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 ...

A federal jury in Florida has awarded $1.2 million to a former prisoner who was paralyzed due to deliberate indifference to his serious medical needs while he was incarcerated at the Lee County Jail. The jury found that the jail’s for-profit medical provider, Prison Health Services (PHS), was solely liable. ...

by David M. Reutter

A Florida federal district court has rejected insider trading charges brought against a consultant for Correctional Services Corporation (CSC). The civil complaint, filed in September 2008 by the Securities and Exchange Commission (SEC), charged Dr. Zachariah P. Zachariah, his brother Dr. Mamen P. Zachariah, and his friend and colleague Dr. Sheldon Nassberg with using inside information to trade CSC stock.

On July 14, 2005 it was announced that GEO Group Inc., the nation’s second-largest private prison company, was acquiring CSC. The SEC alleged that the three defendants traded CSC stock from May to July 2005 based on non-public information concerning the acquisition. The evidence at trial showed the defendants periodically discussed securities transactions and traded in private prison company stock.

The evidence established that Dr. Zachariah had researched CSC, printed out information about the company on his computer on May 18, 2005, purchased his largest block of CSC stock the following day, and recommended it to others. The stock experienced a spike in trading volume the same day of his purchase. Zachariah was subsequently charged with insider trading. [See: PLN, Dec. 2008, p.36].

To prove its case, the SEC pursued a “multiple choice” theory at trial. ...

On December 29, 2010, the State Auditor of Hawaii released a report highly critical of the way the Hawaii Department of Public Safety (DPS) contracts for private prison beds on the U.S. mainland.

The report found that the DPS overstated the cost of housing prisoners in Hawaii while understating the cost of incarcerating them at private prisons in Arizona operated by Corrections Corporation of America (CCA). The audit also determined that the DPS used a sham inter-governmental contract with the City of Eloy, Arizona to circumvent open-bid procurement procedures that were required had the DPS contracted with CCA directly. The report noted that DPS personnel had been uncooperative and tried to obstruct the audit.

Hawaii has an unusual prison system in that the DPS runs the state police, state prisons and local jails. The state’s prisons have an operational capacity of 3,327 beds, leaving Hawaii more than 2,000 beds short of the number needed to house its prisoner population.

To address this persistent problem, beginning in 1995 the DPS started sending Hawaiian prisoners to privately-operated facilities on the mainland. Although introduced as a temporary measure to alleviate prison overcrowding, the outsourcing of prisoners to private facilities has become institutionalized and ...

by John E. Dannenberg

The Tenth Circuit U.S. Court of Appeals reversed the dismissal on summary judgment below and remanded to the U.S. District Court (D. N.Mex.) a pro per federal prisoner’s Environmental Tobacco Smoke (ETS) suit against private prison contractor Cornell Corrections, Inc. because Cornell’s grievance recordkeeping process was so inadequate that the question of administrative exhaustion could not be determined. In reversing, the Tenth Circuit noted that the intervening U.S. Supreme Court decision in Jones v. Bock, 127 S.Ct. 910 (2007) [see PLN, May, 2007, p. 36] now makes the burden of proving exhaustion an affirmative defense (overruling prior Tenth Circuit precedent).

Federal prisoner Ethan Roberts was housed in Cornell Corrections’ Santa Fe [New Mexico] County Adult Detention Center from April 1999 to June 8, 2000. He sued Cornell on June 9, 2003 in U.S. District Court under 42 U.S.C. § 1983 for irreparable lung damage caused by being exposed to saturated ETS 14-20 hours per day. Cornell defended on two grounds: that the statute of limitations had expired and that Roberts had not exhausted administrative remedies. The district court dismissed the case on summary judgment.

The Tenth Circuit found Roberts’ 3-year-and-one-day filing timely under controlling New Mexico ...

On June 1, 2011, Corrections Corporation of America (CCA), the nation’s largest for-profit private prison company, announced its most recent acquisition: Former federal Bureau of Prisons director Harley G. Lappin, who was hired by CCA as an executive vice president and the company’s Chief Corrections Officer.

Lappin retired from the BOP in May 2011, several months after his arrest on DUI charges by the Anne Arundel County Police Department in Maryland. According to a police report, his eyes were bloodshot, he had slurred speech and alcohol on his breath, and he failed sobriety tests. In addition to DUI he was charged with reckless driving, negligent driving and failure to obey the instructions of a traffic-control device. In an apologetic memo sent to BOP employees, Lappin cited “a lapse in my judgment ... giving rise to potential embarrassment to the agency.” [See: PLN, May 2011, p.20].

Lappin, who received probation on the DUI-related charges, joins another former BOP director already employed with CCA – J. Michael Quinlan, who was hired by the company in 1993. Quinlan is employed as a senior vice president who oversees CCA’s quality assurance program. He retired as director of the BOP in 1992, several months after ...

by Matt Clarke

Within a few days after his retirement as Sheriff of Virginia Beach, Virginia in late 2009, Paul Lanteigne went to work for Conmed Healthcare Management, Inc. and began exchanging emails with and receiving documents from his former coworkers at the Sheriff’s Department. The subject of the emails and documents was a $3.5 million-per-year contract to provide health care for prisoners at the Virginia Beach jail. The total value of the three-year contract, including two years of optional extensions, could reach $17.5 million.

Some of the information provided to Lanteigne was publicly available and some was not. Five companies had submitted bids for the contract. Conmed and Correctional Medical Services (CMS) were short-listed as finalists. Conmed, a publicly-traded company with operations in seven states, had won an $18 million contract for health care services at the jail in Chesapeake, Virginia in 2008, but lost a bid for the jail in Norfolk. CMS, a privately-held company, operates in 19 states. It had held the Virginia Beach contract for 25 years – including 10 during which Lanteigne was sheriff.

Lanteigne was given an early copy of the draft request for proposals (RFP). The RFP was similar to the version used ...

by David M. Reutter

Pennsylvania-based Wexford Health Services, which bills itself as “the nation’s leading innovative correctional health care company,” entered into a confidential settlement with the estate of a New Mexico prisoner who died due to deliberate indifference to his serious medical needs.

When prisoner Michael Crespin arrived at the Central New Mexico Correctional Facility (CNMCF) in March 2006, he was undergoing chemotherapy for colon cancer. After his December 2005 arrest and incarceration, Crespin had complained of abdominal pain. He was taken to the University of New Mexico Hospital (UNMH) where he was diagnosed with cancer and underwent surgery.

The surgery left him with a colostomy bag and a prescription for medications and chemotherapy. Although Crespin advised Wexford personnel at CNMCF of his condition, he was isolated from medical staff. And despite his requests, and those of his treating physician at UNMH, Wexford employees lost track of Crespin’s cancer treatment.

Over the next several months, Crespin “missed approximately 14 to 16, or more, medical appointments at UNMH,” according to his subsequent federal lawsuit. “Most of the appointments were for chemotherapy at UNMH.”

The treating physician and staff at UNMH repeatedly called Wexford staff and CNMCF’s warden to inform them ...

A federal district court found that a conflict of interest existed with the Corporate Counsel of the City of New York (Corporate Counsel) representing individual employees of Prison Health Services (PHS), because they had conflicting defenses. The court’s ruling came in a lawsuit filed by the family of a pretrial detainee who hanged himself shortly after arriving at the Rikers Island jail.

Upon being arraigned in Queens County Criminal Court on December 18, 2007, the court set bail at $2,500 and ordered David Mercado to be placed on suicide watch. Mercado did not post bond and was incarcerated at Rikers Island.

The next day he was referred to be examined by Patricia Jones, chief of the Mental Health Unit, for an evaluation regarding any “suicidal ideation.” She assigned Simflex Nyame to do the mental health review and informed him of the court order.

Nyame, however, said he was never advised of the order. He concluded that Mercado’s suicide watch should be discontinued; he also believed Jones would obtain the countersignature of a psychiatrist, which she never did.

In general population, guards observed Mercado “showing signs of depression, [and] radical changes in behavior,” prompting a referral back to the Mental Health ...

Despite a history of abuse and bad conditions, private-prison corporation GEO Group keeps getting contracts in Texas

by Craig Malisow

Anthony Ferrell left the Ben A. Reid halfway house in northeast Houston on October 25, 2010, to go to work. He never came back.

Just over two weeks later, a Meyerland gas station security camera recorded him walking inside shortly after midnight. When he exited, a mother of three was missing her purse and a 24-year-old college student lay on the floor, bleeding to death. The man had intervened in the purse snatching, and for that he got a bullet in the stomach.

Six days later, a Crime Stoppers tipster spoiled Ferrell’s good time: Police arrested him at a nightclub and charged him with capital murder in the death of Sam Irick. Two days after that, Ferrell had the privilege of observing something Irick never again would: a birthday.

Ferrell’s criminal history dates back to 1989, when he was convicted of burglary and given seven years probation. When he later refused to provide a sample for a urine analysis, his probation was revoked and the full sentence was imposed. But he was out of state custody by 1992, whereupon he ...