Summary

HIGHLIGHTS

Our review of the California Department of Health Care Services‘ (Health Care Services) administration of the School-Based Medi-Cal Administrative Activities program (administrative activities program) and the Local Educational Agency Medi-Cal Billing Option Program (billing option program) revealed the following:

The reasonableness test criteria review process that Health Care Services used for the administrative activities program claims from October 2013 through October 2014 was reasonable, but failed to result in the approval of many deferred claims.

Fewer than 10 percent of the claims that claiming units submitted under this process were approved.
Local educational consortia and local governmental agencies approved and forwarded claims to Health Care Services that did not comply with the process’s requirements.

Health Care Services lacks adequate oversight of local educational consortia and local governmental agencies.

It is behind in required reviews.
Weaknesses exist in the contracts between these two types of entities and their claiming units.

The administrative activities program could save as much as $1.3 million annually in coding costs alone if Health Care Services conducted a single statewide quarterly time survey.

Health Care Services has not maximized the participation of claiming units in the administrative activities program— the State could increase federal funding by an estimated $10.2 million annually.

Health Care Services did not increase the reimbursement rate for translation activities to the rate allowed by federal law, failing to claim an estimated $4.6 million in federal funding.

Health Care Services did not adopt regulations for its administrative activities program as required by state law.

It failed to issue to the Legislature a required annual report for the billing option program.

Results in Brief

Medicaid is a jointly funded federal-state health insurance program for low-income and needy individuals. The California Department of Health Care Services (Health Care Services) is the single state agency responsible for administering the State’s Medicaid program, called Medi-Cal. Health Care Services provides Medi-Cal services in school settings through school-based Medi-Cal programs, which provide direct medical services through its Local Educational Agency Medi-Cal Billing Option Program (billing option program) and which perform program-related administrative activities through its School-Based Medi-Cal Administrative Activities program (administrative activities program). Through this latter program, Health Care Services allows claiming units to file claims for federal reimbursement for 50 percent of the cost for certain types of administrative activities.¹

We found that the reasonableness test criteria review process that Health Care Services used to review claims for the administrative activities program from October 2013 through October 2014 was reasonable and not inconsistent with federal requirements. Health Care Services implemented the reasonableness test criteria review process in response to findings from a federal financial management review completed in 2013. The Centers for Medicare and Medicaid Services (CMS), part of the U.S. Department of Health and Human Services, found weaknesses so severe at two California claiming units that it began deferring, or withholding, reimbursements to most claiming units in the State, and it directed Health Care Services to implement a reasonableness review process to assess whether the deferred claims were allowable. Health Care Services developed benchmark percentages and other limits to assess claims under the reasonableness test criteria review process. Recognizing that claiming units varied in nature and size, Health Care Services allowed claiming units to exceed these benchmark percentages and limits if they submitted adequate justification explaining the overages.

However, Health Care Services’ reasonableness test criteria review process failed to result in the approval of many deferred claims. Specifically, Health Care Services approved fewer than 10 percent of the claims that claiming units submitted under this process. Despite the low number of approved claims, we believe that this process would have maximized federal reimbursement to claiming units if Health Care Services had accurately communicated and applied the reasonableness test criteria and the claiming units had complied with CMS-approved requirements of that process. In addition, although Health Care Services has a process that allows claiming units to appeal the decisions and actions that local educational consortia and local governmental agencies take, the appeals process does not allow claiming units to directly appeal Health Care Services’ decisions and actions.² We also believe that the local educational consortia and local governmental agencies have added little value during this review process. These entities contract with Health Care Services to review administrative activities program claims that claiming units submit and, if the claims meet the established criteria, they forward the claims to Health Care Services for final review and payment. However, we found that these entities approved and forwarded to Health Care Services claims that did not comply with the reasonableness test criteria benchmarks and other limits.

Furthermore, Health Care Services continues to ineffectively oversee these local educational consortia and local governmental agencies, which increases the risk that they are not performing the oversight and administrative tasks for which they are responsible. For example, it is behind in its reviews of these entities, which are required at least once every three years. Other states, such as Illinois and Michigan, use a risk-based approach to select participants to review. For example, Michigan considers factors such as the dollar amount of claims filed, previous audit findings, and staff turnover when selecting participants for review. We believe if Health Care Services used such a strategy, it could better focus its efforts on those participants with a relatively higher likelihood of material findings.

We also identified weaknesses in the contracts between the local educational consortia or local governmental agencies and their claiming units that effective Health Care Services’ oversight should have prevented. For instance, the contracts issued by the Los Angeles County Office of Education (Los Angeles County) allow its claiming units to inappropriately bill the federal government for “participation fees” that are based on costs that Health Care Services has already claimed. Federal requirements prohibit such duplicate billing. In addition, some contracts between local educational consortia or local governmental agencies and their claiming units contain provisions whereby the local educational consortia or local governmental agencies retain a percentage of the approved reimbursement amounts as payment. We believe such payment provisions may create an unnecessary incentive for local educational consortia and local governmental agencies to approve otherwise unallowable claims to increase their revenues.

Health Care Services also missed an opportunity to implement a single statewide quarterly time survey when it implemented the random moment time survey methodology. Instead, local educational consortia, local governmental agencies, and the Los Angeles Unified School District conduct nine time surveys each quarter. The increased costs associated with conducting nine surveys rather than a single statewide survey are neither necessary nor efficient. We estimate that the administrative activities program could save as much as $1.3 million annually in coding costs alone if Health Care Services conducted a single statewide quarterly time survey. We identified other states (Illinois and Texas) that have implemented a single statewide survey and simultaneously removed intermediaries similar to local educational consortia and local governmental agencies from the administration of their programs. Additionally, because Health Care Services issued interim payments to local educational consortia and local governmental agencies and not individual claiming units, some claiming units may not receive promptly the full interim payment to which they are entitled under the settlement agreement with CMS. We believe that if Health Care Services implemented its own single statewide quarterly survey and took over responsibility for overseeing the administrative activities program, thus eliminating the need to use the local educational consortia and local governmental agencies for these purposes, it would result in significant savings to the administrative activities program.

In addition, Health Care Services could further maximize federal funds for the administrative activities program both by increasing program participation and by allowing claiming units to claim reimbursement for translation activities at the 75 percent reimbursement rate that federal law has allowed since 2009. We estimate that Health Care Services could increase yearly reimbursements by $10.2 million if more entities participated in the program. Also, translation activities include assisting a student or parent in accessing or understanding the Medi-Cal application process or treatments that Medi-Cal covers. Health Care Services was unaware that translation activities were authorized by federal law to be reimbursed at a higher rate. Health Care Services could have increased federal reimbursements by about $4.6 million from February 2009 through June 2015 if it had raised the reimbursement rate for translation activities from 50 percent to 75 percent.

Further, Health Care Services failed to comply with four subdivisions of a section of state law requiring that it adopt regulations for its administrative activities program despite the fact that these statutory requirements have been in effect for more than 15 years. Health Care Services’ failure to comply with state law regarding the adoption of these regulations limits the public’s ability to participate fully in developing the rules governing this program. In addition, we believe that stakeholders could construe that Health Care Services’ policies are underground regulations that have not been adopted in compliance with California’s Administrative Procedure Act (APA), which could make them unenforceable and could lead to interrupted reimbursement payments to claiming units.

Finally, Health Care Services has not filed a required annual report for the billing option program, thus failing to provide the Legislature and other stakeholders with timely and relevant information regarding program successes and barriers. We believe that these legislative reports present information useful to stakeholders and that reporting similar information for the administrative activities program is important.

Recommendations

Legislature

The Legislature should amend state law to allow claiming units to submit reimbursement claims directly to Health Care Services.

In addition, the Legislature should enact legislation that requires Health Care Services to prepare reports annually for the administrative activities program similar to the annual report that state law requires for the billing option program.

Health Care Services

To ensure that it provides claiming units with reasonable opportunities to address concerns with department decisions or actions, Health Care Services should begin crafting within three months regulations to establish and implement a formal appeals process that allows claiming units to appeal Health Care Services’ decisions and inform all stakeholders, including claiming units, of the existence of this appeals process.

Until the Legislature implements our recommendation to allow claiming units to submit claims directly to Health Care Services, Health Care Services should immediately take steps to improve its oversight of local educational consortia and local governmental agencies to ensure that they sufficiently meet their responsibilities and meet the terms of their contracts.

Health Care Services should also take steps to minimize the risk that claiming units could include unallowable costs when calculating their reimbursement claims. For example, Health Care Services should encourage Los Angeles County to revise its contracts with its claiming units to make it clear that claiming units cannot include Health Care Services’ participation fee as part of their claims.

Health Care Services should implement a single statewide quarterly random moment time survey and implement as soon as reasonably possible a plan to take over responsibility for conducting the surveys and performing related activities.

Health Care Services should explore opportunities to expedite interim payments to ensure that each claiming unit receives the interim payment to which it is entitled.

Within six months, Health Care Services should take the following actions:

Revise the reimbursement rates so that claiming units can receive the 75 percent reimbursement rate for translation activities that federal law allows.
Determine the extent to which claiming units can claim the unreimbursed difference between the 50 percent and 75 percent reimbursement rate for translation activities performed in past years and inform claiming units of the findings.

If the Legislature implements our recommendation to allow claiming units to submit claims directly to Health Care Services, Health Care Services should develop and implement its own outreach functions to ensure that nonparticipating claiming units understand the benefits and consider participating in the administrative activities program.

Health Care Services should immediately develop and adopt the regulations as required by four subdivisions of a section of the California Welfare and Institutions Code in accordance with California’s APA.

Health Care Services should issue its statutorily required reports on the billing option program in a timely manner.

Agency Comments

Although Health Care Services agrees with most of our recommendations, it disagrees with a few. However, for certain recommendations that it disagrees with, Health Care Services describes steps it will take to at least partially address many of the issues we identified.

Footnotes

¹ According to CMS, a claiming unit is typically a school district or a program within a district. California has claiming units that are as diverse as county offices of education, special education local plan areas, local school districts, community colleges, and Healthy Start programs.Go back to text

²Health Care Services contracts with two types of entities to help it administer the administrative activities program. A local educational consortium is one of the 11 service regions of the California County Superintendents Educational Services Association. Each consortium is led by a county education office within the region. A local governmental agency is an agency of either a county or a chartered city, or a Native American Indian tribe, tribal organization, or subgroup of a Native American Indian tribe or tribal organization. The California School-Based Medi-Cal Administrative Activities Manual requires claiming units to contract with one of these two types of entities to participate in the administrative activities program.Go back to text