America Service Group Notes Settlement with Fla. AGO

March 31, 2004

Tennessee-based America Service Group Inc. announced that its subsidiary, EMSA Limited Partnership, has entered into a settlement agreement with the Florida Attorney General’s office.

The settlement is related to previously announced allegations, first raised in connection with an investigation of EMSA Correctional Services (EMSA) in 1997, that the company may have played an indirect role in the improper billing of Medicaid by independent providers treating incarcerated patients. The company acquired EMSA in 1999. EMSA was a party to several contracts to provide healthcare to inmates at Florida correctional facilities. Typically, in those contracts, which were approved by government lawyers, the clients required EMSA to seek all available third party reimbursement for medical services provided to inmates, specifically including Medicaid. It was the implementation of these contract requirements that the Florida Attorney General’s office alleges was improper.

Prior to the company’s acquisition of EMSA, all EMSA contracts were reviewed by the company’s attorneys and assurances were received from the seller that the 1997 investigation had terminated without result and that the appropriate practices were being followed. EMSA personnel were assimilated and EMSA operations were integrated with other subsidiaries of the company after the acquisition.

The settlement agreement with the Florida Attorney General’s office constitutes a complete resolution and settlement of the claims asserted against EMSA and requires EMSA Limited Partnership to pay $5.0 million to the State of Florida. The company and all of its subsidiaries are released from liability under the settlement agreement. Both parties entered into the settlement agreement to avoid the delay, uncertainty, inconvenience and expense of protracted litigation.

The settlement agreement states that it is not punitive in purpose or effect, it should not be construed or used as admission of any fault, wrongdoing or liability whatsoever, and that EMSA specifically denies intentionally submitting any medical claims in violation of state or federal law.

The company expects to record a charge of approximately $5.2 million in its results for the first quarter ended March 31, 2004, reflecting the settlement agreement with the Florida Attorney General’s office and related legal expenses.

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