Center for Studying Health System Change

nder AHCCCS, all Medicaid recipients must be enrolled in organized prepaid health care plans. However, Phoenix also has a relatively large "notch group" population that does not qualify for the AHCCCS program but cannot afford to purchase health insurance. The central safety net provider for this population is the Maricopa County Health System, which consists of a 500-bed downtown teaching hospital, 12 primary health care clinics throughout the Valley, a substance abuse treatment facility and an AHCCCS health plan. The county Board of Supervisors has been considering proposals to privatize the system for the past two years. Recently, however, the Board voted not to go forward with the privatization initiative, leaving the future of Phoenix’s health care safety net uncertain.

MEDICAID

Arizona’s Medicaid eligibility criteria are restrictive; only 14 states set their AFDC income eligibility levels below Arizona’s cutoff, 40 percent of poverty.¹⁰ AHCCCS covers about 444,000 Medicaid recipients statewide, plus an additional 32,000 beneficiaries not covered by Medicaid, primarily through its state-funded medically needy, medically indigent (MN/MI) program.¹¹ In its initial years, AHCCCS encountered substantial operational problems with enrollment, systems, provider payment and the financial stability of the health plans. Since then, however, AHCCCS has come to be viewed as a model for other Medicaid programs. A federally sponsored study concluded that average AHCCCS per beneficiary costs grew 6.8 percent between 1983 and 1991 -- well below the 9.9 percent average for traditional Medicaid programs.¹²

AHCCCS, Arizona’s Medicaid program, uses a competitive bidding process every three years to select plans in each of Arizona’s 15 counties.¹³ Bids are evaluated using price and quality criteria for each enrollee category. Plans with lower bids are eligible to receive a higher proportion of unassigned enrollees. Competition to serve AHCCCS enrollees is increasing; during the most recent cycle, AHCCCS received 95 bids and selected 42 plans statewide. In Phoenix, nine plans were selected.¹⁴

A number of new commercial plans entered the AHCCCS market in Phoenix during the 1994 bidding cycle, including Cigna and Blue Cross and Blue Shield of Arizona. This competition reportedly has hurt the county health system. Enrollment in the Maricopa Health Plan declined from 45,000 in 1993 to about 22,000 in 1996.¹⁵ Some respondents speculated that several plans submitted lowball bids to enter the market or expand market share. They were skeptical that these premium levels were sustainable without cost shifting or deterioration in quality. Others suggested that the program’s competitive structure controls costs and the state’s extensive monitoring of AHCCCS health plans helps ensure quality. There is great interest in the outcome of the next bidding process, which starts in the fall of 1997.

CARE OF THE INDIGENT

Most respondents described the service population of the health care safety net as patients without health insurance or with special needs. The Maricopa Medical Center and its 12 family health centers are viewed as the dominant safety net providers in Phoenix, along with Samaritan, St. Joseph’s Hospital and Phoenix Memorial Hospital in downtown Phoenix, and other clinics, including Clinica Adelante, which has three outpatient centers, the St. Vincent de Paul Clinic and the Mountain Park Health Center. Despite the large proportion of the Phoenix population that is Hispanic, there are relatively few Spanish-speaking providers. This fact, along with a lack of health insurance and limited resources to pay for medical care, reportedly leads many legal and illegal residents to seek attention from traditional health care providers in place of, or prior to, seeking care from mainstream providers.

The Samaritan System, Maricopa Medical Center and St. Joseph’s Hospital accounted for approximately two-thirds of Maricopa County’s uncompensated care for 1995.¹⁶ On a cost basis, Maricopa Medical Center appears to provide the highest volume of uncompensated care. Both Maricopa and Samaritan provided between $30 million and $40 million of uncompensated care in 1995.¹⁷

Maricopa County and the Maricopa Health System have faced substantial budget pressures during the past several years. The health system’s administrators are concerned about the stability of public financing and increased competition from private plans and providers for AHCCCS patients. It is difficult to determine the health system’s financial performance because overhead expenses for the system and the county are intermingled. The health system’s acute care budget is approximately $250 million, of which the county contributes about $28 million from general fund revenues. The system also receives about $10 million in federal disproportionate share hospital (DSH) funding and several million dollars in funding from the state tobacco tax. The county subsidy reportedly has been declining during the past several years. Although DSH funds are paid directly to the county, the proportion of such funds allocated to the health system varies from year to year.

Some respondents are concerned that the county’s financial pressures are affecting indigent patients’ access to clinical services. For example, some community health centers reported seeing patients who claimed to have difficulty getting care through the county system or complained of high coinsurance rates.

In 1994, a health system board recommended privatizing the "deficit-plagued health system because government red tape keeps it from competing for revenue from . . . insurance companies in the private market."¹⁸ The Board of Supervisors explored three methods of privatizing county health services:

• selling the health system;

• leasing it to a for-profit entity; or

• leasing it to a not-for-profit corporation.

The Samaritan system submitted a bid that included closing the county’s inpatient facility and providing inpatient care through Samaritan hospitals instead, while continuing to operate the county’s primary care clinics. Only one bidder, Health Providers, Inc. (HPI), agreed to keep the entire health system intact and negotiated with the county to operate the system as a franchise. In December 1996, the supervisors decided to delay their vote on leasing the county system to HPI because of numerous concerns about the company’s financial resources and capabilities. The county’s legal representatives concluded that individual supervisors could be held personally financially liable if HPI was not able to meet its financial commitments. The board subsequently rejected the privatization plan and entered into a one-year management contract with Quorum, a for-profit hospital management company, to operate the facility.

The future of the Maricopa Health System remains uncertain. Some respondents believe that reducing or closing the county facility will have only a moderate impact on indigent care, and that private providers will expand their safety net role. However, several respondents raised concerns that other providers cannot deliver the culturally competent care provided by the Maricopa system, and that the county’s indigent care burden will be disproportionately shifted to a few downtown hospitals.