Appendix

Scope and Methodology

The Audit Committee directed the California State Auditor to examine DHCS’ oversight of San Joaquin and similar health plans. Specifically, it directed us to identify the actions DHCS has taken to ensure that health plans provide quality of care that meets key state and federal standards. It also directed us to determine whether DHCS provides sufficient oversight of health plans’ administrative expenses and employee bonuses. The table below lists the objectives that the Audit Committee approved and the methods we used to address them.

Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE		METHOD
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed relevant laws and regulations related to DHCS’ oversight responsibilities for health plans.
2	Determine whether DHCS has conducted all required audits and rate adjustments of health plans, and evaluate its effectiveness in adjusting rates.	Determined that DHCS’ required annual medical audits do not affect health plan rate adjustments. Therefore, we interviewed DHCS staff and reviewed relevant federal laws and documents to determine what type of payment adjustments DHCS is responsible for making. Evaluated DHCS’ effectiveness and timeliness in recouping excess funds it provided to the health plans resulting from implementation of the Affordable Care Act and repaying them to CMS. Reviewed DHCS’ calculations for one health plan’s total recoupment amount to ensure that it adhered to CMS’ approved calculation methodology.
3	Identify and evaluate the results of actions taken by DHCS in the most recent two or three years to improve the quality of health care services delivered by San Joaquin and similar health plans, including any changes to Medi‑Cal payments.	Identified health plans DHCS considered to be similar to San Joaquin. Selected three similar health plans—Anthem, Health Net, and Molina—in addition to San Joaquin that were on quality CAPs between 2014 and 2017. We identified actions taken by DHCS to improve the quality of health care services delivered by these health plans. Interviewed DHCS staff to determine whether it lowers Medi‑Cal payments to health plans to improve health care quality. DHCS stated that it could not lower health plan payments due to poor performance because the rates it pays health plans are already as low as the law allows. Using relevant data on health plans’ performance in meeting or exceeding the MPLs for DHCS’ established quality indicators, evaluated the performance trends of the health plans between 2013 and 2017 overall and specifically in the areas of diabetes, postpartum care, and monitoring persistent medications to assess the results of DHCS’ actions to improve quality.
4	Identify steps DHCS has taken to ensure that the quality of care by San Joaquin and similar health plans meets key state and federal standards, including, but not limited to, standards in the area of postpartum care and diabetes treatments.	Evaluated the actions DHCS took between 2013 and 2017 to ensure that the four health plans that were on quality CAPs met key state and federal quality of care requirements. For example, for these four health plans, we assessed DHCS’ adherence to its policies and procedures for its two primary oversight methods—quality CAPs and audit CAPs—to help ensure that health plans’ quality of care meets key state and federal requirements.
5	Determine whether DHCS provides sufficient management and oversight of San Joaquin and similar health plans, including, but not limited to, oversight of administrative costs and bonuses paid to employees.	Interviewed DHCS staff to determine whether it evaluates health plans’ administrative expenses and employee bonuses to ensure that they are reasonable and necessary. Also, we determined whether DHCS provides guidance to health plans regarding what administrative expenses are reasonable and necessary.
6	Evaluate whether DHCS’ oversight ensures that San Joaquin and similar health plans have sufficient controls in place to detect and prevent waste, abuse, mismanagement, and conflicts of interest.	Reviewed DHCS’ contracts with health plans to assess whether they require health plans to implement processes to detect and prevent waste, abuse, mismanagement, and conflicts of interest. Interviewed DHCS staff and reviewed its annual medical audit policies and procedures to assess whether DHCS oversees health plans’ processes to prevent and detect waste, abuse, mismanagement, and conflicts of interest. Reviewed the annual medical audits DHCS completed of Kern, San Joaquin, and Santa Clara between 2016 and 2018 to determine whether DHCS sufficiently evaluated whether the health plans had processes in place to prevent fraud, waste, and abuse.
7	To the extent possible, determine whether DHCS’ administrative costs, including its employee bonuses, are appropriate and allowable under Medi‑Cal funding conditions.	For San Joaquin and two similar health plans we reviewed that were not on quality CAPs—Kern and Santa Clara—we used their financial information to determine whether their total administrative expenses were within 15 percent of the total Medi‑Cal funds they received as state regulations generally require. Further, we reviewed a selection of administrative expenses the health plans made from 2015 through 2018 to identify whether they were reasonable and necessary. We also reviewed their bonus programs to determine whether they were reasonable and whether the health plans paid bonuses in compliance with their policies. For a judgmental selection of 20 contracts, we reviewed documentation to determine whether San Joaquin followed its contracting policies. We did not identify any reportable issues.
8	Review and assess any other issues that are significant to the audit.	We did not identify any other significant issues.

Source: Analysis of the Audit Committee’s audit request number 2018‑115, as well as information and documentation identified in the column titled Method.