Report 99027 Summary - January 2000

California Department of Corrections: Utilizing Managed Care Practices Could Ensure More Cost-Effective and Standardized Health Care


The Budget Act of 1999 directed the Bureau of State Audits to audit the California Department of Corrections (department) to determine whether it appropriately and effectively manages its medical operations. As part of the audit, we were to include recommendations for operating the department's facilities in a managed care environment. We found the department has just begun to develop an infrastructure for inmate health care that is standard in managed care organizations; therefore, it has only partially adopted the comprehensive practices these organizations use to ensure cost-effective medical services.

The department does not fully or adequately use various managed care practices. For example, there is no comprehensive process for review of health care operations at its 33 institutions. Without such a process, the department cannot effectively determine what aspects of its operations need improvement. The department also lacks a modern statewide information management structure, including networking capabilities, which restricts its ability to gather and analyze data. The deputy director in charge of the department's health care services division acknowledges that its ability to manage the health care operation is limited by its lack of data and staff to analyze the data.

The department also has not developed systemwide treatment guidelines or analyzed medical outcomes for the purpose of making patient care for its 150,000 inmates more uniform and cost-effective. At present, the level of care varies among institutions, in part because of lawsuits that inmates successfully brought against the department charging inadequate health care at specific facilities. The department believes that certain court-imposed services it currently offers at only a few facilities should be implemented at all of them; however, it has not obtained sufficient resources to do so.

Key operating data, such as costs per inmate for nurses and medical technical assistants (MTAs), length of hospital stays, and total medical costs also vary significantly among institutions. For example, some facilities pay more than four times as much for nursing costs per inmate than others do. Likewise, some institutions incur salary costs, including overtime, for MTAs that are nearly twice what other institutions pay per inmate. The department does not routinely analyze comprehensive data on its medical services, so it does not know why health care costs vary so widely or whether the institutions with the lowest costs are operating optimally or simply providing a level of services below that of other institutions. Similarly, it does not know whether its highest-cost facilities are inefficient or provide excessive care, and thus present opportunities for potential savings. The department performs limited reviews in certain circumstances, but it cannot readily improve care or cut unnecessary costs until it institutes a comprehensive, systematic analysis of its operations.

The department has implemented one program that was designed to reduce unnecessary patient visits. Five years ago, it began collecting $5 co-payments from inmates to curtail unnecessary visits to the doctor. The program has not generated the expected revenue, nor has the department analyzed the program to assess whether it actually has reduced visits sufficient to offset the operating costs. The department cannot demonstrate that the program is cost-effective, so we recommend that it be eliminated.

The department also could reduce its health care costs by purchasing more of its pharmaceuticals using contracts, taking advantage of more competitive contracting techniques, and increasing its efforts to monitor prescribing practices at all 33 institutions. Contracted prices allow the department to purchase medications at more competitive prices, yet it has obtained contracted prices for only 40 percent of its purchases. Additionally, an inadequate data collection system for its pharmacy operations presents obstacles for the department to achieve greater efficiency and effectiveness through assessing physicians' prescription practices at its various institutions. Further, the department's drug formulary is outdated, although it is an important management tool intended to ensure that institutions prescribe the most appropriate and cost-effective medications. Moreover, the department reports that it experiences difficulties due to the many vacancies in its pharmacist positions.

A final issue we examined was the licensing of the department's correctional treatment centers (CTCs). The department has not yet licensed all its CTCs, as required. As of December 1999, only 2 of a planned 16 CTCs were licensed, and we question whether the department is providing an authorized level of care at the remaining facilities. Contrary to the department's assertion, the Department of Health Services, which licenses the CTCs, told us it was unaware of the kinds of care the unlicensed CTCs provide.


To improve the management of its health care operations and better employ managed care practices, the department should take the following actions:

To improve the prices that it pays for its pharmaceutical purchases and to ensure that its institutions follow appropriate practices for prescribing drugs, the department should take the following actions:


The department generally agrees with our recommendations and outlines certain corrective actions. However, it contends that it may be premature to report to the Legislature on its progress in adopting managed care. Rather, the department believes that implementing activities proposed in the governor's budget for fiscal year 2000-01 will enable it to incorporate cost management techniques, which may or may not mirror managed care, and improve the quality of care provided.