How Massachusetts Blue Cross audited hospitals

There’s nothing really exciting or interesting about this story except this: since I’ve been putting this blog portfolio together, I’ve been struck by how similar the news 30-40 years ago was to now. We’re still seeing stories about medical costs, insurance and reimbursements, not unlike this story from the early 1970s. Hospitals are still complaining about their insurance reimbursements, and insurance companies are still moaning about how much hospitals charge for their services. I found this clip in the Lowell (Mass.) SUN, which apparently didn’t know quite how to play the story — they ran it on the OP-ED page.


BOSTON (UPI) – Hospital costs in Massachusetts are audited to determine Blue Cross reimbursement rates, and the 37 men who do the audits are on the Massachusetts Blue Cross payroll.

The auditing procedure has been allowed since May 18, 1956. Chapter 176A of the General Laws says the state Rate Setting Commission can require that an audit be conducted prior to having Blue Cross reimbursement rates established at hospitals.

The Commission contracts Blue Cross to do the auditing. The auditors answer to the Rate Setting Commission, but are paid by Blue Cross and receive Blue Cross fringe benefits.

Blue Cross pays hospitals either what a given treatment costs the hospitals, or what they charge for that treatment, whichever figure is lower. The hospital’s cost of treatment is generally lower than what it charges, and that is usually the figure paid the hospital by Blue Cross.

The audit determines what the hospital costs are.

Edmund Stone, executive secretary of the Rate Setting Commission, said the procedure works well, saves the state money and is fair. He was an auditor – paid by Blue Cross – from 1955 to 1969.

“They (the auditors) are considered employees of the Rate Setting Commission,” he said. “They work under my supervision and they keep the same hours as regular state employees. In fact, they come to our Christmas party.”

“As an administrator,” he said, I can hire and fire these guys at will, without going through the Civil Service procedure.”

Stone said Blue Cross has “absolutely nothing to do with” the firing or hiring of the auditors.

A spokesman for Blue Cross, however, said Blue Cross can refer applicants to the Rate Setting Commission for the auditing jobs. He also said prospective auditors are screened by Blue Cross’ personnel department, and that Blue Cross can reject them on grounds of “character, health or qualifications.”

Some Massachusetts hospitals feel the auditors are influenced by the company that pays their salaries.  “Wouldn’t you feel a bias toward the people who pay your salary,” a spokesman for one hospital asked.

The hospital spokesman said the auditors can concentrate on areas of hospital costs which might affect Blue Cross favorably while paying less attention to areas which might mean higher hospital reimbursements.

The president of Blue Cross, Henry D. Jones, said the legislation under which Blue Cross contracts with the hospitals “is on the basis of lower reasonable costs or charges to the general public.”

“It is absolutely essential that these costs, as reported by the contracting hospitals to the rate Setting Commission, be audited,” Stone said. “The only mechanism that has been established to date is that the auditing be accomplished by the Rate Setting Commission.”

He said the procedure of paying the auditors “has proved to be a satisfactory means of accomplishing the financing of the auditing objective. The responsibility for the audit is exclusively that of the Rate Setting Commission.”

Jones said Blue Cross contracts with the state for the audit because “it appears to be a satisfactory means of meeting that expense incurred “in behalf of Blue Cross in the discharge of its obligation to its subscribing public…”

Blue Cross is a non-profit organization and as such is tax exempt.

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