SB1713 - 572R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 36, chapter 29, Arizona Revised Statutes, is amended by adding article 3.1, to read:

ARTICLE 3.1. Procurement and CONTRACTING

START_STATUTE36-2978. Definitions

In this article, unless the context otherwise requires:

1. "Administration" means the Arizona health care cost containment system administration.

2. "Arizona hybrid model" means a performance-based procurement and contract life cycle framework that evaluates contractors based on objective, measurable operational performance over a defined multi-year period, subject to threshold operational readiness requirements.

3. "Contracting determination" means a determination by the administration regarding a contractor's eligibility, selection, continuation, expansion, limitation, suspension or termination under this article.

4. "Contractor":

(a) Has the same meaning prescribed in section 36-2901.

(b) Includes entities commonly referred to as managed care organizations.

5. "Incumbent contractor" means a contractor that is servicing a program in a general service area as of 2026.

6. "Nonincumbent contractor" means an existing or potential contractor that wishes to service a program that the contractor does not currently service in a general service area pursuant to this article.

7. "Operational factors" means elements related to the administration of benefits and access to care and services that are subject to evaluation under the performance rubric using quantitative standards established by the administration, including claims processing and payment, appeals, network adequacy and encounter data submission.

8. "Operational readiness" means a threshold determination that a contractor meets minimum operational, administrative, financial and systems requirements necessary to perform under a managed care contract, as established by the administration by rule.

9. "Performance and operations phase" means a defined initial period of operations lasting four years during which contractor performance is evaluated pursuant to the performance rubric for the purposes of contract continuation, expansion, limitation, suspension or termination.

10. "Performance rubric" means a standardized set of quantitative measures that is used to:

(a) evaluate contractor performance, including rates, ratios, timeliness benchmarks and accuracy thresholds, and address quality of care, member experience and operational factors related to the administration of benefits and access to care and services.

(b) Measure performance over the life of a contract and that is the only means of assessing cost, quality and member and provider satisfaction for the purposes of contract award, amendment or recission.

11. "Program" means any of the following:

(a) The Arizona health care cost containment system pursuant to article 1 of this chapter.

(b) The Arizona long-term care system, as it applies to persons who are elderly or who have a physical disability pursuant to article 2 of this chapter.

START_STATUTE36-2978.01. Managed care contracts; procurement

Notwithstanding title 41, chapters 6 and 23 or any other law to the contrary:

1. Beginning October 1, 2027, the administration shall conduct managed care contracting for any program exclusively pursuant to this article. This article applies only to comprehensive, risk-based managed care contracts issued by the administration. The administration shall not issue requests for proposals, competitive sealed proposals or similar solicitations for managed care contractors.

2. All selection, evaluation, continuation, expansion, limitation, suspension and termination of contractors shall be conducted solely pursuant to this article, which constitutes the exclusive managed care contracting framework for each program. END_STATUTE

START_STATUTE36-2978.02. Arizona hybrid model; performance-based procurement framework; implementation

A. The Arizona hybrid model shall include only the following:

1. A performance-based selection and retention of contractors using demonstrated performance against a performance rubric and the operational factors.

2. An evaluation of performance over an initial defined performance and operations phase lasting four years. The results of the performance and operations phase constitute the primary and controlling basis for the administration's decisions regarding contract continuation, expansion, limitation, suspension and termination. After completing the initial performance and operations phase, contractors remain subject to ongoing performance review, monitoring and enforcement based on the performance rubric and operational factors.

3. Evaluation standards that are objective, measurable, published in advance and applied uniformly and that do not include subjective, narrative-based or discretionary evaluation criteria.

4. The establishment and enforcement of minimum enrollment viability standards and use of a single medicaid managed care contract framework for all contractors that service a program, including uniform performance expectations, evaluation standards and renewal mechanisms to eliminate duplicative procurements and associated administrative burden.

B. Notwithstanding title 41, chapters 6 and 23 or any other law to the contrary, the administration shall use a multi-phase procurement and performance structure to implement the Arizona hybrid model, consisting of all of the following:

1. On or before October 1, 2027, the administration shall do both of the following and make the information publicly available:

(a) Develop a standardized performance rubric. All methodologies, measures, benchmarks and calculation methods used in the performance rubric shall be publicly available throughout the development process, but contractor-specific underlying data, proprietary information and protected health information may not be disclosed. The administration shall develop, publish and invite feedback on the performance rubric before commencing the contracting eligibility determination period required by this article.

(b) Adopt rules, consistent with federal law, providing for a performance bond requirement for potential contractors or contractors seeking to participate. Each potential contractor or contractor shall attest, before both the contracting eligibility determination period and the performance and operations phase, that the potential contractor or contractor understands the parameters and requirements of the performance rubric, accepts the statistical and methodological basis on which the performance rubric is constructed and agrees to abide by the application of the performance rubric pursuant to section 36-2978.05. Each potential contractor or contractor that does not meet the established standards may be removed and is not eligible to contract for a program in accordance with this article and the rules adopted pursuant to this article.

2. To streamline administrative processes, the administration shall use a single statewide master contract for contractors with program-specific schedules, exhibits or attachments included as necessary to satisfy applicable federal requirements.

3. The administration shall establish a balanced, transparent enrollment structure across all incumbent contractors and nonincumbent contractors that advances market fairness, supports ongoing statewide competition and protects member choice while maintaining compliance with applicable federal regulations. The administration shall adopt rules that include the following:

(a) Procedures authorizing the administration to direct, on a temporary basis, all or a substantial portion of auto-assigned enrollment to nonincumbent contractors until the administration determines that the minimum enrollment levels necessary for operational viability have been achieved and that the members receive notice and retain the right to select another available contractor.

(b) Procedures for the balanced and transparent change of enrollment of contractors as a result of the outcome of the performance and operations phase.

(c) Procedures requiring the administration to annually decide whether smaller or larger contractors have different per member administrative or operating costs, to publish that decision as part of rate setting and to apply that rationale when supported by actuarial analysis or explain why the decision was not applied.

(d) Procedures for annually updating enrollment after the performance and operations phase for all contractors based on high and low performance, including whether it is necessary to make such adjustments.

(e) Procedures governing the orderly enrollment transition for members of contractors that fail to meet established performance standards, in a manner that minimizes disruption for members of the programs.

(f) Procedures to ensure that a contractor does not receive or is not auto-assigned members in a manner that results in the contractor exceeding twenty percent of total enrollment in any program in any year. This subdivision does not limit voluntary member choice. When presenting contractor options for member selection or conducting auto-enrollment, the administration shall limit such options to contractors that are below the twenty percent enrollment threshold.

4. The administration shall conduct a single, coordinated procurement using the method required by this article for capitated, comprehensive managed care organization contracts issued by the administration, to the greatest extent practicable and consistent with federal law. END_STATUTE

START_STATUTE36-2978.03. Multiphase procurement; contractors; eligibility to contract

A. The administration shall establish a multiphase procurement that includes:

1. The contracting eligibility determination period.

2. The operational readiness review.

3. The performance and operations phase.

4. The operational cap and market adjustment.

B. Each incumbent contractor may file for eligibility to compete for a contract to serve a program or a service area that is not currently served by a managed care organization. An incumbent contractor currently serving any program for the administration is presumed to be eligible to participate in the performance and operations phase.

C. Each nonincumbent contractor shall meet basic eligibility criteria prescribed by the administration, including financial solvency, at least five years of operational experience, which may be in other states, and successful operational readiness history.

D. Any applicant that meets the threshold eligibility requirements but that is not initially selected may be placed in a qualified applicant holding pool. The administration may establish a cap on the number of applicants that may file for a contracting eligibility determination. END_STATUTE

START_STATUTE36-2978.04. Applicants; operational readiness review; notification; cap

A. Only applicants that are determined to be operationally ready may advance beyond the operational readiness review phase. The administration may remove from consideration any applicant that is determined to not be operationally ready. The removal of an applicant does not constitute a contracting determination and is not subject to independent review or appeal. The administration shall notify the applicant of the reasons for the removal.

B. The administration may establish a cap on the number of applicants the administration approves after the operational readiness review.END_STATUTE

START_STATUTE36-2978.05. Performance period; operational caps; office of administrative hearings review

A. Contracts issued pursuant to this article shall operate for a four-year performance period consistent with this section. a Contractor's performance shall be measured exclusively using the performance rubric and published operational factors. The administration's performance determinations shall be mathematical, objective and nondiscretionary.

B. The administration may impose caps on the total number of contractors in each program. The administration's decisions regarding the continuation, expansion, limitation and termination of a contract shall be based on performance outcomes and cohort limitations.

C. If a contractor files a protest or appeal regarding the final application of the performance rubric pursuant to this section and has exhausted the applicable protest or appeal process, the office of administrative hearings is limited to verifying whether the administration applied its published performance rubric consistently and objectively, maintained data integrity, including the use of correct sources and time frames, and applied formulas, weights and calculations exactly as published. If the office of administrative hearings confirms an error, the administration shall correct and reissue the determination. The decision of the office of administrative hearings is final and no further administrative appeal is available. END_STATUTE

START_STATUTE36-2978.06. Federal compliance; program protection; rulemaking

A. A contract may not be awarded, continued or retained if doing so would result in the loss of federal medicaid funding.

B. This article does not alter the administration's authority or obligation to comply with federal medicaid requirements or applicable waiver authorities.

C. This article does not change eligibility categories, member populations, benefit design or service delivery models, including state-administered or fee-for-service programs.

D. The administration shall adopt rules necessary to implement this article consistent with its requirements.END_STATUTE

Sec. 2. Rulemaking exemption; public hearing

Notwithstanding any other law, for the purposes of this act, the Arizona health care cost containment system is exempt from the rulemaking requirements of title 41, chapters 6 and 6.1, Arizona Revised Statutes, except that the Arizona health care cost containment system shall provide notice and at least one public hearing at least thirty days before finalizing the rules.

Sec. 3. Legislative findings; intent

A. The legislature finds that the Arizona health care cost containment system should operate as a national leader in the administration of medicaid managed care contracting and that competition is best achieved through demonstrated performance rather than speculative or proposal-based projections.

B. The legislature further finds that procurement models relying primarily on subjective or narrative evaluation criteria increase litigation risk, delay implementation of contracts and create uncertainty for providers, members and this state.

C. The legislature determines that a performance-based procurement and contract life cycle framework using objective, measurable metrics applied over time promotes transparency, accountability, market stability and fiscal stewardship.

D. The legislature intends to require the Arizona health care cost containment system to implement a mandatory and uniform managed care procurement and contracting framework that selects and retains contractors based on demonstrated performance rather than hypothetical or narrative-based submissions.