Providing Constitutional and Cost-Effective Inmate Medical Care

Providing Constitutional and Cost-Effective Inmate Medical Care M A C TAY L O R • L E G I S L A T I V E A N A L Y S T • A P R I L 19, 2 012 AN LAO REPORT 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT EXECUTIVE SUMMARY Inmate Medical Program Under Federal Receivership. In 2006, after finding that California had failed to provide a constitutional level of medical care to its inmates, a federal court appointed a Receiver to take over the direct management and operation of the state’s inmate medical care program from the California Department of Corrections and Rehabilitation (CDCR). Since that time, the current and prior Receiver have taken a variety of actions that appear to have increased the quality of inmate medical care but also dramatically increased state expenditures. The increased cost of the inmate medical care program is partially attributable to several inefficiencies including its (1) inconsistent application of the utilization management system, (2) limited use of telemedicine, and (3) an inefficient management structure. Court Takes Early Steps Towards Returning State Control. In January 2012, the federal court found that while some improvements to the program are still needed, substantial progress had been made towards achieving a constitutional level of medical care for prison inmates. The court ordered the administration, the Receiver, and attorneys representing prison inmates to jointly develop a plan for transitioning the responsibility for managing inmate medical care back to the state. Thus, the Legislature could soon be faced with critical decisions regarding how the state will effectively and efficiently carry out the responsibility of providing constitutionally adequate medical care for inmates following the termination of the Receivership by the federal court. Keys to Providing Ongoing Constitutional and Cost-Effective Care. We find that in deter- mining how to transition the responsibility for managing the program back to state control, the state should focus on two keys to long-term success: (1) creating independent oversight of the program, and (2) controlling inmate medical costs. Based on our review of California’s inmate medical program and experiences in other states, we recommend that the Legislature create an independent board to provide oversight and evaluation of the inmate medical care program to ensure that the quality of care does not deteriorate over time. We further recommend that the state take steps to address current operational inefficiencies and establish a pilot project to contract for medical care services to bring state expenditures to a more sustainable level. www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO REPORT 4 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT INTRODUCTION In 2006, after finding that California had critical decisions regarding how the state will effec- failed to provide a constitutional level of medical tively and efficiently carry out the responsibility of care to its inmates, a federal court appointed a providing constitutionally adequate medical care Receiver to take over the direct management for inmates following the eventual termination of and operation of the state’s inmate medical care the Receivership by the federal court. program from CDCR. Since that time, the current In this report, we (1) provide a status report and prior Receiver have taken a variety of actions on the Receiver’s actions, (2) describe how these to revamp CDCR’s medical program. Such actions actions have impacted inmate medical care have included increasing the range of salaries spending and outcomes, (3) discuss the experiences for various clinicians, revising the disciplinary of other states that have faced problems similar process to facilitate the dismissal of incompetent to California’s in delivering inmate medical care, physicians, and improving medical screening and and (4) provide recommendations for delivering a classifications. On January 17, 2012, the federal constitutional level of inmate medical care in the court found that while some improvements to most cost-effective manner as possible in the long the program are still needed, substantial progress run. In preparing this report, we spoke with correc- had been made towards achieving a constitutional tional health care administrators in California and level of medical care for prison inmates. The court those in other states. In addition, we visited various ordered the administration, the Receiver, and medical facilities in different prisons operated by attorneys representing prison inmates to jointly CDCR. We also reviewed the literature regarding develop a plan for transitioning the responsibility correctional health care, and we drew upon data for managing inmate medical care back to the state. from numerous sources, including the Receiver’s Thus, the Legislature could soon be faced with office and other states. BACKGROUND Inadequate Medical Care in Prisons provided inadequate access to care for sick inmates; Leads to Receivership had deteriorating facilities and disorganized medical record systems; and lacked sufficient In April 2001, a class-action lawsuit, known qualified physicians, nurses, and administrators to as Plata v. Brown, was filed in federal court deliver medical services. contending that the state violated the Eighth The state agreed in 2002 to take a series of Amendment of the U.S. Constitution by providing actions to settle the case. On the basis of its ongoing inadequate medical care to prison inmates. The review of the state’s performance over subsequent court found that the state’s inmate medical care years, the court found that CDCR had failed to program was “broken beyond repair” and was comply with a series of court orders since 2002 to so deficient that it resulted in the unnecessary improve the inmate medical care program. The suffering and death of inmates. Specifically, the court concluded that, due to the lack of reliable court found, among other problems, that CDCR’s access to quality medical care, an average of one medical care program was poorly managed; www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO REPORT inmate died every week and many more had been federal court took a variety of actions to revamp injured. Consequently, in February 2006, the Plata CDCR’s medical program. For example, he court appointed a Receiver to take over the direct increased salaries for various clinicians, and imple- management and operation of the state’s inmate mented salary increases for nurses, pharmacists, medical care program from CDCR. A nonprofit and other clinicians. The Receiver hoped that these corporation was subsequently created, known actions would reduce the number of vacant medical as the California Prison Health Care Services positions, which were around 20 percent for (CPHCS), as a vehicle for operating and staffing the primary care providers. In addition, the Receiver Receiver’s operation. Almost two years later, the revised the disciplinary process to facilitate the court appointed a new Receiver to continue and dismissal of incompetent physicians. He also expand the efforts initiated by the first Receiver changed the type of staff used to provide medical in bringing prison medical care up to federal services and awarded a contract to a vendor to constitutional standards. (As we discuss in the improve and manage pharmacy operations. nearby box, a federal three-judge panel determined Current Receiver Implements “Turnaround that overcrowding in the state’s prison system was Plan.” In June 2008, the current Receiver submitted the primary cause of CDCR’s inability to provide and the federal court approved his Turnaround constitutionally adequate inmate health care and Plan of Action designed to ensure that inmates ordered a reduction in the inmate population.) receive constitutionally adequate medical care. Specifically, this plan identified various deficiencies Receivers Implement Changes to Improve Care in the existing inmate medical care program, First Receiver Restructured Inmate Medical as well as measurable goals to address these Program. The first Receiver appointed by the deficiencies. Some of the objectives outlined Federal Court Orders State to Reduce Prison Overcrowding In November 2006, plaintiffs in the Plata v. Brown case joined plaintiffs in the Coleman v. Brown case (involving inmate mental health care) in filing motions for the courts to convene a three-judge panel pursuant to the U.S. Prison Litigation Reform Act. The plaintiffs argued that overcrowding in the state’s prison system was preventing the California Department of Corrections and Rehabilitation (CDCR) from delivering constitutionally adequate health care to inmates. For example, it was alleged that overcrowding forced staff to restrict inmate movements for security purposes, preventing sick inmates from seeing health care staff in a timely manner. In August 2009, a three-judge panel ruled that in order for CDCR to provide constitutionally adequate health care, overcrowding would have to be reduced to no more than 137.5 percent of the designed capacity of the prison system within two years. (Design capacity generally refers to the number of beds that CDCR would operate if it housed only one inmate per cell and did not utilize spaces such as gyms and dayrooms for housing.) At the time of the three-judge panel ruling, the state prison system was operating at roughly 188 percent of design capacity—or about 39,000 inmates more than the limit established by the three-judge panel. The state appealed this decision to the U.S. Supreme Court. In May 2011, the U.S. Supreme Court upheld the three judge panel’s ruling and gave the state until June 2013 to reduce the prison population to 137.5 percent of design capacity. 6 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT in the plan included reducing the number of a monitor once the Receivership ends, or, if not, inmate deaths, reducing the vacancies in certain how another monitor should be selected; (3) what clinical positions, and developing a medical criteria should be used to determine when the court information technology (IT) infrastructure. In should end its oversight and conclude the Plata order to implement his plan, the Receiver has made case (including whether the state must first institu- significant operational changes. For example, tionalize some type of independent oversight of the he established new policies related to emergency inmate medical program); and (4) what system of medical response, primary and chronic care governance should be used to manage the delivery delivery, and inmate medical screening and classi- of inmate medical care post-Receivership. fications. While the Receiver has completed many Receivership’s End Would Restore State’s objectives included in the plan, he is still working Management Authority . . . Ending the on others (such as expanding and improving prison Receivership would mean that the state would health care facilities). For example, the Receiver’s resume control of its inmate medical care program. proposed California Health Care Facility, a new Specifically, the state would regain the authority prison medical facility to provide long-term to make management decisions, provide oversight, care to seriously ill inmates, remains under and hold managers accountable for delivering construction. (The facility, which is scheduled to inmate medical care cost-effectively. For example, be fully occupied by December 13, 2013, will have the state would regain control over personnel a capacity of 1,722 beds.) In addition, the Receiver decisions such as the hiring, termination, evalu- intends to make various medical facility upgrades ation, and compensation for thousands of state to the state’s 33 existing prisons. (We discuss the employees currently managed by the Receiver. inmate health care construction plan in more detail In addition, the state would regain authority to in our recent report, The 2012-13 Budget: Refocusing execute and monitor contracts worth hundreds CDCR After the 2011 Realignment.) of millions of dollars (such as for IT projects and specialty medical services). Currently, many of Court Orders State to these contracts (as entered into by the Receiver) are Prepare for End of Receivership not subject to state administrative regulations that On January 17, 2012, the Plata court found that generally apply to contracts entered into by other while some improvements to the inmate medical state agencies (such as reporting requirements for care system are still needed, substantial progress IT projects and competitive bidding requirements had been made towards achieving a constitutional for procuring goods and services). This is because level of care for prison inmates. The court ordered the Plata court waived such regulations in order to all parties involved in the Plata case—including expedite certain contracts that were deemed critical the administration, the Receiver, and attorneys to improving inmate medical care. While the court representing prison inmates—to file a joint report has not stipulated which state agency will assume to the court by April 30, 2012. Under the terms control at the conclusion of the Receivership, it is of the order, the report must include the parties’ likely that CDCR will do so because it managed the views on: (1) what criteria should be used to inmate medical program prior to the Receivership. determine when it is appropriate to move from the . . . But Court Will Likely Retain Some Level Receivership to a less intrusive system of oversight; of Control in the Short Run. While the court order (2) whether the current Receiver should serve as brings the end of the Receivership closer, it also www.lao.ca.gov Legislative Analyst’s Office 7 AN LAO REPORT implies that the court intends for there to be some order changes when they discover noncompliance period of continued court oversight following the with court orders. During the period following conclusion of the Receivership. This period between the Receivership, the court will expect the state the end of the Receivership and the conclusion of to demonstrate that CDCR is able to sustain the the Plata case could include the appointment of improvements made under the Receivership, as an expert monitor, commonly known as a special well as make any additional improvements ordered master. Special masters are similar to Receivers by the courts. In addition, if a special master is in that they are appointed by a federal court to appointed, the state will likely need to confer monitor and oversee remedial efforts to bring with this individual before making important an organization into constitutional compliance. operational and policy decisions related to inmate Unlike Receivers, however, special masters lack medical care. executive authority and must rely on courts to CHANGES IN INMATE MEDICAL CARE COSTS AND OUTCOMES Data Suggests Improvement in concluded at that time that the Receiver had not Inmate Medical Care yet fully implemented a statewide system of care that meets existing medical policies, procedures, Office of Inspector General (OIG) Audits. In and standards (including those developed by the 2008, at the request of the Plata court, the OIG Receiver). developed a statewide medical inspection program Currently, the OIG is in the process of in order to periodically measure the extent to conducting a second round of audits which are which the state’s 33 adult prisons are adhering to intended to help determine whether the quality the Receiver’s medical policies and procedures of care has improved over time since the first and community standards of care. Specifically, round of audits in 2010. At the time this report the OIG, with the assistance of medical care was prepared, second round audits have been professionals, designed an assessment tool to completed at 26 of the 33 state prisons. According evaluate each prison’s adherence to these policies to OIG, 23 of these 26 prisons met the threshold and procedures. Based on this assessment, each of moderate adherence to medical policies and prison receives a score on a scale from 0 to 100 procedures, and three prisons met the threshold of in different areas of medical operations (such high adherence. As shown in Figure 1, most prisons as medication management and chronic care). have improved significantly since the first audits Prisons are categorized as “low” (below 75), were completed in 2010. Among the prisons that “moderate” (between 75 and 85), or “high” (85 or have had a second round audit, the average score higher) based on their level of adherence to specific increased from 71 percent to 79 percent. medical policies, procedures, and standards. In While the above results are encouraging 2010, after completing a first round of audits at and a step in the right direction, the OIG audits each adult prison in the state, the OIG found do have some limitations. For example, a recent that only 9 of the 33 prisons met the threshold study of correctional health care measurements of moderate adherence. As a result, the OIG 8 Legislative Analyst’s Office www.lao.ca.gov AN LAO R EPOR T Figure 1 Percentage of Adherence With Medical Policies and Procedures Has Increased Among Prisons Correctional Center Folsom Sierra Pelican Bay Valley State San Quentin Mule Creek First Round of OIG Audits (Completed November 2010) Men's Colony Correctional Institution Second Round of OIG Audits (As of February 2012) Salinas Valley North Kern Medical Facility Women's Facility Lancaster Institution for Women Ironwood High Desert Rehabilitation Center Corcoran Solano Substance Abuse Facility Sacramento Kern Valley Deuel Training Facility Pleasant Valley RJ Donovan Institution for Men Calipatria Wasco Centinella Avenal Chuckawalla Valley 50% 55 60 65 70 75 80 85 90 95 100 (Low) (Moderate) (High) OIG = Office of the Inspector General. www.lao.ca.gov Legisl ative An alyst’s 9 AN LAO REPORT in California’s prisons by RAND concluded that which inmate medical care outcomes can be the OIG audits relied on many metrics that are compared. Since most of the indicators were only not “explicit” (objective and quantifiable) and recently implemented, there currently is insuf- “evidence-based” (consistent with findings in the ficient data to establish a clear trend in the quality generally accepted medical literature). The RAND of care being provided. Based on the limited data report also recommended that the state focus on provided by the Receiver, it appears that the state’s using explicit and evidence-based measurements as inmate medical program compares somewhat the basis for developing a permanent performance favorably with external benchmarks in some areas measurement system. Thus, while the OIG’s audits (such as asthma care) and compares unfavorably are an important indicator of improved care, they in others (such as colon cancer screening). Despite may be less conclusive than the type of robust these mixed results, the dashboard represents a and long-term performance measurement system significant step towards establishing a framework recommended by RAND. for a robust performance measurement system that Health Care “Dashboard.” The Receiver, in can be used to assess the quality of inmate medical coordination with CDCR, recently implemented care. a health care dashboard, a visual display that Spending on Inmate Medical Care summarizes key performance indicators, including Has Increased Dramatically a number of health outcome metrics that are explicit and evidence-based. The dashboard also The various actions taken thus far by the specifies certain benchmarks or goals, based on Receiver to improve inmate medical care have data available from other health systems, against dramatically increased state expenditures. Figure 2 shows expenditures for inmate medical care Figure 2 services and pharma- Total Inmate Medical Expenditures Have Increased Under Receivershipa ceuticals from 2005-06 through 2011-12 and (In Billions) as proposed in the $2.5 Governor’s budget for 2012-13. As the figure 2.0 shows, spending on such services grew from 1.5 $1.1 billion in 2005-06 (when the Receivership 1.0 was established) to a peak of almost $2 billion 0.5 in 2008-09, an average annual increase of 23 percent. This increase 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 was in large part driven Estimated Proposed by greater usage of a Excludes costs for medical guarding and transportation due to inconsistencies in available data over this period. contract medical services, 10 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT such as for specialty medical care provided to address the concerns raised by the Plata court. outside prison, private ambulance transportation, However, it is unclear at this time whether these and nursing and pharmacy registry usage. For improvements are being provided in the most cost- example, contract medical costs more than doubled effective manner, particularly in light of the fact from $394 million in 2005-06 to $845 million that California spends significantly more on inmate in 2008-09. In addition, the hiring of over 1,000 medical care than other states with no evidence additional medical staff and the increase in salaries that the quality of care provided in California for physicians and nurses during that period also is higher. In particular, we find that the inmate drove up inmate medical care expenditures. Since medical care program in California continues to 2008-09, however, inmate medical care expendi- suffer from various inefficiencies. As we discuss tures have actually declined by 7 percent annually below, the inmate medical care program has not to a proposed level of about $1.5 billion in 2012-13. taken full advantage of potential cost-containment This decrease is largely attributable to a reduction measures related to utilization management and in expenditures on contract medical, which are telemedicine, and it continues to suffer from an assumed to be $384 million in 2012-13. While the inefficient management structure. recent decline in total inmate medical care expen- Inconsistent Compliance With Utilization ditures is encouraging, the proposed expenditure Management System. Utilization Management level for 2012-13 is still 42 percent higher than in (UM) is the process of evaluating the appro- 2005-06. priateness of health care services according to California also appears to be spending more pre-established criteria and guidelines. Most per-inmate on medical care than any other state. managed health care organizations use UM to A 2010 survey by Corrections Compendium ensure that patients are consistently receiving the (a research-based journal of the American right type and level of care at the right time. Based Correctional Association) compiled per-inmate on the symptoms a patient is presenting, a UM health care (medical, mental health, and dental system relies on set guidelines for determining the care) expenditure data from 39 other states. types of medical services that would be reasonable, According to the survey, these states spent an necessary, and effective to provide the patient. average of roughly $5,000 to provide compre- For example, the guidelines might indicate that a hensive medical, mental health, and dental care patient with symptoms that indicate a recent stroke to an individual inmate in 2009. Nearly all of the (such as blurred vision and numbness) should be states surveyed spent in the range between $3,000 referred for an MRI scan. and $7,000. In that same year, California spent Once UM guidelines are in place, one widely roughly $16,000 per inmate for all inmate health used practice in the medical industry is a process care services, of which, $11,000 was for medical known as prospective review. During a prospective care. review, an independent UM specialist reviews a referral for an inmate to receive non-urgent Several Inefficiencies Remain specialty medical treatment that is unavailable Based on our review of California’s current in prison to determine whether it meets the UM inmate medical care program, it is clear that the guidelines. If the referral meets the guidelines, it is actions taken by both the former and current approved. If it does not, it is generally rejected. The Receiver have improved the program and begun UM specialist can, however, approve a referral that www.lao.ca.gov Legislative Analyst’s Office 11 AN LAO REPORT does not meet the guidelines by overriding the UM his efforts have led to significant cost savings. For system if he or she finds that there are extenuating example, expenditures on contracts for specialty circumstances that make the UM guidelines medical care services has declined by 44 percent inapplicable. In addition, the referring physician from $695 million in 2008-09 to $388 million in can seek to override the UM system by appealing 2010-11, primarily due to a decline in the number to a higher level of review. While overrides are of inmates referred for specialty care services. sometimes appropriate and some level of overrides Between October 2009 and October 2011 the rate is to be expected, high rates of overrides can of referrals for specialty medical care decreased indicate a lack of acceptance of the UM system from 98 referrals per 1,000 inmates per month to from medical staff. 70 referrals per 1,000 inmates. This trend suggests The prospective review process enables that medical staff are increasing their use of and health care managers to reduce the amount compliance with the UM system, thereby avoiding of services that are prescribed unnecessarily, unnecessary referrals. thereby avoiding unnecessary costs. We also note While the above trends are encouraging, that such prospective reviews are an especially other data suggest that the system is still not being important tool in health systems with a high risk employed as effectively as it could be. For example, of malpractice litigation, such as prisons. This is the UM system used by the Receiver is not centrally because in such settings physicians often have an controlled as is typical in other health care systems. incentive to overprescribe health care services Instead, UM decisions in California are made at in order to insulate themselves from lawsuits individual prisons. This has led to varying degrees alleging insufficient care, a practice known as of compliance. For example, data on the rate at “defensive medicine.” Defensive medicine is which medical staff override the recommendations especially expensive in prison settings because of the UM system (such as by referring inmates referrals to outside care include not only the cost to specialty care when the UM system does not of the care itself, but also the cost of guarding and recommend doing so) provides evidence of a UM transporting an inmate to and from such medical system that is not applied consistently across insti- appointments. While actual medical costs vary tutions. Although the Receiver’s monthly report depending on the type of treatment the inmate on key performance indicators does not include receives, medical guarding and transportation data on the rate of such overrides, the Receiver’s can cost more than $2,000 per inmate per day. office provided the data at our request. As shown in Prospective reviews reduce defensive medicine Figure 3 there is a large amount of variation in the by providing physicians with an objective and rates of overrides in the state’s 33 prisons, ranging evidence-based justification for denying unnec- from less than 10 percent in two prisons to more essary medical treatment. than 40 percent in three other prisons. While CDCR has been using UM since 1996, Limited Use of Telemedicine. Telemedicine, or the department has not always taken the necessary the delivery of health care services via interactive steps to ensure that the UM system is implemented audio and video technology, can both increase effectively (such as properly training staff). We inmates’ access to care—particularly to specialty note, however, that the current Receiver has paid care—and reduce the cost of delivering that care. particular attention to establishing an effective Through the use of telecommunications systems, UM system in recent years and data suggest that live images of the patient are transmitted over 12 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Figure 3 Percentage of Overrides of the Utilization Management System October 2009 to October 2011 Ironwood High Desert San Quentin Kern Valley Pelican Bay Calipatria Correctional Center Medical Facility Institution for Women Deuel Training Facility Correctional Institution Avenal Lancaster Pleasant Valley Rehabilitation Center Centinella Sacramento Folsom Sierra Chuckawalla Valley Corcoran Salinas Valley North Kern RJ Donovan Institution for Men Valley State Solano Women's Facility Wasco Men's Colony Mule Creek Substance Abuse Facility 10% 20 30 40 50 www.lao.ca.gov Legislative Analyst’s Office 13 AN LAO REPORT broadband internet or telephone lines to the outside the immediate vicinity of prisons. doctor’s office. Equipment such as exam cameras, In view of the above benefits, the use of monitors, and electronic stethoscopes allow physi- telemedicine in California prisons has increased cians to treat patients remotely without meeting in recent years under the federal Receivership. For them face-to-face. Telemedicine is used by public example, the number of telemedicine encounters and private health care providers throughout the increased from about 9,000 in 2004-05 to about country to treat patients who otherwise would have 23,000 in 2010-11. In spite of this increase, to travel long distances to confer with a health care however, it appears that California has not taken professional. Telemedicine is also used in most full advantage of this technology for inmates. By states to provide some health care services to incar- comparison, Texas (a state with fewer inmates cerated persons. In fact, 26 of 44 states surveyed by than California) currently records about 40,000 the Corrections Compendium in 2010 were using telemedicine encounters annually. This is partially telemedicine to deliver some medical services to because inmate-telemedicine relies on the use of inmates in their prisons. other technologies (such as a health care scheduling Correctional facilities have found that telemed- system and high-speed network infrastructure) icine increases access to care and enhances public that have only recently been developed and made safety. This is because inmates who otherwise widely available in California’s prisons. In addition, would have been transported into the community the Buerau of State Audits (BSA) reported in 2009 for medical treatment instead remain inside prison that the Receiver’s office had failed to track data walls for their consultation. In addition, telemed- that could guide the expansion of telemedicine by icine reduces costs associated with transporting identifying which types of medical consultations inmates to outside medical facilities. As previously are best suited for telemedicine and which institu- mentioned, the cost of guarding inmates when they tions could benefit most from the technology. In are transported outside of prison is roughly $2,000 a follow-up report in March 2011, BSA noted that per inmate per day. Depending on the frequency the Receiver had still not begun tracking such data. with which prisons use telemedicine, the costs for In total, we estimate that the state could achieve telemedicine staffing, equipment, and maintenance savings in the millions or low tens of millions can be more than offset by savings generated from of dollars annually through the expansion of avoiding medical trips. Contract costs with physi- telemedicine. cians may also be lower for correctional systems Inefficient Management Structure. As previ- that deliver health care services using telemedicine ously mentioned, CDCR is responsible for the as opposed to traditional in-person consultations. day-to-day operations of the state’s prisons, while This is because telemedicine provides the oppor- CPHCS operates the inmate medical services tunity to bid out contracts to a larger pool of physi- program in the prisons. As a result, CPHCS is a cians licensed to practice in a given state, rather separate organization from CDCR with its own than only to those contract physicians practicing in executive staff that employ individuals to carry the region of a specific prison. Moreover, telemed- out various administrative functions (such as IT, icine improves inmates’ access to health care by human resources, procurement, and budgets). enabling correctional systems to expand their We estimate that this duplicative administrative provider network to include physicians located staffing structure results in unnecessary costs in the low tens of millions of dollars annually. 14 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Having two sets of executive management staff OIG found that there was inconsistent monitoring by can also lead to confusion over responsibilities and the Receiver of prescribing practices. According to complicate the task of coordinating the management the OIG, this inconsistency led to the prescription of of the inmate medical program with CDCR’s inmate expensive drugs, despite the availability of less costly mental health and dental care programs. For example, alternatives. The OIG recommended that the Receiver while the Receiver is responsible for procuring identify individuals who are prescribing more costly pharmaceuticals on behalf of the mental health and drugs and take actions to rectify their behavior. The dental programs, he does not have management Receiver’s ability to implement this recommendation, authority over psychiatrists and dentists, which limits however, is complicated by the fact that many of these his ability to ensure that they are prescribing drugs in prescribers are psychiatrists who are not under his the most cost-effective way. We note that in 2010 the management. KEYS TO LONG-TERM SUCCESS Given the recent federal court order to create a state cannot effectively undertake corrective action. transition plan, the conclusion of the Receivership Ongoing problems, if unaddressed, could result in now appears to be in sight. However, as we discussed renewed federal court oversight. We expect that the above, our analysis indicates that the inmate medical establishment of independent oversight will also be a care program in California continues to suffer from priority of the federal court. various inefficiencies. Moreover, we find that there Delivering Care Cost-Effectively. As we are a couple of key issues that would still need to discussed above, inmate medical expenditures have be addressed to ensure that the state is positioned increased dramatically in recent years to the point to sustainably deliver a constitutional level of where California now spends significantly more inmate medical care in a post-Receivership future. than other states. Given the pressure these costs put Specifically, there will need to be some level of on the state’s General Fund, along with the state’s independent oversight and evaluation of the inmate ongoing fiscal struggles, it is important that the medical care provided by CDCR. In addition, the inmate medical program be operated as efficiently department should take steps to bring the cost of as possible. The state may not be able to afford to pay delivering care to a level that is more in line with $1.5 billion or more each year on inmate medical what other states are spending, particularly given the costs. Operating a more efficient inmate medical state’s fiscal condition. system, therefore, will make it more sustainable in Independent Oversight and Evaluation. Given the long run and less susceptible to budget cuts that CDCR’s poor track record in providing medical care could reduce the ability of the department to deliver to inmates, it would be unwise to return control services to inmates effectively. of the inmate medical program to the department As we discuss in the nearby box (on the next without first establishing independent oversight and page), there have been a couple of proposals in evaluation. Failure to establish effective oversight recent years which attempted to improve the inmate mechanisms could result in a failure of the state medical care program by providing independent to recognize if the department begins to backslide oversight and/or delivering care in a more cost- on recent improvements in the quality of inmate effective manner. medical care. Absent recognition of problems, the www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO REPORT LESSONS LEARNED FROM OTHER STATES Like California, several states have been Oversight Can Be Implemented Successfully subject to federal court oversight of their inmate Florida—Federal Court Oversight Ended in medical care in recent decades. In this section, 1993. In 1972, a federal court found that the Florida we discuss the experiences of some of these Department of Corrections (FDOC) had failed to states. First, we discuss how two states, Texas and provide a constitutional level of medical, mental Florida, established independent oversight to help health, and dental care to its inmates and assumed remove themselves from court oversight. Also oversight of the delivery of such care. In 1986, like California, nearly every other state in the the Florida Legislature created an independent nation is facing rising inmate medical care costs. state agency known as the Correctional Medical Increasingly, some states have attempted to deliver Authority (CMA) to (1) monitor correctional health inmate health care in a more cost-effective manner care and (2) advise the Governor and Legislature by contracting with experienced managed health regarding the quality of care provided, and the care organizations to provide primary health care level of funding provided in the annual budget for services. Below, we discuss how the approaches that such care. In 1993, the court ended its jurisdiction Texas, Florida, and Kansas took to contracting out over the state’s correctional health care system and resulted in varying levels of success. Recent Proposals to Improve Inmate Medical Care In recent years, two major proposals have been put forward to restructure inmate medical care in California in order to address some of the fundamental problems with the current program. First, the Schwarzenegger administration commissioned a consulting firm to develop a proposal to partner with the University of California (UC) for the delivery of inmate health care. Second, the current Receiver released a draft proposal to create a new authority to manage inmate health care in the state. Proposal to Partner With UC for Inmate Health Care. In 2010, a consulting firm commis- sioned by the Schwarzenegger administration proposed a partnership between the California Department of Corrections and Rehabilitation (CDCR) and UC whereby UC would assume responsibility for delivering inmate health care. The plan called for the creation of an independent California Health Care Authority that would contract with UC for the provision of inmate medical, mental health, and dental care. It would also develop oversight measures and audit systems, with CDCR being responsible for auditing the quality of care provided by the university. Proposal to Establish Prison Health Care Authority. In 2010, the Receiver provided the Legislature with a draft proposal to create a new authority that would be independent of CDCR and would manage inmate health care. Under the Receiver’s draft proposal, the authority would receive a continuous appropriation (meaning an annual legislative appropriation would not be required) to fulfill its duties and would be governed by a board consisting of nine members. The board would contract with the UC to conduct an annual assessment of the cost-effectiveness of the authority’s operations and the quality of care being delivered. All current health care staff at CDCR, as well as the California Prison Health Care Services support staff, would become employees of the authority. 16 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT returned control of the system to FDOC under the Correctional Managed Health Care Committee condition that the CMA would continue to provide (CMHCC) to serve as the oversight and coordi- independent oversight, in order to ensure the nation authority for the delivery of health care continued delivery of adequate health care. Since services to individuals incarcerated in facilities that time, the FDOC has successfully retained operated by TDCJ. The committee consists of full control of its inmate health care system with nine members, including two members from the the ongoing oversight of the CMA, which was University of Texas and two members from Texas later eliminated by the Florida Legislature in Tech University. The CMHCC contracts with August 2011. the public universities in Texas—specifically, the Texas—Federal Court Oversight Ended in University of Texas Medical Branch (UTMB) and 1999. In 1980, a federal court found that the Texas Texas Tech University Health Sciences Center—to Department of Criminal Justice (TDCJ)—formerly provide all inmate health care services. The called the Department of Corrections—failed committee is responsible for developing these to provide a constitutionally adequate level of contracts, establishing reimbursement rates, health care to its inmates and appointed a special monitoring the quality of care provided, and master to monitor and oversee various health making sure providers comply with the terms care improvements. In 1994, the state created the of the agreed-upon contract. This arrangement, Both Proposals Include Independent Oversight. The major potential advantages of both of these proposals is that they would provide independent oversight of the inmate medical care program. Establishing this type of independent oversight would be an important step towards demonstrating to the Plata court that the state can maintain a constitutional level of care. In addition, both proposals assign the responsibilities for delivering and evaluating inmate health care to separate agencies, thus avoiding some of the conflicts that arise from having these responsibilities rest with the same agency. Both Proposals Would Likely Be Expensive. However, our analysis indicates that both proposals could be expensive. For example, awarding a contract to UC without a competitive bidding process provides little incentive for UC to deliver care in the most cost-effective way possible. Similarly, the Receiver’s proposal to fund the new health care authority with a continuous appropriation is problematic because it restricts the Legislature’s authority to make annual budget adjustments. Such adjustments would likely be necessary over time because of changes in the inmate population and its health care needs, the state’s fiscal situation, and the Legislature’s budgetary responsibility to balance correctional health care funding with other competing priorities in the state. Furthermore, a continuous appropriation would provide no incentive to provide more efficient delivery of services. In addition, by assigning the management responsibilities to an entity other than CDCR, the proposal could continue the inefficiencies that currently stem from the Receiver employing separate administrative staff to fulfill functions (such as information technology management, human resources, and accounting) that could be completed by existing CDCR administrative staff. www.lao.ca.gov Legislative Analyst’s Office 17 AN LAO REPORT including the oversight provided by CMHCC, use such contracts. (In a capitated rate contract, helped to facilitate the end of court oversight over the provider agrees to provide specified health Texas’ inmate health care system in 1999. care services to inmates based on a fixed daily A 2004 audit by the Texas State Auditor’s reimbursement rate.) Specifically, the study found Office, however, identified a couple of significant that the daily cost of providing health care services problems with the CMHCC. Specifically, the for inmates was roughly $2.22 less per inmate in auditor found that the committee was not states that used capitated rate contracts. Given the completely independent of the universities it current prison population in California, a cost oversees because four of the board members were reduction of $2.22 per inmate per day would result employed by the universities. In addition, the in savings of over $100 million annually. auditor found that the contracts between CMHCC Below, we examine the experiences of three and the universities lacked basic provisions such as states that have contracted out for their inmate for evaluating contractor performance, remedying health care: (1) Kansas, which has largely been nonperformance, and requiring expenditure successful at contracting out with various private reports. The auditor also found that the CMHCC providers; (2) Texas, which has had a mixed was not ensuring that it was only reimbursing the experience contracting with its public universities; universities for costs allowed under the terms of the and (3) Florida, which had serious problems when contracts. In 2011, the auditor found that UTMB it attempted to contract with various private had been inappropriately charging the state for providers. millions of dollars in costs that were deemed not Kansas Has Successfully Contracted With reimbursable. These audit findings suggest that it Private Providers. In the late 1980s, the Kansas is important for an oversight agency to be truly Department of Corrections (KDOC) faced signif- independent and be subject to scrutiny itself. icant challenges in delivering inmate health care. For example, the department was unable to hire Contracting Out Can Reduce Costs sufficient qualified staff and had trouble meeting In 2004 (the most recent year for which data the financial demands brought on by rising health is available), 32 states contracted out for some or care costs. In an attempt to meet its staffing needs all aspects of their adult correctional health care and control rising costs, KDOC solicited bids services. Most of these states contract with private from private companies to provide health care prison health care providers while a small but services to the inmates in its prisons. Since 1988, growing number of states contract with their public KDOC has been contracting with various private universities. While the reasons for contracting out providers for these services. Currently, a private vary from state to state, one common reason is that entity provides medical, mental health, and dental experienced managed health care organizations care to inmates at an annual capitated rate of about can be more efficient at employing cost avoidance $4,900 per inmate. Under such an arrangement, the measures (such as UM). For example, one research financial risks of potential cost increases are shifted study published by the National Institute for from the state to the provider. This is because the Corrections in 2000 found that states using some state’s costs under the contract cannot exceed the form of capitated contracts for primary health established capitated rate. In order to ensure that care in prisons had significantly lower correctional the private provider is not earning excessive profits health care costs than those states that did not by denying inmates necessary health care, the 18 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT existing contract requires the provider to submit to the universities has become strained. Specifically, the state a detailed accounting of how its budget is administrators at UTMB have expressed discontent allocated and how much profit they are earning. In with the level of funding provided by the state addition, the contract specifies certain performance for inmate health care services and threatened measures that must be met as well as specific to terminate the existing contract with the state. penalties that will be assessed if they are not. For While the TDCJ is currently negotiating with the example, if an inmate does not receive a physical UTMB to extend its contract, officials at TDCJ are exam within seven days of admission to a Kansas also considering contracting directly with private prison, the private provider is assessed a $100 fine. providers for inmate health care services. Based on our discussions with representatives from Florida’s Attempt to Contract With Private Kansas, the state has generally been satisfied with Providers Largely Failed. In an attempt to the cost and quality of inmate health care provided curtail rising inmate health care costs, Florida by private entities. For example, between 2000 and contracted with a private correctional managed 2008, the cost of inmate health care per inmate health care organization to provide inmate health in Kansas increased by 9 percent annually. For care in prisons in the southern region of the comparison, one recent study surveyed 22 states state beginning in 2001. In the following years, and found that those states experienced an inmate the outsourcing initiative suffered a variety of health care cost increase of 11 percent annually setbacks—including the early termination of over the same time period. In California, per the contract by the initial provider, difficulties inmate health care costs increased by 18 percent in finding qualified competitive bidders for annually. subsequent contracts, and poor performance by Texas Has Had Mixed Results Contracting contracted providers. As a result of these problems, With Public Universities. As mentioned earlier, the state began phasing out the contracts and today Texas began contracting with its public universities most of the staff providing inmate health care are to provide inmate health care services in 1994. state employees. Under the contracts, the public universities provide In a 2009 report, the Florida Office of Program inmate medical, dental, and mental health care Policy Analysis and Government Accountability services to inmates based on a capitated rate of identified several factors that led to the failed reimbursement. The contracts were seen as a way outsourcing effort. The report found that FDOC to contain rising inmate health care costs as well as failed to adequately monitor and oversee its to meet a court mandate to improve the quality of contracts with private health care providers. care. Officials at the UTMB estimate that the state For example, the department failed to (1) clearly was able to achieve roughly $215 million in savings articulate the terms and conditions of contracts, over the first six years of the contracts through including penalties for noncompliance; (2) establish various cost-containment measures, including the performance measures; and (3) properly train increased utilization of telemedicine. In addition, contract monitoring staff. In addition, they found data provided by the UTMB indicates that inmate that the state had failed to obtain inmate health health care outcomes (such as mortality rates for care services at the lowest possible cost because inmates with HIV and asthma) also improved contracts were often awarded without a competitive over this time period. However, in recent years it bidding process. appears that the partnerships between TDCJ and www.lao.ca.gov Legislative Analyst’s Office 19 AN LAO REPORT CREATING A COST-EFFECTIVE SYSTEM OF INMATE MEDICAL CARE IN CALIFORNIA As we discussed earlier, a recent federal court medical care in one or more prisons on a pilot basis. has ordered all parties involved in the Plata case Figure 4 summarizes these recommendations, to file a joint report to the court by April 30, 2012 which we describe in more detail below. on how the state will manage inmate medical We also note that it will be important for care following the conclusion of the Receivership. the Legislature to ensure that any transition plan The state, therefore, may soon be in a position to developed and implemented by the administration implement changes without having to seek court and the Receiver appropriately protects its authority approval. Moreover, the Legislature may soon be to provide oversight and accountability of the inmate requested by the administration and federal court medical program and expenditures. For example, to pass legislation designed to implement some the Legislature should oppose any proposals that aspects of the court-approved transition plan that include a continuous appropriation for inmate requires changes to state law. In addition, the medical care. Instead, the Legislature should have administration may request that the Legislature the ability to review and approve funding for the appropriate funds to pay for additional inmate program as part of the annual state budget process. medical services that could be part of the plan. This would allow the Legislature to hold program Based on our research and the lessons learned managers accountable for their expenditures and from other states, we have identified two steps reduce future appropriations if it identifies areas of the state should take to establish a sustainable, inefficiencies. In addition, the Legislature should be constitutional, and cost-effective system of inmate able to determine what, if any, exceptions the inmate medical care in California. First, the state should medical program should have from state laws and create an independent board to provide oversight regulations that apply to other agencies. As discussed and periodically evaluate the inmate medical care above, the Receiver is currently exempt from program. Second, the state should control inmate adhering to certain laws and regulations related to medical care costs by addressing inefficiencies in the personnel, IT, and contracts. In some cases this has inmate medical care program and contracting with led to an increased risk that the state is overpaying one or more managed care organizations to provide for certain contracted services. The Legislature could increase its ability to oversee the inmate medical Figure 4 program by choosing to Summary of LAO Recommendations require CDCR to adhere to some state laws and 9 regulations from which Establish a New State Board to Oversee Inmate Medical Care • Require board to evaluate care and provide policy direction the Receiver is currently • Appoint health care professionals and experienced managers to board exempt (such as those • Fund the board with savings from ending the Receivership requiring competitive 9 Control Inmate Medical Care Costs bidding for contracts and • Address inefficiencies in the Inmate Medical Program reporting on IT projects). • Contract with managed care organizations for medical care on pilot basis 20 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT E stablish a N Ew s tatE b oard to and procedures that have been mandated by the o vErsEE i NmatE m Edical c arE court, but also on actual health outcomes (such as morbidity and mortality rates). In May 2011, In order to ensure that the state’s inmate RAND Corporation released a report, commis- medical program is delivering a constitutional sioned by the Receiver, which recommended level of care to inmates, we recommend that roughly 80 outcome measures that could be used to the Legislature create a new oversight board, evaluate California’s inmate medical program. This independent of CDCR, to oversee the delivery of report could provide a good starting point for the inmate medical care. (The Legislature might also board in determining what performance measures consider requiring the board to oversee inmate it should use in its evaluations. In fact, the Receiver mental health and dental care programs.) Based has already started tracking roughly half of the on the experiences of Texas and Florida, we believe measures recommended by RAND and intends to that the creation of an independent oversight board eventually implement about two-thirds of them. would have several benefits. First, it could facilitate The board could also set performance goals, the conclusion of federal court involvement in measure the degree to which CDCR meets those California’s prison medical care system by demon- goals, and regularly report its findings to the strating that the state has institutionalized a system Governor and Legislature. We note that the for providing ongoing oversight and evaluation of Receiver has already developed a number of bench- the program. In addition, an independent board marks based on data from other health systems would help to identify any deterioration in the which are used to set goals for the current inmate quality of inmate medical care before it reaches a medical program. These existing benchmarks point where the state finds itself subject to future could serve as a good starting point for the board. lawsuits. Finally, the board would increase trans- In addition, having the board publicly report on parency and accountability in the inmate medical CDCR’s progress in meeting these goals would program by reporting performance measurements promote transparency in the system and allow the that could be used by the Legislature and the Legislature and Governor to hold the department administration to hold managers accountable for accountable for meeting the prescribed perfor- achieving good outcomes. mance goals. Duties of Proposed Oversight Board Budget and Policy Direction. The board could also be responsible for reviewing CDCR’s The Legislature could assign different medical care budget and expenditures to assess the responsibilities to the oversight board. In our degree to which the department is delivering care view, these duties should include evaluating the as cost-effectively as possible. It could report to provision of medical care, providing budget and the Legislature and Governor annually regarding policy direction, contracting responsibilities, and the appropriateness of the budget including any ensuring accreditation. recommendations where certain spending should Evaluation of Inmate Medical Care. Under our be increased or decreased. Finally, the board proposal, the primary purpose of the board would could provide policy direction to CDCR for the be to conduct periodic evaluations of the quality inmate medical program. For example, the board of care being delivered by CDCR. Such evaluations could recommend that the department adopt new should focus not only on adherence to policies technologies (such as electronic medical records) www.lao.ca.gov Legislative Analyst’s Office 21 AN LAO REPORT that could increase the quality of care. In addition, measures, accreditation could serve as an it could establish guidelines, such as what type important indicator to the Plata court that the state of medical appointments can be done through is delivering constitutional care. telemedicine rather than a traditional consultation. Structure and Funding of the Oversight Board Contract Development and Monitoring. The oversight board could also be responsible for Organizational Structure. We recommend developing and monitoring a pilot contract with a that the oversight board be made up of medical care managed care organization, which we describe in professionals (such as physicians and nurses), leaders more detail later in this section. In our view, the of managed care organizations, correctional experts, board would be in a much better position to fulfill and academic researchers. Florida’s nine-member this responsibility than CDCR, for several reasons. CMA, which consisted of physicians in private First, the board would be comprised of individuals practice, hospital administrators, and academic with expertise in (1) delivering and managing experts, could serve as one model for developing medical care and (2) measuring the quality of California’s medical care oversight board. such care, which are integral skills for contract Although the board would be independent, it oversight. Second, since the board would also be may make sense to place the board within the OIG responsible for developing performance goals and for administrative purposes. The OIG could provide measurements for CDCR, it would be able ensure administrative functions (such as human resources, that an appropriate level of consistency is applied IT, and budget support) to the board and its staff. In in developing similar metrics for other providers. addition, existing OIG staff that currently perform Third, CDCR has historically had difficulty inmate medical care audits could help support the managing certain contracts with private providers. board. The board also could call upon other OIG For example, in 2007 the OIG found that the staff to provide audits of the department’s medical department did not provide adequate oversight of program budget as needed. We note, however, that its in-prison substance abuse treatment contracts. a small number of additional staff may be needed to Accreditation. The board could also be help the board with some of its oversight functions. responsible for ensuring that inmate medical care For example, there may be a need for staff with is accredited in all of the state’s prisons. Currently, expertise in medical care quality measurement to 31 states have some or all of their prisons accredited assist in the development and implementation of for health care by either the National Commission performance measures. on Correctional Health Care or the American Board Funding. We estimate that the cost Correctional Association. None of California’s of our proposed board would be small relative prisons have national accreditation, though prison to the size of the prison medical care budget. In medical facilities treating higher acuity inmates Florida, the CMA has historically been operated do have to be licensed by the state. The advantage on an annual budget of less than $1 million. of accreditation is to ascertain whether a prison While California’s board may need to be larger to is operating its medical program in a way that account for its bigger prison system and the need is consistent with national standards. This can for relatively more oversight in the near term, we provide some protection from legal risks associated estimate that the cost would likely not exceed a with litigation related to inmate care. Also, prior couple million dollars annually. However, these to implementation of a robust set of performance new costs would be more than offset by savings 22 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT resulting from the elimination of the Receiver’s For example, the Receiver could include data on office. If the administrative staff at CPHCS was UM override rates in his monthly reports on key merged with CDCR’s administrative staff, we performance indicators. Such data could then be estimate that efficiencies could be achieved, used to identify prisons and clinicians that have resulting in savings in the millions or low tens of above average rates of UM overrides. The Receiver millions of dollars annually. could then take steps (such as increased training on applying the UM system) to bring the override rates c i m c c oNtrol NmatE Edical arE osts more in line with the state average. We estimate In addition to having independent oversight that if the system-wide rate of UM overrides could and evaluation, the state’s inmate medical program be brought down to 10 percent that could result in also needs to be more cost-effective in order to about 19,000 avoided referrals to specialty care on sustainably deliver a constitutional level of care. an annual basis. This would translate to savings of Accordingly, we recommend below a series of steps roughly $80 million annually. that could be taken in both the short and longer Increase Use of Telemedicine. While the term to address existing inefficiencies and further Receiver has taken significant steps towards control inmate medical costs. increasing the utilization of telemedicine in recent years, there are probably still unexploited opportu- Address Identified Inefficiencies nities to further increase its utilization rate. In the Our analysis indicates that there are a few steps past couple of years, the Receiver has designated a that could be taken to address the inefficiencies number of specialty care services (such as ortho- we have identified in the current inmate medical pedics) for which telemedicine is the default mode of program. In the near term, the Receiver could make care delivery. This means that physicians are directed certain changes to how UM and telemedicine are to use telemedicine to deliver the services unless currently being used, which we describe below. In there are extenuating circumstances that make the longer term, following the conclusion of the telemedicine impractical. The Receiver could further Receivership, the state would have the authority to expand the list of specialty care services for which make these changes on its own accord. In addition, telemedicine is the default mode of care. In addition, following the conclusion of the Receivership, the the Receiver could expand the use of telemedicine state could also consolidate existing CPHCS admin- to deliver primary care services, particularly at istrative staff with CDCR administrative staff. geographically remote prisons where it is difficult Increase Consistency in the Application of the to hire qualified physicians. We estimate that if the UM System. The Receiver could begin taking steps rate of telemedicine utilization was increased to a to centralize control of the UM system so that the rate similar to Texas (about 40,000 annual appoint- process of overriding the system requires approval ments) that would result in savings in the low tens of by headquarters staff. This would increase the millions of dollars annually. consistency with which the UM system is applied Consolidate Administrative Staff. Following across prisons. To the extent that centralizing the the conclusion of the Receivership, the Legislature approval process requires the adoption of certain could consolidate CPHCS administrative staff IT capabilities that do not currently exist, the with CDCR administrative staff. Since these two Receiver could take other measures to increase sets of administrative staff currently perform compliance with the UM system in the short term. similar functions, such a consolidation would www.lao.ca.gov Legislative Analyst’s Office 23 AN LAO REPORT allow for the elimination of unnecessary admin- from respiratory, heart, and kidney diseases to istrative overhead. We estimate that this could outside care for treatment. In 2010-11, a total of result in savings in the low tens of millions of about $388 million (18 percent) was spent on such dollars annually. In addition, the consolidation specialty care services. of management would eliminate the confusion In addition, both CDCR and the Receiver’s and inefficiencies that result from having divided office often utilize private registries to meet their management responsibilities. staffing needs. This is primarily because they are often unable to fill all of their authorized Contract With Managed Care Organizations correctional health care positions. For example, in For Medical Care on a Pilot Basis 2010-11, the Receiver spent roughly $82 million on While the above steps would result in registry services mainly for nurses, physicians, and significant savings in the near term, they would pharmacists, and CDCR spent about $39 million on not be sufficient to bring the cost of the inmate registry services for the mental health and dental medical program in California more in line with programs. Moreover, the Receiver has recently other states. Doing so would likely require a more contracted with a Preferred Provider Organization fundamental change in the state’s approach to (PPO) in order to gain access to a network of delivering inmate medical care. This is because community care providers that deliver inmate the existing system does not include strong incen- medical services based on a fixed fee-for-service tives for inmate medical program managers to rate negotiated by the PPO. We also note that the proactively implement cost-containment measures. Receiver previously maintained a contract with One strategy the state could pursue to address a private provider to manage the purchasing and this fundamental problem is to contract out the distribution of pharmaceuticals. responsibility for providing inmate medical care Contract Should Be Competitively Bid and (including primary and specialty care) to one Done on a Pilot Basis. Contracting out tends or more entities with experience in delivering to work best when there is a well-developed and managed health care. Contracting out would competitive private sector market for the activity introduce competition into the inmate medical care under consideration. This is because a competitive system, which would incentivize the adoption of market tends to incentivize efficiency and cost-containment measures. innovation. Our research indicates that there are a CDCR Already Contracts Out for Some number of private correctional health care providers Health Care Services. In 2010-11, the state spent operating in California and nationally. We spoke to roughly $2.2 billion on adult correctional health several of these providers that expressed an interest care (including medical, mental health, and dental in bidding for the opportunity to deliver medical care). While most of these costs were for state services in the California prison system. employees to provide basic health care services to Based on our conversations with these firms, inmates, a significant portion of the budget paid however, it appears unlikely that any one provider for contracts with private vendors for a variety of could take full responsibility over the medical care specialized services (such as complicated surgical delivered in California’s prison system, particularly operations) that are often unavailable at the state’s given its size, complexity, and geographic distri- own prison hospitals and clinics. For example, bution. Instead, the state could contract for medical prison health care staff often refer patients suffering care at an individual prison or a few selected 24 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT prisons on a pilot basis. This should be done First, contracts should clearly specify perfor- through a competitive bid process in which any mance targets that the contractor must meet, as well qualified provider is allowed to bid for the contract. as penalties that will be imposed for failing to meet Potential Cost Savings. In general, private them. We believe that there should be a continuum correctional health providers offer medical care of penalties so that the state has the ability to hold contracts on a capitated basis. This type of contract the provider accountable for performance without allows the state to shift the financial risk to the having to resort to contract termination. provider. Moreover, it creates a strong incentive for Second, the state should evaluate bids based on the provider to carefully manage care and control criteria that include the performance record of the costs through a variety of management techniques. bidder as well as the price. Selecting a bidder on the Such techniques include (1) using UM technology sole basis of price can lead the state to award the to reduce unnecessary and costly referrals to outside contract to a bidder that has bid so low that they are care; (2) negotiating bulk-purchasing rates for medical forced to deliver deficient care in order to earn a profit. supplies, pharmaceuticals, and contracted specialty Third, CDCR should utilize contract monitors care; and (3) implementing efficient staffing plans. who receive standardized training to ensure that Given the above incentives, the state could potentially they are familiar with the requirements of the achieve cost savings from a capitated contract. While contract and understand how to work with the there is one study indicating that states with capitated provider to resolve issues as they arise. As discussed rate contracts have lower costs that other states do in the nearby box (see next page), there are some not, there is generally a lack of controlled research on legal issues to more widely contracting out for the fiscal and programmatic impacts of contracting inmate medical services. out for correctional health care services. Therefore, Studying the Effects of Contracting for Inmate it is unclear what level of savings, if any, California Medical Care. In order to determine what effect would achieve from contracting out for the delivery contracting for inmate medical care has on the cost of primary health care services in the prisons. Any and quality of care, the state should study any pilot potential cost savings from contracting out should be undertaken. For example, the state could contract weighed against other factors, such as the quality of with one of the state’s public universities to conduct care. For this reason, contracting for care on a pilot the study. We estimate that such a study likely would basis could be a valuable way to determine the positive cost several hundred thousand dollars with the exact and negative impacts on costs and quality of care. amount depending on several factors, including Contract Development and Monitoring. A well- the number of prisons included in the pilot and the defined contract is critical to ensuring the success duration of the evaluation period. One of the criteria of any medical care outsourcing effort. When the state should use in selecting the location for outsourcing efforts go awry, as they did in Florida in the pilot is which prison or prisons are well suited the early 2000s, it is often because of poorly written for such a study. For example, the state could select contracts. Alternatively, when outsourcing efforts are two prisons that are similar in terms of the medical successful, as they have been in Kansas, contracts needs of their inmates and contract for care in one include clear expectations and accountability of them. Comparing the quality and cost of inmate measures. With that in mind, there are several medical care in these prisons before and after the principles that should be followed when developing a pilot project would provide evidence on the impact contract for the delivery of inmate medical care. of contracting for primary medical care services. www.lao.ca.gov Legislative Analyst’s Office 25 AN LAO REPORT Legal Considerations for Contracting Out Our analysis indicates that there are some legal hurdles to overcome if the state were to contract out for additional inmate medical care services. This is because current law, specifically Article VII of the State Constitution and related statutory and case law, restricts the state’s ability to outsource services currently performed by state employees, including primary inmate medical care services. There are, however, circumstances where the state can legally contract out. For example, in a court case related to contracting out for the construction and maintenance of state highways, known as Professional Engineers in California Government vs. Department of Transportation, the California Supreme Court found that the state could contract for services on an experimental basis. In addition, Section 19130 of the Government Code and associated case law allow contracting out for services that cannot be adequately, satisfactorily, or competently performed by state employees. This exception has allowed the California Department of Corrections and Rehabilitation to contract for specialty health care services (such as complicated surgical operations). Thus, while the legality of contracting out all inmate medical care is uncertain and would probably ultimately be determined by the courts, we believe that the state could enter into such a contract on a pilot basis, consistent with the ruling in the Professional Engineers case. Furthermore, the state has demonstrated that it lacks employees with sufficient expertise to adequately manage a medical care system of the size and complexity of California’s prison system—as evidenced by the current reliance on registry staff, years of increasing costs, and the inadequate health outcomes that ultimately led to the federal Receivership. Accordingly, the state could also justify contracting out on the grounds that the inmate medical program meets the exceptions established by Section 19130 of the Government Code. We also note that, as has been made clear by the U.S. Supreme Court decision in West v. Atkins (1988), contracting for health care services does not alter the state’s responsibility to deliver a constitutional level of health care. In that case, the court held that states can be held legally liable for inadequate care provided by private physicians working under contract with the state. CONCLUSION Significant changes have been made to the review of experiences in other states, we therefore state’s inmate medical care program since it was recommend that the state create an independent placed under Receivership in 2006. In determining board to provide oversight and evaluation of how to transition the responsibility for managing the inmate medical care program, take steps to the program back to state control, the state should address current operational efficiencies to bring focus on two keys to long-term success: (1) creating state expenditures to a more sustainable level, and independent oversight of the program, and establish a pilot project to contract for medical care (2) controlling inmate medical costs. Based on our services. 26 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT www.lao.ca.gov Legislative Analyst’s Office 27 AN LAO REPORT LAO Publications This report was prepared by Aaron Edwards and reviewed by Brian Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 28 Legislative Analyst’s Office www.lao.ca.gov