A TALE OF TWO STATES

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The first two years of the new plan, notes an official history of ahcccs with characteristic bureaucratic understatement, were "difficult and challenging." For one thing, Arizona won from the Federal Government the right to go its own way (a 1115 waiver, as it is called) only three months before the program was launched. The start-up was chaotic. Says Frank Lopez, then the city editor of the Arizona Republic, now the program's communications director: "I was having a field day. The thing had started too fast. Doctors weren't getting paid. There were cost overruns. I was sending reporters over here almost every day to get stories of trouble." Corrupt and incompetent managed-care partnerships bloomed in the desert.

HEMORRHAGING MONEY AND sparking controversy, the program was taken over by an experienced HMO administrator in 1984, and the state built a data system that tracks costs and quality of care as well as patient information. By monitoring cost-to-care ratios, the computer turned out to be an expensive but ultimately efficient secret to the program's success--but one that other states will be hard put to duplicate with fewer federal dollars. Although ahcccs' administrative costs are higher than those in states that operate under a traditional Medicaid system, Arizona is still saving money. According to a report by the General Accounting Office (gao), Arizona is saving 7% a year on acute care and 16% on long-term care, compared with a similar program in neighboring New Mexico, a state with comparable demographics.

Arizona's computer system also helps keep the bidding for its contracts competitive. With comprehensive records on the cost of every procedure, administrators know what kind of bid to expect from would-be providers--and what is too low to be realistic. Still, the competition to win contracts is so keen that the system's capitation rate--the cost per patient, which averages $1,824 a year--dropped 11% last year. In the last bidding go-around, in 1994, 21 health-care groups, including such national giants as Blue Cross and Cigna, sent in 95 proposals for only 42 contracts. Every county, no matter how thinly populated, offers a choice of providers.

Letting market forces rule satisfies the cost cutters in the state, but it also helps the patients. The Arizona program does not permit would-be providers to select only the healthiest patients, a practice called cherry picking in the health-care business. If providers want a contract, they must be prepared to take on the care of the disabled, the elderly, and women and children.