1

,;/ ji 

U.S. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

, .. .. 

·ULlJECROSS ULl]E$HtELD OF TENNESSEE 

C.HAT.T.ANOOGA,TENNESSE.···.E.···. .. . .. . . . 

Report No. lA-lO-15-09,,009 

Date: Jupe ·16, . 2009 

--CAUTION-­

This audit report has been dlstrjbuted teFederal officials who are responsible for the admiuistration ofthe audited program. This auditreport 

may contain proprietary .data which is protected by Federal law (18 U.s.C.1905h therefore, while this audit report is available under the 

Freedom ef lnformatlon Act, caution needs to be exercised beroi e releasing the report to the general public. 
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
 

BJueCross BlueShield Association
 

Plan Code 10
 

BlueCross BlueShield of Tennessee
 

Plan Codes 390, 392, and 892
 

Chattanooga, Tennessee
 

REPORT NO. lA-10~15~09-009 DATE: June 16, 2009 

~<;;. 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
 

Service Benefit Plan Contract CS 1039
 

BlueCross BlueShield Association
 

Plan Code 10
 

BlueCross BlueShield of Tennessee
 

Plan Codes 390, 392, and 892
 

Chattanooga, Tennessee
 

REPORT NO. IA-IO-15-09-009 DATE: June 16, 2009 

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

BlueCross BlueShield ofTennessee (Plan) in Chattanooga, Tennessee questions $317,180 in 

health benefit charges, $133,596 in administrative expenses, and $61,782 in cash management 

practices. The BlueCross BlueShield Association (Association) agreed (A) with $450,776 and 

disagreed (D) with $61,782 of the questioned costs. Lost investment income (LII) on the 

questioned costs amounts to $25,010. 

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

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

administrative expenses, and statutory reserve payments from 2004 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 2004 through 2007. 

Questioned items are summarized as follows: 

www.opm.gov www.us~jobs.gov
HEALTH BENEFIT CHARGES
 

Claim Payments 

•	 Claim Payment Errors (Al $253,121 

The Plan incorrectly paid 129 claims, resulting in overcharges to the FEHBP. 

•	 Omnibus Budget Reconciliation Act of 1990 Review fA) $64,059 

The Plan incorrectly paid 10 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 $64,059 to the FEHBP. Specifically, the Plan overpaid seven claims by 

$96,744 and underpaid three claims by $32,685. 

Miscellaneous Payments and Credits 

The audit disclosed no findings pertaining to miscellaneous payments and credits. Overall, we 

concluded that the Plan promptly returned health benefit refunds and recoveries to the FEHBP. 

Also, the Plan properly charged miscellaneous payments to the FEHBP. 

ADMINISTRATIVE EXPENSES 

•	 Pension Costs fA) $52,752 

The Plan overcharged the FEHBP for pension costs from 2004 through 2006. 

•	 "Gain on Sale of Building fA) $49,590 

The Plan did not allocate the gain on the sale of a building to the FEHBP. 

•	 Lobbying Expenses fA) $20,313 

The Plan charged unallowable lobbying expenses to the FEHBP in 2007. 

•	 Post-Retirement Benefit Costs fA) $10,941 

The Plan overcharged the FEHBP $52,158 for post-retirement benefit costs in 2005, 2006, 

and 2007, and undercharged the FEHBP $41,217 in 2004. 

11 
STATUTORY RESERVE PAYMENTS
 

The audit disclosed no findings pertaining to statutory reserve payments. The Plan calculated 

and charged statutory reserve payments to the FEHBP in accordance with Contract CS 1039 

and applicable laws and regulations. 

CASH MANAGEMENT 

• Interest Income CD) $61,782 

The Plan had not returned interest income of$61,782 to the FEHBP letter of credit account 

as ofDecember 31,2007. This interest income was earned during July, October, and 

November of 2007. Subsequent to receiving our audit notification letter, the Plan returned 

this interest income to the FEHBP on April I, July I, and September 4, 2008. 

• Investment of Funds fA) Procedural 

The Plan did not prudently invest excess FEHBP funds during the period August 2006 

through December 2007. 

LOST INVESTMENT INCOME ON AUDIT FINDINGS 

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

$25,010, calculated through December 31, 2008. 

111 
CONTENTS
 

PAGE 

EXECUTIVE SUMMARY ,	 i
 

1. INTRODUCTION AND BACKGROUND 1
 

II. OBJECTIVES, SCOPE, AND METHODOLOGY 3
 

Ill. AUDIT FINDINGS AND RECOMMENDATIONS 6
 

A.	 HEALTH BENEFIT CHARGES 6
 

1. Claim Payments ,	 6
 

a. Claim Payment Errors	 , 6
 

b. Omnibus Budget Reconciliation Act of 1990 Review	 9
 

2. Miscellaneous Payments and Credits	 11
 

B.	 ADMINISTRATIVE EXPENSES 11
 

]. Pension Costs - _ 11
 

2. Gain on Sale ofBuilding	 , 12
 

3. Lobbying Expenses	 13
 

4. Post-Retirement Benefit Costs	 14
 

C.	 STATUTORY RESERVE PAYMENTS _ 14
 

D.	 CASI-I MANAGEMENT 15
 

1. Interest Income	 15
 

2. Investment ofFunds	 16
 

E.	 LOST INVESTMENT INCOME ON AUDIT FINDINGS _ 17
 

IV. MAJOR CONTRIBUTORS TO THIS REPORT.	 18
 

V. SCHEDULES 

A.	 CONTRACT CHARGES 

B.	 QUESTIONED CHARGES 

C.	 LOST INVESTMENT INCOME CALCULATION 

APPENDIX A	 (BlueCross BlueShield Association reply, dated March 23, 2009, to the 

draft audit report) 

APPENDIX B	 (Blue Cross BlueShield Association reply, dated April21, 2009, 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) pertaining to BlueCross 

BlueShield ofTennessee (Plan). The Plan is located in Chattanooga, Tennessee. 

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

General (DIG), 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. 

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

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

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

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

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

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

The Association has established a Federal Employee Program (FEp l

) Director's Office in 

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

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

BlueCross and BlueShield plans, and OPM. 

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

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

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

plans, verifying subscriber eligibility, approving or disapproving the reimbursement oflocal plan 

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

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

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

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

I
 
Compliance with laws and regulations applicable to the FEHBP is the responsibility 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 ofthe Plan (Report No. lA-1O-15-05-046, dated July 25, 

2007) for contract years 2001 through 2003 have been satisfactorily resolved, except for two 

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

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

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

presented in detail in a draft report, dated January 30,2009. The Association's comments 

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

included as Appendices 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 ofthe 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 ofthe contract. 

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

payments were returned promptly to the FEHBP. 

Administrative Expense~

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

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

of the contract and applicable regulations. 

Statutory Reserve Payments 

•	 To determine whether the Plan calculated and charged statutory reserve payments to 

the FEHBP in accordance with the terms ofthe contract and applicable laws and 

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. 

3
 
BlueCross BlueShield of Tennessee 

Contract Charges 

$400 -.------------------, 

$300 l/} 

c 

.Q

:i $200 w 

$100

$0 

2004 2005 2006 2007

Contract Years 

r:a Hea Ilh Benefit Payments • Admin istralive Expenses 

Figure I - Contract Charges 

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

pertain to plan codes 390, 392, and 892 for contract years 2004 through 2007. During the period, 

the Plan paid approximately $1 billion in health benefit charges and $48 million in administrative 

expenses (See Figure 1 and Schedule A). The Plan also paid approximately $24 million in 

statutory reserve payments (See Schedule A). 

Specifically, we reviewed approximately $13 million in claim payments made from 2005 through 

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

such as refunds and subrogation recoveries, administrative expenses, statutory reserve payments, 

and cash management for 2004 through 2007. 

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 

of our auditing procedures. This was 

determined to be the most effective 

approach to select areas of audit. For 

those areas selected, we primarily relied 

on substantive tests oftransactions and 

not tests of controls. Based on our 

testing, we did not identify any 

significant matters involving the Plan's 

internal control structure and its 

operation. However, since our audit 

would not necessarily disclose all 

significant matters in the internal 

control structure, we do not express an 

opinion on the Plan's system of internal 

controls taken as a whole. 

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

applicable procurement regulations (i.e., Federal Acquisition Regulations (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 of the contract and federal procurement 

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

and Recommendations" section 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 

4
 
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 Chattanooga, Tennessee from October 21, 2008 

through December 12, 2008. Audit fieldwork was also performed at our offices in 

Washington, D.C. and Jacksonville, Florida. 

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 511 claims. 2 We used the FEHBP contract, the Service Benefit Plan
 

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

determine the allowability of benefit payments. The results ofthese 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 judgmentally selected 

and reviewed 73 high dollar health benefit refunds and subrogation recoveries, totaling 

$2,171,342 (from a universe of 15,587 refunds and recoveries, totaling $8,586,834); 50 high 

dollar hospital and provider audit recoveries, totaling $296, I04 (from a universe of 5,044 

recoveries, totaling $1,057,558); 12 high dollar Special Plan Invoices, totaling $2,060,529 in net 

payments (froma universe of222 Special Plan Invoices, totaling $8,925,421 in net payments); 

and all 3 fraud recoveries, totaling $5,171, to determine if refunds and recoveries were promptly 

returned to the FEHBP and ifmiscellaneous payments were properly charged to the FEHBP. The 

results of these samples were not projected to the universe of miscellaneous payments and 

credits. 

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

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

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

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

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

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

allowability, allocability, and reasonableness of charges. 

We reviewed the statutory reserve payments charged to the FEHBP for contract years 2004 

through 2007. 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 "Claim Payment Errors" (A l.a) and "Omnibus Budget Reconciliation Act of 1990
 

Review" (AI.b) on pages 6 through 10 for specific details of our sample selection methodologies.
 

5
 
III. AUDIT FINDINGS AND RECOMMENDATIONS
 

A. HEALTH BENEFIT CHARGES 

L	 Claim Payments 

a.	 Claim Payment Errors $253,121 

The Plan incorrectly paid 129 claims, resulting in overcharges of $253,121 to the 

FEHBP. 

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

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

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

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

diligent effort to recover an overpayment ...." 

The following summarizes the claim payment errors. 

Assistant Surgeon Overpiwments 

For the period 2005 through 2007, We identified 568 assistant surgeon claim groups, 

totaling $253,919 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 151 assistant surgeon claim groups, 

totaling $179,196 in potential overpayments, to determine if the Plan paid these 

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

. potential overpayments of $500 or more. Based on our review, we identified 121 

claim payment errors, resulting in overcharges of$158,538 to the FEHBP. 

The claim payment errors resulted from the following: 

•	 The Plan paid 88 claims to non-covered providers, resulting in overcharges of 

$108,594 to the FEHBP. Specifically, these providers were physician assistants 

that were not covered for surgery. 

•	 The Plan paid 27 claims using incorrect allowances, resulting in overcharges of 

$45,159 to theFEHBP. 

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

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

These errors were due to Palmetto (OBRA 93 pricing vendor) notrecognizing the 

assistant surgeon pricing modifier and erroneously calculating the assistant 

surgeon fee. Consequently, the Plan overpaid these claims by $2,521. 

6
 
•	 The Plan inadvertently paid two claims for incidental procedures, resulting in 

overcharges of $1,750 to the FEHBP. 

•	 The Plan made one duplicate claim payment, resulting in an overcharge of $514 to 

the FEHBP. 

Also, the Plan identified additional claim line overpayments of$10,265 for 19 of 

these questioned claims. In total, the Plan incorrectly paid 121 assistant surgeon 

claims out of 151 groups that we reviewed, resulting in overcharges of$168,803 to 

the FEHBP. 

Amounts Paid Greater than Covered Charges 

For the period 2005 through 2007, we identified 3,432 claims where the amounts paid 

were greater than the covered charges by a total of $3,508,848. From this universe, 

we selected and reviewed a judgmental sample of 160 claims with a total variance of 

$2,024,924, and determined if the Plan paid these claims properly. Our sample 

included all claims where the amounts paid exceeded covered charges by $5,000 or 

more. Based on our review, we determined that four claims were paid incorrectly, 

resulting in overcharges of $78,282 to the FEHBP. 

The claim payment errors resulted from the following: 

•	 In one instance, the Plan paid the claim at the incorrect Diagnostic Related Group 

(DRG) allowance, resulting in an overcharge of $53,100 to the FEHBP. 

•	 The Plan paid three claims incorrectly due to processor errors, resulting in 

overcharges of $25, 182 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 2,276,115 claim lines, totaling 

$222,309,770 in payments, using a standard criteria based on our experience. From 

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

(representing 1,456 claim lines), totaling $4,482,087 in payments, to determine ifthe 

Plan adjudicated these claims properly.' Based on our review, we identified four 

claim payment errors, resulting in overcharges of $6,036 to the FEHBP. In each 

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

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

claims by place of service (PaS), 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 pas stratum based on the stratum's total 

claim dollars paid. 

7
 
Association's Response: 

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

recovered and returned the overpayments to the FEHBP. 

Regarding the "Assistant Surgeon Overpayments" finding, the Association states, 

"The Plan ... reviewed the identified errors and determined that they were the result 

of claim processor manual intervention. Additional training has been provided to the 

examiners re-emphasizing the proper procedures for determining the correct payment 

allowances for these claims. 

For the Assistant Surgeon claim errors ... that related to the OBRA '93 pricing of 

claims with the 'AS' Modifier, the FEPDO implemented the following: 

•	 Modified its contract with Palmetto to include the pricing of AS modifier 

claims. 

•	 A final comprehensive listing that identifies all unadjusted OBRA '93 

Assistant Surgeon claims with the AS Modifier was issued to all Plans on 

the January 2009 System-wide Claims Review listing so that claims can be 

adjusted as necessary." 

For the "Amounts Paid Greater than Covered Charges" finding, the Association 

states, "The four errors ... were the result of human intervention. To ensure these 

types of errors do not occur in the future, the Plan has reviewed its processing 

procedures to ensure that the training materials detail how to properly handle the 

pricing of these claims." 

For the "System Review Overpayments" finding, the Association states, "These were 

the results ofprocessor errors in manually calculating the claim payment amount, 

The Plan will review processing procedures and documentation to ensure that its 

training materials are up-to-date as well as provide refresher training to claims 

processors as necessary to reduce these types of payment errors in the future." 

The Association also included a "Verification Statement" certifying that the 

questioned overcharges were recovered and returned to the FEHBP. 

Recommendation 1 

We recommend that the contracting officer disallow $253,121 for claim overcharges, 

and verify that the Plan returned all amounts recovered to the FEHBP. We also 

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

has implemented corrective action to prevent these types of claim payment errors in 

the future. . 

8
 
b.	 Omnibus Budget Reconciliation Act of 1990 Review $64,059 

The Plan incorrectly paid 10 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 $64,059 to the FEHBP. Specifically, the 

Plan overpaid seven claims by $96,744 and underpaid three claims by $32,685. 

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

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

required to make a diligent effort to recover the overpayments. 

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

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

FEHBP fee-far-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. 

For the period 2005 through 2007, we identified 1,210 claim, totaling $9,947,057 in 

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

selected and reviewed a judgmental sample of 100 claims, totaling $3,064,245 in 

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

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

paid of $17,500 or more. 

Based on our review, we determined that 10 claims were paid incorrectly, resulting in 

net overcharges of $64,059 to the FEHBP. Specifically, the Plan overpaid seven 

claims by $96,744 and underpaid three claims by $32,685. 

The claim payment errors resulted from the following: 

•	 The Plan inadvertently did not price four claims under OBRA pricing, resulting in 

overcharges of$61,045 to the FEHBP. 

•	 The Plan paid one claim without a pre-certification, resulting in an overcharge of 

$18,859 to the FEHBP. 

•	 The Plan priced one claim using an incorrect allowance on a psychiatric stay, 

resulting in an overcharge of$13,741 to the FEHBP. 

•	 The FEP Operations Center priced one claim using an incorrect Medicare provider 

identification number, resulting in an undercharge of$9,329 to the FEHBP. 

9
 
•	 The FEP Operations Center priced three claims using incorrect Medicare DRG 

codes. Consequently, the Plan overpaid one claim by $3,099 and underpaidtwo 

claims by $23,356, resulting in net undercharges of $20,257 to the FEHBP. 

Association's Response: 

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

recovered and returned the overpayments of $96,744 to the FEHBP, and issued 

additional paymerits of $32,685 to the providers for the questioned underpayments. 

The Association also states, "To reduce these types of pricing errors in the future, the 

Plan has implemented and updated its Policy & Procedure for OBRA '90 processing. 

Further, the FEP Director's Office includes potential claims that should have been 

OBRA '90 priced claims in its periodic System-Wide claims review process to 

facilitate early identification and recovery of OBRA '90 claim payment errors. 

In order to reduce the number of claims that are not properly priced according to the 

OBRA '90 requirements, the FEP claims processing system has been recently 

enhanced with the following changes: 

•	 . The FEP Claims System will try to OBRA '90 price the claim even if the Plan
 

indicates that this is not an approved Medicare provider.
 

•	 Updated the patient status that impacts the OBRA '90 Transfer pricing ofthe
 

claims to Patient status 02 ...."
 

The Association also included a "Verification Statement" certifying that the 

. questioned overcharges were recovered and returned to the FEHBP. 

Recommendation 2 

We recommend that the contracting officer disallow $96,744 for claim overcharges 

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

Recommendation 3 

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

$32,685 for the claim undercharges and verify that the Plan made additional payments 

to the providers. 

Recommendation 4 

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. 

10
 
2. Miscellaneous Payments and Credits 

The audit disclosed no findings pertaining to miscellaneous payments and credits. Overall, 

we concluded that the Plan promptlyreturned health benefit refunds and recoveries to the 

FEHBP. Also, the Plan properly charged miscellaneous payments to the FEHBP. 

B. ADMINISTRATIVE EXPENSES 

1. Pension Costs $52,752 

The Plan overcharged the FEHBP $52,752 for pension costs from 2004 through 2006. 

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

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

9904.412, Cost accounting standard for composition and measurement of pension cost, 

and 48 CFR 9904.413, Adjustment and allocation of pension cost. The costs of all 

defined-contribution pension plans shall be measured, allocated, and accounted for in 

accordance with the provisions of48 CFR 9904.412 and 48 CFR 9904.413. Pension 

costs are allowable subject to the referenced standards and the cost limitations and 

exclusions set forth in paragraph (j)(2)(i) and in paragraphs 0)(3) through (8) ofthis 

subsection." 

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." 

For the period 2004 through 2007, the Plan allocated pension costs to FEP based on a 

corporate salary ratio methodology. We determined that the Plan's allocation 

methodology was reasonable. However, our review disclosed that the pension costs were 

not allocated to FEP using the correct corporate salary percentages in 2004, 2005, and 

2006. As a result, we determined that FEP's pension costs were overstated by $20,757 in 

2004, $6,620 in 2005, and $25,375 in 2006. In total, the FEHBP was overcharged 

$52,752 for pension costs from 2004 through 2006. 

Association's Response: 

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

prior period adjustment (PPA) forms on July 2, 2008 for the overcharges. The Plan also 

returned lost investment income (LIl) of$4,556 to the FEHBP during the third quarter of 

2008. 

The Association also included a "Verification Statement" certifying that the pension cost 

overcharges of$52,752 and LII of$4,556 were returned to the FEHBP. 

11 
Recommendation 5 

We recommend that the contracting officer disallow $52,752 for pension cost overcharges 

from 2004 through 2006, and verify that these overcharges were returned to the FEHBP. 

2. Gain on Sale of Building $49,590 

The Plan did not allocate the gain on the sale of a building to the FEHBP. As a result, the 

FEHBP is due $49,590 of the gain. 

48 CFR 31.205-16(a) states that a gain from the sale or other disposition ofdepreciable 

property will be included in the year in which the sale occurs as credits or charges to the 

lines of business that were charged depreciation. Also, (b) states that the gain recognized 

for contract costing purposes shall be limited to the difference between the acquisition 

. cost of the asset and its undepreciated balance. 

On June 30, 2004, the Plan sold a building located at 600 Jefferson Street in Memphis, 

Tennessee. The Plan reported the effects of this sale in its 2004 annual statement to the 

insurance department ofthe state of Tennessee. The net sales proceeds attributable to the 

building and improvements were $3,090,955 and the amount realized on the sale of 

building and improvements was $2,190,273 ($3,090,955 less $900,682 in undepreciated 

cost of building and improvements). 

The Plan calculated a maximum allocable gain for contract costing purposes based on the 

difference between the acquisition cost and the undepreciated cost of building and 

improvements ($2,755,408 - $848,109 = $1,907,299). The Plan determined FEP'~

allocable share ofthe gain by multiplying FEP's percentage of cost center "5019" (600 

_ Jefferson Building) by the maximum allocable gain (2.6 percent * $1,907,299 = $49,590) . 

._. 'We reviewed and accept the Plan's calculations. Therefore, the FEHBP is due $49,590 

for its allocable share of the gain on sale ofthe 600 Jefferson Street building. 

Association's Response: 

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

a PPA form on February 2,2009 to credit FEP for its share of the gain. FEP's share of 

$49,590 from the gain and LII of $13,982 were' wire transferred to FEP on February 17, 

2009. 

The Association also included a "Verification Statement" certifying that FEP's share of 

$49,590 from the gain and LII of$13,982 were returned to the FEHBP. 

Recommendation 6 

We recommend that the contracting officer verify that the Plan credited $49,590 to the 

FEHBP for FEP's allocable share of the gain on sale ofthe 600 Jefferson Street building. 

12
 
3. Lobbying Expenses $20,313 

The Plan charged unallowable lobbying expenses of $20,313 to the FEHBP in 2007. 

48 CFR 31.205-22(c) states, "When a contractor seeks reimbursement for indirect costs, 

total lobbying costs shall be separately identified in the indirect cost rate proposal, and 

thereafter treated as other unallowable activity costs." 

48 CFR 31.201-6(a) states, "A directly associated cost is any cost which is generated 

solely as a result of incurring another cost, and which would not have been incurred had 

the other cost not been incurred. When an unallowable cost is incurred, its directly 

associated costs are also unallowable. n 

For contract years 2004 through 2007, the Plan allocated administrative expenses of 

$49,787,164 (before adjustments) to the FEHBP from 594 cost centers. From this 

universe, we selected a judgmental sample of24 cost centers to review, which totaled 

$14,930,766 in expenses allocated to the FEHBP. We selected cost centers based on high 

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

year to year. We reviewed the expenses from these cost centers for allowability, 

allocability, and reasonableness. 

During our review ofthe cost centers, we noted that cost center "5416" (Federal and State 

Relations) included expenses for lobbying activities. Although the Plan did not allocate 

this cost center to the FEHBP from 2004 through 2006, we found that the Plan 

inadvertently allocated $20,313 from this cost center to the FEHBP in 2007. Based on 

discussions with the Plan, the cost center "5416" expenses should have been excluded for 

FEP. As a result, the FEHBP is due $20,313 for unallowable lobbying expenses charged 

to the FEHBP in 2007. 

Associations Response: 

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

on January 22, 2009 to credit FEP for this overcharge. The overcharge of $20,313 and 

LII of$1,358 were wire transferred to FEP on February 17,2009. 

The Association also included a "Verification Statement" certifying that the unallowable 

lobbying expenses 0[$20,313 and LII of $1,358 were returned to the FEHBP. 

Recommendation 7 

We recommend that the contracting officer disallow $20,313 for unallowable lobbying 

expenses charged to the FEHBP in 2007, and verify that these funds were returned to the 

FEHBP. 

13
 
4. Post-Retirement Benefit Costs $10,941 

The Plan overcharged the FEHBP $52,158 for post-retirement benefit (PRB) costs in 

2005,2006, and 2007, and undercharged the FEHBP $41,217 in 2004. 

48 CFR 31.205-6 (0)(2) states, "To be allowable, PRB costs must be reasonable and 

incurred pursuant to law, employer-employee agreement, or an established policy ofthe 

contractor." 

For the period 2004 through 2007, we recalculated FEP's PRE costs in accordance with 

the regulations. Our calculations were based on the lesser of the funded or FAS 

determined costs and the Plan's FEP corporate salary ratio. We determined that the 

Plan's allocation methodology was reasonable. However, our review disclosed that the 

Plan used incorrect FEP corporate salary percentages for 2004 through 2006 when 

calculating the allowable amount chargeable to the FEHBP. Also, the Plan incorrectly 

adjusted FEP's PRE for 2007. As a result, we determined that FEP's PRE costs were 

understated by $41,217 in 2004, and overstated by $52,158 ($18,817 in 2005, $25,974 in 

2006, and $7,367 in 2007) from 2005 through 2007. In total, the FEHBP was 

overcharged $10,941 (net) for PRB costs from 2004 through 2007. 

Association's Response: 

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

a PPA on July 2, 2008 to credit the FEHBP for this overcharge. The Plan also credited 

LII of$2,508 to the FEHBP for this overcharge. 

The Association also included a "Verification Statement" certifying that the PRB cost 

overcharges of $10,941 (net) and LI1 of$2,508 were returned to the FEHBP. 

Recommendation 8 

We recommend that the contracting officer disallow $52,158 for PRE costs overcharged 

to the FEHBP from 2005 through 2007, and verify that these overcharges were returned 

to the FEHBP. . 

Recommendation 9 

We recommend that the contracting officer allow the Plan to charge the FEHBP $41,217 

. for PRB costs undercharged to the FEHBP in 2004. 

C. STATUTORY RESERVE PAYMENTS 

. The audit disclosed no findings pertaining to statutory reserve payments. The Plan calculated 

and charged statutory reserve payments to the FEHBP in accordance with Contract CS 1039 

and applicable laws and regulations. 

14
 
D. CASH MANAGEMENT
 

1. Interest Income $61,782 

The Plan had not returned interest income of $61,782 to the FEHBP letter of credit 

account as of December 31,2007. This interest income was earned in July, October, and 

November of2007. Subsequent to receiving our audit notification letter on February 20, 

2008, the Plan returned this interest income to the FEHBP. 

48 CFR 1652.215-71(a) states, "The Carrier shall invest and reinvest all funds on hand that 

are in excess ofthe funds needed to promptly discharge the obligations incurred under this 

contract. ..." 48 CFR 1652.215-71(b) states, "All investment income earned on FEHB 

funds shall be credited to the Special Reserve on behalf of the FEHBP." 

For the period January 2004 through December 2007, we reviewed all interest income 

earned on the FEp investment account and determined if these funds were returned to the 

FEHBP letter of credit account in a timely manner. For the months of July, October, and 

November of2007, the Plan earned interest income of$61,782 on FEHBP funds, but had 

not returned this interest income to the FEHBP letter of credit account as of December 31, 

2007.4 

Association's Response: 

The Association states that the Plan disagrees with this finding. 

The Association states that "staff followed FEP's guidelines for submitting the Special 

Plan Invoices on a quarterly basis. Although, the transactions were not processed timely, 

the funds were returned to the Program prior to the audit. Therefore, this is a procedural 

finding with no cash impact. 

The FEP Director's Office has enhanced it procedures to ensure the timely processing of 

all Plans' transactions. In the past, the handling of Special Plan Invoices was a manual 

process with limited ability to monitor items that may have been delayed for some 

unknown reasons. This process is now automated with an aging feature to prevent this 

from occurring in the future." 

4 As part of our review, we verified that the Plan returned this interest income of$61,782 to the FEHBP letter of 

credit account on April 1st, July 1s" and September 4th of 2008 (113 to 326 days after the interest income was 

reported on the monthly bank statements). 

15
 
DIG Comments: 

Although the Plan submitted the Special Plan Invoices (SPI) to the FEP Director's Office 

(FEPDO) in a timely manner, the FEPDO did not process the SPI's in a timely manner 

and the Plan did not actually return the questioned interest income to the FEHBP in a 

timely manner (returned approximately 4 to 11 months after earned). Since the Plan 

returned this interest income to the FEHBP after receiving our audit notification letter 

(dated February 20,2008) and Standard Information Request, we are continuing to 

question $61,782 as a monetary finding. 

Recommendation 10 

Since we verified that the Plan returned the questioned interest income of $61,782 to the 

FEHBP letter of credit account, no further action is required for these funds. 

Recommendation 11 

We recommend that the contracting officer verify that the FEPDO improved its 

procedures to ensure that SPI's are processed in a timely manner. 

2. Investment of Funds Procedural 

The Plan did not prudently invest excess FEHBP funds during the period August 2006 

through December 2007. 

Contract CS 1039, Part III, Section 3.4 (a) states, "The Carrier shall invest and reinvest all 

FEHB funds on hand that are in excess of the funds needed to promptly discharge the 

_obligations incurred under this contract. The Carrier shall seek to maximize investment 

.' income with prudent consideration to the safety and liquidity of investments." 

The Plan invests excess FEHBP funds through a sweep arrangement with AmSouth 

Bank. The bank sweeps funds overnight from non-interest bearing checking accounts to 

an investment repurchase account. From January 2004 through December 2007, the Plan 

invested excess FEHBP funds through this sweep arrangement, except for the following 

balances that remained in the checking accounts: $100,000 for the basic option account, 

$150,000 for the standard option account, and $150,000 for the high option aCCOWlt. The 

balances that remained in the checking accounts earned monthly bank earnings credit 

rates (ECR) that offset a portion ofthe bank fees. From January 2004 through July 2006, 

we determined that the Plan earned on average 0.55 percent more on the ECR than the 

investment sweep. However, from August 2006 through December 2007, we determined 

that the Plan earned on average 2.35 percent less on the ECR than the investment sweep. 

We calculated the amount of interest income potentially lost as a result of not investing 

all excess FEHBP funds in an investment account. We determined a net loss of interest 

income of approximately $8,000 from January 2004 through December 2007 as a result 

16
 
ofthe Plan's cash management procedure. In our opinion, the Plan did not totally 

maximize investment income on behalf ofthe FEHBP, and therefore, should re-evaluate 

its investment options when investing excess FEHBP funds. This is a procedural finding. 

Association's Response: 

The Association agrees with this finding. The Association states, "Effective November 20, 

2008, the Plan implemented procedures to ensure that the entire balances in the FEP 

Investment Accounts are now included in the overnight investment vehicle to maximize the 

FEP investment income on the dedicated FEP Investment Accounts." 

Recommendation 12 

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

implemented proceduresto ensure that all excess FEHBP funds are properly invested as 

required by Contract CS 1039. 

E. LOST INVESTMENT INCOME ON AUDIT FINDINGS $25,010 

As a result ofthe audit findings presented in this report, the FEHBP is due LII of $25,01 0 

from January 1, 2005 through December 31, 2008. 

48 CFR 52.232-17(a) states, "all amounts that become payable by the Contractor ... shall 

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

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

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

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

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

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

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

LII of$25,010 from January 1,2005 through December 31,2008 on questioned costs for 

contract years 2004 through 2007 (see Schedule C). 

Association's Response: 

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

not address this item in its reply. However, when responding to the administrative expense 

findings, the Association states that the Plan has credited the FEHBP $22,404 for LII on these 

audit findings (See Association's "Verification Statement"). 

Recommendation 13 

We recommend that the contracting officer direct the Plan to credit $25,010 (plus interest 

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

17 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Experience-Rated Audits Group 

Lead Auditor 

Auditor 

Auditor 

, Auditor 

Chief 

Senior Team Leader 

18
 
V. SCHEDULES 

BLUECROSS BLUESHIELD OF TENNESSEE 

CHATTANOOGA, TENNESSEE 

CONTRACT CHARGES 

SCHEDULE A 

CONTRACT CHARGES 2004 2005 2006 2007 TOTAL 

A. HEALTH BENEFIT CHARGES . 

Plan Codes 390/392/892 $196,771,245 $238,633,577 $265,881,447 $291,327,337 $992,613,606 

Miscellaneous Payments and Credits 570,392 430,871 2,840,834 3,618,895 7,460,992 

TOTAL HEALTH BENEFIT CHARGES I $197,341,637 $239,064,448 $268,722,281 $294,946,232. $1,000,074,598 i~.!ml~~iI~~lrnrnl~rn~"'ilffimlm~~lIlaim~JI~mmW.m~" •••m.,"I,.' I W mmrnrulilrn'I~IID~•••"",.""",,~lffim'll:llllli:llllllimmrnlrnm"'lill!ili~ml~gl~lmmm ••""rn ", I , :.1"m.i1il","~",m.IIi""Iw1i.'"'i\lIl:~"" ...""liIIllJ

B. ADMINISTRATIVE EXPENSES 

Plan Code 390
 $10,844,058 $11,932,757 $11,785,747 $14,216,854 $48,779,416 

Prior Period Adjustments
 2,492 49,624 (82,275) (370,455) (400,614) 

Budget Settlement Reductions
 (I58,005) 0 (200,379) O· (358,384) 

Budget Settlement Revisions
 151,342 0 0 0 151,342 

TOTAL ADMINISTRATIVE EXPENSES I $10,839,887 $11,982,381 $11,503,093 $13,846,399 $48,171,760 ~~lilIPmll'~I~~rnIOOIlmiImWrn;mm,li~m!~GI!!i~ml!!:II!!MI~I"'mrn~:GI~Mlllllllllrn'mlrnmw'-l!I.H~ m~1811l"rn~l,t~!~,Hm~ilil"'~I.mi'irn'l~rnm~I'ml"'~ Ili~~~I~rnIGm.,"irn,m!.m, mlm~ ;1m,. !~mUl"i1imm~m"iIl,mwllllll,mW!ilillffil~W,"I~~il~m~~6il1fm6m~mlmmi~~iml~"1~1,1~111' ~,"m~mlm.6!bffil~""'~1

C. STATUTORY RESERVE PAYMENTS I .$5.036,423 $5,410,892 $6.558.358 $7,143,612 $24,149,285 

TOTAL CONTRACT CHARGES I $213,217,947 $256,457,721 $286783.732 $315,936,243 $1,072,395,643 

,; 

'm 

ill! 
SCHEDULEB 

BL1;JECROSS , BLUESIDELD OF TENNESSEE

CHATTANOOGA, TENNESSEE 

QUESTIONED CHARGES 

AUDIT FINDINGS 2004 2005 2006 2007 2008 TOTAL 

A. HEALTH BENEFIT CHARGES 

1. Claim Payments 

a. Claim Payment Errors $0 $106,600 $42,546 $103,975 $0 $253,12] 

b. Omnibus Budget Reconciliation Act of 1990 Review 0 33,579 4,273 26,207 0 64,059 

Total Claim Payments	 I $0 $140,179 $46,819 $130,182 SO $317,180 

2. Miscellaneous Payments and Credits	 I $0 $0 $0 $0 $0 $0 

I $0 $140179 $46819 $130182 $0 $317,180 ~ll£I~I~IlJmlm~~i~m!~rno~;t~lmIi:lJ~Wa:liliwill1lilmt!l~~ l~mWWltlli! ,~Ull~I:n:U!Nml~rnl~ml ilfl nil Iifl~j~rniliW9j!l:lI i ~i~Wlfl1lJn'WUn l!l~iWl1im,IIJl~!WLtimml~OOJ~~W!~llfl "f{l!li~l~~~rnmiwmll"lmlii~ ,I.fll:tlil !m~tlm!WI Jm!~~rf!m~rnf!l TOTAL HEALTH BENEFIT CHARGES	 

B. ADMINISTRATIVE EXPENSES* 

1. Pension Costs	 $20,757 $6,620 $25,375 $0 $0 $52,752 

2. Gain on Sale of Building 49,590 0 0 0	 0 49,590 

3. Lobbying Expenses 0 0 0 20,313	 0 20,313 

4. 'Post-Retirement Benefit Costs	 (41,217) '18,817 25,974 7,367 0 10,941 

TOTAL ADMINISTRATIVE EXPENSES	 

C. STATUTORY RESERVE PAYMENTS	 

D. CASH MANAGEMENT 

1. Interest Income	 

2. Investment of Funds (Procedural) 

TOTAL CASH MANAGEMENT	 

E. LOST INVESTMENT INCOME ON AUDIT FINDINGS 

TOTAL QUESTIONED CHARGES 

'/< Only the administrative expense overcharges are subject to lost 

0 

I $29130 $25,437 $51,349 $27680 $0 $133,596 ~~ j j ,ml~mj l~ tEim~rnml~j~mll:lom'l'IIlllml~ldlmmru,~'Hj mll;,lll;l~lim.rn;~wrumnlffim;~lrn~lmit! I~l :wmrnmmmj~mjml~jJjjrnmmmrn~~rnUl~I~~,~~~J~ .. ,dlll~l~l~I~~j1i~~~~!~W;i I 

" 

I $0 $0 $0 !!~;lJ.lm!~;!t!l-il\lmiOOl\rn~ffim.mll'l'i~o,mWir:llim~l~lum!~~If<~QqI~lwmmijjlillmllrn~ llUm~~rul~wl~i ( " 1!1"'''",'''iI••••''.~"~1I ""'"''''''''",",,'iI'''''''''~"~'''.'''''''.''"'''~''' ,"i,1 ",",","m~~"

$0 $0 SO S61,782 $0 $61,782 

0 0 0 0	 0 0 

I $0 SO SO $61,782 $0 $6] 782 ~lll'll{;l~1 11I1~Wl~~lilolmlm~I~I~ffi P I I ~" ••"".~.~"'''WII~""m '1~,"mml!l1mffil~II" ••••"lIiml"I"""'""'''"'''Il'"",~I,,''''tiJm''':I~I''''':I.I",mm""~I"mll~cl~.''''J'' •••'''''J,,••m, 'I""i."""'"

I 1'1;!~i _~IJI li~fIll_, mWI~Il:~~:tlI!~L~~!fI~~i l~: ~;m~Z!l~ l~~W~l _t~hm~ c~ ll~~~~='!l~~'~~~ ~!~II~I!~B''HNl~I~!:l?~=IW!I~!1 '1l~~IIJ.lW~II..~~ll~~~ttrFl~;~~ml~~Jrnlnl~~:-fl:':-imllll~mmlt, ~:~:l~rl~~

I $29,130 $168,694 $103,376 $227,736 $8,631 $537,568 ~ll-lllil ~~mnmi~II:1 ~~ml d!iGlh I 111.! ~1~li:l:il.ll:ll~tl'lli1Ullmmlr.l!.:mmld,il~l1il:ll~ii1i~lifll.ill:;.Jl.tlI,ill'lfitll~~ ~i~M~lrnm ljm~1~rnrnmi~i~l::Hm[1.i!l.lmHtl~m~~'ttm1l'llrrum.ilIr.ll I~ ~11111.~!l~IIlI~m~!~lt\.l~ii.ElilImmlil!llUlm!HlmmlfRm~l~l~j~j:~g~!jlmi~!mm~,~

investment income. 

~I

I~

~i

,I 

;~l

il 
BLUECROSS BLUESHIELD OF TENNESSEE 

CHATTANOOGA, TENNESSEE 

LOST INVESTMENT INCOME CALCULATION 

2004 2005 2006 2007 2008 TOTAL 

A.	 QUESTIONED CHARGES (Subject to Lost Investment Income) 

Administrative Expenses I $70,347 $25,437 $51,349 $27,680 $0 $174,813 I mlliiJi~l~l1!mm ii~m.mm,.IlIili@llijlilf,,_,W"' " 11I~.""lIiIf.ij1M , ~lrnmr~UI~Jmmftli~jl~l.IImi+.'lJ.iN-'~' ~IUlIJ.ltl!@l'jli!i-l.Ilrnmli-miftj!llmlf.mHiim~llIl~!fII~1 1~IFN»rI~rnHJHi ',i~m,~'~r~IIJ,~m,~i mrn~~~

B.	 LOST INVESTMENT INCOME CALCULATION 

a. Prior Year's Total Questioned (principal)	 $0 $70,347 $25,437 $51,349 $27,680 

b. Cumulative Total	 Q Q 70,347 95,784 147,133 

c. Total	 $0 $70,347 $95,784 $147,133 $174,813 

d. Treasury Rate: January 1 - June 30	 4.000% 4.250% 5.125% 5.250% 4.750% 

e. Interest (d " c)	 $0 $1,495 $2,454 $3,862 $4,152 $11,963 

f. Treasury Rate: July 1 - December 31	 4.500% 4.500% 5.750% 5.750% 5.125% 

g. Interest (f * c) $0 $1,583 $2,754 $4,230 $4,480 13,046 

$8,631 $25,010 "I	 rlj ~mwrllF~~limN~Jl~~~~'jjlllil11m~liklWliii~jijj~j~ Total Interest By Year (e + g) I $0 $3,078 ~~~~~:~'~i~,~~~~~rn IN~I~ j iUlrn~OOrn~milliijlrnmlllimmmmilUllIJlUllilllljl1~;lfIRlrR 'HIllW~~i~~iJ

$5,208 $8,092 • I ,,,,.,,0••••,,.;,,,,,,,,<1,,,,,.,, 1 

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

SCHEDULEC 

I' 

! 
APPENDIX A 

BIu~>(;ross Blue..%ield 

Assodation 

Ml A~socjrHion of Independent 

Ulne Cross and Blue Slueld Pluns 

March 23, 2009 

Group Chief 

Federal Employee Program Experience-Rated Audits Group 1510 G Street, N.W:
 

Office of the Inspector General Washington, D.C. 20005
 

U.S. Office of Personnel Management 202.942.1 000
 

1900 E Street. Room 6400
 Fax 202.942.1.125 

Washington, DC 2041.5-1100 

Reference:	 OPM DRAFT AUDIT REPORT
 

Blue Cross Blue Shield of Tennessee
 

Audit Report Number 1A-10-15-09-009
 

(Dated January 30t 2009}
 

Dear 

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

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

Benefits Program (FEHBP) for the Tennessee BlueCross BlueShieid Plan. Our
 

comments concerning the findings in the report are as foHows:
 

A.	 HEALTH BENEFIT CHARGES 

1. Claims Payment Errors	 $253,121 

Assistant Surgeon Review $168,803 

The Pian does not contest this finding. Recovery activities have been initiated for 

- -tnese overpayments. The Plan has also reviewed the identified errors and 

- determined that they were the result of claim processor manual invention. 

Additional training has been provided to the examiners re-emphasizing the 

proper procedures for determining the correct payment allowances for these 

claims. 

For the Assistant Surgeon claim errors noted during the audit that related to the
 

OBRA '93 pricing of claims with the "AS Modifier, the FEPDO implemented the
 

following:
 

•	 Modified its contract with Palmetto to include the pricing of AS modifier
 

claims.
 

•	 A final comprehensive listing that identifies all unadjusted OBRA '93
 

Assistant Surgeon claims with the AS Modifier was issued to all Plans on
 

the January 2009 System-wide Claims Review listing so that claims can
 

be adju.sted as necessary.
 
Group Chief 

aPM Draft Audit Response 

March 23, 2009 

Page 2 

As of February 26,2009, the Plan has recovered the entire amount of the 

identified overpayments of $168,803. 

Amounts Paid Greater than Covered Charges $78,282 

The Plan does not contest this audit finding. Recovery efforts have been initiated 

on the identified overpayments. The four errors that occurred in this area were 

the result of human intervention. To ensure these types of errors do not occur in 

the future. the Plan has reviewed its processing procedures to ensure that the 

training materials detail how to properly handle the pricing of these claims. In 

addition, the FEPDO System-Wide claims review process includes Amounts Paid 

Greater than Covered Charges claims for Plan review and identification of 

potential overpayments. This review process should continue to reduce these 

types of claims overpayments in the future. 

As of February 26,2009, the Plan has recovered the entire amount of the 

confirmed overpayments of $78,282. 

System Review $6,036 

The Plan does not contest this audit finding. Recovery activities have been 

initiated for the four overpayments identified. These were the results of 

processor errors in- manually calculating the claim payment amount. The Plan 

will review processing procedures and documentation to ensure that its training 

materials are up-to-date as well as provide refresher training to claims 

processors as necessary to reduce these types of payment errors in the future. 

As of February 26,2009, the Plan has recovered the entire amount of the 

identified overpayments of $6,036. 

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

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

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

along with routine claims quality assurance audits performed by the Plan's 

Internal Auditors. While these measures are not absolute, they provide 

reasonable assurances that such items will be identified. Efforts will be made to 

periodically examine existing procedures and add additional controls where. 

necessary. 
Group Chief
 

aPM Draft Audit Response
 

March 23, 2009
 

Page 3
 

2. Omnibus Budget Reconciliation Act 1990 Review $64,059 

The Plan does not contest this finding which represents $96,744 in 

overpayments on seven claims and ($32,685) in underpayments on three claims. 

To reduce these types of pricing errors in the future, the Plan has implemented 

and updated its Policy &Procedure for OBRA '90 processing. Further, the FEP 

Director's Office includes potential claims that should have been OBRA '90 

priced claims in its periodic System-Wide claims review process to facilitate early 

identification and recovery of OBRA'90 claim payment errors. 

In order to reduce the number of claims that are not properly priced according to 

the OBRA '90 requirements, the FEP claims processing system has been 

recently enhanced with the following changes: 

•	 The FEP Claims System will try to OBRA '90 price the claim even if the Plan 

indicates that this is not an approved Medicare provider. 

•	 Updated the patient status that impacts the OBRA '90 Transfer pricing of the 

claims to Patient status 02 as stated in aPM Carrier Letter 2007-6, 

"OBRA '90 IPPS PRICER Program Usage". 

As of February 26,2009, the Plan has recovered the entire amount of the 

confirmed overpayments of $96,744 and issued the $32,685 in underpayments to 

the providers. 

- -. The Plan has several methods in place to identify overpayments. These 

methods include, but are not limited to the System-wide claims reports, COB 

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

along with routine claims quality assurance audits performed by the Plan's 

Internal Auditors. While these measures are not absolute, they provide 

reasonable assurances that such items will be identified. Efforts will be made to 

periodically examine existing procedures and add additional controls where 

necessary.	 . 

B. ADMINISTRATIVE EXPENSES 

1. Pension Expense	 $52,752 

The Plan does not contest this audit finding. On July 2, 2008 the Plan submitted 

Prior Period Adjustment (PPAs) forms for the overcharges in 2004, 2005 and 

2006. To prevent this error from occurring in the future, the Plan has changed 

procedures to use the corporate salary ratio on the pension review schedule as 

outlined by the aPM auditors to determine the correct pension allocation for FEP 
Group Chief
 

aPM Draft Audit Response
 

March 23, 2009
 

Page 4
 

cost reporting. Lost Investment Income in the amount of $4,556 was also 

returned to the Program during third quarter 2008. 

2. Gain on Sale of Building $49.590 

We do not contest this finding. The Plan has revised its internal procedures to 

ensure the FEP will receive its equitable share of any gains on the sale of all 

applicable assets in the future. 

On February 2,2009, the Plan submitted a Prior Period Adjustment form to credit 

FEP for its share of the gains from the sale of the building in 2004. In addition, 

FEP's portion of the gain from the sale of the bUilding plus Lost Investment 

Income in the amount of$13,982 was wired to FEP on February 17,2009. 

On March 3, 2009, FE? Director's Office staff conducted additional training on 

how and when to allocate FEP's portion of gains resulting from the sale of 

buildings in which FEP was charged depreciation expenses. Plan staff updated 

their procedures to ensure that they will be in compliance with the Federal 

Regulations on gains acquired from the sale of all applicable assets in the future. 

3. Lobbying Expenses $20.313 

The Plan does not contest this finding. This error occurred as the result of a 

change in the Plan's overall allocation process. The cost center that contained 

Lobbying Expenses was inadvertently changed to allocate to FEP. The Plan has 

strengthened it procedures to require the FEP Cost Accounting staff review any 

changes in new accounts that allocate to FEP prior to making changes to the 

Cost Accounting System. 

A Prior Period Adjustment to credit FEP for this overcharge was submitted to 

FEP on January 22. 2009. The overcharge and Lost Investment Income in the 

amount of $1,358 was included in the February 17 wire sent to FEP. 

4. Post-Retirement Benefit Costs $10,941 

The Plan does not contest this finding. This overpayment was the result of 

changes recommended for the post retirement benefit expense review schedule 

during the 2005 FEP aPM audit. Procedures have been implemented to use the 

corporate salary ratio to determine the correct post retirement benefit expense 

charged to FEP. 

A Prior Period Adjustment form was submitted on July 2, 2008 to credit the 

Program for this overcharge. Lost investment income was accessed and $2,508 

was credited to the Program for this overcharge. 
roup Chief
 

aPM Draft Audit Response
 

March 23, 2009
 

Page 5
 

Cash Management 

1. Interest Income $61,782 

The Plan disaqrees with this finding as staff followed FEP's guidelines for 

submitting the Special Plan Invoices on a quarterly basis. Although, the 

transactions were not processed timely, the funds were returned to the Program 

prior to the audit. Therefore, this is a procedural finding with no cash impact. 

The FEP Director's Office has enhanced it procedures to ensure the timely 

processing of all Plans' transactions. In the past, the handling of Special Plan 

Invoices was a manual process with limited ability to monitor items that may have 

been delayed for some unknown reasons. This process is now automated with 

an aging feature to prevent this from occurring in the future. 

As noted in this report, the Plan has returned all questioned amounts to the 

Program. Attached is a Verification Statement in the amount of $473,180. When 

you prepare the Final Report, please recognize the complete recovery of all 

questioned amounts in the report. 

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

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

Audit Report.
 

Executive Director
 

Program Integrity
 

-

cc: 
Blue Cross and Blue Shield Association 

Federal Employee Program 

Audit Report Number 1A·10-15-09-009 

Chattanooga, Tennessee 

(Dated January 30t 2009) 

We have performed sufficient tests and procedures to reasonably verify that 

credits related to the audit finding and amount stated below has been returned to 

the FEHBP as recommended- in OPM Audit Report Number 1A-10-15-09-009. 

We saw nothing in our tests and procedures and are aware of no other 

information that would indicate that the stated amount has not been returned to 

the FEHB Program. 

Health Benefit Charges 

Assistant Surgeon Review $168,803 

Amount Paid Greater Than Covered Charges $78,282 

System Review $6,036 

OBRA '90 $64,059 

Subtotal $317,180 

Administrative Expense Charges 

Pension Costs $52,752 

Gain on Sale of BUilding $49,590 

Lobbying Expense $20,313 

Post-Retirement Benefit Costs $10,941 

Subtotal $133,596 

lost Investment Income 

Pension Costs $4,556 

Gain on Sale of Building $13,982 

Lobbying Expense $1,358 

Post-Retirement Benefit Costs $2,508 

Subtotal $22,404 

Total Returned $473,180 

Signature 
APPENDIXB 

BJucCmss Blue-Shield 

Association 

All A,'SI)(""l!.iOIl of J1HI~I)ClHlc"l

Blue Cro~s ~nd Bllle Shidd 1'1?IlS April 21, 2009 

Group Chief 

p .. - - ..... udits Group Federat gmp!oye:e Program. 

Office 1510 G Street, N.": of the Inspector General 

Washington, D.C.ZOOO5 U.S. Office of Personnel 'Management 20'2.942.WOO
 

1900 E Street, Room 6400 Fax202.!HZ.t125 .
 

Washington. DC 20415-1100 

Reference:	 OPM' DRAFT AUDIT REPORT
 

Blue Cross Blue Shield of Tennessee
 

Audit Report Number 1A~10-1'5"()9-o09
 

.. ,,, "(DatetlJanuary"30'j-2009)" """ . 

Dea 

In our initia! response, we did not address the finding C.2 entitled, Investment 

Income. The purpose of this letter is to provide our position on this issue. 

c. Cash Management 

2. Investment Income	 Procedural 

The Plan 'agrees with this finding as all excess FEHBP funds in the dedicated
 

fEP Investment Accounts during the period of August 2006 through December
 

2007 was not always invested via the sweep arrangement with AmSouth Bank.
 

Effective November 20, 2008. the Plan implemented procedures to ensure that
 

- the entire balances in the FEP Investment Accounts are now included in the
 

'-overnight investment vehicle to maximize the FEP investment income on the
 

dedicated FEP Investment Accounts.
 

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.
 

irec Of, 

.. 

cc: