Corporate Compliance

OIG: Insurance company must reduce cost proposals by $4.7 million

Healthcare Auditing Weekly, April 25, 2006

The OIG is recommending that Empire Blue Cross and Blue Shield of Yorktown Heights, NY, and its Medicare division reduce its cost proposals by $4.7 million.

The recommendation comes as the result of an OIG audit to determine whether Empire had effective internal controls for the administrative costs included in the cost report proposals. The OIG also wanted to determine whether these costs were allowable in accordance with federal acquisition regulations and Appendix B of the Medicare contract.

The OIG found that Empire's internal controls were largely effective in identifying costs that should be excluded from the cost proposals.

However, weaknesses in certain controls-primarily those for screening indirect costs-resulted in claims for $4.7 million (1.32% of total costs) that should not have been charged to Medicare, according to the OIG.

The OIG recommends that Empire

  • reduce its cost proposals by $4 million

  • work with CMS to determine the extent to which $2 million in reported forward-funding costs are allowable

  • properly allocate bonuses in future cost proposals

  • develop equitable indirect cost rates for use in future cost proposals

  • properly consider, in future cost proposals, all elements of executive compensation when calculating compensation in excess of federal limits and exclude unallowable expenses from costs transferred to Medicare

    Empire did not concur with the OIG's recommendations concerning unallowable bonus payments, but concurred with the remaining recommendations.

    Click here to read the audit report, "Review of Medicare Part A and Part B Administrative Costs Claimed by Empire Medicare Services - October 1999 through September 2002," (A-02-03-01020) issued March 30, 2006.

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