Review of Expenditures Incurred for Health Services Provided at a Community Health Center in Bellaire, Ohio

Published by the Government Accountability Office on 1971-09-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

COMMITTEE ON            /- -/^
GOVERNMENT OpERATI()NtJ li -- ' ; i :'d .>

  eview Of Expenditures Incurred
       ealth Services Provided
At A Community Health Center
ifn Beiiaire, Ohio        B-166539

Office of Economic Opportunity
Department of Mea&h, Education,
  and Welfare

                          COhWl-ROLLER     GENERAL     OF THE      UNITED   STATES
                                         WASHINGTON.    D.C.   20548


    Dear Mr.    Chairman:
            By letter     dated December 4, 1969, the former Chairman
    of the Subcommittee          requested     that the General Accounting
    Office    audit
                _- -.  the   expenditures      of the &dical       Foundation     of is 3,~ ..-
    Bellaire     under a grant (bm:CG-8868)               from the Office      of
    Economic Opportunity           (OEO) (see appendix         I).  The Chairman     ::.r I
    requested      that we audit the expenditures              for program year A
    through program year C (May 18, 1967 through May 31, 1970)
    because an OEO audit report             covering    the period July 1 to
    December 31, 1968, questioned              the allowability       of certain
    amounts charged to the grant for that period.                     Our audit was
    delayed because OEO and the Medical                Foundation     engaged in a
    long period       of negotiations       to arrive     at a mutually     accept-
    able method of allocating             costs to the grant.


            In 1952, with the encouragement               of United Mine Workers
    Welfare and Retirement           Fund officials,         the Bellaire      Medical
    Group, a professional           corporation       of physicians,       established
    a clinic     in Bellaire,       Ohio, available        to the entire        commu-
    nity.      In May 1959 the clinic           operation      was transferred,        at
    no cost, to a nonprofit            corporation--the         Medical    Foundation
/   of Bellaire.        The Medical       Foundation      now operates      three clin-
    ics.      Physician    services     for the clinics         are provided       by the
    Bellaire     Medical    Group.

             The Medical Foundation    provides   medical services   to ben-
    eficiaries     of the United Mine Workers Welfare and Retirement
    Fund, members of families       enrolled    in a community health   cen-
    ters program (CHC), and fee-for-service          patients.

           The CHC program, established         in May 1967, provides                medi-
    cal service     to families      who have income below the level                 of
    the OEO poverty      guidelines.      In May 1971, 1,310 families
     (3,436 people)    were enrolled      in the program.

          The administration   of the CHC program,   together   with 15
    other similar   OEO-funded programs, was transferred      in De'cem-
    ber 1970 from OEO,to the Health Services     and Mental Health

                                   50 TH ANNIVERSARY               1921- 1971

Administration    (HSMHA),      Department   of Health,      Education,    and
     Program years     included      in our review    covered     the follow-
ing periods.

         year                                Period
             A           May      18, 1967 through        June 30, 1968
             B           July      1, 1968      "         Feb. 28, 1969
             c           Mar.      1, 1969      "         May 31, 1970


        The OEO audit was initiated      because the firm of certi-
fied public     accountants,   employed by the Medical     Foundation,
stated in its audit report        that the system of allocating
costs to the CHC program should be approved by OEO before an
opinion    on the financial    status of the Medical     Foundation
could be rendered.        The OEO audit questioned   the allowabil-
ity of about $36,000 of costs charged to the grant for the
period July 1 through December 31, 1968, and the audit re-
port stated:

       "Our audit of the grantee's    system for allocating
       costs to the OEO program disclosed      areas of cost
       distribution  which did not provide     an equitable
       distribution  of expenses.    The cost distribution
       system is in need of revision     to meet the require-
       ments of OEO and the Foundation     for distributing
       costs that are equitable    to all programs."

      The problem of allocating       expenses among the CHC, United
Mine Workers and the fee-for-service          program arose because
all patients    are serviced    by the clinics      and no method existed
to charge the costs directly       to each program.       It was, there-
fore, necessary    to establish    a method to determine       what portion
of the expenses the various       programs should absorb.


        In late 1970 OEO and the Medical  Foundation  agreed on the
disposition     of the questioned costs and the methods to be used
to allocate     costs for program years A and B. The resulting
methods were termed the “Joseph Method. ‘I

        While negotiating        acceptable     cost allocation      methods for
program years A,        B,  and   C,  OEO   advised   the   Medical     Foundation
that its planning        for program year D should consider                the de-
velopment       of a simple    cost allocation       method.      OEO offered      to
provide     technical    assistance      for the development        of such a
method.       In response,     the Medical      Foundation,     in its request
for program year D funds,            proposed    a new cost allocation          sys-
tem simpler       than the “Joseph Method.”           The system proposed
by the Foundation        was designed       by a consultant       employed by
OEO and since it was based on cost reimbursement                    principles
used by hospitals        it was termed the “Medicare            Method.”

        In our opinion,      the ‘Medicare       Method”    is more workable
than the “Joseph Method” and results                in equitable    allocations
of cost.      The method provides         for the accumulation       of costs
not directly      chargeable       to any of the three programs          in six
cost centers      (Medical,     Laboratory,      X-ray,   Pharmacy,     Occupancy,
and Administration        and Accounting).          Costs accumulated        in the
centers    are equitably       allocated      to the three programs        (CHC,
United    Mine Workers,      and fee-for-service         patients).      The
“Medicare     Method” was approved          for program year C (retroac-
tively)    and for program year D.


       As requested,       we reviewed     the expenditures           charged to
program years A, B, and C. Our review                   included      an analysis
of Medical      Foundation    financial      records,      the OEO audit report,
and the audit reports         and related       working      papers prepared        by
the firm of certified         public    accountants        employed by the Med-
ical   Foundation.       We also reviewed        internal       controls    and eval-
uated the methods used to allocate               costs to the grant.            We
tested   individual      charges to the accounts,             on a sampling        ba-
sis,   by examining      supporting     documentation         to determine       the
accuracy    of the payments and propriety              of the charges.          We


did not evaluate   the effectiveness                  of the program      in meeting
the objectives   of the grant.

       We found that a number of errors had been made in apply-
ing the allocation       methods (Joseph for program years A and B,
Medicare for program year C), and that some previously              disal-
lowed expenses had not been deleted          from charges to the grant.
The amounts questioned        by us are relatively    insignificant     when
considered,in    relation     to the total   expenses of the program.

      The following          schedule shows the costs charged to the
grant for each year           and the adjustments    we consider     neces-
sary to correct     the       charges to the grant.     Explanations      of
the adjustments     are       included  as appendixes   to the report.

                          costs                                                amount
                          charged                                           chargeable
     Period             to grant                 GAO Adjustments             to grant

Program      Year A $     362,486    $        (708)    (see app.   II)      $   361,778
    II        11
                  B       462,811           5,817      (see app.   III)         468,628
    ?I        (1 C        741,893        (23,159)      (see app.   IV)          718,734

     Total          $1,567,190       $(18?050)                              $1,549,140

         The following information    on the number and the work ac-
tivities     of health aides employed by CHC is being furnished     as
agreed with your office.         It was obtained by interviewing CHC

      The Project     Director     said that the program has 17 health
aides and that about 1,300 families              are enrolled      in the pro-
gram 9  a ratio   of  one   health    aide  to   about  75   families.       He
said that an adequate ratio           under the existing       program would
be one health     aide to about 100 families.            The Project        Direct-
tor stated,     however,    that the number of enrolled            families     can
be increased     when more physicians         are added to the Medical
Group staff     and then all the health          aides will    be needed.


       According   to the Director        of Visiting       Health    Services,
who is responsible      for supervision        of the health        aides,      each
health   aide prepares      a bi-weekly      schedule     of visits      to be
made to enrolled     families.and       this    schedule     is reviewed       and
approved by a health        aide coordinator.           He said that each
health   aide plans seven to nine visits              for each day in the
field,   but the average number of visits               each day is between
five   and six.    He said also that the health              aide spends about
9 of 20 workdays     a month in the field;            the remaining        time is
taken up by staff      meetings,     team conferences          and their      plan-
ning , and training     sessions.

       The Medical      Foundation,     OEO, and HSMHA have not been
given an opportunity         to comment on the matters              discussed    in
this report.       We  plan    to  make  no  further     distribution         of this
report   unless    copies are specifically           requested,        and then we
shall   make distribution         only after    your agreement          has been ob-
tained   or public      announcement     has been made by you concerning
the contents     of the report.

                                          Comptroller   General
                                      -   of the United   States

The Honorable    William     J. Randall
Chairman,   Special    Studies   Subcommittee                I, .
Committee   on Government      Operations
House of Representatives
                                                                                  APPENDIX   I

                             NINETY-FIRST       CONGRESS

                       j@mSeof 3&qm%mtEttibeS
                                           OF THE
               COMMITI’EE        ON GOVERNMENT               OPERATIONS
                   RAYBURN    HOUSE    OFFICE   BUILDING.           ROOM   G377
                             WASHINGTON,            D.C.    20515

                                 December 4, 1969

Honorable ELmer B. Staats
The Comptroller General
General Accounting Office
Washington, D. C. 20548
Dear Hr. Staats:
          Attached is a copy of the Great Lakes Regional Auditors
Report on the Medical Foundation of Bellaire, an OEOgrantee,
covering the period from July l--December 31, 1968.
             Because this audit questions charges to the grant
applicable to the first six months of program year B and alleges
other improprieties,     it would appear advisable that a fuller
study of the records be made and I, therefore, request that the
General Accounting Office make a full and detailed accounting
of all funds,expended by the grantee-the Medical Foundation of
Bellaire--from    the beginning of program year A through as current
a figure as possible through program year C.
            Should you have any questions regarding this audit,
kindly have members of your staff contact the Subcommittee Staff
Administrator,   ti. Louis I. Freed.
          With all best wishes, I a

                                                                  APPENDIX II

                             GAO ADJUSTMENTS

                              PROGRAMYEAR A

                   MAY 18, 1967 - JUNE 30, 1968

                                                                     Amount of

(1) A cash shortage         was incorrectly    charged       to      $ (15.77)
    the grant

(2) The grant was charged for the purchase of
    a mobile trailer    unit and its installation
    on the site of the Bellaire       Clinic.    The
    charges included    Ohio Sales Tax of $62.90.
    The OEO audit report     recommended that the
    amount be disallowed.        The Medical  Founda-
    tion agreed to delete      the amount but did
    not                                                                (62.90)

(3) The expenses of the Bellaire            Medical
    Group, consisting       primarily     of physicians'
    salaries,      are charged to the grant in the
    ratio     of the value of physician         services
    rendered     to CHC patients       to the total
    value of physician        services    rendered     to
    all patients.       Charges     to  CHC  patients
    were overstated                                                   (241.48)

(4) Telephone     expense     charged    to the grant       was
    overstated                                                        (159.39)

(5) Fringe benefits       for clinic    personnel    were
    to be allocated       to the grant on the basis
    of the ratio       of fringe   benefits    to total
    salaries.      The calculations        showed that
    fringe    benefits    were 19.05 percent      of
    salaries.      The percentage     was applied       to
    the wrong amount, resulting            in an over-
    charge to the grant                                               (228.61)

          Total   adjustments       - Program Year      A
                                                                       APPENDIX III

                               GAO ADJUSTMENTS

                                PROGRAM YEAR B

                  JULY 1, 1968 - FEBRUARY 28, 1969

                                                                         Amount of

(1) A cash overage         was incorrectly         credited       to
    the grant                                                            $       10.00

(2) The amount allocable     to the grant for Medi-
      cal Group expenses was not properly     calcu-
      lated,  and the Medical Group staff   recruit-
      ing expense for physicians   was charged
      twice                                                              (1,071.59)

(3) Fringe benefits       allocated    to the grant were
    not properly      calculated.      See note (5) Ap-
    pendix II,      The percentage       of fringe benefits
    to total    salaries     was applied    to the improper
    amount                                                                   7,508.18

(4) Duplicate     charge     of fringe       benefits                         (108.03)

(5) According    to the agreement with OM), contri-
    butions   are not proper charges to the grant                                choo)

(6)   The amount of space cost           charged        to the
      grant was overstated                                                    (114.38)

(7)   Cost of injections        was allocated           to the grant
      incorrectly                                                             (404.72)

          Total   adjustments       - Program
                                          -         Year      B        $ 5,817.46
                                                                                         APPENDIX IV
                                         GAO ADJUSTMENTS

                                         PROGRAMYEAR C

                                 MARCH 1, 1969 - MAY 31, 1970

                                                                                             Amount of

(1) Salaries of $20,830 were included in an improper category,                 causing
    an overcharge of salaries  and fringe benefits to the grant                            $( 4,501.64)

(2) The expenses of the Bellaire        Medical Group were not charged          to the
    grant as intended, resulting        in an undercharge                                       4,794.67

(3) A duplicate     charge was made to the grant        for   space rental                  ( 3,500.OO)

(4) Certain costs for space and maintenance were included               in an improper
    category, resulting in an overcharge   to the grant                                     ( 1,050.74)

(5) Drug costs are charged directly     to programs when issued to patients.
    The grant was charged directly    for those drugs used by patients    en-
    rolled  in the CHC program but also received a pro rata share of
    drugs dispensed for patients    enrolled   in other programs                            (12,074.93)

(6) Between March 1965 and December 1969, the Medical Foundation                  in-
    curred legal costs of about $34,000 to obtain hospital               privileges     for
    physicians     of the Bellaire      Medical Group in hospitals     in Wheeling,
    West Virginia.       Prior to March 1965, legal costs of $12,500 were in-
    curred for similar       litigation    against the Bellaire    City Hospital.
    Since the case against the Bellaire           City Hospital was decided prior
    to the start of the CHC program, Medical Foundation officers                  said
    those costs should not have been allocated           to the grant.         By exclud-
    ing those costs the charges to the grant were reduced by $2,299.33                      ( 2,299.33)

    Charging a portion   of the legal expense to the grant was approved by
    OEO because the litigation,was    considered necessary to carry out the
    CHC program as well as other Medical Foundation programs

(7) Certain salaries      for maintenance personnel were included            in an im-
    proper category,      causing an overcharge  to the grant                               ( 3,616.81)

(8) Miscellaneous      charges                                                              (     910.27)

         Total    adjustments    - Program Year C                                          $(23.159.05)