Measuring Outsourcing Savings

By Michael Grohs, Contributing Editor

It’s unlikely that the Great Recession has not touched almost every aspect of public and private spending and funding. The U.S. prison population peaked during the recession, which was also a period when facilities were finding themselves adhering to mandates regarding the quality and availability of healthcare for inmates. According to a Legislative Analyst’s Office (LAO) 2012 report called Providing Constitutional and Cost-Effective Inmate Medical Care, as a result of cases such as Plata vs. Brown, medical costs in California alone saw an average annual increase of 23%. That figure does not include medical guarding and transportation—a major expense in itself.
To address these issues of cost and quality, a trend in many facilities has been to contract healthcare services out to private companies. Doing so can save money in several ways. Privatized medical services tend to be less expensive than hiring state employees because, in part, of the cost savings on benefits and pensions. Some tasks that an outsourced contract company can provide, says Chris Bell of Birmingham, Ala.-based NaphCare, is identifying potential insurance payors and connecting with Medicaid for offsite service payment, negotiating best rates with off-site providers including hospitals and specialists, and protecting client partners from potential risks that create litigation. Some facilities have found cost savings by outsourcing the entire medical function. Others have found that certain individual functions can be particularly cost effective when outsourced.
Jon Walker, EVP, chief development officer of Corizon, states that Corizon’s understanding of the myriad cost drivers involved in delivering a comprehensive healthcare program can result in both substantial and sustainable savings to the clients. “This includes absolute cost reductions, working diligently to moderate and lower the ever-present effects of health care cost inflation experienced by all sectors of the healthcare market, and maximizing the level of service provided onsite within our contracted facilities to reduce travel, transportation and security costs associated with sending patients offsite to access required health services.” Those transportation and security costs are enormous. According to the LAO report, medical guarding and transportation can exceed $2,000 per inmate per day. As a whole, says Walker, Corizon has saved its statewide Department of Corrections client partners over $3 million per year in total in just one area, the management of off-site care.
Some examples of savings Walker discusses that have been found in jails have been through medical claims review, auditing, and processing for every inmate medical service. In one year, says Walker, they saved one county $2.8 million. That figure has grown to $45 million over the life of the contract. Nearly $960,000 was saved by coordinating benefits for inmates who are either eligible for Medicaid or had other primary coverage. By negotiating with a local hospital, Corizon was able to provide an additional quarter of a million dollars in annual savings on billings for another county client.
Bell points out that one-way costs are lowered is by using a system like NaphCare’s Exclusive Proactive Care Process. Upon intake, this will allow clinicians to be able to immediately identify a patient’s needs, which then “eliminates cost of ER visits and potential bad health outcomes.” Another system, TechCare HER, documents all patient encounters, creates treatment flow for clinicians, offers efficiencies in treatment services, tracks all data for patient records, tracks all medication delivery, and assists in the re-entry process, all streamlining procedures that can reduce correctional costs. Data produced by the Essex County, Mass., found that by outsourcing to NaphCare, the company performed 59% more physicals and 48% more nurse sick calls, the facility saw 52% fewer hospital days, 8% fewer ambulance transports, and 13% fewer ER visits than other comparable size facilities.
Optometry Care
There are other options such as outsourcing specific “carve out” services such as optometry. As Dr. Jeff Lose, O.D. of Institutional Eye Care points out, simply walking an inmate out a door can cost hundreds of dollars, and one of those costs traditionally has been for eye care. For 31 years, Institutional Eye Care has been involved in correctional work, most recently with ocular management. Lose points out that the cost savings are two-fold. The first is in eliminating those off-site trips. All work is done onsite, and a list of inmates can be seen consecutively. On the commodity side, there is the economy of scale, and the savings can be passed on to the facilities. The cost for a pair of glasses is $14.75. It has not gone up in 31 years. There is also the matter of the turnaround time, which is about three days, and usually ensures that the inmate will still be there when the glasses arrive.
The technology has also evolved so that issues such as glaucoma, which requires routine management, can be monitored. Before this advancement, inmates had to be taken off site because service was not available in the facility. The program was piloted in 2000 on request as a result of the volume of off-site trips. Says Lose, optometry was on the top three reasons for on off-site trip in almost every medical department, and 75% of those were related to glaucoma. They needed a way to test on-site, which is now available with the advent of Optical Coherence Tomography portable units. With these units, they can now manage diabetic retinopathy, macular degeneration, and glaucoma in the facility.
Pharmaceutical Care
Another specific area outsourcing has been found to save money is in notoriously expensive pharmaceuticals. Bob May, senior vice president of Marketing and Development at MHM/Centurion points out some examples. One key area, May says, is in psychotropic medications. “These savings result from our in-house team of pharmacists who review medication utilization across all of our contracts and provide feedback and education to our prescribers.  Our pharmacists stay abreast of the latest research on medication efficacy and filter the aggressive sales tactics of pharmaceutical manufacturers to better inform our prescribers on the true effectiveness and efficiencies of medications on the market.” In one case, 10 years ago MHM/Centurion assumed the mental health responsibility for a large statewide DOC where mental health drug costs had soared to a whopping $700,000 a month. Since then, spending on psychiatric drugs has dropped to about $300,000 while the inmate population has increased by 10,000.
In another case at a contract awarded for comprehensive care, MHM/Centurion has worked with providers and the state pharmacy vendor and has initiated formulary changes. One of those changes is in the asthma therapeutic class that will “improve patient outcomes and decrease the chance for abuse.” The expected result will be a savings of $200,000 over the course of 12 months.
In one of the smaller contracts in which MHM/Centurion has been providing mental health care and select medical services, the organization has worked with the state’s pharmacists and providers to cut overall medication costs by 10%. As a result they have saved the department approximately $5 million in drug costs alone.
Corizon has also taken a formulary management approach to cutting costs and medication efficiencies. This management has saved one county $636,000 a year and another county $110,000. Using highly-customized technology, they are able to monitor the entire prescription process from order entry to automated dispensing and shipping while maintaining a same day fill rate of 99.8%.
Expanding Use of Telemedicine
A growing option for cutting costs that organizations such as MHM/Centurion and Corizon offer and promote is telemedicine. It offers the ability to treat inmates at remote locations for numerous conditions including mental health, dermatology, and cardiology, and it offers the ability to treat inmates without the cost of transportation and escorting. Telehealth, says May, is more and more becoming the norm in corrections, and providers agree that it is only going to expand. Walker notes that Corizon provides telemedical care that “saves our DOC clients over $2.35 million related to officer time, offsite transports, and hospital provider costs, as well as enhancing public safety through risk reduction using telehealth.” May states that over the past three years, MHM/Centurion has increased telemental health to include 10 facilities, which includes about 115 telemental health contacts per month. The result is an annual savings of $350,000.
With 154,000 inmates in 111 facilities, Texas has surpassed California as having the highest prisoner population of any state. They have been using telemedicine since 1994. The services have been outsourced to the University of Texas Medical Branch in Galveston and Texas Tech University Health Sciences Center in Lubbock. According to the Texas Department of Criminal Justice, the program has led to $1 billion in savings over a 10-year period, a 70% reduction in doctor and emergency room visits, and a 45% reduction in unnecessary medical tests. The technology has reportedly also improved inmate health as a result of having more access to specialists and follow- up visits, particularly in remote areas where there are few if any specialists.
According to a 2010 survey of 39 states conducted by Corrections Compendium, found that California spends significantly more on per-inmate medical care (roughly $11,000 to the other states’ average of about $5,000). The LAO report suggests that increasing the use of telemedicine could help contain costs not only because of the savings found in transporting and guarding, but also because of the ability to propose bids to a larger pool of licensed physicians. The report furthers that California could “achieve savings in the millions or low tens of millions of dollars annually through the expansion of telemedicine.”