STATEMENT OF GERALD A. HAWES, AUDIT MANAGER, OFFICE OF THE AUDITOR GENERAL, SACRAMENTO, CALIF.

Mr. HAWES. Mr. Chairman, Members of the Congress, my name is Gerald Hawes. I am an audit manager in the California Office of the Auditor General. I have been with that office specializing in health and welfare performance audits for the past 3 years. Prior to that time, I was employed by the Department of Health, Education, and Welfare in its San Francisco regional office as chief of the evaluation section for social and rehabilitation services for region 9. I am delighted to have the opportunity to address you on the subject of longterm care for the aging.

In November 1974, we commenced an audit of the homemakerchore services program in the State of California.* Robert Christophel, who was in charge of the field work, is here with me today. On May 1, 1975, we submitted to members of the California Legislature a copy of that audit. In October of this year, we issued an audit of the California Commission on Aging. During the course of these audits, we had ample opportunity to examine firsthand the problems of the aging in California, many of them living in almost total isolation and depending on the homemaker and chore services made available by the State of California as their only alternative to full-time institutionalization in a nursing home or convalescent hospital. During the course of the homemaker-chore services audit, we interviewed in their homes, 90 recipients of homemaker and chore services. We also reviewed the operations in 10 of California's 58 -counties.

Because California has such a limited program to provide in-home health aid, we found untrained homemakers and chore persons providing paramedical services such as bladder irrigation, administering insulin shots, taking blood pressure readings, sometimes incorrectly, and otherwise providing services that should be performed by medically trained personnel.

In California, as I suspect in most large States, the homemakerchore services program is fragmented from medical programs because they are considered basically social services. As a result, in many States there is a break in the continuum of services available to recipients between the kinds of homemaker and chore services that will enable the person to stay in his own home and the kinds of medical services that are needed to prevent institutionalization. One of our strongest recommendations in this audit was that the California State Department of Health recognize this gap in services and close it by providing in-home health care to those clients who obviously would have benefited from them. We further recommended that if the State department of health did not take this step, that the legislature of the State of California mandate it. Such services would be funded under title XIX of the Social Security Act.

IN-HOME HEALTH-A MANDATED SERVICE

We were therefore delighted to see that the Department of Health, Education, and Welfare intends to make this sort of in-home health

*See appendix 2, p. 177.

care a mandated service. Our audit disclosed that approximately 35 percent of the 60,000 recipients of homemaker and chore services in California were actually in need of more sophisticated in-home health supportive services using medically trained personnel.

However, we have serious reservations that the current proposed. rules in 45 CFR part 249 are a fiscally responsible answer to the problem that we identified in California. We feel there are serious deficiencies in these proposed rules since they do not contain adquate standards defining the qualifications of in-home health providers. This will cause great variations in the quality of care and great expense in the cost of monitoring these programs. It is vital that health care services provided to vulnerable persons in their own home be provided with the utmost regard for the safeguards to protect them. They should be based on a carefully developed set of standards. whether the service is provided by a profit or nonprofit organization or by a public agency. These standards must include: (1) Professionally qualified supervision; (2) trained service providers with provision for continuous training; (3) quality assurance procedures: (4) utilization reviews; (5) procedures for fiscal accountability; and (6) certification requirements for all provider agencies to demonstrate, prior to contract approval, the ability to deliver.

During our review of the homemaker chore services program, we found that because of the absence of a basic definition to distinguish between these services, the local governments had established a variety of homemaker-chore services programs which operate at a wide range of monthly costs. However, our verification in onsite visits and in discussions with county administrative personnel show that there is virtually no difference between the tasks provided to the client regardless of whether the task is labeled "homemaker" or "chore," except that homemaker services are much more expensive.

Some counties offer only chore services; others offer only home-maker services. In three local governmental units we determined that some providers were performing tasks which they were not qualified to perform and, as mentioned earlier, are inconsistent with the duties of either a homemaker or a chore provider, such as blood pressure readings, colostomy irrigations, and catheter changes, even though these activities are not officially sanctioned by these local govern-mental units.

In the current regulations proposed by HEW, home health services are defined in one short paragraph. This is the only set of guidelines by which a proprietary agency performing home health services can be adequately monitored and audited. On the other hand, the HEW guide for nonprofit institutions runs to 65 pages and is so detailed that it also makes monitoring and auditing virtually impossible or at least very expensive. Our concern here is that the cost of monitoring and auditing, though shared in by the Federal Government, will also adhere to local and State governments and that if an adequate job is to be done, these costs will be considerable. Yet the regulations make no provision for the Federal Government to assume a greater share of the cost.

I would now like to address myself to some specifics relative to both our audit of the homemaker-chore services program and earlier audits our office was involved within the prepaid health plan field?

under medicaid. This is an area which California pioneered and in both fields we found that inadequate standards, inadequate regulations, and inadequate monitoring resulted in some incredible costs occurring that were chalked up to administrative overhead and resulted in less than half of the money available filtering to the persons at the end of the line who were supposed to be served by these programs.

HOMEMAKER AND CHORE SERVICES

The first issue I would like to address is the issue that is sometimes referred to as the third sector of government, that is, the proprietarysector providing services that heretofore have been provided byeither nonprofit agencies or by public agencies. Of the roughly 60,000 people in California receiving homemaker and chore services, approximately 8 percent of these people receive services from proprietary agencies. In fiscal year 1973-74, the total cost of deliveringservices to these 60,000 recipients was $81 million. If you take the average charge of the proprietary agency and apply that to the total caseload of 60,000, the cost of providing the same services to the same individuals increases to $124,416,000-a 54-percent increase.

One small California county with approximately 150 clients requiring homemaker and chore services experimented first with indi-. vidual providers paid by the county. In fiscal year 1974-75, the county elected to use the services of a proprietary agency who charged them $105,000 to service the same client population. At the end of that fiscal year, the county canceled its contract with the proprietary agency, thereby reducing its program costs for the ensuing fiscal year to $60,000, or a reduction of 43 percent. The interesting fact, related to this county's experience is that essentially, the very same people are providing the actual in-home services under the countysupervised program as were provided previously by the proprietary contractor. The people providing in-home services are now receiving. the same compensation that they did when this service was performed by the proprietary agency at a reduction in program cost of 43. percent.

In one county, a client was receiving homemaker services from a contract agency at an hourly cost of $6. In another county, a client was receiving chore services from a client-employed provider at an hourly cost of $2.50. While no difference in the quality of service being provided could be discerned, the cost of service in the firstcounty was 140 percent higher than the cost in the second county.

Our own analysis of the private agencies providing homemaker and chore services in California indicates that on the average, 42 percent of the total Government funds spent to provide homemakerand chore services goes to the individuals who are actually delivering these services and that 58 percent is absorbed by a combination of overhead and profits. We do not distinguish overhead and profits in this analysis because an analysis of what constitutes overhead and what constitutes profit is in itself rather interesting.

QUESTIONABLE ITEMS IN OVERHEAD COSTS

For example, one California proprietary agency with a yearly budget of approximately $680,000 to perform homemaker and chore.

services showed a yearly profit of 12 percent. However, included in administration overhead for the 1973 and 1974 calendar years were the following items: A pipe and tobacco store expense of $4,088; a liquor store expense of $4,665; out-of-pocket expenses of $7,600; 1973 Washington, D.C. inaugural expense of $925; and Honolulu expenses of $405.

We question how these items, totaling $17,675, constitute legitimate overhead costs of providing homemaker services.

Our second major concern with fiscal integrity related to thirdsector operations refers to title XIX financed prepaid health plans. Under the administration of the California Department of Health, medicaid recipients are provided with health care services in two ways: One way is known as fee for service. Under the fee-for-service method, the provider of health care services the physician, pharmacist, or dentist-is reimbursed by the California Department of Health for actual services furnished to the medicaid recipients. The fee-for-service method currently accounts for approximately 90 percent of the total medical services provided to the medicaid recipients. An alternative to the fee-for-service approach is prepaid health plans-PHP's-established in January 1971. Under the PHP's, the provider of health care services is the PHP contractor under contract with the California Department of Health or a subcontractor of the PHP contractor, either of whom employ physicians and other health professionals. The PHP contractor is paid in advance by the California Department of Health on the basis of a fixed monthly fee regardless of the extent of the health care services furnished to the medicaid recipients. By law, the fixed monthly fee cannot exceed the amount which the department estimates would be payable for the same services on a fee-for-service basis.

Our audit of April 1974 addressed problems of high overhead and poor management. For example, that report stated:

Of the $56.5 million payments made by the California Department of Health to 15 PHP contractors, only an estimated $27.1 million, or 48 percent, was expended for health care services for medicaid recipients. The balance of $29.4 million of the California Department of Health payments, or 52 percent of such payments, was expended by the PHP contractors and their affiliated subcontractors for administrative costs or resulted in net profits.

On October 16, 1975, these findings, as they related to one of these health plans, were confirmed by a General Accounting Office audit which recommended that the Federal Government recover up to $4.6 million that the GAO says was overpaid to that health plan.

As one example of the administrative costs, a PHP contractor had employed a physician as plan administrator at an annual salary of $120,000, plus expenses. The contract with the physician stated:

Employer recognizes employee is involved in other medically related ventures such as inhalation therapy contracts and other nonmedically-related business ventures. These ventures shall at all times remain under the strict control and ownership of employee.

In other words, this man was paid a salary of $120,000 per year for a part-time job.

If you are interested in more details regarding medicaid abuses I suggest that you question Mr. John Svahn, who is now the acting director of social and rehabilitation services and who I understand

will be addressing this committee later today. Prior to his appointment to this position, Mr. Svahn was chief deputy director of the California State Department of Social Welfare which was the sister agency of the California Department of Health which administered these medicaid programs during the period of these abuses.

The California Department of Health has contracted for the operation of PHP's, primarily with nonprofit corporations. All of the 15 PHP's we reviewed, except 2, were organized as nonprofit corporations. However, the officers or directors of eight of the PHP's we reviewed had formed profitmaking partnerships, associations, and corporations, often with the same corporate officers, which supply various services to the nonprofit PHP contractors.

PROFITS REAPED FROM "NONPROFIT" OPERATIONS

Through these affiliated profitmaking subcontractors, officers and directors of the nonprofit PHP contractors are able to obtain profits from what is ostensibly a nonprofit operation. Also, the complex relationship created by the use of these interlocking firms makes it more difficult to determine how much of the California Department of Health's payments to the PHP contractor actually is expended for health care services for medicaid recipients and how much results in net profits or is expended on executive salaries and other costs of administration. It is this type of activity that causes us concern over the provisions in 45 CFR part 249 that permit subcontracting but does not require adequate audit trails.

Administrative costs and net profit data for certain affiliated subcontractors were not readily available and were therefore excluded from cost and profit estimates in our report. Also the salaries of some physicians who are involved in administration of PHP's and who care for few, if any, patients were not readily identified in the financial statements, and so have been excluded from the administrative costs. Therefore, our estimated administrative cost and profit amounts are low.

I spoke earlier of home chore services being fragmented from the medical needs of the same client population. There is another area of fragmentation I would like to mention. That is the area of training unemployed and AFDC recipients to perform some of these services. The unemployment rate in California exceeds 10 percent. I see no references in 45 CFR part 249 to encourage this army of unemployed and welfare dependent persons to qualify for positions in this new industry. I would like to submit to the committee, as part of this presentation, the experiences of one Los Angeles organization that is doing precisely this.

[The material referred to follows:]

STATEMENT REGARDING TRAINING OF LOW-INCOME PERSONS FOR EMPLOYMENT AS HOMEMAKERS, BY JOHN ALEXANDER KODICK, TRAINING COORDINATOR, HOMEMAKER TRAINING PROGRAM, LOS ANGELES, CALIF.

Regarding East Los Angeles Action Council-Community Bilingual Homemaker Training Program: The homemaker training program was designed and created to provide two basic services to the community of East Los Angeles and the greater San Gabriel Valley. One service was the creation of jobs for welfare

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