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No attorney read the no-bid $100 million State Health Plan contract with Blue Cross before signing

As we noted [1] when the Blue Cross contract with the State Health Plan was first released, the terms are terrible and allow Blue Cross complete control over information and audits. State Auditor Beth Wood agrees. In fact, it was worse than we thought. The State Health Plan underestimated administrative expenses by nearly $40 million because Blue Cross would not let anyone see a break down of its costs.

From the audit:

To create an accurate administrative expense projection, the Plan’s actuary needed to know the costs that constitute the BCBSNC administrative charges and the factors that affect those costs. However, the Plan’s actuary did not have access to the BCBSNC contract. The former Chief Operating Officer said, “Aon never received the BCBS contract due to confidentiality.”

The audit adds:

Consequently, the State Health Plan has agreed to a contract that requires the Plan to reimburse BCBSNC its costs, but does not allow the Plan to verify those costs or even know what they are. Therefore, BCBSNC could charge the Plan for expenses and overhead that Plan management might not agree were true costs of the Plan.

This is an interesting note, because my reading of the contract actually allows Blue Cross to charge the State Health Plan for expenses unrelated to administering the SHP. But since all of the costs are secret, I guess that doesn’t matter.


It is important to note that the cost-plus-a-percentage-of-cost type of contract that the Plan used with BCBSNC is not in the best interest of the State. The contract creates a potential conflict of interest for the vendor … The federal government has prohibited the use of such contracts by federal agencies since 1941.

Also, and here’s the kicker, no attorney reviewed the State Health Plan contract with Blue Cross before signing it. The former Director of Network Operations was present during negotiations but “told auditors that she did not act as the Plan’s counsel while negotiating the BCBSNC contract.” That Director who helped negotiate the contract, by the way, now works for Blue Cross.

As the audit notes: “Therefore, no one reviewed the BCBSNC contract from the perspective of an attorney or contract professional on the State Health Plan’s behalf before the Executive Administrator signed the contract.”

A few more thoughts: Despite insistent pleading from us and the State Employees Association of North Carolina legislators passed a harmful State Health Plan bill without publicly calling on Blue Cross to sacrifice anything. When Blue Cross CEO Bob Grezcyn testified before lawmakers there was not a single question asked about this ridiculous contract — even though the contract was then public.

SEANC was dismissed as alarmist when it called for lawmakers to look at overpayments to Blue Cross before hiking out-of-pocket expenses for state employees. With the bizarre cost settlements and outmoded payment scheme it is very likely that the state has paid too much to Blue Cross.

And one last question: Is it a coincidence that the General Assembly passed the State Health Plan bill one week before this audit was released?