Establish a Managed Care Health System for the Texas Department of Criminal Justice

A managed care health system should be established for the Texas Department of Criminal Justice as a means of more effectively controlling health care costs.

Medical costs in the United States co ntinue an out-of-control upward spiral. According to the Health Care Financing Administration (HCFA), health care costs in this country reached $738 billion in 1991, a 10 percent increase over 1990 levels. During the 1980s, while the consumer price index h ad an annual average increase of 4.2 percent, the medical care component increased an average of 7.4 percent. 1 In response to these rising costs, employers and governments increasingly are accepting managed care health plans over traditional indemnity insurance. Managed care plans have grown from 0 to 25 percent of all group health coverage since 1984. 2

Managed health care is based on a concept in which control over health care costs is gained by limiting the amount that will be spent by the insurer group, versus the fee-for-service, once the traditional method of health insurance. In the early 1970s, Pau l Ellwood coined the term HMO (Health Maintenance Organization). 3 An HMO is a health organization that provides a comprehensive range of health services to an enrolled population for a fixed sum of money, paid in advance. 4 Under the traditional health care delivery systems, there is little incentive to contain costs. Under a managed care plan, competition for business, care authorization, service evaluation, centralization of services and increased accountability force doct ors and hospitals to limit unnecessary procedures, thus reducing costs to the service purchaser.

The prison environment lends itself well to the concept of managed care: there is a defined population of prisoners who must receive fully paid health care services. The United States and Texas Constitutions guarantee inmates that right. According to Ruiz v. Collins, timely and quality access to health care must be uniformly provided to all state prison inmates, regardless of prison location. 5 Health care costs for inmates of the Texas Department of Criminal Justice - Institutional Division (TDCJ-ID) are rising at a staggering rate. In 1989, the department health care costs, including psychiatri c care, averaged $2,262 per inmate. By 1992, that figure had risen to $2,839 per inmate, an annual increase of 8.5 percent. 6 Out of several managed care models, the HMO is most applicable to the prison environment.

TDCJ health care is provided in several forms. Prison units have ambulatory (walk-in) clinics staffed with nurses and physicians, including psychiatrists. These in-prison facilities, staffed by TDCJ employees, provide basic medical needs such as primary ca re, dental and nursing services and outp atient psychiatric care. Local physicians and hospitals provide additional first-level emergency care beyond what is available in the prison units. There are six regional medical units and several specialized units which provide care for the physically han dicapped, mentally retarded, mentally ill and those with special medical needs. Tertiary care is provided by the University of Texas Medical Branch at Galveston (UTMB) at the TDCJ hospital, which is funded within UTMB s overall budget. Additional specialty and unit-level care is provided at Texas Tech University Health Science Center (TTUHSC) through a per person arrangement.

As the prison system continues to expand and prisons are built in remote areas of the state, TDCJ officials find it necessary to contract more often for basic, secondary and tertiary care at small community hospitals and with local physicians. TDCJ is forc ed to pay for the care provided by these institutions and physicians, who have limited incentives for cost containment. As new priso ns are constructed and filled to capacity in rural areas of the state, reliance on local medical care will increase dramatically. Off-site costs, including transportation and security, will also rise due to the need to transport more inmates further distan ces to Galveston and Lubbock for medical care not available in the local area.

Compounding these geographic problems are serious health issues threatening prison inmates. AIDS and tuberculosis (TB) have made a substantial impact on the prison health care system and could become devastating. TB epidemics have occurred recently in prisons and jails throughout this country; cases of HIV continue to escalate among prison inmates. Prisons and jails are particularly susceptible to the airborne spread of TB, due to high population densities in housing. County jails send their sickest prison-ready inmates to TDCJ first in order to lower their own costs. Approximately one inmate in six entering the prison system has a significant medical condition. 7

The prison syst em inmate population will grow from about 50,000 in 1992 to 93,000 by 1996. Additionally, there are plans to establish a statewide jail system to house an additional 10,000 inmates. This system, although not a prison and not run by TDCJ-ID, will most likel y be under the management of another division of TDCJ and therefore require state-provided medical care for all inmates. The need to contain state-provided health care costs will be even more compelling.

A managed care health system should be established for inmates of Texas Department of Criminal Justice (TDCJ) for all primary, secondary and tertiary care.

The HMO form of managed care should be adopted by TDCJ and governed by a board comprised of officials from TDCJ, UTMB and TTUHSC to direct this system. Funding would be through a contract with TDCJ. This plan would exclude mental health and substance abuse programs. A managed care administrator position should be created and fully empowered by statute to establish a network of communit y health care providers and facilities, and enter into contracts with local health care providers. A hospital facility should be constructed by TTUHSC to provide tertiary care for all prison units located in West Texas.

A managed care system would control increasing prison costs by establishing a network of physicians and hospitals to serve as exclusive care providers to inmates in local areas. When the local care providers are evaluated based on historical costs, service and quality indicat ors, costs become more controllable. A managed care system would also call for a limit on the amount paid per service delivered or by a negotiated payment per capita for a specific menu of health services provided over a specific period of time. Providers normally receive a negotiated monthly payment in advance. This payment remains the same regardless of the amount of service rendered. Assurance that quality and timeliness of care is not compromised must be received and monitored by UTMB and TTUHSC. The pr imary advantages are that health care costs become predictable through a negotiated payment in advance, incentives to overutilize services are eliminated and administration is simplified, since there are no billings or collections.

Two other elements of a managed care system easily applied to the prison setting are utilization management and primary care case management. Utilization management is the process that measures and evaluates the use of available resources, including profes sional staff, facilitie s and services to determine medical necessity and cost-effective optimal use. Primary care case management, also known as the gatekeeper system, requires all specialty referrals, hospitalization and procedures to be authorized by the health care manager.

Each of the above elements of managed care cost containment in the HMO setting can be applied to the prison environment. Current and future cost reductions should be achieved through implementation of such a program.

The construction of a prison hospital facility by Texas Tech in West Texas will provide long-term savings through reduced transportation costs and/or reduced reliance on local contracts for costly tertiary care.

Fiscal Impact
Some experts believe that a managed care system would achieve savings of between 15 and 30 percent. 8 Others suggest that the anticipated savings are only a reduction in anticipated future cost increases. The estimate of the fiscal impact of this recommendation is based on reducing prison system cost increases, which have averaged about 6 percent per year since 1988, to 3.5 percent per year, a 2.5 percent reduction per year. It is assumed that only half of that savings can be accomplished in the first year. The cost to construct a hospital by TTUHSC in West Texas is not in cluded in this estimate.

Savings would be achieved by a reduction in appropriations to TDCJ and to UTMB for inmate medical expenses by 1.25 percent in fiscal 1994 and 2.5 percent in fiscal 1995. Positions for a plan administrator and contract negotiators/ evaluators would need to be established.

Fiscal Savings to the General Change
Year Revenue Fund 001 in FTEs

1994 $1,800,000 +3
1995 5,400,000 +3
1996 5,600,000 +3
1997 5,800,000 +3
1998 6,000,000 +3

1 Mark S. Hoffman, ed., The World Almanac & Book of Facts 1991 (New York: Pharos Books, 1990).
2 Elizabeth W. Hoy, Richard E. Curtis and Thomas Rice, Change and Growth in Managed Care, Health Affairs, vol. 10, no. 4 (Winter 1991).
3 Edmund Faltermayer, Yes, The Market Can Curb Health Costs, Fortune, vol. 126, no. 14 (December 28, 1992), p. 84.
4 The Interstudy Edge, 1991, Biannual Report of the Managed Health Care Industry, 1991.
5 Ruiz et al v. Collins et al, H78-987-CA, USDC, Houston Division.
6 Interview with Dr. James F. Arens, M.D., Vice President of Clinical Affairs, University of Texas Medical Branch at Galveston, Galveston, Texas, December 2, 1992.
7 Interview with James E. Riley, Assistant Director for Health Services, Texas Department Criminal Justice - Institutional Division, Huntsville, Texas, November 19, 1992.
8 Interview with Lawrence Levy, M.D., Vice President for Medical Affairs, CIGNA Healthplan, Dallas, Texas, July 1992.