Medical provider cancels Vermont prison contract

By Shay Totten | Vermont Guardian

Posted November 3, 2006

WATERBURY — After losing more than $1 million in three months, the out-of-state company in charge of providing medical services to Vermont’s nearly 1,700 inmates has told corrections officials it wants out of its three-year contract.

The state and Prison Health Services have been at the bargaining table for the past four months, but hit an impasse Monday, company officials said, and gave the state three months notice that it would not finish the last year of its contract.

“As state corrections departments and county officials in charge of jails around the country know, the cost of providing healthcare – particularly nursing services — continues to rise,” said Susan Morganstern, a PHS spokeswoman. “We have chosen to give notice of termination to the Vermont Department of Corrections because the cost of providing healthcare to inmates has risen beyond the contract’s ability to cover that cost. Prison Health Services will never compromise the quality of our patient care because of financial reasons.”

Morganstern said the contract talks between the state and PHS were collegial, but the two sides could not come to an agreement.

In a report filed Oct. 31 with the Securities and Exchange Commission, PHS’ parent company — America Service Group, Inc. of Brentwood, TN — characterized the talks this way: “Throughout the last four months, the Company engaged in comprehensive, good faith discussions with this client in order to reach a mutually beneficial solution to this contract's financial underperformance.” America Service Group is one of the larger providers of prison health care in the U.S.

Despite the $1 million loss in Vermont, the company reported nearly $500 million in revenues this year as of Sept. 30, but a loss of roughly $551,000.

The state has issued a draft request for proposals (RFP) and hopes to have another company lined up by January 29, when the current contract ends. A final RFP is likely to be issued next week.

Morganstern said the company looks “at all RFPs, and we will certainly be interested in looking at the Vermont RFP.”

Corrections Commissioner Rob Hofmann said PHS approached the state about four months ago in an attempt to negotiate down some of the penalties it was being levied by the state, and receive higher reimbursement for services mainly due to high labor costs.

At the time, Hofmann said he informed lawmakers, including the legislative Corrections Oversight Committee, and other state officials about the negotiations.

“I think they were losing money because their bid was possibly too aggressive, but most importantly they were running into Vermont’s tight labor market, especially in terms of finding medical staff,” Hofmann said. This meant the company had to pay higher wages to attract staff, coupled with the already difficult problem of getting people to work inside a prison.

Also, at the time of the negotiations, Hofmann said the state had levied substantial penalties against PHS because they had not met all contract requirements. For example, in some cases the contract called for the company to have a registered nurse on a shift, but instead used a licensed practical nurse.

Hofmann said the penalties were in the “high hundreds of thousands of dollars.” Some of those the state was willing to negotiate down, but others it wasn’t.

“The disappointing thing is that the service has been good,” said Hofmann. “They had a bumpy start in the first months, but they worked past that.”

He noted that the state’s nine prisons recently were reaccredited by the National Commission on Correctional Healthcare.

An attorney with Vermont Protection and Advocacy in Montpelier, a statewide agency that investigates complaints of abuse and neglect in prisons and at the Vermont State Hospital, said PHS’ move should send a signal to state officials and lawmakers.

“The constant changing of providers demonstrates that the administration hasn’t been able to make appropriate plans to provide inmate care and negotiate a plan so they can avoid these disruptions,” said A.J. Ruben.

Ruben said PHS’ track record isn’t as glowing as Hofmann and others let on. In fact, he said his organization remains concerned about at least one inmate death that occurred during the PHS contract, and said providing mental health treatment to inmates remains a major challenge.

“My fear is that what is going to happen is another huge corporate, out-of-state company is going to come in and bid low and we’ll wind up with the same problem down the road when they get a couple of years into the contract and say it’s not working for them and demand more money,” said Ruben.

The state’s three-year contract with PHS was valued at roughly $24-$26 million.

The department's previous contractor — Correctional Medical Services — was criticized by legislators, inmate advocates and family members for not providing adequate medical treatment to inmates. In some cases, independent investigations found that a lack of medical and mental health care resulted in inmate deaths.