MANAGEMENT RESPONSE TO THE INSPECTOR GENERAL’S SEMIANNUAL REPORT TO CONGRESS JUNE 2005 Contents Page 1. Message from the Acting Director 1 2. Health and Life Insurance Carrier Audits: Audit Resolution 2 3. Collection of Disallowed Costs 2 4. Management Report on Final Action on Audits with Disallowed Costs Reporting Period Ending March 31, 2005 3 5. Status of the Insurance Audits Highlighted in the Office of the Inspector General’s Report 4 6. Management Decisions Not Implemented Within One Year 5 7. Comments on Unresolved Management Decisions Over One Year Old 6 8. Significant Management Decisions October 1, 2004 through March 31, 2005 on Final Reports Issued by the Office of the Inspector General 7 MESSAGE FROM THE ACTING 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, 2004 to March 31, 2005. 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 OIG continues to play an essential role in the management and operations of OPM. We have pursued opportunities whenever they were available to strengthen and enhance OPM’s OIG. For example, OPM worked with the Office of Management and Budget (OMB) in soliciting the OIG’s participation in the Program Assessment and Rating Tool (PART) process in addressing its FY 2005 audit and enforcement plans for health care and health insurance issues. Through support and assistance provided by the OMB staff, the OIG produced a PART analysis that was graded among the very best governmentwide by a team of senior OMB officials. The exercise proved to be valuable in sharpening the OIG’s focus on short and long-term goals directly contributing to the effectiveness of OPM’s programs. Over the past several months the OIG has made valuable contributions to the effectiveness of OPM operations through its continued use of administrative sanctions to protect the Federal Employees Health Benefits (FEHB) Program. The OIG’s electronic application, known as the “e-debarment” process, became fully operational this reporting period. The system allows the OIG to expeditiously identify and target potentially sanctionable violations against the FEHBP by health care providers on a nationwide basis. During this reporting period, the OIG issued almost 2,000 debarments and suspensions of health care providers. OPM management will continue to work closely with the OIG to further protect and improve service for our Federal health plan customers and deter provider wrongdoing. Beyond its contributions to the FEHB Program, the OIG contributes to the effectiveness of OPM’s operations in other ways: assisting in strengthening our computer security program; ensuring that organizations entrusted with distributing funds donated by Federal employees under the Combined Federal Campaign do so with absolute integrity; making certain of the fair presentation of OPM’s consolidated financial statements and their conformance with generally accepted accounting principles; and verifying OPM’s compliance with the Government Performance and Results Act. The OIG’s contributions are an integral part of the Agency’s success in implementing its mission. Here at OPM, we are committed to working together to achieve the President’s goals of serving the American people with honor and integrity while focusing attention towards achieving a government that is citizen-centered, results-oriented and market-based in providing service to the American people. Dan G. Blair Acting 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, 2004, through March 31, 2005. We began this period with 14 audit reports pending agency decisions totaling $32.4 million. The OIG issued 21 new reports with unresolved monetary findings totaling $32.4 million, bringing the work-in-process to $64.8 million. Management’s decisions on OIG recommendations during this period were $43.2 million. This amount is a combination of $41.2 million in “disallowed costs” (requiring payment to OPM) and $2 million in “costs not disallowed” (no required payment to OPM). The balance at the end of the period totals $21.6 million and relates to 16 audit reports. COLLECTION OF DISALLOWED COSTS At the beginning of the period there were 40 audit reports which had been previously resolved, with $32.3 million to be collected from the insurance carriers. Management decisions were made on 19 reports requiring the insurance carriers to pay $33 million. This brought the number of audit reports with collection action to 59, totaling $65.3 million including interest and adjustments. During this period, we collected $22 million relating to 11 audit reports. We also made an adjustment to audit reports totaling $2.9 million, which leaves a balance of 48 audit reports and $40.4 million to be collected. The following table summarizes final action of audits with disallowed costs collection activity for the period October 1, 2004, through March 31, 2005. MANAGEMENT REPORT ON FINAL ACTION ON AUDITS WITH DISALLOWED COSTS REPORTING PERIOD ENDING March 31, 2005 Number of Disallowed Audit Reports Costs (in thousands) A. Audit reports with management decisions on which final action had not been taken at the beginning of the period (10/01/04) 40 $32,335 B. 1. Audit reports on which management decisions were made during the period (10/01/2004 - 03/31/2005) 19 $32,993 2. Interest assessed during period 0 0 C. Total audit reports pending final 59 $65,328 action during period (total of A and B) D. Audit reports on which final action was taken during the period 1. Recoveries (a) Collections and offsets 11 $22,025 (b) Property 0 0 (c) Other 0 $2,842* 2. Write-offs, waiver 0 0 3. Total of 1 and 2 11 $24,867 E. Audit reports needing final action at the end of the period (03/31/2005) (subtract D3 from C) 48 $40,461 * This represents adjustments to original debt. STATUS OF THE INSURANCE AUDITS HIGHLIGHTED IN THE OFFICE OF THE INSPECTOR GENERAL'S REPORT REPORT, REPORT NUMBER, AND DATE STATUS HealthGuard of Lancaster, Inc. Lancaster, Pennsylvania 1C-NQ-00-03-057 December 23, 2004 All outstanding audit issues have been resolved and the FEHB Program has been reimbursed $3,246,887. CareFirst Bluechoice, Inc. Owings Mills, Maryland 1C-2G-00-03-007 November 4, 2004 All outstanding audit issues have been resolved and the FEHB Program has been reimbursed $2,144,462. Global Coordination of Benefits for BCBS Plans Reviewing Plan’s response to the outstanding issues. We expect 1A-10-00-03-102 to resolve all outstanding issues within the 180 day standard. November 9, 2004 Reviewing Plan’s response to the outstanding issues. We expect to resolve all outstanding issues within the 180 day standard. Anthem BlueCross and BlueShield of Kentucky Reviewing Plan’s response to the outstanding issues. We expect Mason, Ohio and Indianapolis, Indiana to resolve all outstanding issues within the 180 day standard. 1A-10-45-03-012 November 17, 2004 Reviewing Plan’s response to the outstanding issues. We expect to resolve all outstanding issues within the 180 day standard. Information Systems General and Awaiting Plan’s response to the outstanding issues. We will Application Controls at Health Care Service Corporation Chicago, Illinois and Abilene and Richardson, Texas 1A-99-00-04-015 January 19, 2005 Awaiting 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 Determination Date Audit Number Audit Name Receivables as of March 31, 2005 07/25/2001 10/12/2001 10-03-01-027 BCBS of New Mexico $ 108,962 04/02/2002 02/19/2003 10-05-01-050 BCBS of Georgia 686,056 11/13/2000 08/31/2001 10-06-99-055 BCBS of Maryland 1,201,941 03/10/2003 09/23/2003 10-07-02-010 BCBS of Louisiana 323,151 11/29/2001 08/31/2002 10-09-01-032 BCBS of Alabama 349,210 01/28/2002 06/14/2002 10-10-01-098 Blue Shield of Idaho 1,214 10/01/2002 09/25/2003 10-15-02-007 Blue Shield of Tennessee 132,773 02/14/2003 09/25/2003 10-27-02-022 BCBS of New Hampshire-Manchester 229,921 08/27/2001 12/11/2001 10-30-01-018 BCBS of Colorado 395,487 02/10/2003 09/30/2003 10-32-02-003 BCBS of Michigan 66,381 11/25/2002 09/25/2003 10-36-02-031 Capital Blue Cross Harrisburg 196,288 01/06/2000 09/06/2000 10-39-98-012 BCBS of Kentucky & Indiana 1,659,966 07/24/2002 02/19/2003 10-40-02-006 BCBS of Mississippi 144,019 05/10/2000 02/05/2001 10-41-99-017 BCBS of Florida 5,102,139 02/10/2000 08/31/2000 10-44-99-048 BCBS of Arkansas 15,171 04/04/2000 02/05/2001 10-49-99-016 Horizon BCBS of New Jersey 1,325,782 01/31/2002 08/29/2002 10-54-01-092 Mountain State BCBS of Parkersburg 11,788 10/22/2001 09/03/2002 10-56-01-049 BCBS of Arizona 307,589 12/10/2001 12/18/2001 10-58-01-079 BCBS of Oregon 128,301 05/14/2001 10/12/2001 10-59-01-022 Anthem BCBS of Maine 105,417 02/22/2001 08/08/2001 10-69-01-001 Regence Blue Shield 11,165 07/18/2000 12/27/2000 10-78-99-049 BCBS of Minnesota 165,325 02/15/2001 08/31/2001 10-84-01-002 BCBS of Utica, New York 11,553 12/20/2000 08/31/2001 10-85-99-054 CareFirst BCBS 216,126 05/07/2001 09/30/2001 10-88-01-021 BC of Northeast Pennsylvania 69,661 09/12/2002 02/19/2003 10-89-02-027 BCBS of Delaware 47,767 04/04/2002 02/19/2003 10-92-01-097 BCBSA Operation Center 26,827 02/12/2002 10/30/2002 10-97-01-045 Blue Cross of California 575,869 Subtotal $13,615,849 Other Insurance Carriers Report Date Determination Date Audit Number Audit Name Receivables as of March 31, 2005 08/04/1999 03/31/2000 Y7-03-98-006 BCBSNCA - as an underwriter $ 424,667 07/30/1999 03/31/2000 YA-03-98-007 BCBSNCA - as an underwriter 6,296,552 08/03/1999 03/31/2000 YP-03-98-009 BCBSNCA - as an underwriter 1,595,074 04/02/2002 09/30/2003 YQ-00-02-028 Alliance Health Plan 4,349,355 02/27/2002 09/20/2002 M5-00-01-046 California Care 135,354 10/23/2001 09/30/2003 88-00-01-095 Rocky Mountain HMO 3,456,605 Subtotal $ 16,257,607 Grand Total $ 29,873,456* * Management Decisions pending on $5,387,973.COMMENTS ON UNRESOLVED MANAGEMENT DECISIONS OVER ONE YEAR OLD Of the $24,485,483 for which a management decision was not implemented within one year, 52 percent, or $12,665,648, 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. The remaining 48 percent, or $11,819,835, 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, 2004 THROUGH MARCH 31, 2005 ON FINAL REPORTS ISSUED BY THE OFFICE OF THE INSPECTOR GENERAL REPORT AND REPORT NUMBER AUDIT FINDINGS MANAGEMENT RESULTS AMOUNT RECOVERED National Alliance of Postal and Federal Employees Washington, DC YQ-00-03-110 July 28, 2004 Unallowable Subcontract & Related Charges Overhead Allocations Excess Letter of Credit Drawdowns Lost Investment Income 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 Audit Report. We will attain final resolution through continued negotiations or the legal process. We have not determined the total amount to be recovered on these audits because negotiations are still in progress.