Exclusive: AZ DCS Whistleblower Reveals 127 Medicaid Fraud Referrals — Federal Reports List Zero

A whistleblower within the Arizona Department of Child Safety (DCS) told Republican state Rep. John Gillette (R-LD30) that the department’s health plan submitted 127 suspected fraud, waste and abuse referrals to the state Medicaid agency, the Arizona Health Care Cost Containment System (AHCCCS), beginning in 2021. However, three annual reports Arizona submitted to federal regulators listed zero program-integrity referrals from the foster-care health plan during successive reporting periods.

At the center of the discrepancy are children and youths in out-of-home care whose physical, dental, and behavioral-health services are entrusted to providers under the DCS Comprehensive Health Plan (CHP). The available materials do not identify which providers, claims or services triggered the referrals or whether any child’s care was affected.

Gillette told the California Globe that the figure came from a confidential in-person meeting with the DCS whistleblower. He did not identify the source. The Kingman Republican has been examining financial and operational oversight across DCS, the Department of Economic Security’s Division of Developmental Disabilities and AHCCCS for several months.

According to the whistleblower’s account relayed by Gillette, DCS’s CHP submitted the referrals to the AHCCCS Office of Inspector General (OIG) beginning Jan. 1, 2021. The annual breakdown included 37 referrals under 2025, the largest number shown for any year, and five under 2026.

Separately, DCS described its official division of investigative responsibility with AHCCCS in a written response to Gillette.

“DCS CHP operates as an AHCCCS health plan, and as such is forbidden from initiating its own fraud, waste or abuse investigations and recoupment efforts without AHCCCS approval,” the department wrote.

DCS said it refers suspected cases directly to AHCCCS OIG and takes no recovery action after referral. It also said AHCCCS does not share the investigative results directly with DCS CHP.

That division of responsibility is governed by AHCCCS Contractor Operations Manual Policy 103, which applies to DCS CHP and other AHCCCS contractors. The policy requires contractors to maintain internal controls and program-integrity audit programs, report alleged fraud, waste, and abuse to OIG and, after making a referral, refrain from recouping or offsetting payments or acting in a manner inconsistent with OIG’s investigative authority. It states that AHCCCS has sole authority to handle and dispose of matters involving fraud, waste and abuse.

The same policy says AHCCCS OIG “will notify the Contractor when the investigation concludes” while protecting the integrity and confidentiality of the investigation. It also says matters determined not to constitute fraud, waste or abuse are returned to the contractor for disposition.

The materials reviewed by the Globe do not show how many of the 127 referrals remain open, were closed, were substantiated, were returned to DCS, produced recoveries or led to civil or criminal action. They also do not establish what information AHCCCS includes in a closure notice or whether DCS distinguishes such a notice from the investigative results it says it does not receive.

Federal Reports Show Zero Referrals

AHCCCS’s Managed Care Program Annual Report filed March 26, 2026 covers DCS CHP from Oct. 1, 2024, through Sept. 30, 2025. It reports one dedicated program-integrity staff member, zero program-integrity investigations opened by the plan, zero resolved by the plan and zero referrals from the plan to the state Medicaid agency.

The report also lists $1,484,605.38 in overpayments recovered during the same period and $182,882,356 in corresponding premium revenue. The report does not say whether those recoveries resulted from fraud cases or from other overpayments.

The report filed in March 2025, covering Oct. 1, 2023, through Sept. 30, 2024, also lists zero DCS CHP referrals to the state. The report submitted in June 2024, covering the preceding reporting period, likewise lists zero.

The latest federal reporting period overlaps nine months of the year in which the whistleblower listed 37 referrals. The whistleblower’s annual breakdown does not provide the monthly dates needed to determine how many of those referrals fell within the federal report’s Oct. 1, 2024, to Sept. 30, 2025, window.

The federal reports were submitted by AHCCCS to the Centers for Medicare and Medicaid Services. The reports identify the covered plan as DCS/CHP and define the relevant entry as the number of program-integrity referrals the plan made to the state during the reporting year.

DCS Says It Cannot See Claims Across Programs

DCS’s response also described limits on its ability to examine the full cost and service history of children who receive care through programs operated outside its health plan.

The department said it does not know how much is spent through DDD’s Parents as Paid Caregivers program and cannot access DDD claims for children enrolled through the Arizona Long Term Care System (ALTCS). A child cannot be enrolled simultaneously in DCS CHP and an ALTCS health plan because AHCCCS controls Medicaid enrollment, according to DCS.

DCS said it can calculate placement and health-care expenditures for children enrolled in its health plan but lacks corresponding billing information once a child is enrolled in DDD ALTCS. The department said it was working with DDD to obtain ALTCS claims data so it could evaluate whether children were placed in the correct Medicaid enrollment segments during the proper periods.

DCS also said it does not maintain a dashboard showing total annual spending per child across all programs and vendors.

Within its own health plan, DCS said it uses claims reviews, service-verification audits and Electronic Visit Verification to identify potentially duplicative or impossible billing. The department said those controls do not provide access to claims from programs administered outside DCS.

DCS said it cannot compare Parents as Paid Caregivers hours with congregate-care placements or hospitalizations. It also lacks access to some school-based service data and can monitor only programs paid for or contracted through DCS.

The department attributed some of the visibility problems to separate data systems operated by DCS, DES and AHCCCS. The agencies transfer files through Secure File Transfer Protocol and other non-streaming methods, according to the response. DCS said information can take 24 to 48 hours to transfer accurately because the systems use different structures and definitions.

DCS said it is developing a Master Data Management project to connect health-plan information with other department records through common identifiers. The project would apply to data held by DCS and would not by itself provide access to claims controlled by other agencies.

Initial AHCCCS Analytics Rollout Does Not Apply To Managed-Care Claims

AHCCCS began rolling out the Alivia 360 analytics platform this summer as part of its Medicaid Enterprise System modernization. The agency said the system combines prepayment and post-payment analysis and uses adaptive analytics to identify unusual provider behavior and potential fraud patterns.

An AHCCCS program-integrity FAQ dated June 23 says the platform was already live for post-payment analytics and that AI-assisted prepayment review was scheduled to begin June 29. AHCCCS separately announced that another enhancement release was planned for July 20.

The FAQ also states that the initial deployment is limited to registered providers reimbursed directly by AHCCCS for members outside managed-care organizations. It says the tool does not affect claims processed through managed-care organizations.

The DCS Comprehensive Health Plan is Arizona’s statewide managed-care program for children and youths in out-of-home care. The program provides physical, dental and behavioral-health services through Mercy Care and replaced the former Comprehensive Medical and Dental Program in April 2021, according to DCS.

DCS said it had not been involved in operationalizing AHCCCS’s new fraud-detection platform. Because of the needs of foster children, the department said it would ideally have access to DCS CHP member data in the system and participate in developing fraud-detection rules.

AHCCCS’s Office of Inspector General is responsible for preventing, detecting and recovering improper Medicaid payments. AHCCCS reported that OIG processed 7,096 incoming referrals and closed 4,494 cases during 2025 across the Medicaid program, according to the agency’s program-integrity summary. The public summary does not separately identify referrals involving DCS CHP.

Unanswered Questions

The Globe asked AHCCCS and DCS whether the 127 referrals fall under a different reporting category, whether the federal reports omitted referrals, or whether another difference in methodology accounts for the zero totals.

The Globe also asked AHCCCS whether it plans to expand Alivia 360 to managed-care claims and encounter data, including DCS CHP and DDD ALTCS, and how the agency currently detects conflicting or overlapping services across foster-care placements, hospitalizations, in-home caregiver hours and school-based services.

An AHCCCS spokesperson acknowledged the Globe’s request for comment and asked for two to three business days to coordinate responses with DCS and DES. Twelve business days later, none of the three agencies had provided substantive answers by publication time.