Summary: GAO reviewed the first 3 years of the Arizona Health Care Cost Containment System's (AHCCCS) operation to examine Arizona's approach to: (1) competitive bidding for procuring health plan contracts; (2) collection of utilization data from prepaid plans on the health care services provided; and (3) financial oversight of prepaid health plans.
GAO found that portions of the AHCCCS procurement design conflicted with its objective of demonstrating the cost-effectiveness of competitive bidding for prepaid capitated contracts because: (1) AHCCCS awarded more contracts than necessary to serve Medicaid recipients, decreasing competitiveness among bidders; (2) limited local cost and utilization data increased bidders' risks; and (3) state statutes forced AHCCCS to substitute a voluntary price reduction method after publicizing bids, which may have resulted in less competition. GAO observed that AHCCCS: (1) had difficulty in collecting utilization data; (2) did not have sufficient time to develop adequate financial and utilization reporting systems; (3) did not evaluate health plans' abilities to collect complete and reliable cost and utilization data before awarding contracts; and (4) established financial penalties to enforce reporting requirements. GAO also found that the Health Care Financing Administration (HCFA) and Arizona did not provide adequate financial oversight in the first few years of AHCCCS and, as a result, AHCCCS plans neither complied with federal disclosure requirements nor filed state-mandated financial reports.
