Opinion ID: 784269
Heading Depth: 2
Heading Rank: 1

Heading: The Medical Contract

Text: 4 During 1990, the State of Tennessee issued a request for proposals from private companies to manage the South Central Correctional Center (SCCC) 1 . The proposals were to include a detailed budget of projected costs for operating the SCCC, including the cost of providing medical care to SCCC inmates. Tennessee required the companies submitting proposals to state how much they would charge Tennessee on a per inmate per day (PIPD) basis to manage the SCCC and their estimated profit for doing so. On January 24, 1992, following negotiations regarding the SCCC budget and CCA's profit margin, CCA entered into a three-year contract with the State of Tennessee, acting through the Tennessee Department of Corrections (TDOC), to house state prisoners at CCA facilities, including SCCC. The contract contained an option to renew for two additional years. 5 As part of the contract process, CCA estimated its medical expenses for the treatment of prisoners. This expense category included hospital expenses incurred during the first seventy-two hours up to four thousand dollars per hospitalization, referrals to medical specialists, prescription drugs and laboratory tests. CCA's initial projection was $500,000 per year for these expenses (projecting an average of $1.34 PIPD in 1992, gradually rising over the years to an average of $1.48 in 1997). However, during 1992, 1993, and 1994, CCA's actual expenses for these services and products averaged $1,000,000 per year ($3.75 PIPD in 1992, $3.16 PIPD in 1993, and $2.41 PIPD in 1994). In response to being so dramatically over budget, CCA negotiated a contract with Dr. Coble to be the exclusive provider of medical services at SCCC. Dr. Coble was, among other things, to determine the existence of medical emergencies, and therefore determine when it was necessary to send a patient to the hospital or for a medical referral. This contract was executed on October 6, 1994, and effectively created a managed health-care system at SCCC. The contract automatically renewed itself on an annual basis and could be terminated by either party upon 60 days notice. 6 Unlike CCA's previous agreements with other physicians, this contract provided a capitation plan, which provided Dr. Coble with a financial incentive to reduce the PIPD costs for CCA. Dr. Coble received a minimum salary under the contract, but was able to earn up to an additional $100,000 annually by reducing CCA's costs. 2 The way in which the incentive system worked is laid out in the contract and can be understood as follows: 7 According to CCA's contract with Dr. Coble, he was to be paid a flat rate of $9.40 per inmate under his care, every month. However, twenty percent of that figure was withheld so that Dr. Coble's minimum salary was actually eighty percent of $9.40 or $7.52 per inmate, per month. Every six months, CCA would calculate the amount being spent PIPD. If the amount being spent was equal to or more than $3.07, which was the average amount being spent by CCA PIPD at the time of contract negotiations with Dr. Coble, no further money would be distributed to Dr. Coble. If, however, the amount being spent PIPD was less than $3.07, Dr. Coble would receive a proportionate return of the amount withheld, up to the full $9.40 per inmate. Finally, Dr. Coble would receive an additional five percent bonus if he was able to keep the PIPD cost below $2.47. 8 From the very beginning, it is undisputed that Dr. Coble received the maximum amount of income that he could under his contract with CCA, since he was able to reduce CCA's non-personnel medical expenses at SCCC below the lowest level set forth in the capitation plan provision of his contract. Furthermore, it is agreed that during Dr. Coble's tenure, the total amount CCA spent on inmate medical services at SCCC remained approximately the same per year at $1,000,000 from 1994 through 1997, despite the fact that the population of inmates increased from 1311 in October 1994, to approximately 1506 in 1997, 3 and the fact that, after August 1995, TDOC began to charge CCA for prisoners sent to the DeBerry Special Needs Facility for specialty consultations, when it had not previously done so. By June 1995, CCA's PIPD cost was reduced to as little as $1.46, and appears to have remained close to that amount thereafter. 9 The evidence suggests that this remarkable reduction in costs resulted primarily from less specialty referrals and less money spent on prescription drugs. For example, the physician at SCCC before Dr. Coble referred SCCC inmates to medical specialists 1,886 times the year prior to October 1994, while Dr. Coble referred SCCC inmates to medical specialists only 506 times the following year. Similarly, the cost of prescription drugs provided to SCCC inmates was reduced by approximately thirty-nine percent from 1994 to 1997. 4