Report 98026 Summary - April 1999

Department of Health Services: Use of Its Port of Entry Fraud Detection Programs Is No Longer Justified


The Department of Health Services' (department) operation of its port of entry Medi-Cal fraud detection programs-Port of Entry Detection (PED) and California Airport Residency Review (CARR)-is no longer justified. In response to lawsuits filed against the department and to concerns expressed by the U.S. Department of Health and Human Services (HHS) about the operation of the programs, the department recently modified its procedures for the port of entry programs. However, the modifications significantly diminished the effectiveness of the PED and CARR programs. Consequently, the department is no longer recovering enough fraudulent Medi-Cal payments to justify its investment of funds to staff and support these programs. If the department redirected its funds to other fraud detection programs that more effectively prevent or recover fraudulent payments, the State and the Medi-Cal program would be better served.

As part of its efforts to prevent fraud among Medi-Cal beneficiaries, the department has established various fraud detection programs. The port of entry fraud detection programs are intended to identify persons entering this country who fraudulently claim California residency in order to receive Medi-Cal benefits. The programs target people who enter the United States from Mexico and through the Los Angeles and San Francisco International airports. The department measures the success of the PED and CARR programs in two ways: by the funds repaid to the Medi-Cal program by past beneficiaries who are found to be ineligible, and by the future costs the Medi-Cal program will not incur for such persons, or costs avoided. The department compares these returns to the costs associated with the PED and CARR programs to determine the return on its investment.

The port of entry fraud detection programs ran into problems when plaintiffs in three separate lawsuits challenged the department on how it detained, interviewed, and investigated those persons entering the United States whom it suspected of residency fraud. In addition, the federal Health Care Financing Administration (HCFA), a division within the HHS, communicated its own concerns about the way the department operated the programs. The department responded by modifying its operation of the PED and CARR programs beginning in May 1998. For example, it no longer seeks repayment from people it suspects of residency fraud until it completes a thorough investigation of their Medi-Cal eligibility.

Despite modifications, ongoing operations of the PED and CARR programs continue to raise concerns over legal vulnerabilities, program design, and administrative oversight. For example, the department discloses confidential information about public assistance benefits to the federal Immigration and Naturalization Service (INS), although such disclosure is not warranted. HHS, which oversees Medicaid programs such as Medi-Cal, shares our concern over the department's disclosure. In addition, when questioned by PED investigators, illegal residents may misrepresent themselves as residing outside of California in the hope of improving their chances to legally immigrate. Thus, PED interviews do not always provide reliable information and should not be used to solely determine beneficiary status.

Furthermore, since the department modified its operations of the programs, they are not as effective, nor do they produce as favorable a return on the department's investment as in prior years. For example, the CARR program averaged only 89 referrals per month in the 8 months following the changes in April 1998. In the 22-month period prior to the changes, it averaged 234 referrals per month. A similar decline is evident in the department's return on its investment in the programs. In fiscal year 1996-97, the department reported that these programs returned about $6 for every $1 invested in staffing and supporting the programs. However, during the 18 months between July 1, 1997, and December 31, 1998, the return on investment for the PED program dropped to $2.31 for every $1 invested while the return for the CARR program plummeted to 44 cents for every $1 invested. For this reason, the Medi-Cal program would be better served if the department redirected its investment in these two programs to other fraud detection programs, which can return as much as $11 per $1 invested.


Because of the department's poor administration of its port of entry fraud detection programs, and since the programs no longer provide a favorable return on the State's investment, the department should discontinue them. The department should then redirect its investment to other fraud detection programs that produce more favorable returns.

Until the department can discontinue its operation of the port of entry fraud detection programs, it should prohibit the disclosure to INS of confidential information regarding public assistance benefits unless it gains assurance that such disclosures meet federal requirements.


The Health and Human Services Agency (agency) agreed that the cost-effectiveness of the PED and CARR programs has declined and agreed that the staff and resources associated with the programs should be redirected to other fraud detection programs. Accordingly, the agency stated that it would cease the PED and CARR operations effective April 1, 1999. In addition, the agency suggested several wording changes to the draft report. We have accepted most of the agency's suggestions in developing our final report.