macies will be greater than the reimbursement provided under private negotiated contracts.

(D) Purchase of Appliances

Appliances such as wheelchairs, crutches and beds are purchased by both the state for persons eligible for Medi-Cal and by counties for persons who are on welfare but not under the Medi-Cal Program.

1. In Los Angeles County alone Medi-Cal purchases over $250,000 worth of appliances a year. However, whereas Los Angeles County has entered into contracts with suppliers of such appliances to purchase them at a discount the state has no such agreements and purchases identical appliances at a full retail price. The effect is that the Medi-Cal is paying more money (often as much as twenty percent more) than the county for identical medical appliances.

2. When Medi-Cal does purchase an appliance, the patient retains title to it. This means that when there is no longer any need for the appliance, because of death or otherwise, the patient or his family retains possession of the appliance. Prior to Medi-Cal, Los Angeles County developed a procedure whereby appli ances could be reobtained, serviced and stored so as to be available for future use by another welfare patient. No procedure for Medi-Cal to reobtain medical appliances after it gives them to patients-exists under the current program.

(E) Beneficiaries under the Medi-Cal Program who passess certain assets are supposed to pay a portion of the cost of the services they receive.

1. The counties have the responsibility of ascertaining the liability of the patient. There has been a general failure by the counties in assuring that the financial liability of patients for Medi-Cal treatment is being paid.

If the patient's liability is not fulfilled, Medi-Cal ends up paying the vendor money which should have been paid by the patient. One county which is concentrating its efforts in this area has recovered from Medi-Cal patients approximately $20,000 in a period of one year.

2. The state also has a right of subrogation where there may be a third party liability to a Medi-Cal patient. Failure to ascertain cases where subrogation might exist and to pursue such cases is also depriving Medi-Cal of a potential recovery of money.

(F) The failure by the counties and HCS to maintain current records of beneficiary eligibility has also been a source of many problems in administering the program.

1. One problem of constant irritation has been the making of duplicate payments to vendors. This often occurs where an initial claim is rejected because the patient is not found to be eligible for benefits. Upon further inquiry, however, the patient is deemed eligible and a second claim is submitted. This problem with eligibility records has often resulted in payments being made upon both claims. 2. The failure by the counties and HCS to maintain current records on eligibility has also caused the rejection of claims which should have been paid and the payment of claims which should have been rejected. By not keeping records current inquiries as to eligibility have also resulted in undue delay in rendering services and paying vendors.

(G) Processing Claims

Mention has been made that the fiscal agents are responsible for processing claims of vendors. A closer look at their activities is necessary in considering the overall administration of the Medi-Cal Program.

Blue Shield receives 70,000 claims a day to process. These claims are intially reviewed for completeness of form and legibility. They are then examined on an individual claims basis by people trained to determine if the vendor has billed the proper amount for the services and if the services seem reasonable. If the claims seem proper they are forwarded to be microfilmed and to be paid.

Each claim is reviewed for the purpose of preparing it for data processing. This function actually requires some employees to cross out information requested on the forms provided by the state, but which is not needed for the processing of the claim. (E.g., telephone number of vendor.) Other employees have the task of printing names of vendors which are not legible on the claims submitted.

Blue Cross processes some 5,000 claims a day from institutional vendors. They, too, use trained personnel who review claims primarily to determine if the services and amount of claim is proper. These claims are also processed to prepare them for data processing.

Both fiscal agents utilize computers to a great extent. Among other things, the computers are supposed to be used for the purpose of determining who has been paid, amounts which have been paid, and kicking out requests for duplicate pay

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ment. The effectiveness of any computer is dependent upon how it is programmed and the accuracy of information it is given.

1. There have been numerous instances where vendors have received double and triple payment for services they have rendered.

Preliminary investigation has disclosed that one hospital, for example, has received duplicate payments involving some 59 different patients amounting to $17,000 in overpayments.

a. Various reasons exist for such duplicate payments. In the case of the hospital it was found that employees of the fiscal agent insert a diagnostic code on the claim received from the hospital. The code is determined by the diagnosis set forth on the claim. If a duplicate claim is submitted a different employee might interpret the same diagnosis in such a way so as to insert a different code number on the claim. Due to the difference in code numbers the computer will not detect the duplicate claim and payment will be made upon both claims.

b. Another means in which duplicate payments can occur is where a vendor initially submits a claim for $1,000 which shows that the patient's liability for such services is $100. The claim would thus request a net payment to the vendor of $900. If it was subsequently determined that the patient's liability should have been $200 a duplicate claim might be submitted by the vendor requesting $800. Due to the difference in the net amount claimed the computer would once again be unable to detect the duplicate claim and again it is probable that payments of both $800 and $900 would be made to the vendor.

2. There also have been cases where the computers have not properly recorded where vendors have or have not been paid. This type of error often results in inquiries being made by the vendors resulting in additional time and expense in ascertaining if payment has been made.

The inability of the fiscal agents to accurately advise investigators and consultants who request information as to whether vendors have been paid creates further delay and interference in the pursuit of investigations. Investigation disclosed, for example, that upon inquiry as to whether specific vendors have been paid the fiscal agent replied in the negative although such vendors had in fact received payment.

3. The current system of processing claims has not only resulted in making duplicate payments to vendors who have rendered services to patients, but errors in the program have also caused checks to be sent to persons who have never provided services to Medi-Cal patients.

It is difficult to estimate the amount of money which Medi-Cal has mistakenly paid out as a result of the errors we have mentioned. At the outset of the report we noted that as of June 30, 1967, one and a half million dollars in overpayments were voluntarily refunded by vendors. HCS estimates that another one million dollars in overpayments are still outstanding. Unless the vendor is honest and voluntarily notifies the fiscal agents of such duplicate payments it is unlikely that they would be discovered under the current auditing procedures. Both fiscal agents have expressed the desire and need for better computer operations which would assist them in the performance of their duties in processing claims for payment.

RECOMMENDATIONS

The responsibility imposed upon HCS to administer the Medi-Cal Program is not one to be envied. Massive problems have confronted HCS from the initial day the program began operating and many of them still exist today.

Since the operation of the Medi-Cal Program is under constant review by both HCS and the California Legislature we offer herein suggestions concerning certain areas in the program which may be of some benefit to those agencies which are looking for ways to improve the program.

Many of the matters mentioned in this report have been discussed with HCS which has already begun to take steps to remedy some of the weaknesss found in the program.

1. Establish an Effective Investigating Unit

(a) One problem which has been mentioned in regard to the enforcement of the program has been the difficulty in discovering vendors who have taken advantage of the program. Similar difficulty exists in finding those recipients of Medi-Cal who also take advantage of the program.

We have noted that under the current system investigators are employed by HCS, Los Angeles County and the fiscal agents. Failure to coordinate their

activities has resulted not only in duplication of work and needless expenditure of money, but has produced far too few cases against persons abusing the program. HCS investigations have produced few proceedings against vendors. This lack of suspensions and criminal or other disciplinary actions has been caused in great part by the inordinate amount of time which expires between the commencement and the conclusion of investigations. Because of the time lag evidence becomes stale and, in some cases, the witnesses have died. The latter, of course, is a particular problem in the field of medical investigations.

It is therefore recommended that a single investigative unit be established, consisting of at least ten men, under the supervision of one person who would have the responsibility of assigning cases and coordinating investigative activities.

The investigators should be experienced or trained to efficiently perform investigations into the various types of abuses mentioned in this report. Since Los Angeles County receives approximately forty-five percent of the money spent in the welfare program the majority of investigators should be located in the Los Angeles area.

The recommendation of a single investigative unit is not intended to preclude consideration of a proposed arrangement whereby the fiscal agents would have their own investigators.

(b) The investigative staff should be provided with adequate equipment and secretarial help to assist them to perform their duties in an efficient manner. (c) This report has discussed the various means by which vendors have been taking advantage of the program. It is recommended that with use of this knowledge a manual be prepared to set forth basic procedures which should be followed by investigators when doing audits and investigations of specific types of vendors.

(d) Investigations now occur as the result of complaints which may be received. It is suggested that consideration be given to having investigators perform routine audits and investigations without the necessity of receiving a complaint. Such routine investigations would be especially effective in discovering abuses among such vendors as pharmacies and nursing homes and in acting as a deterrent to those who might otherwise consider abusing the program.

(e) The inability of investigators to obtain information from the fiscal agents has hampered effective investigation. Procedures should therefore be established whereby investigators can request and obtain within a reasonable period of time information which is needed for investigations.

(f) Both fiscal agents when processing claims attempt to discover providers who may be engaging in fraud or providing excessive services.

Effective liaison should be established between the investigative unit and the fiscal agents so that they may be apprised of the activities of each other. 2. Improve Procedures to Expedite Suspension Proceedings

If our recommendations for investigations are followed, there should be a vast improvement in the ability of the investigators to expedite cases and, where appropriate, to recommend disciplinary proceedings. While recommendations for criminal or disciplinary action would be referred to agencies other than HCS, in most instances the suspension of the vendor from the program would also be appropriate. This emphasizes the need for improving HCS suspension proceedings.

In the past, HCS' method in acting on suspensions from the program has proven unsatisfactory from the standpoint of both procedure and results.

It is therefore recommended that HCS take steps to improve the manner in which it handles proceedings to determine if a vendor should be suspended. Two possible sources to which HCS may look for advice in this matter are the Attorney General's Office and the Office of Administrative Procedure since both these offices have extensive experience in the processing of administrative hearings.

3. Publicize Existence and Actions of Investigative Unit

It is recommended that the existence of the investigative unit be made known to the public and to persons providing and receiving benefits under the program. This would encourage information and complaints from the public and would also deter abuses.

The establishment of an effective unit should also result in an increase in the number of criminal actions, suspensions, and disciplinary actions taken against

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 Administration 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 techniques 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) Mention 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 lowered. (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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