u.s. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

. AUDIT OF THE 

........... $PJtQIALi\GENTS.lVIuTUAL~ENEJfIT .
 ASSOCIATION'SPHARMA·CYOPERATIONS
 

..... ... .... AS ADMINISTERED BY .. ... .. ..
 

MEDCOHEALTlISQLUTIONS, INC. 

2003·-2007 

Report No. IH-02-00'-OS..,042 

Date: September 1 5 I 2009 

--CAUTION-­

This ~1Jdjt nport bas betn distributed 10 Federal offici~ls.who ~re responsible for the ~dlJ1inistr~rion oflbe ~udiled program. This audit 

reporf may cont~in proprietary dala wbich is protected by J~edCJ"all:iw (18 U.S.c. 19{)5):Thererore, wbile Ihis audit reporl is availalJle . 

under the Freedom orlnrormationAct aDd made available to the public 011 tbe OJG wehpage, caution needs 10 be exercised before 

releasing Ihe report to the general public asH may contain proprietary inJoHlJation that was redacted from the p.ubJidy distributed copy. 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Offic,e of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Pharmacy 'Operations
 

Contract CS 1074
 

Special Agents Mutual Benefits Association
 

Plan Code 44
 

Medeo Health Solutions, Inc.
 

Franklin Lakes, New Jersey
 

REPORT NO. IH-02-00-08-042 DATE: September 15, 2009 

Michael R. Esser 

Assistant Inspector General 

for Audits 

www.oprn.gov www.usajobs.gov 
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY 

Federal Employees Health Benefits Program
 

Phannacy Operations
 

Contract CS 1074
 

Special Agents Mutual Benefits Association
 

Plan Code 44
 

Medco Health Solutions, Inc.
 

Franklin Lakes, New Jersey
 

REPORT NO. IH-02-00-08-042 DATE: September 15, 2009 

The Office of the Inspector General has completed a performance audit of the 2003 through 2007 

Special Agents Mutual Benefits Association's (SAMBA) pharmacy operations as administered 

by Medco Health Solutions, Inc. (Medco). The primary objective of the audit was to determine 

if Medco complied with the regulations and requirements contained within its contract with 

SAMBA and Contract CS 1074 (between SAMBA and the Office of Personnel Management). 

The audit was conducted in Franklin Lakes, New Jersey, from December 1 through December 3, 

2008. 

The audit showed that the 2003 through 2007 SAMBA pharmacy operations were in compliance 

with the contracts. 

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CONTENTS 

PAGE 

EXECUTIVE SUMMARY _	 .i
 

I. INTRODUCTION AND BACKGROUND	 1
 

II.	 OBJECTIVES, SCOPE, AND METHODOLOGY 2
 

III.	 AUDIT RESULTS 4
 

IV.	 MAJOR CONTRIBUTORS TO THIS REPORT 5
 

SCHEDULE A - CONTRACT CHARGES
 
I. INTRODUCTION AND BACKGROUND
 

INTRODUCTION
 

As authorized by the Inspector General Act of 1978, as amended, we conducted an audit ofthe 

2003 through 2007 Special Agents Mutual Benefits Association's (SAMBA) pharmacy 

operations as administered by Medco Health Solutions, Inc. (Medco). The audit field work was 

conducted at Medco's offices in Franklin Lakes, New Jersey, from December 1 through 

December 3, 2008. Additional audit work was completed at our Washington, D.C. office. 

BACKGROUND 

The Federal Employees Health Benefits Program (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. The Office of Personnel Management's (OPM) Center for Retirement and 

Insurance Services has overall responsibility for administration of the FEHBP. The provisions of 

the FEHB Act are implemented by aPM through regulations, which are codified in Title 5, 

Chapter I, Part 890 ofthe Code of Federal Regulations (CFR). Health insurance coverage is 

made available through contracts with various health insurance carriers that provide service 

benefits, indemnity benefits, or comprehensive medical services. 

SAMBA has entered into a government-wide contract (CS ]074) with OPM to provide a health 

benefit plan authorized by the FEHB Act. SAMBA has contracted directly with Medco to 

manage the delivery and financing of prescription drug benefits for SAMBA health benefit 

purchasers. 

This is om first audit of the SAMBA phmmacy benefit operations as administered by Medco 

relating to claim payments. 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES 

The objectives of our audit were to detennine whether Medco's charges to the FEHBP and 

services provided to FEHBP members, relative to benefit payments, were in accordance with the 

tem1s of the contracts. 

SCOPE 

Weeonducted this 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 the audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on the audit objectives. 

We reviewed the SAMBA claim tapes as provided by Medco for contract years 2003 through 

2007. During this period, SAMBA paid approximately $168 miUion in pharmacy dmg charges 

(see Schedule A). 

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

structme to help detem1ine the nature, timing, and extent of our auditing procedures. This was 

detennined to be the most effective approach to select areas for audit. For those areas selected, 

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

testing, we did not identify any significant matters involving Medco'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 Medea's system of internal 

controls taken as a whole. 

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

Medco. Due to time constraints, we did not verify the reliability of the data generated by the 

various infonnation systems inVOlved. However, while utilizing the computer-generated data 

during audittesting, nothing came to our attention to doubt its reliability. We believe that the 

data was sufficient to achieve the audit objectives. 

We also conducted tests to detennine whether Medco had complied with the contract, the 

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

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

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

complied with all provisions ofthe contract and the federal procurement regulations. 

2
 
METHODOLOGY 

To test Medea's compliance with the contracts regarding claim payments, we reviewed the 

following samples of phannacy claims adjudicated by Medco and billed from July 1, 2006 

through December 31, 2007: 

•	 We randomly selected 25 mail order claim lines for review, totaling $7,341, which had 

indicators showing that either the physician or patient requested the prescription to be 

dispensed as written (DAW) (i.e., brand name dispensed with no option for generic 

substitution). This sample was selected from a universe of 908,636 claim lines totaling 

$77,250,887. Specifically, we reviewed 15 mail order claims with DAW code 1 (DAW 

requested by physician) and 10 mail order claims with DAW code 2 (DAW requested by 

patient). 

•	 To determine if mail order specialty drugs (specialty drugs are prescription medications 

that require special handling, administration, or monitoring) were properly adjudicated, 

we judgmentally selected 25 specialty mail order claim lines for review, totaling 

$111,749 (from a universe of699 claim lines totaling $2",892,106). These claims were 

selected from Medea's specialty only Accredo mail order phallnacy. 

•	 We judgmentally selected 100 mail order claim lines for review, totaling $73,081, to 

determine if the claims were adjudicated correctly. This sample was selected from a 

universe of the top 100 mail order drug claims paid from 2003 tm·ough 2007, with 

328,643 claim lines totaling $70,277,080. Specifically, we judgmentally selected the top 

10 mail order drugs (by highest amount paid) in 2003 through 2007 and randomly 

selected 10 claims from each drug (for a total of 100 claim lines). 

•	 To detelmine if retail drug claims were properly adjudicated, we judgmentally selected 

130 retail claim lines for review, totaling $693,947 (from a universe ofthe top 100 retail 

phalmacies paid from 2003 through 2007; 31,822 claim lines totaling $3,870,807). 

Specifically, our sample was made up ofthe following two selections: 

o	 We judgmentally selected the top 5 retail pharmacies (by highest amount 

paid) and randomly selected 25 claim lines from 2 pharmacies which had 

more than 25 rep0l1ed claim lines and all reported claim lines from the 

remaining 3 pharmacies (for a total of 105 claim lines, totaling $635,686). 

o	 We judgmentally selected 5 retail phmmacies, excluding those selected above, 

with the fewest reported claim lines and randomly selected 25 claim lines, 

totaling $58,260, from this universe. 

The above sanlples that were selected and reviewed in performing the audit were not entirely 

statistica]]y based. Consequently, the results could not be projected to the universe since it is 

unlikely that the results are representative of the universe taken as a whole. We used the 

Contract CS 1074 and the contract between Medeo and SAMBA to detelmine if the pharmacy 

benefits charged to the FEHBP were in compliance with the telms of the contracts. 
III. AUDIT RESULTS
 

Based on our review of claim payments we found that the SAMBA pharmacy operations for 

2003 through 2007, as administered by Medeo, were administered in accordance with the 

contracts. 

4
 
IV. MAJOR CONTRIBUTORS TO THIS REPORT 

Special Audits Group 

Auditor 

Senior Team Leader 

Group Chief, 

5
 
SCHEDULE A
 

, .' 

AUDIT OF THE 

FRANKLIN LAKES, NJ 

CONTRACT CHARGES 

CONTRACT CHARGES 

A. PHARMACY BENEFIT PAYMENTS 

2003 2004 

$25,048,733 $30,132,430 

SPECIAL AGENTS MUTUAL BENEFIT ASSOCIATION'S
 

PHARMACY OPERATIONS
 

AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS
 

REPORT NUMBER: 1H-02-00-08-042 

2005 2006 2007 TOTAL 

$35,509,298 $37,536,411 $39,714,477 $167,941,349