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persons participating in the program. Here again, it is recommended that such actions be publicized as a deterrant to abuses. 4. Establish Liaison with Professional Licensing Boards

Most of the persons providing services under Medi-Cal, such as physicians, dentists and optometrists are licensed by a professional board within the Department of Professional and Vocational Standards. Many of the abusive activities engaged in by vendors under the welfare program would also constitute a violation of the regulations established by their licensing boards.

Since it is the desire of both HCS and such licensing boards to discover and take appropriate action against such vendors, it is recommended that HCS establish an effective liaison with the relevant professional boards. By doing so, HCS not only will bring to the attention of such boards the activities of their licentiates which may warrant disciplinary action, but HCS may also be able to obtain additional investigative help through use of the staff of investigators employed by such boards. 5. Improve Communication Between Organizations Participating in the Ad

ministration of the Program This report has revealed that the lack of communication between HCS, the fiscal agents and the counties has been a major impediment to the effective administration of the program.

It is therefore recommended that HCS should take appropriate steps to improve the communication and cooperation between these agencies.

One suggestion would be to hold periodic meetings with the professional county consultants and the fiscal agents to provide the opportunity to exchange views on improving program administration. Professional consultants, for example, from their review of thousands of claims might be a good source from which to obtain information to improve the program to assure the providing of necessary health services. Such meetings would also clarify such matters as when discretion is to be exercised by counties when processing claims. Meetings with the fiscal agents could be used to keep HCS abreast of the problems in processing claims and advised of new electronic data processing tech jues to meet present and anticipated problems. 6. New Regulations

Consideration should be given to enacting new regulations which would implement the enforcement of the program.

(a) Improved communication with the counties and fiscal agents might prove to be one source of determining additional regulations which may be appropriate.

(b) At the present time vendors are not required to maintain any specific records or documents in regard to services they have provided. For example, nursing homes are not required to maintain records which would show the various services rendered to their patients. We have seen from this report that a major area of fraudulent billing concerns services provided to persons in nursing homes.

It is therefore suggested that consideration be given to the enactment of a regulation which would specify the types of records that must be maintained by vendors and which requires them to retain such records for a reasonable period of time. One possible effect of such a regulation might be to expedite investigations by enabling investigators to examine documents in the possession of vendors thereby removing the delay now encountered when records must be obtained from the fiscal agents.

(C) Viention has been made of at least two “loopholes" in the program which allows physical therepists to bill through nursing homes and suspended physicians to bill through a group practice to circumvent existing regulations.

Regulations should be enacted to prevent such circumvention. 7. Review Procedure of Processing Claims

Blue Shield employs some 350 persons to process 70,000 claims a day. Blue Cross employs approximately 70 persons to process 5,000 claims a day.

The procedures used by these fiscal agents should be periodically reviewed to see if their system of processing claims can be expedited and the cost lovered.

(a) In light of the large number of claims processed each day, the elimination of any one unnecessary step might result in a significant savings of money.

As an example, claim forms provided by HCS request information which is not needed in the processing of claims. In fact, persons reviewing claims actually cross out such information to avoid errors in preparation of data processing. Other persons who review claims do so for the limited purpose of printing the name of the vendor on those claims where the name is not legible.

The expense of providing new forms which only contain required information or the identification of the vendor; or the providing of preprinted identification cards to vendors and recipients of benefits, might be one means to expedite and lower the cost of processing claims.

(b) Reference was made in the report to the fact that the fiscal agents microfilm the claims they process. The large number of claims processed may well make it necessary to do so since it enables thousands of records to be stored on microfilm in a single file drawer.

Since the use of microfilm however is one factor in the delay in providing information to investigators, efforts should be made to establish a procedure whereby information can be made more readily available to investigators. 8. Improve Use of Computers

Computers are presently used by both fiscal agents in the reviewing and processing of claims. Efforts should be made to improve control procedures and the programming of computers to assist them in their handling of claims.

Improved procedures in the computer program should eliminate errors such as making payments to persons who do not participate in the program and in making duplicate payments.

Since Medi-Cal pays a fixed fee to many vendors for specific procedures and services which are usually listed by code number on claim forms, consideration should be given to the feasibility of programming computers to make use of this information. By doing so, such errors as excessive payments and payments for services not authorized should be eliminated. The success of such programming might also reduce the need to employ persons who now manually perform these tasks.

Another area in which improved techniques of the computer system might be of value is in providing information to investigators and to vendors who request information on the status of claims. The inability to accurately determine who has been paid is one cause of the needless expenditure of money under the program.

It is important to mention that, prior to considering methods to improve the use of computers, HCS and the fiscal agents should attempt to anticipate the type of information and statistics which would be of value in the future to both the administration and the legislature as they seek to improve the Medi-Cal Program. 9. Review of Claims on a Local Basis

Pior to Medi-Cal the county welfare departments had the responsibility of receiving, reviewing and paying claims of persons providing services under the welfare program. That responsibility has now been shifted to the fiscal agents which process claims from vendors all over the state, although professional consultants employed by the counties still pass upon requests for prior authorization.

In the opinion of most persons interviewed, the current method of review has greatly diminished the ability of both the county consultants and the fiscal agents to discover vendors abusing the program and has reduced the amount of money saved by the discovery of such abuses.

It is therefore recommended that consideration be given to returning to a system where claims are reviewed on a local basis rather than out of the one office of Blue Shield and the two offices of Blue Cross. Indeed, to some extent this type of review is being employed under the current system.

Blue Shield, for example, subcontracts with various county medical foundations whereby said foundations perform the task of receiving and reviewing claims of physicians in their county. There is also a pilot project going on in San Joaquin County where the county medical foundation is performing the task of receiving and reviewing claims submitted by most vendors. Evaluation of this project should be of considerable help in determining the feasibility of again having local review.

One advantage of a local review is that it is usually performed by persons who are more familiar with the practice in a given area and with vendors whose reputation might justify their claims being closely scrutinized.

Another advantage is that local review allows for maintenance of better records. For example, San Joaquin County Medical Foundation in the pilot project has been able to maintain a patient folder upon which it records all services which the patient receives from any type of vendor. This has enabled the foundation to

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discover situations where vendors, or the patient himself, has been taking advantage of the program. The foundation is currently working on a method of establishing a profile on vendors participating in the program as another means of discovering abuses being engaged in by vendors. Also, the foundation has been able to program computers to provide greater information than that which is now available in the processing of claims by Blue Shield and Blue Cross on a statewide basis. This too has been a means of enabling greater detection of abuses under the program.

While a return to reviewing claims on a local basis might present problems such as central control of payment of checks and maintenance of statistics, the concept of local review appears to merit further attention.

Another interesting experiment in the pilot project in San Joaquin is that the county foundation is processing claims of physicians on a "prepaid” basis. A fixed amount of money has been given to the foundation to cover the services provided by physicians in the county.

If the funds provided are not adequate the loss is incurred by the member physicians in the foundation. If successful, use of a prepaid system should be studied and evaluated to see if it would be appropriate in other areas in the state. 10. Post-examination of Claims

Reference was briefly made in the report to the fact that the Utilization Committe of Blue Shield recently began checking claims by doing a “postexamination" of claims.

Careful evaluation of the success in discovering abuses should be given to this method of examining claims. If proven successful, consideration should be given to establishing some type of post-examination for other types of vendors.

Several advantages appear to be offered under this system.

First, a review of claims by this method is done on a "group basis” which we have seen is preferable to the examination of claims on an "individual claim" basis.

Secondly, by taking advantage of information which can be obtained from computers it enables those who review claims to take the initiative in checking on vendors who engage in services that are considered likely to be abusing the program. By use of computers, for example, it is possible to establish profiles of vendors who receive the greatest reimbursement for specific procedures.

If successful as a method of discovering abuses the use of post-examination of claims might achieve additional savings by eliminating the need and cost of hiring persons who now perform duties which would be unnecessary in the processing of claims.

Finally, the use of a post-examination would probably be successful in regaining money from vendors who have abused the program. Since vendors who do abuse the program usually perform services to which they are legitimately entitled to receive payment, it would be possible to withhold money due the vendor for legitimate claims as an offset for the money which he wrongfully obtained.

One example of the success resulting from a post audit review of claims is illustrated by an investigation made into the activities of twenty physicians who performed an unusual number of surgical operations for umbilical hernias in children under five. Of the cases so far reviewed, the determination has been made that the operations performed by many of these physicians were in fact unnecessary. 11. Controlling the Cost of Drugs

We have discussed at length the potential increase in costs which may accompany the new method under which pharmacies have been instructed to ascertain their "cost” of drugs for the purpose of billing the Medi-Cal Program.

If the intent of the administration is to reimburse pharmacies for the true cost of drugs they dispense and then to pay them a fixed professional fee for their services, the billing instructions in the new drug formulary does not achieve this goal. If pharmacies are to be paid in a manner which fixes their cost on the purchase of a minimum quantity of drugs it is recommended that this method of reimbursement be carefully evaluated to determine its effect on the anticipated cost of the drug program.

The new drug formulary also deletes a number of drugs upon which there was previously placed a maximum cost which could be charged to the welfare pro gram. If the effect of deleting these drugs results in a significant increase in the cost to Medi-Cal to provide such drugs, consideration should be given not only to reinstating a maximum cost on these drugs but also to the merit of imposing similar maximum costs on other drugs. Imposing a maximum cost on drugs apparently has not had the effect of preventing such drugs from being made available to patients in the program so that such action does not prevent patients from receiving proper care.

In connection with the cost of drugs, suggestions have been made that a fair price could be established for all drugs in the formulary thereby establishing a definite fee schedule for drugs.

As in the case of any other specific service being paid based on a fee schedule, improved computer programming of such information could expedite the payment of such claims and eliminate the errors which have been found in the amount of money being paid and even in the payment of drugs and other medical supplies which are not authorized under the program.

Another means of controlling the drug cost of the program which has been suggested is to establish “Medi-Cal Pharmacies" throughout the state. This would require patients to go to one of the numerous pharmacies which would contract with the state to service persons in the program. 12. Scope of Benefits

It is the opinion of many persons directly involved in administering the MediCal Program that Medi-Cal patients are receiving health care services which are far greater than services which a non-welfare patient would either anticipate or demand.

The opportunity to provide and receive such services has created a tempting area of abuse by both vendors and recipients of benefits.

It is therefore recommended that consideration be given to the question of whether changes could be made to assure persons on welfare of proper medical treatment without providing the opportunity to abuse the program.

To illustrate this problem, we mentioned in the report that the investigation disclosed that thousands of persons are now residing in nursing homes although their physical conditions do not warrant such extensive care. One major reason for this situation results from Medi-Cal's failure to provide benefits to persons in facilities other than nursing homes (e.g., board and care homes, rest rooms, etc.).

Family pressure upon physicians to keep persons in nursing homes since they would not get reimbursed if in other types of facilities is just one reason why so many persons are found in nursing homes although their physical conditions do not merit such care.

If reduced Medi-Cal payments were made to facilities providing less extensive care than nursing homes, the end result might to be effectuate a savings in the total Medi-Cal Program. Furthermore, a program which would remove thousands of persons from nursing homes who do not need such care would also create vacancies for persons who do require such care but are unable to receive it due to lack of space in the homes. 13. Third Party Liability

Although provisions exist in the law for Medi-Cal to recover its expenditures, if there is third party liability involved, the program has been very lax in pursuing this avenue to reduce the cost of the program.

It is therefore recommended that procedures be established to allow Medi-Cal to avail itself of this source of revenue.

Similarly, the methods now used to determine if the recipients of benefits are paying their share of liability under the program should be reviewed since the failure to do so needlessly increases the cost of the program. 14. Purchase of Appliances

Consideration should be given to determining if the state could contract with vendors of appliances (e.g., wheelchairs, crutches, etc.) whereby there is an agreement to purchase such appliances at a discount. Also, study should be given to the question of whether a savings would result if a procedure was established whereby the state or the vendor of the appliance could reobtain, service and store the appliance from patients who no longer required them, which appliances could then be used for other patients.

These matters should be reviewed to determine not only if they are feasible from a money savings point of view but if they can be accomplished in compliance with federal laws under which Medi-Cal operates.


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 follore each quote from the report. Excerpt:

"Our investigation indicates that illegal and unethical 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.

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