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United States General Accounting Office

GAO

Testimony

For Release on Delivery
2:00 p.m. EDT
Thursday
April 6, 2000

FEDERAL PRISONS

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

Containing Health Care
Costs for an Increasing
Inmate Population
Statement of Richard M. Stana, Associate Director
Administration of Justice Issues
General Government Division

GAO/T-GGD-00-112

Summary

Containing Health Care Costs For An
Increasing Inmate Population
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 costcontainment 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

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Summary
Containing Health Care Costs For An Increasing Inmate Population

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 BOPwide.

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Statement

Federal Prisons: Containing Health Care
Costs for an Increasing Inmate Population
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:
• 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
1
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. 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.
• Since the early 1990s, BOP has attempted to increase the efficiency and
economy of health care delivery to prisoners through various costcontainment initiatives, such as restructuring medical staffing, obtaining
discounts through quantity or bulk purchases, leveraging resources
through cooperative efforts with other governmental entities, and even

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.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

privatizing medical services at selected facilities. BOP reports that some of
these efforts are starting to produce savings.
• 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.
• 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.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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
2
after normal working hours. 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
3
inmate population caused six of the seven 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,

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.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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 year4
end 2006.
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
5
annual increase of about 8.6 percent. 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:

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).

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

• 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.
• 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
BOP medical personnel salaries
Community provider services
PHS associated costs
Supplies
Consultants
Guard escort services
Miscellaneousb
Total

Percentage change in
Percentage of cumulative Per capita health care Per capita health
per capita health care
a
health care costs (1990-99)
costs (1990) care costs (1999) costs from 1990 to 1999
38%
$1,066
$1,225
+14.9%
24
741
728
-1.8
10
336
367
+9.2
8
289
307
+6.2
8
255
281
+10.2
7
155
198
+27.7
5
159
135
-15.1
100%
$3,001
$3,241
+8.0%
a

Per capita costs for 1990 are adjusted to 1999 dollars using the GDP price index.

b

The 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:
• BOP medical personnel salaries: Per capita costs decreased steadily from
a peak of $1,399 in 1996 to $1,225 in 1999.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

• Community provider services: Per capita costs decreased from a high of
$952 in 1993 to $728 in 1999.
• PHS associated costs: Per capita costs were $378 in 1997 and $379 in 1998,
and then decreased to $367 in 1999.
• 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:
• Projections of the number of inmates incarcerated in federal facilities
show continued increases.
• Felony inmates transferred to BOP from the District of Columbia
Department of Corrections generally have disproportionately more
medical needs than other BOP inmates.
• From the Immigration and Naturalization Service (INS), BOP is receiving
increasing numbers of long-term, nonreturnable detainees.
• 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
6
the following sections. 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
6

Attachment V lists all of the 23 ongoing and/or planned initiatives.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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 communityprovided 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
7
report on inmate health care.
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,
7

Bureau of Prisons Health Care: Inmates’ Access to Health Care Is Limited by Lack of Clinical Staff
(GAO/HEHS-94-36, Feb. 10, 1994).

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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 cost8
containment strategy. 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 costcontainment 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

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.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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.

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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
9
per visit , 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
9

BOP supports copay fee exemptions for emergency visits, mental health visits, obstetric care,
scheduled physical exams, and chronic care visits.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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
10
prospective payment system. 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

11

In September 1999, CBO analyzed the Medicare-based cap proposal 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 millionsavings estimate by considering the following information:

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.

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• In 1998, BOP spent $82 million under contracts with community hospitals
that treated federal prisoners.
• 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.
• 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 orderof-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
12
applicable Medicare rates. A comparison 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 MedicareBased 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.

12

Attachment VI presents more details on BOP’s sample analysis.

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13

DOD and VA Already Use
Medicare Rates in Paying for
Civilian Hospital Care

Under existing provisions of the Medicare statutes, community hospitals
that agree to treat DOD and VA civilian beneficiaries are required to accept
14
certain payment rates. These rates are prescribed by regulations 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
15
military dependents, we reported that DOD’s medical reimbursement
rates were significantly higher—50 percent higher on average—than those
16
for similar services under the Medicare program.

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
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.
16

Defense Health Care: Reimbursement Rates Appropriately Set; Other Problems Concern Physicians
(GAO/HEHS-98-80, Feb. 26, 1998).

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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:
• 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.
• 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

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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.
• 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

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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

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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 Medicarebased 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.

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Federal Prisons: Containing Health Care Costs for an Increasing Inmate Population

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 costeffective 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.

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Attachment I

Objectives, Scope, and Methodology

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 costcontainment 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

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Attachment I
Objectives, Scope, and Methodology

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
1
Justice’s Office of the Inspector General—-on inmate health care costs.
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
2
report on medical services for USMS detainees.
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
th
the 106 Congress. Also, we reviewed the Congressional Budget Office’s
(CBO) analysis of a copayment provision.
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.

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Objectives, Scope, and Methodology

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
3
options paper 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
• both contracts were awarded within 14 months of each other,
• the estimated amount for each contract was in the range of $25 million to
$30 million,
• the same contractors bid in both solicitations,
• the BOP facilities involved in both solicitations were medical referral
centers, and
• the BOP facilities were located in the same city (Fort Worth, TX).

3

Legislative Options – Medicare Rates for Detainee Health Services, Department of Justice, Justice
Management Division, December 1996.

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Attachment I
Objectives, Scope, and Methodology

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.

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Attachment II

BOP Inmate Population Trends

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.

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Attachment II
BOP Inmate Population Trends

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:
• Projected increases during fiscal years 2000 through 2002 are due, in part,
to BOP’s congressionally mandated assimilation of approximately 7,200
1
District of Columbia inmates.
• 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 20002006

Fiscal year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

Inmate population
64,936
71,508
79,678
88,565
95,162
100,973
105,432
112,289
122,316
133,689
147,674a
159,859a
171,223a
177,890a
183,846a
193,254a
198,673a

Number change from Percent change from
previous year
previous year
—
—
6,572
10%
8,170
11%
8,887
11%
6,597
7%
5,811
6%
4,459
4%
6,857
7%
10,027
9%
11,373
9%
13,985
10%
12,185
8%
11,364
7%
6,667
4%
5,956
3%
9,408
5%
5,419
3%

a

Projected population at end of fiscal year.

Source: BOP data.

1

The 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.

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Attachment III

Health Care Cost Trends

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

Table III.1: BOP’s Health Care Costs
and Total Operational Costs, Fiscal
Years 1990-1999 (Dollars in Millions)

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.

Fiscal year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Health care
costs
$137.6
174.4
211.1
235.7
262.4
300.8
327.1
341.3
354.7
372.1

All other
operational
costs
$1,008.6
1,185.7
1,347.4
1,566.7
1,742.3
2,021.5
2,135.6
2,247.6
2,414.8
2,495.5

Total
operational
costs
$1,146.2
1,360.1
1,558.5
1,802.4
2,004.7
2,322.3
2,462.7
2,588.9
2,769.5
2,867.6

Health care as a
percentage of total
operational costs
12%
13
14
13
13
13
13
13
13
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.

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Attachment III
Health Care Cost Trends

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.

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Attachment III
Health Care Cost Trends

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

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Attachment IV

Health Care Cost Categories

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

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Attachment IV
Health Care Cost Categories

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

a
This 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
1
cost-containment initiatives implemented by BOP. A BOP official cited,
1

Attachment V lists BOP’s cost-containment initiatives.

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Attachment IV
Health Care Cost Categories

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.

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Attachment IV
Health Care Cost Categories

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

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Attachment IV
Health Care Cost Categories

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.

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Attachment V

Summary of BOP Health Care CostContainment Initiatives by Type
BOP has implemented or is planning to implement various health care cost
containment initiatives. BOP has 23 initiatives that are either currently
1
ongoing or are in the planning stages. 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 (1993)
BOP “piggybacks” on Department of Veterans Affairs (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 sharing
BOP has existing contracts with VA for various local services at the facility level, such as lab
services, telemedicine where VA facilities are involved, HIV tests, etc.
U.S. Marshals Service New York
An interagency agreement between USMS and the VA hospitals in Manhattan and Brooklyn
Managed Care Network Pilot Project calls for VA physicians to come inside the BOP facilities to provide medical specialty clinics.
(1998)
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 Project with the
In response to a congressionally mandated Department of Justice study, BOP will be
U.S. Marshals Service
consolidating outside 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 contracts
BOP piggybacks on VA contracts for various generic 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 (1995)
Under this initiative, before inmates are sent to 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.
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.

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Attachment V
Summary of BOP Health Care Cost-Containment Initiatives by Type

Initiatives
Pharmacy over-the-counter (1994)

Description
By allowing inmates to purchase drugs over-the-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 formulary initiative BOP officials determine the most cost-effective mix of drugs they will authorize. BOP’s
(1992)
emphasis is on 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 medical staff
Prison wardens at some facilities have eliminated 24-hour medical staff coverage as long as
(1994)
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 restructuring (1994)
BOP has utilized lower-paid medical personnel to 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 teams”)
This effort focuses on the right mix of staff (“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.

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Attachment V
Summary of BOP Health Care Cost-Containment Initiatives by Type

Initiatives
Other initiatives
Beaumont Privatization Project (1998)

Description

This project involves the privatization of the entire 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 disease
A three-person team will actively seek ways to keep inmates healthy by encouraging healthy
prevention
lifestyles. This initiative will help prevent health care costs from rising through preventative
means. BOP has not done an impact assessment.
Combined 325/350 Project (FY 1997)
BOP will combine funds for inside (code “350) and 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 of physically
Under this ongoing initiative, BOP screens inmates when they enter the prison system to
disabled, chronically and terminally, and determine the best and most cost-effective arrangements for their care. All inmates entering
geriatric offenders
into the system are 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 records
Automation of medical records is planned for the 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 costeffective 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:
• 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.
• 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.

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Attachment VI

BOP Inmate Care In Community Hospitals In
1998: Sample Data Comparing Actual Billings
To Constructed Medicare-Based Billings
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,
1
PPS PC Pricer-1998, 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
Actual hospital billing to Constructed Medicare–
DRG
DRG description
Billing difference
BOP
based billing
Other Circulatory System Diagnosis Without
Complications
145
$114,713
$29,286
$85,427
Malignancy of Hepatobiliary System or
203
Pancreas
97,211
31,885
65,326
175
G.I. Hemorrhage Without Complications
77,296
16,351
60,945
143
Chest Pain
47,472
14,883
32,589
Disorders of the Biliary Tract Without
Complications
208
36,321
6,450
29,871
Specific Cerebrovascular Disorders Except
14
TIA
48,122
22,591
25,531
Cholecystectomy Except Laparoscope
198
Without C.D.E. Without Complications
$48,431
$24,594
$23,837

1

The 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.

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Attachment VI
BOP Inmate Care In Community Hospitals In 1998: Sample Data Comparing Actual Billings
To Constructed Medicare-Based Billings

DRG
503
231
395
165
122
280
127
209
489
232
160
158
290
189
53
124
135
281
153
449
275
174
138
125
162
136
335
306
256

DRG description
Knee Procedure Without PDX of Infection
Local Excision & Removal of Int Fix Devices
Except Hip & Femur
Red Blood Cell Disorders Age >17
Appendectomy With Complicated Principal
Diag Without Complications
Circulatory Disorders With AMI Without C.V.
Comp Disch Alive
Trauma To The Skin, Subcut Tiss & Breast
Age >17 With Complications
Heart Failure & Shock
Major Joint & Limb Reattachment
Procedures of Lower Extremity
HIV With Major Related Condition
Arthroscopy
Hernia Procedures Except Inguinal &
Femoral Age >17 Without Complications
Anal & Stomal Procedures Without
Complications
Thyroid Procedures
Other Digestive System Diagnoses Age >17
Without Complications
Sinus & Mastoid Procedures Age >17
Circulatory Disorders Except AMI, With Card
Cath & Complex Diag
Cardiac Congenital/Valvular Disorders Age
>17 Without Complications
Trauma to the Skin Subcut Tiss & Breast
Age >17 Without Complications
Minor Small/Large Bowel Procedures
Without Complications
Poisoning & Toxic Effects of Drugs Age >17
With Complications
Malignant Breast Disorders Without
Complications
G. I. Hemorrhage With Complications
Cardiac Arrhythmia & Conduction Disorders
With Complications
Circulatory Disorders Except AMI, With Card
Cath Without Complex Diag
Inguinal & Femoral Hernia Procedures Age
>17 Without Complications
Cardiac Congenital & Valvular Disorders Age
>17 Without Complications
Major Male Pelvic Procedures Without
Complications
Prostatectomy With Complications
Other Musculoskeletal System & Connective
Tissue Diagnoses

Page 39

Actual hospital billing to
BOP
30,043

Constructed Medicare–
based billing
9,377

Billing difference
20,666

28,707
23,119

8,268
5,140

20,439
17,979

27,907

10,463

17,444

21,370

3,957

17,413

19,202
29,128

2,257
13,611

16,945
15,517

28,166
18,118
21,043

12,904
4,995
7,925

15,262
13,123
13,118

17,553

5,911

11,642

15,469
16,811

4,240
6,122

11,229
10,689

27,088
17,067

16,769
7,730

10,319
9,337

12,957

3,752

9,205

21,192

12,005

9,187

12,132

3,335

8,797

15,099

6,394

8,705

11,774

3,279

8,495

14,458
13,856

6,141
5,588

8,317
8,268

23,117

15,133

7,984

14,377

6,805

7,572

11,328

3,990

7,338

14,673

7,553

7,120

14,430
14,248

7,637
8,388

6,793
5,860

$20,219

$14,772

$5,447

GAO/T-GGD-00-112

Attachment VI
BOP Inmate Care In Community Hospitals In 1998: Sample Data Comparing Actual Billings
To Constructed Medicare-Based Billings

DRG
270
415
316
7
416
197
76
243
120
172
142
188
369
183
171
423
75
148
107
Total

DRG description
Other Skin Subcut Tiss & Breast Proc
Without Complications
O.R. Procedure for Infectious & Parasitic
Diseases
Renal Failure
Periph & Cranial Nerve & Other Nerv Syst
Proc Without Complications
Septicema Age >17
Cholecystectomy Except Laparoscope
Without C.D.E. No Complications
Other Resp System O.R. Procedures With
Complications
Medical Back Problems
Other Circulatory System O.R. Procedures
Digestive Malignancy With Complications
Syncope & Collapse Without Complications
Other Digestive System Diagnoses Age >17
With Complications
Menstrual & Other Female Reproductive
System Disorders
Esophagitis Gastroent/Misc Digest Disorders
Age >17 No Complications
Other Digestive System O.R. Procedures
Without Complications
Other Infectious & Parasitic Diseases
Diagnoses
Major Chest Procedures
Major Small/Large Bowel Procedures With
Complications
Coronary Bypass Without Cardiac Cath

Actual hospital billing to
BOP

Constructed Medicare–
based billing

Billing difference

11,341

6,151

5,190

19,092
14,142

14,376
10,268

4,716
3,874

11,654
11,543

7,835
7,853

3,819
3,690

16,864

13,346

3,518

27,833
12,193
17,346
12,723
21,159

24,335
9,314
14,613
10,654
19,102

3,498
2,879
2,733
2,069
2,057

11,480

9,572

1,908

14,988

13,912

1,076

13,480

12,893

587

15,854

16,296

(442)

16,051
21,952

17,630
23,700

(1,579)
(1,748)

31,087
11,500
$1,336,499

33,099
26,540
$661,969

(2,012)
(15,040)
$674,529

Note: All billing amounts are rounded to the nearest dollar.
Source: Developed by GAO based on BOP data.

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Attachment VII

U.S. Marshals Service: Efforts to Contain
Costs for Health Care Provided to Detainees
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

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U.S. Marshals Service: Efforts to Contain Costs for Health Care Provided to Detainees

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
1
reported in a 1996 review 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).
1

Justice Performance Review, New York City Managed Care Network, U.S. Department of Justice,
February 1996.

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U.S. Marshals Service: Efforts to Contain Costs for Health Care Provided to Detainees

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
2
of the Department of Justice’s fiscal year 2000 appropriation. 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.

2

P.L. 106-113 (Nov. 29, 1999).

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