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M-CAUTION;...
 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspet:tor General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Employee Organization Plan
 

Coventry Health Care
 

as Underwriter and Administrator for the
 

Mail Handlers Benefit Plan
 

Contract CS 1146 Plan Codes 45 and 48
 

Rockville, Maryland
 

REPORT NO. IB-45-00-08-016 DATE: March 26,2009 

./ 

;?~f'C~~
 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.opm.goY www.usajobs.goY 
UNITED STATES OFFICE·OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Employee Organization Plan
 

Coventry Health Care
 

as Underwriter and Administrator for the
 

Mail Handlers Benefit Plan
 

Contract CS 1146 Plan Codes 45 and 48
 

Rockville, Maryland
 

REPORT NO. IB-45-00-08-016 DATE:March 26, 2009 

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

Coventry Health Care (Plan), as underwriter and administrator for the Mail Handlers Benefit Plan, 

questions $7,813,325 in health benefit charges, $6,000,000 in excess working capital funds, and 

$108,015 in administrative expenses. The Plan agreed (A) with $11,921,340 and disagreed (D) 

with $2,000,000 ofthe questioned charges. Lost investment income (LII) on the questioned 

charges amounts to $31,454. 

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

claim payments from 2005 through September 30, 2007, as well as miscellaneous payments and 

credits and administrative expenses from 2002 through 2006 as reported in the Annual 

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

to FEHBP funds for contract years 2002 through 2006. 

Questioned items are summarized as follows: 

www.opm.gDv www.usajobs.gov 
HEALTH BENEFIT CHARGES
 

Claim Payments 

• Coordination of Benefits with Medicare fA) $4,392,402 

The Plan incorrectly paid 7,378 claim lines, resulting in overcharges of $4,392,402 to the 

FEHBP. Specifically, the Plan did not properly coordinate 6,550 claim line payments with 

Medicare as required by the FEHBP contract. As a result, the FEHBP paid as the primary 

insurer for these claims when Medicare was the primary insurer. Therefore, we estimate that 

the FEHBP was overcharged by $4,279,856 for these claim lines. The remaining 828 claim 

line payments were not coordination of benefit errors but contained other Plan payment errors, 

resulting in overcharges of$112,546 to the FEHBP. 

• Claims Paid for Ineligible Patients fA) $2,529.912 

The Plan paid 10,275 claim lines that were incurred during gaps in patient coverage or after 

termination of patient coverage with the Mail Handlers Benefit Plan, resulting in overcharges 

of$2,411,097 to the FEHBP. In addition, the Plan paid 2,167 claim lines for patients with no 

enrollment identification numbers, resulting in overcharges of$118,815 to the FEHBP. In: 

total, the FEHBP is due $2,529,912·for claim overcharges. 

• Omnibus Budget Reconciliation Act of 1990 Review fA) $443,265 

The Plan incorrectly paid 13 claims that were priced or potentially should have been priced 

under the Omnibus Budget Reconciliation Act of 1990 pricing guidelines, resulting in net 

overcharges of $443,265 to the FEHBP. Specifically, the Plan overpaid 11 claims by 

.$446,625 and underpaid 2 claims by $3,360. 

• Duplicate Claim Payments fA) $335,561 

The Plan improperly charged the FEHBP for 527 duplicate claim payments. 

• Claim Payment Errors fA) $98.608 

The Plan incorrectly paid 36 claims, resulting in overcharges to the FEHBP. 

Miscellaneous Payments and Credits 

• Health Benefit Recovery fA) $13,577 

The Plan did not return one health benefit recovery to the FEHBP. As a result, the FEHBP is 

due $13,577, consisting of $12,607 for the recovery not returned and $970 for LII on this 

recovery. 

11 
ADMINISTRATIVE EXPENSES
 

• Unallowable and/or Unallocable CNA Overhead Costs (A) $108,015 

CNA (former underwriter ofthe Mail Handlers Benefit Plan) charged the FEHBP for 

unallowable and/or unallocable costs that were included in overhead cost pools, resulting in 

overcharges to the FEHBP for 2002. 

CASH MANAGEMENT 

• Working Capital Deposit $6,000,000 

At the end ofthe audit scope (as ofpecember 31, 2006), the Plan held a working capital(WC) 

deposit with an excess amount of $4,000,000 over the amount needed to meet the Plan's daily 

cash needs for FEHBP claim payments and administrative expenses. In response to our initial 

audit inquiry, the Plan provided a WC calculation showing that the Plan held an excess 

amount of $6,000,000 in FEHBP funds as of August 31, 2008. 

The Plan agreed (A) with $4,000,000 and disagreed (D) with $2,000,000 ofthe questioned 

charges. Although the Plan made an adjustment of $6,000,000 to the we deposit as a result 

of our audit, the Plan did not agree with the inclusion ofthe additional $2,000,000 in the audit 

finding because the amount was not related to the current audit period. 

LOST INVESTMENT INCOME ON AUDIT FINDINGS 

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

$31gS4, calculated through December 31, 2008.
 

111 
CONTENTS
 

PAGE
 

EXECUTIVE SUMMARY i
 

I. INTRODUCTION AND BACKGROUND	 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY	 3
 

III. AUDIT FINDINGS AND RECOMMENDATIONS	 6
 

A. HEALTH BENEFIT CHARGES	 6
 

t. Claim Payments	 6
 

a. Coordination of Benefits with Medicare	 6
 

b. Claims Paid for Ineligible Patients	 10
 

c. Omnibus Budget Reconciliation Act of 1990 Review	 12
 

d. Duplicate Claim Payments	 15
 

e. Claim Payment Errors	 16
 

2. Miscellaneous Payments and Credits .,	 18
 

a. Health Benefit Recovery 	 18
 

B. ADMINISTRATIVE EXPENSES	 20
 

1. Unallowable and/or Unallocable CNA Overhead Costs	 20
 

C. CASH MANAGEMENT	 21
 

1. Working Capital Deposit	 21
 

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS	 23
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT	 24
 

V. SCHEDULES 

A. CONTRACT CHARGES AND AMOUNTS QUESTIONED 

B. QUESTIONED CHARGES 

C. LOST INVESTMENT INCOME CALCULATION 

APPENDIX	 (Claims Administration Corp's reply, an affiliate of Coventry Health 

Care, dated December 18,2008, to the draft audit report) 
I. INTRODUCTION AND BACKGROUND 

INTRODUCTION 

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

audit ofthe Federal Employees Health Benefits Program (FEHBP) operations at Coventry Health 

Care (Plan) as underwriter and administrator for the Mail Handlers Benefit Plan (MHBP). The 

Plan is located in Rockville, Maryland. 

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 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. 

MHBP is an experience-rated employee organization plan offering health care benefits to its 

subscribers. MHBP is open to all Federal employees and annuitants who are eligible to enroll in 

the FEHBP and who are, or become, members or associate members ofthe National fostal Mail 

Handlers Union (Union). The Union is the sponsor of the MHBP, operating under Contract CS 

1146 to provide a health benefits plan authorized by the FEHB Act. 

The following contractual relationships existed during the audit period: 

•	 The Union contracted with Niagara Fire Insurance Company (Niagara) to perform the 

underwriting and administrative responsibilities through June 30, 2002. Niagara was part of 

a group of companies, referred to collectively as CNA. Niagara delegated the administrative 

functions to an affiliate, Claims Administration Corp (CAC), and CAC entered into contracts 

for pharmacy benefit management and managed care services for the MHBP. 

•	 Effective July 1, 2002, First Health Life and Health Insurance Company and Cambridge Life 

Insurance Company (jointly referred to as First Health Life) assumed the responsibilities for 

underwriting and administering the contract. In addition, First Health Group Corporation 

(First Health), the parent company of First Health Life, acquired CAC. 

•	 Effective January 1,2003, the Union contracted with First Health Life to underwrite the 

MHBP and with CAC to perform the administrative functions. In addition, the Union 

contracted with First Health to provide pharmacy benefit management and health benefit 

servIces. 

I
 
•	 On January 28, 2005, First Health was acquired by Coventry Health Care. The Union has the 

following contractual arrangements with affiliates of Coventry Health Care: 

)- First Health Life underwrites the MHBP;
 

)- CAC performs the administrative functions; and
 

)- First Health provides pharmacy benefit management and health benefit services.
 

The MHBP's contract (CS 1146) with aPM is experience-rated. Thus, the costs of providing 

service benefits in the prior years are reflected in current and future year's premium rates. In 

addition, the contract provides that in the event of termination, unexpended program funds revert 

to the Federal Government (FEHBP Trust Fund). In recognition of these provisions, the contract 

requires an accounting of program funds to be submitted at the end of each contract year. The 

accounting is made on a statement of operations known as the Annual Accounting Statement. 

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

management. Also, management ofthe Plan is responsible for establishing and maintaining a 

system of internal controls. 

The findings from our previous audit of the MHBP (Report No. IB-45-02-02-069, dated 

September 22, 2004), covering CNA administrative expenses for contract years 1999 through 

2001, have been satisfactorily resolved. During this period, CNA was the underwriter for the 

MHBP. 

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

Plan officials throughout the audit and at an exit conference; and were presented in detail in a 

draft report, dated October 23, 2008. The Plan'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 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: 

Health Benefit Charges 

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

payments. 

•	 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 

ofthe contract and applicable regulations. 

Cash Management 

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

laws and regulations concerning cash management in the FEHBP. 

SCOPE 

We conducted our performance audit in accordance with generally accepted government auditing 

standards. Those standards require that we plan and 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 MHBP's FEHBP Annual Accounting Statements for contract years 2002 

through 2006. During this period, the Plan paid approximately $9.8 billion in health benefit 

charges and $977 million in administrative expenses (See Figure 1 and Schedule A). The Plan 

also paid approximately $88 million in other expenses and retentions (See Schedule A). 

3
 
Conventry Health Care as 

UndelWriter and Administrator for the MHBP 

Summary of Contract Charges 

$2.5

$2.0 CIl 

I:

o $1.5 

$1.0 

$0.5

$0.0 

2002 2003 2004 2005 2006

Contract Years 

r:l Health Benefit Payments • Administrative Expenses 

Figure 1 - Contract Charges 

Specifically, we reviewed approximately $54 million in claim payments made from 2005 through 

September 30, 2007 for coordination ofbenefits, duplicate payments, and proper adjudication. In 

addition, we reviewed miscellaneous payments and credits (Le., refunds, subrogation recoveries, 

provider audit recoveries, fraud recoveries, and phannacy drug rebates), administrative expenses, 

and cash management for 2002 through 2006. 

In planning and conducting our audit, we 

obtained an understanding of the Plan's 

internal control structure to help determine 

the nature, timing, and extent ofour 

auditing procedures. This was determined 

to be the most effective approach to select 

areas 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 aU 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 (FAR) and Federal 

Employees Health Benefits Acquisition Regulations (FEHBAR), 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 setforth 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 

Plan and the Centers for Medicare and Medicaid Services. Due to time constraints, we did not 

verify the reliability of the data generated by the various information systems involved. 

However, while utilizing the computer-generated data during our audit testing, nothing came to 

our attention to cause us to doubt its reliability. We believe that the data was sufficient to 

achieve our audit objectives. 

The audit was performed at the Plan's officein Rockville, Maryland from May 13,2008 through 

June 20, 2008. Audit fieldwork was also performed at our offices in Washington, D.C. and 

Cranberry Township, Pennsylvania through October 23,2008. 

4
 
The Plan did a great job supporting our audit and promptly responded to our questions, samples, 

infonnation requests, and audit inquiries. Also, the Plan was very cooperative and well prepared 

for our audit. 

METHODOLOGY 

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

financial, and cost accounting systems by inquiry ofPlan officials. 

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

reviewed samples of 11,121 claims. I We used the FEHBP contract, the benefit plan brochure, 

and the Plan's provider agreements to detennine the allowability of benefit payments. The 

results of these samples were not projected to the universe of claims. 

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

records during our audit of miscellaneous payments and credits. We also selected and reviewed 

health benefit refunds, subrogation recoveries, provider audit recoveries, fraud recoveries, and 

pharmacy drug rebates to detennine ifrefunds, recoveries, and rebates were returned to the 

FEHBP in a timely manner. 2 

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

2002 through 2006. Specifically, we reviewed administrative expenses relating to cost centers, 

departments, natural accounts, out-of-system adjustments, prior period adjustments, pension, 

employee health benefits, post-retirement benefits, executive compensation, gains and losses, 

return on investment, subcontracts, benefit plan brochure costs, and Health Insurance Portability 

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

FEHBAR to deternHne the allowability, allqcability, and reasonableness of charges. 

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

funds in accordance with Contract CS 1146 and applicable laws and regulations. 

I See the audit findings for "Coordination of Benefits with Medicare" (Al.a), "Claims Paid for Ineligible Patients" 

(Al.b), "Omnibus Budget Reconciliation Act of 1990 Review" (A] .c), "Duplicate Claim Payments" (A I.d), and 

"Claim Payment Errors" (AI.e) on pages 6 through 18 for specific details of our sample selection methodologies. 

2 See the audit finding for "Health Benefit Recovery" (A2.a) on pages 18 through 20 for specific details of our 

sample selection methodologies. 

5
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Coordination ofBenefits with Medicare $4,392,402 

The Plan incorrectly paid 7,378 claim lines, resulting in overcharges of $4,392,402 to 

the FEHBP. Specifically, the Plan did not properly coordinate 6,550 claim line 

payments with Medicare as required by the FEHBP contract. As a result, the FEHBP 

paid as the primary insurer for these claims when Medicare was the primary insurer. 

Therefore, we estimate that the FEHBP was overcharged by $4,279,856 for these claim 

lines. The remaining 828 claim line payments were not coordination of benefit errors 

but contained other Plan payment errors, resulting in overcharges of$112,546 to the 

FEHBP. 

The 2007 Mail Handlers Benefit Plan brochure, page 126, Primary Payer Chart, 

illustrates when Medicare is the primary payer. In addition, page 22 of that brochure 

states, "We limit our payment to an amount that supplements the benefits that Medicare 

would pay under Medicare Part A (Hospital Insurance) and Medicare Part B (Medical 

Insurance), regardless of whether Medicare pays." 

Contract CS 1146, Part II, section 2.6 states, "(a) The Carrier shall coordinate the 

payment of benefits under this contract with the payment of benefits under Medicare, 

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

whether it is the primary carrier ...." Also, Part III, section 3.2 (b)(I) states, "The 

. Carrier may charge a cost to the contract for a contract term ifthe cost is actual, 

allowable, allocable, and reasonable ...." 

In addition, Contract CS 1146, Part II, section 2.3(g) states, "Ifthe Carrier or aPM 

determines that a Member's claim has been paid in error for any reason the Carrier 

shall make a prompt and diligent effort to recover the erroneous payment ." 

For claims incurred and paid from October 1, 2005 through September 30, 2007, we 

performed a computer search and identified 362,781 claim lines, totaling $28,315,090 

in payments, that potentially were not coordinated with Medicare. From this 

universe, we selected for review a sample of 19,571 claim lines, totaling $12,599,311 

in payments, to determine whether the Plan complied with the contract provisions 

relative to coordination of benefits (COB) with Medicare. When we submitted our 

sample of potential COB errors to the Plan on November 15,2007, the claims were 

within the Medicare timely filing requirement and could be filed with Medicare for 

coordination of benefits. 

6
 
The following table is a summary of the claim lines that were selected for review: 

Claim Type Claim 

Lines 

Amounts 

Paid 

Sample Selection 

Methodology 

Medicare Part A Primary for 

Inpatient (lIP) Facility 

1,181 $6,017,539 Patients with cumulative 

claims of $750 or more 

Medicare Part A Primary for 

Skilled Nursing, Home Health 

Care (HHC), and Hospice Care 

337 $428,114 Patients with cumulative 

claims of $2,500 or more 

Medicare Part B Primary for 

Certain lIP Facility Charges 

168 $1,234,806 .Patients with cumulative 

claims of $5,000 or more 

Medicare Part B Primary for 

Skilled Nursing, HHC, and 

Hospice Care 

0 $0 The potential COB errors 

were immaterial. Therefore, 

no claim lines were selected. 

Medicare Part B Primary for 

Outpatient Charges 

3,029 $2,548,641 Patients with cumulative 

claims of $2,500 or more 

Medicare Part B Primary for 

Professional Charges 

14,856 $2,370,211 Patients with cumulative 

claims of$4,000 or more 

Total 19,571 $12,599,311 

Generally, Medicare Part A covers 100 percent of inpatient care in hospitals, skilled 

nursing facilities, hospice care, and home health care. For each Medicare Benefit 

Period, there is a one-time deductible, followed by a daily copayment beginning with 

the 61 sl day. Beginning with the 91 st day ofthe Medicare Benefit Period, Medicare 

Part A benefits may be exhausted, depending on whether the patient elects to use their 

Lifetime Reserve Days. For the uncoordinated Medicare Part A claims, we estimate 

that the FEHBP was overcharged for the total chum payment amounts. When 

applicable, we reduced the questioned amount by the Medicare deductible andlor 

Medicare copayment. 

Medicare Part B pays 80 percent of most outpatient charges and professional claims 

after the calendar year deductible has been met. Also, Medicare Part B covers a 

portion of inpatient facility charges for ancillary services such as durable medical 

equipment, medical supplies, diagnostic tests, and clinical laboratory services. Based 

on our experience, ancillary items account for approximately 30 percent of the total 

inpatient claim payment. Therefore, we estimate that the FEHBP was overcharged 25 

percent for these inpatient claim lines (0.30 x 0.80 = 0.24 25 percent). 

Based on our review of the potential COB errors in our sample, we identified 7,378 claim 

lines that were paid incorrectly, resulting in overcharges of $4,392,402 to the FEHBP.3 

J In addition, there were 225 claim lines, totaling $405,042 in payments, with COB errors that were identified and 

adjusted by the Plan prior to receiving our sample of potential COB errors. Since these COB errors were identified 

and adjusted by the Plan prior to receiving or sample, we did not question these COB errors in the final report. 

7
 
The following table details the questioned payments by claim type: 

Claim Type Claim 

Lines 

Amounts 

Paid 

Amounts 

Questioned 

Medicare Part A Primary for 

UP Facility 

201 $3,093,263 $2,725,919 

Medicare Part A Primary for 

Skilled Nursing, HHC, and 

Hospice Care 

32 $28,608 $28,608 

Medicare Part B Primary for 

Certain IIP Facility Charges 

4 $79,170 $18,890 

Medicare Part B Primary for 

Skilled Nursing, HHC, and 

Hospice Care 

0 $0 $0 

Medicare Part B Primary for 

Outpatient Charges 

1,038 $966,989 $731,476 

Medicare Part B Primary for 

Professional Charges 

6,103 $972,347 $887,509 

Total 7,378 $5,140,377 $4,392,402 

Our audit disclosed the following for the· claim payment errors: 

•	 For 6,243 (85 percent) of the claim lines questioned, there was incorrect or no 

Medicare COB information on the Plan's claims system to identify Medicare as 

the primary payer when the claims were paid. However, when the correct 

Medicare COB information was subsequently added to the claims system, the 

Plan did not review andlor adjust the patient's prior claims back to the Medicare 

effective dates. As a result, we estimate that the FEHBP was overcharged 

$4,238,407 for these claim lines that were not coordinated with Medicare. 

•	 For 828 (11 percent) of the claim lines questioned, we found that these claim lines 

were not actually COB errors but contained other Plan payment errors. As a . 

result, we detennined that the FEHBP was overcharged $112,546 for these claim 

payment errors. 

•	 For 307 (4 percent) ofthe claim lines questioned, the correct Medicare 

information was present on the Plan's claims system to identify Medicare as the 

primary payer when the claims were paid. The exact reason(s) why these claims 

were not coordinated with Medicare could not be identified. As a result, we 

estimate that the FEHBP was overcharged $41,449 for these claim lines that were 

not coordinated with Medicare. 

Of the $4,392,402 in questioned charges, $150,950 or 3 percent were identified by the 

Plan prior to receiving our sample of potential COB errors on November 15, 2007. 

However, since the Plan had not completed the recovery process andlor adjusted these 

8
 
claims by November 15, 2007, we are continuing to question these COB errors. The 

remaining questioned charges 0[$4,241,452 (97 percent) were identified as a result of 

our audit. 

Plan's Response: 

The Plan agrees with this finding and states that these payments were good faith 

erroneous benefit payments. The Plan immediately initiated efforts to recover these 

overpayments in accordance with CS 1146, Part II, section 2.3(g). As part of the 

Plan's recovery process, the Plan returns all overpayment recoveries to the FEHBP 

promptly after being received. 

The Plan also states, "a significant majority of the claim lines paid in error ... involved 

coordination of benefits with a member's Medicare Part B primary coverage. Unlike 

Medicare Part A, in which the MHBP can assume a member is enrolled as of the month 

they tum age 65, enrollment in Medicare Part B not only is voluntary, but can be 

deferred at the enrollee's election. In addition, the MHBP's ability to determine COB 

status with Medicare Part B depends on its timely receipt of conversi~n to annuitant 

status from the government payroll offices. In other words, obtaining credible evidence 

demonstrating both (1) a member's annuitant status, and (2) hislher enrollment in 

Medicare Part B is largely outside the MHBP's control, making COB errors extremely 

difficult to avoid where that evidence is not timely furnished. 

To facilitate it in avoiding Medicare COB errors to the greatest extent possible, the 

MHBP participates in a Voluntary Data Sharing Agreement ("VDSA") with CMS. 

Through that arrangement, the MHBP obtains the most up-to-date Medicare Part B 

enrollment information available from CMS for uploading into its member eligibility 

files." 

Recommendation 1 

We recommend that the contracting officer disallow $4,279,856 for uncoordinated 

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

Recommendation 2 

We recommend that the contracting officer ensure that the Plan has procedures in 

place to review all claims incurred back to the Medicare effective dates when 

updated, other party liability information is added to the Plan's claims system. When 

Medicare eligibility is subsequently reported, the Plan is expected to immediately 

detennine if already paid claims are affected and, if so, to initiate the recovery process 

within 30 days. 

9
 
Recommendation 3 

We recommend that the contracting officer disallow $112,546 in claim overcharges 

resulting from other Plan payment errors, and verify that the Plan returns all amounts 

recovered to the FEHBP. 

b. Claims Paid for Ineligible Patients $2,529,912 

The Plan paid 10,275 claim lines that were incurred during gaps in patient coverage or 

after termination ofpatient coverage with the Mail Handlers Benefit Plan, resulting in 

overcharges of $2,411 ,097 to the FEHBP. In addition, the Plan paid 2,167 claim lines 

for patients with no enrollment identification (lD) numbers, resulting in overcharges of 

$118,815 to the FEHBP. In total, the FEHBP is due $2,529,912 for claim overcharges. 

As previously cited from Contract CS 1146, costs charged to the FEHBP must be 

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

required to make a diligent effort to recover the overpayments. 

Enrollees with No Coverage during Dates of Service 

We performed a computer search to identify claims that were incurred and paid 

during gaps in patient coverage or after tennination of patient coverage with the Mail 

Handlers Benefit Plan. For the period January I, 2005 through September 30, 2007, 

we identified claim payments, totaling $5,716,775, for 7,472 patients that met this 

search criterion. 

From this universe of 7,472 patients, we selected all patients with cumulative claim 

. lines of $2,500 or more. This sample included 15,865 claim line payments, totaling 

$4,212,231, for 330 patients. Our review of the sample identified 10,275 claim lines, 

totaling $2,411,097 in payments, that were incurred and paid during gaps in patient 

coverage or after termination of coverage. As a result, the FEHBP is due $2,411,097 

for these improper payments. 

patients with No Enrollment Record 

We perfonned a computer search to identify claims incurred and paid for patients with 

no enrollment ID numbers. For the period January 1, 2005 through September 30, 

2007, our search identified claim payments, totaling $5,386,641, for 1,174 patients with 

no enrollment ID numbers. 

From this universe of 1,174 patients, we selected all patients with cumulative claim 

lines of $2,000 or more. This sample included 26,826 claim line payments, totaling 

$4,995,049, for 285 patients. Our review ofthe sample identified 2,167 claim lines, 

totaling $118,815 in payments, that were made for patients with no enrollment ID 

number. As a result, the FEHBP is due $118,815 for these improper payments. 

10
 
Summary of Claims Paid to Ineligible Patients 

In total, the Plan charged the FEHBP $2,529,912 for 12,442 claim line payments 

made for ineligible patients.4 Our audit disclosed the fonowing reasons for the errors: 

•	 For 12,217 of the claim lines questioned, the Plan received retroactive termination 

of patient coverage from the Federal agency's payroll office. However, when the 

termination dates were subsequently received, the Plan did not review and/or adjust 

the patient's prior claims back to the termination date. As a result, the FEHBP was 

overcharged $2,415,908 in claim payments for patients not eligible for benefits. 

•	 For 63 of the claim lines questioned, there were various eligibility errors. For 

example, we identified an instance where the patient's coverage terminated during 

an inpatient hospital stay and the Plan erroneously paid for all dates of service under 

this claim. As a result, the FEHBP was overcharged $90,665 in claim payments for 

patients not eligible for benefits. 

•	 For 21 of the claim lines questioned, the claim processors entered incorrect data. 

As a result, the FEHBP was overcharged $19,108 in claim payments for patients 

not eligible for benefits. 

•	 For 141 ofthe claim lines questioned, the Plan used incorrect social security 

numbers to determine whether the patients were eligible for coverage. As a result, 

the FEHBP was overcharged $4,231 in claim payments for patients not eligible 

for benefits. 

Ofthe $2,529,912 in questioned charges, $841,711 (33 percent) was identified by the 

Plan prior to receiving our samples on February 28, 2008. However, since the Plan had 

not completed the recovery process and/or adjusted these claim lines by February 28, 

2008, we are continuing to question these eligibility errors. The remaining questioned 

charges of $1 ,688,201 (67 percent) were identified as a result of our audit. 

Plan's Response: 

The Plan agrees with this finding and states, "12,217 ofthe 12,422 claim lines that we 

concur were paid erroneously but in good faith, or 98%, were attributable to 

Government agency payroll office delays in notifying the MHBP of an individual's 

termination ofMHBP coverage. Section 1.5 of Contract No. CS 1146 provides that 

benefit payments made as a result of such payroll office errors are valid charges 

against that Contract." The Plan immediately began making efforts to recover the 

4 In addition, there were 1,160 claim lines, totaling $733,453 in payments, with eligibility errors that were identified 

and adjusted or voided by the Plan priorlo receiving our samples on February 28, 2008. Since these eligibility 

errors were identified and adjusted or voided prior to receiving our samples, we did not question these claim line 

payments in the final report. 

11
 
overpayments as required by CS 1146, Part II, section 2.3(g). As part ofthe Plan's 

recovery process, all amounts recovered on these overpayments will be credited to the 

FEHBP promptly upon receipt. 

The Plan also states, "payment ofthe overwhelming majority ofthe questioned claifll 

lines is attributable to payroll office reporting delays. In short, the MHBP did not ' 

receive agency notification of the member's tennination until after the date on which it 

adjudicated and issued payment on the claim line, i.e., circumstances that are beyond 

the MHBP's ability to control and/or correct. That said, we plan to implement 

procedures to ensure that upon receiving payroll office notice of an individual's 

tennination of coverage, the MHBP identifies any and all post-tennination claims paid 

under that enrollment and initiates overpayment recovery efforts on them as required 

under Section 2.3(g) ofContract No. CS 1146, as supplemented by our OPM-approved 

overpayment recovery guidelines." 

Recommendation 4 

We recommend that the contracting officer disallow $2,529,912 in claim overcharges, 

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

Recommendation 5 

We recommend that the contracting officer verify that the Plan implemented 

procedures to ensur~ that when a payroll office notice of an individual's termination 

of coverage is received, the Plan identifies all post-tennination claims paid under that 

enrollment and immediately initiates overpayment recovery efforts. 

c.. Omnibus, Budee. Reconciliation Act of 1990 Review $443.265 

The Plan incorrectly paid 13 claims that were priced or potentially should have been 

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

guidelines, resulting in net overcharges of$443,265 to the FEHBP. Specifically, the 

Plan overpaid 11 claims by $446,625 and underpaid 2 claims by $3,360. 

As previously cited from Contract CS 1146, 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 Plan must 

coordinate the payment ofbenefits with Medicare. 

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. 

12 
Using a program developed by the Centers for Medicare and Medicaid Services 

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

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

The following summarizes the claim payment errors. 

Claims Not Priced Under OBRA 90 

For the period 2005 through September 30,2007, we identified 5,374 claims, totaling 

$37,583,828 in payments, that were potentially subject to OBRA 90 pricing guidelines 

but appeared to be paid under the Plan's standard pricing procedures. From this 

universe, we selected and reviewed a judgmental sample of274 claims, totaling 

$19,424,926 in payments, to determine ifthe Plan paid these claims properly. Our 

sample included all possible OBRA 90 claims with amounts paid of $30,000 or more. 

Based on our review, we determined that nine of these claims were paid incorrectly, 

resulting in overcharges of $396,381 to the FEHBP. 

These claim payment errors resulted from the following: 

•	 The Plan did not properly coordinate four claims with Medicare, resulting in 

overcharges of $195,008 to the FEHBP. We determined that these claims should 

not have been priced under OBRA 90 but should have been coordinated with 

Medicare. These claim payment errors occurred because the Plan's claims system 

contained incorrect Medicare COB information to identify Medicare as the 

primary payer when the claims were paid. (These questioned overcharges are not 

included in the "Coordination ofBenefits with Medicare" finding (A1.a).) 

•	 The Plan did not price four claims under OBRA 90, resulting in overcharges of 

$177,290 to the FEHBP. These claim errors occurred because the Plan's claims 

system contained incorrect Medicare COB or subscriber retirement information 

when the claims were paid. 

•	 The Plan inadvertently did not price one claim under OBRA 90, resulting in an 

over~harge of $24,083 to the FEHBP. The exact cause of this claim payment 

error could not be identified". 

OBRA 90 Claim Pricing Errors 

For the period 2005 throughSeptember 30, 2007, we identified 2,075 claims, totaling 

$18,366,598 in payments, that were" subject to OBRA 90 pricing guidelines. From 

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

$4,522,005 in payments, to determine if these claims were correctly priced and paid 

by the Plan. Our sample included all OBRA 90 claims with amounts paid of $23,400 

or more. 

13
 
Based on our review, we determined that four ofthese claims were paid incorrectly, 

resulting in net overcharges of $46,884 to the FEHBP. Specifically, the Plan ov.erpaid 

two claims by $501244 and underpaid two claims by $3,360. 

These claim payment errors resulted from the following: 

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

overcharge of $47,599 to the FEHBP. We detennined that this claim should not 

have been priced under OBRA 90 but should have been coordinated with 

Medicare. This claim payment error was identified by the Plan prior to receiving 

our sample on December 14,2007. However, since the Plan did not complete the 

recovery process and/or adjust this claim prior to receiving our sample, we are 

continuing to question this claim payment error. (This questioned overcharge is 

not included in the "Coordination ofBenefits with Medicare" finding (A1.a).) 

•	 The Plan priced two claims using an earlier version ofthe eMS Pricer, resulting 

in net undercharges of $21 0 to the FEHBP. Specifically, the Plan overpaid one 

claim by $2,645 and underpaid one claim by $2,855. 

•	 The Plan incorrectly priced one claim due to a manual pricing error, resulting in 

an undercharge of$505 to the FEHBP. Specifically, the Plan incorrectly reduced 

the diagnostic related grouping (DRG) payment by subtracting the difference 

between the private room rate and the semi-private room rate. Under DRG 

pricing guidelines, this difference should not be excluded from the total billed 

amount. 

Plan's Response: 

The Plan agrees with this finding and states that these payments were good faith 

erroneous benefit payments. The Plan immediately began making efforts to recover 

the overpayments as required by CS 1146, Part III section 2.3(g). As part of the 

Plan's recovery process, all amounts recovered on these overpayments will be 

credited to the FEHBP promptly upon receipt. 

The Plan also states that to the extent that several of the subject claims involve 

Medicare COB issues, those claims will be subject to the corrective measures the Plan 

implements as recommended under the "Coordination ofBenefits with Medicarell 

finding (AI.a). 

Recommendation 6 

We recommend that the contracting officer disallow $446,625 in claim overcharges, 

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

14 
Recommendation 7 

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

$3,360 if additional payments are made to the providers to correct the underpayment 

errors. 

d. Duplicate Claim Payments $335,561 

The Plan improperly charged the FEHBP $335,561 for 527 duplicate claim payments 

from 2005 through September 30, 2007. These payments were unnecessary and 

unallowable charges to the FEHBP. 

As previously cited from Contract CS 1146, 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. 

Section 6(h) of the FEHB Act provides that rates should reasonably and equitably 

reflect the costs of benefits provided. 

We performed a computer search for potential duplicate payments on claims paid 

during the period January 1,2005 through September 30, 2007. We selected and 

reviewed 1,159 groups, totaling $1,625,030 (out of25,959 groups, totaling 

$1,758,856) in potential duplicate payments, under our "best matches" criteria. We 

also selected and reviewed 658 groups, totaling $1,170,820 (out of91,985 groups, 

totaling $3,258,561) in potential duplicate payments, under our "near matches" 

criteria. Our samples included all groups with potential duplicate payments of $250 

or more under the "best matches" criteria and $500 or more under the "near matches" 

criteria. 

Based on our review, we determined that 468 claim payments in our "best matches" 

sample were duplicates, resulting in overcharges of$291,526 to the FEHBP. Also, 

we determined that 59 claim payments in our "near matches" sample were duplicates, 

resulting in overcharges of $44,035 to the FEHBP. In total, the Plan charged the 

FEHBP $335,561 for these 527 duplicate claim payments from 2005 through 

September 30,2007.5 These duplicate claim payments occurred when the claims 

were deferred as potential duplicates on the claims system, but were overridden by the 

processors. 

5 In addition, there were 35 duplicate claim payments, totaling $36,747, that were identified and adjusted or voided 

by the Plan prior to receiving our samples on November 15,2007. Since these duplicate claim payments were 

identified .!!cnd adjusted or voided by the Plan prior to receiving our samples, we did not question these duplicate 

claim payments in the final report. 

15
 
Plan's Response: 

The Plan agrees with this finding and states that these payments were good faith 

erroneous benefit payments. The Plan immediately began making efforts to recover 

the overpayments as required by CS 1146, Part II, section 2.3(g). As part ofthe 

.Plan's recovery process, all amounts recovered on these overpayments will be
 

credited to the FEHBP promptly upon receipt.
 

Recommendation 8 

We recommend that the contracting officer disallow $335,561 for duplicate claim 

payments charged to the FEHBP, and verify that the Plan returns all amounts 

recovered to the FEHBP. 

Recommendation 9 

We recommend that the contracting officer instruct the Plan to identify the root 

cause(s) ofthe claim payment errors and develop an action plan to prevent these types 

of errors in the future. 

e. Claim Payment Errors $98,608 

The Plan incorrectly paid 36 claims, resulting in overcharges of $98,608 to the 

FEHBP. 

As previously cited from Contract CS 1146, 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. 

The following summarizes the claim payment errors. 

Assistant Surgeon Review 

For the period January 1,2005 through September 30, 2007, we identified 2,883 

assistant surgeon claim groups, totaling $564,728 in potential overpayments, that may 

not have been paid in accordance with the Plan's assistant surgeon pricing procedures. 

From this universe, we selected and reviewed a judgmental sample of 86 assistant 

surgeon claim groups, totaling $174,812 in potential overpayments, to determine if 

the Plan paid these claims properly. Our sample included all assistant surgeon claim 

groups with potential overpayments of$l,OOO or more. The majority of these claim 

groups contained one primary surgeon and one assistant surgeon claim. Based on our 

review, we determined that 23 claims were paid incorrectly, resulting in overcharges 

of $53,611 to the FEHBP. 

16 
The claim payment errors resulted from the following: 

•	 The Plan paid 12 claims to non-covered providers, resulting in overcharges of 

$35,514 to the FEHBP. Specifically, these providers were physician assistants 

that were not covered for surgery. 

•	 The Plan incorrectly paid six claims due to various manual pricing errors, 

resulting in overcharges of $7,965 to the FEHBP. For example, the Plan paid one 

claim without applying the 10 percent co-insurance amount. 

•	 The Plan did not limit the allowable charge to the Plan's allowance when pricing 

three Non-Preferred Provider Organization (non-PPO) claims, resulting in 

overcharges of $7,465 to the FEHBP. 

•	 The Plan incorrectly paid two assistant surgeon claims, resulting in overcharges of 

$2,667 to the FEHBP. These overcharges were due to errors in the calculation of 

the assistant surgeon fee, which should have been priced at 16 percent ofthe 

primary surgeon allowed amount. 

In addition to the above sample, the Plan identified six additional assistant surgeon 

claims that were paid incorrectly due to errors in the calculation ofthe assistant 

surgeon fee. As a result, the FEHBP was overcharged an additional $3,802. 

System Review 

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

September 30, 2007, we identified 7,025,774 claim lines, totaling $899,648,442 in 

payments, using a standard criteria based on our audit experience. From this 

universe, we selected and reviewed a judgmental sample of 125 claims (representing 

323 claim lines), totaling $5,106,844 in payments, to detennine ifthe Plan 

adjudicated these claims properly.6 Based on our review, we detennined that seven 

claims were paid incorrectly, resulting in overcharges of $41,195 to the FEHBP. 

The claim payment errors resulted from the following: 

•	 The Plan did not limit the allowable charge to the Plan's allowance when pricing 

three non-PPO claims, resulting in overcharges of$34,738 to the FEHBP. 

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

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

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

claim dollars paid. 

17
 
•	 The Plan incorrectly paid three claims due to various manual pricing errors, 

resulting in overcharges of $4,963 to the FEHBP. As an example, the Plan 

entered an incorrect allowable amount when pricing a claim. 

•	 In one instance, the Plan erroneously adjusted a claim that was priced correctly, 

resulting in an overcharge of $1 ,494 to the FEHBP. 

Plan's Response: 

The Plan agrees with this finding and states that these payments were good faith 

erroneous benefit payments. The Plan immediately began making efforts to recover 

the overpayments as required by CS 1146, Part II, section 2.3(g). As part ofthe 

Plan's recovery process, all amounts recovered on these overpayments will be 

credited to the FEHBP promptly upon receipt. 

Recommendation 10 

We recommend that the contracting officer disallow $98,608 in claim overcharges, 

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

2.	 Miscellaneous Payments and Credits 

a.	 Health Benefit Recovery $13,577 

The Plan did not return one health benefit recovery to the FEHBP. As a result, the 

FEHBP is due $13,577, consisting of$12,607 for the recovery not returned and $970 

for lost investment income (LII) on this recovery. 

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." Based on insurance industry practice, the Plan should have returned the 

recovery to the FEHBP within 30 days after being received. 

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

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

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

by the Secretary ofthe Treasury ...." 

For the period 2002 through 2006, there were 255,937 health benefit refunds and 

recoveries (i.e., claim overpayment refunds, subrogation recoveries, provider audit 

recoveries, fraud recoveries, and pharmacy drug rebates) totaling $259,807,213. From 

this universe, we judgmentaUy selected and reviewed 161 health benefit refunds and 

recoveries, totaling $63,994,475, to determine ifthe Plan returned these funds to the 

FEHBP in a timely manner. 

18
 
Our sample selections included the following: 

•	 From 2002 through 2004, we selected the 30 highest recovery check amounts for 

each year. 

•	 During 2005, the Plan changed the reporting format of tracking health benefit 

refunds and recoveries. Therefore, we adjusted our sample selection methodology 

as follows: 

» From January 2005 through May 2005, we selected the 10 highest recovery 

check amounts. 

»	 From June 2005 through December 2005, we selected the 10 highest recovery 

check amounts, all pharmacy drug rebates, the 5 highest subrogation recovery 

amounts, and the 5 highest provider audit recovery amounts. 

»	 From 2005, we also judgmentally selected six high dollar fraud recovery amounts. 

•	 From 2006, we selected the 10 highest recovery check amounts, all pharmacy drug 

rebates, the 5 highest subrogation recovery amounts, and the 5 highest provider 

audit recovery amounts. We also judgmentally selected six high dollar fraud 

recovery amounts. 

Based on our review, we determined that the Plan did not return one health benefit 

recovery of $12,607 to the FEHBP. The Plan did not return this amount to the FEHBP 

because it inadvertently did not cash the provider's refund check. As a result, the 

FEHBP is due $13,577, consisting of$12,607 for the recovery not returned and $970 

for LII on this recovery. Subsequent to our identification of this oversight, the Plan 

requested and received a replacement check from the provider, and returned the funds 

to the FEHBP on July 10, 2008. 

As part ofthis finding, we calculated LII through December 31,2006 on the health 

benefit recovery that was not returned to the FEHBP. In schedule C ofthis report, we 

calculated additional LII from January 1,2007 through July 9, 2008. 

Plan's Response: 

The Plan agrees with this finding. 

Recommendation 11 

We verified that the Plan returned $12,607 to the FEHBP on July 10,2008 for the 

questioned health benefit recovery. Therefore, no further action is required for this 

questioned amount. 

19
 
Recommendation 12 

We recommend that the contracting officer direct the Plan to credit the FEHBP $970 

for LII on the questioned health benefit recovery. 

B.	 ADMINISTRATIVE EXPENSES 

1.	 Unallowable and/or Unallocable CNA Overhead Costs $108,015 

CNA (the former underwriter of the Mail Handlers Benefit Plan) charged the FEHBP for 

unallowable and/or unallocable costs that were included in overhead cost pools, resulting 

in overcharges of $108,015 to the FEHBP for 2002. 1 

Contract CSI 146, Part III, section 3.2 (b)(l) states, "The Carrier may charge a cost to the 

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

48 CFR 31.201-4 states, "A cost is allocable if it is assignable or chargeable to one or 

more cost objectives on the basis ofrelative benefits received or other equitable 

relationship. Subject to the foregoing, a cost is allocable to a Government contract if ita) Is incurred specifically for the contract; 

b) Benefits both the contract and other work, and can be distributed to them in 

reasonable proportion to the benefits received; or 

c) Is necessary to the overall operation ofthe business, although a direct relationship to 

any particular cost objective cannot be shown." 

48 CFR 31 205-27(a)(I) states, "planning or executing the organization or reorganization 

ofthe corporate structure of a business, including mergers and acquisitions ... are 

:unallowable...." 

We reviewed the prior audit ofthe MHBP (Report No. 1B-45-02-02-069, dated 

September 22,2004), covering contract years 1999 though 2001, and determined ifCNA 

continued to allocate any of the previously disallowed costs to the FEHBP. Based on our 

review, we found that CNA charged $108,015 to the FEHBP for unallowable and/or 

unallocable costs in 2002. Specifically, CNA charged the following unallowable and/or 

unallocable costs to the FEHBP: 

•	 Cost Center "0006252" (Casualty Actuarial): CNA allocated $79,252 to the FEHBP 

through service codes "1630" (Corporate Finance G&A) and "1640" (Corporate 

Finance Insurance). 

7 Prior to July 1,2002, CNA was the underwriter for the Mail Handlers Benefit Plan. 

20
 
•	 Cost Center "0009009" (Business Decision Support - Mergers and Acquisitions): CNA 

allocated $25,016 to the FEHBP through service code "1640" (Corporate Finance 

Insurance). 

•	 Natural Account "6306371" (Corporate Indemnity Expense): CNA allocated $3,747 

to the FEHBP through service code "1700" (Corporate Services). 

These unallowable and/or unallocable costs were charged to the FEHBP through overhead 

cost pools that were allocated to the FEHBP. Although these costs were disallowed on the 

prior audit, CNA did not remove these costs from the 2002 cost filings. As a result, the 

FEHBP is due $108,015 for unallowable and/or unallocable costs charged to the FEHBP. 

Plan;s Response: 

The Plan agrees with this finding. 

Recommendation 13 

We recommend that the contracting officer disallow $108,015 for unallowable and/or 

unallocable costs that were charged to the FEHBP. 

C. CASH MANAGEMENT 

1. Working Capital Deposit	 $6,000,000 

At the end of the audit scope (as ofDecember 31, 2006), the Plan held a working capital 

(WC) deposit with an excess amount of $4,000,000 over the amount needed to meet the 

Plan's daily cash needs for FEHBP claim payments and administrative expenses. 

Based on our audit experience of other FEHBP fee-for-service plans, the WC deposit 

should be recalculated on an ongoing basis to detennine ifthe amount currently 

maintained is adequate to meet the Plants daily cash needs for FEHBP claim payments 

and/or administrative expenses. If the deposit is not adequate, the Plan should make an 

appropriate adjustment. 

During the audit scope, the Plan evaluated the WC deposit amount on several occasions, 

and, made one adjustment. This adjustment was made by the Plan in March 2004 to 

increase its WC balance to $47,000,000. To detennine ifthe Plan maintained an adequate 

WC deposit, we recalculated what the Plan's fourth quarter 2006 WC balance should have 

been and determined that, as of December 31, 2006, the Plan should have maintained a 

WC balance of $43,000,000. Therefore, at the end ofthe audit scope, the Plan held a WC 

balance with an excess amount of $4,000,000 over the amount needed to meet the Plan's 

daily cash needs for FEHBP claim payments and administrative expenses. 

21
 
In response to our initial audit inquiry, the Plan provided a more recent WC calculation of 

claims clearing and administrative expenses showing that the Plan held an excess amount 

of $6,000,000 in FEHBP funds as of August 31, 2008. We reviewed and agreed with the 

Plan's we calculation. 

Since the Plan maintained these excess funds in an interest-bearing account and timely 

credited the interest earned on these funds to the FEHBP, no LII is due the FEHBP. 

However, the Plan needs to make an adjustment to return the excess we funds of 

$6,000,000 to the FEHBP letter of credit (LOC) account. 

Plan's Response: 

The Plan agrees that on the last day ofthe period under audit, December 31, 2006, the 

we deposit was approximately $4,000,000 greater than the amount needed to satisfy 

daily cash requirements at that time. The Plan also agrees that the $6,000,000 amount 

later credited to the FEHBP reflects the extent to which the we deposit exceeded the 

Plan's daily cash requirements as of August 31,2008. However, for purposes of 

historical accuracy, the Plan does not agree that $6,000,000 should be reported in this 

final report since the additional amount of $2,000,000 was not related to the current audit 

period. 

The Plan currently has procedures in place to monitor the we balance ensuring that 

sufficient cash is available to meet the Plan's cash obligations. In addition, the Plan 

states, "as part of its resolution of OPM OIG Audit No. 1B-45..00-00-064 for the period 

ending December 31, 2001, the MHBP agreed to recalculate that balance requirement 

annually and readjust it as necessarY, which we in fact did during the initial years of the 

current audit period, typically during the first calendar year quarter. We inadvertently 

failed to do this recalculation in 2006, however, because the first quarter time frame 

coincided with a change in the MHBP's underwriter and administrator that resulted in 

attentions being focused elsewhere...." 

DIG Comments: 

We will continue to question $6,000,000 since this was the excess amount held by the 

Plan as of August 31, 2008, which was deteTIllined as a result of our audit and during our 

audit fieldwork. In the audit finding, we also clearly point out the excess amounts held by 

the Plan as ofDecember 31, 2006 and August 31, 2008. 

Recommendation 14 

We verified that the Plan returned the excess WC funds of $6,000,000 (as of August 31, 

2008) to the LOe account on October 8, 2008. Therefore, no further action is required for 

these funds. 

22 
Recommendation 15 

We recommend that the contracting officer verify that the Plan has proper procedures in 

place to evaluate and adjustthe WC deposit on an annual basis, or more frequently should 

a material change occur in the amount needed to meet the Plan's daily cash requirements. 

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS . $31,454 

As a result ofthe audit findings presented in this report, the FEHBP is due LJI of$31,454 

from January 1, 2003 through December 31, 2008. 

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

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

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

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

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

interest. 

We computed investment income that would have been earned using the semiarumal rates 

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

LII of $31 ,454 from January 1, 2003 through December 31, 2008 on questioned costs for 

contract years 2002 through 2006 (see Schedules B and C). 

Plan's Response: 

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

address this item in its reply. 

Recommendation 16 

We recommend that the contracting officer direct the Plan to credit $31,454 (plus interest 

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

23
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experienced-Rated Audits Group 

, Auditor 

, Auditor 

Auditor-In-Charge 

Auditor 

Chief 

Senior Team Leader 

24
 
SCHEDULE A 

. V. SCHEDULES 

COVENTRY HEALTH CARE AS UNDERWRITER AND ADMINISTRATOR
 

FOR THE MAIL HANDLERS BENEFIT PLAN
 

ROCKVILLE, MARYLAND
 

CONTRACT CHARGES AND AMOUNTS QUESTIONED 

CONTRACf CHARGES·	 2002 2003 2004 2005 2006 TOTAL 

A.	 HEALTH BENEFIT CHARGES 52,164,583,386 $2,134,300,262 52,000,969,679 $1,825,275,686 51,713,363,109 59,838,492,122 

B.	 ADMINISTRATIVE EXPENSES 225,911,478 206,070,709 196,764,755 180,395,104 168,147,032 977,289,078 

C. OTHER EXPENSES AND RETENTIONS 18,464,509 19,689,041 17,512,269 17,357,200 15,224,427 88,247,446 

TOTALCO~TRACTCHARGES I 52408959.373 52 360 060 012 52 215 246 703 52 023 027 990 51 896.734 568 510904028646 

AMOUNTS QUESTIONED 

(PER SCHEDULE B) 

A.	 HEALTH BENEFIT CHARGES 

2002 2003 2004 2005 2006 2007 

54,583,290 

2008 

SO 

TOTAL 

$0 SO 50 5821,277 52,408,758 S7,813,325 

B.	 ADMINISTRATIVE EXPENSES 108,015 0 0 0 0 0 0 108,015 

C.	 CASH MANAGEMENT 0 0 0 0 0 0 6,000,000 6,000,000 

D.	 LOST INVESTMENT INCOME ON AUDIT FINDINGS 0 3,983 4,590 4,725 5,873 6,634 5,649 31,454 

TOTAL QUESTIONED CHARGES I SI08015 S3983 S4590 5826002 52414631 54589924 56005.649 513 952.794 

I

• We did not review claim payments for contract years 2002 through 2004 and other expenses and retentions for 2002 through 2006. 
, SCHEDULED 

COVENTRV H~ALTH CARE AS UNDERWRITER AND ADMINISTRATOR 

. FOR mE MAIL HANDLERS BENEFIT PLA.!\' 

ROCKVILLE, MARYLAND 

QUESTIONED CHARGES 

AUDIT FINDINGS 2002 2003 2004 2005 2006 2007 .2008 TOTAL 

A. HEALTH BENEFIT CHARGES 

1, Claim Pa)'ments 

II. Coordination of Benefits witb Medicare 

b. Claims Paid for Ineligible Patients 

SO 

0 

0 

0 

SO 

° 0 

0 

SO 

0 

0 

0 

$363,327 

0 

295,118 

123,790 

52,160,699 

0 

100,758 

126,354 

51,868,376 

2,529,912 

47,389 

85.417 

SO 

0 

0 

0 

54,392,402 

2,529,912 

443,265 

335,561 

c. Omnibus Budget Reconciliation Act of 1990 Review 

d. Duplicate aaim Payments 

e. Claim Payment Errors ° 

SO 

0 

SO 

0 

SO 

26,150 

$808,385 

20,262 

$2,408,073 

52,196 

$4,583,290 

0 

SO 

98,608 

Total Claim PaymentS $7,799748 

2. Mbcellaneous Payments and Credits 

I 

a. Health Benefit Recovery· SO 

SO 

SO 

SO 

SO 

SO 

S12,892 

S12,892 

S821277 

5685 

$685 

S2 408 758 

SO 

SO 

S4 583290 

$0 

SO 

SO 

$13,577 

513577 

57813325 

Total Mbcellaneous Payments and Credits I 

TOTAL HEALTH BENEFIT CHARGES 

B. ADMINISTRATIVE EXPENSES 

I SO SO SO 

1. Unallowable and/or Unallocable CNA Overbead Costs 

TOTAL ADMINISTRATIVE EXPENSES I 

S108,015 

$108015 

SO 

SO 

SO 

SO 

SO 

SO 

SO 

$0 

SO 

$0 

SO 

SO 

Sl08,015 

S108015 

C. CASH MANAGEMENT 

1. Working Capital Deposit·· SO 

SO 

SO 

S108.015 

$0 

SO 

S3983 

$3983 

SO 

SO 

$4590 

$4590 

SO 

$0 

54725 

SO 

SO 

S5873 

$2414631 

SO 

SO 

56634 

$4589924 

$6,000.000 

$6,000,000 

55649 

S6oo5649 

$6,000,000 

S6,ooo,ooo 

S31454 

$13952794 

TOTAL CASH MANAGEMENT I 

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS 

TOTAL QUESTIO~'EDCHARGES 

I 

I S826 002 

• Only the principal amount of tbis audit Iinding is subject to lost investment income. 

ow Audit finding is not subject to lost investment income since the Plan maintained the questioned funds in an interest-bearing account and credited tbe interest earned on these fundS to the letter of credit account. 
SCHEDULEC 

COVENTRY HEALTIl CARE AS UNDERWRITER AND ADMINISTRATOR
 

FOR THE MAIL HANDLERS BENEFIT PLAN
 

ROCKVILLE, MARYLAl\'D
 

LOST INVESTMENT INCOME CALCULATION 

2002 2003 2004 2005 2006 2007 2008 TOTAL 

A. QUESTIONED CHARGES (Subject to Lost In"estment Income) 

Miscellaoeous Paymeots and Credits· SO SO SO SO 512,607 SO SO 512,607 

Admioistrati"e Expeo5es 108,015 0 ° 0 0 0 0 108.015 

B. 

TOTAL 

LOST INVESTMENT INCOME CALCULATION 

I 5108015 SO SO SO 512607 SO SO S)20622 

a. Prior Years Total Questioned (principal) SO S108,015 SO SO SO 512,607 SO 

b. Cumulati"e Total !! !! 108,015 108,015 108.015 108,015 120,622 

Co Total SO S108.015 S108,015 5108,015 $108,015 5)20,622 S120,622 

d. Treasury Rate: January 1. June 30 5.500% 4.250% 4.000% 4.250% 5.125°/0 5.250% 4.750% 

e. Interest (d • c) SO $2,295 S2,160 $2,295 52,768 53,166 $2,865 S15,549 

f. Tre:llsury Rate: July 1 - December 31 5.250% 3.125% 4.500% 4.500% 5.750% 5.750% 5.125% 

g. Interest (f· c) SO 51,688 S2,430 52,430 $3,105 $3,468 52,784 515,905 

Total Interest By Year (e + g) I SO 53983 S4,590 S4725 $5,873 $6634 $5649 531454 

. Ouly the principal amount of the audit finding for miscellaneous payments aDd credits 00 Schedule B is subject to lost investment income.
 

Also, we only calculated lost investment income tbrougb July 9, 2008 on the principal amount since the Plan returned the questioned funds to the letter of credit account on July 10, 2008.
 
APPENDIX
 

CAe Claims Administration Corp 

15400 Calhoun Drive, Rockville. Maryland 20855	 Thomas R. Kirkparrick 

CFO. Group Health 5etvices 

Telephone· 301·517-2012 

Fac.sim~: 301·511·2122 

December 18. 2008 

Chief
 

Experience-Rated Audits Group
 

U.S. Office of Personnel Management
 

Office ofthe Inspector General
 

1900 E Street, NW. Room 6400
 

Washington, DC 204] 5
 

Enclosed is the response ofthe Mail Handlers Benefit Plan ("'MHBP") to the U.S. Office 

of Personnel Management Office of the Inspector General's Draft Audit Report No. IB45-00-08-016 for the MHBP dated October 23,2008. A copy of this report is also being 

furnished electronically_ on the enclosed flash drive. As we recently have advised OPM 

OlG Auditor-in-Charge the enclosed flash drive also contains the 

documentary support that constitutes Appendix A to said response. Please let me know if 

you have any problems using the flash drive, or questions concerning the MHBP's 

response. 

The MHBP appreciates the courtesy and professionalism the entire O]G audit team 

displayed during the audit, and looks forward to its resolution. On the MHBP's behalf, I 

.wish all OfYOll a happy holidays. 

Enclosure 

cc: 
I. AUDIT FINDINGS AND RECOMMENDATIONS
 
1. AUDIT FINDINGS AND RECOMMENDATIONS 

A. HEALTH BENEFIT CHARGES 

t. Claim Payments 

a. Coordimltion of Benefits with Medicare $4.609.490 

The Plan incorrectly paid /0,027 claim lines, resulting in overcharges of 

S4,609, 490 to the FEHBP. Specifically, the Plan did not properly coordinate 

6,,555 claim line payments wi/h Medicare as required by/he FEHBP contract. 

As a result, the FEHBP paid as the primary insurerfor these claims when 

Medicare was the primmy insurer. Therefore, we estimate that/he FEHBP 

was overcharged by $4,280. 737for these claim lines. The remaining 3.472 

claim line payments were not coordination ofbenefit errors but comained 

other Plem payment errors, resulting in overcharges of5328, 753 to the 

FEHBP. 

The 2007 Mail Handlers Benefit Plan brochure. page J26, PrimQlY Payer 

Chart. illustrates when Medicare is the primwy payer. /n addition. page 22 of 

that brochure states, .. We Umit our payment 10 an amount that supplements the 

benefits that Medicare would pay under Medicare Part A (Hospital Insurance) 

and Medicare Part B (Medical Insurance), regardless ofwhether Medicare 

pays. " 

Contract CS 1146. Part II, sectio112.6 slt1Ies, "(a) The Carrier shoJI 

coordinClte the payment ofbenefits under this contract with the payment of 

benefits under Medicare, ... (b) The Carrier shall not pay benefits under this 

contract until it has determined whether it is the primaly carrier . ..... A/so. 

Part JII, section 3.2 (b)(l) states, "The Carrier may charge a cost 10 the 

contract for a con/ract term ifthe cost is actual, allowable, allocable. and 

reasonable . ..... 

In addition. Contract CS J/46. Partll. section 2.3(g)s/ates, "Ifthe Carrier or 

OPMdetermines that a Member's claim has been paid in errorfor any reason 

.. ". lhe Car,;er shall make (, prompt and diligent effort to recover the 

erroneous paymeJ1f .... " 

For claims incllned a/Jd paidfrom Ot.'tober J, 2005 through September 30. 

2007, we peJformed a compl4ter search and identified 362. 781 claim lines. 

totaling 528,315.090 in payments that potentially were not coordinated with 

AJedicare. From this universe, we selectedfor review a sample of /9,571 

claim lines, totaling $12.599.31J in payments. to determine whether (he Plan 

complied with the contract provisions relative (0 coordinCltion ofbenefits 

(COB) with Medicare. When we submitted our sample ofpOIentiaI COB 

errors to the Plan on November J5. 1007. the claims were within the 

2 
J'yfedicare timelyfiling requirement and could befiled with Medicare for 

coordinalion ofbenefirs. 

The/allowing wble is a slImmGlyofthe claim lines that were selectedfor 

review: 

Claim Type Claim 

Lines 

AmOllnls 

Paid 

Sample Selection 

MethadoloJ{JJ 

Medicare Part A Primary for 

Inpatient (lIP) Facility 

1,181 56.017,539 Patients wi/h cumulative 

claims ofS750 or more 

Medic.:,we Part A Primatyfor 

Skilled Nursing, Home Health 

Care (HHC), and Hospice 

Care 

337 S428.1 U Patients with cumulative 

claims of$2.500 or more 

Medicare Pari B Primaryfor 

Certain liP Facility CharKes 

168 51,23./,806 Patients with cumulative 

claims of$5,000 or more 

Medicare Part B Primaryfor 

Skilled Nursing, HHC, and 

Hospice Care ' 

0 SO The pOlen/ial COB errors 

were immaterial. Therefore, 

no claim lines were selected. 

Medicc".e Part B Primary for 

Ourpatient Charj!es 

3,029 $2.548,641 Patients with cumulative 

claims 0/$2,50001' more 

Medicm'e Petrt B PrimGly jor 

Professional Char1!es 

14.856 $2,370.211 Patients wi/h cumulative 

claims (~f$4,OOO or more 

Total /9,571 $12.599.311 

Generally. Medicare Part A covers 100 percent ofinpatient care in hospitals, 

skilled nursing/acilities, hospice care, and home hea/lh care services. For 

each Medicare Benefit Period, there isa one-time deductible, followed by a 

daily copaymem beginning wi/h the 6r'day, Beginning with the 9jS' day of 

the Medicare Benefit Period, Medicare Part A benefil.') may be exhausted, 

depending on whether the patient elects to lise their Lifetime Reserve Days, 

For the uncoordinated Medicare Part A claims, we estimate that the FEHBP 

was o\'erchargedfor the total claim payment amolints. When applicable, we 

reduced the questioned amount by the Medicare deductible andlor Medicare 

copayment. 

Medicare Part Bpays 80 percent ofmost outpatient charges andprofe~'sional

claims after the calendar year deductible has been met. Also, Medicare Part 

B covers a portion ofinpatientfacility chargesfor ancillary services such as 

durable medical equipment. medical supplies. diagnostic tes/s. and clinical 

laboratDlY services. Based on our experience, ancillary items account for 

approximately 30 percent ofthe total inpa/iem claim payment. Therefore. we 

estimate that the FEHBP was overcharged 25 percen/ for these inpaTient 

claim lines (0.30 x 0.80 =0.24 - 25 percent). 

3 
Based on 0/11' review ofthe potential COB errors in our sample, we identified 

10.027 claim Hnes that were paid incorrectly, resulting in overcharges of 

S4~609.-I90tv {he FENBP./ 

The following fable details the questionedpayments by claim type: 

Claim Type Claim 

Line:;' 

Amounts 

Paid 

Amounts 

Questioned 

MedicGt'e Pan A Primary for 

Inpatient (lIP) Facility 

201 53.093.263 $2.725,919 

Medicare Part A Primary for 

Skilled Nursing. HHe. and 

Hospice Care 

32 528.608 528,608 

Medicare Part B Primaryfor 

Certain UP FlIcility Char2es 

4 S79,170 S18, 890 

,\.<'edicare Part B Primary/or 

Skilled Nursing, HHe. and 

Hospice Care 

0 $0 SO 

,\tIedicare Pari B Primatyfor 

Owpalient CharKes 

1,038 $966.989 $731,476 

Medic(lre P(m B Primmyfor 

Pf'O(essiunai Charges 

8,752 $1.189,788 SI,104.597 

Total 10.027 $5.357.8/8 $4.609,490 

Our ell/di! disclosed the follo'wing/or the claim paymenl error.O;.' 

•	 For 6,248 (62 percent) o/the claim lines questioned. there was incorrect 

or no Medicare COB information on the Plan's claims system to identify 

Medicare as the primaty payer when the claims were paid. However, 

when the correct Medicare information was subsequently added to the 

claims system. the Plan did not review andlor adjust the patient's prior 

claims back to the Medicare effective dates. As a result, we estimate that 

the FEHBP was overcharged54.239. 288for these claims thai were not 

coordinated with Medicare. 

•	 For 3.472 (35 percent) ofthe claim lines questioned, wefound that these 

clclim lines were not COB errors but contained other Plan payment errors. 

As a result, we determined rhat the FEHBP was overcharged $328.753 for 

these claim payment errors. 

•	 For 307 (3 percent) ofthe claim lines questioned 'he correct Medicare 

COB i11.formation was present on Ihe Plan 's cI£~ims system to ident!1Y 

1 In addition. there were 232 claim lines with COB errors, totaling $409.981 in payments, lhat were 

identified and adjusted by the Plan prior 10 the date ofour information request (i.e.. November 15,2007). 

Since these COB errors were identified M!l adjusted by the Plan prior to the date ofour information 

request. we did not question these COB errors in the draft. repon. 

4 
Medicare as the primwy payer when the claims were paid. The exact
 

reason(s) for these claim payment errors could not be identified As a
 

. result, we estimate thotthe FEHBP was overcharged $41, 449 for these
 

claims that were not coordinated with Medicare. 

Ofthe S4, 609, 490 in questioned charges, S150,950 (3 percenr) were identified 

by Ihe Plan prior to the date 0/Ollr in/orilla/ion request (i. e., November J5, 

2007). However. since /he Plan had nol completed the recovery process 

and/or ac!iusled these claims by November 15, 2007 we are continuing to 

question these COB errors. The remaining questioned charges of$4.458,540 

(97 percent) were identified as a result ofour audit. 

Plan's Response: 

The Plan agrees with thisfinding. 

Recommendation J 

We recommend thaI the contractillg officer disallow $4,280, 737for 

uncoordinated claim payments, and have the Plan return all amounts 

recovered to the FEHBP. 

MliBP Response: Following its investigation of the questioned claim lines 

and identification of those on which it determined benefits were issued 

erroneously but in good faith, the MHBP immediately initiated efforts to 

recoup those overpayments in accordance with Section 2.3(g) of Contract No. 

es 1146, and the procedures stated in its OPM-approved overpayment 

recovery guidelines.2 As part ofthat established recovery process, which is 

ongoing, the MHBP returns all overpayment recoveries to the FEHBP 

promptly following their receipt. 

Moreover. in the course of reexamining the 10,027 claim lines referenced in 

the above table, the MHBP has concluded that it must revise its prior 

agreement that 8,752 claim lines totaling $1, 104,597 described as "Medicare 

Part B Primary for Professional Charges," were paid erroneously. The MHBP 

has determined that 2.613 ofthose 8,752 claim lines, totaling $217,088 in 

payments, were processed correctly, thus reducing the number of claim lines 

and dollar amounts in this category that it agrees were paid in error to 6,139 

and $887,509, and the total nwnber ofMedicare COB claim lines and dollar 

amounts that it agrees were paid in ~rror to 7.414 and $4,392,402. The MHBP 

2 We disagree with the Inspector General's characterization orthe questioned health benefit charges 

referenced in this Section A. of the Draft Audit Report paymems as ··unallowable." Section 2.3(g)(1)(i) 

states that "[t]he Carrier may charge the contract ror benefit paymcnls made erroneously but in good faith 

provided thaI it can document that it acted with prompt and due diligence as described above:' The MHBP 

has acted in Ihe prescribed marmer here. 

5 
has enclosed with this response (as Appendix A) a revised spreadsheet 

itemizing these changes in its position, together with extensive supporting 

documentation from the individual claims themselves. The MHBP therefore 

requests that the OIG modify the dollar amount specified in this 

recommendation to reflect this change.) 

Recommendation 2 

We recommend that the contrac(jng officer require the Plan to ensure that Ihe 

Plan has procedures in place to review all claims incurred back to the 

Medicare effictive dates when updated, other party liability information is 

added to the Plan's claims system. When Medicare eligibility is subsequently 

reported. Ihe Plan is expected to immediately determine ifalready paid claims 

are af/ee/ed and, ifso, to initiate Ike recovery process within 30 days. 

MIIBI) Response: The MHBP concurs with this recommendation. 

Recommemfal;oll 3 

We recommend Ihal the contracting officer disallow $328.753 for claim 

overcharges resullingfrom other Plan payment errors. and hClVe the Plan 

re/urn all amolln/s recovered 10 the FEHBP. 

J By way of brief explanation. the 8,152 claim lines referred to above were the cumulative totals
 

..enumerated in the calegories denoted as "Category F" and "Category F Expanded" on the attached
 

-~	 spreadsheet. The 2,613 claim lines totaling $217,088 on which the MHBP has changed its position are all 

part ofCategory F Expanded, which questioned 3.469 claim lines totaling $322.071 in payments. The 

revised Category F Expanded tOlals. then. are 856 claim lines totaling S104.983 that the MHBP concurs 

were paid in error. Set Forth below is how the revised table should read: 

Claim Type Claim Lines Amounts Paid Amounts 

Ouestioned 

Medicare Pan A Primary for 

Inpatient (lIP) Facility 

201 S3,093.263 $2,725.919 

Medicare Pan A Primary for Skilled 

Nursin!!, ItHC, and Hospice Care 

32 $28.608 $28,608 

Medicare Part B Primary for Certain 

lIP Facility Charges 

4 $79.170 $18,890 

Medicare Part B Primary for Skilled 

Nursin2. /-IHe. and Hospice Care 

0 $0 SO 

Medicare Part B Primary for 

Outpatient Charl!es 

1,038 $966,989 $131,476 

Medicare Pan B Primary for 

ProFessional Charl!es 

6.139 $1,189,188 $887.509 

TOlal 7.414 $S,357,818 $4.392,402 

6
 
MHBP Response: Followjng its investigation of the questioned claim lines 

and identification of those on which it detcnnined benefits were issued 

erroneously but in good faith. the MHBP immediately initialed efforts 10 

recoup those overpayments in accordance with Section 2.3(g) of Contract No. 

CS 1146. and the procedures stated in its OPM-approved overpayment 

recovery guidelines. As part of that established recovery process, which is 

ongoing, the MHBP returns all overpayment recoveries to the FEHBP 

promptly following their receipt. 

Recommendation 4 

We recommend that the contracting officer instruct the Plan 10 identify the 

rool causers) ofthe claim payment errors and develop all action plan /0 

prevent these types oferrors ill the future. 

MHBP Response: As evidenced by the above responses, a significant 

majority of the claim lines paid in error here (7,138 out of7,414, or 96.3%) 

involved coordination of benefits with a member's Medicare Part B primary 

coverage. Unlike Medicare Part A, in which the MHBP can assume a 

member is enrolled as of the month they turn age 65, enrollment in Medicare 

Part B not only is voluntary, but can be deferred at the enrollee's election. In 

addition, the MHBP's ability to detennine COB status with Medicare Part B 

depends 011 its timely receipt of conversion to 31illuitant status from the 

government payroll offices. In other words, obtaining credible evidence 

demonstrating both (1) a member's annuitant status, and (2) hislher 

enrollment in Medicare Part B is largely outside the MHBP's control, making 

COB errors extremely difficult to avoid where that evidence is not timely 

furnished. 

To facilitate it in avoiding Medicare COB errors to the greatest extent 

possible. the MlIBP participates in a Voluntary Data Sharing Agreement 

("VOSA') with eMS. Through that arrangement. the MHBP obtains the 

most up-to-date Medicare Part B enrollment infonnation available from eMS 

for uploading into its member eligibility files. It therefore is unclear to the 

MHBP what additional steps are available to it that might further assist it in 

preventing future Medicare COB errors from occurring. It likewise is unclear 

to the MHBP what kind of additional action, ifany, the DIG contemplates in 

its recommendation. 

That said, the MHBP reiterates its concurrence with the DIG's 

Recommendation 2 concerning the retrospective handling of such claims 

payments when evidence ofa member's Medicare Part B coverage comes to 

its attention at a later date. . 

7
 
b. Claims Paid for Ineligible Patients $2,529,912 

The Plan paid J0,275 claim lines that were incurred during gaps in patient 

coverage or after termination a/patient ("overage with the Mail Handlers 

Benefit Plan. resulting in overcharges 0/$2,411,097 to the FEHBP. In 

addition, the Plan paid 2, 167 claim lines/or patients wilh no enrollment 

identification (ID) numbers,· resulting in overcharges 0/S118,815 to the 

FEHBP. In total. the FEHBP is due $2,529,912. 

Contract CS 1146. Part III. section 3.2 (b)(l) states, "The Carrier may charge
 

a cost to the contractjor a contract IeI'm ifthe cost is actual. allowable.
 

allocable, and reasonable. I' Pari II. section 2.3(g) states, "lfthe Currier or
 

OPM determines thaI a Member's claim has been paid in error for any reason
 

... the Carrier shall make a prompt and diligent effort to recover the
 

erroneous payment . ... "
 

Enrollees with No Coverage durillg Dates ofService 

We pelformed a computer search to identify claims paid during gaps in 

patiem coverage or claims paid after terminatiOt'I ofpatient coverage with the
 

Mail Handlers Benefit Plan. The search covered the period Janumy 1, 2005
 

Ihrough September 30, 2007. The search identified claim payments. totaling
 

$5, 716, 775. for 7,472 patienls with gaps in coverage or patients Ihat were
 

terminated.
 

From this universe 0/7.472 patients. we selected all patients with cumulative
 

claim lines 0/$2,500 or more. This sample inclllded 15,865 claim line
 

payments, totaling 54. 212. 231.for 330 patients. Our review ofthe sample 

idenlified 10.275 claim lines. totaling 52.411,097 in payments. that were paid
 

during gaps in palienl coverage or after termination ofcoverage. As a result.
 

Ihe FEHBP is due S2,41 1.097for these improper payments.
 

Patients with No Enrollment Record 

We performed a computer search to identify claims paid/or patients wilh no
 

enrol/men! ID numbers. The search covered the period January 1, 2005
 

through September 30. 2007. The search identified claim payments. totaling
 

S5.386,641,jol" 1,174 ptllients with no enrol/men! ID numbers.
 

From thi:; universe ofI, 174patienIS, we selected all patients with cllmulative 

claim lines 0/$2.000 or more. This sample included 26,826 claim line 

payments, totaling $4,995,049. for 285 patients. Our review ofthe sample 

identified 2.167 claim lines, totaling S1 18.815 in payments, that were made 

for palienrs lvUh no enrol/menl ID number. As a result, the FEHBP is due 

SI /8.815for these improper payments. 

8 
Summary arC/aims Paid to Ineligible Patients 

In total, the Plan charged the FEHBP $2.529. 912for 12,442 claim line 

payments madefor ineligible patients. J QUI' audit disclosed the following 

errors: 

•	 For 12.217 a/the claim lines questioned. the Plan received retroacti,'e 

termination ofpatient coverage from the Federal agency's payroll office. 

However, when termination dates were subsequently received, the Plan did 

not review and/or adju.Jllhe patient's prior claims back to the termination 

dale. Asa result. the FEHBP was overcharged $2,415,908 in claim 

paymentsfor patients not eligible for benefits. 

•	 For 63 oflhe cloim lines questioned, there were various eligibility errors. 

For example, we identified one patient where COl'erage terminated during 

an inpatient hospital stay and the Plan erroneously paidfor all dales of 

service under this claim. As a result. Ihe FEHBP was overcharged $90,665 

in claim paymentsfor parients not eligible for benefils. 

•	 For 21 ofthe claim lines questioned, the claim processors entered 

incorrect data. As a result, the FEHBP was overcharged 519,108 in claim 

paymentsfor parients 110t eligible for benefits. 

•	 For 14/ ofthe claim lines questioned, the Plan utilized incorrect ~'oci(tl
 

securiry numbers to determine whether the patient was eligiblefor
 

coverage. As a result, the FEHBP was overcharged $4,231 in claim
 

paymentsfor patients nol eligiblefor benefits.
 

Ofthe S2,529.912 in queslioned charges. 5841.71 J (33 percent) were
 

identified prior to the dafe we issued aliI' information request (i. e.. February
 

28. 2008). However, since the Plan had nor completed Ihe recovery process
 

andlor adjusted these claim lines by February 28, 2008, we are continuing 10
 

question these eligibility errors. The remaining questioned charges of
 

$1,688,201 (67 percent) were identified as a result ofour audit,
 

Plall's Respollse: 

.The Plan agrees with thisfinding. 

In addition. there were 1,160 eligibility errors. totaling $733,453 in payments, that were identified and 

adjusted or voided prior to the date ofour information request (i.e.. February 28. 2008). Since these 

eligibility errors were identified and adjusted or voided prior to the date ofour information request. we did 

not question these claim line payments in the draft report. 

9 
Recommendatioll 5 

We recommend thai the contracting officer disallow $2.529.912/01" claim 

o\'ercharges, and have the Plew return all amounts recovered fo/he FEHBP. 

MHBP Response: As illustrated in our Audit Inquiry #3 response, 12,217 of 

the 12,422 claim lines that we concur were paid erroneously but in good faith, 

or 98%, were attributable to Govenunent agency payroll office delays in 

notifying the MHBP of an individual's termination ofMHBP coverage. 

Section 1.5 of Contract No. CS 1146 provides that benefit payments made as a 

result ofsuch payroll office errors are valid charges against that Contract. 

Notwithstanding that fact, following investigation of the questioned claim 

lines and identification of those on which benefits were issued erroneously but 

in good faith, the MHBP, as required by Section 2.3(g) ofContract No. CS 

1146, immediately began making efforts to recoup those overpayments 

pursuant to the procedures enumerated in our OPM-approved overpayment 

recovery guidelines.. As a routine part of that established process, which is 

ongoing, the overpayments were introduced into the MHBP's normal 

exception processing workstream. and all amounts recovered on them will be 

credited to the FEHBP promptly upon receipt. 

Recommendation 6 

We recommend that the contracting officer instruct the Plan to identify the 

root causers) a/the claim payment errors and develop an action plan/o 

prevetll /hese /ypes oferrors in the fll/ure. 

MlIBP Response: As evidenced in our response to Recommendation 5 

above, payment of the overwhelming majority of the questioned claim lines is 

attributable to payroll office reporting delays. In short, the MHBP did not 

receive agency notification of the member's termination until after the date on 

which it adjudicated and issued payment on the claim line. i.e., circumstances 

that are beyond the MHBP's ability to control and/or correct. That said. we 

plan to implement procedures to ensure that upon receiving payroll office 

notice of an individual's tennination ofcoverage, the MHBP identifies any 

and all post-termination claims paid under that enrollment and initiates 

overpayment recovery efforts on them as required under Section 2.3(g) of 

Contract No. CS 1146, as supplemented by our OPM-approved overpayment 

recovery guidelines. 

10 
c. Omnibus Budget Reconciliation Act of 1990 Review $443,265 

The Plan incorrecily paid J3 cllJims that were priced or potentially should 

have been priced under the Omnibus Budget Reconcilialion ACI of1990 

(OBRA 90) pricing guidelines. resulting in nel overcharges 0/$443,265 to the 

FEHEP. Specifically. the Plan overpaid 11 claims by $446,625 and 

undelpaid 2 claims by 53.360. 

Contract CS J146. Part lJl. section 3.2 (b)(I) states, "The Carrier may charge 

II cosl to the contract for a contract term ifthe cost is aCfUaf, allowable, 

allocable, and reasonable." Part II, section 2.3(g) Slates, "If/he Carrier or 

OPM determines that a Member's claim has been paid in errorjOr any reason 

... the Carrier shall make a prompt and diligent effort to recover the 

erroneous payment . ... ,. 

/n addition, Contract CS 1146, Part /I. section 2.6 states. "(a) The Carrier
 

shall coordinate the payment ofbenefits under Ihis contract with Ihe paymenl
 

a/benefits under Medicare. ... (b) The Carrier shall not pay benefits under
 

this contractllnli! it has determined whether il is Ihe primmy carrier . ... "
 

OBRA 90 limits Ihe benefit paymentsfor cerlain inpatient hospital services 

provided to annuitants age 65 or older who are nOI covered under Medicare 

Pari A. The FEHBP fee-far-service plans are required to limit the claim 

paymen/to Ihe amount equivalent to the Medicare Part A payment. 

Using a program dereloped by Ihe Centers/or Medicare and Medicaid 

Services (eMS) ro price OBRA 90 claims, we recalculated the claim payment 

amounts forlhe claims in ow' samples that were subject (a andlor processed
 

asOBRA 90.
 

The following summarizes the claim payment errors. 

Claims Nol Priced Under OBRA 90 

For the period 2005 Ihrough September 30. 2007, we identified 5,374 claims,
 

totaling $37.583.828 in paymenls. that were potemfally subject to OBNA 90
 

pricing guidelines bill appeared 10 be paid under the Plan's standardpricing
 

procedures. From Ihis unil1erse, we selected and reviewed ajlldgme11lal
 

sample 0/274 claims, totaling 5/9,42-1,926 in payments, 10 delermine ifthe
 

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

claims with amounts paid ofS30, 000 or more, Based on our review, we
 

determined Ihal nine a/these claims were paid incorrectly. resulJing in
 

overcharges 0/$396,381 to thePEHBP.
 

These claim paymenl errors reslliledfrom (he following: 

11 
•	 The Plan did not properly coordinate four claims with Medicare, resulting 

in overcharges 0/S195.008'-0 the FENSP. We determined that these 

claims should not have been priced under ORRA 90 but should have been 

coordina/ed wilh Medicare. These claim errors occurred because the 

Plan 's claims system contained incorrect Medicare COB information 10 

identify Medicare as the primary payer when Ihe claims were paid. 

•	 The Plan did not price fOllr claims under OBRA 90. resulting in 

overcharges ofSI77,290 to the FEHBP. These claim errors occurred 

because the Plan's claims system contained incorrect Medicare COB 01' 

subscriber retirement information when the claims were paid. 

•	 The Plan inadvertemly did not price one claim under OBRA 90. resulting 

. in an overcharge 0/$24.083 to the FEHBP. The exact cause ofthis claim 

payment error could not be identified 

OORA 90 Claim Pricing Errors 

For the period 2005 through September 30. 2007, we identified 2.075 claims. 

totaling $/8.366.598 in payments, that were subject /0 ORRA 90 pricing 

guidelines. From this universe. we selected and reviewed ajudgmental 

sample of100 claims, totaling $4,522,005 in paymen/s. to de/ermine ifthese 

claims were correcrly priced andpaid by the Plan. Our sample included all 

OBRA 90 claims with amounts paid ofS23. 400 or more. 

Based on our review, we determined (hat four of/hese claims were paid 

incorrectly, resulting in net overcharges 0/$46,884 /0 the FEHBP. 

Specifically, two claims were overpaid by $50,244 and two claims were 

underpaid by 53.360. 

These claim payment errors resultedfrom (he/ollowing: 

•	 The Plan did nol properly coordinate one claim with Medicare, resulting 

in an overcharge of$47,599 to the FEHBP. We determined that this 

claim should not have been priced under OBRA 90 but should have been 

coordinated wUh Medicare. This claim payment error was identified by 

the Plan before receiving our information request (audit sample) on 

December 14, 2007. However. since the Plan did not comple/e the 

recovery process andlor adjust the claim prior to Ihe date o/emr 

in/ormation request, we lire con/im/ing /0 question this error. 

•	 The Plan priced two claims using an earlier version ofthe eMS Pricer, 

resulting in net undercharges ofS21O to !he FEHBP. Specifically, the 

Plan overpaid one claim by 52,645 (lnd underpaid one claim by 52.855. 

12 
•	 The Plan incorrecily priced one claim due 10 a manual pricing error, 

resulting in an undercharge 0[$505 to the FEHBP. Specifically. the Plan 

incorrectly reduced the diagnostic rela/ed grouping (DRG) payment by 

private 

subtracting 

room 

the 

rOle. 

difference 

Under 

between 

DRG pricing 

the private 

guidelines. 

room 

fhis 

rate 

difference 

and the semishould 

not be excludedfrom the lolal billed amount. 

Plall's Respollse: 

The Plan agrees with Ihisfinding.. 

Recommelldation 7 

We recommend thai the contracling officer disallow $446,625 for claim 

overcharges, and have Ihe Plan refilm all lIInounts recovered 10 Ihe FEHBP. 

MHBP Response: Following investigation of the questioned claim lines and 

identification ofthose on which benefits were issued erroneously but in good 

faith, the MHBP, as required by Section 2.3(g) of Contract No. CS 1146, 

immediately began making efforts to recoup those overpayments pursuant to 

the procedures enumerated in our OPM·approved overpayment recovery 

guidelines. As a routine part of that established process, which is ongoing, the 

overpayments were introduced into the MHBP's normal exception processing 

workstream, and all amounts recovered on them will be credited to the 

FEHBP promptly upon receipt. 

Recommelldation 8 

We recommend fhat the contracling officer allow Ihe Plan to charge the 

FEHBP $3,360 ifCldditionalpayments are made 10 the providers to correct 

the u17derpllymem errors. 

MH8P Response: We concur with this recommendation. 

Recommendation 9 

We recommend tlwt the contracling officer instruct the Plan to identify the 

root causers) oflhe claim payment errors and develop an action plan to 

prevent these types oferrors in theII/Ilire. 

·MHBP Response: ASlhe above narrative illustrates, the 13 erroneous claims 

payments that comprise this proposed audit finding generally cannot be 

attributed to a discrete. identifiable cause (or set of causes), and consequently 

[3 
do not lend themselves to an action plan of the kind the 010 contemplates in 

this Recommendation.s . 

, To the extent that several of the subject claims involve Medicare COB issues. those claims will be 

subject to the corrective measures the MHBP implements as recommended in Section I,a of this draft 

report. 

14 
d. Duplicate Claim Payments $335.561 

The Plan improperly charged the FEHBP $335,561 for 527 duplicate claim 

paymentsfrom 2005 through September 30, 2007. These payments we"e 

unnecessary and unClllowable charges to the FEHBP. 

Contract CS J146. Part lIf. section 3.2 (b)(1) states, "The Carrier may ch,wge 

a cost to the con/ractfor a contract term iflhe cost is actual, allowable. 

allocable, and reasonable. ., Part /J. section 2.3(g) slates. "Ifthe Carrier or 

OPM determines that a Member's ci,lim has been paid in errorfor any reason 

... the Carrier shall make a prompt and diligent efforl to recover the 

erroneous payment . ..... 

Section 6(h) ofthe FEHB Act provides that rates should reasonably and 

equitably reflect lhe co.itS ofbenefits provided. 

We pel/armed a computer searchfor potential duplicate payments on claims 

paid during the period JamtalY J. 2005 through September 30. 2007. We 

selected and reviewed 1, 159 groups, totaling $J,625,030 (out 0125,959 

groups. totaling $1.758.856) in potential duplicate payments. under our "best 

matches ,. criteria. We a/so selected and reviewed 658 groups, totaling 

S1.170.820 (Olll of91,985 groups, totaling $3,258,56J) in potential duplicate 

payments. under our "near matches ,. criteria. Our samples included ull 

groups with potential duplicate payments of$250 or more under the "best 

matches '.' criteria and 5500 or more under the "near matches' j criteria. 

Based on our review, we determined that 468 claim payments in our "best 

matches ,. sample were duplicates. resulting in overcharges 01$291.,526 to lhe 

FEHBP. Also. we determined that 59 claim payments in Ollr "near matches" 

sample were duplicates, resulting in overciwrges of$44,03j 10 the FEHBP. 

In IOlal, {he Plan charged the FEHBP 5335.561 for these 527 duplicate claim 

paymentsfrom 2005 through September 30, 2007. 6 These duplicate claim 

payments occurred when the claims were deferred as potentiaJ duplicates on 

the claims system, but were overridden by Ihe processors. 

Pia" 's Response: 

The Plan agrees with this finding. 

6 In addition. there were 35 duplicate claim payments. totaling $36.747 that were identified and adjusted or 

voided by the Plan prior to the date of our infomlalion request (Le., November 15,2007). Since these 

duplicate claim payments were identified and adjusted or voided by the Plan prior to the date of our 

information request. we did not question these duplicate claim payments in the draft report. 

15 
Recommettdalioll 10 

We recommend that the contracting officer disallow $335,561 for dllplicate 

clli;,n payments charged 10 the FEHBP, and have Ihe Plan retllrn all amounts 

recovered to the FEHBP. 

MHBP Response: Following investigation ofthe questioned claim lines and 

identification of those on which benefits were issued erroneously but in good 

faith,the MHBP, as required by Section 2.3(g) of Contract No. CS 1146, 

immediately began making efforts to recoup those overpayments pursuant to 

the procedures enumerated in our OPM-approved overpayment recovery 

guidelines. As a routine part ofthat established process, which is ongoing, the 

overpayments were introduced into the MHBP's nonnal exception processing 

workstream, and all amounts recovered on them will be credited to the 

FEHBP promptly upon receipt. 

Recommendation II 

We recommend Ihat the conlracting officer instrllcl Ihe Plan to identify Ihe 

roO/ causers) a/the claim payment errors and develop an ac(ionplan 10 

prevent Ihese types oferrors in the/wIII'e. 

MHBP Response: We concur with this recommendation. 

16 
e.Claim Payment Errors	 S98,608 

The Plan incorrectly paid 36 claims. resulting in overcharges 0/$98,608 to 

theFEHBP. 

Contract CS 1146, Part Ill. seclion 3.2 (b)(l) states. "The Carrier may charge
 

(I cost to the conn'actfor a contract term ifthe cost is actual, allowable.
 

allocable. and reasonable. " Part I/, section 2.3(g) states. ··lfthe.Carrier or
 

OPMdetermines that a Membe,.'s claim has beenpaid in errorfor any reason
 

· .. the Carrier shall make a prompt and diligent effort to recover the
 

erroneous payment . ... "
 

The follOWing summarizes the claim payment errors. 

Assistant Surgeon Review 

For the period January I. 2005 through September 30, 2007, we identified 

2,883 assistant surgeon claim groups. IDuding $564. 728 in po/ential 

.overpayments. that may not have been paid in accordance with the Plan's
 

assistant surgeon pricingprocedures. From this universe, we selected and
 

reviewed ajudgmental sample 0/86 assistant surgeon claim groups. totaling
 

$174,812 in poteh/ial overpayments, to determine ifthe Plan paid these
 

c:laims properly. Our sample included all assistant surgeon claim groups with
 

pOlenJial overpayments of$I.000 or more. The majority o/these claim
 

groups contained one priJ;wry surgeon and one assistant surgeon claim.
 

Based 0]1 our review, we determined that 23 claims were paid incorrectly.
 

resulting in overcharges of$53,611 to the FEHBP.
 

The claim payment errorsresultedfrom (he following: 

•	 The Plan paid J2 claims to non-covered providers, resulting in
 

overcharges 0/$35.514 to the FEHBP. Specifically, these providers were
 

physician assiSlal1lS and were not covered/or surgery.
 

•	 The Plan incorrectly paid six claims due (0 various manual pricing errors. 

resulting in overcharges ofS7, 965 to the FEHBP. For example. (he Plan 

did not apply a 10 pe"cent co-insurance to a claim. 

•	 The Plan did not limit/he allowable charge 10 the Plan's allowance when
 

pricing three Non-Preferred Provider Organization (non-PPO) claim:;.
 

resulting in overcharges ofS7,46j to the FEHBP.
 

•	 The Plan incorrectly paid two assistant surgeon claims. resulting in
 

overcharges of$2,667to the FEHBP. These overcharges were due to .
 

en·ors in the calculiJtion ofthe assistant surgeonfte. which should have
 

17 
been priced at /6 percent ofthe primary surgeon allowed amount. 

In add;,;on 10 the above sample, the Plan identified six additional assistant 

surgeon claims that 11;ere paid incorrectlyfor this same reason as the 

above two claims. As-a result, ,he FEHBP was overcharged an additional 

$3.802. 

81's/em Review 

For health benefit claims reimbursed during the period January i, 2007 

through Septeinber 30, 2007. we identified 7,025.774 claim lines, folaling 

5899,648,442 in payments, lising astandard criteria based on our audit 

experience. From this universe. we seiected and reviewed ajudgmental 

sample ofJ25 claims (representing 323 cla;,n lines). totaling $5,106,844 in 

payments, to determine ifthe Plan adjudicated these claims properly. 7 Based 

on our review, we determined that seven claims were paid incorrectly. 

resulting in overcharges of$41,19510 the FEHBP. 

The claim paymem errors resultedfrom thefollowing: 

•	 The Plan did not limit the allowable charge 10 the Plan's allowance when 

pricing three non-PPO claims, resulting in overcharges 01S34, 738 to the 

FEHBP. 

•	 The Plan incorrectly paid three claims due to various manual pricing 

errors, resulting in overcharges of$4.963 to the FEHBP. As an example. 

the Pltm entered "'2 incorrect allowable amollnt for a claim. 

•	 In one instance, the Plan erroneously adjusted a claim that was priced 

(md paid correctly, resulting in an overcharge of$1,494 {Q the FEHBP. 

Plait's Respollse: 

The Plan agrees 'with this finding. 

ReCOmmf!lldatioll J1 

We recommend tha/the contracting officer disallow 598,608for claim 

overcharges, and have the Plan return all amounts recovered to the FEHBP. 

MHBP Response: Following investigation of the questioned claim lines and 

identification of those on which benefits were issued erroneously but in good 

7 We selected our sample from an OIG-generated "Place of Service Report" (SAS application) that 

stratilied the claims by place of service (POS). such as provider's office and payment category. such as $50 

to $99.99. Wejudgmentally detemlined the number ofsample items to select from each POS stratum 

based on the Siratum's tOlal claim dollars paid. 

18 
faith, the MHBP. as required by Section 2.3(g) of Contract No. CS 1146, 

immediately began making efforts to recoup those overpayments pursuant to 

the procedures enumerated in our OPM-approved overpayment recovery 

guidelines. As a routine part of that established process, which is ongoing. the 

overpayments were introduced into the MHBP's nonnal exception processing 

workstream, and all amounts recovered on them will be credited to the 

FEHBP promptly upon receipt. 

Recommendation 13 

We recommend that the contracting officer instrllclthe Plan to identify the 

root callse(s) o/the claim payment errors and develop em action plan fo 

prevent these types oferrors inlhe/lIll1re. 

MHBP Response: As the above narrative illustrates. the erroneous claims 

payments that comprise this proposed audit finding generally are not 

attributable to a discrete,identifiable cause (or set ofcauses), but rather were 

primarily the result of manual error by individual claims processors. 

Correction of those errors therefore does not lend itself to a specific action 

plan of the kind the OIG contemplates in this recommendation. Nonetheless, 

MHBP claims processors will be furnished with additional training in order to 

minimize the likelihood of similar claims payment errors in the future. 

19 
2.	 Miscellaneolls Pavmellls alUl Credits 

a.	 Healtlr Benefit Recoverie!J' S15.270 

The Plan did not return or support the return aftwo health benefit recoveries, 

totaling 514,159, to the FEHBP. As a result. the FEHBP is due 515,270. 

consisting 0/SI4, 159for recoveries not returned or supported and SI, I I I for 

lost investment income (UI) on these recoveries. 

Contract CS 1146. Part III section 3.8 states, "the carrier will reWin and 

make available all records applicable to a contract term . ... " 

48 CFR 31.20I -5 states, ''The applicable portion ofany income, rebate, 

allowance, or other credit relating to any allowable cost and received by or 

accruing /0 the con fracto;' shall be credited to the Government either (IS a cost 

reduction or by cash refund." Based on insurance industry practice, the Plan 

should have returned the recoveries to the FEHBP within 30 days after being 

received. 0 

48 CFR J652.215-7J (e) states that investment income lost on these funds 

should be credited to the FEHBP. In addilion. section (f) ofthis regulation 

states, "All lost investment income payable shall bear simple interest ar the 

quarterly rare determined by the Secretary ofthe Treasury . ... " 

For the period 2002 through 2006, there were 255,937 health benefit recoveries 

(e.g., claim overpayment refunds. subrogation recoveries, andpharmacy drug 

rebates) totaling 5259,807.2I3. From this universe, we judgmentally selected 

'md reviewed 161 health benefit recDvuies. totaling $63,994,475. to determine 

ifthe Plan returned these recoveries to the FEHBP in a timely manner. Our 

sample selections included the following: 

•	 From 2002 through 2004, we selected the 30 highest recovery check 

amounts/or each year. 

•	 During 2005, the Plan's reporting/armor a/tracking health benefit 

recoveries changes. Therefore. we adjusted our sampling methodology. 

0" From January 2005 through May 2005, we selected the 10 highest 

recovery check amounts. 

	 From June 2005 through December 2005, we selected the 10 highest 

reeovelY check amounts. all phamUicy drug rebates, the 5 highest 

subrogation recovery amounts, and the 5 highesl provider audit 

TeeOl'ery amounts. 

	 From 2005. we also jlldgmentally selected six high dollar fraud 

reeovelyamounts. 

19 
•	 From 2006, we selected the /0 highest recovelY check amounts, all 

pharmacy drug rebates, the 5 highest subrogation recovery amOllnts, and 

the 5 highest provider audit recol'elY amounts. We also judgmenlal/y 

selected six high dollar fraud recovelY amoul1ts. 

Based on our review, we noted the following exceptions: 

•	 In one instance, the Plan did not return a health benefit recoveryo/S/2,607 

to the FEHBP. The Plan did not relllrn this amount to the FEHBP because 

it inadvertently did not cash the provider's refund check Subsequenl fo our 

identification o/this oversight. the Plan requested and received a 

replacement checkfrom the provider. and returned thefimds to the FEHBP 

on July 10, 2008. 

•	 In one instance. the Plan did not provide sufficient documentation to 

support the rerurn o/a health benefit recovery o/S/, 552 to the FEHBP. 

In total. the FEHBP is due $15.270, consisting ofS14.159for recoveries nol 

returned or supported and $1.1/Jfor LIlon these recoveries. As part o/this 

finding, we calculated Ll/ through December 31. 2006 on the questioned 

heailh benefit recoveries. In the filial audit report, we will calculate 

additional III accruing after December 3/, 2006. 

Plan's Response: 

The Plan agrees with lhisjinding. 

RecommeudalioJl14 

We verified thaI the Plan returned 512.607 to Ihe FEHBP on July 10, 2008/or 

one a/the questioned health benefit recoveries. There/ore, no further action 

is required/or this questioned amOlll1t. 

MOOP Response: The MHBP concurs with this recommendation. 

Recommendation J5 

Deleted by the Office of the Inspector General - Not Relevant 

to the Final Report 

20 
Deleted by the Office of the Inspector General - Not Relevant 

to the Final Report 

Recommendation 16 

We recommend that rhe conJracting officer direct the Plan to credit the 

FEHBP $1./1 J (plus interest accruing after December 31, 2006)for LlJ on 

the questioned health bene}it recoveries. 

I\1HBP Response: We concur with the OlG's recommendation that the 

Contracting Officer assess lost investment income against the $12.607 amount 

referenced in its Recommendation 14. Based on its Recommendation 15 

response, however, lost investment income should not be assessed against the 

$J,522 refund that the MHBP timely credited to the FEI-IBP. The DIG 

therefore should modify its proposed finding of$1,111 in lost investment 

income to reflect that fact. 

21 
B.	 ADMINlsrRA rIVE EXPENSES 

1. Unallowable and/or UlUll/ocable CNA Overheat! Costs 

$/08.015 

CNA (Ihe/ormer lmden"r;ler ofthe Mail Handlers Benefil Plan) charged Ihe 

FEHBP for unallowable andiol' unallocable costs thaI were included in overhead 

cost pools, resulting in O)'ercharges 0/S108,015 to the FEHBPfor 2002. 

Contract CS J146, P'lrt Ill, section 3.2 (b)(I) .slate:;, "The Carrier may charge a 

cost to the contract/or a contractterm ifthe cost is actual, allowable. allocable, 

and reasonable. .. 

48 CFR 31.201-4 states. "A cost is allocable ifit is assignable or chargeable to 

one or more CO.ft objectives on the basis ofreialive benefits received or other 

eq14Uable relationship. SubjeCt to the foregoing, a cost is allocable to a 

a) 

Governmenl 

Is incurred 

contract 

specifically

ifitfor tile contract; 

b) Benefils both the contract und other work, and can be distributed to them in 

reasonable proportion to the benefits received; or 

c) Is necessary to the overall operation ofthe business, althollgh a direct 

relaliol7ship to any particular cosl objective cannot be shown. " 

48 CFR.31 205-27(0) (1), "Planning or executing Ihe organization ur 

reorganization o/the corp0relte siructure ofa business. including mergers and 

acquisitions, .. , are unallowable. , .... 

We reviewed Ihe prior CNA audit report (Report #IB-45-02·02-069). covering 

contract yeclrs 1999 though 2001. and determined i/CNA continued to charge any 

ofthe previously disallowed cost.\'. Based on our review, we found Ihat CNA 

charged to the FEHBP S/08,0/5 for unallowable and/or unallocable costs in 

2002. Spec~{ically, CNA charged the fOllowing unallowable and/or unallocable 

costs to the FEHBP: 

•	 Cos/ Center 0006252 (CasllllltyActuaria/J- CNA allocated 579,252 to the 

FEHBP through service code 1630 (Corporate Finance G&A) and service code 

1640 (Corporate Finance Insurance). 

•	 Cost Center 0009009 (Business Decision Suppo,.t Lead - Mergers & 

Acquisitions) - CNA al/occlfed 525.016 to Ihe FEHBP through service code 

1640 (Corporate Finance Insurance). 

•	 Account 6306371 (Corporate Indemnitv Expense) - CNA allocaled $3. 74710 

the FEHBP through service code 1700 (Corporate Services). 

22 
The above unallowable andlor unallocable costs were charged to the FEHBP 

through overhead cos/ pools /hm were alfocated 10 the FEHBP. Although /hese 

costs were disallowed on the prior audit. CNA did not remove these cosisfrom the 

2002 cos/filings. As a result, the FEHBP is due $108,015 for IInallowable andlor 

unallocable costs charged to 'he FEHD? 

Plall's Respollse: 

The Plan agrees with this finding. 

Recommendation J 7 

We recommend that the contracting officer disallow S108, 015 for unallowable 

andlor urwllocable costs. 

MHBP Response: We concur with this recommendation. 

23 
C. CASH MANAGEMENT 

J. Worki"g Capital Deposit $6.000,000 

A1 the end ofthe audit scope (as ofDecember 31, 2006). the Plan held a working 

capital (We) deposit with an excess amount 0/$4 million over the amounl needed 

to meet the Plan's daily cash needsfor FEHBP claim payments and 

administrative expenses. 

Based on our audil experience ofother FEHBPfee-for-service plans, the we 

deposit should be recalculated on an ongoing basis to determine ifthe amount 

currently maintained is adequate to meet the Plan's daily cash needs/or FEHBP 

claim payments andlor administrative expenses, Ifthe deposit is not adequate. 

the Plan should make an appropriate adjustmenl. 

During the audit scope, the Plan evaluated the we deposit amount on several 

occasions, and made one adjustment. . This adjustment was made by the Plan in 

March 2004 to increase its we balance to $47 million. To delermine ifthe Plan 

maintained an adequate we deposit, we recalculated what lhe Plan'sfourth 

quarter 2006 we balance should have been and determined that, as ofDecember 

31, 2006. the Plan should have maintained a we balance of$43 million. 

Therefore, at the end o/the audit scope, the Plan held a we balance with an 

excess amount 0/$4 million over the amount needed to meet the Plan's daily cash 

needsfor FEHBP claim payments and administrative expenses. 

In response to our audit finding, the Plan provided a more recent we calculation 

ofclaims clearing and administrative expenses showing thalthe Plan currently 

holds an excess amount ofS6million in FEHBP funds as ofAugust 31, 2008. We 

agree with the Plan's recent we calculation. 

Since the Plan maintained these excessfunds in an interest-bearing account and 

timely credited the interest earned on thesefimds to the FEHBP, no III is due the 

FEHBP. However. the Plan needs to make an adjustment to return the exce:;'s we 

funds 0/$6 million to the FEHBP feller ofcredit (LOC) account. 

Plan 's Response: 

The Pia" agrees with thisfinding. 

MHBP Response: For clarification purposes, in our September 30,2008, 

response to Audit Inquiry #8 concerning this issue we concurred with the OIO's 

determination that on the last day ofthe period under audit. December 31, 2006, 

the MHBP's working capital deposit was approximately $4,000,000 greater than 

the amount needed to satisfy daily cash requirements at that time. As further 

reflected in both that Audit Inquiry #8 response and the above narrative, the 

$6,000,000 amount later credited to the FEHBP reflects the extent to which the 

24 
MHBP's working capital deposit exceeded its daily cash requirements as of 

August 31,2008, Le., some 20 months after this audit's closing date. For 

purposes ofhistorical accuracy, then, we request that the OIG modify this finding 

in the Final Audit Report to reflect the correct amount of $4,000,000.8 

RecoII,,;,cl1dation J8 

We verified thatthe Plan returned the excess WCfimds 0[$6.000.000 fa Ihe LOC 

account on October 8, 2008. Therefore, nofurther action is requiredfor these 

funds. 

MHBP Response: As clarified above, we concur with this recommendation. 

Recommendation 19 

We recommend that the contracting officer instruct the Plan to implemenl 

procedures to ensure that adjustments are made /0 the we deposit when the 

Plan's cash requirements change. 

MHBP Response: While we concur generally with this recommendation, we are 

concerned that as worded - i.e., that the MHBP should adjust the amollnt of its 

working capital deposit "when [its] cash requirements change" - the 

recommendation is unduly vague and open-ended. As ow Audit Inquiry #8 

response demonstrated, the MHBP needs to - and does - monitor its working 

capital balance daily in the routine course of business to ensure that it always has 

sufficient cash on hand to meet its obligations. Furthermore, as part of its 

resolution of OPM OIG Audit No. 13-45-00-00-064 for the period ending 

December 31, 2001, the MHBP agreed to recalculate that balance requirement 

annually and readjust it as necessary. which we in fact did during the initial years 

ofthe current audit period, typically during the first calendar year quarter. We 

inadvertently failed to do this recalculation in 2006, however, because the first 

quarter time frame coincided with a change in the MHBP's underwriter and 

administrator that resulted in attentions being focused elsewhere. In other words, 

the procedure the 01G recommends already exists, though in 2006 and subsequent 

years the MHBP did not adhere to it. We further believe that except in the event 

ofan intervening material change in financial circumstances, it would be 

inefficient and not in accordance with standard business practice to recalculate 

and readjust that amount more frequently than annually. This is particularly true 

given the fact that we continue to maintain those funds in an interest-bearing 

account and credit 100% of the interest thereon to the FEHBP (see n. 8 below). 

• The MHBP appreciates the OIO's recognition in the Draft Audit Report of the fact that because (I) it 

maintained the MHBP's working capital balance in an interest-bellring account, lind (2) it credited 100% of 

the interest earned on that account to the FEHBP. the FEHBP sustained no financial hann as a consequence 

of the MHBP's retention of these excess funds. 

25 
The MHBP therefore suggests that the OIG modify this recommendatiollto 

reiterate its prior recommendation that the MHBP recalculate and adjust its 

working capital balance as needed on an annual basis, or more frequently should 

an intervening material change in financial circumstances dictate that it do so. 

26