CSA
Summary
Read the report at California State Auditor ↗
Department of
Health Services:
Some of Its Policies and Practices Result
in Higher State Costs for the Medical
Therapy Program
August 2004
2003-124
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August 31, 2004 2003-124
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit report
concerning the Department of Health Services’ (department) Medical Therapy Program (MTP).
This report concludes that some of the department’s policies and practices result in higher state costs for the MTP.
During fiscal year 2002–03, the department expended $7.2 million from the State’s General Fund to fully support
certain county personnel associated with the MTP without the express statutory authority to do so. Under statute,
the department is required to share in MTP costs equally with the counties, which should have resulted in the
department expending only $3.6 million for these costs. Moreover, we noted that the department could further
reduce state costs by accurately identifying all revenue to the State’s Medicaid program, the California Medical
Assistance Program (Medi-Cal), and by using a greater proportion of this revenue to offset its costs. We estimate
that the State’s MTP costs could have been reduced by an additional $1 million during fiscal year 2002–03 based
on these Medi-Cal payments.
The audit also revealed that a majority of MTP claims are denied for Medi-Cal payment due to a child’s lack of
eligibility. In addition, the department improperly allows Medi-Cal to pay claims for services to MTP children who
are not in special education without requiring that their other health care insurers, if any, be billed first. Further,
the department’s limits on the number of times Medi-Cal will pay for certain therapy procedures are a barrier to
obtaining Medi-Cal reimbursement for MTP services and may be overly restrictive for children in the MTP. We
also found that most counties we visited took reasonable steps to follow up on MTP claims denied for Medi-Cal
payment. Finally, the relatively low dollar value of MTP claims in fiscal year 2003–04, payable by the Healthy
Families Program, casts doubt on whether these payments will significantly reduce MTP costs in the future.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
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CONTENTS
Summary 1
Introduction 7
Audit Results
The Department of Health Services’ Authority to Fully
Fund Certain County Costs Is Unclear, and Its Policies
Result in the State Paying More Than Specifically
Required for the Medical Therapy Program 15
The Department Has Not Adequately Reduced the
State’s MTP Costs Based on Medi-Cal Revenue
to the Program 20
More Than Half the MTP Claims Denied for
Medi-Cal Payment Resulted From Children
Lacking Medi-Cal Eligibility 29
The Department Applied an Overly Broad
Modification to Its Claims-Processing System That
Increased Medi-Cal Payments for MTP Services 30
Frequency Limits Imposed by the Medi-Cal Claims-
Processing System Are a Barrier to Increased Savings
to the State and Counties for the MTP 32
Most Counties We Reviewed Took Reasonable
Steps to Follow Up on MTP Claims Denied for
Medi-Cal Payment 34
Recent Claims Data Cast Doubt on Whether
Payments From the Healthy Families Program
Will Significantly Reduce MTP Costs 37
Recommendations 38
Appendix
Counties Submitted Many Claims for Medical
Therapy Program Services That Were Denied
Medi-Cal Payment for Various Reasons 41
Responses to the Audit
Department of Health Services 43
California State Auditor’s Comments on the
Response From the Department of Health Services 49
Los Angeles County Department of Health Services 53
California State Auditor Report 2003-124 11
SUMMARY
RESULTS IN BRIEF
The Department of Health Services (department) administers
the Medical Therapy Program (MTP) to provide medically
necessary occupational and physical therapy services to
Audit Highlights . . . children up to 21 years old. Children eligible for MTP services
are afflicted with severe medical conditions such as cerebral
Our review of the Department palsy, neuromuscular conditions, and chronic musculoskeletal
of Health Services’ and connective tissue diseases. During fiscal year 2002–03, more
(department) Medical
than 26,600 children were receiving MTP services statewide at
Therapy Program (MTP)
a total cost of $69.1 million. Children receive MTP services in
revealed the following:
public schools and are treated by physical and occupational
þ During fiscal year 2002–03
therapists. Counties hire and pay the therapists and obtain
the department spent
reimbursement from the department for half these costs on a
$4.6 million more than
state law specifically quarterly basis. State law requires the department and counties
authorizes because it: to share equally in the costs of the MTP. Reimbursements from
the State’s Medicaid program, the California Medical Assistance
• Fully funded certain
county positions without Program (Medi-Cal), and the Healthy Families Program
the express statutory (Healthy Families) provide federal funding and help pay for MTP
authority to do so.
services, reducing the burden on both the State and counties to
• Used a method for sharing
share the total cost of the MTP.
the State’s Medicaid
program, the California
Medical Assistance We found that the department’s policies have resulted in the
Program (Medi-Cal), State incurring higher costs for the MTP than do the counties. In
payments with counties
fiscal year 2002–03, the State spent $4.6 million more than state
that resulted in the
law specifically authorizes to support the MTP, primarily because
State incurring a
larger portion of MTP of the following department policies and practices:
costs than specifically
authorized in law.
• Full funding of the county positions responsible for coordinating
• Did not identify and
MTP services with services provided by special education
reap the State’s share
programs, using state funds without the express statutory
of Medi-Cal payments
made to certain counties authority to do so. This policy caused the State to incur
for MTP services. $3.6 million more in MTP costs than state law specifically
þ A majority of MTP claims authorizes. However, because counties use these funds to
are denied for Medi-Cal support their coordination activities with special education, any
payment due to a child’s change in this funding policy needs to be considered in light
lack of eligibility.
of the State’s responsibility under the federal Individuals with
Disabilities Education Act to maintain a level of funding for
special education and related services at least equal to the level of
continued on next page . . .
funding the State provided in the preceding fiscal year.
California State Auditor Report 2003-124 11
þ Lacking federal approval, • A method for sharing Medi-Cal payments with counties that
the department allows caused the State to incur approximately $774,000 more in
Medi-Cal to pay MTP claims
MTP costs than specifically authorized by state law.
without requiring that other
health care insurers, if any,
be billed first. • Failure to identify all Medi-Cal payments made to certain
counties that caused the State to incur approximately $254,000
þ Limits on the number of
more in MTP costs than specifically authorized by state law.
times Medi-Cal will pay for
certain therapy procedures
are a barrier to obtaining
Further, in July 2003, the department changed its method for
Medi-Cal reimbursement
for MTP services and may sharing Medi-Cal revenue with the counties that we estimate
be overly restrictive for will result in the State paying $2 million more annually for the
children in the MTP.
MTP than specifically authorized by state law.
þ Except for Los Angeles,
the counties we visited We also noted that more than half the MTP claims that Electronic
took reasonable steps to
Data Systems Federal Corporation (EDS) denied for Medi-Cal
follow up on and correct
payment in the seven-quarter period we reviewed resulted from
MTP claims denied for
Medi-Cal payment. children being ineligible for Medi-Cal. In particular, EDS— the
department’s Medi-Cal federal fiscal intermediary—denied more
þ The department identified
than 425,700 MTP claims from July 2002 through March 2004
approximately $24,000
in MTP claims for fiscal because the children were either never enrolled in Medi-Cal or not
year 2003–04 that are eligible for coverage during the period of service. Under California
covered by the Healthy
law, there is no financial eligibility requirement to qualify for
Families Program, calling
MTP services. As a result, children that properly meet medical and
into question whether this
program will significantly residential requirements can participate in the MTP regardless of
reduce MTP costs in the how much income the child or family earns. However, the child or
future.
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
22 California State Auditor Report 2003-124 California State Auditor Report 2003-124 33
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
22 California State Auditor Report 2003-124 California State Auditor Report 2003-124 33
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.
RECOMMENDATIONS
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:
• Seek specific statutory authority from the Legislature to fully
fund county personnel whose jobs include coordinating
the MTP with special education agencies as required by
Chapter 1747, Statutes of 1984 (AB 3632). Should the
44 California State Auditor Report 2003-124 California State Auditor Report 2003-124 55
Legislature decide to reduce the State’s current funding for
these activities, it should consider the implications of such
an action on the State’s responsibility under the federal
Individuals with Disabilities Education Act to maintain a
level of funding for special education and related services at
least equal to the level of funding the State provided in the
preceding fiscal year.
• Modify its current method for reducing the State’s costs for the
MTP to ensure that state costs are offset by the State’s full share
of all Medi-Cal payments counties receive for MTP services.
To ensure that Medi-Cal appropriately pays MTP claims to the
fullest extent possible, the department should do the following:
• Obtain federal approval to allow Medi-Cal to pay for
MTP services provided to children who are not in special
education without checking for the existence of other health
care coverage. Otherwise, the department should modify
the current Medi-Cal claims-processing system to ensure
that other available health care insurers are charged before
Medi-Cal pays for MTP services provided to children who are
not in special education.
• Evaluate whether the current limits Medi-Cal places on the
frequency of certain therapy procedures are appropriate for
MTP services. If the department determines that the Medi-Cal
frequency limits are inappropriate, it should seek approval to
modify these limits accordingly.
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.
AGENCY COMMENTS
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. n
44 California State Auditor Report 2003-124 California State Auditor Report 2003-124 55
Blank page inserted for reproduction purposes only.
66 California State Auditor Report 2003-124 California State Auditor Report 2003-124 77
INTRODUCTION
BACKGROUND
The Department of Health Services (department)
administers a broad range of public health programs
that serve the needs of Californians. The department’s
Children’s Medical Services Branch administers some of these
programs, including California Children’s Services (CCS).
Established to assist children with cerebral palsy in the public
schools, CCS provides diagnostic, treatment, and therapy
services to physically handicapped children 21 years old and
under. The therapy component of CCS, the Medical Therapy
Program (MTP), is conducted primarily in public schools and
provides medically necessary occupational and physical therapy
as well as physician consultations to children with conditions
such as cerebral palsy, neuromuscular conditions, and chronic
musculoskeletal and connective tissue diseases.
County personnel respond to referrals to the MTP, develop an
appropriate therapy plan for each child, and provide direct
therapy services in school-based Medical Therapy Units (therapy
units). Anyone—a parent, teacher, physician, or school nurse,
for instance—can refer a child to the MTP by contacting the
program in the child’s county of residence. The referral must
include the name of the child and his or her parent or
guardian, contact information, and the name of the referring
party. When the county MTP receives the referral, it attempts to
contact the parent, legal guardian, or the child, providing them
notification of the referral and a program application. A parent
or legal guardian of a minor child, or the prospective participant
if she or he is 18 or older, must submit a written application
and in some cases a release of information form to the county
to receive MTP services. On receiving the signed application
and necessary release forms, county personnel request pertinent
medical records to determine the child’s medical eligibility for
MTP services. County personnel also attempt to contact the
child’s family to determine the child’s residential eligibility.
Once the county has determined that the child meets the
medical and residential requirements for MTP services, a
medical therapy conference team, composed of therapists and
physicians, develops a comprehensive therapy plan that is based
on the child’s diagnosis and needs and is coordinated with the
child’s individualized education program. The findings and
66 California State Auditor Report 2003-124 California State Auditor Report 2003-124 77
recommendations of the physicians on the medical therapy
conference team are incorporated into the child’s therapy plan,
which includes information on the frequency, duration, and
objectives of the therapy.
Once the medical therapy conference team has approved the
therapy plan, the child can begin receiving MTP services from a
therapist at a therapy unit. Therapy units are located in public
schools throughout the State. A child who does not attend a
school with a therapy unit receives transportation to the nearest
therapy unit by a school bus or care provider.
Funding for the MTP Comes From Federal, State, and Local
Governments
The State and counties share in funding the MTP. By law, the
State is required to match county expenditures up to an amount
equal to one-half the counties’ actual expenditures from
fiscal year 1990–91. The State matches any additional county
expenditures over this amount on a dollar-for-dollar basis, to the
extent that funds are available from the State’s General Fund.
In 1992, the department began considering its ability to obtain
federal reimbursement for children who receive MTP services
and are covered by California’s medical assistance Medicaid
program (Medi-Cal). The department determined that to bill
Medi-Cal for MTP services, the therapy units would need to be
certified as rehabilitation centers in accordance with the State’s
federally approved Medicaid plan. In 1993, the department
began certifying therapy units, and by July 1994, it began billing
Medi-Cal for MTP services.
Medi-Cal is the State’s medical assistance program under
Title XIX of the Federal Social Security Act. Under Medi-Cal,
California receives federal matching funds to implement a single
comprehensive medical care program. In fiscal year 2002–03,
the MTP served more than 26,600 children statewide at a total
cost of $69.1 million. According to unaudited data from the
department and counties, Medi-Cal paid $7.9 million of this
total cost, and the federal government’s share was 50 percent, or
roughly $3.9 million, with the State paying the remainder.
In addition to Medi-Cal funding, California receives federal
matching funds for the State Children’s Health Insurance
Program under Title XXI of the Federal Social Security Act.
Known as the Healthy Families Program (Healthy Families)
in California, this insurance program provides coverage for
88 California State Auditor Report 2003-124 California State Auditor Report 2003-124 99
children aged one through 19 whose families’ incomes range
from 100 percent to 250 percent of the federal poverty level. In
fiscal year 2002–03, the federal portion of each payment from
Healthy Families was roughly 65 percent and the State’s portion
was 35 percent. The department told us that the Managed
Risk Medical Insurance Board, the State’s oversight agency for
Healthy Families, concurred with the department’s decision
to claim federal funds for MTP services provided to children
covered by Healthy Families. The department has identified
approximately $24,000 in MTP costs for fiscal year 2003–04 that
it plans to bill to Healthy Families.
Billing Medi-Cal and Healthy Families for Medical Therapy
Services Starts With the Counties
For each child receiving MTP services, the child’s therapist records
the type and duration of the services rendered on a Patient Therapy
Record, which serves as the basis for billing Medi-Cal and Healthy
Families. The mechanism for billing Medi-Cal and Healthy Families
is the same. The department requires counties to use the Patient
Therapy Record to prepare claims for all billable MTP services
and submit the claims to the department’s Medi-Cal federal fiscal
intermediary, Electronic Data Systems Federal Corporation (EDS).
Each claim EDS receives must include information about the
child receiving services, including name, birth date, gender, and
diagnosis, as well as the name and address of the therapy unit, a
description of the services, and the county authorizing the claim.
EDS enters all MTP claims into the California Medicaid
Management Information System—the Medi-Cal claims-
processing system—which subjects the claims to a series of
checks, called edits and audits. The edits and audits verify and
validate claim information to determine if a claim should be
paid, denied, or suspended for manual review. Edits and audits
include determining whether the child is eligible for Medi-Cal
and receives therapy services in a frequency that does not
exceed the department’s established limits. A claim that fails
an edit or audit is reviewed by an EDS claims examiner, who
identifies and corrects any input errors, and a physician or
other qualified medical professional reviews a claim requiring
medical judgment. If the claim continues to fail the edits or
audits process, EDS denies it. A claim that passes edits and audits
is listed on a payment tape and sent to the State Controller’s
Office, which generates a warrant and accompanying Remittance
Advice Details (remittance advice). Among the information
included in the remittance advice are the child’s name, date
88 California State Auditor Report 2003-124 California State Auditor Report 2003-124 99
of service, total charges, charges that Medi-Cal does not cover,
and the paid amount. The remittance advice also includes
information relating to denied claims. Within six months from
the date of the remittance advice, counties can resubmit denied
claims for further consideration.
Although EDS is responsible for processing Medi-Cal claims, three
county-organized health system (COHS) agencies administer a
capitated, comprehensive, case-managed health care delivery
system for fi ve counties: Napa, San Mateo, Santa Barbara, Solano,
and Yolo. Under their state contracts, the three COHS agencies
agree to pay for health care, including MTP services, provided
to Medi-Cal benefi ciaries who are residents of the fi ve counties.
The Department Reimburses Counties Quarterly for MTP Costs
Each quarter counties submit expenditure reports
that detail the costs they incurred for the MTP. The
department reimburses the counties quarterly for
Requirements of Interagency Agreements
50 percent of their costs for the salary and benefi ts,
Between California Children’s Services
and Local Education Agencies to differential pay, and travel expenses of therapy unit
Provide MTP Services staff who provide direct patient care or supervision.
Additionally, counties receive reimbursement for
• Contact persons within each local
50 percent of the costs for therapists they contract
education agency in the special education
local planning area (planning area) and with and for items purchased to serve individual
within the county CCS agency. The local patients at therapy units, such as splinting
education agency—a school district or
materials. However, the department reduces the
county offi ce of education—is responsible
for providing special education and related counties’ costs by the amount they receive in
services within the planning area.
Medi-Cal payments. Throughout the fi scal year,
• Process to refer children who may require EDS provides the department with information on
medically necessary occupational or
the amount of Medi-Cal payments each county
physical therapy.
received each quarter for MTP services. Using the
• Process to exchange medical and counties’ expenditure reports and EDS’s Medi-Cal
educational information.
data, the department calculates the quarterly net
• Proper notice of all meetings of the teams cost for the MTP and reimburses the counties for
overseeing children’s individualized
half that amount.
education programs and any impending
changes in medical therapy services
that may necessitate changes in the
State law holds the superintendent of public
individualized education programs.
instruction and the secretary of the Health and
• Process for transporting children who receive Human Services Agency jointly responsible
services at therapy units or unit satellites.
for ensuring the maximum utilization of all
Sources: Title 2, California Code of Regulations, state and federal resources available to provide
sections 60000 through 60330 (state interagency
a free, appropriate education and designated
regulations implementing AB 3632).
instruction and services to every child with a
disability. State regulations require local education
agencies and county CCS agencies to develop
1100 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1111
and implement interagency agreements to provide medically
necessary occupational and physical therapy to children. CCS also
enters into an interagency agreement with the Department of
Developmental Services and assumes responsibility for the medical
case management of children who are eligible for MTP services.
The department fully funds the counties to pay the costs
of personnel working to implement the coordination
activities contained in the interagency agreements. To receive
departmental funding, each county must report the following
statistics every fiscal year: (1) the number of children receiving
MTP services; (2) the number of children receiving MTP services
under an individualized education program; (3) the number
of children receiving MTP services under an individualized
family service plan, which provides early intervention services
to eligible infants or toddlers and their families; and (4) the
number of special education local planning areas (planning
areas) in their counties. These statistics are used to help the
department calculate the number of full-time equivalent
positions the counties need to coordinate activities within
the planning areas and to participate in special education
team meetings to discuss children’s individualized education
programs. According to MTP claims submitted by the counties in
fiscal year 2002–03, these coordination efforts cost approximately
$7.2 million.
SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee)
requested that the Bureau of State Audits (bureau) review
department and county billing practices for the MTP and
evaluate whether such practices minimize the State’s costs
for MTP services. Specifically, the audit committee asked the
bureau to review the department’s policies and procedures for
overseeing MTP billing practices, review counties’ MTP billing
policies, and identify and evaluate controls at the State and
county level to ensure that MTP services are appropriately billed
to Medi-Cal. The audit committee also asked the bureau to
determine whether the department and counties effectively bill
services to Medi-Cal and other third-party providers. Finally,
the audit committee asked the bureau to examine the Medi-Cal
billing codes used for MTP services and determine whether the
use of such codes negatively affects the number of billable visits
that Medi-Cal reimburses.
1100 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1111
We reviewed the laws, regulations, and departmental policies
regarding state and county billing practices for the MTP. Based
on our review, we identified the general areas of responsibility
for the department and counties. Our review of the department’s
policies identified the criteria used to process Medi-Cal claims
for children enrolled in the MTP, explaining why the State’s
federal fiscal intermediary, EDS, denies more than half the MTP
claims counties submit. Our review also included an analysis
of the department’s guidance to counties regarding billing
practices and reporting requirements. We also identified the
extent to which the department had complete data on MTP
expenditures and revenues. Our review of MTP billing practices
did not include billing practices related to the other diagnostic
and treatment services under CCS. We did not review these areas
because medical providers, not counties, bill for these services.
With the assistance of the department and EDS, we obtained
information on the number of Medi-Cal claims submitted,
approved, and denied for children receiving MTP services. To
understand why Medi-Cal claims for MTP services are denied,
we obtained information on the reasons for denial from EDS
for all claims it denied and learned the criteria behind the
majority of denials.
To review the billing practices of a sample of counties, we
chose four counties to review based on their fiscal year 2002–03
reported costs and Medi-Cal payments received. We selected
three counties—Alameda, Sacramento, and Butte—because they
had relatively high or low levels of Medi-Cal reimbursement
compared with their total MTP costs. We also decided to review
Los Angeles County because it reported the largest caseload of
the State’s 58 counties: nearly 29 percent of MTP cases reported
by counties statewide. Los Angeles also had the greatest total
cost for the MTP of any county: roughly $15.6 million of the
total MTP cost of $69.1 million for fiscal year 2002–03.
At each county we visited, we identified and assessed the
effectiveness of its process for referring potentially eligible children
to Medi-Cal and Healthy Families. Our review also included an
analysis of whether the county had a process in place to identify
children who had lost coverage with the goal of getting them
back into Medi-Cal or Healthy Families if they were eligible. Our
testing at each county also involved reviewing a sample of claims
to evaluate the county’s billing practices. Through this review,
we identified county Medi-Cal claims for MTP services that were
1122 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1133
denied, and we evaluated the reasons for denial. Further, we
assessed whether the county identified and resubmitted Medi-Cal
claims that had reasonably correctable errors.
By reviewing the completeness of the department’s data on
program expenditures, assessing Medi-Cal data provided
by EDS, and interviewing department and county staff, we
attempted to determine whether the department and counties
effectively identify and bill Medi-Cal or other third-party
payers for MTP services, thereby minimizing MTP costs for the
State. Our review included evaluating the billing codes used by
counties and any negative impact the codes had on the level of
Medi-Cal reimbursement.
Finally, the audit committee asked the bureau to identify and
evaluate the controls in place at the county level to ensure that
vendors or providers appropriately bill for MTP services. However,
our review of the counties’ use of vendors showed that such
expenditures constituted only 3 percent of total MTP costs for
fiscal year 2002–03. Further, we found that a sample of counties
decided to use vendors appropriately based on departmental
guidance and incurred costs for vendors, per procedure billed,
that were comparable to Medi-Cal. As a result, we concluded that
further analysis in this area would likely not yield opportunities
for increased savings to the State for the MTP. n
1122 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1133
Blank page inserted for reproduction purposes only.
1144 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1155
AUDIT RESULTS
THE DEPARTMENT OF HEALTH SERVICES’ AUTHORITY
TO FULLY FUND CERTAIN COUNTY COSTS IS UNCLEAR,
AND ITS POLICIES RESULT IN THE STATE PAYING MORE
THAN SPECIFICALLY REQUIRED FOR THE MEDICAL
THERAPY PROGRAM
Although state law requires the State to fund only
50 percent of counties’ costs for the Medical Therapy
Program (MTP), the Department of Health Services
(department) has fully funded the costs for county personnel
to coordinate the activities of the MTP with special education
programs in public schools. To support these coordination
efforts in fiscal year 2002–03, the department paid counties
nearly $7.2 million, which represented more than 10 percent
of the total expenditures for the MTP that year. Chapter 1747,
Statutes of 1984 (AB 3632), requires the coordination of the
MTP with special education but does not require or authorize
the department to fully fund these activities. The department
asserts that full funding for coordination of the MTP and
special education has been included in the department’s
budget each year; however, neither the annual budget act nor
related legislation has modified existing state law to specifically
authorize the department to pay 100 percent of county costs for
coordinating with special education.
If the department and the counties had shared equally in the
costs of coordinating the MTP with special education, as directed
by statute, the costs to the State would have been $3.6 million
in fiscal year 2002–03, half the amount the State actually
paid. Additionally, we found that the department’s method of
calculating counties’ coordination costs is based on estimates
developed in 1998 rather than on actual costs. Moreover, one
factor used in the calculation is not consistent with actual data
the counties annually report to the department. As a result, the
department cannot be certain that it is paying an appropriate
amount for the costs counties incur under AB 3632.
1144 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1155
Paying All the Costs Counties Incur to Coordinate MTP
Services With Special Education Is Not Clearly Within the
Department’s Authority
Because the MTP provides therapy services in public school
settings to children with physical disabilities, it is not surprising
that some children receiving MTP services also receive therapy
as part of their special education programs. Recognizing the
potential overlap in therapy services between the MTP and
special education, the Legislature passed AB 3632 in 1984,
requiring the department and the California Department of
Education to adopt interagency regulations specifying the
responsibilities and level of coordination between the programs.
The coordination called for under AB 3632 requires a county
MTP representative to attend special education team meetings
if MTP services are being considered for inclusion in a child’s
special education plan. Further, state interagency regulations
require county education agencies and agencies in the county
associated with California Children’s Services (CCS) to develop
and implement local interagency agreements to help provide
After interagency children with medically necessary therapy services. To meet this
regulations were requirement, the county CCS agency and education agencies
established in 1998 must establish processes for exchanging medical and educational
specifying counties’ information concerning children with disabilities, provide
coordination notices of special education team meetings and changes in
responsibilities, the children’s MTP plans that could affect special education services,
department determined and perform various other coordinating activities. After
that these were new interagency regulations were established in 1998 specifying
requirements and that it counties’ coordination responsibilities, the department
would pay for the costs of determined that these were new requirements and that it would
these efforts in full. pay for the costs of these efforts in full.
Although AB 3632 does not require it, the department contends
that it has the budget authority to pay 100 percent of county
costs for coordinating the delivery of MTP services with special
education. Specifically, for fiscal year 1998–99, the department
says that it included new costs in its budget estimate and
received funding for implementing AB 3632. The budget
included costs for county coordination as well as expected
increases in costs for fair hearings and therapy. The budget
proposal stressed that the AB 3632 regulations were needed to
comply with federal requirements related to special education.
The department contends that failure to meet federal special
1166 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1177
education requirements could have caused the California
Department of Education to lose $280 million in federal funding
for special education.
The department’s statutory requirement to divide MTP
costs equally between the State and counties is stated in
Neither provisional Section 123940 of the Health and Safety Code (Section 123940).
language in the budget Despite the department’s practice of fully paying for the
act nor language in the additional county costs related to coordinating activities
MTP’s implementing under AB 3632, the department has not received express
statute authorizes statutory authority to fund these county activities at a level
a deviation from greater than 50 percent of county costs. In particular, neither
Section 123940, which provisional language in the budget act nor language in the
requires the State and MTP’s implementing statute authorizes a deviation from the
counties to equally divide requirements of Section 123940. Consequently, the department’s
MTP costs. legal authority to fully fund these county coordinating activities
is unclear.
As Figure 1 on the following page shows, the total cost for
the MTP in fiscal year 2002–03 was $69.1 million, and the
State paid $4.6 million more than specifically required under
Section 123940. Of the total, $3.6 million represents half the
total costs of $7.2 million for the coordination activities under
AB 3632. The remaining $1 million relates to the portion of
payments made by the State’s Medicaid program, the California
Medical Assistance Program (Medi-Cal), to counties and not
offset by the State from its share of MTP costs, as discussed in
the next major section of this report.
Should the Legislature decide to discontinue fully funding
county costs for coordinating the delivery of MTP services with
special education, it should consider the impact such a decision
might have on the State’s overall financial obligations related to
special education. Specifically, the State receives federal funding
each year under the Individuals with Disabilities Education Act
(IDEA). As a condition of receiving this federal funding, the
State is prohibited from reducing the amount of state financial
support for special education and related services below the
level of that support in the preceding fiscal year. Because some
children receive MTP services as part of their special education
plans under IDEA, any reduction in the State’s annual support
for the MTP must also be evaluated in the context of the State’s
responsibility to spend an amount at least equal to the amount
spent in the preceding fiscal year on special education services.
Otherwise, the State might face a possible reduction in federal
special education funds.
1166 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1177
FIGURE 1
The State Paid $4.6 Million More Than Specifically
Authorized of the Total $69.1 Million in Costs for the MTP
in Fiscal Year 2002–03
(in Millions)
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Source: County quarterly MTP claims and Medi-Cal payment data provided by EDS and
county-organized health system agencies.
* This represents the additional costs the State incurred because it funded 100 percent of
the coordination activities under AB 3632.
† This represents additional costs the State incurred because it did not reduce its costs by
its full share of Medi-Cal payments.
‡ This represents the State’s maximum funding obligation according to Section 123940
of the Health and Safety Code.
The Department’s Estimate of the MTP Costs Counties Incur
to Coordinate With Special Education May Not Reflect
Actual Costs
The department’s method of determining the county
resources required to comply with AB 3632 is formula driven
and based largely on estimates rather than on actual costs
incurred. In addition, one factor used in the calculation is
not consistent with the information counties report to the
department. As a result, the department cannot be sure what
costs the counties are actually incurring to coordinate MTP
services with special education.
1188 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1199
According to department staff, after establishing the counties’
coordination responsibilities in 1998, the department began to
develop a way to pay counties for these costs. In August 1998,
the department issued guidance to counties, informing them
that the State would reimburse counties for 100 percent of their
coordination costs and describing the general method it would
use to calculate the amounts and make the payments. Each year,
the department requires each county to submit data specifically
relating to its coordination activities: the number of special
education local planning areas (planning areas) that coordinate
with the county’s MTP; the number of Medical Therapy Units
(therapy units) in the county; the total number of children on
the county’s MTP caseload; and the number of children in the
county with individualized education programs or related plans.
The department uses some of this information, along with other
estimated workload factors, to calculate the number of full-time
equivalent positions (FTEs) it will pay for.
The department’s formula for determining the number of state-
funded FTEs is divided into two parts. The first part of
the formula calculates the number of county FTEs needed for the
coordination duties specified in AB 3632. The department inputs
the county-reported information on planning areas and therapy
units and multiplies it by the number of hours needed annually
for liaison duties. The formula assumes 188 hours are necessary
per year for coordination activities for each planning area and
an additional eight hours per year for each therapy unit. The
department also calculates the number of county therapist FTEs
needed to participate in special education meetings, using the
MTP caseload data each county reports. The department’s formula
assumes that 85 percent of the children enrolled in the MTP
are also receiving services through special education programs
The department’s and that it takes an MTP representative 0.115 hour per week per
estimation that 85 percent child to attend special education team meetings. Although
of children receiving the department developed these workload standards in 1998
MTP services are also in to address counties’ initial and continuing obligations, staff at
special education is not the department told us that it has not required county MTPs to
consistent with data the complete time studies to validate its workload assumptions.
counties reported to the
department for fiscal years Further, our review revealed that the department’s estimation
2002–03 and 2003–04. that 85 percent of children receiving MTP services are also
in special education is not consistent with the data counties
reported to the department. Specifically, in fiscal year 2002–03,
counties reported that about 20,500 of the 26,600 children in
the MTP statewide were also enrolled in special education; this
1188 California State Auditor Report 2003-124 California State Auditor Report 2003-124 1199
equates to roughly 77 percent of children in the MTP. For fiscal
year 2003–04, counties reported that only 54 percent of children
in the MTP received services through special education.
When we asked the department to reconcile the 85 percent
figure used in the formula with the county-reported data, the
department attributed the lower reported percentages to its recent
requirement that only children whose individualized education
programs or related plans are filed with the county are considered
recipients of special education. However, the department believes
that its original 85 percent estimate of children enrolled in
both MTP and special education is correct, explaining that
the 54 percent reported in fiscal year 2003–04 was the result
of counties struggling to obtain the necessary documentation
from local education agencies. According to the department, its
85 percent estimate was reasonable based on the department’s
perception of conditions in 1998 when it created the formula.
However, we noted that the department has not validated the
original estimate.
Overall, the department’s formula does not result in a reliable
The department’s formula estimate of the costs counties incur for coordinating the
does not result in a delivery of MTP services with special education, primarily
reliable estimate of the because the formula is not based on actual data but rather on
costs counties incur for estimates of needed personnel. By requiring counties to track
coordinating the delivery the time staff spend on coordination activities and submitting
of MTP services with this documentation as support for their actual efforts, the
special education. department would be in a stronger position to know the true
costs of these activities.
THE DEPARTMENT HAS NOT ADEQUATELY REDUCED
THE STATE’S MTP COSTS BASED ON MEDI-CAL
REVENUE TO THE PROGRAM
The department’s policies for identifying Medi-Cal revenue
to the MTP and sharing it with counties result in the State
paying more than specifically required for MTP costs. By law,
the State and counties must share MTP costs equally, which also
requires equal sharing of MTP revenues that reduce those costs
and come from sources other than the State or counties, such
as the federal portion of Medi-Cal payments. However, as part
of its quarterly process for reconciling total state and county
MTP costs for fiscal year 2002–03, the department did not
reduce the State’s costs for its full share of Medi-Cal payments
made to counties that were processed by the State’s federal fiscal
2200 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2211
intermediary, Electronic Data Systems Federal Corporation (EDS).
As a result, the State paid $774,000 more than specifically required
for the MTP. Similarly, the department did not reduce state costs by
a total of $1.4 million in Medi-Cal payments processed by EDS for
the preceding four fiscal years.
The department also did not reduce the State’s MTP costs by an
additional $254,000 for fiscal year 2002–03 because it did not
detect and account for Medi-Cal payments made by county-
organized health system (COHS) agencies—managed-care systems
that arrange and pay for services that are covered under their
contracts with the department and are provided to Medi-Cal clients
living in those counties. Some of these covered services are those
provided by the CCS program, which includes MTP. Moreover,
in July 2003, the department revised its method of applying
Medi-Cal revenue when calculating state and county shares of MTP
costs. Consequently, the State paid more than the law specifically
requires. In fact, we estimate that the department’s new procedures
will result in the State paying about $2 million more annually than
specifically required by Section 123940, assuming that Medi-Cal
payments in future years approximate the level of payments in
fiscal year 2002–03.
The Department Continues to Pay More Than Statute
Specifically Requires for the MTP Because It Does Not Reduce
Costs by the State’s Full Share of Medi-Cal Revenue
The department’s method of reducing state and county MTP
The State’s costs for the costs by the amount of Medi-Cal revenue to the program results
MTP were higher than in the State paying more than is specifically required under
counties’ costs by more Section 123940. In particular, the State’s costs for the MTP were
than $774,000 during higher than counties’ costs by more than $774,000 during fiscal
fiscal year 2002–03 year 2002–03 and more than $1.4 million in the four preceding
because the department fiscal years because the department allowed counties to realize a
allowed counties to greater benefit from Medi-Cal revenue than it allowed the State.
realize a greater benefit Law governing the MTP requires the State to match county
from Medi-Cal revenue expenditures under the program. For this to occur, the State
than it allowed the State. and counties must also share equally in any federal revenue the
program receives.
Beginning in 1994, the department directed counties to bill
Medi-Cal for therapy services provided to children enrolled in
the MTP. Every Medi-Cal payment for MTP services is funded by
both the State’s General Fund and federal Title XIX funds. The
federal funds represent revenue to the program that reduces the
costs that the State and counties must share to pay for the MTP.
2200 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2211
Because Medi-Cal payments are made directly to the counties,
the department considers the impact of these payments when
it performs a quarterly reconciliation of the overall state and
county responsibilities for funding the MTP. As shown in
Table 1, for the State and counties to share equally in the costs
of the MTP, the department needs to reduce the State’s MTP
costs by 75 percent of all Medi-Cal payments a county receives
during a quarter—that is, the General Fund portion plus half the
federal portion of total Medi-Cal payments.
TABLE 1
The State Must Reduce Its Share of MTP Costs by 75 Percent of
Medi-Cal Payments to Share Costs Equally With Counties
Example of Quarterly MTP Costs
County Cost State Cost
(Offset) (Offset) Federal Cost Totals
Total cost incurred by county $500,000 $500,000
State’s share of total cost* (250,000) $250,000
Medi-Cal payments to county† (160,000) 80,000 $80,000
Share of cost before state reduces its share by portion of
Medi-Cal payments 90,000 330,000 80,000 500,000
75 percent of Medi-Cal payments‡ (160,000 x 75 percent) 120,000 (120,000)
Share of cost after state reduces its share by portion of
Medi-Cal payments* 210,000 210,000 80,000 500,000
*In accordance with Section 123940 of the Health and Safety Code, the State matches county MTP costs.
† County receives Medi-Cal payments for a portion of the MTP services it provides. The State’s General Fund and federal Title XIX
funds pay approximately equal portions.
‡ An amount equal to the State’s General Fund portion ($80,000) plus half the federal funds portion ($40,000) of the
Medi-Cal payments.
The department has used two methods for reducing the State’s
MTP costs based on the Medi-Cal payments counties received
for MTP services. As shown in Figure 2, the method used from
July 1994 through June 2003 set a target amount based on the
Medi-Cal payments the department estimated each county
would receive for MTP services in a fiscal year. This properly
reduced the State’s costs by 75 percent of the Medi-Cal payments
up to the target amount. However, after a county had received
its target amount for the fiscal year, state costs were only reduced
by 50 percent of the Medi-Cal payments. The department
established the target amounts as part of its fiscal year 1994–95
budget and, based on our review of the target amounts used
2222 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2233
in fi scal year 2002–03, these estimates had not signifi cantly
changed since that time. By using this method, the department
did not allow the State to reduce its costs by 75 percent of any
Medi-Cal revenues that exceeded each county’s target.
FIGURE 2
The Department’s Process to Calculate the State and County Shares
of Medi-Cal Payments Has Changed
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* The State’s General Fund and Title XIX federal funds provide approximately equal shares of funding for these Medi-Cal payments.
† Target amount is the department’s 1994 estimate of Medi-Cal payments each county would receive in a fi scal year.
2222 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2233
Department staff told us that this method simply implemented
the Legislature’s approved budget for fiscal year 1994–95 and
that counties were allowed to retain 50 percent of the Medi-Cal
payments once they reached the target amount specified
in the schedule used to build the budget. The department
explained that reducing the State’s MTP costs by 75 percent of
the Medi-Cal payments beyond the estimates would deviate
from the budget. As such, the department maintained that it
was appropriate to allow counties to retain 50 percent of any
Medi-Cal payments exceeding the budgeted estimates. However,
there is no language in the fiscal year 1994–95 budget act or
related legislation that authorizes the department to discontinue
The department’s reducing its share of MTP costs by the full 75 percent of
authority for allowing Medi-Cal payments to ensure that the State and counties equally
counties to retain share MTP costs, as state law specifically requires. Further, policy
50 percent of the change memos that the department told us that it submitted
Medi-Cal payments once to the Department of Finance as part of the budget process
they reached the target indicated that the department would continue to reduce the
amount is unclear. State’s cost for the MTP by 75 percent of the Medi-Cal revenue
to the program. Thus, the department’s authority for allowing
counties to retain 50 percent of the Medi-Cal payments once
they reached the target amount is unclear.
During fiscal year 2002–03, the department reported that EDS
processed Medi-Cal payments to counties for MTP services
totaling $7.5 million. This amount was split about equally
between federal funds and the State’s General Fund. If the
department had reduced the State’s MTP costs by 75 percent of
the Medi-Cal payments counties received, the State’s MTP costs
would have been reduced by an amount equal to half the federal
funds associated with the Medi-Cal payments, or $1.9 million,
in addition to $3.7 million in state funds. However, instead of
reducing the State’s MTP costs by the total $5.6 million, the
department only reduced costs by $4.8 million. As a result of
the department’s method of calculation, the State incurred
additional MTP costs of $774,000. Table 2 shows the additional
amount the State paid for fiscal year 2002–03 as well as the
$1.4 million in additional costs for this reason in the preceding
four fiscal years.
2244 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2255
TABLE 2
The Department Did Not Deduct All the
Medi-Cal Payments It Should Have to Reduce
the State’s Share of MTP Costs
Medi-Cal Payments Not Deducted
Fiscal Year Ending June 30 From State MTP Costs
1999 $ 130,000
2000 208,000
2001 325,000
2002 754,000
2003 774,000
Total $2,191,000
Source: Bureau of State Audits’ calculations based on EDS data on Medi-Cal payments
and department’s determination of state’s share of Medi-Cal payments.
As shown in Figure 2 on page 23, the department modified its
method of sharing Medi-Cal payments with counties effective
July 2003 to reduce the State’s MTP costs by only 50 percent of
the Medi-Cal payments counties receive. This methodology is
similar to the department’s former one for Medi-Cal payments
that exceeded the targeted amount. However, instead of
applying only to the Medi-Cal payments in excess of the
targeted amounts, the new process applies to all Medi-Cal
payments made to counties.
The department told us that its new method is appropriate
because Medi-Cal payments are obligations of the State’s
General Fund and federal funds, and counties have no financial
responsibility for any part of the Medi-Cal payments. Further,
the department told us that the Medi-Cal payments should
be viewed as a third-party source of funds to the program
when determining the state and county shares of MTP costs;
that is, the Medi-Cal payments should be deducted from total
MTP costs before determining the State and county shares of
remaining MTP costs. However, doing so results in the State
paying more than half the MTP costs, which is not consistent
with Section 123940. To provide perspective on the effect of this
change, if Medi-Cal payments for future fiscal years equal the
amounts in fiscal year 2002–03, the State would annually pay
$1.9 million more than its half share of MTP costs under the
department’s new method.
2244 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2255
The Department Did Not Gather Complete Data on Medi-Cal
Payments by COHS Agencies, Resulting in Greater Costs to
the State for the MTP
Until fiscal year 2003–04, the department did not have a reliable
process to collect information on the Medi-Cal payments that
COHS agencies make for MTP services. As previously discussed, the
Because it did not gather department needs this information when it calculates quarterly
all the information reimbursements to counties so it can accurately reduce the State’s
related to Medi-Cal share of MTP costs based on any Medi-Cal payments the counties
payments made by receive. Because it did not gather all the information related to
COHS agencies, the Medi-Cal payments made by COHS agencies, the department
department did not did not reduce the State’s MTP costs by a total of approximately
reduce the State’s MTP $733,000 over the four-year period ending in fiscal year 2002–03,
costs by a total of based on data four counties reported to us.
approximately $733,000
over the four-year
period ending in fiscal The State has encouraged the formation of COHS agencies
year 2002–03. as a managed-care model for providing services to Medi-Cal
beneficiaries. The department contracts with COHS agencies to
provide certain health care services to Medi-Cal beneficiaries
who enroll in the managed-care plans. Three COHS agencies
covering five counties pay the counties’ MTPs for the services
they provide to Medi-Cal beneficiaries in those counties.
Therefore, the MTPs in the five counties must submit MTP
claims to the COHS agencies, rather than to EDS, to obtain
Medi-Cal payments for children enrolled in COHS plans.
The counties still must submit MTP claims to EDS to receive
Medi-Cal payments for MTP services provided to children not
covered by COHS plans.
We found that the department did not obtain complete information
on Medi-Cal payments made by COHS agencies for the MTPs in
four of the five counties. The information is available from county
MTPs or directly from the COHS agencies. Lacking this information,
the department could not accurately reduce the State’s share of costs
for the counties’ MTPs based on these payments. On our request,
the MTPs in the four counties provided us with the amounts of
Medi-Cal payments they received from COHS agencies in fiscal
years 1999–2000 through 2002–03. Based on this information, we
estimate that the department did not reduce the State’s MTP costs
by more than $254,000 in Medi-Cal payments for fiscal year
2002–03 and $479,000 over the three preceding fiscal years. As
Table 3 indicates, the department’s failure to obtain complete data
on Medi-Cal payments made by COHS agencies for MTP services
was particularly detrimental because the department did not reduce
the State’s costs for any portion of the Medi-Cal payments.
2266 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2277
TABLE 3
The State Did Not Reduce Its Share of Costs by Any Portion of Certain
Medi-Cal Payments COHS Agencies Made to Counties for MTP Services
1 2 3 4 5
Federal Portion of General Fund
COHS Payments Portion of COHS Total Amounts
Medi-Cal Payments Not Deducted From Payments Not Deducted Not Deducted From
For Fiscal Year Made to Counties State Costs From State Costs State Costs
Ending June 30 by COHS Agencies (Column 2 x 25%) (Column 2 x 50%) (Column 3 + Column 4)
Napa County
2000 $30,907 $ 7,727 $15,453 $23,180
2001* 2,455 614 1,228 1,842
2002† — — — —
2003 32,560 8,140 16,280 24,420
Totals $65,922 $16,481 $32,961 $49,442
San Mateo County
2000 $ 92,488 $23,122 $ 46,244 $ 69,366
2001 88,279 22,070 44,140 66,210
2002 63,841 15,960 31,921 47,881
2003 152,887 38,222 76,443 114,665
Totals $397,495 $99,374 $198,748 $298,122
Santa Barbara County
2000 $ 71,354 $17,839 $ 35,677 $ 53,516
2001 77,289 19,322 38,644 57,966
2002 87,822 21,955 43,911 65,866
2003 153,350 38,337 76,675 115,012
Totals $389,815 $97,453 $194,907 $292,360
Solano County
2000 $ 23,637 $ 5,909 $11,818 $17,727
2001 38,550 9,637 19,275 28,912
2002 62,325 15,581 31,162 46,743
2003‡ — — — —
Totals $124,512 $31,127 $62,255 $93,382
Total of all 4 counties
2000 $218,386 $ 54,597 $109,192 $163,789
2001 206,573 51,643 103,287 154,930
2002 213,988 53,496 106,994 160,490
2003 338,797 84,699 169,398 254,097
Totals $977,744 $244,435 $488,871 $733,306
Source: Bureau of State Audits’ calculations based on county-reported data of cash receipts from COHS agencies for MTP services.
Note: Any differences in the amounts presented in columns three and four are the result of rounding.
*Napa County’s figures for fiscal year ending June 30, 2001, include data for one quarter. Napa County did not bill its COHS
agency for the other three quarters.
† Napa County did not report any COHS payments in the fiscal year ending June 30, 2002.
‡ Solano County reported COHS agency payments for the fiscal year ending June 30, 2003, using the new form the department
directed counties to use beginning in fiscal year 2003–04. The department used this data to properly reduce state costs by
75 percent of the Medi-Cal payments.
2266 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2277
Under the legislation authorizing the MTP, the department
must require counties to provide program data, including the
cost of treatment, to enable the department, the Department
of Finance, and the Legislature to evaluate and adequately
fund the MTP. When we asked the department why it had not
established a process for counties with COHS agencies to report
their Medi-Cal payment information, the department indicated
that it was unaware that these counties were not reporting the
Medi-Cal payments made by COHS agencies.
Although the department asserts that it did not know of the
Medi-Cal payments made by COHS agencies for county MTPs,
it reasonably should have. Beginning in fiscal year 1994–95, the
department required county MTPs to submit all their claims
to EDS, regardless of a child’s eligibility for Medi-Cal. Each
quarter, EDS sends the department data regarding MTP claims it
processed during the quarter and whether the claims were paid
or denied. A review of this data could have led the department to
question counties about anomalous claims activity. For example,
for fiscal year 2002–03, 97 percent and 98 percent of MTP claims
submitted to EDS by Santa Barbara and San Mateo counties,
respectively, were denied compared with 53 percent of MTP
claims statewide. One of the main reasons for appropriate denials
of both counties’ claims was that the patients were enrolled in
managed-care plans, and COHS agencies rather than EDS should
pay for the services provided to enrollees in such plans. Statewide,
this was the fourth most prevalent reason for claim denials,
comprising more than 7 percent of all denied claims, as shown
Had the department in Table A.1 in the Appendix. Further, MTP claims denied for this
considered the cause of reason from Santa Barbara and San Mateo counties accounted for
the high denial rates, 86 percent of all such denials over the seven quarters we reviewed.
it might have noticed However, the department did not apparently recognize the high
sooner that payments had denial rate and question the counties as to the cause or consider
been made by the COHS this as an indicator of the amount of Medi-Cal payments COHS
agencies. agencies might be making. Had the department considered the
cause of the high denial rates, it might have noticed sooner that
payments had been made by the COHS agencies.
Similarly, the department apparently did not notice that
Napa County submitted a very small number of MTP claims.
In fact, the county did not submit any MTP claims for six
consecutive quarters in fiscal years 2000–01 and 2001–02.
Napa County staff told us that high staff turnover during that
period resulted in new employees who were not familiar with
how to bill EDS or the COHS agency. Eventually, the new
2288 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2299
employees learned how to perform the billing, but because of
the time elapsed, the county was not able to bill Medi-Cal for
these quarters.
When asked why it was not aware of the payments that COHS
agencies made to counties for MTP services, department staff
Once it learned that indicated that it was the counties’ responsibility to report Medi-Cal
it was not receiving payments made by COHS agencies. However, without having
complete data, the provided specific instructions requesting the counties to report this
department revised the data, the department’s expectation is somewhat questionable. Once
form counties use to it learned that it was not receiving complete data, the department
report their quarterly MTP revised the invoices for counties to report their quarterly MTP
costs to include a section costs to include a section for reporting payments made by COHS
for reporting Medi-Cal agencies. Although this should help ensure that the department
payments COHS agencies receives complete data, the State’s share of MTP costs will not
made for MTP services. likely drop because of the department’s new process for reconciling
the State and county shares of MTP costs, as discussed earlier.
In particular, the State’s MTP costs are now only reduced by an
amount equal to 50 percent of the Med-Cal payments counties
receive, including payments made by COHS agencies. As a result,
we estimate that the State will annually pay about $100,000 more
for MTP costs than is specifically required in counties with COHS
agencies, assuming that Medi-Cal payments from the COHS
agencies in future years approximate the level of payments in fiscal
year 2002–03.
MORE THAN HALF THE MTP CLAIMS DENIED FOR
MEDI-CAL PAYMENT RESULTED FROM CHILDREN
LACKING MEDI-CAL ELIGIBILITY
As described in the Introduction, EDS enters MTP claims into
the California Medicaid Management System—the Medi-Cal
claims-processing system—which subjects them to a series of
checks called edits and audits. Some of these edits and audits
result in MTP claims being denied for payment. More than
half the MTP claims that EDS denied for Medi-Cal payment
in the seven-quarter period we reviewed were the result of
children lacking Medi-Cal eligibility. From July 2002 through
March 2004, EDS denied more than 425,700 claims because the
children were either never enrolled in Medi-Cal or not eligible
for coverage during the period of service.
As shown in Table A.1 in the Appendix, nearly 200,000, or
28.1 percent, of the claims EDS denied from July 2002 through
March 2004 related to children who had never enrolled in or
2288 California State Auditor Report 2003-124 California State Auditor Report 2003-124 2299
become eligible for Medi-Cal benefits. California law imposes
no financial eligibility requirement to qualify for MTP services.
Therefore, a child that meets the MTP’s medical and residential
requirements can participate in the MTP, regardless of how
much income the child or the 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.
To gather statistical data, In addition, children or families meeting Medi-Cal’s financial
the department requires eligibility requirements are not required to enroll in Medi-Cal.
counties to submit all On receiving MTP claims for children who have never enrolled
claims for therapy services for Medi-Cal coverage and are not in the Medi-Cal system, EDS
through the Medi-Cal denies the claims. To gather statistical data, the department
claims-processing system, requires counties to submit all claims for therapy services
regardless of a child’s through the Medi-Cal claims-processing system, regardless of a
Medi-Cal eligibility. child’s Medi-Cal eligibility. Therefore, it is reasonable to expect
that some MTP claims will be denied because the children are
not eligible for Medi-Cal.
Similarly, as shown in Table A.1 in the Appendix, the primary
reason EDS denies claims relates to children who were at some
point eligible for Medi-Cal but were no longer eligible for
coverage at the time the claimed services were provided. From
July 2002 through March 2004, more than 226,000 claims were
denied for this reason. Children receiving MTP services who are
enrolled in Medi-Cal may lose their coverage for various reasons.
For example, a family’s financial situation might change, raising
the parents’ or child’s income beyond the limit to qualify for
Medi-Cal. Additionally, some families who qualify for Medi-Cal
have income levels that require them to pay a portion of the
costs for MTP services before Medi-Cal begins to pay. Therefore,
some claims are denied because families have not yet paid their
full share of costs.
THE DEPARTMENT APPLIED AN OVERLY BROAD
MODIFICATION TO ITS CLAIMS-PROCESSING
SYSTEM THAT INCREASED MEDI-CAL PAYMENTS
FOR MTP SERVICES
Another reason that EDS denied MTP claims for Medi-Cal
payment in the period we reviewed was that counties submitted
the claims before determining whether the children were covered
by other available health care insurers that would pay for the
services. As shown in Table A.1 in the Appendix, EDS denied
3300 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3311
more than 134,400 claims for this reason from July 2002 through
March 2004. Based on the lowest and highest reimbursement rate
for physical and occupational therapy procedures, we estimate
that the value of these claims ranged from about $883,000 to
$4.7 million. Realizing that EDS was denying many claims for
this reason, the department implemented a modification to the
Medi-Cal claims-processing system to allow all MTP claims for
children with Medi-Cal and other health care coverage to be
paid without checking to see if the other health care insurers
The department is would pay. The department justified the system modification on
improperly allowing compliance with federal law when claims are for MTP services
Medi-Cal to pay MTP to children in special education programs. Although we agree
claims for services to that its action is appropriate for children in special education, the
children who are not in department has not obtained the necessary federal approval to
special education without apply the modification when claims are for services to children
requiring that their other enrolled in MTP who are not in special education. As a result, the
health care insurers, if department is improperly allowing Medi-Cal to pay MTP claims
any, be billed first. for services to children who are not in special education without
requiring that their other health care insurers, if any, be billed first.
Federal law and state Medi-Cal regulations require that if an
individual eligible for Medi-Cal has other health care coverage,
such as Medicare or private insurance, providers must bill the
other health care insurer before billing Medi-Cal. Therefore,
according to the department, the Medi-Cal claims-processing
system is designed to ensure that Medi-Cal is the payer of last
resort. However, based on its interpretation of other federal
and state laws, the department has issued policies that instruct
counties not to bill a child’s private health care insurer for
MTP services to avoid imposing any financial burden on the
child’s family. The department asserts that according to the
federal Individuals with Disabilities Education Act, children
in special education with therapy identified as a component
of an individualized education program are entitled to a “free
and appropriate” education. According to the department,
billing the child’s other health care insurer could result in the
family incurring a cost for the therapy, such as a deductible or
copayment charged by a private insurance company. Further,
state law provides that children receiving MTP services in public
schools are exempt from financial eligibility standards and
are not required to pay enrollment fees. The department has
interpreted these laws to mean that the MTP is a free program
and other health care insurers should not be billed for MTP
services because of the possible financial burden to the families.
3300 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3311
Therefore, until recently, EDS routinely denied payment on MTP
claims for services provided to children who were eligible for
Medi-Cal but also had other health care coverage. The department
recognized that denying Medi-Cal payment on these MTP claims
was resulting in a failure to maximize federal funding. Accordingly,
the department implemented a modification to the Medi-Cal
claims-processing system in March 2004, allowing MTP claims
for services to children with other health care coverage to be paid
without attempting to bill the other health care insurers first.
The department’s action was reasonable given the federal
law regarding children receiving MTP services as part of a
special education program. However, because some children
enrolled in the MTP are not in a special education program, the
department’s action was too broad and is not in compliance
with state Medi-Cal and federal Medicaid laws. When asked
about obtaining federal approval, the department acknowledged
it had not obtained approval to modify the system for the MTP,
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. Further, the department said that it
had to make the change for the whole MTP population because
neither the department nor EDS can distinguish between
children who are in special education and those who are not
when claims are processed. Finally, the department asserted that
other health care insurers do not cover the kinds of services
the MTP provides. Nevertheless, because it has not obtained
federal approval to apply this modification when claims are for
services to children who are enrolled in MTP but not in special
education, the department is violating federal and state laws
designed to ensure that Medi-Cal is the payer of last resort.
FREQUENCY LIMITS IMPOSED BY THE MEDI-CAL
EDS denied more than CLAIMS-PROCESSING SYSTEM ARE A BARRIER TO
42,500 claims, or INCREASED SAVINGS TO THE STATE AND COUNTIES
6 percent of MTP claims FOR THE MTP
denied for Medi-Cal
payment in the period EDS denied more than 42,500 MTP claims, or 6 percent of
we reviewed, because MTP claims denied for Medi-Cal payment in the period we
the number of therapy reviewed, because the number of therapy services provided
services provided exceeded that allowed by the Medi-Cal claims-processing
exceeded that allowed system. State regulations limit how frequently Medi-Cal will
by the Medi-Cal claims- pay for some therapy services. However, the department
processing system. admits that some of the current frequency limits may
not be appropriate for the MTP. Generally, counties echo
3322 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3333
this sentiment, contending that the chronic nature of the
medical conditions treated in the MTP necessitate more
frequent therapy sessions. Based on data provided by EDS,
approximately $280,000 to $1.5 million in Medi-Cal claims
were denied because of frequency limits from July 2002 through
March 2004. When Medi-Cal does not pay claims for MTP
services, the State and counties must pay more for the program
because they lose the federal funding available under Medi-Cal.
State law requires the department to place utilization controls
on covered health care services, including physical and
occupational therapy. These utilization controls may include
requiring prior authorization for services and allowing only a
certain number of services during a specified period. Specifically,
state regulations dictate that Medi-Cal will pay for one physical
and occupational therapy evaluation every six months and one
medical therapy conference per month. Similarly, the Medi-Cal
claims-processing system limits consultations to one per month.
The department told us that frequency limits were established
for the general population of Medi-Cal beneficiaries and not
specifically for children with special health care needs receiving
MTP services. In addition, the department’s Children’s Medical
Services Branch said that the department has not made a blanket
determination that the frequency limits are inappropriate for
these children; however, a plausible case can be made that
some of the limits may be inappropriate for the MTP. When
we talked with staff at the four counties we visited, they said
that a child in the MTP might need many consultations and
evaluations for reasons that would not apply to the general
County staff asserted that Medi-Cal population. For example, a child enrolled in the MTP
the existing frequency might need to be reevaluated at certain developmental stages,
limits overly restrict after receiving new equipment, and every time equipment is
Medi-Cal reimbursement, adjusted or modified. Additionally, implementing a child’s
given the chronic health therapy plan requires the therapist to consult with the child’s
conditions and needs of teacher, physician, family, and any other vendors or caseworkers
the children in the MTP. working on the child’s case. Therefore, county staff asserted
that the existing frequency limits overly restrict Medi-Cal
reimbursement, given the chronic health conditions and needs
of the children in the MTP.
Our visits to the counties confirmed that many children in the
MTP receive therapy procedures more often than the Medi-Cal
claims-processing system permits. For instance, we noticed
that children with a diagnosis such as cerebral palsy received
up to three evaluations in one month, yet this procedure is
3322 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3333
limited to payment only once every six months. Further, we
noticed children with this type of diagnosis received up to four
consultations in one month, yet the frequency limit for this
service is once per month. As a result, it appears that a different
set of frequency limits might be warranted for the services
provided to children in the MTP.
MOST COUNTIES WE REVIEWED TOOK REASONABLE
STEPS TO FOLLOW UP ON MTP CLAIMS DENIED FOR
MEDI-CAL PAYMENT
Counties may be able to control the reasons that EDS denies
many MTP claims for Medi-Cal payment. In fact, from July 2002
through March 2004, EDS denied more than 45,000 of
approximately 710,000 MTP claims for reasons the counties
could apparently correct, such as not completing the claim
correctly or not attaching the necessary documentation. Based
on the lowest and highest reimbursement rate for occupational
and physical therapy procedures, we estimate that the value of
these MTP claims ranged from about $299,000 to $1.6 million.
Although none of the counties we visited follow up on all
denied MTP claims, three of the four counties took reasonable
steps to review claims that had apparently correctable problems.
However, Los Angeles County (Los Angeles) did not follow up
on any individual MTP claims that EDS denied for Medi-Cal
payment. To the extent that it could have corrected and
resubmitted some of these claims, Los Angeles missed an
opportunity to maximize Medi-Cal payments for MTP services
and to reduce state and county costs for the MTP.
EDS denies MTP claims because of the department’s legitimate
efforts to control costs and ensure that Medi-Cal payments
Counties might have are for legitimate services. However, it denied some claims
been able to correct for reasons counties should be able to control. According to
and resubmit more than our estimates, counties might have been able to correct and
45,000 MTP claims resubmit more than 45,000 MTP claims that EDS denied from
that EDS denied from July 2002 through March 2004. As shown in Table A.1 in the
July 2002 through Appendix, this represents more than 6 percent of the MTP
March 2004. claims EDS denied over the period. Specifically, EDS denied
about 14,700 MTP claims for reasons such as the lack of required
documentation or service authorization. In the same period, EDS
denied another 28,500 MTP claims that had invalid or incorrect
information on the claim forms, such as invalid diagnosis or
billing codes or incorrect provider numbers. Lastly, EDS denied
more than 2,000 MTP claims because they were submitted more
3344 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3355
than one year after the date of service. Counties can prevent
denials related to late claims by ensuring that they submit claims
promptly. However, counties can also correct a late claim if, for
example, the date of service was entered incorrectly on the claim
form or the claim was not submitted with the accompanying
documentation EDS requires.
It should be noted that according to the department’s Payment
Systems Division, claims submitted with unreadable or invalid
data fields, usually the result of clerical errors, are denied in the
first phase of claims-processing because the first thing the system
looks at is whether or not all fields are readable and meet certain
criteria. Therefore, it is possible that even if some of these claims
were corrected and resubmitted, they could still be denied for other
reasons. In other cases, however, such as when a claim is denied for
an invalid diagnosis code, the claim has already successfully passed
through several phases of processing and, if corrected, would
likely only be denied again if the billed procedure was in excess of
frequency limits or the claim was a duplicate.
We acknowledge that counties may have subsequently corrected,
and Medi-Cal paid, many of the roughly 45,000 MTP claims EDS
denied for payment for apparently correctable or preventable
reasons. In addition, we recognize that counties may decide not
to follow up on all denied claims because they find that the cost
of this effort exceeds the benefit of receiving payment. However,
to the extent that counties are able to correct denied claims and
receive payment from Medi-Cal, this ultimately reduces state
and county costs for the MTP.
Three of the four counties we reviewed appear to effectively
identify and follow up on denied MTP claims that are more easily
Out of the 40 denied correctable. For example, although Alameda and Sacramento
MTP claims we tested counties do not have a formal process describing the types of denied
at two counties, we claims they require staff to review for possible correction, they
identified a total of eight appear to effectively identify and follow up on denied MTP claims
claims as correctable, that are correctable. In fact, out of the 40 denied MTP claims we
and the counties tested at these two counties, we identified a total of eight claims as
correctly identified and correctable, and the counties correctly identified and resubmitted
resubmitted all of them. all of them. Further, Medi-Cal paid seven of the eight resubmitted
MTP claims, which illustrates the effectiveness of the counties’
follow-up procedures. The one claim that was not ultimately
paid was submitted by Alameda County and denied for missing
a treatment authorization. Although the county resubmitted the
claim with the authorization, EDS rejected it again because of a
clerical error, and the county did not submit the claim a third time.
3344 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3355
The remaining 32 MTP claims tested at these counties were denied
primarily for the reasons discussed earlier in the report over which
counties have less control.
Butte County contracts with a billing service to submit its MTP
claims for Medi-Cal payment. In contrast to the informal processes
Sacramento and Alameda counties use, Butte County’s billing
service has formal guidelines for reviewing specific denied claims
and attempting to correct and resubmit them for payment when
possible. Although the billing service’s guidelines do not indicate
that it will follow up on all denial codes we identified as potentially
correctable, the billing service told us that it would follow up on
claims denied for reasons it thought could be corrected, including
reasons not specifically identified in its procedural guidelines. Out
of 20 denied MTP claims we tested at Butte County, we identified
two that were denied for reasons we believe were potentially
correctable, and both were reasons also identified in the billing
service’s guidelines. In addition, the billing service appropriately
followed up on both of these MTP claims.
Los Angeles County provided services to approximately 29 percent
of the MTP caseload statewide according to caseload data the
counties reported for fiscal year 2002–03. In contrast to the other
three counties, Los Angeles does not follow up on individual
denied claims. As a result, it may have missed out on $58,000
to $307,000 in Medi-Cal payments from July 2002 through
Eighty-nine percent of March 2004 because it did not attempt to resolve and resubmit
Los Angeles County’s roughly 8,800 MTP claims denied for potentially correctable or
denied claims were preventable errors. For example, 89 percent of the county’s denied
the result of missing claims were the result of missing documentation or invalid data
documentation or invalid on the claim form. The director of the Los Angeles County MTP
data on the claim form. said that the county assumed responsibility for billing MTP services
and discontinued using a billing service in 2001. She also indicated
that the county decided at the time not to resubmit individual
denied MTP claims because the county did not have the required
knowledgeable staff to follow up on the claims. In addition,
the director told us that the county is currently considering the
cost-effectiveness of reviewing and resubmitting denied claims.
Although Los Angeles County has not yet completed an analysis
to determine the amount of revenue that could be generated by
resubmitting denied claims and the cost-effectiveness of doing so,
it could limit required resources by focusing its review on the types
of errors that are easiest to correct. Finally, with regard to about
950 MTP claims we identified from July 2002 through March 2004
that EDS denied for Medi-Cal payment because Los Angeles County
submitted them more than one year after the date of service, the
3366 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3377
county’s MTP director agreed that this could be prevented and
that the county will more closely monitor submission dates in
the future.
RECENT CLAIMS DATA CAST DOUBT ON WHETHER
PAYMENTS FROM THE HEALTHY FAMILIES PROGRAM
WILL SIGNIFICANTLY REDUCE MTP COSTS
The Healthy Families Program (Healthy Families) is California’s
implementation of the federal State Children’s Health Insurance
Program, established under Title XXI of the Federal Social Security
Act. Healthy Families provides health, dental, and vision care
coverage to children up to 19 years old whose families’ incomes
range from 100 percent to 250 percent of the federal poverty level.
Although services provided under CCS are among those covered
by Healthy Families, MTP services were not billed to Healthy
Families before fiscal year 2003–04. According to the department,
there is no comprehensive eligibility data that allows it to identify
how many children receiving MTP services are also enrolled in
Healthy Families. However, the department determined it could
identify and pay claims through the Medi-Cal claims-processing
system for children enrolled in Healthy Families beginning in
July 2003. Federal funds are available to cover 65 percent of the
costs of Healthy Families claims compared with 50 percent for
Medi-Cal claims.
According to the department, its process for billing Healthy
Families for MTP services requires Medi-Cal to pay the counties
EDS data identified about on behalf of Healthy Families first, and then Healthy Families
$24,000 in MTP claims reimburses Medi-Cal at the end of each quarter. In January 2004,
in fiscal year 2003–04 the department told counties that, effective July 1, 2003,
that Medi-Cal paid for it would automatically bill Healthy Families for MTP claims
MTP services provided using the same process used to submit MTP claims for Medi-Cal
to children enrolled in payment. EDS data identified about $24,000 in MTP claims in
Healthy Families. fiscal year 2003–04 that Medi-Cal paid for MTP services provided
to children enrolled in Healthy Families—a small amount
compared with the total cost of $69.1 million for the MTP in
fiscal year 2002–03.
Although the 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 casts doubt on whether
Healthy Families payments for MTP services will significantly
reduce MTP costs in the future. Department staff told us that
3366 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3377
it would have comprehensive enrollment data available to
evaluate the effectiveness of accessing Healthy Families coverage
once a planned enhancement to its Children’s Medical Services
Network system (CMS Net) was fully implemented. However,
not all counties are participating in CMS Net, including
Los Angeles, which has the largest MTP in the State. Further,
because the enhancement to CMS Net has not yet been fully
implemented, it is too early to tell whether it will serve as
an effective tool to identify the number of children who are
enrolled in both MTP and Healthy Families and whether services
to these children are effectively billed.
RECOMMENDATIONS
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:
• Seek specific statutory authority from the Legislature to fully
fund county personnel whose jobs include coordinating
the MTP with special education agencies as required by
AB 3632. Should the Legislature decide to reduce the State’s
current funding for these activities, it should consider the
implications of such an action on the State’s responsibility
under the federal Individuals with Disabilities Education Act
to maintain a level of funding for special education and
related services at least equal to the level of funding the State
provided in the preceding fiscal year.
• Reevaluate its method for calculating county costs for
coordinating the delivery of MTP services with special
education services to ensure that amounts reasonably reflect
actual county efforts.
• Modify its current method for reducing the State’s costs for the
MTP to ensure that state costs are reduced by an amount equal
to the entire General Fund portion and one-half the federal
portion of all Medi-Cal payments made for MTP services.
• Require COHS agencies to report to the department all
Medi-Cal payments they make to counties for MTP services.
3388 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3399
To ensure that Medi-Cal appropriately pays MTP claims to the
fullest extent possible, the department should do the following:
• Obtain federal approval to allow Medi-Cal to pay for
MTP services provided to children who are not in special
education without checking for the existence of other health
care coverage. Otherwise, the department should modify
the current Medi-Cal claims-processing system to ensure
that other available health care insurers are charged before
Medi-Cal pays for MTP services provided to children who are
not in special education.
• Evaluate whether the current limits Medi-Cal places on the
frequency of certain therapy procedures are appropriate for
MTP services. If the department determines that the Medi-Cal
frequency limits are inappropriate, it should seek approval to
modify these limits accordingly.
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.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of the report.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
Date: August 31, 2004
Staff: John F. Collins II, CPA, Audit Principal
Grant Parks
Christopher Lief
Cameron Swinko, CMA
Alysha Loumakis-Calderon
3388 California State Auditor Report 2003-124 California State Auditor Report 2003-124 3399
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4400 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4411
APPENDIX
Counties Submitted Many Claims for
Medical Therapy Program Services
That Were Denied Medi-Cal Payment
for Various Reasons
During the seven quarters between July 2002 and
March 2004, the Electronic Data Systems Federal
Corporation (EDS) denied more than 700,000 Medi-Cal
claims for services provided by the Medical Therapy Program
(MTP) for various reasons. Table A.1 on the following page
categorizes these denials by general reasons. As noted in the
Audit Results, counties can correct or prevent some denials more
easily than others. Table A.1 also lists the 10 most common
errors causing denied MTP claims that counties could easily
correct or prevent. These errors represent 94 percent of the total
errors in that category of denied claims.
4400 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4411
TABLE A.1
EDS Denied Claims for Medi-Cal Payment for Various Reasons
Number Percentage of
of Claims Total Claims
Reason for Denial Denied Denied
Child was not eligible for coverage
during the period of service 226,396 31.9%
Child has never been eligible
for Medi-Cal 199,312 28.1
Child’s other health care coverage
was not billed 134,413 18.9
Child is enrolled in a
managed-care plan 51,200 7.2 Top 10 Correctable or Preventable
Errors Causing Denied MTP Claims
Claim was denied for a potentially
RAD
correctable or preventable reason* 45,477 6.4
Code Description
Claim was denied due to frequency 0368 Provider type is not acceptable for the
limit of specific procedure 42,551 6.0 place of service.
0031 The rendering provider was not
Claims denied for any other reason 10,432 1.5
eligible for the services billed on the
Total 709,781 100.0% date of service.*
0180 This service requires a Treatment
Authorization Request (TAR) for the billing
provider type on the date of service billed.
Source: Department of Health Services, Payment Systems Division.
0610 Not authorized to electronically bill
*Correctable claims may be later resubmitted and paid, but the data
California Children’s Services (CCS).
provided to us does not indicate whether a claim has been corrected.
Resubmit hard copy claim to CCS
However, in our testing, we identified 110,574 claims denied due to an program office for approval.
electronic claims submission error by Los Angeles County. Because the
0691 The diagnosis code is invalid for the date
county indicated that it corrected and resubmitted these claims, we
of service.
removed them from the table.
0243 The TAR Control Number submitted on the
claim is not found on the TAR master file.*
0021 The claim was received after the one-year
maximum billing limitation.*
0005 The service billed requires an
approved TAR.*
0075 The necessary documentation was
not received.
0628 The Medi-Cal provider/recipient
identification number or service
billed is not consistent with the CCS’
Authorization Form.
Source: Medi-Cal Provider Manual, Remittance
Advice Details (RAD) Codes and Messages.
* Billing tips are provided in the Medi-Cal
Provider Manual.
4422 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4433
Agency’s comments provided as text only.
Department of Health Services
1501 Capitol Avenue, Suite 6001
Sacramento, CA 95814
Elaine Howle*
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
The California Department of Health Services appreciates the opportunity to respond to the Bureau
of State Audits’ (BSA) draft report entitled, “Department of Health Services: Some of Its Policies
and Practices Result in Higher State Costs for the Medical Therapy Program” (Report number
2003-124), issued August 9, 2004. This review was undertaken at the request of the Legislature to
ensure that the billing practices of the Medical Therapy Program (MTP) component of the California
Children’s Services program minimize state costs for the provision of services.
The Department agrees with some of BSA’s recommendations and appreciates acknowledgement of
on-going efforts to improve policy and practices related to the MTP. However, we disagree with the
1
BSA’s interpretation that the Department lacks “express statutory authority” to provide 100 percent
2
state funding for state mandated coordination functions associated with the implementing regulations
for AB 3632. This funding policy has been statutorily enacted through the Budget Act each year. The
Department believes the statutory distinction is between the enactment of the annual Budget Act and
the codified statutes that otherwise determine the state-county funding shares.
3
The BSA recommends that the Department pursue an allocation formula that would require
counties to pay a share of Medi-Cal costs in the MTP. Since the Administration is undertaking
a thorough review of the California Performance Review’s recommendation that county and
State responsibilities for health and human services be realigned, we will explore the BSA’s
recommendation as part of that review. As you are aware, there is currently no county responsibility
for bearing part of the cost of Medi-Cal; this recommendation would be precedent setting to other
Medi-Cal funded services and would have implications for county budgets.
Once again, we appreciate the opportunity to respond to the BSA’s draft report. If you have any
questions, please feel free to call Catherine Camacho, Deputy Director for Primary Care and
Family Health, at (916) 440-7600.
Sincerely,
(Signed by: Tom McCaffrey for Sandra Shewry)
Sandra Shewry
Director
* California State Auditor’s comments begin on page 49.
4422 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4433
RESPONSES TO BSA RECOMMENDATIONS
BSA Recommendation 1
4
To ensure that the State minimizes its costs for providing MTP services, the department should do
the following:
a. Seek specific statutory authority from the Legislature to fully fund county personnel whose
jobs include the required coordination activities with special education agencies per Section
7525 of the Government Code. Should the Legislature decide to reduce the State’s current
funding for these activities, it should consider the implications of such an action on the State’s
responsibility to maintain an appropriate level of funding for special education services under
the maintenance of effort requirements of the federal Individuals with Disabilities Education Act.
DHS Response 1
The interagency regulations that implemented AB 3632 (CH.1747, Statutes of 1984) resulted
in new workload for the county Medical Therapy Programs (MTPs). Because this workload
1
was a new State mandate, the Governor’s Budget for fiscal year (FY) 1998-99 requested
100 percent State funding for county positions to handle this workload. This request for
100 percent State funding was approved by the Legislature and included in the enacted
2
Budget Act for FY 1998-99. County costs for AB 3632 workload, funded with 100 percent
state funds, have been included in the enacted state budget each subsequent year. Since
the Department has budgeted this amount and the Legislature has provided approval since
1998, the legal authority for the Department’s actions appears to be sufficient. However, the
Department would not oppose clarification of this authority in the codified statutes.
In its discussion and findings, the State Auditor refers to the Department’s lack of “express
statutory authority” to provide 100 percent state funding for functions associated with the
implementing regulations for AB3632. The Department disagrees that it has not had express
statutory authority for this funding policy as it has been statutorily enacted through the
2
Budget Act each year. The Department believes the statutory distinction is between the
enactment of the Budget Act annually and the codified statutes that otherwise determine the
state-county funding shares.
5
The Department disagrees with the title of Figure 1, “The State paid $4.6 Million More Than
Necessary of the Total $69.1 million in Costs for the MTP During Fiscal Year 2002-03.”
$3.6 million of the $4.6 million is the additional costs the State incurred because it funded
100 percent of the coordinating activities under AB3632. The Audit report also states, “… any
reduction in the State’s annual support for the MTP must also be evaluated in the context
of the State’s responsibility to spend an amount at least equal to the amount spent in the
preceding fiscal year on special education services. Otherwise, the State might face a
possible reduction in federal special education funds.” This comment suggests that there
6
should be further consideration as to whether the $3.6 million was “unnecessary” as stated
in Figure 1.
1
4444 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4455
BSA Recommendation 1b
b. Re-evaluate its method of calculating county costs for coordinating the delivery of MTP services
with special education services to ensure that amounts reasonably reflect actual county efforts.
DHS Response 1b
1
The Department continues to refine its methodology for calculating the level of reimbursement for
individual counties for mandated workload resulting from the AB 3632 interagency regulations.
BSA Recommendation 1c
c. Modify its current method for reducing the State’s costs for the program, ensuring that the
State’s costs are reduced by an amount equal to the entire General Fund portion, and one-half
the federal portion of all Medi-Cal payments made for MTP services.
DHS Response 1c
The Department’s current policy is to deduct all third-party payments, including Medi-Cal, from the
cost of services before State and county share of cost is determined. Children who are eligible for
7
the CCS program have many different types of third party coverage, one of which is Medi-Cal. The
net cost of services after third party payments have been deducted is shared by the Department
and the counties on a 50/50 basis as required by Health and Safety Code 123940.
In addition to being inconsistent with the Department’s current policy for cost sharing in
the MTP, the State Auditor’s proposal would be inconsistent with the Department’s current
3
interpretation of Section 14000 et seq. of the Welfare and Institutions Code that provides for
the cost of Medi-Cal services to be shared by the federal and State governments.
The Department will discuss this recommendation of the State Auditor in the larger context
of the California Performance Review (CPR) recommendations dealing with realignment of
state and county responsibilities for health and human services programs. The Department
will be participating in the Administration’s considerations on this topic.
BSA Recommendation 1d
d. Require county-organized health system agencies to report to the department all Medi-Cal
payments they make to counties for MTP services.
DHS Response 1d
The Department agrees with the intent of BSA recommendations and will direct county CCS
programs to report reimbursements received from County Organized Health System (COHS)
Medi-Cal managed care plans for therapy services provided to COHS enrollees by county
MTP. The Department will offset these reimbursements as a reduction in gross MTP costs
8
prior to determining a county’s share for cost for its MTP.
2
4444 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4455
While the State Auditor specifically recommends that COHS report to the Department
9
on the payments made to CCS MTUs, the Department believes it is more appropriate for
the county CCS programs to report receipt of funds from COHSs to the CMS Branch as
part of its quarterly cost report. County CCS programs are in a position to validate the
dollars received from the COHS and this approach would avoid requiring COHS to perform
duplicate work.
BSA Recommendation 2
To ensure that Medi-Cal appropriately pays MTP claims to the fullest extent possible, the
department should:
a. Obtain federal approval for allowing Medi-Cal to pay for MTP services provided to children
who are not in special education without checking for the existence of other health coverage.
Otherwise, the department should modify the current claims-processing system to ensure that
other available health insurance is charged before Medi-Cal pays for MTP services provided to
children who are not in special education.
DHS Response 2a
On issues similar to this, the federal Centers for Medicare and Medicaid Services (CMS) has
advised the Department that it would not review a waiver request from the State because of
workload considerations. It would not be productive to develop and submit a waiver request
to CMS on this issue, as that agency would not consider it.
Also, the Medi-Cal claims processing system currently does not have access or linkage to
a database or data files that would enable the system to determine if a Medi-Cal beneficiary
participates in Special Education or is otherwise covered by the federal Individuals with
Disabilities Education Act (IDEA). Although the Department will discuss this with the
Department of Education, based on prior experience, it is anticipated that development of
such a system would be extremely challenging due to dependence on data submission from
multiple entities throughout the State and the legal requirement that schools keep their
data confidential. This recommendation would be inconsistent with the two main goals of
0
1) ensuring a child’s right to a “free and appropriate” education and 2) maximizing federal
funding, as the cost to design, implement, and later support a “Special Education” tracking
system that interfaces with the Department’s claims processing system would undoubtedly
exceed the anticipated federal financial participation.
BSA Recommendation 2b
b. Evaluate whether the current Medi-Cal frequency limits on therapy procedures are appropriate
for the services provided in the MTP program. If the department determines such frequency
limits are in appropriate, it should seek approval to modify these limits accordingly.
3
4466 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4477
DHS Response 2b
The Department agrees that frequency limits on occupational and physical therapy services
in the claims payment system should be reevaluated. The Department will continue to
review the edits to determine their appropriateness for application to the MTP and modify
them accordingly.
BSA Recommendation 3
To ensure that counties do all they reasonably can to maximize Medi-Cal payments for MTP
services, Los Angeles County, and any other counties that do not review denied Medi-Cal claims,
should attempt to correct and resubmit denied Medi-Cal claims when it is cost-effective to do so.
DHS Response 3
The Department supports this recommendation and will remind counties of the resources
available to assist them in preparation and submission of Medi-Cal claims. These include a
toll-free number for billing support, a correspondence unit dedicated to extensive research
on provider claims, multiple training seminars that are free to the provider community, and
provider billing representatives located throughout the State who are available for onsite
provider billing assistance and training. All of these services augment a fully comprehensive
provider manual that makes program billing policy information available in either hard copy
or via the Medi-Cal internet site.
4
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4488 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4499
COMMENTS
California State Auditor’s Comments
on the Response From the
Department of Health Services
To provide clarity and perspective, we are commenting on
the response to our audit report from the Department
of Health Services (department). The numbers below
correspond with the numbers we have placed in the margin of
the department’s response.
1
The department asserts that the coordination activities it has
fully funded are a state mandate. However, the Commission
on State Mandates (commission) is the authority designated
by the Legislature to determine whether a mandate exists. The
commission has not determined that a state mandate exists
for the Medical Therapy Program (MTP) coordination activities
under AB 3632. Further, the department does not receive an
appropriation under the state mandated local programs portion of
its annual budget for this purpose.
2
The department is inaccurate when it maintains that its policy
of fully funding AB 3632 costs has been statutorily enacted
through the budget act each year. Although the department
states that it included new costs in its 1998–99 fiscal year
budget estimate and received funding for implementing
AB 3632, as we indicate on page 17 of the audit report, neither
provisional language in the budget act nor language in the
MTP’s implementing statute authorizes a deviation from the
requirement to divide MTP costs equally between the State and
counties in accordance with Section 123940 of the Health and
Safety Code (Section 123940).
3
The department misinterprets our recommendation by stating
that it would require counties to pay a share of the State’s
Medicaid program, the California Medical Assistance Program
(Medi-Cal), costs in the MTP. As noted in Table 1 and Figure
2 of the audit report, we recognize that the State’s General Fund
and Title XIX federal funds provide approximately equal shares
of funding for Medi-Cal payments. However, because the State
funds about half of the Medi-Cal payments for MTP services,
our recommendation to the department is that it recognize
the State’s contribution to the MTP through these Medi-Cal
4488 California State Auditor Report 2003-124 California State Auditor Report 2003-124 4499
payments and reduce the State’s costs for the MTP in a way
that results in equal costs to the State and counties as shown in
Table 1 and Figure 2 of the audit report.
4
While the department was reviewing our draft audit report for
comment, we slightly amended the text of our recommendations.
However, the substance of the recommendations is unchanged.
5
While the department was reviewing our draft audit report for
comment, we amended the title of Figure 1 by replacing the
phrase “more than necessary” with “more than specifically
authorized.” As we indicate on page 17 of the audit report,
neither provisional language in the budget act nor language in
the MTP’s implementing statute authorizes a deviation from the
requirement to divide MTP costs equally between the State and
counties in accordance with Section 123940. As a result, the
department’s decision to fully fund AB 3632 costs, instead of
sharing these costs equally with the counties, resulted in the
State paying more for the MTP than specifically authorized
by statute.
6
The department has misconstrued our discussion related to
discontinuing full funding of county costs for coordinating the
delivery of MTP services with special education. Our comments
do not suggest that fully paying these county costs is necessary
in the context of the State’s responsibility to fund special
education services. Rather, as discussed on page 17 of the audit
report, should the Legislature discontinue fully funding these
county costs, it should consider the impact such a decision
might have on the State’s overall financial obligations related
to special education. For example, if the AB 3632 costs are
considered part of the State’s effort to fund special education,
the Legislature could choose to shift funds from the MTP to
other special education programs and still meet the State’s
financial obligations.
7
The department’s interpretation of Section 123940 is incorrect
and has been inconsistent. Section 123940 states that “the State
shall match county expenditures” under the MTP. The statute
does not refer to the net cost of these services. As described on
pages 20–21 of the audit report, in order to share MTP costs
equally, the State and counties must also share equally in MTP
revenues, such as the federal portion of Medi-Cal payments.
Further, as we discuss on page 22 of the audit report, this means
that the department needs to reduce the State’s MTP costs by
75 percent of all Medi-Cal payments a county receives—that is,
5500 California State Auditor Report 2003-124 California State Auditor Report 2003-124 5511
the General Fund portion plus half the federal portion of total
Medi-Cal payments. The department’s current practice of
using the net cost of services to compute the State’s share results
in the State paying more than half of the MTP costs. Moreover,
as we discuss on page 22 of the audit report, from July 1994
through June 2003, the department reduced the State’s cost for
the MTP by 75 percent of the Medi-Cal revenue to the program
up to a target amount, suggesting that at least until June 2003 it
concurred with our interpretation of Section 123940.
8
The department’s proposal is inconsistent with the requirements
of Section 123940. As we discuss in note 7 above, to share MTP
costs equally with the counties the department should reduce the
State’s MTP costs by 75 percent of the Medi-Cal reimbursement.
9
We believe that obtaining Medi-Cal payment data directly from
the COHS agencies that make the payments would provide the
department with a greater level of assurance that it has complete
and accurate data. In addition, this would be consistent with
the department’s practice of obtaining Medi-Cal payment data
directly from Electronic Data Systems Federal Corporation,
which processes other Medi-Cal payments for the department.
0
We agree that a main goal of the department should be to
maximize federal funding by having Medi-Cal appropriately
pay for MTP services. However, as we describe on pages 31–32 of
the report, not all children in the MTP receive special education
services and are thus entitled to a free and appropriate education.
As a result, the department is improperly allowing Medi-Cal to
pay claims for services to MTP children who are not in special
education without first determining whether other available health
care plans will pay. Lacking the necessary federal approval to
implement its current process, the department needs to take the
appropriate steps to comply with federal Medicaid requirements.
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5522 California State Auditor Report 2003-124 California State Auditor Report 2003-124 5533
Agency’s comments provided as text only.
County of Los Angeles
Department of Health Services
313 N. Figueroa, Los Angeles, CA 90012
August 3, 2004
TO: Elaine M. Howle, State Auditor
Bureau of State Audits
FROM: Thomas L. Garthwaite, M.D.
Director and Chief Medical Officer
SUBJECT: RESPONSE TO BUREAU OF STATE AUDITS REPORT (#2003-124) –
CALIFORNIA CHILDRENS’ SERVICES MEDICAL THERAPY PROGRAM
We have reviewed the excerpts of the draft findings and recommendations for Los Angeles County
from the Bureau of State Audits Report No. 2003-124 regarding the California Children’s Services
Medical Therapy Program (MTP). Following is the response to the Bureau of State Audits’
recommendation:
Audit Recommendation:
“To ensure that counties do all they reasonable can to maximize Medi-Cal payments for MTP
services, Los Angeles County …should attempt to correct and resubmit denied Medi-Cal claims
when it is cost-effective to do so.”
County of Los Angeles Response:
We concur. California Children’s Services of Los Angeles County is currently analyzing the
cost effectiveness of correcting and resubmitting denied Medi-Cal claims.
Please let me know if you have any questions or need additional information.
TLG:ll
5522 California State Auditor Report 2003-124 California State Auditor Report 2003-124 5533
cc: Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press
5544 California State Auditor Report 2003-124