6

The Expanding Web of the Poverty Industry

This chapter sheds light on how the poverty industry and its practices are continuing to expand with a growing web of interconnections and revenue schemes between private contractors, human service providers, and states. Examples illustrate the increasing and varied efforts to use the most vulnerable among us as revenue tools.

For example, companies that run nursing homes have sought to maximize profits by drugging the elderly residents with psychotropic drugs for unapproved reasons. With the residents sedated to a state of submission, the companies cut costs by hiring fewer nursing home staff while Medicare and Medicaid funds become company profit. Similar fiscal motives have led to alarming growth in the use of psychotropic drugs for children in foster care and juvenile detention facilities. Simultaneously, pharmacies have profited by illegally promoting the use of their psychotropic drugs to these nursing home residents and institutionalized children for off-label uses, including illegal incentives to doctors.

Another alarming practice involving nursing homes has emerged in Indiana. A municipal agency in Indianapolis has been buying up for-profit nursing homes all across the state, using the nursing homes as a means to claim higher amounts of federal Medicaid funds, and then diverting the resulting federal aid for other purposes rather than increased services and quality of care for the nursing homes’ residents.

And the poverty industry keeps growing, with seemingly endless examples of the industry using vulnerable populations to bolster revenue. States are outsourcing probation services and collections of court fines and fees, with the effect of bringing back debtors’ prisons. Private companies are contracting with state and county courts that serve the poor, almost to the point of running entire court systems. Increasingly, private contractors run state juvenile detention centers, foster care group homes, and even entire foster care systems. Companies that provide hospice care, services intended to aid the dying, are targeting patients who may not actually be dying in order to maximize profits from government aid.

The creative energy of the public/private partnerships could be used by human service agencies to explore new and better ways to serve the intended beneficiaries of the agencies’ services. However, rather than adhering to a mission of best serving the impoverished, the poverty industry is perfecting and growing its abilities to use the vulnerable in order to serve itself.

Drugging the Vulnerable for Profit

Another poverty industry revenue strategy that uses the vulnerable involves drugs—lots of drugs. Nursing homes have often drugged the elderly to the point of sedation, reducing the need for nursing home staff and thus maximizing nursing home profits. Foster care homes and juvenile detention centers have used similar tactics, with doctors accepting gifts and speaking fees from pharmaceutical companies while prescribing their drugs for off-label uses to children. Facilities and agencies find doctors to prescribe psychotropic and anti-psychotic drugs to foster children at high rates, often related to categories of disabilities linked to revenue strategies using the children’s Social Security benefits and Medicaid funds from special education services. Further, some hospitals have used a national discount drug program intended to help the poor to generate revenue: receiving the discounted drugs, selling them for a higher price, and then pocketing the difference. And lawsuit after lawsuit brought against pharmaceutical companies have uncovered illegal marketing and kickback schemes to increase profits through increased use of psychotropic drugs to foster children and nursing home residents.

Nursing Homes Drugging the Elderly to Reduce Costs

Nursing homes have often become more about revenue and profit, and less about providing high-quality care for our nation’s elderly. The facilities have looked to decrease operational costs as a primary way of improving the bottom line, often leading to a reduction in staffing. And to allow for reduced staffing, nursing homes often drug elderly patients so that less staffing is needed to care for them. The nursing homes prescribe medications to their elderly residents for off-label purposes, such as multiple strong anti-psychotic drugs when no psychosis is present. The nursing homes reduce costs and increase revenue, provide the elderly with poor care, and Medicaid and Medicare foots most of the bill.

Both privately run and government-run nursing homes have used the revenue strategy, but the private for-profit nursing homes employ the drugging strategy more frequently. Studies and investigations have found that nursing home residents are frequently prescribed psychotropic medications when not needed and for unintended purposes. For example, at one nursing home in Connecticut, “two-thirds of long-stay residents are receiving antipsychotic drugs, even though they do not have a psychosis or related condition that regulators say warrants their use.”1 As of 2013, nursing homes have been giving more than one out of five residents antipsychotic drugs despite mounting concerns and a federal initiative aimed at reducing the practice.2 An article in the Wall Street Journal explains the economic incentive nursing homes receive:

Nursing homes often find it difficult to balance the demands of caring for certain patients against the pressure to keep staff costs down. The economics of elderly care can work in favor of drugs, because federal insurance programs reimburse more readily for pills than people.3

Harm often results from the extent to which nursing homes use such drugs. An investigation by the Chicago Tribune explained: “Frail and vulnerable residents of nursing homes throughout Illinois are being dosed with powerful psychotropic drugs, leading to tremors, dangerous lethargy and a higher risk of harmful falls or even death.”4 For example, a seventy-four-year-old man “was in a nursing home near Peoria for less than a day before staff members held him down and injected him with a large amount of an antipsychotic drug,” and “[a] few hours later he fell, suffering a fatal head injury.”5 The drugged nursing home residents often become so lethargic they are living out their last years in almost lifeless fashion. Again from the Tribune investigation:

Some residents on antipsychotic drugs become so lethargic they must be hospitalized. They cannot feed themselves, attend physical therapy or talk with loved ones. Residents once capable of caring for themselves become immobile and incontinent. It is common for nursing staff to struggle to wake up residents at mealtimes.6

At one of the Illinois nursing homes, the inspectors encountered an elderly female resident affected by the drugging:

[I]nspectors described a 78-year-old woman walking around with a blank look on her face. Her eyes were wide open, and she rarely blinked. When health inspectors checked her medical records, they discovered that the nursing home had been giving her large doses of antipsychotic drugs, even though she was not psychotic. The woman could barely speak to inspectors. But with the same blank expression on her face, she did manage to tell them this: “I want to go home.”7

Rather than nursing homes providing treatment that is really needed, antipsychotics have seemingly become the sedative cure-all. For example, an elderly woman was often upset and repeatedly asking to use the bathroom, and the response was as follows:

Nurses responded by giving her injections of two antipsychotics, inspection reports state. When that didn’t work, the woman was sent to a hospital for a psychiatric evaluation. The psychiatrist reported back that the woman had a urinary tract infection.8

Juvenile Facilities Drugging Children as Fiscal Strategy

The poverty industry has applied the same drugging revenue strategy to children. Foster care homes, detention centers, and residential treatment centers often prescribe children psychotropic medications to reduce costs and increase revenue. In Florida, for example, the agency entrusted with the care of troubled youth opted to drug the children to reduce costs and because of ties between the state psychiatrists and pharmaceutical companies:

A relatively small percentage of young inmates pumped full of pills actually suffer from the serious psychiatric disorders that the FDA allows to be treated by these powerful drugs. But adult doses of anti-psychotic drugs have a tranquilizing effect on teenage prisoners. Prescribing anti-psychotics for so many rowdy kids may be a reckless medical practice, but in an era of budget cuts and staffing shortages, it makes for smart economics.9

The numbers are staggering: “[T]he Florida Department of Juvenile Justice has been buying twice as many doses of the powerful anti-psychotic Seroquel as it does ibuprofen. As if the state anticipated more outbreaks of schizophrenia than headaches or minor muscle pain.”10

A 2007 investigation by the Palm Beach Post found that “in 24 months, the department bought 326,081 tablets of Seroquel, Abilify, Risperdal and other antipsychotic drugs for use in state-operated jails and homes for children.”11 The investigation concluded: [t]hat’s enough to hand out 446 pills a day, seven days a week, for two years in a row, to kids in jails and programs that can hold no more than 2,300 boys and girls on a given day.12

In addition to children cared for by the Department of Juvenile Justice, an investigation found that children in foster care in Florida have also been prescribed psychotropic medications at much higher rates than other children. The suicide of a seven-year-old boy in foster care prompted the investigation. Gabriel Myers was taken into foster care when found with his mother, who was passed out on drugs. The boy, who had been sexually abused, ended up hanging himself with an extendable shower chord in his foster care home. Although the agency had no records for the drugs, the autopsy determined he was on multiple psychotropic medications including at least one that had been flagged for associations with suicide.13

The overuse of psychotropic medications among children in foster care or detention centers is not limited to Florida. Reports by the GAO in 2011 and 2012 found agencies and facilities were prescribing psychotropic medications to foster children at very high rates. Thousands of foster children were prescribed five or more of such drugs at the same time. Even infants in foster care are being given the drugs.14 The report found that the child welfare system in Massachusetts prescribed psychotropic medications to almost 40 percent of all foster children. A 2004 study found that the Texas foster care system gave the drugs to 42 percent of the state’s foster children. And of foster children in group homes or residential treatment centers, the centers prescribed psychotropic medications to almost half the children in their care.15 A longtime Texas court-appointed special advocate (CASA) for children described her concerns:

[The CASA volunteer] recalled seeing a 3-year-old foster child who was “drooling on the couch,” because he had been prescribed behavior-altering and anxiety drugs soon after he went into foster care.

“Foster homes are using psychotropic drugs to control these children. They can have more children in their home that way,” she said. “I have cried with kids who have been so messed up on this medication.  . . . If they’re on the medication, their need is shown to be higher, and the providers get a higher reimbursement rate.”16

In Georgia, a 2010 investigation by the Atlanta Journal-Constitution similarly found that private foster care agencies were drugging children to reduce costs. Morningstar Treatment Series, a private foster care agency that runs the “Youth Estate” group home, was cited multiple times by the state for inappropriately using antipsychotic drugs on the children. The drug usage was described as improper chemical restraints used “as a means of convenience” for the group home’s staff:

One resident, for instance, was drugged for “non-compliance,” according to an incident report prepared by Morningstar. The resident had argued over serving an in-school suspension, so a nurse gave the child Ativan, an anti-psychotic, and Benadryl, an over-the-counter antihistamine also used as a sedative. After “lying on the bench for a little while,” the incident report said, the child completed the suspension “without fighting it.”17

Subsequent to the citations for improper use of drugs, the state ordered the private foster care agency to revise its drug policies. But the agency did not stop. For example, a child “received Valium for ‘agitation and aggression’; when the child still didn’t calm down, a nurse gave him the powerful anti-psychotic drug Thorazine.”18 No prescriptions were present: “In those instances, as in others, inspectors noted, “there was no valid prescription for the medications given.”19 The state warned the private agency after the multiple violations that adverse action would be imposed, and then imposed its penalty—only a $450 fine. And another private agency received a similar slap on the wrist:

Inspectors documented numerous deficiencies in oversight by Bethany Christian Services of Atlanta, for instance . . . Two other foster parents with Bethany forced a child to swallow a Benadryl tablet. The foster parents, the child said, called it a “sleep vitamin.” From 20 investigations and four other inspections since May 2008, the state has cited Bethany Christian eight times for a total of 27 rules violations. Just once, however, did the state impose a penalty: a $500 fine this January.20

Drug Industry Encouraging the Drugging Revenue Strategies

In addition to the incentive of nursing homes and foster care facilities to reduce staffing costs by prescribing more psychotropic medications, pharmaceutical companies have also encouraged increased drugging of foster children and elderly nursing home residents. Illegal marketing, gifts, and kickbacks are not uncommon. Lawsuits have resulted in multiple billion-dollar settlements, but have not seemed to slow the practice.

The investigation by the Chicago Tribune and ProPublica into the use of psychotropic medication in nursing homes, noted above, uncovered the impact of one psychiatrist—Dr. Michael Reinstein. Many of the nursing home patients to whom he was prescribing the drugs “suffered from side effects so severe that they trembled, hallucinated or lost control of their bladders.”21 In 2007, this one psychiatrist wrote more prescriptions for the antipsychotic drug clozapine than all of the doctors in Texas combined.22 According to the investigation, “[d]ocuments filled out by Reinstein suggest that if each of his patient visits lasts 10 minutes, he would have to work 21 hours a day, seven days a week.”23 Three of his patients died of clozapine intoxication, and one of the nursing home residents who died had five times the toxic level of the drug in his blood.24

The extent of Reinstein’s prescriptions apparently did not go unnoticed by the large pharmaceutical company AstraZeneca. The Tribune reported that head of the company’s U.S. sales wrote that the doctor might be worth half a billion dollars to AstraZeneca, that “’we need to put him in a different category,’” and “should answer ‘his every query and satisfy any of his quirky behaviors.’”25 The company paid him $490,000 over a decade to promote the antipsychotic drug Seroquel. And “Reinstein provided the company a vast customer base: thousands of mentally ill residents in Chicago-area nursing homes.”26

In a 2014 investigation by the Denver Post, similar practices were exposed regarding psychotropic medications targeted toward foster children. The story notes how “[p]harmaceutical companies wooed academic leaders, ghostwrote articles, suppressed damaging health data and lavished doctors with gifts to make prescribing powerful psychotropic drugs to children a blockbuster profit center,” with particularly strong impact on foster children where the drugs are often used for “off-label” uses.27 The investigation found that the Colorado child welfare system prescribed antipsychotic drugs to foster children at twelve times the rate of other children on Medicaid.

In Colorado, nine of the top 10 most prescribed drugs for foster children in the Medicaid program are psychotropics, according to the most recently available data. In contrast, for non-foster children, only one psychotropic is among the top 10 most prescribed drugs in Medicaid.28

The investigation addresses a lawsuit against GlaxoSmithKline regarding marketing and other practices to encourage use of psychotropic drugs on poor children. An insider salesperson at the company noted how “he became disgusted with Glaxo’s all-expense-paid trips to Jamaica and Hawaii for physicians and their guests to train them how to give speeches touting the drugs,” and the investigation exposed how speakers received over half a million dollars annually to promote the use of antidepressants on children despite lack of FDA approval.29 To promote the antipsychotic drug Risperdal for children, Glaxo reportedly created a “Back to School Bash” and a marketing plan to increase use of the drug on children—even providing “starter kits” to child psychiatrists that included free samples and coupons for the drug, along with lollipops and toys.30

The Palm Beach Post investigation of Florida juvenile detention and residential treatment centers, discussed above, similarly found that psychiatrists hired to care for the troubled youth were taking “huge speaker fees from drug makers—companies that profit handsomely when doctors put kids on antipsychotic pills.”31 According to the Post, one out of every three child psychiatrists hired by the state juvenile justice system within the five years prior to the investigation had taken speaker fees or gifts from companies making antipsychotic medications.32

An investigation in California by the San Jose Mercury News also uncovered similar concerns. For example, the investigation found that California doctors who prescribed psychotropic medications to foster children received more than double the money from drug companies as typical California doctors.33

Lawsuits have been plentiful, brought by government and insiders against the pharmaceutical companies for inappropriately pushing their psychotropic drugs for use in nursing homes and for children in foster care, group homes, or detention centers. Below are some example settlement agreements:

However, even the growing list of multi-billion-dollar settlements seem to be just minor bumps in the road for the pharmaceutical industry practices.

Buying the Elderly to Maximize Revenue

According to studies, the use of psychotropic drugs on residents has often been more prevalent in for-profit nursing homes than in non-profit or government-owned nursing homes—and the for-profit facilities have also used lower staffing levels and have experienced greater numbers of deficiencies.44 The profit potential of privately run nursing homes has not gone unnoticed as lucrative investment firms have begun to buy up the companies. For example, the Carlyle group—often known for buying defense contractors, among other types of companies—acquired HCR Manor Care in 2007 for $6.3 billion.45 HCR Manor Care is one of the largest private operators of nursing homes in the United States.

The potential to make money from for-profit nursing homes also became the foundation for a creative revenue scheme in Indiana, where a municipal hospital agency has bought up private nursing homes all across the state. Rather than bringing the nursing homes under government control to improve services, the aim has been to use the elderly to increase revenue for other purposes.

Health and Hospital Corporation (HHC) is an Indiana municipal corporation and government agency that operates the Marion County Health Department and hospital system (which includes Indianapolis). Back in the early 2000s, HHC was losing money—operating at a $30 million annual deficit. Urged by state legislators who were looking broadly toward ways to maximize federal funds, HHC collaborated with the state human service agency to come up with ideas to increase federal aid as a revenue source.46

HHC’s target became the elderly residing in for-profit nursing homes across the state. In essence, HHC has been buying up the elderly in their last remaining years and using them to leverage more federal aid to use for other purposes—rather than using the aid to improve nursing home care as intended.

HHC and state officials recognized an opportunity related to federal Medicaid funding policies for nursing homes.47 The federal government sets maximum payment limits for federal Medicaid matching payments, and states have discretion to decide what service providers receive the maximum payments. So in 2001, the Indiana legislature passed legislation to allow the state’s government-owned nursing homes to receive higher Medicaid payments.48 The fiscal impact statement of the legislation explains that the bill allows “the Office of Medicaid Policy and Planning (OMPP) to increase Medicaid reimbursement rates for government-owned and operated nursing facilities to the extent allowed by federal statutes and regulations.” The analysis further describes how the increased rates are designed to maximize federal Medicaid funds:

In addition, the bill requires that each governmental transfer or other nursing home payment mechanism that OMPP implements must maximize the amount of federal financial participation that the state can obtain. This provision can be interpreted as requiring the state to investigate and implement alternative means of leveraging federal dollars through the Medicaid program potentially increasing federal reimbursement with little or no additional state funding.49

Then, after using the nursing homes to increase Medicaid funds, HHC routed the funds to uses other than improving care in the nursing homes.

Actually, during the same legislative session, the Indiana House and Senate passed separate legislation to add language requiring that any increased federal Medicaid payments must be provided to the nursing homes. The bill required that “[a]ll money used to generate additional federal financial participation under this chapter through an intergovernmental transfer or other payment mechanism and any additional payments that are received by the state through an intergovernmental transfer or other payment mechanism under this chapter shall be distributed to Medicaid nursing facilities.”50 However, then Governor Frank O’Bannon vetoed the separate bill and thus stripped the language that would have required all additional federal aid claimed in the name of nursing homes to be distributed to the nursing homes.51 Governors Joe Kernan, Mitch Daniels, and Mike Pence continued where O’Bannon left off and allowed the strategy to grow.

With legislation in place allowing higher Medicaid claims for government-owned nursing homes, HHC started buying up poorly performing for-profit nursing homes—buying its first twelve in 2003.52 The municipal agency started “buying” the nursing homes but did not actually buy the physical properties and did not take over management of the nursing homes. HHC purchased nursing home licenses and leased the properties from the private companies that owned the rights. Rather than manage the nursing homes itself, HHC hired a private company, American Senior Communities, to operate the nursing homes, which is the same company that was running the nursing homes prior to the initial HHC “purchases” in 2003.53

Thus, the shift in ownership of the nursing homes to the government in order to increase Medicaid claims has been illusory. Although it doesn’t manage the nursing homes, HHC claims ownership to reap the higher maximum federal Medicaid funding rates.

HHC has a mission of serving the public health and the interests of its individual beneficiaries (those receiving care). Thus, the municipal agency could and should use any additional federal Medicaid funds intended for nursing home care to improve the care for the elderly in such nursing facilities—especially in a state with some of the worst statistics regarding nursing home care in the country. However, when HHC buys nursing homes across the state, its motive has not been to improve care for the nursing home residents.

After buying a nursing home, HHC received at least an extra $55 per day per elderly person in federal Medicaid funds and then routed the bulk of the extra money away from the nursing homes.54 HHC has used most of the money for other purposes, including building a new $750 million hospital complex. The revenue strategy developed by the Indiana legislature and HHC has allowed the agency to buy poorly performing nursing homes, leave the elderly residents in poor care, and redirect their Medicaid funds to build a new hospital system that otherwise would have required an increase in property taxes or state and local spending. A professor of bioethics explained the immorality of the HHC practice, that “[a]s a general moral principal when dealing with vulnerable persons, your first duty is to make sure they have adequate protection and services to meet their needs.”55

As of 2010, HHC (located solely in Indianapolis) had purchased 39 nursing home licenses in 22 counties.56 By 2013, the number increased to 59 nursing homes.57 Further, following HHC’s lead, other county hospital systems have followed suit and it’s been a race to buy up as many for-profit nursing homes as possible. As of 2013, county hospitals had purchased 205 nursing homes across the state.58

After HHC purchased the nursing homes, an investigation showed that the quality of nursing home care had not improved but rather often worsened. The result is not surprising, because HHC’s contract with the private companies managing the nursing homes does not require any minimum staffing levels, provides no standards for acceptable care, and provides no incentives to improve care.59 According to the Indianapolis Star, as of 2010:

The president and executive director of HHC actually argued that using the funds to increase nursing staff at the nursing homes would not necessarily improve care. But his assertion flies in the face of long held expert views that nursing staff ratios is a key indicator of quality care in nursing facilities.61

The funds HHC obtained from the revenue strategy were used primarily to build the $750 million hospital complex, renamed Eskenazi Health after a $40 million gift from a real estate developer.62 However, much more of the cost was funded on the backs of elderly nursing home residents. The revenue scheme of buying up nursing homes and taking Medicaid funds from the elderly netted HHC $218 million by 2010, including $49 million in just one year in 2009. By 2012, the cash flow from the scheme increased to $104 million annually.63 Taking so much federal aid from the elderly resulted in a nice hospital system, to say the least:

Indiana has never seen a hospital quite like this. From the spiraling wooden sculpture suspended from the ceiling in the main concourse to the vegetable garden on the roof, the brand-new Eskenazi Hospital keeps you wondering what you will see around the next corner . . . The massive complex, spread out on 37 acres, will replace Wishard Hospital, a deteriorating hodgepodge of buildings, some a century old . . .

Inside and out, the hospital has distinctive touches. The front of the building features tall decorative fins that shimmer colorful light . . .

Up on the rooftop, a 5,000-square-foot “Sky Farm” features a produce and flower garden laid out in neat rows. A nearby shed is filled with gardening tools. Patients and employees will be able to plant and pick fruits, vegetables and flowers, or just sit on a bench and gaze at the horizon.64

The $40 million gift from Mr. Eskenazi and his wife resulted in a sculpture of the couple placed in the hospital’s main concourse.65 The president and chief executive of HHC explained: “‘We wanted to make this beautiful and unique,’ [the HHC executive] said. ‘But we didn’t want to forget our history. We want to look forward while honoring where we came from.’”66

However, the long-term care policy director for United Senior Action has a clear explanation of where the hospital came from: “[T]hey are funding this hospital literally on the backs of these [nursing home] residents.”67 Rather than “honoring” the elderly nursing home residents, HHC has taken hundreds of millions in federal Medicaid funds intended to aid the residents and instead used it to build a new hospital system. The state and local government saves revenue, HHC gets a new hospital complex, the companies profit, and the elderly poor have been trapped in poor care.68

Indiana governors and the state legislature have likely allowed this practice to continue because most of the public do not understand the scheme. Also, the strategy results in a benefit to many taxpayers by reducing the need for higher property taxes or other means to pay for the hospital system. And the elderly poor are quiet, stowed away in nursing facilities as HHC designates their federal aid to other purposes.

Crime Doesn’t Pay . . . Except in the Poverty Industry

Many states and counties are now working with private companies to turn courts serving the poor into revenue and profit generators. Much like the old debtors’ prisons where the poor were jailed for owing debts, courts are partnering with private companies to maximize revenue in the form of fees and fines from defendants—most of whom are impoverished. Those who can’t afford to pay are jailed.

In such strategies, a county court system might be working with one company to collect court fines and fees, another company to run the probation system, another company to operate an electronic monitoring system for probationers, and possibly another company to help manage the entire court system through computerized systems.

Debtor Prisons Used to Maximize Revenue as the Poor Become Poorer

As the counties and states seek revenue from the debtor prison revenue strategies, and as the companies profit, the poor become poorer. For example, if a low-income individual gets caught up in the criminal courts, he may serve a short sentence or be put on probation. He then owes fines and restitution and court fees. Private collection and probation companies jump into action. Collection and probation fees are tacked on. He can’t keep up. The fines, interest, and penalty charges increase. He is jailed for not making payments. And the cycle starts over.

Similar to concerns with other revenue tactics, these poverty industry strategies using the courts can cause the diversion of intended government purpose. In this case, rather than focusing solely on justice, public safety and rehabilitation, agencies and courts are focused on revenue production. Judges and probation officers are forced to act as collection agents rather than agents of justice.

Jurisdictions vary in how the resulting money is spent. States or counties may use the funding for the court systems in order to save government revenue, such as a criminal court in New Orleans where fees and fines amounted to two-thirds of the court-operating budget.69 Or in other jurisdictions, the states and counties route much of the money away from the courts to state and county general funds. Out of the $163 million collected in such court fees and fines in one year in Iowa, the state took $106 million for general fund revenue and most of the remainder went to government entities other than the courts. Similarly, in Philadelphia, the city routed the full amount of the $2 million in collections from the revenue strategy to the city’s general coffers.70

But regardless of how governments use the revenue, the private companies are always taking a large percentage as profit—and adding more to the amount owed by the poor. A Pennsylvania state law first explains how the courts “may refer the collection of costs, fines and restitution of a defendant to a private collection agency whether or not the defendant’s maximum sentence or probationary term has expired with or without holding a hearing.”71 A collection fee owed to the collection agency, of an additional amount equal to up to 25 percent of the total costs and fees already owed, “shall be added to the bill of costs to be paid by the defendant.”72 And to encourage the debtor/defendant to pay, the judge wields the jail cell: “Nothing in this subchapter limits the ability of a judge to imprison a person for nonpayment.”73

The following summarizes how the debtor prison revenue strategy works in an Oregon court system:

Clakamas County Circuit Court: Fees upon Fees upon Fees

In Clakamas County, Oregon, the circuit court explains: “All fines, restitution and fees assessed are due and payable the day of sentencing,” and as soon as the account is delinquent it will be referred to a collection agency.74 The collection agency is Alliance One Credit Company, which “has served the court and government industry in comprehensive collection service since the early 1980’s,” whose “current client base includes over 500 courts and government entities,” and has “grown into an industry leader with offices throughout the United States, South America, Latin America, Canada, India, Philippines and the Caribbean.”75

The court website then explains a few of the additional fees that will be tagged onto the fines and fees already owed. “The law allows the following fees to be automatically added and collected, without further notice or action by the court to recover administrative and collection costs.”

The incentive for states and counties to employ private companies to increase collections of court fines and fees is strong. The court systems are underfunded, local governments and states are unwilling to provide sufficient funding, and the cost of targeting the poor for increased fees and costs initially appears to be free. The private collections agencies don’t charge the government entities, but rather tack their large fees onto the amounts already owed by the debtors. If the companies don’t collect, they don’t get paid.

In 2012, the City of Bridgeton became the first New Jersey local government to take advantage of a new state law allowing municipalities to hire collection agencies to pursue municipal court fees and fines. According to the Daily Journal, Mayor Albert Kelly explained the reasoning for hiring Duncan Solutions and allowing the company to tack on an additional 22 percent to the total amount owed. The mayor explained that, “[g]iven the economic landscape the last few years, we, like so many others, have had to do more with less,” and “[t]hat means using new tools provided by the state to enable us to collect potentially lost revenue.”77 In 2014, when Brick Township took advantage of the same New Jersey law, the mayor explained why he wanted to hire Pioneer Credit to pursue $650,000 in unpaid municipal court fines: “This was a no-brainer since there is so much money sitting there and absolutely no cost to the town.”78 According to the Asbury Park Press, the Council president Susan Lydeker echoed the reasoning: “A fee will be added to the fine by the contractor,’’ Lydecker said. “We don’t pay anything.”79

But they do pay. There are significant costs resulting from the debtor prison revenue strategy: harm to the vulnerable populations, and harm to the governments that pursue their money. Individuals who are already struggling with poverty become caught in a mire of continuously growing debts as they are required to pay endless court fees and fines: charged for initial court appearances; charged for trials; charged to file an appeal; charged for other administrative court costs; charged for “court technology” fees; charged for public defenders, even though they are supposed to be free; charged for prosecution reimbursement; charged for their own warrants; charged for fines and restitution; charged for any time served in jail; charged when their driver’s licenses are suspended; charged for their probation; charged for drug testing; charged for electronic monitoring; charged interest on the growing amount owed; charged for entering into payment plans; charged a penalty if unable to make timely payments; charged for the collection agencies that pursue the charges; charged when they become jailed again for not paying the charges; and more.

As the poor become poorer, governments are harmed too. Pursued by the collection agencies for the unmanageable court debts, the individuals are less likely to obtain economic stability and more likely to be a cost to society. Many of the impoverished individuals will avoid “above ground” employment to avoid harsh wage garnishments, or if they are working they will lose their jobs when their driver’s licenses are suspended or after being locked up for not paying the debts. States and counties will report the increasing court fines and fees on credit histories, which in turn make it more difficult for the individuals to find housing or jobs, as landlords and employers frequently require credit reports. When unable to make ends meet, the individuals will more likely need public assistance. The chances of successfully reentering society after even a short prison sentence are hampered. The chances of going back into prison again are greatly increased. Even the right to vote can be lost if unable to pay the court debts.

Also, the unmanageable debtor prison debts don’t exist in a vacuum but become entangled with other conflicting debt obligations. A low-income father struggling to get on his feet in Florida may briefly encounter the criminal justice system for a minor crime. An initial $500 criminal misdemeanor fine can balloon to several thousand dollars in court fees and costs. An additional fee charged by a private collection agency of up to 40 percent of the total fines and costs is then added. The father may already be facing thousands of dollars in back-owed child support, so he must decide between supporting his children and paying the court debts—both of which may be using private debt collectors. If he chooses the court debt over paying to support his children, the mother and children will be financially harmed and more likely to need government assistance. If he chooses to pay child support, he might avoid a driver’s license suspension that would occur if child support is not paid, but then his unpaid court debts will trigger the license suspension anyway. And if he is locked up for not paying the court debt, he will lose any employment—and everyone is harmed.

Further, states and counties fail to consider the fiscal costs of the debtor prison revenue strategy (in addition to the social costs noted above). Jurisdictions attempting to use the strategy have encountered a difficulty that should have been obvious: It’s hard to collect money from the poor. A study of court collection efforts in Florida by the National Association of State Courts examined barriers to collecting court fees and fines. One of the reported “barriers to success” was that “over 30 percent of the county criminal cases involve homeless individuals.” The governments may spend more money in the collection effort in pursuing the poor than in the resulting collections. According to an investigation by the Brennan Center for Justice, the collection effort backfired in Mecklenburg County, North Carolina. As a part of the collection strategy, the county arrested 564 people for failing to pay the court fines and fees, and jailed 246 of the individuals—at a cost of $40,000 for $33,746 collected.80

Although the U.S. Supreme Court concluded in Bearden v. Georgia that a person should not be jailed for falling behind on such court fines and fees if unable to pay, the ruling is often ignored. According to an investigation by NPR, during a four-month period in Benton County, Washington, about 25 percent of the people in jail for misdemeanor offenses were there because they were not able to pay their court fines and fees.81

The poverty industry does not even spare children from the debtor prison revenue strategies. According to an ACLU 2010 investigation and report, some jurisdictions will also impose court fines and fees on juveniles—and will jail the youth or the parents if they are not able to make the payments. For example, the ACLU report notes an example where a homeless and unemployed mother was jailed when she could not pay $104 per month in fees to a juvenile detention facility holding her son.82

Probation as Revenue

In addition to working with private collection agencies, states and counties have also hired private probation companies for the debtor prison revenue strategies. Many misdemeanor and traffic courts have begun hiring probation companies to help increase revenue, with the money to be used either by the courts or by the counties and municipalities.

MAXIMUS apparently did not want to miss out on this revenue strategy when it bought National Misdemeanant Private Probations Operations for an undisclosed amount in 2003. In its third quarter revenue report for that year, MAXIMUS described its increase in Human Services revenue as “due primarily to the acquisition of National Misdemeanant Private Probation Operations (NMPPO), the largest U.S. provider of community corrections services.”83

Again, the courts have become revenue production centers, and the poor are the revenue source. A report by Human Rights Watch explains that “an increasing number of counties and municipalities depend on local courts as sources of revenue by trying to fund through misdemeanor fines what they cannot or will not fund through taxation.”84 Once charged with a misdemeanor and placed on probation, the for-profit companies charge service fees on top of fines, as well as costs for mandated classes and behavioral programs—sometimes provided by the same companies. As with private collection agencies, the local governments and courts pay nothing because the probation services are completely “offender-funded.”

Electronically Monitoring the Poor for Profit

Further, states and local governments are also contracting with companies that provide electronic monitoring services to increase government revenue. For example, Mountlake Terrace, Washington explains that its contract with “the Electronic Home Monitoring company costs the City $5.75 per client, per day.” The city then charges each “client” who is court ordered to wear the monitoring device $20.00 per day, “resulting in a revenue for the City of $14.25 per client, per day.” Thus, “[a]t an average of 10 to 14 clients per day, the City receives approximately $50,000 to $60,000 in revenue per year.”85

Seemingly Endless Ways of Profiting from the Poor

The ways in which the poverty industry uses vulnerable populations to maximize profit and revenue are seemingly endless. If one revenue strategy is slowed after investigations uncover questionable practices, new strategies quickly emerge. Children and impoverished adults are sorted, juggled, and sorted again—as the poverty industry uses its creative energies to serve itself rather than serving those in need.

For example, after the 340B Drug Discount Program was created to reduce costs of prescription medications for the poor, the goal of expanding needed access to medication has sometimes been shifted toward revenue production. The program requires pharmaceutical companies to sell drugs at a discounted rate to hospitals and clinics that serve the poor and uninsured. However, some healthcare providers have turned the discounts into revenue. An investigation by Senator Charles Grassley of Iowa found that Duke University Hospital was able to purchase drugs in 2012 at a discount for $65.8 million, but then sold the drugs for $135.5 million—resulting in $69.7 million in revenue.86

Several companies have cropped up that specialize in helping to use the discount drug program to maximize revenue. A “340B Coalition” now organizes two conferences a year, and according to the New York Times a past conference in San Francisco attracted about fifty companies as exhibitors.87 The pharmaceutical industry does not like this revenue strategy because it forces the companies to charge less to participating healthcare organizations. In fact, Billy Tauzin, who left Congress in 2004 to lead the lobbying effort for pharmaceutical companies, has changed sides. He left his lucrative position with the drug industry for another opportunity—to help lead a new lobbying group for healthcare providers seeking to benefit from the 340B program.88

As another example, some for-profit hospice companies have been criticized for cherry-picking their clients to maximize profit. According to investigations, these companies who are intended to provide care and comfort to the dying are sometimes targeting patients who may not actually be dying in order to maximize payments from Medicare. The $17 billion industry received $15 billion of its revenue from Medicare.89

To be eligible for hospice care, a patient generally must have only six months or less to live. However, companies are incentivized to find patients who need fewer services and will have longer stays in hospice care. An investigation by the Washington Post found that at one branch of AseraCare in Alabama, one of the largest for-profit hospice chains, almost 80 percent of the patients were discharged alive.90 Lawsuits have charged that such hospice companies use aggressive marketing techniques to increase the number of patients regardless of whether they are dying, including tying employee pay and bonuses to enrollment, and paying kickbacks to referral sources such as nursing homes—and even to patients directly.91

And the list of poverty industry strategies continues to grow, from isolated fraudulent practices using the vulnerable in moneymaking schemes to entire government agencies being taken over by private companies. For-profit companies are now virtually running county courthouse computer systems. States and private contractors are partnering to turn juvenile detention centers, foster care group homes, and entire foster care systems into profit centers. And in the infamous “kids for cash” scandal, federal prosecutors alleged two Pennsylvania judges were receiving kickbacks for several years from a private detention center in return for sentencing children to the private facility. Kids were often denied lawyers, and were locked away for long sentences at the private facility for very minor offenses. The judges received $2.6 million. Although found guilty, one of the judges later argued the payments he received were not kickbacks but rather a “finder’s fee.”92

The poverty industry’s expanding revenue strategies are diverting the missions of human service agencies, undermining programs for the poor, harming the vulnerable, and harming all of us as billions in aid funds are misused. The next and concluding chapter provides a path forward to begin reeling in the poverty industry practices, and to restore fiscal integrity to the safety net.