S
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It Needs to Ensure That All Medical Service
Contracts It Enters Are in the State’s
Best Interest and All Medical Claims It
Pays Are Valid

R
U
B

California State Auditor

California
Department of
Corrections:

April 2004
2003-117

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April 6, 2004

2003-117

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit
report concerning the California Department of Corrections’ (Corrections) processes to contract for
health care services not currently available within its own facilities.
This report concludes that Corrections does not adequately ensure that it enters into medical service
contracts that are in the State’s best interest. Specifically, Corrections staff who negotiate contracts tend
to rely on a 30-year-old state policy exemption that allows them to award contracts for most medical
services without seeking competitive bids. Another barrier to cost-effective medical service contracts
is Corrections’ flawed negotiating practices. Some hospital contracts leave out information vital to
ensuring that the State receives the discounts specified in the contracts. Other contracts do not justify
awarding rates that are higher than Corrections’ standard rates, violating this requirement of Corrections’
contract manual. Additionally, Corrections sometimes exceeds the authorized contract amount and fails
to obtain proper approvals before receiving nonemergency services. Finally, Corrections’ prisons are
not adhering to its utilization management program, established to ensure inmates receive quality care
at contained costs. Consequently, prisons are overpaying for some services, incurring unnecessary costs
for the State.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor

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CONTENTS
Summary

1

Introduction

5

Chapter 1
Processes Used by the California Department
of Corrections to Solicit and Negotiate Contracts
for Medical Services Do Not Represent the
State’s Best Interest

15

Recommendations

39

Chapter 2
Prisons Are Not Ensuring That They
Pay Only Appropriate and Valid Medical Claims

43

Recommendations

53

Appendix A
Status of Certain Recommendations
From Bureau of State Audits’ Report Issued
in January 2000

55

Appendix B
Prison Staff Responsible for Negotiating
Medical Service Contract Rates

59

Responses to the Audit
State and Consumer Services Agency

61

Youth and Adult Correctional Agency,
California Department of Corrections

67

California State Auditor’s Comments on the
Response From the Youth and Adult
Correctional Agency and the California
Department of Corrections

79

SUMMARY
RESULTS IN BRIEF

T
Audit Highlights . . .
Our review of the California
Department of Corrections’
(Corrections) processes
to contract for health
care services not currently
available within its own
facilities concludes that:

þ Corrections staff who
negotiate contracts tend
to rely on a 30-year-old
state policy exemption
that allows them to
award contracts for most
medical services without
seeking competitive bids.

þ Corrections’ negotiation
practices are flawed.
For example, some of
the Health Care Services
Division’s and prisons’
hospital contracts leave
out information vital to
ensuring that the State
receives discounts those
contracts specify.

þ Corrections is unable to
justify awarding contracts
for rates above its
standards, violating this
requirement of Corrections’
contract manual.
continued on next page

he California Department of Corrections (Corrections)
supervises an inmate population of about 161,000 in
32 state prisons. To fulfill its responsibility to provide
medically necessary health care for these inmates, Corrections
operates various facilities, including acute care hospitals and
treatment centers. Because it cannot provide all the necessary
health care services, Corrections contracts with medical service
providers in the community, such as hospitals, specialty care
physicians, and laboratories. Costs incurred for services from
these outside providers have increased more than 15 percent
in each of the last four fiscal years, rising to $239 million in
fiscal year 2002–03. As these costs rise, so does the importance
of Corrections negotiating and awarding medical service
contracts that are in the State’s best interest. However, despite
public policy and Corrections’ policies supporting the practice,
Corrections does not competitively bid most of its contracts for
medical services. Of 1,149 contracts awarded during fiscal years
2001–02 and 2002–03, only 259, or 23 percent, were put out for
competitive bidding.
Corrections’ Health Care Services Division (HCSD) provides
inmate health care and says it aims to deliver both competent
and cost-effective health services. In reality, HCSD and prison
staff who negotiate contracts tend to rely on a 30-year-old
state policy exemption that allows them to award contracts for
most medical services without seeking competitive bids. The
Department of General Services (General Services) could not
provide documentation to support the original justification
for the policy exemption and has not evaluated whether it
is currently valid. Yet, the policy exemption has the distinct
disadvantage of lacking any criteria to determine whether a
contract’s costs are reasonable.
Another barrier to cost-effective contracts for medical services
is Corrections’ flawed negotiating practices. Some contracts
that HCSD and the prisons have entered with hospitals leave
out information vital to obtaining the discounts specified in
the contracts. In other contracts, HCSD and the prisons do not
justify awarding rates that are higher than Corrections’ standard

California State Auditor Report 2003-117

1

þ Corrections sometimes
exceeds the authorized
contract amount and
fails to obtain proper
approvals before receiving
nonemergency services.

þ Corrections’ prisons
are not adhering to its
utilization management
program, established to
ensure inmates receive
quality care at contained
costs. Consequently,
prisons are overpaying for
some services, incurring
unnecessary costs for
the State.

rates, violating a requirement of Corrections’ contract manual.
Overall, contract files lack evidence that Corrections routinely
uses its database of information on medical costs and utilization
to negotiate contracts with medical service providers that are in
the State’s best interest. Further, staff at HCSD and at the prisons
are not offered specialized training in negotiating contract terms
and rates with providers.
The cost of medical services in the state prisons is also somewhat
dependent on the varying compensation methods Corrections
negotiates. Sometimes Corrections uses a daily set fee rather
than a flat percentage discount, a practice that has shown to
dramatically lower total hospital expenses. Moreover, because of
the different compensation methods it uses, Corrections has a
wide variety of rates for physician procedures compared with the
rates established by the federal Medicare program.
Further hindering the effectiveness of its contracting process,
Corrections sometimes approves late requests for contracts,
exceeds the authorized contract amount, and fails to obtain
proper approvals before receiving nonemergency services. Of the
56 contracts we reviewed, 14 (25 percent) were not submitted
by HCSD or the prisons to its Office of Contract Services’
Institution Contract Section within the required time frames.
We also found four contracts in which prisons exceeded the
funding authorized in the contracts by $5.9 million and some
instances of prisons obtaining medical services for inmates
before receiving General Services’ approval.
Not only is Corrections unable to demonstrate that its
contracts are in the State’s best interest, but also its prisons
may be paying inappropriate and invalid medical claims.
Prisons are not adhering to HCSD’s utilization management
(UM) program, established to ensure that inmates receive
quality care at contained costs. The UM program requires
prisons contracting for medical services to perform three
reviews—prospective, concurrent, and retrospective—to ensure
that medical services and their prices are appropriate. However,
the prisons cannot show that they perform the prospective
and concurrent reviews. Further, several deficiencies in the
retrospective reviews that prisons have conducted have resulted
in documented overpayment of medical service charges and
possible payment for nonexistent services. Nurses with the UM
program are not consistently reviewing a percentage of medical
service invoices to verify that the charges are appropriate to the
services. In addition, the prisons’ analysts with the health care

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California State Auditor Report 2003-117

cost and utilization program (HCCUP) do not always identify
discrepancies between contract rates and medical charges on
providers’ invoices—or even obtain evidence that medical
services were actually received. Consequently, prisons are
overpaying for some services, incurring unnecessary costs for
the State. Until HCSD enforces its review policy for nurses
in the UM program and performs quality control reviews of
invoices processed by the HCCUP analysts, Corrections cannot
contain or reduce health care costs at California’s prisons.

RECOMMENDATIONS
To protect the State’s interest when entering future contracts
for medical services, General Services should consider removing
its long-standing policy exemption that allows Corrections to
award most medical service contracts without advertising or
competitive bidding.
If General Services chooses not to remove the policy exemption,
it should prescribe the methods and criteria for Corrections to
use in determining the reasonableness of contract costs. For
example, General Services could amend the State Contracting
Manual or its policy exemption to require Corrections to follow
the method it uses for the noncompetitively bid procurement
process that requires agencies to conduct a market survey and
prepare a price analysis demonstrating that the contract is in the
State’s best interest.
To improve its negotiation practices to obtain medical service
contracts that are in the State’s best interest, Corrections should
do the following:
• Ensure that it obtains hospitals’ list of established rates and
uses this information to negotiate contract rates and obtain
discounts specified in the contracts.
• Enforce its requirements for justifying higher rates, including
obtaining and reviewing relevant documentation.
• Establish procedures to ensure that staff negotiating medical
service contracts incorporate the use of costs and utilization
data and document their use of these data in the contract files.
• Offer its negotiation staff specialized training in effectively
negotiating favorable rates.

California State Auditor Report 2003-117

3

To fulfill its contract management responsibilities, Corrections
should do the following:
• Direct its Office of Contract Services (Contract Services) to
evaluate late requests using the established criteria.
• Ensure that prisons do not exceed the funding authorized
in the contract by requiring Contract Services to review
the contract amount and prisons’ existing requests before
processing any additional requests.
• Evaluate its contract processes to identify ways to eliminate
delays in processing contracts and avoid allowing contractors
to begin work before General Services approves the contract.
To improve its efforts to provide only medically necessary
services and contain medical services costs, Corrections should
do the following:
• Ensure that prisons adhere to the UM program guidelines
requiring them to perform and retain documentation of their
prospective and concurrent reviews.
• Clarify and update the UM program guidelines for performing
retrospective reviews.
• Establish a quality control process that includes monthly
reviews of a sample of invoices processed by the prisons’
HCCUP analyst.

AGENCY COMMENTS
General Services stated that it would take appropriate actions
to address our recommendations. Corrections generally agreed
with our recommendations, but it expressed concern with our
recommendations to General Services regarding the removal of
the long-standing policy exemption. n

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California State Auditor Report 2003-117

INTRODUCTION
BACKGROUND

T

he California Department of Corrections (Corrections)
operates 32 state prisons, oversees a variety of community
correctional facilities, and supervises parolees’ reentry
into society. As of June 30, 2003, Corrections’ total population
was about 160,900 inmates, roughly the average inmate
population for fiscal years 1998–99 through 2002–03. For fiscal
year 2003–04, Corrections’ budget is $5.7 billion.

Types of Facilities Corrections Uses
to Provide Health Care to Inmates*
General acute care hospitals—provide
24-hour inpatient care, including basic
services such as medical, nursing, surgical,
anesthesia, laboratory, radiology, pharmacy,
and dietary.
Correctional treatment centers—provide
inpatient health care to inmates who do
not require acute care, but need health
care beyond that normally provided in the
community on an outpatient basis.
Outpatient housing units—typically house
inmates who do not require admission to
a licensed health care facility, but need
monitoring or isolation from the general
prison population.
Intermediate care facilities—provide
inpatient care to inmates who need skilled
nursing supervision and supportive but not
continuous care.
Skilled nursing facilities—provide
continuous skilled nursing and supportive
care to inmates on an extended basis,
including services such as medical, nursing,
pharmacy, dietary, and an activity program.
Hospices—provide care to inmates who are
terminally ill.
Source: California Department of Corrections.
* All facilities, except outpatient housing units,
are licensed by the California Department of
Health Services.

California State Auditor Report 2003-117

To provide medically necessary health care
to inmates, Corrections operates six types of
facilities—four general acute care hospitals,
16 correctional treatment centers, 12 outpatient
housing units, a skilled nursing facility, an
intermediate care facility, and a hospice
(see text box). Additionally, it contracts with
the Department of Mental Health to provide all
inpatient acute mental health services to inmates
at the intermediate care facility at the California
Medical Facility in Vacaville and to a portion
of the correctional treatment center patients at
Salinas Valley State Prison.
For care not available in its own facilities,
Corrections contracts with medical service
providers in the community. Corrections’ costs
incurred for contracted inmate medical and
laboratory services have continued to increase
in each of the last four fiscal years by more than
15 percent. In fiscal year 2001–02, costs increased
by 29 percent and fiscal year 2002–03 witnessed
another 20 percent increase. Figure 1 on the
following page shows the variety of medical
service providers that Corrections contracts with to
deliver health care services to inmates, including
community hospitals throughout the State that
provide inpatient and outpatient medical services
and specialty care physicians such as oncologists
and radiologists. To provide temporary medical
services when prison medical staff are unavailable
or on long-term sick leave, Corrections uses
medical registry contracts.
5

FIGURE 1
Contracted Medical Services Corrections Incurred in
Fiscal Year 2002–03
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Source: California Department of Corrections’ unaudited expenditure data.
* Includes services such as medical equipment maintenance.
† Includes data for inpatient and outpatient hospital charges.

CORRECTIONS PLACES RESPONSIBILITY FOR
DELIVERING HEALTH CARE TO INMATES ON ITS
HEALTH CARE SERVICES DIVISION
The mission of Corrections’ Health Care Services Division
(HCSD) is to manage and deliver to the State’s inmate
population health care consistent with adopted standards for
quality and scope of services within a custodial environment.
According to HCSD, it strives to be a leader in providing costeffective, timely, and competent care and in promoting inmates’
responsibility for their own health. As shown in Figure 2, HCSD
comprises two branches that carry out its responsibilities,
including negotiating and monitoring medical service contracts.
Although HCSD is centrally located in Sacramento, most staff
responsible for managing and delivering health care services
are located in the prisons. This report refers to staff located in
Sacramento as HCSD staff and those at the prisons as prison staff.

STATE CONTRACTING PROCESS
The State has established processes for departments to use
when acquiring goods and services. Competition is typically
at the core of these processes, which are designed to promote
fairness, value, and the open disclosure of public purchasing.
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California State Auditor Report 2003-117

California State Auditor Report 2003-117

7

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Abbreviated Organization Chart for Corrections’ Health Care Services Division

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FIGURE 2

State law and the policies of the Department of General Services
(General Services)—the State’s contracting and procurement
oversight department—generally require state departments to
conduct a competitive bidding process that gives vendors an
opportunity to submit price quotes or proposals for purchases
of goods costing $25,000 or more and for services valued at
$5,000 or more, with certain exceptions. Public policy strongly
favors competitive bidding, and state contracts established
without competitive bidding are limited by either statute or
Executive Order.

Exceptions to Competitively Bid Procurements
With respect to contracts for goods or commodities (other
than those related to information technology), state law allows
the following limited exceptions to the requirement that
departments conduct competitive bidding: (1) when only one
good or service can meet the State’s needs, commonly known
as a sole-source contract; and (2) when the good or service is
needed because of an emergency—that is, when immediate
acquisition is necessary for the protection of public health,
welfare, or safety. To ensure compliance with competitive
bidding requirements, the State authorizes a noncompetitively
bid (NCB) procurement only when the requesting department
can adequately document that one of the two exceptions exists.
Regarding contracts for services, state law provides for
various statutory exemptions from the requirement to bid
competitively—for example, contracts performed by a public
entity. State law also gives General Services the authority
to prescribe the conditions under which a contract may be
awarded without competition and the methods and criteria
used in determining the reasonableness of contract costs.
General Services exercises its authority based on what it
determines is in the “best interest” of the State.

Only One Good or Service Can Meet the State’s Needs
On certain occasions, a department may need to contract with a
specific vendor whose goods are unique in some way. This type
of contract is commonly known as a sole-source contract, and
General Services refers to contracts formed under this exception
as NCBs. The State Contracting Manual describes the conditions
under which this type of procurement is appropriate as well

8

California State Auditor Report 2003-117

as those requiring the approval of General Services. Typically,
departments must show that no other vendor in the marketplace
can meet the State’s needs.

Emergency Purchases
An emergency contract is another type of contract that can be
formed without competitive bidding. However, it is important
to note that different criteria must be applied when justifying an
emergency than when justifying other types of contracts. When
a department experiences an emergency involving public health,
welfare, or safety and consequently needs to purchase supplies
or equipment immediately, the department must justify that
immediate need. The justification must demonstrate that either
(1) the department could not have avoided the emergency
condition by reasonable care and diligence or (2) there was
an immediate threat of substantial damage or injury to
persons committed to the department’s care, employees of
the department, members of the general public, or property for
which the department is responsible. Also, a department officer
must approve the emergency purchase.
General Services evaluates each emergency purchase request
and either approves it or sends it back to the department
for further review. State law requires Corrections to provide
medically necessary health care to inmates who are committed
to its care. Additionally, during the 1980s and 1990s, inmates
filed various class action lawsuits alleging deficiencies with
health care, leading the courts to order Corrections to remedy
the deficiencies. In certain cases, the litigation has led to
improvements statewide. In response to one lawsuit contending
that inmates with psychiatric conditions were unable to receive
necessary and adequate mental health treatment, Corrections
implemented a comprehensive mental health treatment system.
Other lawsuits have affected the delivery of care at specific
prisons. Corrections may find itself in the position of using this
exemption when a medical emergency arises that indicates a
threat to the delivery of that care.

California State Auditor Report 2003-117

9

General Services’ Policy Exemption for Certain Medical
Service Contracts
A long-standing policy exemption authorized by General Services
allows Corrections to award medical service contracts for
physicians, medical groups, local community hospitals, and
911 emergency ambulance service providers without advertising
or competitive bidding. The exemption also applies to any
ambulance service provider that serves a single geographical area.

PARTIES RESPONSIBLE FOR CORRECTIONS’ MEDICAL
SERVICE CONTRACTS
Corrections has given full responsibility for the management
and approval of its contracts to its Office of Contract Services
(Contract Services), a separate entity from HCSD. Although
HCSD and the prisons bear some responsibility for managing
contracts, Contract Services coordinates, processes, and
maintains all Corrections’ contracts and bid packages.
Contract Services’ Institution Contract Section (ICS) entered a
memorandum of understanding with each prison to establish
a mutual goal of expediting the contract process for services
that prisons need for their daily operation. The memorandum
of understanding also addresses certain contract management
responsibilities that the State Contracting Manual outlines as
typical for an authorized representative of the State responsible
for administering a contract and monitoring the contractor’s
performance. Table 1 shows some key contract management
responsibilities and the Corrections’ entities assigned to fulfill
the duties.

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California State Auditor Report 2003-117

TABLE 1
Contract Management Responsibilities Assigned to Various Corrections’ Entities
Responsibility

Entity

Develop and write a clear, concise, detailed description of the work to
be performed; estimate quantities and dollar amounts; and identify
funding source.

HCSD, Prisons

Review draft contract provisions, scope of work, technical requirements,
completion dates, benchmarks, timelines, estimated quantities, dollar
amounts, and final product.

HCSD, ICS

Ensure compliance with all federal and special regulations.

HCSD (licensing issues), ICS*, Prisons

Ensure that funding is available and the contract is encumbered in
conformance with the agency’s policy.

ICS†, Prisons, Regional Accounting Offices

Schedule the contractor to begin work.‡

HCSD, Prisons

Maintain contract documentation.

HCSD, ICS, Prisons

Monitor the contract to ensure compliance with all contract provisions.

HCSD, ICS§, Prisons

Assess and request amendments, renewals, or new contracts as required,
allowing sufficient time to process and execute such changes before the
contract expires or funds are depleted to prevent a lapse in service.

HCSD, ICSII, Prisons,

Review and approve invoices for payment to substantiate expenditures for
work performed and to prevent penalties from being assessed.

Prisons (HCCUP analysts, UM nurses, contract
monitors, and health care managers)

Monitor contract expenditures to ensure that sufficient funds exist to pay
for all services rendered as required by contract, identify low spending
levels, and consider partial disencumbrance and reassignment of funds.

HCSD (monitor spending levels)
Prisons (HCCUP analysts, budget analysts, and
contract monitors)
Regional Accounting Offices

Verify that the contractor has fulfilled all requirements of the contract
before approving the final invoice.

HCSD, Prisons (contract monitors)

Source: State Contracting Manual; California Department of Corrections, Office of Contract Services 2002 Users Guide for
Prison Staff.
* ICS ensures compliance with State Contracting Manual, Public Contract Code, and Government Code requirements.
†

ICS only requires a program to identify a funding source on its request.

‡

ICS notifies the contractor that the contract has been approved. The contract monitor (HCSD or prison) schedules the contractor
to begin services.

§

ICS only monitors certain contracts to ensure that amounts authorized for prisons’ use do not exceed the total authorized
amount of the contract.

II

ICS only assesses and requests amendments for certain contracts.

California State Auditor Report 2003-117

11

SCOPE AND METHODOLOGY
The Joint Legislative Audit Committee (audit committee)
requested the Bureau of State Audits (bureau) to examine the
process that Corrections uses to contract for health care services
not currently available within its own facilities. Specifically, the
audit committee directed the bureau to examine the process
Corrections uses to negotiate contracts for outside health care
services, including the different types of agreements it enters,
its fee schedules, the roles of headquarters and prisons, and
the qualifications of its negotiation staff. Further, the audit
committee instructed the bureau to select a sample of contracts
for outside health care services, including hospitals in both
rural and urban areas, to determine whether Corrections
negotiated the best value for the services, whether rates in rural
and urban areas are comparable for similar services, whether
rates for similar services are comparable to those under the
State’s Medicaid Assistance Program (Medi-Cal), and whether
Corrections employs data on trends of volume and average
use of contracted medical services to obtain price breaks or
quantity discounts. The audit committee also asked the bureau
to review Corrections’ policies and procedures for processing
and monitoring claims for contracted health care services to
determine if Corrections verifies the validity of the claims.
Finally, the audit committee requested the bureau to evaluate
Corrections’ implementation of certain recommendations
outlined in the bureau’s report titled California Department
of Corrections: Utilizing Managed Care Practices Could Ensure
More Cost-Effective and Standardized Health Care, issued in
January 2000.
To obtain an understanding of the State’s contracting process
for medical care services, we reviewed relevant laws, policies, and
procedures. In addition, we reviewed Corrections’ policies
and procedures. Finally, we interviewed staff at Corrections and
General Services.
In examining the process Corrections uses to negotiate contracts
for medical services, we interviewed key staff from HCSD. We
also asked 21 prisons to respond to a series of questions relating
to their process for negotiating contracts and ensuring that
medical service providers’ rates are reasonable or competitive.
Furthermore, we reviewed the background, experience, and
duty statement of HCSD’s negotiation staff and whether HCSD
provides training to them or prison staff.

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To assess whether Corrections negotiated for contracted medical
services that were in the State’s best interest, we reviewed a
sample of 56 contracts, including contracts with hospitals in
both rural and urban areas. Using Contract Services’ database,
we sorted contracts for fiscal years 2001–02 and 2002–03 by the
method Corrections used to secure the contracts: competitive
bidding, noncompetitive bidding, and using General Services’
policy exemption for medical services. Then we identified
contracts relating to inmate medical and laboratory services.
Additionally, using Corrections’ unaudited expenditure data, we
summarized the total expenditures for these contracts by prison.
We also summarized the data by the regional accounting offices
that process the prisons’ invoices. Further, we ranked the offices
by expenditures and the number of prison contracts for medical
services. Finally, we judgmentally selected our sample, which
also includes a few contracts negotiated by HCSD and hospitals
serving prisons in rural and urban areas.
To compare Corrections’ rates for similar services in rural
and urban areas, we grouped our sample of contracts by type
of service. Using information prepared by the California
Department of Finance, Demographic Research Unit, we
determined if the prisons receiving the services were in rural or
urban areas. Then, to the extent possible, we compared the rates.
Although the audit committee requested that we compare
Corrections’ rates with Medi-Cal’s rates for similar services, we
determined that a comparison to Medicare rates would be more
beneficial because the federal program updates its rates more
frequently than does the state program. We compared rates
Corrections paid for inpatient hospital services to Medicare’s
rates using the Medicare Acute Care Hospital Inpatient
Prospective Payment System PC Pricer (Medicare Pricer). The
Medicare Pricer calculates payments for inpatient hospital
services and required us to input data such as the Medicare
provider number, date of admission and discharge, diagnosisrelated group number, and invoice amount. A consultant
assisted us by identifying the Medicare provider number and
diagnosis-related group codes for the invoices we reviewed.
Additionally, we compared Corrections’ rates paid for physician
services and prosthetics to Medicare’s fee schedules, which
are based on its Healthcare Common Procedure Coding
System. Finally, we compared the rates Corrections paid for
ambulance services to Medicare’s blended rates for 2002 and 2003,
which consist of a percentage of both its fee schedule and the
providers’ reasonable charges.

California State Auditor Report 2003-117

13

To determine whether Corrections employed data on trends of
volume and average use of contracted medical services to obtain
price breaks or quantity discounts for our sample, we reviewed
contract files maintained by Contract Services and HCSD.
To assess the methods Corrections uses to determine the
validity of medical service claims, we reviewed policies and
procedures for its health care cost and utilization program.
We also reviewed guidelines for its UM program. We selected
a sample of invoices relating to our sample of medical service
contracts and determined if Corrections paid only for services that
were authorized, medically necessary, and consistent with the
contract terms.
Finally, we evaluated Corrections’ actions to implement four
recommendations from the bureau’s previous report issued in
January 2000. We present this information in Appendix A. n

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California State Auditor Report 2003-117

CHAPTER 1
Processes Used by the California
Department of Corrections to Solicit
and Negotiate Contracts for Medical
Services Do Not Represent the State’s
Best Interest
CHAPTER SUMMARY

T

he California Department of Corrections (Corrections)
does not competitively bid many of its contracts
for medical services. Instead, both the prisons and
Corrections’ Health Care Services Division (HCSD) rely on
a 30-year-old state policy exemption that allows them to
award contracts for most medical services without seeking
competitive bids. Lacking any documented justification, this
policy exemption cannot be evaluated according to current
conditions in the State and does not provide any criteria for
determining whether the costs of a contract are reasonable.
By not competitively bidding its contracts, Corrections fails to
ensure that the State meets the medical needs of inmates at a
competitive price.
Also, Corrections’ contract negotiation practices are seriously
flawed. Some medical service contracts omit information
crucial to ensuring that the State receives the discounts
specified in the contracts. Other contracts lack the required
justification for rates higher than Corrections’ standard rates,
even though Corrections’ contract manual requires such
justification. Further, Corrections does not appear to routinely
use its database of information on medical costs and utilization
to negotiate with medical service providers for the most
favorable rates. Finally, Corrections needs to follow through on
its intention to offer negotiation staff specialized training in
negotiating contract terms and rates with providers.
Corrections’ varying compensation methods also affect the cost
of medical services in the state prisons. Comparing Corrections’
rates in various hospitals shows that by using certain methods of
compensation rather than others, Corrections can dramatically
lower total hospital expenses. For example, we found that
generally, Corrections generated greater savings when it was
able to negotiate per diem, or daily, fees for specific services
California State Auditor Report 2003-117

15

or outcomes regardless of the actual charges. The impact that
the compensation method Corrections negotiates has on the
State’s costs was also apparent in expenditures for individual
procedures we reviewed, such as physician procedures, for which
Corrections has a wide variety of rates compared with those
established by Medicare.
Further hindering the effectiveness of its contracting process,
Corrections executes late contracts, exceeds the authorized
contract amount, and fails to obtain proper approvals before
receiving nonemergency services. Corrections’ Office of Contract
Services (Contract Services) has full responsibility for the
management and approval of all contracts. Contract Services’
Institution Contract Section (ICS) entered a memorandum
of understanding with the prisons to work together toward a
mutual goal of expediting the contracting process. However,
ICS and the prisons are not meeting this goal. We reviewed
56 contracts that HCSD and the prisons had submitted to ICS
and found 14 (25 percent) late submittals. In addition, we
identified four contracts in which ICS allowed prisons to exceed
the authorized funding by $5.9 million. Finally, we found
instances when prisons obtained medical services for inmates
before receiving the Department of General Services’ (General
Services) approval.

BY USING A STATE POLICY EXEMPTION FROM
COMPETITIVE BIDDING, CORRECTIONS FAILS
TO DEMONSTRATE THAT ITS MEDICAL SERVICE
CONTRACTS ARE IN THE STATE’S BEST INTEREST

Corrections solicited bids
for only 23 percent of
medical service contracts
entered into during fiscal
years 2001–02 and
2002–03.

16

Despite assertions about increasing its efforts to competitively
bid contracts, Corrections did not solicit bids for most of the
contracts we reviewed. According to its contract manual,
Corrections believes its interest is best served by competitively
bidding as many contracts as possible. However, Corrections
solicited bids for only 23 percent of the medical service contracts
it entered during fiscal years 2001–02 and 2002–03. Rather than
soliciting bids, Corrections’ staff rely on the policy exemption
set by General Services allowing Corrections to contract for
most types of medical service without soliciting and receiving
multiple bids. Corrections could more effectively determine
that these contracts are in the State’s best interest either by
using noncompetitively bid (NCB) procurements or by bidding
competitively because these processes are more rigorous and
require higher-level approvals. However, in continuing to rely on
the policy exemption, the prisons, Contract Services, and HCSD
are not demonstrating their efforts to protect the State’s interest.
California State Auditor Report 2003-117

Corrections’ Reliance on a Long-Standing Policy Exemption
to Competitive Bidding for Medical Services May Not Be in
the State’s Best Interest
A policy exemption authorized by General Services roughly 30 years
ago allows Corrections to bypass advertising and competitive
bidding when awarding medical service contracts to physicians,
medical groups, local community hospitals, and 911 emergency
ambulance service providers. The policy exemption also applies to
any contract with an ambulance service provider that serves a single
geographical area. Not only does this policy exemption lack criteria
for evaluating reasonable costs, but also General Services has no
documentation to support it. Thus, General Services should reassess
the need for this policy exemption.

Corrections relies
too heavily on a
long-standing policy
exemption that allows
it to award medical
service contracts, without
advertising or competitive
bidding, for certain
providers.

The policy exemption does not preclude Corrections from
competitively bidding its contracts. However, our analysis
shows that Corrections is relying too heavily on the policy
exemption. Specifically, Corrections deferred to the policy
exemption for 852, or 74 percent, of the 1,149 medical service
contracts executed during fiscal years 2001–02 and 2002–03.
Of the 29 policy-exempt contracts we reviewed, Corrections
could not explain its method or criteria for determining the
reasonableness of the costs for 17 contracts totaling more than
$190 million. Further, Contract Services has renewed 10 policyexempt contracts at least twice, with renewal periods averaging
almost two years. According to the chief of ICS, if a contract is
exempt from competitive bidding, there is no restriction on the
number of times it can be renewed. General Services approves
Corrections’ contracts that are greater than $75,000, and its
approval process focuses on ensuring effective compliance with
applicable laws and policies, conserving the fiscal interests of
the State, and preventing acts that do not foresee or provide for
the future. However, General Services’ approval cannot ensure
that Corrections receives competitive prices for medical services
covered under the policy exemption.
Further, the lack of documentation to support the policy
exemption and General Services’ lack of set time frames or
procedures for reevaluating its various exemptions lead us to
question whether Corrections’ use of the exemption is still
reasonable. State law requires General Services to prescribe the
conditions under which a contract may be awarded without
competition and the methods and criteria to be used in
determining the reasonableness of contract costs. However,
General Services says there is no available documentation or
analysis to support the rationale for the exemption, although it

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17

was likely in response to Corrections’ concern that physicians
have historically been opposed to competing against one
another for work. Lacking the documentation to support the
policy exemption’s rationale and criteria for evaluating costs,
we cannot determine if the conditions that existed when
General Services authorized the exemption are still the same. For
example, one change that has occurred since the adoption of
the policy exemption is the State’s enactment of the Emergency
Medical Services System and the Prehospital Emergency Medical
Care Personnel Act in 1980, which precludes Corrections from
contracting with ambulance service providers outside the
exclusive operating areas created by local emergency medical
service agencies.

Corrections Could Better Protect the State’s Interest by
Using the Noncompetitively Bid Procurement Process or by
Competitively Bidding for Medical Services
If Corrections stopped using the policy exemption and adopted
either a competitive bidding process for medical services or the
State’s current process for NCBs, the State would gain greater
assurance that Corrections seeks to protect its interest.

The State would have
more assurance that
its interest is protected
if Corrections used the
noncompetitively bid
procurement process or
competitively bids for
medical services because
these processes are more
rigorous and require
higher-level approvals.

18

Our attorney informed us that when General Services authorized
the policy exemption three decades ago, the provisions of state
law that expressly require competitive bidding by state agencies
had not been enacted. However, the State has made great
strides in establishing contracting processes, and competition
is typically at the core. Competition is designed to promote
fairness, value, and the open disclosure of public purchasing.
To ensure compliance with competitive bidding requirements,
state law allows an NCB for a good or service not related to
information technology only when the requesting department
can adequately document that one of the following exceptions
exist: (1) when only one good or service can meet the State’s
needs or (2) when the good or service is needed because of an
emergency—that is, when immediate acquisition is necessary for
the protection of public health, welfare, or safety. A contract
for personal services may be formed without competitive bidding
when state law expressly allows for an exemption, where an
emergency exists, or when General Services has exercised its
statutory authority and determined that conditions warrant a
noncompetitive contract.
The State would have more assurance that its interest is
protected if Corrections used NCBs or competitively bid for
medical services because these processes are more rigorous
California State Auditor Report 2003-117

and require higher-level approvals. Similar to the long-standing
policy exemption for medical service contracts, General Services’
current management memorandum for its NCB process
allows Corrections to award contracts without advertising
or competitive bidding. However, the NCB process requires
departments to justify their purchases when only one good or
service can meet the State’s needs. For example, to use an NCB,
Corrections’ staff must complete a questionnaire stating, among
other things, why only one vendor can provide the good or
service, the consequence of not making the purchase, the results
of their market survey to identify other vendors capable of
offering the same or similar good or service, and how the price
was determined to be fair and reasonable. Further, NCB requests
that equal or exceed $5,000 (excluding requests for information
technology goods) require the approval of the department
director, agency secretary, and General Services.

The lowest bid
R.J. Donovan Correctional
Facility received for its
temporary dental services
was 30 percent less than
the rate the California
Substance Abuse
Treatment Facility
and State Prison at
Corcoran agreed to
pay its provider using
the policy exemption.

Experiences at two prisons illustrate the value of soliciting bids
over using the policy exemption. The California Substance
Abuse Treatment Facility and State Prison, Corcoran (CSATF)
used the policy exemption to contract for temporary dental
services. According to its chief medical officer, CSATF attempts
to recruit providers at health care conferences but has difficulty
because of its remote location, noncompetitive reimbursement
rates, and few available specialists. He further stated that CSATF
generally locates its providers by obtaining their names from a
neighboring prison. However, because CSATF did not give us
documents to support how it determined the reasonableness
of costs for dental services, we cannot verify that the State
received a competitive price based on its needs. In contrast,
the R. J. Donovan Correctional Facility (Donovan), located in
San Diego, solicited bids and received two informal bids for its
contract for temporary dental services. The lowest bid Donovan
received for the contract was 30 percent less than the rate
CSATF agreed to pay its provider. Also, despite CSATF’s remote
location, we were able to locate more than 170 dentistry listings
in the Yellow Pages within 25 miles of the facility. Thus, CSATF
might have been able to receive a lower contract price if it had
either conducted a market survey under the NCB process or
competitively bid its dental services contract.
Corrections states that the NCB process is too long, leaving
prisons responsible for providing the services in the meantime
and annoying providers who cannot receive payments because
state law prohibits agencies from paying contractors who begin
work before their contracts are approved. However, as previously

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19

mentioned, the NCB process allows Corrections to award
contracts without advertising or competitive bidding, and its
staff need only complete a questionnaire demonstrating they
made a good-faith effort to secure a competitive price and obtain
the necessary approvals. With proper planning, Corrections
should be able to process contracts using the NCB process in a
manner that minimizes or eliminates any disruptions in service.

CORRECTIONS HAS SIGNIFICANT FLAWS IN ITS
NEGOTIATION PRACTICES
In awarding its contracts for medical services, Corrections
does not consistently ensure that the State is paying providers
the lowest possible, or even reasonable, rates. In some cases,
Corrections’ contracts fail to require hospitals to include rate
information; consequently, prisons cannot make sure that the
hospitals’ charges match the terms of the contracts and thus
give the State the lowest specified prices. Also, some contracts
fail to justify rates that are above Corrections’ standard rates.
Although Corrections’ contract manual requires justification
for higher rates, HCSD does not enforce this requirement.
Corrections misses another opportunity to obtain the most
favorable rates from medical service providers by not using its
own database of information, derived from its invoices, on costs
and utilization of medical services. Although HCSD said it uses
such data to negotiate rates, we found scant evidence of this use
either by HCSD or by the prisons. Finally, some staff at HCSD
and the prisons need specialized training in negotiating contract
terms and rates with medical service providers.

Corrections Has Negotiated and Awarded Many Hospital
Contracts That Omit Rate Schedules to Verify Hospital
Charges Are Appropriate
Corrections’ contract manual states that program managers are
responsible for knowing the terms and conditions of their contracts
and ensuring that rates are charged in accordance with contracts.
Thus, we would expect contracts to include terms and conditions
that allow program managers or other contract monitors to verify
that charges are in accordance with the contracts. However, the
compensation terms of some hospital contracts we reviewed do
not include the information needed to evaluate potential costs and
determine that hospital charges are consistent with contract terms.
Without this information, Corrections may be paying more than
necessary for hospital services.

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California State Auditor Report 2003-117

Because some of
Corrections’ contracts do
not require hospitals to
provide a copy of their
rates, it is unable to verify
the rates charged on
invoices for four contracts
are correct.

Of the 12 hospital contracts we reviewed, six totaling almost
$34 million include terms that require Corrections to deduct a
certain percentage off the charge master, which is a list of the
hospital’s established rates. However, because these contracts
do not require the hospitals to provide copies of their rates,
Corrections is unable to verify the accuracy of rates charged on
invoices for four of these contracts. HCSD says it typically does
not include contract language requiring hospitals to submit
charge masters because most hospitals refuse to do so, stating
that corporate policy precludes them from providing their rates.
For two contracts, even though they included terms stipulating
that the hospitals supply copies of their charge masters,
Corrections failed to obtain the rates. The terms of one contract
state that payment will be less a certain percentage discount
of the invoices in accordance with the provider’s current rates
as evidenced by the charge master and that the provider will
supply a copy of the charge master, which will be kept on file
at the prison. However, the prison did not obtain the charge
master. The prison’s correctional health services administrator II
says the contract analyst requested the charge master, but the
hospital did not provide it, stating that the list was too large and
changed too frequently.
The failure of HCSD and prisons to require and obtain rate
information from hospitals places the State at a disadvantage
when it negotiates with hospitals. Obviously, Corrections cannot
ensure that a contract is in the State’s best interest by deducting
a certain percentage from an unknown amount. Further,
without rate information, prisons cannot ensure that they do
not pay more than the contract terms.
Beginning July 1, 2004, Corrections will have an alternate
source of hospitals’ charge masters. A new state law will require
hospitals to file copies of their charge masters annually with the
Office of Statewide Health Planning and Development (OSHPD).
Corrections can then work with OSHPD to obtain charge
masters for its contracted hospitals to verify that it pays invoices
consistent with contract terms.

Corrections Cannot Show That It Follows Procedures It
Developed to Ensure That Rates Exceeding Its Standard Rates
Are Favorable
Corrections has established the Request for Medical Rate
Exemption process (rate exemption) for prisons to use when
proposing to offer above-standard rates to physicians and
California State Auditor Report 2003-117

21

Some Information Prisons Must
Submit for a Rate Exemption
• Where the services will be provided: at the
prison, offsite, or both.
• Estimated number of hours and number of
inmates the provider will see.
• Basis for requested rates: monthly, hourly,
or per unit.
• Whether other providers were solicited and
if not, why.
• Why the provider’s service is necessary.
• Prior year’s use of the services.
• Custody costs associated with alternative
providers.
• Custody savings for using the provider.
• Method used to obtain the services if a
similar service was not used in a prior year.
Source: California Department of Corrections,
Office of Contract Services 2002 Users Guide for
Prison Staff.

Example of How Fees Are Determined
Using Relative Values for Physicians
Procedure
Description:

Tendon Sheath
Incision

American Medical
Association
corresponding
procedure code:

26055

Relative Value Units (RVU):

5.9

$75.00

Corrections’
Surgery
Conversion
Factor
x

$75.00

Fee
=

$442.50

Source: Annual Relative Values for Physicians;
California Department of Corrections, Office of
Contract Services 2002 Users Guide for Prison Staff.

22

Corrections’ contract manual requires prisons to
submit a rate exemption to the HCSD for review
and approval. Corrections’ standard rates are
$100 per hour for clinic services, which include
direct patient care such as medical consultations
and evaluations. For each medical procedure,
Corrections uses the relative value for physicians
(RVP), which it computes using its established
regional conversion factors for the procedure in
conjunction with a numerical value (called relative
value units) assigned to the procedure.1
Two of 56 contracts we reviewed had rates
exceeding Corrections’ standard rates and
therefore included rate exemptions. However,
despite the contract manual’s requirement to
justify higher rates, the prisons’ rate exemptions
did not provide analyses sufficient to justify
approval of the higher rates. Further, the two
prisons either did not adequately identify their
efforts to solicit other potential providers or did
not state why other providers were not contacted,
as the contract manual requires.

5.9

Corrections’ surgery
conversion factor for
Sector 3, which
includes nine prisons:

RVU

medical groups that provide specialty care such
as orthopedics or cardiology. However, HCSD
does not always enforce the rate exemption
requirement of adequately ensuring that prisons
negotiate favorable rates. Until Corrections
modifies and enforces its procedures to evaluate
the reasonableness of proposed rates that exceed its
standards, it will continue to undermine the State’s
goal of obtaining favorable rates.

Pleasant Valley State Prison (Pleasant Valley)
submitted a rate exemption stating that the
recommended provider’s services were necessary
because he was a board-certified or board-eligible
radiologist. However, Pleasant Valley did not
include an analysis to demonstrate its efforts to
negotiate a favorable rate. According to the rate
exemption filed by the California State Prison,
Corcoran (Corcoran), no other orthopedic service
1

In the relative value system, values are provided for physician services
contained in the American Medical Association’s Physicians’ Current
Procedure Terminology system, as well as Medicare’s Healthcare
Common Procedure Coding System Level II (National) Codes.

California State Auditor Report 2003-117

providers in the area had either the interest or the required
expertise to provide the service its inmates needed. However,
Corcoran did not provide a list of the providers it contacted who
expressed disinterest or a list of providers who could conceivably
provide the service. Moreover, the selected provider’s business
address was in La Jolla, almost 300 miles from Corcoran,
suggesting the unlikely absence of other providers with
necessary expertise within a 300-mile radius of the prison.
Nevertheless, HCSD approved the exemption. According to
HCSD, at the time this contract was approved, factors such
as transferring its contracting staff to another division and
experiencing a series of management changes contributed to a
less stringent or standardized review process.
We also found that Corrections lacks procedures to address
instances when HCSD initiates a rate exemption. According to
HCSD, its analysts essentially apply the same standards that
prisons must follow and require the signature of the assistant
deputy director. Yet, we identified four instances of HCSD not
providing analyses to justify its approval of higher rates.

Corrections’ Health
Care Services Division
negotiated an hourly
clinic rate that was
182 percent greater than
the relative value for
physician services and
that inappropriately
included services such
as on-call coverage and
education seminars.

In one instance, HCSD was unable to locate a copy of the rate
exemption for a contract that increased the provider’s hourly
rate by 80 percent over the previous rate. Without the rate
exemption, we cannot determine if HCSD had a reasonable
rationale for the rate increase, but the rate is unreasonable based
on our analysis. Reviewing 19 invoices from the same provider
for 2002, we identified the procedure codes the provider used
for services to 87 inmates during multiple visits. Using the
procedure codes and the prison’s regional location, we computed
the amount that would have been paid for the RVPs for these
services and found that the provider’s hourly clinic rate resulted
in payments that were 182 percent greater than if he had been
compensated using the RVPs.
According to the contract, the provider’s clinic rate also
includes services that are not covered by the RVPs—such
as on-call coverage seven days a week, 24 hours a day, and
education seminars for Corrections’ physicians. Although
lacking a standard definition of hourly clinic services, HCSD
told us that on-call coverage and education seminars should
not be included. Thus, HCSD inappropriately included these
services in the provider’s hourly clinic rate. Further, HCSD
believes that part of the provider’s rate increase may have been
attributable to higher travel costs resulting from rendering
services to multiple prisons. However, HCSD’s consideration

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23

of travel costs when negotiating hourly clinic rates is also
inappropriate because the contract specifically states that all
expenses associated with travel to and from the prisons will
be at the expense of the provider. Instead, HCSD could have
negotiated separate rates for the on-call coverage, education
seminars, and travel costs.

Corrections Cannot Demonstrate It Uses Historical Data
When Negotiating Contracts

Without documentation to
show that they employed
utilization data, HCSD
and the prisons cannot
demonstrate a thorough
and good-faith effort to
protect the State’s interest.

Corrections might be able to negotiate lower rates for particular
services by using the cost and utilization data (utilization data) it
collects to identify usage volumes and trends by type of service.
However, Corrections cannot show that it routinely uses these
data to negotiate contract rates. Without documentation to
show that they employed utilization data, HCSD and the prisons
cannot display a thorough and good-faith effort to protect the
State’s interest.
Corrections collects utilization data from each prison on their
contracted medical services by requiring analysts from the health
care cost and utilization program (HCCUP) to enter information
from every invoice into a database. The information includes the
cost, the provider, and patient-specific information on the type
and duration of service. The prisons submit this utilization data
monthly to HCSD.
Although HCSD and a few prisons told us they employ
utilization data when evaluating and negotiating rates, we
found evidence that the data had been reviewed in only two
of the 21 files where such a review may have been warranted.
Specifically, two contract files showed that HCSD reviewed
utilization data during its evaluation of proposed rates.
Corrections’ contract manual requires prisons to include
utilization data to justify their rate exemptions. Using the data
in its negotiation and evaluation of proposed rates would also
help Corrections identify its needs and secure contracts that are
in the State’s best interest.

Negotiation Staff Could Benefit From Specialized Training
Staff at both HCSD and the prisons have varying degrees of
expertise in negotiating rates in contracts with medical service
providers. Only half of the HCSD analysts who negotiate
contracts have prior experience in negotiating. Moreover,
because prison staff who negotiate the terms and conditions of

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California State Auditor Report 2003-117

contracts for medical services at their prisons have uneven levels
of contracting ability, the contracting and negotiating practices
at prisons throughout the State are inconsistent.
To help alleviate these inconsistencies, HCSD plans to contract
with outside consultants to enhance its staff’s expertise
in contract negotiation. HCSD then plans to have its trained
staff share the techniques they have learned with prison staff.
However, until Corrections equips its negotiation staff with the
necessary tools to effectively negotiate favorable rates, the State
may continue to miss opportunities to obtain contracts that are
in its best interest.
Although its contract negotiation staff have a cross section
of experience, HCSD reports that it has not given staff any
specialized training in negotiating medical service contracts.
Six HCSD analysts supervised by two managers have primary
responsibility for negotiating contracts with hospitals and
specialty care physicians when two or more prisons are involved.
According to HCSD’s duty statement, contract negotiation is only
part of the analysts’ job responsibilities, and HCSD estimates
the analysts spend roughly 20 percent of their time negotiating
and developing medical service contracts. When considering
individuals for the analyst positions, the chief of the HCSD’s
Contracts Unit says she tries to hire staff with experience in
several areas, including health care, state contracting, fiscal affairs,
and Corrections. Our review of the background and experience
of the six analysts shows that three have experience working
for a health care association or as a medical assistant, five have
contracting and/or fiscal experience, three have negotiation
experience, and two held other positions related to health care
within Corrections before accepting their current jobs.

The Health Care Services
Division reported that
it had not provided any
specialized training to
its staff or prison staff
who negotiate medical
service contracts.

Likewise, HCSD has not given specialized training to prison
staff who negotiate medical service contracts, although these
individuals have uneven amounts of contracting experience.
Prison staff are responsible for negotiating the terms, conditions,
and rates of medical service contracts for their prison. However,
as Appendix B illustrates, the responsibility of negotiating rates
with medical providers is performed by a number of prison staff
with varying levels of expertise—from the chief medical officer
or health care manager with extensive medical knowledge and
possibly contract and negotiation expertise, to the health care
budget analyst with primarily fiscal expertise. Specifically, some
prisons report that the health care manager is responsible for
negotiating rates, and others say the responsibility is shared by

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25

a team of staff that includes the health care manager, HCCUP
analyst, and medical contracts/budget analyst. Finally, some
prisons report that their contract liaison or health program
coordinator is responsible.

Varying levels of expertise
create inconsistent
contracting and
negotiating practices at
prisons throughout
the State.

With these varying levels of expertise, contracting and
negotiating practices are inconsistent at prisons throughout
the State. Although most prisons report that they complete
some type of comparison to evaluate the reasonableness or
competitiveness of the proposed provider’s rates, the extent of
that effort varies. Some prisons report they obtain the standard
rates or rely on the rate exemption. However, as we pointed
out earlier, the prisons do not always comply with the rate
exemption procedures. Further, one prison does not negotiate
rates. Finally, some prisons compare proposed rates with the rates
other local prisons pay for similar services, some compare
rates to current contracts for the same or similar services, one
prison compares rates by obtaining multiple bids, and another
reported comparing rates to applicable rates from Medicare or
the State’s Medicaid Assistance Program (Medi-Cal).
Also inconsistent are the prisons’ efforts to properly document
and retain evidence on their negotiation and evaluation
of proposed providers’ rates. Specifically, 12 of 21 prisons
we surveyed told us they maintain documentation for their
negotiation efforts for rates above Corrections’ standard rates,
and 13 of 21 prisons said they maintain documentation of their
efforts to evaluate provider rates to determine that the rates are
reasonable or competitive. However, when we requested evidence
of their negotiation efforts from six of the 12 prisons included in
our sample, only two could provide the necessary documentation.
Similarly, when we asked seven of the 13 prisons included in our
sample for documentation of their efforts to evaluate provider
rates, only three could give us such evidence.
However, HCSD recognizes that its staff as well as prison staff
lack the necessary expertise. Specifically, in its Strategic Plan
Outline, HCSD stated that one of its short-term strategies would
be to consult and perhaps contract with other state agencies
or outside consultants for enhanced expertise in negotiation
strategies and procedures. HCSD plans to train its staff and
then share the techniques with the contract negotiation staff at
each prison.

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California State Auditor Report 2003-117

WIDELY DIVERGENT COMPENSATION METHODS IN ITS
MEDICAL SERVICE CONTRACTS LIMIT CORRECTIONS’
ABILITY TO CURB MEDICAL EXPENSES
Corrections’ range of compensation methods in its hospital
contracts makes it difficult to compare rates for similar
services statewide. However, our comparison of charges for
nine hospitals shows that Corrections receives more favorable
rates for some methods of compensation over other methods.
Similarly, our comparison of Corrections’ rates to those set by
the federal Medicare program and to actual hospital charges
reveals that in some instances Corrections’ method of payment
yields lower costs to the State. Comparison of physician rates
and other nonhospital rates to Medicare rates also indicates that
using certain compensation methods can lower the State’s costs.
Finally, our comparison of rates for similar services in urban and
rural areas did not lead us to conclude that rates differ solely
because of geographical area.

Corrections’ Hospital Expenses Vary Widely According to
the Compensation Method
In our review of contracts with nine hospitals, we found various
compensation methods for services, such as per diem rates or flat
percentage discounts. With a per diem rate, the provider is paid a
daily fee for specified services or outcomes, regardless of the actual
charges. Generally, Corrections can get substantially better rates
when paying a per diem rate than when paying a flat discount rate.
Table 2 on the following page presents the results of the
amounts Corrections paid for hospital charges shown on
53 hospital invoices. It also shows the results of our comparison
of the Medicare rates to the amounts Corrections paid and the
hospital charges.

Corrections can generally
generate greater savings
when it is able to negotiate
per diem rates for hospitals
it has under contract.

Overall, Corrections negotiated some rates resulting in
substantial reductions to hospital charges, but the range of rates
was from 7 percent to 100 percent of total hospital charges. For
example, the rate Corrections negotiated for Hospital A was
60 percent of the total hospital charges, whereas the rate for
Hospital G was 85 percent of the total charges. The difference
of 25 percentage points was due to the two different methods
used to compensate the hospitals. Corrections paid Hospital A
using both per diem rates and percentage discounts. Payments
for services using the per diem rate were 53 percent of the total
charges, but payments using the percentage discount were
75 percent of the total charges. In contrast, the rate Corrections

California State Auditor Report 2003-117

27

TABLE 2
Amounts Corrections Paid Compared With Medicare Rates for Hospital Services
Percent of Total
Hospital Charges Paid
by Corrections†

Medicare Rate as
a Percent of Total
Hospital Charges

Hospital*

Number of Invoices
Reviewed

A

17

60%

100%

Corrections’ Payment
as a Percent of
Medicare Rate†
60%

B

15

7

21

34

C

4

8

26

30

D

3

95

61

155

E

5

60

19

319

F

3

64

25

259

G

4

85

39

215

H

1

70

37

188

I

1

100

34

291

Overall

53

23

26

90

Sources: Hospital invoices, California Department of Corrections’ contract payment logs, and Medicare’s Acute Care Hospital
Inpatient Prospective Payment System PC Pricer.
* Corrections requested that we not disclose the hospital names. Please refer to page 78 for its rationale.
†

Percentages reflect amounts after hospitals discounted their total charges in accordance with contracts.

negotiated for Hospital G services was a flat 15 percent discount
off the total charges. Thus, Corrections generated greater savings
by negotiating per diem rates.
HCSD says it does not require hospitals to conform to a specified
compensation method because it does not want to discourage
providers from submitting proposals or miss opportunities for
better rates that providers might propose. Nevertheless, because
the State is generally able to generate greater savings when it
pays per diem rates, it would be beneficial for HCSD to at least
try to obtain this compensation method during its negotiation
efforts with hospitals.
Our sample results also indicate that overall the rates Corrections
negotiated were slightly below Medicare’s rates. Again, the
rate Corrections paid each hospital varied, from 30 percent of
the Medicare rate for Hospital C to 319 percent for Hospital E.
Comparing the total hospital charges Correction paid with
Medicare rates, we found that the compensation method that
Corrections was able to negotiate was often directly linked to the
amount of savings it achieved.
By comparing Corrections’ rates with Medicare rates, we are
not suggesting that Corrections’ negotiations should always
result in rates that are lower than Medicare rates. With its Acute
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California State Auditor Report 2003-117

Care Hospital Inpatient Prospective Payment System, Medicare
considers many factors, including the hospital’s operating
and capital costs; the wage index of the hospital’s location; its
percentage of low-income patients; and whether it is the only
community hospital in the area, a Medicare-dependent small
rural hospital, or an approved teaching hospital. In addition,
the payment system classifies a hospital’s discharges according
to a list of diagnosis-related groups; and it evaluates the costs
a hospital incurs, adjusting for unusually expensive cases to
protect the hospital from large financial losses. Because of the
payment system’s complexity, it is unlikely that two hospitals
providing identical services would receive the same Medicare
rate. Thus, our comparison is informational only.

Our Comparison of Invoices to Medicare Rates Reveals the
Impact of Compensation Methods on Rates Paid
In our review of 56 contracts, we compared some invoices for
medical services to three of Medicare’s fee schedules: those
for physician services, ambulances, and prosthetics. Generally,
for physician services, payments were the lowest in comparison
to Medicare’s rates when Corrections based its compensation
on its fee schedules rather than on discounts off established
rates or on physicians’ hourly rates. We also found that two
competitively bid contracts for prosthetic services were below
Medicare’s rates. Table 3 presents the results of our comparison.

TABLE 3
Corrections’ Contract Rate for Individual Procedures
Compared With Medicare Rates
Percentage of
Medicare Rates

Physician
Services*†

Ambulances*

Prosthetics*

100 or less

6

0

2

101–200

12

4

0

201–300

6

1

0

301–400

7

0

0

401–500

1

0

0

501–2000

3

0

0

* These columns represent the number of contracts we reviewed with invoices indicating
procedures that we were able to compare with Medicare’s rates.
†

For one physician’s contract, the invoices included procedure codes, but the physician
was compensated based on an hourly rate in accordance with the contract terms.
We converted the amount paid to a charge per procedure before comparing it to
Medicare’s rate.

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29

For invoices relating to 14 contracts, we compared the rates
Corrections paid for physician services with Medicare’s
physician fee schedule. Medicare publishes rates annually
using its Healthcare Common Procedure Coding System
procedure codes. Our results show a wide range between the
amounts Corrections paid for the procedures and Medicare’s
rates. Specifically, for six contracts, Corrections paid for
12 procedures at lower rates than Medicare’s rates. However, for
one contract, Corrections paid for five procedures at rates that
were 1,000 percent or more than Medicare’s rates. When the
compensation method was based on Corrections’ fee schedules,
it appears that Corrections paid the lowest amounts. Generally,
when Corrections based the compensation method on discounts
off the established rates or on hourly rates, the physicians
received higher compensation compared with Medicare’s rates.

State law governing
local emergency medical
services agencies
prevents Corrections
from negotiating lower
rates for emergency
ambulance services.

Our comparison of procedures from four contracts for
ambulance services reveals that Corrections’ rates were generally
higher than those set by Medicare, ranging from roughly
120 percent to 280 percent higher. However, Corrections has no
ability to negotiate lower rates. State law allows each county to
develop a program for emergency medical services (EMS) and
designate a local EMS agency. A local EMS agency may create
one or more exclusive operating areas in the development of a
local plan that restricts operations to one or more emergency
ambulance services or providers of limited advanced life support
or advanced life support. Then, on the recommendation of the
local EMS agency, a county can adopt ordinances governing the
transport of patients, including the rates, which are not open to
negotiation. Thus, because the local EMS agency designates the
exclusive providers of prehospital emergency services and sets
their rates, Corrections has no ability to negotiate lower rates or
enter contracts with other providers in their regions.
Finally, our comparison of two contracts for prosthetic services
shows that Corrections rates were below Medicare’s rates.
Corrections awarded both contracts through the State’s
competitive bidding process, and the compensation method was
a set percentage of the maximum allowable rates for Medi-Cal.

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California State Auditor Report 2003-117

Our Comparison of Rates for Similar Services in Urban and
Rural Areas Does Not Confirm That Location Was the Primary
Factor Driving the Rates
After reviewing several contracts in which we were able to
compare rates for similar services, we cannot conclude that rates
differ solely due to the geographical area.

The results of our
comparison of four
contracts indicated that
rates in urban areas were
lower than those in rural
areas. However, based
on these few instances,
we cannot conclude
that the rate Corrections
pays for similar services
is driven solely by the
geographical area.

As previously mentioned, rates for hospital, physician,
ambulance, and prosthetic services can be based on many factors
other than location, including Corrections’ compensation
method and the rates set by other regulatory entities such as
counties. Additionally, Corrections typically groups prisons in
the same geographical area—some comprising both rural and
urban areas—to obtain favorable rates for all prisons when it
contracts for medical services on a temporary basis.
Finally, in a few instances, the results of our comparison
indicated that rates in urban areas were lower than those is
rural areas. Specifically, our review of two contracts for dental
services shows that the rates paid in the urban area were lower
by 22 percent. Our review of two contracts for physical therapy
services also indicates that the rates paid in the urban area were
lower by 20 percent. However, based on these two instances
alone, we cannot conclude that the rate Corrections pays for
similar services in rural and urban areas is driven solely by the
geographical area.

THE OFFICE OF CONTRACT SERVICES CAN IMPROVE ITS
OVERSIGHT OF CORRECTIONS’ CONTRACTS
Corrections’ Office of Contract Services (Contract Services)
has full responsibility for the management and approval of its
contracts. Contract Services’ Institution Contract Section (ICS)
entered a memorandum of understanding with the prisons to
work together toward the goal of expediting the contracting
process. However, ICS and the prisons are not meeting this
goal. In our review of 56 contracts that HCSD and the prisons
submitted to ICS, we found that 14 contracts (25 percent) had
been late. In addition, we identified four contracts in which
ICS allowed prisons to exceed the authorized funding. Finally,
we found instances when prisons obtained medical services for
inmates before receiving the approval of General Services. By
not complying with procedures designed to avoid executing

California State Auditor Report 2003-117

31

late contracts and exceeding the authorized contract amount
and by failing to obtain proper approvals before receiving
nonemergency services, Corrections limits the effectiveness of
its contracting process.

HCSD and Prisons Have Not Submitted Many Medical Service
Contracts to ICS Within Required Time Frames
Although ICS has established the minimum time necessary to
process new and renewed contracts, and Corrections’ policy
memorandum sets forth criteria under which contracts can
be submitted late, the prisons and HCSD do not submit their
medical service contracts to ICS on time. Of the contracts
we reviewed, 25 percent were late, and some of those lacked
justifications that meet Corrections’ criteria for late submittal.
Whenever Corrections submits a late request for a new contract
or amendment, it puts the State at risk of not having sufficient
funds set aside to cover the cost of services while approval of the
contract or amendment is pending.

Reasons justifying late
contract and amendment
requests do not always
appear to meet
Corrections’ policy criteria.

ICS has set the lead time for processing new contracts for
hospital, pharmacist, and ambulance services at nine months;
the lead time for processing new contracts for laboratory,
dentist, and radiology services is six months. In addition,
amendment requests must be submitted 60 days before the
proposed effective date or contract expiration date. In May 1998,
Corrections issued a policy memorandum prohibiting
late submittal of contracts or amendments except in cases of
emergency services as defined by state law, protests and rebids
associated with the request for proposal process, or situations
resulting from unusual circumstances beyond Corrections’
control. The policy memorandum also established procedures
for addressing late contract or amendment requests. A prison’s
late justification request must include (1) the purpose of the
service, (2) an explanation of why the request for services is
late and any extenuating circumstances, (3) a description of
the adverse effect if the request is denied, and (4) the measures
being taken to prevent future late submittals. The prison’s chief
medical officer or health care manager must sign late requests
for medical services, and the regional administrators for both
HCSD and the Institution Division must receive copies. The
Institution Division has the ultimate responsibility of safely
housing inmates.
The prisons or HCSD submitted late contract or amendment
requests for 14 of the 56 contracts we reviewed. According to
ICS, all 14 late requests meet the criteria outlined in the policy

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California State Auditor Report 2003-117

memorandum because in most cases the situations were beyond
HCSD’s or the prisons’ control. However, we found five of the
14 late requests that do not appear to meet the criteria. For
example, the reason the Valley State Prison for Women (VSP)
gave for its late request was that it had a catastrophic case with
high costs it could not have anticipated. HCSD’s policies and
procedures direct prisons to continually monitor their contract
expenditures to ensure that sufficient funds are available to pay
for all services rendered and request amendments promptly as
needed to add funds to the contract. Additionally, VSP has access
to its utilization data and can identify volumes and trends by
type of service. However, our review of VSP’s contract payment
log shows the balance remaining for it to pay for services as
of August 13, 2002, had dropped to less than $20 before it
requested additional funding on October 7, 2002. Thus, if VSP
was monitoring its contract expenditures and reviewing its
utilization data, it could have avoided the late request.

Until Corrections
establishes more stringent
procedures to monitor
compliance with its
policy, it will not fulfill
its objective of reducing
unnecessary late
submittals of contracts or
amendments.

The reason cited by the California Rehabilitation Center (CRC)
for its late request was that its HCCUP analyst was working
at three prisons and was unable to closely monitor and track
its contract expenditures. However, this situation does not
appear to be beyond Corrections’ control because the CRC
acknowledged in its request that closer monitoring and tracking
of its expenditures would prevent future occurrences. In another
example, HCSD justified one of its late requests merely by citing
program oversight caused by changes in the division and its
negotiation staff, which also appears to be within Corrections’
control. Finally, the reason Folsom State Prison (Folsom) gave
for its late request was that it inadvertently used the wrong
compensation method to pay an oral surgeon. Again, this
situation does not appear to be beyond Corrections’ control
because the appropriate compensation method should have
been addressed during its contract negotiations.
Corrections’ policy, if followed, could result in better planning
and monitoring of its contracts. However, ICS’ determination
that late requests resulting from situations “beyond Corrections’
control,” such as those we have described, undermines the
effectiveness of the policy.
The policy memorandum also requires Contract Services to
generate a quarterly report card outlining all late contract and
amendment requests and to distribute a copy of the report
card to its division deputies. Contract Services distributes
the reports to division deputies and associate wardens at the

California State Auditor Report 2003-117

33

prisons twice each year, but it does not use the report. However,
an opportunity exists for Corrections to use the report cards
as a tool to enforce compliance with its policy. For example,
associate wardens and HCSD could submit a corrective action
plan for reducing late contract and amendment requests to
Contract Services. Until Corrections establishes more stringent
procedures to monitor compliance with its policy, it will not
fulfill its objective of reducing unnecessary late submittals.

Corrections Does Not Always Ensure That Prison Spending
Remains Within the Authorized Contract Amounts
HCSD initiates master contracts that include hospitals,
medical groups, and certain physician services for some or all
of the prisons. To save processing time and costs, Corrections
developed the notice to proceed (NTP), an internal document
from ICS authorizing funds for any prison choosing services
under the master contracts. General Services must approve all
master contracts exceeding $75,000 but does not review NTPs.
Although the total amount of the NTPs that ICS issues against
a master contract should not exceed the authorized amount of
the master contract, we found a few master contracts where the
NTPs did exceed the authorized amounts. To prevent similar
errors in the future, ICS says it clarified the NTP process in a staff
meeting after we brought this error to its attention. However,
until ICS ensures that its staff are able to detect this type of error,
the State risks not having sufficient funding to pay for necessary
medical services.

For four of the 23 master
contracts reviewed,
prisons were given
spending authority that
exceeded the contract
amounts by $5.9 million.

Of the 56 contracts in our review, 23 were master contracts
with multiple NTPs issued to prisons. For four of the 23 master
contracts, ICS issued NTPs totaling more than the authorized
amount of the master contract amount. For one master contract,
ICS issued 12 NTPs in a seven-week period that exceeded the
master contract by $1.7 million. In another instance, ICS issued
12 NTPs in a six-week period that exceeded the master contract
by $1.5 million. In the third instance, ICS issued 10 NTPs that
exceeded the master contract by $14,510. In the fourth instance,
over nearly a year, ICS issued 24 NTPs that exceeded the contract
by $2.7 million.
In the first two instances, ICS cites a sizable balance of unpaid
invoices and an urgent need to process the master contracts
as the reasons its contract analysts inadvertently failed to follow
the standard contracting procedure of verifying the master
contract funding levels. To remedy the oversight, ICS adjusted
the NTPs to ensure additional funds are available to cover each

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California State Auditor Report 2003-117

of the NTPs for the remainder of the contract term. In the third
instance, ICS identified the error and processed an amendment
to the master contract for $900,000. In the fourth instance,
ICS stated that the error occurred because the contract amount
shown in its database was incorrect. ICS amended the contract
after we brought this error to its attention.

Some Medical Services Are Rendered Before General Services
Approves the Contracts
In some instances, prisons received medical services for inmates
before the contracts for those services met the State’s approval
requirements. The basic policy outlined in the State Contracting
Manual prohibits a contractor from starting work until receiving
a copy of the formally approved contract from either General
Services or Corrections. For contracts under $75,000, state law
allows General Services to grant an exemption from its approval
when the state agency meets certain conditions. Corrections has
been granted this exemption. Further, certain exempt contracts
must be formally approved by the agency. Receiving services
before obtaining all approvals puts Corrections at risk for not
having sufficient funding available to pay for services, paying
higher costs, and exposing the State to litigation. Thus, it is
important for Corrections to ensure that its contracts have all
required approvals before providers render their services.

We identified
five contracts where
services were rendered
between 15 and
134 calendar days
before Corrections
obtained General
Services’ approval.

We identified five contracts where services were rendered
between 15 and 134 calendar days before Corrections obtained
General Services’ approval. The State Contracting Manual
recognizes that occasionally an unavoidable lag time might
exist between the practical need for services and the formal
approval of a contract. However, for at least two of these
contracts, Corrections could have avoided processing delays.
For example, for one contract, it took HCSD roughly eight
months to communicate the results of security assessments
to three potential providers. According to HCSD, factors such
as transferring its contracting staff to another division and
experiencing a series of management changes contributed to
this delay. For another contract, it took ICS almost five months
before it started processing a request it had received from a
prison. According to ICS, this delay was caused by its excess
workload and staff turnover.
When Corrections starts a contractor working before contract
approval, it has to wait until the contract is received before
paying the contractor. This practice may discourage many

California State Auditor Report 2003-117

35

potential providers from working with the State and make it
difficult for Corrections to obtain the necessary medical services
for the inmate population.

ICS Does Not Always Require Prisons to Demonstrate
the Unavailability of Medical Registry Contractors Before
Approving Their Contract Requests
ICS is responsible for awarding and managing medical registry
contracts but does not always verify that the prison made an
effort to obtain the required services from a provider included in
a medical registry contract before approving a prison’s request
for a contract with a nonregistry provider.

Because prisons do not
always document their
inability to obtain staff
using a registry provider,
they expose the State to
potential lawsuits from
registry contractors for
breach of contract terms.

36

Prisons use medical registry contracts for temporary medical
services when prison medical staff are unavailable or on longterm sick leave. A medical registry contract includes several
providers of one service—psychiatric technicians, licensed
clinical social workers, or nurses, for example—listed in the
order in which prisons should contact them. ICS requires
prisons to follow the hierarchy outlined in the contract and
document their attempts to obtain services from the registry
contractors in the specified order to avoid breach of contract.
However, ICS does not always verify a prison’s statement that it
was unable to obtain services from a registry contractor before
approving its request to obtain a nonregistry contractor, and
prisons do not consistently document their efforts to obtain
registry services. When a prison fails to document its inability
to obtain staff using a registry provider, ICS may not be able to
terminate the provider for nonperformance.
In four instances, ICS did not verify the prisons’ inability
to obtain registry contractor services before approving the
prisons’ requests for nonregistry contractors. For example,
in October 2001, ICS approved a contract for a nonregistry
psychiatrist without reviewing documents to verify the prison’s
inability to obtain these services from any of the nine registry
contracts available statewide. In another instance, ICS approved
an emergency contract in February 2003 without obtaining
documentation verifying the prison’s claim that it was unable to
obtain a pharmacist-in-charge using the four pharmacy registries
that were available. We spoke with representatives from both
prisons, and they were unable to provide us with sufficient
documentation of their efforts.

California State Auditor Report 2003-117

According to ICS, although it requires prisons to document
their attempts to obtain services from the registry contractors,
it does not always ask to see the documentation. However,
a Corrections’ registry contract typically contains a
nonperformance clause stating that the contractor’s failure to
provide service on three occasions may result in the prisons not
contacting the contractor prior to going to other contractors
for the remainder of the contract term. If ICS does not ensure
that prisons document their attempts to contact registry
providers, it exposes the State to potential lawsuits from registry
contractors for breach of contract terms. Furthermore, prisons’
failure to document their inability to obtain staff using a registry
provider can hinder ICS’ ability to terminate the provider
for nonperformance, because it cannot rely on the specific
nonperformance penalty provided in those contracts.

CORRECTIONS CONTINUES TO SIGNIFICANTLY
INCREASE ITS USE OF MEDICAL REGISTRY CONTRACTS
According to Corrections’ unaudited expenditure data, its use
of medical registry contracts is the fastest growing component
of contracted medical services. Specifically, expenditures for
registry contracts in fiscal year 2002–03 totaled $63.8 million, or
445 percent more than in fiscal year 1998–99. Table 4 illustrates
the continued increase over the five-year period between fiscal
years 1998–99 and 2002–03. Corrections uses registry contracts to
provide temporary services when civil service staff are unavailable
or on long-term sick leave. However, prisons are prohibited by
state law from using registry staff on a permanent full-time basis
and must continue their recruitment efforts.

TABLE 4
Growth in Corrections’ Annual Expenditures on
Registry Contracts Over a Five-Year Period
Fiscal Year

Total Expenditures

Annual Increase

1998–99

$11,722,236

1999–2000

14,795,111

26%

2000–01

28,869,934

95

2001–02

46,790,565

62

2002–03

63,821,909

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California State Auditor Report 2003-117

—

37

Our analysis shows that four types of registry contracts comprise
89 percent of total registry expenditures for the five-year period:
registry contracts for psychology, psychiatry, and related
technician services (37 percent); nursing services (31 percent);
physician services (11 percent); and pharmacists and pharmacy
technician services (10 percent). Further, our analysis indicated
that for each type of contract, less than nine prisons accounted
for about 50 percent of the registry expenditures in fiscal year
2002–03. For that year, eight prisons, with a job vacancy
rate of 30 percent, accounted for roughly 50 percent of the
registry expenditures for psychologists, psychiatrists, and related
technicians. Five prisons, with a job vacancy rate of 27 percent,
accounted for roughly 50 percent of the registry expenditures
relating to nursing services. Furthermore, six prisons, with a job
vacancy rate of 20 percent, accounted for roughly 50 percent
of the registry expenditures related to physician services.
Finally, seven prisons, with a job vacancy rate of 14 percent,
accounted for roughly 50 percent of the registry expenditures
related to pharmacists and pharmacy technicians.
In our review of Corrections’ recruitment efforts for the period
January 2003 through January 2004, we found that Corrections
made numerous efforts to recruit medical staff in the four
professions. Specifically, Corrections staff participated in career
fairs and national medical conferences, gave presentations,
and provided tours to prospective employees. Additionally,
Corrections sent application packets to potential candidates in a
few target areas.

Corrections has made
numerous efforts to
recruit medical staff.

Besides its recruiting efforts, Corrections says it offers recruitment
and retention bonuses for many positions. Specifically,
psychiatrists, psychologists and psychiatric technicians are
eligible for monthly or annual recruitment and retention bonuses
ranging from $200 to $3,900. Nurses are eligible for monthly
and one-time bonuses ranging from $200 to $2,000. Moreover,
physicians and surgeons at all prisons are eligible for monthly
bonuses of $200. Finally, pharmacists at all prisons are eligible for
an $800 monthly bonus, except at the California Medical Facility,
where pharmacists are eligible for a $1,000 monthly bonus.
Pharmacists at all prisons are also eligible for a one-time bonus of
$2,400 after 12 months employment.
Corrections requested additional authorized positions for fiscal
year 2003–04 through the State’s budget process. Specifically,
Corrections requested 8.5 psychiatrist and psychologist

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California State Auditor Report 2003-117

positions for one of the eight prisons with the highest registry
expenditure, 32 nurse positions for three of the five prisons
with high usage of registry contracts, and one pharmacist and
one pharmacy technician position at one of the seven prisons
with the highest registry expenditures. In fiscal year 2003–04,
Corrections received additional funding to establish most of the
requested positions.
Nevertheless, HCSD should continue to monitor prisons’ registry
contract expenditures and evaluate the prisons’ needs so that it
can identify opportunities to control expenditures and ensure
that prisons are not violating state law by using registry staff on
a permanent basis.

RECOMMENDATIONS
To protect the State’s interest when entering all future contracts
for medical services, General Services should consider removing
its long-standing policy exemption that allows Corrections to
award, without advertising or competitive bidding, medical
service contracts with physicians, medical groups, local
community hospitals, 911 emergency ambulance service
providers, and an ambulance service provider serving a single
geographical area.
If General Services decides that it is not in the State’s best
interest to remove the long-standing policy exemption, it should
prescribe the methods and criteria for Corrections to use in
determining the reasonableness of contract costs as follows:
• Require Corrections to undertake procedures similar to those
required in the NCB process. Specifically, it should require
Corrections to conduct a market survey and prepare a price
analysis to demonstrate that the contract is in the State’s
best interest.
• Require Corrections to obtain approval of its market survey and
price analysis from its director before submitting this information
along with its contract to General Services for approval.

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39

To improve its negotiation practices to obtain medical service
contracts that are in the State’s best interest, Corrections should
do the following:
• Work with the Office of Statewide Health Planning and
Development to obtain hospitals’ charge masters, and use this
information to negotiate contract rates and obtain discounts
specified in the contracts.
• Ensure that HCSD enforces rate exemption requirements,
including obtaining and reviewing documentation to verify
prisons’ justification for higher rates.
• Establish procedures to ensure that the rate exemptions
initiated by HCSD undergo an independent review and
higher-level approval process.
• Adopt procedures that require staff to consider utilization data
when negotiating medical service contracts. These procedures
should also require staff to document the use of these data in
the contract file.
• Ensure that HCSD offers specialized training for its
negotiation staff so they can effectively negotiate favorable
rates. HCSD should then share any strategies and techniques
with the prisons’ negotiation staff.
• Ensure that HCSD tries to obtain per diem rates as a
compensation method when negotiating hospital contracts.
Additionally, HCSD should document its attempts to obtain
per diem rates.
To fulfill its contract management responsibilities, Corrections
should do the following:
• Direct ICS to evaluate late requests using the criteria outlined
in the policy memorandum. Additionally, ICS should request
HCSD and the prisons to provide relevant documentation to
support their requests.
• Continue generating report cards periodically and establish
procedures for staff such as prisons’ associate wardens
to submit corrective action plans to Contract Services to
monitor.

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California State Auditor Report 2003-117

• Ensure that ICS staff review the master contract and
outstanding NTPs before issuing additional NTPs so that it
does not exceed the master contract amount.
• Evaluate its contract-processing system to identify ways for
HCSD, ICS, and the prisons to eliminate delays in processing
contracts and avoid allowing contractors to begin work before
the contract is approved.
• Modify its procedures to require prisons to submit
documentation to ICS demonstrating their attempts to
obtain services from registry contractors with their requests
for services from a nonregistry contractor.
• Direct ICS to review prisons’ documentation and ensure that
prisons have made sufficient attempts to obtain services from
registry contractors. Additionally, ICS should use these data
to identify trends of nonperformance and terminate registry
providers, when necessary.
To rein in costs associated with the use of medical registry
contracts, Corrections should continue to monitor prisons’
registry expenditures on a monthly basis and evaluate their
need for services. n

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41

Blank page inserted for reproduction purposes only.

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CHAPTER 2
Prisons Are Not Ensuring That They
Pay Only Appropriate and Valid
Medical Claims
CHAPTER SUMMARY

A

lthough the California Department of Corrections’
(Corrections) Health Care Services Division (HCSD)
established its utilization management (UM) program
to ensure the quality of care inmates receive while containing
cost, the prisons are failing to verify that they pay only for
valid charges. The UM program requires prisons contracting
for medical services to perform three reviews—prospective,
concurrent, and retrospective—to determine that
inmate services are necessary and that charges
are valid (see text box). However, the prisons lack
Required Utilization
evidence that they complete the prospective and
Management Reviews
concurrent reviews. Also, the retrospective reviews
Prospective review ensures that requested
are deficient in several ways, resulting in documented
services are medically necessary and the
overpayment of medical service charges and possible
proper approvals exist before the provider
payment for nonexistent services.
renders services.
Concurrent review monitors inmate medical
services that require a hospital stay and
validate the appropriateness of the level of
care, medical necessity of treatment and
procedures, and appropriateness of the place
or site for services.

One deficiency of the retrospective reviews is that
nurses in the UM program (UM nurses) are not
consistently reviewing a percentage of medical
service invoices to ensure that the charges are
appropriate to the services. Although HCSD has
Retrospective review examines charges
an informal policy requiring UM nurses to review
from medical providers before authorization
of payment to ensure that they are
10 percent of medical service invoices, seven of
appropriate, correct, have proper approvals,
21 prisons report that their UM nurses review
meet criteria for medical necessity, and are
within contractual provisions.
less than 10 percent of the invoices, with the
other 14 prisons reporting that their UM nurses
Source: California Department of Corrections’ Health
review from 10 percent to 100 percent of invoices.
Care Services Division utilization management
Second, analysts with the prisons’ health care cost
program guidelines.
and utilization program (HCCUP) do not always
identify discrepancies between contract rates and
medical charges on providers’ invoices—or even
obtain evidence that medical services were actually received.
Consequently, prisons are overpaying for some services,
incurring unnecessary costs for the State. Until HCSD enforces
its retrospective review policy for UM nurses and performs

California State Auditor Report 2003-117

43

quality control reviews of HCCUP analysts’ invoice processing,
Corrections cannot contain and reduce health care costs at
California’s prisons.

PRISONS DO NOT ALWAYS COMPLY WITH HCSD’S
UTILIZATION MANAGEMENT POLICIES

•
•
•
•
•

In 1996, HCSD established its UM program to maintain quality
health care delivery to inmates (see text box) while containing
cost. In 1999, HCSD issued UM guidelines to update the
program and ensure systematic application of
utilization management in all prisons.
Objectives of the Utilization
Management Program
The UM guidelines require UM nurses at each
prison to complete a series of reviews before,
Provide cost-effective utilization of
during, and after delivery of medical services.
medically necessary services.
The guidelines require nurses to review invoices
Ensure that quality care is achieved.
to make sure the charges are for medically
Improve efficiency in the use of internal
necessary services and HCCUP analysts to review
and external contract health resources.
invoices for consistency with contract terms.
Decrease the use of community hospitals.
However, prisons are not consistently performing
Establish and maintain accountability,
these reviews. As a result, Corrections cannot
keeping Corrections current with costdemonstrate that it pays only for services that are
conscious medical practice.
authorized and medically necessary.

• Identify quality and risk management
issues.
• Decrease litigation.

Nurses Play a Major Role in the UM Program

• Practice in accordance with accepted
community standards.
• Comply with regulatory and licensing
requirements.
• Standardize the UM program systemwide.
Source: California Department of Corrections’
Health Care Services Division utilization
management program guidelines.

Corrections considers the UM nurses vital to the
success of its UM program and expects them to
spend 85 percent of their time conducting the
three UM reviews: prospective, concurrent, and
retrospective. As of February 2004, Corrections had
33 UM nurses.

The UM guidelines require health care providers to
submit a request for services for all nonemergency
consultations, treatments, procedures, and
admissions. During a prospective review, the UM nurse may
approve health care providers’ requests that meet the criteria
outlined in Corrections’ Medical Standards of Care. However, if
the UM nurse finds that a request for services does not meet the
criteria, he or she must forward the request to either the prison’s
health care manager or the designated physician advisor. The

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California State Auditor Report 2003-117

Medical Authorization Review (MAR) and Health Care Review
(HCR) committees also evaluate requests for medical services
excluded by state regulations.2
The UM guidelines require concurrent reviews for services
that an inmate receives as an inpatient in a Corrections or
community health care facility. A UM nurse has primary
responsibility for conducting a concurrent review, which has
two components: an admission review and a continued-stay
review. The UM nurse must perform the admission review
within 24 hours of the inmate’s admission to verify the
appropriateness and medical necessity of the hospitalization. In
the continued-stay review, the UM nurse regularly evaluates the
inmate’s level of care, delays in service, appropriateness of tests,
patient’s complications, and discharge plans.
Finally, as part of the retrospective review, the UM nurse reviews
invoices forwarded by the HCCUP analyst and determines
the appropriateness of the charges. The prisons’ health care
managers are responsible for ensuring that UM nurses fulfill
their responsibilities, although HCSD oversees the UM program.

Prisons Cannot Show That They Consistently Perform
Prospective and Concurrent Reviews When Required
Our review of invoices requiring prospective and concurrent reviews
revealed that many of the prisons are unable to demonstrate that
they complete the reviews. By not having the documentation
of these reviews, prisons cannot show that they do not pay for
unnecessary medical services. Table 5 on the following page
presents the results of our review of prospective and concurrent
reviews for 248 invoices relating to 15 prisons. Eighty-seven invoices
did not require prospective reviews and 211 invoices did not
require concurrent reviews. For example, concurrent reviews are
only required when inmates require inpatient hospital services for
more than 24 hours, and many of the invoices we reviewed did not
meet this criteria. In addition, other invoices we reviewed were for
temporary services from registry contracts, and these services do not
require either of the reviews.

2

State regulations require an MAR committee be established within each correctional
treatment center’s (CTC) service area. The MAR committee must be composed of
representatives from the health care staff of each prison within the CTC’s service area
and consist of not less than three service area staff physicians. Those cases that receive
MAR committee approval are forwarded to the HCR committee, which must consist of, at
a minimum, HCSD’s assistant deputy director of operations, chief medical officer of health
policy, and assistant deputy director of program development; two selected specialist
physicians; and a nonvoting UM nurse, as necessary.

California State Auditor Report 2003-117

45

TABLE 5
Review of Compliance With Prospective and Concurrent Reviews
Prospective Reviews
Prison
Avenal State
Prison
California
Institution for Men

Invoices
Requiring

Invoices
Without

10

9

2

0

Concurrent Reviews
Percentage
Without

Invoices
Requiring

Invoices
Without

Percentage
Without

90%

6

6

100%

0

0

NA

NA

100

0

NA

NA
NA

California Medical
Facility

12

12*

California Men’s
Colony

22

19

86

0

NA

California State
Prison, Corcoran

11

9

82

1

1

7

3

43

0

NA

16

9

56

5

5

100

California
Substance Abuse
and Treatment
Facility and State
Prison at Corcoran

7

7

100

0

NA

NA

Central California
Women’s Facility

8

8

100

1

1

100

15

15

100

6

6

100

8

4

50

6

0

0

Pelican Bay State
Prison

17

12

71

2

2

100

Pleasant Valley
State Prison

100

California State
Prison, Sacramento
California State
Prison, Solano

Folsom State
Prison
High Desert State
Prison

100
NA

10

7

70

6

6

Salinas Valley
State Prison

8

5

63

0

NA

NA

Valley State Prison
for Women

8

6

75

4

3

75

161

125

37

30

Totals

Source: Bureau of State Audits’ review of numerous documents such as invoices, requests for services, and concurrent reviews.
NA = Not applicable.
* According to the California Medical Facility’s chief deputy, Clinical Services, once the first treatment for oncology services is
approved, it does not require prospective reviews for the rest of the treatments. However, the contract terms for the provider of
services for 10 of the 12 invoices state that prior authorization must be obtained in writing from the prison’s health care manager
or designee in accordance with the UM guidelines. The prison did not provide us with evidence of prior authorization for the initial
authorization of the oncology services or any of the recurring treatments. Therefore, we have included these 10 invoices in Table 5.

Eleven prisons could provide evidence to support their
prospective reviews, but only two prisons provided support for
their concurrent reviews. Prisons report that several factors
limited their ability to provide evidence of their prospective and
concurrent reviews, but the most common reason was that the
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California State Auditor Report 2003-117

medical records move with the inmates when they are paroled
or transferred to other prisons. However, the UM guidelines
clearly state that UM documentation is not to be filed in the
Unit Health Record, which transfers with the inmates, but must
be kept on file for a minimum of three years. By failing to retain
the documentation to support their UM reviews, prisons have
difficulty demonstrating that they are paying only for medically
necessary services.

With Unclear Guidelines, Prisons Inconsistently Perform
Retrospective Reviews
UM nurses are charged with reviewing invoices for medical
services—a main component of the retrospective review.
However, Corrections has not given UM nurses new documented
instructions on how many and what type of invoices the nurses
should review. The resulting confusion is reflected in the reports
from 21 prisons that show their UM nurses review anywhere
from zero to 100 percent of varying types of invoices for medical
charges. HCSD’s failure to provide clear guidance to the prisons
regarding the changes to the UM guidelines for retrospective
reviews results in inconsistent reviews and puts the State at risk
for paying for unnecessary and inappropriate costs.

The utilization
management nurse and
the health care cost and
utilization program
analyst have the primary
responsibility for ensuring
the appropriateness of
the providers’ charges
before making payment.

UM nurses are key to ensuring that the State pays for only
medically necessary and appropriate charges. The UM nurse
and the HCCUP analyst have the primary responsibility for
ensuring the appropriateness of the provider’s charges before
making a payment, although the UM guidelines state that
the retrospective review is a cooperative effort between the
provider and the prison’s health care manager, UM nurse,
contract monitor, HCCUP analyst, and other parties as
needed. The guidelines require the UM nurse to use his or
her clinical expertise and act as a resource to the HCCUP
analyst to determine the appropriateness of charges. Further,
the duty statement of the UM nurse includes the task of
adjusting billings, after reviewing authorized treatment and its
documentation, for conformance with UM policies or in cases
of billing irregularities. For example, the UM nurse prepares
a written notice of any charges that appear unwarranted,
unauthorized, unallowable, excessive, or questionable. After
obtaining the health care manager’s signature on the written
notice, the UM nurse sends it to the provider and forwards a
copy to the HCCUP analyst. The HCCUP analyst is responsible
for adjusting the invoice amount for inappropriate charges
identified by the UM nurse.

California State Auditor Report 2003-117

47

However, Corrections’ guidelines are unclear about the number
and type of invoices that UM nurses should review. The formal UM
guidelines require retrospective reviews for 100 percent of charges
related to inpatient and outpatient cases in a timely manner,
but these guidelines were modified in several regional UM nurse
meetings in 2000. Unfortunately, notes from those meetings reveal
confusing sets of instructions about what types and percentage of
invoices UM nurses should review. Not surprisingly, Table 6 shows
that UM nurses in 21 prisons vary widely in the number and type
of retrospective reviews they conduct.

TABLE 6
Percentage of Invoices UM Nurses Review
Prison

0 Percent

10 Percent

Avenal State Prison

California
Correctional Center

Other

Types of Invoices

•
10-20%

Of the 10-20 percent reviewed, UM nurse estimates
60 percent are for surgical procedures and admissions
and 40 percent are outpatient services.
Every 10th invoice plus every inpatient stay and highcost* invoices.

•

California Institution
for Men

•
5%

All inpatient and outpatient community physician
and in-house surgery invoices and about 1 percent of
inpatient and outpatient community hospital invoices
are reviewed.

California Institution
for Women

•
95%

All invoices except those from small businesses,
registries, ambulance service providers, and the
Riverside County Regional Medical Center.

California Medical
Facility

•

Random count of every tenth invoice for community
hospital and physician inpatient and outpatient
services plus high-cost* inpatient hospital stays.

California Men’s
Colony

•
48%

Thirty-eight percent of inpatient hospital highcost* cases that are close to reaching the stop loss
provision with contracted hospitals plus 10 percent of
outpatient and physician services.

California
Rehabilitation Center

•
12%

Contract patient care invoices not covered by the
prisons’ hospital main contract are reviewed.

California State
Prison, Corcoran
California State
Prison, Sacramento

•
Unknown
•

California State
Prison, San Quentin

High-cost* cases are reviewed.
Invoices with possible cost savings as determined by
the type of service, contract rate, and communication
between the UM nurse and HCCUP analyst.

•
100%

Prison reported 100 percent but also stated that all
invoices except those for per diem hospital and
registries were reviewed.

California State
Prison, Solano

•

Random selection of invoices.

California Substance
Abuse Treatment
Facility and State
Prison at Corcoran

•

Master contract hospital physician services plus all
high-cost* cases.

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California State Auditor Report 2003-117

Prison

0 Percent

Central California
Women’s Facility
Correctional Training
Facility

10 Percent

Other

•

Invoice randomly selected by UM nurse or on
occasion the HCCUP analyst will refer it if there is a
concern.

•

UM nurse may be consulted if there is a billing
concern.

Folsom State Prison

•
1%

High Desert
State Prison

•

Pelican Bay State
Prison
Pleasant Valley
State Prison

Hospital and/or physician invoices that are percentage
discount of total charges, high-cost* cases, and
unusual physician invoices including lengthy exams or
extraordinary health care procedures.
Certain high-cost* cases and all emergency services
provided by providers not under contract.

•
75%
•

R.J. Donovan
Correctional Facility

Types of Invoices

•

Invoices for services generated through specialty clinics
for consultations and services (including surgeries,
special procedures, and hospital admissions).
No certain percentage reviewed. Currently, highcost* cases, invoices for emergency treatment by
providers not under contract, and invoices with
concerns identified by HCCUP analyst.
Inpatient hospital invoices and invoices from hospital
providers that contain a stop loss provision.

Salinas Valley State
Prison

•

None

Valley State Prison
for Women

•

None

Totals

3

8

10

Source: Responses to Bureau of State Audits’ inquiry received from the California Department of Corrections’ prison staff.
* Generally, high-cost cases have invoices with charges greater than $50,000.

The prisons’ detailed reasons for their various approaches to
reviewing invoices indicate confusion about the requirements for
what retrospective reviews the UM nurses should be performing.
Prisons gave us numerous explanations for their approaches. For
example, eight prisons told us that UM nurses review 10 percent
of medical service invoices, and two specifically cited changes
HCSD made to the UM guidelines as the reason for this approach.
According to HCSD, it verbally communicated a change to the
retrospective review policy during three regional meetings of UM
nurses in April and May 2000.
Specifically, HCSD says the depth of retrospective reviews should
be weighed against the expected savings and the current average
cost savings of 10 percent. The notes from another regional UM
nurse meeting held in July 2000 indicate that UM nurses were
again given verbal updates to the retrospective review policy.
However, the notes are inconsistent. One set of notes instructs
UM nurses “to curtail their retrospective reviews to noncontract,

California State Auditor Report 2003-117

49

high-cost bills” and a review of 10 percent of those invoices.
Another set of notes indicates that the UM headquarters staff
confirmed “the current directive” that called for retrospective
reviews of a random 10 percent of invoices for physicians and
per diem-contracted hospitals and 100 percent of invoices for
noncontracted hospitals.3 These notes add that “all central UM
nurses should be doing the same amount and type of reviewing
with shared providers to decrease confusion and noncompliance
among the contract providers.” Later, on September 15, 2000,
the California Medical Facility received specific instructions
from HCSD to “apply retrospective reviews to 100 percent of all
invoices received by noncontracted providers and to randomly
review 10 percent of all contract providers. To allow for an
objective and impartial selection of the 10 percent, it was agreed
that California Medical Facility’s HCCUP analyst would mark
every 10th invoice received, alerting the UM nurses of which
invoices to apply a full and in-depth review.”
HCSD acknowledges that there is no formal policy to address
the change to the UM guidelines for retrospective reviews.
HCSD says it conducted a review of industry practices, and all
the information it received supported reviewing a sampling of
invoices rather than 100 percent of them. Additionally, HCSD
wanted to place primary emphasis on its prospective and
concurrent reviews. However, as we pointed out earlier, the
prisons could not demonstrate that they perform prospective
and concurrent reviews consistently. Further, as Table 6
indicates, the prisons are confused about the requirements for
retrospective reviews. HCSD’s failure to provide clear guidance
to the prisons regarding the changes to the UM guidelines for
retrospective reviews results in inconsistent reviews and puts the
State at risk for paying unnecessary and inappropriate costs.

Failing to Adequately Monitor Medical Service Invoices,
Prisons Sometimes Overpay Providers, Unnecessarily
Increasing the State’s Medical Costs
Our review of 39 invoices
totaling roughly
$325,600 and a contract
payment log for one
contract revealed prisons
overpaid medical service
charges by $77,200.

In addition to working closely with UM nurses to determine
the appropriateness of medical service charges, the prisons’
HCCUP analysts are responsible for reviewing all medical
service invoices for consistency with the providers’ contracts.
However, our review of 39 invoices totaling roughly $325,600
and a contract payment log for one contract revealed that
prisons overpaid some medical services charges by $82,900 and
3

50

A noncontracted hospital is one with which Corrections has no contract at the time the
hospital provides services.

California State Auditor Report 2003-117

underpaid other charges by roughly $5,700, resulting in a net
overpayment of $77,200. Prisons’ overpayments suggest that
the HCCUP analysts’ reviews are sometimes ineffective. This
failure of the prisons to sufficiently monitor medical service
invoices results in the State incurring unnecessary costs. Further,
HCSD’s health care managers approve invoices, but HCSD
does not perform quality control reviews of the invoices that
prison’s HCCUP analysts process. Quality control reviews would
enhance HCSD’s efforts to reduce health care costs and promote
costs containment. Until HCSD establishes a process for quality
control reviews, the type of errors that we found will most likely
continue to occur.
The State Contracting Manual requires agencies to monitor
contracts to verify that the contractor fulfills all provisions of
the contract before approving the invoices. In this regard, the
Institution Contract Section’s memorandum of understanding
with the prisons addresses their responsibilities for contract
monitoring, and Corrections’ policy requires its regional
accounting offices to forward all medical service invoices to the
prisons for HCCUP analysts’ review.

Avenal State Prison
overpaid almost $53,000
for one contract and
made no attempt to
collect the overpayments
before the provider went
out of business.

Our review revealed that HCCUP analysts did not always
identify discrepancies between contract rates and medical
charges on the providers’ invoices. For example, Avenal State
Prison (Avenal) overpaid almost $53,000 for one contract in
which the amendment stated that Corrections would compensate
the provider, effective July 1, 2001, at a rate of 20 percent less
than the established rate of payment for services rendered.
However, the HCCUP analyst overpaid 84 invoices in fiscal
years 2001–02 and 2002–03 by failing to deduct the 20 percent.
According to Avenal’s health care manager, it did not deduct
the 20 percent discount because the amendment was not
received until early March 2003. Nevertheless, Avenal made no
attempt to collect the overpayments when the amendment was
approved, and the provider is no longer in business.
California State Prison, Corcoran (Corcoran) overpaid rates for
physician services on eight invoices totaling roughly $17,000
because the HCCUP analyst did not adhere to contract terms
requiring Corrections to pay the lower of its standard rate or
the provider’s invoices rate. For another contract, Corcoran paid
$375 for physician on-call services, even though the contract had
no provision for these services. Corcoran’s hospital administrator
stated that its two psychiatrists could not possibly cover all oncall services, so the chief psychiatrist decided to compensate the

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51

provider for on-call services. Moreover, the California Substance
Abuse Treatment Facility and State Prison at Corcoran (CSATF)
improperly paid a provider $7,900 to interpret X rays, though
the contract had no provision for X rays. Likewise, Folsom State
Prison paid $1,000 for oral surgery procedures not included in the
provider’s rate schedule agreed to in the contract. According to
the prison’s health care manager, the chief medical officer directed
the chief dental officer to review invoices and authorize payment
for all dental services. He further stated that the HCCUP analyst
had no record of the oral surgery services that were paid, which
is inconsistent with the UM guidelines requiring the analyst to
review all medical service invoices.
Additionally, the HCCUP analysts did not always comply with
UM guidelines requiring them to ensure that contract discounts
are taken and medical invoices are returned promptly to
Corrections’ regional accounting offices for payment. We
found 50 instances, totaling roughly $12,700, of prisons either
failing to meet the time frames for payments or not taking full
discounts and as a result losing the discounts. We also found
25 instances of prisons incurring late payment penalties totaling
roughly $5,900. However, it is in the State’s best interest for
Corrections to take advantage of all discounts and minimize late
payments. For example, to avoid late payment penalties, the
California Prompt Payment Act establishes that the maximum
time from an agency’s receipt of an undisputed invoice to
issuance of a warrant for payment is 45 calendar days. Prisons’
failure to pay for services in accordance with the contract
terms, as well as state laws and policies for prompt payment,
undermines the State’s ability to contain its medical services costs.
Finally, even though they have paid for services, many of the
prisons could not show evidence that the inmates received
the medical services. Evidence could consist of copies of
physician progress notes from the medical file, a list of inmates
scheduled and seen at clinics, time sheets or gate logs, physician
reports taken at the hospital, or an itemized listing of services
and progress throughout the stay. HCCUP analysts in two
prisons paid for provider services totaling $13,500 based on
time sheets that were not approved, and HCCUP analysts in
two other prisons paid for services totaling almost $4,700
without obtaining the time sheets. Additionally, one prison’s
HCCUP analyst could not support almost $16,000 relating to
implantable devices for an inmate. Further, two prisons did not
provide documentation to support services paid on 14 invoices
totaling nearly $35,000.

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RECOMMENDATIONS
To improve its efforts to provide only medically necessary
services and contain medical service costs, Corrections should
do the following:
• Ensure that the UM nurses adhere to the UM guidelines
requiring them to perform and retain documentation of their
prospective and concurrent reviews.
• Direct HCSD to establish a quality control process that
includes a monthly review of a sample of prospective and
concurrent reviews performed by the prisons.
• Clarify and update the UM guidelines for performing
retrospective reviews.
• Direct HCSD to establish a quality control process that
includes a monthly review of a sample of the invoices
processed by the prisons’ HCCUP analysts.
• Ensure that prisons recover any overpayments that have
been made to providers for medical service charges. Similarly,
prisons should rectify any underpayments that have been
made to providers.
• Evaluate its payment process to identify weaknesses that
prevent it from complying with the California Prompt
Payment Act.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,

ELAINE M. HOWLE
State Auditor
Date: April 6, 2004
Staff:

Joanne Quarles, CPA, Audit Principal
Tammy Lozano, CPA, CGFM
Matt Espenshade
Sheryl Liu-Philo, CPA

California State Auditor Report 2003-117

53

Blank page inserted for reproduction purposes only.

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California State Auditor Report 2003-117

APPENDIX A
Status of Certain Recommendations
From Bureau of State Audits Report
Issued in January 2000

T

he Joint Legislative Audit Committee requested
the Bureau of State Audits (bureau) to evaluate the
California Department of Corrections’ (Corrections)
implementations of several recommendations outlined in
the bureau’s report titled California Department of Corrections:
Utilizing Managed Care Practices Could Ensure More Cost-Effective
and Standardized Health Care, issued in January 2000. Table A.1
on the following pages summarize the results of our evaluation.

California State Auditor Report 2003-117

55

56

California State Auditor Report 2003-117

Corrections should ensure that each facility operates
in an optimal manner by periodically reviewing key
operating data, such as costs and lengths of stay, and
investigate unusual or inconsistent data. Further, it
should take appropriate steps to minimize unnecessary
costs and verify that the corrective action resulted in
the desired change. Such reviews should be limited to
those where the potential savings can reasonably be
expected to exceed the evaluation costs.

In 2002, Corrections issued two reports to the Legislature
addressing its inmate medical services delivery plan and its plan to
comply with the settlement requirements of Plata v. Davis, et al.
Corrections received additional resources to implement its plan for
delivering medical services in fiscal year 2002–03.

Corrections should report to the Legislature on its
progress in adopting managed care techniques and the
specific barriers that preclude it from operating more
effectively in a managed care environment. The report
should identify any resources, including staff, needed
to develop the infrastructure necessary to collect and
analyze data that will allow it to comprehensively
and systematically review its medical operations. In
the meantime, it should proactively review its medical
operations to the extent possible.

Corrections has not implemented a comprehensive system
that would allow it to review comparative analyses of costs and
operational data within its inmate medical services delivery
system. Corrections acknowledges the delay in development of
a comprehensive management system has hampered its ability
to avoid costs and monitor corrective action. Despite substantial
barriers, including the current fiscal and information technology
environment, Corrections stated that it has continued to work
with the administration and improvise in the interim through
development of a pharmacy data application designed to collect,
analyze, and report select pharmacy data from the prison Pharmacy
Prescription Tracking System and a utilization management
application designed to collect, analyze, and report key data
and operating costs, including contract costs. In January 2002,
Corrections was in the early stages of designing a Strategic Offender
Management System (SOMS) to capture and share offender
information internally and with other criminal justice and law
enforcement entities. SOMS will contain a health care management
component, but it has not been implemented.

Corrections has established its QMAT to evaluate the quality
of its prisons’ medical care. The QMAT comprises medical
and custody staff that review clinical care and access, custody
interface issues, and audits of each prison’s medical program.
The QMAT conducted quality reviews at seven prisons during
fiscal year 2001–02. However, Corrections found that the quality
reviews were not sufficiently focused to evaluate the quality of
the clinical practice of physicians and nursing staff. As a result,
between fall 2002 and November 2003, Corrections developed,
tested, and evaluated an improved audit instrument for its staff
to use when conducting QMAT quality reviews.

Progress

Recommendation

Corrections is working toward merging data from its
three databases—those of the health care cost and
utilization program, Office of Contract Services, and the
utilization management program—by February 2005.
Additionally, Corrections plans to implement SOMS by
2010.

Corrections plans to begin its Quality Management
Assessment Team (QMAT) quality reviews using the new
audit instrument in May and June 2004.

Plan

Status of Certain Recommendations From the Bureau of State Audits’ Report Titled California Department of Corrections:
Utilizing Managed Care Practices Could Ensure More Cost-Effective and Standardized Health Care

TABLE A.1

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57

Progress
Corrections developed a plan to comply with the settlement
requirements of Plata v. Davis, et. al. Corrections’ plan includes a
multiyear rollout of the Inmate Medical Services Program Policies
and Procedures at all prisons to ensure improved access to and
continuity of medical care.

Corrections stated that as of February 2004, nine of its 16 CTCs
had been licensed. According to Corrections, numerous factors
have contributed to delays in licensing its CTCs, such as a lack of
statewide standards, inadequate staff training, barriers relating
to the construction of CTCs, and inconsistencies in the licensing
survey process.

Recommendation

Identify the specific areas where the level of medical
care, such as chronic care services, differs because of
litigation or other reasons. If differences exist, it should
determine the additional resources, including staff,
necessary to remedy any inconsistencies, and seek the
appropriate budgetary changes to ensure a consistent
level of care at each facility to the extent possible.

Work with the Department of Health Services (Health
Services) to ensure that all Correctional Treatment
Centers (CTCs) become licensed and that Corrections
is providing only the level of care appropriate for an
unlicensed facility in those not yet licensed.

Corrections plans to work with Health Services to ensure
the development of consistent prelicensing standards
and surveys. It also plans to complete the development
of statewide CTC standards by 2005. Finally, Corrections
anticipates the licensure of an additional six CTCs in fiscal
year 2004–05, two in fical year 2005–06, and two in
later years.

(1) A new system for intake health screening to ensure
a more timely and comprehensive assessment of inmate
needs as they enter or transfer between Corrections’
prisons; (2) improved access to medical services;
(3) implementation of comprehensive preventative
services and chronic care programs using standardized
data collection forms and guidelines consistent with
national consensus panel recommendations; (4) staffing
each institution with a registered nurse 24 hours a
day, seven days a week to ensure that appropriate
professional patient assessment is performed;
(5) tracking of specialty services from the time of the
request for specialty services by the physician through
the specialty appointment, the return of the specialty
consultant’s report, and follow-up by the on-site
primary care physician; (6) development of mechanisms
that hold medical staff accountable for providing
timely and appropriate services; and (7) development
of a comprehensive program of on-site monitoring of
compliance with the policies and procedures.

Corrections states it is in the beginning stages of
implementing its plan. Corrections’ multiyear plan for
implementing improvements delivering medical services
to inmates consists of a comprehensive, multifaceted
approach to address the complexity and extreme
magnitude of the effort required to improve and
standardize delivery of inmate medical services at all
prisons. The approach includes the following:

Plan

Blank page inserted for reproduction purposes only.

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APPENDIX B
Prison Staff Responsible for
Negotiating Medical Service
Contract Rates

P

rison staff are responsible for negotiating the terms,
conditions, and rates of medical service contracts for their
prison. Table B.1 summarizes the prison staff responsible
for negotiating rates with medical providers.

TABLE B.1
Facility

Prison Staff

Avenal State Prison

Health care manager, medical contracts/budget
analyst, health care and cost utilization program
(HCCUP) analyst

California Correctional Center

Chief medical officer, contract manager

California Institution for Men

Health care manager

California Institution for
Women

Health care manager/chief medical officer,
correctional health services administrator, health
program coordinator, and HCCUP analyst

California Medical Facility

Contract liaison

California Men’s Colony

Health care manager, medical contract manager

California Rehabilitation Center

Health care manager or designee

California State Prison, Corcoran

Health care manager and/or hospital administrator in
collaboration with budget analyst

California State Prison,
Sacramento

Contract manager, procurement and services officer/
business services officer

California State Prison,
San Quentin

Health care manager, chief physician and surgeon

California State Prison, Solano

Health care manager or designee for standard rates,
otherwise HCSD performs negotiation

California Substance Abuse
and Treatment Facility and
State Prison at Corcoran

Health care manager

Central California Women’s
Facility

Contract monitor

Correctional Training Facility

Chief medical officer or contract analyst

Folsom State Prison

Health program coordinator

High Desert State Prison

Health program coordinator

Pelican Bay State Prison

Associate governmental program analyst (contracts),
health program coordinator, subject to approval by
health care manager
continued on next page

California State Auditor Report 2003-117

59

Facility

Prison Staff

Pleasant Valley State Prison

Health care manager/chief medical officer, medical
contract analyst, correctional health services
administrator

R.J. Donovan Correctional
Facility

Health care manager/chief medical officer, health
care budget analyst, central supply material and
stores supervisor I

Salinas Valley State Prison

Health care manager and HCSD

Valley State Prison for Women

Supervisor of area where services will be provided

Source: Responses to the Bureau of State Audits’ inquiry received from the California
Department of Corrections’ prisons.

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Agency’s comments provided as text only.
State and Consumer Services Agency
915 Capitol Mall, Suite 200
Sacramento, CA 95814
March 19, 2004

Elaine Howle, State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
Enclosed is our response prepared by the Department of General Services to the Bureau of
State Audits’ Report No. 2003-117 entitled, California Department of Corrections: Needs to Better
Ensure That It Obtains Medical Services Contracts That Are in the State’s Best Interest and Its
Payments Are Only For Valid Medical Claims. A copy of the response is also included on the
enclosed diskette.
If you have any questions or need additional information, please contact me at (916) 653-4090.
Sincerely,
(Signed by: Fred Aguiar)
Fred Aguiar, Secretary
State and Consumer Services Agency
Enclosures

California State Auditor Report 2003-117

61

MEMORANDUM
Date:

March 19, 2004

To:

Fred Aguiar, Secretary
State and Consumer Services Agency
915 Capitol Mall, Room 200
Sacramento, CA 95814

From:

Department of General Services
Executive Office

Subject:

RESPONSE TO BUREAU OF STATE AUDITS’ REPORT NO. 2003-117–
“CALIFORNIA DEPARTMENT OF CORRECTIONS: NEEDS TO BETTER ENSURE
THAT IT OBTAINS MEDICAL SERVICES CONTRACTS THAT ARE IN THE STATE’S
BEST INTEREST AND ITS PAYMENTS ARE ONLY FOR VALID MEDICAL CLAIMS”

File No.: 2003-117

Thank you for the opportunity to respond to the Bureau of State Audits’ (BSA) Report No. 2003-117
which addresses two recommendations to the Department of General Services (DGS). The
recommendations pertain to state policies related to the procurement of medical care services. The
following response addresses each of the recommendations.
OVERVIEW OF THE REPORT
The DGS has reviewed the findings, conclusions and recommendations presented in Report No.
2003-117. The DGS will take appropriate actions to address the recommendations.
In summary, based on its review of the California Department of Corrections (Corrections) medical
care services contracting program, the BSA concluded that the DGS should reevaluate its longstanding policy of allowing most medical care services contracts to be awarded without seeking
competitive bids. Currently, state policy (see Management Memo 03-10, Attachment D) exempts a
number of categories of contracts including medical care services from state requirements related
to advertising and competitive bidding. These categories are exempt based on a determination by
the DGS that competitive bidding is not feasible.
As noted in the following response to the BSA’s recommendations, the DGS will take the lead in
convening a meeting of the various state agencies that currently use the medical care services
competitive bidding exemption. In addition to Corrections, it is foreseen that this meeting will
include such major users as the Departments of Health Services, Mental Health, Developmental
Services, Youth Authority and Veterans Affairs. The meeting will include a discussion of the BSA’s
recommendations and the full exchange of ideas, potential impacts and solutions prior to the
implementation of any new requirements for the procurement of medical care services. If deemed
necessary, the DGS will promptly implement additional safeguards to ensure that the services are
procured in the state’s best interest.
It should be noted that the DGS takes very seriously its role in ensuring that, where feasible,
competitive processes are used to procure the state’s goods and services. Competition is one of
the basic tenets of the state’s procurement system. As noted by the BSA, the DGS has made great
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Fred Aguiar

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March 19, 2004

strides in establishing processes that ensure competition. These strides are shown in a number
of actions that have been taken over the last couple of years. For example, except for contracts
exempted by statute or policy such as those for medical care services, the DGS has implemented a
process that requires the completion of a non-competitively bid (NCB) contract justification form for
non-competitive information technology (IT) and non-IT goods and services acquisitions of $5,000 or
more. The form requires the approval of the department director and Agency Secretary or immediate
next ranking official and, depending on dollar amount, the DGS director or designee. The NCB form
requires thorough explanations to be provided on why the good or service requested is restricted
to one supplier and how the proposed price was determined to be fair and reasonable. Further, the
NCB process requires that a corrective action plan be provided for any submittals that resulted from a
department not allowing sufficient time to complete the competitive acquisition process.
While the DGS has oversight responsibility for the state’s contracting program and has implemented
and is continuing to implement numerous administrative controls governing that program, each
state agency is ultimately responsible and accountable for its own acquisitions. This includes
ensuring the necessity of the goods and services, securing appropriate funding, writing the contract
in a manner that protects the state’s interests, obtaining required approvals and complying with
laws and policies including those governing competitive bidding and the need to determine and
justify that an offered price is fair and reasonable when competition is limited. This placement of
responsibility with departments is a key ingredient in ensuring that the procurement process is
streamlined to remove repetitive, resource intensive, costly and time consuming processes.
In administering its oversight responsibility, the DGS is continually striving to balance the
appropriate level of control and oversight to ensure the quality and openness of the state’s
acquisition process with the need for departments to have effective and efficient methods of
procuring goods and services. The necessity of obtaining an appropriate balance of control and
oversight without unnecessarily restricting the acquisition process is particularly important during
the state’s current fiscal crisis. Since the effective and efficient use of competitive acquisition
systems is a primary tool that is used by state government to reduce operating costs, the BSA’s
concern that it may not be in the state’s best interest to exempt medical care services contracts
from advertising and competitive bidding will be promptly reviewed and addressed.
The following response only addresses the recommendations that were presented to the DGS. In
general, the actions recommended by the BSA have merit and will be promptly addressed.
RECOMMENDATIONS
CHAPTER 1
RECOMMENDATION # 1:

To protect the State’s interest when contracting for medical
care services, General Services should consider removing
its long-standing policy exemption that allows Corrections
to award, without advertising or competitive bidding, medical
care services contracts with physicians, medical groups, local
community hospitals, 911 emergency ambulance services
providers, and a single ambulance service provider serving a
geographical area, for all future contracts.

California State Auditor Report 2003-117

63

Fred Aguiar

-3-

March 19, 2004

DGS RESPONSE # 1:
The DGS will reevaluate the need for the policy exemption that allows state agencies, including
Corrections, to award, without advertising and competitive bidding, medical care services
contracts. Although this exemption most likely resulted because of a determination that medical
services providers such as physicians would typically not bid for state work, documentation is no
longer available to support the department’s decision-making process that occurred many years
ago. Therefore, the DGS agrees that a determination needs to be made as to the validity of the
exemption based on the current marketplace.
As part of the evaluation process, in the near future, the DGS will convene a meeting of the various
state agencies that currently use the medical care services advertising and competitive bidding
exemption. In addition to Corrections, it is foreseen that this meeting will include such major
users as the Departments of Health Services, Mental Health, Developmental Services, Youth
Authority and Veterans Affairs. This consultative process will allow for both a discussion of the
BSA’s recommendations and the exchange of ideas, potential impacts and solutions prior to the
implementation of any new requirements for the procurement of medical care services.

RECOMMENDATION # 2:

If General Services decides that it is not in the State’s best
interest to remove the long-standing policy exemption, it should
prescribe the methods and criteria for Corrections to use in
determining the reasonableness of contract costs as follows:
•

Require Corrections to undertake procedures similar to
those required in the NCB process. Specifically, it should
require Corrections to conduct a market survey and prepare
a price analysis to demonstrate that the contract is in the
State’s best interest.

•

Require Corrections to obtain approval of its market survey
and price analysis from its director before submitting this
information along with its contract to General Services for
approval.

DGS RESPONSE # 2:
Based on the results of the previously discussed evaluation of the current policy to exempt medical
care services contracts from advertising and competitive bidding, if deemed necessary, the DGS
will strengthen existing contracting requirements to ensure that those services are procured in the
state’s best interest. As part of this process, the DGS will consider adding additional safeguards,
such as those required in the NCB process, to ensure that contract costs are fair and reasonable.

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Fred Aguiar

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March 19, 2004

CONCLUSION
The DGS is firmly committed to effectively and efficiently overseeing the state’s contracting
program. As part of its continuing efforts to improve this program, the DGS will take appropriate
actions to address the issues presented in the report.
If you need further information or assistance on this issue, please call me at 376-5012.
(Signed by: Ron Joseph)
Ron Joseph, Interim Director
Department of General Services

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65

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Agency’s comments provided as text only.
Youth and Adult Correctional Agency
1515 K Street, Suite 520
Sacramento, CA 95814

March 23, 2004

Ms. Elaine Howle*
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
Thank you for the opportunity to review and comment on the draft of your recent audit titled,
“California Department of Corrections: Needs to Better Ensure That It Obtains Medical Services
Contracts That Are in the State’s Best Interest and Its Payments Are Only For Valid Medical
Claims.” We are forwarding the enclosed memorandum prepared by the California Department of
Corrections (CDC) as our response to the draft audit.
In our efforts to continually improve all aspects of the CDC’s health care services delivery system,
we welcome the independent review and recommendations provided by the Bureau of State Audits.
We look forward to providing you with periodic updates that document our continued efforts to
improve our negotiation and contracting processes for medical services.
If you have any questions concerning our response, please contact me at 323-6001.
Continued success,
(Signed by: Roderick Q. Hickman)
RODERICK Q. HICKMAN
Secretary
Youth and Adult Correctional Agency
Enclosures

* California State Auditor’s comments begin on page 79.

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67

State of California

Department of Corrections

Memorandum
Date:

March 23, 2004

To:

Roderick Q. Hickman
Secretary
Youth and Adult Correctional Agency
1515 K Street, Suite 520
Sacramento, CA 95814

Subject:

BUREAU OF STATE AUDITS’ DRAFT REPORT “CALIFORNIA DEPARMENT OF
CORRECTIONS: NEEDS TO BETTER ENSURE THAT IT OBTAINS MEDICAL
SERVICES CONTRACTS THAT ARE IN THE STATE’S BEST INTEREST AND ITS
PAYMENTS ARE ONLY FOR VALID MEDICAL ClAIMS”

The California Department of Corrections (CDC) has reviewed the Bureau of State Audits’ Report
titled “California Department of Corrections: Needs to Better Ensure That It Obtains Medical
Services Contracts That Are in the State’s Best Interest and Its Payments Are Only For Valid
Medical Claims.”

1

2

The CDC wishes to express its appreciation for the time and effort of the auditors dedicated to
this review. As the report points out, CDC has achieved contracted rates with some of its hospital
providers that are equal to or below Medicare rates. The report further indicates that the CDC
achieves cost efficiencies as a result of negotiating hospital per diem rates and physician fees.
In addition, the report acknowledges CDC’s successes in achieving competitive physician rates
through the use of the established physicians’ fee schedule.
The Department has also implemented several processes to reduce the number of late contracts.
In 1991, contract processing time frames were established/published to ensure requests were
submitted in sufficient time to obtain contract approval prior to commencement of services. In
1995 a contract renewal process was implemented to serve as a reminder and provide a simplified
method for institutions to request renewal services. In 1998 the Semi-Annual Report Card
Summary was created as a tool for management to assess the timeliness of contract request
submittals.

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Roderick Q. Hickman
Page 2
The Department is committed to continually seeking additional methods to improve the timeliness
and overall efficiencies of contract processing and providing ongoing training of institution and
contract staff. The Department will continue its successful practices, as noted in the report, such as:
•
•
•
•

Monitor prison registry expenditures
Obtain hospital per diem rates
Utilize CDC’s established physicians’ fee schedule rather than hourly rates
Issue the Contract Report Card

As the report correctly points out, there are areas where CDC can improve its practices. We will
continue to report our progress on the recommendations made by the Bureau of State Audits.
If you have any questions regarding the attached response, please call me at (916) 445-7688.

(Signed by: Ernest Van Sant for)
J. S. WOODFORD
Director
Attachment

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69

RESPONSE TO THE BUREAU OF STATE AUDITS REPORT
CALIFORNIA DEPARTMENT OF CORRECTIONS:
NEEDS TO BETTER ENSURE THAT IT OBTAINS MEDICAL SERVICES
CONTRACTS THAT ARE IN THE STATE’S BEST INTEREST AND ITS PAYMENTS
ARE ONLY FOR VALID MEDICAL CLAIMS

To protect the State’s interest when contracting for medical care services, General Services
should consider removing its long-standing policy exemption that allows Corrections to
award, without advertising or competitive bidding, medical care services contracts with
physicians, medical groups, local community hospitals, 911 emergency ambulance services
providers, and a single ambulance service provider serving a geographical area, for all
future contracts.
If General Services decides that it is not in the State’s best interest to remove the longstanding exemption policy, it should consider revising this policy exemption as follows:
• Require Corrections to undertake a market survey similar to the market survey
required in the NCB process.
• Require Corrections to obtain approval of its market survey from its Director
before submitting the survey results along with its contract to General Services for
approval.

3
4

The California Department of Corrections (CDC) agrees that performing market surveys is
beneficial as a prospective contracting approach. In fact, the CDC currently obtains the information
required in the Non Competitive Bid (NCB) market survey, via its informal hospital solicitation
process, and is developing procedures to extend this process to contracting for professional
services and improve documentation of the negotiation efforts. Additionally, the CDC will
coordinate with the Department of General Services (DGS) and other affected departments to
determine if it is in the State’s best interest to remove the policy exemption.
The CDC recognizes that the above finding is directed to DGS; however, the CDC has concerns
with the recommendation that the DGS should consider removing the policy exemption that allows
the CDC to award, without advertising or competitive bidding, medical care services contracts
with physicians, medical groups, local community hospitals, 911 emergency ambulance services
providers, and a single ambulance provider serving a geographical area, for all future contracts.
The need to keep confidential health care contract negotiations was realized by the Legislature in
1995 when the California Public Records Act was changed to include Government Code Section
6254.14. Government Code 6254.14 provides in part:
(a) Except as provided in Sections 6254 and 6254.7, nothing in this chapter shall be
construed to require disclosure of records of the Department of Corrections that relate
to health care services contract negotiations, and that reveal the deliberative processes,
discussions, communications, or any other portion of the negotiations, including, but

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not limited to, records related to those negotiations such as meeting minutes, research,
work product, theories, or strategy of the department, or its staff, or members of the
California Medical Assistance Commission (CMAC), or its staff, who act in consultation
with, or on behalf of, the department ….
This section further protects the disclosure of contract terms and rates for designated periods of
time. Contained within Government Code Section 6254.14 is the Legislature’s intent in passing the
section:
It is the intent of the Legislature that confidentiality of health care provider contracts, and of
the contracting process as provided in this subdivision, is intended to protect the competitive
nature of the negotiation process…
A review of Assembly Bill 1177’s history sets forth in more detail the purpose for enacting
Government Code Section 6254.14. In short, without this statute, future health care negotiations
would be compromised since hospitals would request rates from current contracting hospitals to
use as benchmarks for structuring proposals. Such rate information sets a “floor” for rate proposals.
If rates are confidential, hospitals must construct their best offer, based on their own cost structure,
not based on what competitors are bidding. Without confidentiality, the CDC would not be as
effective in securing favorable hospital rates. This confidentiality protection is also provided to
other procurers of medical services such as the Managed Risk Medical Insurance Program and
the CMAC. The current requirements for formal competitive bidding under the State Contracting
Manual call for public disclosure of bid proposals at the time of the bid opening, subjecting the rates
and other contract terms not only to public review but making this information available to other
competitors. Eliminating the exemption and opening medical services contracts to the competitive
bidding process would be contrary to the current Government Code and the Legislature’s intent in
enacting that Code, and would negatively impact CDC’s ability to obtain favorable future contract
rates.
An additional example is anesthesiology. Anesthesia providers are assigned by the hospital to
provide services on a rotational basis. Only providers who have been granted privileges at a
specific hospital are allowed to deliver anesthesia services in the hospital’s operating rooms.
Consequently, because multiple physicians are providing the same service at the same location,
the NCB process does not apply, nor would the bid process apply.

6

The CDC is under Federal Court orders in Coleman, Madrid, and Plata to provide appropriate
and timely access to medical care. The policy exemption allows the Department to meet the
Federal Court mandates of appropriate and timely access to medical care, implement contracts
to allow payment for emergency medical care, and protect the confidentiality of contract rates
and terms to avoid compromising future negotiations. The length of time required to conduct a
competitive bid and to adequately address procedural issues such as bidder’s protests, as well as
the unpredictability of the nature of required medical services, (e.g., specialty services, unplanned
replacement of existing providers, emergency augmentation of services, etc.) would put the CDC
at risk of not delivering necessary services in a timely manner. The inability to expeditiously enter
into contracts for essential medical care for CDC inmates would only expose the State to additional
litigation and possibly place the State in contempt of court orders. Any changes to the policy
exemption could require Federal Court approval to ensure that there are no lapses in services as
required under the court orders.
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5

71

5

Work with the Office of Statewide Health Planning and Development to obtain hospital
charge masters and use this information to negotiate contract rates.
The CDC agrees with the recommendation as stated above. Assembly Bill 1627 for the 2003-04
Legislative Session, Chaptered as Article 11 (commencing with Section 1339.50), Chapter 2,
Division 2 of the Health and Safety Code, effective July 1, 2004, requires each hospital in California
to provide a copy of its charge description master to the Office of Statewide Health Planning and
Development (OSHPD). Historically, most hospitals have refused to make their charge description
master a public document or provide the HCSD with a copy. Effective July 1, 2004, Health Care
Services Division (HCSD) will, as part of the standard health care contract boilerplates, require
hospitals to provide HCSD a copy of their charge description master each time it is updated.
Further, HCSD will require every hospital to provide a copy of its current charge description master
when responding to a solicitation. In addition, HCSD will meet with the OSHPD to obtain any
outstanding hospital charge description masters. The HCSD will report the status of obtaining
hospital charge description masters from its contracted hospitals in the Six-Month Status Report.
Ensure that HCSD enforces rate exemption requirements, including obtaining and reviewing
documentation to verify prisons’ justification for higher rates.
The CDC agrees with the recommendation as stated above. In anticipation of a new rate approval
process, the HCSD is currently reviewing all medical contract rates to determine if they meet the
rate exemption requirements. The Health Contracts Unit (HCU) analysts are providing written
documentation and analysis for approval by the Assistant Deputy Director, Resource Management
and Administrative Support Branch. This documentation includes the necessity of the contract,
negotiations communication (including contract language issues and appropriateness of the
rates), comparisons with other contracts statewide, and review of utilization data and projected
costs. A new rate approval process is being developed to replace the current Request for Medical
Rate Exemption process that will mandate that all rates for exempt contracts be reviewed for
reasonability.
Establish procedures to ensure that the rate exemptions initiated by HCSD undergo an
independent review at a higher-level approval process.

7

Currently, the CDC has procedures in place to ensure a high level approval of HCSD contract
rates. Rate exemptions initiated by HCSD are evaluated by the HCU, reviewed by the appropriate
Regional Administrator, and require approval by the Assistant Deputy Director, Resource
Management and Administrative Support Branch. Additionally, complex hospital rates negotiated
by the HCU are reviewed and approved by the Deputy Director, HCSD. The HCSD is reviewing the
recommendation as stated above to determine if a higher level review would add value to the rate
approval process. The HCSD will report its findings in the 60-Day Status Report.
Adopt procedures that require staff to consider utilization data when negotiating medical
services contracts. These procedures should also require staff to document the use of
these data in the contract file.
The CDC concurs with the recommendation as stated above. A new rate approval process is being
developed to replace the current Request for Medical Rate Exemption process that will mandate
that all rates for all exempt contracts be reviewed for reasonability. Part of this new process will
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include requirements for requesting, interpreting, and including cost and utilization data within the
rate review. The HCSD will report its progress in the 60-Day Status Report.
Ensure that HCSD seeks and offers specialized training for its negotiation staff so they can
effectively negotiate favorable rates. Additionally, HCSD should then share any strategies
and techniques with the prison negotiation staff.
The CDC concurs with the recommendation as stated above. The CDC has pursued consulting
with other State agencies. We have also received a presentation from an independent consultant
on hospital contract negotiation techniques and are exploring additional consultant options.
Furthermore, we are currently investigating the possibility of obtaining training or other contracting
assistance from the California Public Employees Retirement System.
Although the CMAC indicated that they would be unable to provide direct assistance in contract
negotiations, we continue to consult with the Commission whenever our areas of jurisdiction
overlap.

8

The CDC appreciates BSA’s acknowledgement that their “sample results indicate that overall
Corrections was able to negotiate rates that were slightly below Medicare’s rates.”
In addition to the efforts noted above, the HCSD plans to arrange for two training classes at the
State Training Center for each contract analyst: 1) Negotiation Skills Workshop, and 2) CostBenefit Analysis Workshop. In addition, when the HCU employs new analysts, those analysts will
be required to attend those same classes, as well as the Developing Analytical Skills class. In
addition, and as discussed in the BSA Report, the HCSD has been exploring a consultant contract
to provide specific negotiations and analytical training for HCU analysts. The HCSD will report its
progress in the 60-Day Status Report.
Ensure that HCSD tries to obtain per diem rates as a compensation method when
negotiating hospital contracts. Additionally, HCSD should document its attempts to obtain
per diem rates.
The CDC agrees with the recommendation as stated above and will continue to secure per diem
rates to the extent possible. The CDC also appreciates BSA’s acknowledgement that “comparison
of Corrections” rates to the Federal Medicare Program (Medicare) rates and actual hospital charges
reveals that in some instances Corrections’ method of payments yields lower costs to the State.
Currently, approximately 73 percent of the total hospital expenditures are incurred from services
provided by preferred or rate protected providers. The HCSD defines a preferred or rate-protected
provider as one that offers rate protection in the form of per diem and case rates. The major
obstacle in obtaining this type of structure for the other 27 percent of hospital expenditures is the
fact that most of the hospitals only offer rate protection if there is sufficient volume. Many of these
nonpreferred or nonrate protected providers are used primarily for emergency or very specialized
one-time services. In addition, many of the providers within the respective counties’ Emergency
Medical Systems have rates set by the counties, from which they will not deviate.

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9

Direct ICS to evaluate late requests using the criteria outlined in the policy memo.
Additionally, ICS should request HCSD and the prisons to provide relevant documentation to
support their request.

0

The ICS is in compliance with the recommendation as stated above and evaluates each request
utilizing all of the established criteria and to ensure the request justifies why approval is in the best
interest of the State as well as the contractor. Institutions and HCSD must document on each
request (1) the reason for the late request, (2) the extenuating circumstances, (3) the adverse
impact if denied, and (4) measures that will be taken to prevent future occurrences. In most cases,
late requests are for services that were unpreventable, unforeseen and/or beyond the CDC’s
control, such as, critical medical services to inmate/patients. For those situations, approval may
also be further supported based on the fact that the contractor provided services in good faith and
is entitled to payment without further delays by seeking payment through a Board of Control claim.
It is also in the State’s best interest to avoid incurring late payment fees for authorized services. In
order to ensure the late request policy is strictly adhered to by the institutions, ICS will elevate to
the Deputy Director/Regional Administrator level for appropriate action if an institution has a high
number of late requests that appear to be preventable.
Continue generating report cards periodically and establish procedures for staff such as
prisons’ associate wardens to submit corrective action plans to OCS to monitor.
The CDC agrees with the recommendation as stated above and will continue to generate a
Semi-Annual Report Card Summary and Detail for Late Contracts (Report Card) and distribute
the report to Chief Deputy Directors, Deputy Directors, Assistant Directors, Institution Regional
Administrators and Wardens. The OCS will also work with the HCSD and institutions to develop
a process to ensure that the Report Card is utilized by management as an effective tool to reduce
late requests whenever possible. The OCS and HCSD will report their progress in the 60-Day
Status Report.
Ensure that ICS staff review the master contract and outstanding NTPs before issuing
additional NTPs so that it does not exceed the master contract amount.
The CDC agrees with the recommendation as stated above and has taken the necessary steps
to prevent future occurrences. The ICS’ current master contract procedures require contract
analysts and managers to ensure that sufficient funding is available in the master contract prior to
processing Notices to Proceed (NTP) associated with the master contract. When the errors were
discovered, ICS reiterated the procedural requirement in a staff meeting in mid-September 2003
and issued a subsequent e-mail to all managers in February 2004 implementing a new requirement
for managers to review the master contract file in addition to the current procedure of reviewing
the hierarchy report to ensure sufficient funding levels are available prior to approving NTPs. The
ICS has processed amendments to the masters and/or NTPs to remedy the deficiencies in the four
contracts and are now in compliance with the requirement.

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Evaluate its contract processing system to identify ways for HCSD, ICS and prisons to
eliminate delays in processing contracts and avoid allowing contractors to begin work prior
to the approval of the contract.
The CDC agrees with the recommendation as stated above. OCS will work together with the HCSD
and the institutions to develop additional methods to reduce the number of late contracts. The
Office of Contract Services (OCS) and HCSD will report its progress in the 60-Day Status Report
In should be noted that the OCS has taken several proactive steps to assist programs/institutions
in meeting this requirement. The OCS has established internal time frames for submitting requests
that will allow sufficient lead time to ensure contract approval before the requested start date of
services. While these time frames have been established since 1991, this information has also
been published on the Department’s intranet since January 1999.

2

In addition to the previously mentioned Late Submittal Justification Request requirements and the
issuance of the semi-annual Report Card, the OCS has also simplified the contract renewal request
process to reduce the amount of late contract requests received. In 1995, the OCS developed
a one page Contract Renewal Request (CRR) form to be used in place of a lengthy contract
request form when requesting renewal services. The CRR is generated by the contract database
and includes all pertinent information relating to the contracted services as needed by programs/
institutions to determine whether to renew or not. The CRRs are mailed to the programs/institutions
30 days prior to being due in ICS. The programs/institutions are only required to check a box that
indicates, “renew” or “do not renew” and to update program/institution contact information and
funding information. The CRRs require the signature of the Associate Warden, Business Services
and/or the Health Care Manager/Chief Medical Officer.

2

The OCS also provides annual training to programs/institutions that addresses the CRR, Report
Card and Late Submittal Justification processes and stresses the importance of proper contract
monitoring and timely submission to avoid late contracts.
Modify its procedures to require prisons to submit documentation to ICS demonstrating
their attempts to obtain services from registry contractors with their requests for services
from a non-registry contractor.
The CDC agrees with the recommendation as stated above and is currently modifying its
procedures. ICS currently requires institutions to submit a written certification that they have
attempted but were unable to obtain services from a registry contractor. As a result of the audit
recommendation, ICS is revising its current process to require institutions and/or HCSD to submit a
copy of a phone contact log or fax notification as documentation that attempts were made to obtain
services through the registry contract. The ICS will only initiate additional contracts upon receipt
of the appropriate documentation. The ICS will be issuing a memorandum to the institutions and
HCSD outlining the process, inclusive of sample tools to be used for documenting contacts. The
ICS staff and managers will be trained on the new process upon completion and implementation
that is anticipated to occur in April 2004. The ICS will report its progress in the 60-Day Status
Report.

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Direct ICS to review prisons’ documentation and ensure that prisons have made sufficient
attempts to obtain services from registry contractors. Additionally, it should direct ICS to
use these data to identify trends of nonperformance and terminate registry providers, when
necessary.
The CDC agrees with the recommendation as stated above. Upon implementation of the abovementioned process, ICS will review the submitted documentation to ensure that the contacts
made by the institutions were in accordance with the registry contract terms and conditions. If
multiple institutions are routinely denied services by a contractor, ICS, the institution and HCSD will
collectively make a determination if it is in the best interest of the State to terminate the contractor.
To rein in costs associated with the use of registry contracts, Corrections should:
Continue to monitor prisons’ registry expenditures on a monthly basis and evaluate their
need for services.
The CDC concurs with this recommendation. Several years ago, the Fiscal Management Unit of
HCSD developed a Registry versus Vacancy Report that is updated on a monthly basis. This report
is utilized in the CDC quarterly fiscal review process to evaluate the usage of registry in comparison
with vacant positions. The reports will be provided to the HCSD Regional Administrators and
Health Care Managers on a monthly basis for appropriate action.
To improve its efforts to provide only medically necessary services and contain medical
services costs, Corrections should do the following:
Ensure that the UM nurses adhere to the UM guidelines requiring them to perform and retain
documentation of their perspective and concurrent reviews.
The CDC concurs with this recommendation. As part of the Quality Management System, on
December 18, 2003, HCSD conducted a mandatory statewide videoconference training
titled:
Inmate Medical Services Program Implementation – Utilization Management (UM) Program
Policy and Procedure Training. Within 30 days of the completion of the standardized UM Program
training, staff at the prisons were instructed to develop a corresponding operating procedure to
operationalize the UM Program policy and procedure at each institution. The goal of the course
was to provide information regarding effectively performing UM and included the UM review
process, focus and selected scope, UM reviewer responsibilities, UM review guideline criteria,
standardized UM forms, and UM reporting documents. In addition, the newly implemented UM
database will capture all requests for service and required focus area documentation. This includes
using prospective, concurrent, and/or retrospective reviews of the following target categories:
•
•
•
•

Bed Management
Medication Management
Scheduled Specialty Services
Emergency Care

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Clarify and update the UM guidelines for performing retrospective reviews.
The CDC concurs with this recommendation. To promote a standardized percentage of review,
direction was given to the field UM Nurses to perform 100 percent retrospective review on all
noncontract providers and 10 percent intensive review, via random selection, to all contracted
facility providers. Again, primary interest on prospective and concurrent review was emphasized
to determine that services being requested were medically appropriate and delivered in the most
cost-effective manner. Prospective and concurrent review improves the value of service by assuring
the services being provided are appropriate and medically necessary, thereby reducing potential
invoice adjustments.
The HCSD continues to review their retrospective review processes and has taken great efforts
toward providing and reviewing services in a consistent and quality manner. The UM Program
currently does not have the resources to perform 100 percent retrospective review, nor is that the
community standard; however, we are exploring alternative options for this critical issue.
The BSA Draft Report presumes the original mission was for UM retrospective review to occur
100 percent of the time and that UM reduced it to 10 percent. In actuality, the original 1996 UM
Plan (page 8) states: The first level reviewer shall develop, with the Health Care Cost Utilization
Program (HCCUP) Analyst, a process to review selected billings for completeness and technical
accuracy. The updated 1999 UM Guidelines (page 32) states that review of charges will occur
in 100 percent of inpatient and outpatient cases. It also states that retrospective review is a
cooperative effort between many parties. The intent was that 100 percent of all invoices would
be processed in the same manner, not necessarily that the UM Nurse would perform an in-depth
review of 100 percent of all invoices. The UM duty statement only allows 15 percent of time toward
retrospective review which is not enough for review of 100 percent of all invoices.
Direct HCSD to establish a quality control process that includes monthly reviews of a
sample of the invoices processed by the prisons’ HCCUP analysts.
The CDC concurs with this recommendation. However, over the last year, the HCCUP has
undergone a serious staffing shortage due to staff turnover and Workers’ Compensation cases.
This shortage has significantly impacted the program to the extent that the HCCUP has become
substantially backlogged in the field, where review and processing of invoices occurs. In order
to mitigate this problem, headquarters’ staff has been utilized to assist in addressing the backlog.
However, this has prevented HCCUP from performing statewide oversight functions normally
completed by headquarters staff. In response to this problem, the HCCUP has requested and
received a freeze exemption, which allows the program to fill all of its vacancies and hire behind
staff that are out on Workers’ Compensation. The HCCUP is currently in the process of filling its
vacancies and when the positions are filled, the program will be in a better position to evaluate
the implementation of a quality control process. The CDC will report on the progress of this
recommendation in the Six-Month Status Report.
Direct HCSD to establish a quality control process that includes monthly reviews of a
sample of prospective and concurrent reviews performed by the prisons.
The CDC concurs with this recommendation. Review and development of this area is pending.
Development of a formal procedure will be included in the 60-Day Status Report.
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q

Ensure that prisons recover any overpayments that have been made to providers from
medical services charges. Similarly, prisons should rectify any underpayments that have
been made to providers.
The CDC concurs with this recommendation. The CDC follows the State Administrative Manual
guidelines for the recovery of overpayments. The HCSD will be working with the Regional
Accounting Offices to explore alternatives for identifying and recovering overpayments. The HCSD
will report on its progress in the 60-Day Status Report.
Evaluate its payment process to identify weaknesses that prevent it from complying with the
California Prompt Payment Act.
The CDC concurs with this recommendation. The HCSD will be working with the Regional
Accounting Office to explore alternatives to accomplish this recommendation and will report on its
findings in the 60-Day Status Report.
OTHER ISSUES
Table 2 represents the results of the amounts Corrections paid for hospital charges shown on 53
hospital invoices. It also shows the results of our comparison of the Medicare rates to the amounts
Corrections paid and the hospital charges. We have some concerns regarding the information
contained in Table 2:

w

Government Code 6254.14 (a) provides that except as provided in Sections 6254 and 6254.7,
nothing in this chapter shall be construed to require disclosure of records of the Department of
Corrections that relate to health care services contract negotiations, and that reveal the deliberative
processes, discussions, communications, or any other portion of the negotiations, including, but
not limited to, records related to those negotiations such as meeting minutes, research, work
product, theories, or strategy of the department, or its staff, or members of the California Medical
Assistance Commission, or its staff, who act in consultation with, or on behalf of, the department.
The information, as presented, would allow the public to “back into the CDC rates.” Therefore, we
recommend that Table 2 be modified to refer to the hospitals as A, B, C, etc.

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COMMENTS
California State Auditor’s Comments
on the Response From the Youth and
Adult Correctional Agency and the
California Department of Corrections

T

o provide clarity and perspective, we are commenting on
the California Department of Corrections’ (Corrections)
response to our audit. The numbers below correspond to
the numbers we have placed in its response.

1

Corrections is mischaracterizing the results shown in the
table on page 28 of our report. Specifically, the table shows
that overall Corrections was able to negotiate rates that were
90 percent of the federal Medicare program’s rate; however,
six of the nine hospital providers had rates that were greater
than Medicare’s rates. Additionally, on page 27, we state that
Corrections can generally generate greater savings when it
is able to negotiate per diem rates. However, Corrections does
not require hospitals to conform to a specified compensation
method. Consequently, on page 40, we recommended that
Corrections ensure that it tries to obtain per diem rates as a
compensation method when negotiating hospital contracts.
Finally, on page 29, we state clearly that our comparison is
informational only, not meant to suggest that Corrections’
negotiations will always result in rates that are lower than
Medicare rates.

2

Although Corrections has implemented several processes to
reduce the number of late contracts, its prisons and Health
Care Service Division (HCSD) do not submit their medical
service contracts to its Office of Contract Services’ Institution
Contracts Section (ICS) within the established lead times.
Specifically, as discussed on pages 32 through 34, Corrections’
policy memo states that with the exception of emergency
services defined by state law, protests and rebids associated
with the request for proposal process, or situations resulting
from unusual circumstances beyond its control, there should
be no late submittal of contracts or amendments. According
to ICS, all of the 14 late requests we reviewed met the policy
memo criteria. However, we found five of the 14 late requests
that did not appear to meet the criteria. Additionally, although

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the semi-annual report card summary was created as a tool for
management to assess the timeliness of contract or amendment
requests, ICS does not use the report card to enforce compliance
with the policy memo.

80

3

Corrections’ assertion that it currently obtains the information
required in the noncompetitively bid (NCB) procurement
process market survey via its informal hospital solicitation
process is inconsistent with statements made by its HCSD staff
and our review of 10 of 12 contract files for hospital providers.
Specifically, on September 13, 2003, and March 29, 2004, HCSD
staff told us that they had not solicited bids from other hospitals
before entering into contracts with 10 hospital providers
because either the hospitals were the only choice for a certain
specialty or the hospital was located within the exclusive operating
area designated by the local emergency medical service agency for
ambulance service providers.

4

The Bureau of State Audits’ recommendations on page 39
regarding the removal of the long-standing policy exemption
are directed toward the Department of General Services (General
Services). On page 64, General Services states that it will
reevaluate the need for the policy exemption and as part of its
evaluation will convene a meeting of the various state agencies
that use the exemption.

5

Corrections’ assertion that disclosure of hospital rates would
create a “floor” during negotiations appears to be without merit.
Specifically, as previously discussed, we found that HCSD staff
do not routinely solicit bids before entering into contracts with
hospital providers because either the hospitals were the only
choice for a certain specialty or the hospital was located within
the exclusive operating area designated by the local emergency
medical service agency for ambulance service providers.
Additionally, Corrections’ concern regarding the confidentiality
of its hospital contracts focuses on the competitive bidding
process. However, if General Services decides that it is in
the State’s best interest to remove the long-standing policy
exemption, Corrections also has the option of using the NCB
process. Under the NCB process, it appears that both of the
reasons Corrections cites would be sufficient to justify its use
of the hospital provider. Moreover, the State would have more
assurance that its interest is protected because Corrections
would have to complete a price analysis and obtain higherlevel approvals. Finally, as stated on pages 9 and 18, state law

California State Auditor Report 2003-117

allows Corrections to enter into emergency contracts without
competitive bidding when a medical emergency arises that
indicates a threat to the delivery of health care to inmates.

6

We believe that Corrections has the ability to address this
issue when it enters into contracts with hospital providers.
Specifically, our review of contracts and invoices for 12 hospitals
found that half of the hospitals billed Corrections directly on
behalf of physicians who provide services at their facilities.
Thus, as part of its contract terms, Corrections could require
all hospitals that it contracts with to include rates for the
physicians who provide services at their facilities.

7

Corrections is incorrect. Corrections was unable to provide
us with written procedures to address those instances when
HCSD initiates a rate exemption. Instead, as stated on page 23,
Corrections told us that its analysts essentially apply the same
standards that prisons must follow and require the signature of
the assistant deputy director. Yet, we found four instances where
HCSD could not provide an analysis to justify its approval of
higher rates, including one instance where the provider’s hourly
clinic rate resulted in payments that were 182 percent greater
than Corrections’ standard rate. Thus, as stated on page 40, we
recommend that Corrections establish procedures to ensure the
rate exemptions initiated by HCSD undergo an independent
review and higher-level approval process.

8

Corrections fails to mention that on page 29, we state clearly
that our comparison is informational only, not meant to suggest
that Corrections’ negotiations will always result in rates that are
lower than Medicare rates.

9

Corrections is overstating the percent of hospital expenditures
relating to providers that offer rate protection in the form of per
diem or case rates. Our review of Corrections’ analysis found
that five hospitals it identified as having per diem or case rates
actually had rates that were based on a flat discount off the
total charges. Additionally, the contract terms for many of the
remaining hospitals Corrections identified as having per diem or
case rates also had other compensation methods. Thus, it would
be inaccurate for Corrections to count all of these hospitals’
expenditures as being incurred from services based on per diem
or case rates.

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82

0

Corrections is incorrect in stating that ICS is in compliance
with our recommendation. As discussed on pages 32 through
34, Corrections policy memo states that with the exception
of emergency services defined by state law, protests and rebids
associated with the request for proposal process, or situations
resulting from unusual circumstances beyond its control, there
should be no late submittal of contracts or amendments. According
to ICS, all of the 14 late requests we reviewed met the policy memo
criteria. However, we found five of the 14 late requests that did not
appear to be unusual circumstances beyond Corrections’ control
and could have been avoided with proper planning.

q

Corrections’ statement that our report presumes the original
mission was for utilization management (UM) retrospective
reviews to occur 100 percent of the time and that UM reduced it
to 10 percent is incorrect. Rather, our understanding of its UM
program is based on Corrections’ 1999 UM guidelines and notes
from several regional UM nurse meetings HCSD held in 2000 that
we discuss on pages 47 through 50. The “intent” that Corrections
now asserts is not reflected in its UM guidelines and the resulting
confusion concerning retrospective reviews is reflected in the
reports from 21 prisons that show UM nurses review anywhere
from zero to 100 percent of varying types of invoices for medical
service charges.

w

To address Corrections’ concerns, we removed the hospital
names from the table on page 28 and replaced the names with
the letters A through I.

California State Auditor Report 2003-117

cc:

Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press

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