Report 2007-038 Summary - October 2007
Medical Board of California:
It Needs to Consider Cutting Its Fees or Issuing a Refund to Reduce the Fund Balance of Its Contingent Fund
Our review of the Medical Board of California's (medical board) financial status and fund balance revealed that:
- The fund balance of the medical board's contingent fund increased by $6.3 million, to $18.5 million, in fiscal year 2006-07. This represented 4.3 months of reserves, more than 100 percent above the reserve level mandated in the law.
- The recent increase in the fund balance resulted from variances between actual and estimated expenditures.
- The medical board estimates that its months of reserves will drop to 1.5 months by June 30, 2012, assuming that it spends all of its appropriations in each of the next five fiscal years.
- However, based on the medical board's historical experience of overestimating expenditures, we estimate that it will have 3.8 months of reserves by June 30, 2012, unless it issues refunds or decreases license fees for physicians.
RESULTS IN BRIEF
The Medical Board of California (medical board) is a consumer protection agency responsible for protecting the public through the proper licensing and regulation of California's health care professionals and the enforcement of the Medical Practice Act. The medical board accounts for its activities in the contingent fund, its operating fund, which is supported primarily by license fees collected from physicians and surgeons (physicians). Recently, the fund balance in the contingent fund has exceeded the mandated level by more than 100 percent and, therefore, the medical board needs to consider reducing or refunding license fees for physicians. The law requires the medical board to maintain a reserve, or fund balance,1 that would cover expenditures for approximately two months. For fiscal years 2003-04 through 2005-06, the medical board maintained year-end fund balances that covered 2.4 to 3.3 months of the next year's estimated expenditures. However, in fiscal year 2006-07 the fund balance grew by $6.3 million to $18.5 million, enough to cover 4.3 months of expenditures. This increase was due mostly to variances between actual and estimated expenditures resulting from program changes related to the implementation of Senate Bill 231 of the 2005-06 Regular Session of the California Legislature (Chapter 674, Statutes of 2005) and increases in the rates charged by the Office of the Attorney General (Attorney General), which were not fully realized by the end of fiscal year 2006-07.
The medical board's deputy director recognizes that the fund balance is high, but stated it is too early to take corrective action because the medical board must continue to implement the program changes mentioned earlier, so actual costs will closely approach estimates in fiscal year 2007-08. Further, the medical board estimates that months of reserves will drop to 1.5 months by fiscal year 2011-12, assuming that it spends all of its appropriations in each of the next five fiscal years. Our review of employee and Attorney General costs, two of the medical board's largest expenditure categories, indicate that expenditures are increasing somewhat. However, while the medical board's estimated revenues have consistently approximated actual revenues in the last four fiscal years, the medical board has consistently overestimated expenditures by at least $2 million each year over the same period.
Based on the medical board's future revenue and expenditure estimates, adjusted downward by $2 million for the expenditure variance we just described, we estimate that the medical board still would have 3.8 months of reserves on June 30, 2012. The medical board's staff is preparing for the November 2007 board meeting at which the medical board will discuss its financial status. Because no other mechanism is in place to reduce the fund balance sufficiently, the board likely will need to issue refunds or seek legislation to allow it to reduce fees.
The medical board should seek a legislative amendment to Section 2435 of the Business and Professions Code to include language that allows it the flexibility to adjust physicians' license fees when necessary to maintain its fund balance at or near the mandated level.
To ensure the fund balance in the medical board's contingent fund does not continue to significantly exceed the level established in law, it should, in light of its future needs, consider refunding physicians' license fees or, if successful in gaining the flexibility to adjust its fees through an amendment to existing law, consider temporarily reducing them.
The medical board generally agrees with our recommendations and plans to discuss them at its November 2007 board meeting.
1Although the Business and Professions Code refers to a reserve, the medical board and the Department of Consumer Affairs interpret this to mean fund balance.