Davis OKs Crackdown on Health-Care Fraud

Times Staff Writer

Legislation intended to reduce the estimated $2-billion price tag of fraud in the state’s Medi-Cal health insurance program for the poor by cracking down harder on crooked health-care providers was signed by Gov. Gray Davis on Wednesday.

Along with tightening the eligibility standards for prospective and current providers of health services, SB 857 requires hiring 160 new investigators and support staff members for an intensified campaign against doctors, hospitals, laboratories and other providers who cheat the system.

Davis had called for hiring more than 300 new staffers, but legislative budget negotiators cut the request to 160.


Hiring new employees runs counter to Davis’ efforts to scale back the state’s workforce to reduce current state spending and prevent next year’s projected budget deficit of $8 billion from growing to $10 billion.

In signing the bill by state Sen. Jackie Speier (D-Hillsborough), Davis said there was evidence demonstrating that the vast majority of fraud in the Medi-Cal program came at the hands of heath-care providers and not the recipients.

Fraud typically occurs in bills for goods and services that were never provided. The actual cost of fraud in the $29-billion state and federal Medi-Cal program is elusive. But one expert, Harvard professor Malcolm Sparrow, has estimated it at $2 billion a year.

Speier said the bill was also intended to set a benchmark so that future governors and legislatures will have a clearer idea how much money should be spent to prevent, detect, investigate and prosecute criminal vendors in the Medi-Cal system.

The state Department of Health Services, sponsor of the bill, and the Department of Justice are charged with detecting, investigating and prosecuting fraudulent providers.

Legislative analysts say at least 464 employees are involved in the effort at a cost of $40 million a year. The department estimates that current anti-fraud efforts will save $854 million this year in addition to “cost avoidance” savings of $458 million.


These savings result from a system of preventive audits, targeting high-risk providers, insisting on prior approval for some services and using an enrollment system that examines prospective providers and those already in the system.

Among other things, the new law will demand stricter administrative controls for enrollment of providers.

It will also require managed care providers to finance their own fraud investigative operations, which must report their activities, staffing levels and other information to the health department.

The governor also signed AB 1191, designed to give consumers more information when insurers refuse to renew their homeowner policies or increase the premiums for policy renewals.

The bill, which was sponsored by the Foundation for Taxpayer and Consumer Protection, was introduced by Assemblywoman Patricia Wiggins (D-Santa Rosa), in response to complaints that consumers were being rebuffed by insurers when they asked for an explanation.

The new law will require that when insurance companies refuse to renew a homeowner policy, they must list the reasons for the action and provide a telephone number the consumer can call to complain.


Also on Wednesday, the governor signed a bill to extend Megan’s Law, which gives the public access to a database of 80,000 convicted sex offenders who may be living in their neighborhoods.