Maricopa County’s health system has lost as much as $129 million because of severe financial miscalculations and a broken computer billing system, county officials revealed Wednesday.
The shortfall will be paid by taxpayers.
State auditors and former administrators at the Maricopa Integrated Health System failed to spot the money drain, despite warning signs that the system was headed for financial turmoil, said David Smith, the county’s administrative officer.
"This isn’t how it should be working," Smith said.
Consultants estimate that the health system has lost between $82 million and $129 million over the past several years. County officials say they have reserve funds to cover an $82 million shortage. But if losses climb higher, the county plans to postpone building a $40 million administration building and installing a new financial system.
The county also is facing sanctions from the Arizona Health Care Cost Containment System, the state’s Medicaidsystem, for failing to provide accurate reports on patient visits and reimbursement. Sanctions could be as much as $7.4 million, but the amount will probably be cut substantially, said Frank Lopez, an AHCCCS spokesman.
The staggering costs come as the county prepares to hand over its health system to a health care taxing district, approved by voters last November. Members of the Maricopa County Board of Supervisors said Wednesday that they are committed to cleaning up the system’s financial problems before the turnover date, Jan. 1.
"It’s hard to do this, but we have a moral obligation to the voters to make this right," said Supervisor Mary Rose Wilcox, D-District 5 of Phoenix.
The source of the problems lies in the county’s health plans, which
miscalculated how much would be owed once medical bills arrived for health care services already provided, said Tom Manos, the county’s chief financial officer.
The miscalculations continued, possibly for as long as five years, until county officials started seeing the warning signs in July 2002, Smith said.
Reports of flat net income did not make sense when the system was losing cash, he said. Another warning sign was a decline in cash despite a growing number of health plan members paying premiums.
The problem, the county later realized, was that estimates for medical bills were too low, draining health system funds. A $53 million reserve fund was set aside to cover potential losses.
Then the county’s new computer billing system, started in October 2002, failed. Medical claims were not processed correctly, causing some health care providers to be paid repeatedly while others went months without payment.
To help unpaid providers, the health system began making estimated payments without knowing exactly what was owed. Meanwhile, health system officials shifted their focus from managing medical costs to fixing a billing system that was leaving the county with little idea where it stood financially.
Former health system administrators reassured the county that the medical bill projections were correct, and that the computer billing system would be fixed.
In February, the health system’s chief executive and financial officers resigned.
On Wednesday, county officials announced that the billing system could not be fixed, and that an outside billing administrator would take over medical claim payments July 1. The county has thousands of bills to correct that are still caught in the system.
Supervisor Don Stapley, R-District 2 of Mesa, Gilbert and Scottsdale, said the depth of the health system’s problems were not common knowledge before voters approved the special health care district because health system administrators continued to dispute losses.
"I don’t know whether it was incompetence or whether there was a deliberate skewing of the facts," he said. "I don’t want to use the word cover-up because it’s such a complicated system."
Had the extent of losses become widely known before the election, Stapley said it would have only bolstered the case for a health care district supported in part by a property tax levy.
"We never represented to the public that the system was making money," he said.
Hearing set: Maricopa County will hold a public hearing about financial losses facing its health system from 6 to 7:30 tonight in the auditorium at Maricopa Medical Center, 2601 E. Roosevelt St., Phoenix.