Introduction

Since the early 1990s, a major movement has been underway in the US and elsewhere (Jones and Kettl 2003) to ‘reinvent’ government (Osborne and Gaebler 1992), reducing its role from one of service provider, to service contractor. In the US, this movement has occurred at both the federal level, where states have assumed greater responsibility for services in such areas as welfare and health and human services, and the state level, where state government has increasingly turned to both the non-profit and private sectors to provide services that were previously considered to be in the public domain. This process of contracting out public services, referred to ominously as the ‘hollow state’ by Milward and Provan (1993), has both advantages and problems, as Smith and Lipsky (1993) point out. Despite some concerns, however, most notably in the costs of monitoring, state government contracting of services, especially in health and human services, has become widespread, becoming a key component of a worldwide movement that has been referred to as the New Public Management (Hood 1995; Kettl 1997).

In health care, one major area which has been contracted out in the US has been the provision of mental health services (Milward and Provan 1993). This trend actually started in the 1960s with the deinstitutionalization movement. Services to people with serious mental illness (SMI) had traditionally been provided in state-run mental hospitals, where patients were often kept for many years.