Review of Pension Segmentation Requirements at The Regence Group, a Terminated Medicare Contractor, for the Period of January 1, 1997, to January 1, 2006

The Regence Group (Regence), a Centers for Medicare and Medicaid Services (CMS) contractor, did not comply with the Medicare contract's pension segmentation requirements while updating the Medicare segments' assets from January 1, 1997, to January 1, 2006.  As a result, Regence overstated the Oregon Medicare segment assets by $1.75 million and understated the Utah Medicare segment assets by $28,000.  Regence administered both Medicare Part A and Part B operations under cost reimbursement contracts with CMS until the contractual relationship was terminated November 30, 2005. 

In addition, the Cost Accounting Standards require a segment closing adjustment to recognize Medicare's share of the excess pension liabilities as a result of the termination of a Medicare contract.  Regence did not calculate Medicare's share of the excess pension liabilities.  We calculated Medicare's share of the excess pension to be $1.74 million ($1.02 million for Oregon and $722,000 for Utah).

We recommended that Regence (1) decrease the Oregon Medicare segment pension assets by $1,749,136 and increase the Utah Medicare segment pension assets by $28,000 as of January 1, 2006, and (2) recognize $1.74 million as Medicare's share of the excess pension liabilities attributable to the segment closing calculation.  Regence concurred with our audit results but took exception to the value of the participant liabilities used in the calculation of the segment closing.  Regence also stated that the Oregon Medicare Data Center was not included in the segment closing and that it would submit a separate claim to CMS for those costs.  After reviewing Regence's comments, we continue to support our findings and recommendations.