Earlier this year, the private equity firm Clayton, Dubilier & Rice announced it is acquiring Emergency Medical Services Corporation, which operates the nation’s largest EMS company, AMR. Just a month later, Rural/Metro Corp. was snapped up by another private equity firm, Warburg Pincus. Also last year, Falck, a Danish company, bought two regional services—California-based LifeCare and New-Jersey based LifeStar.
Does this spate of acquisitions involving the nation’s leading private ambulance companies herald a new era of consolidation like the one that dramatically altered the landscape of EMS in the early ’90s? And what will it mean for EMS as it tries to position itself in a health care system undergoing rapid change?
Today’s acquisitions are significantly different from those that happened in the 1990s, says David White, president and CEO of TransCare, a private ambulance service that operates in several states in the Northeast and is owned by the private equity firm Patriarch Partners. Back then, the acquisitions were mostly among mom-and-pop organizations, says White, who gave a presentation about the new wave of consolidations at the Pinnacle EMS Leadership Forum, which drew about 300 EMS leaders to Miami in late July. Today’s AMR and Rural/Metro are large, well-capitalized, mature corporations, White adds, which means you shouldn’t expect to see a wholesale change in how the companies do business even under private equity ownership.
And yet the acquisitions certainly have the potential to bring about change as the firms look for ways to increase profits, he says. Private equity firms buy companies because they see the potential to make money. That might include seeking out ways to boost revenues by reorganization and innovation within the company they’ve bought, or investors may foresee macro-economic changes in the marketplace that would be advantageous to an industry.
In the case of ambulance providers, private equity firms are likely banking on two things, White says. The first is that health care reform is going to mean an estimated 30 million to 40 million more Americans will have insurance and therefore will be able to pay for ambulance service. That insurance generally will also offer better coverage, and some who were covered by Medicaid will be able to transition to subsidized insurance offered by the health exchanges, which presumably will offer higher reimbursement rates.
The other factor is the aging baby boomers, who aren’t just hitting old age, but are now well into it, which will also mean more business. “You’ve got more trips that can be paid for,” White says, “and more trips.”
The beginnings of consolidation
The first wave of consolidations began in 1992, when five ambulance companies agreed to merge, and then were taken public. The merged company became AMR, based in Greenwood Village, Colo. There was already one ambulance company, Rural/Metro, that was traded on the New York Stock Exchange, “so the markets already had some experience with ambulance companies,” White says.
Soon after, Laidlaw, a Canadian waste management and school bus company, wanted to expand on its core business, which it saw as transportation and securing government contracts, says White, who worked for the company at the time. Laidlaw bought MedTrans of San Diego, and then other ambulance companies around the nation.
Around the same time, a fourth company, Careline, also got into the acquisitions game. “What we had was four well-capitalized companies chasing smaller ambulance companies all over the United States,” White says. “It became almost like a land grab, with who was going to buy the most ambulance companies and become the biggest.”
Though some bristled at the loss of local control, the mergers helped EMS mature as an industry, White says. The larger companies put lobbyists in Washington, D.C., to seek a better deal for EMS under the Centers for Medicare and Medicaid fee schedule. And career prospects for some EMS workers improved as they gained opportunities within bigger companies that they didn’t have in small, family-owned operations.
Meanwhile, many of the mom-and-pop ambulance companies were not able to afford the latest equipment, such as 12-lead EKGs. “We bought a company where the equipment was so bad you could literally see the road through the floorboard,” says White, who was CEO of MedTrans at the time. “Needless to say, the first thing we did was buy new vehicles.”
But as the private ambulance companies expanded their reach, battle lines were being drawn between them and the municipal fire departments. In many cities, newspaper articles covered the tussles, with each side critical of the other and pointing out the other’s deficiencies.
“Some of that played out in the press and it was ugly,” White says. “It had the negative effect of undermining people’s confidence in the public safety aspect of EMS.”
There were also complaints, not unfounded, that the large companies were arrogant and didn’t understand their local communities’ unique needs and expectations, White says.
As the decade continued, the already big ambulance companies got bigger. Laidlaw/MedTrans eventually bought Careline. And then, in 1996, AMR and Laidlaw/MedTrans merged, forming a $1.2 billion company with 25,000 employees. Two years later, however, that company went bankrupt, at which point Onex, a private equity firm, bought the portions of the company they wanted—AMR and EmCare, which offers physician services. The new company was called Emergency Medical Services Corp.
It was Emergency Medical Services Corp. that Clayton, Dubilier & Rice bought in February.
What now?
Flash forward to 2010–11. On May 24, Clayton, Dubilier & Rice finalized its $3.2 billion purchase of Emergency Medical Services Corp. The deal between Warburg Pincus and Rural/Metro is scheduled to be completed soon, subject to regulatory and shareholder approvals, according to the equity firm’s website. Once the deals are finalized, neither company will be traded on the New York Stock Exchange.
Being a privately held company means management won’t have the same quarterly pressure on earnings, White says, which drives companies to focus on short-term gains rather than looking farther into the future and making changes to their business that may take longer to bear out. “They can take a little longer point of view and make some adjustments to their models a little bit easier,” he says.
Among the potential shifts: Though much of the focus of EMS is on 911 calls, the time is ripe for EMS to become even more involved in moving patients out of hospitals, whether it’s to their home or long-term care facilities, White says. The relationship between EMS and hospitals is changing, he adds: Hospitals, faced with declining reimbursement, have an interest in rapidly moving patients out of beds, and EMS can step in to help with that.
“As much as we focus on the 911 side, there is a significant amount of revenue that is generated doing the non-emergency work,” he says. “Ambulance companies should think about what the process is, and how we can be value added as opposed to just another ambulance company sitting out in front of the hospital waiting for you to call.”
Hospitals are also trying to capture more patients, and ambulance companies have the potential to partner with those that also run urgent care and surgical clinics. Instead of taking the patient to the nearest facility, the ambulance company can help keep patients in the hospital network as long as it’s safe, White says.
Though White doesn’t anticipate wholesale changes to the way in which ambulance companies are run, the ownership change may create some opportunities to think outside the box.
Falck, in particular, has experience all over the world, including in private firefighting. This should make the fire service nervous, White says.
“They bring knowledge of different models and different ideas than the traditional thing we have done,” he says. “When you have smart people focused on change in an industry, good things can happen.”
Change often comes about when there is both dissatisfaction and another way of doing things, White says. In the case of the fire service, that’s just what’s happening nationwide, he adds, as cash-strapped municipalities come to the realization that the status quo is no longer viable.
Case in point: Despite the fact that local elected officials have to contend with politics and powerful labor unions that are pushing back against changes in the way communities handle emergencies, Falck-owned Wackenhut Services was recently awarded the contract to replace city firefighters and provide private firefighting service at San Jose (Calif.) International Airport. And Wackenhut was given serious consideration to take over firefighting for the city of San Carlos, Calif., says assistant city manager Brian Moura, after delivering a proposal that promised to save the city some $3 million a year.
Though San Carlos recently decided to go a more traditional route and maintain its own fire department while turning over its management to nearby Redwood City for a $1 million yearly savings, several members of the city council were very interested in the private firefighting option and have left the door open, Moura says.
Bruce Evans, EMS chief for North Las Vegas Fire, says a switch to private firefighting would be a mistake. Each time there is an economic downturn, interest in outsourcing fire protection surges, he says. And yet when push comes to shove, overwhelmingly, communities and their elected officials decide they are more comfortable with keeping public safety “public,” not private.
“You go back and look at the city charters and what, ideally, you want government to be doing,” Evans says. “You want government doing things that involve the public trust, like public safety. Fire departments are part of the government, and government employees are responsible to the people, whereas the corporations are responsible to the shareholders.”
And the further consolidation of EMS may put owners even farther away from the communities they serve, which could again lead to a lack of understanding about the uniqueness of each community and its needs, he adds.
Despite the consolidations, there are still some 4,000 ambulance companies operating in the United States, White says. And even though there have been some high-profile battles between fire and private ambulance services, neither side has the upper hand.
“About 50 percent of EMS is done by public and 50 percent by private. It has never really changed,” he says. “Some privates lost out to the fire department, and some fire departments lost out to the privates, but the overall balance has remained mostly the same.”
