a higher standard - palmetto gba annual report.pdf/$file/2011...five decades of exceptional service...

A Higher Standard

Five decades of exceptional service have positioned us as an industry leader, a status that brings with it pride, but also elevated expectations. It is our insistence upon rejecting complacency that propels us to the heights we have achieved, and we must continue to remain faithful to our uncompromising vision to live up to our proud name. At Palmetto GBA, we are held to a higher standard.

A Higher Standard

1

1president’s

letter

2a standard of

strong perform ance

4a standard of

unm atched integrity

11a standard of safeguarding

data

16a standard of

generosity

21a standard of

ensuring quality

26leadership

29a standard of setting best

pr actices

36by the numbers

contents

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president’s let ter

The pressure and pace of our business environment are demanding. The competition is strong. As we work diligently to maintain our current contracts through exceptional performance, we work hard to build and implement new business. Surpassing the challenges we face is certainly not easy or effortless. Not even close.

In the midst of the difficulties that accompany our industry, I am proudly optimistic. Our collective willingness to embrace and overcome even the biggest hurdles, our commitment to top-tier standards and unfailing integrity make us a leader in our business. More importantly, those actions are what earn and keep the trust of our clients.

For that honor, we owe a tremendous debt to every single Palmetto GBA associate. Their willingness to take responsibility for our company’s future demonstrates their pride in the work they do and for this company as a whole. We are also fortunate to have a committed leadership team to guide our business strategies and growth in a manner that benefits all. Our ability to grow in the past year and achieve remarkable levels of success speaks volumes about who we are, what we do and the standards we hold true.

Looking ahead to 2012, there is much to anticipate. In the capable hands of new president Joe Johnson, Palmetto GBA will no doubt continue to grow and reach new levels of accomplishment and distinction. With our associates safeguarding our integrity and working on behalf of our business partners and clients, our organization will continue our path of excellence.

bruce w. hughesPresident and COO

2

2005 2006 2007 2008 2009 2010 2011

$27 $30$36

$54

$67$59

$29

$0

$20

$40

$60

$80

∞ BENEFITS PAID IN BILLIONS 67BILLION

$

IN BENEFITS

2005

50

2006 2007 2008 2009 2010 20110

100

150

200

250

117 117 120

181203

179

98

∞ CLAIMS PROCESSED IN MILLIONS 203MEDICARE CL AIMS

PROCESSED

MILLION

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011

10.2 9.4 9.510.9 11.3

8.3

13.6

∞ BENEFICIARIES SERVED IN MILLIONS

BENEFICIARIESNATIONWIDE

MILLION

Palmetto GBA is a leading provider of technical, administrative and contact center services to the federal government. Our primary business is providing services to the Centers for Medicare and Medicaid Services (CMS), Medicare beneficiaries and Medicare providers. Palmetto GBA is one of only three Medicare contractors with experience in all Medicare business segments: Medicare Part A, Medicare Part B, Durable Medical Equipment and Regional Home Health and Hospice. Palmetto GBA has administered Medicare contracts for 46 years and currently serves approximately 13.6 million beneficiaries in all 50 states.

Palmetto GBA is comprised of more than 2,000 associates in Georgia, Illinois, Ohio and South Carolina as well as additional staff support throughout various jurisdictions. In 2011, Palmetto GBA processed more than 203 million Medicare claims and paid more than $67 billion in benefits. An undisputed reputation and com-mitment to operational excellence have resulted in ever-increasing customer satisfaction, product performance and efficiency.

A Standard of

strong performance

54

business development accomplishments

mathematica policy research | cms communit y-based care transitions program

Palmetto GBA was awarded a subcontract by Mathematica Policy Research to provide sup-port for their CMS Community-Based Care Transitions Program (CCTP) contract. The CCTP, authorized under Section 3026 of the Patient Protection and Affordable Care Act of 2010 (ACA), funds testing of care transition models for high-risk Medicare beneficiaries as they move from the hospital back into the community. We will provide technical sup-port services to CCTP partner organizations and CMS including the receipt, validation and aggregation of list bills for services and development of training materials.

sc department of health and human services | sc medicaid third part y liabilit y

Palmetto GBA won the SCDHHS SC Med-icaid Third Party Liability (TPL) contract in conjunction with the BlueCross BlueShield of South Carolina Medicaid Division. Under the contract, we are providing financial adminis-trative and information technology services.

qssi | national level repository system testing

Palmetto GBA was named a subcontractor to QSSI to support an Enterprise Systems Development (ESD) task order for testing the National Level Repository (NLR) system. This is the system CMS utilizes to track provider compliance with Electronic Health Record (EHR) incentive payments.

qssi | medicare integrit y and ansi x 12 5010 testing

Palmetto GBA was awarded several QSSI task orders in support of our Single Testing Con-tractor (STC) subcontract. While our proposal to support testing of the CMS Common Edit Module (CEM) is pending, we earned the right to provide additional contract resources related to testing of systems changes for the Medicare Integrity and ANSI X12 5010 Systems enhancements.

verizon | technical help desk services

Palmetto GBA was contracted to provide Technical Help Desk services to Verizon in support of their CMSNet data communica-tions contract with CMS.

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A Standard of

unmatched integrity

Palmetto GBA is proud to be a leader in the Medicare contracting industry. We believe integrity and leadership are as critical as diligence and technical expertise in every transaction for every customer. In a marketplace as challenging as ours, a relentless drive to achieve more value for customers is what takes us ever higher.

JURISDICTION1 A/B MAC

CA | NV | HIAmerican Samoa

Northern Marianas

NATIONAL SUPPLIERCLEARINGHOUSE MAC

United States& US Territories

JURISDICTION11 A/B MACNC | SC | VA | WV

∞ CURRENT MAJOR FEE-FOR-SERVICE CONTRACTS

RAILROADMEDICARE

United States& US Territories

“A leAder is someone who leAds by exAmple. They geT in The Trenches working Alongside you. leAdership isn’T given; iT’s eArned.”

daniel hall Finance & Accounting

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going beyond diagnosis records and claims social media strategy

Palmetto GBA established an innovative social media plan to communicate with health care stakeholders in a collaborative process aimed at preventing claims denials for “insufficient documentation.” The Going Beyond Diagnosis blog and Twitter account (@BeyondDx) are part of our strategy to increase the capacity of Medicare providers to improve the quality of their health care records and effectively decrease the claims payment error rate.

fraud identification and prevention

Palmetto GBA prevented more than $230,000 in fraudulent claims payments. After a Wheelersburg, Ohio claims processor identified a potential fraudulent provider situation, the program safeguard contractor investigated and confirmed the use of fraudulent Provider Transition Access Numbers (PTANs). Thanks to the examiner’s sharp eye, more than 1,400 claims were identified and stopped before any payments were made.

medicare statistical analysis data warehouse expansion

Palmetto GBA expanded and enhanced our analytical data warehouse in the Medicare Statistical Analysis department. The expansion, driven by growth in workload volume, and enhancements will allow us to provide enhanced analytical services, including pre-pay pattern detection against rules established to recognize fraudulent or abusive billing practices.

transition support and training

Palmetto GBA provided transition support to seven Shared System Transitions, three HIGLAS Workload Merge Transitions, and two HIGLAS Rename Transitions. Additionally, we provided training sessions to thirteen contractors.

qualit y management system recertification

Palmetto GBA accomplished a three-year recertification of our Quality Management System (QMS) to the ISO 9001 standard in June 2011. In today’s global economy companies have to keep increasing their level of performance in order to survive today’s aggressive environment and must apply effective and efficient plans. Palmetto GBA believes the ISO 9001 set of standards is one of the most accepted and respected plans in the world to help achieve these goals. We strive to meet these standards everyday, providing our customers lower cost and higher quality assurance.

securit y manager implementation

Palmetto GBA implemented the Security Manager (SM) system, which allows us to safeguard systems access controls. Security Manager automatically checks records of employee and temporary employee terminations, transfers and leaves of absence against our systems to ensure valid logical and physical access to data maintains full compliance with CMS requirements. Future system enhancements will perform many of the required manual access and violation reviews required of us under our government contracts.

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operational accomplishments

jurisdiction 11 a/b mac | implementation

Palmetto GBA successfully implemented the Jurisdiction 11 A/B MAC, which administers Medicare Part A and B fee-for-service workloads for North Carolina, South Carolina, Virginia and West Virginia, plus a 16 state home health and hospice territory. As part of the project, Palmetto GBA migrated eight different workloads from four legacy contractors, transitioned a MAC workload segment in 17 days — the shortest time frame in program history — and completed an unprecedented volume of system and financial conversions. Our client described the effort as seamless and the smoothest MAC transition ever completed. The fully operational Jurisdiction 11 A/B MAC is expected to process approximately 100 million claims annually.

cgs administrators jurisdiction 15 a/b mac contract

Palmetto GBA assumed a significant subcontractor role to CGS Administrators for the Jurisdiction 15 A/B MAC contract. Ohio and Kentucky Part A segments were successfully implemented for the Jurisdiction 15 contract on October 17, 2011.

iflow workflow management system expansion

Palmetto GBA continued the expansion, standardization and implementation of the iFlow Workflow Management System to support contract activity. This system covers all our contract operations. We also provide iFlow services to other corporate entities including PGBA, and the Medicaid Division.

online provider services portal implementation

Palmetto GBA completed the initial implementation phase of the Online Provider Services (OPS) portal. This application gives Medicare providers the ability to access information regarding Medicare claims and related customer service tools through the Internet. The application has been well received by the provider community.

mac contracts | applications architecture standardization

Palmetto GBA completed phase-I of the overall applications architecture standardization project for MAC contracts. This initiative eliminated the use of more than 20 software applications within our operational areas and allowed us to decommission 17 servers. The architectural footprint reduction allows us to more efficiently support operations and reduces systems security administration requirements. We expect to standardize our Augusta operations in 2012.

copc people process recertification

Palmetto GBA is proud to be one of the two Medicare contractors able to meet the performance standards of one of the most prestigious and rigorous performance management systems in the customer contact industry. We are currently certified to the people process standard for our Jurisdiction 11 A/B MAC contract for our Part A call center as well as our RRB call center. The COPC People Process Standard ensures the right people are hired, trained, and retained.

*Jurisdiction 11 A/B MAC figures include some savings generated under predecessor Title 18 contracts.

TOTAL

∞ MEDICARE INTEGRITY PROGRAM

Our program safeguard activities result in significant savings for Medicare. For the calendar year 2011, Palmetto GBA’s efforts resulted in the Medicare savings detailed below:

BENEFITSINTEGRITY

MEDICALREVIEW

MEDICARESECONDARYPAYER

635,833,418$

JURISDICTION1 A/B MAC

N/A

$ 205,145,849

430,687,569$

663,035,699$

JURISDICTION11 A/B MAC*

N/A

126,295,118$

536,740,581$

13,933,671$

RAILROADMEDICARE

5,524,597$

25,259$

8,383,815$

In 2011, we implemented an automated security solution that controls, reviews and certifies accesses to our CMS systems and applications. As a result, we’re able to meet all the CMS compliance requirements for these areas and can validate with supporting audit documentation to CMS.

SECURIT Y MANAGER:

A STANDARD OF SAFEGUARDING DATA

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SECURIT Y MANAGER: A Standard of Safeguarding Data

As Palmetto GBA’s workload has grown, the number of systems users has leaped past 100,000 unique users. Users have logon IDs for RACF (IBM Mainframe), and UNIX and Active Directory for web based applications and include more than 3,000 Palmetto GBA employees and sub-contractors, more than 150,000 external Online Provider Service users and more than 13,000 FISS and MCS systems users for our Jurisdiction 1 and Jurisdiction 11 A/B MAC contracts.

CMS Minimum Security Requirements (CMSRs) have also grown and changed significantly during the life of these contracts. There were 308 security updates and additions to CMSRs in 2010. In addition, CMS requires that systems access must be removed imme-diately when anyone is terminated or transferred. To meet this challenge, Palmetto GBA took a proactive, automated approach to security management, ensuring 100% real-time compliance.

After years of attempting to refine manual processes and procedures, an effort was launched to create a single automated solution for centrally managing the termination and transfer processes throughout the enterprise. This project led to the innovation of the Security Manager application: a central, point-in-time application that maintains a full history for employee, company, division, cost center and job code changes for the monitoring and control of system access. Security Manager is an in-house UNIX/Java/Oracle database application that interfaces with multiple data sources to provide Palmetto GBA with a real-time view of our computer systems and the users who have access to the systems.

SECURITY MANAGER’S CAPABILITIES INCLUDE:

∞ Reading data directly from

termination forms and automatically

removing accesses from Palmetto

GBA-controlled applications,

such as FISS and MCS

∞ Comparing every active account to

the active employee listing daily to

ensure no account is associated

with a non-active employee

∞ Reviewing logs daily to determine

data access and login violations.

The system automatically requests

verification and validation of the issue

from the user and the user’s manager

to ensure no security risk occurred

∞ Verifying verification from a user’s

manager that a user’s accesses

are appropriate and still needed

automatically on a quarterly basis

∞ Maintaining and reporting on all

activity to ensure compliance

and real time audit support

Security Manager automatically checks employee termination, transfer and leave of absence records against systems to ensure valid access to data and to maintain full CMS compliance.

Security Manager has already added value in the areas of pro-cess efficiency and compliance. In 2011, for the first time in many years, not a single termination and transfer process issue was found. Log reviews are done by one employee rather than three, with significantly fewer errors due to the reduction in manual processing.

This methodology is a leading edge best practice and allows us to fully meet and, in many cases, surpass the spirit and the letter of the security requirements in the CMSRs. Future upgrades will allow Palmetto GBA to automate creation of accounts in real time, complete with appropriate approvals and audit documentation.

Security Manager has taken an impossible-to-verify manual based security system with hundreds of thousands of users and made the process of managing systems access easy, verifiable and fully compliant. In the process, we have also made even greater strides in ensuring security and realizing significant internal cost savings.

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“EvEry company has an opportunity to improvE thE community. Forward-thinking companiEs know this and activEly contributE to thE hEalth oF thEirs.”

Gerald eichelberGere-Commerce

OHIOWheelersburg • Columbus

SOUTH CAROLINAColumbia • Florence • Camden

GEORGIAAugusta

ILLINOISSpringfield

∞ LOCATIONS

In 2011, we implemented an automated security solution that controls, reviews and certifies accesses to our CMS systems and applications. As a result, we’re able to meet all the CMS compliance requirements for these areas and can validate with supporting audit documentation to CMS.

SECURIT Y MANAGER:

A STANDARD OF SAFEGUARDING DATA

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Palmetto GBA associates give generously of their time, talents and hearts for a vast number of national and local nonprofit organizations and projects.

children’s health and well-being

≥ AJ Lewis Greenview Elementary School

≥ Angel Tree ≥ Annie Burnside Elementary School

≥ Be a Bunny ≥ Binky Patrol ≥ Bishopville Primary ≥ Camp Kemo ≥ Dreher High School ≥ Epworth Children’s Home ≥ Firefighters 4 Kids Toy Drive ≥ Franklin County Children’s Services

≥ Heart Warming Tree ≥ JP Thomas Elementary School

≥ Junior Achievement ≥ Juvenile Diabetes Research Foundation

≥ Kershaw Children’s Home ≥ March of Dimes ≥ North Central Middle School ≥ Palmetto Place Children’s Emergency Shelter

≥ Palmetto Richland Children’s Hospital

≥ Shriners Hospitals for Children

≥ St. Jude Children’s Hospital ≥ Toys for Tots

disease prevention and management

≥ Alzheimer’s Association ≥ American Cancer Society ≥ American Cancer Society — Relay for Life

≥ American Heart Association ≥ American Red Cross ≥ Heart Fund ≥ Hospice of Portsmouth ≥ Huntington Disease Society of America

≥ Komen Race for the Cure ≥ Palmetto Health Foundation ≥ Ronald McDonald House ≥ Shepeard Community Blood Center

health and human services

≥ A Call to Service – Homeless Breakfast

≥ Alvis House ≥ Angels House ≥ Canned Food Drives ≥ Cell Phones for Soldiers ≥ Coats for Kids and People in Need

≥ Community Care Day ≥ Dorn VA ≥ Families Helping Families ≥ Feeding the Homeless ≥ Golden Harvest Food Drive

≥ Harvest Hope Food Bank ≥ Lexington Race for Hunger ≥ MLK Day ≥ Meals on Wheels ≥ Mid-Ohio Food Bank ≥ Midlands Reading Consortium

≥ Salvation Army ≥ Scioto County Homeless Shelter

≥ Sistercare ≥ Sistercare of Kershaw County ≥ United Way ≥ United Way Day of Caring ≥ Women’s Shelter

animal protection

≥ Louisville Weimaraner Rescue

≥ Pets, Inc. ≥ Palmetto Animal Assisted Life Services

≥ Greyhound Pets of America

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american heart association’s start! heart walk

The American Heart Association (AHA) is committed to building better lives free of heart disease and stroke. The annual Start! Heart Walk brings together co-workers, friends and family members to fight heart disease through heart-healthy living and physical activity. In 2011, Palmetto GBA associates raised more than $7,559 in dona-tions and walker sponsorships to support this life-saving organization.

united way

United Way builds a stronger America by mobilizing communities to build stronger lives. In 2011, BlueCross associates contrib-uted a record-high $2.1 million to the annual United Way campaign, including Palmetto GBA associates who contributed more than $275,000 to the corporate total.

the march of dimes

The March of Dimes (MOD) is the leading nonprofit organization for pregnancy and infant health. They work for healthier infan-cies by preventing birth defects, premature birth and infant mortality. In 2011, Palmetto GBA associates contributed to the $73,452 that BlueCross raised for the 2011 March of Dimes Walk America campaign.

corporate social responsibilit y

A Standard of

generosity

Palmetto GBA associates bring strength and service to their communities. As we celebrate another year of unprecedented service and contributions, we applaud each effort — from large corporate initiatives to small local projects. We believe every act of service has importance. Together, we make a difference.

OVER

LOCAL AND NATIONALORGANIZATIONS

SUPPORTED

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Kim WoodardCompetitive Bidding Implementation Contractor

“Ambition, integrity

And believing thAt All

things Are possible Are

principles we should

All strive to live by.”

jason cooperFinance & Accounting

“we’re proud to deliver a product or service that exceeds the customers’ expectations.”Stefania MackMedical Review, Jurisdiction 11 A/B MAC

MOLECULAR DIAGNOSTICS:

A STANDARD OF ENSURINGQUALITY

We have created a process to uniquely identify every molecular assay/test performed by molecular diagnostic labs in the Jurisdiction 1 A/B MAC. This program validates test processes and determines the test’s medical necessity. In addition, the process establishes reimbursement for new tests, and reviews and makes reimbursement change updates to CMS for existing tests.

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Palmetto GBA, in partnership with CMS, developed the Molecular Diagnostic Services Program (MolDx) Project to modernize coverage and reimbursement for molecular diagnostic tests in the Medicare beneficiary population. The program defines a clear, evidence-based process to manage services, measure the impact services have on cost and care, and to ensure clinical quality. The MolDx program will cover the Jurisdiction 1 A/B MAC (J1) service area, which includes California, Nevada, Hawaii and the US Pacific Territories of Guam, American Samoa and the Northern Marianas.

Molecular diagnostic testing is useful in identifying individuals at increased risk of developing certain disorders, screen-ings and patient diagnosis, determining disease prognosis, drug metabolism testing and therapy response monitoring. Molecular diagnostic testing also plays a critical role in personalized medicine.

Molecular diagnostics utilizes genetic markers and other genetic details to go beyond simple diagnostics. These tests identify specific patients who will respond to specific drugs and aid in developing highly targeted drug therapies. Molecular diagnostic testing can determine if a medication will work for a patient, thus preventing unnecessary suffering of as-sociated side effects and often significant cost savings. Molecular analysis also read-ily provides specific identification of dis-ease organisms and tumor identification.

With all its benefits, however, molecular diagnostics has an archaic coding system based on the steps to perform the tests versus coding for the actual test. That means six labs performing an identi-cal molecular test can each submit different code “stacks” representing the steps of the test and each receive a different reimbursement depending on the stack (or steps) submitted.

A further complication is that labs can develop their own molecular analysis steps or laboratory developed tests (LDTs). These tests do not have FDA approval or

clearance. Unfortunately, a process does not exist to ensure analytical and clinical validation, and most importantly, clinical utility for a test. A lab or test developer can submit claims without analytical and clinical validation; meaning they cannot prove the test does what it’s intended to do. In the current environment, a lab can submit claims and get paid regardless of test quality, whether the test improves clinical outcomes or is used by the physi-cian to manage the therapy of a patient. Worse, payment is based on “the more you do (bill), the more you get reimbursed.”

The existing laboratory coding system is proven inadequate and will be even more so when confronted with next generation molecular testing. It doesn’t provide data to determine the medical necessity of the test result that is being billed. Beyond bill-ing, there currently is no process to assess the quality and appropriate utilization of the LDTs outside of Federal Drug Admin-istration (FDA) approvals. Finally, there is no process to determine the appropriate reimbursement for the specific assays.

To address these issues, Palmetto GBA’s MolDx program developed a process to uniquely identify every molecular assay/test performed by every lab in J1 through a defined registration methodology. Each test is assigned a unique identifier used with their claim submission. MolDx requires that all new assays undergo a technical assessment prior to submitting claims to J1 to validate test process and

medical necessity. MolDx will determine reimbursement for new tests, and review and make reimbursement change updates to CMS for existing tests.

Palmetto GBA’s MolDx Program has already achieved much success and is creating a Center of Excellence in molecular diagnostics. The molecular diagnostic team is supporting the US Department of Health and Human Services (HHS) “One HHS” (one Health and Human Services) concept for its collabora-tion between CMS, the National Institutes of Health (NIH) and the FDA as the three agencies are working together on this project. Specifically, MolDx is addressing the science review and medical necessity objectives of the col-laborators. The NIH Genetic Test Registry has reached out to Pal-metto GBA to establish identical data fields so that both can share lab data. The FDA has requested examples of Palmetto GBA’s mo-lecular diagnostic analysis Tech Assessments. The CMS Coverage and Analysis Group (CAG) is coordinating the information exchange among Palmetto GBA, NIH and the FDA.

CMS has directed the Depart-ment of Justice (DOJ)/Office of Inspector General to consult with the Palmetto GBA molecular diag-nostic team on multiple issues/in-quires and the team has received national recognition in coding, coverage and reimbursement.

Since the kickoff, MolDx has been featured in a number of trade journals, and has received recognition from the White House Office of Medical Science and Technology Policy. CMS administrators have received sup-portive letters and emails that the project is doing the “right thing for the right reasons” not only from J1 jurisdiction lab CEOs, but also from labs throughout the United States.

MolDx is helping define a much-needed standard for a new gen-eration of diagnostics. Our work in molecular diagnostics will have a pivotal role in advancing patient care and treatment. An important segment of medicine will finally have a clear, finely tuned reimbursement process that’s informed by quality of care rather than quantity.

MOLECUL AR DIAGNOSTICS: A Standard of Ensur ing Qualit y

The MolDx program will provide molecular diagnostics providers with a clear, finely tuned reimburse-ment process that’s informed by quality of care rather than quantity.

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MOLECULAR DIAGNOSTICS:

A STANDARD OF ENSURINGQUALITY

We have created a process to uniquely identify every molecular assay/test performed by molecular diagnostic labs in the Jurisdiction 1 A/B MAC. This program validates test processes and determines the test’s medical necessity. In addition, the process establishes reimbursement for new tests, and reviews and makes reimbursement change updates to CMS for existing tests.

2726

Bruce HugHes

President and Chief Operating Officer

corporate officers

ann arcHiBald

Vice President and Compliance Officer

Joe JoHnson

Vice President, Systems and Support/EDI

elaine garrick

Vice President, Support Operations

Jean catalano

Assistant Vice President, Competitive Bidding Implementation Program Manager

dedee rowe

Secretary

roBin spires

Vice President, Shared Services

sHeri tHompson

Assistant Vice President, SC Operations

Joe wrigHt

Vice President and Chief Financial Officer

mike Barlow

Vice President, Jurisdiction 1 A/B MAC Operations

neal BurkHead

Vice President, Jurisdiction 11 A/B MAC Operations

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BoB leicHtle

Treasurer Not Pictured

board of directors

pictured left to right:

t. Jeffrey littlefield

Vice President, PGBA, LLC

m. edward sellers

Chairman, Board of Directors, BlueCross BlueShield of South Carolina

ilene H. nagel

Russell Reynolds Associates, Managing Director

david pankau

Chairman, Board of Directors, Palmetto GBA, LLC and President/CEO BlueCross BlueShield of South Carolina

lelia wrigHt

Retired, Blue Cross Blue Shield of Texas

Bruce w. HugHes

President, Government Programs Division, BlueCross BlueShield of South Carolina

col. roBert e. sHields

Retired, Humana Military Healthcare Services (TRICARE)

leadership

“The knowledge I have gaIned aT PalmeTTo gBa Is ImmeasuraBle and The oPPorTunITy To share ThaT knowledge Is InvaluaBle.”

roddrick whitakerMedical Review, Jurisdiction 15 A/B MAC

GOING BE YOND DIAGNOSIS:

A STANDARD OF SETTING BEST PRACTICES

In 2011, we established Going Beyond Diagnosis ®, an innovative social media strategy to communicate with health care stakeholders in a collaborative process aimed at preventing claims denials for “insufficient documentation.”

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As patient-centered health care prepares to move to center stage, there is a notable docu-mentation gap providers will face in delivery. Health care stakeholders from hospitals to physicians’ practices are working diligently to develop strategic plans that support delivery of evidence-based, patient-centered care, however many lack the documentation infrastructure to support the data and communication of a patient-centered patient care model.

Knowing communication failures are the number-one cause of Medicare claims denials, Palmetto GBA is making a concentrated effort to help providers adjust to the new reality by giving them a forum to share best practices and useful information. Our Going Beyond Diagnosis (GBD) is an innovative strat-egy to help limit Medicare denials by supporting the dissemination of best practices and process improvements that can help Medicare providers as they transition to a new patient care model.

GBD utilizes social media to help sup-port the incorporation of the concepts of the International Classification of Functioning, Disability and Health (ICF) into health care records.

The ICF taxonomy classification system is one of many international classification standards developed by the World Health Organization. Much like the International Classification of Diseases (ICD), which provides standard coding and language for diseases, disorders and injuries, the ICF classification offers language and framework for health and health-related states that are more than simply a diag-nosis. It’s a language developed to code and communicate functioning, disability, environmental factors and other related areas that contribute to health. It offers domains and categories that are not a part of the ICD.

ICF gives health care providers a platform to move beyond a diagnosis, giving them standards and a language to capture and communicate clinically relevant, patient-centered data. Equally important, the ICF can also provide a framework for documenting adherence to administrative requirements of health care third-party payers or quality initiatives. While ICF offers many opportunities for capturing granular information, it is hampered by being a relatively new taxonomy with over 1,400 codes.

The implementation of ICD-10-CM, electronic health records, and effective quality assurance and process improve-ment programs can benefit greatly from the ICF’s language and structure adding depth and meaning to documentation that surpasses a diagnosis.

Over the past decade we’ve incorporated ICF concepts into health care policy and education. These efforts have led to an increased interest in ICF among health care stakeholders submitting claims to Palmetto GBA. The GBD social media strategy evolved from stakeholders who sought practical methods for incorporat-ing the concepts of the ICF into their care and quality processes. The blog offers a platform to discuss the challenges and complexities of communicating health care encounters and learn potential solu-tions to identified root causes for specific communication errors.

The Going Beyond Diagnosis blog and @BeyondDx Twitter account are online tools to disseminate and share valuable information. Medicare providers can access information and best practices that will enable them to solidify and refine the quality of their health care records, effectively decreasing the claims payment error rate over time.

GOING BE YOND DIAGNOSIS: A Standard of Set t ing Best Prac t ices

THE OBJECTIVES OF THE GBD BLOG ARE TO:

∞ Provide a collaborative

online space for sharing

experiences with ICF

∞ Create ICF code sets that

make using ICF easier

∞ Develop ICF-based

case scenarios to help

improve education and

awareness of ICF

∞ Improve the quality of the

information supporting

clinical services

The first topic of the GBD blog is communicating neurological conditions in the Inpatient Rehabilitation Facility (IRF) and Hospice and Palliative Care (Hospice) environments.

We collaborated with interdisciplinary workgroups of IRF and Hospice clinicians to develop the code sets. If our readers would like to contribute to either of the codes sets, they’re encouraged to leave a comment below the post. Stakeholder input is valued and will help promote effective communication among health care providers and payers.

The GBD Blog and its accompanying @BeyondDx Twitter account are part of what we hope will be a useful resource for Medicare providers. The success of the social media approach depends on active participation and collaboration, so we invite contributors to join the online community by visiting the blog at palmgba.com/gbd/ or following @BeyondDx on Twitter.

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“SucceSSful companieS Seek out innovative approacheS to doing buSineSS.”

Jennifer nguyen Finance & Accounting

GOING BE YOND DIAGNOSIS:

A STANDARD OF SETTING BEST PRACTICES

In 2011, we established Going Beyond Diagnosis ®, an innovative social media strategy to communicate with health care stakeholders in a collaborative process aimed at preventing claims denials for “insufficient documentation.”

“you gain more in life By pusHing yourself. limitations and fear come from you, not otHers.”

meryle greveSystems & EDI

Ryan LewisMSAD Research and Analysis

3736

board of directors

palmet to gba, llc

We have audited the accompanying balance sheets of Palmetto GBA, LLC as of December 31, 2011 and 2010, and the related statements of operations, changes in member’s equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Palmetto GBA, LLC at December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

February 21, 2012

report of independent auditors

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by the numbers

report of independent auditors ……………………………………………… 37

audited financial statements

Balance Sheets ………………………………………………………………………………… 38Statements of Operations ………………………………………………………………… 39Statements of Changes in Member’s Equity ……………………………………… 39Statements of Cash Flows ………………………………………………………………… 40Notes to Financial Statements …………………………………………………… 41–52

3938

$ 236,156

230,172

5,984

1,086

7,070

2,004

$ 5,066

$ 248,023

239,467

8,556

(2,230)

6,326

2,096

$ 4,230

2011 2010

statements of operations (In thoUsands)

revenues

total revenues

expenses

total expenses

gain from operations

Investment (loss)/income

Income before income taxes

provision for income taxes

net income

statements of CHanGes in memBer’s eQuitY (In thoUsands)

$ 58,847

5,066

126

64,039

4,230

(126)

$ 68,143

Balance January 1, 2010

net income

Unrealized gain on investments (net of $68 in deferred income tax)

Balance decemBer 31, 2010

net income

change in unrealized gain on investments (net of $68 in deferred income tax)

Balance decemBer 31, 2011

$ 28,461

–

–

28,461

–

–

$ 28,461

$ 30,386

5,066

–

35,452

4,230

–

$ 39,682

$ –

–

126

126

–

(126)

$ –

contributed capital

retained earnings

accumulated other

comprehensive income total

year ended december 31

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The accompanying notes are an integral part of these financial statements.

palmetto gba, llc

(a single-member, limited liability company owned by BlueCross BlueShield of South Carolina)

$ 13,092

8,282

23,449

208

45,031

68

68

28,461

35,452

126

64,039

$ 109,138

$ 14,380

7,579

19,762

224

41,945

1,601

1,601

28,461

39,682

–

68,143

$ 111,689

assets

current assets:

cash and cash equivalents

accounts receivable, net

accounts receivable from affiliates

accrued revenue

prepaid expenses

deferred income taxes

total current assets

long-term assets:

Fixed assets, net of accumulated depreciation of $27,508 and $27,005 in 2011 and 2010, respectively

long-term investments

Investments in affiliates


total long-term assets

total assets

liaBilities and memBer’s equity

current liabilities:

accrued payroll, taxes and benefits

payable to parent

other liabilities


total current liabilities

long-term liabilities:


total long-term liabilities

member’s equity:

contributed capital

retained earnings

accumulated other comprehensive income

total member’s equity

total liaBilities & memBer’s equity

2011 2010

BalanCe sHeets (In thoUsands)

$ 18,774

35,241

1,403

33,580

1,561

3,505

94,064

4,458

4,207

6,123

286

15,074

$ 109,138

$ 9,879

35,484

2,437

41,425

1,998

3,190

94,413

5,239

2,670

9,367

–

17,276

$ 111,689

year ended december 31


palmetto gba, llc


4140

note 1 basis of presentation and summary of

significant accounting policies

Palmetto GBA, LLC (the Company) is a single-member limited liability company organized on January 1, 1998. The Company’s sole member is Blue Cross and Blue Shield of South Carolina (BCBSSC). The Company is engaged in the business of providing Medi-care Administrative Contractor Services, Medicare Part A fiscal intermediary services and Medicare Part B carrier services in various states. These services include health insurance claims processing and payment, customer service for health care providers, and payment safeguard functions designed to detect and prevent fraud and abuse in the Medicare program. The Company provides services to Medicare beneficiaries residing in various states and territories. The Company’s major customer is the Centers for Medicare and Medicaid Services (CMS), the federal agency with fiduciary responsibility for the Medicare program.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial state-ments in conformity with GAAP requires management to make estimates and assump-tions that affect the reported amounts of assets and liabilities at the date of the finan-cial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant accounting policies and the methods of applying those policies are sum-marized below.

cash equivalents

Cash equivalents represent certificates of deposit that have maturities of less than three months at date of purchase and money market fund investments. Market risk for cash and cash equivalents is limited to any one institution when deposits exceed feder-ally insured limits.

financial instruments

The Company holds certain financial instru-ments including cash and accounts receiv-able. Management believes that the carrying values of financial instruments approximate fair value as required by Financial Account-ing Standards Board (FASB) rules.

subsequent events

Subsequent events have been evaluated through February 21, 2012, which is the date the financial statements were available to be issued.

asset valuation allowances

The Company recorded an allowance for uncollectible receivables in the amount of $3,000 and $3,000 at December 31, 2011 and 2010, respectively.

fixed assets

Fixed assets are stated at amortized cost. Depreciation on new assets purchased is computed using the straight-line method over the estimated useful lives of the respec-tive assets: four to eight years for furniture

notes to finanCial statements

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palmetto gba, llc


casH flows from operating activities

net Income

adjustments to reconcile net income to net cash provided from operating activities:

depreciation

amortization on bonds

realized (gain)/loss on investments

equity in income of affiliates

deferred income tax provision

changes in operating assets and liabilities:

(Increase) in accounts receivable

(Increase) in receivables from affiliates

(Increase)/decrease in accrued revenue

(Increase) in prepaid expense

Increase/(decrease) in accrued payroll, taxes and benefits

(decrease)/increase in payable to parent

(decrease)/increase in other liabilities

net cash (used in)/provided from operating activities

casH flows from investing activities

capital contribution to affiliate

Fixed assets purchased

Fixed assets sold

Investments sold : available-for-sale

Investments purchased: held-to-maturity

Investments purchased: available-for-sale

net cash (used in) investing activities

net (decrease) in cash and cash equivalents

cash and cash equivalents beginning of year

cash and cash equivalents end of year

supplemental disclosures of cash paid during the year for: income taxes

statements of CasH flows (In thoUsands)

$ 5,066

1,594

4

127

950

(1,339)

(10,010)

(463)

4,567

(207)

(1,826)

988

6,405

5,856

$ 4,230

670

32

(347)

2,806

2,218

(243)

(1,034)

(7,845)

(437)

1,288

(703)

(3,687)

(3,052)

(5,000)

(1,824)

–

956

(1,547)

(3,553)

(10,968)

(5,112)

23,886

$ 1 8,774

$ 2,072

(6,050)

(1,525)

74

3,144

(1,159)

(327)

(5,843)

(8,895)

18,774

$ 9,879

$ 3,058

2011 2010year ended december 31


palmetto gba, llc


4342

investments

Investments are comprised of common stocks, bonds and money market mutual funds. These assets are accounted for in accordance with FASB guidance which requires that fixed maturities are to be classified as either “held-to-maturity,” “available-for-sale,” or “trading.”

Management determines the appropriate classification of its fixed maturity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Fixed maturity securities are classified as held-to-maturity when the Company has the positive intent and ability to hold them to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization as well as interest earned is included in invest-ment income.

revenue recognition policies

The Company recognizes revenue on the Jurisdiction 1 A/B MAC, Jurisdiction 11 A/B MAC, Single Testing Contractor, CBIC, NSC MAC and Train the Trainer contracts on cost plus a fixed fee basis. Award fees, if applica-ble, for these contracts are recognized based upon historical performance or management estimates if no historical data is available.

The Company recognizes revenues based upon allowable costs incurred which are

reimbursable under the terms of the Medi-care Part A Fiscal Intermediary subcontract between the Company and the Blue Cross Blue Shield Association (BCBSA) (this in-cludes the Regional Home Health Intermedi-ary subcontract), the Medicare Part B Carrier Services contract between the Company and CMS and the Railroad Retirement Board Part B Carrier contract between the Company and the Railroad Retirement Board.

The Company recognizes revenue on the DDI System Access, CSSC and various other contracts when services are performed and billable.

income taxes

The Company adopted the authoritative guidance on accounting for and disclosure of uncertainty in tax positions on January 1, 2009, which required the Company to determine whether a tax position of the Com-pany is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the posi-tion. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The tax position determination did not have a material effect on the Company’s financial statements.

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and fixtures, three to five years for data processing equipment and software, and four years for automobiles. Leasehold improve-ments are depreciated over the lesser of the remaining lease term or estimated useful life of the asset. Depreciation on used assets purchased is computed by using the straight-line method over the estimated remaining useful lives at the time of purchase of the respective assets.

Assets, liabilities and results of operations for TriCenturion, Inc. were as follows (in thousands):

Assets, liabilities and results of operations for HAAA, LLC, were as follows (in thousands):

In 2010, the Company acquired a 50% interest in Healthcare Admin-istration Association of America, LLC (HAAA) that is accounted for using the equity method. The Company’s proportionate share of earnings or losses of this affiliate are reflected in income as earned. The Company has received no dividends or distributions related to this investment.

$ 10,427

$ 4,121

$ 558

assets

liaBilities

net income

$ 10,798

$ 4,315

$ 177

2011 2010year ended december 31,

$ 14,375

$ 3,167

$ (4,441)

$ 17,587

$ 5,210

$ (5,401)

assets

liaBilities

net loss


investment in affiliates

The Company has a 25% interest in TriCen-turion, Inc. that is accounted for using the equity method. The Company’s proportionate share of earnings or losses of this affiliate are reflected in income as earned and dividends or distributions are credited against invest-ment in affiliate when received. The Com-pany received dividends of $0 and $500,000 at December 31, 2011 and 2010, respectively.


4544

$ 201

25,190

7,335

21

32,747

(27,508)

$ 5,239

note 2 fixed assets

Fixed assets consist of the following (in thousands):

note 3 investments

Long-term investments consist of the following (in thousands):

leasehold improvements

equipment, furniture and fixtures

software

automobiles

accumulated depreciation

$ 439

24,041

6,962

21

31,463

(27,005)

$ 4,458

Depreciation expense was $670,000 and $1,594,000 for the years ended December 31, 2011 and 2010, respectively.

$ 2,670

$ 2,670

$ 1,543

1,543

2,470

$ 4,013

$ 91

$ 91

$ 15

15

280

$ 295

$ 57

$ 57

$ 4

4

86

$ 90

$ 2,704

$ 2,704

$ 1,554

1,554

2,664

$ 4,218

decemBer 31, 2011

held-to-maturity securities:

corporate bonds

total held-to-maturity securities

decemBer 31, 2010


corporate bonds

total held-to-maturity securities

available-for-sale securities:

common stocks

total long-term investments


amortized cost or cost

gross unrealized

gains

gross unrealized

losses fair value

amortized cost or cost

gross unrealized

gains

gross unrealized

losses fair value

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The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where appli-cable. As of December 31, 2011, the tax years 2008 forward remain subject to examination by the federal tax jurisdiction under the statute of limitations.

If applicable, the Company accrues interest and penalties that may be assessed by the taxing authorities on any underpayment of tax. As of December 31, 2011, the Company had not accrued any interest and penalties related to income tax accruals.

fair value measurements

The Company adopted the provision of Accounting Standards Codification (ASC) 820 effective 2009. ASC 820 establishes a frame-work for measuring the fair value of assets and liabilities recognized in the financial statements in periods subsequent to initial recognition. The adoption did not impact the Company’s results of operations, cash flows or financial position.

new accounting matters

The Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2011-04, Fair Value Measurement. This standard clarifies the FASB Board’s intent in regards to highest, best use and valuation premise concepts, measurement of financial instruments included within the reporting entity’s shareholder’s equity, and affirms the disclosure of quantitative information relat-ed to level 3 assets. This standard is effective for fiscal years beginning after December 15, 2011. The Company does not anticipate that ASU 2011-04 will have a material impact on the Company’s financial statements.

The FASB issued ASU 2011-05, Comprehensive Income. This standard eliminates the presen-tation of accumulated other comprehensive income within the Statements of Changes in Member’s Equity and instead requires accu-mulated other comprehensive income to be presented either in a single statement of com-prehensive income along with net income or as a separate financial statement. This standard is effective for fiscal years ending after December 15, 2012. The Company does not anticipate that ASU 2011-05 will have a material impact on the Company’s financial statements.


4746

fair value measurements

The Company’s financial assets carried at fair value have been classified, for disclosure pur-poses, based on a hierarchy defined by FASB. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The levels of the fair value hierarchy are as follows:

level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date.level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.level 3 – Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

$ –

2,664

$ 2,664

$ 1,554

-

$ 1,554

$ –

-

$ –

$ 1,554

2,664

$ 4,218

decemBer 31, 2010


corporate bonds

available-for-sale securities:

common stocks

total

level 1 level 2 level 3 total

The Company has no assets or liabilities that are measured at fair value on a recurring basis in 2011. Fair Value of assets and liabilities measured on a recurring basis at December 31, 2010, are as follows (in thousands):

The Company measures certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the years ended December 31, 2011, and December 31, 2010, the Company did not record any other-than-temporary impairments on those assets required to be measured at fair value on a nonrecurring basis.

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The fair value of available-for-sale securities with unrealized losses was $0 and $715,000 at December 31, 2011 and 2010, respectively. The Company monitors investment securities for other than temporary declines in fair value. In determining whether a decline in fair value is other than temporary, consideration is given to the extent of the decline, the length of time fair value has been below cost, and other relevant factors including estimated future cash flows. None of the unrealized losses at December 31, 2011, were considered other than temporary.

$ –

2,348

356

$ 2,704

$ –

2,334

336

$ 2,670


due in one year or less

due in one year through five years

due in five years through ten years

total Held-to-maturity

book value market value

There were gross realized gains of $428,000 and $16,000 for the years ended December 31, 2011 and 2010, respectively, and there were gross realized losses of $80,000 and $143,000 for the years ended December 31, 2011 and 2010, respectively, that were included in net investment income. Gross unrealized holding gains and losses on securities classified as available-for-sale are reported in accumulated other comprehensive income in the accompanying balance sheets. No cash or assets are pledged or restricted for any purpose.

For held-to-maturity investments in an unrealized loss position at December 31, 2011, the aggregate amount of unrealized loss that had been in an unrealized loss position for less than twelve months was $57,000 and the aggregate estimated fair value was $501,000. Held to maturity investments in an unrealized loss position for more than twelve months was $0 in the aggregate and the aggregate estimated fair value was $0.

The amortized cost and estimated market values of held-to-maturity debt securities, by contractual maturity, at December 31, 2011, are as follows (in thousands):


4948

Deferred tax assets and liabilities are classified as current and long-term based on the classification of the related asset or liability, as follows (in thousands):

$ 3,190

-

$ 3,190

$ 224

1,601

$ 1,825

$ 1,365

$ 3,505

286

$ 3,791

$ 208

68

$ 276

$ 3,515

deferred tax assets:

current

long-term

deferred tax liabilities:

current

long-term

net deferred tax asset

note 5 related parties

The Company is a single-member limited liability company owned by BCBSSC. Certain offices, other facilities and services are pro-vided by BCBSSC pursuant to an administra-tive services agreement. Expenses associated with the administrative services agreement allocated from BCBSSC to the Company totaled $62,374,000 and $63,332,000 for the years ended December 31, 2011 and 2010, respectively. The Company paid $85,480,000 and $84,559,000 during the years ended

December 31, 2011 and 2010, respectively, to BCBSSC for expenses paid on behalf of the Company.

There are certain administrative services provided by the Company to BCBSSC and its subsidiaries. The Company received $10,672,000 and $9,335,000 for these services during the years ended December 31, 2011 and 2010, respectively.


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note 4 income taxes

The Company’s operations are included in the consolidated federal income tax return of BCBSSC. Under a written tax-sharing agree-ment, BCBSSC allocates the tax provision to each company within the consolidated group based upon the company’s proportionate share of the consolidated federal income tax liability computed on a stand-alone basis, multiplied by the total consolidated federal income tax return liability.

The Company had income tax receivables from BCBSSC of $1,147,000 at December 31, 2011, and income tax payables to BCBSSC of $1,870,000 at December 31, 2010, which are included in net receivables and payables to the parent. The Company made payments to BCBSSC for income taxes of $3,058,000 and $2,072,000 during the years ended December 31, 2011 and 2010, respectively.

$ 3,343

(1,339)

$ 2,004

$ (122)

2,218

$ 2,096

current

deferred

total income taxes incurred

Unrealized losses on investments charged directly to equity have been reduced by deferred income tax benefit of $68,000 for the year ended December 31, 2011. Unrealized gains on investments credited directly to equity have been reduced by deferred income tax expense of $68,000 for the year ended December 31, 2010.

The provision for income taxes differs from the amount computed by applying the federal statutory tax rate of 35% to income before

income taxes primarily due to changes in the tax contingency reserve, investment in sub-sidiaries, and the dividends received deduc-tion allowed for tax purposes. The temporary differences that give rise to deferred tax assets and liabilities are primarily related to accrued expenses, fixed assets, and prepaid expenses. There was no valuation allowance at December 31, 2011 and 2010.

2011 2010

year ended december 31,

The Company recognized a provision for income taxes as follows (in thousands):


5150

The Company has entered into certain non-cancelable operating leases in excess of one year as of December 31, 2011. The future minimum lease payments required under these leases are as follows (in thousands):

Total rent expense was $3,545,000 and $3,523,000 during the years ended December 31, 2011 and 2010, respectively. The majority of the Company’s leases are guaranteed by BCBSSC.

In the ordinary course of business, there are various legal proceedings pending against the Company. Management believes the aggregate liabilities, if any, arising from legal actions would not have a material adverse effect on the financial position of the Company.

2012

2013

2014

2015

2016

total

$ 2,539

1,050

1,053

946

946

$ 6,534

year ending december 31, amount

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note 6 commitments and contingencies

A financial guarantee has been issued by BCBSSC, which equals the Company’s estimated annual net operating expenses multiplied by 8.33%, less current capitaliza-tion. This guarantee is estimated to be $0 at December 31, 2011. BCBSSC has also executed an indemnification agreement, pursuant to minimum reserve and other requirements established by the Blue Cross and Blue Shield Association (“BCBSA”). BCBSSC is therefore liable to the Company to the extent of its financial guarantee and to the BCBSA to the full extent of its assets for any claims asserted against the BCBSA resulting from the contractual and financial obligations of the Company arising out of its Medicare Part A subcontract with the BCBSA.

In consideration of the novation of the fiscal intermediary and carrier contracts from BCBSSC to the Company, BCBSSC has issued a financial guarantee which equals 20 percent of the administrative costs of the contracts contained in the Notice of Budget Approval, less current capitalization. This

guarantee is estimated to be $0 at December 31, 2011. The financial guarantee agreement remains in effect until both the contracts and intermediary agreement expire, are non-renewed or are terminated, and closing agreements are executed.

In addition, BCBSSC has executed a statuto-rily required financial guarantee of $75,000 on behalf of the Company in order for the Company to obtain a Third Party Administra-tor’s license pursuant to the South Carolina insurance laws.

The Company recorded an estimated con-tingent liability for potential repayments of costs claimed on its contracts with CMS. The liability was $5,075,000 and $4,895,000 at December 31, 2011 and 2010, respectively.

The Company is obligated for additional capital contributions of up to $726,000 and $700,000 to its affiliates TriCenturion, Inc. and HAAA, respectively.


52

note 7 employee benefit plans

The Company’s employees are part of the 401(k) plan sponsored by BCBSSC. Eligible employees may defer up to 50% of their salary and the Company matched 50% of the first 6% deferred in 2011 and 2010. For employees hired after January 1, 2003, there is a 2-year cliff-vesting schedule on the match contribu-tion. For certain employees not covered by the BCBSSC defined benefit pension plan, the Company makes a discretionary contribu-tion to the 401(k) plan which is 50% vested for employees with one year of service and fully vested for employees with two years of service. Employees must be employed on the last day of the year to be eligible for the

discretionary contribution, unless termi-nated during the year due to retirement (age 55 and 5 years of service), death or disability. The discretionary contribution for 2011 and 2010 was 6% of salary.

The cost of providing the 401(k) contribu-tion was $3,478,000 and $3,370,000 for the years ended December 31, 2011 and 2010, respectively. The pension expense allocated to the Company under the BCBSSC pension plan was $5,427,000 and $5,601,000 for the years ended December 31, 2011 and 2010, respectively.


BlueCross and BlueShield are registered marks of the Blue Cross and Blue Shield Association, an association of independent Blue Cross and Blue Shield Plans.

The Palmetto GBA logo and Partners in Excellence are registered marks of Palmetto GBA, LLC.

COPC-2000® is a registered trademark of the Customer Operations Performance Center, Inc.

ISO within this context is the sole property of the International Organization for Standardization.

po box 100190columbia, sc 29202palmettogba.com

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