State Audit Finds 77% of Prison Health Care Contracts Were Not Competitively Bid Upon During Past Five Years

During the last five years, 77% of prison contracts for health care services were awarded without competitive bidding, and contract costs increased by 150%, state Auditor Elaine Howle said Tuesday, the Los Angeles Times reports. The Department of Corrections, which runs 32 prisons with 160,000 inmates, paid hospitals, laboratories and clinics $239 million for contracted services during fiscal year 2003, compared with $96 million paid for contracted care in FY 1998-1999 (Reiterman, Los Angeles Times, 4/7). Contracts without competitive bidding were approved under a 30-year-old exemption, but the Department of General Services could not provide auditors with documentation explaining the law's original justification and did not know whether the exemption remains valid (Rojas, Sacramento Bee, 4/7). Auditors noted that the law does not provide any criteria to determine whether contract costs are "reasonable," the Times reports (Los Angeles Times, 4/7). The audit, conducted by the Bureau of State Audits at the request of the Legislature's Joint Audit Committee, also found that the prison system "may be paying inappropriate and invalid medical claims" (Sacramento Bee, 4/7). Howle said many contracts with hospitals included guarantees that the state would receive discounts on supplies or services but did not include information to ensure the state would receive the savings, including which items were discounted and what their original costs were (Martin, San Francisco Chronicle, 4/7).

The audit also found that contracts were awarded at rates above its standards in violation of the department's own contract manual. "We found four contracts in which prisons exceeded the funding authorized in the contracts by $5.9 million and some instances of prisons obtaining medical services for inmates before receiving General Services (Department) approval," auditors said (Sacramento Bee, 4/7). In one contract, the department paid 24% more than the contracted cost (Marimow, San Jose Mercury News, 4/7). The four contracts cited in the audit were sample contracts; an overall estimate on overspending was not provided (Thompson, AP/San Diego Union-Tribune, 4/7). Auditors recommended that the 30-year-old contract exemption end (San Jose Mercury News, 4/7). The Department of General Services said it would convene a meeting with various state agency officials, including Department of Corrections officials, to re-evaluate the bidding exemption (Sacramento Bee, 4/7).

Corrections officials said they are "committed to improving the system" but are concerned that lengthy competitive bidding processes would "make it difficult to meet unpredictable medical needs," the Mercury News reports (San Jose Mercury News, 4/7). Prison officials added that the length of contract negotiations would put the department "at risk of not delivering necessary services in a timely manner," which could expose the state to additional litigation and contempt of court citations for violating rulings in three federal court cases requiring that inmates receive timely access to medical care (Los Angeles Times, 4/7). Department officials said that instead of conducting an official bidding process, they often conduct an "informal hospital solicitation process" to find cheaper rates, which they extend to other service contracts. However, auditors said they found such informal solicitations were not typically conducted and questioned the policy (AP/San Diego Union-Tribune, 4/7). Dr. Renee Kanan, assistant deputy of clinical policy and field management, said that the corrections department has already taken some steps to more closely monitor service contracts, including increasing the number of staff in the contract unit over the last year to 10 people. She added that while the department has been able to negotiate "preferred provider rates" with several contractors, negotiating with providers in remote areas, "particularly in emergencies," is not always possible. A nursing shortage in rural areas has also forced the department to rely on more costly nursing registries, she added (Sacramento Bee, 4/7).