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This site contains over 2,000 news articles, legal briefs and publications related to for-profit companies that provide correctional services. Most of the content under the "Articles" tab below is from our Prison Legal News site. PLN, a monthly print publication, has been reporting on criminal justice-related issues, including prison privatization, since 1990. If you are seeking pleadings or court rulings in lawsuits and other legal proceedings involving private prison companies, search under the "Legal Briefs" tab. For reports, audits and other publications related to the private prison industry, search using the "Publications" tab.
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Vermont Auditor's Report Blasts CCA and CMS
by David M. Reutter
The Keys to Success report issued by the Vermont State Auditor on May 26, 2004, concludes the Vermont Department of Corrections' (VDOC) "failure to monitor its contracts with private companies and individuals has resulted in significant financial impacts, services that were paid for and not received, and, in some cases, serious reports of poor living conditions, substandard medical and dental care, and inadequate programming" for prisoners.
The October 7, 2003, suicide death of PLN contributing writer James Quigley at Vermont's Northwest State Correctional Facility erupted a firestorm of criticism that has caused a torrent of attention to be beamed on all aspects of VDOC. In March 2004, two New England lawyers, at the State's behest, issued an investigative report into the deaths of seven Vermont prisoners. [PLN, Sep. 2004]. The Auditor's review of VDOC contracts was requested by a number of legislators, prisoners, prisoner rights advocates, and the Vermont State Employees Association.
Since 2000, VDOC has entered into more than 100 contracts at a cost of more than $50 million to provide a wide variety of services to prisoners, from substance abuse counseling and having medical and mental health treatment. This is not the first time VDOC contracts have come under scrutiny. The Auditor's Office previously issued Who's Keeping Watch? A Review of the Department of Corrections' Oversight and Management of Mental Health Service Contracts, a report that blasted mental health services to Vermont prisoners.
System Wide Problems
The Auditor found VDOC does not comply with State procedures when issuing, reviewing, and approving proposals to provide contracted services. Contract files are not properly maintained and there were several instances of missing documentation. Significantly, VDOC failed to document how and why a vendor was selected and how or if losing bidders were notified.
The Auditor was highly critical of VDOC's failure to document why it awarded the medical services contract to Correctional Health Services (CHS) in November 2000 when Correctional Medical Services (CMS) purchased CHS. There was no documentation on how VDOC addressed the six evaluator's concerns when they rated CMS last among the 4 proposals in May 2000 for the contract.
One of the predominant problems is VDOC's failure to have sufficient controls in place to assure staff hours and services were provided according to signed contracts. In most cases, a single individual was responsible for overseeing all aspects of a contract, the contract itself called for four state employees to act on various aspects as monitors.
The decifiency in oversight of contracts caused the VDOC to pay for hours not worked and services not provided. This was exacerbated by VDOC's failure to require its contractors to submit invoices that fully detail expenditures, as required by Vermont law.
CMS Medical Contract
To provide medical services for its 1,500 prisoners, VDOC currently contracts with CMS. [Editor's Note: As this issue of PLN goes to press, the VDOC has announced it is switching medical care providers and that Prison Health Services, another private, for profit company with a checkered past, is most likely to get the medical services contract.] The contract expires June 30, 2005, and costs approximately $575,000 per month or $6.9 million per year. It includes comprehensive health and dental services, optical services, pharmacy, laboratory services, and supplies. Certain charges for HIV and Hepatitis C treatments are not included and must be paid by the State.
The Auditor examined the 14 most recent invoices CMS submitted for monthly services. Only the last invoice, December 2003, presented evidence that CMS was, or wasn't, meeting required personnel or fixed cost targets and the State was being billed for actual costs incurred. All other invoices simply billed for the maximum monthly amount with no other evidence of services. VDOC approved all these invoices and made payment.
Permitting CMS to submit lump sum invoices allowed it to bill VDOC for full staffing requirements of all sites even when those requirements were not met. Between November 2000 to February 2004, CMS billed VDOC for staff members that did not exist on eight months' invoices. The VDOC had other reports that noted these inadequacies, but it never reduced bills or assessed penalties. The auditor concluded CMS over billed VDOC $144,547 for non-existent staff.
For the first three years of the contract CMS was allowed to bill VDOC for additional services, which included per encounter charges for intake/physical, Hepatitis B vaccines, Diphtheria/Tetanus vaccines, TB testing, and per month per prisoner Hepatitis C treatment. VDOC approved, and paid $575,499 in such additional charges with little, or no, detail provided by CMS to verify these additional costs were actually incurred.
The CMS contract provides the "state shall contribute toward payment for eligible services under the Vermont Health Assistance Plan (VHAP) program. This contribution shall be deducted from the Contractor's additional monthly charge invoice." Prisoners are covered under VHAP for emergency care _ not routine check-ups or pre-planned doctor's visits. When a prisoner is taken to a hospital for an emergency, CMS enrolls the prisoner in VHAP. Since June 1, 2000, VHAP has paid $446,848 in prisoner emergency _ related costs. The State has contributed $166,450 to VHAP, but no deductions have ever been made from CMS' invoices to pay this medical care.
To increase its profitability, CMS enacted a pharmacy scam. The contract put in place a stop-loss provision for medications. 75 percent of the drugs prescribed by mental health personnel are outside the approved pharmaceutical formulary. The pharmacy company that provides those drugs, Spectrum Health, is owned by CMS' parent company. The extra revenue was generated by Spectrum assessing a 12 percent overhead charge on all prescription orders. As of May 2004, VDOC paid nearly $240,000 in additional charges above the stop-loss provision.
CMS is required by the contract to submit quarterly and annual financial reports on a State furnished template or suffer a penalty of $1,000 per month for each month the report is not received. CMS never submitted such reports. The Auditor determined CMS owes $279,000 for the failure to submit those reports.
The contract also requires CMS to submit an invoice for services by the 15th of the month for the preceding month's services. The Auditor found that eight of 41 invoices for monthly services and 24 of 30 invoices for additional monthly services were up to three months late; 18 of 32 invoices for additional prisoner services were up to two months late. The failure to timely submit invoices is significant, for failure to submit by the 15th makes VDOC not liable for the charges. Millions of dollars could have been saved had VDOC enforced this penalty. Then again, VDOC regularly paid its bills beyond the required 30 days, which could have resulted in CMS assessing $55,101 in interest charges as a penalty.
Late invoices not only make tracking services on a monthly basis difficult, but it has resulted in VDOC being billed for and paying for services twice. On November 24, 2003, CMS submitted an invoice for servicing 1,478 prisoners, which was above the contract's 1,400 prisoner cap, in October 2003. VDOC later amended the prisoner census to be 1,463 and sent CMS a check for $6,835 on December 24. On March 8, 2004, CMS submitted an identical invoice _ same invoice number, date, and amount _ for October 2003 services. This time, VDOC reduced the bill to 1,464 prisoners and sent CMS a check for $6,944. VDOC's Accounting Office caught the over billing a few weeks later and CMS issued a credit on future services.
To verify the quality of health services that VDOC was paying the maximum price for, VDOC relied upon CMS' reports. VDOC had at its disposal the services Pacific Health Policy Group, who was under contract, but it never utilized those services. Even when VDOC was aware of CMS not upholding its service obligations, no additional penalties were assessed when those problems persisted. A glaring problem in service was that prisoner who submitted sick call slips were sometimes not seen for two months. Grievances are to be responded to within 10 days, but response times often topped 30 days. In sum, the Auditor concluded there is no system in place to assure CMS provides contracted services, and there is no penalty for failing to do so.
Out-of-State Having Contracts
Due to VDOC's prisoner population exploding from 400 in 1994 to over 1,500 it needed space to warehouse its wards. In July of 1998, VDOC contracted with the State of Virginia. When that contract expired on January 30, 2004, Virginia continued to house VDOC prisoners while a contract amendment process ensued. Hence, Virginia provided services without the benefit of a fully executed contract. A contract amendment has yet to materialize, and Virginia still awaits payment for housing VDOC prisoners in February and March. The Auditor said that the contractor, prisoners, and the State are at risk in the event problems arise during the time a fully executed contract is not in place.
To address its housing problems, VDOC entered into a $29.7 million contract with Corrections Corporation of America (CCA) on January 15, 2004. CCA currently houses VDOC prisoners in three prisons outside Vermont. 235 prisoners are at the Marion Adjustment Center (MAC) in St. Mary, Kentucky; 120 prisoners are housed at the Lee Adjustment Center in Beattyville, Kentucky; and 6 prisoners are held at the Florence Correctional Center in Florence, AZ.
While CCA is required to be accredited by the American Correctional Association, there are no penalties for failing to do so or for maintaining inadequate housing facilities or staff. The Auditor found the facilities at MAC inadequate. There is no kitchen or dining room at MAC; meals are delivered from another building and served from steam tables in a hallway. Recreation, library services, visiting areas, and the segregation unit are cramped. At times, the prison is insufficiently staffed, which poses security problems. Moreover, VDOC has no on-sight contract monitor, and it relies on CCA reports as its source of oversight. [Editor's Note: In October, 2004, Vermont prisoners in Kentucky rioted causing serious damage to the prison. PLN will report the details in an upcoming issue.]
Curing the Problems
Among other suggestions, the Auditor recommended VDOC manage all service contracts to ensure contract performance and cost containment. This will require developing a contract monitoring and administrative oversight team. This report demonstrates, once again, that private corporations cannot be trusted to fully service prisoners without rigid administrative controls in place. After all, fewer employees and services equate to higher monthly profits. The issues and problems of using private companies to provide prison services are nothing new. Quite literally, the lack of contractual oversight and management by the state is a recurring issue nationally and one which PLN reports on a regular basis. The ongoing financial chicanery of the private prison industry should debunk any notion that they provide a cost effective or efficient alternative to government run prisons. The Auditor's report Keys to Success, may be obtained by contacting the Office of the State Auditor, 132 State Street, Montpelier, VT 05633-5101 or on the internet at www.state.vt.usa/sao.
The Keys to Success report issued by the Vermont State Auditor on May 26, 2004, concludes the Vermont Department of Corrections' (VDOC) "failure to monitor its contracts with private companies and individuals has resulted in significant financial impacts, services that were paid for and not received, and, in some cases, serious reports of poor living conditions, substandard medical and dental care, and inadequate programming" for prisoners.
The October 7, 2003, suicide death of PLN contributing writer James Quigley at Vermont's Northwest State Correctional Facility erupted a firestorm of criticism that has caused a torrent of attention to be beamed on all aspects of VDOC. In March 2004, two New England lawyers, at the State's behest, issued an investigative report into the deaths of seven Vermont prisoners. [PLN, Sep. 2004]. The Auditor's review of VDOC contracts was requested by a number of legislators, prisoners, prisoner rights advocates, and the Vermont State Employees Association.
Since 2000, VDOC has entered into more than 100 contracts at a cost of more than $50 million to provide a wide variety of services to prisoners, from substance abuse counseling and having medical and mental health treatment. This is not the first time VDOC contracts have come under scrutiny. The Auditor's Office previously issued Who's Keeping Watch? A Review of the Department of Corrections' Oversight and Management of Mental Health Service Contracts, a report that blasted mental health services to Vermont prisoners.
System Wide Problems
The Auditor found VDOC does not comply with State procedures when issuing, reviewing, and approving proposals to provide contracted services. Contract files are not properly maintained and there were several instances of missing documentation. Significantly, VDOC failed to document how and why a vendor was selected and how or if losing bidders were notified.
The Auditor was highly critical of VDOC's failure to document why it awarded the medical services contract to Correctional Health Services (CHS) in November 2000 when Correctional Medical Services (CMS) purchased CHS. There was no documentation on how VDOC addressed the six evaluator's concerns when they rated CMS last among the 4 proposals in May 2000 for the contract.
One of the predominant problems is VDOC's failure to have sufficient controls in place to assure staff hours and services were provided according to signed contracts. In most cases, a single individual was responsible for overseeing all aspects of a contract, the contract itself called for four state employees to act on various aspects as monitors.
The decifiency in oversight of contracts caused the VDOC to pay for hours not worked and services not provided. This was exacerbated by VDOC's failure to require its contractors to submit invoices that fully detail expenditures, as required by Vermont law.
CMS Medical Contract
To provide medical services for its 1,500 prisoners, VDOC currently contracts with CMS. [Editor's Note: As this issue of PLN goes to press, the VDOC has announced it is switching medical care providers and that Prison Health Services, another private, for profit company with a checkered past, is most likely to get the medical services contract.] The contract expires June 30, 2005, and costs approximately $575,000 per month or $6.9 million per year. It includes comprehensive health and dental services, optical services, pharmacy, laboratory services, and supplies. Certain charges for HIV and Hepatitis C treatments are not included and must be paid by the State.
The Auditor examined the 14 most recent invoices CMS submitted for monthly services. Only the last invoice, December 2003, presented evidence that CMS was, or wasn't, meeting required personnel or fixed cost targets and the State was being billed for actual costs incurred. All other invoices simply billed for the maximum monthly amount with no other evidence of services. VDOC approved all these invoices and made payment.
Permitting CMS to submit lump sum invoices allowed it to bill VDOC for full staffing requirements of all sites even when those requirements were not met. Between November 2000 to February 2004, CMS billed VDOC for staff members that did not exist on eight months' invoices. The VDOC had other reports that noted these inadequacies, but it never reduced bills or assessed penalties. The auditor concluded CMS over billed VDOC $144,547 for non-existent staff.
For the first three years of the contract CMS was allowed to bill VDOC for additional services, which included per encounter charges for intake/physical, Hepatitis B vaccines, Diphtheria/Tetanus vaccines, TB testing, and per month per prisoner Hepatitis C treatment. VDOC approved, and paid $575,499 in such additional charges with little, or no, detail provided by CMS to verify these additional costs were actually incurred.
The CMS contract provides the "state shall contribute toward payment for eligible services under the Vermont Health Assistance Plan (VHAP) program. This contribution shall be deducted from the Contractor's additional monthly charge invoice." Prisoners are covered under VHAP for emergency care _ not routine check-ups or pre-planned doctor's visits. When a prisoner is taken to a hospital for an emergency, CMS enrolls the prisoner in VHAP. Since June 1, 2000, VHAP has paid $446,848 in prisoner emergency _ related costs. The State has contributed $166,450 to VHAP, but no deductions have ever been made from CMS' invoices to pay this medical care.
To increase its profitability, CMS enacted a pharmacy scam. The contract put in place a stop-loss provision for medications. 75 percent of the drugs prescribed by mental health personnel are outside the approved pharmaceutical formulary. The pharmacy company that provides those drugs, Spectrum Health, is owned by CMS' parent company. The extra revenue was generated by Spectrum assessing a 12 percent overhead charge on all prescription orders. As of May 2004, VDOC paid nearly $240,000 in additional charges above the stop-loss provision.
CMS is required by the contract to submit quarterly and annual financial reports on a State furnished template or suffer a penalty of $1,000 per month for each month the report is not received. CMS never submitted such reports. The Auditor determined CMS owes $279,000 for the failure to submit those reports.
The contract also requires CMS to submit an invoice for services by the 15th of the month for the preceding month's services. The Auditor found that eight of 41 invoices for monthly services and 24 of 30 invoices for additional monthly services were up to three months late; 18 of 32 invoices for additional prisoner services were up to two months late. The failure to timely submit invoices is significant, for failure to submit by the 15th makes VDOC not liable for the charges. Millions of dollars could have been saved had VDOC enforced this penalty. Then again, VDOC regularly paid its bills beyond the required 30 days, which could have resulted in CMS assessing $55,101 in interest charges as a penalty.
Late invoices not only make tracking services on a monthly basis difficult, but it has resulted in VDOC being billed for and paying for services twice. On November 24, 2003, CMS submitted an invoice for servicing 1,478 prisoners, which was above the contract's 1,400 prisoner cap, in October 2003. VDOC later amended the prisoner census to be 1,463 and sent CMS a check for $6,835 on December 24. On March 8, 2004, CMS submitted an identical invoice _ same invoice number, date, and amount _ for October 2003 services. This time, VDOC reduced the bill to 1,464 prisoners and sent CMS a check for $6,944. VDOC's Accounting Office caught the over billing a few weeks later and CMS issued a credit on future services.
To verify the quality of health services that VDOC was paying the maximum price for, VDOC relied upon CMS' reports. VDOC had at its disposal the services Pacific Health Policy Group, who was under contract, but it never utilized those services. Even when VDOC was aware of CMS not upholding its service obligations, no additional penalties were assessed when those problems persisted. A glaring problem in service was that prisoner who submitted sick call slips were sometimes not seen for two months. Grievances are to be responded to within 10 days, but response times often topped 30 days. In sum, the Auditor concluded there is no system in place to assure CMS provides contracted services, and there is no penalty for failing to do so.
Out-of-State Having Contracts
Due to VDOC's prisoner population exploding from 400 in 1994 to over 1,500 it needed space to warehouse its wards. In July of 1998, VDOC contracted with the State of Virginia. When that contract expired on January 30, 2004, Virginia continued to house VDOC prisoners while a contract amendment process ensued. Hence, Virginia provided services without the benefit of a fully executed contract. A contract amendment has yet to materialize, and Virginia still awaits payment for housing VDOC prisoners in February and March. The Auditor said that the contractor, prisoners, and the State are at risk in the event problems arise during the time a fully executed contract is not in place.
To address its housing problems, VDOC entered into a $29.7 million contract with Corrections Corporation of America (CCA) on January 15, 2004. CCA currently houses VDOC prisoners in three prisons outside Vermont. 235 prisoners are at the Marion Adjustment Center (MAC) in St. Mary, Kentucky; 120 prisoners are housed at the Lee Adjustment Center in Beattyville, Kentucky; and 6 prisoners are held at the Florence Correctional Center in Florence, AZ.
While CCA is required to be accredited by the American Correctional Association, there are no penalties for failing to do so or for maintaining inadequate housing facilities or staff. The Auditor found the facilities at MAC inadequate. There is no kitchen or dining room at MAC; meals are delivered from another building and served from steam tables in a hallway. Recreation, library services, visiting areas, and the segregation unit are cramped. At times, the prison is insufficiently staffed, which poses security problems. Moreover, VDOC has no on-sight contract monitor, and it relies on CCA reports as its source of oversight. [Editor's Note: In October, 2004, Vermont prisoners in Kentucky rioted causing serious damage to the prison. PLN will report the details in an upcoming issue.]
Curing the Problems
Among other suggestions, the Auditor recommended VDOC manage all service contracts to ensure contract performance and cost containment. This will require developing a contract monitoring and administrative oversight team. This report demonstrates, once again, that private corporations cannot be trusted to fully service prisoners without rigid administrative controls in place. After all, fewer employees and services equate to higher monthly profits. The issues and problems of using private companies to provide prison services are nothing new. Quite literally, the lack of contractual oversight and management by the state is a recurring issue nationally and one which PLN reports on a regular basis. The ongoing financial chicanery of the private prison industry should debunk any notion that they provide a cost effective or efficient alternative to government run prisons. The Auditor's report Keys to Success, may be obtained by contacting the Office of the State Auditor, 132 State Street, Montpelier, VT 05633-5101 or on the internet at www.state.vt.usa/sao.
