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1994.03.04 : Non-Renewal of Michigan Medicare Blue Cross/Blue Shield Contract

FOR IMMEDIATE RELEASE                      Contact:  Anne Verano
Friday, March 4, 1994                                (202) 690-6145


     The Health Care Financing Administration announced today that
it will not renew its contracts with Michigan Blue Cross/Blue
Shield for administration of the Medicare program in the state.

     HCFA Administrator Bruce C. Vladeck said the action is being
taken "because the Medicare program in Michigan requires stronger
management of payment safeguards and internal controls as well as 
better service for beneficiaries and health care providers." 

      He said Health Care Service Corporation, "which has a record
of outstanding performance in administering the Medicare program in
Illinois," will take over in Michigan upon expiration of the
current contracts with Michigan BC/BS.

     The Michigan contracts cover claims processing and other
administrative responsibilities for Medicare Part A, which pays for
hospital inpatient care and the services of other institutional
providers, and Medicare Part B, which pays physicians' bills and
claims for other medical services.

     Health Care Service Corporation is an affiliate of the
national Blue Cross Association, which serves Medicare as general
contractor for Part A work by Blue Cross plans. HCFA accepted the
association's recommendation that Health Care Service Corporation
receive the subcontract for the Michigan Part A functions.

     "The record of Health Care Service Corporation gives us
confidence that it has the experience and resources to efficiently
administer Medicare Parts A and B in Michigan," Vladeck said. "The
takeover will be accomplished by year's end after a transition
period to ensure that services to Medicare beneficiaries and
providers will continue without interruption," he said.  

     Vladeck said that "Medicare's problems with Michigan Blue
Cross/Blue Shield are not new." In 1987, HCFA threatened 
non-renewal of the contracts because the company failed to meet
performance standards.

     He said "the selection of Health Care Service Corporation as
the replacement contractor was based on a record of integrity,
cost-effective performance, claims-processing efficiency, ability
to assume the workload and experience."

     HCFA will require the new contractor to base its Michigan
operations in the Detroit area and offer positions to all non-
managerial staff of Michigan BC/BS, except in the audit department.
A Justice Department investigation is examining the performance of
Michigan BC/BS in the auditing of cost reports submitted by
hospitals and other providers.

     Since approximately 70 percent of Michigan BC/BS employees are
represented by the United Auto Workers, "continuation of the union
relationship with the new contractor is a primary consideration,"
Vladeck said.