US OFFICE OF PERSQNNELMANAGEMENT 

·OFFICEOF THE·INSPECTOR GENERAL· 

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lA~l. 0..83-08-0.18. . -, ,., 

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. may con~ajD proprietary data whicbis protededby Federal law (18 U.S.C.19115); tberefore, wbile thi.s audit report is available under the 

.Freedom oflnformatioll, Act, caution needs to be exereised before releasing tbe report to the general publk. . 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

Washington, DC 20415 

Office of the 

Inspector General 

. AUDIT REPORT 

Federal Employees Health Benefits Program 

Service Benefit Plan Contract CS 1039 

BlueCross BlueShield Association 

Plan Code 10 

Health Care Service Corporation 

Plan Codes 340/840
 

Tulsa, Oklahoma 

REPORT NO. IA-1O-83-08-018 DATE:January 9, 2009 

~c;, 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 

Inspector General 

EXECUTIVE SUMMARY 

Federal Employees Health Benefits Program 

Service Benefit Plan Contract CS 1039 

BlueCross BlueShield Association 

Plan Code 10 

Health Care Service Corporation 

Plan Codes 340/840
 

Tulsa, Oklahoma 

REPORT NO. lA-10-83-08-018 DATE: January 9, 2009 

This final audit report on the Federal Employees Health Benefits Program (FEHBP) operations at 

Health Care Service Corporation (Plan), which only included BlueCross BlueShield of 

Oklahoma, questions $2,049,313 in health benefit charges and $171,670 in administrative 

expenses. The BlueCross BlueShield Association (Association) and/or Plan agreed (A) with 

$1,724,824 and disagreed (D) with $496,159 of the questioned costs. Lost investment income 

(LII) on the questioned costs amounts to $22,175. 

Our audit was conducted in accordance. with Government Auditing Standards. The audit covered 

claim payments from 2005 through 2007, as well as miscellaneous payments and credits and 

administrative expenses from 2004 through 2006 as reported in the Annual Accounting 

Statements. In addition, we reviewed the Plan's cash management practices related to FEHBP 

funds for contract years 2004 through 2006. 

Questioned items are summarized as follows: 

www.opm.gov www.usaJobs.gov 
HEALTH BENEFIT CHARGES 

Claim Payments 

• Indian Hospital Facilities - Claim Overpayments (A) $1,382,373 

The Plan overcharged the FEHBP for hospital level reimbursements made for professional 

services from January 2004 through July 2008. 

• Omnibus Budget Reconciliation Act of 1990 Review $485,319 

The Plan incorrectly paid 52 claims that were priced or potentially should have been priced 

under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines. Specifically, the 

Plan overpaid 43 claims by $528,790 and underpaid 9 claims by $43,471, resulting in net 

overcharges of$485,319 to the FEHBP. The Association agreed with $70,146 (A) and 

disagreed with $415,173 (D) of the net overcharges. 

• Claim Payment Errors $177,982 

The Plan incorrectly paid 85 claims, resulting in net overcharges of $177,982 to the FEHBP. 

Specifically, the Plan overpaid 74 claims by $181,247 and underpaid 11 claims by $3,265. 

The Association agreed with $96,996 (A) and disagreed with $80,986 (D) ofthe net 

overcharges. 

Miscellaneous Payments and Credits 

• Refund Advances - Lost Investment Income (A) $3,639 

The Plan did not properly invest on average $331,426 in Federal Employee Program refund 

advances from October 2006 through December 2006. As a result, the FEHBP is due LII of 

$3,639 on refund advances. 

ADMINISTRATIVE EXPENSES 

• Unallowable Cost Center and Natural Account Expenses (A) $108,220 

The Plan charged unallowable cost center and natural account expenses to the FEHBP from 

2004 through 2006. 

• Pension Costs (A) $96,632 

The Plan overcharged the FEHBP for pension costs in 2006. 

II 
• Limits on Executive Compensation fA) ($33.182) 

The Plan overcharged the FEHBP $2,047 for executive compensation in 2004, and 

undercharged the FEHBP $35,229 in 2005 and 2006. 

CASH MANAGEMENT 

Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract CS 

1039 and applicable laws and regulations, except for the findings pertaining to cash 

management noted in the "Miscellaneous Payments and Credits" section. 

LOST INVESTMENT INCOME ON AUDIT FINDINGS 

As a result or our audit findings presented in this audit report, the FEHBP is due LII of 

$22,175, calculated through December 31, 2008. 

11l 
CONTENTS
 

PAGE 

EXECUTIVE SUMMARy	 i 

1. INTRODUCTION AND BACKGROUND	 1 

II. OBJECTIVES, SCOPE, AND METHODOLOGy	 3 

III. AUDIT FINDINGS AND RECOMMENDATIONS	 6 

A. HEALTH BENEFIT CHARGES :	 6 

1. Claim Payments	 6 

a. Indian Hospital Facilities - Claim Overpayments	 6 

b. Omnibus Budget Reconciliation Act of 1990 Review	 7 

c. Claim Payment Errors	 11 

2. Miscellaneous Payments and Credits	 15 

a. Refund Advances - Lost Investment Income	 15 

B. ADMINISTRADVE EXPENSES	 16 

1. UnaIJowable Cost Center and Natural Account Expenses	 16 

2. Pension Costs	 18 

3. Limits on Executive Compensation	 19 

C. CASH MANAGEMENT	 20 

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS	 20 

IV. MAJOR CONTRIBUTORS TO THIS REPORT	 21 

V. SCHEDULES 

A. CONTRACT CHARGES 

B. QUESTIONED CHARGES 

C. LOST INVESTMENT INCOME CALCULATION 

APPENDIX A	 (BlueCross BlueShield Association reply, dated August 19, 2008, to 

the draft audit report) 

APPENDIX B	 (Health Care Service Corporation reply, dated October 8, 2008, to the 

draft audit report) 
I. INTRODUCTION AND BACKGROUND 

INTRODUCTION 

This final audit report details the findings, conclusions, and recommendations resulting from our 

audit of the Federal Employees Health Benefits Program (FEHBP) operations at Health Care 

Service Corporation (plan or HCSC) pertaining to BlueCross BlueShield of Oklahoma. The Plan 

includes the Illinois, New Mexico, Oklahoma, and Texas BlueCross and BlueShield plans. The 

BlueCross BlueShield of Oklahoma plan is located in Tulsa, Oklahoma. 

The audit was perfonned by the Office ofPersonnel Management's (OPM) Office ofthe Inspector 

General (OIG), as established by the Inspector General Act of 1978, as amended. 

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 Center for Retirement and 

Insurance Services has overall responsibility for administration of the FEHBP. The provis~ons of 

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

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

made available through contracts with various health insurance carriers. 

The BlueCross BlueShie1d Association (Association), on behalf of participating BlueCross and 

BlueShield plans, has entered into a Government-wide Service Benefit Plan contract (CS 1039) 

with OPM to provide a health benefit plan authorized by the FEHB Act. The Association 

delegates authority to participating local BlueCross and BlueShield plans throughout the United 

States to process the health benefit claims of its federal subscribers. The Plan is one of 

approximately 63 local BlueCross and BlueShield plans participating in the FEHBP. 

The Association has established a Federal Employee Program (FEpl

) Director's Office in 

Washington, D.C. to provide centralized management for the Service Benefit Plan. The FEP 

Director's Office coordinates the administration ofthe contract with the Association, member 

BlueCross and BlueShield plans, and OPM. 

The Association has also established an FEP Operations Center. The activities of the FEP 

Operations Center are performed by CareFirst BlueCross BlueShield, located in Washington, 

D.C. These activities include acting as fiscal intermediary between the Association and member 

plans, verifYing subscriber eligibility, approving or disapproving the reimbursement of local plan 

payments ofFEHBP claims (using computerized system edits), maintaining a history file of all 

FEHBP claims, and maintaining an accounting of all program funds. 

I Throughout this report, when we refer to "FEP" we are referring to the Service Benefit Plan lines of business at the 

Plan. When we refer to the "FEHBP" we are referring to the program that provides health benefits to federal employees. 

1 
Compliance with laws and regulations applicable to the FEHBP is the responsibility of the 

Association and Plan management. Also, management of the Plan is responsible for establishing 

and maintaining a system of internal controls. 

All findings from our previous audit of the Oklahoma plan (Report No. IA-IO-83-05-002, dated 

October 17, 2005) for contract years 1999 through 2003 have been satisfactorily resolved, except 

for two findings. The resolution of these audit issues is still ongoing. 

The results ofthis audit Were provided to the Plan in written audit inquiries; were discussed with 

Plan and/or Association officials throughout the audit and at an exit conference; and were 

presented in detail in a draft report, dated June 20, 2008. The Association's comments offered in 

response to the draft report were considered in preparing our final report and are included as 

Appendix A to this report. Also, additional comments provided by the Plan were considered in 

preparing our final report and are included as Appendix B to this report. 

2 
II. OBJECTIVES, SCOPE, AND METHODOLOGY 

OBJECTIVES 

The objectives of our audit were to detennine whether the Plan charged costs to the FEHBP and 

provided selVices to FEHBP members in accordance with the tenus of the contract. Specifically, 

our objectives were as follows: 

Health Benefit Charges 

•	 To determine whether the Plan complied with contract provisions relative to benefit 

payments. 

•	 To d.etermine whether miscellaneous payments charged to the FEHBP were in 

compliance with the terms ofthe contract. 

•	 To determine whether credits and miscellaneous income relating to FEHBP benefit 

payments were returned promptly to the FEHBP. 

Administrative Expenses 

•	 To determine whether administrative expenses charged to the contract were actual, 

allowable, necessary, and reasonable expenses incurred in accordance with the terms 

ofthe contract and applicable regulations. 

Cash Management 

•	 To determine whether the Plan handled FEHBP funds in accordance with applicable 

laws and regulations concerning cash management in the FEHBP. 

SCOPE 

We conducted our 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 our 

audit objectives. We believe that the evidence obtained provides a reasonable basis for our 

. findings and conclusions based on our audit objectives. 

We reviewed the BlueCross and BlueShield FEHBP Annual Accounting Statements as they 

pertain to Plan codes 340/840 (Oklahoma plan) for contract years 2004 through 2007. During 

this.period, the Plan paid approximately $1.2 billion in health benefit charges and $75 million in 

administrative expenses for the Oklahoma plan (See Figure 1 and Schedule A). 

3 
Specifically, we reviewed approximately $12 million in claim payments made from 2005 through 

2007 for proper adjudication. In addition, we reviewed miscellaneous payments and credits, such 

as refunds and subrogation recoveries, administrative expenses, and cash management for 2004 . 

through 2006. 

In planning and conducting our audit, 

Health Care Service Corporation we obtained an understanding ofthe (BlueCross BlueShield of Oklahoma)

Plan's internal control structure to help Contract Charges 

determine the nature, timing, and extent $400 

ofour auditing procedures. This was 

determined to be the most effective 

$300 approach to select areas of audit. For III 

C

those areas selected, we primarily relied 

on substantive tests oftransactions and :i $200 

not tests of controls. Based on our 

testing, we did not identify any $100 significant matters involving the Plan's 

internal control structure and its 

operation. However, $0 since our audit 

2004 2005 2006 2007 would not necessarily disclose all Contract Years 

significant matters in the internal

control structure, we do not express an I!".iI Hearth Benefit Payments .Administrative Expenses 

opinion on the Plan's system of internal 

controls taken as a whole. . Figure 1 - Contract Charges 

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

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

Employees Health Benefits Acquisition Regulations (FEHBAR), as appropriate), and the laws 

_.and~ieguJations governing the FEHBP. The results of our tests indicate that, with respect to the 

items tested, the Plan did not comply with all provisions of the contract and federal procurement 

regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings 

and Recommendations" section ofthis audit 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. 

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

FEP Director's Office, the FEP Operations Center, the Plan, and the Centers for Medicare and 

Medicaid Services. 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 our audit testing, nothing came to our attention to cause us to doubt its reliability. 

We believe that the data was sufficient to achieve our audit objectives. 

The audit was perfOlmed at the Plan's office in Tulsa, Oklahoma from March 10 through 

March 21, 2008 and April 14 through May 2, 2008. Audit fieldwork was also performed at our 

offices in Washington, D.C. and Jacksonville, Florida. 

4
 
METHODOLOGY 

We obtained an understanding ofthe internal controls over the Plan's claims processing, cost 

accounting, and financial systems by inquiry ofPlan officials. 

To test the Plan's compliance with the FEHBP health benefit provisions, we selected and 

reviewed samples of 519 claims.2 We used the FEHBP contract, the Service Benefit Plan 

brochure, the Plan's provider agreements, and the Association's FEP administrative manual to 

detennine the allowability of benefit payments. The results of these samples were not projected 

to the universe of claims. 

We interviewed Plan personnel and reviewed the Plan's policies, procedures, and accounting 

records during our audit ofmiscellaneous payments and credits. We also judgmentally selected 

and reviewed 75 health benefit refunds, totaling $1,096,795 (from a universe of 14,640 .refunds, 

totaling $8,597,247); 45 subrogation recoveries, totaling $1,469,061 (from a universe of 1,406 

subrogation recoveries, totaling $3,029,543); and 15 Special Plan Invoices, totaling $873,494 in 

net payments (from a universe of74 Special Plan Invoices, totaling $2,801,563 in net payments) 

to determine if refunds and recoveries were promptly returned to the FEHBP and if 

miscellaneous payments were properly charged to the FEHBP. 

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 2004 

through 2006. Specifically, we reviewed administrative expenses relating to cost centers, natural 

accounts, out-of-system adjustments, prior period adjustments, pension, post-retirement, employee 

health benefits, executive compensation, subcontracts, non-recurring projects, lobbying, return on 

investment, Association dues, and Health Insurance Portability and Accountability Act of 1996 

compliance. We used the FEHBP contract, the FAR, and the FEHBAR to detennine the 

alJowability, allocability, and reasonableness of charges. 

We also reviewed the Plan's cash management to detennine whether the Plan handled FEHBP 

funds in accordance with Contract CS 1039 and applicable laws and regulations. 

2 See the audit findings for "Omnibus Budget Reconciliation Act of 1990 Review" (AI.b) and "Claim Payment 

Errors" (A1.c) on pages 7 through 15 for specific details ofour sample selection methodologies. 

5 
III. AUDIT FINDINGS AND RECOMMENDATIONS 

A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Indian Hospital Facilities - Claim Overpayments	 $1,382,373 

The Plan overcharged the FEHBP $1,382,373 for hospital level reimbursements made 

for professional services from January 2004 through July 2008. 

Contract CS 1039, Part III, section 3.2 (b) (1) states, "The Carrier may charge a cost to 

the contract for a contract tenn ifthe cost is actual, allowable, allocable, and 

reasonable." Part II, section 2.3(g), states, "Ifthe Carrier or aPM detennines that a 

Member's claim has been paid in error for any reason, the Carrier shall make a diligent 

effort to recover an overpayment ...." 

While conducting a medical review, the Plan's Special Investigation Unit (SIU) found 

that certain Indian Hospital Facilities (i.e., Lawton Indian Hospital, Anadarko, 

Carnegie, Choctaw Nation, Chickasaw, and WW Hastings) were billing for hospitalbased outpatient clinic services by submitting a facility evaluation and management 

charge on the UB-92 fonn (billing fonn for hospital claims) instead of a professional 

evaluation and management charge on the CMS 1500 fonn (billing fonn for 

professional claims). The Plan's payment methodology requires professional services 

to be billed on a CMS 1500 form for proper reimbursement. Consequently, 

overpayments resulted from professional services being billed on outpatient hospital 

claim fonns (UB-92) instead of professional claim forms (eMS 1500). There were also 

.	 instances were facilities submitted both types of claim fonns and received duplicate 

reimbursements. 

For the period January 2004 through May 2006, the Plan's SIU identified overcharges 

of$588,328 to the FEHBP as a result ofthese claim payment errors. In the draft 

report, we requested the Plan to also identify and review all claims reimbursed for the 

period June 2006 through July 2008 with this type of potential claim payment error. 

As a result, the Plan identified additional claim overpayments of $794,045 during the 

period June 2006 through July 2008. In total, the FEHBP is due $1,382,373 for claim 

overcharges from January 2004 through July 2008. 

Association's Response (Appendix A): 

The Association agrees with the questioned overpayments of $588,328 for the period 

January 2004 through May 2006. The Association states that the Plan is in the process 

of initiating recoveries for these overpayments. The Association also states that the 

Plan has developed a corrective action plan to prevent this type of claim payment error 

in the future. 

6 
Plan's Response (Appendix B): 

"HCSC has identified and processed recovery requests for claims with this payment 

error reimbursed during the period June 2006 through July 2008. The refund amount 

requested for Indian Hospitals is $794,045. All money recovered will be returned to the 

FEHBP." 

Recommendation 1 

We recommend that the contracting officer disallow $1,382,373 for claim overcharges, 

and verify that the Plan returns all amounts recovered to the FEHBP. 

Recommendation 2 

We recommend that the contracting officer instruct the Association to verify that the 

Plan has implemented a corrective action plan to prevent this type of claim payment 

error in the future. 

b. Omnibus Budget Reconciliation Act of 1990 Review $485,319 

The Plan incorrectly paid 52 claims that were priced or potentially should have been 

priced under the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) pricing 

guidelines. Specifically, the Plan overpaid 43 claims by $528,790 and underpaid 9 

claims by $43,471, resultingin net overcharges of$485,319 to the FEHBP. 

As previously cited from Contract CS 1039, costs charged to the FEHBP must be 

actual, allowable, allocable, and reasonable. If errors are identified, the Plan is 

required to make a diligent effort to recover the overpayments. 

OBRA 90 limits the benefit payments for certain inpatient hospital services provided 

to annuitants age 65 or older who are not covered under Medicare Part A. The 

FEHBP fee-for-service plans are required to limit the claim payment to the amount 

equivalent to the Medicare Part A payment. 

Using a program developed by the Centers for Medicare and Medicaid Services 

(CMS) to price OBRA 90 claims, we recalculated the claim payment amounts for the 

claims in our samples that were subject to and/or processed as OBRA 90. 

The following summarizes the claim payment errors. 

OBRA 90 Claim Pricing Errors 

For the period 2005 through 2007, we identified 1,928 claims, totaling $15,863,071 in 

payments, that were subject to OBRA 90 pricing guidelines. From this universe, we 

selected and reviewed a judgmental sample of III claims, totaling $4,126,780 in 

7 
payments, to determine ifthese claims were correctly priced by the FEP Operations 

Center and paid by the Plan. Our sample included all OBRA 90 claims with amounts 

paid of $20,000 or more. 

Based on our review, we determined that 30 claims were paid incorrectly, resulting in 

net overcharges of $342,882 to the FEHBP. Specifically, the Plan overpaid 24 claims 

by $377,507 and underpaid 6 claims by $34,625. 

The claim payment errors resulted from the following: 

•	 The Plan paid 18 claims that were not priced correctly in accordance with OBRA 

90 pricing, resulting in net overcharges of $248,827 to the FEHBP. Specifically, 

the Plan overpaid 16 claims by $270,433 and underpaid 2 claims by $21,606. 

•	 The Plan paid three claims using incorrect local pricing amounts, resulting in 

overcharges of $70,714 to the FEHBP. 

•	 The Plan paid three claims using incorrect reimbursement rates, resulting in net 

overcharges of$12,043 to the FEHBP. Specifically, the Plan overpaid one claim 

by $18,953 and underpaid two claims by $6,910. 

•	 In one instance, the FEP Operations Center priced the OBRA 90 claim using an 

incorrect patient status code, resulting in an overcharge of$5,717 to the FEHBP. 

•	 The FEP Operations Center priced five claims using incorrect Medicare 

Diagnostic Related Group (DRG) codes. Consequently, the Plan overpaid three 

claims by $11,690 and underpaid two claims by $6,109, resulting in net 

overcharges of $5,581 to the FEHBP. 

Claims Not Priced Under OBRA 90 (Possible OBRA 90 Claims) 

For the period 2005 through 2007, we identified 187 claims, totaling $2,336,858 in 

payments, that were potentially subject to OBRA 90 pricing guidelines but appeared 

to be priced under the Plan's standard pricing procedures. From this universe, we 

selected and reviewed a judgmental sample of78 claims, totaling $1,380,471 in 

payments, to determine if the Plan paid these claims properly; Our sample included 

all possible OBRA 90 claims with amounts paid of $5,000 or more. 

Based on this review, we determined that 22 claims were paid incorrectly, resulting in 

net overcharges of$142,437 to the FEHBP. Specifically, the Plan overpaid 19 claims 

by $151,283 and underpaid 3 claims by $8,846. 

8 
The claim payment errors resulted from the following: 

•	 The Plan inadvertently did not price 18 claims under OBRA 90, resulting in net 

overcharges of $117,973 to the FEHBP, Specifically, the Plan overpaid 15 claims 

by $126,819 and underpaid 3 claims by $8,846. 

•	 In one instance, the Plan split a claim and paid twice for one continuous admission, 

resulting in an overcharge of $13,744 to the FEHBP. The Plan should have paid 

one DRG amount for the entire length ofstay. 

•	 The Plan paid three claims using incorrect local pricing amounts, resulting in 

overcharges of $1 0,720 to the FEHBP. 

Association's Response: 

In response to the amount questioned in the draft report, the Association agrees with 

$70,146 and disagrees with $473,438 of the net overcharges. The Association states 

that the Plan has initiated recoveries for the uncontested claim overpayments. The 

Association also states that these payments were good faith erroneous benefit 

payments and fall within the context ofCS 1039, Part II, section 2.3(g). Any 

payments the Plan is unable to recover are allowable charges to the FEHBP. As good 

faith erroneous payments, lost investment income (LII) does not apply to the claim 

payment errors identified in this finding. 

For the "OBRA 90 Claim Pricing Errors" finding, the Association states, "We do not 

contest ... a net overpayment of$9,331. We do contest 18 claims that were overpaid 

by $446,084. The Plan identified these claims and requested refunds prior to 

receiving the audit sample.... The Plan also disagrees with underpayments of 

$15,288 for a net contested amount of $430,795." 

Regarding the "Possible OBRA Claims" finding, the Association states, "We do not 

contest ... a net overpayment of$60,815. We do contest 3 claims totaling $25,295 

because the Plan identified and requested the refunds prior to the audit sample being 

received and one claim for $22 because the amount was allowed by FEPOC ... We 

also contest 2 claims totaling$17,327·because when re-priced by the Operations 

Center OBRA 90 pricing software, the resulting price was different than the price 

calculated by the aPM auditors using the CMS PC pricer. The Operations Center 

OBRA 90 pricing software is the official OPM approved source for FEP OBRA 90 

pricing and must be used to detennine payment. The claims were repriced with the 

most up-to-date version ofthe Operations Center OBRA '90 pricer software. Because 

the final updated version ofthe Operations Center ORRA '90 pricer is the tool used to 

price Medicare Part A claims by the Medicare Part A Intermediaries and the fact that 

the PC Pricer was developed for providers to use to check the amount that they may 

receive when the claim is processed by the Medicare Part A Intermediary, FEP 

continues to believe that the pricing differences obtained by the Operations Center 

9 
OBRA '90 Mainframe pricer is the most accmate. Also, since 2005, the Operations 

Center updates the OBRA '90 pricing software on a quarterly basis. This has 

minimized pricing differences." 

In addition, the Association states, "To reduce the occurrence of Plan OBRA '90 

pricing errors in the future, the FEPDO has implemented the foHowing action plan: 

•	 Identify all claims that were not OBRA '90 priced and provide to Plans for 

correction as part of the new FEP System-wide Claims Review process; 

•	 Modify FEP claims system to defer claims whenever the Plan indicates the 

provider is not an approved facility ... 

•	 Override Plan's indication ofwhether or not the Provider is a Medicare approved 

provider and validate status through the FEP OBRA '90 software; and 

•	 Detennine the feasibility of using the eMS PC Pricer in our current OBRA '90 

Mainframe Pricing process." 

OIG Comments: 

After reviewing the Association's response and documentation provided by the 

Plan, we revised the amount questioned from the draft report to net overcharges of 

$485,319. Based on the response, the Association agrees with $70,146 and 

disagrees with $415,173 of these net overcharges. 

Based on the Association's response andlor the Plan's documentation, the contested 

amount represents claim payment errors where recovery efforts were initiated by the 

Plan before receiving our information req:uests/audit samples. However, the Plan 

had not recovered these overpayments and adjusted the claims by the response due 

date (March 21,2008) to our samples. Since these overpayments bad not been 

recovered and returned to the FEHBP by March 21, 2008, we are continuing to 

question this amount in the final report. .Ofthis contested amount, we verified that 

the Plan subsequently recovered and returned $263,449 of these overpayments to 

the FEHBP. 

Recommendation 3 

We verified that the Plan returned $263,449 ofthe questioned overcharges to the 

FEHBP. For these overpayments, the Plan returned the funds to the FEHBP and 

adjusted the claims after March 21, 2008 (plan's response due date to the audit 

samples). No further action is required for these overpayments. 

10 
Recommendation 4 

We recommend that the contracting officer disallow $265,341 ($528,790 overcharges-

$263,449 amount previously returned) in claim overcharges, and verify that the Plan 

returns all amounts recovered to the FEHBP. 

Recommendation 5 

We recommend that the contracting officer allow the Plan to charge the FEHBP 

$43,471 if additional payments are made to the providers to correct the underpayment 

errors. 

Recommendation 6 

Although the Association has developed a corrective action plan to reduce OBRA 90 

findings, we recommend that the contracting officer instruct the Association to ensure 

that the Plan is following the corrective action plan. 

c. Claim Payment Errors $177,982 

The Plan incorrectly paid 85 claims, resulting in net overcharges of$177,982 to the 

FEHBP. Specifically, the Plan overpaid 74 claims by $181,247 and underpaid 11 

claims by $3,265. 

As previously cited from Contract CS 1039, costs charged to the FEHBP must be 

actual, allowable, allocable, and reasonable. If errors are identified, the Plan is 

required to make a diligent effort to recover the overpayments 

In addition, Contract CS 1039, Part II, section 2.6 states, "(a) The Carrier shall 

coordinate the payment of benefits under this contract with the payment of benefits 

under Medicare ... (b) The Carrier shall not pay benefits under this contract until it 

has determined whether it is the primary carrier ...." 

The following summarizes the claim payment errors. 

Amounts Paid Greater than Covered Charges 

For the period of2005 through 2007, we identified 15,436 claims where the amounts 

paid were greater than the covered charges by a total of$12,568,722. From this 

universe, we selected and reviewed a judgmental sample of 90 claims with a total 

variance of $3,868,041, and determined if the Plan paid these claims properly. Our 

sample included all claims where the amounts paid exceeded the amounts covered by 

$15,000 or more. Based on our review, we identified five claim payment errors, 

resulting in overcharges of $93,664 to the FEHBP. 

11 
The claim payment errors resulted from the following reasons: 

•	 The Plan paid one claim at an incorrect per diem amount, resulting in an' 

overcharge of $29,950 to the FEHBP. 

•	 The Plan did not coordinate one claim with Medicare, resulting in an overcharge 

of$26,188 to the FEHBP. 

•	 In one instance, the Plan incorrectly paid a continuous stay claim due to a 

processing error, resulting in an overcharge of $18,434 to the FEHBP. 

•	 The Plan paid one claim using an incorrect ORO code, resulting in an overcharge 

of $17,724 to the FEHBP. 

•	 The Plan paid one claim using an incorrect allowance, resulting in an overcharge 

of$I,368 to the FEHBP. Although the Plan initiated recovery on this 

overpayment prior to receiving our audit sample, the Plan had not recovered the 

overpayment and adjusted the claim by the response due date (March 10, 2008) to 

the sample. Therefore, we are continuing to question this overpayment in the final 

report. 

Sy~tem Review 

For health benefit claims incurred and reimbursed during the period January 1, 2007 

through December 31,2007, we identified 2,466,467 claim lines, totaling 

$256,561,518 in payments, using a standard criteria based on our experience. From 

this universe, we judgmentally selected and reviewed a sample of 100 claims 

(representing 988 claim Jines), totaling $2,742,772 in payments, to determine ifthe 

Plan adjudicated these claims properly.3 

Our review identified 10 claim payment errors, resulting in net overcharges of 

$43,986 to the FEHBP. Specifically, the Plan overpaid nine claims by $46,162 and 

underpaid one claim by $2,176. 

The claim payment errors resulted from the following: 

•	 The Plan paid eight claims at incorrect allowed amounts, resulting in net 

overcharges of $35,439 to the FEHBP. Specifically, the Plan overpaid seven claims 

by $37,615 and underpaid one claim by $2,176. 

3 We selected our sample from an OIG-generated "Place ofService Report" (SAS application) that stratified the claims 

by place ofservice (paS), such as provider's office, and payment categol)', such as $50 to $99.99. We judgmentally 

detennined the number Of sample items to select from each pas stratum based on the stratum's total claim dollars paid. 

12 
•	 The Plan inadvertently paid double the DRG amount for one claim, resulting in an 

overcharge of $8,380 to the FEHBP. 

•	 The Plan did not coordinate one claim with Medicare, resulting in an overcharge of 

$167 to the FEHBP. 

Assistant Surgeon Review 

For the period 2005 through 2007, we identified 1,261 assistant surgeon claim groups, 

totaling $231,441 in potential overpayments, that may not have been paid in 

accordance with the Plan's assistant surgeon pricing procedures. From this universe, 

we selected and reviewed ajudgmental·sample of 140 assistant surgeon claim groups, 

totaling $85,841 in potential overpayments, to determine if the Plan paid these claims 

properly. Our sample included.all assistant surgeon claim groups with potential 

overpayments of $400 or more. 

Based on our review, we identified 70 claim payment errors, resulting in net 

overcharges of $40,332 to the FEHBP. Specifically, the Plan overpaid 60 claims by 

$41,421 and underpaid 10 claims by $1,089. 

The claim payment errors resulted from the following: 

•	 The Plan incorrectly paid 27 assistant surgeon claims that were.->subject to Omnibus 

Budget Reconciliation Act of 1993 (OBRA 93) pricing guidelines, resulting in 

overcharges of $19,262 to the FEHBP. These errors were due to Palmetto (OBRA 

93 pricing vendor) not recognizing the assistant surgeon pricing modifier and 

erroneously calculating the assistant surgeon fee. 

•	 The Plan paid 32 claims using the incorrect assistant surgeon pricing percentage, 

resulting in net overcharges of$14,320 to the FEHBP. Specifically, the Plan 

overpaid 22 claims by $15,409 and underpaid 10claims by $1,089. 

•	 The Plan paid seven claims without applying the multiple surgery reduction, 

resulting in overcharges of $3,999 to the FEHBP. 

•	 The Plan incorrectly paid two claims due to processor errors on the medical review 

pricing, resulting in overcharges of$I,847 to the FEHBP. 

•	 The Plan did not properly coordinate one claim line with Medicare Part B, resulting 

in an overcharge of $467 to the FEHBP. 

•	 The Plan made one duplicate claim payment, resulting in an overcharge of $437 to 

the FEHBP. 

13 
Association's Response: 

The Association agrees with $96,996 ($36,158, $20,506 and $40,332) and disagrees 

with $80,986 ofthe net overcharges. The Association states that the Plan has initiated 

recoveries for the uncontested claim overpayments. For the contested claim payment 

errors, the Association states that Plan had already identified and requested refunds for 

these overpayments before receiving the audit samples. The Association also states 

that these payments were good faith erroneous benefit payments and fall within the 

context of CS 1039, Part II, section 2.3(g). Any payments the Plan is unable to recover 

are allowable charges to the FEHBP. As good faith erroneous payments, LII does not 

apply to these claim payment errors. 

In addition, the Association states that the FEP Director's Office and Plan have 

implemented correction action plans to prevent these types of claim payment errors. 

DIG Comments: 

After reviewing the Association's response and documentation provided by the Plan, 

we revised the amount questioned from the draft report to net overcharges of 

$177,982. Based on the response, the Association agrees with $96,996 and disagrees 

with $80,986 ofthese net overcharges. 

Based on the Association's response and/or the Plan's documentation, the contested 

amount represents claim payment errors where recovery efforts were initiated by the 

Plan before receiving our information requests/audit samples. However, the Plan had 

not recovered these overpayments and adjusted the claims by the response due date 

(March 10, 2008) to our samples. Since these overpayments had not been recovered 

and returned to the FEHBP by March 10, 2008, we are continuing to question this 

amount in the final report. Of this contested amount, we verified that the Plan 

subsequently recovered and returned $13,630 ofthese overpayments to the FEHBP. 

Recommendation 7 

We verified that the Plan retmned $13,630 ofthe questioned overcharges to the 

FEHBP. For these overpayments, the Plan returned the funds to the FEHBP and 

adjustedthe claims after March 10,2008 (plan's response duedate to the audit 

samples). Therefore, no further action is required for these overpayments. 

Recommendation 8 

We recommend that the contracting officer disallow $167,617 ($181,247 questioned -

$13,630 amount previously returned) in claim overcharges, and verify that the Plan 

returns all amounts recovered to the FEHBP. 

14 
Recommendation 9 

We recommend that the contracting officer allow the Plan to charge the FEHBP 

$3,265 if additional payments are made to the providers to correct the underpayment 

errors. 

Recommendation 10 

We recommend that the contracting officer instruct the Association to verify that the 

Plan is following the corrective action plan to prevent these types of claim payment 

errors in the future. 

2. Miscellaneous Payments and Credits 

a. Refund Advances - Lost Investment Income $3,639 

The Plan did not properly invest on average $331,426 in FEP refund advances from 

October 2006 through December 2006. As a result, the FEHBP is due LII of $3,639 

on refund advances. 

FEP Financial Policies and Procedures Bulletin Number 54, Refunds to FEP Letter of 

Credit Account, states: "A Plan receiving routine refunds is responsible for crediting 

the funds to the FEP Letter of Credit Account (LOCA) and investing the funds until 

the credit occurs. The Plan invests the refunds for the benefit of the FEHBP in the 

Plan's dedicated FEP Investment Account. Plans may be liable for lost investment. 

income ifthe funds are not invested or returned within 30 days of receipt. ..." 

Also, based on an agreement between OPM and the Association, dated March 26, 

1999, BlueCross and BJueShield plans have 30 days to return refunds to the FEHBP 

ifreceived after March 31, 1999 before LII wilJ be assessed. 

48 CFR 1652.215-71(e) states that investment income lost on these funds should be 

credited to the FEHBP. In addition, section (f) of this regulation states, "All lost 

investment income payable shall bear simple interest at the quarterly rate determined by 

the Secretary ofthe Treasury ...." 

For the period 2004 through 2006, we reviewed the Plan's refund advance calculations 

to determine if the advances were properly calculated and invested. From January 2004 

through October 2006, the Oklahoma plan consistently maintained a refund advance 

balance of $60,000. In 2005, the Oklahoma plan merged with the Plan (Health Care 

Service Corporation). Starting in October 2006, the Plan calculated a refund advance 

balance, totaling $416,764, for the Oklahoma plan. We found that the Plan did not 

maintain the stated refund advance balance in the FEP investment account during the 

period October 2006 through December 2006. We performed our own calculations to 

determine how much of the advance was actually being invested; In our calculations, 

15 
we used the stated refund advance amount and any deposits into the FEP investment 

account and working capital. For each month, we detennined what the average daily 

investment balance should have been, and then calculated the difference between the 

investment balance per the bank statement and the investment balance that should have 

been maintained. We detennined that on average $331,426 in FEP refund advances 

were not being invested properly. As a result, the FEHBP is due LII of $3,639 on these 

refund advances. 

Association~s Response: 

The Association agrees with this finding. The Association states that Plan will submit 

a Special Plan Invoice to credit the LII to the FEHBP by August 29, 2008. 

Recommendation 11 

We recommend that the contracting officer verify that the Plan credited the FEHBP 

$3,639 for LII on refund advances. 

B. ADMINISTRATIVE EXPENSES 

1. Unallowable Cost Center and Natural Account Expenses $108,220 

The Plan charged unallowable cost center and natural account expenses of $108,220 to 

the FEHBP from 2004 through 2006. 

Contract CS 1039, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the 

contract for a contract tenn if the cost is actual, allowable, allocable, and reasonable." 

p.art III, section 3.8 states, "the Carrier shall retain and make available all records 

applicable to a contract term. , .." 

48 CFR 31.205-19(e)(2)(vi) states, "Cost of insurance on the lives of officers, partners, or 

proprietors are allowable only to the extent that the insurance represents additional 

compensation." 

For the period 2004 through 2006, the Plan allocated administrative expenses of 

$40,267A17 (before adjustments) to the FEHBP from 1,058 cost centers and 416 natural 

accounts. From this universe, we selected a judgmental sample of 53 cost centers to 

review, which totaled $20,976,830 in expenses allocated to the FEHBP. We also selected a 

judgmental sample of26 natural accounts to review, which totaled $6,142,465 in expenses 

allocated to the FEHBP. We selected the cost centers and natural accounts based on high 

dollar amounts, our nomenclature review, and significant dollar amount fluctuations from 

year to year. We reviewed the expenses from these cost centers and natural accounts for 

allowability, allocability, and reasonableness. Based on our review, we identified 

unallowable expenses of$108,220 from two cost centers and four natural accounts that 

were charged to the FEHBP. 

16 
The following is a summary of the unallowable cost center (CC) and natural account (NA) 

expenses that were charged to the FEHBP: 

• NA 623800 (Life Insurance) - $53,466 

• NA 680002 (Auditing Services) - $39,000 

• CC 400950 (Oklahoma Marketing Development) - $14,439 

• CC 400178 (Oklahoma Caring Foundation) - $1,095 

• NA 690041 (Finance Charges) and NA 690042 (Interest and Penalties)"' $220 

In 2006, the Plan charged the FEHBP $53,466 from NA 623800 for the cost of life 

insurance for its officers. Prior to the merger with HCSC, the Oklahoma plan did not 

charge the FEHBP for this expense. However, when the accounts migrated to HCSC, the 

expense was classified as split-dollar life insurance, which may be allowable depending 

on the agreement between the employer and employee. Based on our discussions with the 

Plan, we determined that this is "Key-Man" life insurance and the Plan is the beneficiary. 

As a result, since this expense does not represent additional compensation to the 

employee, the charge is unallowable under 48 CFR 31.205-] 9(e)(2)(vi). 

In 2006, the Plan charged the FEHBP $60,000 from NA 680002 for auditing services 

related to an Independent Public Accountant audit. However, the Plan only provided 

documentation to support $21,000 ofthese charges, resulting in unsupported charges of 

$39,000 to the FEHBP. 

In 2005 and 2006, the Plan incorrectly allocated $14,439 in manager salary expenses to 

the FEHBP from CC 400950. Based on discussions with the Plan, we determined that 

these expenses should not have been charged to the FEHBP since the manager position 

was phased-out in 2005 and there were no actual work hours recorded in this CC. 

In 2005, the Plan aJlocated unallowable charitable contributi(:ms of$I,095 to the FEHBP 

from CC 400178. 48 CFR 31.205-8 states "Contributions or donations, including cash, 

property and services, regardless ofrecipient, are unallowable, except as provided in 48 

CFR 31.205-1 (e)(3)." The activities in this CC are not consistent with the exceptions in 

48 CFR 31.205-1(e)(3). 

In 2004 and 2005, the Plan allocated unallowable finance and interest charges of $220 to 

the FEHBP from NA's 69004] and 690042. 48 CFR 31.205-20 states, "Interest on 

borrowings (however represented) ... are unallowable ...." 

In total, the FEHBP is due $108,220 for unallowable CC and NA expenses that were 

charged to the FEHBP from 2004 through 2006. 

17 
Association's Response: 

The Association agrees with this finding. The Association states that the Plan will submit 

a prior period adjustment by August 20, 2008. 

Recommendation 12 

We recommend that the contracting officer verify that the Plan returned $108,220 to the 

FEHBP for unallowable CC and NA expenses that were charged to the FEHBP. 

2. Pension Costs $96,632 

The Plan overcharged the FEHBP $96,632 for pension costs in 2006. 

48 CFR 31.205-60) (2) states, "The cost of all defined-benefit pension plans shall be 

measured, allocated, and accounted for in compliance with the provisions of 48 CFR 

9904.412 ... and 48 CFR 9904.413 ... The costs of all defined-contribution pension plans 

shall be measured, allocated, and accounted for in accordance with the provisions of48 

CFR 9904.412 and 48 CFR 9904.413. Pension costs are allowable subject to the referenced 

standards and the cost limitations and exclusions set forth in paragraph (j)(2)(i) .and in 

paragraphs (j)(3) through (8) ofthis subsection." 

ContractCS 1039, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the 

contract for a contract term if the cost is actual, allowable, allocable, and reasonable." 

As a result of an FEP Director's Office audit in 2006, the Plan was instructed to allocate 

pension costs based on an actual FEP salary ratio (FEP allocated salaries to total corporate 

s~laries). Therefore, the Plan recalculated the FEHBP pension costs for 2004 and 2005, and 

. submitted prior period adjustments to the FEP Director's Office in January 2007. We 

reviewed the Plan's prior period adjustments, and verified that these adjustment amounts 

were processed to the FEHBP. Therefore, these adjustment amounts were not included in 

this audit finding. 

However, we noted that the Plan did not use an acceptable or reasonable method of 

allocating pension costs to the FEHBP in 2006. In accordance with Federal regulations, a 

salary ratio is a reasonable allocation methodology for pension costs. As a result of our 

audit, the Plan recalculated the FEHBP pension costs for 2006 in accordance with the 

regulations. We reviewed the Plan's revised pension cost calculation noting that the 

FEHBP was overcharged $96,632 for 2006. 

Association's Response: 

The Association agrees with this finding. The Association states that the Plan will submit a 

prior period adjustment. 

18 
Recommendation 13 

We recommend that the contracting officer ensure that the Plan returns $96,632 to the 

FEHBP for pension cost overcharges. 

3.	 Limits on Executive Compensation ($33,182) 

The Plan overcharged the FEHBP $2,047 for executive compensation in 2004, and 

undercharged the FEHBP $35,229 in 2005 and 2006. 

48 CFR 31.205-6(p) limits the allowable compensation costs for senior executives to a 

benchmark amount established each year by the Office ofFederal Procurement Policy. 

This limit is applicable to the five most highly compensated employees in management 

positions at each home office and each segment ofthe Plan, whether or not the home 

office or segment reports directly to the Plan's headquarters. The benchmark 

compensation amounts were $432,851 in 2004, $473,318 in 2005, and $546,689 in 2006. 

48 CFR 31.205-6(p)(2)(i) states, '''Compensation' means the total amount of wages, 

salary, bonuses, deferred compensation ... and employer contributions to defined 

contribution pension plans ... for the fiscal year, whether paid, earned, or otherwise 

accruing, as recorded in the contractor's cost accounting records for the fiscal year." 

To detennine the allowability of the amounts charged to the FEHBP for executive 

compensation, we reviewed the Plan's allocations for 2004 through 2006 to detennine if 

the executives compensation amounts were limited to the amounts set forth in 48 CFR 

31.205-6(p). We noted the following exceptions: 

•	 For 2004, the Plan understated the executive compensation adjustment by inadvertently 

excluding the executives' 401K benefits in the calculation, resulting in an overcharge of 

$2,047 to the FEHBP. 

•	 For 2005, the Plan inadvertently applied the 2004 adjustment to the 2005 calculation. 

Also, the Plan did not include the executives' 40lK benefits in the 2005 calculation. As 

a result, the Plan undercharged the FEHBP $25,673 for executive compensation. 

•	 For 2006, the Plan did not charge the FEHBP for one executive's salary, resulting in an 

undercharge of$9,556 to the FEHBP. 

In total, the FEHBP was undercharged $33,182 (net) for executive compensation from 2004 

through 2006. 

Association's Response: 

The Plan agrees with this finding. 

19 
Recommendation 14 

We recommend that the contracting officer disallow $2,047 for executive compensation 

overcharges in 2004. 

Recommendation 15 

We recommend that the contracting officer allow the Plan to charge the FEHBP $35,229 

for executive compensation undercharges in 2005 and 2006. 

C. CASH MANAGEMENT 

Overall, we concluded that the Plan handled FEHBP funds in accordance with Contract CS 

1039 and applicable laws and regulations, except for the audit findings pertaining to cash 

management noted in the "Miscellaneous Payments and Credits" section. 

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS $22,175 

As a result of the audit findings presented in this report, the FEHBP is due LII of $22,175 

from January 1, 2005 through December 31, 2008. 

48 CFR 1652.215-71 requires the carrier to invest and reinvest all excess FEHBP funds on 

hand, and to credit all investment income earned on those fllnds to the Special Reserve on 

behalfofthe FEHBP. When the carrier fails to comply with these requirements, the carrier 

shall credit the Special Reserve with investment income that would have been earned at the 

rates specified by the Secretary ofthe Treasury. LII payable on questioned costs bears simple 

interest. 

-~We computed investment income that would have been earned using the semiannual rates 

specified by the Secretary of the Treasury. Our computations show that the FEHBP is due 

LII of$22,175 from January 1, 2005 through December 30, 2008 on questioned costs for 

contract years 2004 through 2006 (see Schedule C). 

Association's Response: 

The draft audit report did not include an audit finding for LII. Therefore, the Association did 

not address this item in its reply. 

Recommendation 16 

We recommend that the contracting officer direct the Plan to credit $22,175 (plus interest 

accruing after December 31, 2008) to the Special Reserve for LII on audit findings. 

20 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experienced-Rated Audits Group 

Auditor-In-Charge 

Auditor 

Auditor 

Auditor 

Chief 

Senior Team Leader 

21 
HElAtTH CARE SERVICE CORPORAnON 

(BLUECROSS BLUESHIELD OF OKLAHOMA) 

TULSA, OKLAHOMA 

CONTRACT CHARGES 

CONTRACT CHARGES 2004 2005 

A. HEALTH BENEFIT CHARGES* 

PLAN CODE 340 $152,602,529 $173,457,867 

MISCELLANEOUS PAYMENTS AND CREDITS 734,915 944,966 

PLAN CODE 840 112,899,640 132,131,039 

MISCELLANEOUS PAYMENTS AND CREDITS 0 0 

TOTAL HEALTH BENEFIT CHARGES I $266,237,085 $306,533,871 ...,... g l, 1hIUIlIfII~lId~Will i ilil 

B. ADMINISTRATIVE EXPENSES** 

PLAN CODES 340/840 $14,472,912 $16,351,662 

PRIOR PERIOD ADJUSTMENTS (14,627) (76,618) 

COST SETTLEMENT REDUCTIONS 0 0 

TOTAL ADMINISTRATIVE EXPENSES I $14,458,285 $16,275,044 "".0.,.••,. I b I I 

TOTAL CONTRACT CHARGES I $280,695,370 $322,808,915 ".. * We did not review claim payments for contract year 2004 and miscellaneous payments and credits for contract year 2007. 

** We did not review administrative expenses for contract year 2007. 

2006 

$166,917,425 

622,815 

149,417,666 

0 

$316,957,906 l!h",lllltru~\II~'_W~'»l",[jj

$23,216,817 

(31,422) 

(1,195,907) 

$21,989,488 ••••••""'•••••••••'".'""".'.....~",,' I 

$338947,394 ,1••1 " 

2007 

$182,539,806 

841,632 

157,596,987 

0 

$340,978,425 rnWml I 

$21,923,147 

(40,607) 

$21,882,540 

SCHEDULE A 

TOTAL 

$675,517,627 

3,144,328 

552,045,332 

0 

$1,230,707,287 

$75,964,538 

(163,274) 

(1,195,907) 

$74.605.357 

• 

$362,860,965 $1,305,312,644 I I I 

!! 
SCHEDULEB 

HEALTH CARE SERVICE CORPORATION 

(BLUECROSS BLUESHIELD OF OKLAHOMA) 

TULSA, OKLAHOMA 

QUESTIONED CHARGES 

AUDIT FINDINGS 2004 2005 2006 

A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Indian Hospital Facilities - Claim Overpayments $0 SO 

b. Omnibus Budget Reconciliation Act of 1990 Review 0 92,987 

c. Claim Payment Errors 0 7,450 

Total Claim Payments I SO 5100,437 

2. Miscellaneous Payments and Credits 

a. Refund Advances - Lost Investment Income SO SO 

Total Miscellaneous Payments and Credits 1 so $0 

TOTAL HEALTH BENEFIT CHARGES I SO S100.437 ~"'lw",m'.~'<II.'IIWI.~1

B. ADMINISTRATIVE EXPENSES* 

1. Unallowable Cost Center and Natural Account Expenses $524 $6,005 

2. Pension Costs 0 0 

3. Limits on Executive Compensation 2,047 (25,673) 

TOTAL ADMINISTRATIVE EXPENSES I 52571 ($19668) ••',rnl'ffi",",""'".m.""'." •••rn,,m.I'~ ••""'!lIl..mIS""'"'ilOl.......'1
 

C. CASH MANAGEMENT I SO SO \l[l;lm~mnllf!liii ~tG~Ummll~lIItl1~~W~~wcaqCllm~Mrnl i 111t.'l111\<l\lll.Hml~ml

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS I SO S113 , 

TOTAL QUESTIONED CHARGES I S2,571 S80882 

'Ii'liffilmi~lm~m,~llj.mUll~lllnllllllllrul!dFllllNlml~illl~lIIllffiHlItlll~~lmmtlllllmtlictltlltlltli~l

II "."1 I"••'''••••".i~"."m.m,'.mmm.,,,~~,,,".,,,,, ••'''••M,"II~

* QlIly the administrati'\le expense overcbarges are subject to lost investment income. 

2007 2008 TOTAL 

S588,328 SO S794,045 SI,382,373 

122,978 269,354 0 485,319 

62,025 108,507 0 177,982 

5773,331 5377,861 5794,045 S2,045,674 

$3,639 SO SO $3,639 

$3,639 SO SO $3,639 

$776970 $377.861 $794045 S2 049 313 

II......,N••,,' I 

5101,691 SO $0 5108,220 

96,632 0 0 96,632 

(9,556) 0 0 (33,182) 

S188.767 $0 SO $171670 II ~III!JJ_ I

SO SO $0 SO , ~19'~Iw.mlNm~~I!lWi~mm ,

S467 Sl1,379 $10 216 Iil<lll3l1WI~llIIOOlMl~~amI~II'IIiIIl'1 ml D ' , , ~.~::~~,

$966204 S389.240 $804261 S2 243.158 :UI~I , I .. I""•••••Mm,,"'.''''••'' 
HEALTH CARE SERVICE CORPORATION 

(BLU~CROSSBLUESHIELD OF OKLAHOMA) 

TULSA, OKLAHOMA 

LOST INVESTMENT INCOME CALCULATION 

2004 2005 

A. QUESTIONED CHARGES (Subject to Lost Investment Income) 

Administrative Expenses* $2,571 $6,005 

TOTAL I $2,571 $6,005 , 

B. LOST INVESTMENT INCOME CALCULATION 

a. Prior Years Total Questioned (principal) $0 $2,571 

b. Cumulative Total !! !! 

c. Total $0 $2,571 

d. Treasury Rate: January 1-June 30 4.000% 4.250% 

e. Interest (d * c) $0 $55 

f. Treasury Rate: July 1 - December 31 4.500% 4.500% 

g. Interest (f * c) $0 $58 

Total Interest By Year (e + g) 1 so SIB 

* Only the administrative expense overcharges on Schedule B are SUbject to lost investment income. 

SCHEDULEC 

2006 2007 2008 TOTAL 

$198,323 

$198,323 

• 

$0 

SO 

$0 

$0 lUl~l

$206,899 

$206,899 I • 

im 

$6,005 

2,571 

$8,576 

5.125% 

$220 

5.750% 

$247 

$467 

m 

$198,323 

8,576 

$206,899 

5.250% 

$5,431 

5.750% 

S5,948 

$11,379 

I 

SO 

206,899 

$206,899 

4.750% 

$4,914 

5.125% 

S5,302 

$10,216 ~I i 

$10,620 

$11,555 

$22,175 1111 
APPENDIX A 

BlueCross BlueShield 

Assoclation 

An A.ssociHtlon of Independent 

Blue Cro5S and Blue Shield 'Plans 

Fedcml Employee Program 

13 LO G Street, N. W. 

Washington. D.C. 20005 

202.942.1000 

Fax 202.942.1125 

August 19, 2008 

Group Chief 

BCSS Audits Group 

U.S. Office of Personnel Management 

1900 E Street, N.W., Room 6400 

Washington, D.C. 20415-1100 

Reference:	 OPM DRAFT AUDIT REPORT 

HEALTH CARE SERVICE CORPORATION-HCSC 

OKLAHOMA 

Audit Report Number -1A-10-83-08-018 

(Dated and received June 20, 2008) 

This is in response to the above referenced U.S. Office of Personnel 

Management (OPM) Final Audit Report concerning Health Care Service 

Corporation-HCSC. Our comments concerning the findings in the report are as 

follows: 

A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Indian Hospital HH) Facilities· Claim Overpayments $588.328 

We do not contest the identified overpayment of $588,328. These 

overpayments resulted from physician (professional) services being 

billed on outpatient hospital claims (U8-92) instead of professional 

claim forms (CMS-1500). Some IH facilities sent in both types of claim 

forms and received duplicate reimbursement. However, the 

overpayment was identified by the Plan's Special Investigation Unit as 

determined from the hospitallevet reimbursements made for physician 

services. The Plan's payment methodology requires professional 

services to be billed on a CMS-1500 for proper reimbursement. The 
Hese Oklahoma Draft Report 

Page 2 

overpayment due the FEBHP is not necessarily the result of duplicate 

payments. 

The recovery process included coordination with the Special 

Investigations Unit of the Federal Employee Health Benefit Program, 

Blue Cross and Blue Shield Association. An attempt was made by 

the BCBSOK Special Investigation Division to recover the 

overpayments from the IH facilities but was disputed by their 

Regional Director. Since the overpayments involved two feder'al 

agencies, BCSSOK requested the BCSSA FEP Special 

Investigations Unit Director coordinate a resolution at the federal 

level. A finaldecision and authorization to proceed with collection 

efforts was received May 8.2008, by the FEP Director's Office. 

HCBC Corrective Action: 

A claims lock was put in place for FEP Indian Health Services claims 

in June 2008. The claims are being manually adjudicated until a 

system fix can be implemented in the Blue Chip system. The system 

fix to the Oklahoma .APG pricing module will prevent future claims 

payment errors and allow for systematic adjudication. . 

Hese is currently in the process of initiating the refund request for the 

January 2004 - May 2006 claims. 

Corrective Action to prevent future overpayments: 

•	 When a system problem is discovered, a listing of impacted claims 

will be generated within 30 days of discovery of the problem to 

determine the number of claims and dollar impact. 

•	 Upon receipt of the listing, claims will be reviewed to determine the 

amount of overpayment and recovery of the overpayments will be 

initiated within 30 days of receiving the listing. 

•	 Interim processing steps for the situation will be identified and 

implemented to ensure correction. 

•	 Once the system problem has been corrected, a complete audit of 

all claims affected by the system error will be performed to ensure 

that these claims have been correctly adjudicated. 

b. Omnibus Budget Reconciliation Act of 1990 Review $543.584 

OBRA 90 ClaIm Pricing Errors 

We do not contest that an overpayment totaling $30,220 (3 claims) and 

an underpayment of $20.889 (2 claims). for a net overpayment of 
HCSC Oklahoma Draft Report 

Page 3 

$9,331. We do contest 18 claims that were overpaid by $446,084. 

The Pfan identified these claIms and requested refunds prior to 

receiving the audit sample. Supporting documentation was submitted 

to the auditors prior to their arriving on-site. We can supply this 

information again. if needed. The Plan also disagrees with 

underpayments of $15,288 for a net contested amount of $430,795. 

Claims Not Priced Under OBRA 90 (Possible OBRA 90 Claims) 

We do not contest an overpayment of $69,661 (14 claims) and an 

underpayment of $8,846 (3 claims), for a net overpayment of 

$60,815. We do contest 3 claims totaling $25,295 because the Plan 

identified and requested the refunds prior to the audit sample being 

received and one claim for $22 because the amount was allowed by 

FEPOC. The supporting documentation can be resubmitted if 

needed. We also contest 2 claims totaling $17,327 because when 

re-priced by the Operations Center OBRA 90 pricing software, the 

resulting price was different than the price calculated by the OPM 

auditors using the CMS PC pricer. The Operations Center OBRA 90 

pricing software is the official OPM approved source for FEP OBRA 

90 pricing and must be used to determine payment. The claims were, 

repriced with the most up-tO-date version of the Operations Center 

OBRA '90 pricer software. Because the final updated version of the 

Operations Center OBRA '90 pricer is the tool used to price Medicare 

Part A claims by the Medicare Part A I,ntermediaries and the fact that 

the PC Pricer was developed for proViders to use to check the 

amount that they may receive when the claim is processed by the 

Medicare Part A Intermediary, FEP continues to believe that the 

pricing differences obtained by the Operations Center OBRA '90 

Mainframe pricer is the most accurate. Also, since 2005. the 

Operations Center updates the OBRA '90 pricing software on a 

quarterly basis. This has minimized pricing differences. 

HCSC Corrective Action: 

Initiation of recoveries has been made on all claims identified as 

having been paid incorrectly. The Plan also completes the periodic 

FEP System-Wide Claims review process, which includes Possible 

OBRA'90 claims. Completing this report will minimize OBRA '90 claim 

errors in the future. 

FEP DO Corrective Action: 

To reduce the occurrence of Plan OBRA '90 pricing errors in the future, 

the FEPDO has implemented the following action plan: 
.. ..' Report 

Page 4 

•	 Identify all claims that were not OBRA '90 priced and provide to 

Plans for correction as part of the new FEP System-wide Claims 

Review process; 

•	 Modify FEP claims system to defer claims whenever the Plan 

indicates the provider is not an approved facility this will force the 

Plan to ensure that the proper information has been submitted; 

•	 Override Plan's indication of whether or not the Provider is a 

Medicare approved provider and validate status through the FEP 

OBRA '90 software; and 

•	 Determine the feasibility of using the eMS PC Pricer in our current 

OBRA 'gO Mainframe pricing process. 

Accordingly, to the extent that errors did occur, the payments are good 

faith erroneous benefits payments and fall within the context of 

CS	 1039, Section 2,3(g). Any benefit payments the Plan is unable to 

recover are allowable charges to the Program. In addition, as good faith 

erroneous payments, lost investment income does not apply to the 

payments identified in this finding. 

c. CI.aim Payment Errors	 $260,954 

Amounts Paid Greater than Covered Charges 

We do not contest an overpayment totaling $36,158 (2 Claims). We 

do contest 5 claims that were overpaid by $140,387 because the 

Plan identified and requested refunds prior to the audit sample being 

received. We can prOVide this documentation again if needed. 

The errors were caused due to the following reasons: 

•	 Duplicate payment issued 

•	 Incorrect allowed amount due to processor manually paying claim 

•	 Medicare Part A primary at time of service 

Initiation of recoveries has been made on all claims identified as 

having been paid incorrectly. 

System Review 

Plan agrees to an overpayment of $22,682 (8 Claims) and an 

underpayment of $2,176 (1 claim), for a net overpayment of $20,506. 

The Plan disagrees that 2 claims were overpaid by $23,571 because 
HCSC Oklahoma Draft Report 

Page 5 

the plan identified and requested refunds prior to the audit sampJe 

being received. We can provide this documentation again if needed. 

The errors were caused due to the following reasons: 

•	 Incorrect allowed amount due to processor manually paying claim; 

•	 Incorrect at/owed amount due to processor not pricing correctly on 

Premier Pricing system; and 

•	 Medicare files not updated at time claim payment issued 

Initiation of recoveries has been made on all claims identified as
 

having been paid incorrectly.
 

Assistant Surgeon Review
 

The Plan agrees with this audit finding of an overpayment of $40,332.
 

The errors were caused due to the following reasons:
 

•	 OBRA 93 software issue for Modifier AS (these claims were not on 

the FEP provided OBRA '93 AS Modifier listing we received); 

•	 Incorrect allowed amount due to processor manually paying claim; 

and 

•	 Incorrect allowed amount due to processor not pricing correctly on 

Premier Pricing system. 

Initiation of recoveries has been made on all claims identified as 

having been paid incorrectly. 

HCSC Corrective Action: 

The Plan has limited the number of users who can do manual 

calculations. The Plan al·so works the new Assistant Surgeon listing 

included in the FEP Director's Office periodic System-Wide Claims 

Review process. 

FEPDO Corrective Action: 

In addition, for assistant surgeon claim errors noted during the audit, 

the FEPDO implemented the following: 

o	 The OBRA '93 vendor, Palmetto, corrected pricing of the assistant 

surgeon modifier during May 2008. 
o	 A final comprehensive list that identifies all unadjusted assistant 

surgeon claims will be issued by September 30,2008 so that 

claims can be adjusted as necessary. 

o	 Assistant Surgeon (non-OBRA '93) claims are now included in the 

FE? System-Wide Claims Review process for Plans to review for 

accuracy. 

Accordingly, to the extent that errors did occur, the payments are good 

faith erroneous benefits payments and fait within the context of 

CS 1039. Section 2.3(g). Any benefit payments the Plan is unable to 

recover are allowable charges to the Program. In addition, as good faith 

erroneous payments, lost investment income does not apply to the 

payments identified in this finding. 

2. Miscellaneous Payments and Credits 

a.	 Refund Advance $3,639 

We do not contest this audit finding of $3,639 and the Plan will be 

submitting a Special Plan Invoice by August 29, 2008. 

B. ADMINISTRATIVE EXPENSES I 

1. Pension Costs	 $342,508 

HCSC agrees with the finding but not the amount. This is for two 

reasons. 

First, we used an amount of $1,308,184 as the "FEP Charges in Cost 

System" when we made our year end adjustment. This is the amount 

that was charged from the Oklahoma pool cost center to FEP products 

in the four HCSC states. This method is consistent with the adjustment 

made for the other HCSC states. Therefore, when this amount is 

added to the year end adjustment of $311,549, the "Total FEP 

Charges" are $1.619,733. 

Second, we believe our method of calculating the FEP salary ratio is 

consistent with that used for the other HCSC states, and should not be 

compared to the method used for 2004 and 2005 since the 2006 

period was post merger and therefore using the HCSC account 

structure is appropriate. We believe that an average of the FEP salary 

ratios used for 2004 and 2005 is not relevant for 2006, and is therefore 

not appropriate. We believe the correct method, consistent with the 
HCSC Oklahoma Draft Report 

Page 7 

method used for other HCSC states for 2006, results in an FEP salary 

ratio of 13.24%. 

Based on the above facts, we believe the FEHBP was overcharged by 

$96,632 for 2006. When a mutual amount is agreed upon, the Plan 

will submit a Prior Period Adjustment. 

2. Unallowable Expenses 1118.809 

The Plan concurs with the audit findings totaling $108,220 in 

unallowable expenses and will file a Prior Period Adjustment by August 

20,2008 for processing. 

The Plan contests the $10,589 audit finding for cost centers 0058 and 

0059, United Way cost centers. The FAR states in part 31.205 that the 

cost of participation in community service activities such as charity 

drives are allowable. 

Deleted by the Office of the Inspector General - Not Relevant to the 

Final Report 
HCSC Oklahoma Draft Report
 

Page 8 

Deleted by the Office of the Inspector General - Not Relevant to the 

Final Report 

4. Limits on Executive Compensation ($33.182) 

The Plan concurs with this finding 

We appreciate the opportunity to provide our response to· each of the findings 

and request that our comments be included in their entirety as part of the Final 

Audit Report. 

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