The Death Of Consolidation!

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Consolidation and commercialization of private ambulance companies is dead! The attempt to centralize private ambulance companies in various regions of the country under one corporate parent has been a tremendous financial setback to the shareholders of these publicly traded stock companies. The final blow came on Sept. 13, 1999, when Laidlaw Inc. announced it was selling American Medical Response (AMR) and would concentrate on its buses.

Laidlaw, which is expected to post a book loss of $1 billion on the sale, plans to get out of the ambulance business by divestiture of AMR. Laidlaw's departure from the ambulance industry after continually poor financial returns on its investment confirms that the consolidation of emergency medical services does not work and is best left at the local level, where managers and employees have relationships with public safety agencies and the medical community and where the priority is the delivery of service - not the shareholder and the value of the stock.

A college freshman economics major could have predicted this disaster. Corporate "suits" who have never worked on an ambulance and would probably cringe if they got blood on their hands cannot sit in their executive suites and dictate policy down to the local level after viewing the latest balance sheet.

These corporations have two missions - to provide quality and timely emergency medical service and to provide a return on investment to their shareholders. Unfortunately, these two missions sometimes clash. Sometimes, quality and timely care are the priorities, but at other times, the responsibility to the shareholders takes precedence. When that happens, quality and timely care suffer.

It all started in 1992, when the EMS profession was rocked by the news that an ambulance company was going public and would be traded on the New York Stock Exchange. The selling of stock was supposedly designed to facilitate expanded growth and provide capital for the acquisition of small ambulance companies that would be incorporated into one parent company. Actually, a few people got pretty rich, earning millions in salaries each year while the medics who worked on the ambulances earned minimum wage or a little better, under some insufferable work conditions. Many unionized in order to protect their rights as employees.

Paul Verrochi, who previously had built cleaning and environmental service companies and had no EMS background, was looking for another industry ripe for consolidation in 1991 when a banker friend mentioned emergency medical services. Verrochi flew down to Miami after finding out that an EMS trade show was taking place. As he describes it, he did not see any venture capitalists or anybody from Wall Street there. In August 1992, Verrochi bought and merged two East Coast and two West Coast ambulance companies. With the merger, American Medical Response went public and was traded on the New York Stock Exchange under the symbol EMT.

Although Laidlaw currently owns AMR, the companies actually competed at one time. Shortly after the formation of AMR, Laidlaw entered the ambulance market by forming a company called National Medical Transport Network Inc. (Medtrans) and bought the parent company of MedStar, a Fort Worth, TX, ambulance service, for an undisclosed sum of cash. By November 1994, Medtrans had grown to more than 4,000 employees and 600 ambulances in 14 states.

The first large ambulance company which Laidlaw bought was Careline Inc. of Santa Ana, CA, which also was a publicly traded ambulance company formed after AMR. That sale took place July 18, 1995. Laidlaw and Careline were considered two of the big four private ambulance companies operating in the United States. Careline was the third-largest private ambulance service operating in the United States with annualized gross revenues of $225 million. The entire transaction was valued at $355 million, including $175 million of assumed debt.

With the merger, MedTrans had 1996 annualized gross revenues of more than $500 million. Additionally, MedTrans became an organization consisting of more than 2,000 vehicles and 10,000 employees.

AMR also continued to grow, buying small "mom-and-pop" ambulance companies at a staggering and sometimes inflated rate. By the summer of 1995, AMR had made 50 acquisitions, raising revenue to an expected $550 million from $136 million in 1992. It was clear that AMR and Medtrans were competing for what has been estimated as a $10 billion-a-year ambulance industry.

But that all changed on Jan. 6, 1997, when Laidlaw announced it was buying 100% of AMR's outstanding shares for $40 per share, or $1.12 billion. At the time of the merger, AMR had acquired over 70 ambulance companies, employed 12,000 people and operated 2,500 vehicles in 27 states. Medtrans had procured more than 80 ambulance companies with 10,000 employees and 2,200 vehicles in 23 states. The new company, with over 22,000 employees and anticipated revenues of $1.3 billion annually, would keep the name American Medical Response.

At the time of the merger, the fire service took warning when the new CEO of this conglomerate, Paul Shirley, said, "As a combined entity, we will be well-positioned to expand the scope of emergency and urgent care services offered to municipalities and health care payers."

However, this contention that AMR was coming after the fire service was short lived. Things started falling apart as many communities complained about the level of service, long response times or the rate which AMR would charge a community for delivering service. For example, recently AMR asked the Anderson County, GA, Council for a 450% increase in its public subsidy if it wished AMR to continue service. Latest word is that the council members will not grant the request. In many communities there have been moves to either take back the emergency medical service operation or contract it out to some other private company.

On Sept. 17, 1999, the International Association of Fire Chiefs (IAFC), working in coordination and joint consultation with the International Association of Fire Fighters (IAFF), faxed an "IAFC Member Alert" to all members announcing the sale of AMR and advising its members that the sale "presents an opportunity for action by any department wishing to change its EMS position in the community." The alert suggested actions fire officials should be taking in anticipation of the sale.

It was clear last March that the priority for Laidlaw with AMR was not the quality of service, but finances. In fact, the person currently running AMR has no EMS or medical background. John Grainger, Laidlaw's executive vice president and chief operating officer, was dispatched from Ontario, Canada, last spring to put AMR's financial house in order. Grainger at that time 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.

Since last spring, AMR has closed operations in the Northeast and the South, eliminating approximately 2,000 jobs, including 50 managers at its corporate headquarters in Aurora, CO. Additionally, it has lost major contracts, including Aurora; Oklahoma City and Tulsa, OK; and Fort Worth.

Do the medics who work on the AMR ambulances share any of the blame for this effort to consolidate the EMS industry? No. Many are like you and I, attempting to earn a living and provide for their families. The medics who work on the AMR ambulances were instruments of policy, and not policy makers. The responsibility rests squarely on the corporate managers who attempted to macro-manage administration, logistics and operations when each community's EMS needs are different.

Laidlaw expects $2 billion from the sale of AMR and other assets it is selling, including EmCare, an emergency room physician management company based in Dallas, and 44% of Safety-Kleen, a waste management company based in South Carolina. In total, Laidlaw paid $3.62 billion for these companies during the last two years. Laidlaw has hired Merrill Lynch to find potential buyers for all three companies.

What is AMR's future? Two possible scenarios exist. First, another company may buy the entire operation. The second option is that Laidlaw may break it up, selling various markets to individual buyers. Either way, it will not be the formidable force it once envisioned. As reimbursement dollars become harder to obtain because of tighter restrictions from Medicare and other payers, what profit there is does not look attractive to any investor. Even now, AMR does not look financially attractive. It operated on a 5.5% profit margin during its last business year, compared to its bus operation at 17.4%. An investment group or company should not even look at buying AMR until the final ruling on a national ambulance fee schedule is handed down by the Health Care Finance Administration (HCFA), possibly in 2001.

Either way, AMR and Laidlaw have shown us through this seven-year experiment that EMS and Wall Street were not designed to be merged. What has been consistent is that the fire service has one mission - to provide the highest level of quality and timely care to our citizens. There are tremendous advantages to fire-based EMS systems and the security the fire service offers from potentially adverse service decisions based on profit-driven pressures. The fire service is the true public safety net for our citizens and the communities in which they live.


Gary Ludwig, MS, EMT-P, a Firehouse® contributing editor, is the chief paramedic for the St. Louis Fire Department and is the vice chairman of the EMS Executive Board for the International Association of Fire Chiefs. He has lectured nationally and internationally on fire-based EMS topics and operates The Ludwig Group, a consulting firm specializing in EMS and fire issues. He can be reached at GaryLudwig@aol.com.

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