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Apples-to-fish: public and private prison cost comparisons.

Introduction
   I. Background
      A. Studies with Favorable Findings
      B. Equivocal and Adverse Research Results
   II. Difficulties in Public-Private Comparisons
   III. Cost-Shifting Factors
      A. Prisoner Population Differences
      B. Security Level Limitations
      C. Medical Cost-Shifting
        1. HIV, HCV, and Other Specified Medical
          Conditions
        2. Caps on Medical Costs
        3. Prisoner Eligibility Criteria
        4. Combining Medical Cost-Shifting Factors
      D. Transportation Costs
      E. Prisoner Labor Costs
      F. Administrative Overhead
      G. Law Enforcement and Criminal Prosecutions
      H. Bed Guarantees
      I. Long-Term Costs
        1. Per Diem Increases
        2. Deferred Maintenance
        3. Recidivism Rates
        4. Bond Financing
      J. Fraud and Corruption
   IV. Quality of Service Comparisons
      A. Violence Levels
      B. Staff Turnover
      C. ACA Accreditation
      D. Recidivism Rates Redux
   V. Opportunity Costs
Conclusion


INTRODUCTION

It sounds like such a simple question: do private prisons save money? The answer, however, is dependent on a number of factors--including how "saving money" is defined.

Consider that in 2013, the nation's largest for-profit prison company, Corrections Corporation of America (CCA), made $300.8 million in net profit on gross revenue of $1.69 billion. (1) Thus, the company achieved $300.8 million in savings over operational expenses at its prisons, jails, and other detention facilities. But how much of that $300.8 million went to taxpayers or reverted to state treasuries or county coffers?

None. Those "savings" went to CCA in the form of corporate profit.

Over the past three decades there have been dozens of reports and studies on and analyses of cost comparisons between public and privately-operated prisons--by academics, government agencies, and independent organizations--all attempting to answer the elusive question of whether private prisons save money. (2) This is not one of those attempts.

Instead, rather than trying to determine if prison privatization results in savings due to the shifting of costs from public agencies, this Article takes an opposite approach by identifying costs that are shifted from privately-operated facilities to the public sector. An examination of such cost-shifting factors is essential when evaluating cost comparisons, to better understand how private prisons externalize expenses while internalizing profits.

In short, public agencies want to save money while private prison companies have an inherent need to make money--and the latter necessarily comes at the expense of the former. (3)

Part I of this Article examines previous public-private prison cost comparison studies, while Part II discusses various factors that make such comparisons difficult. Part III provides an exhaustive look at cost shifting factors, whereby costs are shifted from private prisons to public contracting agencies, and Part IV examines quality of service comparisons--including levels of violence and staff turnover at private prisons, accreditation by the American Correctional Association, and recidivism rates. Part V addresses opportunity costs associated with privately-operated prisons, while the Conclusion proposes an alternative approach when considering whether prison privatization results in cost savings.

I. BACKGROUND

There is no dearth of research on whether privately-operated correctional facilities are more cost effective or provide equivalent quality of service in comparison to public prisons; numerous studies have reached equally numerous and disparate conclusions. (4) As noted by Alexander Volokh, an Associate Professor at Emory Law School, "somewhat surprisingly, for all the ink spilled on private prisons over the last thirty years, we have precious little good information on what are surely the most important questions: when it comes to cost or quality, are private prisons better or worse than public prisons?" (5) Or, as candidly stated by CCA vice president Steve Owen in reference to whether private prisons save money: "[t]here is a mixed bag of research out there.... It's not as black and white and cut and dried as we would like." (6)

A. Studies with Favorable Findings

That mixed bag includes studies that have identified cost savings and other benefits resulting from prison privatization, such as research conducted in the 1990s by Professor Charles W. Thomas at the University of Florida; a 2008 study by researchers at Vanderbilt University; various reports by the Reason Foundation; and most recently a study by two Temple University economics professors, published in July 2014. What do they have in common? All received funding from the private prison industry.

Professor Thomas served as director of the Private Corrections Project at the University of Florida, which studied the private prison industry and produced research and statistical data concerning prison privatization. (7) He also owned stock in the private prison firms he was researching, served on the board of Prison Realty Trust, a CCA spinoff, and received $3 million in payments from CCA/Prison Realty. (8) Thomas retired after these conflicts became known; he was later fined $20,000 by the Florida Commission on Ethics, which stated his "contractual relationships with private corrections companies, or companies related to the private corrections industry ... conflicted with his duty to objectively evaluate the corrections industry through his research with the University of Florida." (9) Regardless, proponents of prison privatization still occasionally cite his work. (10)

The 2008 Vanderbilt study, which found competitive benefits through a shared system of public and privately-operated prisons, was partly funded by CCA and the Association for Private Correctional and Treatment Organizations (APCTO), an industry trade group. (11) The Reason Foundation, which strongly favors privatization, has received funding from private prison companies since at least the 1990s. (12) For example, a 2009 Reason Foundation donor list included the GEO Group--the nation's second-largest for-profit prison firm--as a Platinum Level supporter, while CCA was listed as a Gold Level supporter. (13) And the report by Temple University professors Simon Hakim and Erwin A. Blackstone, which found substantial cost savings through prison privatization, received funding from the nation's three largest private prison companies: CCA, the GEO Group, and Management & Training Corp. (MTC). (14) That funding was not disclosed in their initial working paper, but it was mentioned when the study was subsequently published by The Independent Institute. (15)

Of course, the mere fact that these studies received funding from the private prison industry does not mean their findings are faulty. Such studies do, however, stand in contrast to another body of research--not funded by for-profit prison companies--that has reached contrary conclusions.

B. Equivocal and Adverse Research Results

As early as 1996 a report by the then-U.S. General Accounting Office (GAO) reviewed five studies on prison privatization, and concluded that cost savings were inconclusive: "regarding operational costs, because the studies reported little difference and/or mixed results in comparing private and public facilities, we could not conclude whether privatization saved money." (16)

A 2003 review of public and private prison cost comparisons published in The Prison Journal concurred, finding that "neither side of the correctional privatization debate should, at this time, be able to legitimately claim that the weight of the empirical evidence is on their side." (17) More recently, a meta-analysis by the University of Utah's Criminal Justice Center, published in 2009, found that, "[c]ost savings from privatizing prisons are not guaranteed and appear minimal." (18) The researchers, who examined a dozen studies, concluded that "prison privatization provides neither a clear advantage nor disadvantage compared with publicly managed prisons. Neither cost savings nor improvements in quality of confinement are guaranteed through privatization." (19) Similarly, an August (2010) review by Professor Gerald G. Gaes at Florida State University concluded that "[d]irect comparisons of cost and quality neither favor the public nor the private sector." (20)

Yet, a 2010 report by Arizona's Office of the Auditor General, based on data from the Department of Corrections, noted that privately-operated prisons were actually more expensive than their public counterparts. (21) The report stated:
   [A]ccording to the Department's Fiscal Year 2009 Operating Per
   Capita Cost Report, the State paid private prisons a higher per
   inmate rate than it spent on equivalent services at state-operated
   facilities in fiscal year 2009. After adjusting state and private
   rates to make them more comparable, the Department's study found
   that rates paid to private facilities were higher for both minimum-
   and medium-custody beds--the two categories of beds for which the
   Department contracts. (22)


Specifically, after adjusting "for healthcare costs, depreciation costs, and costs for functions provided only by the State," the Auditor's Office reported that the fiscal year (FY) 2009 per diem cost for minimum-security prisoners at state facilities was $46.81, compared with $47.14 at private prisons, while the per diem cost for medium-security prisoners at state facilities was $48.13, compared with $55.89 at private prisons. (23)

Somewhat similar results were reported by the Arizona Department of Corrections (ADC) in an April 2011 report that found the FY 2010 adjusted daily per capita cost for minimum-security prisoners at state prisons was $46.59, just slightly higher than the $46.56 cost at in-state privately-operated facilities. (24) The adjusted per capita cost for medium-security prisoners was $48.42 at state prisons--significantly lower than the $53.02 cost at in-state private prisons. (25)

In Georgia, cost allocations by the state Department of Corrections found, based on FY 2012 data, that the average per diem cost at state prisons was $51.27 while the cost at privately-operated facilities was $52.75, or around 2.88% higher. (26) Considering only state funds and excluding proration of central office expenses, the average per diem cost at state prisons was $49.69 compared with $52.30--around 5.2% higher--at privately-operated facilities. (27)

Apparently, the results of the existing body of research on public-private prison cost comparisons depend in part on who performs the study, and partly on what factors are considered when evaluating cost measures; for example, how per diem rates are calculated.

II. DIFFICULTIES IN PUBLIC-PRIVATE COMPARISONS

Why are there such dissimilar research outcomes, with some studies finding cost savings through prison privatization, others not being able to determine if savings occur, and yet others concluding that private prisons result in higher costs? In one case, separate studies by the Federal Bureau of Prisons (BOP) and Abt Associates (28) examined the same four facilities, three public and one private, over the same time period, and reported markedly different results. (29) A number of factors make an apples-to-apples comparison difficult.

It is hard to compare private and public prisons unless they share similar security levels, population types (including gender, average age of offenders, medical and mental health care needs, etc.), staffing levels, programming, age of the facility, and other relevant characteristics. (30) Absent comparable facilities, researchers lack comparable data. Thus, some studies have attempted to analyze hypothetical public and private prisons rather than actual ones. (31) In other cases, studies have concluded that such comparisons simply are not possible; as noted by the GAO in an October 2007 report:
   A methodologically sound cost comparison analysis of BOP and
   private low and minimum security facilities is not currently
   feasible because BOP does not gather data from private facilities
   that are comparable to the data collected on BOP facilities....
   [W]ithout comparable data, BOP is not able to analyze and justify
   whether confining inmates in private facilities would be more
   cost-effective than other confinement alternatives such as
   constructing new BOP facilities or renovating existing BOP
   facilities. (32)


Or as stated by Davidson County, Tennessee, Sheriff Daron Hall, past president of the American Correctional Association and a former CCA program manager, "I've seen so many different attempts to compare the two [public and private prisons] that I don't know if there is a simple way to evaluate one versus the other." (33)

Consider that when comparing public and privately-operated prisons, the costs of the former are just as important as those of the latter. While the focus tends to be on expenses at private prisons, without accurate costs for public prisons such comparisons are meaningless. In some cases the methodology for determining baseline operating expenses at public prisons has been faulted, which undermines public-private prison cost comparisons. In Hawaii, which houses almost a third of its prisoners in privately-operated facilities on the U.S. mainland, a December 2010 report by the state Auditor's office cited problems with the way the Hawaii Department of Public Safety (PSD) calculated costs at in-state public prisons. (34) According to the Auditor, "PSD reports that it spends about twice as much to maintain an inmate in-state. However, we found that these cost estimates are based on a flawed methodology designed around what is easiest for the department to report, or, as one PSD official characterized, 'quick and dirty' numbers." (35) Consequently, the "true costs are unknown." (36) The Auditor's office released a follow-up report in April 2013, noting that the PSD had "improved the accuracy of its incarceration data, employing a more systematic process that utilizes comparable costs and cost-accounting methodology." (37) However, the report also found that due to various factors, "the department's calculation on per capita incarceration costs for the various inmate populations is still inaccurate and skews overall inmate costs." (38)

But private prison companies and their proponents make it sound so easy: as one theoretical example, say the average per diem cost for housing a prisoner at a state facility is $55 while the average cost at a private prison is $45. Thus, obviously, the privately-operated prison saves money. That comparison, however, falls somewhere between the "damned lies" and "statistics" of the well-known aphorism variously attributed to Mark Twain or Benjamin Disraeli: "[t]here are three kinds of lies: lies, damned lies and statistics." (39) Some comparisons of public versus private prison costs rely heavily on statistical prevarication. Take, as an example, a joint report released by the Reason Foundation and the Howard Jarvis Taxpayers Association (HJTA) in 2010. (40) The report advocated sending 25,000

California prisoners to out-of-state privately-operated facilities, claiming savings of up to $1.8 billion over a five-year period based on an estimated $ (162) per diem cost at in-state prisons. (41) California currently houses around 9000 prisoners in out-of-state facilities. (42)

The Private Corrections Institute (PCI), (43) which opposes the privatization of correctional services, issued a press release on May 21, 2010, stating:
   The $162 per diem rate cited in the report, which was obtained by
   simply dividing the state's corrections budget by its prison
   population, grossly misrepresents the actual cost of incarceration.
   For example, the inflated per diem rate in the Reason-HJTA report
   inaccurately includes parole supervision and administrative costs,
   which are part of the prison system's budget; medical and mental
   health care expenses, which are under the control of the
   federally-appointed receiver; and central office administrative
   overhead. The report's exaggerated per diem rate also apparently
   includes prison design and construction expenses, which are not
   factored into private prison cost analyses. The report fails to
   consider that privately-run prisons do not house maximum-security
   California prisoners, death row prisoners, female prisoners,
   juveniles or prisoners with serious mental health or medical
   conditions, all of whom are more expensive to incarcerate. In the
   latter regard, medical costs for California inmates held in private
   prisons are capped at $2,500 per prisoner; the state must pay
   medical expenses above that amount, plus all treatment costs for
   inmates who are HIV-positive. (44)


In fact, the California Legislative Analyst's Office (LAO) reported in a January 2007 letter that, "the state now budgets on average about $56 per inmate per day for each additional prison inmate--often referred to as overcrowding costs per inmate. By comparison, the contracted rate for ... new out of state prison beds is higher, about $63 per inmate per day." (45) The LAO further noted that the per diem rate for prisoners in out-of-state private prisons did not include transportation costs, the cost of oversight by state officials or medical expenses above the $2500 cap. (46)

This led PCI executive director Ken Kopczynski to observe: "[c]ontrasting the inaccurate per diem rate in the [Reason-HJTA] report with the cost of housing inmates in out-of-state private prisons cannot even be considered an apples-to-oranges comparison. It's more like an apples-to-fish comparison." (47)

III. COST-SHIFTING FACTORS

Typically, private prison contracts are based on a per diem model; the public contracting agency, such as a state Department of Correction or sheriffs office, pays a set amount per prisoner, per day to the private prison company; therefore, to reduce costs, contracting agencies are incentivized to contract with the company offering the lowest per diem rate. But as indicated above and discussed below, there are a number of factors that can result in costs to public agencies beyond the contractual per diem rate. Such cost-shifting factors, which include differences in prisoner populations and security levels, medical expenses, transportation costs, and administrative overhead, serve to inflate the costs paid by the public contracting agency while deflating the expenses of private prison companies. Many of the earlier studies that compared costs at public and private prisons failed to adequately address relevant cost-shifting factors, including long-term expenses. (48) The importance of adjusting for factors that shift costs from private prisons to the public sector is demonstrated by the following examples.

As noted above, a 2010 report by Arizona's Office of the Auditor General found that privately-operated prisons were more expensive than public prisons when using an adjusted per capita rate. Using a non-adjusted rate, the report found the cost for housing minimum-security prisoners in private facilities was $54.78--significantly less than the non-adjusted per capita rate of $58.80 at public prisons. (49) The non-adjusted rate indicated cost savings to the state, while the adjusted rate indicated a net loss--evidencing the need to adjust for cost-shifting factors. (50)

Also, according to a 2009 report by the Hawaii Department of Public Safety related to expenditures for housing offenders in out-of-state private prisons, such costs were $48.04 million in FY 2009 based on contractual per diem rates. (51) However, those costs did not include certain medical expenses, transportation expenses, staffing costs, the cost of prisoners' wages, and various overhead expenses. (52) When those costs were factored in, the adjusted expenditures for housing Hawaii prisoners at private facilities totaled $57.38 million--a 19.4% increase. (53) Nor was this an anomaly. The Hawaii Department of Public Safety's expenditure report for FY 2008 indicated a 14.7% increase between the contractual housing costs ($48.39 million) and adjusted expenditures including medical care, prisoner wages, transportation, staffing, and other expenses ($55.52 million). (54) For FY 2007, there was a 14.9% increase between contractual housing costs ($43.76 million) and adjusted expenditures ($50.29 million). (55)

Given that prior research has found any cost savings resulting from prison privatization are often equivocal, even small variations due to cost-shifting factors can mean the difference between a net gain or loss by public contracting agencies. This is of heightened importance in states that have statutory cost saving requirements as a condition of prison privatization, including Tennessee (minimum 5% savings required), Ohio (5%), Florida (7%), and Mississippi, Texas, and Kentucky (all 10%).56 The consideration of cost-shifting factors is essential in such cases to determine whether the statutory mandate is being met.

Yet even in states that require prison privatization to result in a minimum level of cost savings, it is still difficult to determine whether such savings are in fact realized; just because the law says private prisons must save money does not necessarily mean they do. As put bluntly by the Florida Center for Fiscal and Economic Policy in a 2010 report, which described in detail the state's process for determining whether prison privatization results in statutory cost savings: "[t]here is no compelling evidence that the privatization of prisons has actually resulted in savings.... It is very difficult to ensure that a private prison is in fact 7% less costly to operate than a comparable public prison." (57) And in Ohio, which requires privately-operated prisons to achieve cost savings of at least 5%, Policy Matters Ohio, a non-profit policy research organization, released a report in April 2011 that sharply criticized the methodology used by state officials to calculate estimated savings. (58) "A detailed examination of those calculations shows them not only to be riddled with errors, oversights and omissions of significant data, but also potentially tainted by controversial accounting assumptions that many experts consider deeply flawed," the report stated. (59) "[O]nce past errors in the state calculations are corrected and revisions made, the private-prison savings computed by the state over the years appear to shrink dramatically." (60)

Policy Matters Ohio estimated that for the 2006-2007 biennium, prison privatization actually cost the state between $380,000 and $700,000 per year based on corrections to the state's statistical data, and in 2008-2009 private prison costs ranged from a potential 1.2% savings to a 0.3% deficit. (61) Further, the estimated savings from prison privatization for 2010 and 2011 dropped below the 5% threshold required by state law once statistical revisions were made. (62)

Of course there are also prison privatization-related factors that shift costs away from the public sector. As just one example, some research studies, including the Hakim and Blackstone study referenced above, have argued that prison privatization reduces costs to public agencies by cutting payroll, benefit, and pension expenses associated with (typically unionized) public corrections employees. (63) That argument assumes corrections employees are terminated when public agencies contract with private prison companies, but this is not always the case. Rather, public corrections employees may be transferred to other positions within the same agency or to other agencies--thus resulting in continued payroll, benefit, and pension costs in addition to any costs of privatization. (64) Absent evidence that corrections employees are terminated or otherwise depart public service when public agencies contract with private prison companies, such savings are strictly theoretical.

For instance, when Ohio privatized the North Central Correctional Institution (NCCI) in 2011, the state noted that it had vacant positions within the Department of Rehabilitation and Correction (DRC) to accommodate employees who did not want to work for the contractor. (65) According to a memo provided to staff at the facility, in answer to the question "[w]ill a correction officer currently employed at NCCI be able to find employment at another state run prison if they do not wish to work for the private operator?" the state's response was: "Yes. NCCI currently employs 208 correction officers, and DRC has 278 vacant correction officer positions in its North Region." (66) Thus, any public employee who wanted to remain employed by the state was able to do so. (67) In fact, according to the DRC, when the 2700-bed NCCI was privatized only twenty-three public employees lost their jobs--fifteen were laid off, one was terminated, three resigned, and four retired. (68)

The focus of this Part, however, is on factors that shift costs from private prison companies to the public sector, which include costs related to population differences at privately-operated facilities, such as security levels and prisoner medical care, as well as operational expenses--including transportation, prisoner labor, administrative overhead, and bed guarantees--plus the long-term costs of per diem increases, deferred maintenance, recidivism rates, and private prison bond financing.

A. Prisoner Population Differences

To fulfill their public safety function, public prisons must house all types of offenders, including those with serious medical and mental health conditions, maximum-security prisoners, those on death row, (69) female prisoners, and juveniles convicted as adults. Prisoners in these categories are more expensive to incarcerate due to medical, security/staffing, or programming-related costs (e.g., female prisoners generally have higher medical expenses). (70) Thus, the average per diem cost at public prisons is inflated, as it necessarily includes the more expensive prisoners that public prison systems must incarcerate.

In most cases, private prisons house minimum- and medium-security adult male prisoners. No privately-operated facilities house prisoners sentenced to death, and only a few hold maximum-security or female prisoners. (71) As a result, the average per diem cost at privately-operated facilities is reduced due to differences in prisoner populations. Also as a result, private prisons have been accused of housing only healthier, lower-security prisoners who are less costly to incarcerate. (72) "It's cherry-picking," exclaimed Texas State Rep. Chad Campbell. (73) "They leave the most expensive prisoners with taxpayers and take the easy prisoners." (74) Or, as stated in an April 2010 policy brief by the Florida Center for Fiscal and Economic Policy, "[t]here are differences between inmates in private and public prisons: those who are more costly to handle are usually incarcerated in public prisons, such as those who are the highest security risks and those with extensive medical issues." (75) Both private prison companies and public contracting agencies are complicit in such "cherry-picking," as limitations on the types of prisoners held at privately-operated facilities are usually specified in the contracts signed by both parties.

An examination of public and private prison per diem costs in Florida illustrates how population differences impact cost comparisons. The following table, produced by the Florida Department of Corrections (FDOC), provides "average inmate costs" for FY 2012-2013. (76) Approximately ten percent of Florida state prisoners are held in seven privately-operated prisons, including five facilities that house adult male offenders, one facility that houses adult females, and one that houses youthful males (ages nineteen to twenty-four). (77)

The above per diem figures "do not include indirect and administrative cost of $0.67 for private institutions and $2.75 for state facilities." (79) Thus, after adding the indirect and administrative costs, the total average per diem cost for all state prisons, excluding privately-operated facilities, is $50.25, while the average per diem cost for private institutions is $44.53. (80)

It is apparent that the per diem cost at private institutions is lower than the cost at public prisons. However, the average per diem cost for state prisons includes the higher rates at reception centers (all of which are operated by the state), male youthful offender facilities (of which one is run by the state and one is privatized), adult and youthful female offender facilities (of which four are operated by the state and one by a private contractor), and specialty institutions (all of which are operated by the state). (81) Therefore, due to the higher-cost facilities, the vast majority of which are publicly-operated, the average per diem cost at state prisons is skewed upwards while five of the seven private prisons house adult male offenders--the least expensive to incarcerate, according to the table.

For another example of the impact of population differences, consider the FY 2012-2013 per diem costs for housing adult prisoners in the Tennessee Department of Correction (TDOC), where almost one-quarter of the state's prison population--approximately 5000 of 21,000 prisoners--is held in privately-operated facilities:

Facilities designated with (*) are privately operated. (82)

First, per the TDOC, the Total Adult Facilities per diem cost does not equal an average of the individual facility costs because the latter are weighted by population level. Rather, the total average per diem cost is "based on system wide Payroll expenses plus system wide Operating expenses minus system wide Revenue collections divided by our system wide Average Daily Census divided by 365 to obtain the average system wide cost per day." (83)

The three privately-operated prisons--all run by CCA--are medium-security facilities that house adult male prisoners. (84) Of the eleven public prisons, six are maximum-security, one is close-security (a step between medium and maximum) and four are medium-security. (85) The four facilities with the highest per diem costs, all state prisons, include the Lois M. DeBerry Special Needs Facility (a prison hospital for offenders with serious medical and mental health needs); Riverbend (maximum-security and death row prisoners); Bledsoe County (an intake diagnostic center that also houses female prisoners); and Mark Luttrell (female prisoners). (86)

Because state facilities house prisoners who are more expensive to incarcerate--maximum security, death row, medical and mental health patients, and female prisoners--their average per diem cost is increased. As the CCA-operated prisons do not have such higher-cost populations, their average per diem costs are decreased. However, note that the per diem costs at medium-security state prisons (Northeast, Charles Bass, Turney Center, and Northwest) are still higher than the costs at privately-operated medium-security facilities (South Central, Hardeman County, and Whiteville). Why is this the case? As discussed in the sections that follow, a number of other cost-shifting factors serve to further inflate per diem costs at public prisons.

B. Security Level Limitations

Security levels correlate with incarceration costs; minimum-security prisoners are usually the least expensive to incarcerate while maximum-security prisoners, including those held in segregation, are the most costly. (87) With respect to security levels at public and privately-operated prisons, a 2004 article in Federal Probation noted that:
   [T]he private sector houses approximately 21% fewer inmates at the
   maximum and close security levels and approximately 15% more
   inmates at the minimum security level than does the public sector.
   Thus, 90% of the private sector's inmate population is classified
   at the medium or minimum levels, whereas only 69% of the public
   sector's inmate population are so designated. (88)


The State of Hawaii contracts with private prison companies to house prisoners at facilities on the U.S. mainland. A January 2005 report by the Hawaii Department of Public Safety is instructive in regard to limitations on the types of Hawaii prisoners eligible for transfers to private prisons in various other states. (89) Those limitations included that no Hawaii prisoners above medium security, or with "Escape 1," "Murder 1," or sex offenses, be housed at facilities in Oklahoma. (90) No maximum-security prisoners could be held in prisons in Arizona or Mississippi, and Colorado facilities only housed prisoners up to medium security with no "sex offenses with lengthy terms" and no life sentences. (91) This list of exclusions illustrates how only lower-security Hawaii prisoners who have not been convicted of the most serious offenses (murder, sex crimes), and are a lesser security risk (no life sentences, maximum security, or history of escape) are transferred to privately-operated facilities. Public prisons, of course, must incarcerate the higher-security offenders not eligible for such transfers, which translates to higher costs for Hawaii's state prison system.

Another example of security level differences in public and private prisons is found in a 2012 contract between Idaho and CCA to house offenders at the company's Kit Carson Correctional Center in Colorado. In response to questions posed during the request for proposal (RFP) process, state officials wrote that the transfer criteria used by the Idaho Department of Correction to send prisoners to the privately-operated facility include: "2. No escape history from a secure facility ... [and] 4. No class A disciplinary actions (Disciplinary Offense Report) within last 12 months." (92) Thus, only lower-risk prisoners and those who are better behaved--i.e., do not have a recent history of serious institutional misconduct--are eligible for placement at the CCA facility. Those who are higher-risk and have committed serious disciplinary offenses remain in Idaho, and the cost of incarcerating such prisoners is shifted to the state.

C. Medical Cost-Shifting

Medical expenses represent a significant and growing portion of corrections agencies' budgets. The FDOC, for example, spent 19.1% of its budget on healthcare services in FY 2012-2013. (93) The California Department of Corrections and Rehabilitation (CDCR) allocated 24% of its $8.9 billion budget for FY 2013-2014 to medical, dental, mental health, and ancillary health care services. (94) As mentioned previously, public prisons must incarcerate all types of prisoners, including those with serious and expensive medical and mental health conditions. (95) Frequently, though, private prison companies minimize medical expenses through various contractual provisions that shift those costs to the public sector.

This is a significant cost-shifting factor because medical care can be very expensive, especially treatment for diseases that are more prevalent in the correctional setting than in the general population, such as HIV and hepatitis C (HCV), (96) as well as for costly medical procedures such as chemotherapy, dialysis, and even organ transplants. (97) Prisoners have all of the same medical ailments as non- prisoners and require medical care that is just as expensive. By capping the cost of medical care, excluding certain medical costs entirely and limiting prisoners with medical and mental health conditions from being housed at private prisons, the per diem costs at those facilities are decreased. This results in a corresponding increase in medical expenses for public corrections agencies, which are responsible for medical and mental health care costs both at public prisons and--when specified by contractual provisions--at private prisons, too. Consequently, cost comparisons of public and privately-operated facilities must include adjustments for contractual limits on medical expenses that shift costs to public agencies.

As the Arizona Department of Corrections stated in an April 2011 report, when calculating per capita costs at public and private prisons:
   An inmate health care cost factor is identified and deducted due to
   the limitations imposed by the private contractors concerning
   inmates [sic] physical and mental health.... This adjustment is
   needed because unlike the private contractors, the ADC is required
   to provide medical and mental health services to inmates regardless
   of the severity of their condition(s). (98)


1. HIV, HCV, and Other Specified Medical Conditions

Private prison contracts often contain provisions that exempt private prison companies from costs associated with specified medical conditions, most commonly HIV and HCV. For example, a 2011 contract between the California Department of Corrections and Rehabilitation and CCA specifies that the CDCR is required to pay for "[a]ll HIV or AIDS related inpatient and outpatient medical costs and the costs of providing AZT or other medications therapeutically indicated and medically necessary ... for the treatment of offenders with HIV or AIDS." (99)

Similarly, a 2007 contract between the State of Tennessee and CCA to operate the South Central Correctional Center provides that "[t]he Contractor shall not be responsible for the cost of providing anti-retroviral medications therapeutically indicated for the treatment of inmates with AIDS or HIV infection." (100)

A 2008 contract between the Hawaii Department of Public Safety and Pinal County, to house prisoners at CCA-operated facilities in Arizona, states the company "shall not be responsible for the cost of medication or regimens specifically aimed at the treatment of conditions associated with Acquired Immune Deficiency Syndrome (AIDS) and Hepatitis C." (101) Identical language was included in a 2008 contract between Hawaii and CCA to house female prisoners at the company's Otter Creek Correctional Center in Kentucky. (102) FY 2009, Hawaii paid $6.37 million in medical costs not included in the per diem rates in its contracts to house prisoners at CCA facilities. (103)

Also, a 2009 contract between CCA and the Metropolitan Government of Nashville and Davidson County, Tennessee states that "[m]edical costs for AIDS ..., oncology and dialysis treatments are considered reimbursable expenses"; i.e., the cost for treating prisoners with those conditions shall be paid by the Metro Government, not by CCA. (104)

Sometimes the exclusion of certain medical expenses is not as obvious as the explicit contractual provisions cited above. For example, a 2012 contract between the State of Idaho and CCA to house prisoners at the company's Kit Carson Correctional Center includes "Option A" for healthcare services from the state's RFP. Under Option A, "[t]he Contractor is solely responsible for all costs associated with provision of care as provided for within [subsections related to] Healthcare, Mental Health, and Dental Services." (105)

Thus, under Option A in the contract and RFP, it would appear that CCA is responsible for all medical-related costs, including expensive treatments for HIV and HCV.

That is not the case, however. The contract incorporates the state's responses to questions submitted by private prison companies during the RFP process, and those responses include: "[t]he IDOC does not anticipate sending Offenders with chronic healthcare and/or mental health issues to the Facility (to include HIV treatment or HCV treatment),"" (106) and "[t]he transfer criteria IDOC will use includes the following: 1. No chronic mental health or health care issues...." (107) The RFP was amended to include "no chronic mental health or health care issues" as the "primary criteria in evaluating offenders" for placement at the CCA-operated prison. (108)

Thus, although CCA is responsible for "all costs associated with provision of care" under Option A in the contract and RFP, it is really only responsible for such costs based on the medical needs of the prisoners housed at the facility. Since Idaho does not send prisoners with "chronic healthcare" conditions--including HIV and HCV--to the CCA prison, the company is not liable for those costs.

2. Caps on Medical Costs

Some private prison contracts include caps on certain medical expenses paid by the private prison company, based on specified dollar amounts or time limits.

For example, a 2011 contract between CCA and the CDCR states that the CDCR will pay "[a]ll expenses in excess of $2,500 annually per inmate for medically necessary, off site hospital or emergency care. This includes, but is not limited to medical, surgical, mental health, and dental care delivered in an Emergency Room, practitioner's office, or inpatient or outpatient hospital setting." (109) A 2013 contract between the State of Tennessee and CCA to operate the South Central Correctional Center specifies: "[i]f the inmate is hospitalized, the Contractor shall not be responsive for Inpatient-Hospital Costs which exceed $4,000.00 per Inmate per admission." (110) Hospitalization costs above the $4000 cap, no matter how expensive, are paid by the state. (111) A 2010 contract between the State of Texas and MTC to operate the West Texas Intermediate Sanctions Facility provides that, "[i]f an Offender requires continued hospitalization after the initial forty-eight (48) hour period, the [Texas Department of Criminal Justice] shall be responsible for all reasonable and appropriate medical costs." (112)

Both dollar amount and time limit caps were included in 2006-2007 contracts between Florida and CCA to operate the Gadsden, South Bay, and Lake City correctional facilities. The contracts all state: "The CONTRACTOR shall not be responsible for inpatient hospitalization costs, including any surgery and specialty services, in amounts greater than $15,000 per inmate per admission, or for costs incurred after five (5) days of hospitalization, whichever comes first." (113) Notably, while medical care expenses may be capped for private prison companies, there is no cap on the amount public corrections agencies must pay for prisoner medical care.

In other cases, private prisons simply are not responsible for providing any medical services. A 2011 contract between the State of Texas and CCA to manage the Bartlett State Jail provides that the Texas Department of Criminal Justice "will contract with the Correctional Managed Health Care Committee (CMHCC) to provide complete health care services including medical, dental, mental health, pharmaceutical, medical records, emergency care and sick call services for Offenders assigned to the Facility." (114) Similar provisions are included in the state's 2010 contracts with CCA to operate the Bradshaw State Jail, Lindsey State Jail, and Willacy County State Jail. (115)

Removing medical services from private prison contracts usually results in lower contractual per diem rates. However, it also shifts all medical expenses to the public agency, including costs associated with prisoners who have serious medical and mental health conditions.

3. Prisoner Eligibility Criteria

Some contracts go beyond exempting private prisons from costs associated with specified medical conditions, as discussed above, and exclude prisoners with certain conditions from even being housed at privately-operated facilities, or limit the number of such prisoners.

For example, contracts between Florida and the GEO Group include restrictions on prisoners with specific medical and mental health classifications. The FDOC assigns a health classification to each state prisoner ranging from Ml to M5 (plus M9 for those who are pregnant). (116) Prisoners also receive a mental health grade, ranging from S1 to S6. (117) According to the Florida Correctional Medical Authority, "[t]he number assigned to an inmate is based on the severity or acuity of the medical or mental health condition with one indicating the lowest level of need." (118) The state's current contracts with the GEO Group to operate the Bay, Moore Haven, and Graceville correctional facilities include a population cap of 16% for prisoners with medical grade M3 (with a 2% variance), and 18% for those with mental health grade S3 (with a 5% variance). (119) Florida's 2010 contract with the GEO Group to house prisoners at the Blackwater River Correctional Facility provides that no prisoners with medical grade M3 or mental health grade S3 will be sent to the prison, and only 2% of the population can be HIV-positive. (120)

Such provisions led Florida's Office of Program Policy Analysis and Government Accountability (OPPAGA) to note that the state's contracts with private prison companies do not
   [A]ssure that private prisons serve inmates with comparable medical
   and mental health conditions as those housed in public prisons....
   As special needs inmates are more expensive to serve than other
   inmates, the difference in the populations of public and private
   prisons results in the state shouldering a greater proportion of
   the cost of housing these inmates. (121)


Consequently, OPPAGA said the statutory requirement that privately-operated prisons "operate [at] a 7% lower cost than state facilities is undermined." (122)

As another example of prisoners with certain medical conditions being excluded from private prisons, UC Berkeley researcher Christopher Petrella published an "open letter" to CCA in July 2014 that addressed some of the shortcomings of the Hakim and Blackstone cost comparison study, with a focus on California (which accounts for around 12% of CCA's total revenue). (123) According to Petrella, a number of policies serve to exclude expensive-to-incarcerate California prisoners from being housed at out-of-state CCA facilities, including prisoners with certain medical and mental health conditions. (124) Petrella found that 12% of prisoners held in state facilities had HCV, compared with 6.55% in CCA-operated prisons. (125) Also, according to a May 5, 2014 letter from California Correctional Health Care Services, "HIV+ inmate-patients are not transferred outside of California. If an inmate-patient is diagnosed with HIV+ [sic] while residing in an out-of-state institution they are returned to California as soon as possible." (126) In addition, Petrella found that California prisoners with "High Health Risk Priority 1 & 2" ratings comprised 11% of the state's prison population, while those with a disability comprised 6%, those 65 years and older comprised 4.4%, and those designated "Mental Health EOP" [Enhanced Outpatient] comprised 4.2%. (127) The percentage of California prisoners in those same categories housed at out-of-state privately-operated prisons? Zero. (128)

4. Combining Medical Cost-Shifting Factors

Standing alone, contractual provisions that cap healthcare costs, exclude expenses for HIV and HCV treatment, and limit prisoners with specified medical conditions at private prisons shift a certain amount of medical costs to public contracting agencies. When such provisions are combined, however, the costs increase accordingly.

As an extreme example of cost-shifting related to medical expenses, a 2011 contract between CCA and the Vermont Department of Corrections (VTDOC) includes a cap on medical costs, restrictions on specified medical expenses, and exclusions for prisoners with certain medical and mental health conditions. (129) The contract provides: "[t]he Contractor shall be responsible for inpatient hospital and surgery charges for the first Twenty Thousand Dollars ($20,000.00) in costs per inmate, per incident. Thereafter, VTDOC shall be liable for all inpatient hospital and surgery charges." (130)

At first blush, $20,000 for in-patient hospitalization and surgery sounds like a generous cap--unless the reader is familiar with the costs of medical care in the United States. Consider that a California study found the average cost to remove an appendix--a fairly routine procedure--was $33,000. (131) More complex medical procedures are correspondingly more expensive--yet CCA's maximum liability for hospitalization and surgery is capped at $20,000 per prisoner.

Also, for some of the most expensive medical procedures and treatment, the company does not have to pay anything pursuant to the following contractual provision:
   Provided that the VTDOC is aware or has been notified prior to the
   hospitalization of the inmate, the Contractor shall not be
   responsible for inpatient hospitalization costs, including any
   surgery and specialty services, associated with the treatment of
   persons with known Acquired Immune-Deficiency Syndrome (AIDS), as
   defined by the Center for Disease Control, organ transplants, renal
   dialysis, cancer treatment and Hep C treatment. The Contractor
   shall be responsible for inpatient and outpatient hospitalization
   costs for HIV infected patients, as noted above when not associated
   with treatment of their HIV disease. The Contractor shall not be
   responsible for the cost of providing AZT, or other medications
   therapeutically indicated for the treatment of inmates with AIDS or
   HIV infection. Such treatment will be at the VTDOC's discretion and
   expense and requires pre-authorization. The VTDOC will screen all
   transfers to exclude Inmates currently being treated for active
   AIDS, cancer, renal dialysis and Hep C. (132)


But what about prisoners with serious mental health conditions? The contract covers that too, by minimizing costs to CCA. "Vermont Department of Corrections agrees to review the mental health needs and stability of all inmates proposed for placement with CCA facilities," the contract states. (133) "CCA may request the prompt return to Vermont of any inmate whose mental health cannot be readily maintained while out of state." (134) Further, the state is responsible for the cost of prosthetics: "With the prior approval by the Vermont Health Services Director Contractor shall provide prosthetic devices to inmates as medically indicated.... The costs associated with providing prosthetics shall be borne by the State." (135)

Therefore, costs associated with hospital and surgery expenses above the $20,000 cap, as well as costs related to prisoners who have HIV, HCV, and cancer, or who require dialysis or organ transplants, or have serious mental health conditions, plus the cost of prosthetics, are all shifted to the public sector.
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Title Annotation:Introduction through III. Cost-Shifting Factors C. Medical Cost-Shifting, p. 503-531
Author:Friedmann, Alex
Publication:Fordham Urban Law Journal
Date:Dec 1, 2014
Words:7577
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