-----Original Message-----
From: Gurubanda Singh Khalsa [mailto:
Sent:Wednesday, February 27, 200811:07 AM
Subject: RE: changes to State SD/MC audit recovery

The information in this e-mail is provided in response to Olivia Celis’ recent discussion with the children contractors and your subsequent February 25, 2008 e-mail request. The topic was the State Department of Mental Health had initiated the recovery of Early and Periodic Screening, Diagnosis and Treatment (EPSDT) - State General Funds (SGF) as part of its settlement process.

Your contractors may be confusing two mutually exclusive State audit processes, the “EPSDT Chart Audits” and the “Short-Doyle Medi-Cal Program Audit of the Los Angeles County Community Mental Health Services”. The State DMH initiated the “EPSDT Chart Audits” in January 2005. The State has always recouped both the Federal Financial Participation (FFP) and the State General Funds (SGF) portions of disallowed claims. These EPSDT chart audits and the recoupment of FFP and EPSDT-SGF take place during or shortly after the fiscal year for which the dates of services are being audited. There has been no change in this procedure since the beginning of EPSDT Chart Audits by the State DMH in FY 2004-05.

I believe that the change that your contractors have expressed their concern about is associated with the “Short-Doyle Medi-Cal Program Audit of the Los Angeles County Community Mental Health Services”. This State audit and settlement is performed 3 to 5 years after the end of the fiscal year being audited. Previously, the State DMH only recouped the FFP portion of any disallowed Medi-Cal claims associated with Medi-Cal beneficiaries with EPSDT Aid Code status. Counties and contractors were in effect allowed to keep the EPSDT-SGF portion of disallowed claims or in other words were benefited by retaining SFG funds paid for disallowed claims. However, CountyDMH noticed for the first time in the State DMH’s settlement of the “Short-Doyle Medi-Cal (SD/MC) Program Audit of the Los Angeles County Community Mental Health Services” for FY 2001-02 that the State DMH recouped not only the FFP but also the EPSDT-SGF associated with disallowed claims. It appears that the State DMH has initiated the recovery of EPSDT-SGF associated with disallowed claims beginning with its FY 2001-02 audit. The State DMH is presently conducting the “Short-Doyle Medi-Cal Program Audit of the Los Angeles County Community Mental Health Services” for FY 2002-03. Accordingly, CountyDMH anticipates that State DMH will continue to recover EPSDT – SGF associated with disallowed claims for FY 2002-03 forward. Disallowed claims can result from either services or costs disallowed during the “Short-Doyle Medi-Cal Program Audit of the Los Angeles County Community Mental Health Services”. The audit report identifies each disallowances and a contractor has appeal rights if it does not believe the audit adjustment is proper.

This concludes my response to your specific question. However, following I am providing a description of the various State settlements and audit processes which also respond to this topic and additionally will hopefully clarify the State DMH and CountyDMH processes.

First, let’s distinguish between three (3) sequential State Department of Mental Health (SDMH) settlement processes, (1) the “Final Cost Report Settlement”, (2) the “Final Settlement of the State General Fund (SGF) for the Short-Doyle Medi-Cal (SD/MC) component of Early and Periodic Screening, Diagnosis and Treatment (EPSDT)”, and (3) the SD/MC audit settlement.

(1)The “Final Cost Report Settlement” is done by the SDMH about 18 months after the end of the fiscal year. The Final Cost Report Settlement is based upon the SDMH’s SD/MC Reconciliation as completed by the contractor and verified by the SDMH, and the contractor’s filed certified SD/MC Cost Report. The final settlement amount reflects the resolved and reconciled SD/MC claims for the fiscal year, and the actual costs reported and certified by the contractor in their SD/MC Cost Report for the fiscal year or the SDMH approved negotiated rates for the fiscal year.

(2)The “Final Settlement of the State General Funds (SGF) for the Short-Doyle Medi-Cal (SD/MC) component of Early and Periodic Screening, Diagnosis and Treatment (EPSDT)” for the fiscal year is based on the contractor’s settled SD/MC Cost Report (settlement process (1) above); the State’s SD/MC paid claims information database (to identify Medi-Cal beneficiaries with an EPSDT Medi-Cal Aid Code); and the EPSDT cost settled baseline amount (as adjusted by the Home Health Agency Market Basket Index and the 10% growth local match requirement). This settlement is performed almost simultaneous with the”Final Cost Report Settlement” in (1) above.

(3)The SD/MC audit settlement for a fiscal year is determined by reconciling the “Final Cost Report Settlement” to the SDMH’s Short-Doyle Medi-Cal Program Audit Report for Los Angeles County Community Mental Health Services. This State audit is in accordance to Section 14170 of the Welfare and Institutions Code and includes such tests of the accounting records and such other auditing procedures that the SDMH considers necessary in the circumstances.

Second, let’s review in a little more detail the sequential events that take place which have an impact on each of these three settlement processes and how a contractor may want as to address each event.

(4)Medi-Cal and Non Medi-Cal units of services (uos) that are provided by a contractor.

  1. Contractor responsibility:
  2. Rendered uos are billed accurately and timely to the CountyDMH.
  3. Rendered uos are reconciled frequently with CountyDMH’s Integrated System (IS) files including the State’s Explanation of Balances (EOB).
  4. Discrepancies identified during the contractor’s reconciliation are immediately reported in claim line detail to the CountyDMH.

(5)Billed Medi-Cal and Non Medi-Cal units of services (uos) that are subsequently determined by contractor to be inappropriate.

  1. Contractor responsibility:
  2. Inappropriately billed Medi-Cal uos, upon discovery, are reported in the Department’s IS in order for the uos to be entered into the State’s DMH SD/MC Disallow Claims System (DCS) and be disallowed. Currently the contractor reports to the IS by “voiding” the inappropriate service. At some future time this process will be changed and become more electronically driven with the State’s DCS.SeeState DMH Information Notice No.: 05-01 (Revised) dated January 28, 2005 for more details about the DCS.
  3. Contractor’s reconciliation in (1) a. ii. above includes DCS uos adjustments.

(3)Early and Periodic Screening, Diagnosis and Treatment (EPSDT) Chart Audits were initiated by the State effective January 2005. The audit reviews client charts to confirm the presence of medical necessity, an assessment and client plan that covers the period, and other required documentation to support a claim.SeeState DMH Information Notice No.: 06 -16 dated December 12, 2006 and No.: 07 - 03 dated March 9, 2007 for more details regarding the EPSDT Chart Audits.

  1. Contractor responsibility:
  1. Provide all requested charts at the commencement of the audit.
  2. Make any necessary appeals as delineated in the California Code of Regulations (CCR), Title 9, Section 1810.380 (d).

(4)Annual Short-Doyle Medi-Cal (SD/MC) Cost Report.SeeState DMH Letter No.: 07-10 dated October 31, 2007 for details regarding the SD/MC cost report.

  1. Contractor responsibility:
  1. File certified cost report with CountyDMH by September 15 following the close of the fiscal year.

(5)Annual Short-Doyle Medi-Cal (SD/MC) Reconciliation which takes place about 18 months after the close of the fiscal year for which the reconciliation is being made.

  1. Contractor responsibility:
  1. Reconcile State EOB approved SD/MC claim lines with contractor’s billing records to County DMH IS records and to the contractor’s filed certified SD/MC Cost Report for the applicable fiscal year, including Disallow Claims System (DCS), see (2) a. above. The reconciliation includes both uos at the claim line detail level and actual cost or negotiated rates as approved by the State DMH per uos as reported on the SD/MC cost report.
  2. Return reconciliation documents to CountyDMH within the specified time period.

(6)“Final Cost Report Settlement” issued to contractor about 18 – 22 months after the close of the applicable fiscal year. This settlement is based on the State DMH’s “Final Cost Report Settlement” and the “Final Settlement of the State General Funds (SGF) for the Short-Doyle Medi-Cal (SD/MC) component of Early and Periodic Screening, Diagnosis and Treatment (EPSDT)”, see (1) and (2) above.

  1. Contractor responsibility:
  1. Meet and confer with CountyDMH settlement personnel if necessary to have a complete understanding of the settlement.
  2. Provide written documentation for any disagreement to the settlement within the specific time period which is identified in the settlement notice letter.

(7)SD/MC audit settlement, see (3) above. This settlement takes place 3 to 5 years after the end of the fiscal year being audited. The time period is determined by the timing of the State DMH’s completion of the audit and issuance of its audit settlement.

  1. Contractor responsibility:
  1. Provide to the CountyDMH written documentation for any appeal(s) to the audit exceptions taken in the SD/MC Audit within the time period specified in the County’s audit settlement letter. Contractor and County appeal rights must be in conformance with the provisions of Sections 51016 and sequence, Title 22, of the California Code of Regulations (CCR).