US OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

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AUDIT:OFBLUE·CROSSBElJESH1ELD OF ARKANSAS. .····.··LrrTI.JE .. .... ...... It()CKARKANSAS .. . ..... ..,. :.. .... .. 

Report No. lA-JO-44-08-,046 

.. . 

. Date: :. FebruafY 25,2009· 

--CAUTION-­

This audit reportbas been distrib!Jttd to Federal officials wbo are responsible for the adminiSlration oftbe audited program. Tbisauditreport 

may tonta.in proprietuy data wbicb is protected by FederaUaw (18 U.S.C. 1905); therdore, wbile this audit report is available under the 

Freedom on0 formation Act, eaution needs to be exercised before releasing the report to tbe geoe'ral pu blic. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 


Washington, DC 20415 


Office of the 

Inspector General 

AUDIT REPORT 

Federal Employees Health Benefits Program 


Service Benefit Plan Contract CS 1039 


BlueCross BlueShield Association 


Plan Code 10 


BlueCross BlueShield ofArkansas 


Plan Codes 0201520 


Little Rock, Arkansas 


REPORT NO. IA-1O-44-08-046 DATE:February 25, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

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


Washington, DC 20415 


Office of the 

Inspector General 

EXECUTIVE SUMMARY 

Federal Employees Health Benefits Program 


Service Benefit Plan Contract CS 1039 


BlueCross BlueShield Association 


Plan Code 10 


BlueCross BlueShield of Arkansas 


Plan Codes 020/520 


Little Rock. Arkansas 


REPORT NO. lA-10-44-08-046 DATE: February 25, 2009 

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

BlueCross BlueShield of Arkansas (Plan) in Little Rock, Arkansas questions $255,472 in health 

benefit charges. The BlueCross BlueShield Association (Association) agreed (A) with $224,548 

and disagreed (D) with $30,924 of the questioned charges. 

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

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

administrative expenses from 2003 through 2007 as reported in the Annual Accounting 

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

funds for contract years 2003 through 2007. 

Questioned items are summarized as follows: 

www.opm.go\l www.usajobs.gov 
HEALTH BENEFIT CHARGES 


Claim Payments 

• Omnibus Budget Reconciliation Act of 1990 Review $131,555 

The Plan incorrectly paid 26 claims that were priced or potentially should have been priced 

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

Plan overpaid 21 claims by $147,576 and underpaid 5 claims by $16,021, resulting in net 

overcharges of$131,555 to the FEHBP. The Association agreed with $100,631 (A) and 

disagreed with $30,924 (D) of the questioned charges. 

• Claim Payment Errors fA) $99,004 

The Plan incorrectly paid 99 claims, resulting in overcharges of $99,004 to the FEHBP. 

Miscellaneous Payments and Credits 

• Subrogation Recoveries fA) $24,913 

In one instance, the Plan did not return a subrogation recovery of $9,862 to the FEHBP. Also, 

the Plan inadvertently increased a letter of credit (LOC) drawdown, instead ofdecreasing the 

drawdown, to return subrogation recoveries to the FEHBP, resulting in a drawdown error of 

$9,983. As a result, the FEHBP is due $24,913; consisting of $9,862 for the subrogation 

recovery not returned to the FEHBP, $9,983 for the LOC drawdown error, and $5,068 for LII 

on these exceptions. 

ADMINISTRA TIVE EXPENSES 

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

that the administrative expenses charged to the FEHBP were actual, allowable, necessary, 

and reasonable expenses incurred in accordance with the tenns of the contract and applicable 

laws and regulations. 

CASH MANAGEMENT 

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

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

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

11 
CONTENTS 


PAGE 

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


1. INTRODUCTION AND BACKGROUND ............................................. " ...................... 1 


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


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


A. HEALTH BENEFIT CHARGES ............................................................................. 6 


1. Claim Payments ............................................................................................... 6 


a. Omnibus Budget Reconciliation Act of 1990 Review ............................... 6 


b. Claim Payment Errors ................................................................................ 9 


2. Miscellaneous Payments and Credits ............................................................. 12 


a. Subrogation Recoveries ........................................................................... 12 


B. ADMINISTRATIVE EXPENSES ......................................................................... 14 


C. CASH MANAGEMENT ....................................................................................... 14 


IV. MAJOR CONTRIBUTORS TO THIS REPORT ........................................................... 15 


V. SCHEDULES 

A. CONTRACT CHARGES AND AMOUNTS QUESTIONED 

B. QUESTIONED CHARGES 

APPENDIX 	 (BlueCross BlueShield Association reply, dated December 9, 2008, to 

the draft audit report) 
I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


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

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

BlueShield ofArkansas (Plan). The Plan is located in Little Rock, Arkansas. 

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

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

BACKGROUND 

The FEHBP was established by the Federal Employees Health Benefits (FEHB) Act (Public Law 

86-382), enacted on September 28, 1959. The FEHBP was created to provide health insurance 

benefits for federal employees, annuitants, and dependents. OPM's 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 ofthe Code of Federal Regulations (CFR). Health insurance coverage is 

made available through contracts with various health insurance carriers. 

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

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

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

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

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

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

The Association has established a Federal Employee Program (FEPl) Director's Office in 

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

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

BlueCross and BlueShield plans, and OPM. 

The Association has also established an FEP Operations Center. The activities ofthe FEP 

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

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

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

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

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

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


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


1 


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

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

and maintaining a system of internal controls. 

All findings from our previous audit of the Plan (Report No. lA-l 0-44-02-097, dated July 29, 

2003) for contract years 1999 through 2001 have been satisfactorily resolved. 

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

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

presented in detail in a draft report, dated October 10,2008. The Association's comments offered 

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

Appendix to this report_ 

2 

II. ·OBJECTIVES, SCOPE, AND METHODOLOGY 


OBJECTIVES 


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

provided services to FEHBP members in accordance with the tenns ofthe contract. Specifically, 

our objectives were as follows: 

Health Benefit Charges 

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

payments. 

• 	 To detennine whether miscellaneous payments charged to the FEHBP were in 

compliance with the tenns of the contract. 

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

payments were returned promptly to the FEHBP. 

Administrative Expenses 

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

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

of the contract and applicable regulations. 

Cash Management 

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

laws and regulations concerning cash management in the FEHBP. 

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, 

appropriate evidence to provide a reasonable basis for our findings and conclusions based on our 

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

findings and conclusions based on our audit objectives. 

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

pertain to Plan codes 020 and 520 for contract years 2003 through 2007. During this period, the 

Plan paid approximately $563 million in health benefit charges and $36 million in administrative 

expenses (See Figure 1 and Schedule A). 

3 

Specifically~ we reviewed approximately $8 million in claim payments made from 200S through 

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

as refunds and subrogation recoveries, administrative expenses, and cash management for 2003 

through 2007. 

In planning and conducting our audit, we 

BlueCross BlueShield of Arkansas obtained an understanding of the Plan's Contract Charges 

internal control structure to help determine 

the nature, timing, and extent of our $200 -r------------------, 

auditing procedures. This was detennined 

to be the most effective approach to select III $150 +----~~~~-~~--~----I 

c areas of audit. For those areas selected, we .9 

primarily relied on substantive tests of ~ $100 

transactions and not tests of controls. 

Based on our testing, we did not identify $50 

any significant matters involving the Plan's 

internal control structure and its operation. 

However, since our audit would not 2003 2004 2005 2006 2007 

Contract Years necessarily disclose all significant matters 

in the internal control structure, we do not rJHeallh Benefit Payments _Administrative Expenses 

express an opinion on the Plan's system of 

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

We also conducted tests to detennine 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 test~d, the Plan did not comply with all provisions of the contract and federal procurement 

regUlations. Exceptions noted in the areas reviewed are set forth in detail in the ItAudit Findings 

and Recommendationslt section of this audit report. With respect to the items not tested, nothing 

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

respects, with those provisions. 

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

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

Medicaid Services. Due to time constraints, we did not verify the reliability ofthe data generated 

by the various information systems involved. However, while utilizing the computer-generated 

data during our audit testing, nothing came to our attention to cause us to doubt its reliability. 

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

The audit was performed at the Plan's office in Little Rock, Arkansas from August 4 through 

August 15. 2008 and September 15 through September 26, 2008. Audit fieldwork was also 

performed at our offices in Washington, D.C. and Jacksonville, Florida. 

4 

METHODOLOGY 


/ 

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

accounting, and financial systems by inquiry of Plan officials. 

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

reviewed samples of 535 claims? We used the FEHBP contract, the Service Benefit Plan 

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

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

to the universe of claims. 

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

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

and reviewed 59 health benefit refunds, totaling $2,270,131 (from a universe of 8,875 refunds, 

totaling $3,827,527)~ 50 subrogation recoveries, totaling $1,920,719 (from a universe of2,831 

subrogation recoveries, totaling $15,815,747); and 15 Special Plan Invoices, totaling $1,634,447 

in net payments (from a universe of 97 Special Plan Invoices, totaling $4,815,982 in net 

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

miscel1aneous payments were properly charged to the FEHBP. The results of these samples were 

not projected to the universe ofmiscellaneous payments and credits. 

We judgmentally reviewed administrative expenses charged to the FEHBP for contract years 2003 

through 2007. Specifically, we reviewed administrative expenses relating to cost centers, natural 

accounts, pension, post-retirement, employee health benefits, executive compensation, lobbying, 

non-recurring projects, and Health Insurance Portability and Accountability Act of 1996 

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

allowability, allocability, 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 1039 and applicable laws and regulations. 

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

Errors" (A1.b) on pages 6 through 12 for specific details ofour sample selection methodologies. 
III. AUDIT FINDINGS AND RECOMMENDATIONS 


A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Omnibus Budget Reconciliation Act of 1990 Review $131,555 

The Plan incorrectly paid 26 claims that were priced or potentially should have been 

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

guidelines. Specifically, the Plan overpaid 21 claims by $147,576 and underpaid 5 

claims by $16,021, resulting in net overcharges of$131,555 to the FEHBP. 

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

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

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

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

diligent effort to recover an overpayment ...." 

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

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

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

equivalent to the Medicare Part A payment. 

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

to price OBRA 90 claims, we recalculated the claim payment amounts for the claims in 

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

The following summarizes the claim payment errors. 

OBRA 90 Claim Pricing Errors 

For the period of 2005 through 2007, we identified 731 claims, totaling $5,719,515 in 

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

selected and reviewed a judgmental sample of 145 claims, totaling $2,738,964 in 

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

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

paid of$IO,OOO or more. 

Based on our review, we determined that 16 claims were paid incorrectly, resulting in 

net overcharges of $] 26,040 to the FEHBP. Specifically, the Plan overpaid 14 claims 

by $139,316 and underpaid 2 claims by $13,276. 

6 

The claim payment errors resulted from the following: 

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

overcharges of $93,362 to the FEHBP". 

• 	 The FEP Operations Center priced seven claims using incorrect Medicare 

Diagnostic Related Group (DRO) codes. Consequently, the Plan overpaid five 

claims by $39,318 and underpaid two claims by $13,276, resulting in net 

overcharges of $26,042 to the FEHBP. 

• 	 The Plan paid one claim using the incorrect local pricing amount, resulting in an 

overcharge of $6,636 to the FEHBP. 

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

For the period of 2005 through 2007, we identified 126 claims, totaling $187,791 in 

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

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

and reviewed ajudgmental sample of 79 claims, totaling $185,208 in payments, to 

determine if the Plan paid these claims properly. Our sample included all possible 

OBRA 90 claims with amounts paid of $100 or more. 

Based on this review, we detennined that 10 claims were paid incorrectly, resulting in 

net overcharges of $5,515 to the FEHBP. Specifically, the Plan overpaid seven claims 

by $8,260 and underpaid three claims by $2,745. 

The claim payment errors resulted from the following: 

• 	 The Plan paid one claim using the incorrect billed charges, resulting in an 

overcharge of $2,022 to the FEHBP. 

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

overcharges of $1 ,907 to the FEHBP. 

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

overcharges of$I,586 to the FEHBP. Specifically, the Plan overpaid three claims 

by $4,331 and underpaid three claims by $2,745. 

Association's Res ponse: 

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

$100,631 ($95,116 + $5,515) and disagrees with $37,209 ($30,924 + $6,285) of the net 

overcharges. The Association states that the Plan has perfonned adjustments to correct 

the underpayments and initiated recovery efforts for the uncontested overpayments. 

The Association also states that these payments were good faith erroneous benefit 

7 

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

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

erroneous payments, lost investment income (LIl) does not apply to the claim payment 

errors identified in this finding. 

For the "OBRA 90 Claim Pricing Errors" finding, the Association states, "The Plan 

contests $30,924 but does not contest $95,116 in questioned costs. The questioned 

amount is contested because when the claims were re-processed with the FEP OBRA 

'90 Mainframe Pricer the new price was different than the price that was obtained by 

OPM OIG's use ofthe PC Pricer." Regarding the "Possible OBRA 90 Claims" finding, 

the Association states that the Plan does not contest $5,515 in questioned costs. 

In addition, the Association states, "To reduce these types of payment errors in the 

future, the FEP Director's Office has implemented the following corrective action 

plan: 

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

correction as part of the new FEP System-wide Claims review process. 

• 	 Modify FEP claims system to defer claims whenever a Plan indicates that a 

provider is not an approved provider. This will ensure that the Plan has submitted 

the proper information. 

• 	 Modify the FEP claims system to override Plan's indication ofwhether or not the 

Provider is a Medicare approved provider and validate the status through the FEP 

OBRA '90 software." 

OIG Comments: 

After reviewing the Association's response, we revised the amount questioned from 

the draft report to net overcharges of $131,555. Based on the response, the 

Association agrees with $100,631 and disagrees with $30,924 ofthese net overcharges. 

For the contested amount, the FEP Operations Center's OBRA 90 pricing amounts 

differed from the eMS Pricer amounts. Based on our experience with auditing 

BlueCross and BlueShield plans, we have found that these pricing differences occur 

because the mainframe pricing software used by the FEP Operations Center is not 

always up-to-date. Therefore, we will continue to use the latest version of the eMS 

Pricer program, which includes up-to-date pricing, to detennine if claims paid under 

OBRA 90 were correctly priced by the FEP Operations Center and paid by the Plan. 

Recommendation 1 

We recommend that the contracting officer disallow $147,576 in claim overcharges, 

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

8 

Recommendation 2 

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

. $16,021 if additional payments are made to the providers to correct the underpayment 

errors. 

Recommendation 3 

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

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

that the Plan is following the corrective action plan. 

b. 	 Claim Payment Errors $99,004 

The Plan incorrectly paid 99 claims, resulting in overcharges of $99,004 to the 

FEHBP. 

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

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

required to make a diligent effort to recover the overpayments. 

The following summarizes the claim payment errors. 

Amounts Paid Greater than Covered Charges 

For the period of 2005 through 2007, we identified 188 claims where the amounts 

paid were greater than the covered charges by a total of$71,860. From this universe, 

we selected and reviewed a judgmental sample of46 claims with a total variance of 

$68,698, and determined ifthe Plan paid these claims properly. Our sample included 

all claims where the amounts paid exceeded covered charges by $100 or more. Based 

on our review, we identified 20 claim payment errors, resulting in overcharges of 

$61,568 to the FEHBP. 

The claim payment errors resulted from the following: 

• 	 The Plan inadvertently paid for unallowable incidental procedures on four claims, 

resulting in overcharges of $34,226 to the FEHBP. 

• 	 The Plan paid five claims using incorrect allowances, resulting in overcharges of 

$12,256 to the FEHBP. 

• 	 The Plan paid five claims without applying the provider discount, resulting in 

overcharges of$7,491 to the FEHBP. 

9 

• 	 The Plan made four duplicate claim payments, resulting in overcharges of $6,472 

to the FEHBP. 

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

$1,123 to the FEHBP. These overcharges were due to the Plan not pricing the 

claims in accordance with the provider contract, which required these claims to be 

paid at the lower of billed charges or contract allowance. In each instance, the 

Plan paid the claim at the higher amount (billed charges). 

Assistant Surgeon Review 

For the period 2005 through 2007, we identified 262 assistant surgeon claim groups, 

totaling $70,085 in potential ovetpayments, 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 165 assistant surgeon claim groups, 

totaling $65,698 in potential overpayments, to determine ifthe Plan paid these claims 

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

overpayments of$100 or more. The majority ofthese claim groupings contained one 

primary surgeon and one assistant surgeon claim. Based on our review, we 

determined that 74 claims were paid incorrectly, resulting in overcharges of $29,798 

to the FEHBP. 

The claim payment errors resulted from the following: 

• 	 The Plan inadvertently priced 55 claims incorrectly, resulting in overcharges of 

$20,833 to the FEHBP. These overcharges were due to a Plan system limitation 

that did not recognize the assistant surgeon modifier. 

• 	 The Plan incorrectly paid nine assistant surgeon claims that were subject to 

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

resulting in overcharges 0[$4,330 to the FEHBP. These errors were due to 

Palmetto (OBRA 93 pricing vendor) not recognizing the assistant surgeon pricing 

modifier and erroneously calculating the assistant surgeon allowance. The 

assistant surgeon allowance should have been priced at 16 percent ofthe primary 

surgeon's Medicare allowed amount. 

• 	 The Plan paid seven claims using incorrect allowances, resulting in overcharges of 

$4,069 to the FEHBP. 

• 	 The Plan incorrectly paid one claim due to a processor inadvertently pricing 

incidental procedures, resulting in an overcharge of $317 to the FEHBP. 

• 	 The Plan paid one claim without applying the assistant surgeon pricing percentage, 

reSUlting in an overcharge of$218 to the FEHBP. 

10 

• 	 Due to a biUing error, the Plan priced one claim using an incorrect modifier, 

resulting in an overcharge of $31 to the FEHBP. 

System Review Overpayments 

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

through December 31, 2007, we identified 1,181,1 09 claim lines, totaling 

$102,897,619 in payments, using a standard criteria based on our experience. From 

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

(representing 1,116 claim lines), totaling $5,043,738 in payments, to determine if the 

Plan adjudicated these claims properly.) Based on this review, we identified five 

claim payment errors, resulting in overcharges of $7,638 to the FEHBP. In each 

instance, the Plan paid the claim using the incorrect allowance. 

Association's Response: 

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

initiated recoveries for these claim overpayments. The Association also states that 

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

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

recover are allowable charges tothe FEHBP. As good faith erroneous payments, LII 

does not apply to these claim payment errors. 

For the "Amounts Paid Greater than Covered Claims" finding, the Association states, 

"The incorrectly paid claims ... were the result ofExaminer error. ... To reduce 

overpayments in the future, the Plan will provide additional training to claims 

examiner staff on a quarterly basis. The Plan also completes the FEPDO Systemwide Claims Review (which includes a listing of Amounts Paid Greater than Charges 

Claims). These items combined should reduce payment errors ofthis nature in the 

future." 

Regarding the "Assistant Surgeon Review" finding, the Association states, "The Plan 

reviewed the errors and determined that the errors were caused by a Local Plan system 

limitation that did not recognize the Assistant Surgeon Modifier. In addition, 

Examiner error contributed to this finding." The Association also states that the Plan 

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

Regarding the "System Review Overpayments" finding, the Association states. "The 

Plan has reviewed the incorrectly paid claims and determined that the errors were the 

result of Examiner error .... To reduce overpayments in the future, the Plan will work 

with claims examiner staff to focus on specific issues noted from external audits and 

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

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

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

claim dollars paid. 

11 
overpayment identification methods to minimize the likelihood of recurrence. The 

Plan employs several methods to identify overpayments." 

Recommendation 4 

We recommend that the contracting officer disallow $99,004 in claim overcharges, and 

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

Recommendation 5 

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

Plan implemented and/or is implementing corrective actions to prevent these types of 

claim payment errors in the future. 

2. Miscellaneous Payments and Credits 

a. Subrogation Recoveries $24,913 

The Plan did not return one subrogation recovery of$9,862 to the FEHBP. Also, the 

Plan inadvertently increased a letter of credit (LOC) drawdoWll, instead of decreasing 

the drawdoWll, to return subrogation recoveries to the FEHBP, resulting in a 

drawdown error of$9,983. As a result, the FEHBP is due $24,913; consisting of 

$9,862 for the subrogation. recovery not returned to the FEHBP, $9,983 for the LOC 

drawdown error, and $5,068 for LII on these exceptions. 

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 Govenunent either as a cost reduction or by cash refund." 

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

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

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

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

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

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

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

1999, BlueCross and BlueShield plans have 30 days to return refunds and recoveries 

to the FEHBP ifreceived after March 31, 1999 before LII will be assessed. 

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

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

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

by the Secretary of the Treasury ...." 

12 

For the period 2003 through 2007, we identified 2,831 subrogation recoveries totaling 

$15,815,747. From this universe, we se1ected and reviewed a judgmental sample of 

50 subrogation recoveries, totaling $1,920,719, for the purpose of detennining if the 

Plan promptly returned these recoveries to the FEHBP. Our sample included all 

subrogation recoveries of $10,000 or more. 

Based on our review, we noted the following exceptions: 

• 	 In one instance, the Plan did not return a subrogation recovery from 2003, totaling 

$9,862, to the FEHBP. 

• 	 The Plan inadvertently increased the LOe drawdown on April 15, 2003, instead 

of decreasing the drawdown, to return subrogation recoveries to the FEHBP. As a 

result, the Plan overdrew $9,983 from the LOe account. 

In total, the Plan owes the FEHBP $24,913; consisting of$9,862 for the subrogation 

recovery not returned to the FEHBP, $9,983 for the Loe drawdown error, and $5,068 

for LII on these exceptions. As part ofthis finding, we calculated LII through 

September 29,2008 on these exceptions. 

Association's Response: 

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

submitted a Special Plan Invoice (SPI) to the FEP Director's Office for this audit 

finding and wire transferred $24,944 to FEP on October 10, 2008. The SPI included 

additional LII of $31. 

Recommendation 6 

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

$19,845 ($9,862 + $9,983) for the subrogation recovery not returned and the Loe 

drawdown error. 

Recommendation 7 

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

$5,068 (plus interest accruing after September 29,2008) for LII on the subrogation 

recovery not returned to the FEHBP and the LOC drawdown error. 
B. ADMINISTRATIVE EXPENSES 

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

that the administrative expenses charged to the FEHBP were actual, allowable, necessary, 

and reasonable expenses incurred in accordance with the terms of the contract and applicable 

laws and regulations. 

C. CASH MANAGEMENT 

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

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

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

14 

IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experienced-Rated Audits Group 

Auditor., In-Charge 

Auditor 

Auditor 

Auditor 

Senior Team Leader 

1 /;\ 
SCHEDULE A , 

, !

V. SCHEDULES 


BLUECROSS BLUESHIELD OF ARKANSAS 


LITTLE ROCK, ARKANSAS 


CONTRACT CHARGES AND AMOUNTS QUESTIONED 

CONTRACT CHARGES 2003 2004 2005 2006 2007 TOTAL 

A. HEALTH BENEFIT CHARGES 

PLAN CODE 020 

MISCELLANEOUS PAYMENTS 

$50,727,046 

375,702 

$57,254,559 

360,551 

$58,262,200 

348,154 

$62,607,507 

1,413,432 

$70,560,848 

2,032,668 

$299,412,160 

4,530,507 

PLAN CODE 520 

MISCELLANEOUS PAYMENTS 

41,662,319 

0 

48,132,780 

0 

51,980,000 

0 

55,362,816 

0 

62,327,308 

0 

259,465,223 

0 

$92,765,067 $105,747,890 

~;IiI~1 1~1f;H~I~mii\"lU'WI~mlllJm~mll 

$110,590,354 IlIl1Im~I!H~im~I'lImWIOO'

$119,383,755 rrnII;fltiiIl:lINI 

$134,920,824 $563,407,890 ,,,.""...,, , ",,,.re TOTAL HEALTH BENEFIT CHARGES 

B. ADMINISTRATIVE EXPENSES 

I 

PLAN CODES 020/520 

PRIOR PERIOD ADJUSTMENTS 

TOTAL ADMINISTRATIVE EXPENSES 

TOTAL CONTRACT CHARGES 

AMOUNTS QUESTIONED 

(PER SCHEDULE B) 

I 

I 

$6,516,766 

0 

$6,795,594 

0 

$7,216,551 

(13,959) 

$7,632,044 

0 

$8,347,395 

0 

$36,508,350 

(13,959) 

$6,516,766 ~,,~L'4lnmiH ,'''

$6,795,594 

mm••"."""".,"',••"',,,

$7,202,592 ••••,,....,,,,,,,,.,,,,,'0,,,,,,.,,,,•••""' $7,632,044 

'''',1,...,,,,,••,,,,,,,,, $8,347,395 , $36,494,391 it

"""",OO1'••"••"".,,,',,,wl'mru!l "I , '' "mmm , ''. ••••••"".,IIl'"""•• " 

$99,281,833 $112,543,484 $117,792,946 $127,015,799 $143,268,219 $599,902,281 Ii 

2003 2004 2005 2006 2007 2008 TOTAL

A. HEALTH BENEFIT CHARGES 

B. ADMINISTRATIVE EXPENSES 

C. CASH MANAGEMENT 

TOTAL QUESTIONED CHARGES I $20,331 "",",••••••",••,,,,__,,,,",111,,,11.,,

$20,331 $842 $133,101 $25,870 $74,610 $718 $255,472 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

$842 ,,,,,,,",.,,"",,,,.,.,,,,,.,,,'"'''',. $133,101 $25,870 $74,610 $718 

,,."" ...,,,,,,,.',,,,,,"',,

$255,472 !~ ,,_,,,. "".," ,,",,,•••,,,,,",," ••••,"""".,.".""••••'••,1.1 m'•••••• " ••" ••• '"""•••"'~, '",••,"'.,,,,,,,,,,,,••• ,,,.,, ,,,.,,,,••,, ••••• ,,"""'".'.,!II' 1,1 
SCHEDULEB 

BLUECROSS BLUESHIELD OF ARKANSAS 

LITTLE ROCK, ARKANSAS 

QUESTIONED CHARGES , 

, 

AUDIT FINDINGS 2003 2004 ·2005 2006 2007 2008 TOTAL 

A. HEALTH BENEFIT CHARGES 

l. Claim Payments 

a. Omnibus Budget Reconciliation Act of 1990 Review SO $0 5108,419 $12,284 $10,852 $0 $131,555 

b. Claim Payment Errors 0 0 23,818 12,513 62,673 o· 99,004 

Total Claim Payments I $0 $0 $132,237 $24,797 S73,525 SO $230,559 

2. Miscellaneous Payments and Credits 

B. Subrogation Recoveries $20,331 $842 $864 $1,073 $1,085 $718 $24,913

Total Miscellaneous Payments and Credits $20,331 $842 $1,085 $718 $24,913 I Sl,073 

TOTAL HEALTH BENEFIT CHARGES I $20,331 , $842 S133,101 S25,870 $74,610 $718 $255,472 @ ,II,",,,, I,,,,,,,,.... ,,,,,,,""""IIlI"""'" •"., m

$864 

III'i"•••••ru""""m 1111 

B. ADMINISTRATIVE EXPENSES I $0 liil"","lim.li.m•••"i.II

$0 \IIIImmKl!11 

$0 

'. ~illlll

SO $0 mm~~mml~ 

$0 SO W. 

11~1'IJ~'m~~'""""'l ""'~lm~llI '~1 I i 

C. CASH MANAGEMENT I SO 

rn"",,,,.,"I"wml.

SO ","I""",".'lIlmmlllJmlllll~~

$0 I~YIID~I~~Wlillll\llm.,lm"ml.Hl

$0 mwwmiWlllllillmml

SO SO 1l1 SO i il ".."."'h. mlm II.rnm ••••""II.....m ~lIilllm~!OOl . ii

TOTAL QUESTIONED CHARGES $718 

' "11,••,, I S20,331 

mw"mmmm 

$842 .1",wmwll$133,101 !lmrnW~IIIIlI.'~"" •••"""'WIIIIIII'''"I~m

$25,870 l!llHlIlllllrnrnmmOOmlllJlillilOOi

$74,610 $255,472 m,m.IIll1II"rnl ~I 

m 

Im wl~i il lW "'" 
•• 

APPENDIX 


BlueCross BlueShield 

Association 

Group Chief, Experienced Rated Audit Groups 

An ,\s$qciali(]n uf Independent 

Blue Cr')" IOml Blue Shiel,l Plans 

1.~10 G Strt<el, N.W December 9,2008 Waslling1.OJl. D.C. 20005 

202.626.4780 

Fax 202.626.4855 

Insurance Services Programs 

U.S. Office of Personnel Management 

1900' E. Street, N.W., Room 6400 

Washington, D.C. 20415-1100 

Reference: 	 OPM Draft AudIt Report 

Arkansas BlueCross BlueShield 

Audit Report Number 1A-1044-08-046 

(Dated 10/10/2008 and received 10110/2008) 

Dear 

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

Management (OPM) Draft Audit Report concerning Arkansas BlueCross 

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

A. HEALTH BENEFIT CHARGES 

1. Claim Payment Errors 

a. Omnibus Budget Reconciliation Act of 1990 $137,840 

The Plan overpaid 23 claims for $165,321 and underpaid 7 claims for 

$27,481 for a net overpayment amount of $137,840. 

• Claims Not Priced Under OBRA '90 	 $11,800 

The Plan contests $6,285 but does not contest that a net of $5,515 in claim 

payments may have been paid in error. The questioned amount is contested 

based on the fact that four claims questioned in the sample are not subject to 

OBRA '90 pricing. since another insurance carrier was primary for three 

cJaims and one claim contained a mental health diagnosis. 

Adjustments have been performed to correct the underpayments and 

recovery efforts have been initiated on the agreed overpayments. 
Chief 

OPM Draft Report Audit Response 

December 10,2008 

Page 2 

• 	 OBRA 90 Claim Pricing Errors $126.040 

The Plan contests $30,924 but does not contest $95,116 in questioned 

costs. The questioned amount is contested because when the claims were 

re-processed with the FEP OBRA '90 Mainframe Pricer the new price was 

different than the price that was obtained by OPM DIG's use of the PC 

Pricer. 

Adjustments have been peiformed to correct the underpayments and 

recovery efforts have been initiated on the agreed overpayments. 

To reduce these types of payment errors in the future, the FEP Director's 

Office implemented the following corrective action plan: 

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

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

process. 

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

that a provider is not an approved provider. This will ensure that the 

Plan has submitted the proper information. 

• 	 Modify the FEP claims system to override Plan's indication of whether or 

not the Provider is a Medicare approved provider and validate the status 

through the FE? OSRA '90 software. 

The Plan also has several methods in place to identify overpayments. 

These methods include, but are not limited to the FEP System-wide Claim 

Review, COB and Duplicate claims reports provided by the FEP Director's 

Office, and routine audits performed by the Plan's internal claims staff. 

While these measures are not absolute, they provide reasonable 

assurances that such items will be identified. Accordingly, to the extent that 

errors did occur, the payments are good faith erroneous benefits payments 

and fall within the context of CS 1039, Section 2.3(g). Any benefit payments 

the Plan is unable to recover are allowable charges to the Program. In 

addition, as good faith erroneous benefits payments, lost investment income 

does not apply to the payments identified in this finding. 

b. 	 Claim Payment Errors $99.004 

We do not contest the questioned claim overpayment amount totaling 

$99,004 to the FEHBP. 
Group Chief 

OPM Draft Report Audit Response 

December 10, 2008 

Page 3 

• Amount Paid Greater than Charges $61,568 

The incorrectly paid claims for Amount Greater than Charges were the 

result of Examiner error. The Plan has initiated recovery on all 

overpayments and $58,052 has been returned· to the Program as of 

November 30,2008. To reduce overpayments in the future, the Plan will 

provide additional training to claims examiner staff on a quarterly basis. The 

Plan also completes the FEPDO System-wide Claims Review (which 

includes a listing of Amount Paid Greater than Charges Claims). These 

items combined should reduce payment errors of this nature in the future. 

• Assistant Surgeon $29,798 

We do not contest this finding. The Plan reviewed the errors and 

determined that the errors were caused by a Local Plan system limitation 

that did not recognize the Assistant Surgeon Modifier. In addition, Examiner 

error contributed to this finding. The Plan has initiated recovery on all 

overpayments. 

The Plan implemented the following corrective action: 

Corrective Action 

The Plan's local Claims System was modified through system configuration 

and edit changes to support proper processing of claims submitted with the 

AS modifier. 

The Plan will complete the System-wide Claim Review Report provided by 

the FEPDO when it is received which includes assistant surgeon claims. 

System Review Overpayments $7,638 

The Plan does not contest this finding. The Plan has reviewed the 

incorrectly paid claims and determined that the errors were the result of 

Examiner error. The Plan has initiated recovery on all overpayments. 

To reduce overpayments in the future, the Plan will work with claims 

examiner staff to focus on specific issues noted from external audits and 

overpayment identification methods to minimize the likelihood of 

recurrence. The Plan employs several methods to identify overpayments. 

These methods include, but are not limited to the, FEP System-wide Claim 

Review, COB and Duplicate claims reports provided by the FEP Director's 

Office, and routine audits pertormed by the Plan's internal claims staff. 
Group Chief 

OPM Draft Report Audit Response 

December 10, 2008 

Page 4 

While these measures are not absolute, they provide reasonable 

assurances that such items will be identified. Accordingly, to the extent 

that errors did occur, the payments are good faith erroneous benefits 

payments and fall within the context of CS 1039, Section 2.3(g). Any 

benefit payments the Plan is unable to recover are allowable charges to 

the Program. In addition, as good faith erroneous payments, lost 

investment income does not apply to the payments identified in this 

finding. 

2. Miscellaneous Payments and Credits 

a. Subrogation Recoveries $24.913 

The Plcm does not contest the questioned amount of $24,913 related to 

Subrogation Recoveries. The Plan submitted a Special Plan Invoice to 

the FEP Director's Office and wired $24,944 to FEP on October 10, 

2008, which included additional lost investment income of $31. 

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

findings and request that our comments be included in their entirety as 

part of the Final Audit Report. 

cc: