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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
AHCCCS; procurement; contracting
Purpose
Establishes, beginning October 1, 2027, the Arizona hybrid procurement model as the exclusive performance-based contracting framework for Arizona Health Care Cost Containment System (AHCCCS) managed care programs, replacing competitive procurement processes with a standardized performance and operational evaluation system.
Background
AHCCCS
administers the state’s Medicaid program and delivers covered services
primarily through contracts with health plans and other providers. Arizona law
authorizes the AHCCCS Director to enter into contracts necessary to administer
the program, including prepaid capitated arrangements for the provision of
covered services to enrolled populations (A.R.S.
§§ 36-2906
and 36-2907).
AHCCCS awards contracts through formal procurement processes governed by statute and administrative rule. AHCCCS administrative rules prescribe the required contents of solicitations, including the scope of services, covered populations, geographic service areas, performance requirements, evaluation factors, contract terms, pricing requirements and certifications that proposals do not involve collusion or anti-competitive practices. After proposals are submitted, AHCCCS must evaluate offers based on the stated evaluation criteria and may conduct discussions or request best and final offers to ensure full understanding of proposals and to secure the most advantageous contract for the state. Contracts must be awarded to the responsive and responsible offeror whose proposal is determined most advantageous to the state. Vendors may challenge a solicitation, proposed award, or contract award by filing a protest with the AHCCCS procurement officer, whose decision may be appealed to the AHCCCS Director and adjudicated under the Arizona Administrative Procedures Act (A.A.C. Title 9, Ch. 22, Art. 6).
If there is a cost associated with replacing the existing AHCCCS managed care organization procurement model, there may be a fiscal impact to the state General Fund.
Provisions
1. Requires AHCCCS, beginning October 1, 2027, to conduct managed care contracting for any program under the Arizona hybrid model.
2. Applies Arizona hybrid model procurement requirements only to comprehensive, risk-based managed care contracts issues by AHCCCS.
3. Prohibits AHCCCS from issuing requests for proposals, competitive sealed proposals or similar solicitations for managed care contractors.
4. Requires all selection, evaluation, continuation, expansion, limitation, suspension and termination of contractors to be conducted solely under the Arizona hybrid model, which constitutes the exclusive managed care contracting framework for each program.
5. Requires the Arizona hybrid model to include only:
a) a performance-based selection and retention of contractors using demonstrated performance against a performance rubric and operational factors;
b) a performance evaluation over an initial defined four-year operations phase;
c) objective, measurable evaluation standards that are published in advance, applied uniformly and that exclude subjective, narrative-based or discretionary evaluation criteria; and
d) established and enforced minimum enrollment viability standards and use 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.
6. Specifies that the results of the performance and operations phase constitute the primary and controlling basis for AHCCCS decisions over contract continuations, expansions, limitations, suspensions and terminations.
7. Specifies that, after completing the initial performance and evaluations phase, contractors remain subject to ongoing performance review, monitoring and enforcement based on the performance rubric and operational factors.
8. Requires AHCCCS to use a multi-phase procurement and performance structure to implement the Arizona hybrid model, as specified.
9. Requires AHCCCS, by October 1, 2027, to do both of the following and make the information publicly available:
a) develop a standardized performance rubric that meets specified criteria; and
b) adopt rules providing performance bond requirements for prospective contractors.
10. Requires all methodologies, measures, benchmarks and calculation methods used in the performance rubric to be publicly available throughout the development process, excluding contractor-specific underlying data, proprietary information and protected health information.
11. Directs AHCCCS to develop, publish and invite feedback on the performance rubric before commencing the contracting eligibility determination period.
12. Requires prospective contractors to attest, before both the contracting eligibility determination period and the performance and operations phase, that the contractor understands, accepts the statistical and methodological basis of and agrees to abide by the application of the rubric.
13. Specifies that any prospective contractor that does not meet the established standards may be removed and is ineligible to contract for an AHCCCS program.
14. Requires AHCCCS, in streamlining administrative processes, to use a single statewide master contract for contractors with program-specific schedules, exhibits or attachments included as necessary to satisfy applicable federal requirements.
15. Requires AHCCCS to establish a balanced, transparent enrollment structure across all incumbent and nonincumbent contractors that advances market fairness, supports ongoing statewide competition and protects member choice while maintaining compliance with applicable federal regulations.
16. Requires AHCCCS to adopt rules including procedures:
a) authorizing AHCCCS to temporarily direct all or a substantial portion of auto-assigned enrollment to nonincumbent contractors until AHCCCS determines that the minimum enrollment levels necessary for operational viability have been achieved and that members receive notice and retain the right to select another available contractor;
b) for a balanced and transparent change of enrolled contractors as a result of performance and operations phase outcomes;
c) requiring AHCCCS to annually decide whether smaller or larger contractors have different per member administrative or operating costs, publish that decision as part of the rate setting and apply that rationale when supported by actuarial analysis or explain why the decision was not applied;
d) for annually updating enrollment after the performance and operations phase for all contractors based on high and low performance, including whether adjustments are necessary;
e) governing the orderly enrollment transition for members of contractors that fail to meet performance standards, in a manner that minimizes disruption for members; and
f) ensuring that a contractor does not receive or is not auto-assigned members in a manner thar results in the contractor exceeding 20 percent of total enrollment in any program in any year.
17. Specifies that the 20 percent limit on total AHCCCS enrollment for any contractor does not limit voluntary member choice.
18. Requires AHCCCS, when presenting contractor options for member selection or conducting auto-enrollment, to limit the options to contractors below the 20 percent enrollment threshold.
19. Requires AHCCCS to conduct a single, coordinated procurement using required methods for capitated, comprehensive managed care organization contracts to the greatest extent practicable and consistent with federal law.
20. Requires AHCCCS to establish a multi-phase procurement that includes the:
a) contracting eligibility determination period;
b) operational readiness review;
c) performance and operations phase; and
d) operational cap and market adjustment
21. Allows each incumbent contractor to file for eligibility to compete for a contract to serve an AHCCCS program or service area that is not currently served by a managed care organization.
22. Presumes an incumbent AHCCCS contractor to be eligible to participate in the performance and operations phase.
23. Requires nonincumbent contractors to meet basic eligibility criteria prescribed by AHCCCS, including financial solvency, at least five years of operational experience in any state and successful operational readiness history.
24. Allows an applicant that meets the threshold eligibility requirements but is not initially selected to be placed in a qualified applicant holding pool.
25. Allows AHCCCS to establish a cap on the number of applicants that may file for a contracting eligibility determination.
26. Specifies that only applicants determined to be operationally ready may advance beyond the operational readiness review phase and that AHCCCS may remove any applicant deemed unready from consideration.
27. Specifies that an applicant's removal from consideration does not constitute a contracting determination and is not subject to independent review or appeal.
28. Requires AHCCCS to notify applicants removed from consideration of the reasons for removal.
29. Allows AHCCCS to establish a cap on the number of approved applicants after the operational readiness review.
30. Requires AHCCCS contracts to operate under a four-year performance period, with the contractors performance measured exclusively using the performance rubric and published operational factors.
31. Requires AHCCCS performance determinations to be mathematical, objective and nondiscretionary.
32. Authorizes AHCCCS to impose caps on the total number of contractors in each program.
33. Requires AHCCCS decisions regarding contract continuation, expansion, limitation and termination to be based on performance outcomes and cohort limitations.
34. Stipulates that, if a contractor files a protest or appeal regarding the performance rubric and has exhausted the protest or appeal process, the Office of Administrative Hearings (OAH) is limited to verifying whether AHCCCS:
a) applied the performance rubric consistently and objectively;
b) maintained data integrity, including using correct sources and time frames.
35. Requires AHCCCS to correct and reissue any determinations if OAH finds an error in an appeal.
36. Asserts that OAH decisions are final and no further administrative appeals are available.
37. Prohibits a contract from being awarded, continued or retained if doing so would result in the loss of federal Medicaid funding.
38. Specifies that AHCCCS hybrid procurement model requirements do not:
a) alter AHCCCS's authority or obligation to comply with federal Medicaid requirements or applicable waiver authorities; or
b) change eligibility categories, member populations, benefit design or service delivery models, including state-administered or fee-for-service programs.
39. Exempts AHCCCS from statutory rulemaking requirements for the purposes of implementing the Arizona hybrid procurement model but requires AHCCCS to provide notice and at least one public hearing at least 30 days before finalizing the rules.
40. Defines Arizona hybrid model as 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.
41. Defines terms.
42. Contains a statement of legislative findings.
43. Becomes effective on the general effective date.
Amendments Adopted by Committee
· Removes provisions governing contracting practices between AHCCCS contractors and hospitals, including requirements relating to competition, nondiscrimination and contracting standards.
Amendments Adopted by Committee of the Whole
1. Delays, from October 1, 2026, to October 1, 2027, the deadline for the AHCCCS to implement the Arizona hybrid procurement model.
2. Makes technical changes.
Senate Action
HHS 2/18/26 DPA 4-3-0
Prepared by Senate Research
February 26, 2026
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