Audit of Medicare Part B Administrative Costs for the Period October 1, 2006, Through September 30, 2008, at Wisconsin Physicians Service Insurance Corporation

Administrative costs claimed by Wisconsin Physicians Service (WPS) on its fiscal years (FY) 2007 and 2008 Final Administrative Cost Proposals (FACP) were generally reasonable, allowable, and allocable and in compliance with the Federal Acquisition Regulation (FAR) and other applicable criteria. However, WPS reported unallowable costs totaling $3.5 million, including overstated indirect costs ($2.6 million), subcontracts ($300,000), equipment ($269,000), outside professional services ($212,000), travel ($92,000), miscellaneous ($14,000), and other ($4,000).

The legacy Medicare Part B contract between CMS and WPS provides that, when claiming costs, WPS must follow cost reimbursement principles contained in part 31 of the FAR and other applicable criteria. After the close of each FY, WPS submits to CMS an FACP reporting Medicare administrative costs. The FACP and supporting data provide the basis for the CMS contracting officer and contractor to negotiate a final settlement of allowable administrative costs.

We recommended that WPS decrease its FY 2007 FACP by $1.7 million and decrease its FY 2008 FACP by $1.8 million to eliminate the unallowable costs identified in this report. WPS partly agreed and partly disagreed with our findings.