Ruling Stalls Fraud Fight, Official Says

WASHINGTON —  California Controller Kathleen Connell said Monday that a federal court ruling has virtually paralyzed her office in its efforts to help fight the billion-dollar menace of fraud against the Medi-Cal program--an assertion the state’s chief investigator disputed.

“My office cannot be effective and operate with one arm tied behind my back,” Connell said, noting that there is often a months-long delay in handling cases because a 1999 ruling by the U.S. District Court in San Francisco limited her authority.

Connell wants a change in federal legislation to restore her power to freeze the accounts of people who are cheating Medi-Cal, a program that helps pay medical bills for poor people in California.

Fraud--in the form of money for services that were never performed, services that weren’t needed or merchandise and services provided at inflated prices--costs about $1 billion a year, according to estimates by Connell’s office and by other state and FBI investigators handling the cases.

Under federal law, Medi-Cal is administered by the Department of Health Services. Until the court ruling, Connell’s office could freeze payments to those who, through audits, were found to have acted improperly. But one company sued, and the court ruled that the controller couldn’t act unilaterally because the department was the sole agency responsible for Medi-Cal.

As a result, Connell’s office must now send audits to Health Services, which decides if there has been fraud and whether the case should be referred for prosecution. Connell contends that the result is long delays in the state’s effort to recover money.

The controller is taking her campaign for a change in the law to a new level today, with an appearance before a House subcommittee to discuss the fraud.

She planned to tell Congress: “I am currently prohibited from withholding payments to suspected fraudulent providers or referring them for criminal investigation and prosecution.”

Controllers and auditors in other states, she said, have watched California’s problems and told her they fear that their abilities to fight fraud might also be undermined.

Gov. Gray Davis has been increasing the state resources devoted to combating abuses of the Medi-Cal system, Connell said. The state’s Medi-Cal Fraud Prevention Bureau has screened 13,000 of the 120,000 individuals and businesses registered as Medi-Cal providers. And state and federal officials run an anti-fraud task force.

Although Connell has worked closely with other agencies and praised their cooperative efforts, she made clear her sense of frustration with the limits on her powers.

“The process of [fighting fraud] has really slowed down,” she said.

J. Alan Cates, at Health Services, whom Davis chose as the head fraud-hunter, challenged the controller’s assessment.

“We’re not only doing a good job, but the rest of the nation is looking at us with great interest,” Cates said of his work as chief of the Medi-Cal fraud prevention bureau at the department.

Cates said his unit and federal authorities have obtained 70 convictions in 115 cases.

There is still a “good need for a compliance audit”--a role that should be filled by the controller’s office, said Cates, who formerly worked for Connell in that office. However, his Health Services unit should play the main role in fraud detection, prevention and referral for prosecution, he said.

“We do something different than what auditors do--we just focus on fraud,” said Cates, who has been given authority by the governor to double the size of his 16-member unit.

Connell hopes that Congress can make changes this year.

She has strong support from Rep. Christopher Cox (R-Newport Beach), a member of the House Commerce Committee’s oversight subcommittee, which is holding today’s hearing. “We can make it plain that when it comes to fraud, the state office normally in charge of auditing can exercise authority” over the Medi-Cal program, Cox said. There are plenty of bills to which Connell’s request can be attached for possible passage this year, Cox added.

A spokesman for committee Chairman Thomas J. Bliley (R-Va.) said: “We certainly need to look closely at any proposal brought to Congress from California.” Although action is possible this year, he added, there is relatively little time left before Congress adjourns.

Connell, who has been the state controller since 1995, said her office has saved more than $547 million through audits of providers for the Medi-Cal programs, including doctors, laboratories, pharmacies and vendors of equipment such as wheelchairs.

Medi-Cal is a joint federal-state program. Its budget is about $23 billion, with $13.2 billion coming from federal funds.