Purpose

To determine whether Empire BlueCross BlueShield's (Empire) payments for certain special items were reasonable in relation to the hospitals' actual purchase and acquisition costs.

Background

The New York State Health Insurance Program (NYSHIP) provides health coverage to active and retired State, participating local government and school district employees and their dependents. The Department of Civil Service (Department) contracts with Empire to administer the hospitalization portion of the Empire Plan (Plan), which includes coverage for inpatient and outpatient hospital services.

Empire processes Plan claims for hospital services in accordance with agreements they negotiate with member hospitals. Payments for hospital services are generally based on standard fee schedules. However, hospitals may be entitled to additional payments for special items that are not covered by the standard fee schedules. Many of Empire's agreements with member hospitals limit charges for special items, while agreements with other hospitals do not have such limitations. From January 1, 2011 to March 31, 2011, Empire paid $24 million for 12,990 claims for special items submitted by hospitals that did not have reimbursement limitations.

Key Findings

• Empire made excessive payments to certain hospitals that did not have formal contract provisions limiting reimbursements for special items. On four such claims we reviewed, Empire paid hospitals about $279,000 (or 344 percent) more than the costs of the special items in question.
• We were unable to obtain supporting documentation from 13 hospitals for 44 selected claims for special items. If Empire paid these hospitals 344 percent more than the costs of the items, the hospitals could have generated profits of nearly $1.6 million on these claims.

Key Recommendations

• Ensure that all agreements with hospitals contain language which specifies the basis of reimbursement for special items.
• Develop and implement a system of internal controls to ensure that payments for special items are made according to agreements and are supported by appropriate documentation.

Other Related Audits/Reports of Interest

New York State Health Insurance Program: Payments Made to Hudson Valley Hospital Center (2009-S-99)
New York State Health Insurance Program: Payments to John T. Mather Memorial Hospital (2010-S-51)