Table of Contents - Palmetto GBAFile/2002annualreport.pdf · 2011. 6. 9. · Palmetto GBA, LLC...
Transcript of Table of Contents - Palmetto GBAFile/2002annualreport.pdf · 2011. 6. 9. · Palmetto GBA, LLC...
Introduction 3President’s Letter 4Chief Operating Officer’s Letter 5Palmetto GBA 7Communication 9Responsibility 13Integrity 17Service 19People 21Innovation 23Quality 27Board of Directors/Corporate Officers 30Closing 31Report of Independent Auditors Letter 32Financials 33-40
Table of Contents
Palmetto GBA, LLC
Annual Report 2002
aking a long journey can be filled with risk. We never know what the future holds. But when a company travels the road to success, it’s good to have a trusted navigator along to steeraround any obstacles.
The journey began on July 30, 1965, when President Lyndon B. Johnson signed Medicare into law.There were 19 million beneficiaries who enrolled in the Medicare program in its first year. That number is significant for Palmetto GBA and our sister company, TrailBlazer Health Enterprises,because the two companies now process approximately 19% of all Medicare claims filed on behalf of 40 million Americans.
While we embarked on our journey many years ago, this year marks the 10th anniversary of the introduction of the navigation system that has lead us on to greater things. That “system” is our values — seven principals that guide everything we do: Communication, Responsibility, Integrity,Service, People, Innovation and Quality. These values have helped us map out our future as a successful Medicare contractor.
As you read these pages, we will tell you about our values, what they mean to us, and how we live by them on a daily and continuing basis.
After all, the road to success is a journey, not a destination. Come travel with us.
Introduction
Palmetto GBA, LLC
Annual Report 2002
The Road to Success
T
3
Palmetto GBA is on the road to success. Our mission is to be the number one Medicare contractor in the United States. With manycompetitors falling by the wayside, we reached a milestone in 2002when we achieved the top Medicare contractor market share.Palmetto GBA was number one with a 9.30% market share, and oursister company, TrailBlazer Health Enterprises, was second with a7.94% market share.
Both are subsidiaries of BlueCross BlueShield of South Carolina. Itstotal market share for Medicare contractors is about 19% — up fromjust 5% in 1997. Our total Medicare revenue has grown from $77
million that year to nearly $300 million in 2002. The road to success has been clearly marked and we are on our way!
We’re proud of our accomplishments and we are determined to continue following the path that has brought us such success. The road signs are there, and we’ll stay focused on them by adhering to our strong values and commitment to excellence.
This annual report illustrates the successes we’ve realized already, and it will show you the secret to our success — our dedicated associates at every level. We know this kind of progress cannot happen without them. We appreciate each and every one of them and are grateful to be on this exciting journey with them!
Palmetto GBA’s 2002 journey on the road to success was one of itsbest. The Ohio/West Virginia Part B carrier operations was PalmettoGBA’s single largest business assumption to date. Palmetto GBA alsowas selected for CMS’ Performance Contracting Pilot; was awardedCMS’s Train-the-Trainer contract; significantly increased its networksupport business; and implemented electronic Medicare SummaryNotices (e-MSNs), the first Medicare program Internet transaction.
Though much attention was focused on growth in 2002, performanceunder our core businesses also was very good. Results from our cus-tomer satisfaction surveys were higher in 2002 than 2001 in all but oneof six contracts. The results from our associate morale surveys also improved. Finally, Palmetto GBAbecame registered under the ISO 9001:2000 standard for four functional areas.
The excellent year experienced in 2002 was directly attributable to our outstanding associates. Theteamwork, dedication and “can do” attitude embraced by our associates coupled with the unmatchedbreadth of experience, commitment and knowledge of our leadership team produced the successeswe have enjoyed over the past year. I hope that you share my pride in our organization’s people asyou read about a few of these successes in this report. Truly, our people are our success.
2003 promises to be another great year for Palmetto GBA. We look forward to a successful HIPAAimplementation, rollout of our new strategic management process, and completing the assimilationof recent business assumptions into our company. We also look forward to continued growth and tobeing a leader among Medicare contractors in moving Medicare services to the Internet.
Our journeys down the road to success are fueled by our people and guided by our commitment toethics and integrity. We understand there are no shortcuts on the road to success. Through hardwork, adherence to our values, and a commitment to excellence, we will strive to reach our vision tobe the number one Medicare contractor.
President’s Letter
Palmetto GBA, LLC
Annual Report 2002
Chief Operating Officer’s Letter
Palmetto GBA, LLC
Annual Report 2002
William R. HortonPresident and Chief Operating OfficerGovernment Programs DivisionBlueCross BlueShield of South Carolina
Bruce W. HughesExecutive Vice President and Chief Operating OfficerPalmetto GBA, LLC
4 5
With more than 35 years ofMedicare experience,we’re one of the nation’slargest and most diverseMedicare contractors.
Palmetto GBA
Palmetto GBA, LLC
Annual Report 2002 7
Headquartered in Columbia, S.C., we
have offices in six other states: Florida,
Georgia, Illinois, North Carolina, Ohio
and West Virginia. We also have full-time
field staff in 14 states.
In 2003, our nearly 2,700 employees will
help us process a forecasted 102 million
claims, pay $19.5 billion in Medicare
benefits and serve 7.8 million Medicare
beneficiaries. As the numbers show, the
value we bring to our customers is great —
and the values we believe in will make
us even better.
almetto GBA is the largest
Medicare contractor in the country,
solely devoted to government
programs contracting activity. With more
than 35 years of Medicare experience,
we’re one of the nation’s largest and most
diverse Medicare contractors. Palmetto
GBA has three major areas of responsibility:
processing and paying claims; fighting
Medicare fraud, waste and abuse; and
providing excellent customer service to
beneficiaries and customers.
P
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
$1,895,956,590 $2,113,843,461 $2,489,317,352 $2,966,461,834 $7,518,397,017
$6,335,944,832 $4,694,738,102 $4,252,676,308 $4,367,737,605 $4,537,471,172
$ 512,326,252 $ 569,310,915 $ 640,403,371 $ 739,783,860 $1,490,906,556
$2,230,083,294 $2,306,748,615 $2,525,460,344 $2,826,474,041 $3,347,759,119
N/A N/A $ 40,115,308 $ 751,410,612 $ 790,098,378
$10,974,310,968 $9,684,641,093 $9,947,972,683 $11,651,867,952 $17,684,632,242
Part A Benefits
Home Health Agency
Part B Benefits
DMERC Benefits
RRB Benefits
TOTAL BENEFITS
Benefits Paid
Claims Processed
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
2,320,421 2,542,405 2,705,727 2,986,567 3,052,671
7,525,321 5,834,628 5,543,410 4,658,625 4,823,746
N/A N/A N/A N/A 4,108,902
9,756,399 10,253,562 10,780,387 11,375,296 11,981,981
N/A N/A N/A N/A 8,182,248
N/A N/A N/A N/A 1,501,482
17,904,946 18,967,692 20,258,797 21,004,303 23,604,443
N/A N/A 603,635 12,295,928 14,234,696
37,507,087 37,598,287 39,891,956 52,320,719 71,490,169
4.36% 4.33% 4.48% 5.62% 7.12%
Part A Claims
Home Health Agency Claims
Part A-North Carolina
Part B Claims
Part B-Ohio
Part B-West Virginia
DMERC Claims
RRB Claims
TOTAL CLAIMS
% OF NATIONAL TOTAL(MARKET SHARE)
Being a customer service representative ismore than just answeringthe phone. Some callsrequire research and also a lot of listening. Somebeneficiaries call youbecause they have no oneelse. If you think of eachcall like helping a familymember, it makes it morepersonal, and the personon the other end of the lineknows that you are doing everything you can to help.
ommunication comes in many
forms. On the street, it is often
what we see — the colors of a
traffic light, the symbols on a highway sign,
the lines on a map. Other times, it is what
we hear — a honking horn, a screaming
siren, a screeching tire. No matter what
form it takes, communication on the open
road is vital. You must stay alert, listen
carefully and respond quickly.
The road to success is just the same. At
Palmetto GBA, our communication efforts
also take several forms. But no matter the
format, we pay close attention and act
appropriately. In most cases, our goal is
customer satisfaction. In a few situations,
it can be a matter of life and death.
On October 16, customer service
representative Jill Akerley received a call
from a Medicare beneficiary. The caller
was tremendously distraught. Jill remained
calm, listening to his problems and
concerns. The caller said he was ill, in a
lot of pain and was afraid that he might
hurt himself or even end his life. He also
felt that no one cared about his situation.
Fearing for her customer’s safety, Jill
immediately alerted her supervisor to
listen in on the call. Jill calmed the caller
down, gave him alternative solutions and
assistance, and even offered to contact a
psychiatrist for him.
The beneficiary was grateful that Jill took
the time to listen to his concerns and
would take additional time to help him
get in touch with a doctor. Jill remained
on the line with the caller to make sure he
was okay while someone else contacted a
hospital in his area. A nurse there talked
to the beneficiary and asked him to come
in that day. Jill’s quick response made
sure the customer received the assistance
he needed!
Another example of an associate making
the right call came in December. Sharon
Crumpley, a customer service representa-
tive in Ohio, received a frantic call from a
Medicare beneficiary who had outstanding
balances with her doctors. The Social
Security Administration (SSA) had
terminated her Medicare coverage, so
Medicare was not paying her bills. The
pressure was getting too much for the
customer to bear. Emotionally and mentally
at the end of her rope, the beneficiary felt
she could not take it anymore.
Sharon told the customer she would
contact SSA to see what could be done.
After talking to SSA, Sharon found that
there had, indeed, been a mistake — the
patient still should have Medicare cover-
age! Sharon then offered to contact the
beneficiary’s doctors about the mix-up. She
Communication
Palmetto GBA, LLC
Annual Report 2002 9
CJill Akerley
My job as a Medicare customer service representative can berewarding. Helping a beneficiary resolve a difficult situation makesthem feel better and gives me a feeling ofaccomplishment.Sometimes their reactionis so much more than Iexpect. Often a kind word or helping hand is all they need.
explained to them that we would consider
the charges once SSA had updated its files.
Sharon also advised her supervisor, who
then notified the beneficiary’s doctor
about her desperate call. Sharon exercised
sound judgement, compassion and a
resolve to help the beneficiary through an
extremely stressful and emotional time.
Truly, Sharon shows the remarkable job
that Palmetto GBA associates exhibit
everyday — going the extra mile even in
the toughest of situations.
Fortunately, these tough situations don’t
happen everyday. But what does occur
each and every day are the thousands
of phone calls from both beneficiaries
and providers. To keep the lines of
communication open, our nearly 500
customer service representatives receive
thorough training — training that goes
beyond simply explaining benefits and
coverage or answering questions.
And once we’ve trained our associates, we
continually put them to the test. Each
year we commission an independent
company to survey the Medicare physicians
and beneficiaries we serve so that we can
determine how well we’re meeting their
expectations. Once again, in 2002, our
associates passed the test — a clear sign
that our communication and customer
satisfaction efforts are working!
Communication (Continued)
Palmetto GBA, LLC
Annual Report 2002 11
13.0% 17.0% 21.0% 19.0% 24.0%55.0% 62.0% 61.0% 62.0% 63.0%
7.0% 9.0% 14.0% 12.0% 13.0%53.0% 56.0% 57.0% 60.0% 63.0%
10.0% 14.0% 17.0% 16.0% 15.0%51.0% 55.0% 61.0% 61.0% 60.0%
18.0% 21.0% 22.0% 21.0% 20.0%58.0% 59.0% 58.0% 58.0% 58.0%
7.0% 8.0% 10.0% 13.0% 19.0%41.0% 48.0% 50.0% 46.0% 48.0%
N/A N/A N/A 10.0% 12.0%N/A N/A N/A 52.0% 55.0%
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
54.0% 49.0% 56.0% 52.0% 61.0%41.0% 45.0% 41.0% 45.0% 35.0%
56.0% 58.0% 55.0% 60.0% 60.0%38.0% 38.0% 39.0% 36.0% 35.0%
48.0% 53.0% 52.0% 60.0% 60.0%46.0% 42.0% 43.0% 36.0% 38.0%
Provider Satisfaction Survey
Beneficiary Survey Results
ExcellentGood
ExcellentGood
ExcellentGood
ExcellentGood
ExcellentGood
ExcellentGood
PART A
PART B
DMERC
SADMERC
NSC
RRB
ExcellentGood
ExcellentGood
ExcellentGood
PART A
DMERC
PART B
Sharon Crumpley
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002
Without the EducationAssistance Program, Iprobably would not havemy 21 accounting hourswithin such a short time.The program gave me themotivation to go aheadand get the hours as soonas possible because theEducation AssistanceProgram reimburses 75%.Therefore, money was nota barrier to me in the pursuit of my education.
esponsible driving is one of the
first and most important
lessons driver’s education
students learn. Mastering the rules of the
road does not end, however, once we
acquire our license. The more we drive,
the more we improve our skills. And as
we enhance our abilities, we prepare
ourselves to handle the curves that come
along the way.
At Palmetto GBA, being responsible means
making sure our actions protect and
preserve our organization, our associates
and our customers. It means that we will
perform all of our contractual obligations
prudently, successfully and ethically. Many
operational units — made up of hundreds
of associates — support this objective by
taking the responsibility of bringing their
skills and abilities up to the next level.
Palmetto GBA assists in these worthy
endeavors by offering financial support to
associates who pursue higher education.
Throughout our company there are
dozens of success stories about individuals
who took advantage of this benefit.
Joel Ijaja is one of these successes. Joel,
who is originally from Nigeria, West Africa,
came to the United States in 1984. Joel
earned his bachelor’s degree in business
administration from John Brown University
in Arkansas, and a master’s degree in
business administration from Regent
University in Virginia. He subsequently
joined BlueCross’ TRICARE staff.
After three years with TRICARE, Joel
became part of the Palmetto GBA team,
working in Part B/DMERC overpayments
as an analyst. Even though Joel held a
master’s degree, he did not have the 21
accounting hours necessary to move into
an accountant position on the staff.
Through the educational assistance
program at Palmetto GBA, Joel took
evening classes and completed the needed
accounting hours. Shortly thereafter, he
was promoted to the position of
Accountant I. Joel rises to the many
challenges that accompany his new role
every day.
Not only is Joel achieving major goals in
his professional life, he also is conquering
unpaved territories outside of work.
Responsibility
Palmetto GBA, LLC
Annual Report 2002 13
RJoel Ijaja
Recently, he had his first opportunity to go bowling
when the Finance division had a quarterly meeting
combined with a bowling outing. Joel says he had a
blast on his bowling outing, and he hopes to make it
a new hobby!
With employees like Joel moving up on a fast track,
Palmetto GBA will always be ahead of the curves. That’s
especially helpful when we approach the twists and turns
that come with new regulations from CMS or other
government agencies. For example, we bring to CMS
unmatched involvement with the Health Insurance
Portability and Accountability Act (HIPAA) regulations.
CMS benefits from our active participation in numerous
committees, advisory groups and task forces that apply
HIPAA regulations and standards affecting the delivery of
Medicare. We have established a comprehensive
corporate project that encompasses HIPAA for the
entire corporation and all its subsidiaries.
CMS also will benefit from our ability to draw on HIPAA
expertise throughout our organization, as we continue
to take a very active role in standards development and
Coordinating system andoutreach efforts for sixMedicare contracts usingfive different shared processing systems is anexciting challenge.Versatility and flexibilityare key components asHIPAA information continues to change during the implementationprocess. We have established a great teamof associates who havetaken on the challenge of system testing andHIPAA outreach.
Responsibility (Continued)
Palmetto GBA, LLC
Annual Report 2002 15
implementation for the healthcare industry. Our involvement
with various government standards organizations and
committees allows us to remain abreast of the upcoming
versions of the legislation while providing input into the
development of the standards. We also have been involved
in a number of workshops with CMS.
Our Electronic Data Interchange department is performing
system testing and our professional relations areas have
provided information to Medicare providers across all of
our contracts. We’ve included HIPAA information in all
outreach activities including workshops, professional society
meetings and provider visits.
Taking the wheel on our HIPPA efforts is Korene Smith, who
is our Medicare HIPAA project manager. She manages the
portion of the project devoted to the transaction and code
set legislation. That is a huge responsibility, but Korene
doesn’t stop there! She also plays a key role in the HIPAA
certification process and is involved with our communications
and outreach initiatives.
To make sure the information remains current and uniform,
we developed a presentation and fact sheet for all lines of
business. Palmetto GBA is using printed publications and our
Web site, www.PalmettoGBA.com, to distribute information.
We have devoted a section on our Web site to HIPAA
Responsibility (Continued)
information with a direct link from the
home page. This section contains general
information for beginners as well as
advanced information for all of our con-
tracts. We frequently update information
on our Web site. We find it is an effective
way to disseminate new information as
quickly as possible.
Another responsibility Palmetto GBA takes
seriously is healthcare fraud. We work hard
to detect and deter fraud, waste and
abuse in the Medicare program. Palmetto
GBA holds multiple contracts with the
federal government to administer the
Medicare home health, hospice and
medical equipment benefits in 18 states,
Puerto Rico and the Virgin Islands.
The following table summarizes our
program safeguards savings:
Palmetto GBA, LLC
Annual Report 2002 14
Part A Part B DMERC RRB
$ 35,615,874 $ 825,233 $ 61,920,063 $ 432,375
$207,409,940 $ 31,969,198 $ 28,236,721 $ 5,429,573
$ 18,406,877 $ 33,018,404 $324,325,236 $24,473,223
$101,822,380
$363,255,071 $65,812,835 $414,482,020 $30,335,171
Fraud and Abuse
Medicare Secondary Payer
Medical Review
Audit
TOTAL
TOTAL
$ 98,793,545
$273,045,432
$400,223,740
$101,822,380
$873,885,097
Medicare Summary of Savings — FY 2002
Korene SmithHIPAAProject Manager
ome directions are pretty clear.
There is a right way, and there
is a wrong way. Turn the wrong
way and you just might have an accident.
At Palmetto GBA, acting with integrity is
no accident! That’s because there are
signs along the way to point us in the right
direction. Sometimes the signs are
intangible — like the seven values of our
compliance program. Often, the signs are
quite literal — like the ones made by
associate Audrey Shivar.
Audrey, a compliance specialist, saw a need
for increased visibility for our
compliance program. So she designed
and produced colorful, catchy posters
reminding associates of the importance
of compliance. Now, in all our locations,
Audrey’s posters enhance compliance
awareness and visibility.
“One of the best ways to place an idea in
the forefront of people’s minds is visually.
A quick glance at a poster while walking to
a meeting or lunch is enough exposure to
plant a message or leave a lasting
impression,” says Audrey.
But Palmetto GBA doesn’t stop at simply
promoting a program — we also promote
ethical and lawful business practices. We
strive to provide an environment and
culture committed to compliance. An
effective ethics and compliance program
is a living and evolving program, as no
single model is appropriate for every
circumstance. During 2002 and continuing
into 2003, the Palmetto GBA compliance
unit is pursuing several key initiatives
to further develop the effectiveness of
the compliance program.
We’ve implemented an automated data-
base tracking system to better analyze and
track trends by type of compliance issue,
division and operational unit. Additionally,
the Palmetto GBA compliance unit is
implementing an executive compliance
committee, and will publish an online
compliance newsletter. The unit is also
preparing a Web-based training program
for the management control reviews in
2002. These compliance efforts will
continue into 2003.
That’s because no matter where the road
takes us, the directions will always be the
same: do the right thing.
How often have you been flipping through amagazine or passing astore window and seen agreat ad for a product or a how-to idea and said toyourself, “I could use that.”Well, I hope the postersproduce the same effectwhen associates are conducting business...something to make thempause and think whenmaking a decision as wellas to let them know theirCompliance staff is available for them to talk to.
Integrity
Palmetto GBA, LLC
Annual Report 2002 17
SAudrey Shivar
On-site investigators areoften on the front lines of healthcare fraud cases.Although we often get allthe credit and attention,what makes our casessuccessful is the outstanding cooperationand service we get fromour support systems. I am talking about the managers, the supervisors,the team members, thebehind-the-scene supportstaff from the NSC,SACU, MSAD, and mostimportantly, the supportwe receive from ourspouses and our families.
Palmetto GBA — as part of BlueCross
BlueShield of South Carolina —actively
participates in numerous community
events and fund raising campaigns every
year in all our locations. These campaigns
and events include the United Way, March
of Dimes, Juvenile Diabetes Research
Foundation, Salvation Army and the
American Heart Association.
Palmetto GBA is also involved with a
community service project through the
Columbia Urban League called the
Summer Work Experience Leadership
Program (SWELP). The program provides
work experience to young students, 12-15
years old. Palmetto GBA fully supports
SWELP with an annual corporate donation
and by arranging for supervisors to guide
the students during their employment by
the company. SWELP provides a challeng-
ing and rewarding experience for the
youth. They get a feeling of accomplish-
ment, pride of earning their own money,
and often, career goals for their future.
This is a valuable community service
program, and Palmetto GBA is proud to
be a part of it.
We are proud of the time and money that
our associates willingly donate to make
our communities better places to live for
everyone! Because at Palmetto GBA, we
believe that good service applies not only
to how we treat our customers on a daily
basis, but how we help our communities
in the long run.
Service
Palmetto GBA, LLC
Annual Report 2002 19
nyone who has traveled outside
of his driveway knows how
important good service is.
Sometimes, good service is routine and
quick — like an oil change for your car.
Sometimes, it’s a little more complicated
and lengthy — like overhauling your
transmission. Serving our customers is
much the same. Sometimes, it’s as easy as
a polite answer to a customer’s inquiry.
Other times, it can be as long and difficult
as a criminal investigation.
Louis Collado knows this better than
anyone. He is a Benefit Integrity Senior
Investigator in Miami, Fla. Louis was
instrumental in a five-year investigation
of a major healthcare fraud case. The
case finally went to trial, which lasted
five-and-a-half months. The end result:
26 convictions including two doctors, two
pharmacists and four DME and pharmacy
owners. In recognition of his efforts,
Louis received a commendation from
the U.S. Attorney for the Southern District
of Florida. The commendation cited: “The
substantial impact of this case could not
have been accomplished without the
valuable assistance of Senior Investigator
Louis Collado.”
Providing valuable assistance is also what
we do when it comes to the communities
in which we work and live. We believe in
giving back to that community.
ALouis Collado
hen you travel down a
shady neighborhood lane,
you drive slowly. On busy
downtown boulevards, it’s constant stop
and go. Hit the highway — and you hit
your accelerator.
New situations call for new strategies —
and talented drivers equipped to handle
those changes. Our people — more than
2,700 associates — drive our business, no
matter what avenue Palmetto GBA takes.
These associates are responsible for and
credited with bringing in new business and
transitioning us into new contracts.
In 2002, we won five contracts totaling
more than $48 million in revenue over a
five-year period. To land those lucrative
contracts, many associates participated in
preparing proposals to acquire the new
business and bring it on board — all while
performing their daily jobs.
One such person is Cathy Caudle. She
has been the transition manager in the
majority of our business acquisitions for
Palmetto GBA contract awards. Cathy
exemplifies the quality and dedication of
the employees who work at Palmetto GBA.
Cathy has been with BlueCross BlueShield
of South Carolina and Palmetto GBA for
more than 32 years; 25 of those years have
been devoted to our Medicare
Administrative Services contracts. Her
diverse knowledge of Medicare regulations
coupled with her wide range of expertise
in all facets of the program make her
extremely valuable to our organization —
and to others like CMS. CMS respects
her ability to get the job done right — and
so do we!
Getting things right takes a team effort.
People like Freyda Sherard, a Medicare
Secondary Payer Auditor/Outreach
Trainer in North Carolina, pitched in dur-
ing hectic transition times. Freyda’s knowl-
edge of MSP is well known among her
coworkers, and so are her achievements!
She kept up with the workload of two peo-
ple for part of
the year, willingly stepped in on several
critical projects outside the usual scope
of her job and picked up audit work
for South Carolina in addition to
North Carolina.
Thanks to the hard work of people like
Freyda and Cathy, Palmetto GBA has
enjoyed an easier drive through the
meandering streets of CMS contract
proposals. And when we approach the
intersections of new business ventures on
the road to success, we know that all of
our associates are along for the ride!
Workload transitions arechallenging and each hasits own unique aspects.We put together a terrificteam who understandsexactly what’s needed tomake the transition a success. Working with theright people and the senseof accomplishment at theproject’s end make theextra effort worthwhile.
People
Palmetto GBA, LLC
Annual Report 2002 21
W
Freyda Sherard
Cathy Caudle
very road to success undergoes
new construction from time to
time. It makes the highway safer
and more easily traveled. One such improve-
ment is an access ramp to a highway. Here at
Palmetto GBA, we’ve given our customers
and our employees access to the highway as
well — the information superhighway.
In 2002, we implemented electronic
Medicare summary notices, or e-MSNs. In
the past, CMS has prohibited the use of
the Internet for Medicare program transac-
tions — with one notable exception. In
September, we began a pilot project that
allows beneficiaries to access their Medicare
summary notices (MSNs) through
Palmetto GBA’s Web site.
The idea for e-MSNs came about after
we constantly received requests from
beneficiaries for additional copies of their
MSNs. “In the past, every time a beneficiary
requested an additional copy, we had to
retrieve one and mail it out. Having them
on the Internet saves time and money,” says
Beth Clack, director of Medicare’s
Professional Relations.
We took the idea to CMS for the right to be
the first to make it happen. “CMS is a little
apprehensive about putting any personal
information on the Internet. However,
after meeting with CMS and pitching our
ideas, we were given a five-year pilot
program to show it can work and be very
secure,” Beth says.
“What we would like in the long run is to
be selected by CMS to provide this service
for other government contractors,” Beth says.
“Until then, we will keep working to make
this a great service for our beneficiaries.”
Working together is what made the e-MSN
project a reality. Associates from Palmetto
GBA’s e-commerce team joined forces with
operations units to construct an on-ramp to
the information highway that’s truly super
for our beneficiaries.
We also began using the Internet for online
training. Centra is our online learning
system that enables virtual classrooms and
real-time group collaboration over the
Internet. By incorporating features such as
audio conferencing, application sharing,
The idea for e-MSNs cameabout after we constantlyreceived requests from beneficiaries for additionalcopies of their MSNs. “In thepast, every time a beneficiaryrequested an additional copy,we had to retrieve one andmail it out. Having them on the Internet saves time andmoney.”
Innovation
Palmetto GBA, LLC
Annual Report 2002 23
E
E-commerce Team:Standing: Jimmy Witherspoon, Donald Walker,Kim Bevier, Tammy Stephens; Seated: SusanMoore, Elaine Sharp
Beth Clack, Director of Medicare’sProfessional Relations
Palmetto GBA, LLC
Annual Report 2002
chat and whiteboard, our online workshops
simulate an instructor-led physical
classroom environment.
Sandy Sowell, a member of the e-commerce
team that implemented Centra, says Centra
has been a hit: “Centra allows us to provide
effective, intuitive and engaging eLearning
for our customers. The software lets us
easily design, develop and conduct online
education in an easy-to-use, cost-effective
application. We are able to interact with
our customers more often and provide
them with the most current information
available. The number of customers that
have expressed thanks for the opportunity
to receive education online lets us know
Centra was the right choice.”
Beyond the information superhighway,
Palmetto GBA is fortunate to have innova-
tions taking place in all our locations. In
Georgia, the Augusta Railroad Medicare
staff worked with the Ohio and West Virginia
operations to develop an imaging solution
for a workload of 18,000 paper claims per
day. After extensive testing, the program has
led to a more cost-effective and productive
claims adjudication system. As a result, the
Ohio/West Virginia operation ended its
claims processing arrangement with a third-
party vendor. The document control center
reduced “prep time” through fewer sorting
requirements. Data entry costs have
decreased considerably as a result of minimal
operator intervention, and we have improved
our service to providers and beneficiaries
with their immediate access to claims.
Innovations are all about teamwork, and
this one is no different! Often it takes an
engineer with technical expertise to remove
the roadblocks obstructing the path. For
the imaging solution, Mike “Pritch” Pritchard
is one such engineer who has the uncanny
ability to analyze a problem and quickly
implement innovative solutions. He is always
there to make others’ innovative
solutions a reality.
“I have to credit all the members of our
Palmetto GBA Railroad Medicare family in
the drive for improving processes and
thinking of new ways of doing things. It
really is a great place to be – Railroad
Medicare. I can see why we have so many 10,
15, and 20 plus-year employees,” says Pritch.
I have to credit all the members of our Palmetto GBARailroad Medicare family inthe drive for improvingprocesses and thinking ofnew ways of doing things.It really is a great place to be – Railroad Medicare. I cansee why we have so many 10, 15, and 20 plus-yearemployees.
Innovation (Continued)
25
Mike Pritchard
E-commerce Centra Team:Jimmy Witherspoon, Elaine Sharp, Kesha Morris,Candice Poole
he best roads are those that are not
covered with potholes, uneven
pavement or hazardous conditions.
The asphalt is smooth, the shoulder is wide
and the lines are clearly marked. It’s all
about quality workmanship.
At Palmetto GBA, we strive for excellence
in everything we do for our customers,
members and ourselves. Whatever work we
do, we do it to the best of our abilities, the
right way, the first time around. To accom-
plish this, we have built a workplace that is
supportive, reliable and cost effective.
In September 1993 we established Partners
in Excellence (PIE) as our first official
quality initiative. With education, determi-
nation and hard work from our dedicated
associates, PIE is becoming an every day
part of our work lives. It helps us make
sure we provide superior quality services
to our customers in a workplace
committed to continuous improvement,
uncompromising integrity and respect
for all associates.
In 1993, we formed the Palmetto Quality
Council to establish and maintain the
Partners in Excellence process, thereby
creating and fostering a quality culture for
the Medicare division.
The Quality Council formed workgroups
to improve communications, plan for
training and education, improve measure-
ment capabilities, implement teamwork
and award and recognize our outstanding
associates.
Further, we created the position of director
of Total Quality Management to help
focus the management team and provide
guidance and expertise on quality and
process management. This person is
responsible for guiding the implementa-
tion of the ISO 9000 quality management
system across all of Palmetto GBA.
ISO 9000 is a group of quality standards
that provides the guiding principles that
lead an organization to improved perform-
ance. In 2002, four areas received their cer-
tification. They are Document Control,
Medical Review, the Palmetto Training
Team and Palmetto Administration.
Quality
Palmetto GBA, LLC
Annual Report 2002 27
TWinning the Divisional Honors for ProcessImprovement of the Yearwas beyond my wildestexpectations. It is great tobe recognized for a jobwell done, but to have yourpeers recognized alongwith you is the ultimatereward. It takes everyoneto make it work. On behalfof the Provider ServiceCenter, I would like tothank all areas of PalmettoGBA who provide us withtheir support daily. Wecould not have done itwithout them.
Teresa Lancaster Process Improvement of theYear Team Member
I think that we are a greatteam. We are always seeking ways that will helpthe team as well as thecompany. We have hadseveral members of TAC619 promoted within thecompany. Through it all, weare proud of who we are.We have an excellentdirector, Tammy Brown,and an excellent manager,Ed Stepro. They were therewhen we needed them the most.
Cynthia WileyTeam of the Year
Quality (Continued)
Palmetto GBA, LLC
Annual Report 2002 29
In 2003, the majority of Palmetto GBA functions will
earn ISO 9000 registration. That certification assures our
customers that we have implemented an internationally
recognized, quality management system and have successfully
passed detailed audits by a third party registrar.
To achieve quality workmanship, you need superior employees.
Palmetto GBA recognizes our outstanding work force through
a lengthy and thorough process. Each year, Palmetto GBA
presents three organization-wide awards: Associate of the Year,
Process Improvement of the Year, and Team of the Year. Our
Awards Banquet, held in March, recognizes all of those who
were nominated and met the stringent award criteria.
We thank each and every one of them and are proud to
present the 2002 winners.
2002 Associate of the Year — Sallie Noble
Sallie Noble epitomizes the qualities one would expect of
an Associate of the Year. She somehow manages to do it all:
produce high quality work, exhibit a commitment to
continuous process improvement and show a willingness
to work on projects that promote company growth. She
demonstrates loyalty and commitment to her peers, her
team, management and Palmetto GBA. And what is one of
the nicest things of all? Sallie does it all with a smile and
winning attitude!
2002 Team of the Year — Division 36 DMERCTelephone and Claims TeamIn true team spirit, this team adopted a nickname — the
Chameleons — and a team slogan: “Able to Blend into Any
Situation and Get the Job Done.” One of their goals was to
reduce cycle time for paper claims processing while maintain-
ing quality. Through their hard work and dedication, they
reduced cycle time by 2.6 days during the benchmark period,
which increased productivity by 28% and improved quality by
3.53%. They did this while realizing a cost savings of $11,074
for the month of December 2002.
Underlying their hard work is a set of ground rules that
outlines everything from how the team treats each other and
approaches work to how they handle meetings and make
decisions. We’re grateful for the Chameleons’ efforts that help
us navigate the road to success.
2002 Process Improvement of the Year
Team: Division 35 Medicare Part BProvider Customer Service
Process Improvement: Web siteRemittance Advice Educational Tool
The Medicare Part B Provider Customer
Service area traditionally has received
many phone calls from Part B providers
who were confused about return-reject
denials. Without an understanding of how
to read the remittance, providers thought
Medicare was denying claims without
telling them why.
To improve customer
service and reduce the
amount of time associates
spent on the phone
explaining these denials,
this team devised a provider educational
tool for the Palmetto GBA Web site. This
tool clearly explains the meaning of the
CMS return-reject codes found on the
remittance advice.
The team gathered benchmark data
during the months of March – May 2002,
and established a goal to reduce the
number of phone inquiries related to
return-reject claim denials by 10%. By
implementing this process improvement,
the number of calls received on this topic
during November and December was
reduced by 16%; exceeding the goal by 6%!
Quality (Continued)
Palmetto GBA, LLC
Annual Report 2002 28
2002 Process Improvement Team of the Year:Seated: Karen Thompson, Teresa Lancaster, Lavetta Gordon, Alisha Cornelius,Gladys Wilson; Back row: Peggy Stephenson-Aun, Charles Norton, Alysia Naig,Christina Koehler, Daniel Jacobs, Annette Scott, Rosemary Stover, Raechele Johnson
2002 Team of the Year:Seated: Kelsalie Stephens, Michelle Sanchez, Jessica Messer, Valerie McFadden;Middle row: Charles Stepro, Lakisha Prioleau, Andrea Hallmon, DarylRichardson, Cynthia Wiley; Back row: Christina Hudgins, Allison McLeod,Angela Horne, Loretta Lassiter-Belton
Congratulations to all our winners!
I really enjoy my work andgetting this award is anadded bonus. In ProviderReimbursement, we areconstantly keeping up withchanges in Medicare lawsand regulations. Thismakes our job challenging,but also very interesting. Iam also lucky that I workwith such a good group ofpeople. My manager, LisaHutchinson, is a great person to work for. Sheprovides excellent leader-ship and encourages others to do their best.It’s this combination of interesting work and good people that makesPalmetto GBA a great place to work!
Sallie Noble
“Do not follow where the path may lead.
Go instead where there is no path andleave a trail.”
Board of Directors/Corporate Officers
Palmetto GBA Board of Directors Seated: William R. Horton , President, Government Programs, BlueCross BlueShield of South Carolina, M. EdwardSellers , President, Chairman and CEO, BlueCross BlueShield of South Carolina, Bruce W. Hughes, Executive Vice President and COO, Palmetto GBA,Standing: Martin L. Kappert , Retired Deputy Assistant Secretary Health Affairs, Department of Defense, Washington, D.C., Martha P. Mahaffey , ExecutiveVice President and COO, TrailBlazer Health Enterprises, Thomas J. Littlefield , PGBA, Vice President Regions 9, 10, and 12, Eileen T. Boyd , ManagingDirector, KPMG, Joseph F. Sullivan , Past Chairman of the Board, BlueCross BlueShield of South Carolina, Edwin R. Kohn , Consultant, Navy ResearchAdvisory Committee, Retired Vice Admiral, US Navy
Robin E. SpiresAssistant Vice President
DMERC Operations
Palmetto GBA, LLC
Annual Report 2002 30
As we travel along on our journey, we know that the road we take may
well be the road that we make. Yet clearing paths and blazing trails is
nothing new for Palmetto GBA. As we continue our excursion, we will
be driven by excellence. Our ventures will be guided by our values.
The race continues — and so will our success.
Palmetto GBA, LLC
Annual Report 2002 31
William R. HortonPresident
Bruce W. HughesExecutive Vice President
and Chief Operating Officer
B. Sue PearcyVice President
Medicare Integrity ProgramOperations
Roslyn C. CatoVice President
Processing and CustomerService
Ann S. ArchibaldVice President
and Compliance Officer
Richard P. ButlerVice President
Systems and Support
Joseph D. WrightVice President
and Chief Financial Officer
Richard M. BarlowVice President
Ohio/West Virginia Operations
Jean CatalanoAssistant Vice President
Railroad Medicare Operations
Michael N. BurkheadAssistant Vice President
Part A Operations
John N. DartAssistant Vice PresidentPart B Operations, NSC
W. Joseph JohnsonAssistant Vice President
Electronic Data Interchange
Elaine G. MyersAssistant Vice President
Beneficiary Services,Congressional Affairs,Provider Education
Robert A. LeichtleTreasurer
Angela D. RoweSecretary
BALANCE SHEETS (in thousands)
Report of Independent Auditors
December 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 3, 168 $3,686
Short-term investments - 822
Accounts receivable, net 3,745 4,137
Total current assets 6,913 8,645
Long term assets:
Long-term investments 2,564 -
Investment in affiliate 656 294
Deferred income taxes 189 126
Total long-term assets 3,409 420
Total assets $10,322 $ 9,065
Liabilities and member’s equity
Current liabilities:
Payable to parent $ 2,147 $ 1,695
Payable to other affiliates 113 182
Other liabilities 587 337
Total current liabilities 2,847 2,214
Long-term liabilities:
Deferred income taxes 3 -
Total long-term liabilities 3 -
Member’s equity:
Contributed capital 4,389 3,959
Retained earnings 3,274 2,882
Accumulated other comprehensive income (191) 10
Total member’s equity 7,472 6,851
Total liabilities and member’s equity $10,322 $ 9,065
Palmetto GBA, LLC
Annual Report 2002 32Palmetto GBA, LLC
Annual Report 2002 33
Board of Directors Palmetto GBA, LLC
We have audited the accompanying balance sheets of Palmetto GBA, LLC (the“Company”) as of December 31, 2002 and 2001, and the related statements ofoperations, 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 onour audits.
We conducted our audits in accordance with auditing standards generally acceptedin the United States. Those standards require that we plan and perform the audit toobtain 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 alsoincludes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all materialrespects, the financial position of Palmetto GBA, LLC at December 31, 2002 and 2001,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 14, 2003except for Note 7, as to which the date isFebruary 27, 2003
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS (in thousands)
STATEMENTS OF CHANGES IN MEMBER’S EQUITY(in thousands)
Year ended December 31,
2002 2001
Revenues:
Medicare Part A $ 50,708 $ 44,387
Medicare Part B 29,905 11,803
Durable Medical Equipment Regional Carrier 57,156 57,047
Railroad Retirement Board 19,088 20,513
DDI System Access 3,239 3,668
Other CMS contracts 3,444 3,996
Total revenues 163,540 141,414
Expenses:
Medicare Part A 51,262 44,650
Medicare Part B 30,204 11,895
Durable Medical Equipment Regional Carrier 57,801 57,357
Railroad Retirement Board 19,308 20,628
DDI System Access 1,622 1,252
Other CMS contracts 2,817 3,521
Other administrative expenses 254 385
Total expenses 163,268 139,688
Gain from operations 272 1,726
Investment income, net 270 250
Income before income taxes 542 1,976
Provision for income taxes 150 289
Net income $ 392 $ 1,687
AccumulatedOther
Contributed Retained ComprehensiveCapital Earnings Income Total
Balance January 1, 2001 $3,653 $1,195 $ 14 $4,862
Net Income - 1,687 - 1,687
Change in unrealized gain on
securities classified as
available-for-sale - - (4) (4)
Total comprehensive income 1,683
Contribution of capital 306 - - 306
Balance December 31, 2001 3,959 2,882 10 6,851
Net income - 392 - 392
Change in unrealized gains (losses)
on securities classified as
available-for-sale - - (201) (201)
Total comprehensive income 191
Contribution of capital 430 - - 430
Balance December 31, 2002 $4,389 $3,274 $ (191) $7,472
Palmetto GBA, LLC
Annual Report 2002 34Palmetto GBA, LLC
Annual Report 2002 35
The accompanying notes are an integral part of these financial statements.The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS (in thousands)
NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2002
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 January1, 1998. The Company’s sole member is Blue Cross and Blue Shield of South Carolina (“BCBSSC”). TheCompany is engaged in the business of providing Medicare Part A fiscal intermediary services, MedicarePart B carrier services and Medicare Durable Medical Equipment Regional Carrier services in variousstates. These services include health insurance claims processing and payment, customer service forMedicare beneficiaries and health care providers, and payment safeguard functions designed todetect and prevent fraud and abuse in the Medicare program. The Company provides services toMedicare beneficiaries residing in several states, Puerto Rico and the U.S. Virgin Islands. The statesinclude South Carolina, North Carolina, Kentucky, Tennessee, Alabama, Arkansas, Colorado, Florida,Georgia, Louisiana, Mississippi, New Mexico, Oklahoma, Texas, Indiana, Illinois and Ohio. The Company’smajor customer is the Centers for Medicare and Medicaid Services (“CMS”), the federal agency withfiduciary responsibility for the Medicare program.
The financial statements have been prepared in accordance with accounting principles generallyaccepted in the United States (“GAAP”). The preparation of financial statements in conformity withGAAP requires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.
Significant accounting policies and the methods of applying those policies are summarized below.
Cash EquivalentsCash equivalents represent certificates of deposit that have maturities of less than three months at dateof purchase and money market fund investments.
Short-term investmentsShort-term investments are classified as available-for-sale and are carried at fair market value. Suchinvestments have maturities of less than one year at the balance sheet date. Realized gains and loss-es are computed using the specific identification method.
Concentration of credit riskFinancial instruments that potentially subject the Company to concentrations of credit risk, consist ofshort-term investments in overnight repurchase agreements.
Asset valuation allowancesThe Company recorded an allowance for uncollectible receivables in the amount of $1,000 atDecember 31, 2002. No allowance was recorded at December 31, 2001.
Investment in affiliateThe Company has a 25% interest in TriCenturion, LLC that is accounted for using the equity method. TheCompany’s proportionate share of earnings or losses of this affiliate are reflected in income as earnedand dividends or distributions are credited against investment in affiliate when received.
Assets, liabilities and results of operations for TriCenturion, LLC were as follows:
Year ended December 31,2002 2001
(in thousands)
Assets $3,645 $1,692Liabilities $1,031 $ 525Net Income $ 697 $ 273
Year ended December 31,
2002 2001
Cash flows from operating activities:
Net income $ 392 $ 1,687
Adjustments to reconcile net income to net cash
provided from operating activities:
Amortization 3 -
Realized loss on investments 52 -
Equity in (income) of affiliate (174) (68)
Deferred income tax provision (60) (126)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 392 (1,444)
Increase in payable to parent 452 133
(Decrease) in payable to other affiliates (69) (177)
Increase in other liabilities 250 157
Net cash provided from operating activities 1,238 162
Cash flows from investing activities:
Investments sold – held-to-maturity 951 1,565
Investments sold – available-for-sale 264 -
Investments purchased – held-to-maturity (1,352) (1,605)
Investments purchased – available-for-sale (1,861) -
Capital contribution to affiliate (188) (138)
Net cash used in investing activities (2,186) (178)
Cash flows from financing activities:
Capital contribution from parent 430 306
Net (decrease) increase in cash and cash equivalents (518) 290
Cash and cash equivalents, beginning of year 3,686 3,396
Cash and cash equivalents, end of year $ 3,168 $ 3,686
Palmetto GBA, LLC
Annual Report 2002 36Palmetto GBA, LLC
Annual Report 2002 37
The accompanying notes are an integral part of these financial statements.
InvestmentsInvestments are comprised of common stocks, bonds, United States Government mortgage-backedsecurities and money market mutual funds. These assets are accounted for in accordance withFinancial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debtand Equity Securities (“Statement No. 115”). Statement No. 115 requires that fixed maturities are to beclassified as either “held-to-maturity”, “available-for-sale”, or “trading”.
Management determines the appropriate classification of its fixed maturity securities at the time of pur-chase and reevaluates such designation as of each balance sheet date. Fixed maturity securities areclassified as held-to-maturity when the Company has the positive intent and ability to hold them tomaturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premi-ums and accretion of discounts to maturity. Such amortization as well as interest earned is included ininvestment income.
Fixed maturity and equity securities not classified as held-to-maturity are classified as available-for-sale.Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported inmember’s equity. The amortized cost of debt securities in this category is adjusted for amortization ofpremiums and accretion of discounts to maturity. Such amortization and interest earned is included ininvestment income. The cost of securities sold is based on the specific identification method. AtDecember 31, 2002, the Company classified all of its debt securities as held-to-maturity and all of itsequity securities as available-for-sale. The Company’s equity investments are substantially concentrat-ed in industrial stocks.
Revenue recognition policiesThe Company recognizes revenues based upon allowable costs incurred which are reimbursableunder the terms of the following contracts:
• Medicare Part A Fiscal Intermediary subcontract between BCBSSC and the Blue Cross and BlueShield Association (“BCBSA”) (this includes the Regional Home Health Intermediary subcontract)**
• Medicare Part B Carrier Services contract between BCBSSC and CMS**
• Durable Medical Equipment Regional Carrier (“DMERC”) contract between BCBSSC and CMS (thisincludes the National Supplier Clearinghouse contract and the Statistical Analysis of DMERC con-tract)**
• National 1-800 Beneficiary Telephone Inquiries (“IDIQ”) contract between BCBSSC and CMS (thisincludes the Managed Care Disenrollment task order)**
• Railroad Retirement Board Part B Carrier Service contract between the Company and the Railroad Retirement Board
**These contracts are executed to the Company under a special power of attorney given by BCBSSC.
The Company recognizes revenue on the DDI System Access contracts with various third parties whenservices are performed and billable.
NOTE 2 — INVESTMENTS
Short-term investments consist of a U.S. Treasury Bill at December 31, 2001.
Long-term investments consist of the following at December 31, 2002:
Amortized Gross GrossCost Unrealized Unrealized Fair
Or Cost Gains Losses Value
(in thousands)
Bonds and mortgage-backed securities -- held-to-maturity $1,223 $41 $ 9 $1,255
Common stocks – available-for-sale 1,532 31 222 1,341
$2,755 $72 $231 $2,596
Expected maturities of debt securitiesThe amortized cost and estimated market values of held-to-maturity debt securities, by contractualmaturity, at December 31, 2002 are as follows:
Book Value Market Value
(in thousands)
Held-to-maturity securities:
Due in one year or less $ - $ - Due in one year through five years 304 324 Due in five years through ten years 302 324 Due after ten years - -
606 648Mortgage-backed securities 617 607 Total held-to-maturity $1,223 $1,255
There were gross realized gains of $12,000 and gross realized losses of $64,000 during the year endedDecember 31, 2002. There were no realized gains or losses during the year ended December 31, 2001.Gross unrealized holding gains and (losses) on securities classified as available-for-sale in the amountsof $31,000 and ($222,000), respectively, at December 31, 2002 and gross unrealized holding gains of$10,000 at December 31, 2001, are reported in accumulated other comprehensive income in theaccompanying balance sheets. No cash or assets are pledged or restricted for any purpose.
NOTE 3 — INCOME TAXES
As a single-member limited liability company, “disregarded entity” status has been elected for federalincome tax purposes. Therefore, the Company’s taxable income is included as a division of its owner,BCBSSC. Under a written tax-sharing agreement, BCBSSC allocates the tax provision to each companywithin the consolidated group based upon the company’s proportionate share of the consolidated fed-eral income tax liability computed on a stand-alone basis multiplied by the total consolidated federalincome tax return liability. The following entities were included in the consolidated federal income taxreturn of BCBSSC:
Blue Cross and Blue Shield of South CarolinaCompanion HealthCare CorporationCompanion Property and Casualty Insurance Company (and subsidiaries)Companion Technologies Corporation (and subsidiaries)Planned Administrators, IncorporatedPalmetto GBA, LLCTrailBlazer Health Enterprises, LLCPGBA, LLCCompanion Information Management ResourcesCompanion Capital Management, IncorporatedCompanion Benefit Alternatives, IncorporatedAlpine Agency, IncorporatedPreferred Health Systems, Inc. (since December 1, 2001)
The Company has an income tax payable to BCBSSC of $14,000 at December 31, 2002, and anincome tax receivable from BCBSSC of $40,000 at December 31, 2001, which are included in the netpayables to the parent. The Company made payments to BCBSSC for income taxes of $156,000 and$483,000 during the years ended December 31, 2002 and 2001, respectively.
The Company recognized a provision for income taxes as follows:
Year ended December 31,2002 2001
(in thousands)
Current $210 $415Deferred (60) (126)
$150 $289
Palmetto GBA, LLC
Annual Report 2002 38Palmetto GBA, LLC
Annual Report 2002 39
The provision for income taxes differs from the amount computed by applying the federal statutory taxrate of 35% to income before income taxes primarily due to the dividends received deduction allowedfor tax and benefits derived from filing on a consolidated basis versus separate company basis. Thetemporary differences that give rise to deferred tax assets and liabilities are primarily related to accruedexpenses. There was no valuation allowance at December 31, 2002 or 2001.
Deferred tax assets and liabilities are classified as current and long-term based on the classification ofthe related asset or liability. The deferred tax asset recognized at December 31, 2002 and 2001, andthe deferred tax liability recognized at December 31, 2002 are classified as long-term.
NOTE 4 — RELATED PARTIES
The Company is a wholly-owned subsidiary of BCBSSC, has no employees, no depreciable assets, and itsoffices, other facilities and services are provided by BCBSSC pursuant to an administrative servicesagreement. Expenses associated with the administrative services agreement are allocated from BCBSSCto the Company. The Company paid $163,924,000 and $142,385,000 during the years ended December31, 2002 and 2001, 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 $430,000 and$306,000 during the years ended December 31, 2002 and 2001, respectively.
The Company made payments in the amount of $1,121,000 and $1,188,000 to TrailBlazer HealthEnterprises, LLC, a subsidiary of BCBCSC, during the years ended December 31, 2002 and 2001 for serv-ices subcontracted to TrailBlazer Health Enterprises under the Company’s Disenrollment contract withCMS.
NOTE 5 — COMMITMENTS AND CONTINGENCIES
A financial guarantee has been issued by BCBSSC, which equals the Company’s estimated annual netoperating expenses multiplied by 8.33%, less current capitalization. This guarantee is estimated to beapproximately $6,000,000 at December 31, 2002.
BCBSSC has also executed an indemnification agreement, pursuant to minimum reserve and otherrequirements established by the Blue Cross and Blue Shield Association (“BCBSA”). BCBSSC is thereforeliable to the Company to the extent of its financial guarantee, and to the BCBSA to the full extent of itsassets for any claims asserted against the BCBSA resulting from the contractual and financial obligationsof the Company arising out of its Medicare Part A subcontract with the BCBSA. In addition, BCBSSC hasexecuted a statutorily required financial guarantee of $75,000 on behalf of the Company in order for theCompany 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 onits contracts with CMS. The liability was $540,000 and $360,000 for the years ended December 31, 2002and 2001, respectively.
The Company is obligated for additional capital contributions of up to $1,169,500 to its affiliate,TriCenturion, LLC.
NOTE 6 — CMS CONTRACT NOVATION STATUS
As of January 1, 1999, BCBSSC’s Medicare administrative services contracts are executed through theCompany through a special power of attorney since CMS has not yet approved the novation ofBCBSSC’s contracts to the Company. The Company expects the novation to be completed in 2003.
As part of the novation process, on January 1, 2003, fixed assets in the amount of $5,193,000 were trans-ferred from BCBSSC to the Company in exchange for a promissory note. The Company has requesteda capital contribution to liquidate the promissory note. The Company’s personnel, previously employ-ees of BCBSSC, have been transferred as well.
NOTE 7 — SUBSEQUENT EVENTS
Subsequent to December 31, 2002, a capital call from TriCenturion, LLC to Palmetto GBA, LLC wasmade in the amount of $150,000.
Effective January 15, 2003, the Part A and Part B Benefit Integrity workload was transitioned to aProgram Safeguard Contractor, TriCenturion, LLC, in accordance with the long-term strategy of CMS.
Palmetto GBA, LLC
Annual Report 2002 40