The Health-Care Mirage

GOP boosters say Arizona's medical system for the poor should be a model for national health-care reform. But three federal investigations question whether Arizona's system is any less expensive than traditional Medicaid plans.

Health-policy experts didn't want to create a traditional program that paid doctors and hospitals for services after the fact--known in health-care lingo as "fee for service"--for lots of reasons. For one thing, traditional Medicaid recipients ran up huge bills at emergency rooms, rather than using doctors' offices or clinics for basic health care. And there was little emphasis on preventive care, the best way to control costs. And fraud and abuse have long been widespread in traditional Medicaid programs.

After a bitter debate and eight years of delay, the Arizona Legislature implemented the first statewide, Medicaid-funded, managed-care system in the country. Under that system, the state pays health plans--HMOs set up specifically to deal with the Medicaid population--a set fee each month to provide poor people with medical service. Each patient chooses a primary-care physician who then is responsible for basic treatment and referrals.

This system of medical coverage--managed care--is common today. In 1982, it was considered radical.

Over time, the operating budget of AHCCCS--including $500 million the state contributes on top of federal funding--has grown to about $1.8 billion, making it far and away the largest single program in the state government.

Today, AHCCCS shells out roughly $1.2 billion a year to more than a dozen providers, providing health care to more than 450,000 people. Last year, when AHCCCS took health-plan bids, it was deluged with unprecedented numbers of offers from firms looking to get into the system. It was a far cry from just a few years ago, when the state went begging for bidders.

The Republican emphasis on managed care as a way of cutting Medicaid costs has elevated AHCCCS from a state experiment to a national poster child for the Contract With America.

In the past few months, AHCCCS has enjoyed much favorable coverage from the national media. A recent report on the program by the General Accounting Office gave it high marks for reducing the cost of care while maintaining high quality. Just two weeks ago, Time magazine quoted AHCCCS officials as saying they had the kinks worked out of their system--and the Arizona approach could be copied all over the country.

Both insiders at AHCCCS and long-term observers of the program, however, say it contains more problems than met the eyes of either the GAO or Time.

Perhaps the most serious problem at AHCCCS, critics say, is the program's complicated eligibility structure. Designed to satisfy an intricate patchwork of state and federal regulations that determine who gets benefits and who doesn't, the AHCCCS eligibility bureaucracy is itself a patchwork system.

It is the kind of tangled web that denies care to people who need it, yet pays for coverage for people who have no use for medical treatment because they are--well--dead.

A 1992 AHCCCS memorandum details a study of the eligibility of several dozen members randomly chosen from the AHCCCS rolls. An agency analyst found that, among certain eligibility groups, fewer than 20 percent of the recipients studied were eligible for benefits. Yet their health plans had been receiving payments for those ineligible citizens--to the tune of $400,000.

Some of the people were ineligible because they no longer lived in Arizona.
Others were dead. One payment-generating member had actually died in August of 1982, two months before the AHCCCS program was even created. A health plan had been receiving monthly payments for the dead woman's medical care for nearly ten years.

The memorandum about dead AHCCCS clients drew a puzzling response from the agency's bureaucracy.

A program executive said AHCCCS would not ask health providers to repay money they had received to treat people who were dead or otherwise ineligible for benefits.

The reason: Repayment would have an "adverse" effect on the participating health providers. Also, demanding the money might raise eyebrows in the federal government, which presumably looks unkindly on payments to heal the dead.

AHCCCS officials continue to insist that members are always taken out of the system when they die.

In April, however, AHCCCS employees searched some program files and provided the results to New Times. AHCCCS documents showed that the system was still making regular health-care payments for dead people.

Although relatively few files were searched, AHCCCS records showed people on the benefit rolls who had been dead for as long as a year.

Dead people are not the only ineligible recipients that studies of the AHCCCS rolls have turned up, time and again. The number of dead clients pales in comparison to those who are ineligible for other reasons--because they moved out of the state, for instance, or are no longer indigent. These people, too, are generating payments to health plans for care they no longer use.

Both the GAO and the Health Care Financing Administration (the federal body that actually administers Medicaid funds) recently released reports giving AHCCCS glowing reviews. Those reports have been the basis for much of the positive media coverage of the program.

But neither report mentioned dead people--or men giving birth. And, since issuing its report, the GAO has joined a welter of federal investigations into allegations of fraud at and through AHCCCS.

Lending an AHCCCS identification card to an ineligible person may represent a common type of Medicaid fraud, but it is hardly the only one--or the costliest.

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