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(h) Notice of decision.-The provider shall be mailed a copy of the panel's findings and recommendations upon issuance, and he shall be advised in writing as to appeal.

(i) Rehearing.-The chairman or a majority of the panel may grant a rehearing when it appears that the provider offers substantial new evidence which he could not reasonably have offered at the hearing, or when it appears that the panel has acted in error.

(j) Report to the Office of Health Care Services.—It will be the responsibility of the contracting carrier to forward the record of the panel, including findings and recommendations, to the Office of Health Care Services and to California Blue Shield. The Office of Health Care Services will initiate appropriate action, with appropriate notification to the provider. The chairman of the panel or a member designated by the chairman will be available and will be present and participate in any hearings conducted by the Office of Health Care Services. Evaluation of the system

After a year's experience, the California Hospital Association and the California Medical Association, working closely with the Office of Health Care Services, will examine the effectiveness of the peer review method and report their conclusion to the Secretary of Human Relations for the State of California.




When the U.S. Congress enacted legislation creating Medicare, it declared its intent to take full advantage of the experience of private organizations to fulfill the program's goals.

Thus, Medicare adopted methods—such as calculating benefits in terms of days of care; paying for service through cost reimbursement and involving providers of health care services in the professional review and control of quantity and quality of care-all of which were pioneered originally by Blue Cross—the country's largest prepayment system.

The California Legislature in passage of A.B.5, December 17, 1965, to set up Medi-Cal under Title 19 (Medicaid), also turned to the private sector. Blue Cross in both Northern and Southern California and California Blue Shield were selected for their respective responsibilities as fiscal intermediaries. The selection was made on February 19, 1966, just nine days before the effective date of Medi-Cal, March 1, 1966.

The knowledge and experience of these three private, nonprofit corporations, in professional health benefits management, their available facilities and their trained personnel were primary factors in getting the program underway in the short time from notification of selection to "start-up” time.


The short lead-time made it difficult for the State Government to adequately describe the Medi-Cal requirements in advance to the providers or the public. As Medi-Cal began, many administrative details had not been worked out. In the early weeks there were often clarifications, interpretations and actual changes in regulations. All such changes were communicated, interpreted, and fed into the system by Blue Cross on a day-to-day basis.


A major factor in the ability of the fiscal intermediaries to perform has been the excellent guidance and cooperative support given by the Department of Health Care Services of the California Health and Welfare Agency. The program's success might have been considerably diminished without the capable assistance provided by this agency of the California Government with its obvious awareness of the affected public's health care needs.

Medi-Cal is in fact an excellent example of how well such a program can operate when policy guidelines are laid down by a government agency and carried out operationally by a private organization. It is a prime example of government and the private sector of our society working together in the public interest.


It may help here to outline the Blue Cross goals in its fiscal intermediary role under Title 19. These are:

1. To handle, process and pay claims and to pay them on the same basis as in all other sectors of Blue Cross operations;

2. To interpret correctly and carry-out governmental objectives to the satisfaction of both the government and the contracting parties ;

3. To recognize problems and areas of potential problems in providing services and to communicate such knowledge to the government as needed. This, of course, requires Blue Cross to represent two parties—the providers hospitals, nursing homes, extended care facilities, rehabilitation centers, home health agencies, and others—which offer the institutional services, and the government, which provides the benefits to the ultimate recipient, the public.

4. To assist the providers of the service the institutions concernedto operate in an optimal manner in all specific and collateral services rendered.

5. Finally, in the administration of the program, to make Blue Cross responsive in seeing that the pablic's right to good health is recognized and

respected. These goals are consistent with the services Blue Cross provides to the public and to the institutions with which it works. They are also consistent with Blue Cross' major corporate goal, which is to provide all segments of the population with the means of obtaining the highest quality of medical care in the most effective and economical manner with continued dedication to the preservation of the voluntary health care system.


The State Government was able to take maximum advantage of Blue Cross' capabilities and unique services. These include:

1. Experience in private, prepaid health care programs, particularly in those providing service benefits;

2. Existing facilities with related equipment and trained personnel ;
3. Experience in cost-related reimbursement programs;
4. Long-established relations with providers of covered services;

5. Experience with the coordination needed for the requirements of both Medi-Cal and Medicare;

6. Long history of cooperation with Blue Shield (physician prepayment agency similar to Blue Cross' role in providing prepaid hospital care) ;

7. Control mechanisms, i.e. fiscal claims and utilization of review procedures and systems. Blue Cross helps to safeguard the tax dollars of the public. It does this in the course of its normal procedures in its review and audit activities. There are two broad categories of this activity :

The first is preventive and is covered by carefully detailed individual billing instructions with on-the-scene visits to smooth out eligibility and processing problems and also various group educational programs, institutes and seminars.

The second could be called correctional, i.e., the creation of safeguards against abuse and follow-up regarding appropriateness of activities in connection with the Medi-Cal program, through audits and utilization reviews.

These two categories of activity are carried out by the seventy-six Blue Cross field people who routinely and regularly visit all hospitals, nursing homes, home health agencies, and other providers. These are trained representatives who are specialists in professional relations utilization review and reimbursement. Their primary purpose is to help the facilities concerned comply with the operational requirements of Medi-Cal.

It is clear, however, that in the process of doing this they create a network of communications and a clearing-house for interpretation and cross-reference which helps prevent and/or correct potential abuses under Title 19.

There are 566 acute care facilities, 1,215 nursing homes, and 122 home health agencies and free-standing clinics, for a total of 1,903 providers in California. These are furnished information regarding the Medi-Cal program through Blue Cross bulletins, workshops, routine and special visits, provider visits to the inter

mediaries' office, telephone communications, individual letters, and participation by the intermediaries in regional and State provider association meetings.

Since the inception of Medi-Cal, March 1, 1966, Blue Cross has an increasingly intensive utilization review and audit program to safeguard against abuses while at the same time assuring that eligible recipients receive optimal health care.


Medi-Cal is a vast program as the later charts on performance show. In support of Medi-Cal, Blue Cross acts—as does Blue Shield in its particular fieldas a "clearinghouse” in behalf of the State of California to:

1. Receive bills for services rendered to eligible people, determine compliance with regulations and approve for payment those bills that meet the requirements of law and regulation, including those that apply to the appropriateness of costs and charges.

2. Maintain all necessary records and furnish the State all necessary information and reports.

3. Provide liaison and coordination with providers and groups, organizations, committees representing them, or other interested parties.

4. Apply safeguards against unnecessary utilization, abuse and fraud.


Blue Cross' experience in cost-related reimbursement is unequalled. Blue Cross has a staff of accountants trained in hospital accounting fully qualified to review financial statements, determine allowable cost and apply a reimbursement formula.

Since the State initially adopted a formula similar to the one Blue Cross of Southern California uses, Blue Cross was able to provide an existing staff of experts.

Understandably, confusion could develop if a single provider, for example, was subject to audit by Blue Cross for its business; by another Medicare intermediary for Medicare claims; and by a state agency for Medi-Cal. As it is, in most instances, a single audit suffices. The hospital can supply its cost figures to Blue Cross, and Blue Cross can determine payment for all.


An important advantage of Blue Cross' administration of the Medi-Cal program is its long-term favorable relationship to hospitals. Actually, the hospitals, along with the general public, have a voice in the policy and operations of Blue Cross through board membership. Blue Cross is sponsored and supported by hospitals; Blue Cross works closely with recognized hospital organizations; the contractual relationship between hospitals and Blue Cross is yet another bond between the providers of institutional care and the fiscal intermediary in the Medical program. The hospitals and the general public are accustomed to working with Blue Cross.

Evidence of provider preference for Blue Cross can be found in the fact that 92% of all Medicare participating hospitals in California selected Blue Cross as intermediary under that program. So did 60% of extended care facilities and almost all home health agencies. While selection by provider is not permitted under Medi-Cal, it can be assumed that there would be essentially the same ratio of preference for Blue Cross.

This provider rapport works to the advantage of the Medi-Cal program in other ways. Blue Cross field representatives, who regularly visit hospitals and other providers, help train personnel in administrative practices involving MediCal. They also serve to answer questions and solve problems that might arise, in advance.

Hospitals prefer to work with Blue Cross, rather than directly with government. Blue Cross understands hospital problems and manages an equitable balance of provider and state interests in administering Medi-Cal.

COORDINATION BETWEEN MEDI-CAL AND MEDICARE Many Californians are covered by both Medicare and Medi-Cal. In such cases, the provider—where Blue Cross is the intermediary-may submit one claim on the Medicare form and refer to coverage under Medi-Cal. The Medicare claim

form is processed and amounts payable under both programs are determined. Payment is thus made by the same organization but from separate funds.

These dual claims currrently run almost 40,000 per month. Since in the great majority of cases Blue Cross administers both programs, coordination is easily accomplished, and speedily. Were another organization to administer Medi-Cal, delays and most probably confusion might develop in coordinating the benefits payable under the two programs.


Blue Cross enjoys cordial working relationships with Blue Shield and other intermediaries.

As an example of how this is helpful to Medi-Cal (and Medicare) administration, both Blue Shield and insurance companies request information about hospital care through Blue Cross. This system reduces the number of people who approach hospitals to review confidential medical records. It is customary for hospital personnel who know Blue Cross personnel to allow them ready access to necessary information.


Blue Cross processes claims professionally—that is, with an eye to services which could be inconsistent with the diagnosis and charges not in line with similar hospitals.

This same service is performed for Medi-Cal. The system requires trained personnel and cooperation from the providers. The procedure

1. Claims are reviewed for benefits or exclusions, for medical necessity and for appropriate charges ;

2. Claims requiring medical evaluation are sent to the Medical Audit & Review Section ;

3. This section, staffed by experienced medical auditors, reviews the claim. It is approved and returned for processing and payment, or is referred for further check;

4. When indicated, an investigator is sent to the facility to obtain copies of patient records. These records are reviewed by a physician who is a Blue Cross medical advisor in instances where a physician's judgment concerning the medical aspects is required;

5. A claim, rejected for medical reasons, is returned to the provider with an explanation by the physician;

6. Should a questionable pattern of care develop, the facility's claims are audited. The provider is invited to discuss questionable claims. If a problem is still not solved, the provider meets with the Peer Committee of the California Hospital Association for final examination and resolution.

The Professional Relations Department also has responsibility for Blue Cross' activities in utilization review. As required under Medicare, utilization review is being installed in most hospitals to apply to all patients. In this sensitive area, Blue Cross' professional assistance and counsel is readily accepted because of its long experience and close relationship with providers.


To summarize-since March 1, 1966, Blue Cross has worked with 1,903 providers, and paid 4,010,945 claims, totalling $730,367,036.

Over the past thirty months, significant improvements in performance have been achieved through the informational, utilization review and audit procedures and collateral educational and support operations.

Medi-Cal has come through its early problems of changes in regulations and policies, the complexities and resultant delays in determining eligibilities and the cross-relation with Medicare in determining eligibility and usage under that program.

In its intermediary role between the providers and eligible beneficiaries and under the fostering policy guidance of the Department of Health Care Services, Blue Cross has seen the program become an efficient contributor to the health care of the people of California.

Blue Cross welcomes the projected plan for systems analysis of administration of Medi-Cal and will join the Department of Social Welfare, the Department of Health Care Services, and all other interested institutions and departments in working for its success.

The success of Medi-Cal thus far is only a beginning to the benefits to be enjoyed by the people of California from title 19. In its fiscal intermediary responsibility under this program, Blue Cross is dedicated to the equitable provision of good health care services for all the people of California as one more example of private enterprise working with government for the common weal.

The following tables provide some indicators for Blue Cross' performance of its intermediary role under Title 19, Medi-Cal. They cover the number of claims processed, the benefits paid, review activity, field activity and administrative costs :


FEB. 28, 1967

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FEB. 29, 1968

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MAR. 1 1968, THROUGH AUG. 31, 1968

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Visits to providers facilities.
Workshops (average attendance 95 persons).


75 113

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