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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
home; community-based services; mental illness
(NOW: enhanced residential treatment; SMI)
Purpose
Establishes the Seriously Mentally Ill Enhanced Residential Treatment Pilot Program (Pilot Program) in the Arizona Health Care Cost Containment System (AHCCCS) to provide, with federal approval, enhanced residential treatment services for adults who are determined to be seriously mentally ill (SMI), operated by and administered through contractors. Outlines Pilot Program coverage, eligibility, capacity, appeals and grievances processes and reporting requirements.
Background
AHCCCS serves as Arizona's Medicaid agency, which offers qualifying Arizona residents access to healthcare programs. AHCCCS contracts with health professionals to provide medically necessary health and medical services to eligible members. Additionally, AHCCCS must contract for a coordinated system of behavioral health services for persons who are SMI, including screening and intake, case management, treatment planning family involvement and a continuum of care (A.R.S. §§ 36-2901 and 36-3407).
Seriously mentally ill means persons who, as a result of a mental disorder, exhibit emotional or behavioral functioning that is so impaired as to interfere substantially with their capacity to remain in the community without supportive treatment or services of a long-term or indefinite duration. In these persons mental disability is severe and persistent, resulting in a long-term limitation of their functional capacities for primary activities of daily living such as interpersonal relationships, homemaking, self-care, employment and recreation (A.R.S. § 36-550).
A residential care institution is a health care institution other than a hospital or a nursing care institution that provides resident beds or residential units, supervisory care services, personal care services, behavioral health services, directed care services or health-related services for persons who do not need continuous nursing services (A.R.S. § 36-401).
If there is a cost associated with AHCCCS implementation of the Pilot Program, there may be a cost to the state General Fund.
Provisions
Enhanced Residential Treatment Facilities
1. Requires the Department of Health Services (DHS) to license enhanced residential treatment facilities.
2. Requires DHS to adopt rules for enhanced residential treatment facilities, including licensure standards, staffing requirements and physical plant standards.
3. Allows an enhanced residential treatment facility to provide programs and services to residents who are SMI through a combination of facility-based or coordinated community-based services.
Program Establishment
4. Establishes the Pilot Program, subject to approval of the Centers for Medicare and Medicaid Services (CMS), available appropriations and the enrollment cap, for three years from the date that CMS approves the Pilot Program.
5. Specifies that the Pilot Program operates through and is administered by contractors pursuant to their agreements with AHCCCS, as prescribed.
6. Requires AHCCCS to incorporate outlined statutory requirements into prescribed contractor agreements for regional behavioral health authorities and require contractors to fulfill the obligations as part of their contractual duties.
7. Requires AHCCCS, through the submission of the first annual report, to convene a stakeholder work group that includes individuals who are SMI and behavioral health providers, counties, tribal nations, community organizations and family members, caregivers and guardians of SMI individuals to advise on the Pilot Program design and implementation.
8. Requires stakeholder input to specifically address the needs of individuals who require complex medication management, enhanced monitoring and structured support services to promote medication continuity and safety.
9. Requires AHCCCS to seek any necessary federal authority to implement the Pilot Program and request approval by July 1, 2027.
10. Requires AHCCCS to begin enrolling individuals within one year of receiving federal approval, subject to available appropriations.
11. Requires AHCCCS, until the Pilot Program is implemented, to provide semiannual implementation updates to the President of the Senate, the Speaker of the House of Representatives and the Chairpersons of the Health and Human Services Committees, or their successor committees.
12. Allows AHCCCS to implement the Pilot Program through policy, contract requirements and other authorized administrative mechanisms.
Pilot Program Covered Services
13. Requires each contractor, subject to the approval of CMS, available appropriations and the enrollment cap, to provide enrolled members with:
a) enhanced residential treatment services; and
b) all services that the contractor is required to provide to SMI individuals under the contractor's agreement with AHCCCS, including behavioral health services, physical health services, crisis services, case management and peer support services.
14. Requires the contractor to conduct, at minimum, an annual review of the ongoing medical necessity of services for each member and engage with the member to plan for transition to a less restrictive setting when clinically appropriate.
15. Allows AHCCCS to add, modify or combine services consistent with federal approval and legislative intent, subject to the approval of monies.
16. Requires contractors to develop and maintain a written service plan for each member, which must:
a) be based on a comprehensive assessment of the member's behavioral health, functional and safety needs;
b) identify the specific services and support to be provided and the settings in which the services and support will be provided;
c) include goals for recovery, stability and, if appropriate, transition to a less restrictive setting; and
d) be updated at least annually or more frequently if the member's needs change.
17. Requires the member and, if appropriate, the member's guardian or authorized representative to participate in the development and revision of the service plan.
Pilot Program Capacity
18. Caps Pilot Program enrollment at 60 members.
19. Allows AHCCCS to increase the enrollment cap above 60 members during the Pilot Program if AHCCCS demonstrates, through data reported in the annual report, reduced utilization of high-cost services or cost avoidance in state-funded systems that demonstrates that the Pilot Program appropriation could sustain members beyond the enrollment cap, subject to available appropriations and JLBC review.
20. Allows a court to recommend participation in the Pilot Program.
21. Prohibits a court from compelling AHCCCS to exceed the Pilot Program enrollment cap.
Pilot Program Eligibility
22. Requires an individual, to be eligible for the Pilot Program, to:
a) be at least 18 years old;
b) be a resident of Arizona;
c) have been determined to be SMI;
d) meet the SMI enhanced level of care adopted by AHCCCS; and
e) meet the outlined financial eligibility requirements, as determined by AHCCCS.
23. Requires AHCCCS to determine financial eligibility for the Pilot Program.
24. Prohibits AHCCCS from delegating the determination of financial eligibility to a contractor.
25. Deems an individual financially eligible for the Pilot Program if the individual's income does not exceed 300 percent of the federal supplemental security income benefit rate and the individual meets the resource requirement for long-term care programs, as prescribed.
26. Allows an individual whose income exceeds the outlined standard to establish a qualified income trust to achieve financial eligibility, as prescribed.
27. Requires AHCCCS to adopt SMI enhanced level of care specific to individuals who are SMI based on behavioral, functional and safety criteria, which may include:
a) current or recent court-ordered treatment;
b) legal guardianship due to psychiatric incapacity;
c) recent discharge from a jail or prison, the Arizona State Hospital (ASH) or a behavioral health residential facility (BHRF);
d) impaired judgement, disorganization or inability to perform activities of daily living due to psychiatric symptoms;
e) documented safety risks, including elopement, aggression, delusional behavior, fire or water misuse or exploitation risk;
f) homelessness or imminent risk of homelessness;
g) high-intensity or complex psychotropic medication regimens requiring enhanced monitoring to ensure adherence and to identify potential adverse effects; and
h) clinical needs that necessitate structured support services to maintain continuity of medication therapy, such as those at elevated risk of relapse, decompensation or hospitalization related to medication nonadherence.
28. Prohibits the adopted criteria from requiring physical disability or physical impairment criteria.
29. Allows AHCCCS to modify the eligibility processes through policy, consistent with outlined statutory requirements, subject to any necessary approval by CMS and available appropriations.
30. Requires an individual who seeks to enroll in the Pilot Program to apply through the individual's contractor, after determining that the individual meets the SMI enhanced level of care criteria.
31. Requires the contractor to forward applications to AHCCCS for financial eligibility determination.
32. Allows an individual, if the individual is not yet enrolled with a contractor, to apply through AHCCCS.
33. Allows AHCCCS, subject to CMS approval, available appropriations and the enrollment cap, to delegate to contractors the authority to determine whether an applicant meets the SMI enhanced level of care criteria adopted by AHCCCS and to manage Pilot Program waitlists, enrollment decisions and capacity prioritization for individuals who have been determined financially eligible by AHCCCS.
34. Requires AHCCCS, or a contractor exercising delegated authority, to:
a) apply the eligibility criteria adopted by AHCCCS;
b) implement and maintain one or more waitlists, the total of which may not exceed 100 applicants, for applicants for whom eligibility has been determined;
c) if the waitlist reaches 100 applicants, implement an interest list for additional applicants and employ phased enrollment or other utilization controls as necessary to ensure that the enrollment cap is not exceeded;
d) assign available Pilot Program capacity by applying prescribed priority factors; and
e) report enrollment data to AHCCCS in the form and frequency required by AHCCCS by policy.
35. Requires a contractor, if the number of financially and clinically eligible individuals exceeds available Pilot Program capacity, to assign available slots based on the highest clinical acuity and functional impairment defined by a methodology that takes into account the following priority factors:
a) individuals under court-ordered treatment;
b) individuals with legal guardianship due to psychiatric incapacity;
c) individuals recently discharged from jail or prison, the Arizona State Hospital or a BHRF;
d) individuals who are homeless or at imminent risk of homelessness;
e) individuals with repeated crisis episodes, psychiatric hospitalizations or public safety involvement;
f) individuals presenting significant safety risks due to psychiatric symptoms; and
g) individuals with high-intensity or complex psychotropic medication regimens requiring enhanced monitoring to ensure adherence and to identify potential adverse effects.
36. Stipulates that AHCCCS retains authority to review, reverse and audit contractor clinical eligibility and enrollment determinations.
37. Allows AHCCCS to reserve a portion of available enrollment capacity for emergency or priority placements.
38. Authorizes an individual whose income exceeds the threshold for eligibility to establish a qualified trust to qualify for Program benefits.
39. Applies specified Arizona Long Term Care System (ALTCS) requirements relating to financial instruments, eligibility determinations, estate recovery and liens to the Pilot Program.
Provider Requirements
40. Requires providers of enhanced residential treatment services to document behavioral interventions, crisis support and staffing adjustments before initiating the discharge of any member.
41. Requires a provider of enhanced residential treatment services to implement transition and discharge planning protocols and obtain approval from the contractor before issuing to a member a nonemergency notice to vacate.
42. Allows AHCCCS to adopt enhanced reimbursement rates for enhanced residential treatment services provided to members, as prescribed.
43. Requires AHCCCS to incorporate reimbursement rates and methodologies into contractor agreements.
44. Specifies that the requirements relating to provider transition and discharge planning protocols do not:
a) limit AHCCCS's authority to ensure the health and safety of members;
b) require the provider to continue services when immediate and documented risks to health or safety cannot be mitigated through reasonable clinical interventions; or
c) require a contractor to continue paying for services that are not medically necessary.
Grievance and Appeal Process
45. Grants a member or applicant aggrieved by an action of AHCCCS or a contractor relating to eligibility, enrollment or services relating to the Pilot Program the right to file a grievance or appeal and, if applicable, to a hearing as prescribed.
46. Applies the contractor's grievance and appeal process required of all regional behavioral health authorities to matters that arise relating to the Pilot Program, including denials, reductions or terminations of enhanced residential treatment services and contractor clinical eligibility determinations.
47. Requires appeals of AHCCCS financial eligibility determinations to be heard pursuant to rules established by the Director AHCCCS.
Miscellaneous
48. Requires AHCCCS, beginning one year after implementation of the Pilot Program and each year thereafter for the duration of the Pilot Program, to submit a report to the Governor, the President of the Senate and the Speaker of the House of Representatives that includes:
a) the number of members and the number of individuals who are on the waitlist and the number of individuals who are on the interest list for services and who have not yet been enrolled, if applicable;
b) the percentage of members who are under court-ordered treatment, guardianship or criminal justice supervision;
c) housing stability outcomes for members;
d) member utilization statistics, as outlined;
e) provider denials and discharges and the reasons for the denials and discharges of members;
f) the fiscal impact and estimated cost of avoidance related to the Pilot Program; and
g) the number of members who are served in enhanced residential treatment facilities.
49. Requires AHCCCS to seek and maintain any necessary federal approvals to operate the Pilot Program through approved Medicaid state plan authorities, waivers or demonstration authorities.
50. Requires AHCCCS, if CMS denies or does not approve a request necessary to implement the Pilot Program, to continue to pursue approval to the extent allowed by federal law through modifications, resubmissions or alternative federal authority.
51. Requires AHCCCS to report the status of approval efforts in the semiannual implementation updates.
52. Requires AHCCCS to obtain legislative approval for modifications or resubmissions that are inconsistent with the requirements of the Pilot Program.
53. Allows AHCCCS, on federal approval and subject to available appropriations, to implement the Pilot Program through policy and contract requirements.
54. Specifies that statutory authorization for the Pilot Program does not expand or modify standards for involuntary treatment.
55. Specifies that services provided by the Pilot Program must supplement but not replace any other benefits or services for which a member is otherwise eligible.
56. Requires AHCCCS to coordinate benefits with other payors, including Medicare and private insurance, to the extent required by federal law.
57. Prohibits a member of the Pilot Program from also being enrolled in ALTCS.
58. Applies AHCCCS estate recovery and lien provisions to persons participating in the Pilot Program.
59. Repeals the Pilot Program three years after the date of CMS approval.
60. Requires AHCCCS to notify the Director of the Legislative Council in writing of the repeal date of the Pilot Program.
61. Defines enhanced residential treatment services as services authorized under Federal Medicaid Authority that support individuals in an enhanced residential treatment facility that include continuous supervision, structured support services, medication administration and monitoring, treatment planning and coordination and personal care services necessary for health and safety.
62. Defines enhanced residential treatment facility as a residential care institution that is licensed to provide programs and services, including behavioral health services, structured support services and health-related services, to residents who are SMI.
63. Defines structured support services to include services that are available for up to 24 hours per day and case management, crisis intervention, social skills training and budgeting assistance.
64. Defines terms.
65. Makes technical and conforming changes.
66. Becomes effective on the general effective date.
Amendments Adopted by the Health and Human Services Committee
1. Requires the stakeholder workgroup to be convened through the submission of the first annual report.
2. Narrows eligibility for the Home and Community-Based Services (HCBS) for Adults with SMI Program (HCBS for SMI Program) to individuals requiring an SMI long-term level of care, rather than any SMI level of care.
3. Requires implementation updates to be made semiannually, rather than quarterly.
4. Reduces the enrollment limit of the HCBS for SMI Program from 500 to 250 members but allows the limit to increase to up to 1,000 members if outlined conditions apply.
5. Removes the requirement that AHCCCS assign available slots in an order of priority when availability in the HCBS for SMI Program is limited.
6. Modifies the annual report to require reporting on member utilization of emergency departments, evaluation agencies and screening agencies, rather than crisis services and jail.
7. Requires AHCCCS to continue pursuing approval if CMS denies or does not approve implementation of the HCBS for SMI Program and report the status of the efforts in the semiannual implementation updates.
8. Allows, rather than requires, AHCCCS to adopt rules to implement the HCBS for SMI Program.
9. Makes conforming changes.
Amendments Adopted by the Appropriations, Transportation & Technology Committee
1. Requires the stakeholder workgroup to be convened through the submission of the first annual report.
2. Narrows eligibility for the HCBS for SMI Program to individuals requiring an SMI long-term level of care, rather than any SMI level of care.
3. Requires implementation updates to be made semiannually, rather than quarterly.
4. Reduces the enrollment limit of the HCBS for SMI Program from 500 to 250 members but allows the limit to increase to up to 1,000 members if outlined conditions apply.
5. Removes the requirement that AHCCCS assign available slots in an order of priority when availability in the HCBS for SMI Program is limited.
6. Requires the annual report to include reporting on member utilization of emergency departments, evaluation agencies and screening agencies, in addition to utilization of crisis services and jails.
7. Requires AHCCCS to continue pursuing approval if CMS denies or does not approve implementation of the HCBS for SMI Program and report the status of the efforts in the semiannual implementation updates.
8. Allows, rather than requires, AHCCCS to adopt rules to implement the HCBS for SMI Program.
9. Makes conforming changes.
Amendments Adopted by the House of Representatives
1. Replaces the HCBS for Adults who are SMI Program with the Pilot Program and prescribes covered services.
2. Limits the duration of the Pilot Program to three years from the date of CMS approval.
3. Specifies that the Pilot Program operates through and is administered by contractors pursuant to their agreements with AHCCCS, as prescribed.
4. Reduces Pilot Program capacity from 250 members to 60 members statewide.
5. Requires AHCCCS to license enhanced residential treatment facilities, adopt rules for enhanced residential treatment facilities and implement the Pilot Program through policy and contract requirements.
6. Modifies eligibility, membership and waitlist requirements to conform to the requirements of the Pilot Program.
7. Expands provider requirements for documenting and implementing transition and discharge protocols.
8. Establishes a process for submitting grievances and appeals relating to the Pilot Program.
9. Requires AHCCCS to obtain legislative approval for modifications or resubmissions that are inconsistent with the requirements of the Pilot Program.
10. Requires AHCCCS to coordinate benefits with other payors, including Medicare and private insurance, to the extent required by federal law.
11. Applies AHCCCS estate recovery and lien provisions to persons participating in the Pilot Program.
12. Specifies that services provided by the Pilot Program must supplement but not replace any other benefits or services for which a member is otherwise eligible.
13. Prohibits a member of the Pilot Program from also being enrolled in ALTCS.
14. Defines terms.
15. Requires AHCCCS to notify the Director of the Legislative Council in writing of the repeal date of the Pilot Program.
16. Makes technical and conforming changes.
Senate Action House Action
HHS 2/11/26 DPA 7-0-0 HHS 3/23/26 DP 12-0-0-0
ATT 2/24/26 DPA 10-0-0 3rd
Read 6/11/26 42-13-5
3rd Read 3/4/26 28-2-0
Prepared by Senate Research
June 12, 2026
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