The high cost of providing medical care through Medicaid has prompted the federal government to examine ways to constrain costs. One experiment to limit Medicaid costs is Arizona's Health Care Cost Containment System, under which the state contracts with prepaid health plans to provide comprehensive medical care for a set monthly fee per patient. The General Accounting Office reviewed the program's first 3 years of operation to examine Arizona's approach to competitive bidding for procuring health plan contracts, collection of utilization data from the prepaid plans on the health care services provided, and financial oversight of the prepaid health plans. The results revealed that the Arizona program experienced numerous start-up problems that prevent an assessment of the effectiveness of its cost containment features. The Arizona program has had difficulty in collecting utilization data and developing adequate financial and utilization reporting systems. Other states considering prepaid Medicaid programs should, among other things: (1) develop adequate financial and utilization reporting systems and program controls before program implementation; (2) establish penalties for noncompliance with reporting requirements; (3) establish requirements to demonstrate the financial viability of prepaid health plans and to monitor health plan performance; and (4) design health plan procurements to promote completion. (NB)