Cahaba Government Benefits Administrators, LLC, Did Not Claim Some Allowable Medicare Pension Costs Through its Incurred Cost Proposals

During our audit period, Cahaba GBA was a subsidiary of Blue Cross and Blue Shield of Alabama (BCBS Alabama), whose home office is in Birmingham, Alabama. Cahaba GBA administered the Medicare Parts A and B Jurisdiction 10 MAC contract under cost reimbursement contracts with CMS. The Jurisdiction 10 MAC contract ended on January 11, 2014. Cahaba GBA continued to perform Medicare work after being awarded the MAC contract for Medicare Parts A and B Jurisdiction J (formerly Jurisdiction 10) effective September 17, 2014. BCBS Alabama has two Medicare segments that participate in its qualified defined-benefit pension plan: (1) Cahaba GBA and (2) Cahaba Safeguard Administrators, LLC (Cahaba CSA). On January 1, 2013, BCBS Alabama created the Healthcare Business Solutions, LLC (HBS), intermediate home office segment (HBS segment) by transferring assets into it from the Cahaba GBA and Cahaba CSA segments. This report addresses the allowable pension costs claimed by Cahaba GBA under the provisions of its MAC contracts and CAS- and FAR-covered contracts. We are addressing Cahaba CSA’s compliance with the MAC contracts in a separate audit.The disclosure statement that Cahaba GBA submits to CMS states that Cahaba GBA 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. Incurred Cost Proposal AuditsAt CMS’s request, Davis Farr, LLP (Farr), performed audits of the ICPs that Cahaba GBA submitted for CYs 2014 through 2016. The objectives of the Farr ICP 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 Farr ICP audit findings and recommendations when computing the allowable pension costs discussed in this report. We incorporated the results of the Farr 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 Farr ICP audit reports, to determine the final indirect cost rates and the total allowable contract costs for Cahaba GBA for CYs 2014 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.