Cobalt Corporation Executive Endorses Medicare Reforms; Cullen Calls For Free Market Competition.

Business & Health Editors

MILWAUKEE--(BUSINESS WIRE)--June 29, 2001

Correction: CMS is the Centers for Medicare and Medicaid Services. Previous release incorrectly identified CMS as the Council on Medical

Services.

The Medicare system requires major reforms in order to better serve America's senior citizens, according to Tim Cullen, Vice President of Cobalt Corporation and Chairman of United Government Services, LLC. Cullen testified today in Washington D.C. before the House Energy & Commerce Subcommittees on Health and Oversight & Investigations.

"We welcome and support more competition in Medicare contracting," Cullen said. "The Medicare contractor program needs to change and be administered within the context of free market competition."

Cullen was addressing recently outlined proposals by Health and Human Services Secretary Tommy Thompson to improve and modernize the Medicare program, including Medicare processing. Cullen noted that the current program of cost contracts encourages mediocrity and does not reward efficient contractors. He added that incentive-led contracts force contractors to improve speed and accuracy in handling customer service calls.

"The program needs competition, incentives and reasonable limits on contractor liability," Cullen said. "The current program of cost contracts, with no incentives to excel and unlimited liability, is essentially a program of no carrot and all stick."

"Transitions of business to new contractors would occur with reform. This does not need to be disruptive to senior citizens or providers. Working closely with the Centers for Medicare and Medicaid Services (CMS), we at UGS have successfully completed large transitions in Michigan, Virginia, West Virginia and California all in the past four years. Addressing issues involving the employees currently doing the work is a key factor in this success."

United Government Services, LLC., is a wholly owned subsidiary of Cobalt Corporation. Headquartered in Milwaukee, Wisconsin, United Government Services is the largest Medicare Part A claims processor in the country. UGS employs 1,300 nationwide including 500 employees at its office in downtown Milwaukee. Other offices include Monona and Ashland, Wisconsin; East Lansing and Detroit, Michigan; Valhalla, New York; Charleston, West Virginia; Roanoke and Richmond, Virginia; and Camarillo and Oakland, California.

United Government Services Medicare processes claims for providers in all 50 states, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Marianna Islands. The company will process an estimated 28 million Medicare claims annually, with an estimated $18 billion in payments. UGS processes approximately 20 percent of the Medicare Part A claims nationwide. The company also has a contract with EDS to process claims for the Wisconsin Medicaid program.

Cobalt Corporation is one of the leading, publicly traded managed care companies in the nation, offering a diverse portfolio of complementary insurance and managed care products to employer, individual, insurer and government customers. Headquartered in Milwaukee and formed by the combination of Blue Cross & Blue Shield United of Wisconsin and United Wisconsin Services, Inc., Cobalt Corporation (NYSE: CBZ) serves 2 million lives in 49 states. For more information, visit our Web site at www.cobaltcorporation.com

      NOTE: see attached for copy of testimony.


                    TESTIMONY OF TIMOTHY F. CULLEN
              CHAIRMAN, UNITED GOVERNMENT SERVICES, LLC.
                                  on
                      MEDICARE CONTRACTING REFORM
                              before the
            HOUSE ENERGY & COMMERCE SUBCOMMITTEES ON HEALTH
                    AND OVERSIGHT & INVESTIGATIONS
                             JUNE 28, 2001

Chairmen and members of the Committee I am pleased to testify before you today. I am Chairman of the Board of United Government Services (UGS). As the largest Medicare Part A intermediary we process 20% of all Part A claims. We employ 1,300 people in eight states.

We support the Medicare Contractor Reform proposals of the Secretary and CMS.

We welcome and support more competition in Medicare contracting. We have competed for and won contracts in the Medicare program and on our private business side, at Wisconsin Blue Cross, we compete for business everyday.

The Medicare contractor program needs to change and be administered within the context of free market competition. This is the clear and obvious direction of nearly every segment of our society.

The program needs competition, incentives and reasonable limits on contractor liability.

The current program of cost contracts, with no incentives to excel and unlimited liability, is essentially a program of no carrot and all stick.

The current system of throwing out non-compliant contractors but not rewarding the good ones encourages mediocrity and that does not serve the senior citizens of America well.

We support moving away from cost contracts. Cost contracts do not reward excellence. Cost contracts require CMS to micromanage contractors. We need to move to incentive-based contracts through the competitive bid process.

I have no doubt that CMS can successfully manage the changes proposed by the Secretary.

Transitions of business to new contractors would occur with reform. This does not need to be disruptive to senior citizens or providers. Working closely with CMS, we at UGS have successfully completed large transitions in Michigan, Virginia, West Virginia and California all in the past four years. Addressing issues involving the employees currently doing the work is a key factor in this success.

The Medicare contractor budget of over one billion dollars does not go out for bid unless a contractor leaves voluntarily or involuntarily. As a matter of public policy we do not think this is defensible for large contractors and intermediaries.

We support the elimination of the provider nomination process and therefore the Blue Cross Association Master Contract with CMS. As a practical matter, on a day to day basis we intermediaries interact directly with CMS and only on a rare basis involve the Association.

Regarding changes to termination agreements, we must recognize and protect existing contracts with employees such as our unionized employees in downtown Milwaukee. We are proud of our employment record on the new contracts we have been awarded and are well aware that both the Committee and CMS value continuity of services when intermediaries change.

Contract incentives can be structured to be very beneficial to senior citizens. For example, incentives can reward contractors for speed and accuracy in handling customer service phone calls. Incentives can reward contractors for answering a high percentage of phone calls in a short period of time.

Competition and properly structured incentives will encourage excellence in Medicare contracting and this serves well the senior citizens of America.

Thank you for this opportunity to testimony and I will try to answer any questions from the Committee.