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Controller Seeks Recovery of Health Care Overpayments

Contact: Hallye Jordan

SACRAMENTO – State Controller John Chiang today sent a letter to the executive director of the Senior Care Action Network (SCAN) health plan, urging him to repay an estimated $339 million overpaid by the Department of Health Care Services (DHCS).

“For the better part of the last decade, the Senior Care Action Network lined its pockets at the expense of California taxpayers and the State’s general fund,” said Controller Chiang. “Especially during these difficult times, we cannot afford to write off even one dollar, and the State is obligated to pursue every available avenue to recoup these hundreds of millions of public dollars.”

At the request of Senator Alan Lowenthal in 2008, Controller Chiang conducted an investigation into DHCS’ contract rates with SCAN, which provides managed care medical assistance to people at risk for entering nursing homes in Los Angeles, San Bernardino and Riverside counties. The Controller determined the department’s flawed methodology for setting contract rates resulted in SCAN receiving exorbitant profits, costing the State hundreds of millions of taxpayer dollars.

In response to the Controller’s inquiry, and at the request of Senators Lowenthal and Elaine Alquist, DHCS conducted a financial evaluation and determined that SCAN’s profit margin was estimated at more than 80% while other managed care providers have profits rates between 4% and 5%. DHCS subsequently reduced SCAN’s contract rates by 70 percent.

The Controller estimates SCAN’s new rate adjustment will save the State’s Medi-Cal program $88 million a year over the four remaining years of the contract. But he is concerned that DHCS conducted no analysis of SCAN’s effectiveness before renewing a $1.44 billion contract for five years. In the letter to SCAN Executive Director David Schmidt, the Controller said he was even more troubled that SCAN was found by DHCS to be deficient in its contractual reporting obligations.

The Controller urged SCAN to cooperate with the Attorney General’s office and DHCS to return any excess profits paid prior to January 1, 2009, using the high contract rates.

“At a time when the only source of healthcare for one out of every six Californians is threatened by the budget ax, SCAN has fleeced the State of an amount that would keep many vital services from being cut or eliminated,” said Chiang.

Since taking office in January 2007, Controller Chiang has identified $2.1 billion in waste, abuse, and misspending of taxpayer dollars. A copy of Controller Chiang’s letter to SCAN is available at