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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

AUDIT REPORT
 

Federal Employees Health Benefits Program
 

Pharmacy Operations
 

Contract CS 1063
 

Government Employees Hospital Association
 

Plan Code 31
 

Medco Health Solutions, Inc.
 

Franklin Lakes, New Jersey
 

REPORT NO. IH-02-00-08-041 DATE: september 10,2009 

%p~(l_
 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
 

Phannacy Operations
 

Contract CS 1063
 

Government Employees Hospital Association
 

Plan Code 31
 

Medeo Health Solutions, Inc. 

franklin Lakes, New Jersey 

REPORT NO. lH-02-00-08-041 DATE: September 10, 2009 

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

Government Employees Hospital Association's (GEHA) phannacy operations as administered 

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

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

GEBA and Contract CS 1063 (between GEHA and the Office ofPerSOlmel 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 GEHA pharmacy operations were in compliance 

with the contracts. 

www.opm.gov www.lJsajobs.gov 
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 Government Employees Hospital Association's (GEHA) phmmaey 

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

conducted at Medco's offices in Franklin Lakes, New Jersey, fromDecember 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, J959. 

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 ofthe 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 calTiers that provide service 

benefits, indemnity benefits, or comprehensive medical services. 

GEHA has entered into a government-wide contract (CS 1063) with OPM to provide a health 

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

the delivery and financing of prescription drug benefits for GEHA health benefit purchasers. 

This is our first audit of the GEHA 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 Medea's charges to the FEHBP and 

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

terms of the contracts. 

SCOPE 

We conducted 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 GEHA Annual Accounting Statements for contract years 2003 through 2007. 

During this period, GEHA paid approximately $2.2 billion in phannacy drug charges (see 

Schedule A). 

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

structure to help determine the nature, timing, and extent ofour 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 oftransactions and not tests of controls. Based on our 

testing, we did not identify any significant matters involving Medeo'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 Medco's system ofintemal 

controls taken as a whole. 

. . 

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

Medea. Due to time constraints, we did not verify the reliability ofthe data generated by the 

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

during audit testing, 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, Medco 

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

2
 
METHODOLOGY
 

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

following samples of pharmacy 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 $16,492, 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 froin a universe of 12,610,022 claim lines 

totaling $840,379,977. 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 

$104,769 (from a universe of 10,392 claim lines totaling $40,299,957). These claims 

were selected fyom Medco's specialty only Accredo mail order pharmacy. 

•	 We judgmentally selected 100 mail order claim lines for review, totaling $75,015, to 

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

universe of the top 100 mail order drug claims paid from 2003 through 2007, with 

5,123,696 claim lines totaling $1,049,757,695. Specifically, wejudgmentally selected 

the top 10 -mail order drugs (by highest amount paid) in 2003 through 200T and randomly 

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

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

150 retail claim lines for review, totaling $365,645 (from a universe ofthe top 100 retail 

phmmacies paid from 2003 through 2007; 1,139,252 claim lines totaling $50,011,987). 

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

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

paid) and randomly selected 25 claim lines from each pharmacy (for a total of 

1?5 claim lines, totaling $325,881). 

o	 We judgmentally selected 7 retail phannacies which had 1,000 or fewer claim 

lines and randomly selected 25 claim lines, totaling $39,764, from this 

UnIverse. 

The above samples that were selected and reviewed in perfonning the audit were not entirely 

statistically based. Consequently, the results could not be projected to the universe since it is 

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

Contract CS 1063 and the contract between Medco and GEHA to detennine if the phannacy 

benefits charged to the FEHBP were in compliance with the tenns ofthe contracts. 

3
 
III. AUDIT RESULTS
 

Based on our review of claim payments we found that the GEHA phannacy operations for 2003
 

through 2007, as administered by Medco, 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


CONTRACT CHARGES 2003 2004 2005 2006 2007 TOTAL 

A. PHARMACY BENEFIT PAYMENTS $428~457,343 $464~674,226 $462,369~339 $424,487,769 $443,605,388 $2,223,594,065 

AUDIT OF THE
 

GOVERNMENT EMPLOYEES HOSPITAL ASSOCIATION'S
 

PHARMACY OPERATIONS
 

AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS
 

FRANKLIN LAKES~ NJ
 

CONTRACT CHARGES
 

REPORT NUMBER: 1H-02-00-08-041