State auditors have discovered “serious and significant” problems, including potentially dangerous delays in approving prescriptions, at CalOptima, the county’s $1.5-billion health plan for low-income and disabled residents, according to the state Department of Health Care Services.

In an April 23 letter, the state urged CalOptima management to “devote all of its time and resources” to fixing the problems and gave the county agency until May 23 to submit a plan.

CalOptima is financed almost entirely with federal and state tax funds, and state officials warned that they have the authority to take action if CalOptima remains out of compliance with its state contract, including “installation of temporary management” as well as ending the county’s contract with the state.

The state audit results come as Board of Supervisors Chairman Shawn Nelson is scheduled Tuesday to appoint Supervisor Todd Spitzer to serve alongside Supervisor Janet Nguyen on the CalOptima board, adding oversight to the troubled board and agency.

On Thursday, the full CalOptima board meets for its regularly scheduled monthly meeting.

The state audit was triggered by a smaller federal audit in November of the 16,000-member OneCare program mostly for older adults.

That audit, by the Center for Medicare & Medicaid Services or CMS, found a “serious threat to the health and safety” of participants, and CalOptima was ordered to stop enrollments in the program until the problems were fixed.

To address the federal audit problems, CalOptima has set aside about $2 million to hire outside experts and conduct mock audits to ensure they will pass a new federal inspection this summer.

The much larger state audit, conducted in February, covered CalOptima’s roughly 510,000 Medi-Cal recipients, most of them children. State auditors also will return in August to ensure the problems have been fixed.

Ironically, the state Health Care Services letter was signed by Margaret Tatar, acting deputy director of Health Care Delivery Systems. Tatar, who belongs to no political party, was an aide to former Republican Assemblywoman Lynn Daucher of Brea and then was CalOptima executive director of Public Affairs from 2003 until January 2012.

She was among roughly two dozen key executives who left for better jobs in private industry or government as Nguyen took over. At the same time, an in-house CalOptima lawyer, fearing he was about to be fired, leveled more than 100 accusations of wrongdoing against managers. All of the accusations turned out to be wrong or were dropped by the lawyer before an investigation even began.

But Nguyen, backed by Supervisor Pat Bates and then Supervisor Bill Campbell, completely remade the CalOptima board of directors, replacing the old board with a majority that either is part of the medical industry or county employees.

Nguyen, who is running for the State Senate this year, has raised more than $95,000 in campaign contributions from the health industry since joining the CalOptima board of directors in 2011. Before that, her medical industry political contributions totaled $15,000.

The state’s Fair Political Practices Commission is investigating the current CalOptima board of directors as well as four of the five county supervisors. Spitzer, who just joined the Board of Supervisors in 2013, is not part of the investigation.

In addition, according to a once-secret report to the CalOptima board by the Costa Mesa law firm Theodora Oringher, “The CalOptima Board is ultimately responsible for expenditures of public funds and Board members may, under the California Constitution, be held personally liable for improper expenditures.”

The state audit listed a series of issues, including:

  • Multiple problems with the way the outside vendor hired by CalOptima in 2012 approved or denied prescriptions, sometimes causing delays as long as two weeks in having prescriptions filled.
  • Failure to put in place systems to detect potential fraud, waste and abuse.
  • Grievances that weren’t handled in a timely way and appeals that weren’t thoroughly reviewed to correct all issues.
  • Providers weren’t monitored to track how they handled referrals.

Fraud detection has an unusual history at CalOptima. When county Health Care Agency director Mark Refowitz took over as CalOptima board chairman in 2012, an ad hoc committee of the board of directors was looking ahead to potential fraud problems as enrollment was expected to surge when the new national Affordable Care Act, known politically as Obamacare, went into effect this year.

Jim McAleer, who was the CalOptima vice chairman until he resigned from the board in 2012 in protest of the instability created by Nguyen’s jockeying for control, was chairman of the ad hoc committee.

He said the committee focused on three areas, including pharmacy and medical billing. A new vendor, Pennsylvania-based PerformRx, had just been awarded a contract to provide the agency’s prescription drugs and work with doctors and other medical providers.

Medical fraud has been a serious problem nationwide for decades, and federal officials stepped up enforcement in 2011, including use of the Health Care Fraud Prevention and Enforcement Team or HEAT, which includes investigators and prosecutors who target fraud by real or fake health care providers and suppliers.

But repeated requests by Voice of OC to determine the status of the CalOptima fraud ad hoc committee haven’t been answered, and this year both the federal and state audits pointed to lack of anti-fraud action as a serious problem.

Oddly, the state audit indicates CalOptima updated fraud procedures last fall, but even so, the system didn’t seem to be effective.

“Systems and procedures were not in place to identify or detect potential fraud, waste, and abuse cases,” the state audit letter stated. “Procedures have not been developed to ensure claims from suspended and ineligible providers are blocked. The Plan did not ensure that all potential fraud, waste, and abuse cases were reported to DHCS [the Department of Health Care Services] within the time frames required by the contract.”

Voice of OC has learned that in addition to CalOptima’s apparent failure to stay on top of fraud issues, Nguyen, Refowitz and current CalOptima board vice chairman Lee Penrose, who is president and CEO of St. Jude Hospital in Fullerton, sidetracked a comprehensive study of weaknesses at CalOptima in 2012, killing a chance to fix at least some potential problems as much as a year before federal and state auditors uncovered the issues.

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