John Keel, CPA
Texas State Auditor
An Audit Report on the Cost of the State's Correctional Managed Health Care
Report Number 07-003
Amounts in the financial reports that the University of Texas Medical Branch at Galveston (Medical Branch) and the Texas Tech University Health Sciences Center (Health Sciences Center) submit to the Correctional Managed Health Care Committee are supported by each institution's accounting system.
In addition, the methodologies that the Medical Branch and the Health Sciences Center use to account for and report the costs of providing health care to state prison inmates are reasonable. For example:
- The Medical Branch qualifies for the federal government's Public Health Service Section 340B Drug Pricing Program, which enables it to obtain the lowest possible prices for medicine. The Health Sciences Center does not qualify for this program, but the Medical Branch purchases medicine for the Health Sciences Center through a consortium. This enables the Medical Branch to obtain the lowest possible prices for the Health Sciences Center.
- Both the Medical Branch and the Health Sciences Center compute their indirect cost allocation rates as a percent of revenue (instead of as a percent of expenses) and then apply these rates to the revenue they received from the Correctional Managed Health Care Committee. This is not the standard methodology for allocating indirect costs (indirect costs are typically computed as a percent of direct expenses), but cost accounting guidance indicates that any reasonable method may be used.
Both institutions we audited also had reasonable support for the supplemental appropriations they requested and received from the Legislature in fiscal year 2005.
The Medical Branch made errors in the implementation of its methodologies that resulted in minor inaccuracies in its reported costs. Auditors also identified improvements the Medical Branch should make to the procedures it uses to calculate certain costs.
During this audit, we noted that the Correctional Managed Health Care Committee, the Medical Branch, and the Health Sciences Center have made operational changes in response to issues raised in a November 2004 State Auditor's Office report (An Audit Report on Management of Correctional Managed Health Care Contracts, State Auditor's Office Report No. 05-012). For example:
- The two institutions now submit monthly financial reports to the Correctional Managed Health Care Committee in an agreed-upon format.
- The two institutions' contracts with the Correctional Managed Health Care Committee now include (1) a list of unallowable expenditures and (2) commitments from each institution's internal audit department to audit correctional health care issues annually.
- The Correctional Managed Health Care Committee has hired a finance manager to review the institutions' monthly financial reports and inquire about questionable expenditures.
This audit report also provides some background information on inmate health care and compares Texas's costs for inmate health care with costs in other states. Although costs are not entirely comparable across states, our analysis indicates that the cost of inmate health care in Texas is generally lower than costs in other states.
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