Report 2003-112 Summary - December 2003

Department of Health Services


It Needs to Better Plan and Coordinate Its Medi-Cal Antifraud Activities


Our review of the Department of Health Services' (Health Services) activities to identify and reduce provider fraud in the California Medical Assistance Program (Medi-Cal) revealed the following:


The Department of Health Services (Health Services) administers the State's Medicaid program, the California Medical Assistance Program (Medi-Cal). Medicaid is a federal program, funded and administered through a state and federal partnership, to benefit certain low-income people who lack health insurance. Medi-Cal provides health coverage for eligible beneficiaries in California through either a managed care plan or a fee-for-service program. As of April 2003, about 50.3 percent of the 6.4 million Medi-Cal beneficiaries were participating in a managed care plan, and about 49.7 percent were enrolled in the fee-for-service program.

The principal funding sources for Medi-Cal are the State's General Fund and matching federal funds. For fiscal year 2002-03, the General Fund paid in excess of $10 billion of the more than $28 billion in Medi-Cal program expenditures.

Fraud, abuse, and improper payments in the federal government's Medicaid program have received much attention in recent years. Academics and government officials have written about the size and nature of fraud and abuse in the program and recommended strategies for controlling the problem. Although Health Services has for many years operated programs to combat beneficiary fraud, before 1999 it dedicated little effort to identifying and preventing provider fraud. Over the last four years, however, Health Services has received budget augmentations and added more than 250 staff for activities related to Medi-Cal provider fraud. Some of the key Health Services units involved in antifraud activities aimed at Medi-Cal's fee-for-service providers include the enrollment branch, the medical review branch, the investigations branch, and the Medi-Cal fraud prevention bureau.

Many of the concerns we discuss in this report point to the lack of certain components of a model fraud control strategy to guide the various antifraud efforts for the Medi-Cal program. Health Services and several external entities conduct numerous fraud prevention, detection, and enforcement activities. However, Health Services has not yet developed a complete strategy that coordinates these antifraud activities to ensure that they are performed effectively. Moreover, Health Services has not yet comprehensively assessed the amount or nature of improper payments occurring in the Medi-Cal program, nor has it systematically evaluated the effectiveness of its existing antifraud efforts. Without this information, Health Services cannot know whether it is overinvesting or underinvesting in its antifraud efforts, or whether it is allocating resources in the right areas.

Although Health Services performs a variety of ongoing fraud prevention and detection activities, its management practices within the antifraud activities we reviewed do not always ensure effective efforts. Specifically, at least three divisions and several branches within these divisions carry out each of these antifraud activities, ranging from screening providers before approving their enrollment in the Medi-Cal program to investigating and referring suspected cases of provider fraud to law enforcement agencies. However, because Health Services has not clearly communicated roles and responsibilities and has not adequately coordinated these antifraud activities, we observed some duplication of effort when processing provider applications and ineffective results in preventing the use of some provider numbers related to providers whose licenses were cancelled. Additionally, we observed that Health Services could achieve more effective results with its pre-checkwrite process. Further, an updated agreement could help it better coordinate its investigative efforts with the California Department of Justice (Justice). As a result, Health Services cannot assure that it is using existing resources effectively to control its Medi-Cal fraud problem.

Further, because Health Services lacks an antifraud clearinghouse to track and document information about current fraud issues, proposed solutions, and ongoing projects from all entities responsible for addressing Medi-Cal fraud and because no one individual or team has been assigned the responsibility and corresponding authority to ensure fraud control issues are addressed and recommendations promptly implemented, some well-known problems in the program, such as those discussed in this report, may go uncorrected.

Finally, fraud that is unique to managed care involves the unwarranted delay of, reduction in, or denial of care to beneficiaries by a managed care plan. However, because of incomplete survey results and its concerns about the reliability of encounter data, which are records of health care services provided, Health Services does not have sufficient information to identify managed care contractors who are not promptly providing needed health care. In addition, although Health Services is now in the process of measuring the level of improper payments in its administration of the Medi-Cal program, it does not require a similar assessment of its managed care plans, even though potential fraud in the managed care provider networks could affect the calculation of future rates for Medi-Cal's managed care plans.


Health Services should develop a complete strategy to address the Medi-Cal fraud problem. This includes adding missing components, such as an annual assessment of the extent of fraud in the Medi-Cal program; an outline of the roles, responsibilities, and coordination of the entities conducting antifraud activities; and a description of how it will measure the performance of its antifraud efforts in reducing fraud.

Health Services should improve the processing of provider applications, subject all individual Medi-Cal providers to the same screening requirements, and ensure that enrolled providers continue to be eligible to participate in the program.

Health Services should maximize the effectiveness of its pre-checkwrite process, consider working through the California Health and Human Services Agency to establish a clearinghouse to track antifraud issues and recommendations, and better monitor the potential fraud unique to managed care.

Health Services and Justice should complete negotiations of their updated agreement that could assist both in coordinating their respective roles and responsibilities for investigating, referring, and prosecuting cases of suspected Medi-Cal provider fraud.

The Legislature may wish to require Health Services and Justice to report the status of implementing their agreement during budget hearings.


Health Services agrees with the recommendations in our report and states that it is looking forward to working with the Health and Human Services Agency to improve the effectiveness of the Medi-Cal antifraud program.

Justice concurs with the recommendation in our report and indicates that it is working with Health Services to establish a memorandum of understanding that will serve to strengthen their partnership, thereby improving their effectiveness in combating Medi-Cal fraud.