A short week at the Arizona Legislature with some progress.
IRF and IPF comment letters submitted to CMS.
CMS issuing an interim final rule implementing Medicaid community engagement requirements.
Short week at the Arizona Legislature with some progress
Both chambers met early this week before going quiet.
The Senate convened on Monday, worked through a short agenda and adjourned.
The House took up a third reading and final read calendar on Tuesday morning, voted on 38 bills and adjourned before midday.
As of this writing, we do not expect either chamber to return for the remainder of the week.
On Tuesday, the House worked through its third reading and final read agendas. A few bills worth noting:
SB1253 (safe haven providers; hospital deliveries) passed the House unanimously and will be transmitted to the Governor’s office. This bill has been a priority for AzHHA and its members because it clarifies in statute that a mother may exercise her rights under Arizona's safe haven law and relinquish her child immediately following birth in a hospital.
Under current practice, the mother and baby must be discharged before relinquishment can occur.
This fix keeps both mother and baby in the most appropriate setting for such a decision — a hospital.
We thank Senator Mesnard for sponsoring and championing the bill.
HB2557 (releasing medical records; promptness) also passed the House unanimously on final read. AzHHA engaged mid-session to ensure hospital perspectives reached the sponsor and to help define and clarify the process for handling medical records requests.
We appreciate Representative Willoughby's willingness to come to AzHHA, hear our feedback and work to address the constituent concerns that prompted the bill.
SB1127 (duty to report; abuse; neglect)was stopped on the House floor on Tuesday. AzHHA led a strong, collaborative effort with partnering organizations to defeat the bill, which raised serious concerns for our members — particularly resource-limited hospitals in rural Arizona.
The central problem was the removal of a provider's ability to delegate a report to the Department of Child Safety (DCS); as written, the bill would have required the treating provider to be the sole permissible reporter. AzHHA offered the sponsor several amendment options, but the sponsor declined them.
The bill failed, with a majority of the House voting no. Near the end of the voting period, the sponsor's seatmate switched his vote to no and, in explaining his change, signaled that a motion for reconsideration is in the works.
That has opened further offline discussion, with the sponsor now appearing willing to amend the bill and address the healthcare industry's concerns. We are ready to continue working with the sponsor and staff to ensure providers are protected from unintended consequences. We will see what next week brings.
We want to recognize every member who picked up the phone or sat down at a keyboard to reach out to their district representatives and share concerns from trusted healthcare providers back home.
This level of engagement goes above and beyond, and we are grateful for it.
Are you part of a member hospital or health system that would like to be included in our legislator outreach efforts as they arise?
Contact Damien Johnson, director of government relations, to be added to our contact list.
Payment updates are not keeping pace with rising labor costs and workforce shortages, increasing reliance on contract labor and putting pressure on hospital‑based rehab units.
Wage index policies create inequities between IRFs and acute care hospitals competing for the same workforce.
Supported lowering the outlier threshold but urged a more stable, multi‑year approach.
Raised concerns with new requirements (36‑hour therapy start, earlier initial interdisciplinary team meetings, shorter reporting timelines) that could increase burden without improving care.
What AzHHA told CMS — IPFs:
Payment updates do not reflect the true cost of behavioral healthcare, where workforce shortages, higher patient acuity and longer lengths of stay continue to drive costs.
Opposed the proposed 20% outlier cap, which could disproportionately impact providers serving high‑acuity and safety‑net populations.
Encouraged CMS to better account for patient complexity, system constraints and access challenges in payment policy.
Why it matters:
Even modest gaps between payment updates and actual cost growth compound over time.
New operational requirements could add administrative burden without clear patient benefit.
Policy changes may disproportionately affect providers caring for the most complex patients.
CMS issues interim final rule implementing Medicaid community engagement requirements
The Centers for Medicare and Medicaid Services (CMS) has issued an interim final rule implementing the Medicaid community engagement requirement enacted in H.R. 1.
The rule requires certain adults ages 19 through 64 to complete 80 hours per month of qualifying work, education, community service or work-program activities, or meet an equivalent income threshold.
The rule is effective July 31, 2026, and comments are due the same day.
CMS released this fact sheet summarizing the rule.
In the rule, CMS aims to provide states with a detailed framework for determining who is subject to the requirements, who is excluded, how compliance must be verified and what states must do before denying or terminating coverage. Among the significant information in the rule, CMS explains:
How states should identify affected 1115 demonstration populations.
States may not impose lockout periods; individuals disenrolled for noncompliance may reapply at any time.
The medically frail exemption applies to a beneficiary whose physical, mental or behavioral health condition significantly impairs their ability to satisfy the community engagement requirement, emphasizing that a diagnosis alone is not enough.
In 2027, states may accept self-attestation to support a medically frail exemption;beginning Jan. 1, 2028, documentation will be required.
A short-term hardship exemption may be supported by inpatient hospital, nursing facility, ICF/IID, inpatient psychiatric hospital, CAH inpatient services, emergency hospital inpatient services, IMD services and other state-recognized similar-acuity inpatient services.
For the short-term hardship exemption based on high unemployment, BLS Local Area Unemployment Statistics is the default source, but states may submit data from another reliable source, such as a state labor department.
A state adopting the short-term hardship treatment for disasters/emergencies/high-unemployment areas must apply it automatically to applicable individuals in the affected area, without requiring individual requests or verification from beneficiaries.
States must conduct individualized, targeted outreach to all individuals enrolled in the adult group or applicable 1115 demonstration population using mail or electronic notice plus at least one additional modality.
No Surprises Act: IDR final rule released
Last week, the Centers for Medicare and Medicaid Services (CMS) released its final rule updating the independent dispute resolution (IDR) process under the No Surprises Act.
Why it matters: These changes do not alter how payment amounts are determined, but they will affect how quickly and how often disputes move to arbitration.
Lower fees and clearer processes are expected to increase IDR use, while new communication requirements may help providers better identify which claims are worth pursuing.
For hospitals, this means continued reliance on IDR for out-of-network payment disputes — and potentially higher volumes to manage.
What it does:
Requires standardized communication. Payers must use claim adjustment reason codes (CARCs) and remittance advice remark codes (RARCs) to indicate whether a claim is subject to the No Surprises Act, along with contact information and instructions for initiating negotiations.
Expands batching of claims. Allows multiple services to be combined into a single dispute when they are closely related — for example, services for the same patient encounter, services billed under the same or comparable codes or certain specialty services (e.g., anesthesia, radiology, pathology). CMS also sets a cap of 50 line items per dispute to balance efficiency with manageability.
Lowers administrative fees. Reduces fees from $115 to $15 per party per dispute, making IDR more accessible.
Clarifies timelines and process steps. Establishes more defined expectations for open negotiation, dispute initiation and eligibility review to reduce delays and incomplete filings.
Eli Lilly to deny 340B pricing next week for entities that fail to comply with claims-data requirements
On Monday, June 1, 2026, Eli Lilly issued a notice to a group of 340B hospitals giving them five business daysto begin complying with the company’s claims-level data submission policy or lose access to 340B pricing.
In the letter, Lilly reportedly threatened that it will “instruct its wholesalers that those [noncompliant] entities are no longer eligible for 340B pricing until they submit the outstanding data.”
The American Hospital Association (AHA) is urging federal officials to intervene. AHA President and CEO Rick Pollack responded that “[t]his decision will undoubtedly harm America’s most vulnerable patients and communities, forcing hospitals to divert resources away from care and towards onerous and expensive administrative burdens.”
Lilly’s position is that hospitals have had sufficient time to comply, asserting that it gave covered entities a two-month implementation period, multiple reminder notices and individual outreach before beginning enforcement.
In a letter to the Health Resources and Services Administration (HRSA), Lilly estimated that 70% of covered entities purchasing its drugs — roughly 2,350 organizations — have submitted in-house claims data,including abouttwo-thirds of critical access hospitals.
According to Lilly, the noncompliant entities are primarily the largest and most sophisticated 340B entities.
Lilly maintains that this broad compliance undermines the argument that providing the data would be unduly burdensome.
The company also announced its intention to expand enforcement to additional covered entities in the coming weeks.
Hospitals argue that manufacturer-imposed data requirements are unlawful, operationally burdensome and especially difficult for rural and safety-net providers with limited pharmacy, compliance and IT resources.
AHA has urged HRSA to prohibit these policies and previously proposed a neutral, federally-overseen clearinghouse as a less burdensome alternative for addressing program-integrity concerns.
AHA releases new report with strategies to make healthcare more affordable
On Tuesday, June 2, 2026, the American Hospital Association (AHA) released a new report titled “Making Health Care More Affordable: A Blueprint to Lower Costs, Improve Access and Enhance Quality.”
Why it matters: Over the last several months, AHA has shared several resources and messages with members, policymakers and the public on this issue.
Those have focused on how hospitals are taking steps to make care more affordable, but more must be done.
This includes educating stakeholders on the challenges hospitals face with increased costs of providing care and emphasizing the need for all stakeholders to be a part of the solution.
The big picture: The report was produced with input gathered throughout the year from AHA members across the country.
What’s next: AHA will be sharing the report with policymakers and other stakeholders and spotlight specific strategies and action items over the next several months as conversations on healthcare affordability continue.
AzHHA’s annual member survey will run until the close of business on Wednesday, June 10, 2026.
This survey is for CEOs of member hospitals only.
Why it matters: The survey helps us understand if we are meeting the needs of our members with policy and advocacy work as well as additional services and programs.
The big picture:
All CEOs of AzHHA member hospitals received the survey link via email on Wednesday, May 27, 2026.
It will take no more than five minutes to complete.
What’s next: If you are in the target audience for this survey, please check your email for the direct link to the survey and share your feedback.
Simulation trainings at Mt. Graham Regional Medical Center (left) and San Carlos Apache Healthcare (right).
AzHHA, in collaboration with Laerdal, continues to expand obstetric (OB) emergency simulation training across hospitals and emergency departments statewide.
These hands-on simulations are designed to strengthen clinical readiness and improve outcomes for mothers and babies, particularly in rural and underserved communities where obstetric expertise may not always be immediately available.
Why it matters: Through realistic, scenario-based training, multidisciplinary teams including nurses, physicians, EMS and support staff practice respond to high-risk obstetric emergencies such as postpartum hemorrhage, preeclampsia and maternal cardiac events.
These simulations build confidence, enhance teamwork and reinforce evidence-based practices in time-sensitive situations.
By the numbers: The impact of this initiative continues to grow.
In May alone, OB simulation sessions across Arizona engaged more than 730 participants at 12 facilities, reflecting strong statewide participation and commitment to improving maternal health outcomes.
As the program continues to expand, AzHHA remains committed to supporting hospitals with high-quality education, collaboration and resources ensuring every care team is prepared to respond quickly and effectively when it matters most.
Friday, June 12, 2026 - AzPHA Convos & Coffee: Trends in Cancer Screening Among Arizona Medicaid Enrollees, 2018-2024 Join the Arizona Public Health Association (AzPHA) for a virtual discussion with Gloria D. Coronado, Ph.D. Explore how the pandemic and updated screening guidelines have shaped cancer screening trends among Arizona’s Medicaid population. Register here.
Friday, July 17, 2026 - 2026 Summer State of the State Registration is now open for The Hertel Report’s Summer State of the State, hosted this year at Summit Regional Medical Center in Show Low, with virtual attendance also available. The bi-annual conference will feature updates on Arizona’s healthcare market and insights on federal and state policy impacts, including Medicare Advantage, Medicaid, the Marketplace and value-based care trends. Discounted pricing is available for AzHHA members by using “azhha2026.” Register now.
Save the Date: 2026 Arizona Hospital Leadership Conference Mark your calendar for the AzHHA Foundation’s 2026 Arizona Hospital Leadership Conference, taking place Oct. 21–23 at the El Conquistador Tucson, a Hilton Resort. This annual gathering brings together hospital and healthcare leaders from across the state for engaging discussions, networking and forward‑focused learning. Additional details and registration information will be shared in the coming months. Questions may be directed to communications@azhha.org.
