The fates of mentally ill persons have always been intertwined with the shifting boundaries between the criminal justice and mental health systems. Just as public mental hospitals once served as the institutions of last resort for the care and confinement of mentally ill persons, jails have become the last secure environment in most communities for the control of mentally ill persons when they are unmanageable and noncompliant. The U.S. Justice Department has reported that nearly 284,000 people with mental illnesses were in jail or prison on any given day–about 16 percent of the incarcerated population and more than four times the resident census in state mental hospitals (Ditton 1999). The presence of mentally ill persons in jails is not a new problem–it has been around for the 200 years since the beginnings of organized efforts to improve the care of mentally disordered persons in the United States (Grob 1994).

Overlying the jail and public mental health systems is managed care, which has spread rapidly during the past decade throughout the behavioral health care system. Managed care carve-outs may lead to cost-shifting, defined as one agency reducing its own expenditures by inducing another agency to pay for similar services (Norton, Lindrooth, and Dickey 1997, 1999). Cost-shifting may happen when two different agencies offer treatments that are substitutes and the treatment is paid for out of different budgets. For example, in a mental health carve-out, the managed care organization may be able to direct patients to receive care in mental hospitals paid for by the state, thereby reducing its own expenditures while increasing expenditures for care not covered through the mental health carve-out. This meaning is distinct from hospitals raising private reimbursement rates in response to lower public reimbursement rates, the traditional definition of cost-shifting in the health care literature (e.g., Sloan, 1983; Sloan, Morrisey, and Valvona 1988; Dranove 1988).