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- DHCS' Processes to Oversee Health Plans’ Quality of Care Are Generally Sufficient
- DHCS Does Not Ensure That Health Plans’ Administrative Expenses Are Reasonable and Necessary
- DHCS Properly Recouped Excess Funds From Health Plans
DHCS' Processes to Oversee Health Plans’ Quality of Care Are Generally Sufficient
Key Points:
- DHCS has sufficient processes to monitor the quality of care that health plans provide and to address health plans that are performing poorly.
- The majority of all health plans in the State perform at levels that meet or exceed those established by DHCS for quality of care. Although two of the four health plans on quality CAPs have not demonstrated sufficient improvement, DHCS has taken appropriate steps to address these health plans’ inadequate performance.
- DHCS does not consistently ensure that health plans have proper processes in place to prevent, identify, and address fraud. Additionally, DHCS does not evaluate whether health plans have controls in place to prevent conflicts of interest.
DHCS Has Adequate Processes to Oversee Health Plans’ Quality of Care
DHCS’ processes for ensuring that health plans provide quality of care at a level consistent with state and federal requirements are appropriate. State regulations require health plans to provide quality care and DHCS requires health plans to meet or exceed the MPL it establishes for each quality indicator. In addition, federal regulations require DHCS to annually review the health plans’ quality assessment and efforts that the plans make to improve performance in the way they deliver services to beneficiaries. Federal regulations also direct DHCS to require health plans to complete performance improvement projects when it identifies poor performance.
As described in the Introduction, DHCS monitors whether health plans meet or exceed the established MPLs. When it identifies that a plan is consistently performing below the MPLs, DHCS generally places it on a quality CAP and then monitors its performance until the health plan meets the requirements of the CAP. Of the 22 health plans in the State that offered Medi‑Cal coverage during fiscal year 2016–17, four—Anthem, Health Net, Molina, and San Joaquin—were on quality CAPs. Based on our review of the four health plans’ performances in meeting or exceeding the MPLs during 2013 through 2017, we found that DHCS properly identified that these health plans met its criteria to be placed on a quality CAP. For instance, DHCS placed San Joaquin on a quality CAP in 2016 because it failed to meet 50 percent of the MPLs for the 22 quality indicators DHCS established for 2015.
Once DHCS identifies that it should place a health plan on a quality CAP, it identifies the milestones the health plan needs to achieve and requires that the health plan submit a response to the quality CAP that includes the specific activities it will take to address the poor performance. Based on a selection of these activities, we found that DHCS ensured that each of the four health plans conducted the quality improvement activities their quality CAPs required in order to meet or exceed the MPLs. These activities included the health plans conducting two types of performance improvement projects. Although one type of these projects is lengthier than the other and involves a thorough review by the EQRO, they share the common goal of improving health care outcomes and processes by piloting small changes rather than implementing one large transformation.
For the lengthier type of improvement projects that we reviewed, DHCS provided documentation demonstrating that the EQRO reviewed and approved them. For example, in 2016 Molina submitted a proposal for an improvement project with the objective of increasing its performance related to annual monitoring of patients on persistent medications (monitoring persistent medications). According to DHCS, this monitoring addresses patient safety by assessing the percentage of adult beneficiaries who were prescribed one of several different medications commonly associated with conditions such as high blood pressure and diabetes for at least six months during the year and who also received at least one monitoring lab test during the year. Health plans perform this monitoring to reduce the likelihood of patient injury and limit increased health care costs that might occur due to complications from the medications. The EQRO did not initially approve Molina’s proposal and required it to clarify the steps it proposed to increase the percentage of beneficiaries tested for adverse drug reactions before the EQRO ultimately approved the proposal. By including the EQRO’s evaluation of the proposed actions included in a health plan’s quality CAP, we found that DHCS has increased assurance that the activities the health plan undertakes to improve the quality of care are appropriate.
We also found that DHCS appropriately monitored the progress all four health plans made in developing and implementing the specified activities in their quality CAPs. From September 2015 through September 2017, DHCS’ quality CAP process required health plans to participate in monthly meetings with a DHCS nurse consultant to discuss progress and provide technical assistance. In October 2017, DHCS began requiring health plans to also participate in quarterly in‑person meetings with DHCS leadership to discuss and receive updates from the health plans on their progress in achieving the requirements of their CAPs.
Prior to attending these quarterly meetings, health plans must submit written reports to DHCS that discuss the progress they have made, any barriers to success, and the next steps that will be taken in the CAP process. DHCS explained that it uses these progress reports to update DHCS staff and executives on the health plan’s progress and to inform the discussion at quarterly meetings. DHCS also uses the reports to prompt health plans to consider how staffing and other considerations may affect their planned efforts to improve quality of care. DHCS stated that it had been holding quarterly meetings and requiring health plans to submit similar progress reports before it formally incorporated these steps as requirements in its October 2017 policy.
Based on our review of the quarterly meetings and progress reports for each of the four health plans, we found that DHCS held the required meetings and was able to demonstrate that the health plans submitted the required progress reports. Although DHCS is following its quality CAP process and the process is sufficient, it does not always guarantee success. As we describe in the next section, two of the four health plans—Health Net and San Joaquin—failed to achieve the requirements included in their 2017 quality CAPs.
We also reviewed another oversight mechanism, annual medical audits, that DHCS uses to determine whether health plans are complying with contract requirements. We found that DHCS’ medical audit processes for having health plans address deficiencies and for working with plans to ensure a high level of care are adequate. During the required medical audits that DHCS conducted of the four health plans for the review period beginning in 2014 and ending in 2017, DHCS identified 16 findings related to quality of care. When we reviewed a selection of seven of these findings for which the audit CAP process was complete, we found that DHCS appropriately required the respective health plans to submit an audit CAP to address these findings. Further, DHCS’ policies require that it assess whether a health plan’s proposed actions will address its findings and meet applicable requirements. We found that each of the health plans’ proposed actions addressed the findings, and DHCS subsequently closed the audit CAPs.
Some Health Plans on Quality CAPs Have Demonstrated Improvement in Their Quality of Care
The majority of health plans in the State generally met or exceeded most, if not all, of the MPLs for DHCS’ established quality indicators in 2017. Based on the most recent data available as of January 2019, we determined that 16 of 22 health plans met or exceeded the MPLs on more than 85 percent of the 21 quality indicators during 2017.2 One of these 16 health plans was Molina, which improved its performance and successfully completed its quality CAP in September 2018. In addition, because it improved its performance in certain locations that DHCS specified in its quality CAP, Anthem also successfully completed its quality CAP in September 2018. The improved performance by these health plans suggests that the quality CAP process may be effective in increasing quality of care. Nonetheless, two other health plans—Health Net and San Joaquin—did not demonstrate similar improvement in their performance and remained on quality CAPs as of January 2019.
According to DHCS, when Anthem was placed on a quality CAP in 2013 a formal process had not yet been established for identifying poorly performing health plans and placing them on quality CAPs. DHCS formalized its quality CAP process in September 2015, and in December 2015 DHCS also placed Molina on a quality CAP. Figure 2 shows that Anthem and Molina improved their performance by 2017. Subsequently, DHCS removed them from the quality CAP.
Figure 2
Anthem and Molina Generally Improved Their Performance While on a Quality CAP
Source: Documentation related to quality CAPs and sanctions, and data provided by DHCS.
Note: DHCS places health plans on a quality CAP based on their previous performance.
In contrast, although Health Net and San Joaquin demonstrated some improvement after DHCS placed them on quality CAPs, both health plans fell short of meeting their quality CAP requirements. In the case of Health Net, it did not achieve the milestone for 2017 that it meet or exceed the MPLs for 82 percent of the quality indicators. Similarly, in 2017 San Joaquin fell short of its milestone that it meet or exceed the MPLs for 77 percent of the quality indicators. According to DHCS, both of these health plans operate in difficult‑to‑serve areas, and improvement projects that had worked elsewhere failed in these particular locations, making it difficult for the plans to improve their quality indicators sufficiently.
Because the health plans did not meet the quality CAP requirements, DHCS imposed monetary sanctions in October 2018 of $335,000 on Health Net and $135,000 on San Joaquin. State law allows DHCS to sanction the health plans $5,000 for the first contract violation—an example of which is failing to maintain quality indicators above the MPLs—and $10,000 for each subsequent violation. DHCS calculated the sanction amounts based on the number of quality indicators for which the health plans failed to meet or exceed the respective MPLs. In addition, DHCS required both health plans to submit revised quality CAPs detailing how they will meet or exceed the required milestones in 2019. DHCS will continue to monitor both plans until they achieve their quality CAP requirements.
In addition to reviewing health plans’ overall performance, we also reviewed their performance on quality indicators related to three specific areas of care. The Joint Legislative Audit Committee (Audit Committee) specifically asked us to review quality of care standards related to postpartum care and diabetes treatments. We also selected for review the quality of care standards related to the area of monitoring persistent medications. Although our review found that health plans improved their performance in some of these areas, it is important to note that DHCS generally bases its decision to place health plans on, and remove them from, quality CAPs on overall performance rather than performance on quality indicators related to specific areas of care. DHCS placed three health plans—Anthem, Health Net, and San Joaquin—on quality CAPs, in part for their poor performance on certain quality indicators in the area of diabetes care. In 2013, DHCS held health plans accountable for eight quality indicators related to diabetes care. During the next four years, from 2014 through 2017, DHCS held the health plans accountable for six quality indicators related to diabetes care. Figure 3, which depicts the health plans’ performance across these indicators, shows that both Anthem and Health Net improved their performance in this area over the course of their quality CAPs.
Figure 3
Two of the Health Plans on a Quality CAP for Poor Performance in Quality Indicators Related to Diabetes Demonstrated Improvement
Source: Documentation related to quality CAPs and data provided by DHCS.
Note: DHCS places health plans on a quality CAP based on their previous performance.
All three health plans conducted improvement projects to increase their performance on some of these diabetes‑related quality indicators. For example, in 2016 Health Net implemented a successful outreach effort in a Sacramento clinic that led to an increase in beneficiaries with diabetes who received necessary blood tests. Health Net stated that it intended to adopt the use of this process at this location. Similarly, although San Joaquin’s performance generally declined in the area of diabetes care, the health plan conducted a successful improvement project that increased one of its clinics’ rate of beneficiaries with diabetes who received an eye exam, which led to it exceeding its intended goal for this project. This improvement project likely played a role in San Joaquin’s performance on this quality indicator increasing from below the MPL to above the MPL in 2017 in the county in which it conducted the improvement project.
Of the three health plans that were on quality CAPs related to postpartum care—Anthem, Molina, and Health Net—two demonstrated improvement in providing timely postpartum care. Most notably, at the beginning of its quality CAP in 2013, Anthem met or exceeded the MPLs for just 33 percent of the quality indicators in this area. However, as Figure 4 shows, Anthem improved its performance and in 2017 met or exceeded the MPLs for 92 percent of the quality indicators in providing timely postpartum care. Further, Figure 4 shows that Molina also demonstrated some improvement while on a quality CAP. Conversely, Health Net’s performance decreased in 2017, despite being on a quality CAP.
Figure 4
Two of Three of the Health Plans on Quality CAPs for Poor Performance on Timely Postpartum Care Demonstrated Improvement
Source: Documentation related to quality CAPs and data provided by DHCS.
Note: DHCS places health plans on a quality CAP based on their previous performance.
Each of these plans implemented improvement projects aimed at increasing their performance in providing timely postpartum care. In a project conducted from 2016 through 2017 at four of its Sacramento clinics, Molina contacted new mothers to schedule and complete in‑home assessment visits to help ensure that they received timely postpartum care. After implementing the project, Molina surpassed its initial goal for increasing the number of women completing timely postpartum visits. Molina stated that it planned to make the program permanent in this group of Sacramento clinics and would consider expanding the project to another clinic group in Sacramento County.
The four health plans on quality CAPs for monitoring persistent medications showed some improved performance in meeting the MPLs. For example, Figure 5 shows that Health Net’s performance in this area increased from 14 percent of quality indicators above the MPLs in 2014—the year that triggered the quality CAP—to 57 percent of quality indicators above the MPLs in 2017. Although Figure 5 shows that San Joaquin’s performance related to monitoring persistent medications improved from 2016 to 2017, San Joaquin will continue on a quality CAP and DHCS will require that it complete additional improvement projects in this area.
Figure 5
The Four Health Plans Demonstrated Improvement on Their Quality Indicators Related to Monitoring Persistent Medications Since Being Placed on a Quality CAP
Source: Documentation related to quality CAPs and data provided by DHCS.
Note: DHCS places health plans on a quality CAP based on their previous performance.
As part of their quality CAPs, these four health plans performed a variety of improvement projects for monitoring persistent medications, and those that were successful likely contributed to improvements in this area. For example, Anthem completed an improvement project that focused on outreach and intervention in two of its facilities in Tulare County that led to an increased percentage of beneficiaries who received necessary laboratory tests. As a result of its success, Anthem stated that it plans to expand the improvement project to other facilities and providers in Tulare County. In another successful example, in 2017 Health Net conducted an improvement project focused on increasing the number of beneficiaries of a clinic in Sacramento County who had completed their annual laboratory testing. Based on the outreach efforts performed, Health Net stated that it increased the number of beneficiaries who completed annual laboratory testing, and it concluded that the improvement project was a success and one that it would continue.
Although DHCS appropriately monitors health plans’ implementation of their improvement projects for quality CAPs, it is missing an opportunity to ensure that health plans formally adopt successful projects and to share these with other plans. Specifically, once an improvement project reaches its completion, the health plan can choose to adopt or abandon the project. If a health plan chooses to adopt the improvement project, it may do so at only the location where it was completed or it may expand the project to other locations. In instances in which improvement projects are successful and the health plans indicate they will adopt the projects, DHCS acknowledged that it does not formally follow up on whether the health plans do so. DHCS explained that it has considered a formal follow‑up process to determine whether health plans implement successful improvement projects on a wider scale but cited various limitations, including that expanding these projects to other clinics takes significant time and could involve years of continued reporting by the health plan to DHCS.
Although we agree that type of monitoring could be extensive, we do not expect DHCS to wait years to share successful improvement projects. Instead, we believe that DHCS could compile a list of improvement projects that it determined were successful and share it with other health plans on a periodic basis. In addition, DHCS could require the health plan to annually report to it on the results of those projects the health plan intends to adopt or expand at other locations. Using this information, DHCS could identify successful improvement projects, particularly those proven effective on a wider scale, and then include these projects on the list of successful improvement projects that we describe above. DHCS agreed that adding this provision to its quality CAP process would be feasible.
DHCS Does Not Adequately Oversee Health Plans’ Processes to Prevent Fraud or Conflicts of Interest
DHCS should improve its efforts to ensure that health plans have adequate processes in place to prevent or detect fraud. Federal regulations mandate that DHCS’ contracts with managed care plans require the plans to implement and maintain procedures that are designed to detect and prevent fraud, waste, and abuse. DHCS’ contracts with the plans we reviewed comply with this requirement. Each plan’s fraud, waste, and abuse procedures must include establishment of a compliance committee and a system for training specified employees. Although DHCS’ annual medical audits include steps for evaluating whether health plans have a fraud and abuse program that includes processes to detect and prevent fraud, we found that they did not identify shortcomings in this area for three of the nine audit reports we reviewed.
DHCS’ audit procedures describe how to evaluate health plan compliance with various contract provisions, such as determining whether a health plan has policies and procedures for its fraud and abuse program, including training records and meeting minutes from its compliance committee. However, our review of nine annual medical audits of Kern, San Joaquin, and Santa Clara that DHCS issued each year from 2016 through 2018 found that DHCS consistently failed to identify a shortcoming in Kern’s approach to preventing and identifying fraud. Specifically, DHCS concluded that Kern satisfied the contract requirements related to fraud and abuse in each of its three consecutive medical audits even though the health plan never established a compliance committee as required by the contract. One intent of requiring health plans to establish a compliance committee is to ensure that the plans’ processes, including their training and steps to submit and review fraud complaints, are as effective as possible at preventing and detecting fraud. Although DHCS acknowledged that its staff overlooked this shortcoming and that management should have identified it as a reportable issue during the review process, by repeatedly failing to identify this noncompliance, DHCS demonstrated that it does not consistently follow its established audit procedures.
Further, DHCS does not verify the steps health plans take to identify and prevent conflicts of interest. DHCS’ contracts with the health plans we reviewed require them to adhere to specified state conflict‑of‑interest regulations and requirements, which include prohibiting health plans from contracting with certain individuals who have a substantial financial interest in the health plan. However, we found that DHCS does not determine through its annual medical audits whether health plans adhere to the State’s conflict‑of‑interest requirements. To determine which contract sections to review as part of the annual medical audits, DHCS indicated that it conducted a risk assessment in 2012 and organized the contract sections it identified as high‑risk areas into seven broad audit categories. It also stated that it performs annual risk assessments to include any additional areas of risk within these established audit categories. DHCS asserted that it excluded a review of a health plan’s conflict‑of‑interest controls from these audit categories because it has not considered these controls a high‑risk area. In addition, DHCS stated that it does not audit all contractual requirements each year because the scope of its annual audits is specific to the seven audit categories it established based on its 2012 risk assessment. Therefore, DHCS would not audit other contractual requirements, such as those related to conflicts of interest, unless it performed another comprehensive risk assessment and selected these requirements as part of its annual medical audits. However, DHCS indicated that it will consider updating its audit program to include conflict‑of‑interest controls in the future. When DHCS fails to determine whether health plans are taking steps to identify and prevent conflicts of interest, it risks that health plans are not compliant with applicable requirements and lessens assurance in a plan’s ability to confirm that its staff are aware of the need to avoid contracting with providers who may have a financial interest in the plan.
Recommendations
To help identify successful improvement projects, by September 2019 DHCS should require health plans to annually report the results of those projects they plan to continue or expand to other locations. Using this information, by December 2019 DHCS should compile a list of successful improvement projects to share with other health plans on a periodic basis, but at least annually.
To ensure that DHCS consistently identifies health plans that do not have required processes to detect and prevent fraud, it should immediately reevaluate its audit program for medical audits and revise it as necessary to ensure that staff follow the audit procedures regarding fraud and abuse programs.
By September 2019, and periodically thereafter, DHCS should conduct another risk assessment and ensure that it includes a comprehensive evaluation of which contract areas—including conflicts of interest—it should focus on in its annual medical audits. Going forward, it should conduct this type of comprehensive risk assessment and ensure that it reviews health plans’ conflict‑of‑interest controls at least once every three years.
DHCS Does Not Ensure That Health Plans’ Administrative Expenses Are Reasonable and Necessary
Key Points:
- DHCS does not provide guidance on what types of administrative expenses are reasonable and necessary, which likely contributed to three health plans making some questionable administrative expenditures.
- DHCS does not oversee, or provide guidance on, health plans’ bonus programs. San Joaquin and Santa Clara paid bonuses to their employees, whereas Kern did not.
DHCS Oversight of Health Plans’ Administrative Expenses Is Lacking, Leading to Some Questionable Costs
DHCS’ lack of guidance likely contributed to questionable administrative expenses that we identified at the three health plans we visited. Federal and state regulations generally require that health plans’ administrative expenses be below 15 percent of the Medi‑Cal funds they receive, and be reasonable. State regulations also require administrative expenses to be necessary. DHCS is the oversight entity to ensure compliance with applicable provisions of state and federal Medi‑Cal laws. However, DHCS does not do enough to ensure, as its contracts and regulations require, that health plans’ administrative expenses are reasonable and necessary. As described in the Introduction, DHCS issues guidance to health plans regarding contract and legal requirements in All‑Plan Letters; however, it has not issued such guidance as it relates to reasonable and necessary administrative expenses. Further, it has not specifically defined what constitutes reasonable and necessary administrative expenses under state regulations. Without this oversight, it is not surprising that we found that Kern, San Joaquin, and Santa Clara each had some questionable administrative expenses from 2015 through 2018.
All three health plans’ administrative expenses were below the 15 percent threshold, but we found that they used Medi‑Cal funding for questionable purposes, including events for their employees. Both Kern and San Joaquin confirmed that they made these purchases with Medi‑Cal funds. Santa Clara pays its administrative expenses from a single account using multiple revenue sources, more than 90 percent of which is Medi‑Cal, with substantially all of the remainder consisting of other federal funds. Table 1 shows that, based on a selection of administrative expenses, each of the three health plans spent between $4,600 and $47,000 annually on expenses related to events for their employees and sometimes guests. In addition, Kern spent $7,200 annually on an automobile allowance for its chief executive officer (CEO). Further, San Joaquin provided coffee for its employees—an expenditure approved by its board—at an annual cost of $22,400 or more. The health plans indicated that these expenses were for increasing employee morale and retention. Although the three health plans’ respective boards approve their budgets, which include total budgeted amounts for administrative expenses, the boards do not review or approve individual expenses unless they exceed certain thresholds.
| HEALTH PLAN | ADMINISTRATIVE EXPENSE DESCRIPTION | COST | YEAR |
|---|---|---|---|
|
Kern |
Retirement luncheon | $4,600 | 2015 |
| CEO annual automobile allowance | 7,200 | 2015 | |
| Employee recognition event | 8,000 | 2015 | |
| CEO annual automobile allowance | 7,200 | 2016 | |
| Employee and family event at county fair | 6,300 | 2016 | |
| Employee recognition event | 11,200 | 2016 | |
| CEO annual automobile allowance | 7,200 | 2017 | |
| Employee recognition event | 23,400 | 2017 | |
| CEO annual automobile allowance | 7,200 | 2018 | |
| Employee recognition event | 47,000 | 2018 | |
| Total | $129,300 |
|
|
|
San Joaquin
|
Employee celebration | $12,800 | 2015 |
| Employee coffee | 22,400 | 2015 | |
| Employee coffee | 28,200 | 2016 | |
| Employee coffee | 27,300 | 2017 | |
| Employee end of year party | 10,000 | 2017 | |
| Employee coffee | 25,400 | 2018 | |
| Total | $126,100 |
|
|
|
Santa Clara
|
Employee picnic | $5,000 | 2016 |
| Employee picnic | 10,500 | 2017 | |
| Employee picnic | 7,000 | 2018 |
Source: Analysis of a selection of the three health plans’ administrative expenses from 2015 through 2018.
We question how DHCS would consider these expenses reasonable. Further, these expenses are not strictly necessary for the health plans to operate. DHCS explained that it oversees health plans’ administrative expenses at the aggregate level—meaning that it performs a calculation to ensure that each health plan’s administrative expenses do not exceed 15 percent of its net revenue. DHCS stated that it does not perform audits of health plans’ financial information and that it monitors the health plans’ aggregate expenditures at the category level, such as the total amount they spend on marketing. However, we believe this limited review is insufficient because as the oversight entity that contracts with health plans, DHCS is responsible for ensuring that the health plans comply with contractual and legal requirements that administrative expenses be reasonable and necessary.
State law and regulations are, in some instances, inconsistent. For example, one section of state regulations generally authorizes charitable or other contributions as allowable administrative expenses, while another section specifically prohibits donations as allowable administrative expenses. Further, state regulations generally define allowable administrative expenses in broad categories, such as the cost of soliciting and enrolling subscribers and enrollees; salaries, bonuses, and benefits; costs associated with the establishment and maintenance of provider agreements; and the costs of marketing. Conversely, federal regulations specifically disallow spending federal funds for entertainment costs. DHCS asserted, however, that these specific federal regulations are not applicable to the health plans because they receive premiums to provide managed care instead of a fee‑for‑service reimbursement.
Without specific guidance and direct oversight from DHCS, the health plans indicated that they rely on existing requirements and their own professional judgment to determine what administrative expenses are reasonable and necessary, which likely contributed to them making the questionable expenditures we show in Table 1. Thus, DHCS risks that health plans are making administrative expenses that are not reasonable and necessary. Therefore, we believe that DHCS would benefit from providing specific direction to the health plans regarding the types of administrative expenses that are reasonable and necessary.
The Health Plans’ Bonus Programs Vary, and DHCS Lacks Guidance on What Constitutes Reasonable Bonuses
State and federal regulations both allow health plans to use Medi‑Cal funding to pay employees reasonable bonuses. However, we found that the three health plans we reviewed take different approaches when determining executive and staff bonuses, resulting in amounts that vary widely from one plan to another. Likely contributing to these inconsistencies is that DHCS does not oversee health plans’ employee bonuses. Specifically, DHCS does not provide guidance to health plans on the types of bonus programs that are reasonable. As state law designates DHCS as the oversight entity to ensure full compliance with both its Medi‑Cal contracts and applicable provisions of state and federal law, DHCS is responsible for ensuring that the health plans it contracts with and oversees have reasonable and necessary administrative expenses, including bonuses.
San Joaquin and Santa Clara both spent Medi‑Cal funds on employee bonuses, whereas Kern did not pay bonuses to employees. Table 2 shows a comparison of the total bonus amounts San Joaquin and Santa Clara paid to their executives and other employees from fiscal years 2015–16 through 2017–18. San Joaquin stated that it believes the bonuses it paid its executives and certain other employees are reasonable because its governing board approved them and because it competes against commercial health plans, so its compensation must therefore be competitive to attract and retain talented employees. In contrast, Kern explained that it maintains and administers a compensation program based on employee performance that does not currently include bonuses for any of its employees.
|
|
SAN JOAQUIN | SANTA CLARA | ||||
|---|---|---|---|---|---|---|
| AMOUNT | EMPLOYEES THAT RECEIVED BONUSES | AVERAGE BONUS PER EMPLOYEE | AMOUNT | EMPLOYEES THAT RECEIVED BONUSES | AVERAGE BONUS PER EMPLOYEE | |
| Fiscal Year 2015–16 |
|
|
|
|
|
|
| Executives | $144,200 | 7 | $20,600 | $46,200 | 5 | $9,200 |
| Other Employees | 358,100 | 44 | 8,100 | 286,100 | 145 | 2,000 |
| Fiscal Year 2016–17 |
|
|
|
|
|
|
| Executives | $337,100* | 7 | $48,200 | $59,700 | 5 | $11,900 |
| Other Employees | 437,900 | 48 | 9,100 | 280,200 | 188 | 1,500 |
| Fiscal Year 2017–18 |
|
|
|
|
|
|
| Executives | $220,000* | 5 | $44,000 | $30,300† | 1 | $30,300 |
| Other Employees | 434,200 | 54 | 8,000 | 0 | 0 | 0 |
Source: San Joaquin’s and Santa Clara’s reported bonus payments to executives and other employees.
Note: San Joaquin stated that it did not award bonuses to two executives for fiscal year 2017–18.
* The amounts for San Joaquin’s executives in fiscal years 2016–17 and 2017–18 include deferred compensation, which the health plan stated consists of funds it places into an account that is an asset of the health plan until the employees withdraw it.
† Santa Clara stated that it did not meet the goals of its bonus program and decided not to pay bonuses to any of its employees in fiscal year 2017–18, with the exception of its CEO.
We found that San Joaquin and Santa Clara followed their policies when awarding bonuses. San Joaquin and Santa Clara both have high‑level policies stating that they will generally base the amounts of employee bonuses on position, salary, and performance in achieving bonus program objectives. For example, based on employee position and their annual base salary, in fiscal year 2017–18 San Joaquin allowed for up to an 18 percent bonus for the CEO and up to 15 percent for other executives. Ultimately, San Joaquin paid its executives bonuses of roughly 10 percent of their base salaries in fiscal year 2017–18. In addition, the health plan paid its CEO a bonus of 12 percent of her base salary for fiscal year 2017–18, and a bonus of 14 percent of her base salary in fiscal year 2016–17. San Joaquin stated that it uses compensation studies to inform the amounts it pays under its bonus program, along with its need to attract and retain highly qualified employees. Santa Clara’s policy allows for a maximum of 5 percent of employees’ base salaries as bonuses, with the exception of the CEO, who may receive a larger bonus. For example, in fiscal year 2016–17 the health plan paid bonuses of 2 percent of employees’ annual salaries, and it did not pay bonuses to employees in fiscal year 2017–18 because the plan did not meet its bonus program objectives. On the other hand, Santa Clara’s CEO received a bonus of 7 percent in fiscal year 2017–18 because the health plan’s governing board determines the CEO bonus each year based on her employee contract, her individual performance, and other factors. Santa Clara stated that it based its rationale for determining whether these percentages were reasonable upon a comparison to other health plans, and the CEO’s previous experience in working at other health plans. Finally, we found that both health plans considered whether they met their bonus program objectives when determining the bonus amounts they paid during the period we reviewed.
DHCS does not believe its role is to provide guidance regarding what constitutes a reasonable bonus program. However, we found that the health plans’ bonus programs we reviewed varied and in some cases were questionable. For instance, San Joaquin paid its employees bonuses during years when it was performing poorly and was on a quality CAP. Further, we found that despite comparable executive salaries, San Joaquin paid its executives higher bonuses than those paid by Santa Clara. Without providing guidance, DHCS risks that health plans will pay bonuses when they are performing poorly, or will pay bonuses that are excessive.
Recommendations
DHCS should develop and issue an All‑Plan letter or other binding guidance by March 2020 to the health plans that specifically defines what constitutes reasonable and necessary administrative expenses. Further, it should provide guidance to health plans on what is a reasonable bonus program. In doing so, DHCS should perform the necessary oversight to ensure health plans comply with this direction.
DHCS Properly Recouped Excess Funds From Health Plans
Key Points:
- DHCS recovered nearly $2.6 billion in excess payments to health plans resulting from implementation of the federal Patient Protection and Affordable Care Act (Affordable Care Act).
DHCS complied with federal requirements in recouping excess funds it paid to health plans during the first three years of expanded coverage resulting from the Affordable Care Act. The Affordable Care Act expanded Medicaid eligibility requirements for certain adults in participating states and required the federal government to fund 100 percent of the health care costs for this population during the first three years of expanded coverage—2014 through 2016. In 2013 state law was amended to expand Medicaid eligibility in California. Subsequently, DHCS included provisions in its Medicaid contracts with the health plans requiring DHCS to calculate and repay the federal government any excess funds they received from covering this newly eligible population. Specifically, DHCS amended the contracts to require the health plans to spend at least 85 percent of the premiums, less certain designated amounts, they received on allowed medical expenses for newly eligible beneficiaries. Health plans that spent less than 85 percent are required to repay the difference. Alternately, health plans that spent more than 95 percent on allowed medical expenses are reimbursed by DHCS, while health plans that spent between 85 and 95 percent on allowed medical expenses do not pay or receive any funds. Figure 6 shows the timeline DHCS followed to recoup the excess funds health plans received from covering the expanded adult Medi‑Cal population and to repay the federal government.
Figure 6
DHCS Recouped and Repaid CMS Nearly $2.6 Billion to Cover Excess Funds Paid to Health Plans
Source: The Affordable Care Act, DHCS’ methodology—approved by CMS—used to calculate the amount of excess funds health plans had to remit to DHCS, and DHCS’ timeline to complete the recoupment process.
In December 2017, CMS—the federal agency that oversees the Medicaid program—approved DHCS’ proposed methodology to calculate whether health plans received excess funds and to recoup these funds if necessary. This methodology included steps to review each health plan’s self‑reported data and compare them to data the health plans previously reported to better assess accuracy, completeness, and reasonableness, and make any adjustments it deemed necessary. DHCS completed the recoupment process in December 2018 and repaid CMS nearly $2.6 billion in excess funds, as Table 3 shows. Although DHCS acknowledged that it did not audit the health plans’ self‑reported data before approving the recoupment amounts, the CMS‑approved methodology includes provisions for DHCS, CMS, and other state or federal oversight entities to reserve the right to audit health plans’ data in the future. In addition, CMS notified DHCS that it engaged a contractor to conduct audits that will be initiated in 2019 and include a review of the health plans’ self‑reported data to ensure that the total recouped amount is accurate.
| HEALTH PLAN | TOTAL EXCESS FUNDS RECOUPED (IN MILLIONS) |
|---|---|
| Alameda Alliance for Health | $179.30 |
| Anthem Blue Cross Partnership Plan | 184.2 |
| California Health & Wellness | 99.7 |
| CalOptima | 101.8 |
| CalViva Health* | 0 |
| Care 1st Partner Plan, LLC | 88.9 |
| CenCal Health | 83.9 |
| Central California Alliance for Health | 286.1 |
| Community Health Group Partnership Plan | 121.5 |
| Contra Costa Health Plan* | 0 |
| Gold Coast Health Plan | 160.5 |
| Health Net Community Solutions, Inc. | 272.1 |
| Health Plan of San Joaquin | 143.4 |
| Health Plan of San Mateo | 109.3 |
| Inland Empire Health Plan | 33 |
| Kaiser Permanente | 33.4 |
| Kern Health Systems | 21.8 |
| Los Angeles Care Health Plan | 226.2 |
| Molina Healthcare of California Partner Plan, Inc. | 92.1 |
| Partnership Health Plan of California | 316.4 |
| San Francisco Health Plan | 6.7 |
| Santa Clara Family Health Plan | 3 |
Source: DHCS notification letters to health plans regarding the amount of excess funds that it would recoup.
Note: The Aetna Better Health of California, Rady Children’s Hospital, and the United Healthcare Community Plan are excluded from this table because these plans did not begin contracting with DHCS until after the Affordable Care Act expansion.
* CalViva Health and the Contra Costa Health Plan did not owe DHCS funds because these plans spent more than 85 percent of their premiums, less certain designated amounts, on allowable expenses for newly eligible beneficiaries.
Our examination of DHCS’ process to review the health plans’ self‑reported data found that it consistently adhered to procedures that are described in CMS’ approved calculation methodology that required DHCS to compare a health plan’s reported enrollment, revenue, and expense data to corresponding data in DHCS’ systems. To ensure that it complied with the approved methodology, DHCS developed roughly 70 procedural steps to review the health plans’ self‑reported data. DHCS’ procedures include steps such as analyzing health plans’ reported expenses and completing a qualitative review of a selection of incentive payments, which are made by health plans to providers to promote or reward improved quality of care. We reviewed selected elements of DHCS’ review of Kern’s reported data and found that DHCS sufficiently followed and documented the proper steps.
We conducted this audit under the authority vested in the California State Auditor by Government Code 8543 et seq. and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Respectfully submitted,
ELAINE M. HOWLE, CPA
California State Auditor
April 4, 2019
Footnotes
2 Several health plans have multiple locations, and each location’s performance can vary. This analysis is based on the average of a health plan’s performance across all of its locations. Go back to text