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.

Far and away the biggest slice of the $30billion lost each year to Medicaid fraud does not involve clients, but providers--that is, health plans, doctors, nurses and other health-care personnel who rip off the system.

One of AHCCCS' greatest strengths, its boosters say, is that its services are provided through "capitated" health plans, which are paid set monthly rates. If a plan knows how much money it will make off a patient, regardless of what care that patient requires, the incentive to bleed the system by giving unnecessary treatment is gone.

This claim is true--to a point. But not all of the money AHCCCS pays for medical care goes toward managed care. Large segments of the AHCCCS population, mostly American Indians and undocumented aliens, are not receiving HMO-style care. In fact, one AHCCCS official says that, taken as a whole, the fee-for-service segment of AHCCCS' population has more members than all but one of its managed-care health plans.

This large fee-for-service population leaves the state wide open to garden-variety Medicaid fraud. One AHCCCS study shows the program has paid up to five times the average Medicaid fee for the blood-cleaning treatment known as dialysis.

In July, AHCCCS adjusted the amounts of money it pays dialysis companies. Sources at the program, however, wonder how much money was wasted during the 12 years before AHCCCS changed the rates--and how much continues to be misspent on other types of care.

The claims-payment system seems to be at the heart of AHCCCS' fraud problem.
Internal AHCCCS records reflect an odd tendency: Patients are often admitted to hospitals complaining of certain illnesses or injuries, then are discharged after receiving treatment for entirely different maladies. Such discrepancies are seldom investigated, AHCCCS employees say.

For example, documents provided by AHCCCS employees show that, in one case, a man was admitted to the hospital for a middle-ear infection; when he was released, his records reflected that he had received treatment for a mechanical complication of a cardiac implant (that is, a pacemaker). Another man was admitted for pneumonia, but AHCCCS paid a claim for treatment of an abscess on his foot.

What actually afflicted these patients--or whether they were cured--remains a mystery.

The AHCCCS computer system includes safeguards that could stop payment on claims that contain suspicious or erroneous information. These safeguards--called "edits"--are supposed to send up red flags whenever claims are not in order. If the system worked as designed, it would alert AHCCCS workers about, for example, a claim seeking payment for the medical treatment of a dead person, or a male who gives birth. The edits are specifically designed to flag contradictions between someone's admission and discharge diagnoses.

Current and former AHCCCS employees say the reason the edits don't work is a simple one: The claims that come into the system are so full of errors that if the edits are on, the system quickly becomes backlogged with questionable claims.

So, these sources say, AHCCCS employees and contractors simply shut the system of safeguards off.

Claims fly through the system and are paid in a timely manner. Doctors and health plans are happy. And, as a bonus, when the federal government asks AHCCCS officials about error rates, they can say, honestly, that their computers tell them everything is just fine.

AHCCCS sources say this failure to use computer safeguards has intrigued the Department of Justice and the Office of the Inspector General. Both agencies have asked AHCCCS to reconstruct its member databases for the past several years--no small feat, considering the nearly half-million people enrolled in the program at any one time.

People who have been questioned by the federal investigators say AHCCCS is suspected of allowing fraud and waste on a mind-boggling scale. The figure $200 million has been mentioned.

So should AHCCCS be a model for 21st century Medicaid?
The best answer may be: No one knows.
Significant evidence suggests that AHCCCS is nowhere near as thrifty as its boosters--and Republican leaders--claim. With the only available numbers coming out of AHCCCS' own flawed computer system, there is little way to determine whether it actually underspends traditional Medicaid plans on a per-patient basis.

Until now, AHCCCS has prospered largely because Medicaid is a federal entitlement, and huge amounts of federal money have been flowing into the state on a regular, per-capita basis. The state's contribution has been significant, but it is unquestionably the federal money that has kept Arizona's indigent health system solvent.

The Republican leadership in Congress, however, wants to end Medicaid's entitlement status and give states block grants for indigent health care--with no strings, or federal oversight, attached. The current, minimal level of federal regulation of such programs would disappear. It seems likely that waste and fraud will continue at the same rate, or even grow.

And, given the current tenor of the budget debate, most experts predict that the rate at which federal health-care spending grows will be cut.

That funding slowdown will leave states with less federal help for meeting their health-care responsibilities. And those responsibilities will increase in Arizona for two reasons:

The state is currently riding an economic boom. When recession hits--and, unless history actually is at an end, it will hit sometime--more people will become unemployed, and more people will be poor enough to qualify for AHCCCS.

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