TITLE: B-297915, CIGNA Government Services, LLC, May 4, 2006
BNUMBER: B-297915
DATE: May 4, 2006
*****************************************************
B-297915, CIGNA Government Services, LLC, May 4, 2006
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective
Order. This redacted version has been approved for public release.
Decision
Matter of: CIGNA Government Services, LLC
File: B-297915
Date: May 4, 2006
Craig A. Holman, Esq., Kara L. Daniels, Esq., and David J. Craig, Esq.,
Holland & Knight, LLP, for the protester.
Paul F. Khoury, Esq., Kathryn Bucher, Esq., Dorthula H. Powell-Woodson,
Esq., Kara M. Sacilotto, Esq., Daniel P. Graham, Esq., and Kevin J.
Plummer, Esq., Wiley Rein & Fielding LLP, for Noridian Administrative
Services, LLC, an intervenor.
Jeffri Pierre, Esq., Anthony E. Marrone, Esq., and Christine Simpson,
Esq., Department of Health & Human Services, for the agency.
Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.
DIGEST
Agency's cost realism analysis of awardee's proposed cost/price was
reasonable where agency considered specific cost elements of the proposed
cost/price, comparing the cost/price proposed for those elements with
historical costs incurred by both the awardee and other contractors in
performing similar activities.
DECISION
CIGNA Government Services, LLC protests the award of a contract by the
Department of Health & Human Services, Centers for Medicare and Medicaid
Services (CMS), to Noridian Administrative Services, LLC under request for
proposals (RFP) No. CMS-2005-0012 to provide Medicare claims processing
and services related to claims from suppliers and beneficiaries of durable
medical equipment.[1] CIGNA protests, among other things, that CMS failed
to perform an adequate cost realism analysis with regard to Noridian's
proposed cost/price.
We deny the protest.
BACKGROUND
In December 2003, Congress enacted the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (MMA). Among other things, this
legislation requires that CMS use competitive procurement procedures,
pursuant to the Federal Acquisition Regulation (FAR), to replace the
fiscal intermediaries and carriers on whom CMS has historically relied for
claims processing services,[2] and who have been selected under other than
competitive procedures. The replacement contractors under the MMA are
referred to as "Medicare Administrative Contractors" (MACs). Pursuant to
the transition, and in contrast to past practice, MACs are also required
to comply with the Cost Accounting Standards (CAS).
In April 2005, CMS published RFP No. CMS-2005-0012, seeking proposals, for
each of four geographic jurisdictions,[3] to provide specified health
insurance benefit administration services, including Medicare claims
processing and payment services, related to durable medical equipment,
prosthetics, orthotics and supplies (DMEPOS).[4] RFP sect. B.1. The
procurements for each jurisdiction were conducted as separate
competitions, but offerors were permitted to submit proposals for any or
all of the jurisdictions. The solicitation provided that the source
selection decision for each jurisdiction would be made on the basis of the
proposal offering the best overall value to the government, considering
cost/price and the following non-cost/price factors, listed in descending
order of importance: offeror capability,[5] implementation,[6] quality
control plan, corporate experience, past performance, and small
disadvantaged business utilization plan. RFP sect. M.4. The solicitation
provided that non-cost/price factors, when combined, were significantly
more important than cost/price, and that cost/price would not be point
scored but would be evaluated for cost realism. RFP sections M.2, M.7.
Under prior Medicare claims processing procedures, CMS has employed an
"activity-based costing" (ABC) system in which virtually all contractor
costs, including all staffing hours, are direct-charged against a number
of "activity codes." Hearing Transcript (Tr.), Apr. 4, 2006, at 19-20.[7]
In specifying the various activities contemplated under this solicitation,
the statement of work frequently referenced particular ABC codes that have
been associated with particular activities under the prior system.[8]
Under the most important non-cost/price evaluation factor, offeror
capability, the solicitation directed each offeror to "provide a clear and
concise description of its understanding of the requirements of the tasks
provided in the statement of work." RFP sect.L.15, at 116. This portion of
the solicitation further directed each offeror to submit a "Work Breakdown
Structure," stating that:
The WBS [work breakdown structure] shall contain the major work tasks,
milestones, timeframes and deliverables of the technical proposal
directly correlated to the business proposal. Subdivide the statement of
work task into their constituent activities . . . . Briefly describe
each activity and its inputs and outputs. . . . In addition, resource
information in the cost template for FTE data concerning labor hours and
categories, materials and subcontracts, etc. must be contained in the
technical proposal so that your understanding of the scope of work may
be evaluated.
RFP sect. L.15, at 117.
On or before the specified closing date, Noridian and CIGNA submitted
proposals for the jurisdiction D contract.[9] Technical proposals were
evaluated by a technical evaluation board (TEB);[10] cost/price proposals
were evaluated by a business evaluation panel (BEP).[11] Noridian's
proposed cost/price was [deleted] million; CIGNA's proposed cost/price was
[deleted] million.[12] Agency Report (AR), Tab 17A, at 1; AR Tab 18A, at
1.
Upon completing the evaluation of initial proposals, the TEB submitted a
report to the contracting officer which reflected the following ratings
for the various evaluation factors: [13]
+------------------------------------------------------------------------+
|Evaluation Factor | Max. Score | CIGNA | Noridian |
|---------------------------+-----------------+-----------+--------------|
|Offeror Capability | 545 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Implementation | 170 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Quality Control Plan | 100 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Corporate Experience | 80 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Past Performance | 80 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|SDB Utilization Plan | 25 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Total | 1000 | [deleted] | [deleted] |
+------------------------------------------------------------------------+
AR, Tab 9, at 2, 20.
The TEB report identified various strengths and weaknesses in each
proposal. Although the two proposals received relatively comparable point
scores, the TEB expressed concern regarding Noridian's understanding of
the unique DMEPOS claims processing requirements, stating:
NAS [Noridian] does not appear to understand the differences between the
unique rules of DMEPOS versus NAS' current [Medicare] Part B operations.
This could be extremely problematic for future DME MAC operations. In
many cases, NAS seems to think little or nothing will need to change in
terms of their processing and knowledge of the staff to handle DMEPOS,
but this is not an accurate assumption. DMEPOS claims are very different
from physician/practitioner claims.
AR, Tab 9, at 23.
A portion of the TEB report, under the heading "Business Proposal,"
prepared by the BEP's technical representative expressed similar concern,
stating: "[Noridian's] estimates for the bills/claims functions appear
significantly low. The basis for the estimates for some of the activity
codes need to be reviewed with this offeror." AR, Tab 9, at 33-34.
In reviewing the proposals for all jurisdictions, the agency found that
some of the offerors, including Noridian, proposed to meet particular
requirements through use of "service centers" that were proposed as "other
direct costs" (ODCs).[14] AR, Tab 17A, at 3-4; Tr., Apr. 4, 2006, at
384-85. Because these service centers performed work for contracts in
addition to the DMEPOS contract, the costs proposed to perform certain
DMEPOS contract requirements reflected only a portion of the service
center's total costs; accordingly, the evaluators were unable to identify
any "direct labor" charges to various DMEPOS activities--although the
proposed ODC amounts for those activities clearly included labor costs.
Tr., Apr. 4, 2006, at 385-86. In short, the agency determined that the
total level of resources an offeror was proposing to perform various
activites was not necessarily reflected by referencing only the "direct
labor" proposed for that activity. Id.
By letters dated August 24, 2005, the agency initiated discussions with
CIGNA and Noridian. AR, Tab 43. Due to the agency's difficulty in
determining the various levels of effort being proposed by the offerors,
the agency created a "level of effort" (LOE) template for offerors to
complete, sending that template to offerors with the August 24 discussion
letters. With regard to the template, the discussion letters stated:
CMS is requesting that you confirm your proposed level of effort by
completing the enclosed template as instructed. The template shall
include all productive hours to fulfill the statement of work
requirements related to your proposal. This includes those hours charged
to the contract whether those hours are allocated through an indirect
cost pool or to an ABC code. Your subcontractor hours shall be
identified as well.[[15]] The hours shall be provided by contract year
for all years. In order to fully understand your proposed level of
effort, CMS is asking that you confirm your proposed level of effort by
way of completing this template. You are cautioned that this is not a
request to revise your Business Proposal. Rather it is an analysis tool
that will be used to better understand your proposed level of effort.
AR, Tab 43, at 1-2.
Both CIGNA and Noridian responded to the initial discussions and,
thereafter, participated in various rounds of discussions, both written
and oral, submitting various clarifications, modifications, and revisions
to their initial proposals, including submission of the LOE templates.[16]
On December 1, 2005, the TEB issued another report, summarizing the impact
of the discussions, clarifications, modifications and revisions that had
occurred up to that time. Among other things, this report stated:
It should be noted that through discussions [with Noridian] it was noted
by CMS that an area of improvement was demonstrated knowledge of
specialized DME processing. NAS' response to this dealt with staff
expertise in DME claims processing, prior communication with VMS on the
claims processing system, a gap analysis between the Part B and DMERC
claims information and a DME 101 training course for NAS employees. In
summary, NAS feels these examples show how they will become more
proficient with DME. As a result[,] these examples did provide
information sufficient to raise some of the claims processing
requirements scores. However, there continue to be concerns about NAS's
understanding of how DMEPOS claims and processing is different than Part
B.
AR, Tab 14, TEB Report (Dec. 1, 2005), at 3.
On November 30, the agency requested submission of final revised proposals
(FRPs). CIGNA and Noridian each submitted an FRP on December 9. The
submissions were subsequently evaluated by the various evaluation panels,
including the TEB and BEP. Noridian's proposed cost/price was $97.4
million; CIGNA's proposed cost/price was [deleted] million. AR, Tab 17(c),
at 1; AR, Tab 18(c), at 1.
On December 14, the TEB submitted its report on the offerors' FRPs.[17]
The summary of the final technical evaluation ratings were as follows:
+------------------------------------------------------------------------+
|Evaluation Factor | Max. Score | CIGNA | Noridian |
|---------------------------+-----------------+-----------+--------------|
|Offeror Capability | 545 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Implementation | 170 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Quality Control Plan | 100 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Corporate Experience | 80 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Past Performance | 80 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|SDB Utilization Plan | 25 | [deleted] | [deleted] |
|---------------------------+-----------------+-----------+--------------|
|Total | 1000 | [deleted] | [deleted] |
+------------------------------------------------------------------------+
AR, Tab 14, at 2; Tab 5, at 2-3; Tab 41, at 27.
With regard to Noridian's FRP, the TEB report, under the heading
"Strengths," stated, among other things, as follows:
The OnBase document and management workflow system is described in
detail throughout the proposal. It shows benefits such as facilitating
quality assurance practices, imaging, and tracking documents across
components, monitoring and measuring as a tool to meet timeliness
standards, and ensuring that documents are routed in a standard,
controlled and expeditious manner. Implementation of this system into
the DME MAC environment should increase "quality control, cost savings
and performance monitoring capabilities of an electronic document
management system.["] Examples of the benefits of OnBase are apparent
throughout the proposal. . . .
The proposal outlines innovative means to ensure high performance of
employees.[[18]]
AR, Tab 15, at 8-9.[19]
Under the heading "Weaknesses," the report repeated the TEB's earlier
concerns regarding Noridian's understanding of the unique aspects of
DMEPOS contracting, stating:
In the area of Offeror Capability, specifically DME claims processing,
NAS has failed to demonstrate a thorough understanding of the basic
principles, unique rules and complexities of DMEPOS claims processing as
opposed to local carrier processing.
AR, Tab 15, at 9.[20]
Nevertheless, as shown in the tables above, the TEB's rating of Noridian's
proposal with regard to offeror capability increased from an initial score
of [deleted] to a score of [deleted] and that, overall, Noridian's
proposal was rated only somewhat lower than CIGNA's proposal.[21]
The portion of the TEB's final report prepared by the BEP's technical
representative (who was tasked with performing the cost realism analysis)
had a more focused concern with regard to Noridian's understanding of the
requirements. Specifically, under the heading "Cost Realism Analysis," the
final TEB report stated:
The technical panel questioned the final calculation of number of claims
per hour per person [that Noridian had presented orally during
discussions] and asked NAS to revise their assumptions surrounding
beneficiary submitted paper claims because there are more beneficiary
paper claims submitted in DME vs. Part B. This could have a direct
impact on NAS' assumed productivity.[[22]]
AR, Tab 15, at 12.
On December 14, the contracting officer met with all of the evaluation
panel chairs to obtain their input regarding the award recommendations to
be made to the source selection board (SSB) and the source selection
authority (SSA) in a meeting scheduled to take place the following
day.[23] At this meeting the TEB strongly recommended award to CIGNA with
regard to jurisdiction D. The contracting officer expressed reservation
with that recommendation, noting that CIGNA's proposed cost/price was
significantly higher than Noridian's, yet CIGNA's rating for
non-cost/price factors was only somewhat higher. Because of the TEB's
concerns that Noridian did not have a complete understanding of the DMEPOS
contract requirements, the contracting officer requested that the
evaluation personnel consider whether an upward adjustment to Noridian's
proposed cost/price should be made to reflect those concerns and, if so,
to calculate what such an adjustment should be.
In response to the contracting officer's request, the TEB calculated a
potential upward adjustment to Noridian's cost/price by increasing it to
reflect the total level of direct labor hours that CIGNA had charged to
all "11000" activity codes (the codes associated with the entire
"Bills/Claims Payment" function) in the immediately preceding period under
CIGNA's incumbent DMERC contract. AR, Tab 15.
Thereafter, the contracting officer reviewed the proposed adjustment, but
concluded that it would not be appropriate to apply the adjustment to
Noridian's proposed cost/price. Among other things, the calculation
reflected an upward adjustment for all of the "11000" code activities; yet
the TEB's concerns related only to the much narrower activity code, 11202,
associated with handling paper claims.
On December 15, the scheduled meeting between the evaluation personnel,
the contracting officer, the SSB, and the SSA took place. At that meeting
the contracting officer presented the TEB's conclusions with regard to the
jurisdiction D competition and, consistent with the TEB's position,
recommended award to CIGNA, notwithstanding CIGNA's higher cost/price. The
calculated adjustment proposed by the TEB for Noridian's cost/price was
not presented. Following completion of the presentations for each of the
four jurisdictions, the SSA dismissed the evaluation panel chairs and "a
further, lengthy discussion took place" between the SSA, SSB members, the
contracting officer, and other "senior CMS management officials."[24]
Contracting Officer's Statement, (Feb. 22, 2006), at 6.
Based on this "further, lengthy discussion," the SSA concluded that he
could not make a source selection decision in favor of either jurisdiction
D offeror without obtaining additional information. Accordingly, the SSA
directed the contracting officer and the evaluation personnel to perform
further analysis, specifically requesting, among other things, that they
make a determination as to whether Noridian could be realistically
expected to perform the contract requirements at the cost/price it had
proposed. Id.
In response to the SSA's direction, the BEP's technical representative
retrieved from CMS's existing database a substantial amount of proposal
and historical cost information regarding all of the offerors that
submitted proposals for the four DMEPOS jurisdictions; the BEP technical
representative compiled the retrieved data in a chart labeled "Efficiency
Comparison." Agency Report, Tab 16. The "Efficiency Comparison" chart
compared offerors' various proposed costs, as well as various historical
costs for Medicare Part B claims processing and, for incumbent DMERC
contractors, specific costs billed under those contracts during the most
recent contract period. Among other things, the "Efficiency Comparison"
chart displayed the "cost per claim" for the total "Bills/Claims Payment"
function as reflected in each offeror's proposal; the historic "cost per
claim" for the total "Bills/Claims Payment" function incurred by each
offeror under prior Part B Medicare work; and, for the four DMERC
incumbents, the similar "costs per claim" incurred under those particular
contracts. The proposed and historical costs were as follows:
Cost Per Claim for "Bills/Claims Payment" (All 11000 Codes)
+------------------------------------------------------------------------+
| | DMEPOS |FY 2005 Medicare Part| FY 2005 |
| | | B | |
| | Proposal | | Incumbent |
| | | Cost Per Claim | |
| |Cost Per Claim| | DMERC |
| | | | |
| | | |Cost Per Claim|
|--------------------+--------------+---------------------+--------------|
|Noridian (Juris. D) | [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|CIGNA (Juris. D) | [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|CIGNA (Juris. C) | [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|Palmetto (Juris C) | [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|Offeror W (Juris. B)| [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|Offeror X (Juris. B)| [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|Offeror Y (Juris. A)| [deleted] | [deleted] | [deleted] |
|--------------------+--------------+---------------------+--------------|
|Offeror Z (Juris. A)| [deleted] | [deleted] | [deleted] |
+------------------------------------------------------------------------+
AR, Tab 16, Efficiency Comparison Chart.
More specifically, the "Efficiency Comparison" chart also displayed "cost
per claim" data for the more specific activity code, 11202, "Manage Paper
Bills/Claims." The proposed and historical costs for that particular
activity were as follows:
Cost Per Claim for "Manage Paper Bills/Claims" (Code 11202)
+------------------------------------------------------------------------+
| | DMEPOS | FY 2005 | FY 2005 |
| | | | |
| | Proposal | Medicare Part B | Incumbent |
| | | | |
| | | | DMERC |
|------------------------+-------------+-------------------+-------------|
|Noridian (Juris. D) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|CIGNA (Juris. D) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|CIGNA (Juris. C) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|Palmetto (Juris C) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|Offeror W (Juris B) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|Offeror X (Juris B) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|Offeror Y (Juris A) | [deleted] | [deleted] | [deleted] |
|------------------------+-------------+-------------------+-------------|
|Offeror Z (Juris. A) | [deleted] | [deleted] | [deleted] |
+------------------------------------------------------------------------+
AR, Tab 16, Efficiency Comparison Chart.
Upon reviewing all of the data displayed in the "Efficiency Comparison"
chart, including the specific data displayed above, [25] the agency
concluded that the data confirmed that, overall, Noridian has been a
historically efficient and low-cost contractor. Further, the agency
concluded that, with regard to the unique DMEPOS requirements involving
paper claims, Noridian's proposal reflected a dramatically higher level of
resources to perform that requirement in the DMEPOS environment than it
has historically employed to handle paper claims under Part B of the
Medicare program. More specifically, the agency determined that Noridian's
proposed cost/price specifically contemplated costs at the rate of
[deleted] per claim -- [deleted] times greater than the costs Noridian has
historically incurred in processing paper claims under Part B of the
Medicare program, and substantially higher than the costs proposed by most
of the other DMEPOS offerors, including CIGNA. Accordingly, the agency
concluded that Noridian properly anticipated that a significantly higher
level of resources would be required to perform the requirements involving
paper claims under the DMEPOS contract than Noridian has been required to
apply to its successful performance of this activity under its prior
Medicare work.
Because, as discussed above, the TEB's concerns regarding Noridian's
understanding of the DMEPOS requirements, following discussions, were
primarily focused on the unique DMEPOS requirements involving processing
of paper claims, the agency concluded, based on all of the proposed and
historical data contained in the "Efficiency Comparison" chart, together
with the other information submitted in Noridian's proposal, that
Noridian's proposed cost/price was reasonable and realistic. Based on that
determination, the agency concluded that CIGNA's somewhat higher--rated
proposal with regard to non-cost/price evaluation factors did not warrant
payment of CIGNA's substantially higher cost/price. Thereafter, Noridian's
proposal was selected for award. This protest followed.
DISCUSSION
CIGNA protests that CMS "completely abdicated" its responsibility to
perform a cost realism analysis because it did not upwardly adjust
Noridian's proposed cost/price as initially suggested by the TEB. We
disagree.
When an agency evaluates a proposal for the award of a cost-reimbursement
contract, an offeror's proposed estimated costs are not dispositive
because, regardless of the costs proposed, the government is bound to pay
the contractor its actual and allowable costs. Tidewater Constr. Corp.,
B-278360, Jan. 20, 1998, 98-1 CPD para. 103. Consequently, the agency must
perform a cost realism analysis to determine the extent to which an
offeror's proposed costs represents what the contract should cost,
assuming reasonable economy and efficiency. McDonnell Douglas Corp.,
B-259694.2, B-259694.3, June 16, 1995, 95-2 CPD para. 51. That is, the
purpose of a cost realism analysis is to determine what, in the
government's view, it is likely to realistically cost the offeror to
perform the contract requirements. Hager Sharp, Inc., B-258812, Feb. 17,
1995, 95-1 CPD para. 93. The FAR specifically provides that an agency's
required cost realism analysis should consider the separate cost elements
of an offeror's proposal, along with the agency's application of judgment,
and provides that an agency may use various techniques and procedures,
specifically including consideration of actual/historical costs that have
been incurred by the offeror or other contractors for the same or similar
work. FAR sect. 15.404; United Int'l Eng'g, Inc. et al., B-245448 et al.,
Jan. 29, 1992, 92-1 CPD para. 122 at 10-11; DATEX, Inc., B-270268.2, April
15, 1996, 96-1 CPD 240.
Here, as discussed above, the agency considered all of the information
submitted in Noridian's proposal, including, to the extent possible, the
levels of effort associated with the various DMEPOS requirements, yet
properly recognized that the available information did not definitively
identify the specific levels of effort that were proposed for some of the
specific DMEPOS activities. In this regard, the agency properly recognized
that, while Noridian's proposal reflected substantial costs it would incur
in connection with efforts at its various "service centers," these
proposed costs could not be broken down to identify the particular levels
of direct labor hours flowing from those service centers to perform
particular DMEPOS activities. The agency also reasonably concluded that
Noridian's proposal reflected a higher level of automation and efficiency
than CIGNA's more "manual-type" approach to claims processing. Finally,
the agency specifically considered Noridian's proposed costs to perform
the DMEPOS requirements regarding paper claims--the area on which the TEB
had focused its concerns regarding Noridian's understanding of the
contract requirements--and compared the proposed costs to various other
offerors' proposed and historical costs for performing this activity,
along with Noridian's own historical costs for processing paper claims
under Part B of the Medicare program. Based in part on Noridian's proposal
of substantially higher costs per claim to perform the DMEPOS requirements
than the cost per claim Noridian has historically incurred, the agency
concluded that Noridian's proposal reflected Nordian's anticipated
application of a substantially higher level of resources to perform this
portion of the DMEPOS contract than Noridian has previously applied to
similar activities under Part B of the Medicare program. Accordingly, the
agency concluded on the basis of all of its analysis that Noridian's
proposed cost/price was reasonable and realistic.
As noted above, the FAR specifically contemplates consideration of
historical costs in performing a valid cost realism analysis. Accordingly,
on the record here, we find no basis to question the reasonableness of the
agency's cost realism analysis, which considered the unique attributes of
Noridian's proposed approach as well as consideration of the specific
costs proposed to perform particular elements of the contract
requirements, comparing Noridian's proposed costs to similar costs that
have been proposed and incurred by Noridian and other offerors for related
activities.
The protest is denied.[26]
Anthony H. Gamboa
General Counsel
------------------------
[1] CIGNA has protested two separate contracts awarded under the same
solicitation: one awarded to Noridian Administrative Services, LLC, and
one awarded to Palmetto GBA, LLC. In response to CIGNA's initial protest
submission and its supplemental submissions, our Office opened two docket
numbers: B-297915 and B-297915.2. We are addressing in this decision,
under docket number B-297915, all protest issues regarding the award to
Noridian, and are addressing in a separate decision, under docket number
B-297915.2, all protest issues regarding the award to Palmetto.
[2] In general, fiscal intermediaries have been responsible for processing
Medicare payments for institutional providers (for example, hospitals and
skilled nursing facilities) under Part A of the Medicare program; carriers
have been responsible for processing payments for professional providers
(for example, physicians and diagnostic laboratories) under Part B of the
Medicare program. More specifically, contractors known as "durable medical
equipment regional carriers" (DMERCs) have been responsible for processing
Medicare claims for durable medical equipment under Part B of the Medicare
program. RFP, Statement of Work, at 12. CIGNA is the incumbent DMERC
contractor for the requirements at issue here.
[3] The jurisdictions were defined, according to state/territory boundary
lines, as follows: Jurisdiction A--Connecticut, Delaware, District of
Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania, Rhode Island, Vermont; Jurisdiction B--Illinois,
Indiana, Michigan, Minnesota, Ohio, Wisconsin, Kentucky; Jurisdiction
C--Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi,
New Mexico, North Carolina, Oklahoma, Puerto Rico, South Carolina,
Tennessee, Texas, Virgin Islands, Virginia, West Virginia; Jurisdiction
D--Alaska, Arizona, California, Guam, Hawaii, Idaho, Iowa, Kansas,
Missouri, Montana, Nebraska, Nevada, North Dakota, Oregon, South Dakota,
Utah, Washington, Wyoming, Mariana Islands, American Samoa. RFP, Statement
of Work, at 12.
[4] The solicitation's statement of work provided an overview of the
required tasks, stating:
The contractor shall receive and control Medicare claims from DMEPOS
suppliers and beneficiaries within its jurisdiction, as well as perform
edits on those claims to determine whether the claims are complete and
should be paid. . . . In addition, the Contractor calculates Medicare
payment amounts and remits those payments to the appropriate party. The
Contractor makes coverage decisions for new procedures and devices in
local areas. The Contractor also conducts a variety of different
suppliers' services, such as answering written inquiries, and educating
them on Medicare's rules and regulations and billing procedures.
RFP, Statement of Work, at 13-14.
[5] With regard to offeror capability, the solicitation established the
following subfactors, listed in descending order of importance:
understanding the requirements, project management, key personnel,
information security, and compliance plan. RFP sect. M.4, at 163.
[6] With regard to the implementation factor, the solicitation established
the following subfactors, listed in descending order or importance:
implementation plan, key personnel, and implementation risk. RFP sect.
M.4, at 163.
[7] In reviewing CIGNA's protest issues, our Office conducted a hearing at
the GAO building during which testimony was provided by various witnesses,
including the source selection authority, the contracting officer, and
various evaluation personnel. The hearing took place from April 4 through
April 6, 2006; accordingly, the transcripts for each day's testimony are
identified by reference to their respective dates.
[8] Thus, the RFP advised offerors that the "Bills/Claims Payment"
function in the Statement of Work (SOW) was associated with the "11000
codes"; that the "Appeals/Reviews" function was associated with the "12000
codes"; that the "Inquiries" function was associated with the "13000
codes"; and that the "Provider Communications" function was associated
with the "14000 codes." RFQ sect. L.12, at 104. The SOW provided more
detail. By way of example, under the general function "Bills/Claims
Payment," the SOW provided that more specific activities associated with
"electronic data interchange support" were associated with activity codes
11201 and 11203, that activities associated with "paper bills/claims" were
associated with activity code 11202, and that "misdirected claims"
activities were associated with activity codes 11204 and 11209. SOW at 4.
[9] CIGNA and Noridian were the only two offerors to submit proposals for
jurisdiction D.
[10] Subject matter experts (SMEs) were also assigned to assist the TEB,
but the SMEs did not point score the proposals.
[11] There was also a corporate experience/past performance panel to
evaluate proposals under those factors, and an implementation panel to
evaluate proposals under the implementation factor.
[12] The cost/price figures in this decision are rounded to the nearest
tenth of a million.
[13] Although the report was prepared by the TEB, it incorporated input
from the corporate experience/past performance evaluation panel, the
implementation panel, and the BEP's technical representative, who was
responsible for reviewing the consistency between the technical proposal
and the cost/price proposal.
[14] At the GAO hearing, agency personnel explained that the requirement
for offerors to change their accounting systems from the previously-used
"activity based" systems to CAS-compliant systems affected the manner in
which offerors' costs were identified and proposed. AR, Tab 17A, at 3-4;
Tr., Apr. 4, 2006, at 384-85.
[15] Notwithstanding the above, the contracting officer defined
"productive hours" as hours of individuals that were assigned to work full
time on the DMEPOS contract. Tr., Apr. 4, 2006, at 22-23. Accordingly, to
the extent offerors were advised of the contracting officer's definition,
their templates may have reflected something less than the complete levels
of effort contemplated. Further, the template did not request that the
levels of effort identified be associated with any activity codes.
[16] As ultimately submitted, Noridian's template reflected a total of
[deleted] hours for the base period and CIGNA's template reflected a total
of [deleted] hours for this period. Noridian Hearing Notebook, Tabs 109,
118. However, the LOE template hours were not associated with particular
activity codes and, therefore, were not useful for assessing the level of
effort an offeror was proposing to perform a particular activity.
[17] As with prior reports, the TEB report incorporated input from the
other evaluation panels.
[18] At the GAO hearing, the contracting officer testified that, in
general, CIGNA was considered to be a "more manual-type contractor," while
Noridian was "more automated than CIGNA," and that Noridian was considered
to be a "very efficient contractor." Tr., Apr. 4, 2006, at 66-67. This
assessment is consistent with the TEB's conclusions in its initial
evaluation report, which stated: "Compared to peers, NAS [Noridian] is one
of the lowest cost contractors. They have also consistently maintained low
CERT [comprehensive error rate testing] scores, and have very low turnover
of staff in general." AR, Tab 9, at 32.
[19] This TEB report also identified various strengths associated with
CIGNA's proposal, including the following statement:
[deleted]
AR, Tab 15, at 4-5.
[20] The report also identified various "weaknesses" in CIGNA's proposal,
including the following statement: "The most prominent weakness in
[CIGNA's] proposal is its tendency to reiterate the language in the SOW
without providing details." AR, Tab 15, at 6.
[21] With regard to "understanding the requirements," (the most important
subfactor under the offeror capability evaluation factor) Noridian's final
rating increased from an initial score of [deleted] (out of a possible
300) to 220. AR, Tab 9, at 20; Tab 14, at 2. By comparison, CIGNA's
initial rating under the "understanding the requirements" subfactor was
[deleted] and its final rating was [deleted]. AR, Tab 9, at 2; Tab 15, at
2.
[22] At the GAO hearing, the TEB chair confirmed that the above-quoted
description of the TEB's more focused concern regarding paper claims was
accurate, testifying as follows:
What's the difference between Part B and DME claims processing?
A. . . . My understanding is there's more submitted paper claims.
There's some claims that may need manual intervention to work through.
The claims have more attachments to them. . . .
Q. Putting aside paper claims, are there significant differences
between DME claims processing and Part B claims processing?
A. I don't believe so.
Tr., Apr. 4, 2006, at 187-88.
[23] The competitions for all four jurisdictions were conducted
simultaneously; accordingly, meetings involving the contracting officer,
the SSB, and the SSA generally involved discussions with regard to all
four competitions.
[24] At GAO's request, the agency identified the other "senior CMS
management officials" that participated in this discussion. They included
CMS's Director of the Medicare Contractor Management Group who, at GAO's
request, appeared and testified at the GAO hearing.
[25] In addition to the information displayed above, the "Efficiency
Comparison" chart included other data relating to the proposed and
historical costs of the various offerors.
[26] CIGNA's protest challenging the agency's selection of Noridian makes
various other allegations, including the assertions that CMS failed to
make adjustments to CIGNA's overhead pool, misevaluated various other
aspects of CIGNA's and Noridian's proposal, failed to conduct meaningful
discussions, failed to perform a professional compensation analysis, and
failed to make a proper best value determination. We have considered all
of CIGNA's arguments regarding the jurisdiction D procurement and find no
basis to sustain its protest.