Key Points:

• Arizona Health Care Cost Containment System will use AI tool for prepayment claim review

• Hobbs announced the tool in response to a directive from the Centers for Medicare and Medicaid Services

• The governor says the state will revalidate “high-risk” Medicaid providers at CMS’ request

The Arizona Health Care Cost Containment System will start using an artificial intelligence tool to review payments to healthcare providers to prevent “fraud, waste and abuse,” according to Gov. Katie Hobbs. 

In a letter sent to Centers for Medicare and Medicaid Services Administrator Dr. Mehmet Oz, Hobbs said the state plans to launch what it believes is the United States’ first “AI-informed Medicaid prepayment review system.” The governor’s letter came as a response to Oz’s April 23 directive instructing all 50 states to revalidate “high-risk providers” in their Medicaid programs.

“Arizona didn’t wait for Washington to call — we’ve been building and deploying the tools to fight Medicaid fraud since I took office …” Hobbs said in a statement. “Now, we’re building on this work and launching a first-of-its-kind AI system that will catch fraud before money goes out the door.”

The tool was created by Alivia Analytics, an East Coast-based company that provides AI data analytics services to healthcare organizations and government agencies. According to Alivia’s website, Missouri’s Medicaid program used the company’s fraud, waste and abuse detection tool to conduct a retrospective audit on its claims to recover improperly used funds. 

According to Hobbs’ letter, the AI tool will rank claims by their risk for fraud, waste and abuse before a payment is made to a provider. A human will review the highest-risk claims, while compliant providers will see quicker payment approval. 

“This reflects Arizona’s commitment to catching problems before money goes out the door, rather than relying on post-payment recovery, which is costlier, less effective, and yields only a fraction of improper payments,” Hobbs wrote to Oz. 

Delays in prepayment review for local healthcare providers became a hot topic in the Senate Health and Human Services Committee, led by Sen. Carine Werner. The committee held several oversight hearings on AHCCCS’ response to the tribal sober living home fraud scheme.

Over the course of a year, the committee investigated complaints that the state’s Medicaid agency overcorrected when it attempted to crack down on fraudulent sober living home providers who exploited Native American Medicaid members to collect payments from the American Indian Health Plan. Werner argued that legitimate providers were negatively impacted by the crackdown, leading some to close clinics or stop seeing patients due to months-long prepayment review delays. 

The announcement comes while Republicans in the Legislature attempt to implement multiple reforms to the state’s Medicaid program, with some vetoed by the governor earlier this session and others wrapped up in the GOP budget proposal she rejected on May 5. Lawmakers hoped to require AHCCCS to conduct additional and more frequent eligibility checks on members to prevent fraud and abuse. 

Hobbs described those reforms in veto letters as “unfunded mandates” and noted that AHCCCS is already struggling to keep up with Medicaid eligibility changes and federal funding cuts made by the “One Big Beautiful Bill.” 

The governor is also fending off attacks from Republicans hoping to unseat her in November who say she has let fraud run rampant at state agencies during her tenure. Congressman Andy Biggs, the frontrunner in the GOP primary, told reporters on May 5 that he’s seen estimates claiming the state has lost $10 billion to Medicaid fraud, though the sober living home scheme is estimated to have cost taxpayers around $2.5 billion. 

As far as Oz’s demand for revalidation of high-risk providers, Hobbs said in her May 7 letter that AHCCCS will submit a revalidation strategy in the coming weeks. It will be up to the agency to audit the legitimacy of its healthcare providers and it is unclear which types of providers are considered “high risk” by CMS. 

“We ask CMS to engage as a genuine partner that acknowledges the real costs of these mandates, supports Arizona in securing appropriate federal resources, understands the competing demands of H.R. 1 implementation, collaborates on waiver extensions to contain costs for our most acute members, and approaches this work in a manner that is fair to Arizona’s fiscal position,” Hobbs wrote.