Arizona Health Care Cost Containment System Sunset Factors

              A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Sunset Review
Arizona Health Care
Cost Containment
System—Sunset Factors
Performance Audit Division
September • 2012
REPORT NO. 12-07
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and five
representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the opera-tions
of state and local government entities. To this end, she provides financial audits and accounting services to the State and political
subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state agencies, and
the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
Dale Chapman, Director
Shan Hays, Manager and Contact Person
Anne Hunter, Team Leader
Steven Meyeroff
Representative Carl Seel, Chair
Representative Tom Chabin
Representative Justin Olson
Representative David Stevens
Representative Anna Tovar
Representative Andy Tobin (ex officio)
Senator Rick Murphy, Vice Chair
Senator Andy Biggs
Senator Rich Crandall
Senator Linda Lopez
Senator David Lujan
Senator Steve Pierce (ex officio)
Dot Reinhard, Manager and Contact Person
Cade Strippelhoff
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
September 24, 2012
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Mr. Tom Betlach, Director
Arizona Health Care Cost Containment System
Transmitted herewith is a report of the Auditor General, A Sunset Review of the Arizona
Health Care Cost Containment System (AHCCCS). This report is in response to an October
26, 2010, resolution of the Joint Legislative Audit Committee and was conducted as part of
the sunset review process prescribed in Arizona Revised Statutes §41-2951 et seq.
Included with this report is a written response from AHCCCS.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on September 25, 2012.
Sincerely,
Debbie Davenport
Auditor General
Attachment
TABLE OF CONTENTS
concluded
Introduction 1
Sunset factor analysis 9
Appendix A: Methodology a-i
Agency Response
Tables
1 AHCCCS Enrollment by Program at July 1, 2009, 2010, 2011, and 2012
(Unaudited) 3
2 Schedule of Revenues, Expenditures, and Changes in Fund Balance
Fiscal Years 2010 through 2012
(In Thousands)
(Unaudited) 6
page i
Office of the Auditor General
[Heading Here]
page 1
Scope and Objectives
INTRODUCTION
(Text goes here)
Office of the Auditor General
AHCCCS administers Arizona’s Medicaid
program
Majority of AHCCCS program operates under
managed care model
AHCCCS was established to administer Arizona’s Medicaid program, which
provides healthcare for certain low-income individuals and families living in
Arizona. Medicaid is a federal healthcare program for low-income individuals
and families that is jointly funded by the federal and state governments.
AHCCCS was implemented in October 1982 as the nation’s first state-wide
Medicaid program designed to provide medical services to eligible persons
primarily through a managed care system. Under a managed care system,
AHCCCS contracts with entities, known as health plans, which coordinate and
pay for the medical services AHCCCS members receive from registered
AHCCCS healthcare providers, such as physicians and hospitals. To cover the
costs of coordinating and paying for members’ healthcare, the contracted
health plans receive monthly capitation payments (see textbox).
The Office of the Auditor
General has conducted a
sunset review of the
Arizona Health Care Cost
Containment System
(AHCCCS) using the criteria
in Arizona’s sunset law. The
analysis of these sunset
factors was conducted
pursuant to an October 26,
2010, resolution of the Joint
Legislative Audit
Committee and prepared
as part of the sunset review
process prescribed in
Arizona Revised Statutes
(A.R.S.) §41-2951 et seq.
This report includes
responses to the sunset
factors specified in A.R.S.
§41-2954 and is the final in
a series of four reports on
AHCCCS. In the first report,
auditors found that
AHCCCS has processes in
place that help it comply
with state and federal
requirements for
coordinating the payment
of healthcare benefits with
other responsible parties. In
the second report, auditors
found that AHCCCS and
the Department of
Economic Security
appropriately determined
Medicaid eligibility for
almost all Medicaid
applicants, but that 1.11
percent of the
determinations are at risk
for being incorrect. In the
third report, auditors found
that AHCCCS should
enhance several processes
related to Medicaid fraud
and abuse prevention,
detection, investigation,
and recovery.
Scope and Objectives
INTRODUCTION
Capitation payment—A fixed monthly amount paid in advance to AHCCCS’
contracted health plans for each enrolled member. At least annually, based on information
such as the historical use and cost of medical services provided and inflation data,
capitation payment amounts are determined using mathematical and statistical methods.
Monthly capitation amounts paid to AHCCCS’ contracted health plans can vary by
individual based on factors such as age, gender, geographical service area, and program
(see examples below):
1 See page 2 for explanation of Acute Care and Arizona Long Term Care System programs.
Source: Auditor General staff analysis of AHCCCS information contained in its contracts, actuarial
certifications, and Acute Care and Arizona Long Term Care System rates effective October 1, 2011.
Capitation payment
Average
Arizona Long
Term Care
System
monthly
capitation
rate1
Examples of average Acute Care monthly capitation rates1
Age
<1
Male/Female
Age
1-13
Male/Female
Age
14-44
Female
Age
14-44
Male
Age
45+
Male/Female
$460 $97 $222 $138 $347 $3,000
page 2
State of Arizona
Approximately 90 percent of AHCCCS’ members are enrolled with its contracted
health plans in managed care. For the remaining members, known as fee-for-service
members, AHCCCS reimburses registered healthcare providers directly.1 According
to the Kaiser Family Foundation, as of October 2010, 47 states and the District of
Columbia used managed care programs to some degree, but only 9 states, including
Arizona, had 80 percent or more of their members enrolled in comprehensive
managed care programs.2,3
AHCCCS members receive a full range of medical services under the following three
primary programs:
• Acute Care—As shown in Table 1 (see page 3), the majority of AHCCCS’
members are enrolled in its Acute Care program. This Medicaid program
provides a wide range of healthcare services, such as inpatient and outpatient
hospital services, physician services, immunizations, and laboratory and x-ray
services to children, pregnant women, and other low-income adults.
• Arizona Long Term Care System (ALTCS)—A small percentage of members
receive services under ALTCS. The ALTCS program provides acute care,
behavioral health, long-term care, and case management services to individuals
who are elderly, physically disabled, or developmentally disabled and meet the
criteria for institutionalization.
• KidsCare—Children under age 19 may receive medical services under
KidsCare, the name given to Arizona’s federal Children’s Health Insurance
Program. Children may qualify for KidsCare if their family’s income exceeds the
limit allowed for Medicaid, but is still below the federally established amount for
this program. Children enrolled in KidsCare receive the same medical services
available under Arizona’s Acute Care program. New enrollment in the KidsCare
Program has been frozen since January 1, 2010, due to lack of funding, and
AHCCCS has established a waiting list of applicants. However, effective May 1,
2012 through January 1, 2014, AHCCCS will be receiving monies from three
hospitals that will allow AHCCCS to provide coverage for 21,700 children in what
is being called KidsCare II.4 This state-wide program will offer the same benefits,
but has a lower income eligibility threshold than the KidsCare program.
1 AHCCCS reimburses providers on a fee-for-service basis for (1) individuals receiving services under the Federal
Emergency Services program, or (2) Native American members who choose to receive services through a tribal fee-for-
service contractor.
2 Comprehensive managed care is defined as inpatient hospital services and any of the following services, or any three
of the following services: (1) outpatient hospital services; (2) rural health clinic services; (3) Federally Qualified Center
services; (4) other laboratory and x-ray services; (5) nursing facility services; (6) early and periodic screening,
diagnostic, and treatment services; (7) family planning services; (8) physicians’ services; and (9) home health services.
3 Kaiser Family Foundation. (2010). Medicaid enrollment in comprehensive managed care as a share of total Medicaid
enrollment, October 2010. Retrieved January 31, 2012, from www.statehealthfacts.org
4 Laws 2011, Ch. 234, §2 allows AHCCCS, subject to U.S. Department of Health and Human Services, Centers for
Medicare and Medicaid Services (CMS) approval, to authorize any political subdivision to provide monies necessary
to qualify for federal matching monies to provide healthcare coverage to persons who would have been eligible
pursuant to A.R.S. §36-2901.01.
Approximately 90 percent
of AHCCCS members are
enrolled in managed care.
page 3
Office of the Auditor General
Organization
AHCCCS organizes its staff among four larger organizational units: Central
Administration and three divisions that primarily serve AHCCCS members and oversee
the contracted health plans. AHCCCS reported 1,077.9 FTE (full-time equivalent)
positions, including 141.1 vacancies as of June 30, 2012.1
AHCCCS’ Central Administration consists of six operating offices or divisions that
provide strategic leadership, technology, legal, and financial direction and coordination
as follows:
• Office of the Director (29.5 FTEs, 4 vacancies)—The Director’s office provides
the overall policy direction for the agency and dedicates specific staff to public
information, government relations, medical policy oversight, and strategic plan
coordination.
• Information Services Division (131.4 FTEs, 18.1 vacancies)—This division is
responsible for developing, acquiring, securing, and maintaining AHCCCS’
information systems and technology services necessary to support AHCCCS’
functions.
• Division of Business and Finance (56 FTEs, 3 vacancies)—This division is
responsible for a variety of activities including developing and monitoring
AHCCCS’ budget, paying AHCCCS’ Acute Care and ALTCS contractors and fee-for-
service providers, and compiling internal and external financial reports. Other
responsibilities include overseeing purchasing, facilities management, and
AHCCCS’ contractor, who performs third-party liability services. As indicated in
the Office of the Auditor General’s performance audit on AHCCCS’ coordination
1 This FTE count does not include 14 FTEs for the Healthcare Group of Arizona and 4 FTEs for the Advisory Council on
Indian Health Care (Council). Healthcare Group is a state-sponsored, public-private partnership created to provide
healthcare coverage for small businesses with 2 to 50 employees as well as Arizona’s political subdivisions. The Council
was established to develop a comprehensive healthcare delivery and financing system for Arizona’s tribes (see Sunset
Factor 10, page 24, for more information on the Council).
Table 1: AHCCCS Enrollment by Program
At July 1, 2009, 2010, 2011, and 2012
(Unaudited)
Source: Auditor General staff analysis of the AHCCCS July 1, 2009, 2010, 2011, and 2012 Population Highlights
reports.
Program
Acute Care
Arizona Long Term Care System 48,673 50,241 51,314 52,498
KidsCare 51,838 30,445 17,649 15,330
Total 1 ,369,637 1 ,280,521
1 ,212,693
2009 2010 2011 2012
1 ,174,598
1 ,275,109
1 ,272,118
1 ,352,804
1 ,300,674
page 4
State of Arizona
of benefits, AHCCCS contracts with Health Management Systems, Inc. (HMS),
a national firm, which helps identify whether AHCCCS members have other
insurance before claims are paid to help avoid costs, and also works to recover
monies from liable third parties after claims have been paid (see Report No.
12-01).
• Human Resources and Development (11 FTEs, 1 vacancy)—This division is
responsible for a variety of personnel functions including overseeing the hiring
process, maintaining employee records, managing the employee benefits
programs, and providing training classes, such as a new employee workshop
and computer classes.
• Office of Administrative Legal Services (24 FTEs, 1 vacancy)—This office
provides legal counsel to the divisions within AHCCCS and provides legal
representation for the agency in a variety of matters. It also oversees certain
aspects of AHCCCS’ complaint-handling system including providing an
administrative dispute resolution mechanism for applicants, members, and
providers; scheduling hearings with the Office of Administrative Hearings; and
issuing AHCCCS’ decisions following a hearing (see Sunset Factor 6, pages 17
through 21, for more complete information on AHCCCS’ complaint-handling
process).
• Office of Inspector General (63 FTEs, 6 vacancies)—This office is responsible
for the prevention, detection, and investigation of Medicaid fraud and abuse.
Once a member or provider suspected of Medicaid fraud or abuse has been
convicted of a criminal offense or has signed a civil settlement agreement, this
office is also responsible for collecting the amounts owed (see Auditor General
Report No. 12-06 for more information on this office).
The following divisions primarily serve AHCCCS members and oversee the
contracted health plans:
• Division of Member Services (608 FTEs, 93 vacancies)—This division is
responsible for determining the eligibility for some Medicaid applicants.
Specifically, as indicated in the Office of the Auditor General’s performance audit
on Medicaid eligibility determination (see Report No. 12-02), as of July 1, 2011,
this division performed about 11 percent of the eligibility determinations. It
completes determinations for the ALTCS program, the KidsCare program, and
the Supplemental Security Income—Medical Assistance Only population, which
is part of the Acute Care program. The Division also maintains day-to-day liaison
with, and provides oversight of, the Department of Economic Security (DES),
which performed about 82 percent of the Medicaid eligibility determinations as
of July 1, 2011.1 DES has an intergovernmental agreement with AHCCCS to
1 Approximately 7 percent of AHCCCS members are automatically eligible for Medicaid services such as children born
to women who are on Medicaid or individuals who have been determined eligible for other programs, such as aged,
blind, or disabled individuals in the U.S. Social Security Administration’s Supplemental Security Income Cash program.
AHCCCS’ Division of
Member Services
determines eligibility for
some applicants and
oversees DES, which
performs the majority of
Medicaid eligibility
determinations.
page 5
Office of the Auditor General
perform Medicaid eligibility determinations in conjunction with eligibility
determinations for other federal programs, such as the Supplemental Nutrition
Assistance Program. Additionally, the Division is responsible for conducting two
federally required quality control reviews related to eligibility determination.
• Division of Health Care Management (81 FTEs, 8 vacancies)—This division is
responsible for the procurement of contracts with AHCCCS’ health plans and
helping to ensure the health plans’ financial viability. For example, staff from this
division conduct financial and operational reviews of AHCCCS’ Acute Care and
ALTCS programs’ health plan contractors. These reviews focus on assessing
compliance with various contract requirements in areas such as medical
management/prior authorization, member services, provider network, grievance
systems, and third-party liability; and addressing noncompliance through
corrective action plans or other actions, such as monetary sanctions. This division
is also responsible for developing and maintaining actuarially sound capitation
rates and appropriate provider reimbursement rates, including supplemental
payments; and for ensuring contractors report complete, accurate, and timely
encounter data.1
• Division of Fee-for-Service Management (74 FTEs, 7 vacancies)—This
division is responsible for various activities related to AHCCCS’ fee-for-service
population. For example, this division completes prior authorizations, which
involve determining in advance whether a service that requires prior authorization,
such as breast reconstruction surgery or home health services, will be covered.
Specifically, a nurse will review requests for prior authorizations and verify items
such as the member’s eligibility, whether the provider is a registered fee-for-service
provider, and whether the requested service is covered. This division also
processes fee-for-service claims.
Budget
AHCCCS receives federal monies along with state, county, and other monies, such as
tobacco taxes, to operate Arizona’s Medicaid program. As shown in Table 2 (see page
6), during fiscal year 2012, AHCCCS estimates that its revenues will total more than
$8.4 billion, with approximately $5.66 billion coming from the federal government,
approximately $2.16 billion from the State, about $341 million from the counties, and
$275 million from other sources. AHCCCS’ estimated expenditures for fiscal year 2012
total nearly $8.4 billion, with about $6.4 billion, or 76 percent, going toward capitation
payments. AHCCCS’ estimated revenues and expenditures for fiscal year 2012 are
each approximately $1.2 billion less than fiscal years 2010 and 2011 because some
changes were made to Arizona’s Medicaid program during the 2011 legislative
session. For example, enrollment in Arizona’s Medicaid program for some individuals,
1 Encounter data are the records of medically related services rendered by registered AHCCCS providers to AHCCCS
members enrolled with its contracted health plans.
AHCCCS receives federal,
state, county, and other
monies, such as tobacco
taxes, to operate Arizona’s
Medicaid program.
page 6
State of Arizona
1 The table includes all AHCCCS financial activity except the Healthcare Group. The Healthcare Group provides medical coverage
primarily to small, uninsured businesses and is managed as a self-supporting operation.
2 The estimates for fiscal year 2012 revenues and expenditures are significantly less than fiscal years 2010 and 2011 because multiple
changes were made to the Medicaid program and the State’s contribution during the 2011 legislative session that affected fiscal year
2012 (see page 7 for additional information).
3 Consists of all monies that originally came from the federal, state, or county governments, including monies passed through other
entities, such as other state agencies.
4 Amounts primarily consist of monies that were authorized for use on AHCCCS expenditures by the Legislature or voters, such as
tobacco litigation monies, gaming revenues, and tobacco tax monies administered by AHCCCS. For example, Proposition 204
(November 2000) authorized the use of tobacco settlement monies to increase the number of people eligible for coverage in AHCCCS.
Similarly, Proposition 202 (November 2002) provides a portion of gaming revenues to be used for a trauma and emergency services
program.
5 Amounts consist of capitated mental health and Children’s Rehabilitation Services expenditures that were passed through to the Arizona
Department of Health Services. Beginning in fiscal year 2012, the Children’s Rehabilitation Services appropriation was moved to
AHCCCS; therefore, AHCCCS no longer passes through these monies to the Department and instead makes payments directly to the
providers.
6 Amounts consist of various other expenditures that were not paid as capitated payments or fee-for-service. For example, reinsurance,
a stop-loss program for partial reimbursement after a deductible is met, is included in this category.
7 Amounts primarily consist of monies transferred to the Arizona Departments of Health Services and Economic Security for monies
appropriated by the Legislature to these agencies. Specifically, the Legislature appropriated over $35 million each year in fiscal years
2010 through 2012 to the Department of Health Services for behavioral health services from the tobacco tax monies AHCCCS
administers. Similarly, approximately $3 million each year was appropriated to the Department of Economic Security in fiscal years 2010
through 2012 from county contributions for administration costs for Proposition 204 (November 2000) implementation.
Source: Auditor General staff analysis of the AHCCCS fiscal year 2010 and 2011 financial statements audited by an independent certified
public accounting firm and AHCCCS-prepared fiscal year 2012 estimates dated January 24, 2012, that are primarily composed of
fiscal year 2012 appropriations.
Table 2: Schedule of Revenues, Expenditures, and Changes in Fund Balance1
Fiscal Years 2010 through 2012
(In Thousands)
(Unaudited)
2010 2011 20122
(Actual) (Actual) (Estimate)
Revenues:
Federal government3 $ 7,229,797 $ 7,077,440 $ 5,663,201
State government3 1,720,054 2,012,179 2,163,412
County government3 247,043 277,663 341,131
Other4 302,363 272,449 275,024
Total revenue 9,499,257 9,639,731 8,442,768
Expenditures and transfers:
Capitated payments—
Acute care 4,181,191 4,163,405 3,150,673
Long-term care 1,940,629 1,957,650 1,959,774
KidsCare 91,795 55,095 36,068
Mental health and Children's Rehabilitation Services5 1,413,917 1,422,241 1,234,025
Fee-for-service—
Acute care 847,605 874,121 759,836
Long-term care 119,705 127,138 134,366
Other6 685,871 805,577 898,318
Administrative 177,092 163,936 180,616
Total expenditures 9,457,805 9,569,163 8,353,676
Transfers to the State General Fund 2,699 1,268 1,244
Net transfers to other state agencies7 39,213 38,184 41,928
Total expenditures and transfers 9,499,717 9,608,615 8,396,848
Net change in fund balance ( 460) 31,116 45,920
Fund balance, beginning of year 685 225 31,341
Fund balance, end of year $ 225 $ 31,341 $ 77,261
page 7
Office of the Auditor General
such as childless adults, is no longer being accepted.1 In addition, the federal
matching rate returned to its typical level starting in fiscal year 2012. Specifically, the
American Recovery and Reinvestment Act of 2009 and additional federal legislation
increased the federal matching rate from approximately 66 percent to between 71 and
76 percent from October 1, 2008 through June 30, 2011. This change and the changes
to the Arizona Medicaid program resulted in the fiscal year 2012 estimated federal
government revenues being approximately $1.4 billion lower. However, the State’s
estimated revenue did not show a similar decrease, in part due to the reduction in the
federal matching rate that required the State to contribute more of each dollar spent.
1 In December 2011, the Arizona Court of Appeals upheld the State’s decision to stop new enrollment for childless adults,
indicating that it was a political decision that was not subject to judicial resolution. In February 2012, the Arizona Supreme
Court refused to review the Appeals Court’s decision.
page 8
State of Arizona
page 9
1. The objective and purpose in establishing AHCCCS and the extent to
which the objective and purpose are met by private enterprises in
other states.
AHCCCS was established to administer Arizona’s Medicaid program,
which provides healthcare for certain low-income individuals and families
living in Arizona. In 1981, legislation was passed establishing AHCCCS as
a division within the Department of Health Services. By establishing
AHCCCS, the Legislature sought to bring federal Medicaid dollars into the
State to relieve the counties’ burden of the growing cost of indigent
healthcare. Although Arizona was the last state to join the Medicaid
program, AHCCCS was implemented in October 1982 as the nation’s first
state-wide Medicaid program designed to provide medical services to
eligible persons primarily through a managed care program. In 1984,
legislation created AHCCCS as an independent state agency. AHCCCS’
statutory purpose coincides with federal law, which requires each state to
designate a single state agency to administer or supervise the
administration of its Medicaid program.1
State law allows AHCCCS to enter into an agreement with an independent
contractor to serve as the state-wide administrator of the system, and
establishes that the Medicaid system consist of contracts for the provision
of medical services to members.2 Although AHCCCS does not contract
for state-wide administration of the State’s Medicaid program, the
provision of AHCCCS’ Medicaid services is largely handled through
private contracts (see Sunset Factor 12, pages 24 through 28, for more
information on the extent of AHCCCS’ use of private contractors).
According to the U.S. Department of Health and Human Services, Centers
for Medicare and Medicaid Services’ (CMS) Web site, each state
establishes and administers its own Medicaid program. However, as
indicated in a 2003 Kaiser Commission report, “There is enormous
variation from state to state as to how each state’s Medicaid program is
administered. The variation arises because, although states must operate
within federal guidelines, they retain broad flexibility in how they operate
their programs”3 (see Sunset Factor 12, pages 24 through 28, for more
information on the extent to which AHCCCS has used private contractors
as compared to other states).
1 42 USC §1396a(5)
2 A.R.S. §36-2903 (A) and (B)
3 Schneider, A., Wachino, V. (2003). Medicaid administration. In The medicaid resource book (pp. 131-164).
Menlo Park, CA: Kaiser Commission on Medicaid and the Uninsured.
SUNSET FACTORS Sunset factor analysis
In accordance with Arizona
Revised Statutes (A.R.S.)
§41-2954, the Legislature
should consider the factors
included in this report in
determining whether the
Arizona Health Care Cost
Containment System
(AHCCCS) should be
continued or terminated.
Auditors’ analysis of the
sunset factors found strong
performance by AHCCCS
with regard to many of
these factors. However,
AHCCCS needs to address
the recommendations
directed to it in the other
three audit reports issued
as part of this sunset
review (see Report Nos.
12-01, 12-02, and 12-06).
Office of the Auditor General
page 10
State of Arizona
2. The extent to which AHCCCS has met its statutory objective and purpose
and the efficiency with which it has operated.
AHCCCS has generally met its statutory objective and purpose to administer
Arizona’s Medicaid program. According to AHCCCS’ Population Highlights
report, as of July 1, 2012, there were approximately 1.3 million members enrolled
in Arizona’s Medicaid program. AHCCCS estimated that its expenditures for
fiscal year 2012 will total nearly $8.4 billion (see Table 2, page 6). During fiscal
years 2010 through 2012, AHCCCS’ costs to administer the program were
approximately 2 percent of its total expenditures each year, ranging from $177
million in fiscal year 2010 to an estimated $180.6 million in fiscal year 2012. As
indicated in Sunset Factor 12, when tasked with new responsibilities, AHCCCS
assesses whether it is more cost-efficient to conduct administrative functions on
its own or through a private contract (see Sunset Factor 12, pages 24 through
28, for more complete information on AHCCCS’ use of private contractors).
Further, according to AHCCCS, efficient delivery of covered services is the
foundation of the AHCCCS program, and it has been successful in containing
expenditures while delivering quality healthcare services through actuarially
sound capitation rates and extensive contractor oversight.
In addition, performance audits completed as a part of AHCCCS’ sunset review
identified several areas where AHCCCS has established procedures that help it
ensure that it is meeting state and federal requirements. Specifically:
• Identifying members’ other health insurance and coordinating
benefits—The Office of the Auditor General’s April 2012 performance audit
on coordination of benefits found that AHCCCS has established various
processes to help meet federal and state requirements for identifying
members with other health insurance and ensuring these other insurers
pay first for a member’s medical costs, and recovering monies from other
liable parties after members’ healthcare costs have been paid (see Report
No. 12-01). Federal regulation and state laws require that AHCCCS pay for
medical benefits only after other responsible parties have first paid their
share, making AHCCCS the payor of last resort. This process is called
coordination of benefits. Coordination of benefits involves two key areas–
cost avoidance and post-payment recovery.
To perform cost avoidance, AHCCCS asks for Medicaid applicants’ other
health insurance information during the application process, obtains data
from the federal government to identify whether enrolled members have
Medicare, and has a contract with Health Management Systems, Inc.
(HMS) to match its enrolled members with HMS’ national insurance
coverage database. AHCCCS’ contract with HMS also includes provisions
for post-payment recovery to identify and collect from other liable parties
after enrolled members’ healthcare costs have been paid. In addition,
AHCCCS requires its contracted health plans to conduct coordination of
page 11
Office of the Auditor General
benefits activities and has established an oversight process to ensure health
plans are meeting these requirements.
• Helping to ensure only eligible individuals or families are approved for
Medicaid—The Office of the Auditor General’s June 2012 performance audit
on Medicaid eligibility determination found that AHCCCS and the Department
of Economic Security (DES) accurately determined eligibility for almost all
Medicaid applicants (see Report No. 12-02).1 AHCCCS and DES must
determine each applicant’s eligibility in accordance with federal and state
requirements, which focus on an applicant’s financial status and other
conditions, such as legally residing in the United States. The June 2012
performance audit found that AHCCCS and DES have established extensive
policies and procedures, and provide training that helps guide eligibility staff
through the eligibility determination process. In addition, it conducts quality
control reviews to determine the accuracy of its and DES’ eligibility
determinations. Based on a review of a representative sample of 279 eligibility
determinations, auditors calculated that 5.92 percent of the eligibility
determinations are at risk for processing errors, and that 1.11 percent of
eligibility determinations are at risk for being incorrect.
• Preventing and detecting Medicaid fraud and abuse—The Office of the
Auditor General’s September 2012 performance audit on AHCCCS’ Medicaid
fraud and abuse prevention, detection, investigation, and recovery processes
found that AHCCCS has established processes to help prevent and detect
fraud (see Report No. 12-06). Specifically, AHCCCS requires all providers,
such as doctors and home healthcare agencies, to register with AHCCCS
before they are allowed to provide services to AHCCCS members. At the
time of the audit, AHCCCS was also in the process of enhancing its provider
registration activities to include site visits during the initial provider enrollment
process and as part of the reenrollment process for moderate- and high-risk
provider types, such as rehabilitation centers. In addition, AHCCCS had
requested that CMS furnish it with Arizona Medicare provider screening data
including the results of site visits for moderate- and high-risk Medicare
providers. According to AHCCCS, having access to this information allows it
to determine whether Medicare has denied enrollment or terminated
providers that may also be Medicaid providers. These provider registration
processes help ensure only licensed providers that are not already excluded
from providing Medicaid services per the U.S. Department of Health and
Human Services’ List of Excluded Individuals and Entities are approved for
Medicaid registration.
AHCCCS has also developed training for staff making eligibility determinations.
This training defines Medicaid fraud and explains how to report fraud.
1 AHCCCS has an intergovernmental agreement with DES to conduct Medicaid eligibility because DES performs this
function for other programs, such as the Supplemental Nutrition Assistance Program and Temporary Assistance for
Needy Families program.
page 12
State of Arizona
In addition, AHCCCS systematically reviews claims data for patterns of
fraud or abuse. For example, AHCCCS uses claims data to identify patterns
that suggest potential fraud or abuse, such as billing for services not
provided. AHCCCS also requires its contracted health plans to implement
a mandatory compliance program that is designed to guard against fraud
and abuse. AHCCCS ensures its health plans are meeting contractual
requirements by performing a triennial review of each contracted health
plan.
The performance audits completed as a part of AHCCCS’ sunset review also
identified areas for improvement. Specifically:
• Taking additional steps to identify other responsible parties and
coordinate benefits—The Office of the Auditor General’s April 2012
performance audit on coordination of benefits found that AHCCCS should
obtain some additional data to identify other responsible parties and help
coordinate benefits (see Report No. 12-01). Specifically, this report
recommended that AHCCCS use federal data from the U.S. Departments
of Veterans Affairs and Defense and the Office of Personnel Management
to determine if its enrolled members have veterans’ benefits or federal
healthcare coverage that could be used to avoid costs. In addition, the
report recommended that AHCCCS establish data-sharing agreements
with: (1) the Arizona Department of Transportation’s Motor Vehicle Division
to obtain data on motor vehicle accidents to identify liable third parties for
Medicaid recipients injured in motor vehicle accidents; and (2) the Industrial
Commission of Arizona to obtain data on work-related injuries and illnesses
that could be used to identify potential liable third parties.
• Developing and implementing a plan to reduce errors made during
eligibility determinations—Although auditors identified a small number of
eligibility determination errors and incorrect eligibility determinations as
reported in the Office of the Auditor General’s June 2012 performance audit
on Medicaid eligibility determination, the report recommended that
AHCCCS take steps to address the types of errors identified (see Report
No. 12-02). Specifically, in a review of 279 eligibility determinations, auditors
found 16 eligibility determinations that had processing errors. All of the
errors related to income, such as not verifying or documenting verification
of income or miscalculating the amount of income or resources. Therefore,
the report recommend that AHCCCS develop a corrective action plan that
will help ensure that it and DES correct the types of income and resource
verification and calculation errors identified in the audit as well as minimize
their frequency going forward.
• Enhancing Medicaid fraud and abuse investigation and recovery
procedures—The Office of the Auditor General’s September 2012
performance audit on AHCCCS’ Medicaid fraud and abuse prevention,
page 13
Office of the Auditor General
detection, investigation, and recovery processes found that AHCCCS should
improve some investigation and recovery processes (see Report No. 12-06).
For example, a review of AHCCCS’ Office of the Inspector General’s (OIG)
case management data found that although the OIG was investigating many
fraud and abuse cases in a timely manner, some cases were also taking
more than 1 year to investigate and close or had been waiting to be assigned
for investigation for more than 1 year. Although an AHCCCS official reported
that it has been able to hire three additional investigators to help address the
number of unopened fraud and abuse cases and improve the timeliness of
its investigations, given the number of cases awaiting an investigation and
the age of the cases, additional measures are needed. Therefore, the report
made several recommendations. These include implementing a formalized
case screening process, which should include a prioritization system for
when cases should be immediately assigned, deferred, or closed; using this
system to reassess and reprioritize cases as they move them from deferred
to assignment to an investigator to ensure these cases still warrant
investigation; and strengthening its policy regarding supervisory review of
ongoing investigations.
This September 2012 performance audit also identified that AHCCCS’ OIG
needed to make several changes in its recovery processes. Once a member
or provider suspected of Medicaid fraud or abuse has been convicted of a
criminal offense or has signed a civil settlement agreement, AHCCCS is
responsible for recovering any amounts owed. The report made
recommendations in four areas regarding recoveries:
◦ Documenting factors considered when settling recovery amounts—
Based on auditors’ review of civil settlement agreement documentation,
it is not clear if the OIG is seeking the maximum amounts legally allowed
on behalf of the State in civil settlements. Therefore, to show that
AHCCCS is pursuing the maximum civil settlements allowed, the report
recommended that the OIG document the specific considerations used
to arrive at a settlement decision.
◦ Reporting recovery amounts to the federal government—The OIG
has not established adequate procedures to ensure that federally
mandated reporting of recoveries is accurate. Because the federal
government shares in the cost of the Medicaid program, AHCCCS is
required to report the recovery amounts established in criminal restitution
and civil settlement agreements to the federal government. The federal
government’s contribution to Arizona’s Medicaid program is then
reduced proportionately in a future period by the recovery amounts
reported. However, auditors’ review of a sample of cases showed
erroneous reductions in the federal government’s share totaling
approximately $12,800. Therefore, the report recommended that the
OIG take additional steps to ensure accurate reporting including
page 14
State of Arizona
conducting a review of completed recovery reporting forms to ensure
that information on the forms is accurate and supported by case file
information, and establishing a process to periodically reconcile
federal reporting records to OIG recovery records.
◦ Collecting amounts owed—The OIG has not established a formal
collection policy or program, making it more difficult to collect the
nearly $2.2 million in recovery debts owed to the State that are more
than 90 days past due as of April 2012. The OIG should establish a
formal collection program that includes written procedures, monthly
followup on past-due accounts, assessment of interest on past-due
accounts in accordance with written agreements, pursuit of state tax
and lottery intercepts, and referral of severely past-due accounts to the
Arizona Attorney General’s Debt Collection Program for collection.
◦ Handling of payments—The OIG’s cash-handling procedures, which
are critical in protecting the millions of dollars in cash payments
received by the OIG each year, are inadequate and need to be aligned
with the State of Arizona Accounting Manual requirements.
3. The extent to which AHCCCS serves the entire State rather than specific
interests.
AHCCCS ensures healthcare coverage is available state-wide and offers the
same services to all enrolled members regardless of where they live in the State.
According to AHCCCS’ July 2012 Population By County report, the Medicaid
population ranges from a high of nearly 740,000 in Maricopa County to a low of
approximately 1,300 in Greenlee County. Most members receive services
through AHCCCS’ managed care system, whereby AHCCCS contracts with
entities, known as health plans. The contracted health plans coordinate and pay
for the medical services AHCCCS members receive. On a monthly basis,
AHCCCS’ contracted health plans receive a capitation payment for each
member who has enrolled in the health plan. There are contracted health plans
in every county, but the health plan a member can select depends on the county
in which he/she lives. Specifically, according to AHCCCS’ Web site there are
eight contracted health plans that serve Acute Care members state-wide with
each county having at least two health plans for members to choose from; and
there are three ALTCS contracted health plans serving members state-wide with
ALTCS members in Maricopa and Pima Counties only having more than one
health plan to choose from.1 All contracted health plans provide the same
medical services to their enrolled members, but each may work with different
doctors, pharmacies, hospitals, and other providers.
1 The number of health plans indicated above does not include the Acute Care Comprehensive Medical and Dental Plan
or the ALTCS Developmental Disabilities health plan administered by DES because these health plans are available
only to foster children and the developmentally disabled.
page 15
Office of the Auditor General
Federal law does not allow states to require an individual who is Native American
to enroll in managed care.1 Therefore, AHCCCS allows Arizona’s Native American
population to choose either a managed care health plan or enroll in its fee-for-service
program. According to AHCCCS’ Web site, Native Americans enrolled in
its fee-for-service program receive services from any registered AHCCCS
providers who have not opted out of AHCCCS’ fee-for-service program or from
tribal contractors.
4. The extent to which rules adopted by AHCCCS are consistent with the
legislative mandate.
General Counsel for the Auditor General has reviewed AHCCCS’ rule-making
statutes and believes that AHCCCS’ rules are consistent with the legislative
mandate. However, in certain areas requiring rules, AHCCCS has not established
rules because it has a waiver from CMS or CMS has not authorized AHCCCS to
perform a particular activity or function. Specifically:
• Finger imaging program—A.R.S. §36-2905.06 requires AHCCCS to work
with DES to expand its finger imaging eligibility program and AHCCCS is
required to adopt rules related to this program; however, according to the
Joint Legislative Budget Committee’s Fiscal Year 2003 Appropriations Report,
CMS had not provided approval for the Finger Imaging Program as a
condition of eligibility. Therefore, funding for the program was eliminated in
the 2002 legislative session. However, the statute is still in place.
• Reimbursement levels for ALTCS retroactive eligibility—A.R.S. §36-
2937(B) requires that if an ALTCS member is retroactively eligible pursuant to
federal law prior to the date the contracted health plan assumes responsibility
for the member’s healthcare, AHCCCS shall reimburse noncontracting
providers for covered services during the time period that the member was
retroactively eligible. AHCCCS is required to adopt rules prescribing the
reimbursement levels for services provided during the retroactive eligibility.
However, AHCCCS has a waiver from CMS for this federal requirement.
• Deductible schedule for developmentally disabled ALTCS members—
A.R.S. §36-2939(G) requires AHCCCS to prescribe a deductible schedule for
programs provided to developmentally disabled ALTCS members. However,
according to AHCCCS, it has not implemented a deductible program for
developmentally disabled ALTCS members because CMS has not provided
authorization for this.
1 42 USC §1396u-2(a)(2)(C)
page 16
State of Arizona
5. The extent to which AHCCCS has encouraged input from the public before
adopting its rules and the extent to which it has informed the public as to
its actions and their expected impact on the public.
When adopting rules, AHCCCS is required to follow the rule-making process,
including obtaining public input, with one exception. Specifically, state law
exempts AHCCCS from the rule-making process for its fee-for-service schedule,
but it has established in rule the methodology it uses to develop its fee-for-service
schedule.1
For the rules it has adopted or amended, AHCCCS has encouraged input from
the public through a variety of mechanisms. According to AHCCCS, for issues
affecting provider rates and provider reimbursement policies, at least 30 days in
advance of the proposed change, AHCCCS files a Notice of Public Information,
which provides an opportunity for the public to comment on the proposed
change. AHCCCS provides the public with opportunities to provide comments
through public hearings, e-mail, or AHCCCS’ Web site. For example:
• Obtaining comments through its Web site—AHCCCS provides an online
form on its Web site that allows the public to submit comments regarding
proposed rules or rule changes.
• Soliciting input through public hearings—AHCCCS also sometimes
holds public hearings to seek input from members, families, and other
interested parties on proposed rule changes. For example, effective
October 2011, AHCCCS amended its outpatient hospital reimbursement
methodology and associated rules through the rule-making process. Prior
to amending its rules, AHCCCS held a public hearing in Flagstaff, Phoenix,
and Tucson.2 Similarly, in June 2012, AHCCCS held a public hearing in
Flagstaff, Phoenix, and Tucson to obtain input on rule changes related to
streamlining and clarifying the request for proposals process and contract
award process.
According to AHCCCS, if comments are received regarding a proposed rule,
AHCCCS reviews the comment with subject matter experts to determine
whether any changes to the rule are necessary. Then, AHCCCS publishes a
Notice of Final Rulemaking on its Web site to inform the public of its actions. For
example, the Notice of Final Rulemaking regarding civil monetary penalties
noted that the rule was amended to conform the rule to statutory language and
more clearly describe the process, circumstances, and timelines under which
penalties and/or assessments are determined. The Notice of Final Rulemaking
also noted that there were no additional changes made between the proposed
rulemaking and the final rulemaking.
1 AAC R9-22-710, R9-22-712.20, R9-22-712.30, R9-22-712.35, and R9-22-712.40
2 According to AHCCCS, there is an employee at each location facilitating the hearing, and the locations are connected
through telephone conferencing.
page 17
Office of the Auditor General
AHCCCS also presents Medicaid program issues to the various tribes and seeks
their comments. For example, in July 2011, AHCCCS consulted with tribes about
changes to pharmacy payments to federally qualified community health centers
and changes to coverage for emergency department visits; and in October 2011,
AHCCCS provided an update on healthcare reform to the tribes.
6. The extent to which AHCCCS has been able to investigate and resolve
complaints that are within its jurisdiction.
AHCCCS has established processes to address appeals of AHCCCS and health
plan decisions regarding a denial or reduction of service or for investigating and
resolving complaints related to Arizona’s Medicaid program. To help ensure it
meets federal and state laws and regulations, AHCCCS has established different
processes depending on whether an eligibility decision has been appealed, a
complaint has been made by a managed care or fee-for-service member, or a
registered AHCCCS provider or contracted health plan files a claim dispute.
Specifically:
• AHCCCS has established a process for providing eligibility decision
hearings—As federally required, AHCCCS provides a hearing process for
Medicaid applicants or members who want to appeal an eligibility decision,
such as a denial or discontinuation of Medicaid eligibility.1 This hearing
process is administered by the Office of Administrative Hearings and applies
only to eligibility determinations made by AHCCCS.2 As previously indicated
(see page 4), as of July 1, 2011, AHCCCS performed about 11 percent of the
eligibility determinations, and completes determinations for the ALTCS
program, the KidsCare program, and the Supplemental Security Income—
Medical Assistance Only population, which is part of the Acute Care program.
DES, which performed about 82 percent of the Medicaid eligibility
determinations as of July 1, 2011, has an intergovernmental agreement with
AHCCCS to perform Medicaid eligibility determinations in conjunction with
eligibility determinations for other federal programs, such as the Supplemental
Nutrition Assistance Program. DES has a separate eligibility decision appeals
process.3
As required by state law, AHCCCS has established in administrative rule the
procedures and time frames for requesting an eligibility-decision hearing.4
For example, a person requesting an eligibility decision hearing has 30 days
from when he/she received the eligibility decision notice from AHCCCS to
request a hearing. Federal regulation also requires that AHCCCS issue and
1 42 USC §1396a(a)(3); and 42 CFR §431.200 et seq.
2 There is one exception to this requirement. AHCCCS’ eligibility hearing process also applies to persons determined
eligible by DES if the request for hearing relates to the imposition of or an increase in a premium or copayment (see AAC
R9-34-101).
3 Auditors did not review DES’ eligibility decision appeals process because it was not within the scope of the audit.
4 A.R.S. §36-2903.01(B)(4), and AACR9-34-101 et seq.
page 18
State of Arizona
publicize its hearing procedures.1 In addition to the information contained
in administrative rule, AHCCCS includes information about how to file an
appeal of an eligibility decision on its Web site. According to AHCCCS,
when an applicant or member files an appeal of an eligibility decision,
AHCCCS schedules a hearing. However, it also reviews the eligibility case
in question, and if it finds evidence to show the applicant or member is
eligible, then it will reverse the decision and cancel the hearing. If AHCCCS’
review indicates that the person was not eligible, it will proceed with the
scheduled hearing with the Office of Administrative Hearings.
According to AHCCCS, during calendar year 2011, 1,486 eligibility decision
appeals were filed. During 2011, there were also 1,040 eligibility decision
administrative hearings scheduled with the following results: 682 were
withdrawn by the appellant; 235 of the appellants did not show up so
AHCCCS’ decision remained; 118 of the appeals were denied; and in 5
cases, AHCCCS’ eligibility decision was overturned.
• AHCCCS requires its contracted health plans to handle complaints
from managed care members—Federal and state laws and regulations
require AHCCCS’ contracted health plans to have processes for handling
complaints from their managed care members, including concerns related
to denial of service or quality-of-care.2 Therefore, AHCCCS requires its
contracted health plans to establish grievance and quality care management
processes for handling concerns received from AHCCCS managed care
members. For example, AHCCCS’ contracted health plans must have
written information that clearly explains to enrolled members the process
for filing concerns, including the time frames for doing so. In addition,
contracted health plans must have staff resources that are able to
investigate, resolve, track, and trend quality-of-care complaints, such as
abuse by a provider, and staff to handle other concerns from enrolled
members, such as denial of service or failure to provide a service in a timely
manner. Further, if the enrolled member is not satisfied with the health
plan’s resolution of his/her concern, the member is allowed to file an appeal
for an administrative hearing for specific actions including the denial or
limited authorization of a requested service, or failure to provide a service
in a timely manner. This appeal is sent to AHCCCS and the administrative
hearing process is handled by the Office of Administrative Hearings.
AHCCCS’ Web site also includes information about how an enrolled
managed care member can file a complaint including requesting an
administrative hearing.
AHCCCS has established oversight processes to help ensure that its
contracted health plans are meeting complaint-handling requirements.
Specifically, AHCCCS conducts a review of each contracted health plan
1 42 CFR §431.206
2 42 USC §1396u-2(b)(4), 42 CFR §438.400 et seq., A.R.S. §36-2903.01(B)(4), and AAC R9-34-201 et seq.
page 19
Office of the Auditor General
every 3 years. As part of this review, AHCCCS assesses contracted health
plans’ compliance with complaint-handling requirements in two distinct
areas: (1) quality management standards, which relate to quality-of-care, and
(2) grievances, which involve the overall process for filing and handling any
type of complaint with the contracted health plans. For example, AHCCCS
reviews whether the contractor has the appropriate staff in place to carry out
the requirements related to quality management and whether it has a
structure and process in place for resolving, tracking, and trending quality-of-care
and abuse complaints. Additionally, AHCCCS ensures the contractor’s
grievance processes meet time frames and written notification requirements.
Auditors reviewed AHCCCS’ June 2012 annual external independent review
report, which summarizes the 10 health plan contractor reviews AHCCCS
conducted in 2010 and 2011.1 This report notes that compliance with
grievance system standards was one of its contractors’ strongest performance
areas. Further, although contractors were in compliance with many quality
management standards, in some areas, contractors were required to
establish corrective action plans. For example, one contractor was required
to establish a corrective action plan to ensure it developed and implemented
a process for tracking and trending quality-of-care concerns.
In addition to its triennial contractor review, AHCCCS monitors and follows up
on contractors’ resolution of quality-of-care complaints in other ways. First,
according to AHCCCS, after a contracted health plan investigates and
resolves a quality-of-care issue, the health plan submits a summary of its
findings and actions to AHCCCS. AHCCCS reviews the summary and
actions taken to ensure the actions are appropriate and timely. In addition,
according to AHCCCS, it obtains and reviews quarterly quality management
reports from contracted health plans that track cases and resolutions, and it
requires all quality-of-care cases to have closure documentation that the
contracted health plans follow up on, typically 30 to 60 days later, to ensure
that the prescribed corrective actions were taken.
According to AHCCCS, during calendar year 2011, 8,768 managed care
member quality-of-care complaints were filed with the contracted health
plans. Additionally, 5,496 non-quality-of-care complaints were also filed with
the contracted health plans. In calendar year 2011, AHCCCS also received
218 requests for administrative hearings in appeal of its contracted health
plans’ actions.
• AHCCCS handles complaints from its fee-for-service members—
AHCCCS is required by federal and state laws and regulations to have
processes for handling fee-for-service members’ complaints including
1 Health Services Advisory Group. (2012). 2010-2011 External quality review annual report for acute care and DES/CMDP
contractors. Phoenix, AZ: Author.
page 20
State of Arizona
concerns regarding denial of service.1 As indicated in the Introduction (see
page 2), about 10 percent of AHCCCS members are fee-for-service
members. According to AHCCCS, when fee-for-service members have
concerns about AHCCCS’ actions such as denial of a service or termination
of a previously authorized service, AHCCCS first tries to handle these
complaints administratively by reviewing the case and reaching an informal
decision. If the AHCCCS member is unsatisfied with the informal decision,
then AHCCCS proceeds with a scheduled hearing, which is administered
by the Office of Administrative Hearings. According to AHCCCS, in
calendar year 2011, there were nine requests for hearings by fee-for-service
members.
AHCCCS also processes fee-for-service members’ complaints related to
quality-of-care, such as abuse or neglect by a provider. AHCCCS is
responsible for investigating these complaints and if substantiated, must
develop a resolution that could include education, changes to the provider’s
procedures, or, in some cases, termination of a provider employee.
According to AHCCCS, during calendar year 2011, it opened 34 fee-for-service
member quality-of-care complaints. In the same year, AHCCCS
closed 29 complaints. Of the closed cases, 9 were substantiated, 7 were
unsubstantiated, and 13 were unable to be substantiated. According to
AHCCCS, for the cases it was unable to substantiate, it was not able to find
enough evidence to clearly indicate that the case was a quality-of-care
issue.
• AHCCCS provides a mechanism for handling claim disputes from its
providers and/or contracted health plans—As required by state law and
regulation, AHCCCS has established a process for handling claim disputes
by registered AHCCCS providers, such as physicians or its contracted
health plans.2 AHCCCS requires its contracted health plans to resolve
provider claim disputes involving managed care members; however, if a
provider is not satisfied, it can request that AHCCCS schedule a hearing of
the contracted health plan’s decision. While scheduling a hearing with the
Office of Administrative Hearings, AHCCCS will also work to handle these
provider concerns administratively. If the provider is satisfied with AHCCCS’
administrative decision, according to AHCCCS, it will cancel the scheduled
hearing.
In addition, AHCCCS handles claim disputes from provider claims involving
fee-for-service members or those filed by its contracted health plans.
According to AHCCCS, it also works to handle these concerns through an
informal resolution process before scheduling an administrative hearing.
1 42 CFR §431.200 et seq., A.R.S. §36-2903.01(B)(4); and AAC R9-34-301 et seq.
2 A.R.S. §36-2903.01(B)(4), and AAC R9-34-401 et seq.
page 21
Office of the Auditor General
However, according to AHCCCS, the vast majority of cases for which
administrative hearings are requested are for provider claim disputes.
According to AHCCCS, when scheduling administrative hearings, it gives
priority to eligibility decision and denial or reduction of services appeals
before provider claim disputes to help ensure that member and applicant
appeals are completed within the federally required time frame. Therefore,
according to AHCCCS, as of May 2012, there were more than 4,000 provider
claim disputes awaiting a hearing. However, AHCCCS is working with the
Office of Administrative Hearings to dedicate the necessary resources to
resolve the backlog, including grouping appeals by type of complaint and
health plan and setting prehearing conferences to identify cases that can be
settled. According to AHCCCS, grouping the providers and health plans can
help highlight common recurring problems, which leads to more efficient
settlement of multiple disputes. According to AHCCCS, it and the Office of
Administrative Hearings began holding 40 preconference hearings per day,
2 days per week, starting in July 2012, to reduce the backlog of provider
claim disputes.
7. The extent to which the Attorney General or any other applicable agency of
state government has the authority to prosecute actions under the enabling
legislation.
The Arizona Attorney General and county attorneys have concurrent authority to
prosecute actions related to AHCCCS.1 For example, both are involved in
prosecuting Medicaid fraud cases that AHCCCS refers to them (see the Office of
the Auditor General’s September 2012 performance audit on AHCCCS’ Medicaid
fraud and abuse prevention, detection, investigation, and recovery processes,
Report No. 12-06, for more information). Specifically, as allowed by federal code,
the Arizona Attorney General has established a specific unit, called a Medicaid
Fraud Control Unit (MFCU), to investigate and prosecute suspected fraud
committed by AHCCCS providers.2 AHCCCS has established a Memorandum of
Understanding with the Attorney General’s MFCU, which calls for AHCCCS to
conduct a preliminary investigation of suspected fraud to determine whether there
is a sufficient basis to refer the case to the MFCU for a full investigation and
prosecution.
According to AHCCCS, cases involving Medicaid member fraud are typically
referred to the County Attorney where the member resides for prosecution.
Member fraud involves a person providing false or fraudulent information to the
state when applying for Medicaid benefits. As indicated in the Office of the Auditor
General’s performance audit on Medicaid eligibility determination (see Report No.
12-02), AHCCCS and DES must determine each applicant’s eligibility in
accordance with federal and state requirements, which focus on an applicant’s
1 A.R.S. §§13-2310, 13-2311, 13-3713(G), and 36-2918
2 42 CFR Part 1007
page 22
State of Arizona
financial status and other conditions, such as legally residing in the United
States.1
8. The extent to which AHCCCS has addressed deficiencies in its enabling
statutes that prevent it from fulfilling its statutory mandate.
According to AHCCCS, it has not identified any deficiencies in its enabling
statutes that prevent it from fulfilling its statutory mandate. However, a few of the
statutory changes affecting AHCCCS that were enacted in calendar years 2011
and 2012 include the following:
• Laws 2012, Ch. 122—Statutory changes enacted under this law included
amending A.R.S. §36-2903.01 to (1) eliminate outdated language regarding
reimbursements for inpatient and outpatient hospital services; and (2) allow
AHCCCS, effective October 1, 2013, to adopt a hospital reimbursement
methodology for inpatient dates of service that is consistent with Title XIX of
the Social Security Act. This change also requires AHCCCS to obtain
legislative approval prior to adopting the methodology and establish
workgroups consisting of representatives from urban, rural, and critical
access hospital communities and other groups to provide input on the new
methodology.
• Laws 2012, Ch. 213—This law amended A.R.S. Title 36, Ch. 29, by adding
article 6, which authorizes nursing facility provider fee assessments. Under
this new article, beginning October 1, 2012, AHCCCS is allowed to charge
a nursing facility provider assessment on patient service revenue to obtain
additional federal Medicaid monies. According to the National Conference
of State Legislatures’ Web site, a provider assessment is a state law that
authorizes the collecting of revenue from specified categories of providers;
and, in most states it is used to generate new in-state funds and match
them with federal funds so that the state gets additional federal Medicaid
dollars. According to the Arizona House of Representatives’ summary,
monies collected through this nursing facility assessment will be used to
help AHCCCS qualify for federal matching funds for supplemental medical
payments. These supplemental medical payments, along with the nursing
facility assessments, will then be used for supplemental payments to
nursing facilities for covered Medicaid services. This statutory revision also
requires the establishment of a specific fund consisting of monies received
from the assessment, and approval from CMS.
• Laws 2011, Ch. 31—This law amended several statutes and resulted in a
number of changes to AHCCCS’ programs. Some of the changes included:
1 AHCCCS has an intergovernmental agreement with DES to conduct Medicaid eligibility determinations because DES
performs this function for other programs, such as the Supplemental Nutrition Assistance Program.
page 23
Office of the Auditor General
◦ Transferring responsibility for the Children’s Rehabilitative Services
(CRS) program from the Department of Health Services to AHCCCS,
effective July 1, 2011. The CRS program is part of AHCCCS’ Medicaid
program and provides medical care, rehabilitation, and related support
services to AHCCCS-enrolled children with qualifying chronic and
disabling conditions. Previously, the medical, rehabilitation, and other
support services provided to AHCCCS children who qualified for the
CRS program were not the responsibility of AHCCCS’ managed care
plans and instead were managed by the Department of Health Services.
According to AHCCCS, this resulted in children with complex healthcare
needs receiving medical care and other qualifying services from a
minimum of two separate systems. By transferring the CRS responsibility
to AHCCCS, AHCCCS reports that it should be able to provide CRS
services to qualifying children more effectively.
◦ Specifying that AHCCCS members must pay a monthly premium and
copayments for office, urgent care, and emergency room visits.
• Laws 2011, Ch. 234—Statutory changes enacted under this law included
(1) allowing AHCCCS providers to charge a $25 missed appointment fee to
members who miss scheduled appointments; and (2) authorizing any
political subdivision to provide monies necessary to qualify for federal
matching monies to provide healthcare coverage to persons who would
have been eligible for Medicaid pursuant to A.R.S. §36-2901.01. As indicated
on page 2, effective May 1, 2012 through January 1, 2014, AHCCCS will be
receiving monies from three hospitals that will allow AHCCCS to provide
coverage for 21,700 children in what is being called KidsCare II. This state-wide
program will offer the same benefits, but has a lower income eligibility
threshold than the KidsCare program (see page 2 for more information on
KidsCare).
9. The extent to which changes are necessary in the laws of AHCCCS to
adequately comply with the factors listed in the sunset law.
The performance audits conducted as part of AHCCCS’ sunset review (see
Reports Nos. 12-01, 12-02, and 12-06) did not identify any needed changes to
AHCCCS’ statutes.
10. The extent to which the termination of AHCCCS would significantly affect the
public health, safety, or welfare.
Terminating AHCCCS would have a detrimental effect on the health, safety, and
welfare of the low-income Arizonans that it serves. According to AHCCCS’
Population Highlights report, as of July 1, 2012, AHCCCS provided healthcare
services to approximately 1.3 million individuals. Half of these individuals are
children, and nearly 6 percent of AHCCCS’ member population is 65 or older,
page 24
State of Arizona
according to AHCCCS’ Population Demographics report. To help pay for these
healthcare services, in fiscal year 2012, AHCCCS estimates it will receive
approximately $5.7 billion in federal matching funds. By terminating AHCCCS,
Arizona would lose these funds, which could result in the approximately 1.3
million AHCCCS members losing their healthcare coverage, unless another
state agency assumed AHCCCS’ role as Arizona’s Medicaid agency. As
previously indicated (see page 9), federal law requires each state to designate
a single state agency to administer or supervise the administration of its
Medicaid program.1
In addition, eliminating AHCCCS could have a negative impact on other
individuals and businesses. Specifically, AHCCCS’ enrolled membership
represents about 20 percent of Arizona’s population, and eliminating AHCCCS
and the healthcare services it purchases for its enrolled members could have an
adverse effect on the 11 contracted health plans, the nearly 54,000 registered
healthcare providers reported by AHCCCS, and their employees. Although the
2010 Federal Patient Protection and Affordable Care Act (Act) requires most
individuals to have healthcare insurance, if AHCCCS were eliminated, the
number of uninsured individuals in the State could increase if there is not
another no cost or low-cost alternative available. Since federal law requires
hospital emergency rooms to treat all patients regardless of their ability to pay,
the increase in the number of uninsured individuals could put additional financial
strain on the State’s emergency care system.
Finally, the Advisory Council on Indian Health Care (Council), which was
established to develop a comprehensive healthcare delivery and financing
system for Arizona’s tribes, would also be terminated. The Council was
established as a component of the Arizona statutes authorizing and regulating
AHCCCS.
11. The extent to which the level of the regulation exercised by AHCCCS
compares to other states and is appropriate and whether less or more
stringent levels of regulation would be appropriate.
Because AHCCCS is not a regulatory agency, this factor does not apply.
12. The extent to which AHCCCS has used private contractors in the
performance of its duties as compared to other states and how more
effective use of private contractors could be accomplished.
AHCCCS makes extensive use of private contractors. Specifically, the majority
of AHCCCS’ revenues are used to pay private contractors who coordinate and
pay for healthcare services to enrolled members. Specifically, as indicated in the
Introduction (see page 5), AHCCCS’ fiscal year 2012 estimated expenditures
1 42 USC §1396a(5)
page 25
Office of the Auditor General
total nearly $8.4 billion. About 76 percent of this amount, or $6.4 billion, is used
for the capitation payments AHCCCS makes to its contracted health plans. These
health plans coordinate and pay for the medical services AHCCCS members
receive from registered AHCCCS healthcare providers, such as physicians and
hospitals. As indicated on page 1, AHCCCS was the nation’s first state-wide
Medicaid program designed to provide medical services primarily through a
managed care system. According to CMS’ Web site, states have traditionally
used a fee-for-service system to provide Medicaid benefits, but states have begun
to more frequently implement managed care delivery systems. However, Arizona
continues to be one of the states with the highest percentage of members in a
managed care system. Specifically, as of October 2010, 47 states and the District
of Columbia used managed care programs to some degree, but only 9 states,
including Arizona, had 80 percent or more of their members enrolled in
comprehensive managed care programs.1,2
Auditors determined that AHCCCS’ use of private contractors in three key
administrative areas appeared comparable to other states. To obtain information
on other states’ privatization efforts related to state Medicaid agency administrative
functions, auditors sent a survey to the state Medicaid agencies in the other 49
states. Auditors received responses from 15 states.3 When asked to describe the
benefits of privatizing Medicaid functions, some of the responding states
mentioned that private contractors can improve the cost-effectiveness of
functions, provide skills that state Medicaid agencies may not have, ease the
administrative burden of these agencies, and improve the level of service. The
three comparable areas included:
• Third-Party Liability—Similar to AHCCCS, most of the 15 states that
responded to the auditors’ survey reported that they have private contracts
to identify Medicaid members’ other insurance so that Medicaid costs can be
avoided—cost avoidance, or to recover payments from liable third parties—
cost recovery. These efforts help to ensure that Medicaid is the payor of last
resort, as required by federal regulation.4 Specifically, 11 of the 15 responding
states reported that they use private contractors for cost avoidance; and 12
of the 15 responding states reported that they used private contractors for
recovering payments from liable third parties. As indicated in the Office of the
Auditor General’s performance audit on AHCCCS’ coordination of benefits
(see Report No. 12-01), AHCCCS contracts with HMS for both cost avoidance
and cost recovery services. This report noted that according to HMS, it
1 Comprehensive managed care is defined as inpatient hospital services and any of the following services, or any three of
the following services: (1) outpatient hospital services; (2) rural health clinic services; (3) Federally Qualified Center
services; (4) other laboratory and x-ray services; (5) nursing facility services; (6) early and periodic screening, diagnostic,
and treatment services; (7) family planning services; (8) physicians’ services; and (9) home health services.
2 Kaiser Family Foundation. (2010). Medicaid enrollment in comprehensive managed care as a share of total Medicaid
enrollment, October 2010. Retrieved January 31, 2012, from www.statehealthfacts.org
3 The responding states are California, Colorado, Idaho, Indiana, Michigan, New Jersey, North Carolina, North Dakota,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, and Washington.
4 42 USC §1396a(a)(25) and 42 CFR §433.135 et seq.
page 26
State of Arizona
provides coordination of benefits services to 41 agencies in 39 states and
the District of Columbia.
• Fraud detection—Similar to AHCCCS, most of the states that responded
to the auditors’ survey reported that they contract for some fraud detection
services. Specifically, 11 of the 15 responding states reported that they use
private contractors for fraud detection services. For example, one state said
that it uses its Recovery Audit Contractor to provide fraud detection services
that will complement similar work performed by the state’s Medicaid
Program Integrity Unit. Another state said that fraud detection work is being
performed by third-party liability and auditing contracts. As indicated in the
Auditor General’s performance audit on AHCCCS’ Medicaid fraud and
abuse prevention, detection, investigation, and recovery processes (see
Report No. 12-06), AHCCCS uses a contractor, EDI Watch, Inc., to assist in
the detection of fraud and abuse. In addition, on December 12, 2011,
AHCCCS entered into a contract with three companies for data analytics
consulting services related to fraud prevention and detection. Based on
discussions with CMS and state Medicaid officials from California, Illinois,
Maryland, and Texas, data analysis techniques are an essential practice in
preventing and detecting fraud and abuse.
• Eligibility determination—Similar to AHCCCS, most of the states that
responded to the auditors’ survey reported that they did not contract out
the eligibility determination function. Specifically, 14 states responded to
this question and 9 reported that they did not contract out this function. Five
of the states reported partially contracting out this function, but it appeared
that for one of these states, their contract was with another state agency
and not a private contractor. This would be similar to AHCCCS, which has
an intergovernmental agreement with DES to perform the majority of
eligibility determinations on its behalf (see Introduction, pages 4 through 5,
for more information). According to statute, AHCCCS is required to enter
into an interagency agreement with DES to establish a streamlined eligibility
determination process.1
In addition to contracting for key operational areas, AHCCCS reports that it also
contracts for various other services including custodial; mailroom and courier;
building security; groundskeeping; and building, vehicle, and equipment repair
and maintenance.
The survey identified three areas where it appeared states may be making
greater use of private contracts, but AHCCCS has specific reasons for not using
or more fully using private contractors in these areas. Specifically:
• Actuarial services—Most of the states that responded to the auditors’
survey indicated that they contract for actuarial services. Actuaries review
1 A.R.S. §36-2903.01(B)(2) and (3)
page 27
Office of the Auditor General
and analyze medical claims data and other data, such as financial statements
or reports, to develop and recommend the monthly capitation rates that are
paid to contracted health plans. Ten of the 15 states responding to the
auditors’ survey reported that they fully contract for actuarial services and 5
states reported that they partially contract for actuarial services. According to
AHCCCS, it brought actuarial services in-house in early 2004, and it has seen
significant savings. Another benefit that AHCCCS reported is that its in-house
actuaries are more knowledgeable about the AHCCCS data, including
anomalies in the data, the AHCCCS programs and requirements, and
changes to the programs due to their daily immersion in the agency.
AHCCCS also reported that it has a contract for actuarial services, but
indicated that this contract is used for nonroutine actuarial reviews such as
consulting on capitation rate risk adjustments for the contracted health plans.
• Claims payment processing—Most states that responded to the auditors’
survey also reported that they contract for claims payment processing.
Claims payment processing are the processes an agency uses to ensure
providers are paid for the covered services provided to Medicaid members.
Specifically, 10 of the 15 states indicated that they fully contract for this
service, and 3 states indicated that they partially contract for claims
processing services. In Arizona, most claims processing is handled by
AHCCCS’ contracted health plans for its managed care members. However,
AHCCCS processes the claims for its fee-for-service members. Further,
according to AHCCCS, it helps process claims for other entities, including
claims for Maricopa County inmates, and until June 30, 2012, Department of
Corrections inmates.
• Medicaid Management Information Systems—Most states that responded
to the auditors’ survey reported that they contract out the operation of their
Medicaid Management Information Systems (MMIS). MMISs are used to
process and/or record Medicaid claims and other data that is needed for
federal and state program administration and audit purposes. Each state is
federally required to have an MMIS. Nine of the states responding to the
survey indicated that operation of their MMIS was fully contracted and four
states indicated that the operation of their MMIS was partially contracted.
CMS’ Web site indicates that private contractors, known as fiscal agents,
may operate states’ MMIS. According to an April 27, 2012, report on CMS’
Web site, 36 states and the District of Columbia had fiscal agent contracts.
According to AHCCCS, it developed an in-house MMIS system with the
assistance of a vendor because there was not a viable vendor-operated
system for a managed care Medicaid program available at the time. Further,
AHCCCS reported that it has been operating its MMIS since about 1990, and
continues to operate its MMIS because it is cost efficient compared to the
very large fees vendors are charging for comparable systems. In addition,
AHCCCS also operates Hawaii’s MMIS, and reported it has done so since
page 28
State of Arizona
1999, which allows AHCCCS to have a partner that shares in the cost of
operating its MMIS.
Although the performance audits conducted as part of AHCCCS’ sunset review
did not identify any areas where AHCCCS could more effectively use private
contractors, AHCCCS reported that it has a process for assessing whether it is
efficient and effective to use contracted services. Specifically, when tasked with
new responsibilities by the federal government and/or the State, AHCCCS
considers various factors when deciding whether to contract for the service or
perform it in-house. These factors include assessing whether there are existing
contractors with the infrastructure and expertise to perform the function and
whether a contractor could more efficiently perform the work than AHCCCS.
For example, in 2010, AHCCCS was tasked with the collection of rebates for
outpatient prescription drugs dispensed to its enrolled members. According to
CMS’ Web site, the Medicaid Drug Rebate Program “is a partnership between
CMS, State Medicaid Agencies, and participating drug manufacturers that helps
to offset the Federal and State costs of most outpatient prescription drugs
dispensed to Medicaid patients.” According to AHCCCS, it determined that it
would be more cost-effective to contract for this rebate function because it could
leverage a vendor’s program expertise, infrastructure, existing contracts, and
relationships with drug labelers, and achieve economies of scale associated
with a vendor’s rebate-billing work for multiple states and collection programs.
In December 2010, AHCCCS entered into a contract with a private vendor to
process Medicaid fee-for-service and managed care drug rebates according to
CMS guidelines.
APPENDIX A Methodology
page a-i
AHCCCS’ performance was analyzed in accordance with the statutory sunset
factors. Performance audit work related to AHCCCS’ Coordination of Benefits
(see Auditor General Report No. 12-01), Medicaid Eligibility Determination (see
Auditor General Report No. 12-02), and Medicaid Fraud and Abuse Prevention,
Detection, Investigation, and Recovery Processes (see Auditor General Report
12-06) provided information for this report. Auditors also reviewed and
analyzed information on AHCCCS in the Fiscal Years 2010-2013 Master List of
State Government Programs, and obtained and reviewed information from
AHCCCS on the number of full-time staff and vacancies as well as other
information such as contracts, policies and procedure manuals, and AHCCCS’
member population data. In addition, auditors reviewed federal and state laws
and regulations related to the Medicaid program and AHCCCS including
session laws. To assess AHCCCS’ use of private contractors as compared to
other states, auditors sent a survey to the other 49 states. Fifteen states
responded: California, Colorado, Idaho, Indiana, Michigan, North Carolina,
New Jersey, North Dakota, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Vermont, Virginia, and Washington.
Auditors’ work on internal controls focused on AHCCCS’ processes and
procedures for ensuring compliance with federal and state laws and regulations
for handling complaints about the Medicaid program, such as appeals of
eligibility determination decisions. Conclusions on this work are included in
Sunset Factor 6, pages 17 through 21. Computerized system information was
not significant to auditors’ objectives; therefore, auditors did not conduct test
work on information systems controls.
This appendix provides
information on the methods
auditors used to meet the
audit objectives.
This performance audit was
conducted in accordance
with generally accepted
government auditing
standards. Those
standards require that we
plan and perform the audit
to obtain sufficient
appropriate evidence to
provide reasonable basis
for our findings and
conclusions based on our
audit objectives. We
believe that the evidence
obtained provides a
reasonable basis for our
findings and conclusions
based on our audit
objectives.
The Auditor General and
staff express appreciation
to the Arizona Health Care
Cost Containment System
(AHCCCS) Director and his
staff for their cooperation
and assistance throughout
the audit.
Office of the Auditor General
AGENCY RESPONSE
Performance Audit Division reports issued within the last 24 months
Future Performance Audit Division reports
Department of Corrections – Oversight of Security Operations
11-07 Department of Corrections—
Oversight of Security Operations
11-08 Department of Corrections—
Sunset Factors
11-09 Arizona Department of Veterans’
Services—Veterans’ Donations
and Military Family Relief Funds
11-10 Arizona Department of Veterans’
Services and Arizona Veterans’
Service Advisory Commission—
Sunset Factors
11-11 Arizona Board of Regents—
Tuition Setting for Arizona
Universities
11-12 Arizona Board of Regents—
Sunset Factors
11-13 Department of Fire, Building and
Life Safety
11-14 Arizona Game and Fish
Commission Heritage Fund
12-01 Arizona Health Care
Cost
Containment System—
Coordination of Benefits
10-05 Arizona Department of
Housing
10-06 Board of Chiropractic Examiners
10-07 Arizona Department of
Agriculture—Sunset Factors
10-08 Department of Corrections—
Prison Population Growth
10-L1 Office of Pest Management—
Regulation
10-09 Arizona Sports and Tourism
Authority
11-01 Department of Public Safety—
Followup on Specific
Recommendations from
Previous Audits and Sunset
Factors
11-02 Arizona State Board of Nursing
11-03 Arizona Department of Veterans’
Services—Fiduciary Program
11-04 Arizona Medical Board
11-05 Pinal County Transportation
Excise Tax
11-06 Arizona Department of Veterans’
Services—Veteran Home
Registrar of Contractors
11 Arizona Board of Regents—
Tuition Setting for Arizona
Universities
11-12 Arizona Board of Regents—
Sunset Factors
11-13 Department of Fire, Building and
Life Safety
14 Game and Fish
Commission Heritage Fund
12-01 Arizona Health Care Cost
Containment System—
Coordination of Benefits
12-02 Arizona Health Care Cost
Containment System—Medicaid
Eligibility Determination
12-03 Arizona Board of Behavioral
Health Examiners
12-04 Arizona State Parks Board
12-05 State Schools for the
Deaf and the Blind
06 Cost Containment
System—Medicaid Fraud and
Abuse Prevention, Detection,
Investigation, and Recovery
Processes
07 Agriculture—Sunset Factors
08 Department of Corrections—
Prison Population Growth
L1 Office of Pest Management—
Regulation
09 Arizona Sports and Tourism
Authority
11-01 Department of Public Safety—
Followup on Specific
Recommendations from
Previous Audits and Sunset
Factors
11-02 Arizona State Board of Nursing
11-03 Arizona Department of Veterans’
Services—Fiduciary Program
04 Medical Board
11-05 Pinal County Transportation
Excise Tax
06 Arizona Department of Veterans’
Services—Veteran Home
07 Department of Corrections—
Oversight of Security Operations
11-08 Department of Corrections—
Sunset Factors
11-09 Arizona Department of Veterans’
Services—Veterans’ Donations
and Military Family Relief Funds
11-10 Arizona Department of Veterans’
Services and Arizona Veterans’
Service Advisory Commission—
Sunset Factors