Audit of Medicare Administrative Costs Claimed by Blue Shield of California for the Period October 1, 1995 through November 30, 1996

During the period October 1, 1995 through November 30, 1996, California Physicians' Service, dba Blue Shield of California, claimed administrative costs totaling $33,951,916. The administrative costs charged to Medicare were overstated by $234,378. The $234,378 consisted of unreasonable increases in executive compensation costs ($60,230), salaries over the Federal limit ($20,122), unallowable consulting fees ($111,679), legal fees ($29,418), executive search fees ($4,829) and understated complementary credits ($8,100). We recommended that Blue Shield reduce its Medicare claims for the $234,378 in overstated costs. With the exception of our recommended adjustment of $8,100 for the complementary insurance credit, Blue Shield concurred with our audit findings.