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."

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Dave Plank