Medicare Administrative Costs

"A CORPORATE ASSET"

As for the plane, he said: "It's a corporate asset." The Cessna can land at all the significant airports that the smaller plane could, and depreciating the plane at $12,000 a year over a period of years keeps annual costs reasonable, he said. Because of its pressurized cabin, the plane can climb as high as 25,000 feet, above bad weather, Suycott added. He said the Cessna was more efficient and more comfortable than the previous plane. And he said it saved time for company employes.

Another Blue Cross official said the $726 overcharge was minimal when compared to the $2.77 million that Blue Cross was paid last year by the government to administer the Medicare program.

PAID $37,466

Blue Cross was paid a total of $37,466 in transportation expenses for Medicare by the government for 1975, including the $726, the audit showed.

Suycott is a licensed pilot who sometimes flies the plane, but with another pilot. Blue Cross has a full time pilot for the plane, which is based at Timmerman Field. The audit showed that while the car fleet had steadily expanded in recent years, the number of luxury cars had declined. The fleet grew to 118 cars in 1975 from 107 in 1973, but the luxury cars declined to 22 in 1975 from 39 in 1973.

"This is the kind of excess by a few that gives the whole industry a bad name," Stark said. "Today it is a Cessna 414. What will it be tomorrow, a jet? There is no question that operating a private plane is abjectly wasteful. There are all types of charter services and commuter airlines in Wisconsin.

"If there are times you can't drive, then you rent or charter a plane, and it would be far less expensive than owning your own.'

Suycott said the plane was never flown for personal use by Blue Cross employes. But Stark said the investigation would look into that angle.

It is expected that the Blue Cross investigation will be expanded to include other Blue Cross plans that do government business, a staff member for the Ways and Means Committee said.

UNITED STATES TAPS BLUES FOR REFUND

(By David L. Beal and Neil D. Rosenberg)

Federal auditors want Blue Cross of Wisconsin to return $112,000 it collected from the US government to process Medicare claims.

The amount is part of a much larger sum-an estimated $7 million-that the auditors are seeking in similar disputes with about 29 other "Blues" plans and their trade group, the Blue Cross Association (BCA).

Blue Cross officials here argued that Blue Cross of Wisconsin should keep the $112,000 because it was a cost allocated to Medicare as part of Blue Cross' cost of doing business. They said the money represented state franchise taxes paid by Blue Cross on its income from premiums and that Blue Cross should be reimbursed for the tax payments.

But auditors for the US Department of Health, Education and Welfare disagree. "The franchise tax is determined on the basis of operating income," they said in a recent audit of Blue Cross. "No operating income is generated by the plan under the Medicare program because the plan is reimbursed only for costs incurred under the program.

"We are of the opinion, therefore, that none of the franchise tax should be allocated to the Medicare program."

The auditors examined costs incurred by the Wisconsin plan in 1972 and 1973. They also disallowed these costs, which Blue Cross did not contest:

Franchise taxes on income from investments, $97,000.

Advertising costs mistakenly charged to Medicare, $2,308. The money was part of a BCA national advertising assessment, the costs of which are not allowable under Medicare.

Donations to charitable and community organizations and entertainment expenses, $3,192. The audit gave no details on how the entertainment money was spent.

The BCA dispute with the auditors about reimbursement for the franchise tax came up earlier this week in Washington, at a hearing conducted by the oversight subcommittee of the House Ways and Means Committee.

On Thursday, Rep. Fortney Stark (D-Calif.), a member of the committee, pointed to the association's claim for the franchise tax money as one of many reasons the committee is investigating Blues plans around the country.

Stark said he agreed with the auditors that Blue Cross should not be reimbursed for the franchise tax expenses.

Mr. STARK. Prof. Sylvia Law of New York University Law School has written "Blue Cross, What Went Wrong?"

We are privileged to have Professor Law with us this morning. I will let you proceed in your own way and at your own pace. Welcome.

STATEMENT OF PROF. SYLVIA LAW, NEW YORK UNIVERSITY LAW SCHOOL, NEW YORK, N.Y.

Professor LAW. Thank you very much, Mr. Chairman and Congressman Rangel. I appreciate the opportunity to be here today.

I would first like to focus on some facts in three areas: one, executive compensation; two, buildings; and three, public relations. I will then discuss briefly the legal controls which now exist-or, more precisely, don't exist to deal with these problems. Finally, I will offer some principles and suggestions for approaching these problems.

Limited data on executive compensation, which I am submitting for the record, suggests that there is enormous variation in the amounts that local Blue Cross plans pay their executives. For example, the chief executive in the New Jersey plan receives more than the president of the New York plan even though the New Jersey plan serves about half as many people, and is not known for its high-quality administration.

As another example, even though the Cleveland plan serves more people than the Cincinnati plan, Cincinnati pays its chief executive about half again as much as does Cleveland. Most of these plan chiefs, and indeed many of the plan vice presidents, were earning in 1973 more than Members of the U.S. House of Representatives or Federal court judges.

There is also evidence that since the enactment of medicare there has been a proliferation of Blue Cross plan executives, and a dramatic increase in their compensation. Data on the New Jersey plan through 1974, which I have submitted for the record, shows that since 1966the number of plan executives increased from 7 in 1966 to 10 in 1973. From 1966 to 1974 the salary of the president of the New Jersey plan increased over 100 percent and the salaries of other plan executives increased almost 100 percent.

In 1974 the president gave himself an 8.4 percent increase, and other executives increases of 8, 10, 12 and 16 percent. During the same period the unionized employees of Blue Cross were granted a 5.5 percent raise.

These figures on executive compensation do not take into account all of the indirect forms of compensation which are from time to time. exposed in the press: private airplanes, generous life insurance and retirement programs, private limousines, and so forth. I believe this sort of indirect compensation may represent a more significant cost to Blue Cross subscribers and to the Federal treasury than the direct salaries.

[The table follows:]

COMPARISON OF BLUE CROSS EXECUTIVE SALARIES AND MEMBERS-CALENDAR YEAR 1973