However, the Idaho Department of Correction said it will only extend its $27 million annual contract with Corizon Correctional Healthcare until January, not another 12 months as previously announced.
The state Board of Correction voted Thursday to seek competitive bids for a new contract.
During the six months starting July 1, Idaho will pay Tennessee-based Corizon about $250,000 more than currently budgeted. The move came after Corizon President Stuart Campbell told state prison Director Brent Reinke that he wouldn't sign an extension for less money.
The rate paid by Idaho to the firm has already increased about 20 percent in the past three years.
Idaho has had a rocky relationship with the company in recent years, a period in which the state has been under pressure from a federal lawsuit to improve medical and mental health care for prisoners.
The state fined Corizon $200,000 for missing contract benchmarks, and a federally appointed expert concluded its medical care was so bad it amounted to cruel and unusual punishment.
Corizon commissioned its own report released in May 2012, indicating it was meeting national prison standards with the care it was providing in Idaho.
Meanwhile, Idaho in 2012 asked companies to submit proposals on providing medical treatment to prisoners a preliminary step to putting the contract out for bid. Five companies responded, and Corizon was one of just two that gave price estimates.
Reinke wasn't immediately available Friday for comment. Neither was Robin Sandy, chairwoman of the Board of Correction.
Corizon officials in Brentwood, Tenn., also didn't immediately comment.
Idaho Department of Correction documents detailed the current impasse.
In February, the prison agency agreed to a one-year extension of the Corizon contract. Days later, however, the company asked for a meeting at which its officials negotiated an increase to $14.75 per inmate per day, from $13.67.
Soon after that, contract changes initiated by the state agency reduced the figure to $14.52, and the company was also asked to provide justification for why it needed more money.
"No justification has been provided," according to the documents.
Idaho offered a proposal calling for it to pay $14.26 daily.
But since March, efforts to resolve matters haven't been successful, resulting in Thursday's special meeting where the three-member prison board agreed to extend the contract for just six months while seeking bids from other companies.
The board had considered ending the contract and immediately initiating an emergency bidding process. Idaho also could have paid the fee demanded by Corizon for the next year.