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SUMMARY
The Office of the Auditor General has conducted a special
audit of the delivery of behavioral health services to adults with serious
mental illness (SMI) in Maricopa County, pursuant to Laws 2005, Chapter 256,
Section 1. The audit was conducted under the authority vested in the Auditor
General by Arizona Revised Statutes (A.R.S.) §41-1279.03.
Serious mental illness (SMI) is not a specific mental
disorder, but a designation for a group of mental health conditions. To obtain
SMI designation in Arizona, a person must be at least 18 years old and have a
qualifying psychiatric diagnosis and a resulting functional impairment.1
As of fiscal year 2005, more than 18,000 adults with SMI were enrolled to
receive services in Maricopa County, according to the Arizona Department of
Health Services, Division of Behavioral Health Services (Division). The number
of adults with SMI in Maricopa County has risen by approximately 50 percent
since 2000. Arizona, once near the bottom in state mental health spending, is
now tenth among the states.
The Division’s funding to administer the system includes
Medicaid and KidsCare monies—a blend of federal funding and state matching
monies—from the Arizona Health Care Cost Containment System (AHCCCS), additional
monies from the State’s General Fund, and other government funding, including
federal grants, county funds, and other legislative appropriations. The growth
in Arizona’s mental health funding is due, in part, to population growth and the
expansion of Arizona’s Medicaid program that occurred following voter approval
of Proposition 204 in 2000, which expanded Medicaid eligibility up to 100
percent of the federal poverty guidelines.
The State of Arizona contracts with managed-care
organizations called “Regional Behavioral Health Authorities,” or RBHAs, to
administer behavioral health services in specific geographic service areas of
the State. The Division contracts with a private company, VO of Arizona, Inc. (ValueOptions),
to administer Maricopa County’s behavioral health system. 2,3
This audit focused on the following main topics:
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How the money for adult SMI services is being spent in
Maricopa County.
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Whether there is an adequate focus on the outcomes
achieved by the services.
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The use of SMI monies and how effectively the Division
conducts financial oversight.
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How effectively the Division reviews the levels and costs
of services reported by ValueOptions and its subcontractors.
SMI monies fund a diverse range of services in Maricopa
County
(see pages 13 through 17)
In fiscal year 2005, program expenses for adults with SMI in
Maricopa County totaled approximately $243 million. These monies were spent
primarily on a diverse range of services shown in Table 1 (see page iii).
Specifically, support, including case management services such as helping
consumers obtain services and monitoring service delivery, accounted for about
42 percent of the amount spent on services.4 The rest went to such
services as medication, inpatient and residential care, rehabilitation, and
crisis intervention. ValueOptions provided most of the case management and other
support services, while subcontractors provided nearly all of the other
services.
Division should strengthen focus on outcomes
(see pages 19 through 29)
Research shows that adults with SMI can recover and that
outcome goals should determine the services provided. To date, however, the
focus on what expenditures are accomplishing has been limited as the Division
continues to implement basic system requirements brought on by a 1981 lawsuit,
Arnold v. Sarn. The Arnold v. Sarn lawsuit was filed on behalf of people with
SMI in Maricopa County and alleged that the State and Maricopa County failed to
provide them adequate community health services as required by law.
The Division is attempting to move its behavioral health
program in a results-oriented direction, in part by adopting a recovery-based
model aimed at helping people make progress toward recovery from SMI.
However, the Division may experience difficulty
in moving further in this direction, in large part because it must continue to
comply with the Arnold v. Sarn lawsuit and other federal and state process
requirements. Compliance with lawsuit requirements is measured through a
court-ordered review that is not designed to measure consumers’ progress toward
recovery over time, but rather focuses on the consumer’s status on the day of
the review. Experts and clinical advisers who provided input to auditors noted
that the emphasis in Maricopa County is focused on the process of service
delivery rather than the level of progress consumers achieve, and they
attributed the Division’s lack of focus on consumer outcomes to the rigidity of
process measurements in the lawsuit agreements.
To make further progress in moving to a results-oriented
approach, the Division should take action on two main fronts:
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Incorporating outcome measures into oversight
mechanisms. The Division should continue to develop outcome measures,
such as employment and number of crises, into its oversight of the
behavioral health system and its contract with the RBHA. The Division should
continue to allow the RBHA to earn a portion of its profits through the
achievement of specified performance outcomes.
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Reducing process-oriented measures that do not
contribute to results. The Division should consider renegotiating
measures of improvement in the court orders arising from the lawsuit.
Specifically, the Division should determine which court mandates focus on
process rather than outcomes and inhibit full implementation of an
outcome-oriented model, discuss this with the plaintiffs, and work to modify
the provisions.
Division can improve financial oversight and limit use of
SMI monies
(see pages 31 through 39)
Many of the Division’s tools for monitoring the solvency and
expenses of ValueOptions and other RBHAs appear to be working reasonably, but
some can be improved. Financial solvency is key to ensuring that RBHAs can
continue to deliver services without interruption, and the Division has several
mechanisms that appear to be adequately monitoring ValueOptions’ solvency.
Similarly, many steps for controlling expenses, such as contractual restrictions
on service profits and administration, are in place. However, auditors
identified two areas in which processes can be strengthened:
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Tailoring financial audits to ensure that monies are
spent appropriately. The financial audits that ValueOptions is required
to undergo provide some assurance regarding ValueOptions’ financial
reporting and use of program monies, but do not sufficiently enable the
Division to ensure that monies are spent appropriately. The Division could
improve spending oversight by requiring a compliance audit that would
determine if ValueOptions used monies in accordance with contractual
requirements. For example, it should consider requiring a compliance audit
in line with the American Institute of Certified Public Accountants’
professional standards for determining compliance with defined requirements.
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Limiting the use of SMI monies for other programs.
The Division allows ValueOptions to use monies allocated for adults with SMI
for other programs. By contract, starting in fiscal year 2005, the Division
allows ValueOptions to earn up to 4 percent profit on service revenue within
each major program—Medicaid, KidsCare, and other contract monies.5
Within each of these major programs, though, ValueOptions can use SMI monies
for other categories within the same program. For example, it can use SMI
Medicaid funds for other Medicaid funding categories, as allowed by
contract, such as children’s programs or adult substance abuse programs.6
Specifically, in fiscal years 2002 through 2004, ValueOptions used a total
of $21.4 million of Medicaid and KidsCare SMI revenues for other Medicaid
and KidsCare programs.7 However, the Legislature appropriated
these monies for use in SMI programs, with annual increases from fiscal
years 2002 through 2004 intended to address requirements of the Arnold v. Sarn lawsuit.
In addition to using SMI monies to offset other program losses, ValueOptions
has used these monies disproportionately to earn its allowed profits. For
example, as allowed by contract, during fiscal years 2002 through 2004,
ValueOptions used net income it earned from SMI Medicaid monies to offset
losses in other Medicaid programs. The most significant offset occurred in
fiscal year 2004, when it used $15.8 million from SMI Medicaid monies to
offset $9.7 million in other Medicaid programs’ losses. ValueOptions had
losses totaling $6 million in its children’s Medicaid programs and $3.7
million in non-SMI adult Medicaid programs that year. Still, it earned
approximately $6.1 million in total Medicaid profits entirely from Medicaid
SMI monies, including service profits of $6 million, which represented 2.17
percent of Medicaid service revenue. This was below the fiscal year 2004
contractually allowed profit of 5 percent. In fiscal year 2005, ValueOptions
did not use SMI Medicaid monies to offset losses in other Medicaid programs,
and it again complied with contractual limits on service profits.
Given that the Legislature has increased funding to provide more SMI
services and meet lawsuit requirements, the Division should consider
including a provision in its RBHA contract that would limit the use of
excess SMI revenues to make up for losses in other programs. If the
Legislature wants to ensure that its SMI appropriations are used to provide
services only to adults with SMI, it may wish to consider statutorily
limiting the use of these monies similar to the statutory limits it has
placed on appropriations for children’s behavioral health programs.
Better oversight needed of service level provided
(see pages 41 through 46)
The Division should take steps to strengthen its contractual
requirements in order to better ensure that ValueOptions delivers sufficient
services to adults with SMI. Under the State’s RBHA contract, ValueOptions is
required to submit electronic records showing that it delivered services that
equal at least 85 percent of the service revenues ValueOptions received under
its contract.8 ValueOptions establishes service values in its
contracts with its subcontractors and reports these values for the services the
subcontractors deliver. However, the Division’s contract with ValueOptions
allows ValueOptions to assign its own value for each of the services it
delivers. Because the Division does not approve the reasonableness of these
service values, the contractual requirement does not achieve its intended
purpose. As of July 1, 2006, the Division has drafted revisions to its Financial
Reporting Guide that would make its monitoring more meaningful. For example, the
revisions state that the Division will use an AHCCCS-approved fee schedule to
value encounters in order to determine if the 85 percent requirement has been
met. Division management reports it is considering further revisions, such as
adding a fixed percentage to the fee schedule for purposes of valuing
encounters.
Auditors compared the values that ValueOptions reported to
the Division for services it delivered itself with values ValueOptions reported
it paid to its subcontractors for the same types of services, and also with the
amounts allowed in an AHCCCS-approved fee schedule the State uses when it pays
providers directly on a fee-for-service basis. ValueOptions often assigned much
higher values to its services. Auditors’ analysis of the Division’s fiscal year
2005 encounter data concluded that ValueOptions valued its services at
approximately 99 percent higher than what it would have if it had been using the
State’s fee-for-service schedule.9 ValueOptions officials have
explained that its costs are high due to contractual and Arnold v. Sarn lawsuit
requirements, and therefore the values for the services it provided are higher
than the values it has established for the same services provided by its
subcontractors and the fee-for-service schedule. However, because the Division’s
contract with ValueOptions does not require ValueOptions to support its service
values with a fiscally sound analysis, the Division cannot determine whether the
service values are reasonable in light of ValueOptions’ costs. To make the
service level requirement effective, the Division should continue its efforts to
establish a process for assigning appropriate values to services.
Other Pertinent Information
(see pages 47 through 48)
As part of the audit, auditors gathered other pertinent
information regarding the administrative expenses associated with ValueOptions’
Arizona operations. ValueOptions’ overall administrative expenses totaled
approximately $37.2 million in fiscal year 2005, and substantially complied with
the Division’s requirement limiting administrative expenses to 7.5 percent of
each type of contract revenue.
| 1 |
Psychiatric diagnoses are standardized
and published in The Diagnostic and Statistical Manual of Mental
Disorders, Fourth Edition (DSM-IV), published by the American
Psychiatric Association. It is the official reference guide that
psychiatrists and other clinicians use to identify psychiatric
diagnoses.
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| 2 |
This audit focused on that
portion of the system that provides services to adults with SMI. Other parts of
the system administered by ValueOptions cover children’s mental health services,
general mental health, and substance abuse.
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| 3 |
The State contracts with VO of
Arizona, Inc., an Arizona-based subsidiary of ValueOptions, Inc., a wholly owned
subsidiary of Virginia-based FHC Health Systems. In addition to VO of Arizona,
Inc., ValueOptions, Inc. has affiliates that manage behavioral health systems in
several states, including Colorado, Florida, Massachusetts, New Jersey, New
Mexico, North Carolina, and Texas.
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| 4 |
The Division and the RBHAs refer
to people receiving services as consumers.
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| 5 |
Service revenues represent total
contract revenues less 7.5 percent allowed for administrative expenses, or 92.5
percent of each program fund’s total contract revenues. Starting in fiscal year
2005, allowable service profits equal 4 percent of total service revenues.
Before fiscal year 2005, the profit limit was 5 percent of these revenues.
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| 6 |
This report uses the term
“program” throughout the report when referring to the three major funding
categories into which behavioral health services monies are
categorized—Medicaid, KidsCare, and Other Contract Monies. The use of the term
“program” represents the same thing as the term “funding category.
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| 7 |
Auditors’ analysis of division
profit/risk corridor analysis reports for fiscal years 2002, 2003, and 2004
showed SMI Medicaid and KidsCare profits of $7.5 million, $6.9 million, and $7
million, respectively, were used for other Medicaid and KidsCare programs.
Division reports are based on ValueOptions’ audited financial statements and
reflect accounting adjustments for timing and other factors.
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| 8 |
This same requirement is included
in the Division’s contracts with the RBHAs that serve other areas of the State.
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| 9 |
Auditors’ analysis included
encounters for services delivered during fiscal year 2005 that were submitted to
the Division as of November 2005. In addition, auditors only analyzed encounters
approved by the Division, with fees that were updated and approved by AHCCCS for
fiscal year 2006.
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