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SB1713 - 572R - S Ver
Senate Engrossed
AHCCCS; procurement;
contracting
State of Arizona
Senate
Fifty-seventh Legislature
Second Regular Session
2026
SENATE BILL 1713
AN
ACT
Amending title 36, chapter 29, Arizona
Revised Statutes, by adding article 3.1; relating to the arizona health care
cost containment system administration.
(TEXT OF BILL BEGINS ON NEXT PAGE)
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_STATUTE
36-2978.
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.
(
c
) The
children's health insurance program pursuant to article 4 of this chapter.
END_STATUTE
START_STATUTE
36-2978.01.
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_STATUTE
36-2978.02.
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_STATUTE
36-2978.03.
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_STATUTE
36-2978.04.
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_STATUTE
36-2978.05.
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_STATUTE
36-2978.06.
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.