CITY AUDITOR'S OFFICE Benefit Claims Processing€¦ · prescription benefit coverage, and two dental plansparty plan administrator, . ... • Auditing and quantifying the dollar

CITY AUDITOR'S OFFICE

Benefit Claims Processing April 24, 2017 AUDIT REPORT NO. 1707

CITY COUNCIL Mayor W.J. “Jim” Lane Vice Mayor Suzanne Klapp Virginia Korte Kathy Littlefield Linda Milhaven Guy Phillips David N. Smith

TABLE OF CONTENTS

AUDIT HIGHLIGHTS ......................................................................................... 1

BACKGROUND ............................................................................................... 3

Table 1. Healthcare Trust Fund Expenditures to Third-Party Plan Administrator (Cigna) ............. 3

Table 2. Estimated Enrollment by Medical Plan as of July 2016 ............................................ 4

OBJECTIVES, SCOPE, AND METHODOLOGY .............................................................. 7

FINDINGS AND ANALYSIS ................................................................................... 9

1. Wolcott & Associates, Inc. identified a high degree of medical claims processing accuracy, but prescription claim processing accuracy should be improved. ................. 9

2. The City’s Summary Plan Description can be clarified. ......................................... 9

3. Performance guarantee monitoring and other aspects of contract administration can be improved. ............................................................................................. 10

Figure 1. Cigna’s Performance Guarantees ................................................................... 11

MANAGEMENT ACTION PLAN ............................................................................. 13

APPENDIX A. Wolcott & Associated, Inc. Report ...................................................... 17

APPENDIX B. Cigna Response............................................................................. 35

Page 1

This audit of Benefit Claims Processing was included on the Council-approved FY 2016/17 Audit Plan. A third-party plan administrator (Cigna) processes medical and prescription benefit claims for the City’s self-insured medical plans.

The City has three self-funded medical plans for employees and certain eligible retirees. About 2,200 employees and retirees are enrolled in the three medical plans.

Medical and prescription benefit claims paid through Cigna totaled approximately $21.8 million and $25.7 million in FYs 2014/15 and 2015/16 respectively. For FY 2016/17, the City’s Healthcare Trust Fund budget is $30.8 million, of which $27.5 million is allocated for medical and prescription claims.

As the third-party plan administrator, Cigna provides medical, dental and pharmaceutical networks, customer support and administrative services. The City’s administrative services agreement (Agreement) with Cigna specifies the City’s right to audit.

In December 2016, we contracted with Wolcott & Associates, Inc. to audit Cigna’s processing of the City’s medical and prescription benefit claims. Cigna required at least a 45-day advance notice, so the audit started in February 2017.

AUDIT HIGHLIGHTS

WHY WE DID THIS AUDIT

BACKGROUND

Benefit Claims Processing April 24, 2017 Audit Report No. 1707

WHAT WE FOUND

1. Wolcott & Associates, Inc. identified a high degree of medical claims processing accuracy, but prescription claim processing accuracy should be improved. As allowed by the Agreement, Wolcott tested 300 medical and 300 prescription benefit claims processed by Cigna. • Medical claim processing – Wolcott determined that Cigna achieved a

high degree of accuracy that was above industry standard. • Prescription claim processing – Wolcott determined that Cigna’s 94-

97.4% accuracy rates were below industry standard of 98-99%.

2. The City’s Summary Plan Description can be clarified. During testing, Wolcott identified claim processing determinations that the City’s Summary Plan Description documents do not address.

3. Performance guarantee monitoring and other aspects of contract administration can be improved. The City Auditor’s Office reviewed certain related aspects of contract administration. Specifically: • The Agreement does not require Cigna to periodically report to the

City on performance guarantee results, and the Contract Administrator had not obtained the performance guarantee results during the first two Plan years. Obtained at our request, Cigna’s self-reporting showed $22,000 to $38,000 owed for unmet pharmaceutical discount guarantees.

• While the Agreement requires annual renewals for the 9 potential one-year extensions, the Contract Administrator did not formalize the second year extension.

WHAT WE RECOMMEND

We recommend the Human Resources Director: • Ensure the identified errors are fully analyzed and corrected.

• Clarify the Summary Plan Description documents to address the identified gaps as needed.

• Ensure the Contract Administrator monitors the Agreement’s performance guarantees, contract extensions and other key terms and conditions. As well, ensure Cigna pays for its unmet performance guarantees.

MANAGEMENT RESPONSE The Department responded that it will be ensuring the identified errors are fully analyzed, reviewing the Summary Plan Description documents with its benefits consultant and Cigna, and ensuring proper contract administration.

City Auditor’s Office City Auditor 480 312-7867 Integrity Line 480 312-8348

www.ScottsdaleAZ.gov

Page 2 Audit Report No. 1707

Benefit Claims Processing Page 3

BACKGROUND

The City of Scottsdale has three self-funded medical plans, each of which includes prescription benefit coverage, and two dental plans. As the third-party plan administrator, Cigna Health and Life Insurance Company (Cigna) provides medical, dental and pharmaceutical networks, customer support and administrative services to implement the City’s healthcare benefits. Effective since July 1, 2014, the City’s administrative services agreement (Agreement) with Cigna provides nine optional 1-year extensions, through June 30, 2024. This audit did not include the City’s dental benefits, which are also provided through Cigna but are a comparatively small portion of the Healthcare Trust Fund costs, as shown in Table 1.

Table 1. Healthcare Trust Fund Expenditures to Third-Party Plan Administrator (Cigna)

FY 2014/15 FY 2015/16

Medical and Prescription Claims $21,812,000 $25,742,000

Dental Claims 1,156,000 1,390,000

Administrative Fees 744,000 701,000

Total $23,712,000 $27,833,000

SOURCE: SmartStream accounting reports.

Medical and Prescription Benefit Claims

The City’s Healthcare Trust Fund (Fund) accounts for both the self-insured medical and dental benefit plans. Fund revenues are primarily derived from health insurance premiums paid by the City and its employees. Revenues are also collected through public safety disabled retirees’ and COBRA participants’ health insurance premiums, pharmacy rebates and stop loss insurance recoveries. Fund expenses include the healthcare costs, which are paid to providers by Cigna and reimbursed by the Fund, and administrative costs, including Cigna’s administrative fees and the City’s program-related costs. Medical and prescription benefit claims paid through Cigna totaled approximately $21.8 million and $25.7 million in fiscal years 2014/15 and 2015/16 respectively, as shown in Table 1. The Fund’s fiscal year 2016/17 budget is $30.8 million, of which $27.5 million is allocated for medical and prescription claims, $1.5 million for dental claims and $1.8 million for administration fees.1 1 Besides Cigna fees, the budgeted administrative fees include stop loss insurance premiums, federal re-insurance fees, wellness incentives, and the City’s benefit administration costs.


About 2,200 employees and retirees are enrolled in the three medical plans, and about 3,500 dependents are covered through the primary enrollees. As shown in Table 2, 1,657 enrollees (76%) chose the Cigna OAP In-Network plan. This plan provides members with access to a network of doctors and specialists without the added cost or wait for a physician referral.

Table 2. Estimated Enrollment by Medical Plan as of July 2016

City of Scottsdale Medical Plans Employees Retirees COBRA 4 Total

Cigna OAP In-Network 1 1,606 16 35 1,657

Cigna OAP 2 373 7 8 388

Cigna OAP + HSA 3 134 3 5 142

Total 2,113 26 48 2,187 1

Cigna OAP In-Network plan offers one tier of coverage within a single plan design with no deductibles and the highest premiums. Participants can go directly to a network specialist without a Primary Care Physician referral. Except for emergency or out-of-area urgent care, out-of-network costs are not covered.

2 Cigna OAP plan offers two tiers of coverage within a single plan design with deductibles and mid-range premiums. Participants have the choice of using a contracted network of providers for lower out-of-pocket expenses or out-of-network providers and higher out-of-pocket expenses. Participants can choose either tier of benefits at any time.

3 Cigna OAP + HSA plan offers two tiers of coverage within a single plan design having significantly higher deductibles with the lowest premiums. Participants have the choice of using a contracted network of providers for lower out-of-pocket expenses or out-of-network providers and higher out-of-pocket expenses. Participants can choose either tier of benefits at any time.

4 The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) allows temporary continuation of group health coverage after leaving employment. The former employee pays the total premium plus a 2% administrative fee.

SOURCE: Human Resources department’s Employee Benefits report and www.scottsdaleaz.gov/hr/benefits

According to the Agreement, the City is responsible for determining eligibility of plan participants and is required to provide Cigna with participant eligibility updates, including new hires, terminations and qualified benefit changes. Cigna relies upon this eligibility information and has no responsibility for determining its accuracy. Cigna is responsible for receiving benefit claims and reviewing them for accuracy, tracking deductibles, and paying service providers or reimbursing the covered enrollee, as applicable. Weekly, Cigna reports paid claims to the City, and after review, the City reimburses the claims payment account. Additionally, Cigna provides an explanation of benefits (EOB) statement to the enrollee and claims activity reporting to the City.

Audit Provisions

The Agreement specifies the City’s right to perform an audit covering the two preceding years of claims. The City is also allowed to conduct a final audit within three years following termination of the Agreement. The City’s Auditor’s Office last obtained an audit of medical and pharmacy claims in fiscal year 2010/11.


In November 2016, the City Auditor’s Office issued a request for proposals for an audit of the City’s medical and pharmacy benefit plans. Because the Agreement limits audit samples to 300 claims, we defined the scope of work as two separate audits covering the past two fiscal years. One audit consisted of testing 300 of the City’s medical benefit claims paid and the second tested 300 prescription benefit claims.

We awarded the audit contract to Wolcott & Associates, Inc. (Wolcott) on December 27, 2016, with a final report due no later than May 8, 2017. The scope of work included:

• Auditing and quantifying the dollar impact of any identified eligibility-based errors and identifying ineligibility root causes, such as claims paid after termination of benefits.

• Identifying and quantifying any payment errors related to ineligible services, such as non-medically necessary care.

• Reviewing the effectiveness of coordination of benefits and subrogation efforts.

• Determining whether the City receives the benefit of the Plan administrator’s contracted discounts and/or rates with providers.

As well, Wolcott was to provide supporting details needed to facilitate recovery of vendor overpayments.

Cigna requires at least a 45-day advance notice, so the on-site audit work started on February 27, 2017.

In accordance with the federal Health Insurance Portability and Accountability Act (HIPAA) requirements, we required Wolcott to sign a Business Associate Agreement to appropriately protect confidential and sensitive Plan participant information. We did not receive any individually identifiable claim information during this audit.



OBJECTIVES, SCOPE, AND METHODOLOGY

An audit of Benefit Claims Processing was included on the City Council-approved fiscal year (FY) 2016/17 Audit Plan. The audit objective was to use a contracted specialist to evaluate the accuracy of medical and pharmacy claims processed by the third-party plan administrator, Cigna Health and Life Insurance Company (Cigna). After reviewing the claims paid data, we limited the scope of work to medical and prescription claims as dental claims are a relatively small portion of the Healthcare Trust Fund’s expenses. To gain an understanding of the City’s self-funded medical benefit plans (Plans), we interviewed the Human Resources Manager and a Human Resources Analyst in the Human Resources (HR) department’s benefits management area. In addition, we reviewed the administrative services agreement (Agreement) between the City and Cigna, and in particular, the specifications related to the City’s right to audit. We also reviewed the City Auditor’s prior audit report on medical benefit plan claims processing (Audit Report No. 1113) and related audit reports recently completed by other auditors. To review the process of determining member eligibility, we interviewed HR staff responsible for entering member information into the TotalHR® system and observed relevant documentation.2 In addition, we compared Cigna’s summary claims payment data to the City’s SmartStream accounting records. The City Auditor’s Office developed a request for proposals (RFP) for audits of the City’s medical and prescription benefit claims. Although the City’s medical plans include prescription benefits, separate audits of medical and prescription benefit claims were necessary as the City’s Agreement with Cigna limited the audit sample to 300 claims per audit. After evaluating and scoring the proposals, we awarded the contract to Wolcott & Associates, Inc. (Wolcott). The firm demonstrated the qualifications, experience and technical competence required to conduct the benefit claims processing audit. As required by Government Auditing Standards, we evaluated the qualifications and independence of the specialist (Wolcott) and documented the nature and scope of the specialist’s work, including the objectives and scope of work, intended use of the specialist’s work to support the audit objectives, assumptions and methods used by the specialist, and the specialist’s procedures and findings in relation to other audit procedures we performed, including:

• Assessing contract administration as it related to monitoring the Agreement’s performance guarantees.

• Evaluating internal controls over the accounts payable process to reimburse the Cigna account.

Wolcott concluded that Cigna achieved a high accuracy rate for medical claim processing, but prescription claim processing is not within the range of industry standards. Wolcott identified some errors in claims processing related to certain copayments and manual overrides, as well

2 The TotalHR® application is used by the Human Resources department to maintain employment and benefit information.


as the City’s need to clarify the Summary Plan Description documents. In addition, the City Auditor’s Office found that performance guarantee monitoring and other areas of contract administration can be improved. We conducted this audit in accordance with generally accepted government auditing standards as required by Article III, Scottsdale Revised Code, §2-117 et seq. 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 our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Audit work took place from October 2016 through March 2017, with Wolcott & Associates, Inc. conducting the benefit claims processing tests.


FINDINGS AND ANALYSIS

1. Wolcott & Associates, Inc. identified a high degree of medical claims processing accuracy, but prescription claim processing accuracy should be improved.

As required by our contract, Wolcott & Associates, Inc. (Wolcott) tested 300 medical and 300 prescription benefit claims processed by Cigna Health and Life Insurance Company (Cigna), the City’s third-party plan administrator. During the two-year test period (FY 2014/15 and FY 2015/16), Cigna processed approximately 125,100 medical claims and 116,400 prescription claims.

Wolcott’s complete results, which we have summarized below, are included in this report as Appendix A, beginning on page 15.

• Medical claim processing — Wolcott determined that Cigna achieved a high degree of accuracy, ranging from 98.7% (count) to 99.93% (value) for the tested sample. Wolcott stated these rates are within or above the industry standards as well as the ranges that Wolcott is familiar with for other claim processors. Further, Wolcott calculated that Cigna processed 90% of medical claims within 14 calendar days, which is better than the 80 to 85% range standard for claims processors with which Wolcott is familiar.

While the City, by contract, cannot recoup funds based on a projection, Wolcott projected the net medical claims overpayment of $46,896.

• Prescription claim processing — Wolcott determined that Cigna achieved 94% (count) to 97.4% (value) accuracy. Wolcott stated these rates are below the 98% to 99% accuracy considered industry standard as well as lower than the 99% accuracy standard for other claims processors with which Wolcott is familiar.

While the City, by contract, cannot recoup funds based on an audit projection, Wolcott projected the net prescription claim error of $297,282.

Cigna’s response is included as Appendix B, beginning on page 33.

Cigna agreed with 2 of the 4 identified medical claim processing errors and with 1 of the 18 identified prescription claim processing errors. For the remaining errors, Cigna disagreed, indicating the claims were processed correctly in accordance with its standard policies and procedures.

Recommendation:

We recommend the Human Resources Director ensure the identified errors are fully analyzed and corrected.

2. The City’s Summary Plan Description can be clarified.

The Summary Plan Description (SPD) documents are the basis for determining eligibility for coverage and claim payment. During testing, Wolcott identified the following areas that the City’s SPD documents do not sufficiently address. During audit inquiries, City staff relied on Cigna’s determination of how these claims should have been processed.

A. Medical claim processing that is not specified in the City’s SPD.


• For 2 claims for services in a heart catheterization lab, Cigna did not apply the outpatient copay to these services although they were of a surgical nature.

• For a claim including an MRI and supplies, Cigna charged a copay for the MRI and a separate office visit copay for the supplies.

• On another MRI claim, Cigna paid at 100% rather than the 90% benefit based on the OAP plan. An office visit copay was applied for the related supplies claim, which was submitted separately.

B. Prescription claim processing that is not specified in the City’s SPD.

• When filling 90-day prescriptions at a Cigna Medical Group facility, Cigna is only charging one 30-day copay. The City’s SPD indicates prescriptions filled at retail locations (rather than by mail) are limited to a 30-day supply, thus, each 30-day supply would be charged a copay. Instead, Cigna’s business decision encourages enrollees to fill prescriptions at Cigna facilities and it costs the City’s Healthcare Trust Fund the additional copay amounts.

• For mail-order prescriptions, Cigna has chosen to charge the participant a lower retail copay when filling less than a 34-day supply. As well, for one tested prescription claim for a generic drug, Cigna charged the participant a higher tier copay. Cigna stated the fee charged depends on the drug manufacturer from which Cigna purchased it, rather than the drug itself. The City’s SPD does not specify these criteria.

Recommendation:

We recommend the Human Resources Director clarify the Summary Plan Description documents to address the identified gaps as needed.

3. Performance guarantee monitoring and other aspects of contract administration can be improved.

The City’s administrative services agreement (Agreement) with Cigna Health and Life Insurance Company (Cigna) contains performance guarantees for implementation, service, discount, “better health, guaranteed” and pharmacy management. Excluding the implementation performance guarantees, the ten on-going guarantees are summarized in Figure 1 on page 11.3

• However, the Agreement does not specifically require Cigna to periodically report to the City, and the Contract Administrator had not obtained performance guarantee results for the first two Plan years, FYs 2014/15 and 2015/16. At our request, the Contract Administrator requested the performance guarantee results for the two completed fiscal years, but Cigna only reported on three medical-related and four pharmacy-related guarantees for these periods. In its report, Cigna grouped certain pharmaceutical discount calculations using those that exceeded targets to offset those that did not. The contract, however, lists these guarantees separately. Based on the individual discount calculations, Cigna owed $22,000 to $38,000 per year.

3 Certain additional conditions applying to the One-Way Medical Discount guarantee are not summarized in Figure 1.


Figure 1. Cigna’s Performance Guarantees

1 Average Wholesale Price. 2 Maximum Allowable Cost.

SOURCE: City’s administrative services agreement with Cigna Health and Life Insurance Company, 2014-009-COS

•At least 92% of claims processed within 14 calendar days. Medical Claim Time-to-Process

•Call center will not terminate more than 3% of of calls received.

Medical Call Abandonment Rate

•At least 99% of files processed within 2 business days after the receipt of clean eligibility.

Automated Maintenance Eligibility Processing

•Receive a composite score of 3 or better on the account management report card based on 4 quarterly scorecards.

Medical Account Management

•If average savings on medical payments are 4 to 5% or more than 5% less than Cigna guarantees, the City receives 50 to 100% of the difference.

One Way Medical Discount Guarantee

•20% of employees classified as high/medium risk during the initial baseline assessment will be in the next lower classification when assessed at least 12 months later.

Better Health, Guaranteed

•Pharmaceutical discounts: 16.75% of retail brand AWP1

and 72.6% of generic brand AWP.1 $1 dispensing fee.

Retail Discount & Dispensing Fee

Guarantee

•Ingredient cost discount on covered prescriptions will be at least 14.4% of the AWP.1

Mail Order Discount Specialty Brand

•Ingredient cost discount on covered prescriptions will be at least 80% of the AWP for all generics MAC and non-MAC.1,2

Mail Order Generic Discount Overall

•Ingredient cost discount on covered prescriptions will be at least 13.5% of the AWP.1

Retail Network Discount Specialty Brand


Without on-going performance guarantee monitoring, the City has no assurance that Cigna is meeting its guaranteed performance measures as defined in the Agreement.

• Further, the City needs access to the underlying data to be able to verify the calculated results. The Contract Administrator provided a Performance Guarantee Agreement signed only by Cigna in May 2016. This agreement presented additional terms and conditions than the Council-approved contract, including prohibiting the City from using third-party audit results to measure performance guarantees and allowing Cigna to change the guarantees.

• In addition, the Agreement provides for nine potential one-year renewal periods. While the original contract was Council-approved, it provides for the Contract Administrator and Purchasing Director to approve the extensions. The Contract Administrator explained that, although required by the Agreement, an extension for Plan’s second year (FY 2015/16) was not executed and the Purchasing Director’s concurrence was not obtained. A new Agreement, which incorporated the initial agreement and further detailed certain terms, was approved by the City Council in July 2016.

Recommendations:

We recommend the Human Resources Director ensure that the Contract Administrator monitors the Agreement’s performance guarantees, contract extensions and other key terms and conditions of the Agreement. In addition, the Contract Administrator should ensure that Cigna pays for each performance guarantee that was not met.


MANAGEMENT ACTION PLAN

1. Wolcott & Associates, Inc. identified a high degree of medical claims processing accuracy, but prescription claim processing accuracy should be improved. Recommendation:

We recommend the Human Resources Director ensure the identified errors are fully analyzed and corrected.

MANAGEMENT RESPONSE: Agree

PROPOSED RESOLUTION:

Pharmacy Claim Processing It is recognized that the payment accuracy rate of 97.39% in the audit is below the accuracy range based the industry standard of 98% - 99%. Although this is a minor difference, the below actions are provided to address the findings and recommendations:

• 90-day supply from retail pharmacy. Cigna’s ‘system logic’ allowed members to receive a 90-day supply (instead of a 30-day supply) from a retail pharmacy. The Contract Administrator had no way of knowing this, as this is contrary to the Plan Document. Typically, Cigna Medical Group (CMG) facilities pharmacy rates are better than retail facilities, such as a Fry’s or Walgreens. We currently incent members to go see doctors at a CMG facility as their doctor rates are better as well. We will work closely with and review claims with Cigna and Hays Companies to determine if the pharmacy copay should change to incent members to go to the CMG pharmacy; if other reimbursement discrepancies have occurred; and to ensure that Cigna reports any exceptions, independent decisions, or varying interpretations in the processing of claims is communicated to the Contract Administrator. Starting with the new plan year in July 2017, all members can receive a 90-day supply at certain retail pharmacies, which will be communicated in our Open Enrollment materials. • Incorrect copayment applied.

o A retail copay was applied to 14 mail-order claims in error. This happened due to Cigna’s ‘system logic’ when the member receives a mail-order prescriptions with less than a 34 day supply. The Contract Administrator had no way of knowing this, as this is contrary to the Summary Plan Document (SPD). The mail-order benefit will be reviewed with Cigna and Hays Companies to ensure the interpretation of this program is clear and consistently applied; if other reimbursement discrepancies have occurred; and to ensure that Cigna reports any exceptions, independent decision, or varying interpretations in the processing of claims is communicated to the Contract Administrator.

o Other copays were applied by Cigna that was reported as conflicting with the SPD, to include wellness visits, physical therapy, non-specialty copays, and a facility claim for a newborn. These instances were identified in the audit as errors due to the independent decision being contrary to the SPD. We will work closely with and review claims with Cigna and Hays Companies to determine if


other copay discrepancies have occurred; and to ensure that Cigna reports any exceptions, independent decisions, or varying interpretations in the processing of claims is communicated to the Contract Administrator.

• Generic drug but took a tier 3 copayment. We would have to review the claims with Cigna and Hays Companies to discuss in detail, to include the explanation for utilizing manufacturers that consider different tiers for drugs.

Once the time is appropriate, we will set up a meeting shortly with Cigna and Hays Companies to review all of these individual claims to resolve the issue(s).

RESPONSIBLE PARTY: Lauran Beebe, HR Benefits Manager/Contract Administrator

COMPLETED BY: 8/1/2017

2. The City’s Summary Plan Description can be clarified.

Recommendation:

We recommend the Human Resources Director clarify the Summary Plan Description documents to address the identified gaps as needed.



A SPD is a general guideline. Companies must rely on insurance company standard operating procedures and industry standards in conjunction with SPD’s to administer the plan, which is part of the education/communication process with the vendor and the individual member(s). At the appropriate time, the benefits team, Hays Companies and Cigna will review all of the individual claim discrepancies to resolve the issue(s), ensure the interpretation of the SPD is consistently followed, and to ensure if there are independent business decisions made by Cigna’s claims processors, they are communicated or discussed with the Contract Administrator.




3. Performance guarantee monitoring and other aspects of contract administration can be improved.

Recommendation:

We recommend the Human Resources Director ensure that the Contract Administrator monitors the Agreement’s performance guarantees, contract extensions and other key terms and conditions of the Agreement. In addition, the Contract Administrator should ensure that Cigna pays for each performance guarantee that was not met.



Since the contract inception, the HR/Benefits team has monthly meetings with Cigna to review any outstanding issues or opportunities for the plan. Additionally, on a quarterly basis, the benefits team meets with Cigna and Hays to review performance guarantees, claims history, claims usage and opportunities. While several Cigna representatives are in attendance, it is the Client Services Executive that reviews the performance guarantees at that point in time with the benefits team and Cigna has consistently met the guarantees. Since they are available monthly, they are usually at different points in the plan year. The benefits team will change the performance guarantee meetings to coincide with the end of a plan year and provide a full report to the HR Director. Further, we will ensure the Performance Guarantee Agreement will be properly signed for plan year FY 17/18 by both parties; will be carefully monitored for compliance; and all changes will be provided to Council for final approval.

Cigna standard pharmaceutical discount calculation used those that exceeded targets to offset those that did not. Hays Companies, the benefits consultant, also stated that this is not only Cigna standard, but industry standard. During the meeting with Cigna and Hays Companies we will discuss if any changes are necessary.

The contract extension was not formally completed with Purchasing. City Council is provided a presentation on the plan and we receive their approval each year (typically February/March timeframe). But, per the language in the City of Scottsdale City Services Contract between the City and Cigna Healthcare dated January 14, 2014, (section 3.1), the term of this contract is for one year with nine additional one year extensions, with the recommendation of the Contract Administrator and the concurrence of the Purchasing Director. Therefore, a formal extension letter for FY 17/18 plan year will be sent to Cigna for signature, and every year after that until the contract has expired.





APPENDIX A. Wolcott & Associated, Inc. Report


CITY OF SCOTTSDALE, ARIZONA

ANALYSIS AND EVALUATION OF

CLAIMS PROCESSING

FOR THE PERIOD

JULY 1, 2014 THROUGH JUNE 30, 2016

ADMINISTERED BY

CIGNA HEALTH AND LIFE INSURANCE COMPANY

FINAL REPORT

MARCH, 2017

PRESENTED BY

WOLCOTT & ASSOCIATES, INC.12120 STATE LINE ROAD, #297

LEAWOOD, KANSAS 66209

WOLCOTT & ASSOCIATES, INC.

March 13, 2017

Sharron Walker, City AuditorCity of Scottsdale, AZ7447 E Indian School Rd. Ste 205Scottsdale, Arizona 85251

Dear Ms. Walker:

We have completed our review and test procedures related to the operations of Cigna Healthand Life Insurance Company (Cigna) as they relate to the City of Scottsdale, Arizona’s health careplans (the City) for the period of July 1, 2014 through June 30, 2016.

As requested by the City, the scope of our services was limited and does not constitute afinancial statement audit or an audit of the system of internal controls made in accordance withgenerally accepted auditing standards. As a result, we do not express an opinion on any of thefinancial statement elements or system of internal controls relating to the City or the health carebenefits portion thereof. Projection of any evaluation of the system of internal controls to futureperiods may produce inaccurate results due to changes in conditions and/or the degree of compliancewith procedures.

We have appreciated the opportunity to be of service to the City of Scottsdale, Arizona.

Yours truly,

WOLCOTT & ASSOCIATES, INC.

12120 State Line Road, Suite 297 Leawood, Kansas 66209 (913) 661-9400 (913) 327-7308

TABLE OF CONTENTS

SECTION PAGE

I - EXECUTIVE SUMMARY I-1II - INTRODUCTION II-1III - HEALTH CLAIM PROCESSING ACCURACY III-1IV - CLAIM PROCESSING TIME - MEDICAL IV-1V - PRESCRIPTION DRUG CLAIM PROCESSING ACCURACY V-1

EXHIBITS

SUMMARY OF AUDIT RESULTS - MEDICAL EXHIBIT ASUMMARY OF AUDIT RESULTS - PRESCRIPTION DRUG EXHIBIT BCIGNA RESPONSE (MEDICAL) EXHIBIT CCIGNA RESPONSE (PRESCRIPTION) EXHIBIT D

I - 1

I - EXECUTIVE SUMMARY

We have completed our audit of the City’s health care and prescription drug plans. The plansare administered by Cigna. The objectives of this audit included the following:

To assess the effectiveness of the claim processing procedures at Cigna.

To audit and quantify the dollar impact of errors and measure claim processingaccuracy at Cigna. We audited 300 healthcare and 300 prescription drug claimsprocessed by Cigna.

Claim Audit Results - Medical

We identified 4 errors in the sample of 300 claims processed by Cigna. This is a 1.3% errorrate or a 98.7% accuracy rate. This error rate is superior to the range of 95% to 97% accuracy ratenormally observed by Wolcott & Associates, Inc. in similar audits. This error rate is superior to therange of 95% to 97% accuracy rate that is considered industry standard.

The financial magnitude of payment error (overpayments plus underpayments) in our sampleof 300 claims was $857.44 or 0.07% of the payments in the sample. This is a financial accuracy rateof 99.93%. This rate is more favorable than the 99% accuracy rate established by other claimprocessors with which we are familiar.

The calculation of error magnitude is performed to estimate the true value of paid claimsduring the period. As a result, payment errors have been adjusted by corrections performed by Cignaprior to our audit.

The sample's error magnitude, extended to the population, produces a projected netoverpayment of $46,896 (0.14% of $33,396,560). The error magnitude rate in the sample differsfrom the error magnitude rate when extended to the population due to the weighting of the samples.

As a result, we are 95% confident that the true value of the medical paid claims during theperiod ranges from $33,911,008 (the $33,396,560 recorded claims, plus the $46,896 projected netoverpayment error, plus the $467,552 value of the 1.4% precision) and $32,975,904 (the $33,396,560recorded claims, plus the $46,896 projected net overpayment error, minus the $467,552 value of the1.4% precision).

The overpayment percentage plus underpayment percentage from our results total 0.14%.This equals a payment accuracy rate of 99.86%. This rate is more favorable than the 99% accuracyrate standards established by the industry.

I - 2

Claim Processing Timeliness - Medical

We measured the elapsed time between the dates of receipt and the processed date for eachof the 300 medical claims in our sample.

The results are within the range of 80% to 85% of claims processed within 14 calendar daysstandard established by other claim processors with which we are familiar.

Claim Audit Results - Prescription Drug

The observed error frequency in our sample was 6% (18 errors divided by 300 claims in oursample). These results were extended to the population of claims by calculating the frequency oferror in each stratum and weighting the results by the number of claims in each stratum. This errorrate is not within the range of 98% to 99% accuracy rate normally observed by Wolcott &Associates, Inc. in similar audits. This error rate is not within the range of 98% to 99% accuracyrate that is considered industry standard.

The overpayments/ underpayments percentage from our results (extended to the population)total 2.61%. This equals a payment accuracy rate of 97.39%. These results are lower than the Cignastandard accuracy rate. They are also lower than to the 99% accuracy standard established by otherclaim processors with which we are familiar.

DISCUSSION ITEMS

Please review pages III - 3 and V - 4 for discussion items and recommendations.

II - 1

II - INTRODUCTION

The City of Scottsdale, Arizona provides medical and prescription drug benefits for theiremployees. Eligible employees may select coverage under the plan, which is administered by Cigna.

AUDIT TIMING

We were notified by the City that our audit contract had been approved in December, 2016.Preliminary work was completed and the on-site services began, in Cigna’s Bourbonnais office, onFebruary 27, 2017.

SCOPE OF AUDIT

The scope of the services covered health care and prescription drug claims processed duringthe period from June 1, 2014 through July 30, 2016. The sample was 300 claims each for medicaland prescription drug claims.

Scope elements included:

• Audit and quantify the dollar impact of eligibility-based errors and identify ineligibilityroot causes such as claims paid after termination of benefits or for individuals notshown as eligible in the administrator’s claim system.

• Identify and quantify payment errors related to ineligible services such as cosmeticsurgery.

• Review the effectiveness of coordination of benefits and subrogation efforts.

• Determine whether the City receives the benefit of the Plan administrator’s contracteddiscounts and/or rates with vendors and health providers.

III - 1

III - HEALTH CLAIM PROCESSING ACCURACY

Our test work to determine payment accuracy of health claims processed during the period ofJuly 1, 2014 through June 30, 2016 was performed on 300 claims previously processed by Cigna.Information regarding the sample selection, tests performed and results is presented below.

SAMPLE SELECTION

Computer data containing paid claim information was received from Cigna.

Claims were then selected from the population of approximately 116,000 claims on a stratifiedrandom basis using a proprietary selection software.

This methodology produced an estimated sampling precision of 1.4%.

Each selected claim was the original submission. We did not treat any correcting entries asthe selected claim. If a correcting entry was selected we audited the original processed claim andthe correcting claim.

INDIVIDUAL TESTS

The following tests were performed on sample claims selected:

Review of previously processed claims to determine if a selected claim is a duplicate ofa previously processed claim.

Review to determine that Cigna is following all procedures necessary to obtain areasonable level of coordination of benefits (COB) recoveries.

Recomputation of each claim selected for testing to determine its accuracy, includinganalysis of any refunds due and/or payable.

Review of the nature of the claim to ascertain the allowability of costs as defined in thecontract (e.g., processed within the proper allowance and medical necessity guidelines,pre-certification requirements and other benefit limitation guidelines).

Comparison of each claim to supporting documentation submitted by the member or theprovider of services to ensure that the claim reflects the documentation and that it isproperly authorized for payment.

Comparison of each claim to other claims for that individual with the same date of serviceto ensure congruency of payment with all claims for that date of service.

Review of the claim copies and source documents, when appropriate, to determine if thereare any indications of fraud.

III - 2

ADJUDICATION ACCURACY

An error was defined as any incorrect payment, incorrect amount charged to the deductible orpayment to the wrong party or on behalf of the wrong patient. For purposes of determining thefrequency of payment error, the above definition has been applied without considering adjustmentsmade by Cigna. However, for the purposes of calculating the magnitude of payment error, the grosspayment errors were modified by adjustments made by Cigna. The result is to produce an estimateof the claim liability for the plan year.

Information presented below describes the payment errors identified during our test workperformed on the 300 sample claims.

CLAIM AUDIT RESULTS

We identified 4 errors in the sample of 300 claims processed by Cigna. This is a 1.3% errorrate or a 98.7% accuracy rate. This error rate is superior to the range of 95% to 97% accuracy ratenormally observed by Wolcott & Associates, Inc. in similar audits. This error rate is superior to therange of 95% to 97% accuracy rate that is considered industry standard.

The financial magnitude of payment error (overpayments plus underpayments) in our sampleof 300 claims was $857.44 or 0.07% of the payments in the sample. This is a financial accuracy rateof 99.93%. This rate is more favorable than the 99% accuracy rate established by other claimprocessors with which we are familiar.

Analysis of Errors By Type

Each of the identified errors was analyzed to determine the reason for the error. The resultsof this analysis are presented in the following table.

Description Frequency Magnitude

Incorrect application of Copayment 1 $(25.00)

No copayment was applied 2 515.00

Incorrect manual pricing 1 (317.44)

Total 4 $ 857.44 (absolute value)

III - 3

Corrective Action

We have discussed each of the above identified payment errors with Cigna. Their commentswill be added to our final report as Exhibit C. For those errors with which Wolcott and Cigna agree,they have assured us that corrective action either has been or will be taken for each identified errorand that steps will be taken to reduce the frequency of the types of errors observed.

Conclusion - Error Magnitude

The calculation of error magnitude is performed to estimate the true value of paid claimsduring the period. As a result, payment errors have been adjusted by corrections performed by Cignaprior to our audit.

The sample's error magnitude, extended to the population, produces a projected netoverpayment of $46,896 (0.14% of $33,396,560). The error magnitude rate in the sample differsfrom the error magnitude rate when extended to the population due to the weighting of the samples.

As a result, we are 95% confident that the true value of the medical paid claims during theperiod ranges from $33,911,008 (the $33,396,560 recorded claims, plus the $46,896 projected netoverpayment error, plus the $467,552 value of the 1.4% precision) and $32,975,904 (the $33,396,560recorded claims, plus the $46,896 projected net overpayment error, minus the $467,552 value of the1.4% precision).

The overpayment percentage plus underpayment percentage from our results total 0.14%. Thisequals a payment accuracy rate of 99.86%. This rate is more favorable than the 99% accuracy ratestandards established by the industry.

RECOMMENDATIONS

We identified 3 issues that we believe warrant recommendation.

• We identified a claim for immunization services, along with an office visit. The onlydiagnosis on the claim was for wellness. A $25 office visit copay was applied. Webelieve no copay should have been applied since it was wellness visit. Cigna indicatedthat since the provider billed with a regular office visit (not a routine office visit), that theirsystem will apply the copay. We believe this process is contradictory to the City’s plandocument. Therefore, we applied an error.

We recommend that the City and Cigna discuss this issue and agree to how these types ofclaims should be handled moving forward.

• We identified a claim submitted by a physical therapist that included an injection. Cignaapplied a $25, non-specialty copay to the injection charge and a $40, specialty copay forthe physical therapy services. We agree 2 copays should have applied. However, wedisagree that a non-specialty copay would apply. We believe 2 specialty copays ($40each) should have been applied.

III - 4

We recommend that the City and Cigna discuss this issue and make the appropriatechanges to the system, in order to properly apply the specialty copay for any injection typecharges billed by a specialist. Furthermore, we recommend Cigna review the claim historyfor the City, in order to determine the magnitude of error due to this issue.

• We identified an inpatient facility claim for a newborn. A $500 copay should have beenapplied. Cigna indicated that this error was due to a processor’s manual override of thatbenefit.

We recommend that Cigna make the appropriate changes to the system, in order to removethis capability from the processors. In addition, we believe Cigna should review the claimfile, in order to identify any other inpatient newborn claims where the copay was notapplied. Furthermore, we recommend Cigna review the claim history for the City, in orderto determine the magnitude of error due to this issue.

DISCUSSION ISSUES

We identified 3 issues that we believe warrant further discussion.

• We identified 2 claims for services that were rendered in the heart catheterization lab.Cigna did not apply the outpatient ($250) copay for these services, which are surgical innature. Cigna indicates that since the surgical revenue code (360) is not billed for thesetypes of services, rather the revenue code (481) for the heart catheterization lab is billed,that they do not apply the surgical copay.

We believe that the City and Cigna should review this issue, in order to determine theCity’s intention of the surgical copay benefit.

• We identified 1 claim for an MRI and supplies (OAPIN plan). Cigna applied the $100MRI copay correctly, but also applied a $40 copay for the supplies since the services wereperformed in the office setting. Based on plan language, we believe only the $100 copayshould apply. However, when we consulted the City, they agreed to this process.

We believe that the City and Cigna should review the MRI benefit, as a whole, in orderto determine the City’s intention of the MRI benefit.

• We identified 1 claim for an MRI (supplies were submitted on a different claim) (OAPplan). The non-sample claim for supplies applied the $40 copay. Therefore, Cigna didnot apply the 90% benefit payment to the claim for the MRI, rather they paid 100% of thecharges. This process would appear to contradict how the same type of claim is processedunder the OAPIN plan. However, when we consulted the City, they agreed to thisprocess.

We believe that the City and Cigna should review the MRI benefit, as a whole, in orderto determine the City’s intention of the MRI benefit.

IV - 1

IV - CLAIM PROCESSING TIME - MEDICAL CLAIMS

The administrative agreement defined the claim processing time measurement period to befrom (1) the date the claim was received to (2) the date determination is made to pay, deny or requestadditional information.

PROCEDURE

Prior to our arrival in Cigna’s offices, Cigna staff had provided us with access to their claimprocessing system. The claim history in the system contains the date the claim was received,processed and date the check and/or explanation of benefits (EOB) was issued.

RESULTS - PROCESSING

We measured the elapsed time between the date of receipt and the paid date for each of the300 claims in our sample.

Claim Processing Timeliness

Of the 300 claims in our sample, 247 or 82% were processed within 7 calendar days, 24 or 8%were processed between 8 and 14 calendar days, 12 or 4% were processed between 15 and 30calendar days, and 17 or 6% were processed in excess of 30 days.

CONCLUSION

These results are within the range of 80% to 85% of claims processed within 14 calendar daysstandard established by other claim processors with which we are familiar.

V - 1

V - PRESCRIPTION DRUG CLAIM PROCESSING ACCURACY

Our test work to determine payment accuracy of prescription drug claims processed during theperiod of July 1, 2014 through June 30, 2016 was performed on 300 claims previously processed byCigna. Information regarding the sample selection, tests performed and results is presented below.

SAMPLE SIZE AND METHODOLOGY

Computer data containing paid claim information was received from Cigna.

Claims were then selected from the population of approximately 116,000 on a stratifiedrandom basis using a proprietary selection software.

This methodology produced an estimated sampling precision of 1.4%.

Each selected claim was the original submission. We did not treat any correcting entries asthe selected claim. If a correcting entry was selected we audited the original processed claim andthe correcting claim.

AUDIT PROCEDURE

Each sample claim was manually reprocessed based on the plan’s provisions in force as of thedate the prescription was dispensed. For electronic and paper (including out-of-network) claimsingredient costs were calculated based on Average Wholesale Prices (AWP) on the package sizesubmitted or other applicable prices in effect on the date the prescription was dispensed. Ingredientcosts for mail order claims were calculated based on AWP on package sizes of 100 units or 16 oz.quantities, or smaller quantities, if such quantities are not available.

The percentage discounts, dispensing fees, and copayment amounts were compared to theplan’s agreed upon provisions as of the date the prescription was dispensed.

Each sample claim’s medication was identified and compared to the plan’s requirements for:

Exclusions,Pricing used at the time the prescription was dispensed,Recalculating payment amount,Appropriate copayment (generic, branded, etc.),Compliance with pre-approval requirements,Maximum number of days supply,Refill timing,Formulary limitations,Eligibility of participant andDifferential payment on prescriptions for “Dispensed as Written”.

V - 2

DEFINITION OF ERROR

All network pharmacy claim (electronic claims) payments were paid to the retail pharmacy.All mail order initial and refilled claim payments were paid to Cigna mail order pharmacy.

We defined an error to be any claim where the payment to the participant or the pharmacy didnot agree with the plan document provisions.

Pricing Accuracy

Manual recalculation of the 300 sample claims selected for the audit period was performedusing the most current pricing in effect at the time the prescription was dispensed. To determinepricing accuracy of Cigna’s calculations, we used industry standard unit price publications for AWPand Health Care Finance Administration (HCFA) and Medicare Approved Charge (MAC) pricing.

Copayment Accuracy

The plan requires the member to pay the cost differential when a generic substitute is availablebut the doctor writes “dispensed as written” (DAW) on the prescription for a brand name drug.

Within the 300 sample claims, all DAWs were manually recalculated based on current costto determine copayment accuracy.

Our findings are presented in Exhibit B.

Duplications of Claim Payments

Our fieldwork included reviewing claim history of a selected participant in our 300 selectedclaims for possible duplication of prescriptions and claim payments. During our review of theselected participant’s claim history we did not identify any duplicate claim payment.

CONCLUSION - ERROR FREQUENCY

The observed error frequency in our sample was 6% (18 errors divided by 300 claims in oursample). These results were extended to the population of claims by calculating the frequency oferror in each stratum and weighting the results by the number of claims in each stratum. This errorrate is not within the range of 98% to 99% accuracy rate normally observed by Wolcott &Associates, Inc. in similar audits. This error rate is not within the range of 98% to 99% accuracyrate that is considered industry standard.

CONCLUSION - ERROR MAGNITUDE

The calculation of error magnitude is performed to estimate the true value of paid claimsduring the period.

V - 3

The financial magnitude of payment error (overpayments plus underpayments) in our sampleof 300 claims was $1,436.94 or 0.023% of the payments in the sample. This is a financial accuracyrate of 99.977%. This rate is more favorable than the 99% accuracy rate established by other claimprocessors with which we are familiar.

The sample's error magnitude, extended to the population, produces a projected netoverpayment of $297,282 (2.61% of $11,366,661). The error magnitude rate in the sample differsfrom the error magnitude rate when extended to the population due to the weighting of the samplestrata.

As a result, we are 95% confident that the true value of the prescription paid claims during theperiod ranges from $11,823,076 (the $11,366,661 recorded claims, plus the $297,282 projected netoverpayment error, plus the $159,133 value of the 1.4% precision) and $11,504,810 (the $11,366,661recorded claims, plus the $297,282 projected net overpayment, less the $159,133 value of the 1.4%precision).

The Cigna standard accuracy rate is 99% or more of the gross dollar payments should be paidaccurately. We understand the measurement is made by summing the overpayments andunderpayments, and dividing the result by the total dollars and subtracting from 100%.

The overpayments/ underpayments percentage from our results (extended to the population)total 2.61%. This equals a payment accuracy rate of 97.39%. These results are lower than the Cignastandard accuracy rate. They are also lower than to the 99% accuracy standard established by otherclaim processors with which we are familiar.

TYPES OF ERRORS

Each of the errors identified in our sample is listed in Exhibit B. A discussion of error typesis presented below.

CIGNA PHARMACY CLAIMSJULY 1, 2014 THROUGH JUNE 30, 2016

SUMMARY OF ERRORS BY TYPE

ERROR TYPE NUMBER NET PAYMENT ERROR

90 days supply fromretail pharmacy. 3 $1,206.94

Incorrect copayment applied. 14 140.00(member overpayment)

Generic drug but took a tier 3 copayment . 1 (90.00)

Total 18 $1,436.94 (absolute value)

V - 4

Corrective Action

We have discussed each of the above identified payment errors with Cigna. Their commentswill be added to our final report as Exhibit D. For those errors with which Wolcott and Cigna agree,they have assured us that corrective action either has been or will be taken for each identified errorand that steps will be taken to reduce the frequency of the types of errors observed.

RECOMMENDATIONS

We identified 3 issues that we believe warrant further discussion.

• Three prescriptions were filled at a Cigna Medical Group (CMG) location. The membersreceived a 90 day supply from a retail pharmacy. The City plan documentation states themember should only receive a 30 day supply from a retail pharmacy. Also, one claim onlycharged the member one 30 day copayment. The contract between the City and Cigna issilent on this issue. Therefore, we presented Cigna with this discrepancy. The response,from Cigna, indicated that Cigna system logic will allow the member to receive a 90 daysupply if the member receives their script from a CMG location. Also, if the membercopayment is the maximum copayment amount, the system will only charge the membera retail 30 day supply copayment. This causes the City to subside the members’ other twocopayments. This business decision is inconsistent with the City’s plan document, whichclearly indicates that retail prescriptions are limited to a 30 day supply.

We believe Cigna should have charged 3 copays for this prescription drug and for allprescription drugs that are packaged in this manner. Cigna’s business decision hasnegatively impacted all self-funded plans for whom they administer. We recommend thatCigna calculate the magnitude of overpayment resulting from this business decision andreimburse the City.

We believe the City and Cigna should review the issue of members who fill theirprescriptions at a CMG location receiving a 90 day supply versus a 30 day supply in orderto determine the City’s intention of the day supply benefit.

• During our review, we identified 14 mailorder claims and the members were charged aretail copayment. Therefore, we presented Cigna with this discrepancy. Cigna states thesystem logic applies a retail copayment when the member receives a mailorderprescription with less than 34 day supply. The City’s contract is silent on this matter.

We believe that the City and Cigna should review the mailorder benefit, as a whole, inorder to determine the City’s intention of the benefit.

• During our review, we identified 1 claim that the member was charged a tier 3 mailordercopayment when the drug received was generic. We presented Cigna with thisdiscrepancy. Cigna states certain manufacturers have this drug in generic and with othermanufacturers it is a tier 3 drug. Therefore, if the Cigna mailorder facility bought this

V - 5

drug from another manufacturer that considers this drug a generic drug, then the memberwould have been charged a mailorder generic copayment.

We recommend that Cigna investigate this issue and provide a full response to this issueto the City as to the reason(s) for the failure to apply a generic copayment for these typesof claims. Furthermore, the response should include a detailed explanation as to thereason for utilizing manufacturers that consider this drug as a tier 3 drug versus a genericdrug. In addition, we recommend Cigna calculate the magnitude of overpayment resultingfrom this issue and reimburse the City.

DISCUSSION ISSUE

During our review we note that the contract between the City and Cigna states that theretail dispensing fee will be no more than $1.00 (on average) for each prescription(excluding specialty claims, U&C and zero balance claims).

Using the above information, we calculated that the City overpaid dispensing fees by$4,823.88 in plan year 2014 and $5,543.98 in plan year 2015. We received Cigna’sperformance guarantee and their calculation reveals that the dispensing fee was underpaidin 2014 by $531.00 and overpaid by $1,437.84 for the plan year 2015.

We inquired with Cigna regarding the discrepancy. Their response stated that it could bebecause we are including the compound drugs in our calculations. However, the contractdoes not indicate an exclusion for these types of drugs in calculating the performanceguarantee.

We recommend that Cigna investigate this issue and provide a full response to this issueto the City as to the reasons for the discrepancy. In addition, the response should includethe reasoning for excluding the compound claims as it is not included in the contract withthe City. Furthermore, we recommend Cigna calculate the magnitude of overpaymentresulting from this issue and reimburse the City.


APPENDIX B. Cigna Response


Page | 1

Cigna Healthcare’s Response to Wolcott & Associates Inc. City of Scottsdale, Arizona

Claim Audit Results - Medical Wolcott & Associates Inc. on behalf of City of Scottsdale conducted an audit of 300 Medical claims processed by Cigna during the time period of July 1, 2014 – June 30, 2016. The audit commenced the week of February 27, 2017. During the scope period, a total of 325,168 claims were processed representing $33,396,599.91 in claim payments. The audit sampling (300 claims) represented total dollars paid amount of $1,277,551.99 Random Sample Results:

Quality Metric Wolcott & Associates Inc. Generally Accepted Industry Standards

Financial Accuracy 99.93% 99% Payment Accuracy 98.70% 97% Processing Accuracy N/A 95%

Cigna has reviewed the report submitted by Wolcott & Associates Inc. Cigna appreciates Wolcott & Associates’ insights and recommendations on service enhancement opportunities. Cigna is very pleased with our results in comparison to the base line Industry Standards which document that we exceeded the performance in each of these areas. Cigna is in agreement with, and can confirm a total of two (2) errors which consisted of two (2) overpayments totaling $817.44. The overpayments have been referred to Cigna's recovery vendor – Accent. Cigna would be happy to discuss the Agree to Disagree and Discussion Items with City of Scottsdale to ensure benefit intent is in line with current claim administration. City of Scottsdale and Wolcott & Associates are valued business partners and we look forward to reviewing the details of this audit with all parties. Cigna is committed to continuous quality improvement to ensure corrective actions are implemented. Each of Wolcott & Associates’ recommendations has been thoughtfully considered and Cigna's response is provided in the detailed information that follows. Cigna thanks Wolcott & Associates for their work and the opportunity to respond to the draft audit report.

Page | 2

Recommendation/ Discussion Topic

Cigna’s Response

Corrective Action – (Agree Errors) Sample #26 and #73 For those errors with which Wolcott and Cigna agree, they have assured us that corrective action either has been or will be taken for each identified error and that steps will be taken to reduce the frequency of the types of errors observed.

Please see attached Action Plan which provides: • Description of the errors that occurred; • Overpayment recovery status; • Corrective Actions; including coaching and training for all manual

errors; and • Initiatives for improvements

Audit Sample Recommendation – Agree to Disagree Error Sample # 158 We recommend that the City and Cigna discuss this issue and agree to how these types of claims should be handled moving forward.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claim processed correctly in accordance with standard policies and procedures along with the services as billed. Per the Preventive Well Care Standard Operating Procedure, if procedure is not on the Preventive Care Code list the service is considered medical (not preventative). The office visit code billed (99214-25) is not classified as routine. Multiple diagnoses Z23, J4540, Z91011, Z91012 & J301. Modifier 25 was also billed indicating "distinct separate procedure.

Audit Sample Recommendation – Agree to Disagree Error Sample # 195 We recommend that the City and Cigna discuss this issue and make the appropriate changes to the system, in order to properly apply the specialty copay for any injection type charges billed by a specialist. Furthermore, we recommend Cigna review the claim history for the City, in order to determine the magnitude of error due to this issue.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claim processed correctly in accordance with standard policies and procedures along with the services as billed. Benefit plan is OAIN1 – date of service 8/29/14 has both a $25 copayment for surgery in physician’s office and a separate benefit of $40 copayment per visit for physical therapy. Both office surgery and physical therapy were billed therefore, both copayments applied appropriately.

Page | 3

Audit Sample Recommendation – Agree Error Sample # 73 We recommend that Cigna make the appropriate changes to the system, in order to remove this capability from the processors. In addition, we believe Cigna should review the claim file, in order to identify any other inpatient newborn claims where the copay was not applied. Furthermore, we recommend Cigna review the claim history for the City, in order to determine the magnitude of error due to this issue.

Cigna confirmed an overpayment of $500.00 which occurred as the result of a manual processor override error; there are times where a claim would require override prior to release; however enhanced processor checklist (to be utilized and reviewed prior to finalizing a claim) have been implemented to prevent this manual error from occurring in the future. In addition, individual feedback and coaching has been provided to the processor and the overpayment forwarded to Accent for recovery.

Discussion Item Sample #15 and #21 We believe that the City and Cigna should review this issue, in order to determine the City’s intention of the surgical copay benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claim processed correctly in accordance with standard policies and procedures along with the services as billed. Service codes 93531, 93565, 93566, 93567 & 93568 are considered a cardiac catheterization lab service. As a physician medical service, and not surgical procedures. Within the CPT Book published by the AMA cardiac catheterization codes billed are listed within the “Medicine” classification, only five procedures within the 90000 series are considered cardiac surgical procedures - these codes are 92970, 92971, 93631, 93640 and 93641. No operating room (REV 360) was submitted on either claim.

Discussion Item Sample #66 We believe that the City and Cigna should review the MRI benefit, as a whole, in order to determine the City’s intention of the MRI benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The claim is appropriately applying a $100.00 copayment per Advanced Radiology (MRI) in the office benefit for plan OAIN1 - date of service 5/20/2016. Supplies billed in conjunction with advanced radiology are subject to place of service bounds per Cigna Standard Operating Procedure & reimbursement guidelines therefore, office copayment applied.

Page | 4

Discussion Item Sample #47 We believe that the City and Cigna should review the MRI benefit, as a whole, in order to determine the City’s intention of the MRI benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The claim is appropriately paying at 100% per the Advanced Radiology (MRI) in the office benefit for plan OAP1 - date of service 10/23/2014. Supplies billed in conjunction with advanced radiology are subject to place of service bounds per Cigna Standard Operating Procedure & reimbursement guidelines however, the office copayment was previously applied to a claim from the same provider (same date of service) in history therefore, no additional copayment was applied to the supply in this case.

Claim Processing Timeliness – Medical Wolcott & Associates Inc. reports that for the 300 claim sample results are within the range of 80% to 85% of claims processed within 14 calendar days.

Cigna appreciates Wolcott & Associates’ analysis and documentation relating to turnaround time metrics for the claim sample. We would also like to note that turnaround time metrics for Cigna (Enterprise Level) are 92% in 14 days and 98% in 30 days (higher than the range noted within the report). Time to process is measured from all clean claims within the populations; Enterprise Level results for full year 2016 exceeded the standards at both 14 days and 30 days respectively: Calendar Days: Enterprise Results Cigna Standard

14 98.06% 92% 30 99.80% 98%

Audit Number Category

Financial Impact Root Cause Corrective Action

26 Reimbursement o/p $317.44 Incorrect contracted rates applied

1) Reinforcement coaching was provided to the individual as well as discussed with the processing team. A review of the claim and contract for this provider with emphasis on recognition of contract exclusions as well as contract discounts and grouper allowable for the services billed was also performed. 2) The claim has been sent to Accent for recovery.

1) 03/07/20172) 03/08/2017

73 Benefit o/p $500.00 Override removing newborn inpatient copayment

1) Reinforcement coaching was provided to the individual as well as discussed with the processing team.2) The claim has been sent to Accent for recovery.

1) 03/07/20172) 03/08/2017

City of ScottsdaleSummary of Client Audit Findings and Remediation

Medical Claim Audit

Page | 1

Cigna Healthcare’s Response to Wolcott & Associates Inc.

City of Scottsdale, Arizona

Claim Audit Results - Pharmacy

Wolcott & Associates Inc. on behalf of City of Scottsdale conducted an audit of 300 Pharmacy claims processed by Cigna during the time period of July 1, 2014 – June 30, 2016. The audit was performed electronically, alongside the medical on-site audit. During the scope period, a total of 116,372 claims were processed representing $11,366,661.11 in claim payments. The audit sampling (300 claims) represented total dollars paid amount of $620,627.98 Cigna has reviewed the report submitted by Wolcott & Associates Inc. Cigna appreciates Wolcott & Associates’ insights and recommendations on service enhancement opportunities. Cigna respectfully disagrees with many of the errors assessed by Wolcott & Associates Inc. It is our position that most of the sample claims processed appropriately in accordance with Cigna’s standard policies. Cigna is in agreement with one of the reported errors, resulting in member overpayment of $90 in the sample. The impacted claims (including those outside of the audit sample) have been referred to our Rx Care Advocate partners to initiate reimbursement. Cigna would be happy to discuss the Agree to Disagree and Discussion Items with City of Scottsdale to ensure benefit intent is in line with current claim administration. City of Scottsdale and Wolcott & Associates are valued business partners and we look forward to reviewing the details of this audit with all parties. Cigna is committed to continuous quality improvement to ensure corrective actions are implemented. Each of Wolcott & Associates’ recommendations has been thoughtfully considered and Cigna's responses are provided in the detailed information that follows. Cigna thanks Wolcott & Associates for their work and the opportunity to respond to the draft audit report.

Page | 2

Recommendation/ Discussion Topic

Cigna’s Response

Audit Sample Recommendation – Agree to Disagree Error Sample #25 Retail claim processed for a 90ds at CMG pharmacy and applied the coinsurance maximum. We believe that Cigna should have charged 3 copays for this prescription drug and for all prescription drugs that are packaged in this manner. Cigna’s business decision has negatively impacted all self-funded plans for whom they administer. We recommend that Cigna calculate the magnitude of overpayment resulting from this business decision and reimburse the City. We believe that the City and Cigna should review the issue of members who fill their prescription at a CMG location receiving a 90 day supply vs a 30 day supply , in order to determine the City’s intention of the day supply benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claim processed correctly in accordance with Cigna’s standard policies. This claim was filled using a Cigna Medical Group (CMG) pharmacy. Cigna’s standard logic allows CMG pharmacies to process up to a 90 day supply as seen on this claim. When claims process for greater than 30ds at retail, a flat copay will ‘step’ at one copay per 30ds dispensed. When plans are set up to have a coinsurance with a minimum and maximum, the maximum amount does not step in the same way as it is a per script maximum. This is standard Cigna logic.

Audit Sample Recommendation – Agree to Disagree Error Sample #105, 225 Retail claim processed for a 90ds at CMG Pharmacy. We believe that the City and Cigna should review the issue of members who fill their prescription at a CMG location receiving a 90 day supply vs a 30 day supply , in order to determine the City’s intention of the day supply benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claims processed correctly in accordance with Cigna’s standard policies. These claims were filled using a CMG pharmacy. Cigna’s standard logic allows CMG pharmacies to process up to a 90 day supply as seen on these claims.

Audit Sample Recommendation – Agree to Disagree Error Sample #4, 5, 6, 8, 9, 11, 12, 13, 14, 15, 22, 23, 24, 121 Mail Order claims for 34ds or less applied the retail copay structure. We believe that the City and Cigna should review the mail order benefit, as a whole, in order to determine the City’s intention of the benefit.

Cigna respectfully disagrees with the error assessed by Wolcott & Associates Inc. The sample claims processed correctly in accordance with Cigna’s standard policies. Cigna’s standard logic is that Mail Order claims with a day supply of 34 or less will return the retail copay structure so the member is not penalized for going to Home Delivery over Retail. All of these claims had a day supply lower than 34 so Cigna’s position is that they processed correctly.

Page | 3

Audit Sample Recommendation – Agree to Error Sample #81 The generic forms of Adderall XR are considered tier 1 or tier 3 depending on manufacturer. We recommend that Cigna investigate this issue and provide a full response to this issue to the City as to the reason(s) for the failure to apply a generic copayment for these types of claims. Furthermore, the response should include a detailed explanation as to the reason for utilizing manufacturers that consider this drug as a tier 3 drug vs a generic drug. In addition, we recommend Cigna calculate the magnitude of overpayment resulting from this issue and reimburse the City.

Per Cigna’s formulary, the particular product dispensed on this sample claim is considered a Tier 3 drug despite being a generic product. For the generic forms of Adderall XR, only the product manufactured by Actavis is considered a Tier 1, while the product manufactured by others is a Tier 3. At the time the sample claim processed, Cigna Home Delivery was dispensing the product manufactured by Global, however there is a policy in place to override the member copays to the generic when filling these claims if the non-Actavis forms are stocked (likely due to purchase price negotiations). In the case of this sample claim and one other CHD claim for the same member, this policy was not followed so the Tier 3 copay applied due to human error. This resulted in a member overpayment of $180, while the City would have underpaid.

Discussion Item Dispensing Fee Performance Guarantee During our review we note that the contract between the City and Cigna states that the retail dispensing fee will more $1.00 for each prescription (excluding specialty claims, U&C and zero balance claims). Using the above information we calculated that the City overpaid dispensing fees by $4,823.88 in plan year 2014 and $5,543.98 in plan year 2015. We received Cigna performance guarantee and their calculation reveals that the dispensing fee was underpaid in 2014 by $531.00 and overpaid by $1,437.84 for the plan year 2015. At the time of the draft, we inquired Cigna for their backup on calculation their dispensing performance guarantee and have not yet received this information. We recommend that Cigna investigate this issue and provide a full response to this issue to the City as to the reasons for the discrepancy. In addition, the response should include the reasoning for excluding the compound claims as it is not included in the contract with the City. Furthermore, we recommend Cigna calculate the magnitude of overpayment resulting from this issue and reimburse the City.

Cigna’s exclusions from the Dispensing Fee guarantee include: - DMR claims - Compounds and Bulk Chemicals (STC U6W) - High Discount Claims (Discount > 95% AND AWP > $10k; Brand) - Claims filled at VAMC pharmacies - Specialty claims - Claims priced at U&C The discrepancy between Cigna’s calculation and Wolcott’s is driven primarily by the compound exclusion. Compound claims typically have high dispensing fees (often $10) due to the manual effort performed by the pharmacy. Cigna standardly excludes compounds from discount and dispensing fee guarantees unless otherwise noted in the ASO Contract.

Page | 4

Accuracy Rates – Wolcott & Associates audit results are indicated as follows: Processing Accuracy – 94.00% Financial Accuracy – 99.98%

As noted above, Cigna does not agree that 17 of the sample claims processed incorrectly. It is Cigna’s position that one sample claim processed incorrectly due to human error, resulting in $90 overpayment by a member. Therefor we believe the accuracy results would be: Processing Accuracy – 99.67% Financial Accuracy – 99.99% This is in line with the 99% accuracy rate that is industry standard.

City Auditor’s Office 7447 E. Indian School Rd., Suite 205 Scottsdale, Arizona 85251 OFFICE (480) 312-7756 INTEGRITY LINE (480) 312-8348 www.ScottsdaleAZ.gov/auditor

The City Auditor’s Office conducts audits to promote operational efficiency, effectiveness, accountability, and integrity.

Audit Committee Vice Mayor Suzanne Klapp, Chair Councilmember Virginia Korte Councilwoman Kathy Littlefield City Auditor’s Office Kyla Anderson, Senior Auditor Lai Cluff, Senior Auditor Cathleen Davis, Senior Auditor Brad Hubert, Internal Auditor Dan Spencer, Senior Auditor Sharron Walker, City Auditor

Documents

CITY AUDITOR'S OFFICE Benefit Claims Processing€¦ · prescription benefit coverage, and two dental plansparty plan administrator, . ... • Auditing and quantifying the dollar