State Department of Corrections spokesman Russ Marlan told The Associated Press that none of three contracts out for bid would have achieved the necessary 5 percent savings as required by state rules.
Privatizing all medical care could have been the largest privatization of state government services in Michigan history. State officials also decided not to contract with companies to handle inmates' mental health care or meals.
The announcement was welcome news to psychologists, nurses and others who work in 32 Michigan prisons, but it angered or frustrated GOP legislators who oversee a $2 billion corrections budget that accounts for a big chunk of the general fund.
The United Auto Workers, which represents 800 prison employees that would have been affected by privatization, credited state management for working with the union on efficiencies in the medical and mental health systems.
"We knew that privatization would only result in diminished staffing and service, compromising safety inside the prison and outside in the surrounding community," UAW Vice President Cindy Estrada said in a statement.
State civil service rules require any move to privatize a government function must save at least 5 percent. The best bids for the three contracts would have saved between 3 percent and 4.5 percent, Marlan said.
He said Michigan tried for the first time to get a true comparison of costs for private workers versus state employees by factoring in retirement liabilities. With state workers now paying more toward future pension benefits and retiree health care being eliminated for new hires, Marlan said, private companies cannot show as much savings even though they may pay workers less. Michigan also began pre-paying employees' future health care liabilities.
"To get a real apples-to-apples comparison, you need to incorporate these legacy costs," Marlan said. "Whether these 1,670 employees work for the state or not, we're still going to have that cost."
The chairmen of the House and Senate subcommittees that write the prison budget said they would hold a joint hearing next week to question Gov. Rick Snyder's administration about the decision.
Rep. Greg MacMaster, R-Kewadin, agreed the state has fixed legacy costs but wondered why that needs to be factored in if companies otherwise can offer significantly cheaper services.
"How can a department ethically and morally review bids for approval when they too have a dog in the fight in the bid?" he said, alleging that he has not been given accurate numbers. "It's not about saving state employees' jobs. It's about giving the best value for our dollar to our taxpayers."
The Legislature cannot force the independent Civil Service Commission to change the requirement that privatization save at least 5 percent, though it could still become a focus for lawmakers. If the savings threshold was not in place, the state could have saved between $11 million and $12 million, Marlan said — no small amount but not huge in the context of a $2 billion budget.
Privatization would have affected about one in 10 of 14,700 corrections workers. More than a quarter of state employees work in the prison agency.
"It's a massive group of people and a huge legacy cost that continues to burden our efforts to decrease the size and scope of our general fund obligation to the Department of Corrections," said Sen. John Proos, R-St. Joseph.
He said he wants prison officials to explain the bidding process to his committee.
Friday's news drew a mixed reaction from House Appropriations Chairman Joe Haveman, R-Holland. He said he was disappointed because he thinks anytime a new company is hired "you learn a better way of doing things." But he also said it appears the department has contained costs well in recent years if it is fairly competitive with private companies.
For the largest contract that officials decided not to pursue— a $200 million-plus deal for physical health care services — Tennessee-based Corizon was the lone qualified bidder. Michigan already pays Corizon to hire on-site prison doctors, physicians' assistants and nurse practitioners and to handle off-site specialty care.
That contract will probably be extended and eventually rebid, Marlan said.