Privatization in the EMS Industry

Although there always had been one smaller ambulance company buying another, the current trend escalated back in 1992, when four private ambulance companies, two on the east coast and two on the west coast, were merged in a public stock offering. That company was American Medical Response (AMR). Other large ambulance companies to follow included Atlantic Lifefleet, Medtrans, Careline, Community Medical Transport, and Rural/Metro. Medtrans was a division of the Laidlaw Corporation, based in Ontario, Canada. Laidlaw is also involved in school bus operations and previously operated a large waste management division. Rural/Metro's roots go back to 1948 when a businessman near Phoenix, Arizona, by the name of Louis Witzeman started up a fire subscription program after watching a neighbor's house burn with no substantial fire protection. In the mid-1980s, Rural/Metro expanded into the ambulance business.

The private ambulance industry for the most part had been pretty fragmented and decentralized with "mom and pop" ambulance companies which generally operated with 8 ambulances or less until the large conglomerates showed up and started buying them out. Eventually, these mega-corporations dwindled down to three, AMR, Medtrans, and Rural/Metro after Medtrans bought Careline in 1995 for $355 million. Community Medical Transport, a smaller publicly traded stock ambulance company, had a smaller part of the ambulance market in the New York and New Jersey areas.

On January 6, 1997, the EMS industry was rocked with the announced merger of American Medical Response by Laidlaw. Laidlaw would buy the outstanding shares of AMR for a purchase price of $40 per share. This would equate to a $1.2 billion buyout. The EMS industry was now down to two large national conglomerates - Laidlaw, doing business as American Medical Response, and Rural/Metro.

Quite frequently, AMR and Rural/Metro find themselves competing for the same EMS contract in a given ambulance market. Some of this competition has occurred in such areas as Seminole County, Florida, San Mateo, California, and Aurora, Colorado. But it is not uncommon for these two large conglomerates to find themselves competing in the same market with public and smaller private ambulance services.

Several lawsuits currently are in the courts such as in Alabama, Mississippi, and Georgia where a smaller private ambulance service has filed suit against AMR for unfair business practices. In May 1998, it was announced the Attorney General for Connecticut was investigating AMR for possibly trying to create a monopoly to control billing practices. As a part of his investigation, he sent questionnaires to all the other ambulances providers in the State of Connecticut.

Enter into the equation that Medicare is a large source of reimbursement for ambulance providers. Now, the federal government is moving to tighten those reimbursements. This has included extensive investigations which have resulted in over 100 indictments of private ambulance owners over the last five years. The tightening down also includes new guidelines concerning reimbursement. In essence, the federal pie of Medicare money is getting smaller. In July 1998, the Medicare rules changed for reimbursement from skilled nursing facilities. The regulations now require ambulance services not to bill Medicare, but to seek reimbursement from the skilled nursing facility. The federal government now gives each skilled nursing facility an established amount of money prospectively for all transports. It was then up to each skilled nursing facility to enter into agreements with ambulance services and reimburse them for their services. Under managed care, this process is referred to as capitation.

As the federal dollars dry up and managed care changes other paying systems within the health care industry, it is predictable that competition within the EMS industry will become more competitive. Although competition is good for the consumer, providing Emergency Medical Service is not the same as selling hamburgers.