Group Health Incorporated Did Not Claim Some Allowable Medicare Pension Costs for Calendar Years 2009 Through 2016

GHI, a subsidiary of EmblemHealth Services Company, LLC, administered Medicare operations under a Coordination of Benefits (COB) contract with CMS. During our audit period, GHI also performed Medicare work on the Medicare Secondary Payer Recovery and Benefit Coordination and Recovery (MSPRC) contracts. GHI also performed work as a subcontractor on the Retiree Drug Subsidy (RDS) contract. During our audit period, GHI had three defined-benefit pension plans: the GHI Local 153 Pension Plan; the GHI Cash Balance Pension Plan; and the EmblemHealth Services Company, LLC, Employees’ Retirement Plan. Medicare segment employees of GHI participated in all three of these pension plans. This report addresses the allowable pension costs claimed by GHI under the provisions of its MAC contracts and CAS- and FAR-covered contracts. The disclosure statement that GHI submits to CMS states that GHI uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension, PRB, and Supplemental Executive Retirement Plan 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. CMS 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. At CMS’s request, Figliozzi & Company, P.C. (Figliozzi), Kearney & Company, P.C. (Kearney), and Davis Farr, LLP (Farr), performed audits of the ICPs that GHI submitted for CYs 2009 through 2016. The objectives of the Figliozzi, Kearney, and Farr audits were to determine whether costs were allowable in accordance with the FAR, the U.S. Department of Health and Human Services Acquisition Regulation, and the CAS. For our current audit, we relied on the Figliozzi, Kearney, and Farr audit findings and recommendations when computing the allowable pension costs discussed in this report. We incorporated the results of the Figliozzi, Kearney, and Farr 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, Kearney, and Farr audit reports, to determine the final indirect cost rates and the total allowable contract costs for GHI for CYs 2009 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.