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Audit (A-07-09-00310)

08-07-2009
Review of Termination claim for Postretirement Benefit Costs Made by Blue Cross Blue Shield of Kansas

Executive Summary

Blue Cross Blue Shield of Kansas's (Kansas) entire termination claim of $11.2 million in postretirement benefit (PRB) costs for the Medicare Part A and B contracts was unallowable for Medicare reimbursement. The Centers for Medicare & Medicaid Services (CMS) reimburses a portion of its contractors' PRB costs. In claiming PRB costs, contractors must follow cost reimbursement principles contained in the Federal Acquisition Regulation and applicable Cost Accounting Standards as required by their Medicare contracts. Kansas's termination claim was calculated based on a retroactive change in accounting practice without CMS approval. Therefore, and pursuant to Kansas's Medicare contracts, none of the costs claimed were allowable.

We recommended that Kansas withdraw its termination claim of $11.2 million for PRB costs associated with Medicare Part A and B contracts. In written comments on our draft report, Kansas did not agree with our finding or recommendation. Kansas did not provide any additional information that would cause us to revise our finding or recommendation. We maintain that Kansas should withdraw the full claim amount.

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