Blue Shield Settles Civil Suit for $12 Million

Blue Shield of California will pay the federal government $12 million to settle civil charges that it conspired to falsify audit reports on the insurer’s processing of billions of dollars worth of Medicare claims.

The Justice Department and the Department of Health and Human Services said Friday that the agreement settles a civil lawsuit that claimed Blue Shield falsified documents to hide claims-processing errors and obtain more favorable “scores” under a government system for evaluating contractors.

Blue Shield Chairman Wayne R. Moon attributed the wrongdoing to “a few misguided employees” and said the incident resulted in the firing of one supervisor, resignations of two senior executives and reprimands for 10 employees. The San Francisco-based insurer, he said, “learned a valuable and painful lesson.”

The federal probe began in 1994 after Weldon Dodson, a former employee of a Blue Shield division in Chico, alerted authorities to a problem. Dodson, who lives in Northern California, will be paid 18% of the settlement--or $2.16 million--under the federal False Claims Act, which entitles whistle blowers to a share of any money recovered as a result of their cooperation.

Dodson’s attorney, Robert Vogel of Washington, D.C., said his client had no comment.

The civil sanctions were expected after Blue Shield settled related criminal charges a year ago. In the first criminal conviction of its kind against a Medicare contractor, the insurer pleaded guilty to three felony counts of conspiracy and obstructing federal audits, and paid a $1.5-million fine.

Blue Shield was also required to sign a separate “corporate integrity agreement” in which it is to take steps to ensure compliance with federal law.

Medicare claims processors “are on the front lines of defense against Medicare fraud, and it is imperative that they are dealing in a straight way with the government,” said Assistant U.S. Atty. Gail Killefer in San Francisco.

Until September 1996, Blue Shield processed and paid claims for physician and laboratory services supplied to Medicare recipients in Northern and Central California. The government paid Blue Shield more than $40 million a year to handle roughly 20 million claims annually for Part B of the Medicare program.

The lawsuit, filed by Dodson in 1994, alleged that Blue Shield employees altered and discarded documents to cover up processing errors and deceive federal auditors into thinking the insurer was performing better than it actually was. Prosecutors said the wrongdoing took place from 1988 to 1994.

In 1996, Blue Shield decided not to renew its bid for the exclusive claims-processing contract that it had held since 1966. In April 1996, with the federal probe continuing, the U.S. Health Care Financing Administration approved Blue Shield’s plan to begin marketing an HMO medical plan for Medicare beneficiaries.