An Audit Report on Blue Cross Blue Shield of Texas, a Managed Care Organization

The $26.4 million in pharmacy expenses that the Health Plan reported in its fiscal year 2018 FSR did not reflect the final amount paid to the pharmacies, as it did not include funds a pharmacy was required to return to the Pharmacy Benefit Manager due to a year-end aggregation process. This process, based on an 'effective rate' contract, is considered unallowable by the Commission because it aggregates Medicaid claims with non-Medicaid claims, reducing price transparency and complicating validation of pharmacy payments.

The Health Plan paid medical and pharmacy claims for eligible members and accurately reported its STAR Kids medical expenses of $109.1 million and administrative expenses of $49.1 million in its fiscal year 2018 FSRs. The expenses were supported by the accounting system and allocated correctly.

The Health Plan paid claims for members eligible for the STAR Kids program and did not pay providers who were excluded by the Office of Inspector General. However, it failed to report 1,297 encounters for compound drugs due to coding errors, which totaled $132,511, and did not work with the Commission to correct and resubmit these claims.

The encounter data reported by the Health Plan did not include any returned funds, and the methodology used by the Pharmacy Benefit Manager to calculate the return of funds was unallowable, as it combined multiple lines of business and did not specify the portion related to STAR Kids or other Medicaid programs.

The contract between the Pharmacy Benefit Manager and pharmacy providers established an 'effective rate' pricing methodology, which is different from spread pricing and is not prohibited by the Uniform Managed Care Contract. However, this methodology reduces price transparency and may impact the accuracy of reported pharmacy expenses, which are used to set capitation rates and determine experience rebates.

The Health Plan should work with the Commission to ensure its Pharmacy Benefit Manager’s practices comply with the STAR Kids contract and report pharmacy expenses based on the final amount paid to pharmacy providers.

The Commission should monitor MCOs to verify compliance with the prohibition of spread pricing and ensure reported pharmacy expenses reflect the final amount retained by pharmacies.

The Health Plan should develop, document, and implement a process to review rejected encounters, correct coding errors, and resubmit rejected claims.