Alaska News

State paying private consultants $1 million a month to pull API from brink of regulatory disaster

The state of Alaska is paying the private company charged with taking over management of the distressed Alaska Psychiatric Institute $1 million per month in hopes that it can stave off the threat of “catastrophic” actions by regulators, according to newly released documents.

On Friday, state officials handed over administrative management of API to Wellpath Recovery Solutions, a Nashville, Tennessee-based company that operates institutions such as sex offender civil commitment institutions and mental hospitals for local governments around the United States.

Wellpath is a re-branding of Correct Care Solutions, an established player in the private incarceration services industry that has been criticized for its quality and for the deaths of people in its care.

The documents released by the Alaska Department of Health and Social Services on Wednesday -- five days after the deal was announced -- offer details of the contract for the first time and describe the state’s justification for the emergency contract, which lawmakers have questioned.

The Department of Health and Social Services awarded the $5 million initial contract to Wellpath without going through the usual bidding process under an emergency procurement process.

If Wellpath is successful in the first phase of its contract, the state will fully hand over API on July 1. Under the formula proposed in the contract, the state would pay the company roughly $43 million yearly to run API at its full, 80-bed capacity.

‘Grievous letters of correction’


Among the revelations in the newly released documents: Multiple regulators are on the brink of taking “catastrophic” action against API -- with consequences that could include revoking the hospital’s license and shutting it down.

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The hospital is under four separate “grievous letters of correction” from four different agencies: hospital accreditor The Joint Commission, the Occupational Health and Safety Administration, state health facilities licensing authorities as well as the federal Centers for Medicare and Medicaid Services, according to a letter from DHSS.

Officials cited an “imminent/severe risk of closure” and the possible loss of $37 million in federal funding annually as justification to skip the usual procurement process.

“Patients have been physically injured, sexually assaulted, had their rights violated and undergone unnecessary restraint and seclusion,” wrote Department of Health and Social Services Commissioner Adam Crum in a declaration giving Wellpath control of the hospital.

The initial contract is for a “phase one” of operations starting Feb. 5 and ending June 30. Wellpath will be paid $5 million over that time frame.

During that time, Wellpath’s administrators must help API avoid a regulatory shutdown and get the hospital back up to its operating capacity of 80 beds, rather than the 57 currently being used because of staffing problems.

DHSS said it chose Wellpath because the company has specific experience in psychiatric hospital administration and “the potential to take over all functions of the hospital should that become necessary.”

They also needed someone who could fly out and take over immediately, Wall told lawmakers at the hearing.

The documents also show that the state considered another vendor, at least briefly: Networx Health, a Seattle-based healthcare consulting group owned by Virginia Mason Medical Center.

That vendor proposed API stop admitting new patients and didn’t have enough inpatient psychiatric hospital experience, according to the state.

Officials defend Wellpath deal

Department of Health and Social Services officials and a Wellpath executive defended the deal to lawmakers at two separate hearings in Juneau on Wednesday.

Rep. Ivy Spohnholz, D-Anchorage, said she convened the House of Representatives hearing because she felt the decision to hand a critical part of Alaska’s mental health infrastructure over a private firm lacked transparency. She said she wanted to know more about how the deal was made, why Wellpath was chosen and what oversight the company would have.

“People at API can’t advocate for themselves,” Spohnholz said in a phone interview Wednesday. “We’ve taken away, temporarily, their civil rights. They don’t have any control of the environment there.”

On Wednesday, Crum and Deputy DHSS Commissioner Albert Wall testified to the Senate Health and Social Services Committee that API has long been on a path to breakdown.

“The reason why API wasn’t shut down years ago is because it’s such a critical aspect of the system in Alaska,” Crum said.


At the Senate hearing, Wall told lawmakers he first contacted Wellpath about medical services in juvenile jails sometime in December. Around the same time, the gravity of the federal regulators’ findings was becoming evident, Wall said.

“We are daily learning more concerning facts about API and it was becoming more and more evident that the depth of issue there is bigger than we thought,” he said.

But it wasn’t until Jan. 29 — when federal investigators were back on site at API and found an unreported assault, which Wall said they deemed an “immediate jeopardy situation” — that the department decided to bring in Wellpath immediately, according to Wall.

Crum and Wall couldn’t answer on the spot a question from Spohnholz about how the estimated $43 million price tag would align with the roughly $33 million proposed for API in the Dunleavy budget.

"It’s a terrific question and we will certainly answer it,” Wall said.

At the Senate hearing, Sen. Tom Begich, D-Anchorage, questioned how the state could go from an emergency contract with Wellpath to a long-term arrangement without a competitive bidding process.

“(Wellpath) may be the company you want," he said. "But that is not what the law says. The law is quite clear: If they in fact bring API in a place to where API is not in an emergency, there is a procurement code ... that binds you.”

The DHSS officials warned that while taking on new management will likely be seen as a positive move by regulators, API isn’t out of the woods yet.

“We could at any day get a report from (the Centers for Medicare and Medicaid Services) we have been decertified,” Wall said.

Michelle Theriault Boots

Michelle Theriault Boots is a longtime reporter for the Anchorage Daily News. She focuses on in-depth stories about the intersection of public policy and Alaskans' lives. Before joining the ADN in 2012, she worked at daily newspapers up and down the West Coast and earned a master's degree from the University of Oregon.