State dumps consultant for API privatization study

A Boston-based consultant hired by the Dunleavy administration to update a privatization study regarding the Alaska Psychiatric Institute is not going to reverse its 2017 decision that privatization would make things worse at API.

The Dunleavy administration, which wants to privatize the institution, will shop for a new consultant. The health department says it has “withdrawn from its current contract with PCG for an updated feasibility study at API.”

The Public Consulting Group said this in 2017: “Cost-benefit analysis revealed that, even after significant staff reduction, when all transition costs, contract monitoring costs, and provider margins are considered, this option proves to be more expensive to the state over a likely 5-year contract period. The additional staff reductions needed for budget neutrality would likely diminish the quality of service delivery.”

The Public Consulting Group was hired after the 2016 Legislature called for a privatization study of Alaska’s state-run psychiatric hospital.

“Our findings demonstrate that continued state management is not only the most advantageous route for generating overall cost savings, but that it also avoids many of the risks involved in contracting out the management of critical public infrastructure,” the company said in 2017.

The Dunleavy administration is not saying that the cancellation stems from a refusal by PCG to change its findings. Albert Wall, the deputy health commissioner, says the changes in the “inpatient psychiatric milieu” are such that an update to the PCG research is not enough to get the right results the state needs.

Legislators need to question the “milieu” claim. The changes in the milieu were known before the Dunleavy administration concluded in April that an update to the study by a respected national firm was sufficient. What has really changed is the political milieu.

On April 22, health commissioner Adam Crum announced—as the state was about to lose a case in court—that the state had decided to not proceed with a no-bid contract for full privatization with Wellpath. Crum said the state hoped that within four weeks PCG would return with an updated feasibility study.

But there was reason to doubt it would play out that way, given that PCG made a thorough evaluation two years ago and supported state ownership.

Its report made a strong case that API, “at the center of a fragile network of behavioral health services,” should stay in public hands.

The 2017 study assumed an 8 percent profit margin for a private company and that employees would get paid about 14 percent more under the private option, but take a substantial cut in benefits.

“The overall conclusion of this baseline analysis is that some reduction in staffed hours will need to occur if the state is to realize a savings while allowing a private provider to retain margins,” the study said.

The study said full privatization was cost prohibitive, and “without strong safeguards, further reductions of staff to unsafe levels” would be needed to make API financially viable.

In a letter to union officials about the plans for a new privatization study, Wall said, “An update to an old study is not sufficient to address the changes in the inpatient psychiatric milieu that have occurred since that study was produced. In place of an update, the department will be issuing a request for proposals for a new complete study to address the current situation at the psychiatric hospital.”

Jake Metcalfe, executive director of the Alaska State Employees Association, said he believes that PCG “wouldn’t put their credibility on the line, told them nothing changed and that it would cost more and create huge liability if Wellpath took over.”

He said this provides more reason for the Legislature to investigate the privatization effort with Wellpath.

Dermot Cole6 Comments