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PHS Loses $707 Million FDOC Contract Rebid; State Adopts Hybrid Model of Prison Health Care

by John E. Dannenberg

On September 20, 2006, Tennessee-based Prison Health Services (PHS), a for-profit prison medical care contractor [see: PLN, Nov. 2006, pp.
1-10], exercised an escape clause just ten months into its ten-year $645 million contract to provide medical services to 25% of Florida?s prison population. The company claimed it was losing money on the contract to supply health care to 18,000 prisoners in south Florida facilities.

When the Florida Department of Corrections (FDOC) rebid the contract on October 20, 2006, PHS won again ? but now with a bid for $707 million.
Low-bidder Wexford Health Services protested the contract award, citing its bid of $689 million and FDOC?s recently-announced $696,000 fine against PHS for performance deficiencies during the company?s initial contract period.

PHS spokeswoman Martha Harbin blamed the company?s higher second bid on faulty data provided by the state during the 2005 bidding process. PHS?s bid had provided for 95 hospitalization days per month per 1,000 prisoners, which was fully five times what FDOC had projected in its request for bids. PHS?s actual experience during the initial ten months of the contract, however, was 200 hospitalization days per month ? over double its own estimate.

At the new contract award announcement, FDOC Secretary James McDonough sent mixed messages. While selecting PHS partly because of its ?financial strength,? FDOC simultaneously served PHS with a stern letter demanding $696,000 in fines for failure in its earlier contract to regularly hold sick calls, timely give new prisoners orientation, keep legible medical records, and timely assign case managers to newly arrived prisoners.
Seizing upon this apparent inconsistency, Wexford President Mark Hale protested PHS?s bid, asking, ?How can PHS be determined to be a responsible bidder?? FDOC did not comment on Wexford?s ten-page formal protest.

Florida prisoners suffer a high rate of chronic illnesses, notably including HIV and Hepatitis C. Their abysmally inadequate treatment in the past has been frequent fodder for PLN articles. Not surprisingly, FDOC Secretary McDonough stated that privatizing medical services in south Florida has saved the state $23 million since 2001.

Ultimately, however, the state decided against another attempt at wholesale privatization. Rather than awarding the $707 million contract to PHS, the FDOC decided to provide its own prisoner health care while buying supplies and contracting services from over 140 vendor sources. ?We are very confident that we can do this,? said McDonough.

Following Wexford?s protest, an independent evaluation indicated that neither PHS or Wexford had the financial qualifications necessary to win the contract. ?Therefore, there were no responsive and responsible bidders,? McDonough said.

The state will instead use a ?hybrid? medical care system that includes a number of smaller contracts with private companies to provide services such as dental care and radiology. According to McDonough this will ?eliminate the middle man,? since companies like PHS routinely subcontract anyway.

In losing the $707 million FDOC contract, PHS may have been a victim of its own corporate strategy. The company has repeatedly used low bids to win contracts and then demand more money ? sometimes within months. In January 2007, the Vermont DOC reluctantly agreed to a new contract with PHS after the company suddenly cancelled its existing three-year, $26 million prison health care contract in November, 2006. PHS had claimed to be losing money in that contract, too; Vermont will pay the company $3.6 million more per year than it had agreed to under the original contract.

McDonough called the FDOC?s hybrid model a ?groundbreaking approach? to providing prison health care. The question remains, however: Will Florida prisoners receive constitutionally adequate healthcare regardless of who provides it?

Sources: Gainesville Sun,, Associated Press, New York Times, Free Press

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