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The recommendations set forth herein are not intended to exhaust all problem areas in the Medi-Cal Program which require attention.

These recommendations are intended to correct the weaknesses in the administration of the program which contribute especially to cheating by persons participating in the program.

The abuses and weaknesses pointed out in the report are serious in nature and do merit further attention by the appropriate bodies which can take steps to improve the administration of the program and achieve immense savings of money without diminishing the quality of the services being offered to persons under the program.

As you requested, this report will be provided to law enforcement agencies to improve surveillance of outright criminal activity in the Medi-Cal Program.

HERBERT DAVIS, Deputy Attorney General.



On November 6, 1968, the Attorney General of the State of California released a document which purported to be a report on the findings of a nine-month investigation of the Medi-Cal program.

This document displays an unconscionable misfeasance and malfeasance in an office of public trust. That such an unethical and unprofessional report should be issued from the office of the Attorney General can only serve to demonstrate that political motives have taken control of a public office that presumably is pledged to protect and defend against unwarranted prosecution and presecution, as it is to seek out and punish individual criminals.

The report is replete with false accusations against a body of health care professionals who are dedicated to the highest ideals of service. The document is loaded with generalities, vague statements, uneducated guesses, passive wording, and displays a shocking lack of knowledge on the part of the attorney general's personnel, of the professional relationships in the health care field they seek to explore.

To use the prestige of the high office of Attorney General to publish such a document, to hold a press conference, and to release this scurrilous report for public consumption is inexcusable conduct. To attempt to destroy the public confidence in an industry that is dedicated to serve them, and to attempt to do so with a document based on hearsay, unconfirmed statements and isolated instances is reprehensible, and is grounds for a legislative investigation of the office of California's Attorney General.

The following review of excerpts of the Attorney General's report will support this contention.

REPORT ON MEDI-CAL INVESTIGATIONS Verbatim quotes from the Attorney General's report follow: Comments from the California Association of Nursing Homes are identified as such and follow each quote from the report. Excerpt:

"Our investigation indicates that illegal and unethieal activities of persons providing services under Medi-Cal are siphoning millions of dollars annually from the program. Poor administration of the program has contributed to ...."

Comment-if there are illegal activities, as charged, why has not the attorney general's office moved to prosecute?

Comment—how can anything be termed unethical without first identifying the details of the applicable ethics?

Comment–if poor administration exists, then some effort should be made to improve it. Insinuations and condemnatory language directed toward the entire industry is not the solution.


"The vast scope of the program precludes any precise estimate of the total amount of funds paid out due to poor administration ...."

Comment~the attorney general admits it is a rather poor report based on a very inconclusive investigation. Excerpt:

"Our investigation leads us to conclude ... Comment

conclusion only, unsupported by documentation. Ercerpt:

"In February 1967, Governor Reagan appointed a task force to review the administration of the Medi-Cal program. This committee recommended changes which would allegedly save Medi-Cal $90,000,000 annually."

Comment—not being a part of the findings of the investigation, this is obviously a politically inspired statement which seeks to discredit the administration which is of a different political party than the attorney general. Excerpt:

“The complex nature of Medi-Cal and the large number of participants—both vendor and recipients of health care services prohibited a thorough investigation by the Department of Justice .

Comment—so, only a casual investigation was made. And, it was done without the help of the several interested professional associations that had volunteered help. Excerpt:

"... we recognize the problems confronted by Health Care Services in administering a program which was hastily conceived and implemented."

Comment--one of the few unquestionable statements in the report. Excerpt:

"There is a lesson here for both the state and federal governments. The enactment of federal legislation which requires immediate response from the states to take advantage of federal funding is laden with peril, as well as with token prosperity. Unprepared and without sufficient analysis, the states are rushed into formulating programs which are both essential and ill-considered. There should be an effort by both federal and state governments to transform such programs into more meaningful and fruitful cooperative actions."

Comment—is it the place of the offce of the Attorney General to issue philosophical editorials?

It is here suggested that all governmental agencies should seek the help of professionals “to transform such programs into more meaningful and fruitful cooperative actions". Excerpt:

“The investigation revealed that vendors are engaging in unlawful activities and are bilking the program...."

Comment-such condemnatory and inflamatory language is not necessary and is unbecoming the office of California's attorney general. The case should be stated in simple, straightforward terms without editorilizing or expressions of bias. Excerpt:

"Vendors violate Medi-Cal regulations when they agree to give or accept kickbacks-money or other unearned consideration—in return....

Comment--the report should have defined 'unearned considerations'. Excerpt:

"In describing these abuses we recognize that they may in fact be engaged in by only a small number of providers."

Comment—this statement is not consistent with the many insinuations, accusations and allegations that appear throughout the report. Excerpt:

"... the millions of dollars drained from the program by such activities merit their exposure to the public and. ..."

Comment—the function of the attorney general's office is not one of seeking publicity. Why such an effort at this time? Excerpt:

“There are approximately 1,000 nursing homes licensed by the State of California. ..."

Comment—if this investigation had been as complete and thorough as the attorney general's office would have us believe, the investigators certainly would have discovered that there are approximately 1,160 homes licensed by the Department of Public Health and another 90 (approximately) licensed by the Department of Mental Hygiene. Ercerpt:

"The investigation revealed that nursing homes are engaging in numerous activities which violate the laws and regulations governing Medi-Cal."

Comment—if this is more than an allegation, there should be some citations issued and prosecutions instigated. And-how many are described by the word numerous'. Ercerpt:

“Medi-Cal beneficiaries in nursing homes receive $15 per month from the county for incidental expenses. In many homes this money is maintained by the nursing home on behalf of the beneficiary.

The investigation has disclosed that some nursing homes misappropriate expense money which they maintain on behalf of beneficiaries."

Comment—the funds are retained—not maintained—for the patient by the nursing home administration which has posted a bond for handling such personal funds. Did investigators determine that there had been any claims filed against these bonds?

Also, just what quantities are indicated by such words as 'many' and *some'? Excerpt:

In one case, for example, it was found that a nursing home was in possession of some $2,000 which belonged to persons who either died or who were discharged from the homes."

Comment—is this the only case discovered by the investigation?

One such case out of more than 1,250 possibilities is much above the record of any other profession in the matters of poor judgment, questionable practices or plain ignorance. Excerpt:

“(4) Another abuse which was found relates to the receipt of duplicate payments by nursing homes. This can occur in situations where the fiscal agent accidentally makes the duplicate payment or where the nursing home submits a duplicate payment hoping to be paid twice. In either situation the unethical vendor retains the duplicate payment without notifying the fiscal agent."

Comment—this passive statement is evidently based on conjecture and surmise. The investigator acknowledges the probability of an accidental happening. However, the report proceeds to damn an entire profession for one imagined happening. Ercerpt:

“We have already noted that HCS itself estimates that approximately 2.5 million dollars in overpayments have been made to all types of vendors."

Comment-admittedly, this is purely an estimate; no basis is supplied to explain it. Although the amount of 2.5 million dollars is here identified as overpayment to all types of vendors, elsewhere in this report the amount is identified as overpayment to nursing homes alone. Ercerpt:

“Duplicate payments also occur where a nursing home has patients who are eligible to receive benefits from both Medi-Cal and Medicare. While Medi-Cal is only supposed to pay that amount which Medicare does not cover, the submission of duplicate claims under both welfare programs often results in the nursing home, for example receiving a duplicate payment of approximately $50,000 by billing in this manner.”

Comment-this just simply is not so. Again, how often is ‘often'? Was there only one nursing home that could be charged with “billing in this manner"? One out of how many? Was there proof of intent to defraud ? Excerpt:

"Nursing homes may also receive payment in another manner. A home is re. imbursed by Medi-Cal for providing a service, yet it also bills and receives pay. ment for this same service from the patient or his relatives."

Comment-with shared liability (Group II), the nursing home must bill both the intermediary and the patient. The patient (family) is given official notice of shared payment.

Again, how many is indicated by the word "many"? Excerpt:

“The investigation revealed that it is common practice for nursing homes to...

Comment—if it is common practice then can it be objectionable? (By definition, anything 'common' is shared or approved by all; belongs or pertains to the public at large.)

Actually, this comment is made to show the bias in the Attorney General's office in using words to insinuate the scope of investigation was far greater than the report itself openly admits. Such a broadly sweeping charge and general allegation without any supporting evidence is reprehensible. Excerpt:

... it is common practice for vendors such as pharmacists, therapists, X-ray technicians and laboratory clinics to give kickbacks in order to obtain business from nursing homes."

Comment-such a broad, all-inclusive indictment should be supported by some documentation. Again, the investigator is careless with language by stating that (if true) the one thing he attempts to condemn is known and accepted by all. Excerpt:

“(6) Nursing homes often provide services to their residents which are greatly in excess of the services actually needed. Such overservicing is cause for dropping a nursing home from the Medi-Cal program.

Comment—all services of a nursing home are ordered by the patient's own physician. In this erroneous statement, the investigator should have explained how a nursing home can ‘overservice' a patient. Actually, this paragraph displays the appalling ignorance of the investigating staff in the basic relationship of the physician-patient-provider of service. Excerpt:

“(a) Our investigation indicated that some nursing homes order drugs far in excess of the quantities required by their residents. This situation can occur since physicians often prescribe continuous medication for persons in the homes and the homes determine when to order the medication."

Comment-during a nine-month investigation, the attorney general's representatives did not discover that nursing homes do not order drugs. This is done by the physician who also specifies the quantities required by the patient. A nursing home chart is a requisition-not a prescription. A pharmacist is legally and professionally required to verify and obtain prescriptions from the doctor. Excerpt:

"(b) Another method by which excessive services are provided is where nursing homes have arrangements with vendors such as physicians, dentists, optometrists, podiatrists, etc.,, which permit them to examine persons in the home whether or not their services are required or requested."

Comment—all such services are ordered by the physician. This is an assertion without foundation. Excerpt:

"Indications of 'mass examinations' by such vendors have been observed by county consultants throughout the state in the course of their processing requests for prior authorization. Persons in the home seldom object to such exam. ination since they are not usually required to pay for such services."

Comment-this is an attempt at a sweeping indictment against all 58 counties in California ; which is patently ridiculous. If "county consultants throughout the state" observed all these things, why wasn't something done about it? The final sentence is both fatuous and absurd. The fact is all such "examinations" are ordered or appropved by the patient's attending physician. Excerpt:

"(c) Information has been obtained which indicates yet a third method by which excessive services are provided by nursing homes. This relates to the situation where a nursing home attempts to qualify' Medi-Cal patients for Medicare. Since nursing homes receive greater reimbursement for persons who are eligible for Medicare than they do for persons eligible for Medi-Cal it is to their benefit to have a patient classified as a Medicare patient."

Comment—this statement again demonstrates the fact that the investigators did not have sufficient knowledge to qualify them for this study. The fact is that both Medi-Cal and Medicare are cost reimbursement programs. If the Attorney General in this paragraph is admitting that Medi-Cal reimbursement is less than the reasonable cost required by law then it is acceptable as such. However, a simple statement to this fact would be more appropriate than the round-about verbiage in the report. Excerpt:

"A former administrator of a nursing home has alleged that some nursing homes have an arrangement with hospitals whereby Medi-Cal patients are transferred from the home to the hospital for a period of three days and then returned to the home."

Comment—the investigators strive mightily to make a point based on the allegations of a former administrator, hinting at an unspecified 'arrangement'. Among other things, one may wonder why their source is now a former administrator. The fact is that all transfers of a patient from a nursing home to a hospital are ordered or approved by the patient's attending physician (except in the possible case of an emergency). Excerpt:

"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.)”

Comment-in stating that Medicare reimburses at a greater rate than MediCal, are the investigators calling attention to the fact that Medi-Cal rates are less than reasonable cost?

In the parenthesized sentence, the investigators are again displaying a great lack of knowledge of their subject. There is always an attending physician-not usually. Excerpt:

“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.”

Comment-a patient does not request services; the doctor does. This statement makes an absurd assumption; that such an unlikely and illegal action is approved by the nursing home administrator, the hospital management, several doctors, a utilization review team, a medical staff (audit committee), and the fiscal intermediary. This is idiotic. Further, with reference to "eligibility" we assume that this is another reference to Medi-Cal reimbursement being less than reasonable cost. Veiled as it is we accept it as such. Ercerpt:

"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."

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