FT. WORTH, Texas-- CareFlite billed the federal government about $2 million more than it should have to transport evacuees from Hurricanes Katrina and Rita, according to a government audit.
The report by the inspector general for the U.S. Department of Health and Human Services, which awarded the contract, contends that the Grand Prairie-based air-medical service sometimes used its own aircraft to transport sick or injured evacuees when it should have sought the most economical means instead.
But CareFlite and the agency defended the expenditures. If there is a problem, wrote the Health and Human Services official who responded to the audit, it rests with the contract, which didn't require CareFlite to seek subcontractors whose rates were lower than its own.
"Based on our experience with this contract, we should consider whether future contracts for similar services should require a formal consideration of comparative costs before determining the best alternative," wrote Martin J. Brown, the agency's deputy assistant secretary for acquisition management and policy.
Responsibility for transporting evacuees requiring medical assistance was assigned to Health and Human Services as part of the relief plan coordinated by the Federal Emergency Management Agency after the hurricanes struck in 2005. CareFlite established a call center within three days of being awarded the contract and has returned more than 1,100 evacuees to their homes.
The inspector general's audit questioned $2 million of the $5.7 million that CareFlite billed the agency for transporting 810 patients in the contract's first six months.
The biggest area of concern, according to the report, was that CareFlite used its own resources to transport 145 evacuees without seeking price quotes from subcontractors.
"Because it did not obtain subcontractor quotes, CareFlite did not determine whether it was providing the most economical transportation," the report states.
The contract, which remains in effect, requires CareFlite to arrange transportation "in the most economical fashion, using subcontractors if necessary." The nonprofit service receives payment for each transport it provides directly and a management fee for each patient transported.
CareFlite billed the government $1.97 million for the 145 patients it transported, according to the report, while subcontractor billings for 665 patients cost $2.9 million.
The report notes that the average cost of a patient transport when CareFlite used its own plane was $18,200. The average cost of such transports by subcontractors was $7,783, the report said.
Some trips were made using ground ambulances. CareFlite's per-trip charge was slightly higher than that of the subcontractor.
In addition, the report takes CareFlite to task for transporting 11 patients by air ambulance when their medical forms indicated they could travel by commercial air.
The report, made public in June, recommends that CareFlite refund $68,841 for the excess cost required to transport the 11 patients and work with Health and Human Services to determine the "allowability" of the $1.97 million in costs billed without seeking subcontractors. Brown, responding in August, said his agency will explore whether the $68,841 should be refunded, but he indicated that it saw no reason to challenge the $1.97 million.
"The current contract does not require CareFlite to compete or subcontract each movement," he wrote.
Raymond Dauphinais, CareFlite's vice president for flight operations, wrote in a response to the audit that his service was "encouraged" to use subcontractors but not contractually required to do so. He also noted that CareFlite's rates were disclosed to the government when the contract was awarded.
In an interview, Dauphinais said subcontractors were hired when CareFlite's own resources weren't available or when patients were located outside the 1,000-mile range of the aircraft then in use.
CareFlite's billings were based on its standard commercial rates at the time, he said. That meant if a patient was transported by fixed-wing aircraft, the charge was a $4,000 "liftoff fee" plus $40 for every mile in which the patient was on board, he said.
Dauphinais said the average subcontractor's cost was substantially less because he was able to negotiate rates based on volume, including one instance in which 137 patients were transported in a single plane at a cost of $3,000 per patient.
CareFlite's contract was one of many cost-plus-fixed-fee contracts the government handed out after the hurricanes. Unlike fixed-price contracts, which pay a set amount, cost-plus-fixed-fee contracts are essentially open-ended, allowing contractors to bill for all their costs. CareFlite's contract is capped at $21 million.
Frequently used after natural disasters, when it is difficult to calculate costs upfront, such contracts have long come under fire for promoting excessive billing.
"We've always considered these cost-plus contracts to be fairly risky, because they don't provide a real incentive to keep costs low," said Scott Amey, general counsel for the Project on Government Oversight, an independent, nonpartisan watchdog group.