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A nurse tends to a patient in a prison facility
Outsourcing contracts with vendors give financially strapped state and local governments a way to establish fixed, predictable costs for healthcare services through contracts based on a global, capitated rate per inmate.

Rumble over jailhouse healthcare

As states broaden outsourcing to private vendors, critics question quality of care and cost savings


By Beth Kutscher
Posted: August 31, 2013 - 12:01 am ET
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Healthcare services in Florida's prisons are undergoing a big overhaul this summer as the state hands over care for its more than 100,000 inmates to a private company.

The beneficiary of the five-year, $230 million contract—pushed through by Republican Gov. Rick Scott, the former Columbia/HCA leader who is a strong advocate of privatization—is a private equity-backed company called Corizon, the nation's largest private prison healthcare provider.

Corizon's contract in Florida—which came after a lengthy legal fight by two labor unions to block the state's attempt to privatize prison services—follows its winning a five-year contract in February to serve 34,000 inmates in 10 Arizona facilities. The prison healthcare provider essentially serves as the HMO for a captive patient population.

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“We're definitely growing here,” said Rich Hallworth, CEO of Brentwood, Tenn.-based Corizon and former chief operating officer of Tufts Health Plan in Boston.

The company's expansion in Florida is part of the broader, and controversial, movement by state and local governments to outsource prison healthcare to private contractors. About 20 states reportedly have outsourced all or part of their prison healthcare to vendors to cut costs. While hard data are not available on the prevalence of privatization, Dr. Marc Stern of the University of Washington, who formerly served as medical director of that state's corrections department, estimated that half of all state and local prisons and jails have outsourced healthcare services, and that these contracts are worth roughly $3 billion a year.

These contracts give financially strapped state and local governments a way to establish fixed, predictable costs for healthcare services through contracts based on a global, capitated rate per inmate. The deals allow state and local governments to avoid what they see as the higher costs associated with providing healthcare through public employees who often are unionized and receive benefits and pensions.

There is debate, however, about whether outsourcing actually saves money for corrections agencies. And the growth of private prison healthcare providers has fueled sharp criticism from prisoner advocates and legal aid groups that warn of a negative effect on quality of care, and from labor unions that see union jobs going to nonunionized private-sector contractors.

Powerful political and ideological pressures drive decisions about the provision of healthcare to prisoners. For one thing, it's hard for governors and state legislatures to support higher spending and better quality for inmates' care because of the punitive public attitudes toward prisoners. Some question why prisoners should receive healthcare at all.

Brenda Smith, a professor at the Washington College of Law at American University, described that attitude as: “We don't want you to be in better shape here than you would be in the community.”

As a result of those attitudes, Stern said that “whoever delivers prison healthcare is doing it on less than adequate funding because that's how much municipalities, state legislatures and county commissions are allocating.”

Hallworth estimated his privately held company, which has operations in 29 states, is three times the size of its next largest competitor. He said it provides healthcare services to 410,000 inmates at more than 400 correctional facilities across the country. Other sizable national players include Pittsburgh-based Wexford Health Sources, Nashville-based Correct Care Solutions, and St. Louis-based Centurion Managed Care, a joint venture between Centene Corp. and MHM Services, all of which are also privately held. In addition, there are smaller, regional operators.

Healthcare takes a big chunk of correctional budgets, so the market is potentially lucrative. For example, according to 2011-12 statistics from the Florida Department of Corrections, healthcare represented 19%, or $408.6 million, of its $2.1 billion budget—the largest line item after security and institutional operations.

Corizon at a glance
The rationale for outsourcing prison healthcare goes beyond cost containment. Managing healthcare is beyond the core competency of a corrections department. Also, outsourcing is viewed as a risk-management strategy, where the vendor assumes most of the liability when there are adverse medical outcomes.

Correctional healthcare providers have a challenging patient population. Prisoners have higher rates of infectious disease, chronic conditions, mental illness, and alcohol and substance-abuse problems. Also, prison populations are getting older: Nearly 8% of inmates were 55 or older in 2011, according to the U.S. Bureau of Justice Statistics. A report by Human Rights Watch found that aging inmates incur costs that are nine times higher than those for younger inmates.

Prison healthcare is a segment of the healthcare industry that often flies under the public radar. When it does surface, it's often because of controversy. And things do go wrong, as they did in Idaho. There, a special master's report delivered last year to a federal judge about conditions at the Idaho State Correctional Institution, where Corizon manages health services, found deficiencies that the report called “cruel and unusual.” The findings included a patient who wasn't notified for seven months about a suspicious chest X-ray, delayed or no response to emergencies, the use of expired medication and incomplete record keeping.

Degree of oversight

“I found severe problems,” said Stern, who served as the special master in Idaho and has done similar work for courts in Wisconsin and Florida. “I've seen excellent care by Corizon (and other private providers), and there are other cases where I've seen the opposite. The best predictor of quality is the degree of oversight by the state or county or municipality and the strength of the vendor's local employees such as the medical director and psychiatrist. Where the state or county has a hands-off attitude, that's where they are more likely to get in trouble.”

In Idaho, Corizon commissioned its own review by an outside auditor, who disputed Stern's findings. Hallworth appeared in a Corizon video defending his company's care in Idaho and blasting Stern's report, calling it “incomplete, misleading and erroneous.”

The company recently won a contract extension by the state of Idaho. But the state agreed to increase its oversight over Corizon's services, and the federal court is continuing to review the system.

“Corizon is in the process of correcting problems,” Stern said.

A 2007 paper authored by Kelly Bedard and H.E. Frech, economists at the University of California, Santa Barbara, found higher inmate mortality rates when states contracted out prison healthcare services, though states did see lower costs. “Contracting out may reduce both cost and quality,” they wrote.

“The quality of healthcare in prisons is pretty abysmal,” Smith said. “You get a certain budget and you have to bring healthcare in under a certain budget. If you're trying to make a profit, there's an incentive to hold down costs.”

Corizon is the product of the 2011 merger between Correctional Medical Services and PHS Correctional Healthcare, which took the combined companies private. It has annualized revenue of $1.5 billion. In 13 of the 29 states where it has contracts, the contract covers the entire state prison system. It also has contracts in the jails of major cities, including New York, Philadelphia and Atlanta. It won a renewed contract this year worth $42 million to provide care for 9,000 inmates in Philadelphia's jails.

Of its 14,000 employees, about 10,000 are nurses and another 1,500 to 2,000 are physicians or physician extenders. Most of the care that Corizon provides is through employed clinicians at its own 410 facilities, which are mostly onsite at the prisons and jails. Onsite healthcare facilities reduce the security risks and costs involved in transferring prisoners to facilities outside prison grounds.

Other private providers also deliver most care in clinics inside the jail or prison. The largest correctional facilities have their own mini-hospitals inside the walls, though most facilities send inmates outside for hospitalization.

Full spectrum of care

Corizon CEO Rich Hallworth defends company's care
Corizon CEO Rich Hallworth appeared in a Corizon video defending his company’s care in Idaho and blasting a critical report, calling it “incomplete, misleading and erroneous.”
In some ways, Hallworth said, Corizon's business model mirrors what he refers to as “free world” healthcare providers. He likens its services at county and city jails—where inmates stay an average of 20 to 30 days—to running an emergency room. In prisons, the company provides a fuller spectrum of care, from initial health assessments, to sick care that must be delivered within 24 hours, to discharge planning when prisoners are released.

Corizon also provides mental health and substance-abuse services, as well as arranging off-site hospital care when required. Contracts vary state to state, but in Florida, Corizon must get preauthorization to transfer patients to one of two outside hospitals with secure units; the company pays a $250 offsite transfer fee. If patients are treated at the state-operated prison hospital, Corizon is paid a fixed daily rate. The Florida contract also details what preventive medical and dental care should be provided, as well as performance targets.

Stern said there is no single model around the country of paying for inmates' hospital care under private provider contracts. In some contracts, the provider assumes all risk for outside care; in some the government assumes all the risk. In others there is shared responsibility. “In general, though, it's usually in everyone's interest to keep inmates healthy,” he said.

Corizon also runs other services, such as an in-house pharmacy division, PharmaCorr, which allows it to negotiate better prices on the 22,000 prescriptions it fills each day. The company's size enables it to take advantage of other operational efficiencies. Hallworth said that his clinical experts are “the deepest bench in the industry,” and that they are developing predictive algorithms to get the best outcomes behind bars.

When it comes to capitation and global payments, Corizon may be ahead of the curve. “We are the model because we've been doing capitated rates since we've been in business,” Hallworth said. “Our cost per individual is significantly less than in the free world.”

Stern said the typical capitated rate per inmate per year is $3,000.

Corizon controls costs in a number of ways—from generic drug substitution, totelemedicine, to avoiding what Hallworth called “defensive medicine.”

Lessons for 'free world' providers

Corizon said it focuses on preventive care to reduce costs and improve outcomes. The company closely tracks health outcomes and even outperforms the “free world” in some areas, Hallworth said. One example he cited is diabetes. Corizon does more testing than providers serving the general population, he said. Ninety-three percent of Corizon's patients receive testing for diabetes, compared with 87% to 90% of commercially insured patients and 82.5% of Medicare patients.

In addition, 50% more of its diabetes patients have their condition controlled, and Corizon sees less than 10% of the incidence of diabetic ketoacidosis—when blood sugar drops too low—found in the general population, Hallworth said.

Inmates at the company's facilities also have a lower suicide rate than average for prison populations, he said. He points to similar quality metrics in HIV. “We compare favorably in just about every category,” he said.

With many of its larger contracts operating on a full-risk payment model, Hallworth sees lessons for “free world” providers that are just learning to manage population health. “Right now, the whole world is moving toward the model we've used for the last 30 years.”

Still, he acknowledged that Corizon sometimes finds itself at the center of a firestorm. Private prison healthcare providers routinely face lawsuits filed by inmates and legal groups representing prisoners. While the companies have prevailed in most of the cases, they have been hit with sizable verdicts and settlements. “We're a target for litigation for a number of reasons,” Hallworth said.

For instance, Corizon's facilities have 1 million to 1.5 million patients under care during a given calendar year, and many have a high incidence of complex conditions such as HIV and mental health disorders. Also, Corizon, a private vendor, is a deep pocket that litigants can target. The company is easier to sue than government corrections agencies because of sovereign immunity doctrine.

“We get sued a lot, but 95% or 97% of cases were self-represented cases,” Hallworth said, adding that they were settled for an average of less than $50. “The vast majority of cases are groundless.”

But in the past year, the Minnesota Department of Corrections, for which Corizon provides healthcare services, agreed to a $400,000 settlement in a federal lawsuit over the death of a 27-year-old inmate who suffered at least seven seizures in his prison cell in 2010. A prison nurse working for Corizon had turned away an ambulance sent to take him to the hospital. The attorney representing the inmate's family said the case against Corizon was resolved to the mutual satisfaction of the parties; the terms are confidential.

In July, a federal judge in Virginia approved a motion by the Legal Aid Justice Center in Charlottesville to add Corizon as a defendant in a class-action suit on behalf of prisoners at the Fluvanna Correctional Center for Women. The suit alleged that Corizon and Armor Correctional Health Services (Corizon took over from Armor) consistently neglected prisoners' health issues such as diabetes, blood clots, ulcers and cancer, contributing to the death of at least one inmate. The suit, which asks for no financial compensation, seeks a court order requiring Corizon to provide better care.

Quality of care

On the other hand, state-operated prison healthcare systems also can find themselves in trouble, which is what happened in California. There, inmate healthcare has operated under federal court supervision since 2005 after a judge found the state failed to provide inmates with adequate care. The state has tried to regain control, but the judge said the state must first prove it can do a better job. In that situation, privatization was floated as a way to improve quality of care, said Len Gilroy, director of government reform at the Reason Foundation, a libertarian group that advocates for free market principles.

Gilroy said prison healthcare contracts can be designed to include performance metrics, as they do in Kansas. The Chicago-based National Commission on Correctional Health Care offers an accreditation program for prison healthcare programs. A spokeswoman for the commission declined to provide any information on how many programs it accredits.

Stern said state and local corrections departments that don't know what they are doing can probably save money by bringing in a vendor such as Corizon to provide healthcare services. But if they bring in their own skilled healthcare staff and implement good quality control and utilization review, he said, they can deliver healthcare to prisoners cheaper than a vendor.

Still, he stopped short of saying that care provided directly by correctional staff is better or worse than that delivered by private contractors. “They all have their good days and their bad days,” Stern said. “They all have their good locations and their bad locations.”

-with Harris Meyer

Follow Beth Kutscher on Twitter: @MHbkutscher



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