2. THE USMS IS INCURRING MILLIONS IN UNNECESSARY COSTS FOR OUTSIDE MEDICAL CARE
   
   While the USMS has achieved significant cost savings in recent years through its re-pricing efforts, it still incurs millions annually in unnecessary costs related to outside medical care. The largest portion of those costs were attributed to the re-pricing of medical billings at the Medicare rate, rather than the lesser of the Medicare or Medicaid rate, as required by 18 U.S.C., §4006. As a result, we estimate that the USMS spent about $7 million more on outside medical services in FY 2002 than it had to based on recent studies that show that nationwide Medicaid rates average about 81 percent of Medicare rates. Further, the USMS incurred over $100,000 in outside medical costs that should have been paid by the prisoners' private insurance. Finally, the current structure of USMS outside medical care suffers from an underutilization of private sector resources. The current contract relieves district offices of none of the administrative burden of program, and if anything adds a layer of bureaucracy. The USMS expends roughly $1 million in administrative costs performing activities that could be better and more efficiently handled through outsourcing to a private health care provider. The USMS has developed but has yet to implement plans for a national health care contract that would more effectively streamline prisoner medical services and would remedy the Medicare versus Medicaid issue.

Medicare Versus Medicaid

Title 18 U.S.C. §4006, as amended by Public Law 106-113, enacted in November 1999 states: "Payment for costs incurred for the provision of health care items and services for individuals in the custody of the United States Marshal Service shall not exceed the lesser of the amount that would be paid for the provision of similar health care items and services under: 1) the Medicare program under Title XVIII of the Social Security Act; 2) or the Medicaid program under Title XIX of such Act of the State in which the services were provided."

In January 2001, the USMS implemented a contract with private health care contractor HealthNet, Inc., to process medical billings for USMS prisoners receiving outside medical services. Under the contract, district offices forward all prisoner medical billings to the contractor for re-pricing at the Medicare rate. The re-priced bills are then sent back to the district for payment to the medical provider. In FY 2002, the first full year following implementation, the USMS reported savings of $20.2 million in prisoner medical costs.

While the costs savings achieved were significant, they are less than what the USMS could have achieved had it paid for outside medical care at the lesser of Medicare or Medicaid. Rates for Medicaid can vary significantly from state to state, but with few exceptions they are lower than their related Medicare rate, sometimes markedly so. Medicaid rates for physician fees in California, for instance, averaged about 65 percent of Medicare charges, based on a recent study conducted by the Lewin Group, prepared for the Medical Policy Institute, and issued in June 2001. Medicaid fees in New York averaged only 36 percent of commensurate Medicare fees, and New Jersey averaged about 41 percent. Nationwide, Medicaid fees averaged about 81 percent of Medicare fees, according to the study.

Based on that percentage, we estimated that the USMS could achieve additional annual cost savings of roughly $7 million by paying the lesser Medicaid fees where appropriate. USMS officials we spoke with were aware of this problem and stated that the congressional amendment was unanticipated and they were negotiating for the current re-pricing contract. They said that the additional requirement of paying the lesser of Medicaid or Medicare could not be accomplished by the agency without additional program funding, as it would have required the development of a database that could access Medicaid rates from the 50 states, as well as the national Medicare rate system.

USMS officials at the exit conference stated that hospitals are not compelled to accept Medicaid rates in payment for medical care under §4006, and as a result, annual cost savings may be less than estimated. Nevertheless, the USMS is currently negotiating for a national health care contract, as will be discussed later in this section, that will, among other things, address the shortcomings of the current contract with regard to re-pricing at the lowest rate authorized.

Approval of Non-Emergency Outside Medical Care

In August 1999, the USMS distributed USMS Publication No. 100 "Prisoner Health Care Standards" to the districts. The purpose of the publication was to define "reasonable and medically necessary care" for prisoners in custody of the USMS, and to enumerate the specific elective or preventive medical interventions and procedures that are not authorized for payment by the USMS, absent a court order.

The publication refers to health care services and products that are to be charged to the USMS or that require prisoners in USMS custody to make visits anywhere outside of the facility to which they are confined. Services and products provided to USMS prisoners within correctional facilities at no cost to the USMS are not prohibited.

As previously stated, not all USMS districts reviewed were pre-authorizing prisoner medical procedures and were not consistently consulting with the Office of Interagency Medical Services (OIMS) and its staff of medically trained professionals concerning non-emergency medical care. Only 8 of the 14 districts reviewed reported utilizing the professional resources available at the OIMS for advice on whether or not to approve outside medical procedures. Consequently, medical procedures were approved that should have been denied as unnecessary.

From the universe of 6,525 vouchers for outside medical billings, we selected a random sample of 900 vouchers. In tests of procedures, at least 3.1 percent of medical procedures, totaling $18,079, were determined to be unnecessary. For the most part, these were elective or preventive procedures not normally authorized for payment by the USMS. Procedures included mammograms, an MRI for lower back pain, an x-ray for carpal tunnel syndrome, and treatment for high cholesterol. In most instances the unnecessary procedures resulted because districts were not proactively involved in the pre-authorization process, allowing the BOP¹⁷ or local detention facility to dictate whether outside medical treatment was required without notifying the USMS. Often the district office was unaware of the medical treatment or hospitalization until a bill was received.

Prisoner Insurance

USMS policy states that districts should request that prisoners covered by their own health insurance use that insurance while in USMS custody. At initial intake, the prisoner is asked to complete a USM Form 552 and disclose medical insurance coverage information. If the prisoner has health insurance and is willing to complete the necessary paperwork to process the claim, the health care provider would submit all medical bills directly to the prisoner's insurance provider. If the prisoner has insurance but is unwilling to assign benefits to the prisoner's insurance provider, and significant medical costs are involved, at its discretion, the USMS may request that the local U.S. Attorney obtain a federal court order to compel use of the prisoner's health insurance. In addition, the USMS is not precluded from assuming the payment of a prisoner's health care premiums if the prisoner is not able to do so.

We found the issue of prisoner insurance to be largely academic because most of the districts did not follow the policy. In 7 of the 14 districts, Form 552 was not completed. In two districts the forms were not consistently completed. The remaining five districts had completed and retained the forms in compliance with USMS policy.

We noted at least one instance in which substantial medical costs were incurred for a prisoner who, according to his case file, had private insurance. The case involved a prisoner who had attempted to hang himself but survived in a brain-damaged state and was confined to a mental ward. The USMS incurred $112,944 in medical costs despite the fact the prisoner's file indicated that he had coverage with Blue Cross/Blue Shield. We found no evidence indicating that the USMS district office had pursued the private insurance.

District officials explained that use of a prisoner's private insurance is problematic because insurance carriers require patients to use specific doctors or medical facilities in order to qualify for reimbursement. This creates security concerns because prisoners would know in advance what provider they are going to see, and thus could coordinate escape attempts with outside accomplices. In addition, local jails may refuse to make special trips to transport USMS prisoners to providers specified by insurance companies.

The aforementioned security concerns notwithstanding, it would appear that in cases such as the one cited above, the use of a prisoner's existing insurance would be an effective means of defraying the cost of outside medical care.

National Health Care Contract

The current structure of the USMS's outside medical services program suffers from an underutilization of private sector resources. The current re-pricing contract with HealthNet, Inc., is a half-measure that not only fails to take full advantage of congressional mandates authorizing the use of Medicaid rates, but also leaves much of the administrative requirements for outside medical care in the hands of district officials, rather than streamlining the process.

At present the USMS is still heavily involved in the administration of the program at the district level. Our survey of districts (see table below) indicated program administration might require from 2 to 8 staff members, and up to 220 work hours weekly. Service-wide we estimate total salaries and expenses devoted to performing duties associated with providing prisoner outside medical treatment at roughly $1.8 million annually.

The USMS had developed plans in FY 2002 to negotiate a national health care contract to administer its prisoner outside medical program, but was unable to implement those plans due a reprogramming of designated funds in conjunction with the creation of the Department of Homeland Security (See Appendix X). Under the proposed contract, the health care delivery system would be comprised of a national network of community physicians, hospitals, and other ancillary services. Services provided to USMS prisoners would include dialysis, pharmacy discounts, optometry, ambulance, dental, skilled nursing facilities, and outpatient rehabilitation.

While implementation of the proposed national health care contract would not relieve the USMS of all administrative duties related to outside medical care, it would reduce those duties markedly. For example, the contract proposal would require the contractor to establish a nationwide integrated health care delivery system, which would negate the need for individual districts to negotiate separate health care contracts with local hospitals. In addition, the contractor would be responsible for internal controls such as: 1) assigning internal control tracking numbers for each claim, 2) matching pre-authorizations against claims prior to payment, 3) identifying, tracking and blocking duplicate or invalid claims, 4) full accounts payable accounting and financial management reporting. Based on our analysis of the current and proposed contracts, we estimate that the proposed contract would reduce administrative workload by about 60 percent or $1 million. This represents funds that could be put to better use if the USMS implemented the national health care contract.

Recommendations

We recommend the USMS:

3. Complete the on-going effort to negotiate a national managed health care contract for prisoner medical services that will remedy non-compliance with Title 18 USC and will effectively streamline the process.

4. Enforce current USMS policy regarding the use of prisoners' private insurance to cover the costs of outside medical care.

17. District officials stated that the BOP often does not request or seek authorization from the USMS when obtaining outside medical treatment for federal prisoners in USMS custody.
18. Based on hourly wage for GS-9, Step 1 of $17.02.
19. Based on workload estimates obtained from USMS field personnel, we determined that the district offices reviewed incurred approximately $833,715 annually in administrative costs related to outside medical services. The districts represented approximately 46 percent of service-outside prisoner medical care, and from that we extrapolated total administrative costs service of approximately $1.8 million.