Report 2013-119 Summary - August 2014
California Department of Health Care Services:
Its Failure to Properly Administer the Drug Medi-Cal Treatment Program Created Opportunities for Fraud
Our audit of the California Department of Health Care Services' and the California Department of Alcohol and Drug Programs' administration of the Drug Medi-Cal Treatment Program (program) highlighted the following:
- Between July 1, 2008, and December 31, 2013, the State approved nearly $1 million to potentially ineligible substance abuse clinics (providers).
- We found 323 instances amounting to more than $10,000 in which the State reimbursed providers for services they purportedly rendered to deceased beneficiaries.
- Our analysis of four years of program claims billing data identified $93.7 million in authorized payments that were potentially indicative of fraudulent activity.
- Neither department implemented an effective provider certification process, nor did they enforce laws and regulations designed to prevent fraudulent provider applicants from obtaining certification.
- Neither department consistently followed its own certification processes—we found serious deficiencies in each of the files of 25 program provider applicants we reviewed.
- The departments only took steps to strengthen the program recertification process when mandated to do so by the federal government.
RESULTS IN BRIEF
California participates in the federal Medicaid program through the California Medical Assistance Program, or Medi-Cal. The Medi-Cal program provides beneficiaries with substance abuse services when medically necessary through the Drug Medi-Cal Treatment Program (program). The program provides five types of services, including outpatient drug-free treatment services (outpatient drug-free services), which are the focus of this audit. Although the California Department of Health Care Services (Health Care Services) is the single state agency responsible for administering the Medi-Cal program, beginning in 1980 it entered into interagency agreements with the California Department of Alcohol and Drug Programs (ADP) to administer the program. However, in July 2012, state law transferred the responsibility of administering the program and the employees performing its functions to Health Care Services.
In July 2013 the media reported significant issues regarding the integrity of the program in Los Angeles County. According to these reports, counties approved payments to substance abuse clinics in southern California during fiscal years 2011-12 and 2012-13 that showed signs of having engaged in deception or questionable billing practices. These substance abuse clinics, commonly referred to as providers, rendered outpatient drug-free services and other program services to Medi-Cal beneficiaries under an agreement with either the county or the State. Health Care Services has since suspended or terminated many of these providers' contracts.
Our analysis of claims that outpatient drug-free services providers submitted for reimbursement between July 1, 2008, and December 31, 2013, found that the State approved nearly $1 million to potentially ineligible providers, the majority of which Health Care Services believes was recovered through a subsequent cost-settlement process. However, because Health Care Services did not provide the supporting documentation for the cost-settlement process until after the conclusion of our fieldwork, we were unable to complete the procedures needed to verify this assertion. We also found 323 instances amounting to more than $10,000 in which the State reimbursed providers for services they purportedly rendered to deceased beneficiaries. This occurred because Health Care Services and ADP lacked adequate processes to identify ineligible providers and deceased beneficiaries when they processed these claims for payment. Although both Health Care Services and ADP could have accessed the data necessary to prevent these payments, they failed to use the information available to them in a timely manner.
In addition, our analysis of four years of statewide program claims billing data identified $93.7 million in payments that Health Care Services and ADP authorized for more than 2.6 million outpatient drug-free services that are potentially indicative of fraudulent activity. Specifically, we used five high-risk indicators to identify claims statewide that we believe are symptomatic of fraud. We developed these indicators using our professional judgment and our knowledge of known cases of fraudulent activity, interviews with Health Care Services, and background information for the audit—including the media reports already referenced. Although we could not review the more than 2.6 million outpatient drug-free services to verify their validity, we visited three counties—Fresno, Los Angeles, and Sacramento—and reviewed providers' documentation for a total of 338 of these services. We found that 10 of the 16 providers we visited could not locate the patient records or provide adequate documentation to support 74 of the services they purportedly rendered. We also determined that seven of the 10 providers could not support an additional 1,784 services because of deficiencies such as missing the sign-in sheets for six months of group-counseling sessions. In total, the State authorized roughly $60,000 for these 1,858 improperly documented services. When providers cannot produce complete patient records, they cannot demonstrate that beneficiaries received the services and the State or counties can then recover any payments for these services.
The State's failure to establish an adequate provider certification process may have contributed to the questionable billings that we found. Neither Health Care Services nor ADP implemented an effective provider certification process during our audit period, nor did they enforce laws and regulations designed to prevent fraudulent provider applicants from obtaining program certification. For example, federal regulations require provider applicants to disclose the names of their owners and managing employees, as well as those individuals' histories of fraud, abuse, medical license suspensions, or related convictions, if applicable. However, Health Care Services and ADP did not ensure the accuracy and completeness of the provider applicants' information, and they did not always conduct mandated database searches to verify the information applicants provided. Further, Health Care Services failed to fully implement federal regulations that require it to assign risk levels to all provider applicants, which prevents it from accurately assessing the appropriate amount of screening it should use to certify a provider applicant.
Moreover, neither Health Care Services nor ADP consistently followed its own certification processes. Consequently, our review of the files of 30 program provider applicants found serious deficiencies in each. Five of the 30 provider applicant files we selected were missing altogether, which may impede the State's ability to take action against these providers in the future because Health Care Services will be unable to prove the providers' original ownership, for instance. Other application files were missing critical checklists and important documentation. Further, for a five-month period in 2011, ADP certified six of the provider applicants using a modified certification process that limited its ability to ensure their compliance with state and federal laws and regulations.
Despite these weaknesses in their screening processes, neither Health Care Services nor ADP took steps to strengthen the program recertification process until mandated to do so by the federal government. As of March 25, 2011, federal regulations require the recertification of all program providers every five years. However, before this change in federal regulations, Health Care Services' program certification standards did not require the recertification of a provider unless it changed (1) its ownership, (2) its scope of services or hours of treatment, (3) its physical space through remodeling, or (4) its location. As a result, Health Care Services and ADP essentially certified providers indefinitely unless they experienced one of the four changes described above. Further, we found that neither Health Care Services nor ADP had a mechanism in place to monitor all of these recertification-triggering events.
Health Care Services has identified areas in which it can improve its administration of the program. Specifically, its Audits and Investigations Division (investigations division) conducted an internal review in 2013 that highlighted numerous gaps in Health Care Services' administration of the program.1 The investigations division made a number of recommendations to improve the program. Thirteen of these recommendations related specifically to improving the coordination between the department staff responsible for administering the program. Our review found that Health Care Services has fully implemented four of these recommendations but is still in the process of implementing the other nine. The implementation of these remaining recommendations is critical to ensuring its ability to address fraud in a timely manner and effectively mitigate the State's financial and legal risks.
Health Care Services is also in the process of attempting to improve its coordination with the counties, which also play a major role in the program's administration. Specifically, Health Care Services generally contracts with the counties to provide program services, and the counties in turn contract with providers. Consequently, the investigations division recommended that Health Care Services transfer some of its monitoring responsibilities to the counties, which it considers the front line of defense to ensure that providers deliver services appropriately. State regulations require counties to process the providers' reimbursement claims and ensure that providers bill for reimbursements that are within the established rates. To meet this requirement, the counties we visited conduct site reviews of their providers to identify areas of noncompliance and other types of deficiencies. Health Care Services is currently revising its contract with the counties to establish a more coordinated process for monitoring providers; however, it has not completed the necessary changes. Further, the counties have expressed the need for greater communication from Health Care Services about providers it certifies.
To ensure that the providers receive reimbursement for only valid services, Health Care Services should immediately do the following:
- Coordinate with the counties to recover inappropriate payments to ineligible providers and for services purportedly rendered to deceased beneficiaries.
- Develop and implement new procedures for routinely identifying and initiating recovery efforts for payments that it authorizes between the effective date of a provider's decertification and the date it became aware of the decertification, in addition to the payments it authorizes between a beneficiary's date of death and its receipt of the death record.
- Direct its investigations division to determine whether it should recover any overpayments for the services that are potentially indicative of fraudulent activity that we identified statewide. Based on its findings, Health Care Services should take the appropriate disciplinary action against the providers, such as suspension or termination.
- Direct its fiscal management and accountability branch to work with Fresno, Los Angeles, and Sacramento counties to recover the specific overpayments we identified during our visits.
To prevent the certification of ineligible providers, Health Care Services should immediately do the following:
- Instruct its staff to compare the names of the managing employees whom applicant providers identify in their program applications to those whom they identify in their disclosure statements.
- Instruct its Provider Enrollment Division to conduct all required database searches of individuals that provider applicants identify as their owners or managing employees.
- Designate risk levels for all provider applicants in accordance with federal regulations.
To ensure that it appropriately and consistently reviews provider applications, Health Care Services should do the following:
- Direct its certification staff to follow the procedures that it has put in place to screen provider applicants' eligibility.
- Retain the documentation, such as checklists, that it uses to support its certification decisions in accordance with its retention policy.
To improve the coordination between its divisions and branches and ensure that it addresses allegations of fraud in a timely manner, to the extent possible, Health Care Services should fully implement the investigations division's recommendations.
To strengthen the coordination between the State and the counties, Health Care Services should amend the State-county contract to address any gaps in their collective monitoring efforts.
Health Care Services agreed with our findings and recommendations. Health Care Services stated it has taken actions or plans to take actions to implement the recommendations.
1 The investigations division defined gaps as internal control weaknesses; inefficient or ineffective business practices; and the lack of statutory or regulatory authority to meet performance expectations, ensure program integrity, and effectively mitigate Health Care Services' financial or legal risks.