When the South Florida State Hospital was built in 1957, the town of Pembroke Pines was a community of dirt roads. Today, Pembroke Pines is a flourishing upscale community west of Fort Lauderdale. Similarly, the mental hospital’s needs have changed significantly in the last 40 years.
In 1997 the state legislature had to determine what to do with the hospital, an aging 350-bed facility. It considered closing it. Instead, the politicians decided to privatize its administration. The legislature, along with the state Department of Children and Families (DCF) issued a Request For Proposal, which included the construction of a new facility as well as operating the existing one. The group evaluated the nine proposals that arrived. Then they held a bidder’s conference. Thereafter, eight of the nine declined to participate because they didn’t want to finance the new construction.
The remaining bidder was Atlantic Shores Healthcare. Atlantic Shores had the ability to build the new facility and was willing to take over the operation for the existing budget. It had the capital available because it is a wholly owned subsidiary of Wackenhut Corrections, the second largest private prison operator in America.
For many in the state, the Atlantic Shores contract was a prescription for trouble. Family members in particular were worried that a prison company would treat the state’s mental patients as criminals and operate the facility like a prison. “Our biggest concern was to make sure Atlantic Shores provided care and treatment that we could be comfortable with,” says Andrew Reid, contract privatization administrator for DCF. He says the state established stiff incentives in the contract to ensure its patients were treated properly.
Sanctions For Lack Of Performance
The outsourcing agreement is a fixed priced contract based on the per bed day. The state of Florida pays the outsourcer a set amount whether those beds are filled or not. There are sanctions for lack of performance. The contract specifically requires all sanctions to come from corporate funds and not the operating budget of the hospital. Reid says this was important because it ensured the outsourcer could be penalized without effecting the level of care at the facility.
First, Atlantic Shores had to get its accreditation. The state gave Atlantic Shores one year to achieve a provisional accreditation from the state. The penalty was $1 million. The supplier achieved full accreditation long before the deadline date.
if the outsourcer loses its accreditation, it must notify Reid within 24 hours. Then it must pay the state a fine of $2,000 a day for as many days as it remains without the certification it needs.
The performance criteria are divided into four distinct sanctionable areas. The first sanction involves the functional improvement of the patients as measured by a psychiatric rating scale. The second criterion is the number of patients able to be discharged into the community expressed as a percent of admissions. The third is patient satisfaction as measured by a survey of patients; they express their experiences with their care and treatment.
DCF measures the supplier’s performance on these three sanctions on an annual basis. The penalty for any is $25,000.
Stiff Penalties For Harmful Behavior
But the stiffest penalty applies to the sensitive area of patient treatment. DCF measures the number of harmful events to patients. Less than 20 harmful events per 100 patients are allowed during the quarter. These include patients getting hurt as well as patients leaving the facility without authorization. The penalty for these are $10,000 per quarter.
During the first partial year of the contract, which spanned November 1998 through June 1999, DCF only applied one sanction and it was for harmful events. During the first three quarters of this calendar year Atlantic Shores has come really close to the target, according to Reid.
Nonetheless, the state is pleased with the care provided. Even the outsourcing critics now have to admit that Atlantic Shores has improved conditions for the mentally ill in the hospital. Reid attributes this performance to the supplier’s motivation to prove it is a success in public mental health, and to the stiff sanctions in the contract. “If they don’t meet the targets, we want to see an action plan to correct the problem and we want a check,” he says.
Patient care was the biggest issue but not the only one. The DCF wanted to to read carefully because this was the first time the state had outsourced an entire facility. Reid says to his knowledge no other state had done this before either. Previously, DCF had only outsourced specific tasks at the hospital like laundry and housekeeping.
Creating A Collaborative Effort
And the dollars were huge. The first five years were going to cost the state $171 million; this included the $35 million to build the new hospital. “We are a government agency. We wanted to make sure we were spending tax dollars properly,” Reid continues.
He adds the state entered this outsourcing contract hoping it could establish a long term relationship with Atlantic Shores. “We work hard to work things out. This has to be a collaborative effort,” says Reid.
He adds the state’s involvement with the hospital did not go away once the department signed the contract. The state monitors this provider very closely. “It’s not because we distrust the supplier. It’s because we have a responsibility to the patients and to the people who pay taxes in Florida,” Reid says.
Lessons From the Outsourcing Primer:
- When a government agency has an aging facility that needs modernization,
outsourcing can provide the capital for new construction.
- Incentives are crucial for performance criteria like accreditation and treatment of patients.
- Sanctions must come from corporate funds and not the operating budget so poor behavior does not endanger patient care.
- Collaboration is key to making a new outsourcing relationship work.