How Correctional Facilities Are ‘Walking the Line’ Toward Healthcare Cost Improvement

JUL 27

Correctional healthcare is a niche market that has escaped much of the scrutiny typically reserved for rapidly growing expense items on state budgets. Ten years ago, the correctional healthcare market was $4.5 billion in annual spending, with approximately 40% outsourced to private vendors. Today, the share of the market served by outsourcing is growing alongside a rising inmate population. As a corollary, the rising costs of healthcare due to a graying correctional population and other factors have doubled the market to over $10 billion.

A few more data points are underscoring why I’m watching this space. The incarceration rate of inmates as a share of total population has risen sharply in the past decades and tougher legislation has resulted in longer sentences. Compounding these trends are meaningful health-related cost differentials that are causing the correctional healthcare market to grow at an outsized pace:

  • Higher incidence rate for infectious diseases
  • Graying prison population and changing healthcare needs profile
  • Higher prevalence of behavioral health and other chronic health conditions
  • No previous history of good health behavior


Facing these market challenges means that states must offer more cost-effective and quality healthcare to their correctional populations and increasingly turn to privatization. Privatization has proven itself as an effective strategy to mitigate the myriad cost pressures facing states alleviating both the short-term costs of care and also longer-term employee costs like benefits and pensions.

Government agencies prefer to deal with a ‘short list’ of preferred providers to increase efficiencies. Kaiser Health News reported this week that approximately “20 states have shifted all or portions of their prison health care operations to private firms” although substantially more states have outsourced prison and jail operations at the county or local level. Deal activity in the sector to-date has been modest but at attractive valuations. As the outsourced share of the market continues to grow, TripleTree expects further industry consolidation as companies face competitive cost pressures, driving smaller private players to look to capitalize on premium valuations and larger vendors seeking growing economies of scale. A few representative transactions of note include:


The arrival of Centene into the correctional health market through its recently incorporated joint venture with MHM ServicesCenturion, heralds further change afoot. Centene’s arrival brings a Fortune 500 player into a private player-dominated industry with greater scrutiny and regulation but also large cash reserves. Centurion was recently challenged in an Arizona Department of Corrections proposal for its lack of experience providing care to a volume threshold of correctional patients. While it will be difficult for Centene to organically scale its business rapidly in today’s market, there are numerous opportunities for the Medicaid plan to absorb smaller industry vendors as part of a leadership and business land grab. Given Centene’s broad geographic footprint across nearly 20 states and extensive Medicaid population, correctional companies should present themselves as attractive acquisitions in the coming months.

We look forward to seeing how correctional health companies manage the coming Medicaid expansion and the unique opportunities it presents – let us know what you think.

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Marc Baudry
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