Juvenile justice reforms instituted in Texas in 2007 resulted in the residential population at juvenile institutions being cut in half, from 4,883 youths in fiscal year 2004 to 2,057 at the end of the third quarter of fiscal year 2009. In providing health care to this reduced residential population, TYC contracts with the University of Texas Medical Branch Correctional Managed Health Care (UTMB CMC) to provide all medical, dental, and psychiatric care at TYC institutions. UTMB CMC also arranges for health care at TYC halfway houses. The overriding challenge currently facing TYC is balancing the provision of quality health care with increasing budget constraints. Currently, TYC negotiates a contract for health care services based on its budget and anticipated annual costs, assuming fiscal responsibility for all health care expenses above the negotiated contract. An initiative for the upcoming fiscal year involves a collaborative effort between TYC, UTMB CMC, and child psychiatry consultants in refining and developing a youth-specific medication formulary. When implemented, the youth formulary guidelines will balance treatment effectiveness with cost efficiency, such that medication costs will be lowered while adhering to national and community standards recommended by treating psychiatrists. TYC is also in the process of implementing an agencywide cross-program initiative to reduce staff and youth injuries. In addition, the downsizing of the TYC's youth population has led to a smaller budget, resulting in reduced staffing at both TYC and UTMB CMC. This reverses the trend of increasing staff in previous years. TYC efforts to maintain and improve quality health care are also described. 3 tables and 3 figures