CMS audit discovers BCBS South Carolina overstated its allocable Excess Plan costs by approximately $17.6 million.
- The Department of Health and Human Service (HHS) Office of Inspector General (OIG) released the results of its audit on Blue Cross Blue Shield of South Carolina (BCBS South Carolina). The audit was completed to determine if allocable Excess Plan costs that BCBS South Carolina calculated for calendar years (CYs) 2006 through 2011 complied with Federal requirements. During this audit, it was discovered that BCBS South Carolina overstated its allocable Excess Plan costs by approximately $17.6 million.
The Centers for Medicare & Medicaid Services (CMS) reimburses some of its contractors’ nonqualified defined-benefit plan (NQDBP) costs if contractors follow the specific cost reimbursement policies. Previously, it was discovered that Medicare contractors did not always appropriately identify NQDP costs.
During the audit BCBS South Carolina had Palmetto, TrailBlazer, CGS Administrators, LLC (CGS) and Companion Data Services, LLC (CDS) as subsidiaries to complete Medicare tasks for CMS. Previously, Medicare reimbursed pension costs to the contractor; however this changed from a cost reimbursement basis to an indirect cost basis. CMS now reimburses indirect costs based on indirect cost rates that meet negotiated indirect cost rates determined by the contract with Medicare contractors.
However, it was discovered that the Excess Plan Costs that BCBS South Carolina used did not comply with Federal requirements, the Federal Acquisition Regulation (FAR), Cost Accounting Standards (CAS). BCBS South Carolina submitted $31,958,072 in allocable Excess Plan Costs during the calendar year of 2006 through 2011. OIG determined that during that period the actual Excess Plan Costs were $14,320,197. BCBS South Carolina overstated its allocable Excess Costs at a difference of $17,637,875.
BCBS South Carolina defined its Excess Plan as an NQDBP and calculated the plan’s costs accordingly. However, BCBS South Carolina’s Excess Plan does not offer a benefit that is payable for life so it did not qualify as a pension plan as defined in regulations.
“In light of these considerations, we recalculated BCBS South Carolina’s Excess Plan costs in accordance with CAS 415 and determined that the Total Company allocable Excess Plan costs for CYs 2006 through 2011 were $14,320,197,” the audit states. “In accordance with CAS 415, we based the allocable costs on actual payments to Excess Plan participants. Thus, BCBS South Carolina overstated the Total Company Excess Plan costs for this period by $17,637,875. This overstatement occurred because BCBS South Carolina did not calculate costs in accordance with Federal regulations.”
The OIG recommends that BCBS South Carolina decrease the submitted number of allocable Excess Plan costs for CYS 2006 through 2011 by $17,637,875.
In written comments, BCBS South Carolina did not agree with OIG’s recommendation. BCBS South Carolina stated that the change it made to its Excess Plan was accidental in regard to its retirement plan. BCBS South Carolina said it had not realized that removing the life time payment plan portion of its retirement option would change the status for meeting regulations.
BCBS South Carolina also disagreed with OIG’s recommendation because it would be difficult for it to have to account for the Excess Plan as initially compliant, and then as noncompliant for a time period, and then as compliant once again.
As an alternative to OIG’s recommendation, BCBS South Carolina suggested that it correct the change it made to its retirement plan by restoring the payment for life option to be effective retroactively.
In response to BCBS South Carolina’s suggestion, OIG maintained that its finding and recommendation remained valid and supported by Federal regulations. OIG suggested that BCBS South Carolina ask CMS if a retroactive plan amendment would be allowable and what impact such a change may have going forward.