GALVESTON - The University of Texas Medical Branch at Galveston is preparing to stop providing medical services to the state prison system unless it gets more money.

The Texas Department of Criminal Justice is shopping for other hospitals to take UTMB's place when its interim contract with the Galveston medical school ends Oct. 31.

A UTMB internal memo and a letter from UTMB's president to the director of the prison system say negotiations for a new contract are at an impasse.

UTMB has provided medical care for Texas prisoners for almost 20 years, but the dispute over how much the state should pay for that care has become more heated over the past few years.

UTMB spokesman Raul Reyes declined comment but provided a letter dated Wednesday to TDCJ Executive Director Brad Livingston, signed by UTMB President David Callender and UT System Vice Chancellor Kenneth Shine.

According to the documents, the medical school will recommend that medical services be transferred to the prison system when the contract ends.

UTMB proposes moving its prison medical personnel to the Department of Criminal Justice, the memo says.

TDCJ spokeswoman Michelle Lyons said at least five other hospitals have expressed an interest in providing medical services to the prison system, including Conroe Regional Medical Center and Huntsville Memorial Hospital.

Callender's memo to UTMB employees said the medical school wants to continue treating prisoners at the prison hospital on its Galveston campus. Lyons said that might not be possible if the prison system finds a hospital that can provide a better deal.

The letter to Livingston asked for a meeting with the Legislative Budget Board within 10 days to address the "significant shortfall" in the amount budgeted for health care.

Despite UTMB complaints about being paid too little, the Legislature this year reduced the prison system's medical budget for the current fiscal year by $75 million, down from $933.7 million budgeted last year.

The letter said the budget board would be provided a plan for phasing out UTMB services to the prison system that it has provided for 18 years. Lyons said prison system officials had not yet seen the plan.

"By virtue of them submitting a transition plan is evidence they don't intend to walk away Oct. 31," Livingston said.

He said that it was possible that a deal could be reached over the next two weeks that is between the full service UTMB now provides and the phase-out that the medical school is proposing.

UTMB provides medical care to about 80 percent of Texas' 156,000 prisoners. Texas Tech University provides care for the rest, mostly for those in West Texas prisons.

The University of Texas system told state budget writers last year that UTMB needed to renegotiate its contract with the prison system.

Shine said at the time that UTMB could not continue with the same contract. UTMB paid for prison medical care beyond the amount budgeted and waited for the Legislature to re-pay it every two years, Shine complained.

"At the present time we are serving as bankers for the system," he said.

UTMB laid off 363 medical employees working in state prisons in 2010 to stem $82 million in projected losses for the 2010-2011 budget year.

A state audit released in February said UTMB miscalculated when it made the layoffs. The audit found that instead of saving $3.1 million, UTMB spent $4.7 million for temporary services to make up for the staff cuts.

UTMB disagreed with the audit, which said its prison-care division charged a disproportionate amount of indirect costs and charged some costs specifically barred by its contract or state requirements.

harvey.rice@chron.com