HHS I.G. Audit: 'Noridian Healthcare Solutions Claimed Unallowable Medicare Nonqualified Restoration Savings Plan Costs'

WASHINGTON, May 26 -- The Health and Human Services Inspector General issued the following audit report (No. A-07-20-00591) in April 2021 entitled "Noridian Healthcare Solutions, LLC, Claimed Unallowable Medicare Nonqualified Restoration Savings Plan Costs Through Its Incurred Cost Proposals" filed under the Centers for Medicare and Medicaid Services:

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Here are excerpts:

Report in Brief

Why OIG Did This Audit

The Centers for Medicare & Medicaid Services (CMS) reimburses a portion of its contractors' nonqualified plan (nonqualified) costs.

At CMS's request, the Department of Health and Human Services, Office of Inspector General (OIG), Office of Audit Services, Region VII pension audit team reviews the cost elements related to nonqualified plans and any other pension-related cost elements claimed by Medicare contractors through Incurred Cost Proposals (ICPs).

Previous OIG audits found that Medicare contractors did not always comply with Federal requirements when claiming nonqualified costs for Medicare reimbursement.

Our objective was to determine whether the calendar years (CYs) 2015 and 2016 nonqualified Restoration Savings Plan (restoration) costs that Noridian Healthcare Solutions, LLC (NHS), claimed for Medicare reimbursement, and reported on its ICPs, were allowable and correctly claimed.

How OIG Did This Audit

We reviewed $164,839 of restoration costs that NHS claimed for Medicare reimbursement on its ICPs for CYs 2015 and 2016.

What OIG Found

NHS claimed CYs 2015 and 2016 restoration costs of $164,839 for Medicare reimbursement; however, we determined that the allowable restoration costs during this period were $4,524. The difference, $160,315, represented unallowable Medicare restoration costs that NHS claimed on its ICPs for CYs 2015 and 2016. NHS claimed these unallowable Medicare restoration costs primarily because it did not calculate these costs in accordance with Federal regulations and the Medicare contracts' requirements.

What OIG Recommends and Auditee Comments

We recommend that NHS work with CMS to ensure that its final settlement of contract costs reflects a decrease in Medicare restoration costs of $160,315 for CYs 2015 and 2016.

NHS concurred with our recommendation. NHS stated that it would work with CMS to ensure that its final settlement of contract costs reflects a decrease in Medicare restoration costs of $160,315 for CYs 2015 and 2016.

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TABLE OF CONTENTS

INTRODUCTION ... 1

Why We Did This Audit ... 1

Objective ... 1

Background ... 1

Noridian Healthcare Solutions, LLC, and Medicare ... 1

Restoration Plan ... 2

Accounting Methodologies ... 2

Incurred Cost Proposal Audit ... 3

How We Conducted This Audit ... 3

FINDING ... 3

Allocable Medicare Segment Restoration Plan Costs Overstated ... 4

Allocable Other Segment Restoration Plan Costs Overstated ... 5

Restoration Plan Costs Claimed ... 5

Unallowable Restoration Plan Costs Claimed ... 6

RECOMMENDATION ... 6

AUDITEE COMMENTS ... 6

APPENDICES

A: Audit Scope and Methodology ... 7

B: Federal Requirements Related to Reimbursement of Nonqualified Plan Costs ... 9

C: Auditee Comments ... 11

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NTRODUCTION

WHY WE DID THIS AUDIT

The Centers for Medicare & Medicaid Services (CMS) reimburses a portion of its contractors' nonqualified plan (nonqualified) costs. In claiming nonqualified costs, contractors must follow cost reimbursement principles contained in the Federal Acquisition Regulation (FAR), the Cost Accounting Standards (CAS), and the Medicare contracts. Previous Office of Inspector General (OIG) audits found that Medicare contractors did not always comply with Federal requirements when claiming nonqualified costs for Medicare reimbursement.

At CMS's request, the OIG, Office of Audit Services, Region VII pension audit team reviews the cost elements related to qualified defined-benefit, nonqualified defined-benefit, postretirement benefit, and any other pension-related cost elements claimed by Medicare fiscal intermediaries and carrier contractors and Medicare administrative contractors (MACs) through Final Administrative Cost Proposals, Incurred Cost Proposals (ICPs), or both.

For this audit, we focused on one Medicare contractor, Noridian Healthcare Solutions, LLC (NHS). In particular, we examined the nonqualified Restoration Savings Plan (restoration) costs that NHS claimed for Medicare reimbursement, under the provisions of its MAC contracts and CAS- and FAR-covered contracts, and reported on its ICPs.

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OBJECTIVE

Our objective was to determine whether the calendar years (CYs) 2015 and 2016 restoration costs that NHS claimed for Medicare reimbursement, and reported on its ICPs, were allowable and correctly claimed.

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BACKGROUND

Noridian Healthcare Solutions, LLC, and Medicare

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/1 and F/2 and Medicare DME Jurisdictions A/3 and D./4

In addition, NHS held the Pricing, Data Analysis and Coding (PDAC) contract.

Restoration Plan

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./5

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 Audit

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./6

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FINDING

NHS claimed CYs 2015 and 2016 restoration costs of $164,839 for Medicare reimbursement; however, we determined that the allowable restoration costs during this period were $4,524.

The difference, $160,315, represented unallowable Medicare restoration costs that NHS claimed on its ICPs for CYs 2015 and 2016. NHS claimed these unallowable Medicare restoration costs primarily because it did not calculate these costs in accordance with Federal regulations and the Medicare contracts' requirements.

The Medicare contracts require that nonqualified costs be calculated in accordance with the FAR and the CAS. NHS did not calculate its restoration costs in accordance with the FAR or the CAS. In fact, NHS elected to compute the allowable restoration costs by using a percentage of each plan participant's salary. However, we determined that the restoration plans did not offer a benefit that is payable for life; therefore, the plans did not qualify as a "pension plan" as defined in FAR 31.001. Thus, NHS did not claim costs in accordance with the appropriate Federal regulations. NHS should have identified the restoration costs in accordance with the regulations for a deferred compensation plan and should have calculated those costs in accordance with the FAR and CAS 415.

Because NHS's plan did not qualify as a pension plan, we calculated its plan costs in accordance with FAR 31.205-6(k) and CAS 415, which govern deferred compensation plans. Specifically, we calculated the allowable restoration costs based on actual payments to restoration plan participants in accordance with CAS 415.40(a). On this basis, we determined the allowable restoration costs for CYs 2015 and 2016. (Our calculation does not appear in this report because the indirect cost rate computations that NHS used in its ICPs, and to which we referred as part of our audit, are proprietary information.) For details on the Federal requirements, see Appendix B.

ALLOCABLE MEDICARE SEGMENT RESTORATION PLAN COSTS OVERSTATED During this audit, we calculated the allocable Medicare segment restoration costs for CYs 2015 and 2016 in accordance with Federal requirements./7

We determined that the allocable Medicare segment restoration costs for CYs 2015 and 2016 totaled $0. NHS reported that its allocable restoration costs totaled $138,367. Therefore, NHS overstated the allocable Medicare segment restoration costs by $138,367. This overstatement occurred because of differences in the accounting methodology used to calculate the restoration costs for Medicare reimbursement (as discussed above in "Finding").

Table 1 on the following page shows the differences between the allocable Medicare segment restoration costs that we determined for CYs 2015 and 2016 and the restoration costs that NHS calculated for the same time period.

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[See link at end of text for Table 1: Allocable Medicare Segment Restoration Costs]

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ALLOCABLE OTHER SEGMENT RESTORATION PLAN COSTS OVERSTATED

During the current audit, we calculated the allocable Other segment restoration costs for CYs 2015 and 2016 in accordance with Federal requirements. We determined that the allocable Other segment restoration costs for CYs 2015 and 2016 totaled $18,134. NHS reported that its allocable restoration costs totaled $116,721. Therefore, NHS overstated the allocable Other segment restoration costs by $98,587. This overstatement occurred because of differences in the accounting methodology used to calculate the restoration costs for Medicare reimbursement (as discussed above in "Finding").

Table 2 below shows the allocable Other segment restoration costs that we determined for CYs 2015 and 2016.

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[See link at end of text for Table 2: Allocable Other Segment Restoration Costs]

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We used the allocable restoration plan costs to adjust the indirect cost rates (i.e., the fringe benefit and general and administrative rates) and, in turn, to calculate the information presented in Table 3 later in this report. (Our calculation does not appear in this report because those rate computations that NHS used in its ICPs, and to which we referred as part of our audit, are proprietary information.)

RESTORATION PLAN COSTS CLAIMED

NHS claimed Medicare restoration costs of $164,839 on its ICPs for CYs 2015 and 2016. We calculated the allowable Medicare restoration costs in accordance with the FAR and the CAS.

For details on the Federal requirements, see Appendix B.

UNALLOWABLE RESTORATION PLAN COSTS CLAIMED

After incorporating the results of the Kearney audit and our adjustments to the indirect cost rates, we determined that the allowable restoration costs for CYs 2015 and 2016 were $4,524.

Thus, NHS claimed $160,315 (that is, $164,839 minus $4,524) of unallowable Medicare restoration costs on its ICPs for CYs 2015 and 2016. This overclaim occurred primarily because NHS based its claim for Medicare reimbursement on an incorrect cost accounting method when calculating its restoration costs for Medicare reimbursement (as discussed above in "Finding").

Table 3 below compares the Medicare restoration costs that we calculated (using our adjusted indirect cost rates) to the restoration costs that NHS claimed for Medicare reimbursement for CYs 2015 and 2016.

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[See link at end of text for Table 3: Comparison of Allowable Restoration Costs and Claimed Restoration Costs]

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RECOMMENDATION

We recommend that Noridian Healthcare Solutions, LLC, work with CMS to ensure that its final settlement of contract costs reflects a decrease in Medicare restoration costs of $160,315 for CYs 2015 and 2016./8

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View full report at https://oig.hhs.gov/oas/reports/region7/72000591.pdf