THE STUDY RESULTED FROM OPPOSITION BY THE DEPARTMENT OF FINANCE AND THE HEALTH AND WELFARE AGENCY TO INCREASED FUNDING FOR LICENSING CDC AND CYA HOSPITALS BEFORE ALTERNATIVES TO LICENSING HAD BEEN FULLY EXPLORED. EXAMINATION OF THE CURRENT MEDICAL SYSTEM AND DEMAND FOR INPATIENT CARE SHOWED THAT CDC AND CYA DO NOT CURRENTLY HAVE A FORMAL UTILIZATION CONTROL SYSTEM. IMPLEMENTATION OF SUCH A SYSTEM COULD PRODUCE SUBSTANTIAL COST SAVINGS. MEDICAL SERVICES DELIVERY IS AFFECTED BY THE FOLLOWING ISSUES: (1) THE APPLICABILITY OF DEPARTMENT OF HEALTH LICENSING STANDARDS TO CORRECTIONAL HOSPITALS; (2) LICENSING REQUIREMENTS--WHETHER CORRECTIONAL HOSPITALS SHOULD BE LICENSED OR CHANGED TO INFIRMARIES AND THEIR HOSPITAL CASES SENT TO LICENSED COMMUNITY HOSPITALS; AND (3) STAFFING STANDARDS APPLIED TO ACHIEVE ECONOMIES IN OVERSTAFFED AREAS. ACCORDING TO THE GENERAL COUNSEL OF GENERAL SERVICES, CDC AND CYA HOSPITALS ARE EXEMPT FROM THE LAW REQUIRING LICENSURE. IF NOT, THEN SENDING CYA AND CDC HOSPITAL CASES TO LICENSED COMMUNITY HOSPITALS HAS BOTH ADVANTAGES AND DISADVANTAGES. APPLICATION OF STAFFING STANDARDS FROM THE AMERICAN CORRECTIONAL ASSOCIATION AND THE CALIFORNIA DEPARTMENT OF HEALTH WOULD SAVE OVER $800,000 IF CORRECTIONAL HOSPITALS AREN'T LICENSED. CHOOSING UNLICENSED CORRECTIONAL HOSPITALS AND APPLICATION OF STAFFING STANDARDS WOULD SAVE 5 PERCENT OF CURRENT MEDICAL SYSTEM COSTS. ALL THE OTHER ALTERNATIVES CONSIDERED, EXCEPT THE STATUS QUO, WOULD INCREASE COSTS. THE MOST EXPENSIVE ALTERNATIVE, LICENSING HOSPITALS AND NOT APPLYING STAFFING STANDARDS, WOULD INCREASE COSTS BY 14 PERCENT OVER PROJECTED 1978-79 COSTS. FOOTNOTES, TABLES, ILLUSTRATIONS, AND APPENDIXES PRESENTING METHODOLOGIES USED, RESULTS, A LIST OF ABBREVIATIONS, AND THE LEGAL OPINION OF THE CHIEF COUNSEL OF GENERAL SERVICES, ARE INCLUDED. (CFW)