Report 97105 Summary - September 1997

Department of Health Services: The Genetics Disease Branch's Fee Setting, Billing, and Collection Processes Need Improvement, and Its Regulations Do Not Warrant Emergency Status

Results in Brief

The Department of Health Services' Genetic Disease Branch (branch), which provides a valuable public service by screening for genetic disorders, has displayed serious weaknesses in the methods it uses to establish fees for its prenatal and newborn screening programs. The branch also uses faulty procedures to bill and collect fees from patients who take prenatal tests. In fact, because fees have significantly exceeded costs for the prenatal testing program, the public may be paying more than necessary for program services. In addition, the branch has written-off $9.7 million in prenatal testing fees since 1993, and it may not be able to collect from patients an additional $6.5 million. Finally, branch regulations adopted by the Department of Health Services (DHS) no longer need emergency status because most involve administrative changes and do not address emergencies.

Under the department's direction, the branch offers to California residents various genetic services, including those furnished by its prenatal and newborn screening programs. For a single fee for each patient, the programs screen pregnant women and newborn babies to detect genetic disorders and then provides follow-up counseling and diagnostic services when necessary.

Focusing on the structure and administration of these two programs, our review revealed the following shortcomings at the branch:

· During fiscal year 1995-96, the branch charged fees that exceeded costs by 13 and 12 percent for the prenatal and newborn testing programs, respectively. Some excess fees resulted from branch assumptions that did not materialize.

· Because it has an ineffective process for billing and collecting prenatal testing fees from patients, the branch has written off $9.7 million in uncollectable fees since July 1993, and it may soon add an additional $6.5 million to this figure.

· Branch staff were unaware that they had not billed the California Medical Assistance Program (Medi-Cal) $1.1 million for prenatal tests provided between July and November 1995, and these fees may now be uncollectable. Even if Medi-Cal pays the fees, the branch has lost an estimated $65,000 in interest earnings.

· Because it returns overpayments only when requested, the branch is holding approximately $775,000 in overpaid fees for prenatal screening tests.

· The branch generally complies with state laws and regulations on contracting, but it has not always followed good business practices. From 1990-1996, the branch did not seek competitive bids for the laboratory testing contracts that it awarded.

Besides examining fees and contracting at the branch, we assessed whether the department uses its emergency regulatory powers appropriately when it adopts branch regulations. Our analysis showed that the department's emergency regulatory authority is unnecessary. Even though the Health and Safety Code designates as emergencies all branch regulations affecting the prenatal and newborn screening programs, many branch regulations that the department has adopted concern administrative issues rather than true emergencies. Also, the Administrative Procedures Act enables the department to adopt emergency regulations when emergencies arise.

Further, the department has not benefited from oversight by the Office of Administrative Law (office), which makes certain that agencies complete the regulatory process promptly and also repeals regulations when necessary. Because the Health and Safety Code exempts from repeal any regulations governing the newborn and prenatal screening programs, the department could misuse its regulatory powers.

Without supervision by the office, the department in one instance failed to complete the regulatory process on time. The department also violated the Administrative Procedures Act by increasing fees for both programs and modifying its prenatal screening tests without first adopting regulations to authorize these changes.


To improve its fee setting, billing, and collection processes for the prenatal and newborn screening programs, the branch needs to do the following:

· Establish procedures for monitoring and analyzing separately the revenues and costs for each program.

· Examine fees for each program at least once a year and then adjust patient fees if the difference between costs and fees is significant.

· Reduce prenatal fees so that they more closely reflect the costs of the program.

· Offer each prenatal screening patient various ways to make payments. The branch should also require the patient to select a payment option and to make a payment at the time of testing.

· Bill more health plans directly for prenatal testing fees.

· Include on patient invoices language that highlights overdue balances, and continue to bill patients who fail to pay.

· Establish a process for attaching a patient's tax refund for the amount due if the patient does not pay her bill for the prenatal screening test.

· Continue trying to obtain the $1.1 million in prenatal fees due from Medi-Cal.

· Develop procedures to refund the overpayments of prenatal testing fees that it currently holds, and promptly refund any overpayments it receives in the future.

Further, the branch needs to ensure that it receives the highest-quality services at the most reasonable prices and makes the best use of public resources. To achieve these goals, the branch should continue to use a competitive bidding process to award contracts for laboratory testing services.

Finally, to make certain that the department adopts emergency regulations only when necessary and that it complies with the Administrative Procedures Act, the following changes need to occur:

· The Legislature should remove language from the Health and Safety Code that designates as emergencies all regulations related to the prenatal and newborn screening programs.

· The Legislature should also delete language in the Health and Safety Code that requires the department to file branch regulations directly with the Secretary of State and that exempts the regulations from possible repeal by the Office of Administrative Law.

· Before implementing program changes, the department should comply with the Administrative Procedures Act by adopting regulations that cover those changes.

Agency Comments

In its response, the department provides additional information regarding the branch's fee setting and collection efforts. Although it generally concurs with our recommendations, it does not agree that the Office of Administrative Law should review branch regulations.