Arizona Health Care Cost Containment System - Rate-Setting Procedures

This report examines whether AHCCCS’ Office of Managed Care (Office) has adequate processes to develop rates paid to contractors under its capitated and fee-for-service programs. The first finding notes that the Office’s efforts reasonably ensure the accuracy of capitation rate data. AHCCCS spent $2.4 billion, or approximately 70 percent of its healthcare expenditures, on capitated managed care in fiscal year 2002 alone. The Office provides contractors’ utilization (healthcare service use) and cost data to its actuary for capitation rate development. The Office has adequate controls over the cost data and those controls are documented. However, some of the procedures used to verify utilization information need to be fully documented, which would help ensure that the Office’s approach stays consistent over time. 

The second finding notes that AHCCCS’ approach for setting physician fee-for-service rates appears appropriate. AHCCCS directly compensates physicians and other healthcare providers for services provided to Native Americans enrolled in Indian Health Services and non-qualified aliens treated through the Emergency Services Program. AHCCCS’ approach is similar to other states in that AHCCCS develops these rates using the annually updated fee schedule for the federal Medicare program as a guideline and a point of comparison for each rate. AHCCCS also incorporates other considerations, such as its members’ healthcare service use patterns and physician input, to develop fee-for-service rates. 

The third finding mentions that AHCCCS has a reasonable system for monitoring contractors’ financial solvency. AHCCCS currently contracts with 10 contractors for acute care services and 8 contractors for long-term care. AHCCCS contractually requires quarterly and audited annual financial reports from contractors and uses this information to calculate several important financial ratios and monitor their financial viability. If problems are noted, AHCCCS may require more frequent monitoring.