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[ASGR Letterhead]

July11, 2005

VIA EDGAR CORRESPONDENCE

Mr. Jim B. Rosenberg

Senior Assistant Chief Accountant

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549

Mail Stop 03-09

    RE:

    America Service Group Inc.

    Form 10-K for the fiscal year ended December 31, 2004

    File No. 0-19673

Dear Mr. Rosenberg:

     The following is a response to your comment letter of June 16, 2005 relating to the Annual
Report on Form 10-K of America Service Group Inc. (collectively, with its subsidiaries, “ASG” or
the “Company”) for the fiscal year ended December 31, 2004. The numbering of the paragraphs below
corresponds to the numbering of the comment letter.

Form 10-K for the fiscal year ended December 31, 2004

Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Policies and Estimates

Revenue and Cost Recognition, page 16

    1.

    With regards to your provisions which mitigate a portion of the company’s risk related to cost increase, you state that additional
revenues are initially recorded as unbilled receivables until the time period for billing has
been met and actual costs are known.

Mr. Jim B. Rosenberg

Page 2

July 11, 2005

Please explain to us the reason for the time lag between the initial recognition of revenue
and billing for these amounts. In addition, quantify for us the changes in these estimates
for each period presented.

Response to Question 1:

A number of ASG’s contracts contain risk sharing provisions under the terms of which,
contract revenues to be received by ASG increase to offset costs incurred by ASG above
contractual aggregate limits for certain specified cost categories, primarily off-site
medical expenses. These risk sharing revenues are in addition to the “base” revenues
received on a monthly basis under the contract. As off-site medical events occur, ASG
estimates and accrues the associated cost in the period of occurrence. In the same period,
ASG records, as an unbilled receivable, an estimate of the offsetting risk sharing revenue
based upon the contractual risk sharing provisions in the contract. Thus, the recording of
the estimated additional risk sharing revenues is based on the underlying estimate of the
related off-site medical event costs. It is important to note that such additional risk
sharing revenues are equal to the costs incurred, and thus do not include any profit margin.

The terms of ASG’s contracts with its clients specify when such risk sharing revenue can be
invoiced to the customer. Such revenues are typically only billable annually subsequent to
the end of the contract year. In addition, contract terms typically require that such
billings be supported by a paid off-site provider claim as evidence that the events occurred
and to quantify the cost incurred. As a result, risk sharing revenue is recorded as
unbilled receivables until: 1) the actual provider claim, related to the off-site medical
event, has been received and paid by ASG; and 2) the contractually specified billing date
has been reached.

    1)

    Provider claims are generally received within 60 to 90 days of the
occurrence of the event. When the off-site claim is received, the claim is
adjudicated and the original estimate of the event’s cost is adjusted to the actual
cost per the adjudicated provider claim. Any increase or decrease in the recorded
cost of the claim results in an offsetting decrease or increase in the associated
risk sharing revenue with no impact to gross margin as discussed above.

    2)

    Each contract specifies how often risk sharing revenue may be billed
during the contract term. Typically, the contracts only allow such revenue to be
billed annually subsequent to the end of the contract year, after allowing a period
of time for provider claims to be received and adjudicated.

Mr. Jim B. Rosenberg

Page 3

July 11, 2005

Thus, risk sharing revenue is invoiced to the client only after adjudicated provider claims
are available and the contractual time period for such billing has been reached.

As discussed above, the estimate of risk sharing revenue is driven by the underlying costs
incurred which are initially estimated as well. Generally, any changes in the estimate of
risk sharing revenue, after the initial estimate is recorded, occur only as an offsetting
result of changes in the estimates of the underlying costs and have no impact on gross
margin. It is also important to note that in addition to having no margin associated with
it, the risk sharing revenues represent less than 7% of ASG’s overall revenues in any given
year. As such, ASG has not historically tracked changes in risk sharing revenues. However,
please note that in Footnote 2 on page F-8 of ASG’s Form 10-K for the year ended December
31, 2004, ASG has disclosed its estimate of the total change in estimate between years of
underlying off-site medical costs which totaled approximately $1.2 million, $888,000 and
$617,000, in 2004, 2003 and 2002 respectively.

Loss Contracts, page 17

    2.

    We noted the significant adjustments the company has made in each period presented with
regards to your loss contract reserves. Please tell us why you believe you are able to
properly estimate reserves for loss contracts. In addition, please tell us with regards to
your Maryland DPS contract, what information was available that led you to believe the
estimated monthly losses under the contract would diminish from the May 2004 level after
incurring a $6.8 million charge to loss reserves. We noted that you incurred a charge of $6.0
million to loss reserves in September 2004 related to the same contract.

Response to Question 2:

ASG has access to contract specific revenues and contract specific activity for most
expenses and as a result has the ability to review contract operating results on a monthly
basis. The Company utilizes actual cost information incurred to date and other operating
information to project future costs to compare with estimates of future contractual revenue
amounts in order to identify contracts in which a probable loss will occur. Given this data
and analyses, management believes ASG has the necessary information to reasonably estimate
probable future losses under its contracts.

ASG’s decision to record a loss contract charge for the Maryland DPS contract, effective
June 1, 2004, was primarily due to an increase in the level of inpatient hospitalization
costs incurred under the contract in May 2004. Based on this updated review of actual
costs, ASG prepared a revised estimate of the level of inpatient hospitalization costs that
would be incurred on a monthly basis through the expiration of the contract on June 30,
2005. This analysis indicated a probable loss for the remainder of the contract. As

Mr. Jim B. Rosenberg

Page 4

July 11, 2005

further evidence of the need to record a loss contract reserve, ASG also took into
consideration its fixed revenue stream under the contract, recent trends of increased salary
and pharmacy related expense, its inability to terminate the contract and its limited
ability to control the volume and costs related to inpatient hospitalization due to changes
in the mix and acuity of the inmate population.

At the time that the loss contract charge was recorded, as of June 1, 2004, ASG had
available the following facts related to the Maryland DPS contract:

    1)

    a new one month high for inpatient hospitalization costs had been
reached in May 2004;

    2)

    historically, such dramatic increases had been followed by rapid and
significant decreases in the immediately following months;

    3)

    the volume of inpatient hospitalization stays for the first two weeks
of June remained high but was trending to be slightly lower than May’s volume;

    4)

    ASG’s future revenues under the contract were fixed with no risk
sharing related to inpatient hospitalization costs;

    5)

    ASG had no ability to terminate the contract prior to its expiration on
June 30, 2005; and

    6)

    the average total monthly costs for the most recent 5 months of the
contract (January to May of 2004) totaled $5.1 million which was significantly
higher than earlier results but below the total for May.

After careful consideration of these facts, ASG concluded that a new run rate for inpatient
hospitalization costs had been established. Based on the recent months’ operating results
and the downward trend in inpatient hospital stays for the first two weeks of June, the new
run rate for the remaining 13 months of the contract was estimated to be above the prior
historical levels for such costs, but below the unusually high amount experienced in May.

In estimating the amount of the second quarter charge, a forecast was prepared of all
revenue and expense categories related to the contract for the remaining 13 months of the
contract term based on recent contract trends. The charge recorded in the second quarter
reflected the estimated loss as calculated from this analysis.

Prior to filing the Form 10-Q for the quarter ended June 30, 2004, ASG also had available to
it the actual level of inpatient hospitalization costs related to the Maryland DPS contract
for the months of June and July. This data showed that the level of inpatient
hospitalization costs was trending down slowly from the level experienced in May.

Mr. Jim B. Rosenberg

Page 5

July 11, 2005

Subsequent to the filing of the 10-Q for the quarter ended June 30, 2004, on August 9, 2004,
the inpatient hospitalization costs for this contract continued to trend downward in August
2004 but remained above the estimate of the average monthly cost utilized in forecasting
future expenses in the second quarter analysis. This downward movement, although slower
than anticipated, continued to support management’s conclusion regarding the trend and the
loss contract reserve estimate recorded in the second quarter. However, in September 2004,
the inpatient hospitalization costs again increased dramatically to the same unusually high
levels experienced in May and remained at this level in October. In addition, during the
third quarter of 2004, the contract also experienced an increase in two other categories of
off-site utilization (office visits and one day surgeries). In response to these new cost
trends, management updated its analysis of probable losses under this contract to reflect an
increased estimate of the monthly cost of inpatient hospitalization and the new trends in
office visits and one day surgeries. As a result of this updated analysis, ASG increased
its loss contract reserve as of September 30, 2004.

Professional and General Liability Insurance, page 19

    3.

    Please tell us the reasons for the adverse development of the eight claims which resulted in
the $4.7 million increase in your prior year claims reserve in 2004.

Response to Question 3:

The Company has omitted its response to this comment. Counsel to the Company is submitting (under
separate cover) a copy of this letter which includes the Company’s response to this comment,
together with a request for confidential treatment pursuant to 17 C.F.R. Section 200.83.

Mr. Jim B. Rosenberg

Page 6

July 11, 2005

Results of Operations

Year Ended December 31, 2004 compared to Year Ended December 31, 2003, page 23

    4.

    We noted that one reason for the significant increase in healthcare expenses is related to
new contracts added in 2003 and 2004. Please tell us the reason for the remaining increase in
healthcare expenses.

Response to Question 4:

The overall increase in healthcare expenses from 2003 to 2004 totaled $137.0 million, of
which $88.8 million related to healthcare expenses associated with new contracts. The
remaining $48.2 million in increased healthcare expenses resulted from the following:

    1)

    An increase of $12.4 million resulted from expansions in the scope of
services to be provided under the Company’s contracts with the New York City
Department of Health and Mental Hygiene and the Virginia Department of Corrections.

    2)

    Increases in levels of staff and staff compensation at existing
contracts resulted in an additional $13.2 million of salary expense.

    3)

    The remaining $22.6 million increase primarily represents increases in
the off-site medical, diagnostic and pharmacy costs associated with providing
healthcare to inmates at existing contracts.

Liquidity and Capital Resources, page 26

    5.

    Please provide us the days’ sales outstanding for each period presented and explain the
reasons for significant changes from the prior period.

Response to Question 5:

ASG’s days sales outstanding as of December 31, 2004, 2003 (the periods presented) and 2002
(the immediately preceding period) are as follows:

    December 31, 2004

    50.3

    December 31, 2003

    35.4

    December 31, 2002

    46.9

Mr. Jim B. Rosenberg

Page 7

July 11, 2005

The decrease of 11.5 days sales outstanding from 2002 to 2003 was primarily a result of:

    1)

    The termination of three large contracts in 2002 that had past due receivables
totaling approximately $6.2 million, or 3.6 days sales outstanding, at December 31,
2002. These receivables were collected in early 2003.

    2)

    In the second half of 2003, ASG was awarded new contracts with two large state
prison systems, each of which had contract terms that required payment for services
within the month that the services were performed. Due to the impact of these new
contracts, ASG experienced an increase to revenue with no corresponding increase to
outstanding receivables and days sales outstanding was decreased by 5.4 days.

The increase of 14.9 days sales outstanding from 2003 to 2004 was primarily driven by an
increase of approximately $20 million in outstanding receivables related to three
significant contracts, representing an increase of approximately 10.7 days. The increase in
accounts receivable represented past due balances in these contracts which were collected in
2005 as well as an increase in billings for risk sharing revenues as a result of increases
in off-site utilization expenses in these contracts during 2004 as compared to 2003.

Contractual Obligations and Commercial Commitments, page 28

    6.

    Please tell us why you have not included your reserves for professional and general liability
self-insurance or other self-funded insurance reserves to be paid in the contractual
obligation table. It would appear that these liabilities represent future legal obligations of
the Company. If management is able to determine the time period in which it expects to pay out
its loss reserves then we believe management should include this disclosure in the contractual
obligation table. Please note that the intent of Financial Reporting Release 67, Disclosure in
Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate
Contractual Obligations, regarding the contractual obligation table is to obtain enhanced
disclosure concerning a registrant’s contractual obligations, and the exclusion of ordinary
course items would be inconsistent with the objective of this Rule.

Mr. Jim B. Rosenberg

Page 8

July 11, 2005

Response to Question 6:

ASG maintains self-insurance programs for employee health claims, workers compensation
claims and professional and general liability claims. ASG’s estimated liabilities for
employee health claims and workers compensation claims and a portion of the estimated
liability for professional and general liability claims are classified as current
liabilities in ASG’s balance sheet. ASG has classified the remaining balance of its
estimated liability for professional and general liability claims as a non-current accrued
expense.

ASG did not previously identify its reserves for professional and general liability
self-insurance or other self-ins