Audit of Administrative Costs Incurred Under Part A and Part B of the Health Insurance for the Aged and Disabled Program--Health Care Services Corporation, Chicago, Illinois

This audit, performed by Doshi & Associates, P.C., covered administrative costs claimed by the Health Care Services Corporation (HCSC), a former Medicare Part A and Part B contractor, for the period October 1, 1994 through September 30, 1998. Their final report points out that HCSC's claims included unallowable costs totaling approximately $9.9 million over this period. The majority of the unallowable costs ($7.9 million) were bonuses that were part of an employee retention plan rejected by the Health Care Financing Administration (HCFA) as unreasonable and unnecessary. The bonuses consisted of a 50 percent increase in salary paid through the transition period and most of the employees were absorbed into "HCSC's private business operations or accepted positions with the new Medicare contractor. Other major exceptions involved employee placement services costs of $374,629 that were included in the retention plan rejected by HCFA, severance pay of $509,912 which exceeded compensation levels specified in an approved plan, and Year 2000 project costs of $738, 759 incurred after the notice of termination. We are recommending financial adjustments totaling $9.9 million.