MANAGEMENT RESPONSE TO THE INSPECTOR GENERAL’S SEMIANNUAL REPORT TO CONGRESS JUNE 2003 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 Audits with Disallowed Costs for the Period Ending March 31, 2003 5. Status of the Insurance Audits Highlighted in the Office of the Inspector 4 General’s Report 6. Management Decisions Over One Year 6 7. Comments on Unresolved Management Decisions Over One Year Old 7 8. Significant Management Decisions on Reports Issued for the Period Ending March 31, 2003 8 MESSAGE FROM THE DIRECTOR The Office of the Inspector General (OIG) of the U.S. Office of Personnel Management (OPM) has completed its Semiannual Report for the period October 1, 2002 to March 31, 2003. 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 continues to play a critical role in the management and operations of the Office of Personnel Management, especially the Federal Employees Health Benefits Program (FEHBP). We have pursued opportunities whenever they were available to strengthen and enhance OPM’s OIG, including, as the Inspector General’s report references, promulgating final regulations to implement provisions of the Federal Employees Health Care Protection Act which address OPM’s new administrative sanctions authority, and proposing regulations implementing the Act’s civil monetary penalty provisions. The FEHBP is greatly improved by making these additional authorities available to protect Federal enrollees from unscrupulous health care providers. We recently acknowledged the OIG capacity to ensure that FEHB carriers maximize savings associated with the effective use of pharmacy benefits managers through which pass $6 billion in prescription drug costs. Our recent “Call Letter” to FEHB carriers highlighted an expanded OIG oversight role to ensure their ability to conduct independent audits of plan pharmacy benefits managers. The Office of the Inspector General’s value reaches well beyond the FEHBP however, and this reporting period they played a critical role in identifying insufficient internal controls at the United Way of the National Capital Area which served as the fiscal manager for the Combined Federal Campaign (CFC). The OIG audit findings provided assurance to the thousands of donors in the National Capital Area that their contributions would be safeguarded, and contributed significantly to the development of new uniform accounting guidelines and the strengthening of accountability for all 362 CFCs around the country. I 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 October 1, 2002, through March 31, 2003. We began this period with 10 audit reports pending agency decisions totaling $8 million. The OIG issued 16 new reports with unresolved monetary findings totaling $32.6 million, bringing the work-in-process to $40.6 million. Management’s decisions on OIG recommendations during this period were $9.3 million. This amount is a combination of $8.7 million in “disallowed costs” (requiring payment to OPM) and $.6 million in “costs not disallowed” (no required payment to OPM). It should be noted that the “disallowed costs” does not include $65,711 in additional interest assessed by the Program Office. The balance at the end of the period totals $31.3 million and relates to 15 audit reports. One of the 15 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 43 audit reports which had been previously resolved, with $125.9 million to be collected from the insurance carriers. Management decisions were made on four reports requiring the insurance carriers to pay $7.2 million. This brought the number of audit reports with collection action to 47, totaling $133.1 million including interest and adjustments. During this period, we collected $16 million relating to seven audit reports. We also adjusted three audit reports totaling $77.8 million, which leaves a balance of 37 audit reports and $39.3 million to be collected. The following table on final action of audits with disallowed costs provides a summary of collection activity for the period October 1, 2002, through March 31, 2003. MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH DISALLOWED COSTS REPORTING PERIOD ENDING March 31, 2003 A. Audit reports with management decisions on which final action had not been taken at the beginning of the period (10/01/02) Number of Audit Reports 43 Disallowed Costs (in thousands) $125,920 B. 1. Audit reports on which management decisions were made during the period (10/01/02 - 03/31/03) Number of Audit Reports 4 Disallowed Costs (in thousands) $7,192 2. Interest assessed during period C. Total audit reports pending final action during period (total of A and B) Number of Audit Reports 47 Disallowed Costs (in thousands) $133,112 D. Audit reports on which final action was taken during the period 1. Recoveries (a) Collections and offsets Number of Audit Reports 7 Disallowed Costs (in thousands) $16,021 (b) Property Number of Audit Reports 0 Disallowed Costs (in thousands) 0 (c) Other Number of Audit Reports 3 Disallowed Costs (in thousands) 77,833 2. Write-offs, waiver Number of Audit Reports 0 Disallowed Costs (in thousands) 0 3. Total of 1 and 2 Number of Audit Reports 10 Disallowed Costs (in thousands) $93,854 E. Audit reports needing final action at the end of the period (03/31/03) (subtract D3 from C) Number of Audit Reports 37 Disallowed Costs (in thousands) $39,258 STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT REPORT, REPORT NUMBER, AND DATE Aetna U.S. Healthcare – Ohio Blue Bell, Pennsylvania 1C-RD-00-01-076 October 16, 2002 STATUS All outstanding audit issues have been resolved and the FEHB Program has been reimbursed $5,597,915. REPORT, REPORT NUMBER, AND DATE HealthPartners, Inc. Minneapolis, Minnesota 1C-HQ-00-02-019 January 8, 2003 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 BlueCross BlueShield of Michigan Detroit, Michigan 1A-10-32-02-003 February 10, 2003 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 National Alliance of Postal and Federal Employees as Sponsor for the Alliance Health Benefit Plan Washington, D.C. 1B-YQ-00-02-028 February 11, 2003 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 KPS Health Plans Bremerton, Washington 1D-VT-00-02-004 November 25, 2002 STATUS Awaiting 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 Controls at Merck-Medco Managed Care (presently, Medco Health Solutions, Inc.) A BlueCross BlueShield Association Contractor Franklin Lakes, New Jersey 1A-10-00-02-039 February 4, 2003 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 Blue Cross and Blue Shield Audits Report Date 07/25/2001 Determination Date 10/12/2001 Audit Number 10-03-01-027 Audit Name New Mexico Receivables as of March 31, 2003 $258,598 Report Date 11/13/2000 Determination Date 08/31/2001 Audit Number 10-06-99-055 Audit Name Maryland Receivables as of March 31, 2003 $2,820,466 Report Date 12/16/1999 Determination Date 07/25/2000 Audit Number 10-13-98-001 Audit Name BS of Highmark, Inc. Receivables as of March 31, 2003 $300,000 Report Date 06/02/1999 Determination Date 03/31/2000 Audit Number 10-18-97-004 Audit Name Community Mutual Insurance Co. Receivables as of March 31, 2003 $734,723 Report Date 06/21/2001 Determination Date 12/01/2001 Audit Number 10-24-01-031 Audit Name South Carolina Receivables as of March 31, 2003 $5,832 Report Date 08/27/2001 Determination Date 12/11/2001 Audit Number 10-30-01-018 Audit Name Colorado Receivables as of March 31, 2003 $787,864 Report Date 01/06/2000 Determination Date 09/06/2000 Audit Number 10-39-98-012 Audit Name Kentucky & Indiana Receivables as of March 31, 2003 $1,809,781 Report Date 05/10/2000 Determination Date 02/05/2001 Audit Number 10-41-99-017 Audit Name Florida Receivables as of March 31, 2003 $6,048,396 Report Date 02/10/2000 Determination Date 08/31/2000 Audit Number 10-44-99-048 Audit Name Arkansas Receivables as of March 31, 2003 $30,342 Report Date04/04/2000 Determination Date02/05/2001 Audit Number10-49-99-016 Audit Name New Jersey Receivables as of March 31, 2003 4,008,401 Report Date 10/18/2000 Determination Date 09/26/2001 Audit Number 10-55-96-032 Audit Name Philadelphia, Pennsylvania Receivables as of March 31, 2003 $2,000,000 Report Date 12/10/2001 Determination Date 12/18/2001 Audit Number 10-58-01-079 Audit Name Oregon Receivables as of March 31, 2003 $307,022 Report Date 05/14/2001 Determination Date 10/12/2001 Audit Number 10-59-01-022 Audit Name Maine Receivables as of March 31, 2003 $210,834 Report Date 02/22/2001 Determination Date 08/08/2001 Audit Number 10-69-01-001 Audit Name Regence Blue Shield Receivables as of March 31, 2003 $22,331 Report Date 07/18/2000 Determination Date 12/27/2000 Audit Number 10-78-99-049 Audit Name Minnesota Receivables as of March 31, 2003 $333,426 Report Date 02/15/2001 Determination Date 08/31/2001 Audit Number 10-84-01-002 Audit Name Utica, New York Receivables as of March 31, 2003 $23,107 Report Date 02/23/2000 Determination Date 09/15/2000 Audit Number 10-85-98-043 Audit Name Letter of Credit Account Receivables as of March 31, 2003 $214,904 Report Date 12/20/2000 Determination Date 08/31/2001 Audit Number 10-85-99-054 Audit Name Washington, DC Receivables as of March 31, 2003 $398,186 Report Date 05/07/2001 Determination Date 09/30/2001 Audit Number 10-88-01-021 Audit Name Northeast Pennsylvania Receivables as of March 31, 2003 $153,424 Subtotal $20,467,637 Other Insurance Carriers Report Date 08/04/1999 Determination Date 03/31/2000 Audit Number Y7-03-98-006 Audit Name BCBSNCA Receivables as of March 31, 2003 $413,646 Report Date 07/30/1999 Determination Date 03/31/2000 Audit Number YA-03-98-007 Audit Name BCBSNCA Receivables as of March 31, 2003 $6,123,288 Report Date 08/03/1999 Determination Date 03/31/2000 Audit Number YP-03-98-009 Audit Name BCBSNCA Receivables as of March 31, 2003 $1,554,325 Report Date 01/22/1998 Determination Date 09/30/1998 Audit Number R8-00-96-031 Audit Name TakeCare Health Plan Receivables as of March 31, 2003 $62,204 Subtotal $8,153,463 Grand Total $28,621,100 The information above comes from OPM’s Audit and Receivables Tracking System (AARTS) reports. The receivables listed were determined more than one year and one month prior to 3/31/03, making them over one year delinquent. COMMENTS ON UNRESOLVED MANAGEMENT DECISIONS OVER ONE YEAR OLD Of the $22,941,333 for which a management decision was not implemented within one year, 39 percent, or $8,888,186, 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 $1,809,781, relate to cases that the resolution has been postponed at the request of the Office of the Inspector General. The remaining 53 percent, or $12,243,366, 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 OCTOBER 1, 2002 THROUGH MARCH 31, 2003 ON FINAL REPORTS ISSUED BY THE OFFICE OF THE INSPECTOR GENERAL REPORT AND REPORT NUMBER Humana Medical Plan, Inc. Miami, Florida 1C-EE-00-01-025 April 4, 2002 AUDIT FINDINGS Defective Pricing Lost Investment Income MANAGEMENT RESULTS Initial negotiations with the Carrier were not successful. As a result, the Contracting Officer issued a Final Decision Based upon the findings in the Office of the Inspector General’s Final resolution through continued Negotiations or the legal process. RECOVERED AMOUNT We have not determined total amount to be recovered on these audits because negotiations are still in progress. We will attain Final audit report.