Unites States Office of Personnel Management Management Response To The Inspector General’s Semiannual Report To Congress December 2002 Contents 1. Message from the Director 1 2. Health and Life Insurance Carrier Audits 2 3. Collection of Disallowed Costs 2 4. Management Report on Final Action on 3 Audits with Disallowed Costs for the Period Ending September 30, 2002 5. Status of the Insurance Audits Highlighted 4 in the Office of the Inspector General’s Report 6. Management Decisions Not Implemented Within 6 One Year 7. Comments on Unresolved Management Decisions 7 Over One Year Old 8. Significant Management Decisions on Reports 8 Issued for the Period Ending September 30, 2002 MESSAGE FROM THE DIRECTOR The Office of the Inspector General (OIG) of the U.S. Office of Personnel Management has completed its Semiannual Report for the period April 1, 2002, to September 30, 2002. I am transmitting the Report to Congress as required by law, along with the Management Response containing additional information on certain portions of the report where further clarification may be helpful. The Office of the Inspector General is a critically essential component in the management of this agency and our programs, especially the Federal Employees Health Benefits Program (FEHBP). The results of the OIG efforts this reporting period alone provide staggering evidence that the Federal Government benefits immeasurably from a strong and effective Inspector General. The OIG is to be especially congratulated for their efforts in the estimated $63.9 million recovery to the FEHBP from the settlement proceeds in the PacifiCare Health Systems false claims case. OPM Inspector General Patrick E. McFarland notes in the Foreword to his report for this period that this is the 27th semiannual report that his office has issued under the reporting provisions of the Inspector General Act. The projected recovery of funds identified in those 27 semiannual reports approaches $1 Billion. One of our highest priorities at the Office of Personnel Management this year has been to maintain quality and cost in the FEHB Program. Our success rested on four initiatives: -we challenged FEHB carriers to contain costs, maintain quality and keep the program a model of consumer choice and on the cutting edge of employer provided health benefits; -we challenged our negotiating team to conduct tough negotiations on behalf of the Federal Government and FEHB subscribers; -we initiated a comprehensive outside audit to review the potential costs of Federal and State mandates over the past decade to identify and understand the true cost of mandated services, and -we maintained a respectful and full engagement with the Inspector General and have supported all of his efforts to investigate fraud and waste within the FEHB and other programs. Supporting and maintaining positive relations with the IG are essential, and I was pleased recently to sign and send to the Office of Management and Budget final regulations implementing the suspension and debarment provisions of P.L. 105-266, as well as proposed regulations implementing the financial sanctions authorities contained in that law. Clearly, one of the best investments we can make in Government is in our Inspectors General, and here at OPM, we will continue to rely on their expertise in all of our program areas. I again look back with pride in our accomplishments to date in meeting the President’s goals to best serve the American people, while at the same time looking forward with confidence that, with the joint efforts of the Office of the Inspector General, we are on a solid path to meet the challenges of the future. Kay Coles James Director HEALTH AND LIFE INSURANCE CARRIER AUDITS AUDIT RESOLUTION The resolution of audit report findings issued by the OIG continues to be a priority. The charts at the end of this management report summarize insurance audit resolution activity for the period, April 1, 2002, through September 30, 2002. We began this period with 12 audit reports pending agency decisions totaling $17.2 million. The OIG issued 26 new reports with unresolved monetary findings totaling $118.5 million, bringing the work-in- process to $135.7 million. Management’s decisions on OIG recommendations during this period were $127.7 million. This amount is a combination of $67 million in “disallowed costs” (requiring payment to OPM) and $60.7 million in “costs not disallowed” (no required payment to OPM). It should be noted that the “disallowed costs” does not include $145,119 in additional interest assessed by the Program Office; and that the “costs not disallowed” amount includes approximately $56.3 million that would not have been questioned if the OIG had proper or adequate information prior to issuing the final audit report. The balance at the end of the period totals $8 million and relates to 10 audit reports. One of the 10 outstanding audit reports, which totals $2.1 million, exceeded the six month standard for resolving audit findings in accordance with OMB Circular A-50. The OIG has requested that we postpone resolution of this audit report. COLLECTION OF DISALLOWED COSTS At the beginning of the period there were 56 audit reports which had been previously resolved, with $194.4 million to be collected from the insurance carriers. Management decisions were made on 19 reports requiring the insurance carriers to pay $64.9 million. This brought the number of audit reports with collection action to 75, totaling $259.5 million including interest and adjustments. During this period, we collected $133.6 million relating to 32 audit reports. We also adjusted audit reports totaling $46.5 million, which leaves a balance of 43 audit reports and $125.9 million to be collected. The following table on final action of audits with disallowed costs provides a summary of collection activity for the period April 1, 2002, through September 30, 2002. RETIREMENT AND INSURANCE SERVICE MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH DISALLOWED COSTS REPORTING PERIOD ENDING September 30, 2002 A. Audit reports with management decisions on which final action had not been taken at the beginning of the period (04/01/02) Number of Audit Reports 56 Disallowed Costs (in thousands) $194,419 B. 1. Audit reports on which management decisions were made during the period (04/01/02 - 09/30/02) Number of Audit Reports 19 Disallowed Costs (in thousands) 64,953 2. Interest assessed during period Disallowed Costs (in thousands) 172 C. Total audit reports pending final action during period (total of A and B) Number of Audit Reports 75 Disallowed Costs (in thousands) $259,544 D. Audit reports on which final action was taken during the period 1. Recoveries (a) Collections and offsets 32 $133,624 (b) Property 0 0 (c) Other 0 46,5151 2. Write-offs, waiver 0 0 3. Total of 1 and 2 32 $133,624 E. Audit reports needing final action at the end of the period (03/31/02) (subtract D3 from C) Number of Audit Reports 43 Disallowed Costs (in thousands) $125,920 STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT REPORT, REPORT NUMBER, AND DATE Aetna U.S. Healthcare – Georgia Blue Bell, Pennsylvania 1C-2U-00-01-044 April 2, 2002 STATUS All outstanding audit issues have been resolved and the FEHB Program has been reimbursed $4,257,498 REPORT, REPORT NUMBER, AND DATE FHP of Utah Fountain Valley, California 1C -KU-00-97-050 May 30, 2002 STATUS The Office of the Inspector General and the Department of Justice resolved this audit report. Funds are being returned to the FEHB Program in accordance with the signed agreement with final payment due in 2003. REPORT, REPORT NUMBER, AND DATE BlueCross BlueShield of Georgia Atlanta, Georgia 1A-10-05-01-050 April 2, 2002 STATUS Reviewing Plan’s response to the outstanding issues. We expect to resolve all outstanding issues within the 180 day standard. REPORT, REPORT NUMBER, AND DATE American Postal Workers Union Health Plan Silver Spring, Maryland 1B-47-00-01-080 August 20, 2002 STATUS Awaiting Plan’s response to the outstanding issues. We expect to resolve all outstanding issues within the 180 day standard. REPORT, REPORT NUMBER, AND DATE Health Maintenance Plan Cincinnati, Ohio 1D-R5-00-01-043 June 12, 2002 STATUS Reviewing Plan’s response to the outstanding issues. We expect to resolve all outstanding issues within the 180 day standard. STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT REPORT, REPORT NUMBER, AND DATE Audit of Information System General and Application Control at Mail Handlers Benefit Plan Chicago, Illinois; Rockville, Maryland; and Jacksonville, Florida 1B-45-00-01-009 June 19, 2002 STATUS Reviewing Plan’s response to the outstanding issues. We will coordinate corrective actions taken by the Plan on a quarterly basis until all recommendations have been completed. MANAGEMENT DECISIONS NOT IMPLEMENTED WITHIN ONE YEAR REPORT DETERMINATION AUDIT AUDIT RECEIVABLE AS OF DATE DATE NUMBER NAME September 30, 2002 Blue Cross and Blue Shield Audits 11/13/2000 08/31/2001 10-06-99-055 BC/BS of Maryland $228,316 08/06/1998 03/31/1999 10-10-96-027 BC/BS Illinois 27,517 12/16/1999 07/25/2000 10-13-98-001 BS Highmark 691,325 06/02/1999 03/31/2000 10-18-97-004 BC/BS Community Mutual 732,904 01/06/2000 09/06/2000 10-39-98-012 BCBS Kentucky/Indiana 1,782,222 06/10/1997 02/05/2001 10-41-95-006 BC/BS Florida 6,470,297 02/23/2000 09/15/2000 10-42-99-021 BC/BS Kansas City 12,914 02/10/2000 08/31/2000 10-44-99-048 BC/BS Arkansas 45,088 04/04/2000 02/05/2001 10-49-99-016 Horizon BC/BS of New Jersey 6,025,684 02/22/2001 08/08/2001 10-69-01-001 Regence Blue Shield 30,409 07/18/2000 12/27/2000 10-78-99-049 BC/BS Minnesota 333,994 02/15/2001 08/31/2001 10-84-01-002 BC/BS Utica , New York 23,107 02/23/2000 09/15/2000 10-85-98-043 Letter of Credit Account 1,447,701 12/20/2000 08/31/2001 10-85-99-054 CareFirst BC/BS 398,314 Subtotal $18,249,792 Other Insurance Carriers 03/26/2001 08/31/2001 45-00-00-064 Mail Handlers Benefit Plan 2,356,229 08/04/1999 03/31/2000 Y7-03-98-006 BC/BS Wash DC 410,355 07/30/1999 03/31/2000 YA-03-98-007 BC/BS Wash DC 6,071,584 08/03/1999 03/31/2000 YP-03-98-009 BC/BS Wash DC 1,542,164 12/27/1999 06/29/2000 DJ-00-99-012 Health New England, MA 927,625 01/22/1998 09/30/1998 R8-00-96-031 TakeCare of Ohio 124,408 10/12/2000 08/08/2001 TW-00-99-058 PCA Health Plans of Texas 143,123 09/26/2000 03/14/2001 V9-00-99-050 OPTIMA Health Plan 25,765 Subtotal $11,601,253 Total $29,851,0452 COMMENTS ON UNRESOLVED MANAGEMENT DECISIONS OVER ONE YEAR OLD Of the $22,069,673 for which a management decision was not implemented within one year, 41 percent, or $9,049,680, relate to appealed cases. These cases have been appealed either to the Armed Services Board of Contract Appeals or to the United States Court of Claims. Eight percent, or $1,782,222, relate to cases that the resolution has been postponed at the request of the Office of the Inspector General. Eighteen percent, or $4,068,421, relate to cases that have been closed since September 30, 2002. The remaining 33 percent, or $7,169,350, relate to health benefit overpayment issues and the Carriers are in the process of collecting them. Contractually, the Carriers must follow normal business practices and make a concerted attempt to collect the overpayments. Therefore, until the funds have been recovered or until it has been determined that the funds are uncollectible and must be written-off, the receivable must remain on OPM’s book of record. SIGNIFICANT MANAGEMENT DECISIONS APRIL 1, 2002 THROUGH SEPTEMBER 30, 2002 ON FINAL REPORTS ISSUED BY THE OFFICE OF THE INSPECTOR GENERAL REPORT AND AMOUNT REPORT NUMBER AUDIT FINDINGS MANAGEMENT RESULTS RECOVERED No Contracting Officers Final Decisions were issued during this period.