Performance audit, Arizona Health Care Cost Containment System, medical services contracting

              A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Arizona Health Care
Cost Containment
System
Medical Services Contracting
Performance Audit Division
SEPTEMBER • 2002
REPORT NO. 02 – 07
Performance Audit
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 operations 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
Representative Roberta L. Voss, Chair Senator Ken Bennett, Vice Chair
Representative Robert Blendu Senator Herb Guenther
Representative Gabrielle Giffords Senator Dean Martin
Representative Barbara Leff Senator Peter Rios
Representative James Sedillo Senator Tom Smith
Representative James Weiers (ex-officio) Senator Randall Gnant (ex-officio)
Audit Staff
Dale Chapman, Manager and Contact Person
Jay Dunkleberger, Team leader Jessica Tucker
Kirk Jaeger
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.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
September 5, 2002
Members of the Arizona Legislature
The Honorable Jane Dee Hull, Governor
Ms. Phyllis Biedess, Director
Arizona Health Care Cost Containment System
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona Health
Care Cost Containment System (AHCCCS)—Medical Services Contracting. This report is in
response to an August 9, 2001, resolution of the Joint Legislative Audit Committee and under the
authority vested in the Auditor General by A.R.S. §§41-1279 and 41-2951 et seq. I am also
transmitting with this report a copy of the Report Highlights for this audit to provide a quick
summary for your convenience.
This audit is the third in a series of five audits of AHCCCS. As outlined in its response, AHCCCS
agrees with the finding and recommendations.
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 6, 2002.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
The Office of the Auditor General has conducted a performance audit examining the
Arizona Health Care Cost Containment System’s (AHCCCS) contracting process for
healthcare services. AHCCCS administers healthcare programs for more than
700,000 Arizona residents. This audit, as part of a Sunset review of the Agency, was
conducted pursuant to an August 9, 2001, resolution of the Joint Legislative Audit
Committee and under authority vested in the Auditor General by Arizona Revised
Statutes (A.R.S. §§41-1279 and 41-2951 et seq). It is the third in a series of five audits
of AHCCCS. Other audits in the series cover the Division of Member Services, rate-setting
processes, quality of care, and an evaluation of the Agency using the criteria
in Arizona’s Sunset law.
AHCCCS administers healthcare principally through a managed care system
involving contracted healthcare plans. AHCCCS pays these plans a negotiated rate
to coordinate medical services for each AHCCCS member enrolled in the plan. The
goals of its procurement process are to obtain a high-quality healthcare delivery
network, increase members’ healthcare choices, and reduce costs through
competition. In fact, in a 1995 report, the United States General Accounting Office
praised AHCCCS’ successful efforts to reduce costs through contracting and
competition. In state fiscal year 2001, AHCCCS spent approximately $2.9 billion, from
both federal and state funds, on its two largest healthcare programs.
􀁺􇨠 Acute Care Program—AHCCCS contracts with ten health plans to deliver acute
care services such as hospital and outpatient services to specific areas of the
State. During fiscal year 2002, AHCCCS paid these plans nearly $1.9 billion in
fees. As of July 2002, they were delivering care to over 650,000 members.
􀁺􇨠 Long-Term Care Program—AHCCCS contracts with eight different health plans
to provide long-term care services, such as home- and community-based
services, and nursing home care to the elderly, and the developmentally or
physically disabled. This program, called the Arizona Long-Term Care System, or
ALTCS, delivers care to over 33,000 elderly, physicallly, or developmentally
disabled members. In fiscal year 2002, AHCCCS paid these plans nearly $1
billion in fees.
page i
Office of the Auditor General
SUMMARY
In state fiscal year 2002,
AHCCCS spent nearly:
􀁺􇨤 $1.9 billion on acute
care services
􀁺􇨤 $1 billion on ALTCS
services.
AHCCCS has:
􀁺􇩏 Over 650,000 acute
care members
􀁺􇩏 Over 33,000 ALTCS
members.
Contracting process needs minor improvements (see
pages 7 through 13)
AHCCCS has an appropriate process for procuring its medical services that could be
improved through additional policies and procedures. Although AHCCCS is exempt
from following state procurement statutes, its process closely mirrors state
requirements and incorporates various options allowed under state guidelines. For
example, AHCCCS is consistent with state law in issuing requests for proposals
(RFPs) that tell potential contractors what to submit in their proposals, what services
they must provide, and how their proposals will be scored. Options allowed under
state law and adopted by AHCCCS include issuing requests for information to obtain
health plan capabilities and other market information, and holding pre-proposal
conferences. AHCCCS’ process is also consistent with federal contracting practices,
while AHCCCS contractors report that elements of the process are similar to
procurement processes used by other state and federal organizations.
While the process is appropriate, it would be improved if guidelines and policies were
developed or more clearly documented in several areas. First, AHCCCS should
establish general policies and procedures to help guide its procurement process. For
example, AHCCCS has not developed policies or procedures defining its medical
services procurement process, scheduling and scoring guidelines, and specific
responsibilities of AHCCCS divisions and offices in the process. Written procedures,
which exist for other types of AHCCCS procurements and which are common across
other agencies, would help AHCCCS consistently follow its practices. Second,
AHCCCS should ensure that it adequately documents how current contractors’
performance is being evaluated when future procurements are under consideration.
At present, this evaluation is not fully documented. Third, AHCCCS should include
evaluations of current contractors’ performance in its procurement process for long-term
care (ALTCS). Such evaluations currently are in place only for acute care
procurements, though AHCCCS has begun to address how they can be extended to
ALTCS plans as well.
Finally, in addition to developing policies and procedures regarding its procurements,
AHCCCS should also develop an agency-wide system to track and maintain contract
documentation. Maintaining contract documentation is important to ensure AHCCCS’
ability to properly oversee its medical services contracts. However, auditors’ limited
review indicated that tracking documentation may be a problem. A review of one
health plan’s contract files found eight missing contract compliance and performance
documents dating from March 1997 to December 2001.
page ii
Exempt from
procurement
requirements, AHCCCS
developed its own
practices, including:
􀁺􇩉 Issuing RFPs
􀁺􇩍 Meeting with potential
offerers.
State of Arizona
Other pertinent information (see page 15 through 18)
Because reducing costs through competition is a goal of the procurement process,
auditors gathered information about competition in managed care contracts both in
Arizona and nationwide. Although 48 states use managed care contracts to provide
healthcare services for at least a portion of their Medicaid populations, Arizona goes
further than most states because it has adopted a statewide managed care system
for its acute and long-term care populations. Nationally, states report that fewer health
plans have been competing for managed care contracts.1 This has caused some
states to stop providing comprehensive services under a managed care approach.
By comparison, Arizona has been more successful in attracting competition.
AHCCCS contracts with seven private and three public health plans for its acute care
program, which is above the national average. Further, for AHCCCS’ last acute care
contract, there were more proposals submitted than awards issued in all but one of
the State’s nine contracting areas.
Although AHCCCS has been relatively successful generating competition in the acute
care program, it is having more difficulty in finding contractors for its ALTCS program.
Few other states provide statewide long-term care services within a managed care
model, possibly limiting the number of health plans capable of providing managed
care long-term services. Additionally, until the federal fiscal year 2001 ALTCS
procurement, counties had the right of first refusal to contract with AHCCCS to
provide long-term care services. According to AHCCCS officials, this may have
discouraged private companies from bidding on this program or developing the
capability to provide long-term care services in a managed care setting.
One step that AHCCCS has taken to increase contractors’ interest in both programs
has been to increase the size of geographic areas covered by contracts. Concerned
that reduced revenues, potentially higher medical costs, and a limited number of
providers in rural counties would discourage organizations from submitting bids for
these areas, AHCCCS switched from a county-by-county approach to one that
increases the population in contract areas by combining some counties to form nine
geographic service areas for the acute care program and seven for the ALTCS
program.
AHCCCS employs a reasonable method for determining the number of contracts to
issue in each of these geographic service areas. While AHCCCS bases this initial
estimate on population factors, it can change the number of contracts it issues on a
case-by-case basis as it reviews contract proposals.
page iii
1 Neva Kaye, Medicaid Managed Care: A Guide for States. Portland: National Academy for State Health Policy, 2001.
Office of the Auditor General
page iv
State of Arizona
pagev
Office of the Auditor General
TABLE OF CONTENTS
1
7
7
11
12
13
15
15
2
3
8
16
17
Introduction & Background
Finding 1: Contracting process needs minor
improvements
Process consistent with state and federal policies
Better guidelines and documentation needed
System needed for tracking contract documents
Recommendations
Other Pertinent Information
Competition within the managed care system
Agency Response
Figures:
1 Acute care membership and number of contractors by
geographic service area as of July 2002
2 Long-term care membership and number of contractors by
geographic service area as of July 2002
3 Acute and long-term care contracting process as of
September 2002
4 Acute care proposals submitted and contracts awarded by
geographic service area 1998 federal fiscal year
5 Long-term care proposals submitted and contracts awarded
by geographic service area 2001 and 2002 federal fiscal years
page vi
State of Arizona
page1
Office of the Auditor General
INTRODUCTION
& BACKGROUND
The Office of the Auditor General has conducted a performance audit of the medical
services contracting practices of the Arizona Health Care Cost Containment System
(AHCCCS) as a part of a Sunset review of the Agency. This audit was conducted
pursuant to an August 9, 2001, resolution of the Joint Legislative Audit Committee.
The audit was conducted under the authority vested in the Auditor General by Arizona
Revised Statutes (A.R.S.) §§41-1279 and 41-2951 et seq. This is the third in a series
of five audits of AHCCCS. The remaining audits in this series will cover quality of care
and agency-wide Sunset factors, while previous audits addressed the Division of
Member Services, and rate-setting processes.
Contracting an important AHCCCS function
The primary goals of AHCCCS’ healthcare services contract procurement process
are to obtain a high-quality healthcare delivery network, increase choice for its
members, and reduce costs through competition. To fulfill these goals, AHCCCS
contracts with various public and private organizations (health plans) that provide
medical services through the acute care and Arizona Long Term Care System
(ALTCS) programs. Contracts for both programs are effective for 5 years and
renewed annually. AHCCCS divides the State into nine Geographic Service Areas
(GSAs) for acute care (hospital and outpatient services for patients eligible under
federal Medicaid and state healthcare programs) and seven GSAs for long-term care
(care provided to the elderly, physically, or developmentally disabled). (See Figure 1
[page 2] for acute care, and Figure 2 [page 3] for ALTCS GSAs). Each GSA is served
by one or more health plans.
AHCCCS uses a statewide managed care approach, under which it pays its health
plans a fixed payment per member to cover the costs of providing a network of
physicians, laboratories, hospitals, and long-term care services. In state fiscal year
In 2001, AHCCCS paid
approximately $2.9
billion to acute care and
ALTCS contractors.
2001, AHCCCS paid over $2.2 billion, from both federal and state
funds, to acute care and ALTCS health plans as detailed below:
􀁺􇩁 Acute Care—AHCCCS contracts with a total of ten health
plans that operate in one or more GSAs. During state fiscal
year 2002, AHCCCS paid these plans approximately $1.9
billion for healthcare services. The acute care program was
established in 1982 and offers services including physician
care, hospitalization, and pharmacy benefits to AHCCCS
members. As of July 2002, AHCCCS’ acute care health plans
were delivering care to over 650,000 members. AHCCCS
conducted the most recent procurement for its acute care
program in federal fiscal year 1998, and is currently planning its
next procurement for federal fiscal year 2004.
􀁺􇩌 Long-Term Care (ALTCS)—AHCCCS contracts with eight
different health plans that operate in one or more GSAs. In
fiscal year 2002, AHCCCS paid these plans nearly $1 billion.
As of July 2002, AHCCCS’ ALTCS health plans were delivering
care to over 33,000 members. The Legislature established this
program in 1987 and AHCCCS began providing long-term
care services, such as home- and community-based services
and nursing home care, to the developmentally disabled in
1988. These services were extended to the elderly or physically
disabled in 1989. Statute permits AHCCCS to contract with
other state and county agencies or private health plans to
provide these services to its ALTCS members, although
counties had the right of first refusal to contract with AHCCCS
until October 2000, when Laws 1997, 2nd S.S. Ch. 2 §§11 and
13 eliminated this right. However, statute does currently require
page2
State of Arizona
Source: Auditor General staff analysis of information from the Arizona Health Care Cost
Containment System's Web site: www.AHCCCS.state.az.us.
30,191 members
3 contractors
Navajo Apache
Yavapai
Mojave Coconino
La Paz
Yuma
Maricopa
Pima
Santa
Cruz
Cochise
Graham
Greenlee
Gila
Pinal
Acute Care
Membership and Number of Contractors1
by Geographic Service Area
As of July 2002
33,998 members
3 contractors
15,365 members
3 contractors
33,860 members
3 contractors
30,648 members
3 contractors
7,111 members
3 contractors
116,298 members
6 contractors 32,147 members
3 contractors
355,521 members
7 contractors
Figure 1
1 Number of contractors includes a statewide contract with the Department of Economic
Security, Comprehensive Medical and Dental Program for medical and dental services
to AHCCCS members.
AHCCCS to contract with the Department of Economic Security’s Division of
Developmental Disabilities to provide services to the developmentally disabled.
The most recent ALTCS procurements were conducted in federal fiscal years 2001
and 2002. AHCCCS conducted two separate procurements—one exclusively for
Maricopa County in federal fiscal year 2001, and another in federal fiscal year 2002
for the remaining counties in the State. The Maricopa County procurement marked
the first time AHCCCS had conducted a competitive procurement with multiple
awards for the State’s most populous county, and AHCCCS management decided
to issue the contract separately due to the work involved in adding new contractors
and reassigning members. AHCCCS is currently in the preliminary stages of
planning its next ALTCS procurement for all areas of the State in federal fiscal year
2005.
AHCCCS contracting recognized for
reducing costs
A federal study conducted by the General Accounting
Office (GAO) praised AHCCCS’ successful efforts to
reduce costs through contracting and competition.
Specifically, in 1995, the GAO reported that AHCCCS
had succeeded in containing healthcare costs and that
competitive bidding is an effective tool for encouraging
contractor participation.1 According to the GAO, during
fiscal year 1991 alone, AHCCCS saved the federal
government $37 million and the State of Arizona $15
million in acute care costs. Overall, the GAO concluded
that AHCCCS had developed effective and cost-efficient
contract monitoring and procurement
practices.
Divisions responsible for contracting
Because it is exempt from the state procurement code
for medical service contracts, AHCCCS has developed
its own steps for competitive contract procurements for
its acute care and long-term care programs. Several
organizational units within AHCCCS are involved with
contract procurements:
􀁺􇩏 Office of Managed Care (OMC)—AHCCCS’ Office
of Managed Care is the Agency’s primary contact
with healthcare contractors, and has several key
procurement and contracting responsibilities. Specifically, this Office coordinates
procurements, working with other divisions involved with healthcare contracting
to develop contract and request for proposal language, and to score and
evaluate proposals. Additionally, Office staff negotiate contract terms and
monitor the contractors’ operational and financial performance through regular
review of their financial statements and other required reports, as well as onsite
reviews.
􀁺􇩄 Division of Business and Finance (DBF)—The Division is responsible for
providing a variety of administrative functions for AHCCCS including developing
the budget, processing claims and payroll, and administering contracts. A
separate contracts and purchasing unit within the Division is responsible for
maintaining some contract records for acute care and long-term care services,
page3
1 United States General Accounting Office (GAO). Report to the Chairman, Committee on Commerce, House of
Representatives. Arizona Medicaid: Competition Among Managed Care Plans Lowers Program Costs. Washington, D.C.:
October, 1995.
Office of the Auditor General
Long-Term Care
Membership and Number of Contractors1
by Geographic Service Area
As of July 2002
Source: Auditor General staff analysis of information from the Arizona Health Care Cost
Containment System's (AHCCCS) Web site: www.AHCCCS.state.az.us.
Greenlee
Navajo Apache
Yavapai
Mojave Coconino
La Paz
Yuma
Maricopa
Pima
Santa
Cruz
Cochise
Graham
Greenlee
Gila
Pinal
2,448 members
2 contractors
1,532 members
2 contractors
932 members
2 contractors
19,413 members
4 contractors
1,677 members
2 contractors
1,272 members
2 contractors
5,948 members
2 contractors
Figure 2
1 Number of contractors includes a statewide contract with the Department of Economic
Security, Division of Developmental Disabilities to provide behavioral health services to
AHCCCS members. AHCCCS is required under §36-2940 to issue this contract to the
Department.
working with OMC to coordinate contract procurements, and serving as the
health plans’ main point of contact during the procurement. In addition, this
Division helps to train and advise AHCCCS staff during procurements.
Two other AHCCCS offices provide technical assistance during contract
procurements. Specifically, the Office of Medical Management (OMM) ensures that
quality-of-care requirements are appropriately reflected in the requests for proposals
(RFP) and participates in proposal scoring and evaluation. Staff within the Office of
Policy Analysis and Coordination (OPAC) track changes in federal and state
legislation to ensure that AHCCCS and its health plans meet legal requirements. In
addition, staff from this Office help review final contracts to ensure all federal and state
requirements are addressed, and participate in the evaluation of contract proposals.
Once proposals are scored and evaluated, the proposal evaluation teams present
their findings and recommendations to AHCCCS’ Executive Council for Contracting,
which is composed of the director, deputy director, and executive managers from the
major AHCCCS divisions such as DBF, OMC, OMM, and OPAC. The Council is
responsible for reviewing and approving major management issues, including health
services contract awards.
Audit scope and methodology
This audit focused primarily on AHCCCS’ contract administration and procurement
practices for its acute care and ALTCS medical services contracts. Auditors reviewed
the practices used to administer and manage contracts, develop RFPs, and evaluate
and score current and potential contractor proposals, and reviewed how AHCCCS
promotes and fosters competition within its managed care system.
This report contains one finding regarding AHCCCS’ contract administration and
procurement practices for medical services. Specifically, while AHCCCS’ steps for
contract procurement appear appropriate, it should establish policies and
procedures detailing these steps and improve its system for maintaining contract
records. In addition, this report contains other pertinent information regarding
managed care competition both nationally and in the State, and AHCCCS’ attempts
to foster competition in its managed care system.
Auditors used a number of methods to study the issues addressed in this report.
These include reviewing available policies and procedures related to contract
administration and procurement; reviewing nine acute, ALTCS, and other medical and
nonmedical services contract files; and interviewing AHCCCS staff responsible for
contract administration, as well as experts in the field of managed medical care.
page4
While its procurement
process is appropriate,
AHCCCS should
establish policies for its
process.
State of Arizona
Additionally, auditors reviewed applicable statutes and rules. The following methods
were also used:
􀁺􇩔 To determine the adequacy of AHCCCS’ contract administration and
procurement practices, auditors reviewed the federal fiscal year 1998, 2001, and
2002 RFPs for acute care and ALTCS; four acute care health plans’ federal fiscal
year 1997 performance reviews conducted by AHCCCS staff to assess
compliance with contracted requirements called Operational and Financial
Reviews (OFRs) as well as the associated proposal scoring sheets; internal
AHCCCS memos related to the scoring and evaluation process; and one acute
care health plan’s contract documentation and associated correspondence.
Finally, auditors interviewed the consultant AHCCCS hired to review the
procurement evaluation process for both the acute care and ALTCS programs,
and officials from the State Procurement Office.
􀁺􇩔 To assess the status of managed care competition in Arizona and nationally,
auditors reviewed internal AHCCCS issue papers discussing acute and long-term
care contract selection, and AHCCCS’ efforts in 1996 and 2000 to develop
GSAs, and reviewed past evaluations of AHCCCS’ contracting process. In
addition, auditors reviewed several major studies involving the managed care
market including Medicaid Managed Care: A Guide for States by the National
Academy for State Health Policy (May 2001), Partnership Pays: Making Medicaid
Managed Care Work in a Turbulent Environment by the Center for Health Care
Strategies (May 2000), and Trends in Health Plans Serving Medicaid—2000 Data
Update by the Kaiser Commission on Medicaid and the Uninsured (November
2001).
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express appreciation to the director and staff of the
Arizona Health Care Cost Containment System, the Division of Business and Finance,
the Office of Medical Management, and the Office of Managed Care for their
cooperation and assistance throughout this audit.
page5
Office of the Auditor General
page6
State of Arizona
Contracting process needs minor improvements
AHCCCS has an appropriate procurement process for its medical services contracts,
but this process would be improved if certain guidelines and policies were developed
or more clearly documented. AHCCCS’ process for awarding and administering
contracts for acute and long-term care medical services reflects contracting
procedures adopted in state statute and by federal agencies. However, aspects of
this process are not well explained or documented, making it more difficult to ensure
that the process is followed consistently and thoroughly. AHCCCS should develop
better guidance for conducting various procurement steps and evaluating current
contractors’ performance. Finally, AHCCCS should develop an agency-wide system
to track contract documentation and correspondence.
Process consistent with state and federal policies
AHCCCS’ process for awarding and administering contracts for acute and long-term
care medical services is appropriate. Although AHCCCS is exempt from following
state procurement statutes, its process closely mirrors state requirements and
incorporates various options allowed under state guidelines. AHCCCS’ process is
also consistent with contracting practices incorporated into federal regulations, and
contractors considered it to be a good process.
Process generally conforms to statutory requirements—AHCCCS has
chosen to use a process consistent with the requirements imposed on other state
agencies. Unlike these agencies, AHCCCS has considerable latitude in the kind of
process it can establish. Under A.R.S. §41-2501, AHCCCS is exempt from state
procurement statutes for its acute and long-term medical services contracts.
According to AHCCCS management, the Legislature exempted AHCCCS from these
requirements because the specialized nature of medical services procurements
required greater flexibility and latitude to obtain required services and to negotiate
terms that are favorable to both the State and the contractor. The process AHCCCS
page7
Office of the Auditor General
FINDING 1
Although exempt,
AHCCCS’ procurement
process is consistent
with statutory
requirements.
page8
State of Arizona
Figure 3 Acute and Long-Term Care
Contracting Process
As of September 2002
The light tan boxes represent optional steps in the Arizona Health Care Cost Containment System (AHCCCS) procurement process.
The dark tan boxes represent mandatory steps in the Arizona Health Care Cost Containment System (AHCCCS) procurement process.
Source: Auditor General staff analysis of acute and long-term care contracting records and interviews with AHCCCS staff.
Issue Request for
Information
AHCCCS may request that potential
offerers express their interests in
submitting a proposal.
Develop Request for
Proposals
AHCCCS creates the request which contains
submission requirements, contract terms, and other
requirements.
Amend Request for Proposals
Based on the questions and concerns raised in
the pre-proposal conference, AHCCCS may
issue an amended request for proposals.
Request Best and Final Offers
Before contracts are awarded, AHCCCS may ask
contractors whose proposals have been tentatively selected
for award to reduce their rates.
Develop Evaluation Criteria
After it develops the request for proposals,
AHCCCS also creates scoring tools to measure
how effectively submitted proposals meet the
contract terms.
Issue Request for
Proposal
Offerers Submit
Proposals
Score Proposals
An AHCCCS evaluation team with
contracting, legal, and healthcare experience
evaluates the proposals.
Award
Contracts
Assess Readiness
After the contract is issued, AHCCCS evaluates whether
the contractor is ready to begin operating.
Hold Pre-Proposal Conference
After the request is issued, AHCCCS may
meet with potential offerers to discuss
contract requirements.
has adopted, illustrated in Figure 3 (see page 8), includes an optional request for
information and pre-proposal conference, a Request for Proposal (RFP), the
development of criteria to evaluate proposals, and a step to solicit best and final
offers. This process incorporates all of the requirements set forth in A.R.S. §41-2534
for competitive sealed proposals.
􀁺􇩃 Contract proposals solicited through RFPs—AHCCCS mirrors state
requirements in using RFPs for its medical services procurements. Similarly,
AHCCCS’ procurement administrative rules also mirror state rules for
competitive sealed proposals in that its RFPs specify contract terms and
conditions, the type of services and work involved, and instructions concerning
proposal submission requirements. AHCCCS included this information in its
RFPs for its federal fiscal year 1998 acute care, and federal fiscal years 2001 and
2002 ALTCS procurements.
􀁺􇨠 Scoring criteria included in RFP—Procurement statutes require state agencies to
disclose the evaluation criteria used to evaluate proposals in RFPs. Similarly,
AHCCCS includes evaluation criteria in its RFPs. These criteria specify that
AHCCCS develop scores based on its program operations, including client case
management, behavioral health, and quality management; the quality of the
plan’s provider network and management; the plan’s proposed fees; and other
factors relating to the plan’s organization. In addition, AHCCCS’ ALTCS’ RFPs
note how scores for each of these areas will be weighted in determining an
overall proposal score. These scoring criteria were published in the federal fiscal
year 1998 acute care RFP, and more fully detailed in the federal fiscal year 2001
and 2002 ALTCS RFPs.
􀁺􇨠 Contract award based on scoring criteria—Similar to statutory requirements,
AHCCCS’ procurement process includes evaluating proposals and awarding
contracts based on the evaluation criteria included in the RFP. After receiving
proposals, AHCCCS uses staff from various departments, who use the criteria
included in the RFP to evaluate the proposals and make award
recommendations. Further, AHCCCS has contracted with a consultant to
evaluate its scoring process to ensure it is comprehensive and objective.
Process incorporates various options—In addition to AHCCCS’ procedures
generally mirroring those of other state agencies, they also take advantage of the
flexibility granted to AHCCCS. For example, while state rule allows agencies to ask
for a revised offer, AHCCCS has statutory authority to ask offerers to alter the prices
and services outlined in their proposal. State rule allows agencies to request a “best
and final offer” from offerers—a process used to encourage them to improve
proposals. However, A.R.S. §§36-2944 and 36-2906 allow AHCCCS to ask for
voluntary price reductions from plans tentatively selected for award. In other words,
AHCCCS does not have to seek best and final offers from all offerers. According to
AHCCCS officials, the Legislature granted this authority to allow AHCCCS the
page9
AHCCCS’ procurement
process incorporates
mandatory and optional
statutory provisions.
Office of the Auditor General
flexibility to approach the most promising contractors and negotiate lower rates; and
AHCCCS has used this authority in its procurements to negotiate rates acceptable
to the State. Further, after these contracts are awarded, AHCCCS may negotiate with
contractors to modify their services or service areas.
AHCCCS also has incorporated some additional features into its procurement
process that are optional under state procurement statutes and administrative rules.
For example, A.R.S. §41-2555 states that a request for information (RFI) may be
issued to obtain data about services or materials available to meet a specific need.
AHCCCS has used an RFI to obtain health plan capabilities and other market
information in its federal fiscal year 2001 Maricopa County ALTCS procurement. More
recently, AHCCCS has used an RFI in its federal fiscal year 2003 acute care
procurement to identify new contractors. A second example of an option AHCCCS
has elected to use is pre-proposal conferences. State rules allow for such
conferences, and AHCCCS has conducted them in its three previous procurements
to clarify the RFP and respond to offerers’ questions. Finally, A.R.S. §41-2547
provides that the State may inspect a contractor’s place of business related to a
contract award. Similarly, AHCCCS conducts a readiness assessment for each new
contractor to determine whether the contractor is ready to begin performing under its
contract.
Process mirrors federal requirements—In addition to being compatible with
state procurement guidelines, AHCCCS’ procurement process is similar to the
Federal Acquisition Regulation (FAR). Not only does the FAR have many of the same
requirements as the state procurement process, it requires a contracting officer to
coordinate the procurement process. This officer establishes the evaluation team;
ensures consistency in contract notices, instructions, and contract clauses; and
ensures proposals are evaluated based on the criteria contained in the RFP.
AHCCCS’ Division of Business and Finance fulfills this responsibility by coordinating
correspondence with offerers and issuing contracts and other procurement
documentation.
Contractors indicate process is appropriate—Finally, AHCCCS contractors
have indicated that AHCCCS has developed an appropriate procurement process.
One contractor noted that the elements of AHCCCS’ procurement process, including
the RFIs and RFPs, were similar to other state and federal organizations. This
contractor also commented that the RFP was well written, organized, and easy to
follow. Another contractor with a long history of working with AHCCCS noted that
AHCCCS has a good procurement process, adding that RFPs were continually
improving, and that the last Maricopa County and statewide ALTCS RFPs had
improved significantly. Finally, while some contractors commented that the
procurement process was cumbersome, they recognized that the nature of medical
services procurements and the dollars involved would require a more detailed
contract proposal.
page10
State of Arizona
Better guidelines and documentation needed
While the medical services contracting process AHCCCS has adopted is appropriate,
AHCCCS needs to do more to develop and document the guidance for various
aspects of the process. First, AHCCCS should establish general policies and
procedures to help guide its process. Additionally, AHCCCS should ensure that it
adequately documents how the performance of current contractors is being
evaluated when future procurements are under consideration. Finally, AHCCCS
should extend evaluations of current performance to ALTCS contractors—a step
AHCCCS is working on but has not yet taken.
Formal policies needed to guide process—AHCCCS should develop
general policies and procedures to guide the various steps of medical services
procurements. While AHCCCS has developed administrative rules defining the
contents of AHCCCS RFPs, it has not established policies or procedures defining its
medical services procurement process as reflected in Figure 3 (see page 8),
including guidelines establishing the timelines for completing the various steps in the
process, guidelines that establish the relative importance of evaluation criteria, and
procedures for evaluating key parts of the proposal. Likewise, the specific
responsibilities of AHCCCS divisions and offices in the procurement process are not
documented.
Establishing policies and procedures to guide its medical services procurement
process can provide several benefits. They can help AHCCCS consistently follow
practices from year to year, especially if employee turnover occurs. They also provide
the framework for a formalized and documented procurement process. Other types
of AHCCCS procurements have such policies. For example, the
Department of Administration’s State Procurement Office, which
oversees state procurements, requires AHCCCS to adopt and
maintain policies and procedures for nonmedical service
procurements. Similarly, such policies are formalized at the federal
level, where they are included in the FAR. Therefore, AHCCCS should
develop general policies and procedures for its medical services
procurement process similar to those adopted in Arizona and by the
federal government.
Documenting evaluation of contractors’ past
performance—In addition to developing general procurement
policies, AHCCCS should document how it evaluates contractors’
past performance when it considers their bids on future contracts. In
reviewing contractors’ proposals for the most recent acute care
procurement process, AHCCCS included an evaluation of current
contractors’ performance, using the most recent operational and
financial review (OFR) (see Item 1). While AHCCCS gave automatic
page11
AHCCCS evaluates
contractors’ past
performance in acute
care procurements.
AHCCCS should
develop policies and
procedures for its
procurements.
Office of the Auditor General
Item 1:
Overview of the Operational and
Financial Review (OFR)
AHCCCS conducts periodic on-site
operational and financial
reviews of all health plans to
assess compliance with the
contracts’ performance
standards and requirements.
AHCCCS staff review these
standards, which include areas
such as quality of care,
grievances and appeals, and
financial management.
points for good performance, it also reserved the right to deduct points when
contractors received noncompliant ratings.
However, in reviewing the scoring records for four contractors who received
noncompliant ratings, auditors could not verify how this evaluation was carried out.
Specifically, while AHCCCS reviewed all areas of noncompliance, it did not fully
document its decision-making process associated with this review. According to an
internal memo, AHCCCS identified the significant contract compliance issues for
which it needed to review additional information to decide whether to deduct points
from these contractors’ proposals. For example, for one of the four contractors,
AHCCCS reviewed additional information to ascertain contract compliance and
appropriately score the contractor’s proposal for 6 of the 18 areas of noncompliance.
AHCCCS determined that the remaining 12 areas could be evaluated and scored
based on the information required in the bid proposals. However, while AHCCCS
documented its review of the six areas and its decisions to deduct or not deduct
points, it did not document its reasons for not reviewing or considering additional
information to score the remaining 12 areas. Even though an outside consultant
reviewed this process, without adequate documentation to support its decision-making
process, it is difficult to confirm that AHCCCS appropriately scored current
contractors’ proposals.
Past performance of ALTCS contractors should be evaluated— As it is
already doing with acute care contractors, AHCCCS should use OFR results when
evaluating proposals for the ALTCS program. During the most recent ALTCS
competitive procurements, AHCCCS did not consider contractor performance when
scoring proposals. However, AHCCCS management acknowledges the benefit of
using OFRs to score and evaluate its current ALTCS contractors and is planning to
develop evaluation guidelines that include assessing health plan performance.
System needed for tracking contract documents
AHCCCS also needs to develop an agency-wide system for keeping track of various
documents related to the contracting process. AHCCCS’ medical services contracts
require contractors to provide documentation for a variety of purposes, from reports
measuring the quality of care to correspondence related to contract administration. In
accordance with contract requirements, these documents are sent directly to one of
eight different locations within AHCCCS, including the Division of Business and
Finance, the Office of Managed Care, and the Office of Medical Management.
However, these files may not be complete. Specifically, auditors’ test work, which was
limited to the contract files for one acute care plan, identified eight missing contract
compliance and performance documents, dating from March 1997 to December 2001.
page12
AHCCCS should
document how it
evaluates current
contractors in
procurements.
AHCCCS should
consider current
contractors’ past
performance in ALTCS
procurements.
State of Arizona
For example, one missing document explained the health plan’s practices concerning
a covered service. Therefore, to assist with contract oversight, AHCCCS should
develop a system to track and maintain contract documents and correspondence.
Recommendations
1. AHCCCS should develop general policies and procedures for its medical
services procurement process.
2. AHCCCS should ensure that its process for evaluating current contractors’ past
performance as part of the competitive procurement process is well-documented
and sufficiently supported.
3. AHCCCS should continue its efforts to develop guidelines that consider current
contractors’ past performance for its ALTCS competitive procurement
processes.
4. AHCCCS should develop an agency-wide system for tracking and retaining
contract documents and correspondence.
page13
Office of the Auditor General
page14
State of Arizona
During the audit, other pertinent information was gathered regarding competition
within public managed care systems nationally and within Arizona.
Competition within the managed care system
Promoting competition within the public managed care system is becoming more
difficult nationally and within Arizona. Nationally, fewer health plans have been
competing for Medicaid managed care contracts. Arizona, while for the most part in
a better position than other states, has responded to this challenge by combining its
counties into service areas with larger populations in an effort to remain attractive to
contractors. Additionally, AHCCCS has developed a reasonable approach to
determine how many contracts it will issue in each market.
States struggle with managed care competition—Most states use
managed care in their Medicaid programs to some degree. A 2000 survey of 50
states and the District of Columbia by the National Academy for State Health Policy
(NASHP) found that 48 states have at least one Medicaid program using managed
care. Eighteen of these states use competitive bidding to select and contract with
managed care organizations to provide healthcare services to Medicaid clients.1
More than half of all Medicaid beneficiaries in the country were enrolled in at least one
managed care program in 2000.
Although use of managed care services remains strong, recent industry trends
suggest that fewer managed care organizations are bidding for state contracts. The
2001 NASHP report noted that between 1998 and 2000, 82 percent of the states that
contract with managed care plans experienced plans moving in and out of their
Medicaid programs, with more plans leaving the program than entering. Similarly, a
2001 Kaiser Commission on Medicaid and the Uninsured report noted that while
Medicaid managed care enrollment continues to increase, the number of plans
leaving the Medicaid market outnumbered new plans by nearly three to one.2 This
movement may be due to financial reasons, as a 2000 study published by the Center
page15
Nationally, fewer plans
are competing for state
Medicaid contracts.
1 Kaye, Neva. Medicaid Managed Care: A Guide for States. Portland: National Academy for State Health Policy, 2001. The
NASHP is a nonprofit, nonpartisan organization seeking to help states achieve excellence in health policies and practices.
The 2001 report was the fifth survey the Academy conducted since 1990.
2 Felt-Lisk, Suzanne, Rebecca Dodge, and Megan McHugh. Trends in Health Plans Serving Medicaid—2000 Data Update.
Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured. November, 2001. The Commission serves as a
forum for analyzing healthcare coverage and access for the low-income population and assessing options for reform.
Office of the Auditor General
OTHER PERTINENT
INFORMATION
for Healthcare Strategies, Inc. found that in the late 1990s, most managed care
organizations were operating at a loss because of rising medical costs.1 Changes in
the industry may also be playing a role. Interviews with experts in public managed
care and managed care contracting indicate that the industry is consolidating into
fewer organizations, which are increasingly specialized in public managed care.
The reduced numbers of managed care organizations willing to provide Medicaid
services have caused some states to adopt medical models that do not involve
comprehensive managed care programs. For example, Alabama, Georgia,
Mississippi, Montana, and Vermont no longer contract with
comprehensive managed care organizations for Medicaid
services. Instead, they use a modified fee-for-service system in
which the state pays physicians to be case managers for
members, but also pays for specific client services.2
AHCCCS more successful in attracting
competition—Despite the national trend of fewer organizations
competing for contracts, AHCCCS has had success in attracting
competition for its acute care program. AHCCCS contracts with
more managed care organizations than most other states. In
2002, AHCCCS had contracts with ten health plans for acute care
services, while across the country, states using managed care
organizations contracted with an average of 8 organizations,
according to the 2001 NASHP report. AHCCCS has also been
successful in attracting multiple proposals for the same
geographic area. For the most recent acute care contract, there
were more proposals submitted than awards granted in all but
one of the nine Geographic Service Areas (GSA). For the
remaining GSA, (Apache and Navajo Counties), AHCCCS
received two proposals and issued two contracts (see Figure 4).
Further, AHCCCS contacted potential bidders for its upcoming
federal fiscal year 2004 acute care contract and three managed
care organizations not currently providing acute care services
expressed tentative interest in submitting a proposal.
Although the acute care program has seen relative successes in
attracting competition, AHCCCS has had more difficulty attracting
managed care organizations to its ALTCS program. Only eight
organizations submitted proposals to provide ALTCS services in
the seven contracting areas in federal fiscal years 2001 and 2002
(see Figure 5, page 17). Specifically, three private companies and
page16
1 Hurley, Robert E., and Michael J . McCue. Partnership Pays: Making Medicaid Managed Care Work in a Turbulent
Environment. Center for Health Care Strategies, Inc. May, 2000. The center awards grants and provides training and
technical assistance to state purchasers of publicly financed healthcare, health plans, and consumer groups.
2 Kay, Neva. Medicaid Managed Care: A Guide for States. Portland: National Academy for State Health Policy, 2001.
State of Arizona
Source: Auditor General staff analysis of Arizona Health Care Cost Containment System
contract records.
4 submitted
2 awarded
4 submitted
2 awarded
8 submitted
7 awarded
9 submitted
5 awarded
5 submitted
2 awarded
6 submitted
2 awarded
3 submitted
2 awarded
2 submitted
2 awarded
6 submitted
2 awarded
Navajo Apache
Yavapai
Mojave Coconino
La Paz
Yuma
Maricopa
Pima
Santa
Cruz
Cochise
Graham
Greenlee
Gila
Pinal
Acute Care
Proposals Submitted and Contracts Awarded
by Geographic Service Area
1998 Federal Fiscal Year
Figure 4
The number of proposals submitted and contracts awarded does not reflect AHCCCS'
statewide contract with the Department of Economic Security to provide medical and
dental services to foster care children.
1
1
five county organizations submitted proposals, each obtaining at least one contract.
Further, in four of the seven ALTCS GSAs, AHCCCS had only as many offerers as it
had awards.1
Two characteristics of Arizona’s program may help explain why the ALTCS program
has more difficulty generating competition among bidders. First, Arizona has a unique
program for which a limited number of health plans are capable of providing long-term
care services. While other states provide long-term
care services using a managed care approach on a
limited and optional basis, according to AHCCCS officials,
only Arizona provides long-term care services statewide
and under a mandatory managed care approach. A 1999
survey by the Center for Home Care Policy and Research
found that Arizona was only one of 20 states using a
managed care approach to provide long-term services to
at least some clients, but only one of seven programs
serving more than 5,000 clients using managed care.2
Second, according to AHCCCS officials, state law may
have discouraged health plans from bidding on the ALTCS
program or from developing the ability to provide long-term
care services within a managed care environment.
Specifically, until the federal fiscal year 2001 ALTCS
procurement, counties had the right of first refusal to
contract with AHCCCS to provide long-term care services.
This may have created a disincentive for private
companies to bid on this program. However, the
Legislature eliminated counties’ right of first refusal to
contract with AHCCCS in 1997.
Larger geographic areas created to provide
incentive—In an effort to foster continuing competition
for its acute and long-term care contracts, AHCCCS has
created larger contract areas, which may be more
attractive to potential offerers. Before federal fiscal year
1998, AHCCCS issued contracts to managed care
organizations for individual counties. However, AHCCCS
was concerned that managed care organizations had less
incentive to submit offers for the smaller AHCCCS
populations in rural counties because of the reduced
revenues, potentially higher medical costs, and limited
page17
1 The four GSAs were Maricopa, Yuma/La Paz, Apache/Coconino/Mojave/Navajo, and Graham/Greenlee/Cochise. In the
Maricopa GSA, AHCCCS awarded a contract to all three offerers. Only one offer was submitted in each of the other GSAs.
2 Murtaugh, Christopher M., Ph. D., Michael S. Sparer, Ph. D., Penny Hollander Feldman, Ph. D., Ji Seon Lee, Ph.D., Arielle
Basch, M.P.H., Amy Sherlock, M.S.W., Amy L. Clark, B.A,. State Strategies for Allocating Resources to Home and
Community-Based Care. Visiting Nurse Service of New York’s Center for Home Care Policy and Research. September,
1999. The center’s mission is to advance knowledge that will promote the delivery of high-quality, cost-effective care.
Office of the Auditor General
Long-Term Care
Proposals Submitted and
Contracts Awarded by Geographic Service Area
2001 and 2002 Federal Fiscal Years1
1 Arizona Health Care Cost Containment System (AHCCCS) most recently awarded its long-term contracts
through two separate procurements; one for Maricopa County and one for all other areas in the State.
The Maricopa County contract was awarded for the 2001 federal fiscal year, and contracts in all other
areas of the State were awarded for the 2002 federal fiscal year.
Source: Auditor General staff analysis of AHCCCS contract awards.
Navajo Apache
Yavapai
Mojave Coconino
La Paz
Yuma
Maricopa
Pima
Santa
Cruz
Cochise
Graham
Greenlee
Gila
Pinal
1 submitted
1 awarded
2 submitted
1 awarded
1 submitted
1 awarded 3 submitted
3 awarded
2 submitted
1 awarded
1 submitted
1 awarded
2 submitted
1 awarded
Figure 5
2 Does not include AHCCCS' statewide contract with the Department of Economic Security Division of
Developmental Disabilities to provide long-term care services to AHCCCS' developmentally disabled
members.
2
number of providers. Therefore, beginning with the federal fiscal year 1998 acute care
contract and in its federal fiscal years 2001 and 2002 ALTCS contracts, AHCCCS
combined counties into GSAs composed of one to four counties. This resulted in the
current nine acute care GSAs and seven long-term care GSAs. AHCCCS revises the
GSA configurations each time it solicits proposals and plans to review its GSAs again
prior to issuing its acute care RFP in federal fiscal year 2004.
Practice for determining number of contracts reasonable—Another
factor in the contracting process is the number of contracts AHCCCS issues for any
one GSA. AHCCCS officials said they determine this number by considering several
factors, including the current client population and projected client growth. Further,
AHCCCS also considers the need to have additional plans on contract in case one
contractor fails or performs poorly. However, AHCCCS can modify this initial estimate
on a case-by-case basis during its review process. For example, in its federal fiscal
year 2001 ALTCS request for proposals, AHCCCS indicated it would issue up to two
contracts for the Pima County GSA. AHCCCS received two proposals for these
services, but eventually selected just one contractor. In making its decision, AHCCCS
considered the importance of plan choice to members, the administrative burden of
contracting with two plans, the economic viability of contracting with two plans in this
GSA, and the limited provider network in the GSA.
A review of literature and interviews with experts did not identify alternative methods
or additional factors that AHCCCS should consider when determining the number of
contractors in each GSA. Currently, little precedent exists in literature for a more
comprehensive, methodological approach to determine the number of contracts
issued in a given area. Industry experts indicated there were no studies identifying
factors that could be considered in determining how many contractors should serve
a specific area. For example, according to one public managed care contracting
expert, there is no research available that evaluates plan administrative costs,
economies of scale, or comprehensive approaches for estimating the population
needed to support Medicaid plans.
Additionally, state practices for determining the number of contractors for a given service
area vary. Like Arizona, some states use a competitive procurement process to issue a
select number of contracts in a given area; however, according to the 2001 NASHP
report, 62 percent of states using managed care contract with all qualified proposers.
Missouri issues contracts to any plan meeting minimum certification standards at an
acceptable price. Both approaches offer advantages and disadvantages. Limiting the
number of awards eliminates less-qualified contractors before they begin operating, but
it requires state agencies to develop contracting expertise to appropriately identify and
select qualified contractors. Further, limiting awards may leave the state dependent on a
smaller number of plans. In contrast, contracting with every qualified plan includes more
managed care organizations, allowing the market to eliminate noncompetitive plans.
However, the larger number of plans can create administrative burdens for the state
agency, and plan turnover can disrupt client services.
page18
Unlike Arizona, some
states contract with all
qualified contractors.
State of Arizona
Office of the Auditor General
AGENCY RESPONSE
State of Arizona
August 30, 2002
Ms. Debra Davenport, CPA
Auditor General
Office of the Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Re: Revised Draft Contracting Process Report dated August 19, 2002
Dear Ms. Davenport:
Thank you for the opportunity to review and comment on the revised report of the
performance audit of AHCCCS’ contracting process for healthcare services. The
goals of AHCCCS' procurement process are to obtain a high-quality healthcare
delivery network, increase members' healthcare choices and reduce costs through
competition. The Agency has worked hard to establish a procurement process that
has successfully accomplished these goals and believes that this report reflects this
achievement. An indicator of the quality healthcare delivery network is evidenced by
our 2000 Member Satisfaction Survey, where more than three-fourths of AHCCCS
survey respondents rated the healthcare they received as an "8", "9", or "10" on a
scale of from "0" (worst) to "10" (best). This compares to a national average of 70
percent. In addition, the goals of member choice and reduced costs have clearly
been achieved, as noted numerous times in the report.
Below is our response to the recommendations of the audit team as listed on page
13.
Recommendation #1:
AHCCCS should develop general policies and procedures for its medical
services procurement process.
Response:
The finding of the Auditor General is agreed to, and the audit recommendation will be
implemented.
Ms. Debra Davenport, CPA
August 30, 2002
Page 2
AHCCCS does have written policies and procedures describing procurement
procedures including how procurements are publicized, scheduling of proposal
milestones, pre-proposal conferences and requests for information. However,
AHCCCS will develop a general policy that describes the medical services
contracting process which will include established timelines used for past medical
service procurements, a description of how past scoring was done, and assignments
to various divisions.
As discussed with the Auditor General staff, procurements take place once every
five years for managed medical service programs; therefore, a prescriptive detailed
policy may have limited long term value. Each procurement cycle may have different
goals to address current healthcare trends that need to be considered. Being
exempt from the state procurement code, AHCCCS was granted more latitude to
obtain medical services and to negotiate terms that are favorable to both the State
and the contractor. AHCCCS retains the right to be more flexible, which may result
in less consistency from one procurement to the next, but more appropriate for the
rapidly changing healthcare field. We believe that our procurement process has
been a big contributor to our ability to attract contractors and the overall success of
the program.
Recommendation #2:
AHCCCS should ensure that its process for evaluating current contractors’
past performance as part of the competitive procurement process is well-documented
and sufficiently supported.
Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
AHCCCS suggests that it was not the scoring of the procurement that was not
documented, but one of the many decision-making processes that needed improved
documentation. AHCCCS believes that the scoring was appropriately documented.
The methodology as well as the scoring results were reviewed and approved by an
outside consultant. However, AHCCCS will work to ensure that all decision-making
is documented as it relates to the scoring methodology and scoring results in the
future.
Ms. Debra Davenport, CPA
August 30, 2002
Page 3
Recommendation #3:
AHCCCS should continue its efforts to develop guidelines that consider
contractors’ past performance for its ALTCS competitive procurement
processes.
Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
Recommendation #4:
AHCCCS should develop an agency-wide system for tracking and retaining
contract documents and correspondence.
Response:
The finding of the Auditor General is agreed to and the audit recommendation will be
implemented.
We believe it important to continually make improvements in our contracting process
and by complying with the Auditor General’s recommendations, we believe
improvement will occur. However, we are pleased with our current success in
controlling costs and call your attention to a nationally recognized achievement
presented in the State Health Monitor, June 2002. ”Arizona has the lowest drug
costs per Medicaid beneficiary. Most Arizona Medicaid eligible are enrolled in
HMOs, and each HMO uses its own strategy for controlling drug expenditures,
including rebateable formularies. Health plans may also provide prior authorization,
drug utilization review, and disease management programs. Statewide, generics are
prescribed 98% to 99% of the time when available.”
We appreciate the efforts of the audit team and believe that by implementing these
recommendations AHCCCS will be more effective in its’ contracting processes.
Sincerely,
Phyllis Biedess
Director
01-17 Arizona Board of Dispensing
Opticians
01-18 Arizona Department of
Corrections—Administrative
Services and Information
Technology
01-19 Arizona Department of
Education—Early Childhood
Block Grant
01-20 Department of Public Safety—
Highway Patrol
01-21 Board of Nursing
01-22 Department of Public Safety—
Criminal Investigations Division
01-23 Department of Building and
Fire Safety
01-24 Arizona Veterans’ Service
Advisory Commission
01-25 Department of Corrections—
Arizona Correctional Industries
01-26 Department of Corrections—
Sunset Factors
01-27 Board of Regents
01-28 Department of Public Safety—
Criminal Information Services
Bureau, Access Integrity Unit,
and Fingerprint Identification
Bureau
01-29 Department of Public Safety—
Sunset Factors
01-30 Family Builders Program
01-31 Perinatal Substance Abuse
Pilot Program
01-32 Homeless Youth Intervention
Program
01-33 Department of Health
Services—Behavioral Health
Services Reporting
Requirements
02-01 Arizona Works
02-02 Arizona State Lottery
Commission
02-03 Department of Economic
Security—Kinship Foster Care
and Kinship Care Pilot
Program
02-04 State Park—Heritage Fund
02-05 Arizona Health Care Cost
Containment System—
Member
Services Division
02-06 Arizona Health Care Cost
Containment System—Rate
Setting Processes
Performance Audit Division reports issued within the last 12 months
Future Performance Audit Division reports
Child Protective Services—Removal and Appeal Process
Arizona Health Care Cost Containment System—Sunset Factors