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.

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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 revealed 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

entitled to receive their fee for making routine examinations, although these examinations are not always requested nor needed.

(c) Just as suspicion of overservicing is raised when large fees are paid to physicians, the same is equally true when big fees are received by dentists. Eleven dentists received close to one million dollars in fees in the year 1967. The activities of many of these dentists are, in fact, suspect by dental consultants at the county level.

F. Optometrists

Expenditures under Medi-Cal to optometrists are approximately $8,000,000 a year. Optometrists need prior authorization before they can provide lenses or frames to a beneficiary under the program. However, no such authorization is required for an optometrist to perform a routine eye examination.

(1) Fraudulent activities by optometrists have primarily involved requesting prior authorization to provide appliances based upon the submission of false information.

The extent to which optometrists submit false information in requesting prior authorization is indicated by the fact that one county rejects approximately one third of the requests received for prior authorization to provide lenses and frames to patients in nursing homes. Many of these rejections were based on the ground that the information supplied was false.

In one case, for example, an optometrist requested approval for a pair of expensive prescription sun glasses for a patient. Investigation disclosed that the patient was blind. In other cases requests stated that the patients were in possession of old glasses which were in poor condition. Investigation revealed that the patients were in fact in possession of new glasses which they received within six months prior to the latest request.

(2) Optometrists were also found to be providing materials which do not meet the quality specified by the regulations. Several optometrists suspected of providing inferior quality materials are now under investigation.

(3) Optometrists overutilize the Medi-Cal Program by providing unnecessary examinations and by providing lenses and frames which are not needed by the beneficiary.

Once again, investigation disclosed that review of requests for authorization received from optometrists concerning patients in nursing homes are often rejected on the ground that the glasses requested will not be of benefit to the patient.

In several cases, for example, requests stated that the patient was "active, alert and expressed a need and desire for improved vision." Examination of the patients by the optometric consultant however revealed that their physical condition was such that communication with them was difficult, if not impossible, and that the glasses would not be of benefit to the patients.

Another manner of overservicing exists where optometrists replace lenses and also request replacement of frames which are still in good condition.

CONCLUSION

In mentioning various types of fraudulent activities and acts of overservicing which are occurring we have only attempted to show some of the more shocking and extravagant abuses. We have not exhausted all of the methods by which every class of vendor can take advantage of the program. Nor have we related every case which is under investigation. Instances of fraud and overservicing, for example, could also be given for vendors such as hearing aid dealers, podiatrists and ambulance services.

In some cases the abuses mentioned may be prevalent among a specific class of vendor. In other cases only a small percentage of the class of vendors involved may be engaging in a particular type of abuse.

The one fact which is certain however is that the abuses mentioned are occurring and have resulted in millions of dollars being needlessly spent since the commencement of the program. Moreover, unless immediate efforts are made to curtail these activities it is likely they will grow in scope and cost to the program.

Our attention is now directed to the type of enforcement which has existed under the Medi-Cal Program for the purpose of discovering and preventing abuses and whether whether the program of enforcement has been effective in these areas.

III. Enforcement of Laws and Regulations

We have concluded from the investigation that an effective enforcement program to discover and investigate vendors who are taking advantage of the program does not exist.

Medi-Cal became effective March 1, 1966. It was not until twenty-one months later in December 1967 that HCS hired any trained investigators and then only two men were hired for the whole state.

Whether it was the myraid of problems encountered in getting the Medi-Cal Program operating, or a belief that potential abuses were not significant or would be adequately discovered by the fiscal intermediary agents, the fact is that an effective investigative unit was not initially established and does not exist today. Since the commencement of Medi-Cal in March, 1966, only twenty-one vendors have been suspended from the program. These few suspensions, in light of the substantial amount of abuses revealed by the investigation, vividly reflect the inadequate enforcement of the program.

Two main problems confront attempts to seek compliance with the laws and regulations governing Medi-Cal.

(1) There is a lack of an effective system to discover those vendors who are engaging in fraudulent activities and overservicing.

(2) Even after vendors become suspect, proper investigation into the matter is difficult, if not impossible, due to a number of internal problems.

A. Discovery of Abuses

Most abuses are discovered in the course of the fiscal agents processing claims submitted for payment or consultants passing upon requests for prior authorization.

(1) Professional Consultants

The professional consultants in counties throughout the state must give prior authorization before the services of many individual vendors can be provided (e.g., dentists, optometrists, podiatrists, etc.) and part of their responsibility is to discover abuses by such vendors.

Professional consultants had a similar responsibility under the welfare program prior to the enactment of Medi-Cal. Prior to Medi-Cal, however, the consultants would not only get requests for prior authorization, but they would also receive and approve claims for payment after services had been performed enabling them to maintain complete patient and vendor folders. This system permitted comparisons of services rendered wih approved requests, and verification of prices charged. By doing so, the consultants were able to detect overservicing and fraudulent activities such as billing for services not rendered, or billing at an exorbitant price.

Under Medi-Cal, the consultants only receive requests for prior authorization. The claims for payment of services rendered go directly to Blue Shield with no copies of the billing going to the consultants. It was the unanimous opinion of consultants with whom we spoke throughout the state that the failure to provide them with billing information has greatly diminished their ability to discover abuses.

In Los Angeles County, for example, the dental consultants were able to either recover from dentists or to adjust requests for authorization to the extent that the welfare program was able to "save" over a million dollars a year prior to the enactment of Medi-Cal. However, since they are no longer receiving claims submitted by dentists for services rendered, they have been unable to maintain complete files and to achieve such savings under the Medi-Cal Program. This county still retains a "bad boy" list of dentists, many of whom receive large fees from the program, whose claims they believe merit careful scrutiny which is not being given under the current method of review.

(2) Blue Shield

Blue Shield, with certain exceptions, receives 70,000 claims a day from individual vendors throughout the state. Since consultants at the county level must give prior authorization before many vendors can provide services, Blue Shield's main concern is to process this huge number of claims for payment. In doing so, the main review is to see if the service and the fee set forth on the claim is allowed under the program. Discovery of abuses by such review is primarily limited to claims submitted by physicians and pharmacists, whose claims are not subject to prior authorization.

Efforts to discover fraudulent activities and acts of overservicing are made by personnel who are trained to examine claims to see if they are justified.

(a) Without maintaining a patient or vendor folder, and by examining claims on an individual rather than group basis, many of the abuses by physicians will not be discovered by the present method of review.

Assume for example that a physician intends to take advantage of the program by requiring a patient to make unnecessary visits to his office. Since the individual claims submitted to Blue Shield for each office visit would appear proper and be processed for payment, the chances of discovering this type of abuse is remote upon a review of claims on an individual basis. This abuse is more likely to be discovered if a number of claims submitted by this physician were reviewed at the same time, or if a patient or vendor file was maintained. Due to the volume of documents involved in reviewing claims of physicians throughout the state, such files are not presently maintained.

As previously noted, the review of claims by the Utilization Committee and county-level advisors to Blue Shield recovered approximately four and one half million dollars in one year from physicians who were providing excessive services. This figure alone is a commentary on the extent of abuse occurring under the program by just one class of vendor. Furthermore, this figure relates only to those excessive activities which have in fact been discovered.

While this type of review has achieved some success in discovering acts of overservicing by physicians, it has not been able to discover numerous other abuses we have mentioned are being engaged in by other vendors. One indication of this is that while Blue Shield has taken action on over 1,000 cases involving Medi-Cal, only 18 cases were deemed significant enough to be sent to HCS with recommendations for suspension.

The Utilization Committee has recently commenced reviewing claims of physicians after they have been paid. This "post-audit" is done by establishing various parameters. This involves determining services or procedures which indicate overservicing and obtaining, by means of computer, the names of physicians who exceed the "norm" in regard to the performance of such procedures. The selection of one such parameter, for example, resulted in the review of some 20 physicians who performed a certain surgical procedure. Most of the physicians reviewed were found to have performed excessive services in regard to this particular procedure. This method in reviewing claims is too new to be evaluated at this time, although it offers certain advantages which will be discussed later in the report.

(b) The results of the method used in examining claims submitted by pharmacists presents even a better illustration of the inadequacy of the current method of review. We have already mentioned the numerous ways in which pharmacists are known to be abusing the program. Prior to our investigation, action had been taken against only one pharmacist since the enactment of Medi-Cal.

One reason few pharmacists have been investigated is that the review of individual prescriptions submitted for payment will not usually reveal a pattern of abuse. To effectively discover abuses numerous prescriptions of a pharmacist should be analyzed at the same time.

At our request a former pharmaceutical consultant was asked to select at random from Blue Shield's files prescriptions which had been submitted for payment and to analyze them for possible abuses. His examination of claims in this manner developed facts giving rise to several questions as to the propriety of the activities of several pharmacies. Set forth below are some examples of the suspicious activities detected by this type of examination.

(i) One pharmacy submitted 15 prescriptions, all of which were given to one family in a single day. Five of the prescriptions were identical, each being for four ounces of the same cough medicine.

(ii) A pharmacy dispensed in a period of 33 days 300 pills to a single patient. If taken as directed (one pill three times a day) 100 pills would have sufficed for the entire period.

(iii) One pharmacy employing one pharmacist dispensed 290 Medi-Cal prescriptions in a single day. These prescriptions amounted to his being reimbursed $1,190. Many of these prescriptions were preprinted. Around fifty percent of these prescriptions were written by two physicians, one of whom sees 75 to 100 patients a day and prescribes 100 to 125 prescriptions a day. For comparison purposes, a major chain drugstore employing seven pharmacists in a thirteen hour day writes an average of 300 presriptions a day.

While legitimate reasons could exist to explain the above patterns, the examples illustrate how this type of examination at least reveals activities which may justify additional investigation.