Report 2009-112 Summary - May 2010

Department of Health Care Services: It Needs to Streamline Medi-Cal Treatment Authorizations and Respond to Authorization Requests Within Legal Time Limits

HIGHLIGHTS

Our review of the administration of the California Medical Assistance Program treatment authorization request (TAR) process, revealed that the Department of Health Care Services:

RESULTS IN BRIEF

The Department of Health Care Services (Health Care Services) is missing opportunities to streamline the provision of California Medical Assistance Program (Medi-Cal) services and improve its level of service. State law permits Health Care Services to require that providers receive its authorization before rendering certain services. Health Care Services instituted the treatment authorization request (TAR) process to monitor and control the provision of certain Medi-Cal services and drugs. It manually adjudicates all medical TARs even though it denied only 4 percent or fewer for categories representing 40 percent of all those reviewed in fiscal years 2007-08 and 2008-09. On the other hand, it has implemented an auto-adjudication process whereby drug TARs that meet specific criteria are approved automatically. Generally, these drugs have a historically high approval rate, have costs below a certain threshold, or Health Care Services assessed them to be of low financial risk. Health Care Services could improve its overall TAR process by establishing a similar auto-adjudication process, or removing the requirement for a TAR altogether, for medical services with low denial rates, low service costs, or high TAR administrative costs. This strategy would improve overall TAR processing times by allowing Health Care Services to reallocate its resources to higher-risk TARs.

Overall, Health Care Services' data indicates that the TAR process as a whole saves substantially more money in avoided paid claims to Medi-Cal providers than it costs to administer. There are compelling reasons for Health Care Services to perform a cost-benefit analysis of the segment of its TAR process associated with service categories with low denial rates, but it has not done so. Our analysis reveals that Health Care Services may have spent $14.5 million annually—40 percent of its total TAR-related expenditures—processing roughly 4 million medical TARs with denial rates of less than 4 percent in fiscal years 2007-08 and 2008-09. Consequently, the cost of processing this population of TARs is high. Health Care Services performed limited analyses that considered the costs and benefits of its TAR process. These analyses did not contemplate whether administrative costs to process TARs for service categories with low denial rates were greater than or equal to how much it saved, in the form of costs avoided by denying inappropriate services. In one analysis, Health Care Services estimated both the costs avoided and some of the administrative costs of denying TARs for hospital days. Health Care Services estimated that it paid providers approximately $2.5 billion in 2007 in claims for TARs for hospital days. The services costs for hospital days are very high, so we would expect that the benefits of requiring a TAR for hospital days would outweigh the costs of administering the TAR process. However, we believe a cost-benefit analysis of TARs for medical services with low service costs, low denial rates, or high TAR administrative costs would identify opportunities for Health Care Services to streamline the TAR process and improve its overall response times by redirecting its resources to more cost-beneficial TAR service categories.

Health Care Services' accounting system does not separately track expenditures related to its administration of the TAR process, so we were unable to determine precisely how much it spent on this process in fiscal years 2004-05 through 2008-09. However, we did calculate the total costs of those divisions involved in the TAR process over the five-year period and developed a methodology to estimate the expenditures of the three divisions responsible for processing TARs during fiscal years 2007-08 and 2008-09. The Medi-Cal Operations Division was responsible for processing TARs, among other functions, during the first three fiscal years, and its total TAR and non-TAR-related annual costs ranged from $61.6 million to $71 million. After the 2007 reorganization of the former Department of Health Services, the combined expenditures for the Utilization Management Division (Utilization Management) and our estimates for the expenditures related to TARs for the Systems of Care Division and Long-Term Care Division—the three divisions that currently process TARs—ranged from $35.9 million to $36.7 million in the last two fiscal years. These estimates do not include any TAR-related costs associated with Health Care Services' contract for TAR and claims processing.

We also found that Health Care Services is not processing drug TARs within legal time limits for prescriptions requiring prior approval. Federal and state law generally require that, when Health Care Services requires a prior authorization before a pharmacist may dispense a drug, it must respond within 24 hours of its receipt of the request for authorization. The TAR is the means by which Health Care Services conducts its prior-authorization process. Health Care Services took longer than 24 hours to respond to 84 percent of manually adjudicated drug TARs in fiscal year 2007-08 and 58 percent in fiscal year 2008-09. The chief of Utilization Management indicated that drug TAR processing times during this period were hampered by staffing shortages, a backlog of drug TARs, and system interruptions, such as disrupted network connections between its field offices. However, Health Care Services does not monitor its TAR processing times in such a way that it can accurately assess its compliance with legal time limits. Further, it has interpreted the 24-hour limit in law improperly to mean the next business day. Using this interpretation, Health Care Services could assert that it processes a TAR within the next business day even though it could take as long as 96 hours, depending on when the TAR was received.

Finally, Health Care Services does not specifically monitor its processing times for prior-authorization medical TARs despite acknowledging that state law requires that TARs submitted for medical services not yet rendered must be processed within an average of five working days. Although it has a reporting tool that allows it to monitor TAR processing times, it does not differentiate TARs requesting prior authorization to provide services from TARs requesting an authorization after services already have been provided.

RECOMMENDATIONS

To streamline the provision of Medi-Cal services and improve its level of service, Health Care Services should conduct cost-benefit analyses to identify opportunities to remove authorization requirements or to auto-adjudicate those medical services and drugs with low denial rates, low paid claims, or high TAR administrative costs.

To ensure that Medi-Cal recipients receive timely access to prescribed drugs, Health Care Services should abolish its policy of responding to drug TARs by the end of the next business day and should instead ensure that prior-authorization requests to dispense drugs are processed within the legally mandated 24-hour period. In addition, Health Care Services should begin recording the actual time it receives TARs through the mail or by fax, so that it can begin to measure accurately its processing times for these paper TARs. Alternatively, it should seek formal authorization from the Centers for Medicare and Medicaid Services (CMS) to deviate from the 24-hour requirement, and should seek a similar modification to state law.

To ensure that Medi-Cal recipients are receiving timely medical services from providers, Health Care Services should track prior-authorization medical TARs separately and should ensure that such TARs are processed within an average of five working days.

AGENCY COMMENTS

Health Care Services generally agrees with our recommendations and indicates that it will take various corrective actions. However, Health Care Services reiterates that CMS is aware of its "next business day" practice for adjudicating drug TARs, and it does not plan to seek a modification of state law regarding the 24-hour time frame at this time.