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u.s. OFFICE OF PERSONNEL MANAGEMENT 

OFFICE.OF THE INSPECTOR GENERAL 

OFFICE OF AUDITS 

Final Audit Report 

Subject: 

AUDIT OF THE
 

AMERICAN FOREIGN SERVICE· . 

.PROTECTIVE ASSOCIATION'S PHARMACY·
 

OPERATIONS AS .ADMINISTERED.BY
 

MEDCO HEALTH SOLUTIONS; INC.
 

2003 -'2007 

Report No. IH-02-00-08-039· 

Date: September lQ, 2009 

--CAUTION-­

This audit reporl has beeD distributed to Federal oflici::tls who arerespousible ror the lIdministrafiori ortbe audited program. This::tudi.l 

reporlmay contain proprielary data whicb is protec"ted .by Federal law (18 U.S.C.1905). TbcTI'Jore, while tbis audil report is available 

under the Freedom of.]uform::ttion Act.::tDd made anilabk to the public on lhe OIG webpage, caution needs to be exercised before 

releasing Ibe report to tbe general public ::ts it may contain proprietary information that was redacted from the publicly distributed coPy. 
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 1062
 

American Foreign Service Protective Association
 

Plan Code 40
 

Medco Health Solutions, Inc.
 

Franklin Lakes, New Jersey
 

REPORT NO. IH-02-00-08-039 DATE: September 10, 2009 

Michael R. Esser 
 Assistant Inspector General 

for Audits 

www.opm.gov www.~saJobs.gov
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
 

Washington, DC 20415
 

Office of the 

Inspector General 

EXECUTIVE SUMMARY
 

Federal Employees Health Benefits Program
 

Pharmacy Operations
 

Contract CS 1062
 

American Foreign Service Protective Association
 

Plan Code 40
 

Medco Health Solutions, Inc.
 

Franklin Lakes, New Jersey
 

REPORT NO. IH-02-00-08-039 DATE: September 10, 2009 

The Office of the Inspector General has completed a performance audit of the 2003 through 20P? 

American Foreign Service Protective Association's (AFSPA) phalmacy operations as 

administered by Medeo Health Solutions, Inc. (Medeo). The primary objective of the audit was 

to determine if Medeo complied with the regulations and requirements contained within its 

contract with AFSPA and Contract CS 1062 (between AFSPA and the Office ofPersonnel 

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 AFSPA pharmacy operations were in compliance 

with the contracts. 

www.opm.goy www.usajobS.goy
CONTENTS 

PAGE 

EXECUTIVE SUMMARY	 , i
 

I. INTRODUCTION AND BACKGROUND	 I
 

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 American Foreign Service Protective Association's (AFSPA) 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 ofthe FEl-IBP. The provisions of 

the FEHB Act are implemented by aPM 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 that provide service 

benefits, indemnity benefits, or comprehensive medical services. 

AFSPA has entered into a government-wide contract (CS 1062) with aPM to provide a health 

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

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

purchasers. 

This is our first audit ofthe AFSPA pharmacy benefit operations as administered by Medco 

relating to claim payments. 

1
 
II. OBJECTIVES, SCOPE, AND METHODOLOGY
 

OBJECTIVES 

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

services provided toFEHBP members, relative to benefit payments, Were in accordance with the 

terms ofthe 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 AFSPA claim tapes as provided by Medco for contract years 2003 through 

2007. During this period, AFSPA paid approximately $104 million 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 of our auditing procedures. This was 

deternlined 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 riot 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 opinionoD Medco's system ofintemal 

controls taken as a whole. 

In c6ilducting the audit we relied to varying degrees on computer-generated data provided by 

Medco. 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 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 determine 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 of the contract and the federal procurement regulations. 

2
 
METHODOLOGY 

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

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

tluough December 31, 2007: 

•	 We randomly selected 25 mail order claim lines for review, totaling $12,784, 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 546,112 claim lines totaling 

$47,147,196. 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 ifmail 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 

$100,187 (from a universe of 582 claim lines totaling $2,212,318). These claims were 

selected from Medco's specialty only Accredo mail order phannacy. 

•	 We judgmentally selected 100 mail order claim lines for review, totaling $94,607, to 

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

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

183,395 claim lines totaling $45,544,840. 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 determine ifretail drug claims were properly adjudicated, we judgmentally selected 

150 retail claim lines for review, totaling $59,658 (from a universe ofthe top 100 retail 

pharmacies paid from 2003 through 2007; 250,610 claim lines totaling $10,213,005). 

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

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

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

125 claim lines, totaling $42,314). 

o	 We judgmentally selected 8 retail phmmacies which had 1,000 or fewer claim 

lines and randomly selected 25 claim lines, totaling $17,344, 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 1062 and the contract between Medco and AFSPA to determine if the phannacy 

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

3
 
III. AUDIT RESULTS
 

Based on our review of claim payments we found that the AFSPA pharmacy 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 

A. PHARMACY BENEFIT PAYMENTS 

AUDIT OF THE
 

AMERICAN FOREIGN SERVICE PROTECTIVE ASSOCIATION'S
 

PHARMACY OPERAnONS
 

AS ADMINISTERED BY MEDCO HEALTH SOLUTIONS
 

FRANKLIN LAKES, NJ
 

CONTRACT CHARGES
 

REPORT NUMBER: 1H-02-00-08-039
 

2003 2004 2005 2006 2007 TOTAL 

$16.405,009 $19,801,896 $21,132.150 $23,178,060 $23,969,137 $104,486,252