Contracting with the private sector to provide prison health care is a proven money and life saver. The practice is not new: At the beginning of 1997, 12 states had contracts with private firms to provide health care to their entire prison system, and another 20 states had contracted health care for part of their systems—a total of 498 prisons in the 32 states. The largest company that provides these services has contracts for facilities in 28 states and is responsible for over 162,000 inmates.

Private health care for prisoners is likely to become even more widespread. Recent activity includes the 1996 sale by the District of Columbia of its Correctional Treatment Facility to a private firm. The District then leased it back and contracted with the firm to run it. In early 1997 New Jersey hired a private company to provide health care for its 26,000 inmates. State officials estimate that this will save taxpayers $14 million in the first year alone. At the end of the year, Indiana signed a four-year contract with a private firm to provide health care for all state inmates; state officials anticipate saving $3.8 million each year. At almost the same time, Mississippi contracted with another firm to build a 500-bed mental-health correctional facility.

Some critics have expressed concern over this trend, fearing that lack of public visibility means private companies have little incentive to provide quality care. Indeed, in at least one case, prison officials terminated a contract with a private company because of poor care. But this appears to be the exception rather than the rule. In fact, several cases of government medical care were so bad that courts found they violated inmates' rights and ordered jails to hire a private company. Many officials claim that medical treatment in prison is far better than most inmates could expect to get outside of prison. Also, the National Commission on Correctional Health Care has instituted an accreditation program, and recently accredited were West Virginia's five regional jails, all of which contract for medical care. Some states are making achieving accreditation part of the contract—all private prison contracts in Puerto Rico include such requirements.

Public concern over rising crime among juveniles has led to renewed efforts to find effective treatment and incarceration facilities for young offenders. Many states are turning to private providers for help.

At the end of 1995, nearly 40,000 adjudicated juveniles were housed in over 2,000 privately operated facilities, including training centers, ranches, shelters, halfway houses, and group homes. This amounts to more than one-third of all adjudicated youths.

The goal of contracts with private firms is to change dramatically the thinking and behavior of troubled youths, preparing them to become self-sufficient. This involves teaching students not just educational and vocational skills, but also behavior-management skills.

The cornerstone of most programs is education—with state-accredited education programs that offer a high-school diploma or GED and allow students to earn credits that are transferable to regular schools.

Program success is usually measured in terms of reduced recidivism and completion of school. The best private juvenile programs report recidivism rates about one-third of the national average for juvenile offenders—and for about 20 percent less than it costs the state to run similar programs.

The Australian state of Victoria has signed 20-year contracts for three new private prisons. About 65 percent of Victoria's female prisoners and 40 percent of its male prisoners are in private correctional facilities. To facilitate competition, the government has separated corrections policy making from service delivery. The corrections department's contract administrator "purchases" correctional services from either private firms or the public Correctional Services Agency, then monitors and evaluates the performance of both from arm's length.

A crucial innovation brought about by Victoria's contracts with private prisons is the performance-based structure of payments. The private operators receive three revenue streams from the government.

• An accommodation-service fee pays for housing the prisoners; this essentially offsets the private debt incurred in constructing the facility.
  
  
• A correction-service fee covers specific services, such as correctional officers, health care, food, education, and rehabilitation programs.
  
  
• A performance-linked fee aligns the company's long-term interests with the government's goal of quality services. The fee is tied to a set of performance indicators, including escapes, deaths in custody, assaults on inmates, and assaults on staff. As long as the company meets standards in these areas, based on averages from government prisons, it receives the full fee.

This last fee is what makes the Aussie model innovative. It ties the private companies' return on equity to a set of performance goals, thus aligning their long-term interests in running profitable facilities with the government's interest in quality services.

In 1989, the 28-year-old, 2,000-bed Bexar County jail was closed by a federal court for unsatisfactory conditions and severe overcrowding. The cost of bringing the jail into compliance with the court order was estimated at $12 million. The inmates were moved to a new county jail.

Meanwhile, the state needed 2,000 beds for parole violators being returned to custody. A private firm leased the Bexar County jail to house the state prisoners. The firm financed the repair and remodeling of the jail and paid the county a percentage of its contract revenues from the state. Under county operation, the jail had never been able to achieve state certification. The private firm got the facility certified in 90 days after beginning operations.

The county gets about $1 million each year in lease payments, and county officials are so pleased with how the jail is run that they house their overflow inmates there now. The private firm charges the county $23.63 to house an inmate for a day. The new county jail costs $45 per day per inmate.