Noridian Healthcare Solutions, LLC, Claimed Some Unallowable Medicare Nonqualified Plans Costs Through Its Incurred Cost Proposals

Noridian Healthcare Solutions, LLC, and MedicareNHS is a subsidiary of Blue Cross Blue Shield of North Dakota (BCBS North Dakota) (formerly Noridian Mutual Insurance Company), whose home office is in Fargo, North Dakota. NHS administered Medicare Part A, Medicare Part B, and Medicare Durable Medical Equipment (DME) contract operations under MAC contracts for Medicare Parts A and B Jurisdictions E and F and Medicare DME Jurisdictions A and D. In addition, NHS held the Pricing, Data Analysis and Coding (PDAC) contract. Nonqualified PlansBCBS North Dakota sponsors nonqualified plans called the Supplemental Retirement Program for Certain Employees of Blue Cross Blue Shield of North Dakota (SERP plan) and the Noridian Select Retirement Plan for Select Approved Employees of Noridian Mutual Insurance Company (Select plan). The purpose of the SERP plan is to provide deferred compensation for a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974. The purpose of the Select plan is to provide benefits for select executive employees who are unable to participate in certain other programs. Select plan benefits are accrued similarly to benefit accrual under the SERP plan. NHS claimed nonqualified costs (for both plans) using the pay-as-you-go basis of accounting. This report addresses the allowable nonqualified costs claimed by NHS under the provisions of its MAC contracts and its CAS- and FAR-covered contracts. The disclosure statement that NHS submits to CMS states that NHS uses pooled cost accounting. Medicare contractors use pooled cost accounting to calculate the indirect cost rates (whose computations include pension, postretirement benefit, nonqualified, and Restoration 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. Accounting Methodologies The Medicare contracts require NHS to calculate nonqualified costs in accordance with the FAR and CAS 412 and 413. The FAR and the CAS require that the costs for nonqualified plans be measured under either the accrual method or the pay-as-you-go method. Under the accrual method, allowable costs are based on the annual contributions that the employer deposits into its trust fund. For nonqualified plans that are not funded through the use of a funding agency, costs are to be accounted for under the pay-as-you-go method. This method is based on the actual benefits paid to participants, which are comprised of lump-sum payments and annuity payments. Incurred Cost Proposal AuditsAt CMS’s request, Kearney and Company (Kearney) and Davis Farr, LLP (Farr), performed audits of the ICPs that NHS submitted for CYs 2014 through 2016. The objectives of the Kearney and 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 Kearney and Farr ICP audit findings and recommendations when computing the allowable nonqualified costs discussed in this report. We incorporated the results of the Kearney and Farr audits into our computations of the audited indirect cost rates, and ultimately the nonqualified costs claimed, for the contracts subject to the FAR. CMS will use our report on allowable nonqualified costs, as well as the Kearney and Farr ICP audit reports, to determine the final indirect cost rates and the total allowable contract costs for NHS 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.