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Correctional Managed Health Care at the University of Texas Medical Branch at Galveston, TX SAO, 2011

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John Keel, CPA
State Auditor

An Audit Report on

Correctional Managed Health
Care at the University of Texas
Medical Branch at Galveston
February 2011
Report No. 11-017

An Audit Report on

Correctional Managed Health Care at the
University of Texas Medical Branch at
Galveston
SAO Report No. 11-017
February 2011

Overall Conclusion
In February 2010, the University of Texas
Medical Branch at Galveston (UTMB) reported
through its correctional managed health care
division (UTMB-CMC Division) a $95.1 million
projected deficit for fiscal years 2009 through
2011. That deficit included:


A $12.8 million deficit in providing health
care to offenders in fiscal year 2009.



An $82.3 million projected deficit in
providing health care to offenders in
fiscal years 2010 and 2011 (see Appendix
2 for an excerpt from a February 2010
presentation regarding the UTMB-CMC
Division budget.)

During this audit, UTMB revised its overall
projected deficit for fiscal years 2009 through
2011 to $83.5 million.

Background Information
The Department of Criminal Justice
contracts with the Correctional Managed
Health Care Committee to provide
health care to offenders.
The Correctional Managed Health Care
Committee serves as the oversight and
coordination authority for the delivery
of health care to offenders. Texas
Government Code, Chapter 501,
established the primary mission and
related authority of the Correctional
Managed Health Care Committee.
The Correctional Managed Health Care
Committee then contracts with the
University of Texas Medical Branch at
Galveston and the Texas Tech University
Health Sciences Center to provide
health care to offenders.
Source: Correctional Managed Health
Care Committee Web site.

For the purposes of this audit, the State Auditor’s Office focused on the reported
deficit for UTMB-CMC Division in fiscal years 2009 and 2010. The following items
led to that deficit:


Reimbursement amounts. UTMB develops reimbursement amounts for
UTMB-CMC Division services internally without independent review and
approval from the Correctional Managed Health Care Committee. Based on
information UTMB provided, in fiscal year 2010, UTMB-CMC Division physician
reimbursement amounts exceeded standard Medicare, Medicaid, and a major
private insurance carrier’s reimbursement amounts. According to UTMB’s
School of Medicine and the data it provided, the UTMB-CMC Division’s
reimbursement amount for physician billing services is, on average, 135
percent of the Medicare reimbursement amount. Additionally, UTMB-CMC
Division reimbursement amounts exceeded standard Medicare reimbursement
amounts for each type of hospital service, including inpatient and outpatient
services (see Chapter 1-A and Appendix 3 for additional information).



Salary adjustments. Although UTMB was reporting a deficit for UTMB-CMC
Division, it authorized $14.1 million in salary increases for UTMB-CMC Division
during fiscal years 2008 through 2010. Additionally, in November 2010, UTMB
awarded $7,747,621 in Together Employees Achieve More (TEAM) award

This audit was conducted in accordance with Texas Government Code, Section 321.0131.
For more information regarding this report, please contact Nicole Guerrero, Audit Manager, or John Keel, State Auditor, at (512) 9369500.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017

payouts to employees after it reported what one newspaper article referred
to as “a positive adjusted margin of $37.5 million” for fiscal year 20101 (see
Chapter 1-B and Appendix 4 for additional information).


Indirect costs. UTMB may be charging UTMB-CMC Division for a
disproportionate amount of UTMB’s indirect costs. UTMB is charging UTMBCMC Division for indirect cost in three ways: (1) UTMB recovers a portion of
its institution-wide indirect costs through UTMB-CMC Division reimbursement
amounts for offender health care services; (2) UTMB charges UTMB-CMC
Division for a portion of selected UTMB employees’ salaries; and (3) UTMB
allocates a portion of its indirect costs (shared services cost) to UTMB-CMC
Division for departments providing indirect services. The shared services
costs (indirect costs) charged to UTMB-CMC Division in fiscal years 2009 and
2010 totaled $16.2 million and included costs that were not directly related
to providing health care to offenders. An example of UTMB costs allocated to
UTMB-CMC Division through indirect costs involves the Health Policy and
Legislative Affairs Department. UTMB-CMC Division pays 33 percent of the
Senior Vice President’s2 salary for services provided. In addition to paying a
direct portion of this salary, UTMB-CMC Division pays for costs from the
Health Policy and Legislative Affairs Department through both an allocation
of institution-wide indirect costs and as part of the reimbursement amounts
charged to UTMB-CMC Division to recover UTMB’s cost to operate the
correctional managed health care program (see Chapter 1-C and Appendix 6
for additional information).



Allowability of expenditures. Auditors tested a sample of UTMB-CMC Division
expenditures from the $715.9 million in total expenditures that UTMB-CMC
Division made to provide offender health care from fiscal year 2009 through
April 30, 2010. Overall, the expenditures tested were adequately supported.
However, UTMB-CMC Division charged more than $6.6 million for costs
specifically prohibited by the contract with the Correctional Managed Health
Care Committee or state requirements. Additionally, UTMB-CMC Division
should strengthen controls to ensure that all expenditures are allowable.
Auditors identified a net $220,113 in overcharges to the contract with the
Correctional Managed Health Care Committee (see Chapter 1-D for additional
information).
Lack of clear guidance in the contract between UTMB and the Correctional
Managed Health Care Committee also prevented auditors from determining
whether an additional $17.9 million in expenditures were reasonable and
necessary to providing offender health care. In addition, auditors identified
expenditures that were not properly classified, which could prevent the

1

Elder, Laura (23 November 2010). “UTMB back in the black.” The Galveston County Daily News. Retrieved from
http://galvestondailynews.com/story/192694 on December 10, 2010.

2

This person also received a $125,460 TEAM award in fiscal year 2011 (see Appendix 4).

ii

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017

Correctional Managed Health Care Committee from adequately overseeing
costs (see Chapter 1-D and Appendix 7 for additional information).
Organizational structure. UTMB established UTMB-CMC Division as a
department within UTMB. This means that UTMB makes both administrative
and management decisions and provides services to UTMB-CMC Division. This
structure allows for limited independent review and approval of UTMB-CMC
Division finances and has resulted in a lack of coordination among UTMB,
UTMB-CMC Division, and the Correctional Managed Health Care Committee.
This relationship also minimizes the oversight role of the Correctional
Managed Health Care Committee as established by Texas Government Code,
Chapter 501 (see Chapter 3 for additional information).



Table 1 summarizes the effect of questioned costs and other costs auditors
identified that have a significant effect on UTMB’s reported deficit for fiscal years
2009 and 2010.
Table 1

Areas Affecting UTMB's (Deficit)/Surplus

UTMB’s revised deficit

Fiscal Year 2009

Fiscal Year 2010

Fiscal Year 2011

Total

$(12,806,148)
(actual)

a
$(18,708,200)
(actual)

$(51,942,337)
(projected)

$(83,456,685)

$ 3,372,522

$ 3,234,644

(to be determined)

$ 6,607,166

207,691

12,422

(to be determined)

220,113

$ 3,580,213

$ 3,247,066

(to be determined)

$ 6,827,279

Questioned Costs Auditors Identified
Costs prohibited by contract
Expenditure testing results

b

b
Totals

Other Costs Auditors Identified That Affect the Deficit
Indirect costs/shared services
Salary increases

c

d

Expenditures that may not be directly related to providing
offender health care
Totals

$ 8,058,834

$ 8,174,779

(to be determined)

$16,233,613

6,909,549

504,800

(to be determined)

7,414,349

1,032,618

679,336

(to be determined)

1,711,954

$ 16,001,001

$ 9,358,915

(to be determined)

$25,359,916

Reduction in Hospital Charges if Restated at 100 Percent of Standard Medicare Reimbursement Amount
Physician services

e

Inpatient hospital services
Outpatient lab services

e

e

Other outpatient services

e
Totals

$ 3,111,304

$ 4,651,467

(to be determined)

$ 7,762,771

8,273,571

15,184,962

(to be determined)

23,458,533

826,467

1,060,831

(to be determined)

1,887,298

4,023,521

5,390,863

(to be determined)

9,414,384

$ 16,234,863

$26,288,123

(to be determined)

$42,522,986

iii

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017

Areas Affecting UTMB's (Deficit)/Surplus
Fiscal Year 2009

Fiscal Year 2010

Fiscal Year 2011

a

Total

As of September 2010, after auditors’ fieldwork, UTMB revised the fiscal year 2010 deficit to $12.0 million (according to UTMB’s cash flow forecast).
UTMB also revised the projected fiscal year 2011 deficit to $44.9 million (according to UTMB’s cash flow forecast).
b
See Chapter 1-D of this report for additional information.
c
See Chapter 1-C and Table 7 in Chapter 1-D of this report for additional information.
d
See Chapter 1-B of this report for additional information.
e
See Appendix 1 for details on auditors’ analysis of these services.

Summary of Management’s Response
UTMB management did not agree with the issues and recommendations in this
report, and its detailed response is presented in Appendix 8 beginning on page 54.
The information in UTMB’s management response did not cause the State Auditor’s
Office to modify the issues or recommendations in this report.
Management of the Correctional Managed Health Care Committee concurred with
this report’s recommendation that the executive director of the Correctional
Managed Health Care Committee coordinate with the Legislative Budget Board and
UTMB to create transparency and independence in the decision making process
regarding reimbursement amount structure, salary adjustments, and allowable
costs related to providing health care to offenders. The detailed response from
the Correctional Managed Health Care Committee is presented in Appendix 9
beginning on page 62.

Summary of Information Technology Review
UTMB uses multiple information systems to maintain UTMB-CMC Division financial
information. These systems include a detailed financial system (PeopleSoft), a
summary level financial reporting system (Hyperion), and a cost accounting system
(Eclipsys). Auditors reviewed selected UTMB information systems that support
UTMB-CMC Division and determined that UTMB had addressed issues noted in a
previous audit (see An Audit Report on Correctional Managed Health Care Funding
Requirements, State Auditor’s Office Report No. 07-017, March 2007). In addition,
UTMB has implemented controls to help ensure the completeness and accuracy of
the data in those systems. For example, UTMB added edits to help prevent the
processing of incorrectly coded transactions, implemented reconciliations between
the financial and cost accounting systems, and limited access to systems to
authorized staff. However, UTMB should continue to improve security over the
financial system and ensure that it properly restricts access.

iv

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017

Summary of Objectives, Scope, and Methodology
The objectives of this audit were to:


Examine the shortfall reported by the Correctional Managed Health Care
Committee for fiscal year 2009, the projected shortfall reported by the
Correctional Managed Health Care Committee for the 2010-2011 biennium,
and any projected shortfall reported in the Correctional Managed Health Care
Committee’s legislative appropriation request for fiscal years 2012 and 2013.



Follow up on selected recommendations in State Auditor’s Office Report No.
07-017 (March 2007), An Audit Report on Correctional Managed Health Care
Funding Requirements.

The scope of this audit covered UTMB’s actual and projected deficit calculations
for fiscal years 2009 through 2011. Auditors also reviewed the Correctional
Managed Health Care Committee’s oversight and projected deficits for fiscal years
2012 and 2013. In addition, auditors followed up on previous State Auditor’s Office
recommendations at UTMB (see Chapter 4).
The audit methodology included collecting information and documentation,
performing selected tests and other procedures, analyzing and evaluating the
results of the tests, and conducting interviews with management and staff at
UTMB, the Correctional Managed Health Care Committee, and the Department of
Criminal Justice.

v

Contents
Detailed Results
Chapter 1

The UTMB-CMC Division Deficit Was Largely Driven by
Reimbursement Amounts, Salaries, Indirect and
Administrative Costs, and Allowability of Expenditures ......... 1
Chapter 2

UTMB-CMC Division Overestimated Cost Savings Related
to Its Fiscal Year 2010 Reduction in Force by $3.1
Million, and It Spent $4.7 Million for Temporary Services
to Supplement Its Work Force ..................................... 20
Chapter 3

UTMB’s Organizational Structure Impairs Independence
and Decision Making................................................. 22
Chapter 4

UTMB Fully or Substantially Implemented All Prior State
Auditor’s Office Recommendations Related to
Supporting Documentation, Deficit Calculation, and
Information Technology ............................................ 26

Appendices
Appendix 1

Objectives, Scope, and Methodology ............................. 29
Appendix 2

Excerpt from a February 2010 UTMB Presentation
Regarding the UTMB-CMC Division Budget ....................... 35
Appendix 3

Comparison of UTMB-CMC Division, Medicare, Medicaid,
and a Major Private Insurance Carrier’s Reimbursement
Amounts............................................................... 36
Appendix 4

Information Regarding $7.7 Million in TEAM Award
Payouts to UTMB Employees ....................................... 38

Appendix 5

UTMB-CMC Division Salary Adjustments in Fiscal Years
2008 through 2010 ................................................... 39
Appendix 6

UTMB Departments for Which a Portion of Costs Are
Allocated to UTMB-CMC Division as a Shared Services
Expenditure .......................................................... 46
Appendix 7

UTMB-CMC Division Financial Report Cost Totals for
Fiscal Years 2009 and 2010 ........................................ 51
Appendix 8

Management’s Response from UTMB ............................. 54
Appendix 9

Management’s Response from the Correctional Managed
Health Care Committee ............................................ 62
Appendix 10

Related State Auditor’s Office Work ............................. 63

Detailed Results
Chapter 1

The UTMB-CMC Division Deficit Was Largely Driven by Reimbursement
Amounts, Salaries, Indirect and Administrative Costs, and
Allowability of Expenditures
The University of Texas Medical Branch at Galveston (UTMB) develops
correctional managed health care (UTMB-CMC Division) reimbursement
amounts internally without independent review and approval from the
Correctional Managed Health Care Committee. UTMB-CMC Division is
both a department within and a client of UTMB. This creates a lack of
transparency and independence in the management of the correctional
managed health care program (see Chapter 3 for additional details).
UTMB was unable to provide auditors with information on the cost of hospital
services to treat a single offender. However, UTMB provided auditors with
information on hospital charges and reimbursement amounts for UTMB-CMC
Division, Medicare, Medicaid, and a major private insurance carrier for
selected medical procedures. Auditors compared those reimbursement
amounts and determined that UTMB-CMC Division reimbursement amounts
exceeded standard Medicare reimbursement amounts in each of the following
categories: physician services, inpatient hospital services, outpatient lab
services, and other outpatient services (see Chapter 1-A for additional details).
UTMB approved $14.1 million in salary increases for fiscal years 2008
through 2010 for UTMB-CMC Division while it was reporting a deficit.
These salary increases were done through salary actions such as merit
increases, market adjustments, and equity increases (see Chapter 1-B for
additional details).
UTMB-CMC Division continued to report deficits while, in September 2010,
UTMB announced that it would implement a 2 percent merit pay program to
increase salaries for eligible classified employees. In November 2010, UTMB
also awarded $7.7 million in award payouts to employees. According to
UTMB, UTMB-CMC Division employees were not eligible for these award
payouts due to the financial challenges within UTMB-CMC Division;
however, auditors identified 40 employees who were fully or partially paid by
UTMB-CMC Division and who received these awards. Of those 40
employees, 39 received payouts of $500 and 1 received a payout of $125,460
(see Appendix 4 for additional information on the payout awards).
UTMB also may be charging UTMB-CMC Division for a disproportionate
amount of UTMB’s indirect costs. Because UTMB has structured UTMBAn Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 1

CMC Division as a department within UTMB, UTMB-CMC Division shares
in the indirect cost allocation for departments that do not generate patient
charges. As a result, UTMB-CMC Division pays a portion of UTMB’s
institution-wide indirect administrative costs. While UTMB-CMC Division
pays UTMB for a portion of those administrative costs, UTMB also recovers a
portion of its indirect cost through the reimbursement amounts it charges
UTMB-CMC Division for providing health care to offenders (see Chapter 1-C
for additional details).
For fiscal years 2009 and 2010, UTMB-CMC Division charged more than
$6.6 million in expenditures that were prohibited by the contract with the
Correctional Managed Health Care Committee or state requirements. Because
that contract offers limited guidance on allowable expenditures, auditors could
not determine whether an additional $17.9 million in expenditures were
reasonable and necessary to provide health care to offenders (see Chapter 1-D
for additional details).
Chapter 1-A

UTMB Develops UTMB-CMC Division Reimbursement Amounts
Internally without Independent Review and Approval from the
Correctional Managed Health Care Committee; Those
Reimbursement Amounts Exceed Standard Medicare
Reimbursement Amounts
UTMB develops UTMB-CMC Division reimbursement amounts internally without
independent review and approval from the Correctional Managed Health Care
Committee. UTMB-CMC Division is both a department within and
How UTMB-CMC Division
Reimbursement Rates Are
Determined for Inpatient and
Outpatient Services
According to UTMB-CMC Division
management, hospital reimbursement
amounts for inpatient and outpatient
services are established to cover the
cost of providing health care services
to offenders.
UTMB-CMC Division uses what it
considers its costs from the previous
year as a baseline, plus an amount for
inflation as determined by UTMB to
cover rising costs. In addition to
inflation, UTMB-CMC Division also
considers other underlying budget
assumptions (for example, if a 4
percent salary increase is planned,
then salary inflation would be 4
percent).
For fiscal year 2009, the inflation rate
UTMB-CMC Division used was 5.0
percent above fiscal year 2008 costs.
For fiscal year 2010, the inflation rate
that UTMB-CMC Division used was 4.5
percent above fiscal year 2009 costs.

a
client of UTMB. This creates a lack of transparency and independence in
the management of the correctional managed health care program. As a
client of UTMB, UTMB-CMC Division negotiates with UTMB the
amounts UTMB will charge for providing health care services to
offenders. Essentially, UTMB is negotiating with itself.
The UTMB-CMC Division executive director of finance reports directly
to UTMB’s executive vice president of finance, and those individuals
sign the memorandum of understanding that determines the UTMB-CMC
Division reimbursement amounts for physician services, inpatient
hospital services, outpatient lab services, and other outpatient services
provided to offenders. The Correctional Managed Health Care
Committee is not involved in this process.
Physician, inpatient, and outpatient hospital services account for approximately 16
percent of total UTMB-CMC Division expenditures. The amounts charged for

these hospital-related expenditures could affect whether UTMB-CMC
Division experiences a deficit. UTMB was unable to provide auditors
with information on the cost of hospital services to treat a single
offender. Rather than gathering individual costs, UTMB’s cost
accounting system allocates all UTMB expenditures across various
An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 2

services. For example, the cost of an x-ray is not determined by how much it
costs to perform one x-ray; instead, it is determined by taking total radiology
department costs plus an allocated portion of all shared services (for example
laundry and housekeeping) and dividing that amount by the total number of
radiological services performed during the year. UTMB does this for every
UTMB department that provides services to patients.
UTMB provided auditors with information on its hospital charges and
reimbursement amounts for UTMB-CMC Division, Medicaid, Medicare, and
a private insurance carrier for selected procedures. Auditors selected 25 types
of medical procedures to validate the reimbursement rates provided by
UTMB. Auditors then compared the reimbursement amounts UTMB-CMC
Division provided and determined that UTMB-CMC Division reimbursement
amounts exceeded standard Medicare reimbursement amounts in each of the
following categories: physician services, inpatient hospital services, outpatient
lab services, and other outpatient services. The results of the detailed analysis
are presented below.
Physician Services

For fiscal years 2009 and 2010, UTMB-CMC Division reimbursed UTMB
approximately $30 million for providing physician services to offenders.
Auditors tested 29 physician inpatient and outpatient records for fiscal year
2010 and validated the 49 percent reimbursement rate for physician services
as agreed upon in the memorandum of understanding. Additionally, auditors
analyzed UTMB-CMC Division physician services reimbursement amounts
from the most costly and most frequently performed procedures and
determined that UTMB-CMC Division reimbursement amounts exceeded the
standard Medicare reimbursement amounts, Medicaid reimbursement
amounts, and a major private insurance carrier’s reimbursement amounts.
According to UTMB’s School of Medicine and data that UTMB provided, the
UTMB-CMC Division reimbursement amount for physician services is, on
average, 135 percent of the standard Medicare reimbursement amount for
physician services. (See Appendix 1 for additional details on the analytical
procedures that auditors performed.)

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 3

As Table 2 shows, based on the average hospital charge for the five types of
physician services analyzed and the information UTMB-CMC Division
provided, auditors validated that UTMB-CMC Division reimburses UTMB
for 49 percent of hospital charges for physician services; Medicare, on
average, reimburses for 34 percent of hospital charges for physician services.
Table 2

Comparison of Average Reimbursement Amounts for Physician Services
UTMB-CMC Division
Reimbursement

Service
Type

UTMB
Hospital
Charges

Amount

As a
Percent
of
Hospital
Charges

Physician
Services

$7,541

$3,695

49%

Medicare
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

$2,564

34%

Medicaid
Reimbursement

Major Private
Insurance
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

Amount

As a
Percent
of
Hospital
Charges

$2,029

27%

$3,406

45%

Source: Auditor analysis of five types of physician services and the hospital charges and reimbursement amounts provided
by UTMB. Auditors conducted analysis to substantiate rates UTMB provided.

See the methodology for validating the UTMB-CMC Division reimbursement
rates in the objectives, scope, and methodology in Appendix 1.
Inpatient Hospital Services

For fiscal years 2009 and 2010, UTMB-CMC Division reimbursed UTMB
approximately $77 million for providing inpatient hospital services to
offenders based on reimbursement amounts detailed in its memorandum of
understanding. Auditors calculated the percentage change between the fiscal
year 2010 standard dollar amount for Medicare ($5,619.94) and UTMB-CMC
Division’s agreed upon standard dollar amount for inpatient hospital services
($8,062.18). This resulted in a 143.5 percent increase over the Medicare
standard dollar amount, which validates the rate UTMB included in the
memorandum of understanding.
Additionally, auditors tested 48 inpatient hospital services records for fiscal
year 2010 and validated that UTMB-CMC Division was billed at the agreed
upon standard dollar amount for inpatient hospital services times Medicare’s
assigned diagnostic rate group weight factor.
Further, auditors validated the inpatient hospital rate reported by UTMB as
143.5 percent of the Medicare reimbursement amount by selecting a sample of
the most costly and most frequently performed procedures. Auditors then
compared the reimbursement amounts provided by UTMB by analyzing

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 4

inpatient medical procedures for UTMB-CMC Division, Medicare, Medicaid,
and a major private insurance carrier.
As Table 3 shows, based on the average hospital charge for five procedure
types analyzed for inpatient hospital services, UTMB-CMC Division
reimbursement amounts exceeded the standard Medicare and major private
insurance carrier reimbursement amounts.
Table 3

Comparison of Average Reimbursement Amounts for Inpatient Hospital Services
UTMB-CMC Division
Reimbursement

Service
Type

UTMB
Hospital
Charges

Amount

Inpatient
Hospital
Services

$902,494

$240,528

As a
Percent
of
Hospital
Charges

27%

Medicare Standard
Reimbursement

Standard
Amount
Only

$167,666

As a
Percent
of
Hospital
Charges

19%

Medicaid
Reimbursement

Major Private
Insurance
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

Amount

As a
Percent
of
Hospital
Charges

$487,347

54%

$224,222

25%

Source: Auditor analysis of five types of inpatient hospital procedures and the hospital charges and reimbursement amounts
provided by UTMB. Auditor analysis was conducted to substantiate rates UTMB provided.

According to the Texas Medicaid and Healthcare Partnership, as of July 2009,
UTMB’s reimbursement was set at a Medicaid Tax Equity and Fiscal
Responsibility Act (TEFRA) rate of 54 percent of hospital charges for
providing inpatient services to its Medicaid patients. As a result, the Medicaid
reimbursement amount for inpatient hospital services was higher than the
UTMB-CMC Division reimbursement amount for inpatient hospital services.
It should also be noted that, for inpatient hospital services, the above
comparison was made only against the Medicare standard
Indirect Medical Education –
reimbursement amount. Because UTMB is a teaching hospital, for
Additional payment to reflect the
inpatient hospital services UTMB receives additional Medicare
higher patient care costs of teaching
hospitals relative to non-teaching
reimbursement amounts for indirect medical education and direct
hospitals.
graduate medical education (see text box). UTMB also qualifies for
Direct Graduate Medical Education –
a disproportionate share hospital payment for serving low income
Payments to hospitals for the costs
of approved graduate medical
patients. Including these additional reimbursement amounts would
education programs.
make the total Medicare reimbursement amount for inpatient
services higher than the UTMB-CMC Division reimbursement
amount. However, being a teaching institution and a hospital that serves low
income patients may not entitle UTMB to receive these additional
considerations because it is a state entity operating a fee-for-service contract
with another state entity. See Table 11 in Appendix 3 for additional
information on UTMB reimbursement amounts, including reimbursement
Definitions

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 5

amounts for indirect medical education and direct graduate medical education
and for reimbursement as a disproportionate share hospital.
See the methodology for validating the UTMB-CMC Division reimbursement
rates in the objectives, scope, and methodology in Appendix 1.
Outpatient Lab Services

For fiscal years 2009 and 2010, UTMB-CMC Division reimbursed UTMB
approximately $19 million for providing outpatient lab services to offenders.
Auditors analyzed outpatient lab procedure types for five of the most costly
and most frequently performed procedures and compared the reimbursement
amounts for UTMB-CMC Division to Medicare, Medicaid, and a major
private insurance carrier.
As Table 4 shows, based on the average reimbursement amounts for the five
outpatient lab procedure types selected, auditors were able to validate
UTMB’s reported reimbursement amount of 20.2 percent of billed charges or
111.3 percent of the Medicare reimbursement amount and determined that
UTMB-CMC Division reimbursement amounts exceeded Medicare and
Medicaid reimbursement amounts.
Table 4

Comparison of Average Reimbursement Amounts for Outpatient Lab Services
UTMB-CMC Division
Reimbursement

Service
Type
Outpatient
Lab
Services

UTMB
Hospital
Charges

$460

Amount

As a
Percent
of
Hospital
Charges

$93

20%

Medicare
Reimbursement

Amount

$84

As a
Percent
of
Hospital
Charges

18%

Medicaid
Reimbursement

Major Private
Insurance
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

Amount

$84

18%

$368

As a
Percent
of
Hospital
Charges

80%

Source: Auditor analysis of five types of outpatient lab procedures and the hospital charges and reimbursement amounts provided
by UTMB. Auditor conducted analysis to substantiate rates UTMB provided.

See the methodology for validating the UTMB-CMC Division reimbursement
rates in the objectives, scope, and methodology in Appendix 1.
Other Outpatient Services

For fiscal years 2009 and 2010, UTMB-CMC Division reimbursed UTMB
approximately $33 million for providing other outpatient services to
offenders. Auditors analyzed 10 of the most costly and most frequently
performed procedure types and validated UTMB’s reported other outpatient
An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 6

services billing rate of 38.6 percent, or 140 percent of the Medicare
reimbursement amount. Auditors also compared the reimbursement amounts
for UTMB-CMC Division to Medicare, Medicaid, and a major private
insurance carrier.
As Table 5 shows, based on the average of the 10 other outpatient procedure
types analyzed, the UTMB-CMC Division reimbursement amount exceeded
the Medicare reimbursement amount.
Table 5

Comparison of Average Reimbursement Amounts for Other Outpatient Services
UTMB-CMC Division
Reimbursement

UTMB
Hospital
Charges

Service
Type
Other
Outpatient
Services

$121,391

Amount

$46,857

As a
Percent
of
Hospital
Charges

39%

Medicare
Reimbursement

Amount

$33,474

As a
Percent
of
Hospital
Charges

28%

Medicaid
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

$52,198

43%

Major Private
Insurance
Reimbursement

Amount

As a
Percent
of
Hospital
Charges

$97,113

Source: Auditor analysis of 10 types of other outpatient procedures and the hospital charges and reimbursement amounts
provided by UTMB. Auditor’s conducted analysis to substantiate rates UTMB provided.

According to the Texas Medicaid and Healthcare Partnership, as of July 2009,
UTMB’s reimbursement was set at a Medicaid TEFRA rate of 43 percent of
hospital charges for providing outpatient services to its Medicaid patients. As
a result, the Medicaid reimbursement for other outpatient services was higher
than the UTMB-CMC Division reimbursement.
See the methodology for validating the UTMB-CMC Division reimbursement
rates in the objectives, scope, and methodology in Appendix 1.
Recommendations

UTMB should ensure transparency in its process for determining
reimbursement amounts for physician, inpatient, and outpatient services by
annually providing proposed reimbursement amounts, the methodology
applied, and related supporting documentation to:


The executive director of the Correctional Managed Health Care
Committee for review and written approval.



The Health and Human Services Commission’s rate-setting division for its
review and comment.

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80%



The Legislative Budget Board for its review and written approval prior to
expending any appropriated funds for the purpose of providing offender
health care.

The Legislature may consider requiring UTMB to:


Annually obtain a review of reimbursement amounts from the Health and
Human Services Commission’s rate-setting division and from the
Legislative Budget Board.



Annually obtain written approval from the Legislative Budget Board
before implementing UTMB-CMC Division reimbursement amounts.



Publish proposed UTMB-CMC Division reimbursement amounts, rates,
and the associated methodology in the Texas Register.

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Chapter 1-B

UTMB Approved $14.1 Million in Salary Increases for Fiscal Years
2008 Through 2010 for UTMB-CMC Division While UTMB Was
Reporting a Deficit
Employee Categories
Administrative and Professional – Includes
executive and managerial administrative employees
engaged in strategic, tactical, or operational
management who have primary responsibility for
the management of a department or operating
unit.
Classified – Includes employees in office support,
pharmacy, health care and clinical support,
nursing, police, research, and general business
operations positions.
Non-teaching – Includes professional, non-faculty
employees, such as physicians.
Pay-by-letter – Includes employees who (1) are not
eligible for benefits and (2) have work weeks that
are fewer than 20 hours and may vary. These
employees are not included in auditors’ analysis.
Source: UTMB’s Institutional Salary Administration
Procedures for Classified and Administrative and
Professional Employees and UTMB’s Web site.

Employee salaries are a significant part of UTMB-CMC
Division’s expenditures, but while UTMB was reporting a
deficit, UTMB-CMC Division increased salary expenditures.
UTMB-CMC Division awarded salary increases totaling $6.7
million, $6.9 million, and $504,800 in fiscal years 2008, 2009,
and 2010, respectively. These increases were awarded to
administrative and professional, classified, and non-teaching
employees (see text box for additional details on these
employee categories).
After awarding the fiscal year 2008 salary increases of $6.7
million, UTMB-CMC Division incurred a $14.7 million deficit.
UTMB-CMC Division received supplemental appropriations of
$14.7 million for fiscal year 2008, which covered its deficit. In
fiscal year 2009, UTMB-CMC Division approved an additional
$6.9 million in salary increases and reported a $12.8 million
deficit. The fiscal year 2009 salary increases accounted for
more than half of the deficit that year.

Salary Actions

Additionally, while UTMB-CMC Division continued to report
deficits, UTMB also continued to issue pay actions. For
Market adjustment (external equity) – A salary
example, in September 2010, UTMB announced that it would
increase to reduce or eliminate pay disparity with
implement a 2 percent merit pay program to increase salaries
the external labor market.
for eligible classified employees. However, UTMB-CMC
Equity increase (internal equity) – A salary
increase to adjust the salary of an individual whose
Division employees were not considered eligible for these
pay is lower than other internal salaries for
salary increases due to that department’s financial challenges.
comparable level work and performance.
In November 2010, UTMB awarded $7.7 million in Together
Source: UTMB’s Institutional Salary Administration
Procedures for Classified and Administrative and
Employees Achieve More (TEAM) awards to compensate its
Professional Employees.
employees for accomplishing specific financial and
programmatic goals that had been determined critical to
UTMB’s success. Although UTMB-CMC Division employees were
reportedly ineligible for these award payouts, 40 UTMB-CMC Division
employees received approximately $145,000 in award payouts, reportedly
from local funds (see Appendix 4 for additional information on TEAM award
payouts). It is important to note that, in its 2012-2013 legislative
appropriations request, UTMB included a request for $33.4 million in funding
for new positions, salary increases, and merit raises.
Merit increase – A salary increase to award an
individual’s meritorious performance.

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UTMB-CMC Division Compensation Decisions and Actions—Highlights for Fiscal
Years 2008 Through 2010

Salary increases for UTMB-CMC Division employees were done through
salary actions such as merit increases, market adjustments, and equity
increases (see Appendix 5 for a complete list of UTMB-CMC Division salary
actions). Salary increases ranged from less than 1.0 percent to 40.0 percent in
fiscal year 2009; the increases ranged from 0.6 percent to 44.0 percent in
fiscal year 2010. Approximately 3.0 percent of approved funds for merit
increases in fiscal year 2009 and 73.0 percent of approved funds for merit
increases in fiscal year 2010 went to administrative and professional
employees, which comprised less than 1.0 percent of total full-time
equivalent (FTE) employees within UTMB-CMC Division.
UTMB-CMC Division awarded 65 percent of the amount that the State of
Texas awarded for internal and external pay equity increases for
Salary Increases to Address
employees in fiscal year 2009. UTMB-CMC Division spent $2.4
Internal and External Pay Equity
million on 409 internal and external equity pay increases in fiscal year
for Fiscal Year 2009
2009 for UTMB-CMC Division employees. In comparison, all state
All state of Texas agencies:
of Texas agencies’ internal and external equity pay increases totaled
 Number of actions provided: 1,320.
$3.6 million for 1,320 salary actions (from a population of 150,230) in
 Amount awarded: $3.6 million.
that same time frame (see text box for a summary).
 FTEs: 150,230.
UTMB-CMC Division:

 Number of actions provided: 409.
 Amount awarded: $2.4 million.
 FTEs: 3,185.
Sources: Comptroller of Public
Accounts’ Human Resources
Information System, Uniform Statewide
Payroll/Personnel System, and
Standardized Payroll/ Personnel
Reporting System; and UTMB’s HCM
DataMart payroll extract document.

Number of UTMB-CMC Division
Employees Who Received
Multiple Salary Actions in the
Same Fiscal Year
 Fiscal Year 2008: 339 employees.
 Fiscal Year 2009: 398 employees.
 Fiscal Year 2010: 1 employee.
Source: UTMB-CMC Division HCM
DataMart payroll extract document.

3

Annual salary increases that
UTMB-CMC Division awarded in fiscal years 2008 through 2010
ranged from $2 (to bring an employee up to the minimum of a salary
range) to $31,211 (to recognize a temporary increase in an employee’s
duties3). See Appendix 5 for additional details on the minimum and
maximum salary increase amounts by fiscal year (see Table 13 in
Appendix 5).
Annual salary increases ranged up to $31,211.

UTMB-CMC Division employees were awarded salary increases even
though UTMB-CMC Division reported a deficit and received
supplemental appropriations. Through tests of salary data, auditors
identified the items discussed below.
Some UTMB-CMC Division employees received multiple salary actions in one or
more fiscal years. UTMB-CMC Division provided a total of 6,052 salary

actions to UTMB-CMC Division administrative and professional,
classified, and non-teaching employees in fiscal years 2008 through
2010. Some of these employees received multiple salary actions
during one or more fiscal years (see text box for additional details).

According to UTMB’s Institutional Salary Administration Procedures for Classified and Administrative and Professional
Employees, temporary increases should be for six months or fewer. This employee received a temporary salary increase for
performing additional duties in fiscal year 2008. As of fiscal year 2010, this employee’s salary still reflected this increase.
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For example:


One employee received 5 salary increases totaling $67,925 in fiscal years
2008 and 2009. In addition, this employee had a pay-by-letter
appointment in fiscal year 2008 and received a $10 per hour market
increase for that appointment.



Another employee received 4 salary increases within a 9-month period in
fiscal year 2009 totaling $18,045.



Another employee received 5 salary increases in fiscal years 2008 and
2009 totaling $38,459.

UTMB-CMC Division uses pay-by-letter arrangements to compensate some employees,
which may not be the best use of its resources. In fiscal years 2008 through 2010,

UTMB-CMC Division awarded 84 hourly pay increases to pay-by-letter
employees. Additionally, current salaried employees may be appointed in
full-time positions and also have pay-by-letter appointments. This means that,
in addition to their salaries, these employees are also financially compensated
for working additional hours of service they provide to UTMB-CMC Division
to fulfill a particular need for additional staffing (instead of earning state
compensatory time as authorized in UTMB’s policy).
Currently, UTMB has a policy regarding classified exempt employees earning
state compensatory time. Because many full-time classified and non-teaching
employees who also have pay-by-letter appointments are in exempt positions,
awarding state compensatory time may be another option for compensating
these individuals for the additional time they work in other areas.
See Appendix 5 for additional details on the amounts that UTMB-CMC
Division spent on items such as salary actions, merit increases, market
adjustments, and equity increases in fiscal years 2008 through 2010.
Recommendations
UTMB should seek approval from the Legislative Budget Board for any
salary adjustments, including but not limited to, merits, market adjustments,
and pay-by-letter arrangements for UTMB-CMC Division employees before
any pay action is granted using funds appropriated for offender health care.
The Legislature may consider requiring UTMB to obtain approval from the
Legislative Budget Board for any salary adjustments, including but not limited
to, merits, market adjustments, and pay-by-letter arrangements for its
employees using funds appropriated for providing offender health care.

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Chapter 1-C

UTMB May Be Charging UTMB-CMC Division for a Disproportionate
Amount of UTMB’s Indirect Costs
UTMB-CMC Division pays a portion of UTMB’s institution-wide indirect
administrative costs. These costs, which include any approved salary
increases, are based on an allocation, and they include expenditures for
UTMB institutional areas that are not directly related to providing health care
to offenders. These administrative indirect costs are reflected as a shared
services expense line item on UTMB-CMC Division’s financial reports. In
fiscal years 2009 and 2010, UTMB-CMC Division paid UTMB $8.0 million
and $8.2 million, respectively (a total of $16.2 million), for shared services
costs.
Because UTMB has structured UTMB-CMC Division as a department within
UTMB, UTMB-CMC Division shares in the administrative indirect cost
allocation for departments that do not generate patient charges. Some of those
departments do not provide health care to offenders or bear any relationship to
the correctional managed health care program. See Appendix 6 for a list of the
departments that are included in UTMB’s indirect administrative cost
allocation.
While UTMB-CMC Division pays UTMB for a portion of indirect
administrative costs, UTMB also recovers a portion of its indirect costs
through the negotiated inpatient/outpatient reimbursement amounts it charges
UTMB-CMC Division for providing health care to offenders. The
reimbursement amounts are set to recover what UTMB considers to be the
costs to operate the Department of Criminal Justice hospital and the
correctional managed health care program. The reimbursement amounts also
include an inflation factor and reflect other budget assumptions, such as merit
increases. For fiscal years 2009 and 2010, UTMB increased the
reimbursement amounts by 4.5 percent and 5.0 percent, respectively. These
costs are derived from an allocation of all of UTMB’s operating expenditures
and include the cost of items such as utilities, temporary employment
agencies, and office supplies. The allocation assigns costs from UTMB’s
departments to account for health care provided to offenders at the
Department of Criminal Justice hospital and at other UTMB hospitals and
clinics.
UTMB-CMC Division also directly funds salaries for employees who support
the provision of health care to offenders. UTMB spent approximately $34
million on administrative salaries in fiscal years 2009 and 2010. Some of the
employees whose salaries are charged directly to UTMB-CMC Division
perform tasks that are considered administrative and correlate with areas
already charged to UTMB-CMC Division as part of the indirect administrative
cost allocation discussed above. For example, UTMB-CMC Division directly
funds its own human resources staff with funds from the contract with the
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Correctional Managed Health Care Committee. Additionally, UTMB-CMC
Division pays for a portion of the salary costs related to UTMB’s human
resources department as part of its indirect administrative costs. Further,
UTMB-CMC Division is charged reimbursement amounts for hospital
services. Those reimbursement amounts include indirect administrative costs,
such as the costs associated with human resources that are identified by
UTMB.
Another example of UTMB-CMC Division’s indirect cost allocation involves
the Health Policy and Legislative Affairs Department. UTMB-CMC Division
pays 33 percent of the Senior Vice President’s4 salary and between 50-100
percent of the salaries for 3 staff. These salaries are directly funded from the
contract with the Correctional Managed Health Care Committee. In addition
to paying a direct portion of these salaries, UTMB-CMC Division is also
charged for costs related to this department as an allocation of institution-wide
indirect costs. These costs appear on UTMB-CMC Division’s financial
reports as part of the indirect cost (shared services) expense line item. The
costs associated with this department are also included in the costs used to
determine reimbursement amounts. These amounts are then charged to
UTMB-CMC Division to recover UTMB’s cost to operate the correctional
managed health care program.
The indirect administrative costs charged to UTMB-CMC Division are in
addition to the approximately $561 million5 in General Revenue that UTMB
received in state appropriations for operations other than correctional
managed care operations in fiscal years 2009 and 2010.
Recommendations

UTMB should:


Ensure that indirect cost categories it charges to UTMB-CMC Division are
only for services that are reasonable and necessary to provide offender
health care.



Obtain approval from the Legislative Budget Board before charging any
indirect costs to UTMB-CMC Division and using funds appropriated for
the purpose of providing offender health care to cover those costs.

The Legislature may wish to consider determining whether UTMB-CMC
Division funds appropriated for offender health care should be used to pay an

4

This person also received a $125,460 TEAM award in fiscal year 2011 (see Appendix 4).

5

That amount is from the General Appropriations Act (80th Legislature) prior to any reductions that may have occurred during
the 2010-2011 biennium.
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allocated indirect cost, a reimbursement amount that includes indirect costs, or
a combination of both.
Chapter 1-D

UTMB-CMC Division Charged More Than $6.6 Million in Prohibited
Expenditures; In Addition, Limited Contract Guidance Prevented
Auditors from Determining Whether an Additional $17.9 Million in
Expenditures Were Reasonable and Necessary
Auditors tested a sample of UTMB-CMC Division expenditures from the
$715.9 million in total expenditures UTMB-CMC Division made to provide
offender health care from fiscal year 2009 through April 30, 2010. Overall,
the expenditures tested were adequately supported.
However, UTMB-CMC Division charged more than $6.6 million in
expenditures that were prohibited by the contract with the Correctional
Managed Health Care Committee or state requirements. In addition, the
contract does not provide enough guidance to ensure that funds are spent only
for costs directly related to offender health care. Auditors also identified a net
$220,113 in overcharges to the contract and an additional $17.9 million in
expenditures that were not prohibited by the contract but may not be directly
related to or necessary for delivering health care to offenders.
UTMB-CMC Division also should improve the classification and presentation
of expenditures in its accounting records and financial reports to ensure that
management and the Correctional Managed Health Care Committee have a
clear understanding of how funds appropriated for offender health care are
spent. Auditors noted a number of expenditure misclassifications in UTMBCMC Division financial records.

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UTMB-CMC Division charged more than $6.6 million in prohibited expenditures.

Auditors identified $6,607,166 in expenditures that were prohibited by the
contract with the Correctional Managed Health Care
Committee
or state requirements (see Table 6).
Fringe Benefits
According to the Society for Human Resource
Management, fringe benefits are benefits granted to
employees in addition to their current base salary or
wages (for example, cash, merchandise, services,
health insurance, pension plans, holidays, and paid
vacations).
For this audit, the State Auditor’s Office considered
the following to be fringe benefits:
(1) Optional retirement program expenditures.
(2) Old-age, survivors, and disability insurance
expenditures.
(3) Old age, survivors, disability, and health
insurance expenditures.
(4) Premium sharing expenditures for accidental
death and dismemberment, health, life, and vision.
The State Auditor’s Office did not include benefits
such as paid leave in its interpretation of fringe
benefits.

The contract with the Correctional Managed Health Care
Committee states that UTMB-CMC Division can use
contract funds for unemployment insurance and worker’s
compensation, but all other employee fringe benefits must
be charged to the Teacher Retirement System, the
Employees Retirement System, or other appropriations as
determined by the Comptroller of Public Accounts. 6
While the contract does not define fringe benefits, the
Society for Human Resource Management’s 7 definition
of fringe benefits is broad and includes items such as paid
vacation and holidays (see text box). Auditors included
only selected fringe benefits to calculate unallowable
expenditures (see text box for additional details).

In fiscal years 2009 and 2010, UTMB-CMC Division spent $5,131,016 for
employee benefits not authorized by the contract, including expenditures for
retirees’ premiums and new employees’ health insurance.
The contract with the Correctional Managed Health Care Committee also
states that UTMB must pay for coordinating funeral and autopsy services and
for deceased offender expenses.8 However, in fiscal years 2009 and 2010,
UTMB-CMC Division charged the Correctional Managed Health Care
Committee contract $1,476,150 for funeral and autopsy services.
Table 6

UTMB-CMC Division Expenditures That Were Prohibited by
The Contract With the Correctional Managed Health Care Committee or State Requirements
Fiscal Year
2009

Expenditure Type
Employee Benefits

Fiscal Year
2010

$2,527,528

Funeral and Autopsy
Totals

$2,603,488

Total
$5,131,016

844,994

631,156

1,476,150

$3,372,522

$3,234,644

$6,607,166

Source: UTMB-CMC Division fiscal year 2009 and 2010 expenditure records.
6

See Article XII, General Provision, Section K, in the fiscal year 2009 and 2010 contract with the Correctional Managed Health
Care Committee.

7

According to the Society for Human Resource Management, it is the world’s largest association devoted to human resource
management and represents more than 250,000 members in more than 140 countries.

8

See Article II, Section F - Centralized Statewide Services and Exhibit B, page 6, in the fiscal year 2009 and 2010 contract with
the Correctional Managed Health Care Committee.
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UTMB-CMC Division has established adequate controls to ensure that
expenditures related to offender health care are properly supported; but it
should strengthen controls to ensure that expenditures are allowable.

Auditors tested a sample of UTMB-CMC Division expenditures in categories
such as salaries; employee benefits; travel; pharmaceuticals; and billings for
physicians, inpatient services, and outpatient services from the $715.9 million
in expenditures made from fiscal year 2009 through April 30, 2010. In
general, the expenditures tested were adequately supported.
However, UTMB-CMC Division should strengthen controls to ensure that
expenditures are allowable. Auditors identified a net $220,113 in overcharges
to the Correctional Managed Health Care contract. Specifically:


$168,234 in fiscal year 2009 IBNR (incurred but not reported) charges
remained unspent as of fiscal year 2011.



43 (31.2 percent) of 138 inpatient billing expenditures tested led to
overcharges totaling $44,187.



5 (8.9 percent) of 56 expenditures tested for license fee-professional,
membership dues, and subscriptions tested led to overcharges totaling
$7,273.



15 (25.0 percent) of 60 pharmaceutical expenditures tested led to
undercharges totaling $1,713.



3 (5.0 percent) of 60 physician billing expenditures tested led to
overcharges totaling $412. Two of these expenditures were for services
provided by nursing staff instead of physicians, and UTMB-CMC
Division used an incorrect reimbursement rate for the remaining
expenditure.



1 (or 2.1 percent) of 47 transportation expenditures tested led to
overcharges totaling $322.



Maintenance and operations expenditure overcharges totaled $1,399.

The contract with the Correctional Managed Health Care Committee does not
provide sufficient guidance to ensure that funds will be spent only for costs
directly related to offender health care.

The contract with the Correctional Managed Health Care Committee states
that funds must be spent in accordance with Comptroller of Public Accounts’
guidelines, and it includes limited restrictions on expenditures for items such
as employee meals unless they are related to travel, gifts, awards, and costs for

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employee celebrations.9 However, this guidance is not sufficient to clearly
specify the types of expenditures that are reasonable and necessary for
delivering offender health care.
Auditors identified $17.9 million in fiscal year 2009 and 2010 expenditures
that were not specifically prohibited by the contract but may not be directly
related to or necessary for delivering offender health care (see Table 7).
Table 7

Fiscal Year 2009 and 2010 Expenditures
That May Not Be Directly Related to or Necessary for Delivering Offender Health Care
Fiscal Year 2009

Fiscal Year 2010

Total

Salaries
Employee Referral Bonus

$

Education Pay

122,250

115,750

$238,000

27,202

28,802

56,004

0

3,692

3,692

$149,452

$ 148,244

$297,696

$122,454

$149,036

$271,490

0

61,430

61,430

$122,454

$210,466

$332,920

$177,755

$ 93,833

$ 271,588

Certification
Totals

$

Benefits
Employee Tuition and School Books
Mobile Devices
Totals

Maintenance and Operations
State Purchased Meals
Advertising

176,483

15,484

191,967

Conferences/Meetings/Registration Fees

98,266

83,689

181,955

Placement Fee

85,000

94,500

179,500

Employee Meals

172,308

1,700

174,008

Recruitment Expenses-Prospective Employees

20,028

8,269

28,297

Late Interest Charges

16,723

8,539

25,262

Parking Fees

6,500

3,880

10,380

Uniforms - Medical Staff

7,649

2,363

10,012

Educational/Training Service

0

4,845

4,845

Rental Aircraft

0

3,524

3,524

$760,712

$320,626

$1,081,338

$5,000,035

$3,649,383

$ 8,649,418

Finance

1,583,487

858,576

2,442,063

Human Resources

1,120,412

1,990,807

3,111,219

Totals

Indirect Costs/Shared Services
Information Technology Services

9

See Article III, Payment Provision, Restrictions on Expenditures, in the fiscal year 2009 and 2010 contract with the Correctional
Managed Health Care Committee.
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Fiscal Year 2009 and 2010 Expenditures
That May Not Be Directly Related to or Necessary for Delivering Offender Health Care
Fiscal Year 2009

Fiscal Year 2010

Total

Community Outreach, Health Policy, and
Legislative Affairs

507,476

0

507,476

Logistics

194,164

151,282

345,446

(346,740)

1,524,731

1,177,991

Totals

$8,058,834

$8,174,779

$16,233,613

Totals for All Categories

$9,091,452

$ 8,854,115

$ 17,945,567

Administration

Source: UTMB-CMC Division expenditure records.

While some indirect costs may be necessary for providing offender health
care, UTMB-CMC Division may be paying a disproportionate share of
indirect costs (see Chapter 1-C on indirect costs for additional details). The
State Auditor’s Office identified a similar issue regarding the appropriateness
or allowability of certain expenditures in a November 2004 audit report (see
An Audit Report on Management of Correctional Managed Health Care
Contracts, State Auditor’s Office Report No. 05-012.)
Inappropriate classification of expenditures may prevent UTMB-CMC Division
management and the Correctional Managed Health Care Committee from having
a clear understanding of how funds appropriated for offender health care are
spent.

UTMB-CMC Division does not always properly classify expenditures in the
appropriate category. This could diminish the understanding of how funds are
spent and prevent management and the Correctional Managed Health Care
Committee from making appropriate decisions. For example:


In fiscal year 2009, UTMB-CMC Division classified expenditures for
physician contracted services totaling at least $93,371 in six different
ways: licensed professional services, medical services, other professional
services, data processing services, temporary employment agencies, and
offsite care.



In fiscal years 2009 and 2010, UTMB-CMC Division classified at least
$38,127 in lodging expenditures as conferences and meetings. This type of
expenditure should be classified as travel. In fiscal year 2009, the
conferences and meetings category also included $5,742 in job fair
expenditures that should have been classified as a recruiting expense.

Furthermore, the manner in which some of the expenditure categories are
presented in UTMB-CMC Division’s financial reports may mislead
management’s understanding and prevent management from making
appropriate decisions regarding correctional managed health care funds. For
example, for fiscal years 2009 and 2010:
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

The salaries category included $238,000 in employee referral bonuses and
$56,004 in education pay. In addition, the fiscal year 2010 salaries
category included $3,692 in certification pay. Further, while the salaries
category included $13,820,756 for both fiscal years for the cost of using
temporary agencies, an additional $799,225 for temporary services was
reported under maintenance and operations for fiscal year 2009.



The benefits category included $271,490 in employee tuition and school
book reimbursements for both fiscal years. The fiscal year 2009 benefits
also included $1,053 in moving and relocation expenses, and the fiscal
year 2010 benefits included $61,430 for mobile devices.



For fiscal years 2009 and 2010, the hospital services category included a
total of $12,967,218 for state paid staff benefits for the Department of
Criminal Justice hospital. This hospital is a separate department within
UTMB, and this expenditure would be more accurately reflected under
employee benefits and should not be reflected on UTMB-CMC Division
financial reports. These costs themselves were not questioned because a
corresponding revenue was also reflected on the financial report.

See Appendix 7 for detailed information on how expenditures related to
offender health care are presented in UTMB-CMC Division financial reports.
Recommendations

UTMB should:


Strengthen controls over expenditures to ensure that only authorized
expenditures are charged to the contract with the Correctional Managed
Health Care Committee, and ensure that it maintains adequate supporting
documentation for all expenditures.



Work with the Correctional Managed Health Care Committee or another
independent party to identify specific expenditures that are reasonable,
allowable, and necessary to provide offender health care.



Accurately classify all financial transactions related to UTMB-CMC
Division so that management and the Correctional Managed Health Care
Committee can make decisions based on accurate information.

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SAO Report No. 11-017
February 2011
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Chapter 2

UTMB-CMC Division Overestimated Cost Savings Related to Its Fiscal
Year 2010 Reduction in Force by $3.1 Million, and It Spent $4.7
Million for Temporary Services to Supplement Its Work Force
Reduction in Force

In May 2010, UTMB-CMC Division announced that it would implement a
reduction in force in July 2010 because it was projecting and experiencing a
deficit.
UTMB-CMC Division projected that it would achieve a cost savings of $14.7
million from the reduction in force; however, auditors determined the cost
savings was $11.6 million ($3.1 million, or 21 percent, less than UTMB-CMC
Division projected). Auditors’ calculations considered $557,498 in costs for
accrued vacation time payouts and $2.5 million in costs for the additional
staffing related to UTMB-CMC Division’s new staffing model.
In fiscal year 2010, UTMB-CMC Division reduced its staff by 292 full-time
equivalent (FTE) positions. Of those 292 FTEs, 242 (83 percent) provided
direct patient care and 50 (17 percent) were classified as administrative and
professional staff. Of the 50 FTEs classified as administrative staff, only 3
worked in Galveston. Table 8 summarizes the direct patient care staff job
classifications and numbers of FTEs included in the reduction in force.
Table 8

Direct Patient Care Staff Included in UTMB-CMC Division’s
Reduction in Force
Job Classification

Number of FTEs Included
In the Reduction in Force

Nurse Clinicians (Registered Nurses)

102.0

Medical Assistants

54.5

Facility Clinical Services Representatives

46.5

Assistant Nurse Managers

30.0

Vocational Nurses

4.0

Patient Care Technicians

3.0

Mid-level Practitioner

1.0

Optometrist

1.0

Total

242.0 FTEs

Source: UTMB-CMC Division.

According to UTMB-CMC Division, its intention in implementing the
reduction in force was to modify clinical nurse (registered nurse) staffing
levels and move to a staffing model that used more licensed vocational nurses.
However, the opposite occurred. Specifically, the number of licensed
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February 2011
Page 20

vocational nurses decreased from 655 FTEs in fiscal year 2010 to a budgeted
629 FTEs in fiscal year 2011, a reduction of approximately 4 percent.
Temporary Services

During fiscal year 2010, UTMB-CMC Division spent $4.7 million on
temporary services, which included services for ad locum physicians, midlevel practitioners, and temporary nursing staff. According to UTMB-CMC
Division, it used temporary services to meet critical needs, cover staffing
shortages, cover understaffed areas, and provide continuity of offender health
care.
The use of temporary services can be costly because UTMB-CMC Division
must pay base salaries, as well as the costs for related employment taxes
(Social Security and Medicare), unemployment and workers’ compensation
insurance, and other administrative costs or overhead charges that the
temporary agencies apply.
Recommendations

UTMB should:


Perform a cost-benefit analysis prior to a reduction in force to ensure that
it considers all direct and indirect costs (such as unemployment charge
backs and accrued vacation leave payouts) in the calculation of potential
cost savings.



Develop a contingency plan to identify gaps in staffing and perform a
cost-benefit analysis to determine the reasonableness of using temporary
services.

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SAO Report No. 11-017
February 2011
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Chapter 3

UTMB’s Organizational Structure Impairs Independence and Decision
Making
The organizational placement of UTMB-CMC Division within UTMB does
not allow for (1) independent decision making and (2) review and approval of
critical expenditures that are charged to the contract with the Correctional
Managed Health Care Committee (the UTMB-CMC Division
contract). This is because UTMB has established UTMB-CMC
Excerpts from
Texas Government Code,
Division as a department within the institution. As a result, UTMB
Section 501.148
both oversees UTMB-CMC Division and provides services to UTMBCHAPTER 501.148. GENERAL POWERS
CMC Division as a contracted client.
AND DUTIES OF [THE CORRECTIONAL
MANAGED HEALTH CARE COMMITTEE]…
(4) allocate funding made available
through legislative appropriations for
correctional health care; (5) monitor
the expenditures of the University of
Texas Medical Branch at Galveston and
the Texas Tech University Health
Sciences Center to ensure that those
expenditures comply with applicable
statutory and contractual requirements.

The relationship between UTMB and UTMB-CMC Division
represents a weakness in segregation of duties and affects all aspects of
UTMB-CMC Division operations, including salaries, reimbursement
amount structures, and allowable costs. This relationship also
minimizes the oversight role of the Correctional Managed Health Care
Committee as established in Texas Government Code, Section 501.148
(see text box).

UTMB-CMC Division has established its own administrative and support
staff for finance, human resources, and contracts. Their responsibilities
include:


Reporting and tracking UTMB-CMC Division expenditures.



Managing health care staff to ensure that UTMB-CMC Division provides
adequate medical services to offenders.



Contracting with external organizations that also provide medical services
to offenders.

In addition, UTMB has a Health Policy and Legislative Affairs division that is
responsible for maintaining state legislative and county government
relationships for UTMB. A portion of the salaries for the employees in that
division are charged to UTMB-CMC Division.

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Figure 1 shows the flow of funds from the Department of Criminal Justice to
UTMB and identifies the UTMB departments that are involved in providing
offender health care services.
Figure 1

Organizational Chart Showing UTMB Correctional Managed Care
Full-time Equivalents (FTEs) and Annual Salaries for Fiscal Year 2009
Department of Criminal
Justice
$466.4 million

Correctional Managed Health
Care Committee
Retains $0.7 million
(See Note 1)

UTMB
$366.1 million

Office of the President

Health Policy and
Legislative Affairs
FTEs: 1.5
(See Note 2)

Health Systems

These offices coordinate with each other

Business and Finance

Offender Health Services

Correctional Managed
Care
Unit Based

Correctional Managed
Care
Unit Based
Support Services

Correctional Managed
Care
Hospital Galveston
Operations

FTEs: 2,721.18
Salaries: $143.5 million

FTEs: 306.15
Salaries: $15.4 million

FTEs: 33.79
Salaries: $2.3 million

Finance

Human Resouces

Correctional Managed
Care
Other Central Operations

Correctional Managed
Care
Finance

Correctional Managed
Care
Human Resources

FTEs: 78.3
Salaries: $5.1 million
(See Note 3)

FTEs: 21.1
Salaries: $1.3 million

FTEs: 24.9
Salaries: $1.3 million

Note 1: Of the $466.4 million it receives from the Department of Criminal Justice, the Correctional Managed Health Care Committee retains
$0.7 million for its operations, passes $99.6 million through to the Texas Tech University Health Sciences Center, and passes $366.1 million
to UTMB.
Note 2: The Health Policy and Legislative Affairs salary amount is approximately $70,000 for fiscal year 2009.
Note 3: The departments included in Other Central Operations report to either Offender Health Services or Finance/Human Resources and
include CMC - Information Services, CMC - Utilization Review, CMC - Human Development, UTMB/TDCJ Managed Care Administration, Medical
Warehouse-Huntsville, and TDCJ Mental Health – Galveston.
Source: Developed by auditors based on information that UTMB provided.

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SAO Report No. 11-017
February 2011
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According to UTMB, it is responsible for controlling or managing the costs of
the offender health care program.
As discussed in Chapter 1-A, UTMB develops
reimbursement amounts for offender health care internally without
independent review and approval from the Correctional Managed Health Care
Committee. As a client and department of UTMB, UTMB-CMC Division
negotiates amounts that it will charge itself for providing health care to
offenders.

Reimbursement amount structure.

As Chapter 1-A also discussed, the UTMB-CMC Division vice president of
finance reports directly to the executive vice president of finance for UTMB,
and these two individuals sign the memorandum of understanding that
determines how much the UTMB-CMC Division contract will be charged for
health care provided to offenders. The Correctional Managed Health Care
Committee does not sign this memo, and it is not involved in the process to
determine the amounts charged to the UTMB-CMC Division contract.
The UTMB-CMC Division contract directly funds the salaries and
pay increases for UTMB-CMC Division staff. As discussed in Chapter 1-B,
UTMB-CMC Division is allocated a portion of UTMB’s administrative costs
because it is a department within UTMB. These costs include institution-wide
salary and merit increases. As a result, the UTMB-CMC Division contract is
charged for a portion of any salary actions that occur throughout UTMB (see
Chapter 1-C for more details on indirect cost allocation). Salary actions and
the methodology used to allocate administrative costs to UTMB-CMC
Division are not reviewed or approved by the Correctional Managed Health
Care Committee.

Salaries.

The financial division within UTMB-CMC Division
reviews, processes, and approves expenditures charged to the UTMB-CMC
Division contract. Therefore, UTMB-CMC Division, which is a UTMB
department, is approving its own expenditures. Some of these expenditures
include travel, employee benefits, and charges for hospital services
(see Chapter 1-D for additional information on the allowability of
expenditures). Although the Correctional Managed Health Care Committee
conducts monthly reviews of a small sample (25 items) of expenditures for
each higher education institution that provides offender health care, the
amount of detailed information it obtains to review these expenditures is
limited. As a result, the Correctional Managed Health Care Committee may
not have sufficient information to make decisions regarding whether certain
expenditures are reasonable and necessary to providing health care to
offenders.
Allowable expenditures.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 24

Recommendations

The Executive Director of the Correctional Managed Health Care Committee
should coordinate with the Legislative Budget Board and UTMB to determine
the most effective way to create transparency and independence in the
decision making process regarding the reimbursement amount structure,
salary adjustments, and allowable costs related to providing health care to
offenders.
The Legislature may consider restructuring the Correctional Managed Health
Care Committee and/or UTMB-CMC Division to add transparency and
independence to the decision making process related to offender health care.

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SAO Report No. 11-017
February 2011
Page 25

Chapter 4

UTMB Fully or Substantially Implemented All Prior State Auditor’s
Office Recommendations Related to Supporting Documentation,
Deficit Calculation, and Information Technology
Implementation Status Definitions
Fully Implemented – Successful development
and use of a process, system, or policy to
implement a prior recommendation.
Substantially Implemented – Successful
development but inconsistent use of a
process, system, or policy to implement a
prior recommendation.
Incomplete/Ongoing – Ongoing development
of a process, system, or policy to address a
prior recommendation.
Not Implemented - Lack of a formal process,
system, or policy to address a prior
recommendation.

UTMB has made significant progress in implementing
recommendations from An Audit Report on Correctional
Managed Health Care Funding Requirements (State Auditor’s
Office Report No. 07-017, March 2007). All 16 of the
recommendations auditors reviewed were fully or substantially
implemented (see Table 9). While UTMB has made progress in
implementing the prior audit recommendations, it should
continue its efforts to maintain supporting documentation for
capital items and improve its processes related to torts and
moving expenses.

Table 9

UTMB Status of Implementation of Prior Audit Recommendations
No.

Recommendation

Implementation
Status

Auditor Comments

1

The UT Medical Branch should maintain
documentation for all medical procedures to
ensure that there is supporting documentation
showing that patient services were actually
provided.

Fully Implemented

UTMB had adequate supporting documentation
showing patient services were provided for (1)
the 90 fiscal year 2009 in-patient expenditures
and (2) the 48 fiscal year 2010 in-patient
expenditures that auditors tested.

2

The UT Medical Branch should maintain
documentation for the cost of all capital items
and ensure it uses the proper base amounts to
allocate those costs.

Substantially
Implemented

Auditors tested 45 fiscal year 2009 capital
items and determined that UTMB had
inadequate supporting documentation for 34
(76 percent) of them. However, UTMB had
adequate supporting documentation for all 17
fiscal year 2010 capital items that auditors
tested.

3

The UT Medical Branch should develop
procedures to adjust the torts and judgments
amounts for actual payments when reporting a
future deficit or surplus. In financial reports
to the Correctional Managed Health
Committee, it should improve transparency by
separately disclosing the amount of torts and
judgments associated with (1) cases for which
a trial or settlement has not yet been held and
(2) cases for which a trial or settlement has
been held and a final amount has been
determined.

Substantially
Implemented

While UTMB continues to include accruals for
tort liabilities in its deficit calculation, it does
disclose the amount of accruals/reversals
related to torts on its correctional managed
care financial reports.

4

The UT Medical Branch should omit moving
and relocation expenditures from its
calculation of correctional managed health
care costs. In addition, the UT Medical Branch
should work with the Correctional Managed
Health Care Committee to revise its contract
to comply with guidelines from the
Comptroller of Public Accounts.

Substantially
Implemented

In fiscal year 2009, UTMB omitted all but
$1,053 of moving and relocation expenses
from its calculation of correctional managed
care costs and in fiscal year 2010, UTMB
omitted all moving and relocation expenses
from its calculation of correctional managed
care costs.

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SAO Report No. 11-017
February 2011
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UTMB Status of Implementation of Prior Audit Recommendations
No.

Recommendation

Implementation
Status

Auditor Comments

5

The UT Medical Branch should develop a
process to identify cost allocation
methodologies and provide documentation to
support the correctional managed health care
costs paid by the hospital to the School of
Medicine. The documentation should include
details of the indirect costs and how they are
allocated to each patient to ensure the costs
are (1) valid charges that relate to and
support correctional managed health care and
(2) accurate and supported.

Substantially
Implemented

UTMB has developed a cost allocation
methodology. However, that methodology
may allocate costs that are not related to
providing reasonable and necessary health
care to offenders.

6

The UT Medical Branch should properly
research all financial transactions identified as
having errors before it corrects those
transactions in its financial accounting system.

Fully Implemented

UTMB has enabled edits in the financial system
that validate that transactions are coded
correctly before they are processed through
the system.

7

The UT Medical Branch should ensure that all
amounts extracted from its financial reporting
system are accurately processed in its
hospital’s cost accounting system.

Fully Implemented

UTMB implemented reconciliations for data
that is loaded from the patient accounting and
financial systems into the hospital’s cost
accounting system.

8

The UT Medical Branch should ensure that
documentation indicating that the hospital’s
cost accounting system’s data is accurate and
based on the data that was input into the cost
accounting system.

Fully Implemented

UTMB implemented reconciliations for data
that is loaded from the patient accounting and
financial systems into the hospital’s cost
accounting system.

9

The UT Medical Branch should update
procedures for extracting data from its
financial reporting system and inputting it into
the hospital’s cost accounting system to
include procedures for (1) reconciling
input/output amounts and (2) the retention of
that reconciliation.

Fully Implemented

UTMB implemented procedures that describe
the data processes used in operating its
hospital cost accounting system, to include
uploading data from its financial reporting
system to the hospital’s cost accounting
system.

10

The UT Medical Branch should ensure that all
users of administrative accounts have and use
uniquely identifiable accounts to access both
the server and database.

Fully Implemented

UTMB restricted access to administrative
functionality in its financial system to
authorized personnel and implemented unique
accounts in its financial system.

11

The UT Medical Branch should ensure that all
users have access rights that are the minimum
necessary to perform their job duties.

Fully Implemented

UTMB implemented an additional product to
help ensure that it properly controls access to
technology resources.

12

The UT Medical Branch should ensure that all
generic administrative accounts are properly
protected and used only when required.

Fully Implemented

UTMB implemented an additional product to
help ensure that it properly controls access to
technology resources.

13

The UT Medical Branch should ensure that all
user accounts have password and account
parameters that conform to industry best
practices as required by the Texas
Administrative Code (TAC).

Fully Implemented

UTMB changed authentication methods to help
ensure that password and account lockout
settings follow UTMB policy and TAC.

14

The UT Medical Branch should ensure that it
follows vendor security guidance when
configuring and implementing automated
systems.

Fully Implemented

UTMB changed some settings to help provide a
more secure database infrastructure.

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SAO Report No. 11-017
February 2011
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UTMB Status of Implementation of Prior Audit Recommendations
No.
15

Recommendation
The UT Medical Branch should require all
inmate health care personnel who are paid on
a monthly basis to report the actual
percentage of their time spent at different
units. This reporting should be done on a
monthly basis.

Implementation
Status

Auditor Comments

Fully Implemented

Although not all units’ personnel use the
Kronos timeclocks system to record the time
that they work, auditors tested a sample of
UTMB salaries for fiscal years 2009 and 2010
and did not identify any errors related to time
spent working at the prison units.

Fully Implemented

UTMB’s methodology to project revenues and
expenditures is based on legislative
appropriated amount(s) minus actual UTMB
billed amounts.

The UT Medical Branch should then use this
information to determine whether it should
adjust the allocation percentages in its payroll
system.
16

The UT Medical Branch should develop and
implement a specific methodology (such as
using trend analysis of historical data) to
project future revenues and expenditures.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 28

Appendices
Appendix 1

Objectives, Scope, and Methodology
Objectives
The objectives of this audit were to:


Examine the shortfall reported by the Correctional Managed Health Care
Committee (Committee) for fiscal year 2009, the projected shortfall
reported by the Committee for the 2010-2011 biennium, and any projected
shortfall reported in the Committee’s legislative appropriation request for
fiscal years 2012 and 2013.



Follow up on selected recommendations in State Auditor’s Office Report
No. 07-017 (March 2007), An Audit Report on Correctional Managed
Health Care Funding Requirements.

Scope
The scope of this audit covered the University of Texas Medical Branch at
Galveston’s (UTMB) actual and projected deficit calculations for fiscal years
2009 through 2011. Auditors also reviewed the Correctional Managed Health
Care Committee’s oversight and its projected deficits for fiscal years 2012 and
2013. (According to the Correctional Managed Health Care Committee, the
higher education institution health care providers cannot project expected
deficits for fiscal years 2012 and 2013 until they know how much the
Legislature will appropriate for their services.) In addition, auditors followed
up on previous state auditor recommendations at UTMB.
Methodology
The audit methodology consisted of collecting information and
documentation, performing selected tests and other procedures, analyzing and
evaluating the results of the tests, and conducting interviews with
management and staff at UTMB, the Correctional Managed Health Care
Committee, and the Department of Criminal Justice.
Information collected and reviewed included the following:


Contract between the Correctional Managed Health Care Committee and
the Department of Criminal Justice, and contract between the Correctional
Managed Health Care Committee and UTMB.

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

Correctional Managed Health Care Committee and UTMB policies and
procedures.



Revenue UTMB received from the Correctional Managed Health Care
Committee.



UTMB’s expenditures related to salaries and benefits; hospital costs;
professional services; off-site contracts; pharmacy costs; license fees,
subscriptions, and memberships; torts and other judgments; moving and
relocation; and indirect costs.



Budgeting process documentation.



Actuarial documentation.



Financial reports that UTMB submitted to the Correctional Managed
Health Care Committee.



UTMB reduction in force and employee salary action documentation.



UTMB financial systems.



Reports from UTMB internal audits.

Procedures and tests conducted included:


Tests of expenditure data, including verification of invoices, purchase
orders, reasonableness of expenditures in the deficit calculation, and
appropriateness of amounts billed to offender health care for fiscal years
2009 and 2010.



Verification of amounts paid by the Correctional Managed Health Care
Committee and received by UTMB.



Review of deficit revisions and calculations for fiscal years 2009 and
2010.



Review of (1) processes for projecting funding deficits in fiscal years 2010
and 2011 and (2) the Correctional Managed Health Care Committee’s
legislative appropriations request for fiscal years 2012 and 2013.



Review of UTMB financial systems used to provide information to the
Correctional Managed Health Care Committee and to generate related
financial reports.



Interviews with management and staff at UTMB, the Correctional
Managed Health Care Committee, and the Department of Criminal Justice.



Analysis of employee salary actions and reduction in force data.

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Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
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

Analysis of the number of offenders and prison units served.



Analysis of transportation and travel costs.



Comparison of UTMB reimbursement amounts with Medicare, Medicaid,
and a major private insurance carrier’s reimbursement amounts.



Comparison of actuarial documentation with prison population data.

Methodology for Validating UTMB Correctional Managed Health Care Rates
Physician Services

Auditors reviewed the memorandum of understanding between UTMB and
the correctional managed health care division (UTMB-CMC Division), which
established the physician billing rate at 49 percent of billed charges for fiscal
years 2009 and 2010. Auditors tested 29 physician inpatient and outpatient
records for fiscal year 2010 and determined that UTMB-CMC Division billed
at the 49 percent reimbursement rate for physician services. Additionally,
auditors analyzed 5 UTMB correctional managed care (UTMB-CMC
Division) procedure types from the most costly and most frequently
performed procedures. Auditors requested the corresponding physician
billing amounts and then compared the UTMB-CMC Division physician
reimbursement amounts provided for those five procedure types to the
physician reimbursement amounts that UTMB provided for Medicare,
Medicaid, and a major private insurance carrier. Analysis of these physician
records resulted in auditors’ calculation of a UTMB-CMC Division physician
billing rate of 49 percent, which was equivalent to 144 percent of Medicare’s
physician reimbursement amount for the same procedure types on average.
UTMB’s School of Medicine then provided auditors with information
specifying that the UTMB-CMC Division reimbursement amount for
physician services was, on average, 135 percent of the standard Medicare
reimbursement amount for physician services. Auditors used the 135 percent
as a conservative method for recalculating UTMB costs at 100 percent of
standard Medicare reimbursement amounts.
Inpatient Hospital Services

Auditors reviewed the memorandum of understanding between UTMB and
UTMB-CMC Division, which established a standard dollar amount for fiscal
years 2009 and 2010 by which to bill inpatient hospital services. Auditors
calculated the percentage change between the fiscal year 2010 standard dollar
amount for Medicare ($5,619.94) and UTMB-CMC Division’s standard dollar
amount for inpatient services ($8,062.18). This resulted in a 143.5 percent
increase over the Medicare standard dollar amount, which validates the rate.
Additionally, auditors tested 48 inpatient services records for fiscal year 2010
and validated that UTMB-CMC Division was billed at the agreed upon
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SAO Report No. 11-017
February 2011
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standard dollar amount for inpatient hospital services times Medicare’s
assigned diagnostic rate group weight factor.
Auditors also validated the 143.5 percent reimbursement rate for inpatient
services by analyzing 5 UTMB-CMC Division procedure types from the most
costly and most frequently performed procedures. Auditors requested the
corresponding inpatient billing amounts and then compared the UTMB-CMC
Division inpatient reimbursement amounts provided for those 5 procedure
types to the inpatient reimbursement amounts provided by UTMB for
Medicare, Medicaid, and a major private insurance carrier. Analysis of these
5 procedure types resulted in auditors’ calculation of a UTMB-CMC Division
inpatient hospital services billing rate of 143.5 percent of Medicare’s inpatient
reimbursement amount for the same procedure types, on average.
Outpatient Lab Services

UTMB provided auditors with the fiscal year 2010 reimbursement rate of 20.2
percent of billed charges for outpatient lab services. Auditors validated the
20.2 percent reimbursement rate for outpatient lab services by analyzing 5
UTMB-CMC Division procedure types from the most costly and most
frequently performed procedures. Auditors requested the corresponding
outpatient lab billing amounts and then compared the UTMB-CMC Division
outpatient lab reimbursement amounts provided for those 5 procedure types to
the outpatient reimbursement amounts provided by UTMB for Medicare,
Medicaid, and a major private insurance carrier. Analysis of these 5
procedure types resulted in auditors’ calculation of a UTMB outpatient lab
hospital services billing rate of 111.3 percent of Medicare’s outpatient lab
reimbursement amount for the same procedure types, on average.
The 5 procedure types selected for the outpatient lab services represent 38
percent of the total number of outpatient lab procedures performed and 41
percent of the total dollar amount of outpatient lab services charges for fiscal
year 2009.
Other Outpatient Services

UTMB provided auditors with the fiscal year 2010 reimbursement rate of 38.6
percent of billed charges for outpatient other services. Auditors validated the
38.6 percent reimbursement rate for outpatient other services by analyzing 10
UTMB-CMC Division procedure types from the most costly and most
frequently performed procedures. Auditors requested the corresponding other
outpatient reimbursement amounts and then compared the UTMB-CMC
Division other outpatient reimbursement amounts provided for those 10
procedure types to the outpatient reimbursement amounts provided by UTMB
for Medicare, Medicaid, and a major private insurance carrier. Analysis of
these 10 procedure types resulted in auditors’ calculation of a UTMB other

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SAO Report No. 11-017
February 2011
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outpatient services billing rate of 140 percent of Medicare’s other outpatient
reimbursement amount for the same procedure types, on average.
The 10 procedure types selected for the other outpatient services represent 52
percent of the total number of other outpatient services procedures performed
and 42 percent of the total dollar amount of other outpatient services charges
for fiscal year 2009.
Criteria used included the following:


Texas Government Code, Chapter 501.



Title 1, Texas Administrative Code, Chapter 202.



Riders 41 and 42, page V-22, the General Appropriations Act (81st
Legislature).



Rider 61, page V-24, the General Appropriations Act (81st Legislature).



Riders 82 and 83, page V-28, the General Appropriations Act (81st
Legislature).



UTMB and Correctional Managed Health Care Committee policies and
procedures.



Contract between the Correctional Managed Health Care Committee and
UTMB.

Project Information
Audit fieldwork was conducted from May 2010 through December 2010. We
conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.
The following members of the State Auditor’s staff performed the audit:


Courtney Ambres-Wade, CGAP (Project Manager)



Ileana Barboza, MBA, CGAP, CICA (Assistant Project Manager)



Michelle Ann Feller, CIA (Assistant Project Manager)



Shahpar M. Ali, CPA, M/SBT



Jennifer D. Brantley, CPA

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 33



Brian Kevin Jones, CGAP



Ann E. Karnes, CPA



Seorin Kim, CPA



Jennifer Lehman, MBA, CGAP



Stacey Robbins McClure, MBA, PHR, CCP



Kelley N’gaide, CFE



Anthony T. Patrick, MBA



Michele Pheeney, MBA



Sharon Schneider, PHR



Jennifer Wiederhold, CGAP



Michael Yokie, CISA



Brian York



Charles P. Dunlap, Jr., CPA (Quality Control Reviewer)



Nicole M. Guerrero, MBA, CIA, CGAP, CICA (Audit Manager)

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 34

Appendix 2

Excerpt from a February 2010 UTMB Presentation Regarding the
UTMB-CMC Division Budget
Figure 2 is an excerpt from a February 2010 presentation that the University
of Texas Medical Branch at Galveston (UTMB) made regarding the budget
for correctional managed health care (UTMB-CMC Division). According to
this presentation, UTMB-CMC Division projected an $82.3 million deficit for
items not funded in the legislative appropriations request for fiscal years 2010
and 2011. However, UTMB-CMC Division has revised its projected deficit to
$70.7 million for fiscal years 2010 and 2011. Also see Table 1, Note a, on
page iv for additional reductions on the deficit UTMB reported subsequent to
audit fieldwork.
Figure 2

Excerpt from a February 2010 UTMB Presentation Regarding the UTMB-CMC Division Budget

UTMB Correctional Managed Care: 81st Legislative Session Funding
UTMB CMC Supplemental Appropriations Request (SAR) FY 08 &09:
FY08
FY09
$ 14,720,961 $ 22,658,900
!Original SAR (Jan 09)

Final SAR (end of May 09)
SAR Appropriated (end of May 09)
DifferencelNot Appropriated
Additional Losses (over May est)
Total FY09 Unfunded:

$
$
$
$
$

14,720,961
14,720,961

$
$
$
$
$

34,390,000
31,848,300
2,541,700
10,264,021
12,805,721

UTMB CMC Legislative Appropriations Request (LAR) FY 10 & 11:
FY10
FY11
Base Appropriation (Jan 09)
$ 329,579,335 $ 329,579,335
LAR Items 1-5 (Jan 09)
$ 48,522,334 $ 63,886,495
$ 378,101,669 $ 393,465,830
Total Requested Needs
Appropriation I CMHCC Contract (1)
$ 366,066,629 $ 363,167,053
Difference - Requested & Not Appropriated
$ 12,035,040 $ 30,298,777
2,541,700
$
2,541,700 $
SAR Requested & Not Funded
SAR funded not added to base needs
{$31 ,848,300 - $26,004,610}
$
5,843,690 $
5,843,690
Total FY10 & 11 Requested and Unfunded:
$ 20,420,430 $ 38,684,167
Other Unfunded Items Not in Legislative Appropriations Request:
FY10
FY11
Impact of 2009 Additional Losses and Other
Items Not in Legislative Request
$
9,978,821 $ 13,258,070
TOTAL PROJECTED SHORTFALL
(I)

$ 30,399,251

$

Biennium
37,379,861

$
$
$
$
$

49,110,961
46,569,261
2,541,700
10,264,021
12,805,721

$
$
$
$
$
$

Biennium
659,158,670
112,408,829
771,567,499
729,233,682
42,333,817
5,083,400

$

11,687,380

$ 59,104,597
Biennium

$

23,236,891

$ 51,942,237 $ 82,341,488

Excludes Marlin VA funding - contingent on opening

Source: UTMB.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 35

I

Appendix 3

Comparison of UTMB-CMC Division, Medicare, Medicaid, and a Major
Private Insurance Carrier’s Reimbursement Amounts
Table 10 compares the University of Texas Medical Branch at Galveston
(UTMB) correctional managed health care division (UTMB-CMC Division)
reimbursement amounts for four service types with Medicare, Medicaid, and a
major private insurance carrier’s reimbursement amounts.
Table 10

Comparison of Reimbursement Amounts for
UTMB-CMC Division, Medicare, Medicaid, and a Major Private Insurance Carrier
Reimbursement
UTMB-CMC Division

Service
Type

UTMB
Hospital
Charges

Amount

Percent
of
Hospital
Charges

Medicare

Standard
Amount
Only

Major Private
Insurance Carrier

Medicaid

Percent
of
Hospital
Charges

Amount

Percent
of
Hospital
Charges

Amount

Percent
of
Hospital
Charges

Physician
Services

$7,541

$3,695

49%

$2,564

34%

$2,029

27%

$3,406

45%

Inpatient
Services

$902,494

$240,528

27%

$167,666

19%

$487,347

54%

$224,222

25%

$460

$93

20%

$84

18%

$84

18%

$368

80%

$121,391

$46,857

39%

$33,474

28%

$52,198

43%

$97,113

80%

Outpatient
Lab Services
Other
Outpatient
Services

Source: Auditor analysis of hospital charges and reimbursement amounts provided by UTMB.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 36

Because UTMB is a teaching hospital, for inpatient services UTMB receives
additional Medicare reimbursement amounts for indirect medical education
and direct graduate medical education to reflect the higher patient care costs
of teaching hospitals relative to non-teaching hospitals. UTMB also receives
an additional Medicare reimbursement amount for inpatient services for
serving low-income patients because UTMB is classified as a disproportionate
share hospital. As Table 11 shows, including these additional reimbursement
amounts would make the total Medicare reimbursement amount for inpatient
services higher than the UTMB-CMC Division reimbursement amount.
Table 11

Comparison of Inpatient Services Reimbursement Amounts for
UTMB-CMC Division and Medicare
Including Additional Medicare Reimbursements for Indirect Medical Education (IME),
Disproportionate Share Hospital (DSH), and Direct Graduate Medical Education (DGME)
Reimbursement
UTMB
Hospital
Charges

Amount

Percent
of
Hospital
Charges

Difference
Between Hospital
Charges and
Reimbursement
Amount

UTMB-CMC Division
Reimbursement Amount

$902,494

$240,528

27%

$661,966

Medicare
Standard Reimbursement Amount

$902,494

$167,666

19%

$734,828

Standard Reimbursement Amount
Plus IME

$902,494

$280,478

31%

$622,016

Standard Reimbursement Amount
Plus IME and DSH

$902,494

$361,079

40%

$541,415

Standard Reimbursement Amount
Plus IME, DSH, and DGME

$902,494

$367,197

41%

$535,297

Source: Auditor analysis of hospital charges and reimbursement amounts provided by UTMB.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 37

Appendix 4

Information Regarding $7.7 Million in TEAM Award Payouts to UTMB
Employees
In November 2010, the University of Texas Medical Branch at Galveston
(UTMB) awarded $7,747,621 in Together Employees Achieve More (TEAM)
award payouts to employees after it reported what one newspaper article 10
referred to as “a positive adjusted margin of $37.5 million” for fiscal year
2010. UTMB employees, other than faculty, who accomplished specific
financial and programmatic goals that had been determined to be critical to
UTMB’s success at the beginning of fiscal year 2010 were eligible for these
award payouts. Individual TEAM award payouts ranged from $94 to
$182,091.
According to a UTMB TEAM award talking points document, correctional
managed care (UTMB-CMC Division) employees were not eligible to receive
these award payouts because of the deficit reported within that department.
However, auditors determined that the salaries of 40 TEAM award payout
recipients were fully or partially funded with UTMB-CMC Division funds.
One of these recipients, the Senior Vice President for Health Policy and
Legislative Affairs, received $125,460.

10

Elder, Laura (23 November 2010). “UTMB back in the black.” The Galveston County Daily News. Retrieved from
http://galvestondailynews.com/story/192694 on December 10, 2010.
An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 38

Appendix 5

UTMB-CMC Division Salary Adjustments in Fiscal Years 2008 through
2010
Table 12 presents the University of Texas Medical Branch at Galveston
correctional managed care (UTMB-CMC Division) salary actions and annual
increases awarded to administrative and professional, classified, and nonteaching employees in fiscal years 2008 through 2010.
Table 12

UTMB-CMC Division Salary Actions and Annual Salary Increases for
a
Administrative and Professional, Classified, and Non-teaching Employees
Fiscal Year 2008

Salary Actions Reason

Number of
Salary
Actions

Fiscal Year 2009

Annual
Salary
Increase

Number of
Salary
Actions

Fiscal Year 2010

Annual
Salary
Increase

Number of
Salary
Actions

Annual
Salary
Increase

Administrative and Professional Employees
Additional Responsibilities

0

$

0

1

$ 10,000

0

$

0

Market

13

166,276

10

116,570

0

0

Merit

24

107,419

22

116,638

18

86,166

Reclassification

1

7,347

1

20,447

0

0

Other

0

0

1

10,000

0

0

Promotion

0

0

0

0

1

22,206

Temporary Increase

2

49,554

0

0

0

40

$330,596

35

$273,655

19

12,642

1

Totals

$

0

$108,372

Classified Employees
Additional Responsibilities

8

$ 41,763

3

$

$

6,915

Adjustment

24

83,858

2

2,580

0

0

Equity

59

185,404

37

137,790

6

39,072

Full-time Equivalent (FTE)
Adjustment

0

0

0

0

0

0

License/Certification

6

13,276

8

17,940

7

29,397

88

453,730

298

1,151,975

2

2,300

Merit

2,209

3,041,399

2,387

3,369,412

22

31,310

Other

65

183,472

24

85,831

5

29,248

Promotion

10

73,568

6

29,573

13

66,737

Reclassification

Market

24

223,890

4

39,101

23

104,314

Temporary Increase

3

11,845

1

4,047

0

0

Transfer with Increase

1

$4,160

16

74,549

9

42,365

12,232

85

50,661

14

$ 18,776

$4,328,597

2,871

$4,976,101

102

$370,434

Under Minimum Adjustment

22
Totals

2,519

$

$

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 39

UTMB-CMC Division Salary Actions and Annual Salary Increases for
a
Administrative and Professional, Classified, and Non-teaching Employees
Fiscal Year 2008

Salary Actions Reason

Number of
Salary
Actions

Fiscal Year 2009

Annual
Salary
Increase

Number of
Salary
Actions

Fiscal Year 2010

Annual
Salary
Increase

Number of
Salary
Actions

Annual
Salary
Increase

Non-teaching Employees
Adjustment

1

3,322

0

0

0

Additional Responsibilities

0

0

2

13,668

0

0

Equity

3

14,642

1

9,508

2

25,993

Market

136

1,517,023

63

947,483

0

0

Merit

114

459,285

127

589,134

0

0

Other

12

77,032

4

100,000

0

0

1

17,050

0

0

0

0

Totals

267

$2,088,354

197

$1,659,793

2

$ 25,993

Totals for All Salary Actions

2,826

$6,747,547

3,103

$6,909,549

123

$504,799

Promotion

a

$

$

These amounts have been annualized.

Source: UTMB-CMC Division.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 40

$

0

Table 13 presents the annual minimum and maximum salary increases
UTMB-CMC Division awarded to administrative and professional, classified,
and non-teaching employees in fiscal years 2008 through 2010.
Table 13

UTMB-CMC Division Annual Minimum and Maximum Salary Increases for
a
Administrative and Professional, Classified, and Non-teaching Employees
Fiscal Year 2008

Salary Action Reason

Annual
Minimum
Increase

Fiscal Year 2009

Annual
Maximum
Increase

Annual
Minimum
Increase

Fiscal Year 2010

Annual
Maximum
Increase

Annual
Minimum
Increase

Annual
Maximum
Increase

Administrative and Professional Employees
Additional Responsibilities

$0

$0

$10,000

$10,000

$0

$0

Market

$9,996

$13,905

$5,134

$19,000

$0

$0

Merit

$1,690

$12,004

$3,000

$ 8,250

$1,950

$10,300

Reclassification

$7,347

$7,347

$20,447

$20,447

$0

$0

Other

$0

$0

$10,000

$10,000

$0

$0

Promotion

$0

$0

$0

$0

$22,206

$22,206

$18,343

$31,211

$0

$0

$0

$0

Temporary Increase

Classified Employees
Additional Responsibilities

$1,544

$12,300

$3,689

$4,814

$6,915

$6,915

$270

$5,204

$1,110

$1,470

$0

$0

Equity

$1,128

$10,000

$500

$11,251

$1,720

$10,567

License/Certification

$2,155

$2,287

$1,800

$2,601

$2,085

$10,556

Adjustment

Market

$700

$18,000

$2,054

$5,813

$580

$1,720

Merit

$80

$6,067

$152

$4,851

$625

$2,516

Other

$553

$10,000

$600

$10,000

$0

$20,000

$2,438

$17,720

$1,026

$9,169

$187

$16,414

$872

$31,000

$1,306

$15,490

$195

$15,162

Temporary Increase

$2,992

$4,800

$4,047

$4,047

$0

$0

Transfer with Increase

$4,160

$4,160

$383

$15,108

$2,155

$13,595

$37

$1,138

$2

$1,962

$580

$1,840

$3,322

$0

$0

$0

$0

Promotion
Reclassification

Under Minimum Adjustment

Non-Teaching Employees
Adjustment

$3,322

Additional Responsibilities

$0

$0

$4,964

$8,704

$0

$0

Equity

$2,299

$8,302

$9,508

$9,508

$9,000

$16,993

Market

$7,537

$24,111

$10,638

$16,311

$0

$0

Merit

$1,511

$8,433

$1,647

$10,152

$0

$0

Other

$4,737

$10,000

$10,000

$30,000

$0

$0

$17,050

$17,050

$0

$0

$0

$0

Promotion

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 41

UTMB-CMC Division Annual Minimum and Maximum Salary Increases for
a
Administrative and Professional, Classified, and Non-teaching Employees
Fiscal Year 2008
Annual
Minimum
Increase

Salary Action Reason
a

Fiscal Year 2009

Annual
Maximum
Increase

Annual
Minimum
Increase

Fiscal Year 2010

Annual
Maximum
Increase

Annual
Minimum
Increase

Annual
Maximum
Increase

These amounts have been annualized.

Source: UTMB-CMC Division.

Table 14 presents the number of salary actions and annual salary decreases
UTMB-CMC Division made for administrative and professional, classified,
and non-teaching employees in fiscal years 2008 through 2010.
Table 14

UTMB-CMC Division Salary Actions and Annual Salary Decreases for
a
Administrative and Professional, Classified, and Non-teaching Employees
Fiscal Year 2008

Salary Action Reason

Number of
Salary
Actions

Fiscal Year 2009

Annual
Salary
Decrease

Number of
Salary
Actions

Fiscal Year 2010

Annual
Salary
Decrease

Number of
Salary
Actions

Annual
Salary
Decrease

Administrative and Professional Employees
(no salary decreases)
Classified Employees
Equity

0

FTE Adjustment
Reclassification

0

6

($28,959)

0

0

0

0

0

1

(8,000)

0

0

2

(22,568)

0

0

Transfer with Decrease

1

(4,160)

23

(109,073)

26

(180,949)

Decrease

1

(4,800)

6

(23,978)

1

(4,047)

Adjustment

1

(1,771)

0

0

0

0

Other

2

(8,462)

0

0

0

0

5

($19,193)

38

($192,578)

27

($184,996)

Totals

$

$

0

Non-teaching Employees
Decrease

a

0

$0

0

$0

2

($14,964)

Totals

0

$0

0

$0

2

($14,964)

Totals for All Salary Actions

5

($19,193)

38

($192,578)

29

(199,960)

These amounts have been annualized.

Source: UTMB-CMC Division.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 42

Table 15 presents the number of market adjustments and annual increases
UTMB-CMC Division awarded in fiscal years 2008 and 2009 to
administrative and professional, classified, and non-teaching employees.
Table 15

UTMB-CMC Division Market Adjustments and Annual Increases
Fiscal Year 2008
Number of
Market
Adjustments

Job Title

Fiscal Year 2009

Amount Awarded

Number of
Market
Adjustments

Amount Awarded

Administrative and Professional Employees
Cluster Dental Director

5

$ 67,441

6

$ 67,736

Director Contracts and Supply
Administration Correctional Managed
Care

0

0

1

5,700

Director Dental Services

1

11,958

0

0

Director Nursing Services Correctional
Managed Care

2

27,540

0

0

Director Operations Managed Care

2

19,992

0

0

Director Support Services Correctional
Managed Care

0

0

1

5,134

Division Director of Dental Services

0

0

2

38,000

10

$126,931

10

$116,570

Totals

Classified Employees
Asst Director Pharmacy Services

2

$ 18,735

0

Caseworker

3

26,628

0

0

Cluster Nurse Manager

1

8,868

26

132,310

Coordinator of Information Systems

1

2,198

0

0

Counseling Specialist II

1

5,006

0

0

Dental Assistant

0

0

2

4,311

Dental Assistant Coordinator

0

0

8

22,400

Dialysis Patient Care Technician

1

2,130

0

0

12

28,531

0

0

Facility Nurse Manager

0

0

16

73,029

Human Resources Coordinator I

2

1,428

0

0

Human Resources Coordinator II

6

7,430

0

0

HR Manager, Senior

2

7,512

0

0

Human Resources Consultant

2

5,047

0

0

Human Resources Generalist

3

5,575

0

0

Medical Laboratory Technician

1

1,485

0

0

Medical Technician III

1

2,967

0

0

Medical Technologist II

2

6,243

0

0

Driver

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 43

$

0

UTMB-CMC Division Market Adjustments and Annual Increases
Fiscal Year 2008
Number of
Market
Adjustments

Job Title

Fiscal Year 2009

Amount Awarded

Number of
Market
Adjustments

Amount Awarded

Medical Technologist III

1

5,268

0

0

Medical Technologist IV

1

5,984

0

0

Manager, Patient Evacuation Command
Center

1

2,700

0

0

Mid-Level Practitioner

3

25,667

0

0

Nurse Administrator

0

0

1

4,830

Nurse Clinician I Outpatient

1

8,781

8

22,153

Nurse Clinician II

1

4,781

0

0

Nurse Clinician II Outpatient

0

0

7

20,391

Nurse Clinician III

3

22,679

0

0

Nurse Clinician III Outpatient

1

9,964

200

746,276

Nurse Manager, Asst - Outpatient

0

0

30

126,275

Patient Care Assistant

1

1,487

0

0

18

131,185

0

0

Pharmacy Clinical Practice Specialist

5

38,200

0

0

Pharmacy Supervisor

3

25,351

0

0

Physical Therapist III

4

25,000

0

0

Respiratory Therapist, Senior

4

15,640

0

0

Secretary, Senior

1

1,260

0

0

88

$453,730

298

$1,151,975

Pharmacist, Senior

Totals

Non-teaching Employees
Clinical Coordinator Dental Services
Correctional Managed Care

2

$

18,935

2

$

25,942

Correctional Dentist

48

389,289

51

764,756

Facility Cluster Dentist

11

92,254

10

156,785

Optometrist

2

18,112

0

0

Optometrist, Senior

1

10,066

0

0

Physician I

11

147,473

0

0

Physician II

29

362,096

0

0

Physician III

16

247,350

0

0

Physician IV

2

26,800

0

0

Physician V

2

47,613

0

0

Psychiatrist I

5

64,219

0

0

Psychiatrist II

3

38,676

0

0

Psychiatrist III

3

39,900

0

0

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 44

UTMB-CMC Division Market Adjustments and Annual Increases
Fiscal Year 2008
Number of
Market
Adjustments

Job Title
Psychiatrist IV

Fiscal Year 2009

Amount Awarded

Number of
Market
Adjustments

Amount Awarded

1

14,240

0

0

Totals

136

$1,517,023

63

$947,483

Totals for All Market Adjustments and
Annual Increases

234

$2,097,684

371

$2,216,028

Source: UTMB-CMC Division.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 45

Appendix 6

UTMB Departments for Which a Portion of Costs Are Allocated to
UTMB-CMC Division as a Shared Services Expenditure
Table 16 lists the 249 departments at the University of Texas Medical Branch
at Galveston (UTMB) for which a portion of the costs are allocated to
correctional managed care (UTMB-CMC Division) as a shared services
expenditure. For some departments within the allocated areas (such as
Pastoral Care, President’s Office, Bearing Point, McGovern Academy, and
Health Policy and Legislative Affairs), the contract with the Correctional
Managed Health Care Committee pays a portion of the costs even though
these departments do not provide health care to offenders.
Table 16

UTMB Departments for Which a Portion of the Costs Are Allocated to UTMB-CMC Division
as a Shared Services Expenditure
Department Name (as listed in UTMB’s Records)

Department Name (as listed in UTMB’s Records)

Health Policy Legislative Affairs
1

Government Relations

12

Community Health Promotions

2

Strategic Initiatives

13

Strategic Planning

3

3-Share Program

14

External Affairs

4

Sr VP Hlth Plcy & Legis Affair

15

Community Health Programs/Comm Based Mental Hlth
Serv & Po

5

Hlth Policy & Legis Affairs Op

16

Knowledge Mgmt & Data Resource

6

Hlth Policy & Legis Affairs

17

Community Partnerships

7

Health Policy

18

Community Relations/Gov and Community Relations

8

Legislative Affairs

19

Office Of County Affairs

9

Division of Community Outreach

20

Facilities Plan - Outreach

10

Community Health Network

21

DAMP Office

11

Community Health Program
Information Services

1

Chief Financial Officer

34

IS-EMR-Operations

2

EHN Techs-Field Asset Mgt

35

IS-CMC-Technical Ops

3

EHN Distance Education

36

IS-InstSupport-ITII

4

Information Services

37

Computer Services

5

Student Information System

38

Healthcare Information System

6

IS Op Command Center

39

Finance MIS

7

IS Desktop/Enterprise Services

40

Performance Measurement

8

IS-Clinical Integration

41

Administrative Systems

9

IS Access Mgmt

42

Admin. Systems - User Support

10

IS-Administrative Services

43

Admin. Systems-Production Supp

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 46

UTMB Departments for Which a Portion of the Costs Are Allocated to UTMB-CMC Division
as a Shared Services Expenditure
Department Name (as listed in UTMB’s Records)

Department Name (as listed in UTMB’s Records)

11

IS-AdminSyst-Gen

44

Admin. Systems - PS HCM

12

IS Network/Security

45

Admin. Systems - Hyperion

13

IS Video

46

Admin. Systems - Research

14

IS Customer Service

47

Finance Support

15

IS-Switchboard

48

Administrative Systems

16

IS Web Services

49

Admin Syst User Support

17

IS Leadership

50

User Support Change Ctrl

18

IS Voice Services

51

User Support Performance Msmt

19

IS Training

52

User Support Training

20

IS Clinical System Support

53

User Support Resolution Manage

21

IS Registration / Billing

54

User Support PSAsk

22

IS Clinical Projects

55

User Support Risk Mgmt

23

IS Operations

56

User Support Data Mart

24

IS Security

57

Admin Syst Upgrade

25

IS-PMO

58

Admin Syst PS HCM Implementati

26

IS-Enterprise

59

Admin Syst Research

27

IS-Admin/Finc Syst

60

Admin Syst Hyp Implementation

28

IS-OPS-Projects

61

Admin Syst Prod Support

29

IS-AdminSystems-Reporting

62

Admin Syst Legacy Support

30

IS-AdminSystems-PSFMS

63

Admin Syst FMS Support

31

IS-AdminSystems-HCM

64

Admin Syst DBA

32

HIS-Pc Lan Support

65

Admin Sys-Proj Mgt Off & Trng

33

IS-OPS-TechSrvs
Finance

1

Chief Financial Officer

21

SISTM EAST

2

General Accounting

22

Business Planning

3

Contract Administration

23

Finance Business Planning

4

Payroll

24

Contract Administration

5

Accounts Payable

25

Transactional Accounting

6

Property Plant & Equipment

26

Payroll

7

Finance

27

Finance - EAST Team

8

Budget

28

Acct. Payable

9

Treasury

29

Asset Management (AM)

10

Finance Initiatives Support

30

Budget

11

Entity Finance

31

Accounting

12

Payroll Services

32

Treasury

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 47

UTMB Departments for Which a Portion of the Costs Are Allocated to UTMB-CMC Division
as a Shared Services Expenditure
Department Name (as listed in UTMB’s Records)

Department Name (as listed in UTMB’s Records)

13

Hosp & Clinics Acct & Rptg

33

Finance Reporting

14

Finance - Other Reporting

34

Planning & Performance Mgmt

15

Budget and Planning

35

Finance Intern Program

16

Contract Administration

36

Entity Finance

17

Inst. Support - BearingPoint

37

Finance Healthcare Systems

18

Payroll Liabilities

38

Institutional Finance

19

Core Finance

39

Payroll Liabilities

20

Finance
Logistics

1

Logistics

4

SW - TDCJ Recovery

2

Logistics Surplus Warehouse

5

Post-Ike Surplus Warehouse

3

Logistics Auction Warehouse
Human Resources

1

HR Work School Program

19

HR Employee Health & Wellness

2

HR Diversity & Intnt'l Affairs

20

HR Health Promotion

3

HR Human Resources

21

HR Employee Health

4

HR Corporate

22

HR Employee Injury Management

5

HR Corp Administration

23

HR Leave Management

6

HR Special Programs

24

HR Clinical

7

HR Solutions & Analytics

25

HR Employee Relations

8

HR Workforce Solutions & Analytics

26

HR Diversity

9

HR Recruitment

27

HR Institutional Programs

10

HR Recruitment Offices

28

HR Employee Health Services

11

HR Compensation

29

Benefits

12

HR Comp & Benefits

30

International Office

13

HR Org Effect Trg & Recog

31

Employee Records

14

HR Institutional Training

32

15
16
17
18

a

HR Org Effectiveness

33

HR Institutional Recognition

34

HR OET&R Nursing Dev
HR Employee Assistance Program

35
36

HR Benefits
b

International Affairs Office
HR Employee Records
HR Nurse Recruitment Students
HR Nurse Recruitment

Administration Allocation Areas
Office of the President
1

Strategic Research Collaborati

4

President's Office

2

Thomas N & Gleaves J Dist Chr

5

Office of the President

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 48

UTMB Departments for Which a Portion of the Costs Are Allocated to UTMB-CMC Division
as a Shared Services Expenditure
Department Name (as listed in UTMB’s Records)
3

Office of the President

Department Name (as listed in UTMB’s Records)
6

b

McGovern Acad of Oslerian Med

Special Events
1

President’s Support Fund OUA
Audit

1

Audit Services
Compliance

1

Compliance MSRDP SOM

2

UTMB Compliance Program

Strategic Management
1

Office of the Pres Operations
Legal

1

Legal Review WBP SOM

2

Department of Legal Affairs

3

a

International Affairs Office

Pastoral Care
1
2
3
4
5
6

b
b
b
b
b
b

BTA - Pastoral Care
Council Of Religious Ministry
Project Healing
Hospital Chaplaincy Program

7
8
9

b
b
b

10

Children and Worship

11

President's Cabinet Project He

12

b
b
b

Episcopal Health Funds
Gisela's Memorial Fund
Pastoral Care Gifts & Donation
Memorial Account-Ministry
Pastoral Care-Hosp Chaplaincy
Pastoral Care

Executive Vice President Business Finance
1

Admin Expenses/Travel

4

Executive VP

2

Executive Vice President

5

Executive Vice President

3

Executive VP Operations
General Administration Allocated

1

Bearing Point

10

Institutional Administration

2

University Banking Expense

11

Institutional

3

Institutional Admin

12

Support Services

4

Executive Vp - Son/Dr. Fenton

13

Gift Shop

5

Bearing Point

14

Business Services

6

University Banking Expense

15

Assist VP-Planning/Mgnt System

7

Allocated Purchased Svc Rev

16

VP For Business Affairs

8

Institutional Admin Service

17

VP Business Affairs Admin

University Banking Expense

18

VP-Business Affairs & Admin

9

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 49

UTMB Departments for Which a Portion of the Costs Are Allocated to UTMB-CMC Division
as a Shared Services Expenditure
Department Name (as listed in UTMB’s Records)

Department Name (as listed in UTMB’s Records)

Business Development Marketing
1

OPM Marketing Contracts

2

Office of Planning & Marketing

McGovern Academy
1

a

McGovern Acad of Oslerian Med
Technology Management

1

a

Technology Management
Development

a
1
2
3
4

OUA - Institutional Support

5

a

Development

6

a

Alumni Relations

7

a

Advancement Services

8

a

University Advancement

a

VP for Univ Advance Operations

a

VP for University Advancement

a

Development Communications

Public Affairs
1

a

Public Affairs
Health Policy and Legislative Affairs

a
1
2
3
4
5
6
7
8
9

Government Relations

12

a

Center Eliminate Health Dispar

13

a

3-Share Program

14

a

Sr VP Hlth Plcy & Legis Affair

15

a

Hlth Policy & Legis Affairs Op

16

a

Hlth Policy & Legis Affairs

17

a

Health Policy

18

a

Legislative Affairs

19

a

Division of Community Outreach

20

a

Community Health Network

21

a

Community Health Program

10
11
a
b

a

Community Health Promotions

a

Strategic Planning

a

External Affairs

a

Comm Based Mental Hlth Serv&Po

a

Knowledge Mgmt & Data Resource

a

Community Partnerships

a

Gov and Community Relations

a

Office Of County Affairs

a

Facilities Plan - Outreach

a

DAMP Office

A portion of costs was allocated in fiscal year 2010 but not in fiscal year 2009.
A portion of costs was allocated in fiscal year 2009 but not in fiscal year 2010.

Source: UTMB.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 50

Appendix 7

UTMB-CMC Division Financial Report Cost Totals for Fiscal Years 2009
and 2010
Table 17 presents University of Texas Medical Branch at Galveston (UTMB)
correctional managed care (UTMB-CMC Division) financial report cost totals
for fiscal years 2009 and 2010 and the types of costs that are reported under
each of the major categories.
Table 17

UTMB-CMC Division Financial Report Cost Totals
Fiscal Years 2009 and 2010
Type of Cost

Fiscal Year 2009

Fiscal Year 2010

Total

$168,364,610

$174,140,215

$342,504,825

9,110,657

4,710,100

13,820,757

Hazardous Duty Pay

513,172

456,131

969,303

Employee Referral Bonus

122,250

115,750

238,000

Orientation

155,837

80,176

236,013

27,202

28,802

56,004

0

3,692

3,692

$178,293,728

$179,534,866

$357,828,594

$39,296,136

$41,232,547

$80,528,683

4,262,782

4,578,692

8,841,474

Workers’ Compensation

494,219

526,812

1,021,031

Unemployment

161,455

271,707

433,162

Employee Tuition and School Books

122,454

149,036

271,490

0

61,430

61,430

1,053

0

1,053

$44,338,099

$46,820,224

$91,158,323

$33,777,257

$33,418,336

$67,195,593

17,388,279

17,060,905

34,449,184

Contracted Information Technology Services

734,601

755,257

1,489,858

Funeral Cost and Autopsy

844,994

631,156

1,476,150

Rent/Lease - Office Space

426,422

1,031,638

1,458,060

50,652

93,211

143,863

481,954

629,530

1,111,484

0

977,877

977,877

Salaries
Salaries
Temporary Employment Agencies

Education and Education Pay
Certification
Salaries Totals
Benefits
Benefits (Health, Vision, Life, Old-age, and Survivors Insurance)
Retiree Premium Sharing

Mobile Devices
Moving and Relocation Expenses
Benefits Totals

Maintenance and Operations
Pharmaceuticals
Maintenance and Operations

Contracted Services (dental, vision, physician)
Maintenance and Repairs
Licensed Professional Services

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Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 51

UTMB-CMC Division Financial Report Cost Totals
Fiscal Years 2009 and 2010
Type of Cost

Fiscal Year 2009

Fiscal Year 2010

Temporary Staff Services

799,225

0

799,225

State Purchased Meals

177,755

93,833

271,588

Maintenance Agreements - Computers and Others

110,202

118,809

229,011

Advertising

176,483

15,483

191,966

Conferences/Meetings/Registration Fees

98,266

83,689

181,955

Placement Fees

85,000

94,500

179,500

Employees Meals

172,308

1,700

174,008

Recruitment Expenses - Prospective Employees

20,029

8,268

28,297

Late Interest Charges

16,723

8,539

25,262

Parking Fees

6,500

3,880

10,380

Uniforms - Medical Staff

7,649

2,363

10,012

Educational/Training Service

0

4,845

4,845

Rental Aircraft

0

3,524

3,524

$55,374,299

$55,037,343

$110,411,642

Mileage

$1,127,479

$885,277

$2,012,756

Lodging

252,753

143,761

396,514

Meals

146,737

86,118

232,855

Transportation

52,304

35,383

87,687

Incidentals

27,504

22,088

49,592

Rental car

0

8,004

8,004

$1,606,777

$1,180,631

$2,787,408

Hospital Services

$49,515,935

$ 79,409,658

$128,925,593

Physician Services

12,000,743

17,941,376

29,942,119

5,781,842

7,185,376

12,967,218

$67,298,520

$104,536,410

$171,834,930

$57,194,423

$30,253,539

$87,447,962

3,492,318

2,872,769

6,365,087

$60,686,741

$33,126,308

$93,813,049

$7,177,302

$6,508,861

$13,686,163

$7,177,302

$6,508,861

$13,686,163

Maintenance and Operations Totals

Total

Travel

Travel Totals
UTMB Hospital Cost

State Paid Staff Benefits – Department of Criminal Justice Hospital
UTMB Hospital Cost Totals
Freeworld Services
Freeworld
Medical Transportation
Freeworld Services Totals
IBNR
IBNR - Incurred But Not Reported

a
IBNR Totals

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 52

UTMB-CMC Division Financial Report Cost Totals
Fiscal Years 2009 and 2010
Type of Cost

Fiscal Year 2009

Fiscal Year 2010

Total

Indirect Costs/Shared Services
Information Technology Services

$5,000,035

$3,649,383

$ 8,649,418

Human Resources

1,120,412

1,990,807

3,111,219

Finance

1,583,487

858,576

2,442,063

-346,740

1,524,731

1,177,991

Community Outreach, Health Policy, and Legislative Affairs

507,476

0

507,476

Logistics

194,164

151,282

345,446

$8,058,834

$8,174,779

$16,233,613

$1,072,070

$1,071,610

$2,143,680

Depreciation Totals

$1,072,070

$1,071,610

$2,143,680

Totals for All Cost Categories

$423,906,370

$435,991,032

$859,897,402

Administration

Indirect Costs/Shared Services Totals
Depreciation
Depreciation

a

This amount represents a cost estimate for services received but not billed as of the end of the fiscal year.

Source: UTMB.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 53

Appendix 8

Management’s Response from UTMB

Health
Offi.ce of the President

David L. Callender, MD, MBA, FACS
PresIdent
30; UniverSity Blvd.
Galveston, Texas 77555-0129

0409.772.1902 F 409.772.5064

January 26, 2011
State Auditor's Office
AnN: Courtney Ambres-Wade
P.O. Box 12067
Austin, Texas 78711-2067
Dear Ms. Ambres-Wade:
Thank you for the opportunity to review the Texas State Auditor's draft report for the audit of
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston,
received January 4, 2010.
My executive and financial leadership teams have carefully and thoughtfully reviewed the draft
report in its entirety. Please accept, in the attached document, UTMB's response to the
recommendations and assertions contained within your report. UTMB believes it is in
conformance with generally accepted accounting principles and health care industry practice
and would support confirmation of this belief by an independent public accounting firm.
Should you have any additional questions, please feel free to contact William R. Elger, Executive
Vice President, Chief Business and Financial Officer or Kimberly Hagara, Associate Vice
President, Aud it Services.
Respectfully yours,

David L. Callender, MD, MBA, FACS
President

utmb.edu \'ioikirlg togettlilr iO wor'", wonders:" The UniverSity' i)t Te"as Medlczl Branch Member. iexas Medical Centeflt

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 54

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 1 of 7

Chapter i-A
Transparency of Reimbursement Rates
The State Auditor implies the establishment of UTMB's Correctional Managed Care
reimbursement amounts lack transparency.
UTMB respectfully disagrees with the State Auditor's implication that there is a lack of
transparency regarding reimbursement rates and that rates are arbitrarily set. UTMB further
disagrees with the State Auditor's recommendation that various bodies should provide annual
review, oversight and approval of its rates. UTMB submits these processes are already in place
and the State Auditor's recommendation would result in unnecessary work and redundancy.
The CMHCC approves the overall health care costs when it approves and signs the biannual
contract with UTMB. Additionally, UTMB submits the LBB indirectly approves anticipated
offender healthcare costs provided by UTMB through the legislative process. Although the
HHSC does not review the CMC internal payment rates, it does establish UTMB's payment rates
for Medicaid services using a cost-based methodology. CMC internal payment rates are also
developed using a cost-based methodology.

Excessive Reimbursement Amounts
The State Auditor states UTMB's Correctional Managed Care reimbursement amounts exceed
certain Medicare reimbursement amounts.
UTMB's internal payment rates for healthcare services provided to TDCJ offenders are
reasonable and appropriate, compare favorably to benchmark payment rates and represent
significant value to the state, citing the following examples:
• The State Auditor, in this report, incorrectly compared UTMB's inpatient payment rate
to the standard Medicare rate typical of a community hospital. As discussed with the
State Auditor, and consistent with recognition by the Centers for Medicare and
Medicaid Studies (CMS) as well as the Texas Health and Human Services Commission
(HHSC), UTMB is a complex, academic medical center and, as such, its standard rate
includes additions to the "standard rate" for medical education. In 2010, TDCJ's
inpatient rate was approximately 81% of UTMB's appropriately calculated standard
Medicare rate and 74% of UTMB's inpatient Medicaid rate.
• For FYlO, UTMB-CMC funding per offender per day increased by only 1.8% over FY09
funding; for FYll, however, funding has decreased by 0.9%. This decrease occurs during
a period that, based on an independent actuarial study (Milliman), the cost for
hospitalization and specialty care services was expected to rise 8.7% per year based on
the demographics of the correctional population UTMB serves. This independent
actuarial information was shared with the State Auditor during its audit.
• In the Houston region, physician managed care contract benchmark rates are 130-135%
of Medicare rates. Additionally, due to the differences of the offender population to the
free world market, Medicare rates are considered insufficient for physician services.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 55

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 2 of 7

•
•

•

•

Physicians working in the correctional care environment are routinely and significantly
affected by high no-show clinic rates, security, logistics and other considerations not
experienced in the free world market, which increases costs.
It should be noted, that by rider and statute, UTMB is not allowed to use UTMBappropriated funds to support the cost of providing offender heafthcare.
UTMB establishes its internal payment rates based upon estimated costs to provide
offender health care services and using industry-accepted cost accounting principles and
methodologies and a state-of-the-art health care cost accounting system.
UTMB believes it is in conformance with generally accepted accounting principles and
health care industry practice and would support confirmation of this belief by an
independent public accounting firm.
Finally, Texas ranks among the very lowest in the country in health care costs for its
offender population. Texas offender healthcare costs are $9.67 per day compared to
$10.82 in Georgia, $11.85 in Tennessee, $15.75 in North Carolina and $28.55 in
California.

Chapter 1·8
Questionable Salary Increases
The State Auditor states that UTMB approved $14.1M in salary increases for FY08-FY10 for the
UTMB-CMC Division while UTMB was reporting a deficit and recommends that UTMB should
seek approvalfrom LBB before implementing any salary adjustments.

UTMB respectfully disagrees with the State Auditor's recommendation that salary adjustments
for the UTMB-CMC Division be approved by the LBB based on the following:
•

•

•

UTMB's contract with the CMHCC is for the performance of healthcare services,
regardless of vacancy levels and/or difficulties filling positions. Recognizing that agency
nursing and/or locum service can add significant costs, UTMB strives to maintain salary
market competitiveness. Market and merit increases awarded in FY08 and FY09 were
implemented specifically to maintain market competitiveness and boost employee
retention, with the support of the CMHCC.
UTMB-CMC Division management kept the CMHCC well informed at their quarterly
meetings of planned salary adjustments in response to remain market competitive,
reduce vacancy levels and hiring of agency personnel, and other emerging workforce
issues. Additionally, the CMHCC, by contract, must approve any new expense in excess
of $IM prior to implementation. Thus, market increase adjustments, cited in this State
Auditor's audit, were specifically presented to the CMHCC for UTMB-CMC personnel.
Since the UTMB-CMC Division may not offer sign-on bonuses, relocation allowances or
hazard-duty pay, its primary recruitment and retention tool is competitive
compensation and benefits; the CMHCC is well versed about these issues.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 56

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 3 of 7

•

•

The use of compensatory time, as suggested by the State Auditor, is not considered an
attractive or effective employee incentive to work extra hours in a prison environment
and, because of already tight staffing levels, would likely exacerbate staffing difficulties.
Despite implications by the State Auditor, the TDCJ contract did not fund any portion of
the UTMB TEAM awards.

Chapter 1-C
Indirect Costs
The State Auditor alleges that UTMB may be charging the UTMB-CMC Division for a
disproportionate amount of UTMB's indirect costs. Furthermore, the State Auditor recommends
that UTMB should ensure that all indirect costs charged to UTMB-CMC Division are specifically
related to offender health care, and that UTMB should obtain approval from the LBB before
charging any indirect costs to UTMB-CMC Division. The State Auditor also suggests the
Legislature may need to determine appropriate reimbursements and indirect cost allocations
related to offender health care.
UTMB respectfully disagrees with the State Auditor's implication that UTMB may be charging a
disproportionate share of indirect costs to its CMC Division and the recommendation that
UTMB should seek approval from the Legislative Budget Board to charge indirect costs. Indirect
costs are a normal part of any operating organization.
•

•

Both the Centers for Medicare and Medicaid Studies (CMS) and the Texas Health and
Human Services Commission (HHSC) recognize indirect costs as appropriate components
of healthcare reimbursement rates.
UTMB utilizes accepted cost accounting principles and methodologies for the allocation
of indirect costs, consistently applies these methodologies between UTMB divisions and
ensures divisions are not "double charged". The follOWing table represents the
distribution of indirect costs paid by each UTMB division, as well as the indirect cost paid
as a percentage of total division expenses for FY 2010.
% Charged

UTMB Division

as a % ofTotal

Indirect Costs

Expense Budget

7%

2%

Hospitals and Clinics

48%

11%

Academic Enterprises

44%

10%
21%

CMC

Auxiliary Enterprises

•

Indirect Cost Paid

of Total

1%
100%

The State Auditor appears to narrowly define the "cost directly related to providing
health care to prison offenders," implying that only expenses such as nurses' salaries
and medications be charged to the CMC contract. However, Human Resources, Payroll,

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 57

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 4 of 7

•

Purchasing, legal, logistics and many other operations are essential to the delivery qf
health care to the offender population, and thus would be viewed as "direct" costs if
UTMB-CMC had the full required staffing for these business functions rather than
leveraging UTMB resources.
UTMB believes it is in conformance with generally accepted accounting principles and
health care industry practice and would support confirmation of this belief by an
independent public accounting firm.

Chapter 1-0
Prohibited Expenditures
The State Auditor alleges that UTMB-CMC Division charged more than $6.6 mil/ion in prohibited
expenditures; in addition, limited contract guidance prevented auditors from determining
whether an additional $17.9 mil/ion in expenditures was reasonable and necessary.
UTMB respectfully disagrees with the State Auditor's assessment of potentially prohibited
expenditures and offers the following:
• The majority of the $6.6M questioned by the State Auditor relates to employee benefits
for retiree premiums and new hire premium sharing:
o Retiree premiums are a normal business operating cost. Many of these retirees
are employees who transferred to UTMB-CMC from TDCJ as a result of the
legislation creating the offender managed health care system.
o Providing premium sharing at the inception of employment is a recruitment
incentive, consistent with health care market practices.
• UTMB also disagrees with the auditor's conclusion that $1.476 mill10n in offender
funeral and autopsy expenditures are prohibited expenditures under the contract.
Article III, F.4 in the contract clearly denotes this as a required state-wide service,
therefore payable from contract funding.
• UTMB would also like to address the auditor's statement to overcharging the contract
related to IBNR expense. The auditor references $168,234 of remaining FY09 IBNR
unspent as of FY11. Standard industry practice would have been to reverse the FY09
IBNR by the end of FYlO, thus reducing expenses in the subsequent fiscal year.
However, due to the extraordinary volume and dollar amounts paid to free world
facilities as a result of hurricane IKE, UTMB-CMC chose to carry forward for an additional
period a FY09 IBNR balance (amount calculated as .25% of the $66 million in FY09 paid
st
claims.) In the current fiscal year, as of December 31 UTMB-CMC has paid $22
thousand in claims against this IBNR amount. Any remaining balances as of August 31,
2011 will be reversed.
• Additionally, the State Auditor report raises questions related to $17.9 million, including
indirect costs, of FY09 and FYlO expenditures not specifically prohibited by the contract,

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SAO Report No. 11-017
February 2011
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Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 5 of 7

but that may not be directly related to or necessary for delivering offender healthcare.
UTMB contends the expenses cited are normal business operating expenses, such as:
o Employee referral bonuses encourage existing employees to refer qualified
candidates for hard to fill positions. This practice is similar to one utilized by
TOCJ.
o Education Pay, Certification, Employee Tuition and School Books offer additional
education opportunities as a tool for recruiting and retaining employees.
o Mobile devices allow employees to conduct daily business matters efficiently.
o State Purchased Meals and Employee Meals were payments for offender meals
in infirmaries established at UTHSC Tyler and/or Hospital Galveston when no
other bed space is available in the units. It also includes TDCJ security meals
while at the UTHSC Tyler facility.

UTMB-CMC will continue to strengthen controls over expenditures to ensure only allowable
costs are charged to the contract. UTMB-CMC regularly provides full disclosure of all expenses
to the CMHCC for review. CMHCC may (and does) request detail supporting information.
UTMB-CMC agrees that expense classifications can be improved upon and has begun working
with UTMB Accounts Payable and Purchasing to achieve that.

Chapter 2
Overestimated Cost Savings
The State Auditor submits that UTMB-CMC Division overestimated cost savings related to its
FY2010 Reduction in Force by $3.1M, and UTMB spent $4. 7M for temporary services to
supplement its workforce. The State Auditor recommends that UTMB perform a cost-benefit
analysis prior to a RIF to ensure that it considers all direct and indirect costs (such as
unemployment charge backs and accrued vacation leave payouts) in the calculation of potential
cost savings and that UTMB develop a contingency plan to identify gaps in staffing and the
impact of employing temporary employment services.
UTMB respectfully disagrees with the State Auditor's overall conclusion regarding the FY2010
Reduction in Force and maintains it already has the recommended actions in place. UTMB
offers the following information:
• UTMB's calculation of cost savings analysis was based on a target implementation date.
The actual implementation date differed due to discussions with the CMHCC and TDCJ
that resulted in modifications of the timeline and reduction-in-force impact.
• UTMB performs a cost-benefit analysis prior to considering any RIF and did so in FY2010.
UTMB will continue to refine its process in calculating all direct and indirect costs and
potential cost savings. The auditors indicate that approximately $500,000 in vacation
payouts were not considered in the saving calculation. While there was a cash outlay for
paid vacation balances, these expenses did not result in an additional expense to the

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 59

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 6 of 7

•

•

•

contract. As earned, vacation accruals are appropriately recognized as an expenSe and
accrued as a liability in the noted reporting period, in accordance with Generally
Accepted Accounting Principles.
UTMB changed its CMC nursing model, moving from a Registered Nurse intensive
model to a licensed vocational nurse model, specifically to reduce contract costs. This
change resulted in a net reduction of 26 licensed vocational nurses (LVN), 61 unlicensed
nursing positions and 163 Registered Nurses (RN) based on the needs of the individual
units and geographical locations. As a result, some units gained LVN positions while
other units had reductions. For example, the Texas City unit reduced its LVN count by 15
while netting an increase of 17 unlicensed positions.
UTMB - CMC Division acutely understands the premium cost of using agency nursing
and locums and prudently uses contract labor, as needed, to ensure quality care and
contract compliance.
UTMB- CMC Division is continuing to look at the current staffing model to identify
potential gaps that may require the use of temporary services and develop a plan that
addresses needs in the most cost beneficial way.

Chapter 3
Organizational Structure
The State Auditor contends UTM8's organizational structure impairs independence and
decision- making. Thus, the State Auditor recommends the CMHCC coordinate with L88 and
UTM8 to create transparency and independence regarding the reimbursement amount
structure, salary adjustments, and allowable costs related to providing health care to offenders.
Additionally, the State Auditor suggests that the Legislature may consider restructuring the
CMHCC and/or UTM8-CMC Division to add transparency and independence to the decision
making process related to offender health care.
UTMB respectfully disagrees with the State Auditor's criticism of its organizational structure as
it relates to offender health care and offers the following:
•

•

UTMB, not an individual division within UTMB, contracts with the CMHCC to provide
offender healthcare services. The contract outlines services to be provided, defines
certain outcome and performance measures, and specifies how services provided will
be compensated and the consequences of non-performance. The CMHCC contract does
not specify how UTMB, as a contractor, is to specifically provide those services, just that
they are provided.
UTMB is responsible for determining the most efficient and effective organizational
structure for service delivery since it possesses the appropriate operational expertise,
responsibility and risk for providing offender health care services.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 60

Texas State Auditor's Office
Response to the CMC Draft Audit Report
Page 7 of7

•

The memorandum of understanding (MOUl is an internal document used to outline
internal pricing arrangements as a part of good business practices; it falls outside of the
scope of the CMHCC contract.

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 61

Appendix 9

Management’s Response from the Correctional Managed Health Care
Committee

CORRECTIONAL MANAGED HEALTH CARE COMMITTEE
1300 II'" Street, Suite 415, Huntsville, Texas 77340
(936) 437-1972. Fax: (936) 437-1970

AI/ell R Hightower
Executive Director

January 28, 2011

State Auditor's Office

RE: Response to Correctional Managed Health Care
Draft Audit Recommendation

We concur with the audit recommendation that the Executive Director of the
Correctional Managed Health Care Committee should coordinate with the Legislative
Budget Board and UTMB to create transparency and independence in the decision making
process regarding reimbursement amount structure, salary adjustments and allowable costs
related to providing health care to offenders, even if this would necessitate changes in the
structure of the committee.
11le beginning ver ions of HBI and SB 1 of the 82 nd Legislative sunset CMHCC.
However, the CMHCC believes that continuation of public input is still very important lUld
should continue. Monitoring of access to care and quality of care could remain separate
from fmlUlcial mlUlagement. TIle CMHCC does provide a means for physicians to make
medical decisions regarding access to care and quality of care.
TIle CMHCC very strongly believes that providing medically necessary care to the
inmate population, with a majority of the committee licensed physicians, will not only
insure that the policies for providing necesslUY medical care to the imnate population, but
is critical in mitigating the states liability in future litigation.

Allen R. Hightower
Executive Director
ARH:sh

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 62

Appendix 10

Related State Auditor’s Office Work
Related SAO Work
Number

Product Name

Release Date

07-017

An Audit Report on Correctional Managed Health Care Funding Requirements

March 2007

05-012

An Audit Report on Management of Correctional Managed Health Care Contracts

November 2004

05-028

A Follow-Up Audit Report on Managed Care Contract Administration
at the Health and Human Services Commission

February 2005

An Audit Report on
Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
SAO Report No. 11-017
February 2011
Page 63

Copies of this report have been distributed to the following:

Legislative Audit Committee
The Honorable David Dewhurst, Lieutenant Governor, Joint Chair
The Honorable Joe Straus III, Speaker of the House, Joint Chair
The Honorable Steve Ogden, Senate Finance Committee
The Honorable Thomas “Tommy” Williams, Member, Texas Senate
The Honorable Jim Pitts, House Appropriations Committee
The Honorable Rene Oliveira, House Ways and Means Committee

Office of the Governor
The Honorable Rick Perry, Governor

The University of Texas Medical Branch at Galveston
Members of the University of Texas System Board of Regents
Ms. Colleen McHugh, Chairman
Mr. Paul L. Foster, Vice Chairman
Ms. Janiece Longoria, Vice Chairman
Mr. James D. Dannenbaum
Mr. Printice L. Gary
Mr. R. Steven "Steve" Hicks
Mr. Kyle J. Kalkwarf
Ms. Brenda Pejovich
Mr. William Eugene "Gene" Powell
Mr. Robert L. Stillwell
Dr. Francisco G. Cigarroa, Chancellor, the University of Texas System
Dr. David L. Callender, President, the University of Texas Medical
Branch at Galveston

Correctional Managed Health Care Committee
Members of the Correctional Managed Health Care Committee
Dr. James D. Griffin, Chair
Mr. Elmo Cavin
Mr. Bryan Collier
Mr. William Elger
Mr. Gerald Evenwel, Jr.
Dr. Cynthia Jumper
Dr. Lannette Linthicum
Dr. Ben G. Raimer
Dr. Desmar Walkes
Mr. Allen Hightower, Executive Director, Correctional Managed Health
Care Committee

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In compliance with the Americans with Disabilities Act, this document may also be requested
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The State Auditor’s Office is an equal opportunity employer and does not discriminate on the
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provision of services, programs, or activities.
To report waste, fraud, or abuse in state government call the SAO Hotline: 1-800-TX-AUDIT.

 

 

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