NHS 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. Both BCBS North Dakota and NHS sponsor nonqualified plans called the Noridian Mutual Insurance Company Restoration Savings Plan and Noridian Healthcare Solutions, LLC, Restoration Savings Plan. The purpose of these plans 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. NHS claimed nonqualified costs using the pay-as-you-go basis of accounting. This report addresses the allowable restoration costs claimed by NHS under the provisions of its MAC contracts and 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, Supplemental Executive Retirement Plan, 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. 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. At CMS’s request, Kearney and Company (Kearney) performed an audit of the ICPs that NHS submitted for CYs 2015 and 2016. The objectives of the Kearney audit were to determine whether costs were allowable in accordance with the FAR, the Department of Health and Human Services Acquisition Regulation, and the CAS. For our current audit, we relied on the Kearney audit findings and recommendations when computing the allowable restoration costs discussed in this report. We incorporated the results of the Kearney audit into our computations of the audited indirect cost rates, and ultimately the restoration costs claimed, for the contracts subject to the FAR. CMS will use our report on allowable restoration costs, as well as the Kearney audit report, to determine the final indirect cost rates and the total allowable contract costs for NHS for CYs 2015 and 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.
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