Review Of Anthem Blue Cross Blue Shield Of Connecticut Medicare Contract Termination And Severance Costs

EXECUTIVE SUMMARY:

Anthem Blue Cross and Blue Shield of Connecticut (Anthem) terminated from the Medicare program effective June 30, 1999.  The Centers for Medicare and Medicaid Services (CMS) agreed to reimburse Anthem for all allowable, allocable and reasonable termination and severance costs incurred in closing out the Medicare contract.  In this regard, Anthem claimed $518,049 for contract termination costs.  Our review of these costs disclosed that $104,030 in severance costs and $438 in termination expenses were not allowable for Medicare reimbursement.  The unallowable costs were related to excess severance costs based on non-Medicare years of service; employees who refused employment offers with the successor contractor; severance costs calculated in excess of Anthem's company severance policy; and termination costs related to clerical errors.  We recommended disallowance of the $104,030 in severance costs and the $438 in termination costs.  Anthem officials agreed with $6,601 of the recommend disallowances.  However, Anthem officials did not agree with our recommended adjustments related to severance payments based on non-Medicare years of service or the severance payments for the Medicare employees who refused employment offers with the successor contractor.  We based our recommended disallowances on CMS instructions provided to Anthem, which specified that these type of severance costs were not allowable for Medicare reimbursement.  Accordingly, our recommendations remain valid.

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