Policy & Regulation News

TrailBlazer Health Claimed $1.3M in Unallowable Medicare Costs

By Ryan Mcaskill

TrailBlazer claimed $137K in Medicare Part B termination costs and $1.1M in potentially unallowable severance pay termination costs.

- Earlier this month, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) program released a report that details how TrailBlazer Health Enterprises claimed $1.3 million in unallowable Medicare Part B termination costs between July 15, 2008 and March 21, 2011.

The audit was conducted because the Centers for Medicare & Medicaid Services (CMS), which administers the Medicare program through contracts with private organizations that process and pay Medicare claims, terminated its Medicare Part B contract with TrailBlazer. CMS then requested the audit of Medicare Part B termination costs that TrailBlazer claimed for reimbursement. The goal was to determine whether TrailBlazer’s claims for Medicare Part B termination costs were reasonable, allocable and otherwise allowable in accordance with part 31 of the Federal Acquisition Regulation (FAR) and its Medicare Part B contract.

The audit found that of the $3,962,920 in Medicare Part B termination costs that were reviewed over the time frame, $2,666,455 was handled properly. The remaining $1,296,465, which consists of $137,927 in unsupported costs and travel costs in excess of the allowable per diem rates and $1,158,538 in potentially unallowable termination costs for severance pay, is being disputed.

Being a contractor requires organizations to maintain records, including supporting documentation, adequate to demonstrate that costs claimed have been occured, are allocable to the contract and comply with applicable cost principles. It was discovered that TrailBlazer did not provide documentation to support $137,820 in costs claimed for asset, disposal, moving and rearranging, termination of service and maintenance contracts, personnel and other miscellaneous items.

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  • The severance costs are allocable if it is assignable or chargeable to one or more cost objects on the basis of relative benefits received or other equitable relationships. For “abnormal” or “mass” severance pay, as opposed to “normal turnover”severance payments, the FAR provides that the Government will participate “to the extent of its fair share.” TrailBlazer misidentified employees and claimed $1,158,538 in reimbursement for employee severance costs that is not all allowable.

    “TrailBlazer claimed these unsupported costs and travel costs in excess of allowable per diem rates because it did not have adequate internal control procedures to ensure that it claimed costs in accordance with the regulations set forth in the FAR and the Medicare contract,” the report reads.

    TrailBlazer, formerly headquartered in Dallas, Texas, was a wholly owned subsidiary of BlueCross BlueShield of South Carolina. BlueCross provided certain management and other operational support services for TrailBlazer including accounting, HR, legal and general corporate administration. TrailBlazer is no longer in business and the findings and recommendations have been addressed to BlueCross.

    The OIG recommends that BlueCross refund the Federal Government $137,927 for unsupported costs and travel costs. It also recommends that BlueCross work with CMS to determine the allowability of $1,158,538 in termination costs for severance pay that has been set aside and refund any amount determined to be unallowable.

    BlueCross responded to the recommendations and concurred with all points on behalf of TrailBlazer.