Performance audit, Department of Health Services, Division of Behavioral Health Services

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State o f Arizona

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o f the

Auditor General

PERFORMANCE AUDIT

DEPARTMENT OF

HEALTH SERVICES,

DIVISION OF

BEHAVIORAL HEALTH

SERVICES

Reporb to the Arizona Legislature

By Douglas R. Norton

Auditor General

December 1996

Report 96- 19

DOUGLAS R. NORTON, CPA

AUDITOR GENERnL

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I Enclosure

STATE OF ARIZONA

OFFICE OF THE

AUDITOR GENERAL

DEBRA K. DAVENPORT, CPA

DEPUT" AUDITOR GENERAL

December 16,1996

Members of the Arizona Legislature

The Honorable Fife Symington, Governor

Dr. Jack Dillenberg, Director

Arizona Department of Health Services

Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona

Department of Health Services, Division of Behavioral Health Services. This report is in

response to a May 17, 1995, resolution of the Joint Legislative Audit Committee. The

performance audit was conducted as part of the Sunset review set forth in A. R. S. § § 41- 2951

through 41- 2957.

We found that the Division needs to improve its oversight of the behavioral health care

system. The Division cannot answer fundamental questions about the quantity, quality,

effectiveness, and timeliness of services provided. In addition, in examining services available

in the behavioral health system, we found the Division could better ensure that children with

behavioral health problems receive prompt care and continue their treatment through

completion. Also, the Division could do more to ensure that crisis services in Maricopa

County are better coordinated with police and fire departments, and more crisis facilities are

available.

Finally, our report includes an analysis by nationally recognized experts on ways to introduce

more competition into the behavioral health system in Arizona. They note a number of

actions the Division can take to increase the number of bidders for future RBHA contracts.

My staff and I will be pleased to discuss or clanfy items in the report.

This report will be released to the public on December 17,1996.

Sincerely,

D~ u&&% orton

Auditor General

I 2 9 1 0 NORTH 4 4 T H STREET . S U I T E 4 1 0 . P H O E N I X , ARIZONA 8 5 0 1 8 . ( 6 0 2 ) 5 5 3 - 0 3 3 3 . FAX ( 6 0 2 ) 5 5 3 - 0 0 5 1

SUMMARY

The Office of the Auditor General has conducted a performance audit of the Arizona

Department of Health Services, Division of Behavioral Health Services, pursuant to a May 17,

1995, 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.) 5541- 2951

through 41- 2957.

The Division of Behavioral Health Services ( Division), a division of the Department of Health

Services, is responsible for providing mental health and substance abuse services in Arizona.

The Division also oversees the Arizona State Hospital. BHS' mission is to " continually improve

the effectiveness and efficiency of a comprehensive system of behavioral health care in order

to meet the needs of the people of Arizona." BHS currently contracts with five private, nonprofit

entities called Regional Behavioral Health Authorities ( RBHAs) to deliver community- based

services. In turn, each RBHA subcontracts with local businesses to provide most services.

This audit focuses on five areas of legislative interest pertaining to Arizona's behavioral health

care system. Specifically, it addresses ( 1) the Division's oversight role in behavioral health care;

( 2) the adequacy of services children with behavioral health problems receive; ( 3) ways Arizona

can encourage competition for RBHA contracts; ( 4) how the Division can better ensure that

people experiencing behavioral health crises receive ongoing services; and ( 5) how the Division

can improve the reporting of RBHAsr administrative, case management, and service costs.

Division Oversight of the

Behavioral Health System

Needs Improvement

( See pages 9 through 14)

The Division needs to improve its oversight of the behavioral health system. Oversight is

necessary to ensure that clients receive needed services and that the hundreds of millions of

dollars appropriated by the state and federal governments is spent as intended on needed care.

The Division currently uses several methods to oversee behavioral health services. However,

these methods alone do not adequately enable the Division to compare the RBHAs or answer

important questions about the accessibility, adequacy, and effectiveness of services. The Division

should improve its oversight by collecting complete data on clients and the services they receive,

adopting standards defining what services clients should typically receive based on their

illnesses, and using this information to monitor RBHA performance.

More Can Be Done to Ensure

That Children Receive Timely

and Continuing Care

( See pages 15 through 19)

Some of the children in the behavioral health system do not receive services within established

time frames and do not complete the treatment they need. In 90 files reviewed, 18 children did

not receive timely treatment for reasons that could not be explained or due to delays caused

by the RBHA or service providers. Similarly, in 23 out of the 90 cases, chldren dropped out

of treatment before services were completed. While some delays are unavoidable, the Division

and RBHAs could do more to ensure children receive timely and complete treatment The

Division should monetarily sanction RBHAs if they do not provide services to clients within

existing deadlines, and adopt a policy to ensure that RBHAs or providers attempt to contact

children's families when children fail to appear for appointments. Additionally, the RBHAs

should take further steps to ensure that children receive timely services.

The Division Could Increase

Competition in the Behavioral

Health Care System

( See pages 21 through 26)

The Division of Behavioral Health Services could do more to increase competition in the

behavioral health system. In order to evaluate competition in the current system, the Office

of the Auditor General b e d experts in the economics of behavioral health care. The consultants

found that allowing more than one RBHA within a single geographic area to compete to serve

clients, as occurs in the Arizona Health Care Cost Containment System ( AHCCCS), is not

appropriate in behavioral health care. They maintain that competing RBHAs could identify

those clients with the most persistent and expensive forms of disorders, and seek to restrict

access to services by those clients.

The consultants do recommend increasing competition for the RBHA contract for an area. As

part of their study, the consultants identified several reasons why there was only one bidder

for the Maricopa County RBHA contract in 1995. The consultants found that competition was

limited in part by factors outside of the Division's control. However, they also found that the

Division could foster future competition by allowing for- profit organizations to bid, reducing

restrictions placed on RBHA board membership and size, and making the bidding process less

burdensome than it was in 1995. Additionally, the Division could lessen the financial risk that

vendors experienced with the last contract by improving the data bidders receive and agreeing

to share financial risk with RBHAs.

Steps Should Be Taken to Ensure

That More People in Crises Receive

Accessible, Ongoing Care

( See pages 27 through 31)

The system for responding to behavioral health crises in Maricopa County could be improved.

ComCare ( the RBHA for Maricopa County) has made changes that allow it to control access

to crisis senices so that behavioral health care costs can be kept down. While these changes

are in line with the philosophy of managed care, additional changes are needed to ensure that

crisis services are accessible and continuous. In particular, the Division should encourage

ComCare to make efforts to better coordinate its services with the police and fire departments

involved in behavioral health crises so that ongoing treatment can be delivered. In addition,

ComCare should address system capacity problems so that the police and fire departments

can more easily transfer persons experiencing behavioral health crises to ongoing ComCare

services.

The Division Can Improve Reporting of

Administrative, Case Management,

and Service Costs

( See pages 33 through 36)

The Division of Behavioral Health Services needs to change the way RBHAs report costs. The

Division's broad financial reporting guidelines allow RBHAs to class@ direct program services

and a portion of their administrative- related expenses, such as rent and phones, as case

management costs. As a result, it is difficult for the Division to assess case management costs

and compare RBHA expenses. Equally important, the guidelines may result in understatement

of administrative expenses. The Division should adopt financial guidelines similar to those

developed by AHCCCS for Arizona Long Term Care System providers. The AHCCCS

guidelines only allow case managers' salaries, benefits, travel, and training to be reported as

case management expenses. Narrowing what can be reported as case management helps

distinguish among costs for services, case management, and administration.

( This Page Intentionally Left Blank)

Table of Contents

Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . .

Finding I: Division Oversight of the

Behavioral Health System

Needs Improvement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oversight of the

Behavioral Health Care

SystemIsCrucial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Important Questions

Unanswered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Division Lacks

Means Necessary

for Adequate Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Division Needs to Take

Steps to Improve Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finding II: More Can Be Done to

Ensure That Children Receive

Timely and Continuing Care . . . . . . . . . . . . . . . . . . . . . . .

Children in the Behavioral

Health Care System

HaveSeriousNeeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Some Children Do Not

Receive Timely Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Many Cases Closed Before

Treatment Is Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paae

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Table of Contents ( con't)

Finding Ill: The Division Could Increase

Competition in the Behavioral

Health Care System ........................................

Not All Kinds of Competition

AreAppropriate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Division Can Take Steps

to Increase the Number of

Bidders for Future Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finding IV: Steps Should Be Taken to

Ensure That More People in Crises

Receive Accessible, Ongoing Care . . . . . . . . . . . . . . . . . . .

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Crisis System Changes

in Maricopa County

Create New Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes Needed to Ensure Crisis

Services Are Ongoing and Accessible . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finding V: The Division Can Improve

Reporting of Administrative, Case

Management, and Service Costs . . . . . . . . . . . . . . . . . . . .

Costs Difficult to

Assess or Compare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Division Should Change

ReportingGuidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paae

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22

Table of Contents ( concl'd)

Paae

Agency Response

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a- i

Figures

Figure 1: Department of Health Services-

Division of Behavioral Health Services

Revenues in Millions of Dollars

Years Ended June 30,1989 through 1996

( Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Figure 2: Department of Health Services -

Division of Behavioral Health Services

Administrative Expenses for Three Regional Behavioral

Health Authorities as Percentage of Total Revenues

Year Ended June 30,1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Tables

Table 1 Department of Health Services-

Division of Behavioral Health Services

Statement of Revenue and Expenditures in Millions of Dollars

Year Ended June 30,1995

( Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Table 2 Department of Health Services -

Division of Behavioral Health Services

Statements of Revenues, Expenses, and Changes in Fund Balances

for Six Regional Behavioral Health Authorities

Year Ended June 30,1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

vii

( This Page Intentionally Left Blank)

INTRODUCTION AND BACKGROUND

The Office of the Auditor General has conducted a performance audit of the Arizona

Department of Health Services, Division of Behavioral Health Services, pursuant to a May 17,

1995, 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.) 5541- 2951 through

41- 2957.

Description of the

Behavioral Health System

The Division of Behavioral Health Services ( Division), a division of the Department of Health

Services, is responsible for providing publicly funded mental health and substance abuse

services in Arizona. The Division also oversees the Arizona State Hospital. BHS' mission is to

" continually improve the effectiveness and efficiency of a comprehensive system of behavioral

health care in order to meet the needs of the people of Arizona."

The Division does not directly provide services, except for the Arizona State Hospital. It

contracts with private, nonprofit entities called Regional Behavioral Health Authorities ( RBHAs)

to deliver community- based behavioral health services. These RBHAs operate under three- year

contracts, with the possibility of two one- year extensions. At ths time, there are five RBHAs

under contract with the Division:

Community Partnership for Behavioral Health Care ( ComCare), whch serves the Maricopa

County region;

Pinal Gila Behavioral Health Association, whch serves both Pinal and Gila Counties;

Behavioral Health Services- Yuma ( BHS- Yuma), which serves LaPaz and Yuma Counties;

Community Partnership of Southern Arizona, which serves two geographc regions in the

southern part of the State, including Pima, Santa Cruz, Graham, Greenlee, and Cochise

Counties; and

Northern Arizona Regional Behavioral Health Authority ( NARBHA), whch serves the

northern part of the State, including Coconino, Mohave, Navajo, Apache, and Yavapai

Counties.

These five RBHAs administer, coordinate, and monitor the delivery of mental health services

within their region. In turn, each RBHA then subcontracts with local businesses to provide client

services. Currently, there are 302 providers under contract with the RBHAs.

The RBHA concept dates back to 1984, when Arizona began contracting with private mental

health firms to provide behavioral health services. Previously, these services were provided

by 125 organizations that received state funding through more than 20 umbrella agencies.

However, this structure resulted in high administrative costs and limited accountability.

Whde the Division does not directly provide community- based services, it nonetheless plays

an important role in the behavioral health care system. It is responsible for procuring RBHA

contracts, monitoring RBHA performance to ensure that people in need of behavioral health

care receive appropriate services, and determining the amount of money each RBHA should

receive.

Clients in the System

The Arizona behavioral health system provides services to three major categories of clients,

all of whom are primarily indigent The first category consists of seriously mentally ill adults.

Typically, these individuals have a severe, chronic mental illness ( such as schizophrenia), that

interferes with their ability to function in society. While seriously mentally ill adults account

for 19 percent of the clients served by the system ( approximately 22,000 people), a dispropor-tionate

share of all program monies ( 47 percent) is dedicated to serving ths group.

Children comprise 21 percent of the clients served by the behavioral health system

( approximately 24,000 people). Chldren suffer from a variety of behavioral health problems,

such as Oppositional Defiant Disorder, characterized by argumentative or defiant behavior,

and Attention Deficit Hyperactivity Disorder, characterized by a short attention span and

restlessness. Many young people in the behavioral health system have experienced physical,

sexual, or emotional abuse. They are referred to the state behavioral health system through

many different sources, such as the juvenile courts, the schools, the Department of Economic

Security, or their own famhes. Tlurty- one percent of program monies are devoted to services

to chldren.

Most of the clients served by the system receive general mental health/ substance abuse

assistance. Typically, these 70,000 individuals have a short- term illness that can be managed

with lunited outside assistance. As a result, the State spends less money to serve these clients.

In fiscal year 1994- 95, the General Mental Health/ Substance Abuse Program received 22 percent

of all the Division's program monies while serving approximately 60 percent of its clients.

Funding

The Division receives monies from several ddferent sources. First, it receives federal Medicaid

dollars for behavioral health care for the indigent from the Arizona Health Care Cost

Containment System ( AHCCCS), the state agency designated by the federal government as

the sole recipient of Medicaid assistance in Arizona. AHCCCS contracts with the Department

of Health Services to provide mental health and substance abuse services to all clients enrolled

in AHCCCS. The Division also receives federal monies directly in the form of general mental

health and substance abuse grants.

The State provides matching monies for federal Medicaid dollars provided to the system.

Currently, the State finances about one- third of the expense of Medicaid clients' services.

Arizona also provides money for services to clients not covered by Medicaid.

Funding for behavioral health services has grown dramatically over the years. As illustrated

in Figure 1 ( see page 6), the Division received a total of $ 313.2 million in fiscal year 1995- 96,

a 208 percent increase in monies from fiscal year 1988- 89. Tkus growth can be attributed to two

factors. First, Arizona began receiving federal Medicaid monies for behavioral health services

in 1990, resulting in an infusion of new dollars and the entitlement of all AHCCCS clients to

behavioral health services. Second, the 1981 Arnold v. Sarn lawsuit entitled all seriously

mentally ilI clients to " a full continuum of mental health services," thus requiring a substantial

increase in program funding.

The Division spends some of its appropriated monies on administration ( see Table 1, page 7).

Nonetheless, much of the money it receives is allocated to the RBHAs for program services.

The Division allocates such behavioral health dollars to the RBHAs two ddferent ways. Federal

and state Medicaid money is distributed in the form of a capitated rate, meaning that RBHAs

receive a fixed amount for menj AHCCCS client living in their geographic region. The RBHAs

and the Division negotiate these rates based on how much they expect AHCCCS members to

use services. The RBHAs, as recipients of Medicaid dollars, are then expected to provide all

medically necessary behavioral health services to AHCCCS clients.

Non- Medicaid money is distributed to the RBHAs in the form of lump sum payments. These

payments to the RBHAs are based on the availability of state funds, and are not made on the

basis of the number of people who reside in a geographic area or the estimated prevalence of

mental illness in the region. Accordingly, RBHAs do not have to serve non- Medicaid clients

in their regions if such funds become low, with the exception of those adults who are or could

be deemed seriously mentally ill.

For both Medicaid and non- Medicaid dollars, money is given to the RBHAs to cover program

services and other related costs such as case management and administration ( see Table 2, page

8). If the RBHAs spend less program service money than they are given, the remainder does

not revert back to the State. Instead, the RBHAs can, by contract, direct some or all of the

remaining service money to non- service expenses such as information systems that " benefit

the behavioral health system."

Scope and Methodology

This audit builds on previous reports issued in 1989, 1992, and 1994 on the Division of

Behavioral Health Services. These previous audits focused on several issues, including the need

for a more accountable system, the impact of the Arnold v. Sarn lawsuit on the behavioral health

system, problems with the Division's automated information system, and limitations in service

accessibility and availability. This audit focuses on five specific areas of legislative interest,

including: ( 1) the Division's oversight role in behavioral health care; ( 2) the adequacy of services

children receive; ( 3) ways Arizona can encourage competition for RBHA contracts; ( 4) how the

Division can better ensure that people experiencing behavioral health crises receive ongoing

services; and ( 5) how the Division can better report case management, administrative, and

service costs.

A number of methods were used to measure the performance of both the Division and the

RBHAs. First, a file review was conducted to measure the adequacy of children's services. A

file review was necessary because the Division's automated system did not provide a complete

history of services that clients received. This file review looked at children who entered the

behavioral health system between January 1 and March 31,1995. The file review was narrowed

to avoid discrepancies in case comparisons due to ethicity, gender, and severity of illness. The

resulting sample included whte male chldren who were not considered to have extreme

problems functioning in society, based on the Division's standard assessment. Due to the time

required to review a case, only 90 chldren's files were reviewed, 60 in ComCare and 30 in

NARBHA.

Second, a team of consultants was hired to determine how Arizona can introduce more

competition into the RBHA system. These consultants are experts in the economics of behavioral

health care who are familiar with managed care contracting in other states. The consultants

built on this knowledge in their review of the Division's 1995 RBHA contract procurement

process. As part of that review, the consultants analyzed data provided to prospective bidders

and compared Arizona's experiences to those of other states. In addition, the consultants

interviewed officials from the Division, the Arizona Health Care Cost Containment System,

ComCare, and private organizations that considered bidding on the RBHA contracts. A

summary of the consultants' qualifications and their final report appears in the Appendix.

Other methods used included the following:

Conducting a literature review on managed behavioral health care, including over 90 journal

articles, books, or reports, and 10 studies from other states;

Interviewing representatives from the Division, AHCCCS, the RBHAs, providers, other

state agencies such as the Department of Economic Security, the Office of the Court Monitor,

and mental health advocacy groups;

w Reviewing polices and procedures from the Division, Arizona Health Care Cost

Containment System, and the RBHAs;

w Interviewing over 15 representatives from local police and fire departments;

Interviewing representatives from managed behavioral health systems in 7 other states;

Observing RBHA contractor and Phoenix Fire Department employees responding to

behavioral health crises;

w Examining quality management reports prepared by the Division and the RBHAs;

Examining Division reporting guidelines for the RBHAs and guidelines developed by the

Arizona Health Care Cost Containment System for its contractors;

Reviewing Division fiscal year 199495 expenditure data and the RBHAs' audited financial

statements for that same year;

w Analyzing ComCare's independent auditors' working papers for fiscal year 1994- 95;

Reviewing previous studies conducted on the behavioral health system; and

Reviewing data from responses to behavioral health emergencies by the Phoenix Fire

Department, Phoenix Police Department, and ComCare for the week of April 24- 30,1996.

Audit Limitations

Auditors encountered several serious limitations during this audit. First, some information

reported on the Division's client information system appears to be incomplete or inaccurate.

For example, three studies in 1995 found that information on the Division's automated system

pertaining to client services was incomplete in many cases. However, other centralized data

is believed to be complete, such as reasons given for case closures. As a result, only some

centralized data could be used to assess client services. Second, complete client files were not

centrally located, and their content was voluminous. As a result of these limitations, auditors

were able to review information at only two of the RBHAs - ComCare and NARBHA.

This audit was conducted in accordance with government auditing standards.

The Auditor General and staff express appreciation to the Director of the Department of Health

Services, the Associate Diredor of the Division of Behavioral Health Services, the RBHAs, and

their staffs for their cooperation and assistance throughout the audit.

Figure 1

Department of Health Services-

Division of Behavioral Health Services

Revenues in Millions of Dollars

Years Ended June 30,1989 through 1996

( Unaudited)

State Appropriations $ 84.4 $ 100.6 $ 131.5 $ 143.1 $ 151.8 $ 159.3 $ 159.7 $ 160.4

Federal Revenue 12.2 21.6 23.3 46.7 77.5 84.7 82.8 94.8

Other Revenue 5.1 - 14.8 19.8 26.2 35.7 43.5 - 35.3 58.0

Total Revenues $- 101.7 -$ 137.0

$ 174.6 $ 216.0 $ 265.0 $ 287.5 $ 277.8 $ 313.2

--- ---

I I State Appropriations Federal Revenue tZ] Other Revenue Total Revenues 1

1 Includes a variety of nonappropriated monies, such as revenue from intergovernmental agreements, other

contracts, donations, and fines.

Source: Auditor General staff analysis of the Department of Health Services Financial Online System data for the

years ended June 30,1989 through 1994 and the Uniform Statewide Accounting System Appropriation

Activity Ddail and Revenue Listingfbr the Agency reports for the years ended June 30,1995 and 1996.

fable 1

Department of Health Services- Division of Behavioral Health Services

Statement of Revenue and Expenditures in Millions of Dollars

Year Ended June 30,1995

( Unaudited)

Revenue

Expenditures

Administration

Program Service

Total Expenditures

Excess of revenues

over expenditures

a Includes $ 216.4 million disbursed to the six regonal behavioral health authorities during fiscal year 1994- 95.

h Of the $ 13.3 milLon, $ 9.7 was reverted to the State General Fund and $ 3.6 million was carried forward to the next

fiscal year.

Source: The Uniform Statewide Accounting System Appropriation Activity Detail and Reventie Listing for

the Agency reports for the year ended June 3,1995.

Table 2

Department of Health Services- Division of Behavioral Health Services

Statements of Revenues, Expenses, and Changes in Fund Balances

for Six Regional Behavioral Health Authorities

Year Ended June 30,1995

Revenue

Expenses

Program service

Case management 4

Administration

Other

Total

Excess revenue

over ( under) expenses

Fund balance

beginning of year

Accrual of

contingent liability

Fund balance

end of year

ACCM ' BHS- Yuma ComCare NARBHA PGBHA SEABHS~

$ 54,362,424 $ 7.877533 $ 136,112,305 $ 21,344,767 $ 13,250,831 $ 8,845,218

Total

$ 241,793,078

1 ACCM was the regonal behavioral health authority for Pima County and ceased operations during fiscal year 1995- 96.

SEABHS was the regional behavioral health authority for southeastern Arizona and a predecessor of the Community Partnership of Southern Arizona, the

current regional behavioral health authority for Pima County and southeastern Arizona.

Federal, county, and nongovernmental receipts; net changes in recoupment payable and accounts receivable; and a one- time advance payment to ComCare

account for the approximate $ 25.4 million difference between total behavioral health authority revenue and Department of Health Services disbursements.

Case management expenses for some regonal behavioral health authorities include administration and program- service related expenses. ( See Finding V,

pages 33 through 36).

According to PGBHA's financial statements, this total comprises a $ 450,000 performance bond required by ADHS to indemnify the payment of claims and

help ensure financial stability plus the accrual of a contingent liability in the amount of $ 1,170,000. The contingent liability is management's estimate of future

claims payable due to the probability that ADHS will require payment for services in future years for which no additional funding will be provided.

Source: Audited regional behavioral health authority financial statement for the year ended June 30,1995.

FINDING I

DIVISION OVERSIGHT OF

THE BEHAVIORAL HEALTH SYSTEM

NEEDS IMPROVEMENT

The Division of Behavioral Health Services' oversight of the behavioral health care system needs

to be improved. Oversight is necessary to ensure that RBHAs provide needed services and that

public dollars are spent as intended. While the Division uses a variety of valuable monitoring

methods, it still cannot answer some important questions about the availability, adequacy, and

effectiveness of services provided. The Division needs to adopt service standards, collect client

information, and develop additional means of monitoring the RBHAs to maintain effective

public stewardshp and ensure that people with behavioral health problems receive much-needed

services.

Oversight of the

Behavioral Health Care

System Is Crucial

The Division plays a critical role in overseeing Arizona's behavioral health care system. It is

responsible for monitoring and evaluating the performance of the RBHAs and the services they

deliver to behavioral health care recipients. The Department's contract with the state Medicaid

agency, AHCCCS, requires the Department to ensure that Medicaid- funded behavioral health

services are available, adequate, and cost- effective.

Contract provisions aside, monitoring the behavioral health care system is critical to ensuring

that clients with serious behavioral health problems receive needed services. Because RBHAs

are given a fixed amount of money for managing the care of people in a geographic region,

an incentive may exist for RBHAs to deny services or deliver too few or inappropriate services.

Monies for services that are received by the RBHAs and are not subsequently spent can, by

contract, be directed to non- service related expenses as long as it " benefit( s) the behavioral

health system." Thus, oversight is necessary to ensure that needed services are not denied, and

that the hundreds of millions of dollars appropriated by the state and federal governments for

behavioral health services in Arizona are spent effectively.

Important Questions

Unanswered

The Division currently relies on a variety of means to monitor services provided to behavioral

health clients. While these methods do have value, they do not yield enough information for

the Division to adequateIy assess RBHA performance. They also do not allow the Division to

determine whether the specific services RBHAs provide are accessible, adequate, or effective

in helping clients cope with their illnesses.

Several ntetlrods used- The Division currently relies on several methods to assess RBHA

performance and determine whether clients receive needed care. For example, the Division

performs or requires RBHAs to conduct:

Client satisfaction surveys. The Division asks service providers to distribute surveys to

clients to assess whether clients are satisfied with the services they receive. Clients mail the

surveys back to BHS so results can be compiled.

Client file reviews. The Division requires RBHA staff to select and review a small number

of client files. Staff fill out a checklist stating whether they believe the services clients receive

appear to be adequate, effective, and timely based on information contained in the client's

case file.

Analyses of service data. The Division compares each RBHA's use of inpatient and

residential services. If one RBHA shows a sigruficantly hgher rate of inpatient service, this

may signal that it is providing too few preventative services. -

C~ itiuzql rlestimzs ~ i~ uzrzswerdW- hile methods used to monitor the RBHAs have some value,

they alone do not adequately enable the Division to compare the RBHAs or answer important

questions about the accessibility, adequacy, and effectiveness of their services. Specifically, the

following questions cannot be fully answered:

Do dzfierazt RBHAs provide tlte snllre level of smice to siirsilnr cliazts?

If the Division could answer this question, it could more easily assess each RBHA's

performance, and identify cases to review to ensure services are not being denied

inappropriately.

Are smices helping clients frrrlctiort better at Irorrw, sclzool, or work? Are arty seruices

particularly effective? Cost- effective?

The answers to these questions could help the Division and the RBHAs assess the

effectiveness of existing services so that limited resources can be put to the best possible

use.

How lorzg does it take adult clients to receive seruices?

If the Division could answer questions about the timeliness of adult services as it currently

can for children, it could enforce service timeliness requirements. In addition, it could help

to determine whether a sufficient number of service providers exist.

Do clhrts yecezceztvlree types of services tluzt s& ztifc evidarce worild srrggest nre ndeqiulte

nr fd approyrtyrtate?

The answer to h s question is essential to evaluating whether the RBHAs provide or deny

needed, medically appropriate care.

The Division Lacks

Means Necessary for

Adequate Oversight

Two major factors contribute to the Division's inability to answer important questions about

service timeliness, adequacy, and effectiveness. First, the Division does not collect sufficient

information about clients and services to evaluate service provision. Second, it has not

developed service standards defining what services people should typically receive.

Cln7wrt data irrcozrzplete- BHS lacks information needed to perform oversight of the behavioral

health system. Specifically, the Division's automated system lacks critical information about:

Client characteristics - The Division' s automated system lacks critical information about

behavioral health clients. For example, a review of 1,848 automated children's records from

ComCare ( the RBHA for Maricopa County) revealed that 47 percent were missing

information about the child's diagnosis, and 28 percent lacked information about how well

chddren were functioning at home and at school. Such information is needed to 1) identify

clients with similar problems so the Division can determine disparities in the number of

services provided by different RBHAs; 2) evaluate whether people receive services that

scientific evidence would suggest are appropriate for someone suffering from a particular

Illness; and 3) learn whether services received are effective in helping clients function better.

Services received- Evidence suggests that the Division's automated system does not contain

a complete record of services clients receive, even though the Division requires RBHAs to

report such information. Audit work revealed that in 90 cases reviewed of children who

entered the behavioral health system during the first 3 months of 1995,19 cases ( 21 percent)

showed discrepancies between services documented in the case file and on BHS'

information system. Similarly, three 1995 studies by an actuarial consulting firm the

Division hired found that fiscal year 1993- 94 service data was often incomplete. For example,

a common type of counseling session was considered to be underreported by 25 percent.

The absence of accurate service information hinders the Division's ability to describe what

services clients receive or compare service provision between RBHAs.

Besides service data being incomplete, it is also not categorized in a way that would enable

the Division to assess service timeliness. The RBHAs currently report some clinical and case

management services together, as one service occasion. As a result, the Division does not

currently track how long it takes adult clients of any RBHA to receive services after their initial

clinical assessment

Such problems with incomplete data are not new. A 1992 report by the Auditor General ( Report

92- 1) also noted problems with missing data. At that time, the audit revealed that client servlce

information was missing in over one- fourth of the records reviewed.

Starulnrds rlot yet defirled- In addition to not collecting needed information, the Division is

still in the process of developing standards defining what services clients should typically

receive based on their illness. Such standards, commonly referred to as practice guidelines,

could help the Division assess whether the amount or types of services the RBHAs provide

are appropriate and sufficient. While standards are not widely used nationally as a means of

ensuring quality at present, some private managed behavioral health care firms have begun

to develop and integrate these standards into their quality management efforts. These standards

are used as a " red flag," signaling that treatment is different from what would otherwise be

expected, and thus requiring service providers to explain treatment decisions that deviate from

the standard. Although the Division has begun to develop such standards, it has not set a target

date for their completion, or integrated such standards into its quality management plans.

The Division Needs to Take

Steps to Improve Oversight

The Division should take several steps to better perform its oversight role. First, it should work

toward improving information it keeps about clients and the services they receive. Second, it

should adopt needed service standards. Finally, the Division should consider using additional

means of monitoring the care RBHAs deliver.

Collect cmtrplefe irlfontuztimr arul adopt stardhvds- The Division needs to take steps to collect

more complete client information. This could be accomplished in several ways. First, the

Division should begin to enforce the current RBHA contract requirement that service data be

complete. By contract, the Division can charge the RBHAs up to $ 5,000 if they fail to report

Medicaid- funded service occasions. Nonetheless, the Division has not issued any such monetary

sanctions to date. Second, the Division should add a provision to future contracts requiring

RBHAs to pay sanctions if they fail to submit documentation of non- Medicaid funded service

occasions. Third, it should examine current processes for collecting and entering information

about a client's diagnosis and severity of illness. Interviews with RBHA and division

information systems staff suggest that they do not know why such information is incomplete.

Finally, the Division could withhold payment to RBHAs if client diagnosis and severity of

illness information is incomplete, as the current RBHA contracts allow.

Besides improving information, the Division should continue to develop service standards such

as those used by private managed behavioral health care firms and complete such standards

by December 1997. The Division should also incorporate these standards into its 1998 quality

management plan.

Use firm cmliplete irrfrmimtiuii to rirmiitovRBHA perfrnim~ rce- When information is complete

and standards are developed, the Division can use additional means to monitor service

adequacy and effectiveness. For example, the Division could:

Compare the severity of impairment before and after services to determine whether services

help clients. Once the Division determines the effectiveness of services, it could compare

such information to service costs to conclude which services are cost- effective.

Contrast the services provided to clients with the same diagnosis and severity of illness to

determine whether different RBHAs provide dramatically different levels of service.

Compare information on services provided to clients with the same diagnosis and

impairment severity to service standards. This would allow the Division to determine if

clients receive services that scientific evidence would suggest are appropriate.

Recommendations

1. The Division should make efforts to collect more complete information about client services.

To do so, it should:

w Enforce the current RBHA contact requirement that Medicaid- funded service data be

complete and sanction RBHAs that fail to comply;

Add a provision to future contracts requiring RBHAs to pay sanctions if they fail to

submit documentation of non- Medicaid funded service occasions;

w Examine current processes for collecting and entering information about a client's

diagnosis and severity of illness;

Withhold payment to the RBHAs if client diagnosis and severity of illness information

is incomplete, as the current RBHA contract allows.

2. The Division should complete its development of service standards by December 1997. In

addition, the Division should incorporate these standards into its 1998 quality management

plan.

3. The Division should adopt additional methods of monitoring once service standards have

been developed and information is complete.

FINDING II

MORE CAN BE DONE TO ENSURE

THAT CHILDREN RECEIVE TIMELY

AND CONTINUING CARE

The need for the Division to increase its oversight of the behavioral health system, as discussed

in Finding I, is evidenced when reviewing the services provided to children. Both the Division

and the Regonal Behavioral Health Authorities can do more to ensure children receive timely

and continuous care. The behavioral health system serves more than 24,000 chddren with

serious behavioral health needs. However, as shown in the case example, some of these children

do not receive services within the 30 days required by division policy, while others fail to

complete needed treatment The Division and the RBHAs should take steps to reduce delays

and better ensure that children receive needed care.

Children in the Behavioral

Health Care System

Have Serious Needs

The Division serves thousands of Arizona chldren with serious behavioral health needs.

During fiscal year 1994- 95 alone, more than 24,000 children were enrolled in the state

behavioral health system. These children are attempting to cope with a wide array of behavioral

health problems, ranging from depression due to a parent's divorce to post- traumatic stress

disorder resulting from sexual abuse.

The Division provides varying services to these children based on the nature of their illness

and how well they function at home and at school. Children who have severe difficulty coping

at school and at home ( based on a BHS standard assessment) are assigned a case manager who

is expected to coordinate their services and regularly monitor their progress through phone

calls and personal visits.

Children who function relatively better according to the standard assessment may or may not

receive case management services, depending on the RBHA in which they are enrolled. For

example, NARBHA ( the RBHA for northern Arizona) provides case management to all chddren

regardless of how well they function in society. In contrasf ComCare ( the RBHA for Maricopa

County) only provides case management for the approximately 30 percent of its 10,000

adolescent clients who function poorly. The other 70 percent of ComCare children are assigned

a service coordinator who authorizes their providers to perform services. Service coordinators

rarely have contact with clients, in part because each manages over 700 cases.

While ComCare's non- case managed ( sewice coordinated) children are considered to function

better at home and at school, they nonetheless have serious behavioral health care problems.

For example, the following children were not assigned a case manager at the time of this audit:

H A ten- year- old boy who threatens his family with kitchen knives. The child entered the

behavioral health care system after his brother died of cancer, his parents divorced, h s

father threatened the family with suicide, and his home was burglarized twice. Moreover,

he was victimized by his uncle, who sexually molested him.

H An eleven- year- old boy who recently moved away from his physically abusive father. He

often threatens his mother and his siblings when he feels that he is not the center of

attention.

To evaluate the experiences of chldren in Arizona's mental health care system, a case file

review was conducted. Ninety cases of children who entered the behavioral health care system

during the frrst quarter of calendar year 1995 were studied. Due to time constraints, the review

was limited to ComCare and NARBHA clients. These two RBHAs were chosen due to the large

number of clients they serve.' The 90 cases comprised 30 male ComCare children who

functioned fairly well in society and were not case managed; 30 male ComCare children who

did not function well in society and were assigned a case manager; and 30 male NARBHA

children who functioned fairly well in society and were assigned a case manager.

Some Children Do Not

Receive Timely Sewices

Although timely services are critical to successful treatment, our file review revealed that some

children experience long delays before receiving care. In 90 files reviewed, 18 chldren did not

receive treatment within the 30 days required by Division policy for reasons that could not be

explained or due to delays caused by the RBHA or service providers. Furthermore, another

15 children in the file review did not receive timely care because the chld failed to appear for

treatment, canceled an appointment, or was in jail. Whle some delays are unavoidable, the

Division and the RBHAs, such as ComCare and NARBHA, could do more to ensure chldren

receive timely treatment.

Service delnys exist- Although timely services are critical to successful treatment, the file

review revealed that some chddren experience long delays before receiving their first service.

According to the American Psychological Association, early identification and intervention

for children with emotional problems increases the likelihood of positive outcomes. The

The current RBHA for Pima County and southeastern Arizona, the Community Partnership of Southern

Arizona, was not chosen for the file review since it did not operate during the time period studied.

Division, recognizing such a need for timely services, requires RBHAs to provide treatment

within 30 days of completing a clienfs initial clinical assessment. Nonetheless, in 90 files

reviewed, 18 chldren did not receive services within 30 days as required. These 18 cases

include:

Thirteen ComCare noncase managed chddren. These children waited an average of 59 days

to receive service;

Three ComCare case managed chldren. These chldren waited an average of 42 days for

service;

Two NARBHA cases. One child waited 33 days before receiving service, while the other

waited 86 days.

In all 18 of these cases, delays were either unexplained or attributed to the RBHA or service

provider. In 6 of these 18 cases, the child was waiting to see a psychiatrist,

In addition to these 18 cases, another 13 children experienced delays because they canceled

or missed appointments. Parents may contribute to such delays since children rely on their

parents to provide transportation to services and to act as a liaison between the chld and the

service provider. Finally, in another two cases, the children did not receive timely services

because they were in jail.

Steys sreerled to yed~ rce rlelnys- Whle some service delays may be unavoidable, more can be

done to ensure that children receive timely services. First, the Division should enforce existing

timeliness rules. Although the Division currently requires RBHAs to provide services within

30 days of the client receiving an assessment, the Division's own monitoring reports suggest

that most RBHAs consistently fail to comply with this requirement While the Division's quality

management reports have been plagued with erratic data collection and reporting methods,

they nonetheless suggest that only BHSYuma and the Pinal Gila Behavioral Health Association

have ever been able to ensure that clients receive services within 30 days ( excluding delays for

which the RBHA has a valid excuse, such as the child was in jail) since the Division began

measuring timeliness on a quarterly basis in January 1995.

The Division's contract with the RBHAs allows it to issue monetary sanctions against RBHAs

that fail to provide timely services. According to the contract, the Division can require a RBHA

to pay $ 2,500 for every month that it fails to meet timeliness standards. Nonetheless, the

Division has sanctioned RBHAs only for their failure to provide initial clinical assessments in

a timely manner. Division staff responsible for monitoring the RBHAs suggest that the Division

has been reluctant to issue such sanctions because it prefers to work cooperatively with the

RBHAs to improve performance. While such cooperation can be useful, the Division also needs

to enforce its policies when RBHAs fail to comply with them.

The Division should also monitor what efforts RBHAs are taking to improve service timeliness.

It currently appears that while RBHAs are making some efforts, such efforts could be improved.

For example, ComCare is currently working to improve delays for noncase managed children.

Recognizing that its service authorization process for non- case managed children contributes

to delays, ComCare began to streamline its service authorization process in May of 1996. Instead

of requiring providers to submit a written request to begin services, ComCare now allows

providers to deliver up to $ 162 worth of services per month per child without prior written

authorization. While such policy change is an improvement, it appears that ComCare needs

to do more to inform its providers of this new policy. As of June 1996, only three out of the six

ComCare providers' clinical directors contacted indicated they were aware of the policy change.

Many Cases Closed Before

Treatment Is Complete

In addition to not receiving timely services, many children do not complete their prescribed

treatment. Even though service completion is vital to a child's future mental health, many

children drop out of treatment before it is successfully completed. Although parents may

contribute to children failing to complete services, the Division and the RBHAs could be more

proactive in trying to keep children in needed treatment. The Division should require that

RBHAs attempt to contact parents an established minimum number of times before closing

cases.

M a ~ cylr ild~ wfra il to colrrylete trwztrrtatt- Although service completion is critical, a number

of chddren never finish needed treatment According to an expert on children's mental health

issues, adequate services are needed to ensure that children stay on track in reachng their full

social and educational development Nonetheless, in 23 of the 90 case files reviewed, chldren

dropped out of treatment before services were completed. In addition, analysis of the Division's

automated information system records for all children's cases closed during the first three

months of 1995 shows over 40 percent of the cases were closed because the children dropped

out of the system. Forty- five percent of all NARBHA and 42 percent of all ComCare cases were

closed during th~ pse riod because contact was lost with the chld. These figures do not include

another 11 percent of all NARBHA cases and ComCare cases that were closed because the chdd

moved.

As with service delays, parents may contribute to children's cases closing without the RBHA

having further contact with the chld. The file review revealed that many parents of children

in the behavioral health system have drug, alcohol, or other problems. Such parents may fail

to schedule or appear for their child's needed appointments.

Mol~ ef 01. t~~ m rledi3 efrn. e cases aue closed- Whde parental inaction explains some children's

failure to complete treatment, the behavioral health system could do more to ensure that

children receive all the services they need. Division policy currently states the RBHAs " will

make every effort" to engage clients in the treatment process when they refuse services or fail

to appear for appointments. Nonetheless, the RBHA or provider did not make any attempt

to contact children or their families before cases closed in several of the cases reviewed. For

example, no attempt was made to contact the mother of a four- year- old boy who failed to return

for treatment His case was closed without further contact, even though the child bites and hits

kumself and has expressed a desire to kill himself.

Division policy should spec@ how many contacts should be attempted before cases are closed.

Such a policy would require RBHAs and providers to make reasonable attempts to ensure that

ckuldren remain in treatment.

Recommendations

1. The Division should monetarily sanction RBHAs if they do not provide services to clients

within 30 days of clients' initial assessments.

2. The Division should monitor ComCare's efforts to streamline service authorization for non-case

managed children.

3. The Division should adopt a policy specifying how many contacts should be attempted

before cases are closed due to lack of contact with the client

( This Page Intentionally Left Blank)

FINDING Ill

THE DIVISION COULD INCREASE

COMPETITION IN THE BEHAVIORAL

HEALTH CARE SYSTEM

The Division of Behavioral Health Services could do more to increase competition in the

behavioral health care system. While the Division appropriately allows vendors to vie for

Regonal Behavioral Health Authority contracts in each geographic area, it could do more to

increase the number of bidders competing for such contracts. Although some factors outside

of the Division's control have limited competition in the past, the Division can take steps to

increase competition for lucrative RBHA contracts in the future.

Competition has received considerable attention as a tool for reforming or improving the health

care system. Competition is important because it can help states to deliver more effective

services at lower prices. It can reduce service costs, while increasing service quality.

Additionally, competition provides a choice among vendors delivering such services.

Exyafs ~ miezuedc miryetitimr i~ Ar uizmul- In response to legislative interest, the Office of the

Auditor General hired experts in the economics of managed behavioral health care who are

famihar with managed care contracting in other states.' The consultants were asked to answer

two questions: ( 1) Would it be appropriate for RBHAs to compete for enrollees in Arizona's

behavioral health caw system?; and ( 2) Why was there only one bidder for the 1995 Maricopa

County RBHA contract? To answer these questions, the consultants built on their extensive

experience by reviewing Arizona's 1995 RBHA contract procurement process. As a part of that

review, the consultants analyzed data provided to prospective bidders and compared Arizona's

experiences to other states. In addition, the consultants interviewed officials from the Division,

the Arizona Health Care Cost Containment System, ComCare, and private organizations that

considered bidding on the RBHA contracts. This finding summarizes the consultants'

conclusions. The full text of their report is located in the Appendix ( see pages a- i through a- xix).

1 Richard G. Frank, Ph. D. of the Harvard Medical School; Howard H. Goldman, M. D., Ph. D. of the University of

Maryland School of Medicine; and Thomas G. McGuire, Ph. D. of the Boston University Department of

Economics. Haiden A. Huskamp, a doctoral candidate in health policy at Harvard, also co- authored the

consultants' report. The consultants' qualifications are summarized in the Appendix.

Not All Kinds of Competition

Are Appropriate

According to the consultants, Arizona's behavioral health system uses the most appropriate

type of competition. In managed health care, vendors can compete for state contracts and/ or

for enrollees. Although competition for the RBHA contracts is desirable, the consultants found

that competition for behavioral health care clients ( enrollees) can cause problems.

Types of cmrzpetitiorz- Two main types of competition in managed health care exist:

competition for contracts and competition for enrollees. In Arizona's behavioral health system,

competition for contracts currently exists. Multiple vendors bid on a contract to serve as the

single RBHA for a geographic area. The one winning bidder is expected to serve all enrolled

clients in the geographic area. Similarly, Arizona's medical health care system for the indigent

( AHCCCS) also allows multiple vendors to compete for state contracts. However, AHCCCS

goes a step further by awarding contracts to multiple health plans that then compete for

enrollees within the same geographic area. Therefore, in contrast to behavioral health, there

can be several medical health care contractors operating within the same geographic region.

The Office of the Auditor General asked the consultants to determine whether competition for

enrollees would be appropriate for Arizona's behavioral health care system.

Cmrzyetitimz fou i~ dividrrncl lients poblarmtic- The consultants found that competition for

clients does not work well in behavioral health care. Specifically, such competition would be

problematic for the following reasons:

Competing plans may avoid enrolling certain clients. Because the RBHAs receive a fixed

payment, they might avoid clients with more expensive needs whle enrolling clients with

less expensive needs. Many behavioral health problems are unusually persistent and severe

and RBHAs could identify potential enrollees who are likely to face ongoing, expensive

illnesses. Although health care plans may also wish to avoid high- cost enrollees, it is more

difficult to identify such clients out of the larger population.

Some state monies would be diEcult to divide among multiple behavioral health care

plans competing in a single area. Unlike AHCCCS, the Division provides a significant

amount of monies to RBHAs through lump sum payments. The lump sum payments are

divided among the RBHAs based on the availability of state funds, not on the basis of how

many clients each RBHA is expected to serve. If clients could choose among competing

plans within the same geographic area, it would be even more difficult to decide how much

money to give each RBHA.

Multiple plans would increase administrative costs. If there were multiple RBHAs

operating in a given area, each RBHA would have an administrative function. Some of these

functions, and their associated costs, would be unnecessarily duplicative. The consultants

believe that total costs would increase by as much as 5 percent if more than one RBHA were

to compete for clients in a geographic area.

In contrast, competition for the RBHA contracts avoids these problems while stdl reducing costs,

improving quality, and allowing the State to choose among vendors.

The Division Can Take Steps

to Increase the Number of

Bidders for Future Contracts

In addition to determining whether competition for enrollees is appropriate, the consultants

also determined why only one bidder existed for the 1995 Maricopa County RBHA contract.

The consultants found that several factors, some of which were outside of the Division's control,

limited the number of bidders. They also concluded that the Division could increase future

competition by eliminating some requirements placed on bidders in the past and limiting the

financial risk that bidders associate with the RBHA contracts.

In contrast with other states, only one bidder vied for the multi- million dollar contract to

provide behavioral health care services in Maricopa County. The contract's value was expected

to exceed $ 75 million, and for the first time the contract permitted RBHAs to reinvest any

savings earned. In comparison, other states, such as Colorado, Iowa, and Massachusetts,

received multiple bids for behavioral health contracts.

Factors oiitside of tlre Divisiolr's co~ rtrolli r~ ritedc oilrpetitiorr ilr tlte past- The consultants

found that some factors outside of the Division's control may have kept potential bidders from

submitting bids for the RBHA contracts in 1995, including:

Growth and change in the behavioral health system. Potential bidders may have been

hesitant to submit proposals because the State's behavioral health system was undergoing

rapid, dramatic reform. Experts have described Arizona's pace of change as " dizzying."'

As a result, vendors were not certain what was going to happen.

Perception of lower profits in Arizona's system. Potential bidders may have believed that

there were fewer opportunities to profit in Arizona than in other states. Managed care

organizations have typically profited by applying cost- savings strategies in stab with long-standing

Medicaid programs. These programs typically tended to spend a lot of money

to hospitalize clients. Managed care organizations profit by reducing the number of

expensive hospital admissions, instead providing community- based services. However,

Anzona was one of the last states in the nation to begin a Medicaid- funded program and

it quickly adopted cost containment strategies. Therefore, since Arizona already relied on

less expensive, community- based treatment, vendors may not have believed sigruficant cost

savings and resulting profits could be achieved.

1 McGuirk, Frank D. et al., Bluepn'nts for Managed Care: Mental Healthcare Concepts and Structure, U. S. Department

of Health and Human Services ( Center for Mental Health Services). 1995: 37.

m Requiwments resulting from the Arnold v. Sam lawsuit Potential bidders may have been

discouraged because the 1981 Arnold v. Sarn lawsuit increased the standards that RBHAs

must meet The Court found that the Division, through the RBHAs, must provide a " full

continuum of mental health services to all class members [ seriously mentally ill, indigent

adults in Maricopa County]" and meet numerous requirements. Furthermore, the Court

Monitor, who oversees the lawsuit's settlement, did not disclose to inquiring vendors that

the existing RBHA had not met these requirements and was not sanctioned for failing to

meet them.

Financial losses incurred by existing RBHBs. Vendors may have been discouraged from

bidding because some existing. RBHAs were losing money at the time. For example,

ComCare experienced a deficit of over $ 7 million for fiscal year 1993- 94. In addition, another

RBHA, the Arizona Center for Clinical Management, lost $ 7.7 million in fiscal year 1993- 94

and eventually ceased operations in 1995.

Although some of these factors that limited competition in 1995 still exist today, other changes

affecting competition could occur. The consultants noted that the national market is currently

very competitive, but that existing providers ( nationally and locally) are consolidating, whch

could reduce competition in the future. Therefore, they recommended that the Division either

rebid the current RBHA contract when it expires in 1998, or extend the contract for no more

than one year.

Excessive r. eqriir. eri~ eiitpsl aced OIL bidders- In addition to factors outside of the Division's

control, the consultants found that several requirements placed on bidders as part of the RBHA

procurement process also limited competition. First, the Division did not allow for- profit

organizations to bid on RBHA contracts in 1995.' This requirement kept many managed

behavioral health care firms from bidding since the industry consists predominately of for- profit

vendors. The Division created this requirement because it mistakenly believed that only

nonprofit organizations could receive certain federal dollars. However, a recent clarification

of federal government rules suggests that for- profit organizations can receive these federal grant

monies. As a result, the Division can eliminate this restriction in the future.

Potential vendors were also restricted by requirements pertaining to the RBHA boards of

directors. The 1995 request- for- proposals ( RFP) specified that the winning bidder's board of

directors must have between 9 and 13 members, including representatives of the medical

community, an alternative provider of health care ( not a medical doctor), a facility

representative, a consumer of services ( a client), a client's family member, a representative of

the community, a program representative, and a business representative. Such requirements

were more extensive than those required by other states. Few existing organizations could have

met these standards without restructuring their boards.

1 For- profit vendors were allowed to set up a separate nonprofit unit or form a partnership with a local nonprofit

organization. However, no for- profit vendors chose this option to bid on the 1995 Maricopa County RBHA

contract.

The Division developed these criteria because a court order resulting from the Arnold v. Sam

lawsuit requires that both a client and a clienfs family member serve on the RBHA board.

However, this agreement does not specify that the board has to have between 9 and 13

members or that it must include all the representatives specified in the RFP. Thus, the Division

could drop requirements not mandated by the lawsuit in future RFPs. Instead, the Division

could achieve representation by requiring RBHAs to establish advisory boards.

The consultants also found that the large number of detailed questions contained in the 1995

RFP kept some potential vendors from submitting bids. In fact, the consultants characterized

Arizona's RFP as among the most burdensome in the country. They also noted that vendors

would have found it difficult to respond to the RFP questions without previous, intimate

knowledge of the State's behavioral health care system. For example, the RFP asked bidders

to describe in detail their plan to collect data for a prevention program specifically designed

for Arizona. By reducing the number and detail of such questions in future RFPs, the Division

can attract more competition for the RBHA contract

Fi~ ra~ tciarils k associated with tlre co~ ttracts- I n addition to placing excessive contract

requirements on bidders, the consultants also believed that the amount of financial risk

associated with the contract also limited the number of potential bidders. The RBHA contracts

could have been perceived as risky for two reasons.

First, the Division provided inadequate data to potential bidders. Vendors need past

information on service expenses, number of services provided, and number of clients enrolled

in order to estimate the amount for which they would agree to provide services. Without

reliable information, bidders can be exposed to financial losses. Whle such information was

critical, the Division did not adequately provide such data in 1995. For example, the consdtants

found that the data given to vendors about service expenses and the number of clients sewed

covered different time periods and, therefore, could not be used to determine capitation rates

( amount for whch the RBHA agrees to provide services per person).

Second, the RBHA contracts did not limit losses and profits that a RBHA could incur. The

consultants believe that more vendors may have been willing to bid if a " risk- sharing"

arrangement existed between the vendor and the Division. Under such an arrangement,

vendors would have assurance that they would not face unreasonable losses. Other states, such

as Colorado, Iowa, and Massachusetts, have risk- sharing arrangements with their vendors.

The Division could make changes so that RBHA contracts appear less financially risky in the

future. First, it could provide adequate data to potential bidders. Second, the Division could

adopt risk- sharing methods. For example, the State could set a " risk corridor," a maximum

dollar or percentage loss that a RBHA could experience in relation to the contract. If a RBHA's

service costs exceed this amount, then the State would pay a percentage of these costs.

Conversely, the State would share any profits over a similar threshold.' Both Iowa and

Massachusetts have such profit- sharing arrangements with vendors.

Before any risk- sharing arrangement is established, the Division would need to determine

which form of risk sharing is most appropriate for Arizona. The Division has studied a form

of risk sharing in the past However, the Division did not consider other forms, such as risk

corridors, which the consultants believe could be beneficial.

Recommendations

1. The Division should either rebid the current Maricopa County RBHA contract in 1998, or

extend it for no more than one year.

2. The Division should revise future RFPs so that for- profit organizations can bid on RBHA

contracts.

3. The Division should write future RFPs for RBHA contracts so that the only required

members on the winning vendofs board of directors are a client and a client's family

member, as required by the Arnold v. Sarn lawsuit

4. The Division should change and reduce the number of questions asked of bidders in future

RFPs so that potential RBHA vendors without extensive experience in Arizona can bid.

5. The Division should improve data provided to potential bidders. For example, the Division

should ensure that data about the number of clients served, the monies spent on services,

and the services provided are for the same time period.

6. The Division should determine which form of risk sharing is the most appropriate for

Arizona. It should then report to the Legislature regarding the possible restructuring of

future RBHA contracts to include financial risk sharing with vendors. Based on the report,

the Legislature should consider directing the Division to restructure future contracts.

1 In effect, the State already assumes risk for a RBHA's financial failures. For example, in 1994, the Legslature

authorized the use of $ 5.6 million in behavioral health monies to pay the debts of a failed RBHA in order to

avoid penalizing service providers for the RBHA's financial failure.

FINDING IV

STEPS SHOULD BE TAKEN TO

ENSURE THAT MORE PEOPLE IN CRISES

RECEIVE ACCESSIBLE, ONGOING CARE

The Division should do more to ensure that more people in Maricopa County experiencing

behavioral health crises receive accessible, ongoing behavioral health services. ComCare ( the

RBHA for Maricopa County) has made changes that allow it to control access to crisis services

so that behavioral health care costs can be contained. While ths change is in line with the

philosophy of managed care, changes are needed to better coordinate services and make them

more accessible to the police and fire departments. The Division should encourage ComCare

and police and fire departments to work together so that ComCare is more involved in police

and fire responses to behavioral health crises. In addition, the Division should ensure that

ComCare increases the number of urgent care centers and mobile crisis teams so police and

fire workers can more easily transfer people to ComCare for assessment and ongoing services.

Background

The Division of Behavioral Health plays an important role in ensuring that people experiencing

behavioral health crises receive needed care. State law requires the Division to ensure that a

comprehensive continuum of behavioral health services exists, including services for people

experiencing behavioral health crises. Through the Department of Health Services' contract

with AHCCCS, the Division is also responsible for ensuring that behavioral health services

are available and accessible for Medicaid recipients experiencing behavioral health crises. In

particular, AHCCCS's contract with the Department requires BHS to ensure that an adequate

number of facilities exist in enough locations to provide emergency services.

In order to fulfill its statutory responsibility, the Division contracts with each RBHA to provide

crisis services. These contracts require each RBHA to ensure that people experiencing behavioral

health crises are assessed and treated in a timely manner. While each RBHA has this contractual

obligation, the system established for responding to such crises differs between regions. This

audit examined ComCare's system for responding to behavioral health crises in Maricopa

County. ComCare's system was selected for review due to its size and because fire and police

departments involved in responding to behavioral health crises had expressed concerns in the

past two years about the ComCare system.

Crisis System Changes

in Maricopa County

Create New Challenges

In order to control behavioral health care costs, ComCare has made changes to control access

to state- funded behavioral health care services. While such change is in line with the philosophy

of managed care, ComCarefs efforts may have created new problems. In particular, the changes

may result in police and fire departments handling behavioral health crises without ComCare1s

involvement Such involvement by ComCare is often needed to ensure that people receive

ongoing behavioral health treatment

Systa~ fio r deliven~ of crisis services clur~ iged- Starting in January 1995, ComCare made

sigruficant changes to the system for responding to behavioral health care crises in Maricopa

County. Previously, people experiencing behavioral health crises could go directly to contracted

providers to receive crisis counseling. In addition, contracted service providers had the ability

to decide when a mobile team of crisis counselors should be sent to someone's home, or when

a person experiencing an acute crisis should receive intensive, inpatient services. Since providers

generally received a fee for each service delivered, they had little incentive to restrict costly

services provided to people.

Starting in January 1995, ComCare began controlling access to state- funded crisis services.

Under the new system, ComCare does not allow providers to treat walk- in clients for crisis

counseling. Instead, anyone experiencing a behavioral health crisis must first be assessed to

determine what type of care is most appropriate given the seriousness of their condition. Such

assessments are performed by crisis hothe workers, mobile crisis team counselors, ComCare

case managers, or clinicians at an urgent care center located in central Phoenix.

A.

New qstari lrns batefits- ComCare's changes to its crisis service delivery system has benefits.

By controhg access to more costly, intensive services, ComCare can better control behavioral

health care costs by assessing when costly services are medically necessary. In addition, it can

better ensure that people receive care appropriate for their condition, and that treatment occurs

in the least restrictive setting possible. Such efforts to control costs and assess when expensive

services are needed are a feature common to much of managed health care.

New systarr lurs inlribited oltgoirrg care- While the new system may control costs, its

implementation may have also created new problems. As a result of these problems, police

and fire departments began handling some behavioral health crises without Corncare's

involvement, even though such involvement is necessary to ensure that people receive

continuous behavioral health treatment beyond the immediate crisis.

When changes in the crisis system first occurred, ComCare did not adequately inform police

and fire department workers involved in behavioral health emergencies of system changes.

In addition, it became more difficult for police and fire department employees to transfer

someone experiencing a behavioral health crisis to ComCare for services. Police and fire

department employees could no longer simply transport a person who seemed to be

experiencing a behavioral health crisis to a service provider or to an inpatient facility. Instead,

they had to either 1) wait for a mobile crisis team to perform an assessment of the person in

crisis; or 2) transport the person in crisis ( sometimes at great distances) to the central Phoenix

Urgent Care Center and wait with the person for an assessment before more intensive services

could be authorized.

As a result of poor communication and the more time- consuming process, police and fire

workers sometimes began to hsndle behavioral health crises alone without ComCare or its

contracted providers' involvement ComCare has subsequently made some efforts to better

inform fire and police employees about behavioral health services. Nonetheless, many calls

are still handled without ComCare's involvement In our review of the Phoenix Fire

Department's responses to behavioral health care crises during the week of April 24 through

30,1996, only 10 of the 26 responses involved ComCare as well as the fire department. Even

in the 7 cases where the person in crisis was an enrolled ComCare client, ComCare was involved

in only 3 of them.

Changes Needed to Ensure

Crisis Services Are

Ongoing and Accessible

The Division should ensure that crisis services in Maricopa County are made more accessible.

First, it should encourage ComCare to better coordinate its services with police and fire

departments involved in behavioral health crises so that ongoing treatment can be delivered.

Second, the Division should encourage ComCare to increase the number of urgent care facilities

and mobile crisis teams currently available. Finally, the Division should speclfy just how many

mobile crisis teams and urgent care centers should be available in future RBHA contracts so

that RBHAs can be held accountable for maintaining an adequate and accessible crisis system.

Better coordi~ uztio~~ tm rled- T he Division should encourage ComCare to make efforts to better

coordinate behavioral health services with police and fire departments. According to the

National Institute of Mental Health, state mental health agencies need to initiate such working

relationships since numerous agencies share responsibility for supporting the needs of the

mentally ill.

Currently, several opportunities exist for enhanced cooperation in Maricopa County. For

example, because the police and fire departments are involved in behavioral health incidents,

it is important for ComCare to either be involved in or made aware of such crises so that it can

deliver the ongoing care that is needed to prevent further crisis episodes.

The Division should work with ComCare, police, and fire departments to develop a written

agreement between the three groups to improve coordination. Such an agreement could ensure

that ComCare providers are called to respond to behavioral health related 911 calls whenever

possible. The agreement could also include a commitment that those departments routinely

notify ComCare of the event. A similar agreement currently exists between police and the

Department of Mental Health in Los Angeles.

Systetfz uzpacifij slsouM be i t m s e d - The Division could also encourage ComCare to increase

the number of mobile crisis teams and urgent care centers so that crisis services are more

accessible. Currently, the number of urgent care centers available appears to be inadequate.

Only one such center currently operates in Maricopa County, even though a 1994 panel of

national experts convened by the Division determined that Maricopa County needed four

urgent care centers. In addition, ComCare lacks a sufficient number of mobile crisis teams.

ComCare's contracted mobile crisis team providers responded to only 616 clients per month

on average in 1995, even though the same panel of experts suggested that there is a need for

mobile crisis teams to be able to respond to 1,243 crisis episodes per month in Maricopa County.

The Division should encourage ComCare to increase system capacity to levels recommended

by the 1994 panel of experts. Although the Division had previously unsuccessfully requested

an increase of $ 4.3 million to expand crisis services, it appears that ComCare possesses enough

money to enhance system capacity. ComCare currently has a fund balance that includes $ 10.8

million in unrestricted monies. The Division should analyze whether this sum is sufficient to

expand and sustain service capacity to recommeded levels. The Division should make

additional appropriations requests only if existing funding is inadequate.

Clintiges tieerled iti frstlrve cotitrncts- The current RBHA contracts do not contain specifics

regarding the necessary capacity of the RBHAs' crisis service systems. As a result, the Division

has limited means of ensuring that ComCare or any other RBHA develops sufficient crisis

system capacity. While the Division may be able to encourage the RBHAs to improve system

capacity during its capitation rate negotiations, the Division should also adopt more specific

language in RBHA contracts outlining how many and what types of crisis services should be

available so it can also sanction the RBHAs if system capacity is deemed inadequate.

Recommendations

1. The Division should encourage ComCare to develop a written agreement with the police

and fire departments to ensure that ComCare providers are called to respond to behavioral

health related calls. The agreement would also include a commitment that those

departments routinely no* ComCare when they have responded to a person experiencing

a behavioral health crisis.

2. The Division should encourage ComCare to use available monies to increase the number

of urgent care facilities and mobile crisis team providers. The Division should request

additional appropriated funds only if analysis reveals existing monies available to ComCare

are inadequate.

3. The Division should speclfy in future RBHA contracts how many and what types of crisis

services should be available so it can also sanction the RBHAs if system capacity is deemed

inadequate.

( This Page Intentionally Left Blank)

FINDING V

THE DIVISION CAN IMPROVE

REPORTING OF ADMINISTRATIVE,

CASE MANAGEMENT, AND SERVICE COSTS

The Division of Behavioral Health Services needs to change the way RBHAs report costs. The

Division's broad financial reporting guidehes allow RBHAs to classlfy direct program services

and a portion of their administrative- related expenses as case management costs. As a result,

it is difficult for the Division to assess case management costs, compare RBHA expenses, and

contain administrative costs. The Division should adopt financial guidelines similar to those

developed by AHCCCS for Arizona Long Term Care System providers so that costs for services,

case management, and administration can be better assessed and compared.

The behavioral health system has been criticized for high administrative costs. The Health Care

Financing Administration, the federal overseer of behavioral health Medicaid assistance,

criticized Arizona's behavioral health system in 1993 for its multiple layers of administration

and high administrative expenses. Such high costs were also noted in a 1992 Auditor General

report ( Report 92- 1). That report estimated the Division's administrative costs ( including service

provider administrative costs) to be over 20 percent of the total money it received for seriously

mentally ill adults.

In addition to its concern with high administrative costs, the Health Care Finance Administra-tion

has also expressed concern about the cost of case management services. In fact, large

amounts of money are spent on such services. For example, the Maricopa County RBHA,

ComCare, reported $ 29 million in case management expenses in fiscal year 1994- 95.

While financial statements for all RBHAs were examined in the review of behavioral health

expenses, in- depth analysis of how RBHAs report expenses was limited to three RBHAs due

to time constraints. ComCare was chosen for review due to its size and the large number of

dollars it reports it spends on case management. The other two RBHAs, BHS- Yuma and

SEABHS, were chosen since their method of reporting expenses facilitated examination of

administration and case management costs.

Costs Difficult to

Assess or Compare

The Division's broad financial reporting guidelines allow RBHAs to report some administrative

and service- related expenses as case management expenses. As a result, it is difficult to assess

actual case management costs or compare RBHA expenses. In addition, such broad reporting

guidelines may lead to RBHAs understating their administrative costs.

Adriziszisfrafive and smice- related expenses reported as case ~ iza~ mgerirentC- urrently, the

Division's financial reporting guidelines allow RBHAs to report some administrative- related

costs as case management services. For example, rent for buildings where case managers work

and costs of phones and phone lines used by case managers can be reported as case

management expenses. Examination of financial statements for three RBHAs- ComCare, BHS-Yurna,

and Southeastern Arizona Behavioral Health Services ( SEABI- IS) - revealed that all three

reported such expenses as case management1 Most organizations consider such expenses to

be administrative costs rather than case management expenses.

The Division's financial reporting guidelines also allow some service expenses to be reported

as case management costs. For example, ComCare currently reports salaries for people such

as clirucians who work at case management sites as case management expenses. Consequently,

service and case management costs cannot easily be distinguished.

Broad guidelines liurke it dificiilt to assess nstd corrzyare costs- Because the Division's

financial reporting guidehes allow administrative and service- related expenses to be reported

as case management, it is difficult to determine the actual costs for case management services

the RBHAs deliver. As a result, it is difficult to compare service and case management expenses

between RBHAs. Such comparisons are needed for the Division to assess the performance of

the contracted RBHAs.

Guideli~ leIsIU ZIJ allozu ~ i~~ derstaternoaf rnf d~ rri~~ istmteixupee nses- In addition to making it

dlff~ cultto compare costs, the Division's current financial reporting guidelines may result in

RBHAs understating administrative costs. For example, administration costs would appear

much higher if administrative- related expenses currently reported as case management

expenses were reclassified, as shown in Figure 2 ( see page 35).

Such understatement of administrative costs may undermine attempts to ensure services are

costeffective. The Division currently requires RBHAs to spend no more than 8 percent of the

Medicaid money they receive on administration. Since current financial reporting guidelines

allow some administrative expenses to be reported as case management, such efforts to contain

administrative costs may be thwarted.

1 SEABHS is a former RBHA for southeastern Arizona. SEABHS combined with other providers to become of

the Community Partnership of Southern Arizona, the current RBHA for both Pima County and southeastern

Arizona.

Figure 2

Department of Health Services-

Division of Behavioral Health Services

Administrative Expenses for Three Regional Behavioral

Health Authorities as Percentage of Total Revenues

Year Ended June 30,1995

BHS- Yuma ComCare SEABHS

Administrative expenses reported in audited statements.

0 Administrative expenses plus occupancy. depredation. and operahg costs

that are currently reported under case management.

Source: Auditor General staff analysis of regional behavioral health authority audited statements of revenues

and expenses and statements of functional expenses for the year ended June 30,1995.

35

The Division Should Change

Reporting Guidelines

The Division should adopt financial reporting guidelines similar to those adopted by AHCCCS

Arizona Long Term Care System ( System) contractors. By changing its financial guidelines,

it will be easier to determine actual costs and compare such costs between RBHAs.

Arizona Long Term Care System contractors are similar to RBHAs in that they contract with

a state agency ( AHCCCS) to provide long- term health services, including case management

to the poor. However, the financial reporting guide used by these contractors is different than

the reporting guide the RBHAs used. The reporting guide developed by AHCCCS for System-contracted

providers only allows costs of case managers' salaries, benefits, travel, and training

to be reported as case management expenses. As a result, AHCCCS is able to discern how much

is spent on case management, and compare costs for case management and administration costs

between System providers. The Division should adopt similar financial guidelines so it can

better assess costs and compare RBHA expenses.

Recommendation

1. The Division should develop detailed accounting guidelines that allow RBHAs to report

only salaries, benefits, travel, and training as case management costs. Other costs currently

deemed " case management" should be reclassified as either service or administrative

expenses.

Agency Response

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Office of the Director

1740 W. Adams Street FIFE SYMINGTON, GOVERNOR

Phoenix, Arizona 85007- 2670 JACK DILLENBERG, D. D. s., M. P. H., DIRECTOR

( 602) 542- 1025

( 602) 542- 1062 FAX

December 1 1, 1996

Douglas R. Norton

Auditor General

2910 N. 44th Street, Suite 410

Phoenix, AZ 85018

Dear Mr. Norton:

Thank you for requesting our response to your recent report on the performance audit of the

Arizona Department of Health Services, Division of Behavioral Health Services. Overall, we

were pleased that your staff noted our continuing improvement in a variety of areas. As noted

in your report, the amount of change faced by our system of care in the past few years has

been " dizzying". We continue to address problems as quickly as possible, and build toward

increasing access and accountability. We appreciate your feedback on our programs, and will

share this report with our contractors.

find in^ I: Division Oversight of the Behavioral Health System

As noted in the report, the Division uses several methods to oversee behavioral health services.

Currently, there are numerous data elements that are collected with regard to demographic

information, as well as services that are delivered. We are currently reviewing our system to

ascertain whether there are changes we need to make in order that our oversight

responsibilities can be improved, and our administrative requirements streamlined. Our data

system is not designed as a clinical information system. It is designed to collect de~ nographic

and encounter data. Our clinical oversight is best conducted through on- site case reviews. A

thorough review of clinical records is necessary to accurately ascertain quality of care, and

determine programmatic trends.

As pointed out in your report, even the national private firms have only begun to develop

service standards that will be integrated into their quality management efforts. The Division of

Behavioral Health Services, through the efforts of its ~ uedical directors, has developed an

entire series of clinical practice guidelines for use by treatment professionals in the field. We

are ahead of national efforts in this area, and are pleased with our progress. Your

recommendation to set time frames for better integration into our quality management system

is a good one, and we will work with the ~ nedical directors on this issue.

Lcrrder.~ llip~ fhnr H ~ o l t lA~ ri) z ona

Letter- Douglas Norton

December 1 1, 1996

Page 2

We are also reviewing ways to strealiiline our administrative requirements and collect only

those clinical data elements that will assist in making determinations about improved health

outcomes. This information alone cannot address quality of care. Client Satisfaction Surveys,

client file reviews, and analysis of service data must also be used to develop an overall picture

of system functioning. For example, if one RBHA has different levels of service for similar

clients, yet their client satisfaction is high; their quality of care is good, as measured through

review of their client records; and, their financial picture is stable, then perhaps they have

found a better way to serve their clients. The use of clinical practice guidelines should only

serve as a guide toward system expectations, not as the definitive measure of whether quality

of care has been delivered.

Since the implementation of Title XIX, the Division has had a grievance and appeals system

for addressing complaints arising from clients, their gi~ ardians/ custodiansa nd designated

representatives. We track the number of complaints handled through this process and trend

this information over time to determine areas for improvement in the service system. We both

initiate individual as well as system wide corrective action through this process.

We are working with our stakeholders to identify system goals. From those goals, we will

begin development of performance measures to better identify which clients are functioning

better at home, in school, or at work. This process will cover the bulk of the next year, as

members of comm~~ nitieacsr oss the state will be asked to work with us on identifying

reasonable goals and performance measures. In the process, we also hope to remove

administrative barriers that may be reducing the accessibility of our system. While we cannot

provide services to everyone who may need them, due to funding constraints, we can continue

to improve our accessibility for the people we serve. We appreciate your recommendations in

these areas, and will work on them in the ilpcoming year.

Finding 11: More Can Be Done To Ensure That Children Receive Time1 And Continuing Care

You recommended that we sanction Contractors for failure to meet certain timelines. We have

sanctioned Contractors for failure to meet required deadlines, and will continue to do so when

it is determined that substantial progress is not being made as soon as necessary. We will also

review our policies for when sanctions should be applied.

In addition, we will review our policies with regard to ~ naintainingc ontact with families. As

noted, unless court ordered, our system cannot force families into treatment. Involvement of

the families in treatment is a critical component of treatment success. We accept the

responsibility that we must provide the supportive services necessary to make access to

treatment easy and affordable. However, fa~ niliesm ust be responsible for following up with

the necessary appointments, and for ~ naintainingc on tact with treatment personnel.

We would like to clarify some issues about case management. In the past, our system has

been criticized for case management clinical team costs, especially for children and adults

whose proble~ ns are not as severe. We have been evaluating our case management

requirements, and now allow more flexibility in how case management functions are provided.

Letter- Douglas Norton

December 1 1, 1996

Page 3

Some therapists may provide case management services, and clinical teams may provide

services for only the most complex situations. Each geographic service area has been

modifying its system of care to be the most effective and cost efficient. COMCARE, in

particular, has been reviewing its approach to case ~ iianagement and service coordination in

order to streamline its process and ensure its effectiveness. For children who have their

services coordinated, the treatment therapist may provide many case management functions,

rather than someone at the RBHA. We are continuing to review the evolution of our case

management system, and will likely develop additional guidelines in the next year.

Finding 111: The Division Could Increase Competition in the Beh- avioral Health Svstem

As yo11 know, this area has been discussed for tlie past few years. We appreciate your efforts

to retain a consultant in this area who acknowledged our use of tlie most appropriate type of

competition. Unlike typical insurance plans, our services must be available to both people

who are insured through Medicaid, as well as those members of the community who are

uninsured or underinsured. We do not have a defined group of eligibles. Our responsibility is

both to meet community needs and the individual needs of our clients. As your consultant

pointed out, some of our state monies would be difficult to divide among multiple behavioral

health care plans in a single area. In addition, it is likely that multiple plans would increase

administrative costs.

As we move toward our next bid cycle, there will be a number of issues to identify and

resolve. The recommendations you presented, as well as recommendations for change that we

have received from other sources will be used to develop the best proposal process possible.

While we want to inject as much competition as possible into the system, we also want our

bidders to be able to respond to community needs and requirements. We will investigate

further your suggestion on risk sharing options with vendors.

Finding IV: Steps Should Be Taken To Ensure That People In Crises Receive Accessible,

Ongoin~ C are

As your report indicated, COMCARE is working with both Phoenix police and fire

departments to better coordinate their efforts. COMCARE installed a direct line to Crisis line

supervisors for the exclusive use of police and fire agencies. Current and planned Urgent Care

Centers have a separate entrance for tlie police and fire personnel accompanying clients into

the Centers. COMCARE set a performance standard of having police and fire personnel spend

no more than 10 minutes dropping off a client, unless they are & witness for the petition

process. Police are on tlie planning coniliiittees for tlie West and East Urgent Care Centers.

Calls to 91 1 " jump" all other calls in the COMCARE crisis line phone queue. Finally,

Agreements on tlie COMCARE Crisis Response Network and the 91 llfire interface process

were approved by the City of Phoenix Fire Department.

Since the change to the crisis system, COMCARE has been meeting weekly with police and

fire personnel to improve coordination. These meetings are now held on a monthly basis,

Letter- Douglas Norton

December 1 1, 1996

Page 4

since the number of coordination issues has declined. ADHSIBHS has also made efforts to

increase education for police with regard to mental health issues and how to work with people

exhibiting behavioral health problems. We worked in collaboration with AZ Post to develop a

video telecourse that was attended by over 1,000 police and criminal justice staff statewide.

AZ Post reported that it was one of the best training programs they had produced.

With regard to system capacity, an additional Urgent Care Center for the West side has

opened. An Urgent Care Center for the East Valley is being planned for FY 1997. Three

other Urgent Care Centers are planned in the South, North and Southwest, if resources allow

and need is documented. Currently, there are 12 adult, 9 child/ adolescent mobile crisis teams,

and 3 psychiatric ambulances. In addition, there are 12 transport teams to alleviate tying up a

mobile team for transport only. COMCARE is currently assessing the data to evaluate

response time. If the complenlent of current teams can respond to a crisis request within the

proposed 15 minute time limit, it may not be necessary to expand the number of crisis teams at

this time. ADHSIDBHS will continue to work with COMCARE in this needs assessment

process. In addition, we will continue to monitor the service quality and accessibility of the

crisis network.

With regard to financial resources, your report mentioned COMCARE's current fund balance.

Some explanation is necessary. Of the $ 1 8,767,307 that is reported as COMCARE's ending

fund balance for FY 95- 96 in their audited financial statements, $ 7,917,701 is required for

capitalization, performance bond requirements, and Board designated capitalization. These

requirements must be met and the funding cannot be utilized for ongoing operations. That

leaves a balance of $ 10,844,606. Of tlie $ 10,844,606, $ 5,000,000 is one- time only funding

from Maricopa County for reconciliation of prior years. In fact, the annual contribution from

the County declined by $ 500,000 in the current year. COMCARE's FY 96- 97 operating

budget includes the remaining $ 10,844,606, which are being designated for support of

programs. The $ 7,9 17,70 1 amoilnt of tlie fund balance which is designated for capitalization

and performance bond is 4.5% of COMCARE's total operating budget for FY 96- 97. It

would be prudent that they reserve these funds for payment of provider claims, since their

future revenue may decline as the Title XIX eligible population decreases as a consequence of

welfare reform. This fund balance is used both to cover short term dips in operating funds,

and to build services across all programs, not just programs for people with serious mental

illness.

Findins V: The Division Can Improve Reporting Of Administrative. Case Manacement: and

Service Costs

In this finding, you recommended that ADHSIDBHS review and adopt financial guidelines

similar to those adopted by AHCCCS Arizona Long Tern1 Care System ( ALTCS). While the

ALTCS system is not totally conlparable to our acute care based model, we will review the

financial guidelines and necessary changes. The ALTCS system does not use a clinical team in

the same way that a clinical team is used in our system, so some of the requirements may not

be appropriate for our clinical model. However, we are always looking for ways to improve

our financial reporting requirements, and will evaluate this approach, as recommended.

Letter- Douglas Norton

December 1 1, 1996

Page 5

We want to thank you and your staff for your time and effort in providing recommendations

that will help us improve our system of care. As always, your staff were committed to

understanding the facts surrounding the issues and to making recommendations for

improvement. If you have any further questions, please call me at 542- 1025.

Sincerely,

Appendix

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Report to the Auditor General

State of Arizona

Behavioral Health Care Competition

Richard G. Frank

Howard H. Goldman

Haiden A. Huskamp

Thomas G. McGuire

August 5,1996

a- i

Executive Summary

The Auditor General of the State of Arizona requested that we assess the use of competition

for the delivery of publicly- funded behavioral health care services in Arizona. Specifically, we

assess the feasibility of awarding multiple managed behavioral health care contracts within

each region of the state and examine why only one organization bid on the Maricopa County

Regional Behavioral Health Authority ( RBHA) contract In this summary we present an

overview of our conclusions on each of the two sets of issues we were directed to study.

Adverse Selection poses an important threat to the use of competition for

enrollees- The term " competition for enrol1ees" describes markets where competition

occurs by allowing multiple competitive health plans to compete to enroll members of a

speclfic population. The AHCCCS program relies heavily on competition for enrollees. The

behavioral health care area poses special challenges to using this form of competition.

Competing RBHAs would have a tendency to compete for good risks in the pool of potential

enrollees by making their plan unattractive to persons with the most persistent and

expensive forms of mental and addictive disorders. In a managed care environment, services

used by the most severely impaired individuals may be very heady managed to deter such

individuals from joining the plan. Managed care organizations can control access to services,

which effectively reduces coverage. Persons with severe mental illnesses and substance

abuse problems disproportionately make use of residential treatment, day hospital services

and mobile treatment. Competing RBHAs have an incentive to strictly limit use of such

services so as to make their plan less desirable to enrollees with severe and persistent mental

and addictive disorders. The hkely result is that competition between multiple RBHAs will

lead to overly restrictive access and lower quality for the types of services used to treat the

sickest people.

The approach to funding public behavioral health care by blending Title XIX and

state appropriation dollars creates practical problems for the use of multiple

plans- If eligbllity for services is tied to an enrollment process, such as under Title XU,

per person premiums can be readily established. The RBHA, however, is the funder of last

resort and must serve individuals who are indigent and in need of behavioral health care

services. A substantial part of all behavioral health care funds are not tied to Title XIX and

cannot be associated with a well- defined population. As a result, allocating those funds to

competing agencies could not easily be done on a per- person basis. Some other allocation

method would need to be developed whch distributed funds in a fair manner rather than

according to arbitrary guidelines ( a difficult task).

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w Competition for a single contract can produce desirable outcomes on quality

and price without creating problems linked to adverse selection and blended

funding-w

The dramatic changes in the behavioral health care system in Maricopa County

created risks and uncertainty that may have reduced the enthusiasm of potential

bidders - The organizational, financing and legal environments in Maricopa County have

been in a state of flux that is nearly unprecedented in recent history of behavioral health

in the U. S. The uncertainty regarding: a) the rules governing the system, b) the level of

funding and c) the structure of organizations that will serve as RBHAs made planning for

the future challenging. The large swings in the financial health of RBHAs between 1992

and 1994 created the perception of risk and volatility, as did the Arnold v. Sarn criteria for

the seriously mentally ill. Finally, the limited nature of the data base for calculating

capitation rates and assessing financial risk exposed potential bidders to financial

uncertainty. These factors added to the perceived level of risk involved with talung on these

pure capitation contracts ( which are " risky" to begin with because the contractor assumes

full risk with pure capitation).

w Key choices regarding the structure, ownership and information provided in the

RFP served to substantially limit which organizations could readily bid on the

contract - The requirements for bidders to be non- profit, the specific directives regarding

board structure for winning bidders and the lack of a solid database for making financial

projections were likely to have significantly limited the number and types of managed

behavioral health care organizations that would bid. This created a missed opportunity to

make use of rigorous competition for contract used by other states.

w The Arnold v. Sarn legal case created standards and regulations in the system

that limit the scope of management activities. These circumstances appear to

have been aggravated by incomplete provision of information to organizations

outside of Arizona with respect to the compliance with standards and the

consequences of being out of compliance- Information that was formally provided

to potential bidders by the Court was by and large limited to the Blueprint document. A

more complete dormation set may have contributed to a more balanced appraisal of the

nature of the significant challenge posed by Arnold v. Sarn.

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Introduction

Ths report was prepared for the Auditor General of the State of Arizona and is intended to

assess the nature of competition for providing behavioral health services in the state, determine

the feasibihty of alternative forms of competition, and explore why only one entity bid on the

Maricopa County contract. The report will first provide a brief overview of the procurement

process for the regional behavioral health authority contracts, which would take effect in Fiscal

Year 1996. Second, the document will discuss the appropriate form of competition for behavioral

health services. Finally, the report will focus on the level of competition in Maricopa County

and examine potential reasons for the lack of bidders for this contract.

Fiscal Year 1995 Procurement Process

On December 1,1994, Behavioral Health Services ( BHS) of the Arizona Department of Health

Services ( ADHS) issued a request for proposals ( RFP) for contracts with a single regional

behavioral health authority ( RBHA) in each of six regions ( called geographic service areas or

GSAs) in the state.' At that time the state was under contract with a RBHA in each GSA

whereby the RBHA received a capitated payment for all Title XIX eligible individuals in that

region in addition to other funds to provide services to non- Title XIX eligibles as well. The

existing RBHAs were all non- profit organizations which had the responsibility of operating

the service delivery network and coordinating the provision of behavioral health services in

their respective regon. The new contracts would be three years in duration beginning July 1,

1995 with two one- year optional renewals.

Proposals in response to the RFP were initially due February 1,1995, although ths deadline

was subsequently extended to February 10,1995 to allow bidders extra time to complete their

proposals. In order to bid on this RFP, the potential contractor was required to be a non- profit

organization, to meet various financial requirements ( e. g., minimum financial ratio standards),

and to meet specified requirements regarding the composition of its board of directors. For

the first time, RBHAs would be permitted to directly provide services.

The RFP listed specific issues and questions which bidders were to address in their proposals.

Bidders were also asked to provide separate capitation fee quotations for serving Title XIX

children and Title XIX seriously mentally ill ( SMI) adults. Some prior expenditure and

utilization data were included in the RFP for use in calculating the capitation rates.

1 GSA 1 includes Mohave, Coconino, Yavapai, Navajo, and Apache Counties; GSA 2, La Paz and Yuma Counties;

GSA 3, Greenlee, Graham, Cochise, and Santa Cruz Counties; GSA 4, Pinal and Gila Counties; GSA 5, Pima

County; and GSA 6, Maricopa County.

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The RFP outlined five general criteria against which proposals would be evaluated and listed

the proportion of total points which would be allocated to each category? An evaluation

committee of sixteen people reviewed each proposal and were given a detailed list of specific

issues/ questions for each scoring category ( a list not given to potential bidders) on which to

base their scores for each proposal. Maximum and minimum acceptable capitation rates were

calculated before proposals were received. These rates were not shared with bidders.

In three of the six geographic service areas ( GSA 1, GSA 4, and GSA 6, which is Maricopa

County), only 1 organization submitted a bid. In the other three regions ( GSA 2, GSA 3, and

GSA 5), two organizations bid in each. Many expected that the more rural counties might have

only one bidder, yet most expected that Maricopa County ( the largest county in the state) would

have more than one. In most counties the existing RBHA bid on the contract In GSAs 3 and

5, the winning bidder ( Community Partnership of Southern Arizona) was a partnershp of an

existing RBHA, an HMO, and a practitioner group.

How should competition in the procurement of behavioral health services be

structured- In recent years competition has received much attention as a tool for reforming

or improving the health care system. Proponents argue that competition simultaneously

decreases cost and increases quality of care. The AHCCCS model, for example, uses competition

among health plans in an effort to stimulate lower cost and hgher quality by forcing multiple

( certified) health plans within a geographic area to compete for enrollee^.^ This approach of

competition for enrollees ( in contrast to competition for a contract) typically trades off increased

duplication and extra administrative costs involved with running and monitoring ( by the state)

of multiple plans on the one hand, with the potential improvement in quality and decrease

in costs to the state which proponents believe will result when health plans compete against

each other for enrollee^.^

While the model of competition for enrollees seems to have been somewhat effective in certain

areas/ demonstrations for general health care plans, does ths model hold as much promise

for behavioral health services?

" Ability to perform services as reflected by the offeror's narrative plan for the accomplishment of the required

services and as reflected by past experience" ( 20%); " Ability to perform services as reflected by the adequacy

and credibility of the offeror's proposed plan for the accomplishment of administrative, ( monitoring, needs

assessment, referral, etc.), prevention, case management, utilization management, and treatment services.

Ability to provide services to the Title XIX and non- Title MX population. Ability to develop and monitor

provider networks. Adherence to standards for Boards of Directors. Demonstration of or plan for meeting

minimum financial standards." ( 35%);" Ability to perform services as reflected by the adequacy of the offerofs

administrative infra- structure, including accounting, financial and management information systems" ( 15%);

" Ability to perform services as reflected by the adequacy and credibility of the offeror's plan for community

involvement and coordination" ( 10%); " Compensation for Contracted service" ( 20%).

2 The Clinton Health Plan as well as numerous other reform attempts also use the competitive model.

3 The latter category would also include any intrinsic value to enrollees associated with having a choice of health

plan.

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Rather than contract with multiple competing RBHAs within a region, the ADHS has instead

chosen to contract with a single organization ( or RBHA) in each of six geographic regions over

the past several years. Several other states follow this approach of competition for a contract

for their Medicaid programs, including Massachusetts, Iowa, Nebraska, Hawaii, Washington,

Oregon, and Colorado? There are three main reasons to continue this practice rather than using

competing vendors: ( 1) adverse selection; ( 2) difficulty of distributing block grant funds across

competing RBHAs and coordinating the system of care; and ( 3) economies of scale. The first

is by far the most important

Many mental health and substance abuse problems are persistent, and

therefore the need for future treatment is more predictable for some

individuals making choices among competing behavioral health plans.

Individuals with severe mental disorder are typically treated so that they make relatively heavy

use of certain types of services such as residential services, rehabilitative care, day hospital care

and case management The sickest potential enrollees will seek plans that offer the best access

and highest quality for the services they are most likely to use. Adverse selection occurs because

insurance plans operating in a competitive environment have a strong financial incentive to

avoid the most costly and difficult- to- treat individuals by making their plans unattractive to

sub- populations of potentially costly clients such as the severely mentally ill.

Assume for a moment that the state chose to contract with multiple managed care organizations

( MCOs) within a geographc region. In ths context, adverse selection takes the following form:

if the state sets a per- person payment rate that diverges from the expected costs of providing

services to a particular individual, the MCO has a strong incentive to attract the person to its

plan if that person's expected costs are less than the payment amount ( i. e., a " healthy" person

unhkely to use services) and a strong incentive to discourage that person from joining the plan

if their expected costs are greater than the payment amount ( i. e., a " sick" person who is likely

to use services). If competition for a contract is used, the winning vendor is responsible for all

eligible individuals, both the sick and the healthy.

Under competition for enrollees, making a plan less attractive to individuals with severe mental

illness might be accomplished by making access to services such as residential care and day

hospitals dficult, while allowing easier entry to care favored by less severely ill people, such

as short term counseling. Access can be affected by utilization review policies, the location of

treatment facilities in the network and the number of specialized providers included as part

of the treatment network. Competitive HMOs have long instituted practices that serve to limit

access to intensive forms of MH/ SA treatment. For example, many HMOs define their area

of responsibility as acute care, thus case management and day hospital care are viewed as long-term

or chronic care and are not considered a part of the HMO's responsibility. The result is

that the HMO refers enrollees in need of such care to a public agency for care. This has been

1 Some of these states have a single statewide contract ( Iowa, Massachusetts, Nebraska, and Hawaii), while others

divide the state into geographic regions and have a single contract for each region ( Washington, Colorado, and

Oregon).

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observed in Minnesota and Wisconsin when competing HMOs were given responsibility for

all mentally ill individuals under Medicaid.

funds and coordination of

A second reason for the state to contract with a single entity

in each region relates to the nature of funding for behav-ioral

health. In addition to Title XR funding, which comes

in the form of capitated payments for children, SMI adults,

and more recently non- SMI adults, each RBHA receives

state funds intended to provide general MH/ SA services

to non- Title XIX eligibles ( i. e., fund the overall public system). These non- Title XIX funds are

flat dollar amounts, the amount of which is not calculated based on the size of the population

covered ( in other words, as the number of eligibles or individuals needing services increases

in a given year, the block grant amount stays the same). If the state contracted with multiple

organizations within a geographic region, the distribution of these funds would be problematic.

With Title XD(, the population is clearly defined because of the enrollment process so it would

be easy to distribute Title XR funds across competing plans by paying a set fee per enrollees.

By contrast, with the non- Title XD( funds, there is no denominator of enrollees for these general

services so there is no way to assign funds to competing health plans for individuals

independently of the services they use. Thus assigning this non- Title XIX portion of the

behavioral health budget in each RBHA across competing plans would require a somewhat

arbitrary allocation method whch would be prone to error and increased financial risk for

vendors. Also, since some of the grant funds are devoted to increasing the capacity of the

treatment system in general ( rather than production of direct services) there may be no efficient

way for building and maintaining the overall system across competing health plans.

The final reason for contracting with a single contractor in each

regon is the potential economies of scale involved with centraliz-ing

various administrative functions and case management

processes. In testimony before the Institute of Medicine panel this year an executive of

COMCARE stated that 7 to 8% of COMCARE's budget goes to administrative expenses. With

multiple organizations competing for enrollees, each organization would probably have

administrative costs of a level comparable to that of COMCARE. Although only some of these

management costs are subject to economies of scale ( whereby increasing the number of units

produced or individuals served reduces per- unit costs)', creating more than one RBHA in each

area might lead to administrative cost duplication which would increase costs significantly.

There are also economies of scale associated with case management and crisis response services.

Case management plays a " brokerage" function and serves to enhance consumer decision

making. Allowing this function to reside in individual competing plans instead of having a

single MCO that is responsible to the state a provide all case management could create a conflict

between plan interests and consumer interests. There are also clear advantages to having a

single crisis response system in place to simpllfy the process and improve coordination with

1 Once you have the administrative infrastructure in place, the per unit cost of providing these services decreases

as the number of services provided increases because you spread the fixed costs of performing these function

over a great number of people.

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other state or local agencies involved in crisis response ( e. g., police, judicial system). Finally,

if multiple organizations were competing against each other, additional dollars would be spent

by the plans on marketing and enrolling new members and the state would have to spend

additional funds to monitor these activities.

This begs the question of whether competition for a single contract is strong enough to acheve

the desired outcomes of competition mentioned above ( i. e., higher quality, lower cost). In the

private behavioral health contracting market where large private employers or state employees

pools carve out their MH/ SA benefit and typically contract with a single managed behavioral

health care ( MBHC) vendor to cover all their employees ( or all but the HMO enrollees), there

has been intense competition for contracts. Typically 3 - 6 MBHC vendors submit bids for

any given contract with active competition over both price and managed care program features.

If the market of potential bidders were large enough the same should be true for Arizona's

behavioral health system. A threat of viable competition in the next round of procurement

would provide an incentive for controlling cost and providing high quality as long as the

contract was viewed as potentially profitable. If the threat of competition was not real, however,

the same level of benefits of com