Created by the county in 1993, the agency accumulated more than $1.2 billion in unrestricted funds as of June 2022, according to the state auditor’s report published May 2.
The agency set aside $570 million of those funds as a reserve, which the auditor said was prudent, but the remaining $675 million were surplus funds.
“When CalOptima has identified projects for using surplus funds, it has struggled to spend the funds in a timely manner,” State Auditor Grant Parks said in the report.
County law requires CalOptima to implement a spending plan to use the surplus for specific purposes, like improving benefits.
Although CalOptima approved $100 million of the surplus funds for health initiatives to benefit the homeless population between 2020 and 2022, only $34 million had been spent as of June 2022, according to the report.
As of March, the agency still had more than $400 million not allocated, the auditor reported.
Parks recommended the agency create and implement a detailed plan to spend the money on expanding access, improving benefits, or augmenting provider reimbursement. He also recommended the agency develop a policy for handling unused budgets.
The agency’s chief financial officer told the state auditor that higher-than-usual rates of staff turnover and vacancies and the COVID-19 pandemic slowed the program down, the auditor said in the report.
As the county’s largest health insurance provider, CalOptima serves around 938,000 vulnerable and low-income residents, including the homeless. The agency’s 2022–2023 budget is $4 billion, according to its website.
CalOptima is the only Medi-Cal managed care plan in Orange County. Federal and state governments fund the costs of Medi-Cal, which supports CalOptima. The agency was not able to report to the state auditor’s office the amount of state and federal funding it received, according to the report.
The state auditor also reported that CalOptima kept some of the state funds originally set aside for supplemental payments to Medi-Cal providers.
Hiring Violations
Besides funding issues, CalOptima did not follow best practices for hiring some executives and possibly violated state law, the auditor reported.In 2020, the CalOptima Board of Directors appointed Richard Sanchez as CEO of the agency. Sanchez was first appointed interim director while also serving as director of the Orange County Health Care Agency and on the CalOptima board of directors.
A state law—Government Code section 1090—prohibits state and local officers or employees from being financially interested in any contracts made by them in their official capacity or by any boards of which they are members.
Also, from 2014 through 2022, CalOptima’s executive turnover rate was about 23 percent per year and rose to 31 percent in 2020 and 50 percent in 2021, which was significantly higher than other plans managed by Medi-Cal, the auditor reported.
“As a result of its practices, CalOptima has limited its ability to attract and select the most qualified candidates, and it has opened itself to criticism about the objectivity, appropriateness, and transparency of its hiring process,” Parks said.
Changes Already Underway: CalOptima
CalOptima’s executives did not agree with all of the auditor’s findings and recommendations, according to a letter the agency sent to Parks on April 7.“While we understand the audit scope required your office to look back nearly one decade, we cannot speak to all the decisions of past leadership,” CEO Michael Hunn, Board Chair Clayton Corwin, and Board Vice Chair Blair Contratto wrote. “As such, CalOptima Health cannot fully concur with all the findings and recommendations, as the timeframe of the audit does not account for recent leadership actions over the past year.”
The agency also stated it intended to implement a number of actions, including monitoring providers’ performance and sending warnings and letters to providers who continued to violate the minimum performance standards, the auditor reported.
In the response letter, CalOptima’s executives said they had already rectified many of the changes and recommendations and have made additional investments with their providers and community partners to care for the homeless.
The agency implemented a street medicine program in April specifically designed to address medical needs of homeless people in Orange County, the officials said.
Before the release of the audit report, the beleaguered health agency has been criticized on several fronts recently.
Where Did the Surplus Come From?
The audit found several factors that led to CalOptima’s bloated surplus account. From 2018 to 2019, the agency’s revenues grew, because of rate increases, transfers from the state’s California Healthcare, funds from the Tobacco Tax Act of 2016 (Proposition 56), lower medical expenses, and nearly $44 million in investment income, the auditor found. This added up to $157 million in surplus for that time period.From 2019 to 2020, another $49 million flowed into the account, mostly from investment income.
During the pandemic between 2020 and 2021, the surplus grew by $280 million thanks to the following changes: increased revenue from a 9.4 percent increase in enrollment after Medi-Cal suspended its eligibility requirements and disenrollment process; lowered health care expenses for newly enrolled members; and delayed or deferred nonurgent surgeries and services after Gov. Gavin Newsom used emergency powers to prohibit people from getting nonessential medical treatment.
During the year 2021–2022, CalOptima took in more funds from increased rates for new Medi-Cal programs and COVID-19 testing and treatment services. Although the agency lost $20 million in investment income that year, it managed to stack up another $102 million in surplus, according to the report.
