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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 legitimat 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 program. 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 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 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.

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“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. Excerpt:

“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—90, 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 attorne eneral'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. Excerpt:

“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'. Excerpt:

“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."

Commentis 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. Excerpt:

“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. Excerpt:

“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."

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