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Casey Audit Finds $8 Billion HealthChoices Program Poorly Monitored by DPW
July 22, 2002

The following press release was prepared by the Office of Auditor General on July 18, 2002
CONTACT: Karen Walsh, 717-787-1381, news@auditorgen.state.pa.us

The Department of Public Welfare (DPW) does not have accurate records to document the more than $8 billion it has spent on medical care for low-income families enrolled in the HealthChoices managed care program, according to a performance audit released today by Auditor General Robert P. Casey, Jr. In fact, DPW's oversight and management of the HealthChoices program is so deficient that it is unable to evaluate the cost and quality of care provided to Medicaid recipients or even if they utilized the health care services made available to them. Casey's audit also found that DPW's poor record keeping has seriously compromised the agency's ability to detect fraud and abuse in the HealthChoices program.

"It is outrageous that DPW cannot verify that low-income families enrolled in the HealthChoices program are receiving the quality health care to which they are entitled," Casey said. "DPW cannot even keep track of what medical services were actually provided in exchange for the more than $8 billion in taxpayer money that DPW paid out."

Pennsylvania currently ranks 7th nationally in the number of Medicaid recipients enrolled in managed care organizations. This number is expected to increase as fee-for-service systems are phased out and new eligibility guidelines for the HealthChoices program are implemented. At this time, HealthChoices consists of six managed care organizations in the Philadelphia, Pittsburgh and Lehigh/Central Pennsylvania regions.

Under HealthChoices, managed care organizations are paid up-front by DPW, before they provide any services to Medicaid recipients. In exchange for this pre-payment, the organizations are expected to provide adequate access and quality health care through a network of providers.

"The unique design of the HealthChoices program - including the limited number of managed care organizations and the pre-payment for services - require DPW to be vigilant in its monitoring and oversight," Casey said. "The key to this is complete, accurate and timely information from providers."

Following an encounter with a doctor or other medical professional, managed care organizations are required to submit to DPW specific information about the medical care provided to each patient. Collectively, these records are called "encounter data" and they constitute the primary information resource of the managed care industry. "Encounters" with a health care provider may be classified as: 1) medical/physician visit; 2) in-patient care; 3) long-term care; 4) prescription drugs; or 5) dental services.

DPW uses this encounter data to:

  • determine appropriate levels of payment to managed care organizations;
  • safeguard the quality of care;
  • monitor access to care;
  • detect and deter fraud and abuse;
  • analyze utilization patterns;
  • estimate cost savings from managed care; and
  • respond to information requests.

"Without accurate encounter data, DPW cannot know whether necessary health care services for which it has paid were properly rendered or rendered at all," Casey said. "Moreover, a lack of such data seriously compromises DPW's ability to negotiate new contracts with managed care organizations that reflect actual costs and risks, and to ensure the provision of quality care."

According to Casey's audit, which analyzed reports from July 1, 1998 to November 8, 2001, DPW could not ensure that the encounter data it received was complete, accurate or timely. In addition, the audit found great disparities among managed care organizations in the rates of reported encounters per member.

One explanation for the disparities observed is that providers for some managed care organizations - specifically those reimbursed on a flat fee basis - have little incentive to report all encounters because their reimbursement is not dependent on the number of procedures they report. This would suggest there was an under-reporting of services actually performed, rather than any real differences in the quantity or quality of services.

At the same time, health care providers reimbursed on a flat fee basis also have financial incentives to manage care more intensively, which may result in necessary care being delayed or denied altogether. In this case, disparities in encounter rates may reflect significant actual differences among managed care organizations in the quality and quantity of care delivered to some Medicaid recipients.

"Unfortunately, DPW's failure to ensure quality and timely data makes it difficult, if not impossible, to discern whether apparent substantial differences in encounter rates among managed care organizations reflect reporting gaps or signify real differences in levels of care," Casey said. "Equally troubling is that weaknesses in DPW's collection and management of encounter data make it difficult to evaluate whether the disparities observed indicate that patients of some managed care organizations are systematically and significantly medically under-served."

Casey said that he hopes the two dozen recommendations he offered in his audit report will be implemented by the Governor so that all HealthChoices members will receive the quality medical care they deserve.

A copy of Casey's audit is available at www.auditorgen.state.pa.us/Department/Info/Performance/MedicaidReport.pdf.

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