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The debate over whether the state should have a Medicaid program was framed by discussions about cost control. The state needed to implement either a standard program that paid doctors, clinics and hospitals for services after the fact--what is known in health-care lingo as "fee for service"--or find a new approach.

Health-policy experts didn't like the idea of fee-for-service. Because they pay after treatment is provided, such programs cannot coordinate or control the care provided to Medicaid recipients. The state was also concerned about the tendency of Medicaid recipients to run up huge bills at emergency rooms, rather than using doctors' offices or clinics for basic health care.

After a long, often bitter debate, the legislature implemented the first statewide, Medicaid-funded, managed-care system of its kind in the country. Under that system, the state would pay health providers a set amount each month to provide a qualifying poor person with medical service. Such a "capitated" program could not receive federal funding without a waiver from the Health Care Financing Administration. The waiver was granted in 1982, and AHCCCS was born.

The AHCCCS birthing process was not without headaches. The state received approval from HCFA to run the system just three months before it was scheduled to start; there was no time to develop an organization that could administer such a large program. AHCCCS also had trouble finding financially solid HMOs and other health plans to participate.

In 1984, things got even worse. Initially, the state intended to hire a private contractor that would assume most of the administrative responsibilities for the program. The contractor AHCCCS hired, however, had never administered a managed-care system. The firm terminated its agreement with the state, giving only a month's notice.

The state quickly hired 150 of the contractor's employees and began operating the system itself.

Other problems followed. Financial insolvency and mismanagement became apparent in several AHCCCS-contracted health plans. The state terminated some contracts. Other health plans went bankrupt or were sold.

AHCCCS eventually made it through the teething stage, though. Today, the system shells out $1.8 billion a year to 15 providers, giving long- and short-term health and mental care to just over 450,000 people.

Last year, when AHCCCS went looking for health-plan bids, it was deluged with unprecedented numbers of offers from hopeful 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. There are reasons for this rise in popularity.

Yes, there are dead people on the AHCCCS rolls, still generating government payments to their health plans months or even years after they stopped needing health care for good.

A 1992 memorandum written by an AHCCCS analyst details a study of the eligibility of several dozen members randomly chosen from the AHCCCS rolls. The analyst found that fewer than 20 percent--that is, fewer than one in five--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--well--dead. One member the analyst found had actually died in August of 1982, two months before AHCCCS was even created. A health plan had been receiving payments for the dead woman's care for nearly ten years.

The 1992 memorandum saying that dead people were in AHCCCS drew a truly unusual response.

A system executive wrote to the analyst who performed the study of ineligible AHCCCS clients. The executive's memo explains exactly why AHCCCS would not ask health providers to repay the money they had received to treat people who no longer live in Arizona.

That reason: Demanding the money's return would have an "adverse" effect on the participating health providers. Then again, getting the money back could stir up the federal government, which presumably looks unkindly on payments to heal the dead.

In interviews last week, AHCCCS officials insisted that dead members are always taken out of the state medical system. Occasionally, the officials said, that process takes time, but it is never more than a month or two.

But AHCCCS staff circulated at least one earlier memo detailing long-term problems with paying benefits for the dead and out-of-state.

And AHCCCS employees searched some AHCCCS files in recent weeks and provided the results to New Times. AHCCCS documents show that although members identified in the 1992 memo have been taken off the rolls, the system definitely is still making "capitation" payments for at least some dead people.

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

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Dave Plank