An Audit Report on Correctional Managed Health Care at the University of Texas Medical Branch at Galveston
February 2011
Report Number 11-017
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.
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 UTMBs 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 payouts to employees after it reported what one newspaper article referred to as a positive adjusted margin of $37.5 million for fiscal year 2010 (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 UTMB-CMC 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's 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 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 UTMBs reported deficit for fiscal years 2009 and 2010; see page iii of this report for Table 1.