Federal Prisons: Containing Health Care Costs for an Increasing Inmate
Population (Testimony, 04/06/2000, GAO/T-GGD-00-112).

The growing federal prison population has been accompanied by rising
health care costs for inmates. The Bureau of Prison's costs to treat
inmates have soared from $137.6 million in 1990 to $372.1 million in
1999--an average annual increase of 8.6 percent. Since the early 1990s,
the Bureau has tried to increase the efficiency and the economy of
health care delivery to prisoners through various cost-containment
initiatives, such as restructuring medical staffing, obtaining discounts
by buying in bulk, leveraging resources through cooperative efforts with
other governmental entities, and even privatizing medical services at
some facilities. To further control costs, the Bureau recently proposed
two legislative changes. The first--a prisoner copayment
provision--would authorize the Bureau to collect a fee of not less than
$2 every time a prisoner requests a health care visit. The second
provision would build on the federal government's extensive experience
in establishing payment rates for inpatient hospital services through
Medicare's prospective payment system. That is, Medicare's prospective
rates could be adopted to serve as caps for the Bureau's payments to
community hospitals that care for federal prisoners. GAO notes that the
Bureau might be able to save additional money by negotiating more
cost-effective contracts with community hospitals that provide medical
care to inmates.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-00-112
     TITLE:  Federal Prisons: Containing Health Care Costs for an
	     Increasing Inmate Population
      DATE:  04/06/2000
   SUBJECT:  Proposed legislation
	     Privatization
	     Health care cost control
	     Health care services
	     Prisoners
	     Health services administration
	     Community hospitals
IDENTIFIER:  Crime Victims Fund
	     Medicare Program

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GAO/T-GGD-00-112

United States General Accounting Office
GAO

Testimony

Before the Subcommittee on Criminal Justice
Oversight
Committee on the Judiciary
U.S. Senate

For Release on Delivery
2:00 p.m. EDT
Thursday
April 6, 2000
GAO/T-GGD-00-112

FEDERAL PRISONS
Containing Health Care Costs for an Increasing

Inmate Population

Statement of Richard M. Stana, Associate
Director
Administration of Justice Issues
General Government Division

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Summary
Containing Health Care Costs For An Increasing
Inmate Population
Page 2                           GAO/T-GGD-00-112
In conjunction with a rising federal inmate
population, the Bureau of Prisons' (BOP) health
care costs (not adjusted for inflation) for
treating prisoners increased from $137.6 million
in fiscal year 1990 to $372.1 million in fiscal
year 1999, an average annual increase of about 8.6
percent.  Adjusted for inflation, BOP's per capita
inmate health care costs increased from $3,001 in
fiscal year 1990 to a high of $3,703 in fiscal
year 1996.  However, per capita costs steadily
decreased in subsequent fiscal years, declining to
$3,242 in 1999. By way of comparison, the nation's
per capita health care costs (adjusted for
inflation) rose continuously during fiscal years
1990 through 1999.

Since the early 1990s, BOP has attempted to
increase the efficiency and economy of health care
delivery to prisoners through various cost-
containment initiatives, such as restructuring
medical staffing, obtaining discounts through
quantity or bulk purchases, leveraging resources
through cooperative efforts with other
governmental entities, and even privatizing
medical services at selected facilities. BOP
reports that some of these efforts are starting to
produce savings, as indicated by the decrease in
per capita inmate health care costs from 1997
through 1999.

To further control medical costs, BOP has proposed
two legislative provisions. One---a prisoner
copayment provision-would authorize the Director
of BOP to assess and collect a fee of not less
than $2 for each health care visit requested by a
prisoner. BOP officials expect that this copayment
provision would serve primarily to reduce the
number of unnecessary medical visits.  The
Congressional Budget Office (CBO) has concluded
that this provision would also generate annual
revenues of about $1 million.  The second
provision would build on the federal government's
extensive experience in establishing payment rates
for inpatient hospital services through Medicare's
prospective payment system.  That is, Medicare's
prospective rates, which vary to reflect expected
patient-care costs, could be adapted to serve as
caps to BOP's payments to community hospitals for
services provided to federal prisoners. The CBO
has estimated that this legislative provision
would save BOP about $6 million annually. Although
we did not fully evaluate the advantages and
disadvantages of these two legislative provisions,
we believe that they would be helpful to BOP's
efforts to control medical costs.

In addition, we identified an administrative
option whereby BOP might achieve further savings
by negotiating more cost-effective contracts with
community hospitals that provide medical care for
inmates. In late 1999, to provide a basis for
identifying best value among competing proposed
contracts, one of BOP's six regions---the South
Central Region---began using an innovative
"benchmarking" approach.  According to regional
office contracting officials, if the benchmarking
approach were applied to all contracts in the
South Central Region, the estimated savings would
be about $5.6 million annually in this one region
alone. We are recommending that BOP (1) take steps
to test the benchmarking approach and (2) if
results validate the cost effectiveness of this
approach, implement it BOP-wide.

Federal Prisons: Containing Health Care Costs for
an Increasing Inmate Population
Page 19                          GAO/T-GGD-00-112
Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the
results of our review of health care costs at the
federal Bureau of Prisons (BOP). We undertook this
work at the request of, and as agreed with the
Subcommittee.  We focused our work primarily on
identifying (1) trends in BOP health care costs
from fiscal year 1990 through fiscal year 1999,
(2) BOP initiatives to contain rising medical
costs, and (3) legislative and administrative
options for helping to contain health care costs.

My statement is based on our analyses of BOP
statistics and reports and on interviews with
officials in BOP's central office and six regional
offices and officials with the Department of
Health and Human Services' (HHS) Health Care
Financing Administration (HCFA), which administers
the Medicare program.  We performed our work from
July 1999 to March 2000 in accordance with
generally accepted government auditing standards.
Regarding the various cost-containment initiatives
or proposals discussed in this statement, we did
not independently verify the savings estimates
made by BOP and the Congressional Budget Office
(CBO).   Attachment I presents additional details
about our scope and methodology in addressing the
objectives.

     In this statement, I make the following
points:

ï¿½    In conjunction with a rising federal inmate
population, BOP's health care costs (not adjusted
for inflation) increased from $137.6 million in
fiscal year 1990 to $372.1 million in fiscal year
1999, an average annual increase of about 8.6
percent.  Adjusted for inflation,1 BOP's per
capita inmate health care costs increased from
$3,001 in fiscal year 1990 to a high of $3,703 in
fiscal year 1996.  The per capita costs steadily
decreased in subsequent fiscal years, declining to
$3,242 in fiscal year 1999. In contrast, the
nation's per capita health care costs (adjusted
for inflation) rose continuously during fiscal
years 1990 through 1999.

ï¿½     Since the early 1990s, BOP has attempted to
increase the efficiency and economy of health care
delivery to prisoners through various cost-
containment initiatives, such as restructuring
medical staffing, obtaining discounts through
quantity or bulk purchases, leveraging resources
through cooperative efforts with other
governmental entities, and even privatizing
medical services at selected facilities. BOP
reports that some of these efforts are starting to
produce savings.
ï¿½    To further control medical costs, BOP has
proposed two legislative provisions. One-a
prisoner copayment provision-would authorize the
Director of BOP to assess and collect a fee of not
less than $2 for each health care visit requested
by a prisoner. BOP officials expect that a
copayment provision would serve primarily to
reduce the number of unnecessary medical visits.
CBO's analysis also concluded that a copayment
provision would reduce the number of unnecessary
medical visits and would generate annual revenues
of about $1 million.  The second legislative
provision would establish a Medicare-based cap on
payments to community hospitals that treat
inmates. CBO has estimated that this legislative
provision would save BOP about $6 million
annually.  We believe that these two legislative
provisions would be helpful to BOP's efforts to
control medical costs.
ï¿½    Finally, we identified an administrative
option whereby BOP might achieve further savings
by negotiating more cost-effective contracts with
community hospitals that provide medical care for
inmates. In late 1999, to provide a basis for
identifying best value among competing proposed
contracts, one of BOP's six regions---the South
Central Region---began using an innovative
"benchmarking" approach.  According to regional
office contracting officials, if the benchmarking
approach were applied to all contracts in the
South Central Region, the estimated savings would
be about $5.6 million annually in this one region
alone. We are recommending that BOP (1) take steps
to test the benchmarking approach in other regions
and (2) if results validate the cost effectiveness
of this approach, implement it BOP-wide.
Background
     BOP's responsibility for maintaining the
federal prisoner population includes providing
health care for all inmates in its custody.
According to BOP's Health Services Manual, the
health care mission of BOP is to provide the
necessary medical, dental, and mental health
services to inmates by a professional staff,
consistent with acceptable community standards.
BOP uses various medical care arrangements to
provide health services to inmates.  These
arrangements include BOP's use of both internal
and external health care providers.

     Internally, each of BOP's 98 facilities has
an on-site health service unit to provide routine,
ambulatory medical care. For instance, these units
are to provide care for moderate and severe
illnesses, including hypertension and diabetes
mellitus, as well as care for patients with HIV
infection and AIDS.  A medical professional is to
be either on-site or available for 24-hour
continuous duty to handle medical problems that
may occur during or after normal working hours.2
According to a BOP official, inmate sick call is
to be conducted on a weekly schedule at each
facility, with urgent care services available at
all times.  If an inmate is found to have a health
problem beyond the capabilities of the health
service unit, BOP medical personnel are to refer
the inmate to one of seven medical referral
centers or, alternatively, to an outside community
care provider (hospital).

     To round out BOP's internal health care
network, the seven medical referral centers
provide hospital and other specialized services to
inmates.  According to a BOP Health Services
Division official, the medical referral centers
originally were intended to provide all of BOP's
medical needs.  However, despite still performing
some major medical procedures (such as treatment
for chronic diseases and mental illness), the
centers have evolved to focus on postsurgical
recovery and aftercare for inmates who have
received medical treatment from outside community
care providers.  The change in focus was due to
rapid changes in medical technology and
procedures, in addition to the limited capacities
of the medical centers.

BOP's health service units and medical referral
centers are staffed by a combination of Public
Health Service (PHS) and BOP health care
employees, consisting of physicians, dentists,
physician assistants/nurse practitioners, nurses,
pharmacists, psychiatrists, psychologists, and
laboratory and x-ray personnel.  The Joint
Commission on Accreditation of Healthcare
Organizations has accredited all of BOP's health
service units and medical referral centers.

In certain instances, BOP's internal resources
cannot fully meet inmates' medical needs.  If an
inmate requires special medical expertise that is
not available internally, BOP personnel are to
seek it from an external medical provider. In
addition, according to a BOP official, a continual
rise in BOP's inmate population caused six of the
seven3 medical referral centers to exceed their
rated capacities for patients during 1999, and
this situation will likely continue in view of the
projected rising prison population. For these
reasons, in future years, according to a BOP
official, community medical providers can be
expected to play a larger role in meeting the
health care needs of a growing and aging inmate
population---and, in turn, this trend will
increase the importance of negotiating cost-
effective contracts.

Generally, secure transportation and guard escort
services are required for prisoners referred from
BOP facilities to community providers. Costs for
transportation and guards represent additional
health care expenses borne by BOP in obtaining
community-based medical services for inmates.
However, according to a BOP official, in some
cases the community providers can visit and treat
inmates inside BOP's facilities, which eliminates
the need for secure transportation and guard
escorts.

Trends in Health Care Costs
     In conjunction with a rising federal inmate
population, BOP's health care costs increased
during the 1990s.  According to BOP data, the
federal inmate population increased from 64,936 at
fiscal year-end 1990 to 133,689 at fiscal year-end
1999. Further, BOP officials estimate that the
total federal inmate population will reach
approximately 198,700 by fiscal year-end 2006.4

     BOP data show that the number of inmates 46
years of age and older increased each year from
1995 to 1999. For example, the number of inmates
between the ages of 46 and 50 rose from 7,937 in
1995 to 9,854 in 1999, an increase of 24 percent.
Inmates 66 years of age and older rose from 881 in
1995 to 1,225 in 1999, an increase of 39 percent.
A BOP official attributed the "aging" of the
inmate population, in part, to changes in
sentencing laws that are intended as get tough on
crime measures-laws involving, for example,
mandatory minimum sentences and repeat offender
provisions. According to the BOP official, older
inmates place greater demands on the health care
system than do younger inmates.

     BOP's health care costs (not adjusted for
inflation) increased from $137.6 million in fiscal
year 1990 to $372.1 million in fiscal year 1999,
an average annual increase of about 8.6 percent.5
However, BOP's health care costs as a percentage
of total operational costs were fairly stable,
averaging 13 percent annually during this period.

During fiscal years 1990 through 1999, BOP's
cumulative health care costs for inmates totaled
about $2.7 billion.  For this 10-year period,
table 1 shows the following:

ï¿½    Almost three-fourths of BOP's cumulative
health care costs involved three categories: BOP
medical personnel salaries (38 percent), community
provider services (24 percent), and PHS associated
costs (10 percent).  Four other categories (at 5
to 8 percent each) accounted for the remainder of
the cumulative costs.
ï¿½    Per capita inmate health care costs (adjusted
for inflation) increased from 1990 to 1999 in all
of the categories except two (community provider
services and miscellaneous).

Table 1: BOP Health Care Costs by Category, Fiscal
Years 1990 Through 1999
Cost category          Percentage of    Per capita Per capita     Percentage
                   cumulative health   health care    health  change in per
                   care costs (1990- costs (1990)a care costs  capita health
                                 99)                  (1999) care costs from
                                                               1990 to 1999
BOP medical                      38%        $1,066    $1,225         +14.9%
personnel salaries
Community provider                24           741       728           -1.8
services
PHS associated                    10           336       367           +9.2
costs
Supplies                           8           289       307           +6.2
Consultants                        8           255       281          +10.2
Guard escort                       7           155       198          +27.7
services
Miscellaneousb                     5           159       135          -15.1
  Total                         100%        $3,001    $3,241          +8.0%
aPer capita costs for 1990 are adjusted to 1999
dollars using the GDP price index.
bThe miscellaneous category includes headquarters
expenses, equipment purchases, HIV testing,
transportation charges (including airlift costs),
printing costs, and interest.
Source:  Developed by GAO based on BOP data.

On the other hand, it must be recognized that the
limited or point-to-point (1990 and 1999)
comparisons in table 1 are insufficiently detailed
to show trends for the intervening years. BOP's
per capita inmate health care costs, adjusted for
inflation, were $3,001 in fiscal year 1990,
increased to a high of $3,703 in fiscal year 1996,
and then decreased annually to $3,242 in fiscal
year 1999.  In contrast to the decrease in BOP's
per capita health care costs in recent years,
national per capita health care costs-that is,
data for all adults and children in the United
States-show a steady increase annually during
fiscal years 1990 to 1999.  Adjusted for
inflation, national per capita health care costs
progressively increased from $3,059 in 1990 to
$3,970 in 1998 and to $4,140 (estimated) in fiscal
year 1999.

Per capita data for selected BOP cost categories
(adjusted for inflation) show the following:

ï¿½    BOP medical personnel salaries:  Per capita
costs decreased steadily from a peak of $1,399 in
1996 to $1,225 in 1999.
ï¿½    Community provider services:  Per capita
costs decreased from a high of $952 in 1993 to
$728 in 1999.
ï¿½    PHS associated costs:  Per capita costs were
$378 in 1997 and $379 in 1998, and then decreased
to $367 in 1999.
ï¿½    Guard escort services:  Per capita costs
decreased from $289 in 1995 to $198 in 1999.

Overall medical costs, however, are likely to
continue to rise in future years, according to BOP
officials.  In explaining this anticipated trend,
the officials noted the following reasons:

ï¿½    Projections of the number of inmates
incarcerated in federal facilities show continued
increases.
ï¿½    Felony inmates transferred to BOP from the
District of Columbia Department of Corrections
generally have disproportionately more medical
needs than other BOP inmates.
ï¿½    From the Immigration and Naturalization
Service (INS), BOP is receiving increasing numbers
of long-term, nonreturnable detainees.
ï¿½    BOP's expenditures for pharmaceuticals likely
will rise due to the increasing prevalence of
illnesses such as HIV and hepatitis.

Attachments III and IV present more information
about trends in BOP's health care costs.

Cost-Containment Initiatives
     A BOP Health Services Division official
stated that the recent downward trend in per
capita inmate health care costs was due to
implementation of various cost-containment
initiatives. In the last several years, BOP has
put into place a number of initiatives to address
health care costs.  In response to our inquiries,
BOP officials identified a total of 23 ongoing
and/or planned cost-containment initiatives. We
grouped these initiatives into five categories:
(1) cooperative efforts with other federal
agencies to acquire medical services, equipment,
and supplies; (2) other acquisition-related
initiatives involving BOP only; (3) staffing-
related initiatives; (4) initiatives concerning
the delivery of services; and (5) health care
privatization and other initiatives. Examples of
initiatives in each category are discussed in the
following sections.6  As indicated, BOP has
reported that some of the ongoing initiatives have
resulted in cost savings.

Cooperative Acquisitions
     BOP has various cooperative
initiatives-either ongoing or planned-with the
Department of Defense (DOD), the General Services
Administration, the U.S. Marshals Service (USMS),
and/or the Department of Veterans Affairs (VA).
The purpose of BOP's cooperative efforts with
other agencies is to save money through bulk
purchasing and resource sharing. In 1993, for
example, VA began including BOP in contracts to
obtain discounts on high-volume purchases of
pharmaceuticals.  As a result of this effort, BOP
has cited average annual savings of approximately
$760,000.  One example of resource sharing is a
pilot project that began in the New York City area
in 1998.  Under the terms of an interagency
agreement, VA physicians work in medical specialty
clinics at BOP facilities to treat both BOP and
USMS prisoners.

Other Acquisition-Related Initiatives
     An example of another type of acquisition-
related initiative is a precertification program
that BOP began in 1995.  That is, precertification
is required before inmates are sent to community
providers for inpatient surgery, other inpatient
hospitalization services, or outpatient surgery.
In the precertification process, BOP headquarters
officials, including both policy and medical
personnel, are to review and approve community-
provided medical treatment being requested by BOP
field personnel.  According to a BOP official, it
appears that precertification has led to field
institutions recommending treatment only for those
cases deemed to be medically necessary or
medically indicated.  As a result of this
initiative, BOP reported savings of $785,000 in
1998.

Staffing-Related Initiatives
     Regarding staffing initiatives, in 1994,
wardens at some BOP prisons began eliminating 24-
hour medical staff coverage, if emergency care was
readily available in the community.  BOP reports
that this initiative has generated cost savings
averaging about $1.6 million per year. A BOP
official acknowledged that this initiative was
implemented as a result of our 1994 report on
inmate health care.7

     Also, partly as a result of our 1994 report,
BOP began restructuring its health care staff to
allow for more efficient operations. For example,
one staffing initiative focused on using
qualified, lower-salaried medical personnel---
instead of more highly paid physicians and
physicians' assistants---for certain nonprimary
health care duties, such as routine laboratory and
pharmacy services. According to BOP, this
initiative has generated annual savings of about
$5.5 million.

A BOP Health Services Division official added that
both the reductions in 24-hour medical staff
coverage and staff restructuring caused the
downward trend in BOP's health care salary costs
since 1997.  Also, according to this official, the
restructuring initiative has had a positive effect
on BOP's second highest health care cost category
(after salaries)---community provider services.
That is, restructuring has reduced the number of
trips to community medical providers by
emphasizing the proper roles of BOP's own internal
medical staff. For example, the number of
occurrences of community hospitalization decreased
from 5,247 in fiscal year 1997 to 5,166 in 1999.
The annual number of inmate inpatient days in
community hospitals also decreased over the last 5
years, from 23,257 in fiscal year 1995 to 23,107
in fiscal year 1999.  The official added that the
reduced number of trips to community medical
providers-a result of BOP's restructuring
initiative-has also resulted in reduced guard
escort costs.

Delivery of Services Initiatives
     In 1996, BOP began a telemedicine initiative
that involves using video teleconferencing to
exchange health information and provide health
care services. BOP's stated goals for this program
are to reduce costs, improve access to medically
necessary resources, and enhance security, while
delivering quality medical care to the inmate
population.

     In 1999, Abt Associates, Inc., performed an
evaluation of this initiative and concluded that
telemedicine was a widely accepted and viable cost-
containment strategy.8  Based upon the
demonstration project and additional research, BOP
personnel presented a proposal, in March 1999, to
the BOP executive staff to implement telemedicine
throughout BOP.  The executive staff approved the
proposal.  As of November 1999, BOP had eight
facilities equipped with telemedicine, with plans
to add the technology to all facilities by the end
of calendar year 2000.

According to a BOP official, the success of the
telemedicine initiative partly accounts for the
downward trend in the costs of guard escort
services. As previously mentioned, BOP's per
capita costs for guard escort services decreased
from $286 in fiscal year 1995 to $199 in fiscal
year 1998.

Privatization Initiative
     BOP has an ongoing privatization project,
among other health care cost-containment
initiatives.  Specifically, in response to a
Senate Appropriations Committee report, BOP is
experimenting with the delivery of health services
through privatization at its facilities located in
Beaumont, TX.  The University of Texas Medical
Branch (UTMB) is providing all the health services
for four separate prison facilities located in
Beaumont.

Under the terms of its contract with BOP, UTMB was
to provide medical services at the rate of $5.12
per inmate, per day in fiscal year 1998.  In
comparison, BOP's overall per inmate rate was
$9.21 a day during the same time period.  Thus,
the contract rate for the Beaumont facilities
seemingly represented daily savings of $4.09 per
inmate, when compared with the rest of BOP.

However, according to BOP officials, the Beaumont
pilot was not fully operational until the middle
of fiscal year 1998, and the first full year of
data for the pilot was not completed until fairly
recently, that is, the end of fiscal 1999.
Therefore, BOP does not expect a detailed
evaluation of the Beaumont project to be completed
until June 2001.  BOP's Beaumont evaluation plan
notes that the evaluation will include comparisons
with other correctional programs to show whether
privatization at Beaumont offers better value for
the taxpayer, while providing the required quality
of care.  Also, BOP officials told us that
replication of the Beaumont privatization model is
a concern, particularly with respect to remote
locations that do not have access to major
community medical centers or teaching medical
centers.

BOP Proposals for Legislation
     BOP has proposed two legislative provisions
to help further control health care costs. One
provision would authorize the Director of BOP to
assess and collect a prisoner copayment. Another
provision would establish a Medicare-based cap on
payments to community hospitals that treat
inmates.

Proposal For Prisoner Health Care Visit Copayment
Requiring federal prisoners to help defray the
cost of their health care by paying even a nominal
fee for medical visits could help BOP control
health care costs.  Recognizing the potential for
cost savings, the Senate passed S. 704 on May 27,
1999, authorizing the Director of BOP to assess
and collect a fee of not less than $2 for certain
health care visits requested by a prisoner.  The
Senate referred S. 704 to the House. A similar
bill (H.R. 1349) has been introduced in the House
in March 1999, and hearings were held September
30, 1999.  As of March 9, 2000, there had been no
further action in the House on this bill.

BOP Expects More Efficient Use of Medical
Resources With a Copayment Fee Set at $2 Per Visit
If the legislation passes, BOP anticipates setting
the copayment fee at $2 per visit9, excluding
indigent inmates who are unable to pay.  According
to BOP, a copayment fee can be expected to result
in more efficient use of medical resources.
Specifically, BOP anticipates the copayment fee of
$2 per visit will result in more efficient use of
medical resources by (1) reinforcing BOP's efforts
to teach prisoners personal responsibility, (2)
reducing the wait-time of genuinely ill prisoners
to receive medical attention, (3) diverting fewer
valuable staff hours unnecessarily, and (4)
allowing medical staff to more appropriately spend
their time evaluating and treating those prisoners
who have legitimate medical needs.

In short, BOP anticipates that a copayment
provision will discourage frivolous demands on
finite medical resources-such as the practice of
prisoners signing up for sick call to avoid
required activities. While BOP anticipates that a
copayment provision will not generate a net gain
in revenue, BOP still endorses such a provision
for the several previously mentioned reasons.

CBO Estimates Additional Revenue of $1 Million
From Prisoner Copayments in the First Year
A May 1999 CBO analysis of the proposed $2 health
care service fee estimated that BOP might generate
additional revenue of at least $1 million in
fiscal year 2000. CBO projected that the potential
savings would increase annually in subsequent
years as initial fixed or start-up costs were
recovered, but also noted that actual savings
would be realized only to the extent that
appropriations were reduced.

Under the Senate version of the proposed copayment
legislation, all fees collected from prisoners
subject to restitution orders would be paid to
victims. In the remaining cases, 75 percent of the
fees collected would be deposited into the Crime
Victims Fund, and the other 25 percent would be
available to the Attorney General to help defray
BOP's costs of administering a copayment fee
provision and making appropriate distributions of
collections. CBO estimated that administrative
costs would be about $170,000 annually. BOP has
suggested that the proposed legislation be
modified to mandate that 100 percent of collected
fees go to the Crime Victims Fund.

CBO has noted that a copayment provision would
discourage some prisoners from unnecessary health
care visits, perhaps reducing overall visits by up
to 25 percent. CBO based its projection on the
results of similar prisoner copayment programs
that have been adopted in 36 states or local
jurisdictions. The states and localities using
prisoner copayment fees have, according to CBO,
realized average reductions in sick call visits of
16 to 50 percent.

Other Benefits
Proposal for Medicare Rate Cap on Hospital
Payments
According to BOP, inmate health care costs could
be further controlled by building on the federal
government's extensive experience in establishing
payment rates for inpatient hospital services
through Medicare's prospective payment system.10
That is, Medicare's rates, which vary to reflect
expected patient-care costs, could be adapted as
caps to BOP's payments to community hospitals for
services provided to federal prisoners. A BOP
official told us that no appreciable costs would
be incurred in implementing a Medicare-based cap
for BOP's payments to community hospitals.

In this regard, BOP (with HCFA assistance) has
drafted legislative language, that is currently
included in the administration's draft crime bill
as the "Prisoner Medical Payment Efficiency Act of
1999."  Under the proposed legislation, community
hospitals that choose to treat BOP inmates would
be required to accept payment rates as prescribed
in regulations to be issued by the Attorney
General and the HHS Secretary---payments that
would be tied to the Medicare program's rate
structure. BOP's National Health Care Systems
Administrator explained that the language is
intended only to ensure that those hospitals that
agree to treat federal prisoners do so at the
rates specified by the Attorney General and HHS
Secretary.

     As of early March 2000, the administration's
draft crime bill had not been introduced in
Congress.  However, what follows, is our
presentation of cost-benefit and other
perspectives on the Medicare-based cap proposal.

CBO and BOP Have Estimated That Substantial
Savings Would Result From a Cap Based on Medicare
Rates
In September 1999, CBO analyzed the Medicare-based
cap proposal11 and estimated that the proposal
would save about $6 million annually, assuming
appropriations were reduced accordingly.  CBO
concluded that the annual savings would result
from contracts that could be negotiated using
Medicare rates.  More specifically, CBO arrived at
the $6 million-savings estimate by considering the
following information:

ï¿½    In 1998, BOP spent $82 million under
contracts with community hospitals that treated
federal prisoners.
ï¿½    Of this total, about $30 million (or 37
percent) involved services provided under
contracts that were "not negotiated" because of
factors such as company or hospital location,
underwriting issues, or one-bidder-only responses
to BOP's solicitations.
ï¿½    Approximately 20 percent of the $30 million
resulted from nonnegotiated contracts that had
prices higher than applicable Medicare rates.

Thus, CBO concluded that bringing the
nonnegotiated contracts' costs in line with
Medicare rates would save about $6 million
annually, which is an amount equal to 20 percent
of $30 million. By design, CBO's methodology (a
broad overview or "macro" approach) was intended
to provide an order-of-magnitude estimate of
savings that could be expected from having a
Medicare-based cap on BOP payments to community
hospitals.

In addition, BOP recently analyzed a
nonprojectable sample of actual billings received
by BOP from community hospitals and concluded that
a Medicare-based cap would generate substantial
savings. In its analysis, BOP summarized actual
cost data from the nonprojectable sample (217 of
3,362) of hospital bills received for the
prisoners' care in 1998.  Then, for this sample,
BOP calculated what the medical care would have
cost at applicable Medicare rates.  A comparison12
of the actual billings and the constructed
Medicare-based rates showed that BOP paid about
$1.3 million for services that would have cost
about $662,000 at Medicare rates-representing lost
potential savings for BOP of nearly 50 percent.

HCFA Supports a Medicare-Based Rate Cap for BOP
BOP collaborated with HCFA-the Medicare program
administrator-in developing the legislative
proposal to use a Medicare-based cap to better
control federal prisoners' health care costs.
According to HHS' Legislative Affairs Office, HCFA
officials were closely involved in developing the
legislative language and fully support BOP's
efforts.  Both HHS and BOP officials noted that
the proposed legislative language requires further
collaboration by the Attorney General and the HHS
Secretary to establish implementing regulations.
The process of establishing regulations, according
to BOP officials, would allow for the
consideration of special circumstances or
interests, such as the continued stability of the
Medicare program, the potential impact on rural
hospitals, and possible extraordinary expenses for
prisoners' medical care.

DOD and VA Already Use Medicare Rates in Paying
for Civilian Hospital Care
Under existing provisions13 of the Medicare
statutes, community hospitals that agree to treat
DOD and VA civilian beneficiaries are required to
accept certain payment rates.  These rates are
prescribed by regulations14 required by the federal
Medicare statutes and issued by the Secretary of
HHS and the Secretaries of DOD and VA,
respectively. As a result, DOD and VA are paying
community hospitals for medical care for civilian
beneficiaries based on Medicare rates. BOP
patterned its legislative proposal on these
existing provisions for DOD and VA. Regarding the
period before DOD began using Medicare-based rates
in its health care program for civilian military
dependents,15 we reported that DOD's medical
reimbursement rates were significantly higher-50
percent higher on average-than those for similar
services under the Medicare program.16

Recent Legislation Reflects the Use of a Medicare-
Based Rate Cap on Payments to Hospitals
In November 1999, Congress passed legislation
establishing a Medicare/Medicaid-based cap on
health care payments to community hospitals for
treating prisoners under the custody of USMS and
the Immigration and Naturalization Service (INS),
both of which are component agencies of the
Department of Justice, as is BOP.  The legislation
was enacted as part of the Department of Justice's
fiscal year 2000 appropriation (P.L. 106-113).
Language included in the appropriation amended
title 18 of the U.S. Code to limit the amount that
the Attorney General can pay for certain federal
prisoners' heath care, stating that:

"Payment for costs incurred for the provision of
health care items and services for individuals in
the custody of the United States Marshals Service
and the Immigration and Naturalization Service
shall not exceed the lesser of the amount that
would be paid for the provision of similar health
care items and services under-(A) the Medicare
program .or (B) the Medicaid program." 18 U.S.C.
4006.

     Attachment VII presents more information
about this legislation and USMS efforts to contain
costs for health care provided to detainees.

Contracting for Health Care Services Could Be
Improved
Irrespective of whether the legislative proposals
suggested by BOP are enacted, another option for
controlling health care costs involves negotiating
more reasonably priced contracts with community
providers (hospitals). In this regard, to help
identify best value among competing bidders, one
of BOP's six regions (the South Central Region)
recently began using a benchmarking approach in
contract solicitations.  According to regional
office contracting officials, if the benchmarking
approach were applied to all contracts in the
South Central Region, the estimated savings would
be about $5.6 million annually in this one region
alone.  Thus, wider testing and use of the
benchmarking approach-throughout all six of BOP's
regions-might produce even greater cost savings.

Current Pricing Structures Not Adequate for
Identifying Best Value
At the time of our review, BOP had 112 contracts
with community hospitals to supplement its health
service units and medical referral centers.
Typically, a contract had a 5-year term consisting
of a base year and 4 option years. BOP's costs
under these contracts totaled about $82 million in
fiscal year 1998.

Of BOP's 112 contracts with community hospitals,
about 63 percent had pricing structures based on
nonbenchmarked Medicare rates, about 23 percent
had pricing structures based on fee schedules, and
the remaining 14 percent were based on per diem
rates or other pricing structures. BOP officials
acknowledged that current contract-solicitation
practices---as reflected in the pricing structures
of competing contract proposals and the resulting
contracts---generally have not provided an
adequate basis for BOP to identify the lowest
price for medical treatment.  To illustrate the
lack of price comparability among bids, BOP
officials noted the following:

ï¿½    Contract proposals that use nonbenchmarked
Medicare rates: Under general practices, each
applicable bidder has proposed that its contract
be based on its own unique Medicare rate.  Because
these rates are unique to the respective hospital,
this type of pricing proposal does not lend itself
to the easy comparing of hospitals-not even to the
comparing of hospitals located in the same urban
and/or rural geographic area. For example,
regarding viral meningitis treatment provided by
five hospitals in the El Paso, Texas, area-after
adjusting or otherwise identifying the
specifically applicable Medicare factors-BOP found
that the Medicare rates had a variance among the
five hospitals of almost 43 percent, ranging from
a low of about $7,000 to a high of about $10,000.
ï¿½    Contract proposals that use fee schedules:
Fee schedules are exceedingly difficult to use for
comparative purposes.  For instance, a fee
schedule can be quite voluminous, with hundreds of
pages and thousands of individual line items.  In
fact, it is not unusual for the printed pages of a
fee schedule to be several inches thick. Moreover,
comparison difficulties are further compounded in
that fee schedules tend to change frequently. For
these reasons, when contract competitions have
been based on fee schedules, BOP generally has
been unable to adequately identify the lowest-
priced and highest-priced bidders.  Rather, BOP
has tried to compare randomly selected line items,
but comparison results have not been projectable
to entire fee schedules.
ï¿½    Contract proposals with a mixture of rate
structures: In responding to a given solicitation,
some community hospitals may bid their own unique
Medicare rate, and other hospitals may bid with
fee schedules.  BOP's experience is that comparing
these bids is very difficult.  Thus, as a general
practice, BOP has tended to automatically select a
Medicare-rate bidder without determining whether
such selection offered the best value.

In summary, BOP had 112 contracts with community
hospitals at the time of our review. However, BOP
officials readily acknowledged that-given the
difficulties in comparing rate structures in
competing bids-BOP cannot readily determine
whether or not these contracts represent best
values.

One Region Reported Savings Based on a New
Contracting Approach
Community medical providers can be expected to
play an even larger role in the future to meet the
health care needs of a growing and aging inmate
population---and, in turn, this trend would
increase the importance of negotiating cost-
effective contracts.

Recently, to provide a basis for identifying best
value among competing proposed contracts, one of
BOP's six regions---the South Central Region---
began using an innovative "benchmarking" approach.
Specifically, in soliciting contracts, the region
required bidders to use a common or standard
benchmark rate-that is, the "Medicare federal
rate" for relevant Medicare diagnosis-related
groups (DRG)-and to separately show (if
applicable) a proposed percentage markup or
percentage discount to that benchmark rate.

While South Central Region officials are convinced
the benchmarking approach solves BOP's
difficulties in comparing prices among bids, the
officials acknowledge that data are not available
to demonstrate agencywide that price reductions
would result in every renegotiated contract that
uses the benchmarking approach. Such data could
take years to accumulate.

As of January 2000, BOP's South Central Region had
used the benchmarking approach twice. Based on
this experience, the region undertook a price
analysis comparing (1) the region's most recently
awarded contract based on the benchmarking
approach, and (2) another contract recently
awarded under BOP's traditional approach. The
region reported estimated cost savings of about 32
percent annually from the contract awarded under
the benchmarking approach compared with the
contract negotiated under BOP's traditional
approach.  According to regional office
contracting officials, if the benchmarking
approach were applied to all contracts in the
South Central Region, the estimated savings would
be about $5.6 million annually in this one region
alone.

Possible Opportunity for BOP-wide Savings
In November 1999, after a series of meetings with
South Central Region officials, we contacted BOP's
other five regional offices to obtain views on the
benchmarking approach.  Contracting officials in
all five regions told us that the benchmarking
approach has merit and that they may consider
using it in the future.

In addition, contracting officials at BOP
headquarters commented that use of the
benchmarking approach for contracting is best
viewed as a supplement to, rather than a
replacement for, BOP's efforts to obtain
legislation placing a Medicare-based cap on
payments to community hospitals for treating
inmates.  The officials noted, for instance, that
benchmark contracting is a bottom-up approach
designed to encourage competition-and, in turn,
stimulate price reductions-whereas the legislative
cap proposal is a top-down approach to set a
maximum payment amount.

Nonetheless, under BOP's decentralized management
structure for contracting, BOP headquarters
officials told us that they would prefer to obtain
full "buy-in" from each of the regions before
implementing a benchmarking approach agencywide.
South Central Region officials acknowledged that
sufficient data are not available to demonstrate
that price reductions would result from using the
benchmarking approach to renegotiate every
contract.  However, South Central Region officials
are convinced that the benchmarking approach
solves BOP's difficulties in comparing prices
among bidders and, thus, should be a preferred
contracting approach. Although BOP currently has
no plans to implement the benchmarking approach
agencywide, headquarters officials told us that a
training seminar on this approach is to be
provided to representatives of all regional
contracting offices by summer 2000.

Each year-given the typical terms of its contracts
(a base year, plus 4 option years)-BOP is to
review each of its contracts for price
reasonableness and decide whether to exercise the
option or to solicit a new contract.  According to
South Central Region officials, wider use of the
benchmarking approach may help to make these
decisions and realize significant cost savings.
BOP headquarters officials noted, however, that
the cost effectiveness of the benchmarking
approach should be further validated before
deciding whether to implement this approach
throughout the agency.

Conclusions
BOP's inmate population was 133,689 at fiscal year-
end 1999, more than double the number at fiscal
year-end 1990.  In conjunction with an aging and
growing inmate population, BOP's health care costs
increased during this decade, to a cumulative
total of $2.7 billion during fiscal years 1990
through 1999.  In recent years, however, available
data show some signs of a positive trend.  For
example, BOP's per capita inmate health care costs
(adjusted for inflation) decreased in 1997, 1998,
and 1999.  A BOP official attributed the recent
downward trend to various cost-containment
initiatives, such as working with other federal
agencies to leverage available resources,
restructuring health care staff to allow for more
efficient operations, and making greater use of
telemedicine technology.

In the future, BOP anticipates that the federal
prison population will continue to age and to
grow, reaching an estimated 198,700 inmates by
fiscal year-end 2006. To help further control
medical costs, BOP has proposed two legislative
provisions.  One provision would authorize the
Director of BOP to assess and collect nominal fees
for certain health care visits requested by a
prisoner.  According to CBO, 36 states or local
jurisdictions already have such a provision. BOP
endorses a fee provision as a means of using
limited medical resources more efficiently. BOP
anticipates that a fee provision would not
generate an increase in net revenue, even though
CBO has estimated that a $2 fee would generate
savings of at least $1 million in fiscal year 2000
and that future years would show even greater
savings as initial fixed or start-up costs were
recovered.  However, CBO also noted that actual
savings would be realized only to the extent that
appropriations were reduced.

The second proposed legislative provision would
establish a Medicare-based cap on payments to
community hospitals that treat BOP prisoners.  CBO
has estimated that this legislative provision
would save about $6 million annually.  The
Medicare program's administrator, HCFA, supports
BOP's efforts to secure passage of this
legislative provision. Two other federal agencies,
DOD and VA, already have statutory authority to
use Medicare rates in paying for civilian hospital
care.  Moreover, legislation enacted in November
1999 utilized a Medicare/Medicaid-based rate cap
for community hospitals that treat prisoners under
the custody of USMS and INS.

In our opinion, these two legislative provisions
seem to be steps in the right direction.  That is,
we think that these provisions would be helpful to
BOP's efforts to control medical costs.

An administrative option whereby BOP might achieve
further savings involves focusing on contract
negotiations, that is, negotiating more cost-
effective contracts with community hospitals that
provide medical care for inmates. In 1999, to
provide a basis for identifying best value among
competing proposed contracts, one of BOP's six
regions, the South Central Region, began requiring
bidders to use a common or standard baseline rate
(the Medicare federal rate for relevant DRGs) and
to separately show, if applicable, a proposed
percentage markup or percentage discount to that
rate.  According to regional office contracting
officials, based on actual experience with two
recent contracts, if this benchmarking approach
were applied to all contracts in the South Central
Region, the estimated savings would be about $5.6
million annually in this one region alone. Thus,
by not implementing the benchmarking approach
agencywide, BOP may be foregoing an opportunity to
save potentially millions of dollars annually in
health care costs.

Recommendation to the Attorney General
We recommend that the Attorney General require the
BOP Director to test the benchmark contracting
approach currently being used in BOP's South
Central Region. If test results validate the cost
effectiveness of the benchmark contracting
approach, the BOP Director should require its
implementation for health care contracts
throughout BOP.

     Mr. Chairman, this concludes my prepared
statement.  I would be pleased to answer any
questions that you or other Members of the
Subcommittee may have.

     Contacts and Acknowledgements

     For further information regarding this
testimony, please contact Richard M. Stana on
(202) 512-8777 or Danny R. Burton on (214) 777-
5600.  Individuals making key contributions to
this testimony included Ronald J. Salo, David P.
Alexander, Fredrick D. Berry, Laura A. Dummit, Ann
H. Finley, Michael H. Harmond, and Mary K. Muse.

_______________________________
1 Throughout this statement, when we present
health care cost data adjusted for inflation, we
used the gross domestic product (GDP) price index,
with 1998 as the base year.
2 In some BOP facilities, after hours care may be
provided by the local community hospital.
3 According to a BOP official, the seventh medical
referral center (Ft. Devens, MA) was in the
process of opening during the time of our review
and, therefore, was not operating at full
capacity.
4 Attachment II presents more information about
BOP inmate population trends.
5 These figures represent operational costs.  BOP
categorizes its costs as operational costs
(primarily salaries and other operating expenses)
and capital costs (building and construction
expenditures).
6 Attachment V lists all of the 23 ongoing and/or
planned initiatives.
7Bureau of Prisons Health Care:  Inmates' Access
to Health Care Is Limited by Lack of Clinical
Staff (GAO/HEHS-94-36, Feb. 10, 1994).
8 Telemedicine Can Reduce Correctional Health Care
Costs:  An Evaluation of a Prison Telemedicine
Network (NCJ 175040), March 1999, prepared by Abt
Associates, Inc., for the Joint Program Steering
Group, Office of Science and Technology, National
Institute of Justice.
9 BOP supports copay fee exemptions for emergency
visits, mental health visits, obstetric care,
scheduled physical exams, and chronic care visits.
10 The prospective payment system is the mechanism
by which the Medicare program calculates payments
to hospitals for services rendered, at
predetermined rates, specific to patient
diagnoses.
11 CBO's analysis involved a preliminary review of
section 6508 ("Medicare Rate Enforcement
Mechanism") of S. 899, which contained a proposal
similar to that in the administration's draft
crime bill.
12 Attachment VI presents more details on BOP's
sample analysis.
13 42 U.S.C. section 1395cc (a)(1)(J),(L).
14 DOD and VA regulations, respectively, are
located at 32 C.F.R. 199.14 and 38 C.F.R. 17.55.
15 The Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS) is DOD's medical
program for active duty dependents and retirees
and their dependents.
16Defense Health Care:  Reimbursement Rates
Appropriately Set; Other Problems Concern
Physicians (GAO/HEHS-98-80, Feb. 26, 1998).

Attachment I
Objectives, Scope, and Methodology
Page 24                          GAO/T-GGD-00-112
Objectives
At the request of the Chairman, Subcommittee on
Criminal Justice Oversight, Senate Committee on
the Judiciary, our objectives were to identify (1)
trends in the federal Bureau of Prisons (BOP)
health care costs from fiscal year 1990 through
1999, (2) BOP initiatives to contain rising
medical costs, and (3) legislative and
administrative options for helping to contain
health care costs.

Scope and Methodology
Initially, to obtain an overview understanding, we
reviewed various reports, studies, and articles
about correctional health care costs and related
issues. These documents included the most recent
health services evaluation reports completed (in
1997, 1998, or 1999) by BOP's Program Review
Division--that is, reports evaluating health
services at BOP's medical referral centers.

Also, we obtained (1) overall statistics on the
BOP inmate population and health care
expenditures, (2) descriptive information about
BOP's cost-containment initiatives and claimed
savings, and (3) general data about applicable
hospital payment rates under the Medicare program
and rates in BOP's contracts with community
hospitals. We discussed the sources of data with
applicable agency officials, and we worked with
the officials to reconcile any mathematical or
other discrepancies that we identified in the
data.

The following four sections discuss more
specifically the scope and methodology of our work
in addressing the respective objectives.

Cost Trends
To identify trends in BOP health care costs since
fiscal year 1990, we obtained BOP inmate
population data and health care cost information
from BOP's Administration Division. For example,
the Administration Division provided us data
showing the actual growth and/or the projected
growth of the federal inmate population for fiscal
years 1990 through 2006. To provide a relative
perspective of BOP's health care costs, we
calculated these costs as a percentage of the
agency's total operational costs for fiscal years
1990 through 1999.

Also, using data provided by BOP's Administration
Division, we calculated the annual changes in
BOP's health care cost categories (salaries,
supplies, etc.) during fiscal years 1990 through
1999. To determine and discuss the reasons for
changes or trends in the various cost categories,
we interviewed the Administrator of BOP's National
Health Systems.

Further, for comparative purposes, we obtained
national health care cost data from the Health
Care Financing Administration's (HCFA) Office of
the Actuary. Using HCFA and BOP data,
respectively, we calculated per capita annual
health care costs for both the nation and BOP for
fiscal years 1990 through 1999. Using the standard
gross domestic product (GDP) price index, we
adjusted all per capita costs for inflation. That
is, we adjusted all per capita cost data to 1999
dollars, using the GDP price index.

Cost-Containment Efforts
To identify BOP's initiatives for containing
health care costs, we interviewed officials at BOP
headquarters and BOP's six regional offices. In so
doing, we obtained information about ongoing as
well as planned initiatives. We reviewed documents
on BOP's health care contracting practices and on
BOP's pilot project involving privatization of the
delivery of health care services at the prison
complex in Beaumont, TX. In addition, we reviewed
a November 1996 report--prepared by the Department
of Justice's Office of the Inspector General--on
inmate health care costs.1

We contacted the U.S. Marshals Service (USMS) to
obtain information about a cooperative or joint
(BOP and USMS) initiative to contain health care
costs. We interviewed relevant USMS headquarters
officials and reviewed relevant documentation,
including a 1994 Department of Justice report on
medical services for USMS detainees.2

We did not independently verify the savings cited
by BOP regarding its various cost-containment
efforts. Further, we did not analyze or confirm
the relationship between the trends in BOP's per
capita health care costs and BOP's cost-
containment initiatives.

Legislative Options
As suggested by the requester's office, we focused
on two BOP proposals--one calls for establishing a
prisoner copayment requirement for medical
service, and the other calls for establishing a
Medicare-based cap on payments to community
hospitals that treat inmates. We discussed these
proposals with Department of Justice, BOP, USMS,
and HCFA officials in Washington, D.C. We also
interviewed a representative of the American
Hospital Association in Washington, D.C.

Prisoner Copayments
Regarding a possible requirement for prisoner
copayments, we reviewed relevant legislative
bills--S. 704 and H.R. 1349--that were introduced
in the 106th Congress. Also, we reviewed the
Congressional Budget Office's (CBO) analysis of a
copayment provision.

Cap on BOP Payments to Community Hospitals
We obtained the views of HCFA and BOP officials on
the merits of a legislative proposal--included in
the administration's draft crime bill--to
establish a Medicare rate cap on BOP payments to
community hospitals that treat inmates. In
addition, we reviewed a Department of Justice
policy options paper3 on the advantages and
disadvantages of such a cap. Further, regarding
estimates of cost savings calculated by CBO and
BOP, we contacted applicable staff of the
respective agencies to discuss the methodology and
data sources used to make the estimates.

BOP's Health Care Contracts With Community
Hospitals
To obtain a general overview of BOP contracting,
we reviewed BOP's Acquisition Policy Manual and
excerpts from the Federal Acquisition Regulations
related to solicitations, and we discussed
contracting practices with responsible BOP
officials at headquarters and the six regional
offices.

Regarding a benchmark contracting approach used by
BOP's South Central Region, we discussed this
approach with regional contracting officials and
also reviewed relevant documents. For example, we
reviewed the region's first benchmark solicitation
package, which led to a health care contract being
awarded in September 1999 for the newly opened
Federal Detention Center in Houston, Texas.

Also, the region's contracting officer provided us
a briefing on the benchmark contracting approach,
including its advantages in comparing bid prices
and its potential for achieving price reductions.
Further, regional office contracting staff
provided us a detailed analysis comparing the
prices of two health care contracts recently
negotiated by the region. One contract was awarded
under the benchmark approach, and the other was
awarded under BOP's traditional approach.
According to BOP regional office officials, this
was a reasonably designed comparison in that

ï¿½    both contracts were awarded within 14 months
of each other,
ï¿½    the estimated amount for each contract was in
the range of $25 million to $30 million,
ï¿½    the same contractors bid in both
solicitations,
ï¿½    the BOP facilities involved in both
solicitations were medical referral centers, and
ï¿½    the BOP facilities were located in the same
city (Fort Worth, TX).

We discussed with BOP staff the methodology and
data sources used to make the analysis, and we
examined the supporting documentation.

To understand the difficulties BOP has experienced
in trying to compare price proposals under BOP's
traditional approach to medical care
solicitations, we reviewed examples of actual bid
proposals--some based on hospital fee schedules
and some based on Medicare rates. Also, we
obtained the views of contracting officials in the
South Central Region.

To obtain a broader spectrum of views on the
benchmark contracting approach and on BOP's
traditional contracting approach for health care,
we interviewed BOP contracting officials from
headquarters and from the agency's six regional
offices. From BOP headquarters, we obtained cost
data that compared medical payments under BOP's
traditional health care contracts to Medicare
rates. From each of BOP's six regional offices, we
obtained data on the rates or pricing structures
in the respective region's contracts with
community hospitals.

_______________________________
1 Inspection of Inmate Health Care Costs in the
Bureau of Prisons, Report Number I-97-01, November
1996.
2 Management Report: Review of the U.S. Marshals
Service Detainee Medical Services, Department of
Justice, Justice Management Division, December
1994.
3Legislative Options - Medicare Rates for Detainee
Health Services, Department of Justice, Justice
Management Division, December 1996.

Attachment II
BOP Inmate Population Trends
Page 26                          GAO/T-GGD-00-112
     As figure II.1 shows, the federal inmate
population steadily increased during the 1990s.
According to BOP officials, the primary cause of
the population growth in recent years has been the
number of federal drug case convictions. Moreover,
this population growth appears likely to continue
through fiscal year 2006.

Figure II.1:  BOP Inmate Population Growth, Fiscal
Years 1990-1999, and BOP Projected Inmate
Population Growth, Fiscal Years  2000-2006

Source: BOP data.

     Table II.1 shows the specific numbers that
constitute the trend line in figure II.1.

According to BOP officials, in addition to the
impact from the continuing prosecution of drug
cases, the projected inmate population will
increase because of two other factors:

ï¿½    Projected increases during fiscal years 2000
through 2002 are due, in part, to BOP's
congressionally mandated assimilation of
approximately 7,200 District of Columbia inmates.1
ï¿½    Projected increases during fiscal years 2003
through 2006 include the anticipated transfer of
about 4,000 inmates from the Immigration and
Naturalization Service detention.

Table II.1: Actual Inmate Population, Fiscal Years
1990-1999, and Projected Inmate Population, Fiscal
Years 2000-2006
Fiscal          Inmate Number change       Percent
year        population from previous   change from
                                year previous year
1990            64,936             -             -
1991            71,508         6,572           10%
1992            79,678         8,170           11%
1993            88,565         8,887           11%
1994            95,162         6,597            7%
1995           100,973         5,811            6%
1996           105,432         4,459            4%
1997           112,289         6,857            7%
1998           122,316        10,027            9%
1999           133,689        11,373            9%
2000          147,674a        13,985           10%
2001          159,859a        12,185            8%
2002          171,223a        11,364            7%
2003          177,890a         6,667            4%
2004          183,846a         5,956            3%
2005          193,254a         9,408            5%
2006          198,673a         5,419            3%
aProjected population at end of fiscal year.
Source: BOP data.

_______________________________
1The National Capital Revitalization and Self-
Government Improvement Act of 1997 (enacted as
title XI of the Balanced Budget Act of 1997, P.L.
105-33) requires the transition of both male and
female D.C. felony offenders to BOP.

Attachment III
Health Care Cost Trends
Page 28                          GAO/T-GGD-00-112
BOP categorizes its costs as operational costs
(primarily salaries and other operating expenses)
and capital costs (building and construction
expenditures). This attachment presents
information about BOP's operational costs
regarding health care for inmates.

Health Care Costs Compared With Total Operational
Costs
As table III.1 shows for fiscal years 1990 through
1999, BOP's health care costs as a percentage of
total operational costs were fairly stable
throughout the 10-year period, averaging 13
percent annually. However, in conjunction with a
rising federal inmate population in the 1990s,
BOP's inmate health care costs increased annually
during this decade. Overall, BOP's health care
costs (not adjusted for inflation) increased from
$137.6 million in fiscal year 1990 to $372.1
million in fiscal year 1999, an average annual
increase of about 8.6 percent. Nonetheless, as
indicated in table III.1, this increase has not
been disproportionate to the trend in BOP's total
operational costs. That is, as previously
mentioned, BOP's health care costs as a percentage
of total operational costs were fairly stable,
averaging 13 percent annually during fiscal years
1990 through 1999.

Table III.1:  BOP's Health Care Costs and Total
Operational Costs, Fiscal Years 1990-1999 (Dollars
in Millions)
Fiscal     Health All other   Total  Health care as
year        care operation operatio a percentage of
           costs  al costs     nal           total
                             costs     operational
                                             costs
1990       $137.6  $1,008.6 $1,146.2             12%
1991       174.4   1,185.7 1,360.1              13
1992       211.1   1,347.4 1,558.5              14
1993       235.7   1,566.7 1,802.4              13
1994       262.4   1,742.3 2,004.7              13
1995       300.8   2,021.5 2,322.3              13
1996       327.1   2,135.6 2,462.7              13
1997       341.3   2,247.6 2,588.9              13
1998       354.7   2,414.8 2,769.5              13
1999       372.1   2,495.5 2,867.6              13
Note: All dollar amounts are in then-year dollars
(i.e. not adjusted for inflation).
Source: Developed by GAO based on BOP data.

Per Capita Health Care Costs Adjusted for
Inflation
For fiscal years 1990 through 1999, figure III.1
shows the trend in BOP's per capita inmate health
care costs adjusted for inflation, using 1999 as
the base year. As shown, the per capita costs
increased from $3,001 in 1990 to a peak of $3,703
in 1996, and then decreased to $3,242 in 1999.

Figure III.1:  Annual Per Capita Cost of Inmate
Health Care, Adjusted for Inflation, Fiscal Years
1990-1999

Note: All data are adjusted to fiscal year 1999
dollars, using the GDP price index.
Source: BOP data.

For fiscal years 1990 through 1999, figure III.2
compares national per capita health care costs
with BOP's per capita health care costs, adjusted
for inflation. In contract to the continuing
upward trend in national per capita health care
costs through 1999, BOP's per capita health care
costs decreased in 1997, 1998, and 1999.

Figure III.2:  Comparison of Annual Per Capita
Health Care Cost for the United. States and BOP,
Adjusted for Inflation, Fiscal Years 1990-1999

Note: All data are adjusted to fiscal year 1999
dollars, using the GDP price index.
Sources: Developed by GAO based on data from BOP
and HCFA.

Overall medical costs, however, are likely to
continue to rise in future years, according to BOP
officials. In explaining this anticipated trend,
the officials noted the following reasons:

ï¿½    Projections of the number of inmates
incarcerated in federal facilities show continued
increases.
ï¿½    Felony inmates transferred to BOP from the
District of Columbia Department of Corrections
generally have disproportionately more medical
needs than other BOP inmates.
ï¿½    From the Immigration and Naturalization
Service (INS), BOP is receiving increasing numbers
of long-term, nonreturnable detainees.
ï¿½    BOP's expenditures for pharmaceuticals likely
will rise due to the increasing prevalence of
illnesses such as HIV and hepatitis.

Attachment IV
Health Care Cost Categories
Page 31                          GAO/T-GGD-00-112
     This attachment presents information about
trends in BOP's costs of providing health care for
inmates during fiscal years 1990 through 1999. For
this 10-year period, the information presented
covers BOP's cumulative or total health care
costs, as well as the various categories or
components of the total costs.

Cumulative Health Care Costs
     BOP's cumulative health care costs for
inmates totaled about $2.7 billion during fiscal
years 1990 through 1999. Of these total cumulative
costs, figure IV.1 shows that

ï¿½    38 percent pertained to salaries of on-site
medical personnel;
ï¿½    24 percent consisted of contract payments to
physicians and hospitals for medical services
inmates received outside the prison facility
(community provider services);
ï¿½    10 percent was for compensation of Public
Health Service medical employees (PHS associated
costs);
ï¿½    8 percent involved purchases of small
equipment items and drugs (supplies);
ï¿½    8 percent involved payments to physicians who
contracted with BOP to treat inmates inside the
prisons (consultants);
ï¿½    7 percent primarily involved overtime
payments to guards who escorted inmates being
transported to outside medical facilities (guard
escort services); and
ï¿½    5 percent involved payments for various
miscellaneous items, including airlift costs,
headquarters expenses, and equipment purchases.

Figure IV.1:  BOP Cost Categories for Inmate
Health Care Expenditures, Fiscal Years 1990-1999

aThis category includes headquarters expenses,
equipment purchases, HIV testing, transportation
charges (including airlift costs), printing costs,
and interest.
Source: Developed by GAO based on BOP data.

Trends in Major Health Care Cost Categories
As figure IV.1 shows, BOP's three largest health
care cost categories are salaries, community
provider services, and PHS associated costs. For
each of these categories, figure IV.2 shows BOP's
per capita costs (adjusted for inflation) during
fiscal years 1990 through 1999.

As figure IV.2 shows, per capita salary costs for
in-house medical personnel increased during most
of this 10-year period. A BOP official attributed
the rise to the high cost of in-house medical
personnel. The official noted, for example, that a
physician's compensation can easily exceed
$100,000 annually.

The most recent years reflect a decrease in per
capita salary costs. Specifically, this cost
component peaked at $1,399 in fiscal year 1996,
then steadily decreased annually declining to
$1,225 in fiscal year 1999.  According to BOP
officials, these decreases can be attributed to
various cost-containment initiatives implemented
by BOP.1 A BOP official cited, for example, a
staff-restructuring initiative that involved using
lower-paid but qualified staff rather than higher-
paid physicians to perform certain routine
services, such as laboratory, pharmacy, and x-ray
duties.

Regarding the per capita costs of community
provider services, figure IV.2 shows that 1993 was
the peak year during the 10-year period. These per
capita costs decreased from $952 in fiscal year
1993 to $728 in fiscal year 1999.  According to a
BOP official, the policy has been to return the
inmates as quickly as possible from external
hospital facilities so that BOP could perform the
rehabilitative and recuperative services in prison
hospitals.

Figure IV.2 shows that PHS associated per capita
costs increased gradually from $322 in fiscal year
1994 to $367 in fiscal year 1996, leveled off at
$378 in fiscal year 1997 and $379 in fiscal year
1998, and then decreased to $367 in fiscal year
1999. A BOP official told us that this trend was
due to high retention rates and increased tenure
for PHS personnel.

Figure IV.2:  Trends in Annual Per Capita Inmate
Health Care Costs for Salaries, Community Provider
Services, and PHS Associated Costs, Fiscal Years
1990-1999

Note: All data are adjusted to fiscal year 1999
dollars, using the GDP price index.
Source: Developed by GAO based on BOP data.

Trends in Other Health Care Cost Categories
In addition to the three major cost categories
discussed above, BOP's other health care cost
categories are (1) supplies, (2) consultants, (3)
guard escort service, and (4) miscellaneous. For
fiscal years 1990 through 1999, figure IV.3 shows
the per capita costs for the first three
categories and for equipment, which is a component
of the fourth category (miscellaneous). For recent
years, the reasons for changes in per capita are
discussed below.

     Per capita supply costs increased steadily
from $262 in fiscal year 1996 to $307 in fiscal
year 1999. According to a BOP official, supply
costs began increasing in 1996 primarily due to
bulk purchases for 10 prisons that opened in
fiscal years 1997 and 1998. The official indicated
that another contributing factor was the purchase
of expensive drugs for treating inmates infected
with AIDS or hepatitis C. For example, the drug
Interferon, which is used to treat hepatitis C,
costs $11,000 annually per inmate patient
according to a BOP official. Further, as discussed
below, the official noted that BOP made an
accounting change in 1995 whereby more items
thereafter were classified as "supplies" and not
"equipment."

     As figure IV.3 shows, per capita consultant
costs rose steadily, from $212 in fiscal year 1994
to $320 in fiscal year 1998, before decreasing to
$281 in fiscal year 1999. A BOP official said
prison wardens were encouraged to use consultants
(i.e., contract physicians) to treat inmates
inside the prisons because this arrangement was
less expensive than paying salaries and benefits
for additional BOP or PHS personnel. A BOP
official also said that efficiencies were gained
by having contract physicians come to BOP
facilities and treat multiple inmates on-site, as
opposed to transporting the inmates to outside
medical facilities.

     In contrast to increased consultant costs,
per capita guard escort service costs
progressively decreased from a high of $289 in
fiscal year 1995 to $198 in fiscal year 1999. As
indicated above, a reason for this trend is that
more emphasis was placed on providing on-site
treatment (e.g., by having contract physicians
come to the prisons), which lessened the demand
for guard escort services.

     The miscellaneous category of BOP's health
care costs include HIV testing, airlift costs,
headquarters expenses, and equipment. Of the four
categories shown in figure IV.3, per capita
equipment costs reflect the widest fluctuation,
particularly over the period from fiscal year 1994
to fiscal year 1999. These costs rose to $146 in
fiscal year 1995, peaked at $212 in fiscal year
1996, dropped to $49 in fiscal year 1997 and $40
in fiscal year 1998, and then increased to $63 in
fiscal year 1999. According to a BOP official, per
capita equipment costs likely increased in 1995
and 1996 as a result of advance purchases of
equipment for 10 new prisons that BOP opened in
fiscal years 1997 and 1998. Regarding the sharp
decline in per capita equipment costs after 1996,
a BOP official noted that an accounting change
raised the dollar threshold for the equipment
category to $25,000, which resulted in many items
thereafter being classified as supplies.

A BOP official said he anticipated that all four
cost categories would continue their current
trends in the future; that is, supply and
consultant per capita costs probably would
continue to increase, while guard escort service
and equipment per capita costs probably would
continue to decrease.

Figure IV.3:  Trends in Inmate Per Capita Health
Care Costs for Consultants, Supplies, Guard Escort
Service, and Equipment, Fiscal Years 1990-1999

Note: All data are adjusted to fiscal year 1999
dollars, using the GDP price index.
Source: Developed by GAO based on BOP data.

_______________________________
1 Attachment V lists BOP's cost-containment
initiatives.

Attachment V
Summary of BOP Health Care Cost-Containment
Initiatives by Type
Page 37                          GAO/T-GGD-00-112
BOP has implemented or is planning to implement
various health care cost containment initiatives.
BOP has 23 initiatives that are either currently
ongoing or are in the planning stages.1  As shown
in table V.1, these initiatives fall into five
categories:  (1) cooperative acquisition efforts
with other agencies, (2) other acquisition
efforts, (3) staffing reforms, (4) delivery of
services, and (5) others.  The dollar savings
shown are BOP's figures, either realized or
estimated cost savings. We did not verify any
savings reported by BOP on specific initiatives.
In addition, where applicable, the year shown in
parentheses indicates when BOP implemented the
particular health care cost-containment
initiative.

Table V.1: Health Care Cost-Containment
Initiatives
Initiatives            Description
Cooperative            
acquisitions
Pharmacy prime vendor  BOP "piggybacks" on Department of Veterans Affairs
(1993)                 (VA) pharmaceutical contracts. The savings realized
                      by BOP are through bulk purchases on these contracts.
                      BOP cites average annual savings of approximately
                      $760,000.
Federal resource       BOP has existing contracts with VA for various local
sharing                services at the facility level, such as lab services,
                      telemedicine where VA facilities are involved, HIV
                      tests, etc.
U.S. Marshals Service  An interagency agreement between USMS and the VA
New York Managed Care  hospitals in Manhattan and Brooklyn calls for VA
Network Pilot Project  physicians to come inside the BOP facilities to
(1998)                 provide medical specialty clinics.  The use of the
                      two VA hospitals for outpatient appointments and
                      medical tests saves time and money and enhances
                      prisoner security, while reducing the number of
                      outside locations for prisoner medical appointments.
Consolidation Pilot    In response to a congressionally mandated Department
Project with the U.S.  of Justice study, BOP will be consolidating outside
Marshals Service       medical services for both BOP and USMS prisoners
                      housed in BOP facilities.  This project is to begin
                      in early calendar year 2000 at three BOP pilot sites
                      in New York City, Miami, and Oklahoma City.  Under
                      this project, according to USMS, BOP physicians will
                      order outside care, when needed, for USMS prisoners.
                      BOP will also pay for the medical and transportation
                      expenses.  Initially, BOP will enter into an
                      agreement with the USMS to be reimbursed for its
                      prisoners' medical-related expenses.  After 2001, BOP
                      will be requesting budget increases from Congress to
                      cover the expenses of the USMS prisoners.
Mandatory national     BOP piggybacks on VA contracts for various generic
contracts              drugs not included in the "Pharmacy Prime Vendor"
                      initiative discussed above.  BOP estimated annual
                      savings of $770,000 in 1998 that would have been
                      realized had this initiative been in place.  As of
                      December 1999, BOP was beginning to award some of
                      these contracts.
Medical equipment      BOP intends to require Central Office approval of
                      purchases of medical equipment, valued at $1,000 or
                      more, while taking advantage of bulk purchasing with
                      VA, the Department of Defense, and the General
                      Services Administration.  This initiative is in its
                      formative stages and has yet to be developed.
Other acquisition-     
related initiatives
Precertification       Under this initiative, before inmates are sent to
(1995)                 community providers for inpatient surgery, other
                      inpatient hospitalization service, or outpatient
                      surgery, precertification is required. In the
                      precertification process, BOP headquarters officials,
                      including policy and medical personnel, are to review
                      and approve BOP field institutions' requests that
                      inmates be treated by community providers.  BOP cites
                      savings of about $785,000 in 1998.
Pharmacy over-the-     By allowing inmates to purchase drugs over-the-
counter (1994)         counter (OTC) with their own funds, BOP has
                      experienced savings in pharmaceuticals.  BOP expects
                      this project will also reduce the number of inmate
                      sick calls.  A BOP official from the Health Services
                      Division stated that savings from this initiative
                      were approximately $1.2 million for fiscal year 1999.
                      He added that, as of October 1999, BOP had 36 OTC
                      drugs available to prisoners.  BOP will continue to
                      add drugs to the OTC program to increase savings
                      further.  Also, BOP is considering adding vending
                      machines to this initiative, which would allow
                      inmates access to some OTC drugs 24-hours a day, 7
                      days a week.  Currently, inmates can purchase OTC
                      drugs only one time a week at the commissary.
Pharmacy national      BOP officials determine the most cost-effective mix
formulary initiative   of drugs they will authorize.  BOP's emphasis is on
(1992)                 generics and limiting medical personnel from
                      prescribing newer, more expensive drugs when the old
                      ones are effective.  BOP officials could not provide
                      any overall cost savings for this initiative.
Laboratory             BOP will perform a cost-benefit analysis of the
                      options for obtaining laboratory services.  These
                      options include  (1) keeping all laboratory services
                      in-house, (2) contracting out all laboratory
                      services, or (3) engaging in resource sharing for
                      laboratory services with another agency, such as VA.
                      This initiative is in its formative stages and has
                      yet to be fully developed.
Staffing-related       
initiatives
Elimination of 24-hour Prison wardens at some facilities have eliminated 24-
medical staff (1994)   hour medical staff coverage as long as emergency care
                      was readily available in the community.  The
                      individual prison wardens make these decisions.  BOP
                      is reemphasizing this initiative by stressing to
                      wardens that they should plan for this change, if
                      feasible, at their respective facilities.  BOP
                      expects this initiative will continue to lower staff
                      costs and estimates that its cost savings have
                      averaged $1.6 million annually.
Medical staff          BOP has utilized lower-paid medical personnel to
restructuring (1994)   perform certain services they are qualified to
                      perform, instead of having more highly paid
                      physicians' assistants or other medical personnel
                      perform the same services.  BOP estimates an annual
                      savings of $5.5 million from this initiative.
Staffing ("provider    This effort focuses on the right mix of staff
teams")                ("health care provider teams") at each facility to
                      provide the best care in the most efficient and
                      economical manner.  Specifically, within the provider
                      teams, the same medical professionals see the same
                      inmates on an ongoing basis, resulting in a degree of
                      familiarity with their conditions.  This improves
                      efficiency through continuity of care.  Provider
                      teams will oversee the delivery of health services
                      during inmate sick call, in addition to dental and
                      mental health services.  This initiative is in its
                      formative stages and has yet to be fully developed.
Delivery of services   
initiatives
Telemedicine (1996)    Telecommunications technologies exchange health
                      information and provide health care services across
                      geographic, time, social, and cultural barriers.  The
                      technology, as applied in BOP, involves video
                      teleconferencing, modified with the addition of
                      peripheral devices to produce images of diagnostic
                      quality.  As of November 1999, telemedicine was
                      utilized at eight BOP facilities.  During calendar
                      year 2000, BOP expects to equip all of its remaining
                      facilities with telemedicine. This initiative helps
                      avoid guard escort costs for outside medical trips.
Levels of care         BOP will place inmates already incarcerated with
                      special medical needs at facilities that have staff
                      and funding to address their specific conditions,
                      thereby eliminating duplicated health care resources
                      at numerous facilities.  Savings will be realized BOP-
                      wide through more efficient health care operations
                      and savings on staff costs.  Some facilities may
                      increase their costs, while others will decrease
                      theirs.  This initiative is still in the planning
                      stages.
Scope of services      BOP will make decisions on the scope of services to
                      be provided to inmates.  A BOP official stated that
                      this initiative is linked to the aforementioned
                      staffing initiative on health care provider teams and
                      concerns the types of services the teams will
                      perform.  This initiative has yet to be fully
                      developed.
Pharmacy               BOP plans to explore options for restructuring
                      pharmacy services, including consolidating staff for
                      multiple facilities in the same location.  This
                      initiative is in its formative stages and has yet to
                      be fully developed.
Other initiatives      
Beaumont Privatization This project involves the privatization of the entire
Project (1998)         health care operation at BOP's facilities in
                      Beaumont, TX.  The project has been fully operational
                      since the middle of fiscal year 1998.  As of October
                      1999, no results of this project had been reported to
                      BOP's executive staff.  BOP expects an evaluation
                      report on this project by June 2001.
Health promotion and   A three-person team will actively seek ways to keep
disease prevention     inmates healthy by encouraging healthy lifestyles.
                      This initiative will help prevent health care costs
                      from rising through preventative means.  BOP has not
                      done an impact assessment.
Combined 325/350       BOP will combine funds for inside (code "350) and
Project (FY 1997)      outside (code "325") medical care at the facility
                      level, thereby increasing local wardens' authority
                      and responsibility in the fiscal management of health
                      care and requiring them to manage health care within
                      a budget.  BOP could not provide any estimated cost
                      savings from this initiative.
Special program needs  Under this ongoing initiative, BOP screens inmates
of physically          when they enter the prison system to determine the
disabled, chronically  best and most cost-effective arrangements for their
and terminally, and    care.  All inmates entering into the system are
geriatric offenders    screened for disabilities, and appropriate
                      assignments are made for these inmates.  Certain
                      medical problems can be staff intensive (ventilator
                      patients, for example), and BOP must do proper
                      planning to provide the best care for the inmate in
                      the most cost-effective manner.  BOP could not
                      provide any estimated cost savings from this
                      initiative.
Automation of medical  Automation of medical records is planned for the
records                second quarter of fiscal year 2000.  Currently, all
                      medical records are kept manually.  No one in BOP can
                      immediately access medical records; therefore,
                      efficiency is adversely impacted.  According to BOP,
                      this effort is not likey to be completed in the next
                      2 or 3 years.  This initiative is in its formative
                      stages and has yet to be fully developed.
Decentralized training BOP plans to decentralize review and approval
                      authority for local medical training from BOP's
                      Central Office to the field.  The plan was to be
                      implemented at the beginning of fiscal year 2000.  By
                      doing this, BOP is putting the responsibility on the
                      local wardens to make the most cost-effective
                      decisions on continuing education training for their
                      medical personnel.  BOP expects this effort to
                      eliminate at least two staff positions in the Central
                      Office, that is, staff who have been responsible for
                      reviewing and approving requests from wardens for
                      local training.
Source:  Developed by GAO based on BOP data.

     In addition to the 23 initiatives presented
in table V.1, our statement discusses the
following:

ï¿½    BOP has proposed two legislative provisions
to further control medical costs.  One provision--
-a prisoner copayment provision---would authorize
the Director of BOP to assess and collect a fee of
not less than $2 for each health care visit
requested by a prisoner.  The second provision
would establish a Medicare-based cap on payments
to community hospitals that treat inmates.
ï¿½    Also, we identified an administrative option
whereby BOP could achieve further savings by
negotiating more cost-effective contracts with
community hospitals that provide medical care for
inmates.

_______________________________
1 BOP expects many of the initiatives in the
planning stages to be reviewed by BOP's executive
staff in the spring of 2000.  At that time, the
staff will either approve or reject the proposals.

Attachment VI
BOP Inmate Care In Community Hospitals In 1998:
Sample Data Comparing Actual Billings To
Constructed Medicare-Based Billings
Page 40                          GAO/T-GGD-00-112
This attachment compares (1) data that BOP
collected on actual hospital billings received for
prisoners' care in community hospitals in 1998
with (2) data developed by BOP on what Medicare-
based billings would have been. BOP's analysis was
based on a nonprojectable sample of 217 inpatient
billings, about 7 percent of the bills that BOP
received for various hospital services across the
country in calendar year 1998. The sampled
billings covered 55 hospital discharge
classifications or DRGs. For each of the 55 DRGs,
table VI.1 presents the actual hospital billings
to BOP from the 7-percent sample, the constructed
Medicare-based billings, and the billing
differences. The data are arrayed by billing
differences, beginning with the largest
difference.

BOP's analysis found that actual hospital billings
exceeded the constructed Medicare-based billings
for 50 of the 55 DRGs. Overall, the comparative
analysis showed that BOP paid about $1.3 million
(actual hospital billings) for services that would
have cost about half that amount ($662,000) at
Medicare rates.

BOP used HCFA's online, Internet personal computer
software program, PPS PC Pricer-1998,1 to
calculate what the billings would have been at the
relevant Medicare rates for the services provided
by the hospitals. We did not review the actual
hospital bills in BOP's sample and did not verify
BOP's Medicare billing calculations.

Table VI.1: BOP Inmate Care In Community Hospitals
In 1998: Sample Data (Grouped by DRG) Comparing
Actual Billings with Constructed Medicare-Based
Billings
DRG   DRG description           Actual hospital    Constructed        Billing
                               billing to BOP Medicare-based     difference
                                                     billing
145   Other Circulatory System        $114,713        $29,286        $85,427
     Diagnosis Without
     Complications
203   Malignancy of                     97,211         31,885         65,326
     Hepatobiliary System or
     Pancreas
175   G.I. Hemorrhage Without           77,296         16,351         60,945
     Complications
143   Chest Pain                        47,472         14,883         32,589
208   Disorders of the Biliary          36,321          6,450         29,871
     Tract Without
     Complications
14    Specific Cerebrovascular          48,122         22,591         25,531
     Disorders Except TIA
198   Cholecystectomy Except           $48,431        $24,594        $23,837
     Laparoscope Without
     C.D.E. Without
     Complications
503   Knee Procedure Without            30,043          9,377         20,666
     PDX of Infection
231   Local Excision & Removal          28,707          8,268         20,439
     of Int Fix Devices Except
     Hip & Femur
395   Red Blood Cell Disorders          23,119          5,140         17,979
     Age >17
165   Appendectomy With                 27,907         10,463         17,444
     Complicated Principal
     Diag Without
     Complications
122   Circulatory Disorders             21,370          3,957         17,413
     With AMI Without C.V.
     Comp Disch Alive
280   Trauma To The Skin,               19,202          2,257         16,945
     Subcut Tiss & Breast Age
     >17 With Complications
127   Heart Failure & Shock             29,128         13,611         15,517
209   Major Joint & Limb                28,166         12,904         15,262
     Reattachment Procedures
     of Lower Extremity
489   HIV With Major Related            18,118          4,995         13,123
     Condition
232   Arthroscopy                       21,043          7,925         13,118
160   Hernia Procedures Except          17,553          5,911         11,642
     Inguinal & Femoral Age
     >17 Without Complications
158   Anal & Stomal Procedures          15,469          4,240         11,229
     Without Complications
290   Thyroid Procedures                16,811          6,122         10,689
189   Other Digestive System            27,088         16,769         10,319
     Diagnoses Age >17 Without
     Complications
53    Sinus & Mastoid                   17,067          7,730          9,337
     Procedures Age >17
124   Circulatory Disorders             12,957          3,752          9,205
     Except AMI, With Card
     Cath & Complex Diag
135   Cardiac                           21,192         12,005          9,187
     Congenital/Valvular
     Disorders Age >17 Without
     Complications
281   Trauma to the Skin Subcut         12,132          3,335          8,797
     Tiss & Breast Age >17
     Without Complications
153   Minor Small/Large Bowel           15,099          6,394          8,705
     Procedures Without
     Complications
449   Poisoning & Toxic Effects         11,774          3,279          8,495
     of Drugs Age >17 With
     Complications
275   Malignant Breast                  14,458          6,141          8,317
     Disorders Without
     Complications
174   G. I. Hemorrhage With             13,856          5,588          8,268
     Complications
138   Cardiac Arrhythmia &              23,117         15,133          7,984
     Conduction Disorders With
     Complications
125   Circulatory Disorders             14,377          6,805          7,572
     Except AMI, With Card
     Cath Without Complex Diag
162   Inguinal & Femoral Hernia         11,328          3,990          7,338
     Procedures Age >17
     Without Complications
136   Cardiac Congenital &              14,673          7,553          7,120
     Valvular Disorders Age
     >17 Without Complications
335   Major Male Pelvic                 14,430          7,637          6,793
     Procedures Without
     Complications
306   Prostatectomy With                14,248          8,388          5,860
     Complications
256   Other Musculoskeletal                           $14,772         $5,447
     System & Connective              $20,219
     Tissue Diagnoses
270   Other Skin Subcut Tiss &          11,341          6,151          5,190
     Breast Proc Without
     Complications
415   O.R. Procedure for                19,092         14,376          4,716
     Infectious & Parasitic
     Diseases
316   Renal Failure                     14,142         10,268          3,874
7     Periph & Cranial Nerve &          11,654          7,835          3,819
     Other Nerv Syst Proc
     Without Complications
416   Septicema Age >17                 11,543          7,853          3,690
197   Cholecystectomy Except            16,864         13,346          3,518
     Laparoscope Without
     C.D.E. No Complications
76    Other Resp System O.R.            27,833         24,335          3,498
     Procedures With
     Complications
243   Medical Back Problems             12,193          9,314          2,879
120   Other Circulatory System          17,346         14,613          2,733
     O.R. Procedures
172   Digestive Malignancy With         12,723         10,654          2,069
     Complications
142   Syncope & Collapse                21,159         19,102          2,057
     Without Complications
188   Other Digestive System            11,480          9,572          1,908
     Diagnoses Age >17 With
     Complications
369   Menstrual & Other Female          14,988         13,912          1,076
     Reproductive System
     Disorders
183   Esophagitis                       13,480         12,893            587
     Gastroent/Misc Digest
     Disorders Age >17 No
     Complications
171   Other Digestive System            15,854         16,296          (442)
     O.R. Procedures Without
     Complications
423   Other Infectious &                16,051         17,630        (1,579)
     Parasitic Diseases
     Diagnoses
75    Major Chest Procedures            21,952         23,700        (1,748)
148   Major Small/Large Bowel           31,087         33,099        (2,012)
     Procedures With
     Complications
107   Coronary Bypass Without           11,500         26,540       (15,040)
     Cardiac Cath
Total                              $1,336,499       $661,969       $674,529
Note: All billing amounts are rounded to the
nearest dollar.
Source: Developed by GAO based on BOP data.

_______________________________
1The PPS PC Pricer software calculates the amount
that a hospital is to be paid for each patient
discharged in a particular hospital discharge
classification or DRG. Software updates are
released quarterly during the fiscal year. BOP
used the 1998 version in developing its
constructed Medicare billings.

Attachment VII
U.S. Marshals Service:  Efforts to Contain Costs
for Health Care Provided to Detainees
Page 43                          GAO/T-GGD-00-112
Background
The U.S. Marshals Service (USMS), a component
agency of the Department of Justice, is
responsible for housing federal pre-trial
detainees, who are remanded to its custody until
sentenced and designated to a BOP facility to
serve time. In fiscal year 1999, USMS maintained
an average monthly population of 32,119 pre-trial
detainees and housed about 70 percent of the
detainees in local jails under contractual
arrangements whereby USMS paid per diem rates for
bed space. The remaining 30 percent of USMS
detainees were housed in BOP detention centers.

Health Care Delivery and Cost
USMS' responsibility for maintaining detainees
includes covering the cost of their health care.
USMS is different from BOP in two aspects of
health care: delivery and coverage. Unlike BOP,
USMS does not provide medical care directly to its
detainees. Instead it is entirely dependent upon
the provision of such services from medical staff
in local, state, and federal facilities that house
USMS prisoners or from community hospitals.
Another difference between BOP and USMS is the
average length of stay. For an individual held by
USMS, custody can range from a matter of days to
as long as a year.  Since confinement is
relatively short, USMS' health care policy is
limited to reasonable and medically necessary care
and does not extend to elective or preventative
health care. By contrast, since BOP prisoners are
confined for longer periods, BOP practices
preventative health care.

For the 70 percent of USMS detainees housed in
jails, delivery of medical services varies widely.
Generally speaking, USMS detainees held in local
jails normally receive the same medical care that
the local jails provide to other inmates. The
expenses for medical services provided within
local jails are incorporated in the per diem rate
charged. USMS is billed directly by community
medical care providers for the cost of medical
services provided outside the jails. Larger county
jails may have enhanced medical services as a part
of their infrastructure and may use county staff
and facilities. In these situations, the county
may provide more comprehensive medical services,
including inside care, transportation and guard
services for community hospital care, and bill
review and payment. USMS would in such situations
reimburse the county for outside care. Smaller
jails provide medical care on an as needed basis
by local professionals. The diversity in health
care delivery by county jails complicates efforts
by USMS to manage a medical program and to take
proactive steps to contain costs.

As with detainees in jails, the USMS detainees in
BOP centers have access to the same medical
services and staff provided by BOP to its
prisoners. These medical services are provided by
Public Health Service staff in clinic-type
facilities on site to treat routine medical
problems at no cost to USMS. Instead these
services are funded as part of the BOP
institution's operating costs. When USMS detainees
need medical treatment outside a BOP facility,
USMS is charged the rate contracted by BOP with
the outside facility (community hospital).
Physicians' fees are billed separately, usually at
full cost. Further, regarding instances when USMS
detainees need medical treatment in community
hospitals, secure transportation and guard escort
services are required.  These costs are also paid
by USMS.

The business practice for USMS has been to pay all
outside medical bills at the full price rather
than at a reduced rate. The Justice Department
reported in a 1996 review1 that USMS did not know
how to get price discounts, interpret medical
bills, or price them properly at Medicare rates
even if the vendor agreed to Medicare prices. USMS
also lacked professional medical staff with the
technical expertise to develop medical care
policy, determine medical necessity, or assist
field staff when medical care issues arose.

In addition to USMS' business practice of paying
at full price, both the size of the detainee
population and the cost of outside medical
treatment have been increasing. As a result, the
need for medical care outside secured facilities
has become a significant expense to USMS and in
fiscal year 1998 totaled $25 million, an increase
of over 30 percent since 1993.

Cost-Containment Initiatives
In the mid-1990s, USMS began developing a formal
Prisoner Medical Services Program in order to
contain increasing medical costs for a rapidly
growing prisoner population. One example of how
this program has contained medical costs is a
pilot project in New York City. The objective of
the project was to reduce medical costs to
Medicare rates by creating a managed care network.
In implementing this project, USMS established a
managed care network of local hospitals and
physicians' associations that agreed to charge
Medicare rates. USMS' network also gained access
to secured hospital beds at Medicaid rates.

A related aspect of the New York City pilot
project is guard service. USMS obtained county
jail security guard service at only $130 per day.
Prior to this, if a USMS detainee had to be
hospitalized, two contract hospital guards on a 24-
hour schedule would cost the USMS about $1,000 per
day. USMS reports that this pilot project in the
New York City area saved $15 million in prisoner
medical care costs covering approximately a 4-year
period (February 1996 to December 1999).

USMS also developed an in-house prototype medical
claims system that helped in processing medical
claims while at the same time collecting vital
program data to help USMS identify cost trends. At
the time of our review, USMS was surveying its
1998 medical diagnoses to establish a profile of
medical need and was working with the VA to obtain
managed care services through the Veterans
Integrated Service Networks (VISN).

VISNs offer medical services and support, such as
medical contracts, diagnostics, and laboratory
services, throughout the nation. For example, USMS
negotiated an interagency service agreement with a
VISN in New York City to provide medical specialty
clinics inside federal detention facilities in
Manhattan and Brooklyn to reduce outside prisoner
medical trips that were costly and represented a
prisoner security risk to the local population.
The VISN also provided USMS with outpatient
services at its hospitals in New York City at
Medicare rates that reduce USMS' medical costs.

Legislative Cap on Costs
In 1999, recognizing the need to reduce the cost
of health services still further, USMS and the
Immigration and Naturalization Service (INS)
coordinated with the Health Care Financing
Administration (HCFA) to develop proposed
legislative language setting a maximum amount that
USMS and INS would pay for community medical care.
That proposed cap was based on using the Medicare
rate structure. In November 1999, Congress passed
legislation establishing such a cap on future
health care payments made by the USMS and INS.
The legislation was enacted as part of the
Department of Justice's fiscal year 2000
appropriation.2 Language included in the
appropriation amended Section 4006 of Title 18,
U.S. Code, to limit the amount that the Attorney
General can pay for certain federal prisoners'
heath care, stating that:

"Payment for costs incurred for the provision of
health care items and services for individuals in
the custody of the United States Marshals Service
and the Immigration and Naturalization Service
shall not exceed the lesser of the amount that
would be paid for the provision of similar health
care items and services under-(A) the Medicare
program .or (B) the Medicaid program." 18 U.S.C.
4006.

_______________________________
1 Justice Performance Review, New York City
Managed Care Network, U.S. Department of Justice,
February 1996.
2 P.L. 106-113 (Nov. 29, 1999).
*** End of document ***