In 1993, Texas state prisons over-flowed with 70,000 prisoners. But the state was nearing completion of a $1.5 billion prison construction program that would more than double the number of state prisons. State Comptroller John Sharp appreciated what few Texans knew: the $1.5 billion prison construction price tag would be dwarfed by annual operating costs.

Prison health care was of particular concern to Sharp. For the previous half-decade, those costs had risen at a rate of 6 percent annually. The solution, according to a three-page recommendation tacked onto a massive 1993 state prison audit released by Sharp: managed health care.

Later that year, the Texas Legislature passed a bill that wrenched control of prison health care away from the Texas Department of Criminal Justice (TDCJ) and gave the responsibility for most of the medical care of the state's prisoners to the University of Texas Medical Branch at Galveston and the Texas Tech Health Sciences Center in Lubbock.

The bill passed with little debate and almost no opposition. After all, plenty of people in the free world hate their HMOs. What sane Texas politician would deprive prisoners a taste of managed care, especially when the plan promised to save tax dollars?

So in September 1994, UTMB and Texas Tech assumed control over more than 3,000 prison medical workers and a budget of $270 million. About 80 percent of the managed care would be handled by UTMB, located in southeast Texas, where the vast majority of state prisons are situated. Texas Tech would cover the remaining 20 percent of the prisons located in north and west Texas. Both promised to cut costs and improve care for a prison population that has since mushroomed to approximately 140,000.

After three years of managed care, the savings, according to prison HMO officials, are impressive. So far, they say, the state has saved some $125 million as the cost-per-prisoner has dropped from $182 a month the prison HMO was paid in its first contract to the approximately $160/month it's currently paid. The prison system paid a set contract fee of $238 million for managed care in 1997.

But a state audit released in January 1998, highlights some deeply troubling systemic deficiencies beneath the rosy glow of efficiency and cost savings. Among the issues underscored by the audit:

* Last year, the two medical schools realized a $25 million profit from the contract; the audit cites this as an indication that the contract is too generous.

* The level of care was described as "improper" in 16 of 24 deaths at one prison unit. The prison, undoubtedly the Mark Stiles Unit, was unnamed in the audit. But in 1996 the TDCJ ordered a "mortality review" of 24 deaths at the Stiles Unit (where UTMB has concentrated prisoners identified as HIV+) and found that 16 of the 24 cases had been handled improperly. The TDCJ review called for disciplinary action against Stiles Unit doctors. But UTMB's medical director for the prison HMO, Jason Callhoun, overruled the TDCJ task force recommendations and no action was taken. Callhoun said the TDCJ task force had "no business" telling UTMB how to manage HIV care.

* A review of medical personnel showed that eight prison doctors and three nurses are under licensing restrictions by the state's medical boards for problems ranging from sexually molesting patients to botched abortions to drug and alcohol abuse. The audit showed that both universities failed to check references, graduation records and residency program completions for their doctors and nurses.

* Some $668,000 was paid to 60 UTMB prison HMO doctors last year as bonuses, despite strong protest from the TDCJ that such payments provide an incentive for prison doctors to deny care to prisoners.

Another audit, this one conducted by the TDCJ Health Services Division in 1997, summarized the five most frequently found problems in the prisons it audited. Of the 58 prisons whose records were reviewed, 41 failed to follow up on a program of flu immunizations for prisoners at high risk; 42 failed to adequately account for emergency room procedures; 44 could not properly document that they had counseled prisoners in need of therapeutic diets; and 49 could not show that they had offered vaccines to prisoners at risk for pneumonia, which would include the elderly, the chronically ill and those with HIV.

But the most troubling statistic was that 48 of the 58 prisons missed an audit question concerning their documentation for access to care. In other words, prison HMO workers were saying that they had provided care but they didn't have the paperwork to prove it.

However, such problems haven't hurt the accreditation rating of Texas prisons. Prisons that are not in compliance with state accreditation standards frequently have been given extensions to get into compliance by Dr. Michael Warren, who until recently was the medical director of the TDCJ Health Services Division on a part-time basis.

Despite problems cited by TDCJ auditors, Warren rarely criticized UTMB's managed care in part perhaps because he was spending most of his time employed by UTMB as its chief of urology.

When the Houston Press asked TDCJ director Wayne Scott how Warren could manage such an obvious conflict of interest, Scott replied that "Dr. Warren is here at our request, not anybody else's, as part-time medical director. Mike Warren is a guy, we believe, that can separate those two responsibilities."

But two days after talking to the Press about Warren, Scott fired the doctor, and sent a secretary to Galveston to collect his state computer and car.

And Dr. Warren's double duty isn't the only cozy deal or questionable practice uncovered by Press reporters. Probably the most glaring question centers not around who provides medical care, but who is overseeing it.

Instead of having the two medical schools contract directly with the prison system, the 1993 legislation created a new and separate entity, the Correctional Managed Health Care Advisory Committee (CMHCAC), to supervise prison health care. Despite its name, there seems to be nothing "advisory" about the CMHCAC. Indeed, in some legislative documents it's described as the "Board of Directors" that supervises the HMO contract. The board consists of two representatives each from UTMB and Texas Tech and two representatives from TDCJ, one of whom must be a full-time medical doctor. In other words, the prison HMO contract is overseen by the vendors themselves, who outnumber their client four to two.

The January 1998 audit stated such a governing board "may no longer be critical to the continuation of the managed care system" and suggested that the universities contract directly with the prison system. Such a change, however, would require legislative action, because the CMHCAC is a creature sired by the 1993 Texas Legislature.

Allan Polunsky, chairman of the Texas Board of Criminal Justice (which has oversight of the TDCJ), has even stronger words about the structure of the CMHCAC, declaring it "fundamentally wrong. The committee lacks accountability; it lacks accountability to the Legislature and to the TDCJ and ultimately to the taxpayers. It is the classic case of the tail wagging the dog. It makes no sense at all, but is the result of lobbying and politics."

But if the CMHCAC were to make sense to anybody, through, it would be two former TDCJ directors, James Riley and James Lynaugh.

In theory, the CMHCAC is supposed to be a supervisory agency that plans and monitors health care. But in reality, the actual day-to-day work of planning, providing care, hiring employees and so forth is done by the two medical schools. Nevertheless, the CMHCAC has its own five-person office located, appropriately enough, in a Huntsville bank building.

This office is headed by Riley and Lynaugh, neither of whom has extensive medical experience. As executive director, Riley makes $118,400 a year; Lynaugh pulls down $136,302 annually as chief financial officer. They supervise one assistant director and two administrative associates.

So about a million dollars a year from the prison health care contract goes directly to this five-person department, and no one seems to be able to explain just what the state gets in return.

According to Michael Berryhill, reporting for the Houston Press , James Lynaugh is a financial expert who worked closely with Lt. Governor Bob Bullock when Bullock was state Comptroller. Although Lynaugh had no prison experience, he was installed as director of TDCJ in 1987 when then-governor Bill Clements was pouring money into the budget to build more prisons. Lynaugh fell out of favor with the TDCJ board during Ann Richard's governorship, and resigned in the fall of 1993.

The board wasdivided about who to choose for its next director, and pressed James Riley, a former military prison warden who had been working in health care for the TDCJ, to serve as interim director. Riley told the board he didn't want the job permanently but he took it for several months until [the recently indicted] Andy Collins of VitaPro fame was selected.

One reason Riley may not have wanted the high-pressure job of director was that he was busy setting himself up as bag-man for the fabulously lucrative prison HMO contract. Buried in the back of state Comptroller John Sharp's massive 1993 audit of the prison system was the three-page recommendation to create the managed health care system Texas has today. Included in the recommendation was the creation of not just a board of officials from the medical schools and TDCJ, but also a "managed care administrative position" which eventually resulted in six-figure jobs for Lynaugh and Riley.

When asked how the prison HMO's unique organizational structure was created, Riley would only say that it was the conclusion of the Comptroller and the will of the Legislature. But the specific recommendations were invented by someone , and Riley's name appears in the footnotes of Sharp's report as assistant director for health services.

Most observers believe that Riley and Lynaugh masterminded the creation of the CMHCAC, with the politically connected Lynaugh as the brains of the operation which might explain why he makes $18,000 more a year than Riley, the man he reports to. In the words of Texas prisoners, it looks like Riley and Lynaugh have cut themselves a fat hog.

But if the state has saved $125 million on prison health care costs, and the medical schools who run the prison managed care system are pulling down $25 million a year in profits, isn't that a win-win situation? Why should anybody complain?

Texas prisoners are the clear losers, and they have plenty of reasons to complain. Horror stories abound of prisoners routinely and systemically denied care. As former TDCJ health administrator Jim Cook says, "When UTMB took over, the approach was typical of managed care: Cut costs, cut care."

Part of the HMO's problem, according to Cook, is that UTMB has eliminated important clerical positions and consolidated nursing and administrative positions. The result is both inadequate care and inadequate documentation. He describes one of many instances where this combination proved deadly.

"I had an inmate shipped from the Hodge Unit in Rusk, which houses mentally retarded inmates," Cook says. "He was a brittle diabetic and had bad teeth, and we sent him to Galveston to have his teeth extracted. UTMB put him on a chain bus to Estelle Unit for a layover before returning him to Hodge. No one read the orders on him. He didn't get insulin for six days, and he died."

So the bottom line is this: (mis)managed care isn't a "win-win" situation, it's a "win-win-lose" situation, with prisoners some of them literally dying for medical attention clearly on the short end of a very lucrative stick. And what is the Texas Legislature doing to turn things around?

During the last legislative session, state Representative Todd Staples of Palestine introduced a bill to change the board structure of TDCJ's managed care system. His bill would have replaced the vendor-dominated board with a board of outsiders. But the prison HMO's highly-paid bagmen, Riley and Lynaugh, spent a good deal of time in Austin fighting the bill, and it died in committee.

And to add insult to injury, the legislature passed a bill in the same session to charge Texas prisoners a $3 medical co-pay for every medical visit.

So Riley and Lynaugh still have their fat hog. And Texas prisoners none of whom are paid for their labor, all of whom are forcibly compelled to work, and 85 percent of whom are indigent have the indignity of being forced to pay for medical care heaped upon the insult of, in many cases, literally dying for lack of adequate care in the first place.

But then, prisoners don't have inside political connections, don't send lobbyists to Austin, and they don't vote. So who cares?

Dallas Morning News ,Houston Press

[Editor's note: This article could not have been possible without the superb investigative journalism of Michael Berryhill of the Houston Press . Many thanks for a job well done.]

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