Faced with an investigation by the Attorney General's Office, pressure from the federal Health Care Finance Administration and inquiries from state legislators, Arizona Health Care Cost Containment System officials announced last week that all contractors in the program's Information Services Division will be let go.

Employees present at the meeting when the changes were announced say they were told eight contractors will be terminated by July 1. The 16 that remain will be phased out over the next year.

AHCCCS' Information Services Division handles member data including eligibility and payment information, and critics of the program have long complained that its primary achievement has been the enrichment of the contractors and the consultants they employ. AHCCCS officials responded by claiming that the expertise required is beyond state employees, and the scarcity of people with those skills makes it necessary to pay the contractors and consultants more than state employees--in some cases, well over $100 per hour.

A 1992 audit of AHCCCS by Project SLIM, the state's cost-cutting program, cited high turnover among state employees, many of whom were upset over consultants' earnings. The audit also found that the wide use of consultants in the division blurred lines of authority.

AHCCCS had been reducing the number of consultants working in the division over the past few years. But as recently as April, officials were insisting that it was not possible to phase out all of them because of their specialized skills. Information Services Division chief LeAnne Dale said there probably would always be as many as 15 consultants in her section.

With AHCCCS' change of heart, regular, full-time state employees will apparently take over the duties of the departing contractors.

The sudden shift in policy seems to have been caused by pressure from the federal Health Care Finance Administration, which for some time has pressured AHCCCS to reduce expenditures for consultants. HCFA and Project SLIM auditors say that, in some cases, consultants were performing tasks that could have been done as well--but at much lower cost--by state workers.

News that HCFA was cracking down on AHCCCS' use of consultants could not have come at a worse time for the program. AHCCCS has been under scrutiny since allegations of mismanagement and possible fraud surfaced--including charges that payments to health plans have been made, for years, in some cases, for the care of dead people. Other charges include rampant conflicts of interest between consultants and current and former administrators, a significant lack of federal and state oversight of the program, irregularities in the way health plans' contracts have been awarded and apparent retaliation against employees who blow the whistle on suspected agency waste.

For the past two weeks, investigators from the Attorney General's Office have been interviewing former AHCCCS employees. The investigators are examining allegations that higher-ups in AHCCCS knew that monthly payments were being made to health-care providers for enrollees who were dead, but did nothing to get the money back.

Karie Kloos, a spokeswoman for the Attorney General's Office, would not confirm that the investigation is taking place.

One person who has been interviewed about these charges is Farrell Janssen, who worked at AHCCCS for seven years. He has spent the past six weeks on paid administrative leave for allegedly accessing confidential records ("Looking for Leaks," May 11). Janssen says that in 1990, he told an AHCCCS auditor about a discovery of 600 dead people on program rolls. Janssen says the auditor told him the names would be removed from membership lists, but that no effort would be made to recoup money paid to the dead people's health plans.

Besides the attorney general's and HCFA's investigations, other state and federal bodies are showing an interest in AHCCCS. Judy Holtz, a spokeswoman for the Department of Health and Human Services in Washington, D.C., says its Inspector General's Office is considering a probe of its own, and an announcement may come as early as this week. And staffers from several state legislators' offices--including Senate President John Greene--have been in contact with AHCCCS employees and ex-employees concerning the recent allegations.

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Dave Plank