Medi-Cal Spending Assailed by Audit

Inefficiency and waste in the state’s Medi-Cal program are costing taxpayers nearly $500 million a year, an audit by the state controller concluded Monday.

The audit said California overpays for prescription drugs and medical services, fails to effectively collect money owed by private medical insurance carriers and overspends on transporting patients from residences to health care facilities.

Moreover, the report said this scenario has fostered instances of fraud.

“Cheating the state is about as easy as going on a shopping spree with someone else’s credit card, except there is no credit limit and taxpayers end up paying the bill,” said Controller Kathleen Connell, a Democrat who is considered a potential candidate for governor.

At a Los Angeles news conference, Connell put most of the blame on the Wilson administration.

State Health Director Kim Belshe, responsible for administering the Medi-Cal program, criticized Connell and her staff for overlooking cost containment programs that Belshe said have saved the state billions of dollars.

The audit “ignores just how cost-effective the [Medi-Cal] program is,” Belshe said in a statement released by her office in Sacramento. About 4.5 million low-income Californians receive health care services under the program, which is part of the federal Medicaid system.

Auditors said the single area of greatest potential savings was in the state’s drug discount program.

The audit said the Medi-Cal payment rate for pharmaceuticals “is too high in comparison with other states and other major high-volume purchasers of prescription drugs.” By adopting a payment schedule comparable to other states, California could save $54 million a year, the auditors said.

As a high-volume purchaser, the state paid more than $1 billion for prescription drugs over a 12-month period beginning June 1994. Because of the heavy volume, the state obtains price rebates, but the state Department of Health Services “has not devoted the resources necessary to efficiently and effectively” administer the program, the audit said. As of June 30, 1995, uncollected rebates and related interest totaled $230 million, Connell’s staff said.

John Rodriguez, chief of the $17-billion Medi-Cal program, said the audit greatly exaggerates potential cost savings.

He added that the rate of payments suggested by Connell requires a change in law and the change has already been included in Gov. Pete Wilson’s proposed budget for next year.

The audit covered the period from July 1, 1994, to Sept. 30, 1995, but in cases of overpayments and under-collections, auditors tracked billings back to 1991.

The controller’s staff cited only a few specific instances of fraud by health care providers. In one case, they said they found a provider who was using a bogus Medi-Cal card to fraudulently bill the state. By the time the card was discovered by auditors in the controller’s office, it had been used to collect $206,000 from the Department of Health Services, with the state preparing to pay another $402,000.

The auditors also said “duplicate billings,” in which providers of health services can bill several different state agencies for the same service, is “a significant control weakness.” The audit said the state attorney general’s office is investigating a case in which providers allegedly were paid twice for the same service. The auditors estimated that at least $5.3 million might have been involved in overpayments in that case.

The auditors also reported that the Department of Health Services had only “marginal success” in collecting money owed by private health insurance carriers whose clients received health services paid for by the state. Of the $69.7 million owed to the state during the same 12-month period, only $5 million was actually collected, a 7% recovery rate.

During the same year, the audit said, the department “wrote off” $40.8 million in debts. By comparison, the audit noted that the state of New York, with a program similar in size to California’s, collected $15.7 million during the same period, a 57% recovery rate.

Rodriguez said the auditors unfairly criticized the Department of Health Services for policy decisions made by the governor and Legislature, such as how much the state pays for prescription drugs.

He added that much of the problem involved with collections stems from an outmoded system based on paper shuffling. He said the state is in the process of automating the system.

Another area of waste identified by the controller’s staff was the $40 million paid each year to private van companies for nonemergency transportation of wheelchair-bound Medi-Cal beneficiaries to health care facilities. “Medi-Cal is paying much more for transportation services than it should,” the auditors said.

Statewide, about 1.8 million one-way rides are provided each year, at an average one-way cost of $22.50. But the auditors said public transportation services such as Dial-a-Ride provide essentially the same service for $3 or less per ride.

The audit comes at a time when Congress is considering a massive overhaul of the Medicaid system that would give states major new responsibilities to determine eligibility and payment rates and to establish health care policy.

“If we change the rules on Medi-Cal, we need to start managing this program more effectively,” Connell told reporters outside a Kaiser Permanente hospital Monday. “We can’t afford to have additional responsibility placed with the state of California until we get our current system operating correctly.”