northbrook, Illinois, from January 22 through February 2, 2007 and from February 26 

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

BACKGROUND 

The Federal Employees' Health Benefit Program (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. The Office ofPersonnel Management's (OPM) Center for Retirement and 

Insurance Services has overaJJ responsibility for administration ofthe FEHBP. The provisions of 

the FEHB Act are implemented by aPM through regulations, which are codified in Title 5, 

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. 

NALC has entered into a Government-wide contract (CS 1067) with the OPM to provide a 

health benefit plan authorized by the FEHB Act. NALC has contracted directly with Caremark 

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

purchasers. 

This is our first audit ofthe NALC phmmacy benefit operations as administered by Caremark. 

1
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES 

The objectives of our audit were to detennine whether Caremark's charges to the FEHBP and
 

services provided to FEHBP members were in accordance with the tenns ofthe contracts.
 

Specifically, our objectives were as follows:
 

Claim Payments 

•	 To detennine whether Caremark complied with contract provisions stated in its 

contract with NALC relative to benefit payments, and to detennine if claims were 

properly adjudicated. 

Processing and Administrative Fees 

•	 To detennine whether processing and administrative fees charged to the FEHBP were 

in compliance with the terms of the contract between Caremark and NALC. 

•	 To identify areas of the contract between Caremark and NALC which require 

improvement. 

Clinical Management Savings 

•	 To determine if costs charged to the FEHBP for Clinical Management Programs were 

charged in accordance with the terms of the contract between Caremark and NALC. 

•	 To determine ifsavings amounts reported were properly calculated. 

.SCOPEWe conducted this performance audit in accordance with generally accepted government 

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

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on the audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on the audit objectives. 

We reviewed the NALe Annual Accounting Statements for contract years 2003 through 2005. 

During this period, Caremark paid approximately $692 million in prescription drug charges (see 

Schedule A). 

In planning and conducting our audit, we obtained an understanding of Caremark's internal 

control structure to help determine the nature, timing, and extent ofour auditing procedures. 

This was determined to be the most effective approach to select areas for audit. For those areas 

selected, we primarily relied on substantive tests oftransactions and not tests of controls. Based 

on OUT testing, we did not identify any significant matters involving Caremark's internal control 

2
 
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 Caremark's 

system of intemal controls taken as a whole. 

In conducting the audit we relied to varying degrees on computer-generated data provided by 

Caremark. 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 doubt its reliability. We believe that the 

data was sufficient to achieve the audit objectives. 

We also conducted tests to determine whether Caremark had complied with the contract, the 

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 tests indicate that, with respect to the items tested, Caremark 

complied with all provisions ofthe contract and Federal procurement regulations. 

METHODOLOGY 

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

For our review of claim payments we selected the following judgmental samples to determine if 

the claims were properly paid by Caremark (all samples were selected from claims billed from 

July 1 through December 31, 2005): 

•	 We initially selected a judgmental sample 100 mail order drug claims (totaling $537,719) 

by selecting every 10th claim (until we had chosen 100 claims) from a listing sorted from 

highest to lowest of "client due amount" of $3,000 or greater. This universe included 

1,058 claims totaling $5,401,133. Caremark informed us that this sample encompassed 

"specialty" drug claims (specialty drugs are prescription medications that require special 

handling, administration, or monitoring) only. As a result, we reduced the sample to the 

top 20 high dollar claims selected (totaling $212,685). 

•	 We judgmentally selected a sample of 80 mail order claims (totaling $46,222) by 

selecting every loth claim (until we had chosen 80 claims) with a high "client due 

amount" between $500 and $600. This sample was selected from a universe of 2,747 

mail order claims totaling $1,497,980. 

•	 We judgmentally selected the top five retail pharmacies based on the highest total "client 

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

every lOth claim from a listing of "client due amount" sorted from highest to lowest, until 

we had chosen 30 claims for each phannacy. Specifically, we selected the following: 

1.	 30 CVS claims totaling $27,552, from a tmiverse of 4,550 claims totaling 

$804,219; 

2.	 30 Wal-Mmi claims totaling $12,930, from a universe of314 claims totaling 

$134,144; 

3
 
3.	 30 Rite Aid claims totaling $14,281, from a universe of 405 claims totaling 

$169,324; 

4.	 30 Eckerd claims totaling $6,573, from a universe of 349 claims totaling 

$73,340; 

5.	 3D Kroger claims totaling $8,055, from a universe of 699 claims totaling 

$123,547. 

•	 We judgmentally selected 60 mail order claims (totaling $37,290) from a universe of761 

claims (totaling $384,174) with indicators to dispense the drug as written (DAW) to 

detennine if the indicators were valid. We selected every 10th claim (until we had chosen 

50 claims) from a listing sorted from highest to lowest of "client due amount" where the 

DAW code was 1 (DAW specified by physician), and we selected every 10th claim (until 

we had chosen 10 claims) from a listing sorted from highest to lowest of "client due 

amount" where the DAW code was 2 (DAW specified by patient). 

For our review of the processing and administrative fees, we judgmentally selected the month of 

December from the years ofthe audit scope (2003-2005) for review. Specifically, we reviewed 

the information to determine ifthe individual fees charged to the FEHBP were COlTect according 

to the contract between NALC and Caremark and if the claim counts quoted on the billings were 

correct. 

For our review of the clinical management savings, we judgmentally selected 60 claims (totaling 

$107,203) from the 3rd and 4lh qua11ers of2005 (16,564 claims, totaling $4,685,128) to determine 

if the savings calculated by Caremark was correct. Specifically, from each quarter we selected 

every lOtll claim based on the highest (positive savings) "client savings amount" until we had 

chosen 25 claims and every 5lh claim based on the lowest (negative savings) "client savings 

amount" until we had chosen 5 claims. 

The above samples that were selected and reviewed in performing the audit were not statistically 

.based.· Consequently, the results could not be projected to the universe since it is unlikely that 

the results are representative ofthe universe taken as a whole. We used the Contract CS 1067 

and the contract between NALC and Caremark to determine if processing and administrative 

fees charged to the FEHBP were in compliance 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 NALC pharmacy operations for 2003 through 2005, as 

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

5
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Special Audits Group 

Auditor 

Auditor 

Senior Team Leader 

Jill S. Henderson, Deputy Assistant Inspector General for Management 

Chief, Special Audits Group 

6
 
CONTRACT CHARGES 

PHARMACY BENEFIT PAYMENTS I 

AUDIT OF THE
 

NATIONAL ASSOCIATION OF LETTER
 

CARRIERS' PHARMACY OPERATIONS
 

AS ADMINISTERED BY CAREMARK, INC.
 

NORTHBROOK, ILLINOIS
 

CONTRACT CHARGES
 

REPORT NUMBER: 1H-01-00-07-014
 

2003 2004 

$211,015,524 $232,239,643 

SCHEDULE A 

2005 TOTAL 

$248,364,306 $691,619,473 II