Fraud Fight Found Weak

Although Medi-Cal has tried to attack fraud by adding 250 staff members in four years, the program’s efforts are fragmented and hampered by weak management and an incoherent strategy, a state audit concluded Monday.

Auditors found that three divisions and several branches within the state’s health program for the needy had varying responsibilities for stopping fraud, but they sometimes duplicated efforts or applied different standards when screening health-care providers.

The examination of the $29-billion program also faulted Medi-Cal’s coordination with the state attorney general’s office and state health-care licensing agencies.

Auditors said the California Medical Assistance Program, or Medi-Cal, was routinely allowing the new owners of pharmacies to operate under the old owner’s billing number while their own application was being reviewed. In one case, a new owner collected $3 million under someone else’s billing number.

Officials of the state Department of Health Services, which oversees the Medi-Cal program, said they made the allowances so that new owners would not have to wait up to six months while their application was processed to get reimbursement from Medi-Cal. “We don’t make them shut down the business,” said Stan Rosenstein, the health services department’s deputy director for medical care services. “It could hurt them economically and hurt the beneficiaries.”

Assemblyman Doug La Malfa (R-Richvale), who requested the audit, said he was dismayed that it determined that Medi-Cal officials had not fully implemented most recommendations from a 2002 audit of their provider enrollment process. “It’s been a year and a half, and we still have no tangible action,” La Malfa said. “This points out that we have to put some heat on.... There has been a lack of oversight.”

Monday’s audit said an underlying flaw with the anti-fraud program is that Medi-Cal has been unable to quantify the amount of suspected abuse.

“It’s hard to know if they are over-investing in the [anti-fraud] program or under-investing if you don’t know how big a problem you’re attacking,” said Chief Deputy State Auditor Steve Hendrickson.

Medi-Cal officials said they successfully applied in August to participate in a federal study to measure the accuracy of their payments.

Diana Ducay, head of audits and investigations, said the program’s current budget includes staff to conduct an annual assessment of errors in their billing, including fraud. And they plan to randomly review requests for payment as a fraud deterrent.

Medi-Cal officials generally concurred with the findings of the audit, which was sought by legislators in response to a Times story a year ago describing a multibillion-dollar fraud problem and weaknesses in Medi-Cal’s controls. Rosenstein said the audit showed that by and large Medi-Cal is doing a good job in detecting and stopping fraud, but “we need to improve with better planning and coordination.”

The audit said Medi-Cal dedicated little effort to fraud by medical providers before 1999 -- but it stepped that up in recent years, adding more than 250 positions to its existing anti-fraud staff of 41.

Assemblywoman Barbara Matthews (D-Tracy), who was one of those who requested this week’s audit and the one in 2002, said that Medi-Cal needs to better deploy its anti-fraud corps.

“We gave health services many additional staff to perform audits, and we want them to be very productive,” she said. “If we do this right, we can close lots of loopholes. It seems one person should be in charge of all audits and investigations in the agency, so there’s one person who’s responsible and ... this is not done in a fragmented way.”

The audit found the health services department had failed to fully implement 10 of 12 recommendations of the 2002 audit.

Officials told auditors that they still lacked the resources to properly screen provider applications within the required 180 days.

A state law that becomes effective Jan. 1 would allow providers to be certified automatically for up to a year if the department does not take action within that time frame, or does not notify the provider that an anti-fraud review is underway.

The risk, Hendrickson said, is that a provisional provider could be unqualified yet could bill Medi-Cal before his application is reviewed by the agency.

Medi-Cal is a state- and federally funded program, so fraud has been prosecuted by both the U.S. attorney’s offices and the state Department of Justice.

The audit found, however, that the two state agencies have not fully coordinated their efforts and are operating under a 1988 agreement that is being renegotiated.

It concluded that about 40% of Medi-Cal’s referrals in fiscal year 2002-03 to the state Department of Justice were late, incomplete or not received. A number of the cases were handled by federal authorities.

“We will work with any prosecuting agency that will aggressively pursue” fraud cases, Rosenstein said.