Large Private Providers Face A Rocky Road

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Key indicators point to serious financial and operational difficulties for the large commercial ambulance providers, such as American Medical Response (AMR) and Rural/Metro. As a result of these difficulties, quite a few communities should expect complete pullouts of their commercial providers or significant decreases in service levels.

AMR operates in 38 states, has 25,000 employees, serves 5 million patients annually and operates a fleet of 5,600 vehicles. Rural/Metro operates in more than 400 markets, including the provision of private fire protection. What is driving this dilemma for these publicly traded ambulance companies is multi-fold.

First, more municipalities are realizing the overwhelming benefits of providing fire-based EMS. In an April 1998 letter to Harris County, TX, Emergency Service District 1 (outside Houston), Jeffrey McCol-lom, an AMR vice president of operations, wrote, "The revenue expectations for transports within the district have fallen short of the necessary targets to continue the contract. These shortages have been a direct result of several factors, most notable, the leakage of emergency transports to other providers."

Even AMR acknowledges this. In marketing materials being distributed in the Northeast for a new program it is promoting called Contracted Assistance to Municipal Providers (CAMP), the company stated, "We have also concluded that for most communities, especially those with full-time fire departments, EMS may be more ideally provided by the fire service."

Another factor that may complicate issues for AMR and Rural/ Metro is that some of their 911 contracts are "zero-bid." In essence, the only revenue which can be generated from such contracts is whatever the providers collect from performing patient transports.

Another catalyst that will drive these financial and operational problems is that in some parts of the country ambulance services must bill at lower transport rates because of insurance profiles. Couple all this with the fact that the Health Care Finance Administration (HCFA) has begun to implement many reductions in ambulance reimbursement as a result of the 1997 Balanced Budget Act and a clear picture emerges that the future is not bright.

Financial Impact

AMR and Rural/Metro acknowledge that their backs are against the wall. Rural/Metro stock took a major hit on June 12, when the share price dropped 29%. The sell-off was triggered by warnings issued by Rural/Metro that earnings for its fiscal fourth quarter will fall short of expectations because of delays in collecting reimbursements. Rural/ Metro stock fell 5 points to 123/8 in trading of almost 4 million shares, more than 48 times its three-month daily average. Overall, Rural/Metro stock has dropped in the last year from a high of 37 to a low of 103/4.

James Lane, an analyst with SBC Warburg Dillon Read, said, "The situation is not going to turn around until the ambulance providers as a whole decide to uniformly walk away from bad business." Lane downgraded Rural/ Metro to "neutral" from "buy" and added, "It's going to be a pretty ugly the next few months for holders of these stocks."

In a released document, Warren Rustand, chairman and chief executive officer of Rural/Metro, said, "Rural/Metro currently faces external and internal operating challenges. We believe that the current operating results reflect, in part, difficulties in adaption to the larger regional structures that were implemented during the current fiscal year in response to the approximately $200 million of acquisition activity of the last two years."

To deal with the situation, Rural/Metro plans to implement "Impact" teams to provide operational support and audit so that area managers have sufficient resources when faced with extraordinary challenges. Rural/Metro also began examining its organizational design to look at areas of cost structure to reduce redundant functions and outsource where possible. Rural/Metro also acknowledged it will slow down its acquisition of other ambulance services.

The chief executive officer of AMR, George DeHuff, also acknowledged troubled waters ahead. In a June 11 memo, he wrote, "Because the market is changing, i.e., the number of transports and amount of reimbursements is being squeezed, we are not making the profit necessary to meet our goals."

In his memo, DeHuff outlined three essential factors necessary for a business to succeed, then wrote, "Right now, in some areas of the U.S., one or more of those factors are not in place and consequently, we have some businesses that are not meeting their objectives. In some cases, customers are no longer willing to pay for the service level we insist on maintaining. In other areas, the demand for service has changed so fast that we have not been able to adjust expenditures accordingly. In many areas, our revenue collection processes are not working as well as we desire."

So what is AMR going to do? Greg Guckes, chief operating officer of AMR, wrote in a June 11 memo that there is a multi-plan 90-day strategy to be completed by Sept. 1. Guckes wrote that the plan calls for the company to "...reduce expenses, throughout the company over time, by about $5 million per month."

In another bullet point, Guckes wrote, "Plans to reduce cost structure will vary from one corner of the company to the other. Together corporate, group and division management has developed plans to reach that goal."

Guckes also wrote, "Employees affected by changes in local markets will be treated fairly and offered severance if other suitable positions are not available." The third step in the multi-tasked plan is to streamline the organization by the consolidation of divisions. With these efforts, by Sept. 1, AMR will have 13 divisions instead of the current 20.

Serving The Public

The unfortunate side of this situation is that many of the factors driving AMR and Rural/Metro to scale back also will impact the small "mom-and-pop" ambulance providers who have lived and worked in the community, and know the local politicians, the police chief and the fire chief. Those same owners are vested in the community, own homes there, and know the people who work in the nursing homes and hospitals.

What does all this mean to communities across the country and the fire departments serving the citizens in those communities? It means that many fire departments that do not currently provide EMS transport can expect to be tossed the keys to ambulances as the private ambulance providers leave town.

The fire service is the true public safety net of the community and is accountable only to the citizens. There is only one mission for the fire service when it comes to providing EMS to deliver the highest level of quality service to the community. Companies such as Rural/Metro and AMR have two missions - deliver the highest level of quality service to the community and generate a return on their investment. Unfortunately, when those two missions overlap, one of the two has to become the priority. AMR and Rural/Metro have now made known their priority.


Gary Ludwig is the Chief Paramedic/EMS Bureau Chief for the St. Louis Fire Department. He is currently serving his third term as an elected executive board member to the EMS Section for the International Association of Fire Chiefs and is a frequent lecturer at fire and EMS conferences. Ludwig has a master's degree in management and is a licensed paramedic. He can be reached at GaryLudwig@aol.com.

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