Review of Medicare Administrative Costs Part A & B for Fiscal Years 2000-2004 Blue Cross & Blue Shield of Rhode Island

EXECUTIVE SUMMARY:

Our objective was to determine whether the administrative costs that Blue Cross & Blue Shield of Rhode Island (Rhode Island) claimed in its cost proposals complied with applicable Federal regulations and contract provisions.  Rhode Island claimed costs of $2,582,664 that were not allowable for Medicare reimbursement.  These included $1,383,533 for costs in excess of CMS-approved budget awards and for which adequate documentation of allowability was not provided; $1,103,268 for costs that exceeded the actual allowable expenses supported by company accounting records; and $95,863 for excess costs resulting from errors in the cost allocation process.  These unallowable claims were made because Rhode Island did not have adequate internal control procedures to ensure that costs were claimed in accordance with Federal regulations.

We recommended that Rhode Island adjust its final administrative cost proposals by $2,582,664.  In response to our draft report, Rhode Island agreed with the recommended disallowances of $1,199,131 related to costs claimed in excess of actual expenses and errors in the allocation process.  However, Rhode Island did not agree with the remaining recommended disallowance of $1,383,533.

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