The nursing home benefits by this arrangement since it receives reimbursement at the greater rate from Medicare when the patient is returned to the home. The hospital benefits because it is reimbursed for providing services to the patient which usually include laboratory tests, x-rays, etc. (Under such an arrangement the nursing home or hospital usually has a physician who authorizes the patient to be hospitalized.)

This type of activity not only provides services to a patient which were not needed nor requested, but the question of "eligibility" may determine whether a nursing home will accept a Medi-Cal patient into the home.

* **

In addition to effecting services provided under Medi-Cal, the unlawful activities of nursing homes also effect services provided under the federal program of Medicare. The activities described also result in a needless expenditure of funds under that program. Indeed, the scope of such unlawful activities was a matter of inquiry before a congressional subcommittee on Long Term Care in 1965. Testimony given before this subcommittee indicated that many of the activities we have described concerning nursing homes are prevalent throughout the nation.

B. Hospitals

The largest share of Medi-Cal funds, approximately $220,000,000 is received by hospitals. Of this amount, $120,000,000 goes to county hospitals. The remainder goes to private and non-profit hospitals.

We concentrated our investigation of hospitals on the profit making variety. There have been no indications that the abuses we are studying are prevalent in public and non-profit institutions.

Generally, we discovered that many of the abuses which we have seen in nursing homes occur equally in hospitals. Such abuses include overservicing, kickbacks and double billing.

These Medi-Cal abuses seem to be predominant in physician-owned hospitals. Since there are no significant differences in the patterns of abuse in nursing homes and hospitals, we will not offer extensive examples of hospital problems. Our comments on nursing homes clearly indicate the Medi-Cal problems which may be found in hospitals. An audit of just seven hospitals, for example, between March and August 1968, resulted in a recovery of $136,000 by Blue Cross.

C. Physicians

Medi-Cal pays around $95,000,000 a year to 18,000 physicians who participate in the program.

(1) The primary fraudulent activity engaged in by physicians as disclosed by the investigation has been submitting claims for services which were not in fact rendered by the physicians.

One area in particular where this type of activity occurs relates to physicians submitting claims for having examined patients in nursing homes, although such examinations were not in fact performed.

Due to problems which hamper investigative activities into fraudulent activities (discussed infra) the investigation was unable to determine the extent to which this type of conduct occurs.

(2) Overservicing is the major problem concerning physicians in the Medi-Cal Program. This involves services which are not necessary for a patient's well being, but which are provided primarily for the purpose of obtaining additional fees under the Medi-Cal Program.

(a) Examples of activities involving such overservicing include unnecessary examinations, office visits, laboratory tests, x-rays, injections and surgical procedures.

(b) The placement of persons in nursing homes whose physical condition does not require such extensive care is another form of overservicing.

In Los Angeles County alone during a one-year period of time some 1300 persons were requested to leave nursing homes by county consultants because their physical condition no longer required such extensive care.

(c) Many nursing homes have "house physicians". These are physicians who have an arrangement with nursing homes whereby they take care of the persons in the home. By having a "captive audience" the physician is able to realize a significant amount of income regardless of the actual need of the individual residents.

Under this type of arrangement however a physician may often compromise his professional judgment to the point where he relies upon recommendations made by the nursing home itself as to services to be given to the patient.

For example, our investigation revealed incidents where physicians signed blank prescriptions which were given to them by the nursing home and which were subsequently completed by the home itself. In one instance, a physician thought he was signing a prescription for a drug when in fact it was filled in by a nursing home for a wheel chair for a patient who was ambulatory. In another case, 75 blank prescriptions signed by a doctor were found in a nursing home. Review of claims by consultants have also given rise to suspicion that it is the nursing home which prepares the forms describing the physicial condition of persons who seek admission into the home. The "house physicians" sign such forms although they, in fact, have not examined the patients.

The determination of whether a physician is providing excessive services is one which usually requires the judgment of other physicians. Claims of physicians are processed for payment by Blue Shield. Blue Shield maintains a Utilization Committee which began functioning in February 1967. One major purpose of this committee is to discover physicians who overutilize the program. As will be seen later in this report, the current method of reviewing claims submitted by physicians does not maximize the discovery of abuses. Nevertheless, as of September 30, 1968, the Utilization Committee had discovered approximately 1000 physicians who had engaged in overutilization. As a result the committee either recovered or made adjustments in the doctors' claims to the extent that Medi-Cal realized a savings of approximately one half million dollars.

In addition to the Utilization Committee, physicians who act as advisors for Blue Shield at the county level have saved the program approximately $2,000,000 in just the first six months of this year based upon their review of claims submitted by physicians.

The question of overservicing also arises when doctors receive huge fees from the welfare program. Over 3 million dollars in payments have been made to just 35 physicians in a period of one year, with payments ranging from $70,000 to $131,000 each. Investigation disclosed overservicing by many of these physicians.

Physicians with a financial interest in pharmacies, laboratories and hospitals are also presented with the opportunity of subjecting Medi-Cal beneficiaries to these services although they may not be required for medical reasons. For example, of four hospitals whose claims are under constant review by Blue Cross to determine if excessive services are being provided, all four are owned by physicians.

One blatant example of unnecessary services in a physician-owned hospital concerns a patient who was hospitalized for sixteen days. Ten blood tests. many of them identical. were taken each day the patient was hospitalized. Of the 160 tests taken, not one revealed an abnormal finding. Multiple X-rays of the chest, skull and cervical spine were also taken although here again no abnormality was ever revealed. This type of overservicing was similarly provided to many other patients in this same hospital.

D. Pharmacists

There are approximately 4,900 pharmacies in the State of California. For the fiscal year ending June 30, 1967, pharmacies participating in Medi-Cal received 40 million dollars from the program.

Until recently, the formula used to reimburse pharmacies for drugs they dispensed was the cost of the drug, plus 50% of the cost, plus a fee of $1.15. Thus, if a drug cost $1, the pharmacy would receive $1 plus 50 cents plus $1.15, for a total of $2.65.

Under a recent regulation this was changed to the cost of the drug, plus a professional fee of $2.30 per prescription.

The investigation has revealed numerous ways in which pharmacies are engaging in activities which violate the laws and regulations governing Medi-Cal. (1) HCS publishes a drug formulary which contains instructions as to the manner in which pharmacies are to determine the cost of their drugs when billing the Medi-Cal Program.

Pharmacists are instructed not to charge the state a price which is in excess of the price charged to the public for the same drug. Based upon investiga

tions made both before and since the enactment of Medi-Cal, it appears that a large number of pharmacies are violating this instruction.

This conclusion is based on the fact that prior to Medi-Cal, Los Angeles County (which contains approximately 45% of the pharmacies in the state) maintained a staff of investigators who would make periodic visits to pharmacies to determine if the county was being charged a higher price than the public for the same drugs. This spot-check revealed that a vast majority of the pharmacies visited were, in fact, selling identical drugs at a lower price to the public than to the welfare program.

With the enactment of Medi-Cal, the staff used by Los Angeles County to do such field audits ceased to exist and HCS does not have personnel who check on pharmacies in this manner. It is therefore highly unlikely that the practice of excessive billing ended with the enactment of the Medi-Cal Program. Indeed, spot-checks which have been made on pharmacies since Medi-Cal revealed that a majority of the pharmacies visited are still charging prices to the state which are in excess of those charged to the public.

There is a special problem involving the difference in drug prices charged to public agencies and private individuals. This involves private health programs which may pay less for drugs than the public welfare program. For example, the United Auto Workers is negotiating a contract under which Blue Shield would cover the expense of drugs purchased by members of the union. Under the proposed contract, the UAW Program would pay less for drugs than the state welfare program.

(2) The drugs formulary instructs the pharmacist to dispense the lowest cost item which he has in stock provided that it meets the requirements of the practitioner as shown in the prescription. Many pharmacies are not complying with this instruction. For example, in situations where an inexpensive generic drug could have been dispensed, the patient has been given an expensive brand name drug which resulted in greater reimbursement to the pharmacy under the formula previously described.

Many drugs have both a brand and generic name. A brand name is always more expensive than the generic name drug. Often, the brand name is as much as two or three times more expensive.

Examples of the difference in price can be seen by a comparison of the cost of some leading brand name drugs with the cost of comparable generic drugs.

(3) Visits to nursing homes, hospitals, sanitariums and homes of patients revealed that some pharmacies give patients a generic drug but bill the state as though the brand name drug had been dispensed. Under the formula for reimbursement the excessive expenditure made by Medi-Cal due to such false claims can amount to a significant amount of money.

(4) The investigation revealed that pharmacies often purchase drugs in large quantities but bill Medi-Cal at a cost premised upon a minimum quantity purchase. This results in the pharmacy receiving more than its actual cost for the drug dispensed. Furthermore, Medi-Cal not only pays out excessive money for the cost of the drug, but the excessive expenditure is compounded when this higher cost is used in applying the formula for reimbursement.

Under the formula for reimbursement, a pharmacist is supposed to bill MediCal for his "cost" of the drug dispensed. The drug formulary prescribes that the

pharmacist shall apply the maximum allowable wholesale cost or his actual cost, whichever is lower in calculating the cost of the drug dispensed.

Most pharmacies buy certain drugs in large quantity (e.g., on a thousand lot or gallon basis) so that the cost per hundred or per pint of the drug is cheaper than if purchased in a quantity of hundreds or pints.

Drugs purchased on a minimum quantity basis are more expensive than drugs purchased in large quantities.

The difference in cost when buying small quantities as compared to large quantities can be illustrated by the following examples:

An audit of a single pharmacy's prescriptions paid by the state during a twomonth period revealed that the pharmacy overstated its cost of drugs at an average of 38 cents per prescription. During the year, this pharmacy submitted 14,000 prescriptions to Medi-Cal. Applying the excessive cost of 38 cents per prescription, the state may have overpaid this one pharmacy some $5,300 for the year. (5) It is permissible in California for a pharmacist to fill a prescription which has been authorized by a physician over the telephone. Whenever a pharmacist gets a request from a person other than a physician for a prescription, it is the duty and responsibility of the pharmacist to contact the physician prior to issuing the drug.

Analysis of prescriptions submitted for payment by pharmacies disclosed several situations which indicate that the drugs were probably not authorized by the physician and sometimes never dispensed by the pharmacy. Examples of such situations are described below.

(a) Some pharmacies needlessly dispense multiple prescriptions of the same drug to the same patient over a short period of time. Examination of such prescriptions revealed that if the drug was taken as directed, there was no need to dispense the quantity of drugs indicated on the prescriptions submitted for payment.

For example, a pharmacy might submit for reimbursement to Medi-Cal four prescriptions written for the same patient during a thirty-day period of time. Each prescription was for 30 pills of the same drug or a total of 120 pills. If the pills were taken as directed in the prescription (e.g., 1 pill twice a day), 60 pills would be been sufficient for the entire month.

This situation also occurs when nursing homes order prescription medicines. In such circumstances, pharmacies often prepare multiple prescriptions to meet the quantity ordered rather than writing a single prescription. Since pharmacies were reimbursed on a basis of cost, plus 50% of cost, plus $1.15 fee per prescription, they were able to obtain greater reimbursement by writing several prescriptions for small quantities of a drug rather than writing one prescription for a larger quantity.

(b) Some pharmacies dispense an excessive number of prescriptions for a particular patient or family on one day, or within a relatively short period of time.

In one case, 15 prescriptions were dispensed to a single family on a given day. The family consisted of a husband, wife and three children. The 15 prescriptions involved only three different medicines. An identical prescription for each member of the family was written for each of the three medicines. (E.g., each member of the family got a prescription for 4 ounces of the same cough medicine; each member of the family got a prescription for 2 ounces of the same antibiotic.) (c) Misuse of "preprinted" prescriptions is another problem revealed by the investigation. A preprint is a prescription form which is already printed to contain such information as the name of the patient, name of drug, quantity of drug, directions for use, name of doctor and name of pharmacy. Pharmacies prepare these prescription forms without any request from a physician for such a prescription. Allegedly, they are prepared to improve service to regular customers. Actual misuse or temptation to misuse such preprints is patently obvious. A successful criminal prosecution was brought against a pharmacist who used pre

printed prescription forms to submit false claims. This pharmacist had never dispensed the drugs indicated on the preprinted forms which he submitted for payment.

In most of the examples mentioned an examination of prescriptions indicated that they were in fact written by the pharmacist as telephone prescriptions. Inquiries were made to physicians whose names appeared on suspicious prescriptions. A majority of the physicians who responded stated that they did not authorize the issuance of the prescriptions.

(6) Nursing homes usually order all the drugs required by persons residing in the homes. This often amounts to the purchase of a few thousand dollars worth of drugs per month. The investigation revealed that many pharmacies are giving kickbacks to nursing homes in order to obtain their business. One pharmacy has even sent letters to nursing homes offering to give discounts for their business. A Medi-Cal regulation specifically prohibits a vendor from offering an unearned rebate, refund, discount or other unearned consideration as compensation for the referral of business under the Medi-Cal Program.

Several pharmacies are currently under separate investigations for engaging in the types of activities we have been discussing. One such investigation has resulted in the filing of a criminal complaint against a pharmacist who requested payments for prescriptions never dispensed.

Although the investigation could not determine the exact amount of money the state is spending due to abuses by pharmacies it is significant to note that an audit of only 39 stores has resulted in a recovery of approximately $132.000. Under the present system these audits arise out of complaints. Complaints involving around 70 other stores have not yet been investigated.

It is estimated by experienced investigators that if routine audits were initiated by Medi-Cal the amount of recovery would probably exceed $500,000 a year.

E. Dentists

Dentists who participate under the program receive about $12,000,000 a year from Medi-Cal.

Unlike physicians who perform whatever services they deem necessary, dentists are required to get prior authorization from dental consultants for any plan of treatment which would exceed $35. Also, unlike physicians, reimbursement to dentists is fixed by a schedule of fees depending upon the dental procedure performed.

Investigation disclosed the following fraudulent activities by dentists.

(1) In order to avoid getting prior authorization, dentists have submitted separate bills, each under $35, directly to Blue Shield for payment of services rendered to a particular patient. The total sum of the bills, however, clearly rerealed that the entire single plan of treatment did exceed $35 and should have been submitted for prior authorization.

(2) Submitting false claims. This type of abuse can occur when a dentist seeks payment where he has performed no services. It can also occur where a dentist submits a bill for having performed a specific dental procedure entitling him to a certain reimbursement when in fact he did a different procedure for which he should have received a smaller sum of money.

In one instance, a dentist falsified his claims by putting down the wrong procedure number for his dental work thereby obtaining $60 more than he was entitled to receive on each claim.

(3) Overservicing also exists in the field of dentistry.

(a) Dentists are providing dentures or other prosthetic work under Medi-Cal which would not be provided under normal circumstances. Such services are being performed primarily because reimbursement can be obtained under the MediCal Program. In one county, twenty percent of the requests for prior authorization are denied because the consultants deem that the proposed dental work is unnecessary.

(b) Examination by dentists of patients in nursing homes is a special area where overservicing exists. Dental consultants throughout the state agree that dental work performed in nursing homes presents a large area of potential abuse.

In one county, more than fifty percent of all requests for prior authorization submitted by a dentist for patients in one nursing home were rejected on the ground that the treatment requested would not be beneficial to the patient. Even where authorization to perform work is denied, however, the dentists are still