How Arizona Reconciled Government-Run Health Care With Its Conservative Ethos

Outsourcing care to closely regulated private companies has allowed the state to both save money and keep patients out of nursing homes under Medicaid.


In a low-slung building in the vast desert expanse east of Phoenix, a small school of tropical fish peer out, improbably, from a circular tank into the waiting lounge of the Apache Junction Health Center. The hallways of the nursing home are still. Only half of the rooms are filled, and the men and women who live here seem surely in life's final season. "These are folks that have chronic cognitive and physical disabilities that are not going to improve," said George Jacobson, administrator of the nursing home.

That this nursing home is sparsely filled with residents too disabled in mind or body to return home is a stunning achievement for Arizona's public health insurance agency. A decade ago, 60 percent of Arizonans covered by Medicare and Medicaid, and deemed sick, frail, or disabled enough to live in a nursing home, resided in a skilled nursing facility. Today, only 27 percent of them do, and the rest -- nearly three out of four -- live in assisted living facilities or at home with the help of nurses, attendants and case managers provided by government-paid health plans.

As Congress debates an ambitious and far-reaching effort by the Obama administration to streamline medical care and rein in spending for the nation's sickest and most expensive patients, Arizona -- with its finger-wagging Republican governor and Tea Party enthusiasts -- is occupying an unusual place in the national landscape: as a model for how a generously-funded, tightly regulated government program can aid vulnerable, low-income patients.

The 9 million people nationwide who are eligible for both Medicare and Medicaid are by far the sickest and most expensive patients in the country. Known in policy circles as "dual eligibles," their care costs federal and state governments some $300 billion a year. And yet, although they suffer from physical disabilities, dementia or pressing frailty, they are often caught in the bureaucratic eddies that have plagued the two public health insurance programs since their debut in 1965. These patients receive medical and hospital services from Medicare and nursing home and at-home care from Medicaid.

Largely left out of previous trends that swept patients into managed health care with a single insurance company overseeing their needs, "dual eligibles" are often subjected to duplicated tests and unnecessary medical care, and must divine for themselves which services are paid by which program.

That's not the case in Arizona where state health officials have aggressively applied managed care strictures for more than two decades. While Arizona was the last state to join Medicaid in 1982, it was an early adopter of paying private health plans to manage care for public beneficiaries. That was in part because Arizona's system of providing basic medical service to its most impoverished residents was in disarray. Arizona had long required county governments to provide basic health care to impoverished residents -- the first territorial legislature addressed the issue during the Civil War. But each county "had different eligibility, different packages and no Medicaid money," said Dr. Len Kirschner, a former state Medicaid director.

Still, in order to overcome Republican hostility to the federal insurance program for the poor -- and the federal dollars that would flow for the first time into the state -- lawmakers "didn't want anything that sounded like Medicaid," said Kirschner. "So they came up with this name." The Arizona Health Care Cost Containment System, in local parlance AHCCCS or "access," is such a pervasive brand in the state some beneficiaries and even lawmakers don't realize it is Medicaid. And since its beginning, a long line of the state's conservative lawmakers and governors have lent strong support to Arizona's novel public-private model in which health plans are paid a set monthly fee and are expected to care for all of a patient's needs.


Joseph Ford, 42, sits in his well-worn, floral upholstered chair in the living room of the suburban Phoenix home he shares with his wife and three young sons. His attendant has just arrived and makes her way into the kitchen to chop vegetables for dinner. Later, she'll change the sheets on Ford's hospital bed, which is pushed against the wall in the entry way of the house where Ford sleeps every night. Ford's disability is so severe -- he was injured in a car accident -- that he cannot make it up the stairs. The state Medicaid agency has deemed him at risk of institutionalization in a nursing home.

Ford's house is busy today. Dave Oxford, the case manager from his health plan Mercy Care is here, too, peppering Ford with questions about the nagging wound on his foot and whether he needs to change any of his many medications. Oxford visits the homes of all of his clients in the Phoenix area who are old or disabled enough to qualify for Medicare and poor enough to qualify for Medicaid. Oxford's visits every three months are part of a coordinated and concerted effort to keep patients like Ford out of pricey nursing homes and emergency rooms. Mercy Care, which is a contractor of the insurance giant Aetna, like all health plans that compete for Arizona's combined Medicare-Medicaid patients, receives a monthly fee and with that money they must cover all of a patient's needs.

Critics of managed care say the incentives for companies to keep the cash and withhold care are too great, the potential profits too tempting. They point to the scandal-filled 1990s when some HMOs in the private insurance market nationally kept costs down by denying treatment. But today, in Arizona, advocates for the elderly and disabled and the patients themselves say the case managers from their health plans are less like Grim Reapers and more like guardian angels. "Dave is cool. He's in my cell phone," says Ford. He appreciates that someone is looking out for him "and not just looking at me as a number on a paper."

The program gets praise from patients who are healthier than Ford, too. Antonia Lopez, 75, doesn't qualify for home visits or a caseworker because she isn't at risk for institutionalization. Still, she has a heart problem, high blood pressure and diabetes. She says she is very satisfied with the care she receives from her primary care doctor and the nurse and office staff who call to check on her regularly.

Lopez and other patients around the state said they have just one number to call for help getting a doctor's appointment, a prescription filled, a new walker or wheelchair or even, in Ford's case, if they need help with life's most basic necessities like doing laundry and preparing dinner.

"This is like a one-stop shop," said Matt Cowley, the head of Medicare for Mercy Care.

This generosity toward the poor can seem at odds with Arizona's cultivated reputation for self-reliance, until, that is, the actuaries get involved: an Arizonan in a nursing home costs the state $5,400 a month for custodial care alone. If, like Ford, a patient can live at home, the cost is only $1,400. This cold arithmetic has led to noble gains, advocates say, in keeping people out of nursing homes and a reasonable profit for insurance companies, who say they typically make two to four-percent profit in Arizona.

The state's fervent belief that private companies are best suited to deliver public services doesn't mean Arizona is the Wild West. Health plan executives, hospital and provider groups, and case managers in Phoenix and Tucson said in interviews that state regulators are strict, vigilant and quick to rebuke health plans that don't meet their standards.

"We have 75 staff whose job it is to oversee the health plans and make sure they are meeting all of our requirements," said Tom Betlach, director of Arizona's Medicaid agency, AHCCCS. "We sit down on a quarterly basis. We bring the plans in. We look at their performance."

Those requirements include quarterly reports on access to medical care, quality measures and proof that patients are getting needed services, like attendant care.

"If there is some speculation that the health plans can't be trusted," said James Stover, head of the University of Arizona Health Plan in Tucson, "I think in Arizona, we've demonstrated the health plans have been...models for improved health."

Betlach testified before a Senate committee last December about the results of Arizona's system: those Arizonans eligible for both Medicaid and Medicare who were enrolled under one managed care plan had a 31 percent lower rate of hospitalization than those in traditional fee-for-service. They used the emergency department less frequently, and when they did end up in the hospital, they spent far fewer days and were readmitted less often.

There's widespread consensus here that Arizona's model works because the state is what's known as a "good payer": physicians and health plans are paid much higher rates than nearly every other state. Even with a recent rate reduction, most physicians and hospitals in the Grand Canyon State accept Medicaid patients, a mark of access not found in many states.

Still, Stover cautions other states looking to replicate the Arizona model that the system is fragile: managed care companies here can provide rich services and wide access, he says, so long as state budget makers keep rates healthy.

For now though, health plans continue to see a business opportunity in fine-tuning Arizona's model even more, by stamping out more wasteful and unnecessary medical care.


It's a day for celebration at the South Tucson home of Luz Sepada. Her husband picks at his guitar, marking 60 days that Sepada has stayed out of the hospital. Her case manager from the University of Arizona Health Plan, Martha Rodriguez, a trained nurse, sits across from her, under a painting of the Virgin Mary. Rodriguez was first dispatched to Sepada's hospital room to figure out why the 59-year old with diabetes and congestive heart failure who relied on a feeding tube kept ending up in the emergency department -- 10 hospitalizations in one year alone.

"When I first met Mrs. Sepada, I knew she was very sick," said Rodriguez. "I was looking to see: Who was at home? Who was helping her?"

Rodriquez went to her medical director with a list of services she believed would stabilize Sepada and spare her the trauma of so many hospital trips.

"Usually our medical directors are very good at listening to us," said Rodriguez. "We have to show them, 'this is the pros and the cons.'"

Sepada says she was relieved to have Rodriguez's help: "I trust her because they've really been working close with me." Building that trust can take time, Rodriquez says, "A lot of our members are very suspicious of people coming to see them in their home or going to visit them in the hospital. Why are they here? Is it my insurance? Am I in trouble?"

Health plan nurses are quick to point out their role in patient care: to find out what the patient needs to be safe and healthy in their home and prevent unnecessary calls to 9-1-1.

For her part, Sepada says the nurses give her comfort. "They're right there with me," she says. "They're always with me."

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.