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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

InspectorGeneral. 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Service Benefit Plan Contract CS 1039
 

BlueCross BlueShield Association
 

Plan Code 10
 

Capital BlueCross
 

Plan Code 361
 

Harrisburg, Pennsylvania
 

REPORT NO. IA-IO-36-08-043 DATE:February 5, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

~~-""-'--'--------------------..,.-----------

www.opm.gov www.uslllobs.gov 
UNITED STAT.ES 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
 

Capital BlueCross
 

Plan Code 361
 

Harrisburg, Pennsylvania
 

REPORT NO. IA-IO-36-08-043 DATE: February 5. 2009 

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

Capital BlueCross (Plan) in Harrisburg, Pennsylvania questions $24,259 in health benefit charges. 

The BlueCross BlueShield Association (Association) agreed (A) with $12,160 and disagreed (D) 

with $12,099 ofthe questioned charges. 

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

audit covered claim payments from 2005 through 2007 as reported in the Annual Accounting 

Statements. 

Questioned health benefit charges are summarized as follows: 

e Omnibus Budget Reconciliation Act of 1990 Review $19,700 

The Plan incorrectly paid two claims, resulting in overcharges of$19,700 to the FEHBP. The 

Association agreed with $12,160 (A) and disagreed with $7,540 (D) ofthe questioned charges. 

• Claim Payment Errors (D) $4,559 

The Plan incorrectly paid six claims, resulting in overcharges of$4,559 to the FEHBP. 

wlI/w.oprn.gov www.usajobs.gov 
CONTENTS
 

PAGE 

EXECUTIVE SUMMARY	 , i
 

I. INTRODUCTION AND BACKGROUND " ,	 ,.1 

II. OBJECTIVES, SCOPE, AND METHODOLOGY	 3
 

III. AUDIT FINDINGS AND RECOMMENDATIONS ,	 5
 

A. HEALTH BENEFIT CHARGES	 5
 

1. Omnibus Budget Reconciliation Act of 1990 Review	 5
 

2. .Claim Payment Errors ,	 8
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT	 ll 

V. SCHEDULE A -HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED 

APPENDIX	 (BlueCross BlueShield Association reply, dated December 15, 2008, to 

the draft audit report) 
I. INTROnUCTION 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 

Capital BIueCross (Plan). The Plan is located in Harrisburg, Pennsylvania. 

The audit was performed 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 ofthe 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 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 (Flil") 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 ofthe 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, 

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. 

I
 
Compliance with laws and regulations applicable to the FEHBP is the responsibility ofthe 

Association and Plan management. Also, management ofthe Plan is responsible for establishing 

and maintaining a system of internal controls. 

All findings from our previous audit ofthe Plan (Report No. lA-1O-36-02-031. dated 

November 25,2002) for contract years 1998 through 2000 have been satisfactorily resolved. 

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 October 3. 2008. The Association's comments offered 

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

an Appendix to this report. 

2
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES
 

The objectives ofour 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 to determine whether the Plan complied with contract provisions relative to 

health benefit payments. 

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 code 361 for contract years 2005 through 2007. Duringthis period, the Plan paid 

approximately $244 million in health benefit charges (See Schedule A). Specifically, we 

reviewed approximately $9 million in claim payments made froni. 2005 through 2007 for proper 

adjudication. 

In planning and conducting our audit, we obtained an understanding ofthe Plan's internal control 

structure to help determine the nature, timing, and extent of our auditing procedures. This was 

determined to be the most effective approach to select areas of audit. For those areas selected, 

we primarily relied on substantive tests of transactions and not tests of controls. Based on our 

testing, we did not identify any significant matters involving the Plan's internal control structure 

and its operation. However, since our audit would not necessarily disclose all significant matters 

in the internal control structure, we do not express an opinion on the Plan's system of internal 

controls taken as a whole. 

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

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

Health Benefits Acquisition Regulations, as appropriate), and the laws and regulations governing 

the FEHBP. The results of our tests indicate that, with respect to the items tested, the Plan did 

not comply with all provisions ofthe 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 ofthe data generated 

3
 
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 performed at the Plan's office in Harrisburg, Pennsylvania from August 13 

through.August 15, 2008. Audit fieldwork was also performed at our office in Cranberry 

Township, Pennsylvania. 

METHODOLOGY 

We obtained an understanding of the internal controls over the Plan's claims processing system 

by inquiry of Plan officials. 

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

reviewed samples of 403 claims? We used the FEHBP contract, the Service Benefit Plan 

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

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

to the universe of claims. 

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

(A2) on pages 5 through 10 for specific details of our sample selection methodologies. 

4
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

A. HEALTH BENEFIT CHARGES
 

1. Omnibus Budget Reconciliation Act of 1990 Review $19,700 

The Plan incorrectly paid two claims, resulting in overcharges of$19,700 to the FEHBP. 

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

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

Part II, section 2.3(g) states, "Ifthe Carrier or OPM determines that a Member's claim 

has been paid in error for any reason, the Carrier shall make a diligent effort to recover an 

overpayment ...." 

The 2007 BlueCross and BlueShield (BCBS) Service Benefit Plan brochure, section 10, 

states, "Our allowance ... is the negotiated amount that Preferred providers ... have 

agreed to accept as payment in full ...." 

The Omnibus Budget Reconciliation Act of 1990 (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 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. 

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

For the period 2005 through 2007, we identified 1,288 claims, totaling $463,018 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 ajudgmental sample of24 claims, totaling $238,592 in payments, to determine 

ifthe Plan paid these claims properly. Our sample included all possible OBRA 90 claims 

with amounts paid of $5,000 or more. 

Based on our review, we determined that one claim was not subject to OBRA 90 pricing 

but contained a Plan pricing error, resulting in an overcharge of$17,620 to the FEHBP. 

The error was due to an examiner oversight causing the claim to be priced at billed 

charges rather than the applicable per diem amount. 

5
 
OBRA 90 Claims 

For the period 2005 through 2007, we identified 1,303 claims, totaling $10,467,115 in 

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

selected and reviewed a judgmental sample of 121 claims, totaling $3,128,911 in 

payments, to determine if these 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 $15,000 or more. 

Based on our review, we determined that one claim was not subject to OBRA 90 pricing 

but contained a pricing variance, resulting in an overcharge of $2,080 to the FEHBP. 

This overcharge was due to the Plan pricing a claim, which was incurred in 2005, with a 

2006 per diem rate of $1,541 rather than the 2005 per diem rate of $1,476. Refer to audit 

finding A2 of this report for additional details regarding this Plan pricing issue. 

Associa lion's Response: 

The Association agrees with $12,160 and disagrees with $7,540. The Association 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, lost investment 

income does not apply to the claim payment errors identified in this finding. 

For the claim overpayment questioned under the "Claims Not Priced Under OBRA 90" 

review, the Association agrees with $12,160 and disagrees with $5,460. The Association 

states that the repricing of the claim showed an overpayment amount of$12,160 instead 

ofthe questioned amount of$17,620. For the claim overpayment questioned under the 

"OBRA 90 Claim" review, the Association disagrees with the entire questioned amount 

of $2,080. 

In reference to the total contested amount, the Association states, "Claims were priced 

properly based on the setup and configuration ofthe Legacy system, which had been used 

by Capital Blue Cross (CBC) to pay facility claims for over 20 years .... Within the 

Legacy system, pricing is based on either a 'claims priced on or after' or 'admissions on 

or after' basis. Facilities using interim percentage rate arrangements will use a 'claims 

priced on or after' rate screen and providers using contract rates will reflect an 

'admissions on or after' rate screen. For claims processed using 'admissions on or after' 

rates, the pricing is dependent on both the admission date and the pricing/paid date. With 

this screen there is a 60-day or '2-month' run out for the processing of claims incurred in 

the previous period, but not paid until the next period. If a prior period claim is processed 

after the run out period, the claim is processed at the current year rate. Providers are 

aware of and accept this pricing methodology." 

6
 
The Association also states, "Further validation ofthe effectiveness ofthe Plan's system 

ofinternal controls over the process is evidenced by a low volume of errors (lout of 355 

or .3%) identified during this audit. Because the error was due to examiner oversight, 

follow up training and counseling will be provided. 

In addition, the Plan has several methods in place to identify overpayments. These 

methods include, but are not limited to the System Wide Claims Reports; COB claims 

reports and Duplicate claims reports provided by the FEP Director's Office and routine 

claims quality assurance audits performed by the Plan's Internal Auditors. While these 

measures are not absolute, they provide reasonable assurances that such items will be 

identified. Efforts will be made to periodically examine existing procedures and add 

additional controls where necessary." 

OIG Comments: 

For the claim overpayment questioned under our "Claims Not Priced Under OBRA 90" 

review, we will continue to question $17,620. Our overpayment amount is different from 

the Plan's overpayment amount because the Plan repriced the claim, which was incurred 

in 2003, with a 2007 per diem rate of $1,050 rather than the applicable 2003 per diem rate 

of $630. 

For the claim overpayment questioned under our "OBRA 90 Claims" review, we will 

continue to question $2,080. As we previously stated, this overpayment resulted from the 

Plan pricing a claim, which was incurred in 2005, with a 2006 per diem rate of$I,541 

rather than the applicable 2005 per diem rate of$I,476. 

We will continue to question the above claim overpayments using the effective contract 

rates as stated within the provider agreements. Furthermore, when providers negotiate 

new contract period rates that are greater than prior contract period rates, the FEHBP and 

its subscribers are adversely affected by the "two-month run out". Based on our 

experience with auditing other BCBS plans, we have found that this "two-month run out" 

is not common practice. 

Also, as previously cited, the 2007 benefit plan brochure states that the Plan allowance is 

the negotiated amount that prefered providers have agreed to accept as payment, The 

Plan's provider agreements do not address a "two-month run out" for prior period 

contract rates. Therefore, when claims with dates of service for a prior contract period 

are priced with the new contract period's rates, the Plan's allowances do not reflect the 

negotiated amounts stated within the provider agreements. 

Recommendation 1 

We recommend that the contracting officer disallow $19,700 in claim overcharges, and 

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

7
 
2. Claim Payment Errors $4,559 

The Plan incorrectly paid six claims, resulting in overcharges of $4,559 to the FEHBP. 

As previously cited from 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. Also, the 2007 BeBS Service Benefit Plan 

brochure states that the Plan allowance is the negotiated amount that preferred providers 

have agreed to accept as payment in full. 

The following summarizes the claim payment errors. 

System Review 

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

December 31, 2007, we identified 463,376 claim lines, totaling $82,547,157 in payments, 

using a standard criteria based on our audit experience. From this universe, we selected 

and reviewed a judgmental sample of 100 claims (representing 1,637 claim lines), 

totaling $4,384,891 in payments, to determine if the Plan adjudicated these claims 

properly.' Based on our review, we determined that one claim was paid incorrectly, 

resulting in an overcharge of$2,312 to the FEHBP. This overcharge was due to the Plan 

pricing a claim, which was incurred in 2006, with a 2007 per diem rate of $1,609 rather 

than the 2006 per diem rate of $1,541. 

Both rates were correctly loaded into the Plan's Legacy claims processing system; 

however, the Plan programmed its claims system to exercise a "two-month run out" 

period for contract rates. Specifically, when new contract rates were entered into the 

Legacy system, the old contract rates would only be used to price claims for an additional 

. two months after the contract rates were tenninated. After the two months, a claim with 

dates of service for the prior contract period would be priced with the new contract 

period's rates. The Plan utilized this approach with all providers that were reimbursed 

based on admission dates rather than process date. 

Because the Plan's Legacy claims processing system incorrectly applied a "two-month 

run out" for contract rates, we requested that the Plan identify all claims that were 

potentially associated with this "two-month run out" issue, and determine if the claims 

were priced and paid according to provider contract rates effective for each claim's 

admission date. Due to the voluminous claims data, the Plan submitted a listing of its top 

10 FEP providers. From this listing, we selected the top two providers, Pinnacle and 

Reading Hospitals, for review. 

3 We selected our sample from an DIG-generated "Place of Service Report" (SAS application) that stratified the 

claims by place ofservice (POS), such as provider's office and payment category, such as $50 to $99.99. We 

judgmentally determined the number of sample items to select from each POS stratum based on the stratum's total 

claim dollars paid. 

8
 
We selected and reviewed an additional sample of 48 claims, totaling $534,384 in 

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

claims with amounts paid of$1 ,000 or more. Based on our review, we determined that 

five of these claims were paid incorrectly, resulting in additional overcharges of $2,247 to 

the FEHBP. These overcharges were due to the Plan programming its claims system to 

exercise a "two-month run out" period for contract rates. 

On June 1, 2008, the Plan changed its claims system to Facets, which does not apply the 

"two-month run out" period for contract rates. Therefore, this issue will not affect future 

FEHBP claims. 

Amounts Paid Greater than Covered Charges 

For the period 2005 through 2007, we identified 1,908 claims where the amounts paid 

were greater than the covered charges by a total of $725,825. From this universe, we 

selected and reviewed a judgmental sample of 110 claims with a total variance of 

$484,739, and determined ifthe Plan paid these claims properly. Our sample included all 

claims where the amounts paid exceeded covered charges by $2,000 or more. We 

identified immaterial claim payment errors, which are not being questioned. 

Association's Response: 

The Association disagrees with this finding. 

In response to the questioned amount of $2,312 in the draft report, the Association states, 

"The claim was priced properly based on the setup and configuration of the Legacy 

system, which had been used by Capital Blue Cross (CBC) to pay facility claims for over 

20 years.... Within the Legacy system, pricing is based on either a 'claims priced on or 

after' or 'admissions on or after'basis. Facilities using interim percentage rate 

arrangements will use a 'claims priced on or after' rate screen and providers using 

contract rates will reflect an 'admissions on or after' rate screen. For claims processed 

using <admissions on or after' rates, the pricing is dependent on both the admission date 

and the pricing/paid date. With this screen there is a 60-day or '2-month' run out for the 

processing of claims incurred in the previous period, but not paid until the next period. If 

a prior period claim is processed after the run out period, the claim is processed at the 

current year rate. Providers are aware ofand accept this pricing methodology." 

In response to the expanded sample, the Association states, "The result ofthe expanded 

review continues to support the Plans method of claims payment. . . For claims 

processed using 'admissions on or after' rates, the pricing is dependent on both the 

admission date and the pricing/paid date. With this screen there is a 60-day or '2-month' 

run out for the processing of claims incurred in the previous period, but not paid until the 

next period. If a prior period claim is processed after the run out period, the claim is 

processed at the current year rate. Providers are aware of and accepted this pricing 

methodology." . 

9
 
OIG Comments: 

We.will continue to question the overcharge of $2,312 from the draft report, as well as 

the overcharges of $2,247 identified in the expanded sample. Also, we will continue to 

use the effective contract rates, as stated within the provider agreements, as the basis for 

determing these overcharges. Furthermore, when providers negotiate new contract period 

rates that are greater than the prior contract period rates, the FEHBP and its subscribers 

are adversely affected by the "two-month run out" period. Based on our experience with 

auditing other BeaS plans, we have found that this "two-month run out" period is not 

common practice. 

Also, as previously cited, the 2007 benefit brochure states that the Plan allowance is the 

negotiated amourit that preferred providers have agreed to accept as payment. The Plan's 

provider agreements do not mention a "two-month run out" for prior period contract rates. 

Therefore, when claims with dates of service for a prior contract period are priced with 

the new contract period's rates, the Plan's allowances do not reflect the negotiated 

amounts stated within the provider agreements. 

Recommendation 2 

We recommend that the contracting officer disallow $4,559 in claim overcharges, and 

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

10
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

;Experience-Rated Audits Group 

Auditor-In-Charge 

Auditor 

Chief 

, Senior Team Leader 

11
 
, . v. SCHEDULE A 

CAPITAL BLUECROSS 

HARRISBURG, PENNSYLVANIA 

HEALTH BENEFIT CHARGES AND AMOUNTS QUESTIONED 

HEALTH BENEFIT CHARGES 2005 2006 

PLAN CODE 361 $69,116,336 $79,344,737 

MISCELLANEOUS PAYMENTS (265,081) 194,440 

TOTAL HEALTH BENEFIT CHARGES I $68,851,255 $79,539,177 

AMOUNTS QUESTIONED 2005 2006 

1. OMNIBUS BUDGET RECONCILIATION ACT OF 1990 REVIEW $0 $2,080 

2. CLAIM PAYMENT ERRORS 0 1,777 

TOTAL AMOUNTS QUESTIONED I $0 $3,857 , 

2007 

$94,285,626 

1,105,537 

$95,391,163 

2007 

$17,620 

2,782 

$20,402 

TOTAL 

$242,746,699 

1,034,896 

$243,781,595 • 

TOTAL 

$19,700 

4,559 

$24,259 II 
••

APPENDIX
 

BhleCross BlueShield 

Association 

December 3, 2008 (Revised 12/15/08) An A.ssoci.,tioll of JnrJt~pendl.!n{

BIlJe Cross and Blue Shield Plans 

••••••Group Chief 

Experience-Rated Audits Group· 

Office of the Inspector General Federal Employee Program 

1510 G Street, N.W. 

U.S. Office of Personnel Management Washington. D.C. 20005 

1900 E Street, Room 6400 202.942.1000 

Washington, DC 20415~11 00 Fax 202.942.1125 

Reference: OPM DRAFT AUDIT REPORT 

Capital Blue Cross 

Audit Report Number 1A-10-53-08-045 

(Dated and received October 3, 2008) 

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

Management (OPM) Draft Audit Report covering the Federal Employees' Health 

Benefits Program (FEHBP) operations for Capital Blue Cross. Our comments 

concerning the findings in the report are as follows: 

B. HEALTH BENEFIT CHARGES 

1. Omnibus Budget Reconciliation Act of 1990 $19.700 

The Plan contests $7,540 of questioned costs but does not contest that 

$12,160 may have been paid in error. One claim (Claim Sample # 24), in the 

amount of $17,620 was questioned as a possible OBRA '90 claim payment 

error. The Plan agrees that the claim was paid in error but does not agree 

with the amount questioned. The re-priclnq of the claim showed an 

overpayment amount of $12.160 instead of the OPM questioned amount of 

$17,620. Therefore, the Plan agrees that $12,160 of this claim was overpaid 

but contests the remaining balance of $5,460. The Plan stated that the claim 

overpayment was caused by a manual error. Additionally, the Plan contests 

the entire $2.080 for Claim Sample Number 25 from the OBRA '90 Claims 

Pricing Errors listing. 

In reference to the total contested amount, the Plan stated that. "Claims were 

priced properly based on the setup and configuration of the Legacy system, 

which had been used by Capital Blue Cross (CSC) to pay facility claims for 

over 20 years." The Plan further stated that. "Within the Legacy system, 

pricing is based on either a 'claims priced on or after' or 'admissions on or 
Group Chief 

OPM Draft Audit Response 

December 3, 2008 

Page 2 

after' basis. Facilities using interim percentage rate arrangements will use a 

'claims priced on or after' rate screen and providers using contract rates will 

reflect an 'admissions on or after' rate screen. For claims processed using 

'admissions on or after' rates, the pricing is dependent on both the admission 

date and the pricing/paid date. With this screen there is a 60-day or '2­

month' run out for the processing of claims incurred in the previous period, 

but not paid until the next period. If a prior period claim is processed after the 

run out period, the claim is processed at the current year rate. Providers are 

aware of and accept this pricing methodology." 

Further validation of the effectiveness of the Plan's system of internal controls 

over the process is evidenced by a low volume of errors (1 out of 355 or .3%) 

identified during this audit. Because the error was due to examiner oversight, 

follow up training and counseling will be provided. 

In addition, the Plan has several methods in place to identify overpayments. 

These methods include, but are not limited to the System Wide Claims 

Reports: COB claims reports and Duplicate claims reports provided by the 

FEP Director's Office and routine claims quality assurance audits performed 

by the Plan's Internal Auditors. While these measures are not absolute, they 

provide reasonable assurances that such items wifl be identified. Efforts wifl 

be made to periodically examine existing procedures and add additional 

controls where necessary. 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. 

2. System Review $2.312 

The Plan contests the entire amount of Claim Sample # 94 in the amount of 

$2,312. The Plan stated that, "The claim was priced properly based on the 

setup and configuration of the Legacy system, which had been used by 

Capital Blue Cross (CaC) to pay facility claims for over 20 years." The Plan 

further stated that, "Within the Legacy system, pricing is based on either a 

'claims priced on or after' or 'admissions on or after' basis. Facilities using 

interim percentage rate arrangements will lise a 'claims priced on or after' 

rate screen and providers using contract rates will reflect an 'admissions on or 

after' rate screen. For claims processed using 'admissions on or after' rates, 

the pricing is dependent on both the admission date and the pricing/paid date. 

With this screen there is a 60-day or '2-month' run out for the processtnq of 

claims incurred in the previous period, but not paid until the next period. If a 
I 

r 

Group Chief 

aPM Draft Audit Response 

December 3, 2008 

Page 3 

prior period claim is processed after the run out period, the.c1aim is processed 

at the current year rate. Providers are aware of and accept this pricing 

methodology." 

Expanded System Review 

The Plan was instructed to identify all claims paid from January 1, 2005 

through May31, 2008 that were potentially associated with the "two-month 

run out" issue and determine if the claims were priced and paid according to 

provider contract rates effective for each claim's admission date. The result 

of the expanded review continues to support the Plans method of claims 

payment (AttachmentA). For claims processed using 'admissions on or after' 

rates, the pricing is dependent on both the admission date and the 

pricing/paid date. With this screen there is a 50-day or '2-month' run out for 

the processing of claims incurred in the previous period, but not paid until the 

next period. If a prior period claim is processed after the run out period, the 

claim is processed at the current year rate. Providers are aware of and 

accept this pricing methodology." 

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. 

Executive Director 

Program Integrity 

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