Source: https://oversight.garden/reports/opm/1A-10-60-16-056
Timestamp: 2020-01-25 11:08:24
Document Index: 466123983

Matched Legal Cases: ['§ 1905', '§ 552', '§ 1905', '§ 552', 'art 31', '§ 1905', '§ 552', '§\n1905', '§ 552']

Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of BlueCross BlueShield of Rhode Island Providence, Rhode Island
Audit of BlueCross BlueShield of Rhode Island Providence, Rhode Island
Published by the Office of Personnel Management, Office of Inspector General on 2017-07-27.
Report Number 1A-10-60-16-056
This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public version may
contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. § 1905, and the Privacy Act,
5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of Information Act and made publicly available on
the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version should not be further released unless authorized by the OIG.
Audit of BlueCross BlueShield of Rhode Island
Report No. 1A-10-60-16-056                                                                                                                        July 27, 2017
Why did we conduct the audit?                               What did we find?
We conducted this limited scope audit                       We questioned $466,401 in hospital settlement recoveries,
to obtain reasonable assurance that                         administrative expenses, and lost investment income (LII). The
BlueCross BlueShield of Rhode                               BlueCross BlueShield Association (Association) and Plan agreed
Island (Plan) is complying with the                         with all of the questioned amounts.
provisions of the Federal Employees
Health Benefits Act and regulations                         Our audit results are summarized as follows:
that are included, by reference, in the
	 Miscellaneous Health Benefit Payments and Credits – We
questioned $129,923 for hospital settlement recoveries that had
Program (FEHBP) contract.
not been returned to the FEHBP and $4,460 for applicable LII.
Specifically, the objectives of our
We verified that the Plan has returned these questioned
audit were to determine if the Plan
amounts to the FEHBP.
charged costs to the FEHBP and
provided services to FEHBP members                          	 Administrative Expenses – We questioned $332,018 in
in accordance with the terms of the                            administrative expenses and LII, consisting of $151,683 for
contract.                                                      pension cost credit adjustments, $108,053 for quality
improvement cost overcharges, $57,588 for unallowable and/or
unallocable cost center and natural account expenses, and
Our audit covered miscellaneous                                $14,694 for applicable LII. We verified that the Plan has
health benefit payments and credits                            returned these questioned amounts to the FEHBP.
from 2013 through March 31, 2016,
	 Cash Management – The audit disclosed no findings pertaining
as well as administrative expenses
to the Plan’s cash management activities and practices.
from 2011 through 2015, as reported
Overall, we determined that the Plan handled FEHBP funds in
in the Annual Accounting Statements.
accordance with Contract CS 1039 and applicable laws and
We also reviewed the Plan’s cash
management activities and practices
related to FEHBP funds from 2013                            	 Fraud and Abuse Program – The Plan is in compliance with the
through March 31, 2016, and the                                communication and reporting requirements for fraud and abuse
Plan’s Fraud and Abuse (F&A)                                   cases that are set forth in FEHBP Carrier Letter 2014-29.
Program activities from 2015 through
for Audits                                                                   i
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
Association                    BlueCross BlueShield Association
BCBS                           BlueCross BlueShield or BlueCross and/or BlueShield
CC                             Cost Center
CFR                            Code of Federal Regulations
Contract                       Contract CS 1039
FAR                            Federal Acquisition Regulations
FEHB                           Federal Employees Health Benefits
FEHBAR                         Federal Employees Health Benefits Acquisition Regulations
FEHBP                          Federal Employees Health Benefits Program
FEP                            Federal Employee Program
FEPDO                          Federal Employee Program Director’s Office
F&A                            Fraud and Abuse
LII                            Lost Investment Income
NA                             Natural Account
OIG                            Office of the Inspector General
OPM                            U.S. Office of Personnel Management
Plan                           BlueCross BlueShield of Rhode Island
SIU                            Special Investigations Unit
SPI                            Special Plan Invoice
ABBREVIATIONS ..................................................................................................... ii
I.         BACKGROUND ..........................................................................................................1
II.        OBJECTIVES, SCOPE, AND METHODOLOGY ..................................................3
III.       AUDIT FINDINGS AND RECOMMENDATIONS.................................................8
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS ...........8
1. Hospital Settlements ..........................................................................................8
B. ADMINISTRATIVE EXPENSES.........................................................................10
1. Pension Costs ...................................................................................................10
2. Cost Settlement Adjustment for Quality Improvement Costs .........................12
3. Unallowable and/or Unallocable Expenses .....................................................14
C. CASH MANAGEMENT .......................................................................................16
D. FRAUD AND ABUSE PROGRAM .....................................................................17
IV.        SCHEDULE A – QUESTIONED CHARGES
APPENDIX: BlueCross BlueShield Association’s Draft Report Response, dated
REPORT FRAUD, WASTE, AND MISMANAGEMENT
limited scope audit of the Federal Employees Health Benefits Program (FEHBP) operations at
BlueCross BlueShield of Rhode Island (Plan). The Plan is located in Providence, Rhode Island.
The audit was performed by the Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.
The BlueCross BlueShield Association (Association), on behalf of participating local BlueCross
and/or BlueShield (BCBS) plans, has entered into a Government-wide Service Benefit Plan
contract (contract or CS 1039) with OPM to provide a health benefit plan authorized by the
FEHB Act. The Association delegates authority to participating local BCBS plans throughout
the United States to process the health benefit claims of its federal subscribers. The Plan is one
of 36 BCBS companies participating in the FEHBP. These 36 companies include 64 local BCBS
The Association has established a Federal Employee Program (FEP1) Director’s Office in
Operations Center are performed by CareFirst BCBS, located in Owings Mills, Maryland and
Washington, D.C. These activities include acting as intermediary for claims processing between
the Association and local BCBS plans, processing and maintaining subscriber eligibility,
adjudicating member claims on behalf of BCBS plans, approving or disapproving the
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
1                            Report No. 1A-10-60-16-056
reimbursement of local plan payments of FEHBP claims (using computerized system edits),
maintaining a history file of all FEHBP claims, and maintaining claims payment data and related
financial data in support of the Association’s accounting of all program funds.
Association and Plan management. Also, working in partnership with the Association,
management of the Plan is responsible for establishing and maintaining a system of internal
All findings from our previous audit of the Plan (Report No. 1A-10-60-03-020, dated
November 3, 2003), for contract years 1999 through 2001, have been satisfactorily resolved. We
also included this Plan in each of the following recent focused audits that covered a sample of
BCBS plans:
	 Final Report No. 1A-99-00-16-010 (dated July 18, 2016) for aging FEP refunds as of
June 30, 2015, and fraud recoveries and medical drug rebates from 2012 through June 30,
	 Final Report No. 1A-99-00-14-068 (dated November 16, 2015) for pension and
post-retirement benefit costs from 2011 through 2013; and,
	 Final Report No. 1A-99-00-13-018 (dated January 17, 2014) for cash management
activities and practices related to FEHBP funds from 2011 through September 30, 2012.
All findings related to the Plan from these recent focused audits have been satisfactorily
Plan and/or Association officials throughout the audit and at an exit conference on January 31,
2017; and were presented in detail in a draft report, dated February 22, 2017. The Association’s
comments offered in response to the draft report were considered in preparing our final report
and are included as an Appendix to this report.
2	                           Report No. 1A-10-60-16-056
Miscellaneous Health Benefit Payments and Credits
	 To determine whether miscellaneous payments charged to the FEHBP were in
	 To determine whether credits and miscellaneous income relating to FEHBP benefit
payments were returned timely to the FEHBP.
	 To determine whether administrative expenses charged to the contract were actual,
	 To determine whether the Plan handled FEHBP funds in accordance with applicable
Fraud and Abuse Program
	 To determine whether the Plan's communication and reporting of fraud and abuse
cases were in compliance with the terms of Contract CS 1039 (contract) and FEHBP
Carrier Letter 2014-29.
3	                           Report No. 1A-10-60-16-056
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.
pertain to Plan codes 370 and 870 for contract years 2011 through 2015. During this period, the
Plan paid approximately $359 million in FEHBP health benefit payments and charged the
FEHBP $32 million in administrative expenses.
2011       2012         2013          2014         2015
Health Benefit Payments          Administrative Expenses
Specifically, we reviewed the Plan’s miscellaneous health benefit payments and credits, such as
refunds and provider audit recoveries, and cash management activities and practices from 2013
through March 31, 2016, as well as administrative expenses from 2011 through 2015. We also
reviewed the Plan’s Fraud and Abuse (F&A) Program activities from 2015 through March 31,
In planning and conducting our audit, we obtained an understanding of the Plan’s internal control
testing, we did not identify any significant matters involving the Plan’s internal control structure
4                            Report No. 1A-10-60-16-056
and its operations. 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
and regulations governing the FEHBP. The results of our tests indicate that, with respect to the
the FEP Director’s Office and the Plan. Due to time constraints, we did not verify the reliability
of the data generated by the various information systems involved. However, while utilizing the
computer-generated data during our audit, 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 Providence, Rhode Island on various dates from
October 25, 2016, through December 16, 2016. Audit fieldwork was also performed at our
offices in Cranberry Township, Pennsylvania and Washington, D.C. through January 31, 2017.
Throughout the audit process, the Plan did an excellent job providing complete and timely
responses to our numerous requests for supporting documentation. We greatly appreciated the
Plan’s exceptional cooperation and responsiveness during the pre-audit and fieldwork phases of
We obtained an understanding of the internal controls over the Plan’s financial, cost accounting,
and cash management systems by inquiry of Plan officials.
We interviewed Plan personnel and reviewed the Plan’s policies, procedures, and accounting
records during our audit of miscellaneous health benefit payments and credits. For the period
2013 through March 31, 2016, we also judgmentally selected and reviewed the following FEP
5                            Report No. 1A-10-60-16-056
Health Benefit Refunds
	 A high dollar sample of 75 FEP health benefit refunds returned via auto recoupments,
totaling $3,410,053 (from a universe of        FEP refunds returned via auto
recoupments, totaling $          ). Our high dollar sample included the 50 highest auto
recoupment amounts from the Plan’s new claims system (“Facets”) for September 2014
through March 2016, and the 25 highest auto recoupment amounts from the Plan’s
previous claims system (“LRSP”) for 2013 through August 2014.
	 A high dollar sample of 54 FEP health benefit refund cash receipts, totaling $1,676,252
(from a universe of       FEP refund receipt amounts, totaling $           ). Our high
dollar sample included all refund receipt amounts of $4,000 or more.
Other Health Benefit Payments, Credits, and Recoveries
	 13 high dollar provider audit recoveries, totaling $813,837, from a universe of
recoveries, totaling $          in net FEP recoveries. For this sample, we selected all
provider audit recoveries of $8,000 or more.
	 All              FEP hospital settlement recovery amounts, totaling $                                        .
	 All           FEP medical drug rebate amounts, totaling $                                    .
	 10 high dollar subrogation recoveries, totaling $160,952, from a universe of     FEP
recoveries, totaling $       . For this sample, we selected all subrogation recoveries of
$4,000 or more.
	 Three fraud recoveries, totaling $18,678, from a universe of       recoveries, totaling
$       . For this sample, we selected the three highest dollar subrogation recoveries.
	 10 high dollar special plan invoices (SPI), totaling $45,533 in net FEP payments, from a
universe of SPI’s, totaling $          in net FEP credits. When applicable, we selected
the SPI’s with the two highest dollar credit amounts and the SPI’s with the two highest
dollar charge amounts from each year for SPI pay codes related to miscellaneous health
benefit payments and credits. SPI’s are used by the Plan to process miscellaneous health
benefit payment and credit transactions that do not involve primary claim payments or
6	                           Report No. 1A-10-60-16-056
We reviewed these samples to determine if health benefit refunds and recoveries were timely
returned to the FEHBP and if miscellaneous payments were properly charged to the FEHBP.
The results of these samples were not projected to the universe of miscellaneous health benefit
payments and credits, since we did not use statistical sampling.
2011 through 2015. Specifically, we reviewed administrative expenses relating to cost centers,
natural accounts, pension, post-retirement, employee health benefits, non-recurring projects,
Affordable Care Act fees, and out-of-system adjustments.2 We used the FEHBP contract, the
FAR, and the FEHBAR to determine the allowability, allocability, and reasonableness of
We reviewed the Plan’s cash management activities and practices to determine whether the Plan
handled FEHBP funds in accordance with Contract CS 1039 and applicable laws and regulations.
Specifically, we reviewed the letter of credit account drawdowns, working capital calculations,
adjustments and/or balances, and interest income transactions from 2013 through March 31,
2016, as well as the Plan’s dedicated FEP investment account balance as of March 31, 2016.
We also interviewed the Plan’s Special Investigations Unit regarding the effectiveness of the
F&A Program, as well as reviewed the Plan’s communication and reporting of fraud and abuse
cases to test compliance with Contract CS 1039 and FEHBP Carrier Letter 2014-29.
In general, the Plan records administrative expense transactions to natural accounts that are then allocated through
cost centers to the Plan’s various lines of business, including the FEP. The Plan allocated administrative expenses
of $             to the FEHBP from        cost centers that contained    natural accounts. From this universe, we
selected a judgmental sample of 48 cost centers to review, which totaled $16,783,425 in expenses allocated to the
FEHBP. We also selected a judgmental sample of 43 natural accounts to review, which totaled $22,884,417 in
expenses allocated to the FEHBP through the cost centers. Because of the way we select and review each of these
samples, there is a duplication of some of the administrative expenses tested. We selected these cost centers and
natural accounts based on high dollar amounts, high dollar allocation methods, and our nomenclature review and
trend analysis. We reviewed the expenses from these cost centers and natural accounts for allowability, allocability,
and reasonableness. The results of these samples were not projected to the universe of administrative expenses,
since we did not use statistical sampling.
7                            Report No. 1A-10-60-16-056
MAJORFINDINGS AND RECOMMENDATIONS
CONTRIBUTORS  TO THIS REPORT
A. MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS
1. Hospital Settlements                                                                                                        $134,383
Our audit determined that the Plan had not returned seven hospital settlement recoveries,
totaling $129,923, to the FEHBP as of March 31, 2016. The Plan subsequently returned
these amounts to the FEHBP from 375 to 1,060 days late and after receiving our audit
notification letter. Additionally, the Plan untimely deposited these hospital settlements into
the FEP investment account, resulting in lost investment income (LII) of $4,460. As a
result of our audit, the Plan returned $134,383 to the FEHBP, consisting of $129,923 for
the questioned hospital settlement recoveries and $4,460 for LII on these funds returned
untimely to the FEHBP.
Contract CS 1039, Part II, Section 2.3 (i) states, “All health benefit refunds and
recoveries . . . must be deposited into the working capital or investment account within 30
days and returned to or accounted for in the FEHBP letter of credit account within 60
days after receipt by the Carrier.” Also, based on an agreement between OPM and the
Association, dated March 26, 1999, BCBS plans have 30 days to return health benefit
refunds and recoveries to the FEHBP before LII will commence to be assessed.
FAR 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 41 U.S.C. 7109, 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.”
Regarding reportable monetary findings, Contract CS 1039, Part III, section 3.16 (a),
states, “Audit findings . . . in the scope of an OIG audit are reportable as questioned
charges unless the Carrier provides documentation supporting that the findings were
already identified and corrected (i.e., . . . untimely health benefit refunds were already
processed and returned to the FEHBP) prior to audit notification.”
For the period 2013 through March 31, 2016, we identified        hospital settlements that
included $          in FEP recoveries. We reviewed all of these hospital settlements to
determine if the Plan properly allocated and timely returned FEP’s allocable recovery
amounts for these settlements to the FEHBP.
8                            Report No. 1A-10-60-16-056
Based on our review, we determined that FEP’s
The Plan returned hospital
allocable recovery amounts for these hospital
settlement recoveries of
settlements were properly calculated, but the Plan had
$129,923 to the FEHBP
not returned all of these amounts to the FEHBP as of
from 375 to 1,060 days late
March 31, 2016. Specifically, we found that FEP’s
and after the audit
recovery amounts for seven of the hospital
settlements, totaling $129,923, were returned to the
FEHBP on various dates in July 2016, more than 60 days after receipt (i.e., from 375 to
1,060 days late) and after receiving our audit notification letter (dated April 1, 2016).
Therefore, we are questioning this amount as a monetary finding. Additionally, the Plan
untimely deposited these hospital settlement recoveries into the FEP investment account,
resulting in LII of $4,460. In total, the Plan returned $134,383 to the FEHBP for this
audit finding, consisting of $129,923 for the questioned hospital settlement recoveries
and $4,460 for applicable LII. We reviewed and accepted the Plan’s LII calculation.
Association Response:
The Association and Plan agree with this finding.
As part of our review, we verified that the Plan returned $134,383 to the FEHBP in July
and August of 2016 for this audit finding, consisting of $129,923 for the questioned
hospital settlement recoveries and $4,460 for applicable LII.
We recommend that the contracting officer require the Plan to return $129,923 to the
FEHBP for the questioned hospital settlement recoveries. However, since we verified
that the Plan returned $129,923 to the FEHBP for these questioned hospital settlement
recoveries, no further action is required for this amount.
We recommend that the contracting officer require the Plan to return $4,460 to the
FEHBP for LII on the questioned hospital settlement recoveries. However, since we
verified that the Plan returned $4,460 to the FEHBP for the questioned LII, no further
9                            Report No. 1A-10-60-16-056
1. Pension Costs                                                                                                               $159,066
The Plan had not allocated and credited the FEHBP $136,578 for a 2014 actuarially
determined net periodic pension credit and $15,105 for a 2013 pension curtailment. As a
result of our finding, the Plan returned $159,066 to the FEHBP, consisting of $151,683
for the questioned pension cost credit adjustments and $7,383 for applicable LII.
48 CFR 31.201-5 states, “The applicable portion of any income, rebate, allowance, or
shall be credited to the Government either as a cost reduction or by cash refund.”
48 CFR 31.205-6(j)(1) states, “Pension plans are normally segregated into two types of
plans: defined-benefit and defined-contribution pension plans. The contractor shall
measure, assign, and allocate the costs of all defined-benefit pension plans and the costs
of all defined-contribution pension plans in compliance with 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). Pension costs are allowable
subject to the referenced standards and the cost limitations and exclusions set forth in
paragraph (j)(1)(i) and in paragraphs (j)(2) through (j)(6) of this subsection.”
48 CFR 31-205-6(j)(3) states, “For segment closings, pension plan terminations, or
curtailment of benefits, the amount of the adjustment shall be - (A) For contracts and
subcontracts that are subject to full coverage under the Cost Accounting Standards (CAS)
Board rules and regulations, the amount measured, assigned, and allocated in accordance
with 48 CFR 9904.413-50(c)(12); and (B) For contracts and subcontracts that are not
subject to full coverage under the CAS, the amount measured, assigned, and allocated in
accordance with 48 CFR 9904.413-50(c)(12), except the numerator of the fraction at 48
CFR 9904.413-50(c)(12)(vi) is the sum of the pension plan costs allocated to all non-
CAS-covered contracts and subcontracts that are subject to Subpart 31.2 . . . For all other
situations where assets revert to the contractor, or such assets are constructively received
by it for any reason, the contractor shall, at the Government’s option, make a refund or
give a credit to the Government for its equitable share of the gross amount withdrawn.
The Government’s equitable share shall reflect the Government’s participation in pension
costs through those contracts . . . Excise taxes on pension plan asset reversions or
withdrawals . . . are unallowable in accordance with 31.205-41(b)(6).”
10                           Report No. 1A-10-60-16-056
In general, the FAR limits the amount of pension cost that may be charged to a
government contract to the amount of any cash contribution to the pension fund trustee,
or the amount of expense calculated in accordance with Cost Accounting Standard 412
and 413, whichever is lower. All cash contributions must be made by the time set for
filing of the Federal income tax return or any extension.
As previously cited from FAR 52.232-17(a), all amounts that become payable by the
Carrier should include simple interest from the date due.
Our audit covered pension costs that were charged to the FEHBP for contract years 2014
and 2015, since we previously audited this Plan’s 2011 through 2013 pension costs
during a recent focused BCBS audit of pension and post-retirement benefit costs (Report
No. 1A-99-00-14-068, dated November 16, 2015). For 2014, the Plan did not charge the
FEHBP for pension costs. For 2015, the Plan credited the FEHBP $30,044 for an
actuarially determined net periodic pension credit. Accordingly, we reviewed the Plan’s
pension cost documentation to determine if the amounts were properly charged or
credited to the FEHBP in accordance with the contract and applicable federal regulations.
Based on our review, we determined that the Plan
The Plan had not
properly allocated and credited the actuarially determined
allocated and credited
net periodic pension credit to the FEHBP for 2015.
the FEHBP $151,683 for
However, the Plan had not allocated and credited an
2013 and 2014 pension
actuarially determined net periodic pension credit to the
FEHBP for 2014. Specifically, the Plan recorded this
pension credit of $       for 2014, but had not allocated a share of the credit to the
FEP. The FEP should have been allocated $136,578 of this pension credit.
During our fieldwork phase, we also found out that the Plan curtailed the pension plan in
2013. As a result, we expanded our scope to include a review of the Plan’s 2013 pension
curtailment, for the purpose of determining if the Plan should have allocated a share of
this curtailment to the FEP. Based on our review, we determined that the Plan should
have allocated and credited a share of this pension curtailment to the FEHBP.
Specifically, the Plan recorded a pension curtailment credit of $        in 2013, but had
not allocated a share of this credit to the FEP. The FEP should have been allocated
$15,105 of this pension curtailment credit.
As a result, the Plan returned $159,066 to the FEHBP for this audit finding, consisting of
$151,683 for the questioned pension cost credit adjustments ($136,578 plus $15,105) and
$7,383 for applicable LII. We reviewed and accepted the Plan’s LII calculation.
11                           Report No. 1A-10-60-16-056
As part of our review, we verified that the Plan returned $159,066 to the FEHBP in
February 2017 for this audit finding, consisting of $151,683 for the questioned pension
cost credit adjustments and $7,383 for applicable LII.
We recommend that the contracting officer require the Plan to return $151,683 to the
FEHBP for the questioned pension cost credit adjustments. However, since we verified
that the Plan returned $151,683 to the FEHBP for these questioned credit adjustments, no
further action is required for this amount.
We recommend that the contracting officer require the Plan to return $7,383 to the
FEHBP for LII on the questioned pension cost credit adjustments. However, since we
verified that the Plan returned $7,383 to the FEHBP for the questioned LII, no further
2. Cost Settlement Adjustment for Quality Improvement Costs                                                                    $112,024
Our audit determined that the Plan had not made a cost settlement adjustment to credit
the FEHBP for 2014 quality improvement costs. As a result of this finding, the Plan
returned $112,024 to the FEHBP, consisting of $108,053 for quality improvement cost
overcharges and $3,971 for applicable LII.
12                           Report No. 1A-10-60-16-056
For contract years 2013 through 2015, the FEP Director’s Office (FEPDO) approved that
the Plan could withdraw a monthly expense allowance from the LOCA for the budgeted
quality improvement costs, resulting in charges of $1,401,274 to the FEHBP ($          in
2013, $          in 2014, and $        in 2015). Following each contract year, the Plan
and FEPDO performed a cost settlement, where the Plan made an adjustment based on
the difference between the Plan’s budgeted costs and the actual settled costs. We
reviewed these cost settlements and applicable supporting documentation to determine
if the Plan made the necessary adjustments to credit or charge the FEHBP for the cost
settlement differences.
The Plan overcharged
correctly made the cost settlement adjustments for 2013
the FEHBP $108,053 for
and 2015. However, the Plan had not made the applicable
adjustment to credit the FEHBP $108,053 for the 2014
costs in 2014.
quality improvement cost settlement. As a result, the Plan
returned $112,024 to the FEHBP for this audit finding, consisting of $108,053 for quality
improvement costs that were overcharged to the FEHBP in 2014 and $3,971 for
applicable LII calculated on these overcharges. We reviewed and accepted the Plan’s LII
As part of our review, we verified that the Plan returned $112,024 to the FEHBP in
November and December 2016 for this audit finding, consisting of $108,053 for quality
improvement cost overcharges and $3,971 for applicable LII.
We recommend that the contracting officer disallow $108,053 for quality improvement
costs that were overcharged to the FEHBP in 2014. However, since we verified that the
Plan returned $108,053 to the FEHBP for the questioned quality improvement costs, no
13                           Report No. 1A-10-60-16-056
We recommend that the contracting officer require the Plan to return $3,971 to the
FEHBP for LII on the questioned quality improvement costs. However since we verified
that the Plan returned $3,971 to the FEHBP for the questioned LII, no further action is
3. Unallowable and/or Unallocable Expenses                                                                                       $60,928
The Plan charged unallowable and/or unallocable cost center and natural account
expenses of $57,588 to the FEHBP. As a result of this finding, the Plan returned $60,928
to the FEHBP, consisting of $57,588 for the questioned expenses and $3,340 for
applicable LII.
48 CFR 31.201-4 states, “A cost is allocable if it is assignable or chargeable to one or
relationship. Subject to the foregoing, a cost is allocable to a Government contract if it -
(b) Benefits both the contract and other work, and can be distributed to them in
(c) Is necessary to the overall operation of the business, although a direct relationship
to any particular cost objective cannot be shown.”
In general, the Plan records administrative expense transactions to natural accounts that
are then allocated through cost centers to the Plan’s various lines of business, including
the FEP. For the period 2011 through 2015, the Plan allocated administrative expenses of
$             to the FEHBP from        cost centers that contained      natural accounts.
From this universe, we selected a judgmental sample of 48 cost centers to review, which
totaled $16,783,425 in expenses allocated to the FEHBP. We also selected a judgmental
sample of 43 natural accounts to review, which totaled $22,884,417 in expenses allocated
to the FEHBP through the cost centers. Because of the way we select and review each of
these samples, there is a duplication of some of the administrative expenses tested. We
selected the cost centers and natural accounts based on high dollar amounts, a trend
14                           Report No. 1A-10-60-16-056
analysis, and our nomenclature review. We reviewed the expenses from these cost
centers and natural accounts for allowability, allocability, and reasonableness.
Based on our review, we determined that the Plan allocated
The Plan charged the
and charged expenses to the FEHBP from three cost centers
FEHBP $57,588 for
(CC) and four natural accounts (NA) that were expressly
unallowable and/or
unallowable and/or did not benefit the FEHBP or only
minimally benefited the FEHBP.
The following schedule is a summary of these questioned CC and NA expenses that were
inappropriately charged to the FEHBP from 2011 through 2015.
CC or NA                                                                                   Reason for                Amount
Number                                 CC or NA Name                                      Questioning              Questioned
Marketing Incentives - FEP                                              Unallocable               $37,012
Miscellaneous - Cash Over and Short                                     Unallocable                   8,212
Legal - Litigation                                                     Unallowable                    7,891
Travel - Non Allowable                                                 Unallowable                   2,320
Contributions - Non Allowable                                          Unallowable                    1,548
In-House Legal                                                         Unallowable                      508
Assistant Vice President of Sales /
Manager of Market Enrollment Operations                                 Unallocable                      97
Total                                                                                                              $57,588
In regard to the questioned expenses charged to the FEHBP, 48 CFR 31-205-8
(Contributions and Donations), 48 CFR 31-205-14 (Entertainment Costs), and 48 CFR
31-205-47(f)(3) (Costs Related to Legal and Other Proceedings) also provide specific
criteria to the extent that such costs are expressly unallowable. Based on our review of
the Plan’s documentation, these questioned CC and NA charges are not in compliance
with the federal regulations.
In total, the Plan returned $60,928 to the FEHBP for this audit finding, consisting of
$57,588 for unallowable and/or unallocable CC and NA expenses that were charged to
the FEHBP from 2011 through 2015 and $3,340 for applicable LII. We reviewed and
accepted the Plan’s LII calculation.
15                           Report No. 1A-10-60-16-056
As part of our review, we verified that the Plan returned $60,928 to the FEHBP in
February 2017 for this audit finding, consisting of $57,588 for unallowable and/or
unallocable CC and NA expenses and $3,340 for applicable LII.
We recommend that the contracting officer require the Plan to return $57,588 to the
FEHBP for the questioned unallowable and/or unallocable CC and NA expenses.
However, since we verified that the Plan returned $57,588 to the FEHBP for these
questioned expenses, no further action is required for this amount.
We recommend that the contracting officer require the Plan to return $3,340 to the
FEHBP for LII on the questioned unallowable and/or unallocable CC and NA expenses.
However, since we verified that the Plan returned $3,340 to the FEHBP for the
questioned LII, no further action is required for this LII amount.
The audit disclosed no findings pertaining to the Plan’s cash management activities and
practices. Overall, we concluded that the Plan handled FEHBP funds in accordance with
Contract CS 1039 and applicable laws and regulations.
16                           Report No. 1A-10-60-16-056
The audit disclosed no findings pertaining to the Plan’s F&A
The Plan timely
Program activities. For the period 2015 through March 31,
entered all fraud and
2016, the Plan timely entered all fraud and abuse cases into the
abuse cases into the
Association’s Fraud Information Management System (FIMS).3
Association’s FIMS.
Overall, we determined that the Plan is in compliance with the
communication and reporting requirements for fraud and abuse cases set forth in the FEHBP
FIMS is a multi-user, web-based FEP case-tracking database that the Association’s FEP Special Investigations
Unit (SIU) developed in-house. FIMS is used by the local BCBS plans’ SIUs and the Association’s FEP SIU to
track and report potential fraud and abuse activities.
17                           Report No. 1A-10-60-16-056
IV. SCHEDULE A – QUESTIONED CHARGES
BL ECROSS BLUESHIELD OF RHODE ISLAND
AUDIT FINDINGS                                                                              2012             2013             2014             2015              2016             2017          TOTAL
A. MISCELLANEOUS HEALTH BENEF1T PAYMENTS
1. Hospital Settlements*                                                                      $0          $9,902          $53,916          $68,956            $1 ,609               $0      $134,383
TOTAL MISCELLANEO S HEALTH BENEFIT
PAYMENTS AND CREDITS                                                                           $0          $9,902           53,916          $68,956            $1,609                $0
1. Pension Costs*                                                                            $0         $15,105         $136,889            $3,414            $3,325             $333       $159,066
2. Cost Settlement Adjustment for Quality Impmvement Costs*                                   0               0          108,053             1,847             2,124                0        112,024
3. Unallowablc and/or nallocablc Expenses"                                               15,753          23,831            1,209            18,747             1,262              126         60,928
TOTAL ADMll°"IJSTRATIVE EXPE SES                                                        $15,753          $38,936         $246,151           $24,008            $6,711             $459       $332,018
C. CASH MANAGEMENT                                                                                 $0                                $0                $0               $0               $0             $0
D. FRAUD AND ABUSE PROGRAM                                                                         $0                                $0                $0               $0               $0             $0
TOTAL QUESTIONED CHARGES                                                                    $15,753          $48,838         $300,067           $92,964            $8,320             $459       $466,401
* We includedlostin..,,;tmentincomc {Ill) within auditlin<ing.~ Al ($4,460), tn ($7,383), B2 ($3,971), and H3 ($3,340). Th erefore, no additional UJ is applicable for these auclil findings.
Report No. 1A-10-60-16-056
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary information that may be protected by the Trade Secrets
Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
March 30, 2017                                                                                                                 1310 G Street, N.W.
202.626.4800
, Group Chief
Washington, DC 20415-11000
Reference:	                                  OPM DRAFT AUDIT REPORT
Rhode Island Blue Cross Blue Shield Plan
Audit Report Number: 1A-10-60-16-056
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) concerning the Rhode Island Blue Cross Blue Shield Plans.
Our comments concerning the findings in the report are as follows:
A.         MISCELLANEOUS HEALTH BENEFIT PAYMENTS AND CREDITS
1.     Hospital Settlements 	                                                                                         $134,383
We recommend that the contracting officer require the Plan to return
$129,923 to the FEHBP for the questioned hospital settlement recoveries.
However, since we verified that the Plan returned $129,923 to the FEHBP for
these questioned hospital settlement recoveries, no further action is required
The Plan agreed with this recommendation and returned the funds to the
FEP Program. As stated in the Draft Report dated February 22, 2017, no
We recommend that the contracting officer require the Plan to return $4,460
to the FEHBP for LII on the questioned hospital settlement recoveries.
However, since we verified that the Plan returned $4,460 to the FEHBP for
the questioned LII, no further action is required for this LII amount.
B.         ADMINISTRATIVE EXPENSES
1. Pension Costs                                                                                                       $159,066
$151,683 to the FEHBP for the questioned pension cost adjustments.
However, since we verified that the Plan returned $151,683 to the FEHBP for
these questioned pension cost adjustments, no further action is required for
We recommend that the contracting officer require the Plan to return $7,383
to the FEHBP for LII on the questioned pension cost adjustments. However,
since we verified that the Plan returned $7,383 to the FEHBP for the
2. Cost Settlement Adjustment for Quality Improvement Costs                                                            $112,024
We recommend that the contracting officer disallow $108,053 for quality
improvement costs that were overcharged to the FEHBP in 2014. However,
since we verified that the Plan returned $108,053 to the FEHBP for the
questioned quality improvement costs, no further action is required for this
We recommend that the contracting officer require the Plan to return $3,971
to the FEHBP for LII on the questioned quality improvement costs. However
since we verified that the Plan returned $3,971 in questioned LII to the
FEHBP, no further action is required for this LII amount.
3.     Unallowable and/or Unallocable Expenses                                                                           $60,928
We recommend that the contracting officer require the Plan to return $57,588
to the FEHBP for the unallowable and/or unallocable expenses. However,
since we verified that the Plan returned $57,588 to the FEHBP for these
unallowable and/or unallocable expenses, no further action is required for
We recommend that the contracting officer require the Plan to return $3,340
to the FEHBP for LII on the unallowable and/or unallocable expenses.
However, since we verified that the Plan returned $3,340 to the FEHBP for
request that our comments be included in their entirety as an amendment to the Final
Managing Director, FEP Program Assurance
cc:                           , BCBS Rhode Island
Report Fraud, Waste, and
Fraud, waste, and mismanagement in
Government concerns everyone: Office of
the Inspector General staff, agency
employees, and the general public. We
actively solicit allegations of any inefficient
and wasteful practices, fraud, and
mismanagement related to OPM programs
and operations. You can report allegations
to us in several ways:
By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
report-fraud-waste-or-abuse
By Phone:                 Toll Free Number:                               (877) 499-7295
Washington Metro Area:                          (202) 606-2423
By Mail:                Office of the Inspector General
Room 6400
This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public
version may contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. §
1905, and the Privacy Act, 5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of
Information Act and made publicly available on the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version
should not be further released unless authorized by the OIG.