The state of Michigan has substantial prison-related privatization experience. It has privatized operation of the Lake County-based juvenile correction facility in a contract with the GEO Group. Since 1997, it has also competitively contracted for medical services in the remainder of Michigan’s correctional system. Indeed, the state’s spring extension of that contract through 2007 suggests that competitive contracting has proved to be a valuable management tool — one that could be employed in all aspects of the prison system.

The state of Michigan’s contract for prison medical services is with St. Louis-based Correctional Medical Services Inc. CMS provides medical services to 225,000 local jail inmates and state and federal prisoners in 27 states. The Michigan Department of Corrections estimates the contract’s projected cost over its first six (of 10) years at $347 million.

The state originally hired another vendor in 1997 to provide many of the services now provided by CMS. Early in this contract, however, the state became concerned about the vendor’s ability to provide the performance quality it had promised. After some negotiation, the contract was reassigned to CMS in March 1998. In April 2004 the state extended the CMS contract three years, through April 2007.

According to Rich Russell, administrator of the Bureau of Health Care Services for the Michigan Department of Corrections, the state of Michigan has enjoyed both qualitative successes and financial savings as a result of its relationship with CMS and the firm’s elaborate system for demonstrating accountability. “We have had a good, cooperative relationship with CMS, and together we look for ways to save money without lowering the quality of care,” said Russell.

For instance, CMS has worked with the state to implement an electronic medical record-keeping system, which will be operational statewide by the end of 2004. Both parties hope that the system will improve efficiency and the flow of information about inmates’ medical histories. CMS has also increased staffing levels by adding more physicians and physicians’ assistants, and it has helped the state maintain its accreditation with the Joint Commission on Accreditation of Healthcare Organizations, a private, nonprofit outfit that ensures that health facilities maintain acceptable standards of care.

While CMS provides the prison system’s medical services, a state chief medical officer and four regional medical officers are the system’s gatekeepers, and they determine the level of treatment CMS and its subcontractors should provide to prison patients. If CMS does not think a certain treatment is necessary for an inmate, but the state’s regional medical officer does, the dispute is resolved by submitting it to a committee that includes representatives from both the state and CMS.

A summer 2004 telephone survey of state corrections departments by the Mackinac Center for Public Policy found that 32 states contract with private firms for some degree of health services for their prisoners, and that another state, South Carolina, is in the process of doing so. Some states have contracted for health services across their entire prison system, while others target a single prison. Still other states split health delivery contracts by service: One vendor provides physical health services, for instance, while another provides mental health services. The state of Texas has contracts with University of Texas Medical Branch and Texas Tech Health Science Center, both public entities. Contracting solutions are as diverse as the states themselves.

One company, America Service Group Inc. of Tennessee, estimates that the national health market for prison and jail inmates is $7 billion annually. With health care costs and the number of prisoners expected to increase, the country may see more inmate health care privatization by states and counties.

State governments nationwide are trusting some of their most important and expensive prison spending to private firms, and the state of Michigan should consider bolder steps. The Mackinac Center for Public Policy has recommended that the state examine the privatization of its entire system — that is, outsourcing management of its corrections department to a for-profit firm. In 1998, the state of Tennessee almost did so, and savings were then estimated at 22 percent. Similar reductions in Michigan would shave nearly $350 million from the state’s general fund appropriation for state prisons.

The result would be important for the state’s budget, which has been suffering from chronic, structural deficits, and for the state’s citizens, who already shoulder tax burdens that are above the national norm. Prisoners are likely to benefit, too. The success of the state’s current prison health services contract and its careful oversight of this contract are evidence that privatization can indeed be implemented properly, saving money and achieving high levels of service.

Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy.