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Corrections agency to be grilled by senators over new inmate health care contract

Julie JonesFlorida Department of Corrections' decision to award a two-year $268 million contract to a health care company with deep political connections has drawn a lawsuit from another politically-connected company, and faced some questions from the Senate Appropriations Subcommittee on Civil and Criminal Justice today.

The contract between the prison agency and Centurion of Florida was signed Feb. 1 after Corizon Health told FDC Secretary Julie Jones in December that it planned to abandon its five-year, $1.2 billion contract three years early.

The company had complained that it had been losing $1 million a month on its contract to provide mental health, dental and health care for 82,000 of the state's inmates and was under fire from the agency to improve its performance

Jones determined that the emergency situation did not require the state to seek competitive bids and, rather than a formal bid-seeking process, she asked other health care companies to offer proposals to fill the gap in prison health care until the agency negotiates a new bid with new companies in 2018.

Three companies submitted proposals -- Wexford, the company that is paid $48 million a year to serve 18,000 inmates in the South Florida region, as well as Centurion, and Armor.

The department awarded the contract to Centurion, a partnership between MHM Services, a provider of mental health care services and Centene, the company that is holds a lucrative Medicaid managed-care contract with the state. The company has contributed $298,000 to legislative campaigns and political committees in 2015 alone and its chief lobbyist is former House Speaker Dean Cannon.

Wexford sued last week, arguing that state law required the agency to use the competitive procurement process and, because the contract gives Centurion the bulk of the money in the state's 2015-16 budget allocated for inmate health care "would leave less than $20 million to pay Wexford for its services annually."

Centurion responded in a press statement that it was not a "no-bid" contract in the true sense but a "robust competitive selection process among multiple potential providers" because the companies "engaged in follow-up conversations and requests for clarifying information from FDC and then submitted refinements to their proposals."

On March 2, Wexford issues a statement countering Centurion's counterpoint. It is included below. 

Wexler's lawsuit argues that the fact that the company is paid on a "cost plus" basis means "the more Centurion expends in performing its services to provide prison healthcare, the more the Department of Corrections must pay for it."

It also argues that there is no incentive "for Centurion to perform in a manner that prevents the available funds from being exhausted before the end of the fiscal year,'' noting that the 60-day requirement can drain the money and then leave.

"Under this contract, Centurion is in a position where it can bankrupt the Department of Corrections of all the funds it has available to provide prison health services long before the fiscal year in question has expired,'' Wexford claims, noting this would draw federal control of Florida's prison system.

Centurion  disputes the claim that it will make a profit of $31 million because that amount must cover the corporate costs, such as information technology, infrastructure and human resources. The company says that "the contribution from this contract to Centurion corporate overhead is a much lower single digit" and the potential cost of penalties is higher than the contract the state had with Corizon.

Although Corizon was given 180-days notice to cancel it's contract, Centurion's original contract was given only 60 days. The company argued in its media statement that this "is more in the state's best interest than Centurions" because the state could edge the company out in 60 days as well. "It is also important to note that Centurion has never walked away or cancelled a contract, and in fact has come in to take over contracts when other vendors have left."

FDC spokesman McKinley Lewis said the agency amended the contract with Centurion on Tuesday to extend the notice to 180 days. 

Here's the lawsuit filed by Wexford:  Download Wexford Petition V. DOC without exhibits

Here's Centurion's Feb. 17 memo to the media and below it the March 2 statement by Wexford: 

In recent weeks, there have been numerous news stories detailing the timeline and ultimate award of the prison health care services contract from the Florida Department of Corrections (FDC) to Centurion of Florida, LLC (Centurion).  We would like to take a moment to correct the record and clarify some misinformation.

Centurion was contacted along with many other companies across the country who offer the management of these services when the state found itself in an emergency situation.  The bid from Centurion was also the best-priced proposal by more than $20 million, while still being able to maintain the highest quality of care in prison health services.

Claim: “This was a no-bid contract.”

Fact:      While the competitive selection process to choose a health care services provider was not a formal RFP or technical bid process (because of the urgent need to have prison health care services in place after the current vendor gave early termination notice with a fixed end date) the FDC engaged in a robust competitive selection process among multiple potential providers. Four companies were contacted and asked to submit proposals with extensive information on proposed infrastructure, health care delivery methods, and cost.  Further, it is our understanding that of the four companies asked to submit proposals, three engaged in follow-up conversations and requests for clarifying information from FDC and then submitted refinements to their proposals.  The very fact that multiple companies submitted competitive proposals and engaged in detailed discussions about their submissions with FDC demonstrates that claims of a “no-bid contract” are false and misleading.

Claim:   “Centurion stands to make $31 million in administrative fees and profits.”

Fact:      Under the cost-plus contract with Centurion, the state will pay for the care that is actually provided within the prison health care system – no more, no less.  The contract is capped at $267 million. The 13.5 percent administrative fee accounts for real costs that Centurion will be responsible for under the contract, including information technology infrastructure, human resources, state contract monitors and many more. In reality, the contribution from this contract to Centurion corporate overhead is a much lower single digit. This, along with the fact that this contract carries much more significant potential cost of penalties than the previous contract, ensures that the state is not overpaying for the important delivery of health care to a difficult population.

Claim:   “A cost-plus contract allows the vendor to continually spend state money.”

Fact:      This is absolutely false.  The contract provides for monthly billing statements to be submitted to DOC, allowing for intense and real-time scrutiny of all charges.  The other submissions were based on set fees per inmate, paying those companies a set amount regardless of actual expenses of money spent.  The cost-plus system that Centurion will be providing to the state transfers the upfront financial risk to Centurion, while providing the agency time to review and scrutinize all costs associated with the contract. The contract has a not to exceed amount.

Claim:   “Centurion only has to give the state 60-days notice if it intends to leave the state.”

Fact:      News reports are casting the “60-day notice” clause in a negative light.  When in fact, this term (shortened from the 180-day notice the previous vendor was contractually obligated to provide) is more in the state’s best interest than Centurion’s.  For example, if FDC decided to move to a permanent provider, it could do so quickly with the shortened cancellation period.  It is also important to note that Centurion has never walked away or cancelled a contract, and in fact has come in to take over contracts when other vendors have left.

Here is Wexford's counterpoint to that issued on March 2: 

Claim vs. Fact

At the end of January, the Florida Department of Corrections (DOC) signed a contract with Centurion of Florida for medical services for inmates incarcerated in DOC Regions I, II, and III. Inmate health care services in Region IV will continue to be provided by the existing contractor, Wexford Health Sources.

On February 17, in response to news articles that raised significant questions about both the contract’s financial provisions and the manner in which it was awarded, Centurion sent a memo to the media that contained misleading information about the contract.  On February 24, DOC staff also gave a presentation on the contract to the Senate Appropriations Subcommittee on Criminal and Civil Justice.

We would like to correct certain misrepresentations in these documents.

Claim #1: The DOC’s $268 million contract with Centurion to provide inmate health care services is a no-bid contract.

Fact: TRUE. The Department itself categorizes the contract as a no-bid contract.  According to Florida DOC Order Dismissing Petition (FDC Case No: DC 16-36, Wexford Health Sources, petitioner, vs. Florida Department of Corrections, respondent) dated Feb. 10, 2016: “There was no competitive bid process applicable to this contract.”  

The DOC did not issue a formal solicitation (e.g., a Request for Proposals, Invitation to Negotiate, etc.) as outlined in Chapter 287, Florida Statutes.  Instead, the Department chose to utilize an informal process with no rules, and requested price information from four vendors.  Three of the four vendors provided pricing to the DOC.

With this information in hand, the Department never attempted to negotiate the lowest possible price; and never established bid standards to enable it to obtain comparable (apples-to-apples) prices.  Without a formal bid process, the DOC chose a single vendor (Centurion) for all three regions and gave it a “cost-plus” contract.  This agreement will pay Centurion exorbitantly in comparison to industry-standard administrative fees and profit.

Claim #2: Centurion stands to make $31 million in administrative fees and profits.

Fact: TRUE. Under its $268 million cost-plus no-bid contract with Centurion, the DOC is obligated to pay 13.5% in administrative fees and profits on each invoice Centurion submits for providing inmates with health care services. Many items typically considered to be “overhead” (and therefore covered under the administrative fee in a standard cost-plus contract) are already included in Centurion’s reimbursable “health care services” costs, e.g., salaries for Centurion employees at the company’s headquarters who oversee the Florida contract, insurance, etc.  Most of the $31 million in administrative fees will go right to Centurion as profit.  Other government managed-care contracts of this size (such as Medicaid and Medicare services) typically have a 3% to 5% profit margin—not 13.5%.

Claim #3:  The cost-plus contract gives Centurion an incentive to spend more money, not less, since it can get up to $31 million dollars in fees and profits by spending the entire amount.

Fact: TRUE. In government health care, contract models where the vendor holds all of the financial risk (known as at-risk, per-diem, or per-member-per-month contracts) have traditionally been preferred over cost-plus models like Centurion’s.  Because it is at financial risk in an at-risk contract, the vendor has an incentive to effectively manage the cost of the services it provides, through case management, utilization management, claims review, and the efficient use of commodities and supplies.  Proactively analyzing health services in this way helps the client to avoid costly unnecessary and preventable care such as extended inpatient hospital days; or expensive diagnostic procedures with equivalent—but less costly—alternatives.

An at-risk model also provides the State with a firm annual contract cost.  The DOC’s contracts with Wexford Health (and formerly with Corizon) are fixed-price, at-risk contracts, in which the vendor pays all inmate health care bills without the opportunity for receiving additional reimbursement if those bills exceed the agreed-upon amount of the contract.  If DOC inmates require more (or more expensive) care than originally projected under the terms of the contract, Wexford Health provides the care at our own expense, without being reimbursed by the DOC.  This is the financial risk inherent in the contract—the same risk that drives any responsible correctional or free world health care company to closely monitor the services it provides to its patients.  The goal is to contain costs while providing an appropriate level of care, i.e., a level of care that keeps patients healthy and avoids unnecessary, serious cases.

Conversely, a cost-plus contract requires the client to review and reimburse all legitimate health care bills, regardless of cost.  This provides the vendor with no incentive to compare prices, control costs, or investigate alternate products and services.  The cost-plus model encourages the vendor to spend dollars (and collect administrative fees) until the contract’s cap is reached—at which point the vendor no longer has any incentive to continue providing services. 

By the DOC’s own admission, its no-bid cost-plus contract with Centurion will cost the State $34 million more next year than Corizon’s at-risk, per-diem agreement would have.  Interestingly, the DOC’s current Invitations to Negotiate (for contracts starting January 2018) ask potential vendors for pricing based on the per-diem/fixed pricing model, not the cost-plus model.

Claim #4: The bid from Centurion was also the best priced proposal by more than $20 million. . . .  “

Fact:  FALSE. The DOC cannot know this, as it did not request “cost-plus” contract pricing from all vendors. 

In seeking prices for its interim health care contract, the DOC did not issue bid specifications; require vendors to base their pricing on actual historic cost and utilization data; or seek quotes on a single, consistent contract model.

As a consequence, the Department received some quotes that included dollars for financial risk (the “at-risk” or per diem quotes); and others that did not include such dollars (the “cost-plus” quotes).  Since vendors did not all price the same thing, the prices were wildly different and cannot be compared to each other

If the DOC had asked, Wexford Health could have provided a responsible cost-plus price at an administrative fee significantly lower than the one the Department settled for with Centurion.

Claim #5: The very fact that multiple companies submitted competitive proposals and engaged in detailed discussions about their submissions with FDC demonstrates that claims of a ‘no bid contract’ are false and misleading.”

Fact: FALSE. As mentioned before, the DOC chose to utilize an informal process, stating it did not need to follow typical procurement rules.  While the Department did talk to “multiple companies,” it did not (as described in the preceding point) talk about the same contract model with each company.  This resulted in the DOC receiving contract models and prices that ranged from the vendor holding all risk; to the vendor holding no risk. 

With dissimilar proposals in hand, the Department never attempted to normalize the contract models; or to establish a consistent “standard” model in order to obtain equivalent prices from all vendors.  In fact, even after the DOC determined it wanted to put a cost-plus contract in place, it did not go back and request pricing on that model from all vendors. 

Claim #6:  “This process allowed the Department to evaluate multiple cost options.  With six months until Corizon’s exit, our objective was to secure a best value contract and allow ample ramp-up time for the selected provider to ensure a seamless transition of services.”

Fact: FALSE. See Facts #4 and #5. It is not financially valid to compare pricing across different contract models.

Claim #7: The cost-plus system that Centurion will be providing to the state transfers the upfront financial risk to Centurion.”

Fact:  FALSE. The “upfront financial risk” Centurion references is the “risk” that the DOC might penalize the company for not providing an appropriate level of staff or services—not much of a risk at all, since Centurion can spend as much money as it wants to source appropriate clinicians and health services, and still be reimbursed by the Department.

In reality, Centurion bears no risk under its cost-plus contract: a model more vendor-favorable than any other kind.  Every 15 days, the company will send the DOC an invoice for all money spent on inmate health care, plus an additional 13.5% administrative fee.  The agreement requires the DOC Contract Manager to review the invoice to make sure the money was spent on inmate care; however, the agreement does not require the Department to verify that Centurion obtained the best price possible on MRIs, wheelchairs, nursing staff, cardiology consults, gauze, etc.  And since Centurion gets 13.5 cents of every dollar it spends, the company has no incentive to shop around for the best values.

As an example, if the cost of inmate health care stayed consistent over time, the $268 million contract would cost the State $22.3 million each month ($19.7 million for inmate care and $2.6 million for Centurion’s administrative fee).  Unfortunately, given the State’s large inmate population, this is not the case.  Monthly care costs can vary wildly.  Theoretically, if inmate care costs in the first few months of the contract are high—and just a few serious patient cases could easily cause this—the DOC could use up the appropriated funds well before the end of the contract year.

Centurion will perform the same analysis.  If it projects that funding will be exhausted before the end of the contract term (leaving Centurion financially responsible for all inmate health care costs from that point forward), the company has only three options.

  1. Give the DOC the contract-required 180-day termination notice
  2. Insist that the DOC pay it money over and above the contract requirements to cover health care costs
  3. Pay for the State of Florida’s inmate health care program out of its own pocket

Claim #8: During the recent Senate panel hearing, it was presented that all bidders were instructed to give a “not-to-exceed price.”

Fact:  FALSE. The DOC never instructed Wexford Health to provide a “not-to-exceed price.”  The only contract model discussed between Wexford Health and the Department was an “at-risk” pricing model that included options for several different staffing levels (to ensure minimal employee vacancies).

Claim #9: The Department assured the Legislative Committee that it can call Centurion’s $27 million performance bond if Centurion terminates the contract early.

Fact: FALSE. The DOC can only call a vendor’s performance bond if the vendor commits a breach of contract.  A performance bond does not apply when a vendor lawfully terminates a contract, with sufficient notice, according to the terms of the contract.  The bond is meant to provide a financial remedy for the State if a prime contractor defaults on its responsibilities under the contract.

Under the terms of the contract, once Centurion determines anticipated annual inmate health care expenses will total more than the $268 million cap, it can give the DOC its termination notice and leave the contract six (6) months later.  In other words, as soon as Centurion sees that inmate health care costs are trending higher than the contract’s $22.3 million monthly average allotment ($19.7 million for inmate care and $2.6 million for Centurion’s administrative fee), it can give notice, to avoid being on the hook for unfunded inmate health care costs six (6) months down the road.

Such a termination notice does not constitute a breach of contract.  Therefore, the DOC would have no right to call Centurion’s performance bond. The Department, inmate patients, and Florida taxpayers would be left high and dry without a health care provider.  Again.

Claim #10: Wexford Health is banking on its strong political connections for its success. 

Fact: FALSE. Wexford Health has made no contributions to Florida legislative campaigns and political committees in recent years.  In contrast, Centurion’s parent company, Centene, has made hundreds of thousands of dollars in campaign contributions in Florida and employs more than a dozen lobbyists, including two recent former Speakers of the House. (Centurion is a joint venture between Centene Corporation and MHM Services, Inc.)  According to the Miami Herald, Centene contributed $298,000 to legislative campaigns and political committees in 2015.