State health contract wasting money?

February 24, 2011 8:20:13 AM PST
As the governor and the North Carolina General Assembly wrestle with ways to close the multi-billion dollar gap in the state budget, the state's own health care plan is coming under fire.

It's a secretive no-bid contract that may cost taxpayers millions every year.

"The taxpayers, apparently, are being soaked by this contract," offered Dana Cope with the State Employees Association of North Carolina.

Cope has been railing against the state's contract with Blue Cross and Blue Shield for years.

"It's not a good deal for public employees and it's not a good deal for taxpayers. It's only a good deal for Blue Cross Blue Shield," said Cope.

Cope put the contract in SEANC's list of suggestions for ways the state could save $10 billion as it struggles to slim down the budget. The SEANC report just says "untold millions" in savings next to the BCBS plan.

That's because the exact amount isn't known.

"We were never allowed to look at the costs that made up the administrative charges that the state health plan was being charged," explained North Carolina State Auditor Beth Wood in an interview with ABC11.

Wood says the state's contract with Blue Cross and Blue Shield is unlike any she's seen. Aside from the fact it was awarded without a bidding process, it gives the company extraordinary control over what it charges the state and the state's ability to know what it's being charged.

"We have no idea what's in our overhead administrative cost to Blue Cross Blue Shield," said Wood.

The contract is also what's called "cost-plus" or "cost-plus-percentage of cost." That means the more they charge, the more they make. The federal government outlawed this kind of contract in 1941, and a recent state audit concluded it "creates a potential conflict of interest for the vendor" that is "not in the best interest of the state."

"There's no incentive to keep the cost down if you're on a cost plus," said Wood.

A few years back, an audit found possible waste in the State Children Health Insurance Program, or SCHIP. Blue Cross and Blue Shield charged $4.88 per claim. Another administrator charged the state just 41 cents for basically the same service. Wood says switching vendors could save nearly eight and a half million dollars each year.

So are North Carolina taxpayers getting soaked because of the contract with Blue Cross and Blue Shield?

"That's the problem. We don't know," said Wood.

Lacey Barnes is second in command at the state health plan which oversees the contract with Blue Cross and Blue Shield. Barnes took over a couple years ago after the plan started losing money.

"We have to really monitor what they're doing for us," she said. "We realized that the plan was very vulnerable under the cost plus agreement and that changes needed to happen."

Barnes says they've made some changes to the contract already like capping the percentage that Blue Cross can charge the state. They've also included exemptions that the company can't charge for, including executive salaries.

But other fundamental changes, like getting rid of the cost-plus structure altogether, have to come from the legislature. Representative Nelson Dollar, (R) Cary, says that will happen on the Republican's watch.

"There's no reason to have a contract which we can't, the taxpayers of this state, can't see and fully appreciate what we are spending hundreds and hundreds of millions of dollars for," he said.

But the contract doesn't come up until 2013. Which means two more years of what the state auditor fears may be overspending on a bad deal that lacks oversight and might not even have been read thoroughly before it was signed.

"We could not find anybody that said 'Yes, I read through that contract and it made sense to me," said Wood.

ABC11 reached out to Blue Cross and Blue Shield for this story. What critics call a "no-bid" contract, the company sees as a contract extension.

They also told us they offer quality service at a fair cost, that they're living up to the contract, and they're saving the state money.

Many who spoke with ABC11 said the company wasn't to blame for taking the deal as much as the state should be blamed for offering it up in the first place.

After this story aired on 2/23/2010, Blue Cross and Blue Shield spokesman Lew Borman provided us with this additional statement:

The story omits some important facts: over the past two years BCBSNC has cooperated with 4 audits around the State Health Plan. Each audit found that the company is fully living up to the contract to administer claims and provide many additional services. An audit by Thomas and Gibbs found, as administrators for the State’s plan, we have, overall, saved the State Health Plan money through the PPO plan.

Another audit found the current “cost-plus” contract saved the State Health Plan money over the course of the audit period, compared to what the State would have paid under a fixed-cost arrangement. These audits found that BCBSNC’s costs to provide services to the State Health Plan are consistently better than at least 75 percent of benchmarked plans. And, in point of fact, it’s important to note that the contract with the State Health Plan stipulates a profit margin of less than a penny on the dollar.

In conclusion, years ago, BCBSNC worked with the State Health Plan to create a PPO product with a provider network offering quality services all 100 counties. Blue Cross is proud to serve State employees, teachers and retirees. Every day, we are processing tens of thousands of claims, providing quality service and working closely to find additional cost savings for the State.

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