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Texas State Auditor Blasts UTMB, Texas Tech Prisoner Health Care Costs
Medical care for more than 150,000 prisoners in the Texas Department of Criminal Justice (TDCJ) is contracted out to two state university medical systems – the University of Texas Medical Branch at Galveston (UTMB) and Texas Tech University Health Sciences Center (TTUHSC).
In fiscal year (FY) 2009, the TDCJ gave the Correctional Managed Health Care Committee (CMHCC) $466.4 million to pay for all TDCJ prisoner medical care. CMHCC, which kept $700,000 for its own use, is supposed to act as an independent contractor of prisoner health care services.
In FY 2009, UTMB accounted for about four-fifths of medical care provided to TDCJ prisoners, receiving $366.1 million from CMHCC. TTUHSC received $99.6 million.
Because UTMB had a budget deficit of $12.8 million in FY 2009 – requiring a supplemental appropriation – plus an estimated deficit of $82.3 million for FYs 2010 and 2011, the Texas State Auditor’s Office examined the expenditures of both UTMB and TTUHSC, and issued separate reports in February 2011.
The reports were critical of both agencies’ practices. While the audits were in progress, UTMB revised its combined projected deficit for FYs 2009 through 2011 to $83.5 million – a reduction of more than $11 million from the original estimate. TTUHSC reported a budget deficit of $1.6 million in FY 2009 with an estimated $6 million deficit for FYs 2010 and 2011.
UTMB set up a separate department, the UTMB-Correctional Managed Care Division (UTMB-CMC), to provide health care to prisoners. UTMB-CMC determines the amount of money that the TDCJ reimburses for various medical services. In so doing, UTMB-CMC negotiates with UTMB with very little input from CMHCC, the entity that was created to negotiate prisoner health care reimbursements. Essentially, UTMB is negotiating with itself. Thus it is little surprise that reimbursement rates are higher than one might expect.
According to the UTMB audit report, the reimbursement rate for physician services exceeds that of Medicare, Medicaid and a major private insurance carrier. The inpatient services reimbursement rate exceeds the Medicare and major private insurance carrier rates. The outpatient services reimbursement rate exceeds the rates for Medicare and Medicaid, while for “other outpatient services” it exceeds the rate for Medicare.
UTMB received separate Medicare funding for being a teaching hospital and a hospital that serves a large poor population; if those amounts are calculated into the Medicare reimbursement rates, they may exceed the prisoner health care reimbursement rates. However, the reimbursement amount for physician services was “on average 135% of the Medicare reimbursement rate.”
“We did not know until the audit that UTMB was being reimbursed at the rate that it is ... that we are paying more to treat felons than we are to treat law-abiding citizens,” observed state Sen. Steve Ogden, who chairs the Senate Finance Committee. “As I said earlier ... we’re going to uncover every rock, and this is one of them,” referring to efforts to close the state budget gap.
In a 2010 letter, the University of Texas, which oversees UTMB, gave notice that it was losing too much money on the prisoner health care contract and wanted to cancel the contract in protest over proposed budget cuts.
“The reduction of $226 million found in both the Senate and House draft budgets will seriously damage the ability of UTMB and the TDCJ to provide the level of humane and effective health care that those in state penitentiaries deserve and that the state is constitutionally required to provide,” university officials stated. Both budgets proposed to set standards for reimbursement rates.
UTMB fired 363 prison health care employees in 2010 in an effort to reduce costs in the face of the agency’s projected budget deficit. However, although that move was intended to save $3.1 million, UTMB spent $4.7 million for temporary workers.
The State Audit report also criticized UTMB for approving salary increases totaling $14.1 million during FYs 2008 through 2010 while simultaneously complaining to the legislature about the agency’s budget deficit. When asked by a newspaper reporter about millions in salary increases approved in November 2010, UTMB said there was “a positive adjustment margin of $37.5 million,” causing the newspaper to report that UTMB was “back in the black” while the agency was reporting a deficit.
UTMB was further criticized for charging too much of its indirect administrative costs to the UTMB-CMC contract. The audit found that UTMB essentially doubled and triple-charged various costs. For example, because UTMB-CMC has its own human resources department which is directly funded in the contract, it does not use the UTMB human resources department.
However, because UTMB-CMC is a department of UTMB, it is charged a portion of UTMB’s overall indirect administrative costs, including the costs for the UTMB human resources department it doesn’t use. The reimbursement amounts also include charges for indirect administrative expenses. Thus, UTMB-CMC is triple-charged for human resources costs. The indirect costs charged to UTMB-CMC totaled $16.2 million in FYs 2009 and 2010, and contained costs not directly related to providing health care to prisoners, according to the audit report.
The auditors discovered more than $6.6 million in UTMB expenses from FY 2009 through April 2010, mostly for employee fringe benefits, that were specifically prohibited by the contract. They also identified $220,113 in overcharges. However, due to ambiguities in the contract they were unable to determine whether an additional $17.9 million in expenditures were reasonable and necessary for providing prisoner health care.
The auditors faulted TTUHSC’s methods for charging indirect administrative costs to the CMHCC contract. TTUHSC charged a flat rate of 6% of total revenues for indirect costs. Thus, the agency charged the contract $11.8 million in indirect costs in FYs 2009 and 2010. The auditors’ main problem was that TTUHSC could not produce documentary proof that the indirect costs associated with providing prisoner medical care were actually that high.
Additionally, TTUHSC awarded $1.1 million in salary increases in the form of merit pay, equity adjustments and pay plan adjustments to its correctional health care staff in FY 2010 while projecting a deficit of $2 million. Over 10% of the salary increases were given to correctional health care administrative support staff. The auditors discovered $52,465 paid for TTUHSC employee benefits in FY 2010 that were not authorized in the contract.
Overall, in comparison with the audit of UTMB’s prison medical services, the auditors found little to criticize with TTUHSC. Among Texas prisoners, TTUHSC is known for providing better-quality health care. The audit report did recommend that TTUHSC seek pre-approval of the legislative budget board, CMHCC and other government entities before approving salary increases or charging indirect costs.
The auditors made other recommendations to correct the problems identified in the audits. However, UTMB strongly and categorically rejected the recommendations. TTUHSC also objected, defending its practices. The auditors included suggestions for CMHCC to improve transparency and independence in the decision-making process. CMHCC officials agreed with those recommendations but noted that the draft legislative budgets would sunset the agency.
The auditors found that UTMB and TTUHSC had implemented with a large degree of success recommendations made in a previous audit in 2007. Regardless, the TDCJ’s medical care system has for decades faced systemic problems in terms of quality of prisoner health care. [See, e.g.: PLN, May 2008, p.34; Jan. 2006 p.22].
The Texas legislature decreased funding for TDCJ prisoner medical care by $75 million for FY 2011, which will likely lead to cuts in health care services. UTMB is re-negotiating its CMHCC contract, which expired in October 2011 but was extended, and plans to phase out the contract if it cannot reach an agreement with the TDCJ by December 30, 2011.
Sources: “An Audit Report on Correctional Managed Health Care at The University of Texas Medical Branch at Galveston,” SAO Report No. 11-017 (February 2011); “An Audit Report on Correctional Managed Health Care at The Texas Tech University Health Sciences Center,” SAO Report No. 11-019 (February 2011); Dallas Morning News; Austin American-Statesman; Houston Chronicle
In fiscal year (FY) 2009, the TDCJ gave the Correctional Managed Health Care Committee (CMHCC) $466.4 million to pay for all TDCJ prisoner medical care. CMHCC, which kept $700,000 for its own use, is supposed to act as an independent contractor of prisoner health care services.
In FY 2009, UTMB accounted for about four-fifths of medical care provided to TDCJ prisoners, receiving $366.1 million from CMHCC. TTUHSC received $99.6 million.
Because UTMB had a budget deficit of $12.8 million in FY 2009 – requiring a supplemental appropriation – plus an estimated deficit of $82.3 million for FYs 2010 and 2011, the Texas State Auditor’s Office examined the expenditures of both UTMB and TTUHSC, and issued separate reports in February 2011.
The reports were critical of both agencies’ practices. While the audits were in progress, UTMB revised its combined projected deficit for FYs 2009 through 2011 to $83.5 million – a reduction of more than $11 million from the original estimate. TTUHSC reported a budget deficit of $1.6 million in FY 2009 with an estimated $6 million deficit for FYs 2010 and 2011.
UTMB set up a separate department, the UTMB-Correctional Managed Care Division (UTMB-CMC), to provide health care to prisoners. UTMB-CMC determines the amount of money that the TDCJ reimburses for various medical services. In so doing, UTMB-CMC negotiates with UTMB with very little input from CMHCC, the entity that was created to negotiate prisoner health care reimbursements. Essentially, UTMB is negotiating with itself. Thus it is little surprise that reimbursement rates are higher than one might expect.
According to the UTMB audit report, the reimbursement rate for physician services exceeds that of Medicare, Medicaid and a major private insurance carrier. The inpatient services reimbursement rate exceeds the Medicare and major private insurance carrier rates. The outpatient services reimbursement rate exceeds the rates for Medicare and Medicaid, while for “other outpatient services” it exceeds the rate for Medicare.
UTMB received separate Medicare funding for being a teaching hospital and a hospital that serves a large poor population; if those amounts are calculated into the Medicare reimbursement rates, they may exceed the prisoner health care reimbursement rates. However, the reimbursement amount for physician services was “on average 135% of the Medicare reimbursement rate.”
“We did not know until the audit that UTMB was being reimbursed at the rate that it is ... that we are paying more to treat felons than we are to treat law-abiding citizens,” observed state Sen. Steve Ogden, who chairs the Senate Finance Committee. “As I said earlier ... we’re going to uncover every rock, and this is one of them,” referring to efforts to close the state budget gap.
In a 2010 letter, the University of Texas, which oversees UTMB, gave notice that it was losing too much money on the prisoner health care contract and wanted to cancel the contract in protest over proposed budget cuts.
“The reduction of $226 million found in both the Senate and House draft budgets will seriously damage the ability of UTMB and the TDCJ to provide the level of humane and effective health care that those in state penitentiaries deserve and that the state is constitutionally required to provide,” university officials stated. Both budgets proposed to set standards for reimbursement rates.
UTMB fired 363 prison health care employees in 2010 in an effort to reduce costs in the face of the agency’s projected budget deficit. However, although that move was intended to save $3.1 million, UTMB spent $4.7 million for temporary workers.
The State Audit report also criticized UTMB for approving salary increases totaling $14.1 million during FYs 2008 through 2010 while simultaneously complaining to the legislature about the agency’s budget deficit. When asked by a newspaper reporter about millions in salary increases approved in November 2010, UTMB said there was “a positive adjustment margin of $37.5 million,” causing the newspaper to report that UTMB was “back in the black” while the agency was reporting a deficit.
UTMB was further criticized for charging too much of its indirect administrative costs to the UTMB-CMC contract. The audit found that UTMB essentially doubled and triple-charged various costs. For example, because UTMB-CMC has its own human resources department which is directly funded in the contract, it does not use the UTMB human resources department.
However, because UTMB-CMC is a department of UTMB, it is charged a portion of UTMB’s overall indirect administrative costs, including the costs for the UTMB human resources department it doesn’t use. The reimbursement amounts also include charges for indirect administrative expenses. Thus, UTMB-CMC is triple-charged for human resources costs. The indirect costs charged to UTMB-CMC totaled $16.2 million in FYs 2009 and 2010, and contained costs not directly related to providing health care to prisoners, according to the audit report.
The auditors discovered more than $6.6 million in UTMB expenses from FY 2009 through April 2010, mostly for employee fringe benefits, that were specifically prohibited by the contract. They also identified $220,113 in overcharges. However, due to ambiguities in the contract they were unable to determine whether an additional $17.9 million in expenditures were reasonable and necessary for providing prisoner health care.
The auditors faulted TTUHSC’s methods for charging indirect administrative costs to the CMHCC contract. TTUHSC charged a flat rate of 6% of total revenues for indirect costs. Thus, the agency charged the contract $11.8 million in indirect costs in FYs 2009 and 2010. The auditors’ main problem was that TTUHSC could not produce documentary proof that the indirect costs associated with providing prisoner medical care were actually that high.
Additionally, TTUHSC awarded $1.1 million in salary increases in the form of merit pay, equity adjustments and pay plan adjustments to its correctional health care staff in FY 2010 while projecting a deficit of $2 million. Over 10% of the salary increases were given to correctional health care administrative support staff. The auditors discovered $52,465 paid for TTUHSC employee benefits in FY 2010 that were not authorized in the contract.
Overall, in comparison with the audit of UTMB’s prison medical services, the auditors found little to criticize with TTUHSC. Among Texas prisoners, TTUHSC is known for providing better-quality health care. The audit report did recommend that TTUHSC seek pre-approval of the legislative budget board, CMHCC and other government entities before approving salary increases or charging indirect costs.
The auditors made other recommendations to correct the problems identified in the audits. However, UTMB strongly and categorically rejected the recommendations. TTUHSC also objected, defending its practices. The auditors included suggestions for CMHCC to improve transparency and independence in the decision-making process. CMHCC officials agreed with those recommendations but noted that the draft legislative budgets would sunset the agency.
The auditors found that UTMB and TTUHSC had implemented with a large degree of success recommendations made in a previous audit in 2007. Regardless, the TDCJ’s medical care system has for decades faced systemic problems in terms of quality of prisoner health care. [See, e.g.: PLN, May 2008, p.34; Jan. 2006 p.22].
The Texas legislature decreased funding for TDCJ prisoner medical care by $75 million for FY 2011, which will likely lead to cuts in health care services. UTMB is re-negotiating its CMHCC contract, which expired in October 2011 but was extended, and plans to phase out the contract if it cannot reach an agreement with the TDCJ by December 30, 2011.
Sources: “An Audit Report on Correctional Managed Health Care at The University of Texas Medical Branch at Galveston,” SAO Report No. 11-017 (February 2011); “An Audit Report on Correctional Managed Health Care at The Texas Tech University Health Sciences Center,” SAO Report No. 11-019 (February 2011); Dallas Morning News; Austin American-Statesman; Houston Chronicle
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