FOR IMMEDIATE RELEASE                                         CIV
FRIDAY, MAY 2, 1997                                (202) 616-2765
                                               TDD (202) 514-1888

     WASHINGTON, D.C. -- Blue Shield of California will pay the
United States $12 million to settle allegations that it submitted
false claims for payment under its contract with the Health Care
Financing Administration (HCFA) to process and pay Medicare
claims, the Department of Justice and Department of Health and
Human Services announced today.

      Frank W. Hunger, Assistant Attorney General for the Civil
Division at the Justice Department, Michael J. Yamaguchi, the
U.S. Attorney in San Francisco, and June Gibbs Brown, Inspector
General for the Department of Health and Human Services, said
that the agreement settles claims that Blue Shield of California,
based in San Francisco, covered up claims processing errors from
HCFA auditors in order to obtain more favorable scores under a
program for grading the carrier's claims processing capabilities.

     "Medicare contractors are the critical first line of defense
against Medicare fraud," said Hunger.  "That is why we must
maintain the integrity of the claims handling processes."

     The lawsuit was filed under seal in federal court in San
Francisco on behalf of the United States by Weldon Dodson, a
former employee of Blue Shield's Medicare division in Chico,
California.  It was filed under a provision of the federal False
Claims Act that allows private parties to sue companies and
individuals that have submitted false claims to the federal
     Until September 1996, Blue Shield was the Medicare carrier
for HCFA in Northern and Central California.  Under a contract
with HCFA, Blue Shield was responsible for processing and paying
claims for non-hospital services provided to Medicare
beneficiaries in the region.  The company was reimbursed more
than $40 million a year by the federal government to process the
approximately 20 million claims submitted for physicians'
services, laboratory services and other claims covered under Part
B of the federal Medicare program.

     The suit alleges that Blue Shield obstructed HCFA's efforts
to review Blue Shield's performance under its carrier contract. 
It contends that employees in several units in Blue Shield's
Medicare division in Chico and Marysville, California, altered or
discarded documents that would have disclosed claims processing
errors.  It also alleges that they substituted backdated and
altered documents for documents that contained errors, and rigged
purportedly random samples of files in order to deceive HCFA
auditors into believing that Blue Shield's performance was better
than it actually was.

     In May 1996, Blue Shield pleaded guilty in federal court in
Sacramento, to three felony counts of conspiracy and obstructing
federal audits to evaluate how well Blue Shield performed in
processing and paying Medicare claims.  The criminal conviction
was the first of its kind against a Medicare contractor.  Blue
Shield paid a criminal fine of $1.5 million when it entered its
guilty plea.

     The Department of Health and Human Services Office of
Inspector General and Blue Shield have agreed to a separate
comprehensive "Corporate Integrity Agreement" in which Blue
Shield agrees to take steps to ensure compliance with applicable
laws and Medicare rules and regulations in the future.  Blue
Shield is continuing as a managed care provider with Medicare.

     This agreement settles a dispute which was originally
brought as a qui tam action in the United States District Court
in San Francisco, United States ex rel. Dodson v. Blue Shiueld of
California, C94-3626 EFL.  As part of the settlement, Dodson will
receive eighteen percent of the United States' recoveries.

     The Office of the Inspector General for the Department of
Health and Human Services, which investigates allegations of
fraud and abuse in the Medicare program, the Civil Division for
the Department of Justice, and the United States Attorneys for
the Northern and Eastern Districts of California have been
investigating the allegations since late 1994.
97-187                         ####