A former legislative leader's under-the-radar maneuver undid a law to cut millions of dollars from the soaring cost of medical care for inmates days after it passed.
In August, the N.C. Department of Correction had a bill passed to allow the state to pay less to have inmates treated at hospitals, which were charging at nearly their highest rates. The ink on the governor's signature was barely dry when then-Sen. Tony Rand effectively gutted the bill at the request of Blue Cross and Blue Shield of North Carolina. The new law requires the department to collaborate with Blue Cross on plans to pay inmate medical claims.
As a result of Rand's move, taxpayers continue to pay top dollar for inmate health care. The prison system pays, on average, almost five times more than government insurance programs such as Medicaid and Medicare, according to a state audit released Thursday.
State Auditor Beth Wood said medical costs will continue to escalate. "The department must have an established fee schedule and statutory language that requires medical providers to accept inmates at the established rates," the audit report said.
The Department of Correction's spending on hospital care has skyrocketed over the past decade, from $17.5 million in 1999 to $55.8 million in 2009.
Unlike big insurance plans such as Blue Cross, correction officials have almost no leverage when negotiating rates with hospitals. Rand had helped kill previous efforts to allow the department to push for lower costs, saying it could hurt public hospitals.
Dr. Paula Smith, chief of medical services at the Department of Correction, said the department is outgunned at the negotiating table. For example, it can get only a 5 percent discount at WakeMed, a not-for-profit hospital in Raleigh, meaning that it's paying more than three times the cost of the care, according to WakeMed's cost reports.
"We don't have the expertise within our system to negotiate these contracts," Smith said. "People in purchase and contract don't have expertise to do health care contracting."
Rand, a Fayetteville Democrat who was the Senate majority leader before he resigned at the end of last year, has been Blue Cross' biggest champion in the legislature. He pushed unsuccessfully to allow the nonprofit to convert to a for-profit company in the late 1990s, and he has fought to keep secret the details of the company's contract to administer the State Health Plan.
Blue Cross said it opposed the legislation passed in August because it mandated that the Department of Correction be charged the same rate as the State Health Plan. Blue Cross said the legislature was forcing inmates to be treated as state employees, a violation of its contract to administer the plan.
The Attorney General's Office has since agreed.
"Everybody thought it was a mess," Rand said. "I straightened it out for them."
A plan to save money
The cost of prisoners' medical care has been causing problems for years. But last summer, prison officials thought they had a remedy.
In June, shortly after The News & Observer reported on the issue, the House passed a budget mandating that the department pay hospitals 150 percent of Medicaid rates.
The N.C. Hospital Association strongly opposed that, instead favoring a plan setting inmate bills at the same rate that the State Health Plan pays for teachers and state employees.
The Hospital Association's version was in the final budget passed in August.
Mark Fleming, a Blue Cross lobbyist, immediately went to Rand, e-mails show. Rand inserted the language that neutered the plan into a technical corrections bill. Such bills are not intended to contain substantive changes to the law.
The new language removed the requirement that tied inmate costs to the State Health Plan and instead directed the Department of Correction to work with the health plan and Blue Cross to devise a new procedure. That could lead to a change in Blue Cross' contract.
In November and December, Rand denied that Blue Cross had anything to do with the change in the bill. In an interview Thursday, he acknowledged the company's involvement. He said he couldn't recall his actions from the crush of events at the close of a legislative session.
"I remember very little except it was a legal problem," Rand said.
Making up losses
Meanwhile, prison officials had no clue that their cost-control solution had been to the chopping block, said department spokesman Keith Acree. "Ultimately, we don't know what happened behind the scenes with legislators," he said.
Hospitals are under no obligation to treat prisoners and enter contract negotiations with leverage over the state. Without the ability to set fees and make hospitals treat inmates, costs will continue to go up, the department said.
The auditor's report listed 20 of the most expensive hospital invoices for the department.
In the priciest case, WakeMed treated an inmate for trauma and billed the department $507,386. The department got a 5 percent discount and paid $482,000.
According to WakeMed's reports, the cost of treatment is about 26 percent of the charge, about $133,000 in this case. At Medicare/Medicaid rates, WakeMed would have been reimbursed $120,451 and lost money on the patient.
Judy O'Neal, WakeMed's senior vice president for public affairs, said inmates are expensive to care for; they require extra security and sometimes neighboring rooms must be kept empty.
O'Neal justified the $350,000 markup on one patient by saying hospitals must make up for losses in other areas.
"The vast majority of patients don't pay full charges, and in order for us to take on all of the charity care we do, we look to see where we can make up those losses," O'Neal said.
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