Arizona Medicaid Audit Finds 2 of 3 Managed Care Plans Could Not Show Mental Health Parity Compliance
Arizona’s Medicaid program covered about 1.9 million people during the audit period, but federal investigators found that two of three managed care organizations reviewed could not demonstrate that prior-authorization rules for mental health and substance use treatment were no more restrictive than those used for medical care.
The finding comes as 61.5 million U.S. adults experienced some form of mental illness in 2024, while an estimated 48.4 million people age 12 and older had a substance use disorder, according to data cited by the HHS Office of Inspector General.
The OIG audit focused on whether Arizona was properly overseeing Medicaid managed care organizations’ compliance with federal mental health and substance use disorder parity requirements.
Two of three Arizona Medicaid plans failed to demonstrate compliance
OIG reviewed three of Arizona’s nine Medicaid managed care organizations operating during the audit period from October 1, 2022, through September 30, 2023.
Those three organizations covered approximately 58% of Arizona’s Medicaid managed care enrollees.
The results were divided:
- 1 of 3 MCOs completed the required annual parity analysis and found its prior-authorization limits were no more restrictive for mental health and substance use disorder services than for medical and surgical care.
- 2 of 3 MCOs did not perform the required annual parity analyses.
- Those two organizations could not demonstrate compliance with federal parity requirements for prior authorization.
That left Arizona without enough evidence to ensure that all services delivered through its Medicaid managed care system complied with parity rules.
Why prior authorization was the focus
Prior authorization requires a health plan’s approval before certain medical services can be provided and paid for.
Under federal parity rules, Medicaid managed care organizations cannot impose prior-authorization requirements on mental health or substance use disorder services more stringently than comparable medical or surgical services.
The rules apply not only to what a plan says in its written policies, but also to how those policies operate in practice.
OIG said prior authorization was the most frequent area of noncompliance involving nonquantitative treatment limitations, or NQTLs, in its earlier Medicaid parity audit.
NQTLs are restrictions that do not set a numerical limit but can still affect access to treatment. They include medical-necessity criteria, utilization-management procedures such as prior authorization and concurrent review, and certain provider-participation requirements.
Arizona had nine Medicaid managed care organizations
During the audit period, Arizona’s health agency contracted with nine MCOs to provide covered services, including mental health and substance use disorder treatment.
The state was responsible for monitoring whether those organizations followed federal parity requirements.
Arizona’s Contractor Operations Manual required MCOs to conduct initial and ongoing parity analyses, with an annual analysis required under the state’s procedures.
Plans were also expected to document their methodology, data, processes and evidence supporting the analysis.
But OIG found that Arizona’s written policies for demonstrating compliance were unclear, while the state’s oversight did not adequately ensure that MCOs actually met the requirements.
The gap was not simply about written policies
OIG examined the selected plans both “as written” and “in operation.”
That distinction matters because a plan can have compliant language on paper while applying restrictions differently in practice.
The audit compared prior-authorization limitations for mental health and substance use disorder services with those applied to medical and surgical services within the same benefit classifications.
Federal rules require the restrictions to be comparable and no more restrictive for MH/SUD benefits.
OIG wants stronger state oversight
OIG recommended that Arizona strengthen its procedures in three areas:
- Clarify the annual parity-analysis requirement for MCOs.
- Require MCOs to submit analysis results with reliable supporting data and documentation.
- Review those analyses and supporting documentation at the state level.
Arizona agreed with the second and third recommendations and described actions already taken or planned.
The state did not agree with the first recommendation, saying its existing policies already require MCOs to conduct annual parity analyses.
Why the finding matters
The audit is part of a broader series of OIG reviews examining whether states and Medicaid managed care organizations are meeting mental health and substance use disorder parity requirements.
A previous OIG audit found that CMS did not ensure eight selected states complied with Medicaid managed care parity requirements.
Arizona was selected for this review based partly on problems involving nonquantitative treatment limitations identified in that earlier work.
The broader issue is access: when prior authorization is applied more aggressively to behavioral health treatment than to comparable medical care, patients can face an additional barrier even when both services are covered by the same Medicaid plan.
Bottom line
The key finding is straightforward: OIG reviewed three Arizona Medicaid managed care organizations covering about 58% of managed-care enrollees, and two could not demonstrate that their prior-authorization practices met federal mental health and substance use disorder parity requirements. Arizona now faces pressure to strengthen the documentation and oversight used to verify compliance.
