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Merger Creates Largest Private Prison Medical Provider in U.S.

On March 3, 2011, American Service Group, Inc. (ASG) and Valitás Health Services, Inc. (VHS) announced a planned merger of the two companies that would create the largest contractor for healthcare services in prisons and jails in the United States.

Under the deal, VHS will acquire ASG for $26 per share, or about $250 million. Once the merger is complete the combined company will have around 11,000 employees serving more than 400 correctional facilities nationwide. It will have annual gross revenue estimated at $1.4 billion.

ASG and VHS are the parent companies of the largest players in the privatized prison healthcare industry. St. Louis-based VHS, formerly known as Spectrum Healthcare Services, is the parent of Correctional Medical Services, Inc. (CMS), while ASG owns Prison Health Services, Inc. (PHS) and Correctional Health Services, LLC (CHS). Those three subsidiaries provide medical, dental, mental health, pharmacy and electronic medical records services to prisons and jails.

“We’re doing this to take advantage of the growth opportunities that are available in the marketplace and to blend the companies to take advantage of their relative strengths,” said Dick Miles, VHS’s chairman and CEO. “We think that a lot of states are going to be considering outsourcing correctional health care to companies like ours as a way to address both financial and quality issues.”

VHS had $730 million in gross revenue in 2009, a 17% decrease from the previous year. The company’s profit margin cannot be determined as it is privately held. ASG’s profitability, however, is public information because the firm is traded on NASDAQ. The company’s net income went from a loss of $3.38 million in 2006 to $9.3 million in 2010.

Numerous lawsuits filed against PHS demonstrate that ASG’s profits have resulted from understaffing and denying prisoners adequate treatment for even serious medical needs. To gain contracts, PHS tends to bid low and then reduce its costs to ensure the company makes money.

“If their bills go through the roof because of all of the bills for going to a hospital, a competitor gets the next bid,” Fort Lauderdale attorney Greg Lauer informed a Florida federal jury in a case involving a prisoner who was left paralyzed due to inadequate care by PHS staff. “That’s their incentive” to cut costs, he noted. [See related article in this issue of PLN].

An ASG shareholder filed a class-action suit over the ASG and VHS merger due to “the potential unfairness of the proposed merger and possible breaches of fiduciary duty”; however, the lawsuit was dismissed in May 2011.

ASG shareholders voted on June 1, 2011 to approve the merger, which was finalized two days later. Following the merger ASG will no longer trade on NASDAQ.

Sources: St. Louis Post-Dispatch,,,

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