OIG
California Prison Health Care Receivership Corporation Use of State Funds
CALIFORNIA PRISON HEALTH CARE
RECEIVERSHIP CORPORATION
USE OF STATE FUNDS FOR FISCAL YEAR 2008-09
OFFICE OF THE
INSPECTOR GENERAL
DAVID R. SHAW
INSPECTOR GENERAL
STATE OF CALIFORNIA
JUNE 2010
Contents
Executive Summary...................................................................................1
Introduction
Background.......................................................................................3
Objectives, Scope, and Methodology................................................5
Review Results
Receipt of State Funds......................................................................7
Use of State Funds............................................................................8
Capital Assets...............................................................................9
Professional Fees.........................................................................13
Compensation and Benefits .........................................................16
Other Expenses............................................................................19
Response from the California Prison Health Care
Receivership Corporation.........................................................................20
Executive Summary
In April 2006, as a result of the Plata v. Schwarzenegger litigation, the U.S. District Court
for the Northern District of California appointed a receiver with broad powers over the
California Department of Corrections and Rehabilitation’s (CDCR) delivery of medical
care to prisoners after the court found that CDCR's medical care efforts did not meet
federal constitutional standards. As a result, the court suspended the CDCR secretary’s
authority over California’s prison medical system and granted this power to the receiver.
The court ordered the state to pay all costs that the receiver incurs in carrying out its
responsibilities.
Pursuant to the federal court’s order establishing the California Prison Health Care
Receivership Corporation (receivership), the Office of the Inspector General (OIG) entered
into an agreement with the receiver to perform periodic reviews of the receivership’s use of
state funds for its administrative operations. This report is OIG’s third annual report
describing those expenditures. Our reviews provide transparency and accountability for the
receivership’s operation. However, consistent with the court’s intent and direction, the
scope of these reviews is limited to the receivership’s administrative expenditures. As a
result, the OIG reviews do not, and are not intended to, include a review of expenditures
for direct medical care delivery. Although these reports involve less detailed testing than a
typical financial audit, we will nevertheless report any instances of fraud, waste, or abuse
that we identify.
The receiver is responsible for managing all medical programs and their related costs,
including those costs incurred by CDCR and those incurred for the receivership’s
operations.1 The receiver refers to this combined effort, which spent $1.8 billion on adult
inmate medical care in fiscal year 2008-09, as California Prison Health Care Services. The
present review for fiscal year 2008-09 covers only the $91.2 million portion of the $1.8
billion in state funds spent on receivership operations.
Table 1 presents the details of the Table 1
receivership’s fiscal year 2008-09 California Prison Health Care Receivership
expenditures in the four major expense Total Expenditures, by Category and Percentage
Fiscal Year 2008-09
categories detailed in this report. The
majority of the $91.2 million in Category (In millions) %
expenditures went for the planning and Capital Assets $72.1 79%
design of new facilities, the Professional Fees 12.4 14
Compensation & Benefits 4.5 5
implementation of new information
Other Expenses 2.2 2
systems, and the implementation of
Total Expenditures $91.2 100%
planned improvements to CDCR's
pharmacy system. The remaining portion went for more typical administrative costs, such
as salaries and wages, benefits, and rent or lease payments.
1 Medical services do not include dental, mental health, substance abuse, or juvenile healthcare.
Bureau of Audits and Investigations
Office of the Inspector General Page 1
Key observations made during our review of these expenditure categories include the
following:
• Total receivership expenditures increased by $40 million, from $51.2 in fiscal year
2007-08 to $91.2 million in fiscal year 2008-09.
• Most of the receivership’s $72.1 million in capital asset expenditures were for
planning, programming, site selection, and design for new medical and mental
health care housing facilities for approximately 10,000 inmates.
• Of that $72.1 million in capital asset expenditures, $15.2 million were for
constructing or improving assets, such as modular buildings and information
systems, for CDCR and its prisons.
• The receiver paid $5.4 of the $12.4 million in professional fees to Maxor National
Services Corporation for redesigning and managing CDCR's prison pharmacy
system; the remainder related primarily to other professional fees and legal services.
• The salaries of both the former chief of staff and current receiver, inclusive of
supplemental performance payments, exceeded the statutory salary of the CDCR's
secretary. However, the current receiver’s salary was less than half of the preceding
receiver’s salary.
The OIG also performed follow-up work on recommendations presented in our earlier
report and found that the receivership took the following corrective action during fiscal
year 2008-09:
• Established a special deposit fund account and a cash management process that
minimizes the amount of cash held outside of the state treasury to avoid the risk of
losing some or most of those funds through a bank failure.
• Sublet its office space in San Jose and reduced lease costs by 59 percent as of June
30, 2009. Subsequent to our audit period, the receiver closed its Campbell office
effective October 31, 2009.
Additionally, the receivership reduced the number of its employees from 24 to seven as of
June 30, 2009, and three more employees ended employment as of September 30, 2009
(after the close of the fiscal year under review).
Receivership’s Response
The receivership concurred with the OIG report and did not prepare a formal response.
Bureau of Audits and Investigations
Office of the Inspector General Page 2
Introduction
Background
The court created a receivership to correct the state’s failure to provide the
constitutionally required level of inmate medical care
In April 2001, California prisoners filed a class action lawsuit against the state alleging that
California officials inflicted cruel and unusual punishment by being deliberately indifferent
to serious inmate medical needs.2 The state settled the lawsuit in 2002, agreeing to overhaul
its medical delivery system to ensure timely access to adequate medical care. However, in
2005, the U.S. District Court for the Northern District of California, which oversees the
case, found that despite the best efforts of the state, little real progress was being made.
Therefore, the court decided to establish a receivership to control the delivery of medical
services to inmates in California prisons. In its October 2005 order, the court declared:
By all accounts, the California prison medical care system is broken beyond repair… and the
threat of future injury and death is virtually guaranteed in the absence of drastic action.
Accordingly, through the Court’s oral ruling and with this Order, the Court imposes the drastic
but necessary remedy of a Receivership in anticipation that a Receiver can reverse the
entrenched paralysis and dysfunction and bring the delivery of health care in California
prisons up to constitutional standards. Once the system is stabilized and a constitutionally
adequate medical system is established, the Court will remove the Receiver and return control
to the State.
3
The court gave the receiver broad powers over prison medical care
The court suspended the CDCR secretary’s exercise of power related to the administration,
control, management, operation, and financing of the California prison medical healthcare
system and granted these powers to the receiver. The court also provided the receiver with
the power to acquire, dispose of, modernize, repair, and lease property, equipment, and
other tangible goods as necessary to carry out his duties under the order. To enable the
receiver to carry out these duties, the court granted to the receiver unlimited access to all
records, files, and facilities maintained by CDCR, as well as access to prisoners and CDCR
staff. The court also ordered the state to pay all costs that the receivership incurs in
carrying out its responsibilities under the order, and established the following duties for the
receiver:
2 Plata v. Schwarzenegger, C01-1351 TEH.
3 Plata v. Schwarzenegger, C01-1351 TEH, October 3, 2005, Findings of Fact and Conclusions of Law RE
Appointment of Receiver.
Bureau of Audits and Investigations
Office of the Inspector General Page 3
• Provide leadership and executive management of the California prison medical care
delivery system.
• Develop a detailed plan of action designed to restructure and develop a
constitutionally adequate medical care delivery system.
• Determine the annual medical care budget and implement an accounting system
that meets professional standards.
• Provide the court with bimonthly reports addressing the receivership’s progress,
particular problems encountered, successes achieved, and an accounting of its
expenditures and all other matters deemed relevant.
Furthermore, the court required that the receiver make all reasonable efforts to exercise his
powers in a manner consistent with California laws, regulations, and contracts, including
labor contracts. However, if the receiver finds that a state law, regulation, contract, or other
state action or inaction clearly prevents the receiver from developing or implementing a
constitutionally adequate medical health care system, the court stipulates that the receiver
shall ask the court to waive the state or contractual requirement causing the impediment.
The receivership provided three construction options to build new correctional health
care facilities to provide between 5,000 to 10,000 medical and mental health patient beds
In response to the class action lawsuit, the receivership was created to carry out the role
established by the court order and serve as the entity through which the receiver carries out
his responsibilities under the order. In February 2009, the receiver provided the court with
three construction options. The first option included the construction of three new facilities
with an estimated 5,000 long term care beds at a projected program cost (to include
planning, design, and construction) of $2.5 billion. The second option was to construct five
new facilities and approximately 7,500 beds (5,000 medical and 2,500 out-patient mental
health care) at an estimated program cost of $4.3 billion. The third option included seven
new health care facilities and approximately 10,000 medical and mental health care beds,
with an estimated program cost of $6.0 billion.
As noted in the receiver’s most recent triannual report, collaboration between his office and
CDCR has resulted in scaled back construction plans more consistent with available
resources from the state.4 Instead of the seven facilities discussed above, the revised plan
calls for one facility of approximately 1,600 medical and mental health care beds.
Additionally, the receiver would convert three juvenile justice facilities, to hold
approximately 3,200 inmates with medical and mental health conditions, and receive an
4 The receiver issues a report to the court three times each year to provide status reports on the progress
made in fulfilling its Turnaround Plan of Action. Objective 6.2 of the Turnaround Plan is to “[e]xpand
administrative, clinical and housing facilities to serve up to 10,000 patient-inmates with medical and/or
mental health needs.” The receiver issued its thirteenth triannual report on January 15, 2010.
Bureau of Audits and Investigations
Office of the Inspector General Page 4
allocation of $700 million for improvements to existing facilities. To carry out the new
construction plan, in October 2009 the receiver and CDCR secretary approved construction
of a new 1,734-bed health care facility in Stockton, which involves the demolition and re-
use of the former Karl Holton youth correctional site.
The California Prison Health Care Receivership Corporation collaborates with CDCR
employees to deliver medical services
CDCR established the Plata Support Division to provide administrative support functions
for operations related to medical care delivery.5 Receivership and CDCR employees work
together under the receiver’s direction to manage and implement his action plan to reform
the state’s delivery of prison medical care. The receiver refers to this combined effort as
California Prison Health Care Services.
The Office of the Inspector General agreed to complete periodic reviews of
the receivership’s use of state funds
As the executive manager over adult inmate medical services, the receiver is responsible
for managing all costs associated with these services. These costs include those that are
incurred both by CDCR's medical operations and by the receivership’s operations. To
ensure the transparency and accountability of the receivership’s operations, the court
required the receivership to coordinate with the OIG to facilitate periodic reviews of its
administrative operations. To carry out this responsibility, we agreed with the receiver to
periodically review the receivership’s expenditures—which amounted to $91.2 million for
fiscal year 2008-09—and to produce a public report for the court that describes how the
receivership uses state funds. We will perform similar reviews annually until the court
terminates the receivership. This is our third annual report.
Objectives, Scope, and Methodology
Our agreement with the receiver calls for the OIG to issue a public report periodically that
describes how the receivership uses state funds. Consistent with the federal court’s intent,
these reports cover only that portion of state funds spent directly by the receivership for its
operations; they do not include the portion of state funds that CDCR spends under the
receiver’s authority. Our work involves less detailed testing than a typical financial audit,
but the OIG will report any instances of fraud, waste, or abuse that we become aware of
during our review.
5 The Plata Support Division was later renamed to the Administrative Support Division.
Bureau of Audits and Investigations
Office of the Inspector General Page 5
This is our third review, and it covers the receivership’s expenditures for fiscal year
2008-09. In conducting our work, we performed the following procedures:
• To understand the nature and scope of projects undertaken during the fiscal
year, we interviewed key receivership and CDCR employees. We also reviewed
the prior OIG report issued in 2009 to determine whether the receivership had
taken corrective action regarding cash management and leased office space in
Campbell.
• To verify the amount of state funds paid to the receivership, we reviewed
budget and banking-related documents and interviewed key employees from the
receivership and CDCR. We then reconciled this amount to the amount that the
receivership reported in its financial statements.
• To understand how the receivership managed its unused cash compared to how
the state performs this function, we reviewed banking-related documents and
state treasury information.
• To determine the receivership’s portion of CDCR's total expenditures for
inmate medical services, we reviewed CDCR's expenditure data.
• To determine the nature of the receivership’s expenditures, we obtained detailed
accounting reports and identified significant expense accounts. We then
reviewed a sample of transactions from selected expense categories and
determined the purpose of each sample expense by reviewing various source
documents. We did not evaluate the efficacy of the goods or services for which
the receivership expended funds.
In addition, we contacted the public accounting firm that is auditing the receivership’s
financial statements for fiscal year 2008-09. The public accounting firm may make
adjusting entries and other audit adjustments subsequent to our review, which may affect
the total expenditures identified in this report. The firm told us that it had not become
aware of any instances of fraud, waste, or abuse during its audit of the receivership’s
financial statements for the period July 1, 2008 through June 30, 2009. As of April 20,
2010, the public accounting firm had not issued its report for release to the public. Within
the scope of our limited review, we did not become aware of any instances of fraud, waste,
or abuse.
Bureau of Audits and Investigations
Office of the Inspector General Page 6
Review Results
Under the direction and authority of the federally appointed receiver, California Prison
Health Care Services, which consists of both receivership and CDCR employees, the state
spent $1.8 billion during fiscal year 2008-09 to provide medical services to its adult inmate
population.6 The California Department of Corrections and Rehabilitation (CDCR)
expended 95 percent of these funds, and the receiver spent the remaining 5 percent, or
$91.2 million, through the California Prison Health Care Receivership Corporation
(receivership). Of the $91.2 million, the receivership spent $72.1 million for capital assets,
primarily for planning, programming, site selection, and design for new medical and
mental health care facilities for approximately 10,000 inmates. The receivership spent the
remaining $19 million in three general categories: professional fees, compensation and
benefits, and other expenses. In this report, we describe how the receivership received,
managed, and used the $91.2 million in state funds through its corporation.7
Receipt of State Funds
The court ordered the state to pay all costs that the receivership incurs in carrying out its
responsibilities. To manage its operating funds and comply with the court’s order, the
receivership established its own bank accounts and arranged with CDCR to replenish its
accounts regularly. The receiver worked with CDCR, the California Department of
Finance, and the State Controller’s Office to establish a system to authorize and transfer
state general funds to the receivership.
Figure 1 California Prison Health Care Receivership
Average Bank Balance
The receivership started fiscal year 2008-09
Fiscal Year 2008-09
with a $13.6 million cash balance and
received another $96.1 million in state funds $60,000,000
during the year. As shown in Figure 1, the $50,000,000
receivership maintained average daily cash $40,000,000
balances ranging from $13.7 to $59.2 $30,000,000
million, with an average daily balance of $20,000,000
$10,000,000
more than $40 million.
$0
JulAugSepOctNovDecJanFebMarAprMayJun
The receivership established a special 08 08 08 08 08 08 09 09 09 09 09 09
deposit fund account Month
In our prior report, we found that the receivership maintained an average daily balance of
$22 million in unused cash, which it held in numerous bank accounts, including a money
market account. However, according to the receivership’s independent financial auditor,
the Federal Deposit Insurance Corporation insured only $100,000 of the receivership’s cash
6 This amount excludes costs to provide dental, mental health, substance abuse, and juvenile healthcare services.
7 We describe how the receivership spent the $91.2 million; however, as cited in the scope section of this
report, we did not review the remainder of the $1.8 billion in state costs for adult medical care.
Bureau of Audits and Investigations
Office of the Inspector General Page 7
balance.8 The OIG recommended that the receiver work with the appropriate state offices to
establish a cash management process that minimizes the amount of cash that the
receivership holds outside the state treasury, to avoid the risk of losing part or most of
those funds through a bank failure. In April 2009, the receiver obtained authorization for a
special deposit fund in the state treasury and transferred $10,000,000 into this account in
July 2009. The average daily cash balance held outside the state treasury was less than
$100,000 by December 2009.
California Adult Inmate
Figure 2
Use of State Funds Medical Services - $1,763,879,000
Fiscal Year 2008-09
As shown in Figure 2, CDCR and the
CDCR Direct and
Receivership
receivership spent $1.8 billion for adult Administration Operations,
Services,
$91,198,485,
inmate medical services during fiscal year $1,672,680,515, 5%
95%
2008-09. Most of these funds—95 percent—
were spent for activities undertaken by
CDCR under the receivership’s authority.
The receivership spent the remaining 5
percent of the $1.8 billion, or $91.2 million,
to support its operations and to purchase
capital assets.
Source: California Prison Health Care Services
To carry out its court-ordered mandate, the receivership hires employees, executes
contracts, and otherwise incurs costs of doing business. Of the $91.2 million spent by the
receivership, $19.1 million went for its operating costs, most of which were for
professional services provided by consultants and for personnel services related to salaries
and benefits for the receivership’s employees. The receivership spent the remaining $72.1
million to acquire capital assets, with the majority of those costs going for the planning and
design of facilities to provide 10,000 new medical and mental health beds for inmates.
As shown in Table 2, the
Table 2 How the Receivership Used State Funds, Two-Year Comparison
receivership spent 78 percent
FY2007–08 FY2008-09 % Increase
more than in the previous fiscal
Description Amount Amount (Decrease)
year. This increase was Professional Fees $13,469,645 $12,399,903 (8)%
Salaries, Wages & Benefits 7,250,391 4,504,415 (38)%
primarily due to the 151 percent
Other Expenses 701,714 1,619,866 131%
increase in spending on capital Travel 501,099 278,987 (44)%
assets for the receivership’s Rent and Lease 230,258 93,930 (59)%
Office Expenses 111,388 77,593 (30)%
planning and design for the
Telephone & Network Lines 109,071 59,356 (46)%
10,000-bed program. In the Insurance 86,516 67,956 (21)%
following sections, we present in Total Operating Expenses $22,460,082 $19,102,007 (15)%
detail the $91.2 million spent by
Total Capital Asset Expenses $28,730,944 $72,096,479 151%
the receivership in fiscal year
2008-09. Total Expenses $51,191,026 $91,198,485 78%
8 Effective October 3, 2008, through December 31, 2013, the FDIC has temporarily raised the federal deposit
insurance coverage to $250,000.
B ureau of Audits and Investigations
Office of the Inspector General Page 8
Capital Assets
Figure 3 California Prison Health Care Receivership
Capital Assets
During fiscal year 2008-09, the
Fiscal Year 2008-09
receivership spent $72.1 million on
capital asset expenditures, as shown in
Capital Assets Receiver
Figure 3. Capital assets, sometimes Compensation
and Benefits
called fixed assets, are assets that the Capital Prof F e e ss e i s o nal H • C e o ld n s f t o ru r c C tio D n C /C R a p it a l P r o j e c t s $ 5 A 6 m ,86 o 5 u ,3 n 0 t 5
Assets • Information Systems 8,906,056
receivership purchases to carry out its
$72,096,479 • Building and Improvements 6,325,118
Other
responsibilities over a long period. 79% Expenses Total $72,096,479
Capital assets include items such as
buildings, office equipment, and
information systems. The receivership
capitalizes asset purchases exceeding
$1,000 and depreciates the cost over
the assets’ useful lives.
For this report, we present the actual amount that the receivership spent on capital assets
and projects in progress between July 1, 2008 and June 30, 2009. The receivership’s
acquisition of capital assets during this period accounted for 79 percent of its
expenditures. The receivership includes in its capital asset category two subcategories:
assets held for CDCR and assets held for the receivership. Since the receivership’s
inception in April 2006, the total value of capital assets acquired as of June 30, 2009 (net
of accumulated depreciation) is $105,701,148. Of this amount, $105,273,362 is held on
behalf of CDCR and $427,786 is held for receivership operations.
Most of the receivership’s capital asset costs went for program
management services for the 10,000-bed medical facilities project
Of the receivership’s $72.1 million in capital asset expenditures, it spent $56.9 million on
capital projects in progress, including $44.9 million for services on the 10,000-bed
project.9 These services included preliminary site assessments and construction planning
to provide 10,000 new medical and mental health care beds and related facilities. The
majority of payments were made to URS/BLL (a joint venture with URS Corporation and
Bovis Lend Lease) for site assessment, infrastructure planning, consulting services, and
program management, to deliver new health care and related facilities. The receivership’s
contract with URS/BLL began in June 2007, with a total contract value of $51,200,858.
Specifically, the agreement called for URS/BLL to provide consulting services “in
connection with the evaluation and assessment of the condition of existing CDCR health
care facilities, the need for renovation, improvement, replacement or expansion of these
facilities, and management of design, construction, and commissioning of any related
projects.” Thus far, the receiver and the CDCR secretary have approved one new 1,734-
bed prison medical care facility in Stockton.10
9 As discussed in the background section, the receivership has recently scaled back construction plans;
however, during the period of our review, the receiver was proceeding with the 10,000 bed project.
10 In October 2009, the receiver formally approved the California Health Care Facility at Stockton, which
involves the demolition and re-use of the Karl Holton site (formerly a youth correctional facility).
Bureau of Audits and Investigations
Office of the Inspector General Page 9
The following are seven projects for which we reviewed sample expense transactions in
this category during fiscal year 2008-09:
• $24,023,499 to URS/BLL for professional services to deliver new health care and
related facilities. The services provided included, in part, conducting site and
facilities assessments; providing technical liaison services between the
receivership and other organizations, including CDCR; and providing support to
the receivership in reviewing facilities and existing infrastructure to determine
capacities and other construction challenges. Since June 2007, the receivership
has paid URS/BLL $33,841,481 of the $51,200,858 contract amount.
• $6,563,157 to DPR Construction for planning, programming, site selection,
design, construction, and commissioning for new medical and mental health care
housing for approximately 10,000 inmates.
• $6,097,930 to Hensel Phelps Construction Company for preliminary design and
pre-construction services to provide 10,000 new medical and mental health care
beds and related facilities.
• $5,198,003 to JL Modular, Inc. for the design and construction of modular health
care services clinics and administration buildings at Avenal State Prison. Among
other things, this project included architecture and engineering expenses and
expenses for placing utilities underground at the following locations within
Avenal State Prison: 1) Clinic Buildings A & B; 2) Administration Building; and
3) Administrative Segregation Building D.
• $4,974,362 to Vanir Construction Management for program management services
for the healthcare facility capital improvement program at multiple facilities
located statewide. Services included master planning, design, and construction
management at Avenal State Prison, Correctional Training Facility, California
Rehabilitation Center, and Mule Creek State Prison.
• $316,567 to Owen Group for general code compliance consulting services in
support of the receiver’s program to provide 10,000 new medical and mental
health care beds and related facilities.
• $142,745 to McDonough Holland & Allen for professional legal services
regarding design and construction at the receiver’s San Quentin project. The
hourly rates for attorneys range from $205 to $350.
Bureau of Audits and Investigations
Office of the Inspector General Page 10
The receivership spent $8.9 million for information systems equipment and
software
We reviewed payments for services provided on the Clinical Data Repository and Portal
Solution project. The project manages patient-inmate identity and demographic
information and accurately links patient-inmates to their respective electronic health
information. We also reviewed a payment for the Health Care Document Management
System (HCDMS), an electronic medical contract and invoice processing system.
Examples of payments made for information systems equipment and software include:
• $8,220,878 to IBM for services completed under the Clinical Data Repository and
Portal Solution agreement. Payments included labor charges for software
installation, configuration, and implementation of the electronic medical record as
well as associated travel charges. The receivership’s contract with IBM began in
June 2008, and the receivership has paid $11,628,996 of the $22,921,345 contract
amount.
• $655,031 to Unisys Corporation for work completed on the projects, “HCDMS
posting and payment processes and interfaces CALSTARS and SCO” and
“HCDMS bidding and contracting processing enhancements.” The receivership’s
contract with Unisys began in September 2006, and the receivership has paid
$6,010,578 of the $6,734,606 contract amount.
The receivership spent $6.3 million on building and improvement costs
Building and improvement costs are additions or structures that enhance a property, or
replacements or upgrades that extend the useful life of an asset that has been placed into
service. The receivership paid $6,325,118 for building and improvement costs during
fiscal year 2008-09. An example of these expenditures include the following:
• $2,178,717 to American Custom Coach, Inc. to fabricate and deliver six mobile
clinics (medical trailers) to multiple state prisons. The medical trailers each have a
reception area, two exam rooms, and a restroom. Costs for the project also include
work related to electrical, cooling and heating, cabinetry and furniture, lighting,
plumbing systems, and other incidental equipment. Medical trailers were
fabricated and delivered to Avenal State Prison and Wasco State Prison during
fiscal year 2008-09.
Bureau of Audits and Investigations
Office of the Inspector General Page 11
Comments from the Office of the Inspector General
As shown in Table 3, the
Table 3 Receivership’s Total Capital Assets Spending Comparison
receivership’s acquisition
of capital assets has Description FY2006–07 FY2007–08 FY2008-09
progressively increased
Total Capital Asset Costs $8,766,710 $28,730,944 $72,096,479
from $8.7 million to
Total Expenditures $20,161,490 $51,191,026 $91,198,485
$72.1 million, accounting Percentage of Total Capital
for 79 percent of total Asset Spending 43% 56% 79%
expenditures in fiscal
year 2008-09. While the court has granted the receiver virtually total authority over all
medical operations to ensure an adequate medical health care delivery system, the
receiver’s large and growing capital assets expenditures, which are outside of the state’s
fiscal and legislative review process, raises concerns. Unless the receiver is following
good business practices such as requesting competitive bids and evaluating bidders’
qualifications, the state may end up with overpriced and poor quality work that fails to
deliver adequate inmate medical care. According to a receivership official, the receiver
may soon address some of our concerns by establishing procedures to transfer all capital
asset projects to CDCR.
Bureau of Audits and Investigations
Office of the Inspector General Page 12
Professional Fees
The receivership enters into
contracts for the services of Figure 4 California Prison Health Care Receivership
Professional Fees
certain professionals to carry out
Fiscal Year 2008–09
its duties. As shown in Figure 4,
the receivership spent $12.4 Compensation
Professional Fees
and Benefits
million on professional fees $12,399,903
14%
during fiscal year 2008-09.
Professional Fees Amount
Approximately 43 percent of • Pharmacy Consulting $5,380,138
Other
Expenses • Other Professional Fees 3,906,465
these payments were made to a
• Legal & Professional
contractor that provides Services 2,332,017
• Chief of Staff 309,136
pharmacy management • IT Consulting Services 198,825
consulting services. Professional • Physicians 164,925
• Recruitment 47,949
fee expenditures also included • Temporary Agencies 45,315
payments for other professional Capital • HR Consulting 15,133
Assets Total $12,399,903
services, including the
receiver’s compensation, legal
services, and compensation for
the receiver’s chief of staff. The $12.4 million for professional fees represents 14 percent
of the receivership’s expenditures for fiscal year 2008-09.
Pharmacy consulting represents 43 percent of the receivership’s
professional fee costs
For fiscal year 2008-09, the receivership paid Maxor National Services Corporation
(Maxor) $5.4 million to help improve CDCR's prison pharmacy system.11 The
receivership’s contract with Maxor began in 2007 and terminates at the end of 2010. The
total contract value is $39,897,141 and according to the terms of the contract, Maxor has
undertaken the following seven specific goals:
1. Develop meaningful and effective centralized oversight, control, and monitoring
over the pharmacy services program.
2. Implement and enforce clinical pharmacy management processes.
3. Establish a comprehensive program to review, audit, and monitor pharmaceutical
contracting and procurement processes.
4. Develop a meaningful pharmacy human resource program.
5. Redesign and standardize overall institution level pharmacy drug distribution
operations.
6. Design and implement a uniform pharmacy information management system.
7. Develop a process to ensure that CDCR's pharmacy meets accreditation standards.
11 See the Office of the Inspector General, April 2010 Report, Special Report: Lost Opportunities for
Savings within California Prison Pharmacies. The report can be viewed at http://www.oig.ca.gov/.
Bureau of Audits and Investigations
Office of the Inspector General Page 13
The receivership spent $3.9 million for various other professional fees
The receivership contracted for professional services in business matters for which it did
not have in-house expertise. Examples of professional fees paid include the following:
• $1,491,548 to Health Management Associates for a comprehensive assessment of
CDCR's health care system related to chronic diseases, including the “Asthma
Initiative for California Adult Prison Facilities,” which focuses specifically on
asthma screening and treatment.
• $565,446 to Chancellor Consulting Group for making a comprehensive
assessment of CDCR's consultation on managed care issues, conducting financial
analysis, and providing support for contract negotiations or analysis related to
health plans, medical groups, and physician services.
• $366,847 to the State of California Administrative Office of the Courts (AOC) for
reimbursement of the receiver’s services.12 In January 2008, the court appointed
J. Clark Kelso as the receiver. The provision of services for Mr. Kelso included
supplemental performance-based payments, in amounts determined by the court.
In January 2009, the judge approved a supplemental performance payment of 25
percent of the receiver’s base compensation “based on Mr. Kelso’s exceptional
leadership and performance under the Turnaround Plan of Action I approved in
June 2008.”
Subsequently, the Board of Directors of the receivership approved the
supplemental performance payments retroactively to the receiver’s date of hire,
January 23, 2008. Thus, the total compensation for fiscal year 2008-09 included
the following: $224,004 base salary, $56,000 one-time supplemental performance
payment, $23,333 supplemental performance payments, and $63,510 in other
benefits or fees. As noted at page 15 of this report, the receiver’s base annual
compensation is $224,004, which was less than half of the previous receiver’s
compensation. The receiver’s base compensation is also less than the CDCR
secretary’s $225,000 statutory annual salary.
The receivership also spent $2,332,017 on legal services during the year
The receivership contracted for legal services for which it did not have in-house
expertise. Examples of legal services paid include:
12 The receivership did not pay the receiver from its payroll system; rather, the receiver is on loan to the
receivership from the AOC.
Bureau of Audits and Investigations
Office of the Inspector General Page 14
• $1,075,030 to Morrison & Foerster LLP for providing legal services related to
contempt proceedings in the Plata v. Schwarzenegger case. In July 2008, the
receiver had requested $204.6 million from the state to fund the receiver’s capital
projects, including the planning and site selection of expanded prison health care
facilities and housing. The state refused to comply with this request, and the
receiver filed a motion for an order holding the state in contempt for failure to
fund these projects. The Ninth U.S. Circuit Court of Appeals dismissed the state’s
appeal as non-final because further proceedings relating to the contempt were
contemplated. Morrison & Foerster LLP represented the receivership on pre- and
post-hearing matters, subsequent contempt hearings, and other proceedings.
According to the contract, hourly rates for attorneys range from $295 to $900.
Our review of one of the invoices found that three attorneys performed the bulk of
the services and billed at hourly rates of $311, $455, and $537.
• $692,419 to Futterman & Dupree LLP, which provided general legal services
including representation in federal receivership proceedings involving the
California prison health care system and on habeas corpus cases. The hourly rates
for attorneys range from $225 to $350.
Payments to the receivership’s former chief of staff totaled $309,136
In addition, the receivership paid its former chief of staff $309,136 for his services during
fiscal year 2008-09. He worked for the receivership as an independent contractor rather
than as an employee. Under his agreement with the receivership, the receiver paid the
former chief of staff $250 per hour for his services and reimbursed him for ordinary and
reasonable expenses incurred in performing his services.13 He was responsible for (1)
coordinating the receiver’s activities; (2) ensuring the flow of accurate information to and
from the receiver and the receivership; and (3) providing integrated policy analysis and
strategic consultation to the receiver and the receivership.
13 The former chief of staff was paid $237.50 per hour during March 2009; his position with the
receivership ended effective March 12, 2009.
Bureau of Audits and Investigations
Office of the Inspector General Page 15
Compensation &
Figure 5 California Prison Health Care Receivership
Benefits Compensation and Benefits
Fiscal Year 2008-09
As shown in Figure 5, during Compensation and
Benefits
fiscal year 2008-09 the
$4,504,415
receivership incurred over $4.5 5% Compensation Amount
• Salaries & Wages $ 3,329,325
million in compensation and Professional • Vacation Payout 252,837
Capital Fees • Severance Pay 189,166
benefits-related expenses, Assets • Vehicle Allowance 44,050
Other Total Compensation $3,815,378
amounting to 5 percent of the Expenses Benefits
• 401(k) Contributions 359,453
receivership’s total expenditures.
• Medical, Dental & Life 209,762
• Payroll Taxes 193,088
Employee compensation included
• Workers' Compensation 47,599
salaries and wages, severance pay, • Relocation Expenses 3,596
• Compensated Absences <124,461>
vacation payout, and vehicle Total Benefits $689,037
Total $4,504,415
allowances, while benefits
comprised the six sub-accounts
shown in Figure 5.
From July 2008 through June 2009, in addition to the receiver, the receivership employed
as many as 24 people, to whom it paid either a salary or an hourly rate. The receivership
separated 17 of the 24 employees during the fiscal year, including seven employees that it
separated on June 30, 2009. Seven employees remained on payroll as of July 1, 2009:
three executives and four non-executives. The reduction in receivership employees
appears consistent with the receivership’s intention to return management of inmate
medical services to CDCR. Subsequent to our review period, we learned that three of
these remaining employees ended employment by September 30, 2009, and that a former
Custody Support Services Specialist returned October 1, 2009, on a part-time hourly
basis.
Five of the seventeen separated employees received severance payments during fiscal
year 2008-09. The former Chief Nurse Executive and Chief Medical Officer received
three and one-half months' severance pay, equal to $87,500 and $71,459, respectively.
Both employees had severance clauses included in their employment agreements
approved by the previous receiver. The severance was intended to
“…assist Employee to transition to other opportunities, to protect [Receivership]
interests, to preserve the goodwill existing between employee and the
[Receivership], and to resolve any and all issues and disputes that may exist from
or relating to Employee’s employment, and termination of employment, with the
[Receivership].”
The current receiver approved severance pay for the three remaining separated
employees. Salary payments were for two, three, and six weeks, respectively, ranging
from $5,553 to $16,000, as part of the severance agreements and releases. Only one of
the five separating employees returned to state service in 2009.
Bureau of Audits and Investigations
Office of the Inspector General Page 16
Table 4 at the end of this section details the total compensation the receivership paid to
each of the 24 employees during the review period. No employees received annual
salaries that were the same or more than the CDCR secretary’s $225,000 statutory salary,
except for the Chief Nurse Executive, Chief Medical Officer, and Chief Medical
Information Officer. This is in contrast to the prior OIG review in which the salary of
eight employees exceeded that pay level.14
Employee compensation also included a monthly vehicle allowance of $500. As indicated
in Table 4, the receivership paid ten employees vehicle allowances totaling $44,050
during fiscal year 2008-09.
The largest benefit expense during the review period was receivership contributions to its
employees’ 401(k) retirement plan, which totaled $359,453. The receivership made
monthly 401(k) contributions equal to 12.5 percent of base salary for executive
employees and 7.5 percent for non-executive employees.
In addition, the receivership paid $209,762 for medical, dental, and life insurance for its
employees electing to receive the benefit from July 2008 through June 2009. The
receivership paid the entire cost of these insurance items for its employees.
Payroll taxes represented another large benefit expense during the review period. This
benefit included the employer portion of Social Security and Medicare payments, totaling
$193,088. The receivership also paid $47,599 for workers' compensation insurance.
Compensated absences, or unused vacation pay, is payable upon termination from
employment with the receivership. The receivership reduced its reserve for compensated
absences by $124,461, based on the current pay rates of its full-time employees as of
June 30, 2009.15
14 The receiver’s base salary of $224,004 and supplemental performance payments is not included in this
category; it is presented in the Professional Fees section.
15 Compensated absences reported in the financial statements do not require the use of current financial
resources and, therefore, are not reported as expenditures in the general fund.
Bureau of Audits and Investigations
Office of the Inspector General Page 17
Table 4 Total Employee Compensation Paid by Receivership
Fiscal Year 2008–09
No. of Salary & Vehicle Severance Vacation
Employee Position Mos. Wages Allowance Pay Payout * Total Paid
Remaining Employees, as of July 1, 2009**
Kirkland Director, Plata Support Division 12 $182,222 $6,000 N/A N/A $188,222
Goldman Chief Counsel 12 150,000 6,000 N/A N/A 156,000
Carlisle (a) Chief of Rehabilitation 11.75 153,333 0 N/A N/A 153,333
Cameron (b) Controller 12 120,022 0 N/A N/A 120,022
Lucas (c) Investigation & Discipline Coordinator 12 109,000 0 N/A N/A 109,000
Seago (d) Staff Accountant 9.5 49,640 0 N/A N/A 49,640
Lerner (e) Staff Attorney 12 49,480 0 N/A N/A 49,480
Separated Employees, as of June 30, 2009
Ha Chief Nurse Executive 10 250,000 5,000 87,500 19,038 361,538
Hill, T. Chief Medical Officer 8.5 245,449 4,208 71,459 25,442 346,558
Graham Chief Medical Information Officer 11.75 267,772 5,842 0 38,076 311,690
Clark Director of Nursing Operations 10 209,295 5,000 0 34,615 248,910
McGrath Director, Custody Support 11 213,444 0 0 17,168 230,612
Director, Health Information
Moy Integration 11.75 148,943 0 8,654 10,140 167,737
Rea Nursing Director 6 112,500 3,000 0 31,153 146,653
Meier (f) Custody Support Services 11 133,023 0 0 7,686 140,709
Robinson Nursing Director 6 112,500 3,000 0 25,095 140,595
Scott Nursing Director 6 112,500 3,000 0 19,038 134,538
Dovey Custody Support Specialist 11 130,779 0 0 0 130,779
Cambra Jr. Custody Support Specialist 10 121,066 0 0 0 121,066
Weston Special Assistant 8.5 97,245 0 16,000 5,080 118,325
Buzzini Staff Attorney 11 110,698 3,000 0 0 113,698
Russell Health Care Project Officer 7.5 90,230 0 5,553 13,049 108,832
Hector Staff Attorney 11.75 91,669 0 0 0 91,669
Hill, D. Custody Support Services 11 66,512 0 0 6,474 72,986
Saich (g) Coordinator N/A N/A N/A N/A 783 783
TOTALS $3,327,322 $44,050 $189,166 $252,837 ***$3,813,375
(a) This person’s employment ended effective August 14, 2009.
(b) The controller’s position was half-time through May 2009. Effective June 2009, the controller worked part-time at an hourly rate of $120.
(c) This person’s employment ended effective August 31, 2009.
(d) The employee began employment in September 2008.
(e) This employee worked part-time at an hourly rate of $80; employment ended effective September 30, 2009.
(f) This employee was re-hired on a part-time hourly basis effective October 1, 2009.
(g) This person’s employment ended effective June 30, 2008; vacation payout was issued in August 2008.
* Vacation payout represents payment for vacation earned but not used as of separation date.
** Compensation for the receiver, Mr. Kelso, is presented in the professional fees section.
*** Amount does not agree with total Compensation presented at the beginning of this section because of an immaterial difference of $2,003, which we did
not pursue.
Bureau of Audits and Investigations
Office of the Inspector General Page 18
Other Expenses
California Prison Health Care Receivership
Figure 6
Other expenses include all Other Expenses
of the remaining costs Fiscal Year 2008-09
incurred by the receivership.
Compensation Other Expenses Amount
As indicated in Figure 6, a and Benefits • Advertising $1,384,359
Professional
wide range of items is Fees Other • • T L r e a a v s e in l g – 278,987
included in this category, Capital Expenses Modulars 97,701
which totaled $2,197,688. Assets $2,197,688 • Rent or Lease 93,930
2% • Office Expenses 77,594
This amount accounted for • Insurance 67,956
• Conferences/
only 2 percent of the
Seminars 65,092
receivership’s expenditures • Telephone/
Network Lines 59,356
for fiscal year 2008-09.
• Other Service Cost 54,241
• Dues and
Subscriptions 14,972
The largest item in this cost
• Miscellaneous 3,500
category was advertising Total $2,197,688
expenses associated with
continuing recruitment of
medical professionals. The receivership spent $1,384,359 on advertising during fiscal
year 2008-09, a 188 percent increase from the $480,934 incurred during the last fiscal
year. All advertising costs were paid to the Bernard Hodes Group for the “Marketing and
Recruitment Campaign for CDCR Health Care Professionals” project. The receivership
awarded the marketing contract to the Bernard Hodes Group in January 2008. The project
was to develop a recruitment campaign targeted to fill 90 percent of all physician
vacancies in CDCR's adult prisons. The receiver’s Human Resources Recruitment and
Retention Report indicate that approximately 87 percent of physician positions were
filled as of November 30, 2009. As of the end of fiscal year 2008-09, the receiver
transferred this contract to CDCR.
The receivership’s costs for lease payments were significantly reduced from the previous
fiscal year due to a new sub-lease agreement for its San Jose office. Lease payments
decreased by 59 percent from $230,258 to $93,930 for fiscal year 2008-09. Although the
receivership moved from San Jose to Sacramento, it had remained liable for a five-year
non-cancelable lease obligation through July 31, 2011, for the San Jose office totaling
$18,488 per month. The sub-tenant agreed to pay the receivership $17,146 per month for
the remaining liability period, which totaled $188,610 in rental income for 11 months of
fiscal year 2008-09. The receivership continues to pay the remaining amount of $1,342
per month. In May 2008, the receivership began renting an office in Campbell, near San
Jose. The controller and an accountant were using this office and retaining records there.
The receiver had a monthly lease obligation of $1,100 through October 31, 2009, and
spent $1,216 on a storage unit. The receiver implemented the OIG’s recommendation to
consolidate its operations in Sacramento by closing the Campbell office at the lease’s
expiration in October 31, 2009.
Bureau of Audits and Investigations
Office of the Inspector General Page 19
Response from the
California Prison Health Care
Receivership Corporation
Bureau of Audits and Investigations
Office of the Inspector General Page 20
The receivership concurred with the OIG report and did not prepare a formal response.
Bureau of Audits and Investigations
Office of the Inspector General Page 21