America Service Group: This Company Likes It in Jail

ASG sees its future in providing health care to a captive population--and that population is soaring

What do you get if you cross ER with Law and Order? Answer: America Service Group Inc. (ASGR ), whose hot specialty of providing contract health services for prisons and jails has won it the nickname "HMO behind bars" among Wall Street wags.

Governments are increasingly eager to off-load the costly task of providing health services to inmates. So who will care for this captive market? Enter ASG, whose corporate lineage dates to 1978 when Jacqueline Moore, a nurse fed up with the quality of prison care, founded Prison Health Services Inc. She has since left to become a consultant to governments on the issue. The company is run now by CEO Michael Catalano, a onetime attorney for Bechtel Corp. He joined ASG five years ago as general counsel, after stints at Charter Medical Corp. and at Columbia/HCA Healthcare Corp.'s prison health program. Under his guidance, ASG has been running strong. Revenues have jumped an average annual 51% over the past three years, while profits grew an average of 55%.

ON THE FENCE. Thanks to ASG's recent success landing some high-profile contracts--including a three-year $300 million deal inked last December to care for 13,000 prisoners at New York's Rikers Island--many investors believe that ASG could grab an even bigger share of the $4.5 billion that governments spend on prison health services. "If they execute the Rikers contract well, it could generate a tremendous amount of new business from governments who are still on the fence about outsourcing," predicts Andrew Taylor, a Nashville money manager who holds 145,000 shares of ASG.

While private prison management remains controversial, government officials are slowly acknowledging that health care is so specialized it may indeed best be left to outsiders. What's driving governments to outsource is not just the liability risks--prisoners and their families are quick to sue for malpractice--but costs. Economies of scale allow ASG to wheedle greater discounts from suppliers. As a result, ASG promises savings of as much as 27% below what states and municipalities would spend on the same services. And ASG likes to brag that it is not just cheaper, but better. In Indiana, Robert Ohlemiller, deputy commissioner of the Corrections Dept., says that ASG so improved care for its 21,400 inmates that the state recently received its first-ever accreditation from the National Commission on Correctional Health Care, while saving $26 million in three years.

But in some states, ASG has faced criticism that it stints on care to make its profits. In Maine, Cumberland County Sheriff Mark N. Dion cited a "tidal wave of inmate grievances" about inadequate medications and dental care at a Portland jail. Dion says ASG nurses were pulling 24-hour shifts. He pulled the plug on the ASG contract last September. In its defense, ASG says that the jail's prisoner count was sometimes 40% higher than it had been led to expect. Some inmate suits allege that substandard care led to deaths. Catalano says that patient deaths are not out of line with those at traditional hospitals.

With the prison population projected to grow at a 6% annual clip, Catalano is confident that ASG has room for growth. Still, he thinks ASG can parlay its skills into other fields, including military and veterans care, even temporary staffing at traditional hospitals. "There's a big market for clinical staffing, and that's a core competency of ours," he says. ASG may make a jailbreak, but for now, prison suits it just fine.

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