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Under the Retiree Drug Subsidy program, the Centers for Medicare & Medicaid Services makes subsidy payments to employer and union sponsors of qualified retiree prescription drug plans. Blue Cross Blue Shield of Massachusetts, Inc.’s employment-based retiree health coverage met the requirements to be considered a qualified retiree prescription drug plan. However, Blue Cross Blue Shield did not establish sufficient controls to prevent incorrect retiree drug costs from being reported under the program. Using a judgmental sample that contained retirees at high risk of having overstated costs, we found that Blue Cross Blue Shield had overstated costs by $12,798 for 6 of the 50 retirees sampled. In addition, Blue Cross Blue Shield did not establish adequate administrative safeguards over retiree data.We recommended that Blue Cross Blue Shield (1) revise its 2006 plan year cost report at reconciliation to eliminate the $12,798 in overstated costs, (2) work with its vendor to ensure that all costs that its vendor submitted for plan year 2006 were incurred for qualifying covered retirees within both the retiree’s plan coverage dates and the approved subsidy period, (3) establish procedures to ensure that costs that its vendor submits in future years are incurred for qualifying covered retirees within both the retiree’s plan coverage dates and the approved subsidy period, and (4) follow the Centers for Medicare & Medicaid Services’ procedures to ensure that only eligible employees have access to the Retiree Drug Subsidy program secure Web site. Blue Cross Blue Shield agreed with our findings and recommendations.