Report 2003-124 Summary - August 2004

Department of Health Services


Some of Its Policies and Practices Result in Higher State Costs for the Medical Therapy Program


Our review of the Department of Health Services' (department) Medical Therapy Program (MTP) revealed the following:


The Department of Health Services (department) administers the Medical Therapy Program (MTP) to provide medically necessary occupational and physical therapy services to children up to 21 years old. Children eligible for MTP services are afflicted with severe medical conditions such as cerebral palsy, neuromuscular conditions, and chronic musculoskeletal and connective tissue diseases. During fiscal year 2002-03, more than 26,600 children were receiving MTP services statewide at a total cost of $69.1 million. Children receive MTP services in public schools and are treated by physical and occupational therapists. Counties hire and pay the therapists and obtain reimbursement from the department for half these costs on a quarterly basis. State law requires the department and counties to share equally in the costs of the MTP. Reimbursements from the State's Medicaid program, the California Medical Assistance Program (Medi-Cal), and the Healthy Families Program (Healthy Families) provide federal funding and help pay for MTP services, reducing the burden on both the State and counties to share the total cost of the MTP.

We found that the department's policies have resulted in the State incurring higher costs for the MTP than do the counties. In fiscal year 2002-03, the State spent $4.6 million more than state law specifically authorizes to support the MTP, primarily because of the following department policies and practices:

Further, in July 2003, the department changed its method for sharing Medi-Cal revenue with the counties that we estimate will result in the State paying $2 million more annually for the MTP than specifically authorized by state law.

We also noted that more than half the MTP claims that Electronic Data Systems Federal Corporation (EDS) denied for Medi-Cal payment in the seven-quarter period we reviewed resulted from children being ineligible for Medi-Cal. In particular, EDS—the department's Medi-Cal federal fiscal intermediary—denied more than 425,700 MTP claims from July 2002 through March 2004 because the children were either never enrolled in Medi-Cal or not eligible for coverage during the period of service. Under California law, there is no financial eligibility requirement to qualify for MTP services. As a result, children that properly meet medical and residential requirements can participate in the MTP regardless of how much income the child or family earns. However, the child or family must meet certain financial eligibility requirements to qualify for Medi-Cal. Thus, some children receiving MTP services may not meet the income requirements to qualify for Medi-Cal. In addition, even if children enrolled in MTP or their families meet Medi-Cal's financial eligibility requirements, they are not required to enroll in Medi-Cal. The department requires counties to submit all MTP claims through the Medi-Cal claims-processing system, regardless of a child's Medi-Cal eligibility, so it can gather statistical data. Therefore, it is reasonable to expect that some MTP claims will be denied because the children are not eligible for Medi-Cal.

Until recently, one barrier to obtaining Medi-Cal reimbursement for MTP claims had been the department's policy regarding Medi-Cal claims submitted before other health care insurers had been billed. According to state and federal statutes, Medi-Cal is the payer of last resort, paying claims only after any other available health care insurer has been tapped. According to data provided by EDS, a significant number of MTP claims were denied because other health care insurers were not billed first. These denied claims, numbering more than 134,400, amounted to between $883,000 and $4.7 million from July 2002 through March 2004, based on the lowest and highest reimbursement rate for physical and occupational therapy procedures. However, the department concluded that most children receive MTP services in a special education setting. Under federal law, children in special education are entitled to a free and appropriate education, which precludes the department from billing other health care insurers for MTP services received in conjunction with special education. In addition, the department recognized that denying Medi-Cal payment of these MTP claims was resulting in a failure to maximize federal funding. Consequently, the department revised its Medi-Cal payment policy in March 2004 to allow Medi-Cal to pay all MTP claims without requiring that other health care insurers be billed first. However, the department applied this policy change too broadly, without obtaining federal approval, because some of the children in the MTP are not in special education. For claims related to these children, the department should still be ensuring that other available health care insurers are billed before allowing Medi-Cal to pay. The department acknowledges that it has not obtained federal approval for its current practice, asserting that the federal government had denied a similar request in the past and told the department that it was too busy to respond to such requests.

Another barrier to obtaining Medi-Cal reimbursement for MTP services relates to limits on the number of times Medi-Cal will pay for certain therapy procedures. According to data provided by EDS, more than 42,500 MTP claims, equaling 6 percent of claims denied for Medi-Cal payment from July 2002 through March 2004, were denied because the services billed exceeded the Medi-Cal frequency limits established by the department. We estimate that the value of these denied claims was between $280,000 and $1.5 million. Although the current frequency limits may be appropriate for the general Medi-Cal population, the department admits that the limits may not be appropriate for children receiving MTP services. Similarly, all four counties we visited indicated that Medi-Cal's current frequency limits on therapy procedures are overly restrictive.

Our review also revealed that most counties we visited took reasonable steps to follow up on MTP claims that were denied for Medi-Cal payment for reasons the counties may be able to control. From July 2002 through March 2004, EDS denied more than 45,000 MTP claims because of errors the counties could apparently correct, such as completing claims incorrectly or not attaching necessary documentation. Three of the four counties we visited took reasonable steps to review, correct, and resubmit claims that had apparently correctable problems. However, Los Angeles County did not follow up on any individual MTP claims that EDS denied for Medi-Cal payment during the period we reviewed. To the extent that it could have corrected and resubmitted some of these claims, Los Angeles County missed an opportunity to maximize Medi-Cal payments for MTP services and to reduce state and county costs for the program. Los Angeles County, which provided services to approximately 29 percent of the MTP caseload statewide, according to caseload data the counties reported for fiscal year 2002-03, may have missed out on between $58,000 and $307,000 in Medi-Cal payments because it did not attempt to correct and resubmit roughly 8,800 MTP claims that were denied for errors the county might have been able to correct or prevent.

Finally, recent claims data cast doubt on whether payments from the Healthy Families Program (Healthy Families) will significantly reduce MTP costs in the future. According to EDS data for fiscal year 2003-04, Medi-Cal paid about $24,000 in MTP claims for services provided to children enrolled in Healthy Families—a state insurance program that covers children from low-income families. Although $24,000 is a small amount compared with the $69.1 million in total costs for the MTP in fiscal year 2002-03, the department plans to bill Healthy Families for these costs to reimburse the amount Medi-Cal has already paid and to take advantage of the higher federal financial participation under Healthy Families, which is 65 percent instead of 50 percent under Medi-Cal. Although the department's lack of eligibility information on children enrolled in both the MTP and Healthy Families limits any assessment on billing effectiveness, the relatively low dollar value of Healthy Families claims in fiscal year 2003-04 calls into question whether Healthy Families payments for MTP services will significantly reduce MTP costs in the future.


To ensure that the State minimizes its costs and pays only what is statutorily required for providing MTP services, the department should do the following:

To ensure that Medi-Cal appropriately pays MTP claims to the fullest extent possible, the department should do the following:

To maximize Medi-Cal payments for MTP services, Los Angeles County and any other counties that do not review MTP claims denied for Medi-Cal payment should attempt to correct and resubmit denied MTP claims when it is cost-effective to do so.


The department agrees with some of our findings and recommendations. However, it has significant concerns with our findings and recommendations related to its policy of fully funding certain county positions and its method for sharing Medi-Cal payments with counties. The department's response and our clarifying comments follow the Appendix. Los Angeles County concurs with the recommendation we directed to it.