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Statement for the Record of
Honorable Patrick E. McFarland, Inspector General
United States Office of Personnel Management

for the

Subcommittee on Transportation, Treasury, the Judiciary,
Housing and Urban Development,and Related Agencies
Committee on Appropriations
United States Senate

on

Fiscal Year 2006 Appropriations Request
for the Office of the Inspector General
at the United States Office of Personnel Management

Mr. Chairman and Members of the Subcommittee:

Thank you for providing me with this opportunity to discuss the President's fiscal year 2006 request for appropriations for the Office of the Inspector General (OIG) at the Office of Personnel Management (OPM). The total request for the Office of the Inspector General is $17,943,000, which is the same amount enacted in fiscal year (FY) 2005. Of this amount, $1,614,000 is from the salaries and expenses/general fund and $16,329,000 is from the trust funds. These resources are requested to perform our core functions which include:

• Conducting audits of agency programs and operations, primarily carriers participating in the Federal Employees Health Benefits Program (FEHBP), associated information systems, and internal agency operations and financial systems.
• Providing investigative oversight of the OPM-administered employee benefit programs.
• Issuing administrative sanctions, including debarments, suspensions, and civil monetary penalties, to health care providers who pose a financial risk to the FEHBP itself or a health care risk to persons who receive health insurance coverage through the FEHBP.

The Office of the Inspector General recognizes that oversight of the retirement and health and life insurance trust funds administered by OPM is, and will remain, its most significant challenge. These trust funds are among the largest held by the United States Government. Their assets totaled $670.7 billion in fiscal year 2004, their receipts were $115.1 billion, and their annual outlays were $81.8 billion. The amounts of their balances are material to the integrity of the Government's financial position. I continue to allocate the vast majority of the Office of the Inspector General's efforts and resources to trust fund oversight, and we remain fully committed to trust fund activities.

OPM makes outlays from the retirement trust funds in the form of payments to millions of annuity recipients. The health benefits trust fund provides payments to approximately 260 health insurance plans nationwide. In turn, the health insurance carriers pay millions of claims for services filed by their enrollees and health care providers. We have shown through our investigations and audits that such health insurance payments may be at risk through improper, inaccurate or fraudulent claims.

We are obligated to Federal employees and annuitants to protect the integrity of their earned benefits. Our audit and criminal investigative work reduces losses due to fraud and improper payments and recovers misspent funds whenever possible. We have a special obligation to the Federal agencies and the American taxpayers who provide the majority of the funding.

The Office of the Inspector General has achieved an impressive record of cost effectiveness. Audits and criminal investigations of the OPM-administered trust fund programs have resulted in significant financial recoveries to the trust funds and commitments by program management to recover additional amounts. Since fiscal year 1992, these recoveries and commitments total $1.1 billion which is approximately $10 of positive financial impact for each direct program dollar spent. During FY 2004, the positive financial impact exceeded $95 million, and current estimates for FY 2005 and FY 2006 are $135 million and $130 million respectively. In addition, we believe that audits and criminal investigations provide a significant deterrent against future instances of fraud, waste, and abuse.

With the additional resources received over the past few years, the Office of the Inspector General has established twenty-one investigative field offices. We have determined that the most effective deployment of investigative staff is to locate them in areas of the country where FEHBP and retirement benefits are more concentrated. Experience has shown that criminal investigators located in these areas often work in cooperation with other law enforcement entities similarly located resulting in additional criminal leads and better protection of OPM programs. In many instances, criminal investigators located outside of Washington, DC, work exclusively on cases referred to them by local authorities.

During FY 2006, we will continue to conduct audits of pharmacy benefit managers (PBMs). It is estimated that approximately $6 billion was paid during 2004 in prescription drug premiums to experience-rated carriers by the Office of Personnel Management and Federal employees. This represents approximately twenty-seven percent of experience-rated carrier premiums paid for health benefits coverage for Federal employees and annuitants. The premiums paid for prescription drug coverage have risen exponentially over the last 10 years. However, we did not begin to audit prescription drug benefits until late FY 2004, because the FEHB Program historically had defined health care providers and suppliers as other than Federal subcontractors. Since PBMs were not subcontractors, they were not subject to our audits. In light of increasing expenditures on prescriptions and allegations against PBMs, the FEHB Program recently promulgated regulations that will bring PBMs under the umbrella of the FEHB Acquisition Regulation and subject them to audit requirements currently applicable to carriers and their subcontractors.

While we are still conducting the initial PBM audit, we believe that it will result in the FEHBP recovering inappropriate costs charged to it in previous years.

Also during FY 2006, we will further our development of a data warehouse of health benefits claims. A data warehouse offers the best opportunity for detecting erroneous health benefit payment transactions by medical providers, insurance carriers and subscribers by accumulating all benefit claims for all fee-for-service insurance carriers in a single data repository. This effort will enhance our current claims reviews by enabling the auditors to target certain types of potential claim payment errors on a program-wide rather than on a plan-by-plan basis. This will provide a significant improvement in our audit efficiency and effectiveness by offering us the opportunity to address significant issues one time only, instead of multiple times per year and to recover overcharges to the program when appropriate.

The data warehouse will provide information enabling our criminal investigative staff to react quickly to criminal investigative leads. For example, the OIG investigators will be able to determine the potential program risks associated with an identified provider or subscriber fraud allegation, and take appropriate action in a matter of hours instead of the days or weeks currently required.

Our administrative sanctions program has continued to improve its effectiveness in protecting FEHBP and its enrollees against untrustworthy health care providers. This program enforces the FEHBP sanctions statute, which authorizes suspension or debarment of providers on the basis of 18 different categories of violations. The most frequently-encountered violations represent criminal convictions or loss of professional licensure. The highest priority sanctions cases involve providers who are the subject of investigation by our Office of Investigations. We have also developed a state-of-the-art capability to obtain sanctions-related information online and integrate it into our decision-making processes. With the nature and extent of electronically accessible information constantly growing, we are now able to identify violations involving providers nationwide who are directly associated with FEHBP as members of preferred provider organization networks and or who have actually submitted claims to FEHBP carriers. We select cases for action on the basis of the seriousness of the provider's violations and the risks that the provider poses to FEHBP and the persons who obtain their health coverage through it.

Thank you for this opportunity to present my resource request for fiscal year 2006.