Report to Blue Cross of California for Audit of Medical Supply Ancillary Costs Claimed by 31 Skilled Nursing Facilities Owned by Horizon West, Inc.

This final audit report to Blue Cross of California, Horizon West Inc.'s (Horizon) current fiscal intermediary, points out that Horizon misclassified certain costs as ancillary medical supplies. The costs should have been classified and claimed as other types of costs, such as routine, dietary, and administrative and general costs. As a result of this misclassification, Horizon was overpaid Medicare funds totaling $1.1 million for Fiscal Year (FY) 1991. Horizon concurred with our findings and voluntarily repaid the Federal Government $1.7 million. This amount included the $1.1 million we identified as an overpayment plus an additional $0.7 million to cover our estimate of overpayments made for FYs 1992 through 1995. On February 4, 1999, Horizon agreed to a settlement with the U.S. Department of Justice and the OIG. As part of this agreement, Horizon entered into a Corporate Integrity Agreement with the OIG and paid an additional $2.3 million to settle claims with the Government relating to the audit findings.

We recommended that Blue Cross ensure that medical supplies are properly classified as ancillary or routine on all Horizon cost reports after the Fiscal Year Ended June 30, 1995.