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Department of Health Care Services
It Paid Billions in Questionable Medi-Cal Premiums and Claims Because It Failed to Follow Up on Eligibility Discrepancies

Report Number: 2018-603



The federal Medicaid program provides funds to states to pay for the medical treatment for a variety of groups, including the aged, disabled, and people with low income. The State of California participates in the federal Medicaid program through its California Medical Assistance Program, known as Medi‑Cal. Overseen by the Department of Health Care Services (Health Care Services), the program provides a safety net of health care services, such as hospitalization, preventive care, pregnancy services, emergency care, dental care, and mental health and substance abuse treatment. Medi‑Cal provides these and other services as the payer of last resort for families with low income.

The transition of children previously covered by the state Healthy Families Program to Medi‑Cal in 2013 and the enactment of the federal Patient Protection and Affordable Care Act (Affordable Care Act), which allowed California to expand eligibility to previously ineligible adults in 2014, were largely responsible for the expansion of Medi‑Cal shown in Figure 2. As a result of these programs, the number of California residents enrolled in Medi‑Cal increased from 8.6 million in December 2013 to 13.3 million in December 2017, a 55 percent increase. Although the number of enrolled beneficiaries stabilized in 2016, the current population of Medi‑Cal beneficiaries now represents nearly one‑third of the State’s total population and half of the State’s youth.

Figure 2
The Number of Enrolled Medi‑Cal Beneficiaries Increased Rapidly but Then Stabilized
January 2013 Through January 2018

Figure 2 is a line graph showing the number of enrolled Medi-Cal beneficiaries from January 2013 through January 2018.

Source: Health Care Services’ Medi‑Cal Management Information System/Decision Support System (MIS/DSS) data warehouse and Research and Analytics Studies Division.

Managed Care and Fee‑for‑Service Models

Medi‑Cal benefits come in two forms: fee for service and managed care. Under fee for service, medical providers bill Health Care Services directly for approved services they provide to a Medi‑Cal beneficiary. In managed care, Health Care Services pays a managed care plan a monthly capitation payment (premium) to provide eligible services needed for a Medi‑Cal beneficiary’s health care. Health Care Services states that managed care is a cost‑effective system that emphasizes primary and preventive care. Over the last five years, the number of beneficiaries who are on managed care plans has increased, while the number of beneficiaries in the fee‑for‑service model has decreased slightly, as Figure 3 shows. The increase in the use of managed care plans is a result of Health Care Services’ focus on shifting patients from fee for service to managed care plans as well as pushing to expand the managed care option to all California counties.

Figure 3
The Number of Beneficiaries in Managed Care Increased While Fee For Service Decreased
January 2013 Through January 2018

Figure 3 is a dual line graph showing the rising number of beneficiaries in managed care in contrast to those with fee-for-service.

Source: Health Care Services’ MIS/DSS data warehouse; reports from Health Care Services and the Center for Medicaid and CHIP Services.

State Spending on Medi‑Cal

More than $19 billion of the $107 billion budget for Medi‑Cal in fiscal year 2017–18 came from the State’s General Fund, representing nearly 16 percent of that fund’s total budget. Further, it is likely that the amount California spends on Medi‑Cal will increase in the future. The federal government, which pays for the majority of the Medi‑Cal program, began reducing the share of funding it provides for newly eligible beneficiaries at the beginning of 2017. The 2017 decrease brought the federal government’s share of the costs of certain health care services for newly eligible Medi‑Cal beneficiaries down from 100 percent to 95 percent. This share will further decrease to 90 percent in 2020 and will remain at that level thereafter, driving up the State’s share of the cost. The Legislative Analyst’s Office estimates that by fiscal year 2020–21, the additional cost to the State’s General Fund for newly eligible beneficiaries will be around $1 billion a year.

Health Care Services and County Medi‑Cal Responsibilities

Health Care Services is the single state agency responsible for administering Medi‑Cal. State law authorizes the agency to supervise every phase of the administration of health care services and medical assistance for which grants are received from the federal or state government. Although Health Care Services has overall responsibility for Medi‑Cal, state law identifies each county’s welfare department as the agency responsible for administering Medi‑Cal in its county. Figure 4 shows that counties perform critical aspects of Medi‑Cal, such as processing applications for benefits and determining eligibility. In fiscal year 2017–18, Health Care Services paid counties $2.3 billion for the local administration of Medi‑Cal eligibility.

Figure 4
Medi-Cal Beneficiary Information Flows Between Counties and Health Care Services

Figure 4 is a flow chart showing the process through which a Medi-Cal applicant’s eligibility information flows from the county to the State and then back to the county for resolving any identified issues.

Source: Analysis of Covered California’s website, MEDS, MEDS Network User Manual, and the U.S. Department of Health and Human Services’ Office of the Inspector General’s February 2018 Report A-09-16-02023.

* If an individual applies for Medi-Cal through another entity such as Covered California, the individual’s eligibility may be determined before the information flows into the county’s system, where county workers are responsible for verifying the results of the eligibility determination.

While counties generally make the Medi‑Cal eligibility determination for beneficiaries, in a number of circumstances other entities can assign individuals temporary benefits or make the eligibility determination. For example, state law requires Health Care Services to provide temporary Medi‑Cal coverage to children who are enrolled into Medi‑Cal by qualified physicians, certain community clinics, or other entities. Additionally, if the federal Social Security Administration determines that an individual is eligible for Supplemental Security Income/State Supplementary Payment (SSI/SSP), the individual is also eligible for Medi‑Cal.

Health Care Services is responsible for providing guidance as well as oversight to the counties on their administration of Medi‑Cal. This oversight comes, in part, through automated alerts and reports from Health Care Services to each county as indicated in Figure 4. These notifications flag mismatches between the counties’ electronic beneficiary records and those of the State. Each county uses one of three different electronic systems for its beneficiary records, referred to collectively as the Statewide Automated Welfare System (SAWS).

Process for Resolving Inconsistencies Between Health Care Services and the County Systems

As the state entity responsible for overseeing Medi‑Cal, Health Care Services has relied on automated alerts and reports sent to the counties to ensure that both counties and the State have accurate information regarding each Medi‑Cal beneficiary. Counties receive alerts when an automated process at Health Care Services, which compares information in its Medi‑Cal Eligibility Data System (MEDS) to information in SAWS, identifies discrepancies between the systems. In addition to the automated alerts, Health Care Services provides counties with automated reports that summarize all the cases with eligibility discrepancies between the county and state systems. Health Care Services provides guidance to the counties stating that they should use these alerts and reports to resolve the identified eligibility issues. When a discrepancy exists, Health Care Services considers MEDS to be the system of record for a beneficiary’s eligibility status, and it makes all payments based on the information in MEDS. Thus, unresolved system mismatches can cause the State to pay for benefits for an individual the county has determined to be ineligible.

Health Care Services’ Status as a High‑Risk Agency

The California State Auditor’s Office (State Auditor) has identified Health Care Services as an agency with high‑risk characteristics since September 2013 because of a variety of concerns, including the fact that it has not addressed recommendations related to our concerns with MEDS. In January 2018, we continued to designate Health Care Services as high risk. As part of that assessment, we found 83,000 beneficiaries receiving federal aid for the full scope of Medi‑Cal services as of June 2017 whose eligibility was in question because their Social Security numbers had been unverified for more than 12 months—and an additional 10,000 beneficiaries with similar aid in June 2017 who had statuses that likely disqualified them from receiving such aid. In planning this audit, we had intended to understand the extent and impact of our concern that Health Care Services is not verifying some eligibility qualifications for Medi‑Cal beneficiaries, such as a beneficiary’s Social Security number.

However, during our initial planning for the audit, we found beneficiaries whose eligibility statuses were inconsistent between the state and county systems. Specifically, we reviewed the eligibility of 60 beneficiaries in Los Angeles, Sacramento, and Stanislaus counties and found that four of the 60 beneficiaries were ineligible according to the county system and yet eligible according to Health Care Services’ data. Meanwhile, in February 2018 the U.S. Department of Health and Human Services’ Office of the Inspector General (federal Inspector General) issued an audit report that echoed our concerns that Health Care Services had made Medicaid payments on behalf of beneficiaries who did not meet federal and state eligibility requirements. Further, the federal Inspector General revealed that for the time period covered by its review, California did not have the system functionality to retrieve and use certain federal information to determine a beneficiary’s eligibility for the full scope of Medicaid services. To avoid duplicating the work of the federal Inspector General, we focused our efforts on the inconsistencies between county and state systems rather than other eligibility problems.

Scope and Methodology

State law authorizes the State Auditor to establish a program to audit and issue reports with recommendations to improve any state agency or statewide issue that the State Auditor identifies as being at high risk for the potential of waste, fraud, abuse, and mismanagement or that has major challenges associated with its economy, efficiency, or effectiveness. State law also authorizes the State Auditor to require state agencies identified as high risk, or as responsible for all or a portion of a statewide issue identified as high risk, to periodically report to the State Auditor on the status of these recommendations for improvement.

In January 2018, the State Auditor issued its latest assessment of high‑risk issues that the State and selected agencies face. Because we continue to include Health Care Services as a high‑risk agency, we performed this audit of Health Care Services’ beneficiary eligibility system. We list the audit objectives we developed and the methods we used to address them in Table 1.

Table 1
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. We reviewed relevant laws, rules, regulations, and other background materials.
2 Determine Health Care Services’ role and responsibilities related to determining Medi‑Cal eligibility. We interviewed key staff at Health Care Services and at Los Angeles, Sacramento, and Stanislaus counties. We obtained and reviewed internal policies and procedures of these entities to gain an understanding of their role and responsibilities in determining Medi-Cal eligibility.
3 Assess Health Care Services’ performance of its responsibilities related to Medi-Cal eligibility by identifying the internal controls established by Health Care Services to prevent fraud, waste, and abuse, and by testing these internal controls using a selection of Medi-Cal beneficiaries.
  • We interviewed Health Care Services and county staff and reviewed applicable documentation to identify their key internal controls over the Medi-Cal eligibility verification process.
  • We obtained and reviewed documentation from Health Care Services that shows the criteria that MEDS uses to flag beneficiaries for follow‑up.
  • We reviewed 20 cases at each of the three counties we visited—Los Angeles, Sacramento, and Stanislaus. We selected our cases from a population of beneficiaries whose Social Security numbers were unverified for more than 12 months, a population of beneficiaries without a Social Security number, and a population of potentially ineligible beneficiaries. We identified several instances of data mismatches between the counties’ systems and MEDS as of June 2017.
  • As Appendix B details, we electronically compared Medi-Cal beneficiaries’ eligibility information in MEDS to the information in county eligibility systems to identify cases in MEDS that did not match the county records. We focused our comparison on Medi-Cal beneficiary records that had a data mismatch in December 2017. We then used Health Care Services’ payment data to identify claims and payments associated with these mismatched cases.

Source: Analysis of the information and documentation identified in the column titled Method.

Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, and recommendations. In performing this audit, we obtained Health Care Services’ and the counties’ beneficiary eligibility data. To evaluate these data, we performed electronic testing of the data, reviewed existing information about the data and systems, and interviewed agency officials knowledgeable about the data. We found the data to be sufficiently reliable for determining whom Health Care Services and the counties identified as eligible to receive Medi‑Cal benefits. However, we did not evaluate the accuracy of these eligibility determinations.

Additionally, we obtained Health Care Services’ Medi‑Cal payment data. To evaluate these data, we performed electronic testing of the data, reviewed existing information about the data and systems, and interviewed agency officials knowledgeable about the data. However, we were unable to account for adjustments to the payments because Health Care Services does not track all adjustments at the beneficiary level. Therefore, we found the data to be of undetermined reliability for the purpose of identifying how much Health Care Services paid in Medi‑Cal premiums and claims. Although this determination may affect the precision of the dollar amounts we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.

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