Performance audit, Department of Health Services, sunset factors

              PERFORMANCE AUDIT
DEPARTMENT OF HEALTH SERVICES
SUNSET FACTORS
Report to the Arizona Legislature
By the Auditor General
November 1989
89- 11
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
LINDA J. BLESSING, CPA
DEPUTY AUDITOR GENERAL
November 8, 1989
Members of the Arizona L e g i s l a t u r e
The Honorable Rose Mofford, Governor
Mr. Ted Williams, D i r e c t o r
Department of Health Services
Transmitted herewith i s a report of the Auditor General, A Performance
Audit of Department of Health Services, Sunset Factors. This report i s
i n response t o a June 2 , 1987, r e s o l u t i o n of the J o i n t L e g i s l a t i v e
Oversight Committee. The performance audit was conducted as a part of
the Sunset Review set f o r t h i n Arizona Revised Statutes § § 41- 2351
through 41- 2379.
The report addresses the twelve s t a t u t o r y Sunset Factors for the
Department of Health Services. I n a d d i t i o n , i t contains a f i n a i n g on
the need for stronger central oversight of DHS' c o n t r a c t i n g process.
My s t a f f and I w i l l be pleased to discuss or c l a r i f y items i n the
r e p o r t .
S i n c e r e l y ,
~ oug(, th R. Nor ton
Auditor General
DRN: lmn
STAFF: William Thomson
Mark Fleming
Jerome E. Mi i l e r
Shan D. Hays
Kurt L . Schulte
Roberta A . Leighton
2700 NORTH CENTRAL AVE SUITE 700 PHOENIX, ARIZOI'I4 85004 @ ( 603) 255- 4385
The O f f i c e of the Auditor General has prepared agencywide Sunset Factors
for the Arizona Department of Health Services ( DHS), i n response to a
June 2, 1987, r e s o l u t i o n of the J o i n t L e g i s l a t i v e Oversight Committee.
These factors were prepared as p a r t of the Sunset Review set f o r t h i n
Arizona Revised Statutes 5341- 2351 through 41- 2379.
The Arizona Department of Health Services was established i n 1974 through
the consolidation of the State Department of Health, Arizona Health
Planning A u t h o r i t y , Crippled Children Services, Arizona State H o s p i t a l ,
and the Anatomy Board i n t o a s i n g l e department w i t h a v a r i e t y of
r e s p o n s i b i l i t i e s .
DHS has 5 d i v i s i o n s and 13 support services o f f i c e s . The department i s
programmatically organized by general category t o meet p u b l i c health
needs. DHS' f i v e d i v i s i o n s include the Divisions o f Behavioral Health
Services, Family Health Services, Emergency Medical Services/ Health Care
F a c i l i t i e s , Disease Prevention Services, and the State Laboratory. Some
of the department's 13 support services o f f i c e s were previously grouped
under a D i v i s i o n of Administration, but t h i s d i v i s i o n was dissolved i n
order to meet recent mandated budget reductions.
During t h i s audit we prepared the twelve s t a t u t o r y Sunset Factors for the
department. We also reviewed several a d m i n i s t r a t i v e functions, and
developed a f i n d i n g on the c o n t r a c t i n g process.
DHS Contract i ng Procedures
Need Stronger Central Oversight ( see pages 17 through 26)
DHS needs to strengthen controls over i t s c o n t r a c t i n g process. Although
contract practices under the d i r e c t control of DHS' Contracts
Administrat ion Sect ion ( CAS) appear strong, c o n t r a c t i n g procedures
outside of CAS' control are weak. The department appears to comply w i t h
those provisions of the procurement code for which CAS has a u t h o r i t y and
r e s p o n s i b i l i t y , such as a d v e r t i s i n g , approval signatures, and i n c l u s i o n
of c e r t a i n required information i n s o l i c i t a t i o n documents. However, CAS
t y p i c a l l y has no involvement i n evaluating proposals, s e l e c t i n g
contractors, or n e g o t i a t i n g contract terms. As a r e s u l t , the section
cannot v e r i f y whether program s t a f f comply w i t h procurement code
requirements for those stages. In a d d i t i o n , CAS' r o l e stops as soon as
the contract i s signed, leaving program s t a f f s o l e l y responsible for a l l
subsequent phases of contract management.
Our audit work also revealed weaknesses i n the awarding and monitoring of
contracts. Although we d i d not document widespread problems throughout
the department, the analysis does i n d i c a t e problems with i n d i v i d u a l
o f f i c e s and d i v i s i o n s and the p o l i c i e s they p r a c t i c e . For example, the
O f f i c e of Emergency Services ( OEMs) ( under the D i v i s i o n of Emergency
Medical ServicedHealth Care F a c i l i t i e s ) had to reissue f i s c a l year 1988
request for proposals ( RFP) because the contracts were awarded based on
factors not l i s t e d i n the RFP. We found other examples where programs
f a i led to create or r e t a i n contract award documentation as required by
law. Also, audit work indicates there i s poor c o n t r a c t m o n i t o r i n g i n
several d i v i s i o n s or programs. This lack of monitoring could make i t
d i f f i c u l t to terminate a c o n t r a c t for poor performance.
Stronger p a r t i c i p a t i o n by CAS could address some of the control and
monitoring problems we i d e n t i f i e d . F i r s t , since CAS has expertise i n
contracting and f a m i l i a r i t y w i t h the procurement law, the section should
d i r e c t l y p a r t i c i p a t e i n a l l phases of the procurement process and o v e r a l l
contract management. Second, CAS should also p a r t i c i p a t e i n the awarding
and evaluating of the c o n t r a c t s . P r e s e n t l y , those e v a l u a t i n g c o n t r a c t
proposals consist l a r g e l y o f program s t a f f who have p r i o r or current
involvement w i t h c o n t r a c t p r o v i d e r s . I n c l u d i n g CAS i n the process could
reduce the o p p o r t u n i t i e s f o r b i a s and abuse. However, i n the past
several years CAS' s t a f f has been reduced from s i x to three p o s i t i o n s and
CAS may not c u r r e n t l y have enough s t a f f t o adequately p a r t i c i p a t e i n t h i s
process.
TABLE OF CONTENTS
Page
INTRODUCTION AND BACKGROUND. . . . . . . . . . . . . . . . . . . 1
SUNSETFACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 7
FINDING I: DHS CONTRACTING PROCEDURES
NEED STRONGER CENTRAL OVERSIGHT. . . . . . . . . . . . . . . 17
Contracting Responsibi l i t i e s and A c t i v i t i e s
within DHS Are Very Decentralized. . . . . . . . . . . . . . 17
CAS Has Very Limited
Control over Contracting Process . . . . . . . . . . . . . . 19
Responsibility for Overall Contract Management
OccursatProgra~ Leve. l . . . . . . . . . . . . . . . . . . 20
Stronger Participation by CAS Could
Address Many of DHS' Contracting
ControlProblems . . . . . . . . . . . . . . . . . . . . . . 23
Recomnendations. . . . . . . . . . . . . . . . . . . . . . . 25
OTHER PERTINENT INFORMATION. . . . . . . . . . . . . . . . . . . 27
DHS Experiencing Rapid Growth i n Management
InformationSystem . . . . . . . . . . . . . . . . . . . . . 27
Service Measures for Contracts Programs. . . . . . . . . . . 29
AGENCY RESPONSE
TABLE
TABLE 1 DHS STATEMENT OF ACTUAL EXPENDITURES
ALL FUNDS, FISCAL YEARS 1986- 87 THROUGH 1988- 89
( unaudited) . . . . . . . . . . . . . . . . . . . . . . 4
F l GURES
FIGURE 1 DHS CONTRACT DISBURSEMENTS. . . . . . . . . . . . . . 18
INTRODUCTION AND BACKGROUND
The O f f i c e of the Auditor General has prepared agencywide Sunset Factors
for the Department of Health Services ( DHS) i n response to a June 2,
1987, r e s o l u t i o n of the J o i n t L e g i s l a t i v e Oversight Committee. These
Sunset factors were prepared as a part of the Sunset Review set f o r t h i n
Arizona Revised Statutes ( A. R. S.) 5541- 2351 through 41- 2379.
DHS was created i n 1974 pursuant to A. R. S. 536- 102 et seq. by
consolidating several agencies i n t o a s i n g l e department w i t h a v a r i e t y of
r e s p o n s i b i l i t i e s . These agencies included the State Department of
Health, Arizona Health Planning A u t h o r i t y , C r i p p l e d C h i l d r e n Services,
Arizona State H o s p i t a l , and the Anatomy Board.
Organization
DHS has 5 d i v i s i o n s and 13 support services o f f i c e s . The department i s
programmatically organized by general category to meet p u b l i c h e a l t h
needs. DHS' f i v e d i v i s i o n s include the D i v i s i o n s of Behavioral Health
Services, Family Health Services, Disease Prevention Services, and
Emergency Medical Services/ HeaIth Care F a c i l i t i e s , and the State
Laboratory. Below i s a b r i e f d e s c r i p t i o n of each d i v i s i o n ,
r D i v i s i o n o f Behavioral Health Services - The d i v i s i o n i s
responsible for operating the Arizona State Hospital and Southern
~ r i z o n aM ental ~ e a . l t hc enter. I t also provides services through the
O f f i c e o f Community Behavioral Health. The Arizona S t a t e H o s p i t a l i s
located i n Phoenix and provides in- patient p s y c h i a t r i c care and
treatment for residents s u f f e r i n g from severe mental and emotional
illnesses and disorders. The Southern Arizona Mental Health Center
i n Tucson i s a State operated treatment center providing specialized
mental health services to residents of Pima County and Southern
Arizona. The O f f i c e of Community Behavioral Health Services
contracts w i t h regional n o n p r o f i t e n t i t i e s t o p r o v i d e a program of
prevent ion, intervent ion, and treatment services i n the areas of
substance abuse, mental i l l n e s s , and domestic violence.
r D i v i s i o n o f Family Health Services - The four program o f f i c e s o f
Familv Health provide a v a r i e t y o f services for women, c h i l d r e n , and
e l d e r i y people. The d i v i s i o n o f f e r s supplemental food programs
through the O f f i c e o f N u t r i t i o n Services. The O f f i c e o f C h i l d r e n ' s
R e h a b i l i t a t i v e Services provides a wide range of health care to
Arizona children w i t h special needs such as chronic i l l n e s s or
handicapping c o n d i t i o n . The O f f i c e of Dental Health organizes a
v a r i e t y o f dental heal th programs focusing on prevent ive services.
The O f f i c e of Maternal and Chi Id Health o f f e r s a v a r i e t y o f programs
to promote optimal health of newborns and c h i l d r e n 0- 18 years of age
i n c l u d i n g a midwife l i c e n s i n g program, p e r i n a t a l care, and family
planning programs.
0 D i v i s i o n of Disease Prevention Services - The d i v i s i o n engages i n a
v a r i e t y of p u b l i c health a c t i v i t i e s i n c l u d i n g a b i r t h defects and
cancer r e g i s t r y , inspecting wholesale food establishments, AIDS
education and counseling, m o n i t o r i n g s e x u a l l y t r a n s m i t t e d diseases,
tuberculosis control and environmental, chronic, i n f e c t i o u s disease,
epidemiological and educational i n i t i a t i v e s .
e D i v i s i o n of Emergency Medical Services/ Health Care F a c i l i t i e s - The
d i v i s i o n establishes standards and reviews services provided by
h o s p i t a l s , health maintenance o r g a n i z a t i o n s , s u r g i c e n t e r s ,
specialized health care centers, nursing homes, supervisory care
f a c i l i t i e s , and c h i l d day- care centers. The d i v i s i o n also regulates
ambulance service and c e r t i f i e s emergency medical technicians.
0 State Laboratory - The State lab provides laboratory services to
State and local government agencies, h o s p i t a l s , and independent
laboratories. The lab also conducts annual inspections o f other
laboratories. In a d d i t i o n , the d i v i s i o n conducts technical t r a i n i n g
for laboratorians to maintain o r improve t h e i r diagnostic and
a n a l y t i c a l c a p a b i l i t i e s .
The department has 13 o f f i c e s which provide support s e r v i c e s . ( 1
Previously, some of these support services were grouped under a D i v i s i o n
of Administration, but t h i s d i v i s i o n o f f i c e has been dissolved due to
mandated budget c u t s . Thi rty- one FTEs were cut from DHS' D i v i s i o n of
Administration a c t i v i t i e s i n f i s c a l year 1987- 88. According to DHS
management, department cutbacks mandated by the Executive Budget O f f i c e
and the Legislature i n recent years were absorbed by personnel cuts i n
the D i v i s i o n o f A d m i n i s t r a t i o n . A t t r i t i o n i n t h i s o f f i c e and continued
e f f o r t s to reduce costs without cuts i n service led to the department's
decision to eliminate the d i v i s i o n . The a d m i n i s t r a t i v e o v e r s i g h t d u t i e s
are now assumed by the D i r e c t o r ' s O f f i c e .
( 1 ) The 13 o f f i c e s are Administrative Counsel, A f f i r m a t i v e Action, A u d i t i n g O f f i c e ,
Management I n f o r m a t i on Systems, Fi nanci a1 Services, Business Off i ce, Local and
Border Health, Personnel Management, Planning and Health Status Monitoring, Pub1 i c
Information O f f i c e , Special I n v e s t i g a t i o n s , S t a f f Development & Training, and V i t a l
Records.
S t a f f i n g and Budget
DHS has a t o t a l of 1,501.5 State funded and 147.32 f e d e r a l l y funded
p o s i t i o n s w i t h i n the 5 d i v i s i o n s and 13 support services o f f i c e s for
f i s c a l year 1989- 90.
The Department of Health Services receives operating money from the
federal government and a general fund a p p r o p r i a t i o n . S t a t e funding was
approximately $ 145 mi l l ion i n f i s c a l year 1987- 88. The agency receives
money from the federal government i n the f ~ r mo f grants. I n 1989- 90, the
department w i l l receive an estimated $ 42 m i l l ion in f e d e r a l grant
monies. The bulk of t h i s money w i l l go to the D i v i s i o n of Fami l y Health
Services to fund such programs as Supplemental Food Program - Women,
Infants, and Children ( W I G ) , Dental Health Education f o r the Aging and
E l d e r l y , and Child/ Adolescent I n j u r y Prevention I n i t i a t i v e .
The department's and d i v i s i o n s ' general fund expenditures for f i s c a l
years 1986- 87 through 1988- 89 are shown i n Table 1 ( page 4 ) .
Scope of Audit
We addressed the 12 s t a t u t o r y Sunset F a c t o r s . A n a l y s i s of DHS'
performance regarding these f a c t o r s i s presented on pages 7 through 16.
I n a d d i t i o n , we reviewed DHS' c o n t r a c t i n g process, the expansion of DHS'
management information systems, and other a d m i n i s t r a t i v e a c t i v i t i e s .
Based on t h i s review we developed a F i n d i n g on the c o n t r a c t i n g process
( see pages 17 through 261, and Other Pertinent Information on the
management i nformat ion systems ( see pages 27 through 31 1.
TABLE 1
DEPARTMENT OF HEALTH SERVICES
STATEMENT OF ACTUAL EXPENDITURES - ALL FUNDS
FISCAL YEARS 1986- 87 THROUGH 1988- 89
( unaud i t ed )
Actual
1986- 87
Actual
1987- 88
Actual
1988- 89
D i v i s i o n :
O f f i c e o f the D i r e c t o r
Administration
Southern Arizona Mental
Health Center
Behavioral Health Services
Environmental Health Services
D i sease Control
Family Health
Emergency Medical Services/
Health Care F a c i l i t i e s
Laboratory Services
Total D i v i s i o n s
Expenditures:
Personal services
Employee- related
Professional and
o u t s i d e s e r v i c e s
Travel, i n - s t a t e
out- of- state
Food
Aid to organizations
A i d t o i n d i v i d u a l s
Other operating
Capital outlay
15,264,343
598,917
I l l ,912
1,897,298
61,882,149
10,046,704
11.067,839
3.234.852
Total Expendi tures
( a1 I n t e r n a l r e s t r u c t u r i n g during t h i s perrod transferred behavioral health expenditures from the
O f f i c e of the D i r e c t o r t o a separate d i v r s i o n , and combined Admrnistration and t h e O f f i c e of the
D i r e c t o r i n t o a s i n g l e d i v i s i o n .
( b ) Southern Arizona Mental Health Center * as incorporated i n t o the D i v i s i o n of Behavioral Health
Services.
( c I Environmental Health Services was removed from DHS to become the Department of Environmental
Qua1 i ty.
Source: Arizona F i n a n c i a l Information System
This audit was conducted i n accordance w i t h generally accepted
governmental a u d i t i n g standards.
The Auditor General and s t a f f express a p p r e c i a t i o n to the D i r e c t o r and
s t a f f of the Department of Health Services f o r t h e i r cooperation and
assistance during the a u d i t .
SUNSET FACTORS
In accordance w i t h A. R. S. 341- 2354, the L e g i s l a t u r e should consider the
f o l l o w i n g 12 factors i n determining whether the Department o f Health
Services ( DHS) should be continued or terminated.
1 . Objective and purpose i n establ i shing the agency
DHS was establ ished i n 1974 ( A. R. S. $ 36- 102 e t seq.) by
consolidating several agencies i n t o a s i n g l e department w i t h a
v a r i e t y of r e s p o n s i b i l i t i e s . These agencies included the State
Department of Health, Arizona Health Planning A u t h o r i t y , Crippled
Children Services, Arizona State H o s p i t a l , and the Anatomy Board.
According to the department's enabling a c t , DHS i s responsible for
providing or promoting the f o l l o w i n g seven a c t i v i t i e s :
" . . . I ) q u a l i t y health care i n coordination w i t h the p r i v a t e
sector providers, to the c i t i z e n s o f t h i s s t a t e ; 2) cost
control mechanisms that w i l l insure that the costs of health
care to the c i t i z e n s of t h i s s t a t e are j u s t i f i e d and
equitable; 3) control of q u a n t i t y and q u a l i t y o f health care
f a c i l i t i e s w i t h i n the s t a t e ; 4) necessary health services for
medically dependent c i t i z e n s o f t h i s s t a t e ; 5) e s s e n t i a l
health care s e r v i c e s , i n c l u d i n g but not l i m i t e d t o , emergency
medicine, preventive medicine, mental, maternal, and medical
rehabi I i t a t i on; 6) comprehensive and continuing planning,
including assessment, i d e n t i f i c a t i o n and p u b l i c a t i o n of health
needs i n t h i s s t a t e ; 7) compliance w i t h standards i n l i c e n s i n g
of health f a c i l i t i e s . "
2. Theeffectiveness w i t h which the agency has met i t s o b j e c t i v e and
purpose and the e f f i c i e n c y w i t h which i t has operated
DHS has been e f f e c t i v e i n meeting i t s o v e r a l l o b j e c t i v e and
purpose. However, our previous reports i d e n t i f i e d numerous ways
the Department o f Health Services could improve i t s e f f i c i e n c y and
effectiveness. I n t h i s r e p o r t , we recommend that DHS improve i t s
overall c o n t r a c t i n g process by increasing i t s Contract
Administration Section's involvement i n the process. The s e c t i o n ' s
expanded r o l e would include p a r t i c i p a t i o n i n a l l phases of
contractor s e l e c t i o n and development and implementation of
monitoring procedures.
In a d d i t i o n , our other audit work i n the department showed that
e f f i c i e n c y and e f f e c t i v e n e s s could be improved w i t h i n each of the
d i v i s i o n s or o f f i c e s we reviewed. In some of these areas the
department was at the time of the a u d i t , evaluating a course of
a c t i o n o r a c t i o n was i n process to implement changes recommended i n
the a u d i t . In other areas, the department has since made or i s i n
the process of making recommended changes.
a The Health Care F a c i l i t i e s Function ( HCFF) could increase i t s
effectiveness through the use of a stronger enforcement p o l i c y
for nursing and supervisory care homes. I n several cases DHS
f a i l e d to use a v a i l a b l e enforcement options, allowing some
day- care centers and nursing hclnes to repeatedly v i o l a t e state
rules and regulations ( see performance audit report 88- 5). The
department has recently strengthened i t s enforcement p o l i c i e s i n
each area by developing procedures manuals, assigning
enforcement r e s p o n s i b i l i t i e s to s p e c i f i c employees and making
greater use of intermediate sanctions.
a The O f f i c e of Emergency Medical Services ( OEMs) could increase
i t s a b i l i t y to measure emergency medical technician ( EMT)
competence by adopting an examination that v a l i d l y measures
c r i t i c a l s k i l l s . We found OEMs gave the i d e n t i c a l examination
year a f t e r year and recommended that the o f f i c e use the national
r e g i s t r y examination for EMTs ( see performance audit report
88- 12). Since our a u d i t , the o f f i c e has obtained a bank of
v a l i d questions that can be used to generate new examinations.
a E f f i c i e n c y of the Women, I n f a n t s , and Children Program ( W I C ) i n
the D i v i s i o n of Family Health Services ! FHS) could be enhanced
by implementing an i n f a n t for! nuIa rebate program simi l a r t o
programs used i n other s t a t e s . Auditor General analysis found
that Arizona could save as rnuch 3s $ 310,000 per month by
i n s t i t u t i n g the new program. This would allow the State to
serve an addi t ional 6,900 people. The department was evaluating
an i n f a n t formula rebate program at the time of the audit and
has since implemented a rebate program. Another FHS program,
Chi l d r e n ' s Rehabi l i t a t ive Services ( CRS), may not be addressing
the most s i g n i f i c a n t medical problems of i t s c l i e n t s . Serious
i l l n e s s e s such as hemophilia and bronchopulmonary d i s p l a s i a are
not funded, while other i l l n e s s e s which are e a s i l y treated are
funded ( see performance audit report 89- 1). CRS i s c u r r e n t l y
reviewing i t s medical e l i g i b i l i t y c r i t e r i a to determine whether
s p e c i f i c conditions should be added or deleted.
r The D i v i s i o n o f Disease Prevention Services could improve
reporting of s e x u a l l y t r a n s m i t t e d diseases. For example, we
found that the d i v i s i o n could b e t t e r u t i l i z e laboratory reports,
increase i t s contacts w i t h health care p r o v i d e r s , work w i t h
medical l i c e n s i n g boards, d i s t r i b u t e mass m a i l i n g s , and make
periodic contacts w i t h randomly selected health providers
throughout the State i n an e f f o r t to ensure consistency i n
reporting ( see performance audit report 89- 2). The d i v i s i o n has
since i n i t i a t e d e f f o r t s i n many o f these areas to improve
reporting.
r The Arizona State Hospital ( ASH) has d i f f i c u l t y providing
adequate s t a f f on i t s treatment u n i t s due to i t s extreme
s t a f f i n g problems. Because of the type of s e r i o u s l y i l l
patients the h o s p i t a l i s dealing w i t h , i t i s important to have
adequate s t a f f . However, shortages of s t a f f are a common
occurrence on the treatment u n i t s . These shortages stem from
the h o s p i t a l ' s high turnover and extended vacancies. Some of
ASH'S e f f o r t s to cover the shortages caused by the vacancies
a c t u a l l y increase the problem. ASH should address problems
c o n t r i b u t i n g to turnover, and should also consider a
comprehensive study to determine i t s long- term s t a f f i n g needs
( see performance audit report 89- 9).
r The O f f i c e of V i t a l Records ( OVR) can increase e f f i c i e n c y and
customer service i n several ways. OVR can b e t t e r u t i l i z e i t s
in- house computer system. Most b i r t h c e r t i f i c a t e s issued are
photocopies of the o r i g i n a l records rather than the
faster- to- produce, computer- generated copies. In a d d i t i o n , OVR
needs to improve i t s record storage room. The present faci l i t y
9
lacks adequate physical s e c u r i t y and has poor climate c o n t r o l s .
( The department has requested funds to address these problems in
the last three budget requests.) Further, weak and l i m i t e d
i n t e r n a l c o n t r o l s p r o v i d e o p p o r t u n i t y for OVR employees to make
unauthorized use of records ( see performance audit report 89- 5).
e The D i v i s i o n of Behavioral Health Services has been lax i n
monitoring the performance of a d m i n i s t r a t i v e e n t i t i e s .
Important d e f i c i e n c i e s and problems have gone undiscovered or
uncorrected because the department i s not conducting adequate
s i t e v i s i t s , v e r i f y i n g services, or f o l l o w i n g up when problems
are discovered. Monitoring has not been a management p r i o r i t y ,
and s t a f f responsible for monitoring e n t i t i e s have not received
clear d i r e c t i o n ( see performance audit report 89- 10).
3. The extent to which the agency has operated within the public
interest
The Department of Health Services has generally operated i n the
pub1 i c i n t e r e s t by developing, c o o r d i n a t i n g , m o n i t o r i n g , and
providing health care and health care related a c t i v i t i e s . For
example, the D i v i s i o n of Disease Prevention Services coordinates
immunization programs w i t h the counties to protect c i t i z e n s from
whooping cough and measles; the O f f i c e o f Emergency Medical
Services provides monies to r u r a l emergency s e r v i c e p r o v i d e r s i n
attempts t~ ensure that a l l c i t i z e n s receive adequate emergency
medical care; the D i v i s i o n of Family Health Services administers
the U. S. Department of A g r i c u l t u r e ' s Special Supplemental Food
Program for Women, I n f a n t s , and Children to improve the n u t r i t i o n
of low income pregnant and postpartum women, and c h i l d r e n under the
age of f i v e ; the D i v i s i o n of Emergency Medical S e r v i c e d H e a l t h Care
F a c i l i t i e s Long- Term Care O f f i c e provides technical assistance,
related support services, and information t o i n d i v i d u a l s , f a m i l i e s ,
and long- term health care providers.
In our audits of the department, we i d e n t i f i e d ways DHS can b e t t e r
protect the pub1 i c ' s i n t e r e s t . These a c t i v i t i e s include
improvement of t e s t i n g procedures for emergency medical technicians
( see performance audit report 88- 12), b e t t e r inspection of and
follow- up on nursing home v i o l a t i o n s ( see performance audit report
88- 5), and improved p u b l i c n o t i f i c a t i o n of meetings held by the
Governor's Task Force on AIDS ( see performance audit report 89- 2).
Follow up contacts w i t h the department i n d i c a t e that i t i s a c t i n g
i n each of these areas.
4. The extent t o which r u l e s and regulations promulgated by the agency
are consistent w i t h the l e g i s l a t i v e mandate
The department's r u l e s and regulations appear to be consistent w i t h
i t s l e g i s l a t i v e mandate. The Attorney General's O f f i c e , the
Governor's Regulatory Review Council, and DHS' Administrative
Counsel are a l l responsible for reviewing agency rules and
regulations to determine i f they are consistent w i t h s t a t u t e . The
department has attempted to involve i t s own a d m i n i s t r a t i v e counsel
e a r l y i n the process to ensure necessity and l e g a l i t y o f the
proposed r u l e s . I n a d d i t i o n , r u l e s proposals are reviewed by the
Governor's Review Council for comments. Public hearings are then
held. F i n a l l y , the Attorney General's O f f i c e reviews department
rules through the formal c e r t i f i c a t i o n process as required by law.
5 . The extent t o which the agency has encouraged input from the p u b l i c
before promulgating i t s r u l e s and regulations and the extent t o
which i t has informed the p u b l i c as t o i t s actions and t h e i r
expected impact on the p u b l i c
T y p i c a l l y , r u l e promulgation i n the Department of Health Services
i s i n i t i a t e d by d i v i s i o r , program s t a f f . This usually happens i n
response to new l e g i s l a t i o n or a need to update e x i s t i n g r u l e s .
D r a f t rules are reviewed by the a s s i s t a n t d i r e c t o r s , then forwarded
to the O f f i c e of Administrative Counsel for confirmation. D r a f t s
may then be mailed to i n t e r e s t e d p a r t i e s for comments, or a seminar
may be conducted to explain the extent of the rules and gather
input. Any r e v i s i o n s to the proposal are also reviewed and
approved before submitting the rules to the d i r e c t o r for o f f i c i a l
a c t i o n .
Rule proposals are sent to each o f the local health o f f i c e r s for
posting. When a r u l e proposal i s l i k e l y to be c o n t r o v e r s i a l , a
press release i s also issued. Anyone nay obtain a copy of the
proposed r u l e from the department at any time. A f t e r the r u l e i s
approved by the Governor's Regulatory Review Council, an
informative summary of the r u l e i s p r i n t e d and d i s t r i b u t e d by the
O f f i c e of the Secretary of S t a t e . P u b l i c hearings, when scheduled,
are usually held i n three to f i v e l o c a t i o n s s t a t e w i d e . P u b l i c
comments whether w r i t t e n or oral are accepted up to at least one
week a f t e r the f i n a l p u b l i c hearing.
6. The extent to which the agency has been able to investigate and
resolve complaints within i t s jurisdiction
The department has not aggressively pursued o r resolved complaints
i n several cases. Our review of the O f f i c e of Emergency Medical
Services, the Health Care F a c i l i t i e s Function, and the D i v i s i o n of
Family Health Services found various problems w i t h complaint
resolution. F i r s t , the O f f i c e of Emergency Medical Services has
lost or mishandled complaints. The o f f i c e was unable to t e l l how
many complaints i t had received and what action was taken. The
majority of the complaints received that we documented were never
investigated ( see performance audit report 88- 12). Second, a
review of complaints concerning nursing homes and day- care centers
found many that contained serious a l l e g a t i o n s t h a t had not been
adequately addressed by the Health Care F a c i l i t i e s Function, Health
Care Licensing O f f i c e . Many of these a l l e g a t i o n s were l a t e r
substantiated by the d i v i s i o n ' s own inspectors. However, l i t t l e or
no act ion was taken by DHS ( see perforn~ ance audi t report 88- 5).
F i n a l l y , our a u d i t work i n the D i v i s i o n of Fami ly Health Services,
Midwife and Hearing Aid Dispensers ( HAD) licensing programs, found
a h i s t o r y of poor complaint handling and r e s o l u t i o n . The HAD
program d i d not track or log i t s camplaints. The midwife licensing
program lacked any formal complaint tracking and i n v e s t i g a t i o n
system ( see performance audit report 89- 1).
To improve complaint handling i n these three areas, the department
has taken various steps. The Off ice of Emergency Medical Services
has established an automated complaint tracking process. This
should help the o f f i c e respond and i n v e s t i g a t e complaints i n a more
timely manner. In a d d i t i o n , DHS has recommended laws to strengthen
enforcement options i n the health care functions area. DHS
o f f i c i a l s feel that several s t a t u t o r y changes w i l l give the Health
Care F a c i l i t i e s Function more enforcement power. According to
department o f f i c i a l s , t h i s should help to more quickly resolve
complaints against repeat offenders. In a d d i t i o n , these s t a t u t o r y
changes should help DHS improve e f f o r t s t o v a l i d a t e complaints
against licensees. F i n a l l y , the D i v i s i o n of Family Health Services
has added a complaint t r a c k i n g system to govern midwife and HAD
complaints. Also, FHS i s r e v i s i n g complaint i n v e s t i g a t i o n s
procedures. Both actions should allow the d i v i s i o n to respond to
complaints i n a more timely manner.
The extent to which the Attorney General, or any other applicable
agency of State government has the authority to prosecute actions
under enabling legislation
The Attorney General, the County Attorneys, and the local county
health boards a l l have a u t h o r i t y under department statutes to
prosecute unlawful actions under DHS enabling l e g i s l a t i o n .
According to the department, depending on the d i v i s i o n and the type
of unlawful a c t t h a t has occurred, the responsible prosecuting
e n t i t y i s contacted. The matter i s then pursued by that e n t i t y .
For example, any legal actions needed i n the Health Care F a c i l i t i e s
Function r e l a t i n g t o nursing homes would be handled by the Health
Care Licensure O f f i c e w i t h i n that d i v i s i o n w i t h the assistance of
the Attorney General's O f f i c e and the County Attorney of the county
i n which the home operates.
8. The extent to which the agency has addressed deficiencies in i t s
enabling statutes which prevent i t from f u l f i l l i n g i t s statutory
mandates
During the 1989 l e g i s l a t i v e session DHS requested or supported, and
the L e g i s l a t u r e approved, numerous b i l l s to address s p e c i f i c
s t a t u t o r y d e f i c i e n c i e s . Some key pieces of l e g i s l a t i o n introduced
and approved are as f o l l o w s .
0 HB 2013 - Mental Health; Treatment
The l e g i s l a t i o n c l a r i f i e s c o n f i d e n t i a l i t y statutes for family
involvement and r e q u i r e s a case manager/ community agency to
which a p a t i e n t o f ASH i s being t r a n s f e r r e d to be involved i n
the p a t i e n t ' s plan of care. The l e g i s l a t i o n also defines the
duty of mental health providers to warn i d e n t i f i a b l e v i c t i m s of
imminent and e x p l i c i t t h r e a t .
0 HI3 2419 - Day Care; Intermediate Sanctions
The law strengthens the department's a b i l i t y to take action
against day- care center? and day- care group homes. The law
provides for intermediate sanctions such as bans on admissions,
mandatory capacity reductions, and termination o f s p e c i f i c
services. I t deletes the p r o v i s i o n r e q u i r i n g the department to
make on- site v i s i t s to document each day of a v i o l a t i o n .
HE? 2419 was based on recommendat ions from our o f f i c e t h a t DHS
strengthen s t a t u t e s t o take intermediate sanctions against
licensed health care f a c i l i t i e s .
0 SB 1312 - Children Camps
This law allows DHS to delegate r e s p o n s i b i l i t y f o r l i c e n s i n g and
inspecting c h i l d r e n ' s camps to county health departments.
0 SB 1355 - Health Care Licensure
The law allows the department to e s t a b l i s h and c o l l e c t license
and bui lding permit fees f o r h e a l t h care i n s t i t u t i o n s . I t also
allows the department to e s t a b l i s h r i l l e s for background checks
of applicants who seek health care licenses and gives the
department the a u t h o r i t y t o e s t a b l i s h rules for denying those
same applicants.
a SB 1414 - F i n g e r p r i n t i n g
The law allows DHS to f i n g e r p r i n t c h i l d r e n ' s behavioral health
services contract provider personnel. In a d d i t i o n , manslaughter
and aggravated assault were added to the l i s t of c r i m i n a l
offenses that can be i d e n t i f i e d through the f i n g e r p r i n t
r e g i s t r a t i o n program.
In a d d i t i o n , 20 other b i l l s which impact the department and i t s
operations were passed.
9. The extent t o which changes are necessary i n the laws o f the agency
t o adequately comply w i t h the factors l i s t e d i n the Sunset Law
Based on our a u d i t s o f the Department of Health Services, we have
recommended i n previous r e p o r t s t h a t the L e g i s l a t u r e consider the
following changes to DHS s t a t u t e s .
0 Provide DHS w i t h s t a t u t o r y a u t h o r i t y t o impose fees adequate to
recover costs for examining and c e r t i f y i n g emergency medical
technician applicants ( see performance audit report 88- 12).
a Amend A. R. S. 9936- 1901 through 36- 1938 t o g i v e DHS the a u t h o r i t y
to order hearing aid dispenser licensees to make r e s t i t u t i o n to
complainants. In a d d i t i o n , amend A. R. S. 3936- 751 through 36- 757
to give midwife l i c e n s i n g program personnel the a u t h o r i t y to
access p a t i e n t records from the admitting h o s p i t a l ( see
performance audit report 89- 11.
10. The extent t o which the termination of the agency would
s i g n i f i c a n t l y harm the p u b l i c health, safety, or welfare
Regulation of health care and health care related a c t i v i t i e s i s
necessary for the p r o t e c t i o n o f the p u b l i c h e a l t h , s a f e t y , and
welfare. The need for the c o n t r o l , guidance, education,
i n t e r v e n t i o n , and monitoring of health care and i t s a c t i v i t i e s i s
well established. A l l 50 states and the federal government
regulate health care a c t i v i t i e s , although regulatory s t r u c t u r e s
vary dramatical l y . Terminating DHS would probably r e q u i r e t h a t
other State agencies or local governments assume the department's
current r e s p o n s i b i l i t i e s .
11. The extent t o which t h e l e v e l o f r e g u l a t i o n exercised by the agency 4
i s appropriate and whether less or more s t r i n g e n t l e v e l s o f
r e g u l a t i o n would be appropriate
Our audit work suggests that the Department of Health Services
r e g u l a t i o n i s appropriate i n most areas. However, audit work
conducted i n the O f f i c e of Emergency Medical Services and Health
Care F a c i l i t i e s Function i n d i c a t e stronger regulatory a c t i o n may be
needed to ensure compliance w i t h a l l a p p l i c a b l e S t a t e laws. In
a d d i t i o n , our work suggests that stronger enforcement actions may
be needed ( see performance aud i t reports 88- 5 and 88- 1 2 ) .
12. The extent t o which the agency has used p r i v a t e contractors i n the
performance o f i t s d u t i e s and how e f f e c t i v e use o f the p r i v a t e
contractors could be accomplished
DHS uses c o n t r a c t i n g e x t e n s i v e l y . The department contracted for
over $ 106 m i l l i o n i n professional and outside services i n f i s c a l
year 1988.
FINDING I
DHS CONTRACTING PROCEDURES
NEED STRONGER CENTRAL OVERSIGHT
The Department of Health Services needs to strengthen control over i t s
contracting process. DHS spent more than $ 106 m i l l i o n for contract
services i n f i s c a l year 1989, w i t h a u t h o r i t y for the c o n t r a c t s s c a t t e r e d
throughout the department. However, DHS has l i t t l e systematic control
over many aspects of i t s c o n t r a c t i n g process. DHS p o l i c y gives program
managers extensive r e s p o n s i b i l i t i e s i n v o l v i n g c o n t r a c t s . However, due to
s t a f f reductions i n the Contracts Administration Section ( CAS), l i m i t e d
support and oversight i s a v a i l a b l e to the program managers from persons
knowledgable i n c o n t r a c t i n g procedures. Moreover, DHS' p o l i c y of
d e c e n t r a l i z a t i o n provides l i t t l e opportunity for d i v i s i o n or program s t a f f
to share s o l u t i o n s to common problems. Stronger p a r t i c i p a t i o n by the
Contracts Administration Section could improve c o n t r a c t i n g p r a c t i c e s and
f a c i l i t a t e communication.
Contracting R e s p o n s i b i l i t i e s and A c t i v i t i e s
w i t h i n DHS Are Very Decentralized
DHS spends m i l l i o n s o f d o l l a r s each year for c o n t r a c t s e r v i c e s . During
f i s c a l year 1988- 89 the department spent $ 106 m i l l i o n ( see Figure 1, page
18) on 1,046 contracts and amendments. Al I f i v e d i v i s i o n s and the
d i r e c t o r ' s o f f i c e use contracts to obtain goods and services. Two
d i v i s i o n s , Behavioral Health Services and Family Health Services,
accounted for 91 percent of the department's contract expenditures for
f i s c a l year 1988- 89. DHS contract costs are growing: expenditures for
f i s c a l year 1988- 89 were 36 percent above contract costs i n f i s c a l year
1985- 86.
DHS uses contracts to address some of i t s most s i g n i f i c a n t
r e s p o n s i b i l i t i e s . Most of DHSf behavioral health services budget, for
example, i s allocated to organizations under contract to DHS. The
department also contracts w i t h county health departments to provide a
wide array o f p u b l i c h e a l t h services.
Figure 1
DHS COP\ JTRACT DISBURSEMENTS
85- 86 86- 87 87- 88 88- 89
FISCAL YEAR
Source: Fiscal Year 1986, 1987, and 1989 supplied by DHS. Fiscal year
1988 from Auditor General analysis of AFlS data.
Because contract s e r v i c e s a r e a signi f i c a n l aspect of DHS operations,
Auditor General s t a f f conducted an extensive sample review of contracts
for f i s c a l year 1987- 88."' O v e r a l l , the sanple showed no widespread,
serious problems w i t h DHS contracts. However, our review i d e n t i f i e d the
p o t e n t i a l for problems, e s p e c i a l l y i n view of the l i m i t e d c o n t r o l s i n
place for most c o n t r a c t i n g decisions.
( 1 ) The sample consisted of 184 c o n t r a c t s s e l e c t e d trcm the department's f i s c a l year
1987- 88 c o n t r a c t s . Base data was c o l l e c t e d f o r a l l 184 contracts. However, data
and time l i m i t a t i o n s l e d a u d i t s t a f f t o focus gn a sample subset of 42 c o n t r a c t s .
CAS Has Very Limited Control
Over Contracting Process
Although some c o n t r a c t i n g a c t i v i t i e s are administered by the Contracts
Administration Section ( GAS), the section has l i m i t e d r e s p o n s i b i l i t y .
The Contracts Administration Section i s responsible for ensuring that
contracts comply w i t h State law and for m a i n t a i n i n g c o n t r a c t
documentation. However, CAS has no r e s p o n s i b i l i t y for many c r i t i c a l
aspects of the process. Program s t a f f are responsible for much of the
s i g n i f i c a n t a c t i v i t y .
CAS has procedural r o l e - DHS' Contracts Administration Section i s
responsible for ensuring t h a t contracts comply w i t h the Arizona
Procurement Code o r other relevant s t a t u t e s . CAS checks s o l i c i t a t i o n s
prepared by program s t a f f for use of the correct procurement method and
i n c l u s i o n of a l l information required by the code. The section obtains
any required approvals from the Department of Administration, other State
agencies, and other o f f i c e s w i t h i n DHS. I t advertises s o l i c i t a t i o n s and
d i s t r i b u t e s them to i n t e r e s t e d p a r t i e s . CAS maintains contract logs, and
functions as the department's custodian of f i n a l contract and
s o l i c i t a t i o n documents. Most importantly, CAS' contract management
s p e c i a l i s t s review contracts and intergovernmental agreements for
completeness and compliance w i t h relevant s t a t u t e s , r u l e s , and
regulations.
Our review o f DHS' 1987- 88 contracts revealed strong control practices i n
areas under the d i r e c t control of DHS' CAS. The department appears to
have good compliance w i t h some provisions of the procurement code. These
provisions are ones for which DHS' Contracts A d m i n i s t r a t i o n Section has
a u t h o r i t y as well as r e s p o n s i b i l i t y , such as a d v e r t i s i n g , approval
signatures, and the i n c l u s i o n of c e r t a i n required information i n
s o l i c i t a t i o n documents.
No r e s p o n s i b i l i t y for c r i t i c a l aspects o f process - Although the
Contracts Administration Section i s responsible for ensuring that
contracts comply w i t h s t a t u t e s and regulations, i t s a u t h o r i t y i s l i m i t e d
i n most contract decisions. For example, GAS t y p i c a l l y i s not involved
i n evaluating proposals, s e l e c t i n g contractors, or n e g o t i a t i n g contract
terms. As a r e s u l t , CAS cannot v e r i f y whether program s t a f f comply with
procurement code requirements for those stages. In a d d i t i o n , CAS' role
stops as soon as the contract i s signed, leaving program s t a f f s o l e l y
responsible for a l l subsequent phases of contract management.
Responsibility for Overall Contract Management
Occurs a t Program Level
Most r e s p o n s i b i l i t y for contract management i s at the program l e v e l .
DHS' program s t a f f are responsible for developing and monitoring
contracts. Because program s t a f f are not trained as purchasing or
c o n t r a c t i n g e x p e r t s , the manner i n which they meet these r e s p o n s i b i l i t i e s
varies from program to program. Systematic procedures are not a v a i l a b l e
throughout the department to ensure f a i r and open competition.
Monitoring procedures are inconsistent, and do not adequately v e r i f y
whether contracted services are being rendered or whether costs are
appropriate.
Program s t a f f responsible for majority o f contracting a c t i v i t i e s - DHS
program s t a f f have primary r e s p o n s i b i l i t y for developing and monitoring
contracts. Because these i n d i v i d u a l s have knowledge, experience, and
professional contacts w i t h i n t h e i r s p e c i a i t i e s , DHS management believes
they are best able to make a l l program decisions, i n c l u d i n g those related
t o c o n t r a c t s . DHS r e l i e s on program s t a f f to i d e n t i f y needs for services
and w r i t e s o l i c i t a t i o n documents and contracts. In a d d i t i o n , program
s t a f f supply names o f p o t e n t i a l bidders, evaluate proposals, and select
successful bidders. Program s t a f f negotiate contract prices and work
statements. A f t e r contracts are i n place, program s t a f f work with
contractors to assure the success of the program. They provide
assistance and supervision during the l i f e of the c o n t r a c t . F i n a l l y ,
program s t a f f are responsible for m o n i t o r i n g c o n t r a c t performance and
authorizing payments to contractors.
These current procedures can place a burden on program s t a f f . The
Newborn Intensive Care program, for example, has 66 contracts but only
one professional and four support s t a f f to administer the program. In
a d d i t i o n t o t h e i r r e s p o n s i b i l i t y for making intensive care a v a i l a b l e to
a l l i n f a n t s who need i t , they are also responsible for developing and
implementing the procedures for monitoring the 66 contracts to ensure
that the S t a t e ' s money i s used e f f i c i e n t l y .
Award process has s i g n i f i c a n t weaknesses - DHS lacks systematic
procedures to assure t h a t c o n t r a c t s are awarded f a i r l y . Although we did
not document widespread problems throughout the department, the
information we did obtain indicates problems and weaknesses with
i n d i v i d u a l o f f i c e s and d i v i s i o n s and the p o l i c i e s they p r a c t i c e . Some
DHS programs have a1 lowed questionable contracting practices and v i o l a t e d
p r o v i s i o n s o f the procurement code. This places the department at
p o t e n t i a l r i s k when d i s s a t i s f i e d bidders protest contract awards. The
f o l l o w i n g four examples i l l u s t r a t e some of the DHS' questionable contract
p r a c t i c e s .
a Because the procurement code does not require a d v e r t i s i n g for
quotations under $ 10,000, program s t a f f may s o l i c i t as few as three
b i d s f o r some professional services contracts. One o f f i c e r e l i e s on
word of mouth to i d e n t i f y these p o t e n t i a l bidders. Documentation
indicates t h i s p r a c t i c e was apparent i n two c o n t r a c t s t h a t appeared
i n our sample from the O f f i c e of Dental Health. Such practices could
raise questions of f a v o r i t i s m . Although a d v e r t i s i n g i s not required
by law i n these cases, good business p r a c t i c e supports and
departmental pol icy r e q u i r e s o b t a i n i n g mu1 t i p l e bids for any
procurement. This promotes competition and helps protect against
c o l l u s i o n .
a Some contract award decisions have been based on factors not l i s t e d
i n the Request for Proposals ( RFP). This has been a serious problem
i n the O f f i c e o f Emergency Medical Services ( OEMS). In f i s c a l year
1988, OEMs was forced to reissue the RFP for 75 provider grants
because i n CAS' assessment, i t would be unable to defend i t s
decisions against p r o t e s t s .
a Although the State procurement code requires them to do so, at least
two programs do not always create o r r e t a i n documentation of the
basis for contract awards. Because DHS r e l i e s on program s t a f f to
keep these records, central management cannot e a s i l y determine
whether awards are made i n compliance with the law. This problem was
i d e n t i f i e d w i t h the 75 OEMS grants, Newborn Intensive Care
professional services contracts. In a d d i t i o n , OEMs has a new 11- page
evaluation form but s t i l l does not document the basis for an award.
Documentation i s the department's p r o t e c t i o n against p r o t e s t s by
rejected bidders.
a A d d i t i o n a l c o n t r a c t reviews indicated that i n areas of automation and
health care p r o f e s s i o n a l s e r v i c e s , DHS has w r i t t e n some s o l i c i t a t i o n s
w i t h s p e c i f i c a t i o n s so r e s t r i c t i v e t h a t only one bidder could
respond. This impairs the competition that the State procurement
2 1
code r e l i e s on to keep prices f a i r . One contract for computers and
computer software was protested by other bidders on these grounds.
In a case i n v o l v i n g lab equipment, DHS r e c t i f i e d the problem by
amending the " I n v i t a t i o n For Bid" ( IFB). In a s i m i l a r case, the
p r o t e s t e r ' s p r i c e was so much higher than the successful bidder's
that changing the IFB would not have mattered. Therefore, DHS denied
the p r o t e s t . The p r o t e s t e r appealed the decision to the Department
of Administration, but l a t e r withdrew the appeal.
F i n a l l y , one program has not followed DHS' p o l i c y that a l l contracts be
reviewed and approved by CAS. As a r e s u l t , DHS could be held to
unacceptable or outdated c o n t r a c t p r o v i s i o n s i n some of i t s f i s c a l year
1989- 90 contracts. CAS review allows d i v i s i o n s t a f f and CAS to determine
i f the contract contains appropriate language. Even though standard DHS
pol icy requi res that a l l contracts be revievied and approved by CAS, CAS
has no a u t h o r i t y to require programs to meet s p e c i f i c deadlines to
ensure adequate time for review and c o r r e c t i o n . One d i v i s i o n submitted
41 f i n a l 1989- 90 contracts w i t h amendments at the end of the day before
the contracts were to begin, thus, making i t impossible for CAS to review
them before DHS signed the contracts. However, the contracts included
e r r o r s . For example, DHS changed i t s general provisions i n 1988, but 21
of these late contracts had the 1986 version instead. The general
provisions are an important part of a l l contracts and cover such matters
as disputes, warranty, and recovery of contract payments.
DHS contract monitoring is uneven - DHS lacks a formal contract
monitoring system and central oversight of the monitoring f u n c t i o n . Some
DHS program managers do l i t t l e to ensure compliance w i t h contract terms.
Contract monitoring i s important to ensure service provider
a c c o u n t a b i l i t y and compliance w i t h stated terms and conditions of the
c o n t r a c t . Although government agencies can delegate a governmental
function through a c o n t r a c t , they are s t i l l responsible for that
function. E f f e c t i v e monitoring v e r i f i e s that the function i s performed.
We i d e n t i f i e d several areas where monitoring appears weak.
0 One program which contracts for in- patient newborn intensive care
services r e l i e s on a c c r e d i t a t i o n by an outside agency and the
contractors' i n t e r n a l q u a l i t y assurance systems as adequate proof of
contract compliance by h o s p i t a l s . Accreditation i s based on a
hospi t a l ' s abi l i t y to provide services. Qiial i t y assurance systems
monitor medical performance i n terms o f q u a l i t y o f s e r v i c e . Neither,
however, reviews whether a h o s p i t a l has a c t u a l l y provided services
required by DHS c o n t r a c t s . Although the program budgeted $ 3.5
m i l l i o n for contractors i n f i s c a l year 1989, i t does not do any
formal contract monitoring to assure compliance w i t h contract
provisions.
m One program chief r e p o r t s t r a c k i n g at least two contractors through
regular meetings and planning sessions. However, he keeps no w r i t t e n
records of these meetings. This could make i t d i f f i c u l t to terminate
a c o n t r a c t for poor performance. In a d d i t i o n , because complete
w r i t t e n records are not a v a i l a b l e , the department may be unable to
document contractor compliance i n the event of the program c h i e f ' s
termination o r departure.
m In one d i v i s i o n , contracts are not aggressively monitored for
compliance. In the D i v i s i o n of Behavioral Health Services, we found
that contract performance i s not monitored through v i s i t i n g s i t e s ,
v e r i f y i n g services, or f o l l o w i n g up when problems are discovered.
The contracts i n question have complex requirements and involve many
m i l l i o n s of d o l l a r s . Therefore, e f f e c t i v e monitoring i s e s s e n t i a l .
In contrast, auditors i d e n t i f i e d one area where the department i s making
progress towards strong monitoring. In the D i v i s i o n of Fami l y Health
Services, s t a f f are implementing a q u a l i t y assurance plan which includes
contract monitoring. When f u l l y operational, t h i s may provide an
e f f e c t i v e means of e v a l u a t i n g c o n t r a c t compliance.
Stronger P a r t i c i p a t i o n by CAS Could Address
Many o f DHS' Contracting Control Problems
Stronger p a r t i c i p a t i o n by CAS could address many of the control problems
noted i n preceding sections. DHS may need more s t a f f , however, to adopt
t h i s change and e s t a b l i s h e f f e c t i v e control over i t s many c o n t r a c t s . In
addition t o improving c o n t r o l , central and/ or stronger oversight could
enhance communication of ideas among programs s t a f f .
CAS p a r t i c i p a t i o n would strengthen control - Contracting standards
require that the Contracts Administration Section be involved i n contract
development and s e l e c t i o n as a check on program areas. According to the
State purchasing d i r e c t o r and professional procurement l i t e r a t u r e , CAS
s t a f f should d i r e c t l y p a r t i c i p a t e i n most of the procurement process.
The State purchasing d i r e c t o r recommends CAS s t a f f involvement for
several reasons. F i r s t , CAS s t a f f have the expertise i n c o n t r a c t i n g and
f a m i l i a r i t y w i t h procurement law that program area s t a f f may not have.
Contracts Administration Section involvement can ensure that DHS complies
w i t h the State procurement code. Second, d i r e c t p a r t i c i p a t i o n by CAS
personnel i n awarding and e v a l u a t i n g c o n t r a c t proposals could reduce the
p o t e n t i a l for b i a s . C u r r e n t l y , bias may occur, or i t may appear that the
process i s biased, because those evaluat i ng the proposals ( program area
personnel) consist l a r g e l y of program s t a f f who have p r i o r or continuing
involvement w i t h c u r r e n t p r o v i d e r s . Thus, outside review or p a r t i c i p a t i o n
i n these duties and r e s p o n s i b i l i t i e s would lessen or reduce the
opportunity for b i a s .
S t a f f may need t o be increased - The Contracts Administration Section
may not have enough s t a f f to adequately p a r t i c i p a t e i n and oversee the
contracting process. CAS has only two c o n t r a c t a d m i n i s t r a t o r p o s i t i o n s ,
one of which i s c u r r e n t l y vacant, to oversee 581 contracts and 465
amendments valued at $ 106 m i l l i o n . As shown i n Figure 1 ( page 18), the
d o l l a r amount expended on contracted services has increased 36 percent i n
the past four years. A t the same time, the number of s t a f f has a c t u a l l y
decreased, from four grade 20 health planning consultants and two grade
15 a d m i n i s t r a t i v e a s s i s t a n t s to two grade 19 contract management
s p e c i a l i s t s and one grade 13 a d m i n i s t r a t i v e a s s i s t a n t . According to the
DHS d i r e c t o r , the department made a conscious decision to reduce
a d m i n i s t r a t i v e personnel to meet mandated budget cuts instead of
e l i m i n a t i n g programs or services to the general p u b l i c . Consequently,
adequate s t a f f or p o s i t i o n s are not a v a i l a b l e f o r CAS to perform
a d d i t i o n a l day- to- day contract monitoring a c t i v i t i e s . The l i m i t e d s t a f f
a v a i l a b l e f o r these a c t i v i t i e s reduces the department's a b i l i t y to
e f f e c t i v e l y c o n t r o l c o n t r a c t s .
Central and/ or stronger p a r t i c i p a t i o n could improve comnunication -
Some DHS program managers have developed s o l u t i o n s to contract- related
problems that e x i s t throughout DHS, but these s o l u t i o n s are not being
shared. The f o l l o w i n g examples found w i t h i n DHS i l l u s t r a t e answers to
some of DHS' c o n t r a c t i n g problems.
0 The D i v i s i o n o f Disease Prevention Services has a simple and
e f f e c t i v e system for w r i t i n g contracts. I t b u i l d s d r a f t contracts
from a set of standard paragraphs maintained on i t s computer system.
This enables the d i v i s i o n to avoid the typographical e r r o r s and
unacceptable contract language t h a t c r e a t e delays for other d i v i s i o n s .
Behavioral Health Services ( BHS) on the other hand, was working on
manually searching for and c o r r e c t i n g typographical e r r o r s u n t i l a
week before the planned e f f e c t i v e date of t h e i r 1989- 90 contracts.
As mentioned e a r l i e r , BHS u l t i m a t e l y submitted i t s contracts for the
d i r e c t o r ' s signature on the day before the c o n t r a c t s ' e f f e c t i v e date.
r Chi Id Rehabi l i t a t i v e Services ( CRS) w r i t e s only one main contract for
physicians' services, and any physician may apply to j o i n the
" medical s t a f f M i n order to be authorized for payment under that
contract. This frees CRS s t a f f from handling contracts for each
individual physician.
Newborn Intensive Care Program ( NIC) contracts separately w i t h at
least 25 physicians and physician groups. This appears to place an
unnecessary burden on NIC's two- person s t a f f .
r NIC1s funds are inadequate to pay h o s p i t a l s f o r a l l the care they
provide for NIC i n f a n t s , so NIC has devised a funding formula based
on the number of i n f a n t s t r e a t e d and the amount w r i t t e n o f f by the
hospitals i n p r i o r years. Hospitals appear to be s a t i s f i e d w i t h t h i s
arrangement.
The O f f i c e of Emergency Medical Services ( OEMs), w i t h a s i m i l a r
funding s i t u a t i o n , a l l o c a t e s money by a method which changes every
year. OEMs service providers f i l e d three p r o t e s t s against the
a l l o c a t i o n s which resulted from the use of t h i s method for the
1987- 88 contracts.
r F i n a l l y , as was indicated e a r l i e r , Family Health Services has
developed a q u a l i t y assurance plan to ensure that programs are as
e f f e c t i v e as possible and consistent w i t h the d i v i s i o n ' s o v e r a l l
goals. Such a process could be b e n e f i c i a l to a l l d i v i s i o n s and
programs.
Many of these innovative procedures streamline contract a d m i n i s t r a t i o n
and strengthen o v e r a l l c o n t r o l . They appear p a r t i c u l a r l y valuable
because they represent DHS' s o l u t i o n s to i t s own problems. However,
without an organized approach to disseminating these ideas, d i v i s i o n s may
not become aware of p o t e n t i a l l y useful procedures. Greater p a r t i c i p a t i o n
i n the contracting process by CAS may provide an e f f e c t i v e means for
di ssemi nat i ng these ideas.
RECOWENDAT I ONS
1. The department should strengthen contracting procedures by increasing
CAS' p a r t i c i p a t i o n i n the c o n t r a c t i n g process. S p e c i f i c a l l y , DHS
should:
a Establish and f o l l o w a systematic method of s e l e c t i n g and
awarding c o n t r a c t s . I t should mandate that CAS a c t i v e l y
p a r t i c i p a t e i n the s e l e c t i o n process.
a Develop formal c o n t r a c t m o n i t o r i n g procedures to ensure adequate
and consistent monitoring e f f o r t s throughout the department. I t
should designate CAS to help develop and oversee these
procedures.
2. CAS should use i t s oversight p o s i t i o n to i d e n t i f y common problems and
should c o l l e c t and disseminate ideas throughout DHS f o r improving
c o n t r a c t i n g procedures.
3. Because CAS should more a c t i v e l y p a r t i c i p a t e i n the c o n t r a c t i n g
process, the department should consider increasing s t a f f i n g i n t h i s
area.
OTHER PERTINENT INFORMATION
During the course o f our audit we developed information on DHS' and
Management lnformation Systems c o n t r a c t s e r v i c e e v a l u a t i o n .
DHS Experiencing Rapid Growth I n
Management lnformation System
DHS i s experiencing rapid growth i n the Management lnformation Systems
area. According to a Department of Administration Data Center o f f i c i a l ,
the DHS O f f i c e of Management lnformation Systems ( MIS) i s among the
fastest growing data processing i n s t a l l a t i o n s i n State government. In
f i s c a l year 1987- 88, DHS spent approximately $ 2.5 m i l l i o n on routine
system operation, development, and maintenance. This estimate does not
include microcomputer costs o r the Family Health and Behavioral Health
major system development i n i t i a t i v e s . ( 1 )
The role of information systems at DHS has been expanding as new
information needs have been i d e n t i f i e d . For instance, the D i v i s i o n of
Family Health Services ( FHS) i s developing a system t o i d e n t i f y those
c l i e n t s receiving b e n e f i t s from i t s various programs such as the Women,
Infants, and Children voucher program and the Maternal and Child Health
programs. FHS administrators feel that tracking p a t i e n t s across programs
w i l l enhance the effectiveness of r e f e r r a l s and provide important p a t i e n t
information at d i r e c t service s i t e s . The d i r e c t l i n k that the FHS system
w i l l provide between personal computers at service s i t e s and the DHS
computer w i l l give a s e r v i c e p r o v i d e r access to c u r r e n t i n f o r m a t i o n even
i f the c l i e n t has never been seen at that s i t e .
I n addition, the Behavioral Health system, which began operating on July
1, 1989, i s another example of DHS' information needs being i d e n t i f i e d
and acted upon. ( 2' This system i s designed to p r o v i d e i n f o r m a t i o n i n
( 1) The Behavioral Health system i s funded through special a p p r o p r i a t i o n HB 2511 f o r
the C h r o n i c a l l y M e n t a l l y I 1 1 and w i l l cost i n excess of $ 2 m i l l i o n . The Family
Health system development c o n t r a c t , w i t h an outside consultant, i s being funded i n
large p a r t w i t h federal money a t a cost of $ 1.5 m i l l i o n .
( 2 ) The development o f the Behavioral Health system was i n response t o the l e g i s l a t i v e
mandate from HB 251 1 .
the f o l l o w i n g areas: case management, c l i e n t t r a c k i n g , contract
compliance, program monitoring, c l i e n t assessment, treatment outcome
evaluation, program e f f i c i e n c y assessment, q u a l i t y assurance, and needs
and resource assessment. This system, l i k e the Family Health system,
w i l l g i v e s e r v i c e p r o v i d e r s access to current i n f o r m a t i o n on c l i e n t s
previously seen elsewhere i n the system. DHS o f f i c i a l s also expect
improvements i n management c o n t r o l over services performed by contracted
d i r e c t service p r o v i d e r s .
DHS has undertaken a t least three new major system development p r o j e c t s
i n each of the l a s t three years. Five new systems are planned f o r f i s c a l
year 1989- 90, and an a d d i t i o n a l eight are p r o j e c t e d for f i s c a l year
1990- 91. C u r r e n t l y , 46 systems are maintained by the department.
Although some of these are to be replaced by new systems, the t o t a l
number of systems i s s t i I I expected to r i s e to 55 i n f i s c a l year
1990- 91 . ( 1 )
Increased demands for new systems and already l i m i t e d s t a f f resources
w i l l force DHS to contract out for programming services and to h i re
a d d i t i o n a l s t a f f . DHS o f f i c i a l s i n d i c a t e t h a t c o n t r a c t programmers w i l l
be needed to handle work other than the routine maintenance conducted by
DHS programming s t a f f . According to MIS manager, without contract
programmers, DHS w i l l not meet the deadlines imposed by DOA.'"
( 1) The impetus f o r many of the replacement \ y \ t ~ m \ i s r f i r e c t l y t i e d to c l o s i n g down
the Data Center Honeywell mainframe which c u r r ~ n t l y supports 19 DHS systems. These
systems must be o f f the DOA computer by J g i y 1991. Some of these systems
conversions have been t i e d t o system enhancements as i n the case of Family Health
Services. The MIS manager expects a s u b s t a n t i a l amount o f reprogramming w i l l be
needed to move the systems from one machine to the other. A DHS o f f i c i a l estimates
t h a t conversion o f systems not covered by federal funds w i l l c o s t t h e State
approximately $ 800,000 i n t h e n e x t two f i s c a l years.
( * ) DOA w i l l pass on t h e c o s t of keeping the Honeywell mainframe on- 1 ine t o the few
remaining users. Therefore, DHS expenses could be much higher than c u r r e n t l e v e l s
depending on how many other users t r a n s f e r systems o f f the computer by the
dead1 i ne.
The department's increasing r e l i a n c e on automated systems may create the
need for a more comprehensive systems planning process. ' since DHS
w i l l continue to use b o t h c o n s u l t a n t s and in- house s t a f f to work on major
systems p r o j e c t s underway simultaneously, i t i s unclear how well
integrated these systems w i l l be and whether department- wide information
needs w i l l be considered. C u r r e n t l y , sharing of system information
between d i v i s i o n s r e l i e s heavily on the p r o j e c t leaders of d i v i s i o n a l
programming teams. Programmers w i t h i n a team i d e n t i f y o p p o r t u n i t i e s i n
t h e i r assigned d i v i s i o n ' s automation plans to p r o v i d e u s e f u l i n f o r m a t i o n
for other d i v i s i o n s . To date, department o f f i c i a l s feel t h i s process has
worked w e l l . For example, when the O f f i c e o f V i t a l Records programming
team worked on the on- line b i r t h c e r t i f i c a t e system, FHS and other users
of b i r t h c e r t i f i c a t e information were approached i n an e f f o r t to include
t h e i r informational needs i n the development of the system. However, the
growing number of DHS systems and t h e i r increasing complexity may require
greater management d i r e c t i o n and i n t e r a c t i o n to ensure that departmental
needs are met i n a c o s t - e f f e c t i v e manner.
A recent consultant study addressed t h i s scenario at the Arizona
Department of Transportation ( ADOT). The consultant advised ADOT to
consider a departure from the d i v i s i o n a l assignment of programming teams
and to use a department- wide management l e v e l s t e e r i n g committee to
f a c i l i t a t e an i n t e g r a t e d planning process. The consultant f u r t h e r
recommended the preparation and p e r i o d i c update of a d e t a i l e d ,
department- wide, long- range data processing plan which would include
needs p r i o r i t i z e d by the steering committee.
Service Measures for
Contract Programs
The Department of Health Services' required c o l l e c t i o n o f average cost
per c l i e n t data for e v a l u a t i n g c o n t r a c t s e r v i c e s i s not being u t i l i z e d a t
( ' 1 At present, MIS reports d i r e c t l y t o the d i r e c t o r of the department. Strategic
planning i s an outgrowth of the budget process. A d i v i s i o n which can fund a
systems development p r o j e c t w i t h a v a i l a b l e State or federal monies from w i t h i n i t s
own budget can proceed with the p r o j e c t a f t e r c o n s u l t a t i o n w i t h MIS and approval
from the d i r e c t o r .
present. DHS, along w i t h other agencies, has been required to report
t h i s information on c o n t r a c t s e r v i c e s since 1985. Although DHS continues
to c o l l e c t the data, s p e c i f i c d e t a i l s o f r e p o r t i n g requirements have
never been c l e a r l y defined. As a r e s u l t , the value of information
c o l l e c t e d and reported by DHS i s questionable.
Since f i s c a l year 1986, Arizona appropriation acts have contained a
footnote r e q u i r i n g c e r t a i n agencies to report information on contract
services. The footnote mandates t h a t :
" No funds for services s h a l l be disbursed by the Department
a f t e r December 31, 1985, without a standardized evaluation
system that . . . has been approved by the J o i n t L e g i s l a t i v e Budget
Committee. The evaluation system for each program s h a l l include
but shall not be l i m i t e d t o a statement of the objectives of the
program; the number of r e c i p i e n t s of the s e r v i c e , . . . the cost per
c l i e n t served by the program; and methodology for measuring the
performance of the program w i t h respect to the statement of the
objectives for the program."
According t o J o i n t L e g i s l a t i v e Budget Committee ( JLBC) s t a f f , the purpose
of these requirements i s t o p r o v i d e i n f o r n a t i o n that can be used to
compare the costs of obtaining services throughout Arizona. The agencies
are to submit t h i s information to JLBC. The footnote applies to most DHS
programs, as we1 l as to the Department of Economic Secur i ty and to some
Department of Corrections programs.
However, report and evaluation requirement d e t a i l s have never been
defined. Shortly a f t e r the footnote was passed, JLBC s t a f f met w i t h
agency representatives to determine the data to include and the format
for reporting. No consensus was reached on evaluative measures for the
departments. JLBC allowed each department considerable d i s c r e t i o n i n
selecting what measures t o t r a c k . A f t e r discussion w i t h the agencies,
JLBC s t a f f also recognized that i n many cases, comparative cost data was
not a v a l i d i n d i c a t o r of q u a l i t y since costs can vary among locations.
As a r e s u l t , JLBC and DHS s t a f f have questioned the value of the data.
JLBC o f f i c i a l s also i n d i c a t e that l e g i s l a t i v e i n t e n t regarding t h i s
information i s unclear.
Despite questions about i t s v a l u e , a DHS o f f i c i a l i n d i c a t e s t h a t a l l DHS
d i v i s i o n s attempt to c o l l e c t and report cost per c l i e n t data. According
to a DHS o f f i c i a l , the department has not been advised of any change i n
r e p o r t i n g requirements. JLBC s t a f f a f f i r m that c o l l e c t i n g t h i s data i s
d i f f i c u l t i n some areas because DHS provides few d i r e c t s e r v i c e s ; r a t h e r ,
many services are d e l i v e r e d by county h e a l t h service departments using
State and federal funds. Even where data i s c o l l e c t e d , l i t t l e i s done to
ensure i t s r e l i a b i l i t y or consistency. For example, we found t h a t the
D i v i s i o n o f Disease P r e v e n t i o n S e r v i c e s r e c e i v e s program r e p o r t s from
county h e a l t h services departments t h a t c o n t a i n wide variances i n per
c a p i t a costs for s i m i l a r s e r v i c e s . However, the d i v i s i o n s t a f f do not
attempt t o i d e n t i f y reasons f o r the variances. They simply record the
information for JLBC.
-- r - - <
:?; :. v* 2- , ARIZONA DEPARTMENT OF HEALTH SERVICES
". /
-. a Office of the Director
ROSE MOFFORD. GOVERNOR
TED WILLIAMS. DIRECTOR
November 6, 1989
Mr. Douglas Norton
Auditor General
2700 North Central, Suite 700
Phoenix, AZ 85004
Dear Mr. Norton:
I recently received your revised preliminary draft report on ADHS agencywide Sunset
Factors dated October 26, 1989. I appreciate the consideration you gave my comments
dated October 19, 1989 on the preliminary draft report together with our discussions in
the October 23, 1989 meeting and the changes resulting therefrom. Upon review of the
revised preliminary report, the following comments are submitted:
* 1. It is recommended that Sunset Factor Number 2, page 8, last sentence, be
modified to read " In some of these areas the department was at the time
of the audit, evaluating a course of action or action was in process to
implement changes recommended in the audit. In other areas, the
department has since made or is in the process of making recommended
changes." This change is recommended to present the most accurate
identification of existing circumstances.
* 2. It is recommended that Sunset Factor Number 2, page 8, third " bullet
point," fourth sentence, be modified to read " The department was
evaluating an infant formula rebate program at the time the audit was
conducted and has since implemented a rebate program!' This change is
recommended to present the most accurate identification of existing
circumstances.
It is recommended that Sunset Factor Number 2, page 8, the third " bullet
point," the fifth sentence through the end of the paragraph on page 9, be
modified to read " Another FHS program, Children's Rehabilitative
Services ( CRS), should expand its services to address those significant
medical problems such as hemophilia and bronchopulmonary displasia, that
are not now provided. The ongoing review of CRS medical eligibility
criteria to determine whether specific conditions should be added or
deleted, should be concluded expeditiously. The department has requested
additional funding in its last three annual budget requests to expand CRS
services, in particular hemophilia and bronchopulmonary displasia."
Although the addressed area has been modified in response to our previous
discussions, the inference remains that if " illnesses which are easily
treated" were not funded, the more significant illness could be, which is
not factual. Further, the Department does not concur that hemophilia and
bronchopulmonary displasia are the " most significant medical problems of
its clients!'
The Department of Health Services is An Eqwl Opportunity Affirmative Action Employer.
State Health Building 1740 West Adams Street Phoenix, Arizona 85007
Douglas Nor ton
November 6, 1989
Page 2
4. It is recommended that Sunset Factor Number 2, page 9, fifth " bullet
point," last sentence, be modified to read " ASH should address problems
contributing to turnover." The Department had identified the need to
conduct a staffing study and had implemented the contracting process to
obtain the study prior to the audit.
* 5. It is recommended that a final sentence be added to Sunset Factor
Number 2, page 10, sixth t% ullet point," as follows ' The department has
requested funds to improve the OVR facilities in its last three annual
budget submissions." The deficiencies identified in the audit report have
been addressed in the cited budget submissions.
6. The audit report continues to fail to identify t h a t t h e Department has not
had, and does not have, an internal audit capability or to address the
importance of such an activity to the overall effectiveness of Department
operations. As previously stated, regardless of the strength of the
Department's policies and procedures, ongoing internal audits insure that
appropriate procedures exist and are being complied with. The
Department has requested additional auditing resources in the last two
annual budget processes and will continue to request these positions until
they are authorized. However, that process is impaired by the audit
report's failure to address the issue.
Sincerely, .
Ted Williams
Director
* Auditor's Note: Text has been changed as suggested.