Proposition 56 Tobacco Tax The Department Of Health Care Services Is Not Adequately Monitoring Provider Payments Funded By Tobacco Taxes

DHCS paid nearly $380,000 in Proposition 56 and Medi‑Cal funds to 14 providers listed on state and federal lists of ineligible providers due to weak suspension/monitoring processes.

A new, more precise data source for calculating the OTP tax rate in 2021–22 increased estimated OTP revenue by about $45 million.

DHCS did not adequately ensure that Proposition 56 supplemental payments to Medi‑Cal providers were appropriate; for more than 20 percent of medical services reviewed, the managed care plans could not provide evidence that the service was performed, suggesting possible improper payments.

DHCS did not timely suspend providers when required, exposing Medi‑Cal beneficiaries to risk; delays in mandatory and temporary suspensions (averaging over five months for mandatory suspensions) contributed to ongoing payments.

CDTFA did not obtain sufficient documentation to substantiate manufacturers’ wholesale costs for OTP tax calculations, increasing the risk of incorrect OTP tax payments; audits often relied on estimates for overhead and labor costs and documentation was frequently lacking.

The six entities reviewed posted Proposition 56 information on their websites, but five posted inaccurate or incomplete information, hindering public understanding.

CDPH, Education, CDTFA, and DHCS should publish accurate Proposition 56 funding information and provide links on social media to improve transparency; Education should receive its proportional share as required by Finance; unspent funds should be transferred appropriately.

Education, CDTFA, DHCS, and Justice should publicly report actual Proposition 56 funds received and spent starting FY 2021–22.

Legislature should consider amending state law to allow licensing boards to share arrest/fraud information with DHCS so providers under investigation can be timely flagged.

DHCS should require managed care plans to submit Medi-Cal beneficiary identification numbers with quarterly reports (by June 2023), reconcile to medical encounter data, and recover overpayments as needed.

DHCS should investigate instances where plans cannot prove services were provided, implement corrective action plans, begin annual sampling of Proposition 56 payments, and implement stronger oversight of plans.

DHCS should issue temporary provider suspensions or temporary payment suspensions by June 2023 when required by state law to protect Medi‑Cal beneficiaries; revise policies to prevent providers from billing for services performed by others who are suspended.

DHCS should revise claims processing to verify that all service-rendering providers in claims data are not suspended before payments are issued.

DHCS should strengthen management oversight of Proposition 56 expenditure posting and ensure public reporting is accurate starting with FY 2021–22.

CDTFA should obtain sufficient documentation to verify wholesale costs for OTP taxes; use administrative subpoenas and refer cases for criminal prosecution when necessary.