Last fall, when the Arizona Health Care Cost Containment System awarded contracts to companies that would provide health-care services to the state's poor, there were winners and losers--just as there are in any bidding process.

It was the way AHCCCS picked the winners and losers, however, that raised eyebrows.

The biggest winner, Blue Cross and Blue Shield of Arizona, had never before been an AHCCCS health plan. Although the company had no experience as an AHCCCS provider, it secured contracts in ten counties. Those pacts are expected to garner the firm tens of millions of dollars in state funds over the next few years.

Representatives of some plans that didn't get contracts cried foul. How, they wondered, could a plan with no AHCCCS experience--and no Arizona experience in managed care--snatch such a huge slice of the pie out from under the noses of providers AHCCCS had used for years?

State records show that although Blue Cross was a novice in administering a managed-care system, it had something valuable working in its favor. It had the help of a recently departed AHCCCS insider, someone with intimate knowledge of the AHCCCS bid process and long-standing personal connections to the agency.

Blue Cross wasn't, and isn't, the only provider with that edge.
In its competitive bidding process last fall, AHCCCS awarded 39 three-year contracts to 14 health-care providers. Under those contracts, the state will pay out more than $1 billion a year.

Those contracts created controversy within the medical community long before more recent criticisms of the state's health-care plan for the indigent surfaced.

The recent complaints have revolved around apparent mismanagement that allows health plans to get payments for patients who have died, conflicts of interest between the program and some of its contractors and consultants, and a lack of state and federal oversight that lets it all continue.

But Charles Swetnam, chairman of Comprehensive AHCCCS Plan, says he has been suspicious of the AHCCCS contracting process since he lost long-standing contracts with the agency last fall.

Comprehensive, formed in 1983, was one of AHCCCS' original health providers. In the 12 years as an AHCCCS contractor, Comprehensive built an extensive network of doctors and specialists. For many of those years, the firm was the largest AHCCCS plan in Coconino County; it served 5,000 of the county's 7,800 AHCCCS members in 1994. It was awarded AHCCCS contracts for every contracting period it was in operation.

In its early years, AHCCCS almost had to beg providers to bid to provide medical services to the indigent. The health plans that contracted with AHCCCS early on--when the concept of managed care in America was in its infancy--faced a substantial risk and helped the fledgling state agency to whatever success it has achieved.

So why would organizations like Blue Cross and Blue Shield of Arizona, CIGNA Healthcare of Arizona, Inc., and the others suddenly decide, in the mid-1990s, to get into AHCCCS?

First: AHCCCS is big money. Any health plan with a contract gets a slice of a $1 billion pie.

Second: Managed care is likely to be the system we all end up with when Washington gets around to serious health-care reform; large plans like Blue Cross of Arizona see in AHCCCS an opportunity to get their feet wet.

Third: There is talk of expanding AHCCCS to populations it hasn't traditionally covered--to state employees, for example. If health plans can make money covering the indigent, whose care is disproportionately expensive, serving people who need less care ought to be even more lucrative.

When Comprehensive bid for AHCCCS contracts last year, Swetnam says, it was told the AHCCCS bidding process would rate providers according to four criteria. The first, and the most important, would be the size of the plan's doctor network.

Through the years, Comprehensive had built a network of 170 physicians and specialists. At the time of the bidding, Blue Cross had only 12 physicians signed up. AHCCCS records show Blue Cross officials promised the agency they would put together a larger network if they were awarded a contract.

Despite the huge gap in the numbers of doctors each plan had in its stable, AHCCCS rated Comprehensive and Blue Cross as having equal provider networks, Swetnam says.

"I thought we'd be scored on what we brought to the table, not what we promised," Swetnam says. "That is what we were told in the beginning."

Of course, cost was also a factor. Comprehensive's bid turned out to be $6,000 a month higher than the one submitted by Blue Cross. But Swetnam says the difference in the bids was less than 1 percent of the $700,000 to $800,000 a month the AHCCCS contract is potentially worth.

"It's a drop in the bucket," Swetnam says. "It's hardly worth considering, especially with the difference in the numbers of doctors we already had lined up."

Swetnam and representatives of several health plans in other counties say Blue Cross had something they did not when it bid for AHCCCS contracts. Blue Cross had David Van Dyk, a former administrator in AHCCCS' Office of Managed Care, who now works for Blue Cross and handled its bids.

Van Dyk worked at AHCCCS for eight years. Just before he left the program, on December 31, 1992, he was responsible for negotiating mental-health-care contracts.

Van Dyk did not return calls from New Times.
Shortly after the mental-health contracts Van Dyk had helped negotiate were awarded, some spurned bidders say they told AHCCCS they believed the bidding process had been tainted. However, none of the 14 providers who filed formal complaints ever went so far as to allege it in writing.

Van Dyk left AHCCCS for a position with Sanus Health Plan, a managed-care corporation owned by New York Life and based in New Jersey. Van Dyk worked in New Jersey for several months. Blue Cross has denied that there was any impropriety in either Van Dyk's hiring or his relations with AHCCCS. David McIntyre, a spokesman for the company, says that Van Dyk--in compliance with state law--was gone from AHCCCS for more than a year before Blue Cross hired him.

When it lost out to Blue Cross in bidding last fall, Comprehensive complained to AHCCCS' Office of Grievance and Appeals, where hearing officers consider complaints about the program from health plans and doctors. A hearing officer ruled the bid process was fair. Comprehensive subsequently sued AHCCCS in Coconino County, reiterating that the process was flawed and the company was not judged fairly, but later dropped the suit.

Officials of Comprehensive refused last week to explain why the suit was dropped. Whether they settled with AHCCCS and are not allowed to talk about it or are simply wary of complaining about the program because they hope to do business with it in the future, they refuse to say.

Complaints about AHCCCS' last batch of contracts started almost as soon as they were awarded. Before the dust cleared, there would be formal protests, restraining orders and lawsuits.

When the bidding process started, AHCCCS received 95 offers from 22 different health plans, more than twice as many bids as the agency had ever received. And, for the first time, large commercial insurers such as Blue Cross lined up to court the plan, attracted by the more than $44 million in profits health plans had earned from the program in 1993.

Immediately after the successful bidders were announced in mid-July, 14 letters of protest were filed with AHCCCS.

One health plan which complained about the bidding procedure was Health Choice Arizona, a Mesa-based plan that had contracted with AHCCCS for years to provide services in Maricopa and Pima counties.

Like Comprehensive, Health Choice Arizona had spent years developing a network of doctors and specialists for AHCCCS. Also like Comprehensive, the plan lost out in one of its counties to other plans which had not previously done business with AHCCCS.

The similarities don't end there. Like Comprehensive, Health Choice complained to AHCCCS' own Office of Grievances and Appeals, which found that the complaint was groundless. Health Choice sued AHCCCS, alleging that existing plans were judged too harshly compared to new ones, that AHCCCS accepted "letters of intent" to create provider networks, and that AHCCCS evaluators changed scores without documenting the basis for such changes.

Pat Levin, president of Health Choice, would not say why the company dropped its suit. She would only say that the firm has addressed its problems with AHCCCS and is confident that a solution can be found without any further court action.

Blue Cross is hardly the only health plan that has put an ex-AHCCCS executive on staff. Sources inside AHCCCS and several health plans say that several contractors' companies are thick with ex-state personnel. Many, if not most, of the health plans which contract with AHCCCS have hired lower-level administrators, rank-and-file state employees and outside AHCCCS contractors to help oversee and administer their programs. These employees perform tasks ranging from data processing to personnel management to actual delivery of care, and possess knowledge specific to AHCCCS and its procedures.

AHCCCS defectors fill top slots at several of the program's largest contracted health plans, including Advantage Health Plan, which operates in Maricopa and Pima counties, and Regional AHCCCS Plan in Pinal County.

Also doing well in last year's bid process was the Arizona Physicians' Independent Physicians' Association. APIPA has provided services for hundreds of thousands of AHCCCS members across the state for years. Before contracts were reevaluated last year, APIPA had contracts in 12 counties. After the bidding process was over, it retained contracts in eight. It is still, however, the largest AHCCCS-contracted health plan, providing medical services to more than 112,000 recipients, nearly a fourth of all AHCCCS members.

APIPA is a not-for-profit corporation owned by Samaritan Health Services of Phoenix and the Tucson Medical Center. APIPA is managed, however, by Schaller-Anderson, a Phoenix-based consulting company.

Don Schaller, M.D., is the president of Schaller-Anderson. He served as AHCCCS director from 1984 to 1986. Joseph Anderson, vice president of Schaller-Anderson, was Schaller's deputy at AHCCCS during the same time span.

From 1991 until 1994, Schaller was the senior vice president of managed care programs for Samaritan Health Services, a local health-care empire that counts among its branches five Valley hospitals, five behavioral-health centers, an air evacuation unit, a poison center and a credit union.

Schaller-Anderson's agreement with Samaritan and Tucson Medical Center also makes Anderson the president and chief executive officer of APIPA, which, according to state records, made $21 million in AHCCCS-related profits in 1993. At no time during the last bid process was it alleged that APIPA did anything untoward to obtain its contracts.

AHCCCS officials insist that the revolving door between the agency and its health-care providers does not lead to conflict of interest as long as high-level state employees follow a law prohibiting them from working for businesses with direct economic ties to the state government for at least a year after they leave their state jobs.

Some critics of AHCCCS, however, have suggested that the state-mandated one-year wait is insufficient when it comes to companies with multiyear contracts. Many have suggested that a three-year sit-out might be more appropriate.

State Senator Carol Springer, Republican-Prescott, says she is not convinced that anything fishy is going on in regard to AHCCCS bidding, but the appearance of impropriety is reason enough to change the system.

"You'd certainly think they wouldn't want people inferring that they have a problem," she says.

Swetnam puts it another way.
"Who knows whether there is anything going on?" he says. "If there is, it ought to be stopped. But it might not be [stopped] if they have their own people examining these complaints. And unless you have the time and the money to go to court, and can afford to lose that business forever, there really isn't any way to push a challenge to it.

"I can't say for certain that anything happened. Either way, though," he says, "it doesn't look good.

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