Audit faults state health officials on Medi-Cal oversight

State health officials have failed to adequately or promptly review the finances of publicly funded managed-care plans responsible for serving millions of Medi-Cal recipients, according to a report released Tuesday by California’s state auditor.

The state departments of Managed Health Care and Health Care Services also didn’t conduct timely medical checks, intended to ensure that Medi-Cal recipients receive high-quality care, according to the report by State Auditor Elaine M. Howle.

“The beneficiaries want to make sure that their local plans are meeting the level of service that they are entitled to,” said Margarita Fernandez, a spokeswoman for Howle. “Without the audits or the reviews, they can’t be sure of that.”

In conducting its own financial checks, the state auditor determined that local managed-care plans varied in how much they paid their top executives last year, ranging from $230,000 to more than $800,000.


Howard Kahn, chief of the Los Angeles plan, LA Care, was the highest paid of the local plans reviewed by the auditor, according to the report.

LA Care board chairman Walter Zelman said he is conscious that the organization is a public health plan, but added that it has a rapidly growing number of members with complex needs.

“The population we are serving needs the best talent we can get,” he said. “In terms of competing for talent, we have to compete with [the] private-sector world and private insurance companies.”

There are 7.6 million beneficiaries of Medi-Cal, the public healthcare program for the poor and disabled in California. About 4.3 million recipients receive their medical treatment through managed care, and now more are moving into such plans as state and federal officials look for ways to reduce healthcare expenditures.

The Department of Health Care Services is responsible for ensuring that the managed-care plans comply with Medi-Cal requirements. The Department of Managed Health Care oversees the financial viability of those plans.

According to the audit, the Department of Managed Health Care was “chronically late” in completing its financial reviews, taking an average of 200 days, “seriously lessening their value as an oversight tool.”

The managed-care department also didn’t recognize that some plans’ administrative expenses were incorrectly categorized as medical expenses. One plan miscategorized $5.3 million of administrative costs as medical expenses, the report states.

“Managed Health Care’s failure to identify these errors in its financial reviews is troubling and suggests that it may be overlooking other errors as well,” according to the report.

The audit also found that some of the financial reviews done by the Department of Health Care Services were incomplete and that some of the medical audits weren’t done in a timely fashion.

Tony Cava, a spokesman for the Department of Health Care Services, said Tuesday that it is working to develop policies and procedures to ensure consistency and timeliness of the financial reviews.

The department also plans to resume annual medical audits of all Medi-Cal managed-care plans beginning early next year, he said. The department stopped the regular audits about three years ago.

The Department of Managed Health Care said in a statement that it also has taken steps to “strengthen our financial oversight of local health initiatives.”

The audit occurred at the request of state Sen. Michael Rubio (D-East Bakersfield). The senator’s office was concerned about healthcare plans having much higher balances of unspent state revenue than required by law.

Auditors found that was the case, raising concerns about whether the plans were not spending what they should on providing medical care.

The managed-care plans, however, said they kept the reserves high to ensure continuity of services to Medi-Cal recipients, the report states.

Zelman, of LA Care, said it would be “very unwise not to have substantial reserves” given the problems with the state budget.