The latest audit of the Department of Correction by the Office of the State Auditor reveals hundreds of inmates qualified for Medicaid at much cheaper hospital rates, but the DOC allowed hospitals to charge regular full price rates.
Medicaid is the discounted federal and state health care system for the poor and disabled.
Auditors estimate the prison system lost more than $11 million a year by not asking for Medicaid rates.
"If we're paying for it with tax-dollars, we're going to pay them five times more than they would receive if Medicaid was paying for the same service," State Auditor Beth Wood said.
According to reports, almost 650 of the prison system's 41,000 inmates in 2008 and 2009 qualified for Medicaid.
Thirty-five community hospitals reportedly charged higher rates, apparently because of confusion between the Department of Corrections and the Department of Health and Human Services, because they had difficulty communicating with each other.
"DOC had inquired, couldn't they run these hospital charges and charge them to Medicaid? And DHHS said, 'no, you could not,'" Wood said.
Even though federal officials made it clear in 1997 that states could bill some prison health care to Medicaid, DHHS did not formalize a policy until 2007. Over 10 years later and the DOC will enact it in eight days.
"For this current administration, we started asking questions and started talking with DHHS last year. They started working with us," said Pamela Walker with the Department of Correction.
Meanwhile, the state auditor says the cost over just the last two years has been $23 million lost.
"The state just gets in a habit of doing things a certain way and nobody wants to change," Woods said.