Auditor General Jack Wagner: Welfare Dept.’s Lax Contract Monitoring Neglected Accountability of Taxpayer Money

Posted by By at 17 February, at 07 : 54 AM Print

For Immediate Release
Contact: Steve Halvonik 717 787-1381


Auditor General Jack Wagner: Welfare Dept.’s Lax Contract Monitoring Neglected Accountability of Taxpayer Money

$414k annually paid for one contracted psychiatrist with questionable work hours

HARRISBURG, Pa., Feb. 16, 2012 – Auditor General Jack Wagner said today he would broaden his look at the Department of Public Welfare for paying millions of dollars to contract for psychiatrists and other medical personnel after a special performance audit uncovered a tangle of ethical conflicts, questionable billings, poor supervision and other administrative shortcomings at a Westmoreland County state hospital.

Wagner will move beyond his audit of Torrance State Hospital to the commonwealth’s $17.5 million contract with Liberty Healthcare Corp., headquartered in Bala Cynwyd, to see if the lax monitoring at Torrance extended to other state-run hospitals and facilities, particularly because officials of the Department of Public Welfare, which administers the contract at Torrance, did not acknowledge the seriousness and significance of the issues his auditors identified.

“The Department of Public Welfare’s handling of contracted services for psychiatric care at Torrance State Hospital is an example of what can go wrong when government contracts result in the out-sourcing of public services to the private sector and its senior management fails to properly monitor the conduct of vendors,” Wagner said.  “Because DPW failed to adequately monitor the health care contract and to execute its management responsibilities in coordination with Torrance State Hospital, Pennsylvania taxpayers have lost in this venture.  For the sake of those taxpayers, I urge DPW to take immediate action to fix the serious deficiencies identified in our audit, rather than defend them.”

Wagner said that the commonwealth’s $17.5 million contract with Liberty covers medical professional personnel provided to state-owned facilities, including at least some of the six state hospitals. In addition to psychiatrists, contracted personnel can include, for example, neurologists, psychologists, orthodontists, physical and occupational therapists. At the time of the release of the audit of Torrance, the specific hospitals that received these services were not known, but Wagner said that information would be determined when the review of the $17.5 million contract is completed.

He added that many of the issues raised in the audit highlight conflict-of-interest loopholes that need to be addressed in contracting services to private vendors.  One such issue is the revolving door at Torrance that permitted its full-time contracted chief medical officer to supervise a full-time contracted psychiatrist and, at the same time, work for that psychiatrist at the psychiatrist’s private business.  Pay schedules included in the audit show that Torrance paid $356,953 to Liberty Healthcare for the chief medical officer’s services in fiscal year 2009-10, and $351,658 in fiscal year 2010-11.

Those same pay schedules show that Torrance paid Liberty $331,962 in 2009-10 and $413,941 in 2010-11 for the full-time services of the psychiatrist who owned and operated his own private business on the side.  In 2010-11, that psychiatrist reported working 47 hours a week as a contractor for Torrance under the Liberty contract.

DPW owns and operates six state hospitals, one of which is Torrance State Hospital in Westmoreland County, 50 miles east of Pittsburgh. The hospital opened in 1919, has a staff of 675 employees, and is operated under the direction of a chief executive officer who reports to the Harrisburg-based acting director of the Bureau of Community and Hospital Operations at the Department of Public Welfare.

Torrance provides inpatient services in three program areas for individuals with severe and persistent mental illness.  In the civil program, Torrance generally admits persons from community inpatient psychiatric hospitals in western Pennsylvania.  In the forensic program, Torrance treats persons who are under criminal detention from 48 counties.  In the sexual responsibility and treatment program, Torrance treats sex offenders from across the state; the offenders were committed to adolescent treatment facilities and may still be at risk to reoffend after they reach the age of 21.  In fiscal year 2010-11, Torrance’s average daily patient population was 304 at an average daily cost per patient of $597.

The audit covered the primary period of July 1, 2009, through March 9, 2011, with updates through the end of 2011.   Wagner said that, in addition to paying $5.5 million for contracted medical personnel in fiscal years 2009-10 and 2010-11, Torrance inappropriately endorsed the private business of the one psychiatrist by partnering with him for events that mostly benefitted the private business.

Wagner’s audit also said that Torrance failed to ensure that contracted doctors engaged in patient care only, instead of other activities, and did not verify that the doctors worked the number of hours they reported.   Regarding the contracted psychiatrist with the side business, the audit noted seven instances in which Torrance hospital employees – including the chief executive officer herself – reported or knew of occasions in which the doctor could not be located on hospital grounds, even though he had phoned in to report he was working for Torrance.  Despite the questionable hours, Torrance still paid Liberty for all the hours that the psychiatrist reported.

More recently, Wagner’s auditors found that, based on their review of publicly available promotional literature from the psychiatrist’s private company – the psychiatrist was listed as faculty for a retreat held by his company (and for which his company charged participants) during hours in which he reported working for Torrance.  Torrance still paid Liberty $1,349 for the psychiatrist’s time.  Torrance officials initially expressed support for the psychiatrist and doubt for the auditors’ finding but ultimately confirmed it and said they would seek reimbursement.

Wagner said that questionable reporting of hours during the entire audit period occurred because Torrance relied on a self-reported call-in/call-out reporting method that was accompanied by no real supervision and monitoring by Torrance administrators.

Of the $17.5 million contracted with Liberty Healthcare, the Department of Public Welfare approved $8.7 million to contract for medical personnel at Torrance, including $2.7 million in fiscal year 2009-10, $2.8 million in fiscal year 2010-11, and a projected $3.2 million for fiscal year 2011-12.

Other examples of poor monitoring and wasteful spending at Torrance included:

  • At least $30,000 paid by Torrance for its contracted doctors to conduct training not part of the contract, including meals, refreshments, and training materials
  • At least $42,000 paid by Torrance for the contracted professionals to travel to conferences—including out of state and in Canada—when it was not Torrance’s responsibility to pay.

The audit also said that Torrance defended its payments for contracted psychiatrists because of difficulty recruiting its own psychiatrists on staff.  But auditors reported that, difficulty or not, Torrance’s lax monitoring and special treatment of contract doctors made contracted jobs more attractive than staff jobs. Based on a 37.5 hour work week, Torrance paid $329,938 a year and no benefits for a contracted full-time psychiatrist compared to $183,765 a year with benefits and incentives to on-staff psychiatrists, or an hourly rate of $168.68 for contracted psychiatrists versus $93.95 for on-staff psychiatrists.

Wagner’s report included five findings and 18 recommendations to improve the oversight of the Department of Public Welfare’s/Torrance State Hospital’s contracted medical professionals, including:

  • Torrance State Hospital should ensure that any real, apparent, or potential conflicts are eliminated.
  • Torrance should not contract for a chief medical officer but should instead have a chief medical officer who is actually on Torrance’s staff.
  • Torrance should seek reimbursement from Liberty Healthcare Corporation for any time that Liberty-contracted personnel spent planning and conducting or attending training sessions.
  • Torrance should seek reimbursement for the approximately $6,750 spent to provide food and training materials for five October 2010 training sessions.
  • Torrance should immediately cease approving and paying for hours that medical personnel submit on their time cards unless those physicians have followed procedures to show they have actually been on site at Torrance and performing their required duties.
  • Torrance should obtain a refund from Liberty for the $1,349 paid for psychiatric care at Torrance when the psychiatrist was reportedly conducting a retreat at his private company.
  • Torrance should immediately cease paying all unallowed expenses, including time and travel, for the continuing education courses of Liberty-contracted professionals.
  • Torrance should obtain a refund for the more than $42,000 in continuing education and travel expenses identified in this audit, and conduct a thorough review to determine and collect from Liberty any other expenses inappropriately paid for Liberty-contracted professionals.

A complete copy of the Torrance State Hospital audit report is available at

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly.  He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations.  The Department of the Auditor General conducts thousands of audits each year.  To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at


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