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NEXT is the banner that signifies our commitment to remaining
innovative and agile as a community of partners and associates.
We are not interested in simply meeting industry standards; we
are committed to raising them. Ingenuity is a must in today’s
market, and Palmetto GBA is proud to have this value at the
forefront of our efforts. We look to what’s ahead, so that — when
the time comes — we can evolve to meet the latest challenges
facing our customers, our industry and ourselves.
And so, we leave you to explore what is:
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3
compa
ny ove
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angel
a diam
ond / co
mmunica
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list
dan g
eorge /
congr
essio
nal u
nit s
pecia
listDecades ago, we began to build a company
founded on people. Smart, dedicated people, driven by a passion to succeed. It is that passion that has made us successful as an organization, allowing us to exceed the expectations we set year after year. For over 43 years, Palmetto GBA has been looked upon and recognized as the leader in administering the Medicare program, by demonstrating a clear vision of the quality our CMS customers expect and the diligence Medicare beneficiaries deserve.
With a total 2008 revenue of $226.6 million and a pre-tax income of $4.05 million, Palmetto GBA experienced success on the financial front. The positive revenue variance is primarily attributed to the award of the Jurisdiction 1 A/B MAC contract.
We continued to build our organization in 2008 by relentlessly pursuing the retention and growth of our Medicare business while extending our reach into new business categories.
We successfully implemented the J1 A/B MAC, while maintaining performance of our three Title 18 contracts. The J1 A/B MAC will provide Palmetto GBA an annual revenue of over $80 million. Additionally, we were awarded
the National Supplier Clearinghouse MAC, providing our organization an estimated revenue of over $15 million annually. Finally, we were awarded the Jurisdiction 11 A/B MAC contract. This critical win for our organization includes of all of our current business with the exception of our Ohio, Medicare Part B workload. As a team, we overcame the challenge of implementing the initial 10 metropolitan areas of DMEPOS Competitive Bidding.
Through this outstanding performance, we have created an exceptional track record that will continue to build customer confidence and loyalty. I am confident Palmetto GBA is well-positioned to seize new opportunities as we grow and prosper.
I congratulate our associates for the contributions you have each made to a tremendous year. It is because of you that Palmetto GBA stands ready to meet new challenges and fully embrace what is NEXT.
Bruce W. HughesPresident and COO
president’s letter2
meliss
a robin
son /
admin
istra
tive s
pecia
list
asso
ciat
e of t
he yea
r john m
orrison
John Morrison has been employed by Palmetto GBA for more than ten years. Prior to joining the
Competitive Bidding Implementation Contractor (CBIC), he worked for Provider Audit and Reimbursement and was
on the winning team for Process Improvement of the Year in 2005. John’s primary responsibility is the financial analysis of
documents submitted by Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) suppliers to participate in the
Competitive Bidding Program. He tackles broad, complex issues including: calculating beneficiary demand and supplier capacity, creating processes to
validate automated calculations, building databases to accommodate workload requirements, and training staff on the evaluation process. John has the unique
talent of looking at challenges and conceiving the best way to solve problems. He has played a vital role in developing and implementing multiple process improvements in his
division. John is a CPA and earned his bachelor’s degree from USC, majoring in accounting and finance and French. He continued his education, earning his master’s degree from USC in
business administration. He holds a black belt in karate and plays in a rock band in his free time.
In an effort to provide outstanding customer service and satisfaction through our quality management system, Palmetto GBA maintains a clear FOCUS on the following standards:
• Fostering a Culture of Continual Improvement• Operating Honestly and Ethically• Communicating Goals and Objectives Clearly• Using Well-Defined Processes• Staffing a Highly Skilled Team-Oriented Workforce
The 2008 Palmetto GBA Associate of the Year, Coach of the Year, Team of the Year and Process Improvement of the Year award recipients were selected based on their individual and group abilities to show extraordinary achieve-ment and demonstrate exceptional leadership while upholding our standards.
awards 5
In 2008, Palmetto GBA processed 120 million Medicare claims and paid more than $36 billion in benefits. We employ over 2,000 associates in Georgia, Ohio, Illinois and South Carolina and have additional staff support throughout our various jurisdictions.
Currently serving 9.5 million Medicare beneficiaries in all 50 states, Palmetto GBA has been involved in developing many of the innovative solutions for the clinical, business and customer service aspects of the Medicare program since its inception.
Palmetto GBA’s 43 years of experience administering Medicare contracts has earned us a reputation for excellence. Committed
to continually challenging our processes and systems, we strive to identify operational improvements that allow us to achieve ever-increasing levels of customer satisfaction, product and service performance and efficiency.
Our deep history and unparalleled performance has allowed us to expand our capabilities as a leader in contact center operations, enterprise technologies, finance and accounting, health care policy, as well as training and development. Our current strategy focuses on better marketing our core competencies so we can expand our existing relationship with CMS and forge new partnerships with non-Medicare customers.
Palmetto GBA is committed to continually challenging our processes and systems to identify operational improvements that allow us to achieve ever-increasing levels of customer satisfaction, product and service performance and efficiency.
company overview4
Headquartered in Columbia, South Carolina, Palmetto GBA provides contact center, technical and administrative services to the Centers for Medicare & Medicaid Services (CMS), Medicare beneficiaries, and Medicare providers. As the largest and most diverse Medicare contractor in the nation, Palmetto GBA is one of CMS’ most reliable and long-term business partners. Palmetto GBA is one of only two Medicare contractors with experience in all Medicare business segments — Medicare Part A, Medicare Part B, Durable Medical Equipment and Regional Home Health and Hospice.
12 how we work
CertificationsPalmetto GBA’s operational excellence is built on our International Organization for Standardization (ISO) 9001:2000 standards-based Quality Management System (QMS). As one of the first Medicare contractors registered to the ISO 9001:2000 standards, we have maintained and expanded our QMS to achieve registration for all of our operations.
In December of 2006, the Palmetto GBA Systems Division received a Capability Maturity Model Integration (CMMI) Level 2 full-certification for our information systems technical support staff. CMMI supports and enables our commitment to continually improving service, productivity and efficiency by providing a structure for assessing our organizational maturity, establishing priorities for improvement, and guiding the implementation of these improvements.
QualityPalmetto GBA continued to integrate a new quality management documentation system (QMS360) in 2008. The implementation of QMS360 provides a system to coordinate customer requirements and changes, track subcontractor evaluations, documentation and corrective actions. QMS360 is an invaluable tool that aides Palmetto GBA with monitoring and measuring internal operational processes and procedures to ensure customer satisfaction and adherence to performance standards.
Through continuous improvement in the management of the quality of our processes, Palmetto GBA is continuing to streamline corporate processes and reduce costs.
2008 was a year of great productivity and success across the board — on so many levels. Working together we found ways to build upon the already strong, multi-faceted sectors of our organization. As we move into 2009, we look forward to continuing that success by searching for new, more efficient ways to improve how we conduct business internally as well as externally.
7
looki
ng bac
k/movin
g forwar
d
suzie
jete
r / pr
oject
coord
inat
or
meliss
a robi
nson /
admin
istra
tive s
peci
alist
bria
n stin
son /
e-le
arnin
g de
signer
and
deve
lope
r
erik
a will
iams /
ombu
dsman to
nya st
arks
/ pr
oject
coord
inat
or
coac
h of t
he yea
r mich
ael m
adiso
n
coach of the year
Demonstrated Customer Service Palmetto GBA has demonstrated superior customer service in administration of our Medicare contracting responsibilities. We have retained an international customer survey firm to administer provider and beneficiary satisfaction surveys for years and have required management to develop action plans based on the results of these surveys.
The value of these efforts was demonstrated by the results of CMS’ recently conducted Medicare Contractor Provider Satisfaction Survey (MCPSS). Palmetto GBA’s most recent provider satisfaction surveys dated July 2008 reflect customer satisfaction scores above the contractor benchmarks.
9
Michael Madison began his career with Palmetto GBA as an Accounting Technician. After completing his Bachelor’s Degree
in Accounting, Michael was promoted, becoming directly involved in the design of the Healthcare Integrated General Ledger
Accounting System (HIGLAS). HIGLAS has modernized Medicare’s accounting systems in order to improve the program’s fiscal
accountability to beneficiaries and taxpayers. Another promotion led Michael to his current position of Accounting Supervisor for
the HIGLAS Training Contract. Michael’s team is responsible for proctoring training classes and assisting in transition support for
Medicare contractors transitioning to HIGLAS. This team works under tight deadlines juggling multiple transitions. Michael has
led this team through extensive travel and long hours to become a highly successful work group. Michael demonstrates his excep-
tional skill as a coach through empowering his team to meet their goals, encouraging training and growth, supporting all team
members, and recognizing their exceptional efforts.
how we work
Palmetto GBA has created an imaged enabled document workflow management system that electronically scans, creates images, stores and retrieves hardcopy documents and faxes. The Workflow Management System (WMS/Client 2.0) has been implemented in several of our contracts. The WMS/Client 2.0 system has the ability to track and monitor, in near real-time, incoming receipts, completions, and pending volumes by workflow category using the Statistical Web Page. In addition, productiv-ity and full audit trail reporting is provided by the system.
Implementation of the WMS/Client 2.0 in multiple operations across Palmetto GBA clearly demonstrates our ability to maintain the most current and sought after technology.
Medicare Integrity ProgramOur program safeguard activities result in significant savings for Medicare. For the fiscal year ended September 2008, Palmetto GBA’s efforts resulted in the following Medicare savings:
Associate MoraleIn December 2008, Palmetto GBA assessed the engagement of our workforce with a survey designed and conducted by an independent external firm. This firm uses an “Engagement Index” to quantify the propensity of our team to accomplish and be committed to organizational objectives.
The 2008 survey results indicate an engagement index in the good range across the organization which represents a three percent improvement over the previous year.
8
Part a/rHHi Part b (sC) Part b (oH-wV) rrb
BI 309,295 N/A N/A 40,320
MSP 231,529,328 35,082,110 78,554,650 5,581,824
MR 68,365,475 137,328 1,155,079 639,534
TOTAL $ 300,204,098 $ 35,219,438 $ 79,709,729 $ 6,261,678
bi = benefits integrity msp = medicare secondary payer mr = medical review
MAC with estimated revenue of over $15 million annually and approximately $76 million for the term of the contract. NSC MAC is the single Medicare entity responsible for issuing or revoking Medicare billing privileges for suppliers of Durable Medical Equipment, Prosthetics, Orthotics and Supplies. The NSC MAC’s primary responsibility is to ensure that DMEPOS suppliers meet and continue to meet all Federal and State requirements to bill the Medicare program. This activity has become increasingly important as fraudulent activity among DMEPOS suppliers has increased.
Palmetto GBA was awarded the Jurisdiction 11 (J11) A/B MAC in early 2009. Under this contract, Palmetto will provide Medicare claims processing and payment services in support of the Medicare Program for the states of North Carolina, South Carolina, Virginia and West Virginia.
This is a tremendous victory for Palmetto GBA since this contract encompasses all of our current Medicare work except for Ohio Part B. We will also process home health and hospice claims from providers in
Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee and Texas.
The total annual claims volume for J11 represents 8.8% of the national Medicare workload, or 100 million claims. There are approximately 3.4 million Medicare Fee-for-Service beneficiaries located in this jurisdiction, approximately 88,700 physicians and other medical professionals and approximately 400 Medicare hospitals providing services. With the award of the contract, Palmetto GBA will be performing the work that was previously distributed among five contractors.
CMS awarded Palmetto GBA the Medicare Medical Home Demonstration payment contract in 2008. Under this contract, Palmetto GBA will make payments to approximately 400 large physician groups participating in this demonstration which will cover approximately 400,000 beneficiaries. The 4.5-year contract has average annual revenue of approximately $150,000.
Palmetto GBA was awarded the Jurisdiction 11 (J11) A/B MAC. Under this contract, Palmetto will provide Medicare claims processing and payment services in support of the Medicare Program for the states of North Carolina, South Carolina, Virginia and West Virginia. This is a tremendous victory for Palmetto GBA.
how we work 11how we work
Business DevelopmentMedicare contracting reform legislation, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), required full and open contract competitions in the Medicare administrative services market. Under the MMA, CMS is replacing its current claims payment contractors — fiscal intermediaries and carriers — with new contract entities called Medicare Administrative Contractors (MACs).
In order to successfully compete in the MAC environment, Palmetto GBA will continue to use innovation to foster efficiencies, refine business processes, improve quality of service, increase timeliness of performance and effec-tively manage the combined administration of Medicare Part A and B.
In 2009, Palmetto GBA will continue to integrate operational areas across Medicare Part A and B functions and achieve organizational alignment to meet CMS’ goal of integration of Medicare Part A and B administration.
By providing our customers with experienced and knowledgeable personnel, we will achieve CMS’ vision for the Medicare Program of comprehensive quality care and excellent beneficiary and provider service as well as meet our non-CMS customers’ business solution needs. We will also remain steadfast in maintaining a comprehensive compliance program that fosters ethical business practices and sound management controls.
During 2008, Palmetto GBA successfully acquired the Jurisdiction 1 (J1) A/B MAC. As the J1 MAC, Palmetto GBA processes claims for both Part A and B of the Medicare benefit program for the states of California, Hawaii and Nevada plus the territories of American Samoa, Guam and the Northern Marianas. Under this five-year contract, Palmetto GBA will perform all Medicare Part A and B administration for the jurisdiction with a projected annual workload of nearly 100 million claims and an estimated annual revenue of over $80 million.
Palmetto GBA also retained a significant piece of core business by successfully acquiring the National Supplier Clearinghouse (NSC)
In 2009, Palmetto GBA will continue to integrate opera-tional areas across Medicare Part A and B functions and achieve organizational alignment to meet CMS’ goal of integration of Medicare Part A and B administration.
10
how we work
A Medical Home is a physician-based practice that is capable of providing comprehensive, ongoing and coordinated care to its patients, thus providing ongoing support, oversight and guidance to implement a plan of care that provides an integrated plan for medical care.
During 2008, the Healthcare Integrated General Ledger Accounting System (HIGLAS) Transition Support and HIGLAS Training Contracts continued to provide support to Medicare contractors transitioning their Fee-For-Service workloads to HIGLAS. In addition to providing transition support, Palmetto GBA provided on-site training at various locations for each of the contractors.
Palmetto GBA supported CMS in the HIGLAS transition efforts for 10 different Medicare contracts all across the country. These efforts included transitioning workloads to HIGLAS, as well as aligning the existing HIGLAS workloads, into the new MAC Jurisdictions. Palmetto GBA associates provided on-site support to these contractors in their transition efforts. In training each of the transitioning contractors, Palmetto GBA has also taken a lead role in
supporting CMS’ efforts to supply ongoing training support to HIGLAS contractors through quarterly release updates of training material and web-based training applications of any HIGLAS changes and enhancements. Palmetto GBA has provided CMS, IBM, QSSI and the Medicare Claims Systems Maintainers for Part A and Part B the highest quality customer service in the continuing implementation of the HIGLAS Transition solution.
As a long-term leader in organizational compliance, Palmetto GBA has an award-winning compliance program and system of internal controls. The goal of the program, called Our Values, is to educate all associates about our core values: communication, responsibility, integrity, service, people, innovation and quality.
The Palmetto GBA Compliance Unit actively encourages associate participation in compliance efforts by continuously educating associates. Scruples, a bi-weekly online quiz, serves as a reminder of compliance-related issues. Cooperating with other BlueCross BlueShield of South Carolina Government Programs divisions, Palmetto GBA contributes
13
The Ohio Provider Enrollment Team was awarded Team of the Year for the diligence, flexibility and creativity they demonstrated to face challenges and produce exceptional results. The most significant example of this Team’s success is their efforts when asked to assist with the J1 A/B MAC Provider Enrollment transition. Faced with an inherited sizeable enrollment application backlog, the Team stepped in and not only met the deadlines for reducing the backlog but also implemented a 35-seat J1 support call center to address enrollment related questions from providers. This support center now receives an average of 990 calls daily. The Ohio Provider Enrollment Team increased productivity over 2007 levels by 27%. In total, the Team processed over 35,000 applications. Throughout all of the challenges presented in 2008 to this Team, they remained remarkably focused on customer satisfaction receiving multiple accolades, scoring a 95% meeting/exceeding expectations on a customer satisfaction survey and averaging a 98% quality score.
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to the Compliance Common, a bi-monthly online newsletter; the Government Programs Compliance Handbook, an online reference source; and the Ethics Almanac, a collection of cases investigated and resolved by compliance staff. The Corporate Compliance Program is structured to encourage continuous dialogue about corporate integrity and responsibility and how they relate to each person’s job.
The Palmetto GBA Compliance Program has been nationally recognized on three occasions. In 2003, the Health Ethics Trust (HET), a division of the Council of Ethical Organizations, recognized the Management Control Review (MCR) process as a best practice for its effectiveness in reviewing and updating internal controls.
In 2006, HET recognized Palmetto GBA’s Internal Control Review (ICR) process, which succeeded the MCR, for its integration of compliance and quality-related elements. The Internal Control Review (ICR) process represents the merging of compliance and quality processes for monitoring and measuring the effectiveness of internal controls.
In March 2008, Palmetto GBA’s compliance program was ranked in the “10 Best Private Companies Ethics Programs” and “Best Ethics Programs Overall” by Ethisphere. Ethisphere is the research organization behind the globally recognized “World’s Most Ethical Companies” rankings and awards. The Ethisphere Institute researches and compiles annual rankings and ratings on government contractor ethics programs, recognizing contractors that excel and demonstrate best practices, and efforts in ethics programs.
how we work14
In March 2008, Palmetto GBA’s compliance program was ranked in the “10 Best Private Companies Ethics Programs” and “Best Ethics Programs Overall” by Ethisphere. Ethisphere is the research organization behind the globally recognized “World’s Most Ethical Companies” rankings and awards.
American Cancer Society Relay for LifeRelay for Life is an overnight event designed to bring the community together in a chal-lenging and educational way to support cancer awareness and research. Palmetto GBA associates assisted the American Cancer Society in its mission to save lives, help those who have been touched by cancer and empower individuals to fight back by participating in the Relay for Life event.
The Relay for Life raises money for cancer research and honors victims of cancer, survivors and their families. Several Palmetto GBA offices participated in the American Cancer Society’s Relay for Life for the third consecutive year and raised over $10,000.
Alston Wilkes Foster Children When most children enter into a foster care program, they often have little or no belongings and what they do own is carried in plastic shopping or garbage bags. In 2007, Palmetto GBA’s Customer Service Strategies Division initiated the “Property of ___________” Campaign to collect suitcases and bags for foster children. The campaign was
very successful, and we delivered more than 75 pieces of luggage to Alston Wilkes foster children. In 2008, we expanded the program to help the Richland County foster care program.
Pack-A-Sack Foster Care Freshmen College Students Palmetto GBA applauds the success of foster children entering South Carolina colleges in 2008. These young adults have overcome many obstacles and situations in their lives and we want to support them as they continue to strive for success. Because most foster children that attend college no longer have a foster parent, the state provides a total of $5,000 per year for their tuition, housing, books, supplies and all other needs. In 2008, 51 foster youth entered South Carolina colleges. Palmetto GBA adopted 12 of these students through the Pack-A-Sack campaign that provides a care package filled with toiletries, school supplies, entertainment items and study snacks.
Feeding the HungryIn 1981, Harvest Hope Food Bank started as an emergency food box program. It has since become a regional program that collects, stores,
corporate social responsibility
United Way Community Day benefited from Palmetto GBA’s Ohio operation’s support of the Cerebral Palsy Association Picnic in the Park.
pictured: Judith Armstrong (left),
lead Hearings officer
17corporate social responsibility
American Heart Association’s Heart Walk The American Heart Association (AHA) is committed to fighting heart disease and stroke and raising awareness of these diseases. AHA’s signature fund-raising event, the annual Start! Heart Walk is an opportunity to join together with co-workers, friends and family members to fight this country’s No. 1 and 3 killers. The Start! Heart Walk promotes heart-healthy living and physical activity. In 2008, Palmetto GBA employees raised over $12,000 in donations, and walker sponsorships to support this cause.
United WayThe United Way is a nonprofit organiza-tion that responds to the critical human service needs of a community by distributing community resources. In 2008, BlueCross employees contributed more than $1.7 million
to the United Way campaign, continuing the tradition of being one of only a few companies statewide to surpass the $1 million fund-raising mark. Palmetto GBA employees contributed more than $250,000 to this 2008 total.
The March of DimesThe March of Dimes supports research to prevent birth defects, premature birth, and infant mortality. Every day, more than 1,300 American babies will be born prematurely, facing an increased risk of death and serious medical complications. In 2008, Palmetto GBA employees contributed to the $46,000 BlueCross raised from sponsorships and campaign contributions for the 2008 March of Dimes Walk America campaign.
The associates of Palmetto GBA not only care about our company, they care about every customer and organization whom we have the pleasure of working with. It is their drive, core values and desire to give on a philanthropic level that truly sets us apart from the rest. Continuing into 2009, it is the associates who will push us as an organization to do more both on a corporate and humanitarian level.
Palmetto GBA’s Augusta operation supported The Salvation Army by volunteering for the Kettle Campaign. Over a two-day period, associates rang the bell for a total of 22 hours and raised over $400.
pictured: celeste price (left),
member Service representative
dawn Wright (right),
provider enrollment Analyst
16
The Railroad Medicare Provider Enrollment Team was awarded the Process Improvement of the Year Award for their innovative solution to resolve an inefficient work process. The Claims Operations area forwards all claims to the Provider Enrollment area when an active provider number cannot be found in the system. The Provider Enrollment team conducts the verification process for the provider, traditionally one claim at a time, even if multiple claims are submitted by the same provider. In order to improve this process, associates from the Provider Enrollment, Claims Operations, and the Application Development/Programming areas developed the Provider Enrollment Claims Grouping Application. This database application allows the Provider Enrollment Unit to group and work claims together that meet established criteria for the same provider. The Provider Enrollment Claims Grouping Application reduced costs and improved claims processing timeliness and is well-suited to expansion to other lines of business.
process improvement of the year
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TEAM MEMBERS(PICTURED L TO R):miKe pritcHArdtAmmy KeelJeff ruSSellroBert glASSJudy Boyd (Not pictured)
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and distributes food and related items to more than 300 agencies that feed needy, elderly, and ill families and children in central South Carolina. Palmetto GBA, together with its corporate parent, holds an annual food drive. This year we collected 60,000 pounds of food.
The annual Harvest Hope Food Bank “Empty Bowls” event is a silent and live auction to raise support for those in need of nourishment and hope. All proceeds from the auction go to the Harvest Hope Food Bank to help those in our community. Palmetto GBA associates participated by volunteering with the auction.
The Golden Harvest Food Bank works to put an end to hunger in the Central Savannah River Area. To do this, Golden Harvest relies heavily on donations from local companies to provide food for the less fortunate, especially around the holiday season. The associates from our Augusta, GA operation opened their cupboards, as well as their wallets to donate over 1,900 pounds of food and $400 in cash donations.
The Ohio office made contributions to the Mid-Ohio Food Bank totaling $5,900.
corporate social responsibility
Through the “Families Helping Families” initiative, Palmetto GBA’s Part A operation adopted a family for Christmas and delivered the gift of hope along with a sleigh full of gifts.
pictured: Sonya goodwin (front),
Hearings Assistant i
tanya goines, Appeals coordinator
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12 board of directors
m. edwards sellersChairman, Board of Directors,Palmetto GBA; President,Chairman and CEO,BlueCross BlueShieldof South Carolina
bruCe w. HugHesPresident and COO,Palmetto GBA
william r. HortonPresident and COO,Government Programs,BlueCross BlueShieldof South Carolina
t. jeffrey littlefieldVice President, PGBA
leila wrigHtRetired, Blue Cross Blue Shieldof Texas
Col. robert e. sHieldsRetired, Humana Military Healthcare Services (tricare)
ilene H. nagelRussell Reynolds Associates,Managing Director
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kenny C
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NeAl BurKHeAdvice president, medicare integrity program and part A operations
dicKie Butlervice president, Systems and Support
roBiN SpireSvice president,Quality and training
elAiNe myerSvice president, customer Service Strategies
23corporate officers
Bruce W. HugHeSpresident and chief operating officer
Joe WrigHtvice president and chief financial officer
miKe BArloW vice president, A/B mAc Jurisdiction 1 project manager
ANN ArcHiBAldvice president and compliance officer
22
SuSAN peNdleyAssistant vice president, customer Services Strategies
SHeri tHompSoN Assistant vice president, part A operations
dedee roWeSecretary
BoB leicHtle (Not pictured)treasurer
corporate officers
SHAroN cooK-mceWeNAssistant vice president, part B operations
Joe JoHNSoNAssistant vice president, edi Systems
24
rex BroWNAssistant vice president, Quality and training
JeAN cAtAlANoAssistant vice president, competitive Bidding implementation program manager
25
Board of Directors Palmetto GBA, LLC
We have audited the accompanying consoli-dated balance sheets of Palmetto GBA, LLC as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in member’s equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Palmetto GBA, LLC at December 31, 2008 and 2007, 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.
Derrick, Stubbs & Stith, l.l.P.February 23, 2009
report of independent auditors 27report of independent auditors26
finan
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DANNY SCOTT /
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CHARINA LA
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Year ended December 31, 2008 2007
Revenues Total revenues $ 226,625 $ 246,411
Expenses Total expenses $ 223,494 $ 240,743 Gain from operations 3,131 5,668 Investment income, net $ 920 $ 1,433 Income before income taxes 4,051 7,101 Provision for income taxes $ 481 $ 1,284
Net income $ $3,570 $ $5,817
Consolidated statements of CHanges in member’s equity (in thousands)
Contributed Retained Capital Earnings Total
Balance January 1, 2007 $ 26,038 $ 16,383 $ 42,421
Net income - 5,817 5,817
Contribution of capital 1,670 - 1,670 Balance December 31, 2007 27,708 22,200 49,908 Net income - 3,570 3,570
Contribution of capital 888 - 888 Balance December 31, 2008 $ 28,596 $ 25,770 $ 54,366
Consolidated statements of oPerations (in thousands)
PALMETTO GBA, LLC(a single-member, limited liability company owned by BlueCross BlueShield of South Carolina)
The accompanying notes are an integral part of these financial statements.
29
PALMETTO GBA, LLC(a single-member, limited liability company owned by BlueCross BlueShield of South Carolina)
The accompanying notes are an integral part of these financial statements.
28 December 31, 2008 2007AssetsCurrent assets: Cash and cash equivalents $ 8,315 $ 11,126 Accounts receivable, net 37,977 33,608 Accounts receivable from affiliates 3,584 2,207 Accrued revenue 37,802 42,166 Prepaid expenses 990 142 Deferred income taxes 2,290 1,699 Total current assets 90,958 90,948
Long-term Assets Fixed assets, net of accumulated depreciation of $21,151 and $19,687 in 2008 and 2007, respectively 4,567 5,228 Long-term investments - 4 Investment in affiliate 2,761 2,494 Deferred income taxes 357 789 Total long-term assets 7,685 8,515 Total assets $ 98,643 $ 99,463
Liabilities and Member’s EquityCurrent liabilities: Accrued payroll, taxes and benefits $ 15,475 $ 15,978 Payable to parent 9,133 7,867 Other liabilities 19,510 25,662 Deferred income taxes 159 26 Total current liabilities 44,277 49,533
Long-term liabilities: Deferred income taxes - 22 Total long-term liabilities - 22
Member’s equity: Contributed capital 28,596 27,708 Retained earnings 25,770 22,200 Total member’s equity 54,366 49,908 Total liabilities and member’s equity $ 98,643 $ 99,463
Consolidated balanCe sHeets (in thousands)
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 Medicare 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 Medicare beneficiaries and 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 several states, Puerto Rico and the U.S. Virgin Islands. The Company’s major customer is the Centers for Medicare and Medicaid Services (CMS), the federal agency with fiduciary responsibility for the Medicare program.
In January 2007, the Company was notified that it was not the successful bidder on the DMAC Region C contract with CMS.
In 2007, the Company was notified that it was the successful bidder on the CMS J1 AB MAC contract to provide services in California, Nevada, Hawaii and three
U.S. territories. Although the award was protested, the protest was resolved in the company’s favor in 2008. This contract will result in annual revenue of approxi-mately $80,000,000. The Company also received a sub-contract from Vangent to continue to provide services previously provided to CMS under the CMS 1-800 Helpline task order; however, this contract ended May 2008.
In 2009, the Company was notified that is was the suc-cessful bidder on the CMS Jurisdiction 11 A/B MAC. This jurisdiction includes the states of North Carolina, South Carolina, Virginia and West Virginia. Under this five-year contract, Palmetto GBA will perform all the Medicare Parts A and B administration for the jurisdic-tion. The contract also encompasses Regional Home Health and Hospice Intermediary (RHHI) for 16 states. Award of this contract to the Company is currently under protest.
The Company has one wholly-owned subsidiary, Q2 Administrators, LLC (Q2A). Q2A was formed in 2004 and acts as a Qualified Independent Contractor responsible for implementing a new appeals process for Medicare claim denials.
The financial statements have been prepared in accor-dance with accounting principles generally accepted in the United States (GAAP).
notes to Consolidated finanCial statements december 31, 2008 (continued) 3130
Year ended December 31, 2008 2007Cash flows from operating activitiesNet income $ 3,570 $ 5,817
Adjustments to reconcile net income to net cash (used in) provided from operating activities: Depreciation 1,466 1,454 Loss on fixed asset disposals - 12 Equity in income of affiliate (267) (240) Deferred income tax provision (48) 123 Changes in operating assets and liabilities Decrease (Increase) in accounts receivable $ (4,369) $ 14,953 Decrease (Increase) in receivables from affiliates (1,377) 2,245 Decrease (Increase) in accrued revenue 4,364 (32,843) Decrease (Increase) in prepaid expense (848) 307 Decrease in accrued payroll, taxes and benefits (503) (3,383) Increase (Decrease) in payable to parent 1,266 (629) Increase (Decrease) in other liabilities (6,152) 2,932 Net cash used in operating activities (2,898) (9,252)
Cash flows from investing activities Fixed assets purchased (805) (142) Investments sold — available-for-sale 4 - Investments purchased — available-for-sale - (4) Net cash provided from (used in) investing activities (801) (146)
Cash flows from financing activities Capital contribution from parent 888 1,670
Net (decrease) increase in cash and cash equivalents (2,811) (7,728)Cash and cash equivalents, beginning of year 11,126 18,854 Cash and cash equivalents, end of year $ 8,315 $ 11,126
Supplemental disclosures of cash paid during the year for: Income taxes $ 512 $ 2,759
Consolidated statements of CasH flows (in thousands)
PALMETTO GBA, LLC(a single-member, limited liability company owned by BlueCross BlueShield of South Carolina)
The accompanying notes are an integral part of these financial statements.
Assets, liabilities and results of operations for TriCenturion, Inc. were as follows (in thousands):
Year ended December 31, 2008 2007
Assets $ 15,739 $ 14,226 Liabilities 4,661 4,548 Net income 1,400 738
Revenue Recognition PoliciesThe Company recognizes revenues based upon allow-able costs incurred which are reimbursable under the terms of the following contracts:
• Medicare Part A Fiscal Intermediary subcontract between the Company and the Blue Cross Blue Shield Association (BCBSA) (this includes the Regional Home Health Intermediary subcontract)
• Medicare Part B Carrier Services contract between the Company and CMS
• Durable Medical Equipment Regional Carrier (DMERC) contract between the Company and CMS (this includes the National Supplier Clearinghouse contract and the Statistical Analysis DMERC contract)
• Railroad Retirement Board Part B Carrier contract between the Company and the Railroad Retirement Board
• Jurisdiction 1 A/B MAC contract between the Company and CMS.
The Company recognizes revenue on the DDI System Access contracts with various third parties when services are performed and billable.
The Company recognizes revenue on the Vangent, Single Testing Contractor, CBIC, NSC MAC, CSSC, Train the Trainer and Encounter Data Customer Service & Support Center contracts on cost plus a fixed fee basis. Award fees for these contracts are recognized based upon historical performance or management estimates if no historical data is available.
ReclassificationsCertain reclassifications have been made to the 2007 amounts to conform to the 2008 presentation.
Income TaxesIn June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretations No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and mea-surement process for recording in the financial
notes to Consolidated finanCial statements december 31, 2008 (continued) 33notes to Consolidated finanCial statements december 31, 2008 (continued)32
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial state-ments 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 summarized below.
Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated in consolidation.
Cash EquivalentsCash equivalents represent certificates of deposit that have maturities of less than three months at date of purchase and money market fund investments.
Financial InstrumentsThe Company holds certain financial instruments as defined by Financial Accounting Standards Board Statement No. 107, including cash and accounts receivable. Management believes that the carrying values of financial instruments approximate fair value.
Asset Valuation AllowancesThe Company recorded an allowance for uncollectible receivables in the amount of $3,000 and $3,000 at December 31, 2008 and 2007, respectively.
Fixed AssetsFixed assets are stated at cost. Depreciation on new assets purchased is computed using the straight-line method over the estimated useful lives of the respective assets: four to eight years for furniture and fixtures, three to five years for data processing equipment and software, and four years for automo-biles. Leasehold improvements 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.
Investment In AffiliateThe Company has a 25% interest in TriCenturion, 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.
note 3 — inCome taxes
The Company’s operations are included in the con-solidated federal income tax return of BCBSSC. Under a written tax-sharing agreement, BCBSSC allocates the tax provision to each company within the consoli-dated 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 payables to BCBSSC of $737,000 and $526,000 at December 31, 2008 and 2007, respectively, which are included in net payables to the parent. The Company made pay-ments to BCBSSC for income taxes of $512,000 and $2,759,000 during the years ended December 31, 2008 and 2007, respectively.
The Company recognized a provision for income taxes as follows (in thousands):
Year ended December 31, 2008 2007
Current $ 529 $ 1,161 Deferred (48) 123 $ 481 $ 1,284
The provision for income taxes differs from the amount computed by applying the federal statu-tory tax rate of 35% to income before income taxes primarily due to changes in the tax contingency reserve, investment in subsidiaries, and benefits derived from filing on a consolidated basis versus separate company basis. 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 valua-tion allowance at December 31, 2008 and 2007.
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):
December 31, 2008 2007
Deferred tax assets: Current $ 2,290 $ 1,699 Long-term 357 789 2,647 2,488 Deferred tax liabilities: Current 159 26 Long-term - 22 159 48 Net deferred tax asset $ 2,488 $ 2,440
notes to Consolidated finanCial statements december 31, 2008 (continued) 35notes to Consolidated finanCial statements december 31, 2008 (continued)34
statements uncertain tax positions taken or expected to be taken in the tax return in accordance with SFAS No. 109, “Accounting for Income Taxes.” Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. The accounting provision of FIN 48 will be effective for the Company beginning January 1, 2009. The Company has not yet com-pleted its evaluation of the impact of adoption on the Company’s financial position or results of operations.
New Accounting MattersIn 2008, the Company adopted SFAS 157, “Fair Value Measurements,” for financial assets and liabilities and for nonfinancial assets and liabili-ties recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). As permitted by FASB Staff Position 157-2, the Company will delay adoption of SFAS 157 for all other nonfinancial assets and liabilities until 2009. SFAS 157 establishes a framework for measuring the fair value of assets and liabilities recognized in the financial statements in periods subsequent to initial recognition. The initial adop-tion of SFAS 157 did not impact the Company’s results of operations, cash flows or financial position.
note 2 — fixed assetsFixed assets consist of the following (in thousands):
Year ended December 31, 2008 2007
Leasehold improvements $ 447 $ 417Equipment, furniture and fixtures 21,853 21,189Software 3,397 3,288Automobiles 21 21 25,718 24,915Accumulated depreciation (21,151) (19,687) $ 4,567 $ 5,228
Depreciation expense was $1,466,000 and $1,454,000 for the years ended December 31, 2008 and 2007, respectively.
In addition, BCBSSC has executed a statutorily required financial guarantee of $75,000 on behalf of the Company in order for the Company to obtain a Third Party Administrator’s license pursuant to the South Carolina insurance laws.
The Company recorded an estimated contingent liability for potential repayments of costs claimed on its contracts with CMS. The liability was $2,229,000 and $1,868,000 at December 31, 2008 and 2007, respectively.
The Company is obligated for additional capital contributions of up to $726,000 to its affiliate, TriCenturion, Inc.
The Company has entered into certain non-cancel-able operating leases in excess of one year as of December 31, 2008. The future minimum lease payments required under these leases are as follows (in thousands):
Year Amount 2009 $ 11,498 2010 8,051 2011 1,837 2012 565 $ 21,951
Total rent expense was $10,068,000 and $9,929,000 during the years ended December 31, 2008 and 2007, 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.
note 6 - otHer 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 2007 and 2006. For employees hired after January 1, 2003, there is a two-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 contribution 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 terminated during the year due to retirement (age 55 and 5 years of service), death or disability.
37notes to Consolidated finanCial statements december 31, 2008 (continued)36 notes to Consolidated finanCial statements december 31, 2008 (continued)
note 4 — related Parties
The Company is a single-member limited liability company owned by BCBSSC. Certain offices, other facilities and services are provided by BCBSSC pursu-ant to an administrative services agreement. Expenses associated with the administrative services agree-ment allocated from BCBSSC to the Company totaled $76,638,000 and $89,088,000 for the years ended December 31, 2008 and 2007, respectively. The Company paid $84,318,000 and $95,346,000 during the years ended December 31, 2008 and 2007, respectively, to BCBSSC for expenses paid on behalf of the Company.
BCBSSC made capital contributions related to the job tax credit to the Company of $888,000 and $1,670,000 during the years ended December 31, 2008 and 2007, respectively.
There are certain administrative services provided by the Company to other subsidiaries of BCBSSC. The Company received $16,122,000 and $9,564,000 from various subsidiaries for these services during the years ended December 31, 2008 and 2007, respectively.
note 5 — 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 capitalization. This guarantee is estimated to be $0 at December 31, 2008. 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 sub-contract with the BCBSA.
In consideration of the novation of the fiscal inter-mediary 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, 2008. The finan-cial guarantee agreement remains in effect until both the contracts and intermediary agreement expire, are non-renewed or are terminated.
The discretionary contribution for 2008 and 2007 was 6% of salary.
The cost of providing the 401(k) discretionary contribution was $,3,701,000 and $3,805,000 for the years ended December 31, 2008 and 2007, respectively. The pension expense allocated to the Company under the BCBSSC pension plan was $5,933,000 and $7,216,000 for the years ended December 31, 2008 and 2007, respectively.
note 7 — ComPlimentary Credits
Due to the delay in payment of the Company’s billings to the Coordination of Benefits Contractor (COBC), CMS authorized the Company to draw additional funds. As of December 31, 2007 the Company recorded a current liability of $7,600,000 related to this draw. No liability existed as of December 31, 2008 related to the draw.
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CMMI IS A REGISTERED MARK OF CARNEGIE MELLON UNIVERSITY.ISO WITHIN THIS CONTEXT IS THE SOLE PROPERTY OF THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION.QMS360 IS A REGISTERED MARK OF 360, INC.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.
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Palmetto GBA / 2008 ANNUAL REPORT
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