Kansas Department of Corrections Health Services Contract Perspectives

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1 1 Kansas Department of Corrections Health Services Contract COMPREHENSIVE CONTRACT MODEL Viola Riggin Director of Healthcare Services Kansas Department of Corrections Kansas University Physicians, Inc.

2 Keeping the focus on Quality Basic Types of Correctional Healthcare Models State Agency Contracted Healthcare-Comprehensive State Agency Administrative Supervision/Line Staff Contracted Contracted with Cost Controls by State Contracted with Monitoring functions shared by 2nd Party University Staff University & DOC Agency Agreements 2

3 Keeping the focus on Quality Kansas Model Overview The University of Kansas Medical Center provides oversight for all healthcare functions as a partnership agency with KDOC. Private Vendor- Correct Care Solutions provides services for all Medical, Mental Health, Dental, Forensic Evaluations, and clinical discharge planning for the KDOC. No Cap on any service- the vendor is fully responsible for all costs and risks, therefore KDOC has a balanced budget each year with a known set cost that does not fluctuate during the year. Kansas has 8 Correctional Facilities, 9,350 inmates, 378 healthcare staff to provide comprehensive healthcare services. Vendor maintains profit if costs are contained. 3

4 Keeping the focus on Quality Kansas Model Overview Offsite services are contracted through the private vendor (CCS) for all medical, mental health, and dental services Medicaid carve out is the only exception; any monies paid by Medicaid for Inpatient Hospitalizations are taken back from the vendor and put back into the State General Fund. Performance Penalties maintain the standard of over 90% compliance on all essential areas of healthcare services. Required staffing thresholds and penalties maintain the staffing at 95% fill rate. Electronic health record with Quality Improvement overlay and immediate remote monitoring availability. 4

5 Keeping the focus on Quality Inmate Health Care Cost Compared to Kansas State Employee Costs FY 2012 Average contracts was $17.69 for FY 2012 Cost-per-Day-per-Inmate (CPDPI). The U.S. Consumer Price Index for healthcare FY 2013 in the U.S. increased 3.7% estimating then that CPDPI is $18.34 national average for FY 2013 year end. The information below provides Kansas cost data for with average CPDPI based on Average Daily Population for each year. The last line allows a cost comparison of the Kansas average per-inmate cost with the single rate insurance rate paid by the State for employees. The CPDPI represents total cost for all healthcare services for inmates, the employee insurance rate represents only the State s portion and does not include additional costs for deductibles, co-pays, etc. FY 2011 FY 2012 FY 2013 CCS $45,614,062 Average Daily Population 9,010 Average Annual Cost per Inmate $5,062 Daily Average Cost -$13.86 Average Annual Cost per Employee $3,531 CCS $48,438,624 Average Daily Population 9,129 Average Annual Cost Per Inmate $5,306 Daily Average Cost -$14.53 Average Annual Cost Per Employee $3,961 CCS $44,608,460 Average Daily Population 9,402 Average Annual Cost Per Inmate $4,745 Daily Average Cost -$12.98 Estimated FY 2013 Employee $4,200 5

6 Kansas RFP Team Kansas Department of Corrections and Kansas University Medical Center/Kansas University Physician s Inc, through the Director of Healthcare Services and the Contract Monitoring Team, work together to evaluate and develop the RFP and contract language. The Procurement Negotiation Committee (PNC) consists of : Deputy Secretary of Finance Deputy Secretary of Corrections Director of Healthcare Services 6

7 Correctional Healthcare Private Industry Market Summary The goal of any state contracting with a private vendor is to develop language in the RFP that will project their intent to receive proposals that are creative, innovative, and have cost saving features, while offering the best quality performance available in the correctional industry. Expect to see changes in market share, leadership, players, costs, pricing, and competition during the bidding process. Aggressive smaller companies-merging to form large Mega diversified companies. Carve out market sharing. Big business partners such as Insurance/Investment companies vs. Correctional industry workers that start companies from the ground up. Pricing that allows for every minor detailed cost to be identified. Risk sharing. Guaranteed profitability. State s oversight becoming more sophisticated and streamlined. More transparency between DOC s and their vendor on financial inspections of costs vs. profit margin. 7

8 Problems & Opportunities Understanding the various types of services available will help us safeguard against ending up with a poor quality contract at too high a price. Contracts can go awry-in 2002 Kansas was identified by the previous vendor as one of four states with impaired contracts. To avoid a repeat of 2002, Kansas has put safeguards and safety net clauses in their contract to prevent contract stand-offs and price escalations: Staffing Expectations and guidelines Performance Penalties Quality Improvement Guidelines Monitoring schedules/deadlines Out-clauses for both the DOC and the vendor Periodic negotiation periods 8

9 Major Contract Variations Contracted Healthcare is changing. Components of competitive contracts now include: Cost Sharing Cost Plus 4% Profit Guarantee Cost Pooling Caps Fixed Pricing (ala carte) Out Clauses for Unprofitable Contracts Secondary Risk Management-(Medicaid Program) Per Inmate Per Day Increase Fluctuating Clauses 9

10 Risks & Rewards Cost Sharing Models Pos - Result in lower bid pricing up front. Pos -Companies feel comfortable with sharing costs. Pos- Can result in cost savings under budget in any given year. Neg -KDOC unable to realize and budget a fixed cost. Neg -Costs are as low as your client is good. Neg -Catastrophic illness can wipe out a yearly budget. 10

11 Risks & Rewards Cost Plus (2%-8% Profit) Models Pos Savings on up front cost per inmate Pos State controls Utilization Management (has control of the brakes so to speak) Neg State Controls Utilization Management (has all the legal risk of refusing services Neg Private vendor profit driven by amount of service - more services means more cost to State Neg No matter how poorly the vendor performs they make their 2% to 8% profit. Neg Costs can and usually do skyrocket if not monitored closely and constantly! 11

12 Risks & Rewards Cost Pooling Model Pos - Negotiate more precise cost per pool. Generally 4-5 pools per contract. Pos - Can Carve out areas that are too pricey or that DOC can handle themselves. Pos - Can split the contract with other vendors to promote competition and reduced bid prices. Neg - Each pool has it s own separate budget to be maintained and monitored. Neg - Administrative overhead for each pool could create duplication of administrative service fees. Neg -Once a pool of money runs out either a split of costs between vendor and agency or all costs revert back to State no sharing of pooled money to offset overages. Neg- Competition between vendors can cause the vendors to defer /deflect responsibility on to their competitor causing friction. 12

13 Risks & Rewards Contract Cap Model Pos - Caps are in place to hold down upfront costs. Pos - If the number of offsite events are kept under budget and/or catastrophic events do not occur, then capped costs can save the State money. (Caps can be on types of services as well as on per inmate basis. Neg -If catastrophic or excessive events occur, then capped costs can cost the State money. Neg -Contractors are starting to bid on caps on both services and by individual inmate case, i.e.. Individual not to exceed $35,000. All hospital costs for all inmates not to exceed $750, per year. 13

14 Risks & Rewards Ala Carte Model -Pos - More price options on specific services usually 8-10 areas of service: Medical, Mental Health, Dental, Pharmacy, Utilization Management (offsite ambulatory), Inpatient Hospitalization, Diagnostic Services, Lab, Equipment Supplies, Forensic Evaluation, Sex Offender treatment, Substance Abuse Treatment. -Pos - Can utilize other vendors for carve out services. -Pos - The State becomes the controller of all costs. -Neg -Carving out areas can cause other prices to rise. -Neg -Costs are usually set, any overages are the responsibility of the State. -Neg Remember Ala Carte is always more expensive! 14

15 Risks & Rewards Out Clauses Pos - Works to DOC advantage when out clause is allowed for the State only anytime with periodic out-clauses for vendor. Pos - Almost all contracts are now requiring some type of guaranteed profitability out clause to provide stability for the vendor based on economy and market changes. Neg - No matter how bad of a money manager your vendors are, they can walk away if profits are not realized. Neg -The focus can become whether the company is making money, not whether the client is provided quality care. Safeguards must be included in the contract to prevent the temptation to delay/defer necessary care. 15

16 Risks & Rewards Secondary Risk Management Pos - Facility healthcare costs have two sets of controllers reviewing and monitoring. Pos - Reduces costs for the State by monitoring spending of capped or pooled services. Pos - Increases Risk management skills by 2nd party reviewing care given. Pos - Acts as peer review so that 3 rd party additional peer review is not necessary. Neg -Not usually necessary on Comprehensive Contract, although would not hurt to have 2 nd set of controls to verify future bid costs. 16

17 Where to go from Here On site tours Go see for ourselves what s out there and how it works. Obtain other State Contracts for review and discussion. Initiate a group to discuss what your State wants out of the next contract. Gather and develop best practice tools from other sites to add to the program. Research cost savings carve out programs. Know cost expectations up front through trending and research. 17

18 Keeping the focus on Quality University Models Utilization of University Model keeps state dollars in the state. Universities must have a prior history of correctional medicine to be successful. Costs can skyrocket if managed care model is not used by the university management team. Correctional healthcare is a different enough system that those States entering contracts without previous experience have realized increases in healthcare costs as well as increased travel expenditures. Check to see if the University has a private sector infrastructure that would or can manage health care as a contract. (New Jersey Model) Caution should be used when merging agency services to ensure healthcare dollars and service expectations are retained and maintained by the Department of Corrections, including budget and oversight. Political policy may deter future options of bidding in the private industry realm once the University model is established. 18

19 University Carve Out Programs Keeping the focus on Quality Carve out programs are the optimal approach in establishing and developing a correctional healthcare/university model Developing the relationship between University and Corrections takes time. Suggest using carve out as tool to accomplish this. Start with a carve out program that allows for both agencies to win! Pharmacy-utilization of the university for pharmacy model can result in pharmacy cost savings due to federal and state pharmaceutical discounts such as the 340B program Mental Health and Psychiatric program carve out allows the university to provide clinical rotation and uses the university as a pool for future employment resource. This line item is a stable cost factor and can be budgeted as an administrative fee which can be a plus for the university as well as the DOC. Contract Monitoring-2 nd party allows for an unbiased evaluation process of the healthcare system. An established administrative fee and staffing reimbursement is usually all that is required. 19

20 University Model Pitfalls Keeping the focus on Quality Steer clear of program sharing carve outs that add cost, legal risks and time to your program. University contract monitoring staff should refrain from having an imbalance in the number of monitors necessary to perform the tasks. Larger than necessary monitoring teams can create an ivory tower effect where site staff can never meet all monitors expectations. Inpatient service exclusive agreements can be an excellent management and cost savings tool. This has hidden costs that can break a budget on both sides. Use of interns on site as specialty care physicians can drive costs up due to learning curve of interns so limit their exposure to the Utilization management process. If DOC is exempt from financial risk sharing by the vendor there is no need for the University to take on the legal risk of decision making by UM clinical judgment issues. 20