Almost All of the Medicare Pension Costs That Companion Data Services, LLC, Claimed Through Its Incurred Cost Proposals Were Allowable

During our audit period, CDS was a subsidiary of Blue Cross Blue Shield of South Carolina (BCBS South Carolina), whose home office is in Columbia, South Carolina. CDS was created after being awarded the Enterprise Data Center (EDC) contract effective March 10, 2006. The EDC contract was replaced by a Virtual Data Center contract on November 15, 2012, which is still in effect. Upon creation of the CDS Medicare segment, BCBS South Carolina and CDS elected to follow CAS regulations regarding segmented accounting. The disclosure statement that CDS submits to CMS states that CDS uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension and PRB costs) that they submit on their ICPs. Medicare contractors use the indirect cost rates to calculate the contract costs that they report on their ICPs. In turn, CMS uses these indirect cost rates in determining the final indirect cost rates for each contract. Medicare Reimbursement of Pension CostsCMS reimburses a portion of the annual contributions that contractors make to their pension plans. The pension costs are included in the computation of the indirect cost rates reported on the ICPs. In turn, CMS uses indirect cost rates in reimbursing costs under cost-reimbursement contracts. To be allowable for Medicare reimbursement, pension costs must be (1) measured, assigned, and allocated in accordance with CAS 412 and 413 and (2) funded as specified by part 31 of the FAR. In claiming costs, contractors must follow cost reimbursement principles contained in the FAR, the CAS, and the Medicare contracts. Previous Audits of Allocable Pension CostsWe previously reviewed CDS’s allocable pension costs (A-07-17-00511; Aug. 28, 2017) and BCBS South Carolina’s allocable pension costs (A-07-17-00509; Aug. 28, 2017). Our previous CDS audit report identified allocable pension costs that CDS should have used when calculating its indirect cost rates for CYs 2008 through 2012. We recommended that CDS increase the allocable pension costs for CYs 2008 through 2012 by $30,436. Our previous BCBS South Carolina audit report identified Other segment allocable pension costs that its subsidiaries’ Medicare segments should have used when calculating BCBS South Carolina’s indirect cost rates for CYs 2006 through 2012. We recommended that BCBS South Carolina decrease the allocable pension costs used to calculate its Medicare segments’ indirect cost rates for CYs 2006 through 2012 by $6,193,748. Incurred Cost Proposal AuditsAt CMS’s request, Figliozzi & Company CPAs P.C. (Figliozzi), Mayer Hoffman McCann P.C. (McCann), the Defense Contract Audit Agency (DCAA), and CohnReznick (Reznick) performed audits of the ICPs that CDS submitted for CYs 2012 through 2016. The objectives of these ICP audits were to determine whether costs were allowable in accordance with applicable Federal regulations. For our current audit, we relied on the Figliozzi, McCann, DCAA, and Reznick ICP audit findings and recommendations when computing the allowable pension costs discussed in this report. We incorporated the results of the Figliozzi, McCann, DCAA, and Reznick ICP audits into our computations of the audited indirect cost rates, and ultimately the pension costs claimed, for the contracts subject to the FAR. CMS will use our report on allowable pension costs, as well as the Figliozzi, McCann, DCAA, and Reznick ICP audit reports, to determine the final indirect cost rates and the total allowable contract costs for CDS for CYs 2012 through 2016. The cognizant Contracting Officer will perform a final settlement with the contractor to determine the final indirect cost rates. These rates ultimately determine the final costs of each contract.