Federal Reports

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 PRB: (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 Medicare PRB 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. Cahaba GBA claimed PRB costs using the accrual basis of accounting.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 Postretirement Benefit CostsCMS reimburses a portion of the Medicare contractors’ annual PRB costs, which are funded by contributions that contractors make to their PRB plans. The PRB 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. Federal regulations (FAR 31.205-6(o)) require that to be allowable for Medicare reimbursement, PRB costs must be (1) measured, assigned, and allocated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 715-60 (formerly Statement of Financial Accounting Standards (SFAS) 106) and (2) funded as specified by part 31 of the FAR. In claiming costs, contractors must follow cost reimbursement principles contained in the FAR 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.

During our audit period, Cahaba CSA was a subsidiary of Blue Cross and Blue Shield of Alabama (BCBS Alabama), whose home office is in Birmingham, Alabama. The Cahaba CSA Medicare segment administered program safeguard functions under a contract with CMS. With the implementation of the Health Insurance Portability and Accountability Act of 1996 and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), CMS established the Medicare Integrity Program zones. CMS created seven program integrity zones based on the newly-established MAC jurisdictions. CMS awarded Zone Program Integrity Contactor (ZPIC) contracts for Zone 3 and Zone 6 to Cahaba CSA effective April 8, 2011, and September 30, 2011, respectively. BCBS Alabama has two Medicare segments that participate in its PRB: (1) Cahaba Government Benefits Administrators (Cahaba GBA) and (2) 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 Medicare PRB costs claimed by Cahaba CSA under the provisions of its MAC contracts. We are addressing Cahaba GBA’s compliance with the MAC contracts in a separate audit. Cahaba CSA claimed PRB costs using the segmented accrual basis of accounting.The disclosure statement that Cahaba CSA submits to CMS states that Cahaba CSA 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 Postretirement Benefit CostsCMS reimburses a portion of the Medicare contractors’ annual PRB costs, which are funded by contributions that contractors make to their PRB plans. The PRB 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. Federal regulations (FAR 31.205-6(o)) require that to be allowable for Medicare reimbursement, PRB costs must be (1) measured, assigned, and allocated in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 715-60 (formerly Statement of Financial Accounting Standards (SFAS) 106) and (2) funded as specified by part 31 of the FAR. In claiming costs, contractors must follow cost reimbursement principles contained in the FAR and the Medicare contracts. Incurred Cost Proposal AuditsAt CMS’s request, Davis Farr, LLP (Farr), performed audits of the ICPs that Cahaba CSA 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 CSA 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.

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for engineering, design, and construction support services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 5-year, $35 million contract.In our opinion, the company's cost proposal was overstated. Specifically, we found the (1) proposed total labor markup rate, for recovery of the company's indirect costs, was overstated based on its most recent actual costs, (2) labor markup rates included profit, and (3) proposed performance fee was overstated based on the request for proposal's (RFP) fee limits. We estimated TVA could avoid about $2.9 million over the planned $35 million contract by negotiating (1) reduced total labor markup rates to more accurately reflect the company's recent actual costs, (2) removal of the profit included in the labor markup rates, and (3) a reduced performance fee to comply with the RFP's fee limits. In addition, we found the company did not comply with the RFP's requirement related to labor rate ranges.(Summary Only)

The auditors determined that for FY2020, the financial statements were fairly presented, in all material respects, in accordance with U.S. generally accepted accounting principles. The independent audit report includes two material weaknesses and three significant deficiencies related to the Commission’s internal control over financial reporting, and one finding related to noncompliance. The auditors made 25 recommendations in the report.