State fails yet again to contract for study backing privatization of API

If at first you don’t succeed, keep trying until you get the results you like.

That may be what is happening with the Dunleavy administration drive to privatize the Alaska Psychiatric Institute.

On Wednesday, the state health department scrapped the latest effort to have a consultant demonstrate the virtues of putting API in private hands. The cancellation said the bids it received were ”not in the best interest of the state” and that the contractors seeking the $185,000 job did “not provide for consideration of all factors of significance to the state.”

On the same day, the state issued a new request for proposals for a privatization study, with offers due by Oct. 24. The longer this is delayed, the less time there will be for careful analysis and the more likely the Dunleavy administration will insist that privatization is the only path forward.

The series of events here is troubling. The health committees of the Alaska Legislature should be investigating the repeated announcements about the API analysis that hasn’t happened.

Wellpath is the private company that the Dunleavy administration selected in February to work at API and take over management of the hospital July 1.

Former temporary budget director Donna Arduin, long an advocate of privatizing public facilities, may have been a key advocate for the no-bid contract to run API.

A controversy ensued and five months ago health commissioner Adam Crum announced—as the state was about to lose a case in court with the Alaska State Employees Association—that the state would not automatically turn API over to Wellpath and would seek competitive bids instead.

Earlier, the state had made the exaggerated claim that a court “order forcing the state to unwind its contract with Wellpath could result in API’s closure, resulting in the immediate loss of employment for all the union members that ASEA alleges it is trying to protect with this litigation.”

The union had not sought closure, but a court ruling that the state comply with a clear labor contract requirement for an advance analysis and feasibility study.

On April 22, Crum said Wellpath would continue to receive $1 million a month for management help, and the state would produce the analysis and feasibility study, hiring a contractor to update a study that had been finished in 2017.

Crum said the state hoped that by late May the Public Consulting Group would return with an updated feasibility study on the merits of putting the hospital under private management. After that the state would seek competitive bids to run the institution.

Perhaps Crum simply assumed that PCG would endorse privatization. If so, that was a mistake.

It seemed clear on April 22 that the Public Consulting Group, hired after the 2016 Legislature called for a privatization study of Alaska’s state-run psychiatric hospital, would not come back with a recommendation to transfer API to a private company. To do so would contradict the feasibility study PCG had already delivered to the state. A reversal of that sort would damage its credibility.

“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,” PCG said in its 2017 study.

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.

The state hired PCG under this $50,000 contract, approved by deputy health commissioner Albert Wall on April 23. The report was due back on June 30. Among other things, the contract asked for a “savings estimate of privatization vs. remaining in state operations” and for an evaluation of "current and future potential for Department of Justice injunction.”

As expected, PCG did not reverse its conclusions. In fact, the company never completed the work. On May 31, Wall wrote to PCG to say the study should stop. “An update to an old study is not sufficient to address the changes in the in-patient psychiatric milieu that have occurred since that study was produced,” Wall said.

Wall said that the deterioration of conditions at API were the key reason why the update wouldn’t suffice. One of the holes in that theory is that he had signed the contract for the update five weeks earlier and thought it would be sufficient. I emailed Wall and asked him if PCG had told him it would not change its conclusions, but he did not reply.

In the May 31 email to PCG, Wall said that the state would do an entirely new feasibility study and PCG would be welcome to bid on it. The health department says that no money was paid to PCG for the update that didn’t happen.

At the time, Jake Metcalfe, executive director of ASEA, said he believed 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.”

On Aug. 5, the state advertised for a contractor to complete a full API feasibility study by Dec. 1 for $185,000.

This week the state cancelled that request and started all over again, searching for a contractor to complete a full feasibility study by Dec. 23 for $185,000. Proposals are due by Oct. 24, which means that if a contract is signed it will have to be finished in less than two months.

Remember that the state allowed more than two months for PCG to update an existing study, the effort that was deemed insufficient because of “changes in the in-patient psychiatric milieu.” The Dunleavy administration seems determined to find a contractor to contradict the 2017 feasibility study.

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