Review of Vendor Rebates Paid to Hospitals - Kaiser Foundation Hospitals and Health Plans, Inc., Oakland, California

The objective of our review was to determine whether Kaiser Foundation Hospitals and Health Plans, Inc. (the provider) reduced costs reported on its fiscal year 2003 Medicare cost report by the $35,438 vendor rebate it received. The provider did not reduce costs reported on its fiscal year 2003 Medicare cost report by the $35,438 rebate, contrary to Federal regulations and CMS guidance.

We recommended that the provider (1) revise and resubmit its 2003 Medicare cost report, if not already settled, to properly reflect the $35,438 rebate as a credit reducing its health care costs and (2) consider performing a self-assessment of its internal controls to ensure that future vendor rebates are properly credited on its Medicare cost reports. The provider agreed with our recommendations.