Purpose

To determine if Empire BlueCross BlueShield: implemented sufficient controls over the identification and recovery of overpayments made to hospitals for special medical items; and took sufficient steps to minimize the State’s risk of excessive payments which result from contracts with hospitals that do not include language that limits the reimbursement of special medical items. The audit covered the period January 1, 2013 through December 31, 2016.

Background

The New York State Health Insurance Program (NYSHIP) provides health insurance coverage to about 1.2 million active and retired State, participating local government, and school district employees, and their dependents. The Empire Plan is the primary health benefits plan for NYSHIP, serving about 1.1 million members. The Empire Plan covers a comprehensive range of services including, but not limited to, hospital services, office visits, home care, medical equipment, mental health services, and prescription drugs. The State Department of Civil Service (Department) administers NYSHIP. In carrying out its responsibilities, the Department contracts with Empire BlueCross BlueShield (Empire) to administer the Empire Plan’s hospitalization program.

Empire’s contracts with member hospitals include reimbursement rate schedules for the payment of inpatient and outpatient hospital services. Empire’s hospital contracts also allow certain special items, such as implants, drugs, and blood, to be paid over and above the standard rate schedule amounts. Contracts with many of Empire’s member hospitals limit payment amounts for special items; however, some contracts do not have similar limitations. As of December 31, 2016, Empire had contracts with 162 member hospitals: 117 had contract provisions that limited the reimbursement of special items; 29 based the reimbursement of special items on the hospitals’ gross charges (i.e., no limit); and 16 did not allow for additional reimbursement of special items. During the four year audit period, Empire paid the hospitals $636 million for special items.

From 2009 through 2012, the Office of the State Comptroller (OSC) completed 21 audits of Empire’s payments for special items. Systemic problems in Empire’s controls over these payments were identified, as was about $10 million in payments that exceeded reimbursement limits according to Empire’s hospital contracts, and another $2.2 million in excessive payments that were not recoverable due to limitations in Empire’s hospital contracts. To correct the issues identified in OSC’s prior audits, Empire contracted with two companies to review payments for special items (implants and drugs). In addition, Empire expressed a commitment to ensure all hospital contracts contained provisions to limit the reimbursement of special items.

Key Findings

• In response to our prior audits, Empire improved its controls over the identification and recovery of overpayments for special items. As a result of Empire’s efforts, including contracts with two vendors, Empire recovered overpayments totaling $6,313,534 for special items. Nonetheless, we concluded that Empire needs to further enhance its reviews of special item payments by incorporating steps and techniques that result in additional recoveries.
• Since 2016, Empire’s recoveries of overpayments for certain special items have decreased. Effective January 1, 2016, Empire assumed responsibility for reviewing special item payments for implants, having ended its corresponding vendor contract. For special item implant claims processed during the 18-month period July 1, 2015 to December 31, 2016, Empire recovered $208,993 for payments exceeding hospital contract-based reimbursement limits. In contrast, OSC’s prior audit of 200 special item payments, for the one-year period January 1, 2012 through December 31, 2012, identified implant overpayments totaling $894,315 (over 300 percent more than the $208,993 that Empire recovered).
• Not all hospital contracts include language that limit payments for special items. As of December 31, 2016, Empire’s contracts with 29 hospitals did not include provisions that limited the reimbursement of special items, and another 16 hospitals had contracts that only limited reimbursement for certain types of special items. During the audit period, January 1, 2013 through December 31, 2016, Empire paid hospitals about $145.7 million for special items that were not subject to reimbursement limits. Based on our prior audits, there is a high risk that many of these payments were excessive. For example, in a prior audit (Report 2009-S-99), we found that Empire paid a hospital $1,115,745 for 50 special items that actually cost only $230,065. Thus, the hospital generated surpluses totaling $885,680 for the items (or a 385 percent profit margin).

Key Recommendations

• Enhance internal controls designed to ensure payments for special items are made in accordance with hospital contracts.
• Continue efforts to ensure all hospital contracts include language which defines and limits reimbursement for all special items and expands audit look-back periods.

Other Related Audits/Reports of Interest

New York Health Insurance Program: Empire BlueCross BlueShield - Selected Payments for Special Items for the Period July 1, 2012 Through December 31, 2012 (2013-S-28)

New York Health Insurance Program: Empire BlueCross BlueShield - Selected Payments for Special Items for the Period January 1, 2012 Through July 31, 2012 (2012-S-132)

New York Health Insurance Program: Empire BlueCross BlueShield - Payments Made to Hudson Valley Hospital Center (2009-S-99)

New York Health Insurance Program: Empire BlueCross BlueShield - Selected Payments for Special Items for the Period July 1, 2011 Through December 1, 2011 (2012-S-3)