More Stumbling In The Private Ambulance Arena

History has taught us that Alexander III of Macedon, or ancient Macedonia, conquered almost all of the then-known world before he died at the age of 33. In the early summer of 327 B.C., Alexander reached India. At the Hydaspes River (now the Jhelum) he defeated the army of King Porus, whose soldiers were mounted on elephants. Then, he pushed eastward until he could go no farther. So ended his 11,000-mile campaign.

After Alexander the Great completed his conquest of the known world, he wept, knowing there were no new lands to conquer. He became aware that everything he had built would someday fade into memory. And so it came to pass. As the difficulty of running so vast an empire became evident, those who had been conquered were eventually successful in reclaiming what was theirs, and the empire fell.

The consolidation of the ambulance industry over the last eight years has had a similar analogy and appears to be suffering a similar fate. The year 1992 brought the first publicly traded ambulance company on the stock market. Four private ambulance companies were merged to form American Medical Response (AMR). Shortly thereafter, Laidlaw Inc., a Canadian-based company, entered the ambulance market and formed a division called Medtrans. Known as the consolidators, the rate at which both these companies bought small "mom and pop" ambulance companies over the next several years was almost dizzying. In all, approximately 300 small ambulance companies were purchased between the two corporate giants. A third consolidator in the fray was, and still is Rural/Metro.

But things changed on Jan. 6, 1997, when Laidlaw and AMR both announced that Laidlaw would buy 100% of AMR's outstanding shares for $40 per share, or $1.12 billion. Laidlaw, a company which also operates school buses and a waste-management division, became the largest private ambulance company in the United States. The new division of Laidlaw functioned in 37 states, with approximately 22,000 employees and 5,000 vehicles.

But things have changed for the company which continually claims to be the leading provider of medical transportation (seeming to forget that the fire service is the leading provider of medical transportation). In an attempt to cut $5 million a month in overhead, AMR eliminated 700 jobs, many in quality improvement positions, from their regional divisions last September. But it has not stopped the bleeding, since AMR has suffered five consecutive quarters of declining revenue. On top of the bad news in its AMR division, Laidlaw was looking at as much as $500 million in restitution to the United States government for back taxes and interest. Now, Laidlaw and the U.S. Internal Revenue Service have reached a settlement. The final settlement will cost Laidlaw $226 million.

AMR continues to lose 911 contracts or shut down operations. Its latest casualty is Fort Worth, TX, and the surrounding municipalities operating under a public-utility model. The lucrative five-year, $53 million 911 contract went to Rural/Metro. Other cities or 911 systems axing AMR recently include Oklahoma City and Tulsa, OK; Birmingham, AL; Atlantic City, NJ; Aurora and Boulder County, CO; Glendale, CA; Cuyahoga Falls, OH; Harris County, TX; and part of Las Vegas.

In the Massachusetts market, local officials are irked that AMR voluntarily abandoned some of the largest communities, such as Brookline and Dedham. In other Boston-area communities, Fallon Ambulance, another private service, beat out AMR for the right to provide service in Quincy and Braintree. In other communities in Massachusetts, AMR has notified officials that it plans to start charging for service. Grafton was recently notified that its once-free service will cost $129,000 next year.

AMR is also bailing out of Union County, TN, as the 911 provider. AMR purchased Professional Medical Transport last year, which included 911 service in Union County and non-emergency response in Knox County. AMR said it could no longer provide the service at the current rate and notified officials it would be pulling out of Union and Knox counties. Last year, AMR deserted the Chicago market, laying off an estimated 500 employees. On top of all this unfavorable news, AMR is being investigated in some of its markets for medicare fraud.

This AMR news does not bode well for Laidlaw stock. Investors were jolted when Laidlaw warned that its second-quarter results would fall short of expectations. The company's Canadian stock nose-dived by $2.10, or about 18%, per share on the announcement, wiping out about $690 million of Laidlaw's market value. Laidlaw's stock has steadily declined through most of this year. Laidlaw stock hit a high in 1999 of $10.312 on Jan. 11. By March 2, the stock lost about half of its value when it closed at $5.875. About a year earlier, Laidlaw stock was trading at over $16 a share.

How can Laidlaw turn this around? First, they started with a head transplant within the AMR division. George DeHuff, president and CEO of AMR, has submitted his resignation amid what Laidlaw calls "a comprehensive, major restructuring of AMR." Taking his place until a replacement is found is John R. Grainger, Laidlaw's executive vice president and chief operating officer. Grainger has called AMR's performance "disappointing and unacceptable." He additionally said that Laidlaw is likely to sell or abandon its operations at some of its 250 locations nationwide.

Grainger also warned that AMR was top-heavy with managers. Undoubtedly, a layer of management heads will roll in this new restructuring drive at AMR. As part of the restructuring, AMR will also write off $250 million of bad debt. Additionally, under the restructuring, AMR will move from 13 divisions down to five, with a CEO heading each region. Grainger has been described as a "no-nonsense, action, fix-it guy" who will do whatever is needed to get it fixed - including terminating unprofitable contracts and eliminating unnecessary functions.

It is clear that Laidlaw's main interest and priority in its AMR division will not be quality of care or service, but return on the investment. What can the fire service expect in the future? Expect pullouts and more abandoning of 911 contracts. Expect more national managed care contracts like the recent one with Kaiser in which fully insured patients are steered out of 911 systems into their pathway management program. Expect a possible sale of AMR to another company or expect Laidlaw to spin off AMR into its own separate company.

As AMR's empire falls, like Alexander the Great, I wonder who is weeping now.

Gary Ludwig, MS, EMT-P, a Firehouse® contributing editor, is the chief paramedic for the St. Louis Fire Department and is currently serving his fourth term as an elected member of the EMS executive board for the International Association of Fire Chiefs. He was awarded Missouri's EMS Administrator of the Year for 1998.