U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF 

 HEALTH CARE SERVICE CORPORATION 

CHICAGO, ILLINOIS 

Report No. 1A-10-17-13-019 

 Date: 

--CAUTION--

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit 

report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available 

under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before 

releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy. 
AUDIT REPORT 

 REPORT NO. 1A-10-17-13-019 DATE: ______________

______________________

Michael R. Esser 

Assistant Inspector General 

 for Audits 

--CAUTION--

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit 

report may contain proprietary data that is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available 

under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before 

releasing the report to the general public as it may contain propriety information that was redacted from the publicly distributed copy.

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BlueShield Association

Plan Code 10

Health Care Service Corporation

Plan Codes 121/621, 290/790, 340/840, and 400/900 

Illinois, New Mexico, Oklahoma, and Texas 
i

EXECUTIVE SUMMARY 

 REPORT NO. 1A-10-17-13-019 DATE: ______________

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

at the Health Care Service Corporation (Plan), which included the BlueCross BlueShield (BCBS) 

plans of Illinois, New Mexico, Oklahoma and Texas, questions $14,413,248 in health benefit 

charges, cash management activities, and lost investment income (LII). The report also includes 

a procedural finding regarding the Plan’s Fraud and Abuse (F&A) Program. The BlueCross 

BlueShield Association (Association) agreed (A) with $12,776,725 and disagreed (D) with 

$1,636,523 of the questioned amounts, and partially agreed with the procedural finding regarding 

the Plan’s F&A Program. 

 

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

audit covered miscellaneous health benefit payments and credits from 2009 through 

September 30, 2012, as well as administrative expenses from 2009 through 2011 as reported in 

the Annual Accounting Statements for the BCBS plans of Illinois, New Mexico, Oklahoma, and 

Texas. In addition, we reviewed the Plan’s cash management activities and practices related to 

FEHBP funds from 2009 through September 30, 2012 and the Plan’s F&A Program from 

January 1, 2013 through June 30, 2013. Due to a significant error identified in the Plan’s letter 

of credit account (LOCA) drawdown adjustment process, we expanded our scope for this 

specific LOCA drawdown error to cover the period April 1, 2002 through June 30, 2013. 

The audit results are summarized as follows: 

Federal Employees Health Benefits Program

Service Benefit Plan Contract CS 1039

BlueCross BlueShield Association

Plan Code 10

Health Care Service Corporation

Plan Codes 121/621, 290/790, 340/840, and 400/900 

Illinois, New Mexico, Oklahoma, and Texas 
ii

MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

 Unidentified Refunds (A) $81,555

Our audit determined that the Plan had not returned unidentified refunds of $75,472 to the 

FEHBP. As a result of this finding, the Plan returned $81,555 to the FEHBP, consisting of 

$75,472 for the questioned unidentified refunds and $6,083 for applicable LII on these funds 

not previously returned to the FEHBP. 

 Medical Drug Rebates (A) $14,642

Our audit determined that the Plan returned medical drug rebates, totaling $2,373,700, to the 

FEHBP in an untimely manner during the audit scope. As a result of this finding, the Plan 

returned $14,642 to the FEHBP for applicable LII on these medical drug rebates. 

ADMINISTRATIVE EXPENSES 

The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded 

that the Plan’s administrative expenses charged to the FEHBP were actual, allowable, 

necessary, and reasonable expenses incurred in accordance with Contract CS 1039 and 

applicable laws and regulations. 

CASH MANAGEMENT 

 Letter of Credit Account Overdraws $14,317,051

The Plan inadvertently overdrew $12,236,424 in funds from the LOCA during the period 

April 1, 2002 through June 12, 2013. In addition, LII totaled $2,080,627 on these LOCA 

overdraws. As a result of this finding, the Plan returned $12,680,528 to the FEHBP, 

consisting of $12,236,424 for the questioned LOCA overdraws and $444,104 of the 

questioned LII. However, the Plan still owes the FEHBP $1,636,523, which is the remaining 

balance of the questioned LII. The Association agreed with $12,680,528 (A) and disagreed 

with $1,636,523 (D) of these questioned amounts. 

FRAUD AND ABUSE PROGRAM 

 Special Investigations Department Procedural

The Plan is not in compliance with the communication and reporting requirements for fraud 

and abuse cases that are set forth in Contract CS 1039 and FEHBP Carrier Letter 2011-13. 

Specifically, the Plan did not report, or did not timely report, all fraud and abuse cases to the 

Office of Personnel Management’s Office of the Inspector General (OIG). The Plan’s noncompliance may be due in part to incomplete and/or untimely reporting of fraud and abuse 

cases to the Association’s Federal Employee Program Director’s Office (FEPDO), as well as 

inadequate controls at the FEPDO to monitor and communicate the Plan’s cases to the OIG.
iii

Without awareness of these existing potential fraud and abuse issues, the OIG cannot 

investigate the broader impact of these potential issues on the FEHBP as a whole. The 

Association partially agreed with this procedural finding. 
CONTENTS

PAGE 

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

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

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

III. AUDIT FINDINGS AND RECOMMENDATIONS .......................................................6 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........6 

1. Unidentified Refunds .........................................................................................6 

2. Medical Drug Rebates........................................................................................8

B. ADMINISTRATIVE EXPENSES ..........................................................................9 

 

C. CASH MANAGEMENT ........................................................................................9 

1. Letter of Credit Account Overdraws..................................................................9

D. FRAUD AND ABUSE PROGRAM ....................................................................13 

1. Special Investigations Department ..................................................................13

IV. MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................18 

 V. SCHEDULES 

A. CONTRACT CHARGES 

B. QUESTIONED CHARGES 

APPENDIX (BlueCross BlueShield Association response, dated December 23, 2013,

to the draft audit report)
1

I. INTRODUCTION AND BACKGROUND

INTRODUCTION 

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

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

the Health Care Service Corporation (HCSC or Plan) pertaining to the BlueCross BlueShield 

(BCBS) plans of Illinois, New Mexico, Oklahoma, and Texas. The Plan’s headquarters are 

located in Chicago, Illinois. 

The audit was performed by the Office of Personnel Management’s (OPM) Office of the 

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 Healthcare and Insurance 

Office 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 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. 

The BlueCross BlueShield Association (Association), on behalf of participating BCBS 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 BCBS plans throughout the United States to process the health benefit claims 

of its federal subscribers. HCSC includes 4 of the 64 local BCBS plans participating in the 

FEHBP. 

The Association has established a Federal Employee Program (FEP1) Director’s Office in 

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

Director’s Office coordinates the administration of the 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 of FEHBP claims (using computerized system edits), maintaining a history file of all 

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

 

1

 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.
2

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. 

The following were the most recent audit reports issued for HCSC pertaining to the BCBS plans 

of Illinois, New Mexico, Oklahoma, and/or Texas: 

 Report No. 1A-10-83-08-018, HCSC (BCBS of Oklahoma), dated January 9, 2009 

 Report No. 1A-99-00-07-043, HCSC (BCBS of Illinois and Texas), dated September 5, 2008 

 Report No. 1A-10-03-06-079, HCSC (BCBS of New Mexico), dated June 5, 2007 

All findings from these previous audits of HCSC, covering various contract years from 2002 

through 2007, have been satisfactorily resolved. 

The results of this 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 on September 26, 

2013; and were presented in detail in a draft report, dated October 9, 2013. The Association’s 

comments offered in response to this draft report were considered in preparing our final report 

and are included as an Appendix to this report. Also, additional documentation provided by the 

Association and Plan on various dates through January 27, 2014 was considered in preparing our 

final report. 
3

II. OBJECTIVES, SCOPE, AND METHODOLOGY

OBJECTIVES 

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

provided services to FEHBP members in accordance with the terms of the contract. Specifically, 

our objectives were as follows: 

Miscellaneous Health Benefit Payments and Credits 

 To determine whether miscellaneous payments charged to the FEHBP were in 

compliance with the terms of the 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 

of the 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. 

Fraud and Abuse Program 

 

 To determine whether the Plan's communication and reporting of fraud and abuse 

cases were in compliance with the terms of Contract CS 1039 and the applicable 

FEHBP Carrier Letters. 

SCOPE 

We conducted our limited scope performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform the audit to 

obtain sufficient and 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 121/621 (BCBS of Illinois), 290/790 (BCBS of New Mexico), 340/840 

(BCBS of Oklahoma), and 400/900 (BCBS of Texas) for contract years 2009 through 2012. 

During this period, the Plan paid approximately $10.3 billion in health benefit charges and $536 

million in administrative expenses for these four BCBS plans (See Figure 1 and Schedule A). 
Specifically, we reviewed miscellan eous health benefit payments and credits (e.g., refunds, 

medical dmg rebates, and fraud recoveries) and cash management activities from 2009 through 

September 30, 2012 for these fom BCBS plans, as well as administrative expenses from 2009 

through 2011. We also reviewed the Plan's F&A Program practices for the BCBS plans of 

lllinois and Texas fi:om Janmuy 1, 2013 through June 30, 2013. Due to a significant enor 

identified in the Plan 's letter of credit account (LOCA) drawdown adjustment process, we 

expanded om audit scope for this specific LOCA drawdown adjustment enor to cover the period 

April1, 2002 through Jlme 30, 2013 . 

In planning an d conducting om audit, we 

obtained an understanding of the Plan 's 

intemal conu·ol sti11ctme to help detennine 

the natme, timing, and extent of om 

auditing procedmes. This was detennined 

to be the most effective approach to select 

areas of audit. For those areas selected, we 

primarily relied on substantive tests of 

u·ansactions an d not tests of conu·ols. 

Based on om testing, we did not identify 

any significant matters involving the Plan 's 

intemal conu·ol sti11ctme and its operations, 

except for the Plan 's processing of LOCA 

drawdown adjustments (See the audit 

finding for the "Letter of Credit Account 

Overdraws" (C 1) on pages 9 through 13). 

"' =0 

= = 

617 

$5 

$4 

$3 

$2 

$1 

$0 

H ealth Care Senice Corporation 

Contract Charges 

2009 2010 2011 

Contract Years 

2012 

Eii Health Benefit Payments • Administrative Expenses 

Figme 1 - Conu·act Charges 

However, since om audit would not necessarily disclose all significant matters in the intemal 

control sti11ctme, we do not express an opinion on the Plan's system of intemal conu·ols taken as 

a whole. 

We also conducted tests to detennine whether the Plan had complied with the conu·act, the 

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

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

and regulations govem ing the FEHBP. The results of om tests indicate that, with respect to the 

items tested, the Plan did not comply with all provisions of the conu·act and federal procmement 

regulations. Exceptions noted in the areas reviewed are set f01th in detail in the "Audit Findings 

and Recommendations" section of this audit rep01t. With respect to the items not tested, nothing 

came to om attention that caused us to believe that the Plan had not complied, in all material 

respects, with those provisions. 

In conducting om audit, we relied to vaty ing degrees on computer-generated data provided by 

the FEP Director 's Office and the Plan. Due to time constraints, we did not verify the reliability 

of the data generated by the various inf01mation systems involved. However, while utilizing the 

4 

5

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 performed at the Plan’s offices in Chicago, Illinois and Richardson, Texas on 

various dates from May 7, 2013 through July 26, 2013. Audit fieldwork was also performed at 

our offices in Jacksonville, Florida; Cranberry Township, Pennsylvania; and Washington, D.C. 

METHODOLOGY

We obtained an understanding of the internal controls over the Plan’s financial, cost accounting 

and cash management systems by inquiry of Plan officials. 

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

records during our audit of miscellaneous health benefit payments and credits. We also 

judgmentally selected and reviewed 300 high dollar health benefit refunds, totaling $37,026,330 

(from a universe of 354,308 refunds, totaling $260,417,858); 16 special plan invoices (SPI), 

totaling $23,930,051 in net FEP credits (from a universe of 513 SPI’s, totaling $33,787,193 in 

net FEP credits); all FEP medical drug rebate amounts, totaling $3,259,340; 10 high dollar fraud 

recoveries, totaling $1,001,106 (from a universe of 66 recoveries, totaling $1,364,903); and all 

unidentified refunds allocated to the FEP, totaling $230,813, for the purpose of determining if 

refunds and recoveries were promptly returned to the FEHBP and if miscellaneous payments 

were properly charged to the FEHBP.2

 The results of these samples were not projected to the 

universe of miscellaneous health benefit payments and credits. 

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

2009 through 2011. Specifically, we reviewed administrative expenses relating to cost centers, 

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

executive compensation, non-recurring projects, mergers and acquisitions, gains and losses, 

return on investment, inter-company profits, subcontracts, and the Health Insurance Portability 

and Accountability Act of 1996. We used the FEHBP contract, the FAR, and the FEHBAR to 

determine the allowability, allocability, and reasonableness of charges. 

We reviewed the Plan’s cash management activities and practices to determine whether the Plan 

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

We also interviewed the Plan’s Special Investigations Department regarding the effectiveness of 

the F&A Program. For the BCBS plans of Illinois and Texas, we also reviewed the Plan’s 

communication and reporting of fraud and abuse cases to test compliance with Contract CS 1039 

and the applicable FEHBP Carrier Letters. 

 

2

 The sample of health benefit refunds included the 15 highest dollar refund receipts and the 5 highest dollar 

provider offsets from each year in the audit scope for each of the BCBS plans in Illinois, Oklahoma, and Texas. The 

sample of health benefit refunds also included the 10 highest dollar refund receipts and the 5 highest dollar provider 

offsets from each year in the audit scope for BCBS of New Mexico. For the SPI sample, we selected the SPI with 

highest miscellaneous FEP payment or credit amount from each year in the audit scope for each BCBS plan. For the 

sample of fraud recoveries, we selected all recoveries of $40,000 or more. 
6

III. AUDIT FINDINGS AND RECOMMENDATIONS 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

1. Unidentified Refunds $81,555 

Our audit determined that the Plan had not returned unidentified refunds of $75,472 to 

the FEHBP. As a result of this finding, the Plan returned $81,555 to the FEHBP, 

consisting of $75,472 for the questioned unidentified refunds and $6,083 for applicable 

LII on these funds.

48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or 

other credit relating to any allowable cost and received by or accruing to the contractor 

shall be credited to the Government either as a cost reduction or by cash refund.” 

Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and 

recoveries, including erroneous payment recoveries, must be deposited into the working 

capital or investment account within 30 days and returned to or accounted for in the 

FEHBP letter of credit account within 60 days after receipt by the Carrier.”

FAR 52.232-17(a) states, “all amounts that become payable by the Contractor . . . shall 

bear simple interest from the date due . . . The interest rate shall be the interest rate 

established by the Secretary of the Treasury as provided in Section 611 of the Contract 

Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the 

amount becomes due, as provided in paragraph (e) of this clause, and then at the rate 

applicable for each six-month period as fixed by the Secretary until the amount is paid.”

For the period January 1, 2009 through September 30, 2012, the Plan’s unidentified 

refunds totaled $3,191,182. The Plan allocates the unidentified refunds to all lines of 

business, including FEP on a quarterly basis. For the scope of the audit, the Plan 

allocated a total of $230,813 of these unidentified refunds to the FEHBP. We selected 

and reviewed all of the unidentified refunds for the purpose of determining if the Plan 

properly allocated and promptly returned these refunds to the FEHBP. 

Based on our review, we determined that the Plan had not returned $75,472 in quarterly 

unidentified refund amounts to the FEHBP. The following summarizes the questioned 

unidentified refund amounts and applicable LII by BCBS plan:

 For BCBS of Texas, the Plan had not returned five quarterly unidentified refund 

allocation amounts, totaling $35,840, to the FEHBP. As a result of this finding, the 

Plan returned $38,725 to the FEHBP, consisting of $35,840 for these questioned 

unidentified refunds and $2,885 for applicable LII. We reviewed and accepted the 

Plan’s LII calculation. 
7

 For BCBS of Illinois, the Plan had not returned five quarterly unidentified refund 

allocation amounts, totaling $26,273, to the FEHBP. As a result of this finding, the 

Plan returned $28,391 to the FEHBP, consisting of $26,273 for these questioned 

unidentified refunds and $2,118 for applicable LII. We reviewed and accepted the 

Plan’s LII calculation. 

 For BCBS of Oklahoma, the Plan had not returned five quarterly unidentified refund 

allocation amounts, totaling $10,514, to the FEHBP. As a result of this finding, the 

Plan returned $11,365 to the FEHBP, consisting of $10,514 for these questioned 

unidentified refunds and $851 for applicable LII. We reviewed and accepted the 

Plan’s LII calculation. 

 For BCBS of New Mexico, the Plan had not returned five quarterly unidentified 

refund allocation amounts, totaling $2,845, to the FEHBP. As a result of this finding, 

the Plan returned $3,074 to the FEHBP, consisting of $2,845 for these questioned 

unidentified refunds and $229 for applicable LII. We reviewed and accepted the 

Plan’s LII calculation.

In total, the Plan returned $81,555 to the FEHBP as a result of this finding, consisting of 

$75,472 ($35,840 plus $26,273 plus $10,514 plus $2,845) for the questioned unidentified 

refunds and $6,083 ($2,885 plus $2,118 plus $851 plus $229) for applicable LII on these

funds not previously returned to the FEHBP. 

Association’s Response: 

The Association agrees with this finding. The Association states that the Plan returned 

the questioned unidentified refunds to the FEHBP on October 11, 2013. The Association 

also states that the Plan submitted SPI’s to the Association on December 18, 2013 to 

return the applicable LII to the FEHBP. 

OIG Comments: 

The Plan provided documentation supporting that the questioned unidentified refunds of 

$75,472 were returned to the LOCA on October 9, 2013. Also, the Plan wire transferred 

LII of $6,083 to the Association’s FEP joint operating account on January 15, 2014. The 

Association then wired transferred this LII amount to OPM on January 23, 2014. 

Recommendation 1 

Since we verified that the Plan returned $75,472 to the FEHBP for the questioned 

unidentified refunds, no further action is required for this amount. 

Recommendation 2 

Since we verified that the Plan returned $6,083 to the FEHBP for the questioned LII on 

the unidentified refunds, no further action is required for this LII amount. 
8

2. Medical Drug Rebates $14,642 

Our audit determined that the Plan returned medical drug rebates, totaling $2,373,700, to 

the FEHBP in an untimely manner during the audit scope. As a result of this finding, the 

Plan returned $14,642 to the FEHBP for applicable LII on these medical drug rebates. 

As previously stated under A1, the Plan is required to promptly return these medical drug 

rebates to the FEHBP with applicable LII. 

The Plan participates in a medical drug rebate program with the manufacturers of the 

. rebates are determined based on 

medical claims for these drugs, which are administered in physicians’ offices. The 

medical drug rebates are received multiple times a year (usually on a quarterly basis) by 

the Plan and credited to the participating groups, including the FEP. From January 1, 

2009 through September 30, 2012, the Plan received medical drug rebates totaling 

 The Plan allocated $3,259,340 of these medical drug rebates to the FEP. 

We selected and reviewed all of the FEP medical drug rebate amounts for the purpose of 

determining if the Plan properly allocated and promptly returned these rebates to the 

FEHBP. 

The following are the exceptions noted (itemized by BCBS plan): 

 For BCBS of Texas, the Plan returned medical drug rebates, totaling $1,317,149, 

untimely to the FEHBP during the audit scope. Therefore, we calculated LII of 

$8,410 on these medical drug rebates. As a result of this finding, the Plan returned 

this LII amount to the FEHBP. 

 For BCBS of Illinois, the Plan returned medical drug rebates, totaling $504,831, 

untimely to the FEHBP during the audit scope. Therefore, we calculated LII of 

$2,960 on these medical drug rebates. As a result of this finding, the Plan returned 

this LII amount to the FEHBP. 

 For BCBS of Oklahoma, the Plan returned medical drug rebates, totaling $459,399, 

untimely to the FEHBP during the audit scope. Therefore, we calculated LII of 

$2,740 on these medical drug rebates. As a result of this finding, the Plan returned 

this LII amount to the FEHBP. 

 For BCBS of New Mexico, the Plan returned medical drug rebates, totaling $92,321, 

untimely to the FEHBP during the audit scope. Therefore, we calculated LII of $532 

on these medical drug rebates. As a result of this finding, the Plan returned this LII 

amount to the FEHBP. 

In total, the Plan returned LII of $14,642 ($8,410 plus $2,960 plus $2,740 plus $532) to 

the FEHBP as a result of this finding. 
9

Association’s Response: 

The Association agrees with this finding. The Association states that the Plan submitted 

SPI’s on October 29, 2013 to return the questioned LII to the FEHBP. The Association 

also states that the Plan is reviewing its procedures for the timely allocation of medical 

drug rebates to the FEP and will make any necessary updates to the procedures by 

March 31, 2014. 

OIG Comments: 

The Plan provided documentation supporting that the questioned LII amounts, totaling 

$14,642, were returned to the FEHBP through LOCA drawdown adjustments on 

November 18 and November 19, 2013. 

Recommendation 3 

Since we verified that the Plan returned $14,642 to the FEHBP for the questioned LII on 

the untimely medical drug rebates, no further action is required for this LII amount. 

B. ADMINISTRATIVE EXPENSES 

The audit disclosed no findings pertaining to administrative expenses. Overall, we concluded 

that the Plan’s administrative expenses charged to the FEHBP were actual, allowable, 

necessary, and reasonable expenses incurred in accordance with Contract CS 1039 and 

applicable laws and regulations. 

C. CASH MANAGEMENT 

 

1. Letter of Credit Account Overdraws $14,317,051 

The Plan inadvertently overdrew $12,236,424 in funds from the LOCA during the period 

April 1, 2002 through June 12, 2013. In addition, LII totaled $2,080,627 on these LOCA 

overdraws. As a result of this finding, the Plan returned $12,680,528 to the FEHBP, 

consisting of $12,236,424 for the questioned LOCA overdraws and $444,104 of the 

questioned LII. 

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

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

Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16, states, 

“Audit findings in the scope of an OIG audit are reportable as questioned charges unless 

the Carrier provides documentation supporting that the findings were identified . . . and 

corrected (i.e., overcharges returned to the FEHBP) prior to audit notification.”

As previously stated under section A1, the Plan is required to promptly return these 

LOCA overdraws to the FEHBP with applicable LII. 
10

For the period 2009 through September 30, 2012, the Plan withdrew $9,610,317,852 

from the LOCA for the BCBS plans of Illinois, New Mexico, Oklahoma, and Texas. 

From this universe, we selected and reviewed a judgmental sample of 120 LOCA 

drawdown amounts, totaling $363,456,789 in reimbursements, for the purpose of 

determining if these drawdown amounts were appropriate and adequately supported.3

While reviewing the audit sample and the Plan’s LOCA drawdown worksheets, we 

identified unusual or non-typical adjustments on the drawdown worksheets. These 

adjustments were referred to as “non-pursue” amounts on the Plan’s LOCA drawdown 

worksheets. We immediately followed-up with the Plan to obtain an understanding of 

these adjustments as well as applicable supporting documentation. After receiving our 

follow-up requests on May 15, 2013 regarding these adjustments, the Plan researched and 

identified an error in the LOCA drawdown adjustment process for the “non-pursue” 

amounts. This error resulted from the Plan’s attempt to reverse non-FEP refunds that 

were originally credited to the FEHBP. In each instance, while attempting to recover 

these non-FEP refunds from the LOCA, the Plan inadvertently reversed the amount twice 

during the LOCA drawdown adjustment process, resulting in a LOCA overdraw. 

The Plan performed a thorough analysis of this error and implemented corrective actions 

immediately in June and July 2013, changing the LOCA drawdown adjustment process 

and returning $12,236,424 to the FEHBP for the applicable LOCA overdraws. Based on 

the Plan’s analysis, these LOCA overdraws occurred from April 1, 2002 through June 12, 

2013 for the BCBS plans of Illinois and New Mexico; July 1, 2003 through June 12, 2013 

for BCBS of Texas; and September 1, 2006 through June 12, 2013 for BCBS of 

Oklahoma.4 The Plan also calculated LII of $2,080,627 on these LOCA overdraws. 

The following is a summary of the Plan’s analysis of the LOCA overdraws and calculated 

LII amounts for the BCBS plans of Illinois, New Mexico, Oklahoma, and Texas. 

BCBS Plan

LOCA 

Overdraws

(Apr 2002 – Dec 2008)

LOCA 

Overdraws 

(Jan 2009 – Sep 2012)

LOCA 

Overdraws

(Oct 2012 – Jun 2013)

Total

LOCA Overdraws

(Apr 2002 – Jun 2013)

Total 

Calculated

LII

Total

Questioned by OIG

(LOCA Overdraws + LII)

Illinois $2,510,641 $2,619,334 $698,454 $5,828,429 $1,002,809 $6,831,238

Texas 2,315,830 2,416,366 387,081 5,119,277 835,872 5,955,149

New Mexico 369,085 254,323 26,289 649,697 178,983 828,680 

Oklahoma 232,080 328,203 78,738 639,021 62,963 701,984 

Total $5,427,636 $5,618,226 $1,190,562 $12,236,424 $2,080,627 $14,317,051

 

3

 For the BCBS plans of Illinois and Texas, we selected 10 LOCA drawdown amounts from each year in the audit 

scope for each of these plans. For the BCBS plans of New Mexico and Oklahoma, we selected five LOCA 

drawdown amounts from each year in the audit scope for each of these plans. In total, we selected 40 LOCA 

drawdown amounts, totaling $102,633,645 (from a total of $2,299,459,975) for BCBS of Illinois; 20 LOCA 

drawdown amounts, totaling $9,328,213 (from a total of $421,155,270) for BCBS of New Mexico; 20 LOCA 

drawdown amounts, totaling $29,838,831 (from a total of $1,521,613,941) for BCBS of Oklahoma; and 40 LOCA 

drawdown amounts, totaling $221,656,100 (from a total of $5,368,088,666) for BCBS of Texas. 

4

 Although we initially expanded the audit scope to also include the LOCA drawdowns from January 2007 through 

December 2008 and October 2012 through June 2013 with this specific type of LOCA drawdown adjustment error, 

the Plan took the initiative to also identify all LOCA overdraws from April 2002 through December 2006 with this 

error. 
11

We reviewed and accepted the Plan’s analysis of the LOCA overdraws for the BCBS 

plans of Illinois, New Mexico, Oklahoma, and Texas as well as the Plan’s calculated LII 

amounts. As part of our review, we also verified the following corrective actions by the 

Plan: 

 For BCBS of Illinois, the Plan returned the questioned overdraws of $5,828,429 to the 

FEHBP through LOCA drawdown adjustments on July 8 and July 10, 2013. Also, 

the Plan returned LII of $153,940 to the FEHBP through multiple LOCA drawdown 

adjustments from August 6 through October 18, 2013. 

 For BCBS of Texas, the Plan returned the questioned overdraws of $5,119,277 to the 

FEHBP through LOCA drawdown adjustments on July 5 and July 10, 2013. Also, 

the Plan returned LII of $229,449 to the FEHBP through multiple LOCA drawdown 

adjustments from August 22 through October 18, 2013. 

 For BCBS of New Mexico, the Plan returned the questioned overdraws of $649,697 

to the FEHBP through multiple LOCA drawdown adjustments from July 5 through 

July 15, 2013. Also, the Plan returned LII of $22,849 to the FEHBP through multiple 

LOCA drawdown adjustments from August 6 through October 18, 2013. 

 For BCBS of Oklahoma, the Plan returned the questioned overdraws of $639,021 to 

the FEHBP through multiple LOCA drawdown adjustments from July 5 through 

July 15, 2013. Also, the Plan returned LII of $37,866 to the FEHBP through multiple 

LOCA drawdown adjustments from August 6 through October 18, 2013. 

As a result of this finding, the Plan returned $12,680,528 to the FEHBP, consisting of 

$12,236,424 ($5,828,429 plus $5,119,277 plus $649,697 plus $639,021) for the 

questioned LOCA overdraws and $444,104 ($153,940 plus $229,449 plus $22,849 plus 

$37,866) for LII. However, the Plan still owes the FEHBP $1,636,523, which is the 

remaining balance of the questioned LII. 

Association’s Response: 

The Association agrees with $12,236,424 for the questioned LOCA overdraws and 

$444,104 of the questioned LII. However, the Association disagrees with $1,636,523 

($2,080,627 minus $444,104) of the questioned LII. 

The Association states, “The Plan feels it is important to note that HCSC was the party 

that actually discovered the LOCA draw errors and notified OPM OIG . . . of the issue. 

While reviewing the requested audit samples and worksheets, the OIG auditors asked 

some preliminary questions regarding those LOCA worksheets. The Plan provided the 

answers to these questions and proactively performed some additional research which 

identified the error in the LOCA draws. The Plan then brought this to the attention of the 

OIG auditors. If the Plan had not performed this additional research, it is uncertain 

whether the OIG auditors would have identified this issue. The Plan went beyond the 

audit inquiry and performed additional research and then voluntarily communicated this 
12

issue to OIG . . . We do not dispute the description of the error. We also do not dispute 

the calculations of the total LOCA overdraw amounts and associated LII amounts 

covering the period beginning in April 2002. LII was returned to the FEHBP on 

October 21, 2013, and based on the contract, we disagree with how much LII OIG claims 

should be returned to the Program. 

Contract CS 1039 requires LII to be paid to FEHBP in the event of an improper 

allocation or draw from the LOCA. The Plan acknowledges that inadvertent overdraws 

occurred, and agrees with OIG’s calculations of total LII applicable to the mistaken 

overdraws from April 2002 to June 12, 2013. 

To date, the Plan has paid $444,104, representing LII calculations from January 1, 2008 

to July 10, 2013 . . . This repayment represents the amount that OPM can legally claim 

under Contract CS 1039. The Contract does not obligate the return of any funds, whether 

unsupported LOCA draws or applicable LII, that arose outside the contractual audit 

disputes limitations period. Specifically, Section 4.4 . . . of CS 1039 provides in 

pertinent part that a claim seeking money ‘shall not be made more than five years 

following the last day prescribed by the contract for filing the calendar year Annual 

Accounting Statement for the year with respect to which the claim arises.’ Based on this 

contractual limitation, the correct starting point for return of mistaken LOCA overdraws 

as well as payment of associated LII would be for claims subject to and contained in the 

Annual Accounting Statement for calendar year beginning January 1, 2008, the last date 

to file such statement being April 30, 2009. As such, the Plan has paid all that is 

recoverable by OPM relating to LII on the inadvertent LOCA overdraws, and the LOCA 

overdraws and LII prior to January 1, 2008, are contractually barred from claim by OPM. 

Notwithstanding, the Plan has already returned the LOCA overdraws for the entire time 

frame extending back to April 2002, and we do not intend to disturb that repayment. 

However, the clear terms of the contract with respect to the non-recoverable LII for dates 

preceding January 1, 2008 bar further claim by OPM for such amounts.”

OIG Comments: 

Just to reiterate, these questioned LOCA overdraws by the Plan were identified as a result 

of our audit. It is true that these LOCA overdraw errors were found by the Plan while 

doing additional research. However, this research was a direct result of questions from 

the OIG auditors. 

We verified that the Plan returned the questioned LOCA overdraws of $12,236,424 to the 

FEHBP via multiple LOCA drawdown adjustments from July 5 through July 15, 2013. 

Additionally, we verified that the Plan returned $444,104 of the questioned LII to the 

FEHBP via multiple LOCA drawdown adjustments from August 6 through October 18, 

2013 to the FEHBP. 

Regarding the contested LII amount of $1,636,523, we disagree with the Plan’s position 

that the LOCA overdraws from April 2002 through December 2007 are not subject to LII 

repayment because these overdraws occurred outside the contractual “audit disputes”
13

limitation period. The Association’s cited clause from Section 4.4 of Contract CS 1039 

does not negate the LII owed by the Plan on these LOCA overdraws, but only limits in 

most circumstances the government’s ability to obtain a judgment. The Plan maintained 

these LOCA overdraws in a corporate account(s) and earned interest (probably 

comparable to the contested LII amount) on these FEHBP funds. The Plan should not be 

unduly enriched by funds that did not actually belong to them. Therefore, we will 

continue to question this contested LII amount applicable to the LOCA overdraws that 

occurred from April 2002 through December 2007. 

Recommendation 4 

Since we verified that the Plan returned $12,236,424 to the FEHBP for the questioned 

LOCA overdraws, no further action is required for this amount. 

Recommendation 5 

We recommend that the contracting officer require the Plan to return $2,080,627 to the 

FEHBP for LII on the questioned LOCA overdraws. (Note: We already verified that the 

Plan has returned $444,104 of the questioned LII to the FEHBP. Thus, the remaining 

amount due is $1,636,523.) 

D. FRAUD AND ABUSE PROGRAM 

1. Special Investigations Department Procedural 

The Plan is not in compliance with the communication and reporting requirements for 

fraud and abuse cases that are set forth in Contract CS 1039 and FEHBP Carrier Letter 

(CL) 2011-13. Specifically, the Plan did not report, or did not timely report, all fraud and 

abuse cases to the OIG. The Plan’s non-compliance may be due in part to incomplete 

and/or untimely reporting of fraud and abuse cases to the Association’s FEP Director’s 

Office (FEPDO), as well as inadequate controls at the FEPDO’s Special Investigations 

Unit (SIU) to monitor and communicate the Plan’s FEP fraud and abuse cases to the OIG. 

Without awareness of existing potential fraud and abuse issues, the OIG cannot 

investigate the broader impact of these potential issues on the FEHBP as a whole. 

Contract CS 1039 Section 1.9 (a) requires the Plan to “operate a system designed to 

detect and eliminate fraud and abuse . . . by providers providing goods or services to 

FEHB Members, and by individual FEHB Members.” Section 1.10 (a)(12) requires the 

Carrier to notify the contracting officer of any significant events, which includes 

instances of fraud, within 10 working days after they become aware of it. 

CL 2011-13 (Mandatory Information Sharing via Written Case Notifications to OPM’s 

Office of the Inspector General), dated June 17, 2011, states that all Carriers “are 

required to submit a written notification to the OPM OIG . . . within 30 working days of 

becoming aware of a fraud, waste or abuse issue where there is a reasonable suspicion 
14

that a fraud has occurred or is occurring against the Federal Employees Health Benefits 

(FEHB) Program.” There is no dollar threshold for this requirement. 

We reviewed the Plan’s Special Investigations Department pertaining to the BCBS plans 

of Illinois and Texas. During the period January 1, 2013 through June 30, 2013, BCBS 

of Illinois opened 45 fraud and abuse cases. Of these, we identified and reviewed 27 

cases with FEP exposure. BCBS of Texas only opened 12 fraud and abuse cases. 

However, all 12 of these cases were reported as having FEP exposure. For the BCBS 

plans of Illinois and Texas, we reviewed all of these fraud and abuse cases for the 

purpose of determining if the cases were properly reported to the OIG as required by 

Contract CS 1039 and CL 2011-13. 

The following exceptions were noted (itemized by BCBS plan):

 For BCBS of Illinois, we determined that notifications for only 2 of the 27 fraud and 

abuse cases with FEP exposure were sent to the OIG. Because all of these cases had 

FEP exposure and there is no dollar threshold for reporting suspected fraud against 

the FEHBP, these cases should have been reported to the OIG as required by CL 

2011-13. 

BCBS of Illinois’ non-compliance with the reporting and communication 

requirements in Contract CS 1039 and CL 2011-13 may be due, in part, to this plan’s 

untimely or inadequate communication of potential FEP fraud and abuse cases to the 

FEPDO’s SIU. The FEPDO sends notifications of fraud and abuse cases to the OIG 

on behalf of the Plan. To that end, the Plan must first report the fraud and abuse cases 

with FEP exposure to the FEPDO’s SIU, which is accomplished via entry of the case 

into the Fraud Information Management System (FIMS).5 The FEPDO’s internal 

policies and procedures require the Plan to enter cases into FIMS as soon as an 

investigation is opened and/or within 30 days of any relevant FEP fraud activity. 

However, of the 27 cases with FEP exposure, we determined that 11 cases were 

entered into FIMS untimely. Without timely FIMS case entries by the Plan and/or 

BCBS of Illinois, the FEPDO’s SIU cannot meet the FEHBP’s contractual reporting 

and communication requirements. As a result of our audit, we noted that BCBS of 

Illinois updated its fraud and abuse policies and procedures to report all FEP fraud 

and abuse cases to the FEPDO as soon as there is reason to believe that fraud exists. 

 For BCBS of Texas, we determined that notifications for only 4 of the 12 fraud and 

abuse cases with FEP exposure were sent to the OIG. We noted that this plan enters 

all preliminary inquiries, regardless of dollar amount, into FIMS as required by 

Contract CS 1039 and CL 2011-13. Although this plan is meeting its contractual 

obligations, the FEPDO is not notifying the OIG of these cases. Because all of the 

cases had FEP exposure, and there is no dollar threshold for reporting suspected fraud 

against the FEHBP, these cases should have been reported to the OIG as required by 

CL 2011-13. 

 

5

 FIMS is a multi-user, web-based case-tracking database developed in-house by the FEPDO’s SIU.
15

BCBS of Texas’ non-compliance with the reporting and communication requirements 

in Contract CS 1039 and CL 2011-13 may be due, in part, to this plan’s untimely or 

inadequate communication of potential FEP fraud and abuse cases to the FEPDO. Of 

the 12 cases with FEP exposure, we determined that 2 cases were entered into FIMS 

untimely. Without timely FIMS case entries by the Plan and/or BCBS of Texas, the 

FEPDO cannot meet the FEHBP’s reporting and communication requirements. We 

also determined that the remaining 10 cases with FEP exposure were entered into 

FIMS timely, but the FEPDO did not report most of these cases to the OIG as 

required by CL 2011-13. 

Ultimately, the Plan’s untimely reporting of potential FEP cases to the FEPDO’s SIU and 

the FEPDO’s inadequate controls to monitor the Plan’s FIMS entries and notify the 

appropriate entities of these cases have resulted in a failure to meet the communication 

and reporting requirements that are set forth in Contract CS 1039 and CL 2011-13. The 

lack of referrals and/or untimely case notifications did not allow the OIG to investigate 

whether other FEHBP carriers are exposed to the identified provider committing fraud 

against the FEHBP. It also does not allow the OIG’s Administrative Sanctions Group to 

be notified timely. Consequently, this non-compliance by the Plan and FEPDO may 

result in additional improper payments being made by other FEHBP Carriers. 

Association’s Response: 

The Association states, “The Plan continues to disagree with the statement that it is not in 

compliance with the communication and reporting requirements set forth in Contract CS 

1039 and the Federal Employee Health Benefit Program (FEHBP) Carrier Letter (CL) 

2011-13. BCBSA also disagrees that controls to Plans FIMS entries are inadequate. 

The FEPDO and the Plan have created a system of controls to monitor, identify, 

investigate and recover fraudulent and abusive payments of FEHBP funds and is 

substantially in compliance with the requirements of CS 1039. Further, the Plan’s FEP 

Fraud and Abuse Program is designed to protect patient safety and the health care assets 

of Federal beneficiaries.”

OIG Comments: 

We disagree that, during the audit scope, the Plan was in compliance with the 

communication and reporting requirements that are set forth in the FEHBP contract and 

CL 2011-13. For example, we identified 39 cases with FEP exposure during the period 

January 1, 2013 through June 30, 2013 for the BCBS plans of Illinois and Texas. Of 

these, we determined that 13 cases were entered untimely into FIMS. As a result, these 

cases were communicated untimely to the OIG. Additionally, many of the cases with 

FEP exposure were entered timely into FIMS by the plans, but were not communicated to 

the OIG in a timely manner by the FEPDO. However, we acknowledge that the Plan is 

implementing corrective actions to improve their policies and procedures. 
16

The Association states that they have created a system of controls and processes that 

monitor, identify, investigate and recover fraudulent and abusive payments of FEP funds. 

We disagree. The FEPDO has not provided any specific details as to what oversight 

function they perform of this Plan, including the timely reporting of cases in FIMS and 

the reporting of financial impacts in FIMS. 

Recommendation 6 

We recommend that the contracting officer require the Association to provide evidence or 

supporting documentation ensuring that the Plan has implemented the necessary 

procedural changes to meet the communication and reporting requirements of fraud and 

abuse cases that are set forth in Contract CS 1039 and CL 2011-13. We also recommend 

that the contracting officer instruct the Association to provide the Plan with more 

oversight to ensure the timely and complete entry of all FEP fraud and abuse cases into 

FIMS, and concurrently, timely and complete communication of those cases to the OIG. 

Association’s Response: 

The Association states, “On May 20th, 2013, the Plan’s Special Investigations 

Department (SID) updated their internal Policy and Procedure manual with regard to the 

notification of investigative activities. Specifically, this approved change will direct SID 

investigators in all HCSC plans to promptly report information into FIMS wherein there 

is a reasonable suspicion of fraud involving FEHBP claims. This would include both 

preliminary and full investigations regardless of the dollar amount of FEHBP claims.” 

The Association also states, “In order to ensure that the Plan implements policy changes 

made during the review BCBSA implemented a revised Plan monitoring process as of 

October 31, 2013. The BCBSA FEPDO will review the Plan’s SIU activities and revised 

policies and procedures by February 15, 2014 and work with the Plan to implement any 

additional corrective actions necessary.”

Recommendation 7 

To ensure that all FEHBP Carriers are reporting statistics to OPM based on the same 

definitions, we recommend that the contracting officers prepare and distribute to all 

Carriers the definitions for the terms “fraud”, “waste”, “abuse”, and “reasonable 

suspicion”.

Association’s Response: 

The Association states, “BCBSA agrees with this recommendation and will work with 

the contracting officer to develop guidance of definitions . . . A meeting was held with 

OPM on December 4, 2013 to discuss these and other definitions.”
17

Recommendation 8 

We recommend that the contracting officer direct the Association to provide OPM and 

the OIG full access to FIMS. 

Association’s Response: 

The Association states, “BCBSA continues to partially disagree with the recommendation 

to provide the OPM OIG full access to FIMS. FIMS is an internal management reporting 

system used by BCBSA and Local Plans to report Fraud, Waste and Abuse cases. Before 

cases can be forwarded to OPM/OIG, they are reviewed and evaluated by BCBSA 

consultants. The consultants work with Local Plans to ensure the proper data elements 

are entered. As such, unlimited access by the OIG to the system at this time would result 

in potential inefficiencies for both OPM/OIG and FEP. However, in order to provide the 

OPM OIG investigators with efficient, effective and faster access to cases, BCBSA 

initiated a process where BCBSA and OPM OIG staff meet on a monthly basis . . . to 

review case activity.”

OIG Comments: 

We continue to recommend that the contracting officer direct the Association to provide 

OPM and the OIG with full access to FIMS, a program fully paid for by OPM with 

FEHBP funds. Full access is necessary for OPM and the OIG to monitor the 

Association’s fraud and abuse activity and the FEPDO’s oversight, and will allow the 

OIG to make inquiries when we notice non-compliance by a BCBS plan and/or the 

FEPDO such as untimely reporting. In addition, it will provide necessary information for 

analysis purposes prior to future OIG audits. This alone will save time and money for the 

local BCBS plans and the FEPDO. 

The analysis of this Plan’s fraud and abuse cases showed that the Plan’s entries into 

FIMS had significant timeliness issues. Of the 39 cases with FEP exposure during the 

period January 1, 2013 through June 30, 2013 for the BCBS plans of Illinois and Texas, 

we determined that 13 cases were entered into FIMS untimely. If the OIG had full access 

to FIMS, at least 13 cases would have been reviewed and investigated by us. Also, we 

would have notified the Plan and FEPDO of the untimely reporting issue in real time and 

resolved the issue sooner. 
18

IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated Audits Group 

, Lead Auditor 

, Auditor 

, Auditor 

, Auditor 

, Auditor 

, Chief (

 Senior Team Leader 
SCHEDULE A

CONTRACT CHARGES* 2009 2010 2011 2012 TOTAL

A. HEALTH BENEFIT CHARGES**

CLAIM PAYMENTS $2,386,916,498 $2,518,651,684 $2,673,196,131 $2,796,498,433 $10,375,262,746

MISCELLANEOUS PAYMENTS AND CREDITS 93,899 (7,627,227) (12,124,239) (16,177,698) (35,835,265)

TOTAL HEALTH BENEFIT CHARGES $2,387,010,397 $2,511,024,457 $2,661,071,892 $2,780,320,735 $10,339,427,481

B. ADMINISTRATIVE EXPENSES**

ADMINISTRATIVE CHARGES $154,356,215 $149,439,246 $151,764,200 $152,797,620 $608,357,281

PRIOR PERIOD ADJUSTMENTS 45,935 0 0 0 45,935

BUDGET SETTLEMENT REDUCTIONS (24,437,072) (25,037,566) (12,467,843) (10,469,979) (72,412,460)

TOTAL ADMINISTRATIVE EXPENSES $129,965,078 $124,401,680 $139,296,357 $142,327,641 $535,990,756

TOTAL CONTRACT CHARGES $2,516,975,475 $2,635,426,137 $2,800,368,249 $2,922,648,376 $10,875,418,237

* This audit covered miscellaneous health benefit payments and credits and cash management activities from January 1, 2009 though September 30, 2012 and administrative expenses

 from 2009 through 2011.

** The health benefit charges and administrative expenses include all amounts reported in the Annual Accounting Statements for Plan codes 121/621 (Illinois), 290/790 (New Mexico), 

340/840 (Oklahoma), and 400/900 (Texas).

V. SCHEDULES

HEALTH CARE SERVICE CORPORATION

CHICAGO, ILLINOIS

CONTRACT CHARGES
SCHEDULE B

AUDIT FINDINGS 2009 2010 2011 2012 2013 TOTAL 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS

 AND CREDITS

 1. Unidentified Refunds $19,785 $44,616 $17,154 $0 $0 $81,555

 2. Medical Drug Rebates 4,936 5,684 2,877 1,145 0 14,642

 TOTAL MISCELLANEOUS HEALTH BENEFIT

 PAYMENTS AND CREDITS $24,721 $50,300 $20,031 $1,145 $0 $96,197

B. ADMINISTRATIVE EXPENSES $0 $0 $0 $0 $0 $0

C. CASH MANAGEMENT

 1. Letter of Credit Account Overdraws* $6,175,540 $1,713,117 $1,771,482 $1,806,131 $2,850,781 $14,317,051

 TOTAL CASH MANAGEMENT $6,175,540 $1,713,117 $1,771,482 $1,806,131 $2,850,781 $14,317,051

D. FRAUD AND ABUSE PROGRAM

 1. Special Investigations Department (Procedural) $0 $0 $0 $0 $0 $0

 TOTAL FRAUD AND ABUSE PROGRAM $0 $0 $0 $0 $0 $0

TOTAL QUESTIONED CHARGES $6,200,261 $1,763,417 $1,791,513 $1,807,276 $2,850,781 $14,413,248

HEALTH CARE SERVICE CORPORATION

CHICAGO, ILLINOIS

QUESTIONED CHARGES

* For simplicity, contract year 2009 includes the questioned overdraws for the period April 1, 2002 through December 31, 2009. Also, contract year 2013 includes the questioned overdraws of $770,154 for 

the period January 1, 2013 through June 12, 2013 plus the total questioned lost investment income of $2,080,627 for this finding.
 

 

December 23, 2013 

, Group Chief 

Experience-Rated Audits Group 

Office of the Inspector General 

U.S. Office of Personnel Management 

1900 E Street, Room 6400 

Washington, DC 20415-11000 

Federal Employee Program 

1310 G Street, N.W. 

Washington, D.C. 20005 

202.942.1000

Fax 202.942.1125 

Reference: OPM DRAFT AUDIT REPORT 

Health Care Services Corporation (HCSC) 

Audit Report No. 1A-10-17-13-019 

(Dated September 9, 2013 and Received September 9, 2013) 

Dear : 

This is Health Care Service Corporation’s (Plan) response to the above referenced U.S. 

Office of Personnel Management (OPM) Draft Audit Report covering the Federal 

Employees’ Health Benefits Program (FEHBP). The Blue Cross and Blue Shield 

Association (BCBSA) and the Plan are committed to enhancing existing procedures on 

issues identified by OPM. Please consider this feedback when updating the OPM Final 

Audit Report. 

Our comments concerning the findings in the report are as follows: 

A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS 

1. Health Benefit Refunds $75,472 

Recommendation 1: 

OPM OIG recommended that $75,472 in unidentified health benefit refunds be returned 

to the FEHBP. 

Plan Response: 

The Plan agreed with this recommendation and, on October 11, 2013, returned the 

entire amount to the FEHBP. Documentation to support the return of these funds to the 

Program is included as Attachment 1. 
 

 

December 23, 2013 

Page 2 of 6 

Recommendation 2: 

OPM OIG also recommended that Lost Investment Income also be assessed and 

returned to the Program for the unidentified refunds not returned to the Program timely. 

Plan Response: 

The Plan agreed with this recommendation and submitted Special Plan Invoices to 

BCBSA on December 18, 2013 to return the recommended LII to the Program. 

2. Medical Drug Rebates 

Recommendation 3 

OPM OIG recommended that the Plan return $14,642 to the FEHBP for LII on medical 

drug rebates returned untimely to the FEHBP. 

Plan Response: 

The Plan agreed with this finding and submitted Special Plan Invoices to BCBSA on 

October 29, 2013 to return the recommended LII to the Program. The Plan also stated 

that it is reviewing its procedures for the timely allocation to FEP for medical drug 

rebates and will make any necessary updates to the procedures by the end of 1st 

quarter 2014. 

B. ADMINISTRATIVE EXPENSES – No Findings 

C. CASH MANAGEMENT 

1. Letter of Credit Overdraws $14,317,051 

Recommendation 5 

OPM OIG recommended that the Plan return $2,080,627 to the FEHBP for LII on the 

questioned LOCA overdraws. 

Plan’s Response 
December 23, 2013 

Page 3 of 6 

The Plan generally concurs with the majority of this audit finding. However, the Plan 

would like to clarify that it does not agree with the OPM OIG’s claim that the FEHBP is 

due $2,080,627 for Lost Investment Income (“LII”) under the parameters of Contract 

CS1039. 

The Plan feels it is important to note that HCSC was the party that actually discovered 

the LOCA draw errors and notified OPM OIG (“OIG”) of the issue. While reviewing the 

requested audit samples and worksheets, the OIG auditors asked some preliminary 

questions regarding those LOCA worksheets. The Plan provided the answers to these 

questions and proactively performed some additional research which identified the error 

in the LOCA draws. The Plan then brought this to the attention of the OIG auditors. If 

the Plan had not performed this additional research, it is uncertain whether the OIG 

auditors would have identified this issue. The Plan went beyond the audit inquiry and 

performed additional research and then voluntarily communicated this issue to OIG. We 

feel that the written record should indicate this fact. We do not dispute the description of 

the error. We also do not dispute the calculations of the total LOCA overdraw amounts 

and associated LII amounts covering the period beginning in April 2002. LII was 

returned to the FEHBP on October 21, 2013, and based on the contract, we disagree 

with how much LII OIG claims should be returned to the Program. 

Contract CS 1039 requires LII to be paid to FEHBP in the event of an improper 

allocation or draw from the LOCA. The Plan acknowledges that inadvertent overdraws 

occurred, and agrees with OIG’s calculations of total LII applicable to the mistaken 

overdraws from April 2002 to June 12, 2013. 

To date the Plan, has paid $444,104.00, representing LII calculations from January 1, 

2008 to July 10, 2013. As stated earlier, the Plan provided supporting documentation 

to OIG on October 4, 2013 to support the return of $380,727 in lost investment income 

to the FEHBP for Letter of Credit Overdraws. See Attachment 2 for documentation to 

support the additional return of $63,377 in lost investment income to the FEHBP. 

This repayment represents the amount that OPM can legally claim under Contract CS 

1039. The Contract does not obligate the return of any funds, whether unsupported 

LOCA draws or applicable LII, that arose outside the contractual audit disputes 

limitations period. Specifically, Section 4.4 (“Audit Disputes”) of CS 1039 provides in 

pertinent part that a claim seeking money “shall not be made more than five years 

following the last day prescribed by the contract for filing the calendar year Annual 

Accounting Statement for the year with respect to which the claim arises.” Based on this 

contractual limitation, the correct starting point for return of mistaken LOCA overdraws 
 

 

December 23, 2013 

Page 4 of 6 

as well as payment of associated LII would be for claims subject to and contained in the 

Annual Accounting Statement for calendar year beginning January 1, 2008, the last 

date to file such statement being April 30, 2009. As such, the Plan has paid all that is 

recoverable by OPM relating to LII on the inadvertent LOCA overdraws, and the LOCA 

overdraws and LII prior to January 1, 2008, are contractually barred from claim by OPM. 

Notwithstanding, the Plan has already returned the LOCA overdraws for the entire time 

frame extending back to April 2002, and we do not intend to disturb that repayment. 

However, the clear terms of the contract with respect to the non-recoverable LII for 

dates preceding January 1, 2008 bar further claim by OPM for such amounts. 

It should be noted that the Audit Disputes limitations period has previously been held by 

the Board of Contract Appeals to apply to limit OPM’s recovery of sums outside the 5 

year limitations period. See ASBCA, No. 53632, October 28, 2003. 

D. FRAUD AND ABUSE PROGRAM 

1. Fraud and Abuse Program Procedural 

The Plan continues to disagree with the statement that it is not in compliance with 

the communication and reporting requirements set forth in Contract CS 1039 and 

the Federal Employee Health Benefit Program (FEHBP) Carrier Letter (CL) 2011-

13. BCBSA also disagrees that controls to Plans FIMS entries are inadequate. 

The FEPDO and the Plan have created a system of controls to monitor, identify, 

investigate and recover fraudulent and abusive payments of FEHBP funds and is 

substantially in compliance with the requirements of CS 1039. Further, the Plan’s 

FEP Fraud and Abuse Program is designed to protect patient safety and the 

health care assets of Federal beneficiaries. 

Recommendation 6: 

OPM OIG recommended that the Association ensure that the Plan is implementing 

policy changes made during our review of BCBSIL SIU. In addition, OIG recommended 

that the Association provide the Plan with better oversight regarding compliance with 

communication and reporting policies and procedures. 

Plan Response: 
December 23, 2013 

Page 5 of 6 

On May 20th, 2013, the Plan’s Special Investigations Department (SID) updated their 

internal Policy and Procedure manual with regard to the notification of investigative 

activities. Specifically, this approved change will direct SID investigators in all HCSC 

plans to promptly report information into FIMS wherein there is a reasonable suspicion 

of fraud involving FEHBP claims. This would include both preliminary and full 

investigations regardless of the dollar amount of FEHBP claims. See Attachment 3 for 

a copy of the revised policy. 

BCBSA Response: 

In order to ensure that the Plan implements policy changes made during the review 

BCBSA implemented a revised Plan monitoring process as of October 31, 2013. The 

BCBSA FEPDO will review the Plan’s SIU activities and revised policies and procedures 

by February 15, 2014 and work with the Plan to implement any additional corrective 

actions necessary. 

We appreciate the opportunity to provide our response to this Draft Audit Report and 

request that our comments be included in their entirety as an amendment to the Final 

Audit Report. 

Recommendation 7 

The OIG recommended the contracting officer provide or issue guidance on the 

definitions of Fraud, Waste and Abuse, as well as “reasonable suspicion” in order for 

the Association and the local BCBS plans to have consistent guidance on the 

expectations of OPM for reporting purposes. 

BCBSA Response: 

BCBSA agrees with this recommendation and will work with the contracting officer to 

develop guidance of definitions of Fraud, Waste and Abuse and reasonable suspicion. 

A meeting was held with OPM on December 4, 2013 to discuss these and other 

definitions. 

Recommendation 8 

We recommend that the contracting officer direct the Association to provide OPM and 

the OIG full access to FIMS. 
BCBSA Response: 

BCBSA continues to partially disagree w ith the recommendation to provide the OPM 

OIG fu ll access to FIMS. FIMS is an internal management reporting system used by 

BCBSA and Local Plans to report Fraud , Waste and Abuse cases. Before cases can be 

fo rwarded to OPM/OIG , they are review ed and evaluated by BCBSA consultants. The 

consultants work w ith Local Plans to ensure the proper data elements are entered. As 

such , unlimited access by the OIG to the system at this time w ould res ult in potential 

inefficiencies for both OPM/OIG and FEP. However, in order to provide the OPM OIG 

investigators w ith efficient, effective and faster access to cases, BCBSA initiated a 

process w here BCBSA and OPM OIG staff meet on a month ly basis at the FEPOC 

Director's office to rev iew case activity. 

We appreciate the opportun ity to provide our response to th is Draft Aud it Report and 

req uest that our comments be incl uded in their entirety as an amendment to the Final 

Aud it Report. 

Sincerely, 

- · CISA, CRMA ~ecto , Program Assurance 

II 

cc: Contracting Officer, OPM 

FEP