Long-awaited study on API privatization comes back with no recommendation

The “privatization feasibility study” for the Alaska Psychiatric Institute doesn’t recommend anything in particular.

The study by the Western Interstate Commission for Higher Education concludes that privatization could work for the institution. But it also says that continued state management could work, as well as creating a new nonprofit public corporation.

There are pros and cons to each idea, says the study, expected to cost the state up to $183,810.

The only thing that is not feasible, the study says, is to stick with the status quo. Improvements are needed.

“Simply put, the status quo regarding leadership is unacceptable. API needs to have a stable, qualified leadership team,” the study says.

It’s been clear for a long time that improvements are needed, especially in the management.

The Dunleavy drive to privatize, which began a year ago with a flawed no-bid contract to turn API over to Wellpath, remains a dubious undertaking that should be halted.

The new feasibility study found that there is no real savings to be had by turning over the hospital to a private company.

Under a private operator, wages would be raised and benefits would be cut. A private operator would expect an 8 percent profit. Overall, the state Legislature might be able to reduce the annual appropriation by $1.2 million a year, the study claims.

But that is a phony number that should never have been plugged into this study.

The decision to make the claim calls into question the legitimacy of the study and how much bureaucratic meddling has been applied by the Dunleavy administration to get the results it wanted.

The study assumes that a private operator would be “obligated” to find ways to cut nearly $1 million. It’s not clear why this assumption was inserted into the study except to make private operation appear to cost $1 million less.

“It is assumed a private operator, either profit or not-for-profit, would be obligated to identify reductions in expenditures totaling approximately $950,000 annually,” the study says.

The same assumption is not applied to continued public operation of the facility.

To be fair, if the private operator is obligated to cut almost $1 million, without identifying where the cut is to be made, the same obligation for an unidentified budget cut should be assumed for continued state operation. That would be the only honest way to make a comparison.

Adjust the results to correct that mistake and the private operation would cost the same as state operation.

Overtime costs would decrease, the study claims, because of state contracts that allow for OT to start when an employee exceeds 37.5 hours, while a private contractor would use a 40-hour workweek. There is no backup analysis to identify the amount of the alleged savings.

Another problem with the statistical backup for the study is that the staffing numbers used by the consultant conflict with those in the proposed state budget for the next fiscal year, which distorts the cost comparisons.

The study says there are 341 budgeted full-time positions. The state budget says there are 348 permanent positions and 11 nonpermanent positions, a total of 359 positions.

The best advice in the report in this, something the Dunleavy administration has yet to adopt: “One of the most important strategies Alaska can implement when beginning the reorganization process is to ensure a transparent procurement process, being candid about the problems the state hopes to solve with a new management structure.”