Special report: Dial 911-FOR-PROFIT--Just don't tell a firehouse

Reuters News
Posted: Apr 15, 2011 10:49 AM

(Please be advised use of strong language in paragraph 6)

By Dan Levine and Martha Graybow

SAN FRANCISCO/NEW YORK (Reuters) - For-profit ambulance companies present American communities with an offer that's hard to refuse these days.

They will take over 911 emergency rescue service at little or no charge to cash-short cities and counties and promise to bring down labor costs spent on public employees.

But leaders of this growing industry face an unusual business obstacle: Sooty firefighters, who are among the most potent symbols of American trustworthiness and selfless valor.

For the men and women in fire departments, this is no drill. With fewer fires to fight as building codes have improved, providing emergency medical service (EMS) has become a big part of what they do.

The upshot has been numerous clashes pitting private players against fire chiefs and the influential union, the International Association of Fire Fighters.

The biggest U.S. private ambulance provider, American Medical Response, has been engaged in a particularly fierce battle with firefighter unions around Las Vegas. It's gotten so rough that a company general manager there was recently recorded describing a plan to make the North Las Vegas union chief look like "an absolute a--hole."

And while AMR president Mark Bruning called that choice of words "unacceptable" in a Reuters interview, the company notes in its regulatory filings that in many communities, its most important competitors are the local fire departments, which have expanded into emergency ambulance service "and do not wish to give up their franchises to a private competitor."

The battle over who should answer the call for 911 comes as AMR, smaller rival Rural/Metro Corp and others in the sector are growing fast. Ambulance providers make their money primarily by billing government healthcare programs, private insurers or patients for the rides.

Facing stiff budget restraints and more than usual anti-tax fervor among voters, state and local governments are under pressure to turn more services over to private industry. At the same time, an aging U.S. population is expected to need more ambulance care in the coming years.

Private ambulance companies are growing at a time when public-sector unions are under broad assault, epitomized by recent moves by the state of Wisconsin to strip the collective bargaining power of public-employee unions. The controversial Wisconsin law excludes firefighter unions, but a similar measure in Ohio extends to almost all state employees.

Tensions with firefighters aren't the industry's sole problem. A Federal Bureau of Investigation raid on a Rural/Metro office and a Department of Justice inquiry also loom.

Last month, the U.S. government sued Rural/Metro, joining an Alabama lawsuit brought by a former company employee who contends the company filed bogus reimbursement claims with U.S. healthcare programs Medicare and Medicaid for transporting dialysis patients when it was not medically necessary.

Such accusations raise questions about whether some private ambulance fleets could cost taxpayers in other, less obvious ways - a charge denied by the industry. Rural/Metro, in response to the Alabama case, said it maintains "a very comprehensive compliance program" and intends to defend itself in the lawsuit.

Big investors are undaunted, and U.S. buyout shops are jumping into the sector. AMR's parent, Emergency Medical Services Corp, and Rural/Metro Corp, both recently signed deals to be bought by private equity firms. Clayton Dubilier & Rice is buying EMS Corp for about $3 billion, while Warburg Pincus is paying about $438 million for Rural/Metro.

Rural Metro's largest shareholder is another ambulance company: Europe's Falck A/S. Falck has acquired emergency service companies in southern California and the East Coast.

Falck also is expanding in other regions, including Latin America. Falck's largest shareholder, investment firm Nordic Capital, has said it hopes the company could have an initial public offering as soon as this year.


In the United States, an estimated 40 million ambulance trips a year are handled by public entities, private providers, hospitals and volunteers -- or sometimes a combination. In total, at least $14 billion is spent each year on U.S. ambulance trips.

EMS is a relatively young field. It began to come of age in the 1960s, when nonphysicians were trained in emergency care.

From the beginning, there has been private involvement. The for-profit ambulance industry largely grew out of the funeral home business, which used to carry sick or injured people to hospitals in hearses.

Some of the companies have been around for a long time. Rural/Metro, founded in 1948, began as a private fire protection company and still earns about 15 percent of its revenue from fire services. Falck dates to 1906, when its founder established the first rescue service in Denmark.

Like Rural/Metro, Falck says it has had little problem working side by side with public-sector firefighters, though all the major private players in the industry say they are careful to go into communities where they are wanted and stress that ambulance providers are governed by strict regulations.

"You cannot just take a truck and show up tomorrow and run 911 systems," said Michael DiMino, president and chief executive of Scottsdale, Arizona-based Rural/Metro.

The 19-year-old AMR, based in Greenwood Village, Colorado, has had the most notable tensions with local fire services. In North Las Vegas, the fire department usually arrives first on an emergency call, and hands over patients to AMR for transport to the hospital.

While people on both sides describe positive relations among private-sector emergency workers and firefighters in the field, the union branches in Southern Nevada run a Twitter feed devoted to the company's safety record: @LateFor911. An attempt by the fire department to take over AMR functions stalled in North Las Vegas last year.

Experts dispute that for-profit providers put the public at risk.

"There is no evidence that the type of care people get is different across the sectors," said Skip Kirkwood, chief of the Emergency Medical Services Division in Wake County, North Carolina and president of the National EMS Management Association.

"There is good, bad and ugly associated with each model of provider," he added.

The fight has grown increasingly heated. Last fall, after the City of Las Vegas put off a privatization study of EMS, Las Vegas and North Las Vegas firefighter branches sued AMR in an attempt to head off a possible company lawsuit over a union news release.

AMR responded bluntly, arguing in court papers that the financial crisis has ripped through private industry but "the unions representing these public servants refused to douse even the volatile tinder of their own pay increases."

Then, AMR general manager Michael Gorman was recorded, without his knowledge, in a lengthy discussion about the battles in Las Vegas and North Las Vegas. In audio reviewed by Reuters, Gorman said the situation for the fire department is dire because local governments have nothing else to cut.

"Almost in a sadistic way I can't wait to see this next round of budget stuff," Gorman is heard saying. Local television news in Las Vegas aired parts of the recording.

Gorman declined to comment. "Emotions and situations get the better of folks and they say things they wish they probably hadn't," Bruning said.

However, Bruning said the situation in Las Vegas belies the "fantastic relationship" the company has with fire departments in many other parts of the country.

"We certainly don't look to be at odds with the fire union, or first responders, or anybody," Bruning said.

The tensions are not unique to Las Vegas. In pitching for more contracts, AMR publicly tries to avoid disparaging fire departments, even as it criticizes the public business model. That did not stop a dust-up in Dallas, where EMS is provided through the city's fire department.

Last June, AMR suggested it take over part or all of the job, according to a proposal submitted to the city. One of its arguments was that the pay differential could be up to 50 percent less for private employees than fire department EMS workers who have more generous wages and pension plans.

AMR officials said they made the pitch in response to an "informal" request from the city. That did not sit well with the International Association of Fire Chiefs -- along with the main firefighters union, the International Association of Fire Fighters -- which sent out a national warning about AMR.

"The impetus for AMR's efforts is clearly the economic downturn and the budgetary shortfalls in many municipalities," their bulletin read. "As they track news articles, they target cities with reported deficits where fire department resources are on the table."


Questions have swirled around billing practices in the industry, particularly for non-emergency trips, such as moving people between healthcare facilities or nursing homes.

In early March, a Rural/Metro administrative office in Louisville, Kentucky was searched by the FBI.

The company said in a securities filing that it was unaware of the basis for the March 3 search, but that its Louisville operations involve non-emergency medical trips raising about $4 million in annual revenue. Rural/Metro's stock tumbled about 6 percent in one day after word of the raid circulated.

In addition, the FBI seized records from the home of a Rural/Metro manager and his wife, who also works in the Louisville office on the billing staff, said a Rural/Metro EMT based in that city who spoke with Reuters.

The company sent a memo to employees after the office raid saying there was an investigation but that it would not interfere with day-to-day operations, the employee said.

The memo did not specify the subject of investigation. In the weeks following the government's visit, personnel from Rural/Metro's headquarters have been a constant presence in the Louisville office.

"Their lawyers have been all over the place," said the employee.

No Rural/Metro employees have been accused of wrongdoing in connection with the raid, and a company representative declined to discuss details.

At roughly the same time, the Justice Department decided to get involved in a whistleblower lawsuit brought by a former Rural/Metro emergency medical technician in Alabama.

The former employee contends the company overbills the government for dialysis patient transportation. The company took patients by ambulance - even when their condition was not serious enough to warrant an ambulance ride - and submitted false documentation to get reimbursed from Medicare and Medicaid, according to Justice Department court papers.

False claims were submitted in Ohio, Indiana, Kentucky, Tennessee, and Alabama, the government contends. The lawsuit does not accuse the company of any problems with the quality of its care.

The company denies the allegations. CEO DiMino said the case was sparked by "a disgruntled employee" who doesn't fully understand how the company's billing process works.

Separately, a former Rural/Metro executive -- who currently heads Falck's United States expansion -- claimed in court papers that he was fired last year because he brought to the company's attention "substantial fraud against both shareholders and the government." Rural/Metro said he was fired for violating the company's expense report policy.

AMR also has been hit by billing questions. Last year, it reserved $3.1 million related to a Justice Department investigation of its reimbursement claims in New York. It also settled a long-running class-action case last year brought by Spokane, Washington residents who said they were overcharged for ambulance rides.

AMR's Bruning said that Medicare documentation and reimbursement levels are constantly under scrutiny by the government. "There's always room for interpretation," he said. "We fully cooperate with the government whenever those things come to light."

Government investigations are common across the healthcare industry, said Dawn Brock, a Kaufman Bros stock analyst who tracks the sector. While the market was "spooked" by the FBI raid on Rural/Metro, Brock said buyout shops are banking that future healthcare delivery will include a vastly expanded role for ambulances and paramedics.

Ambulance services are eager to do that job. AMR's Bruning said that EMS providers are good at logistics and know how to deploy resources over big geographic areas. Also, when ambulance workers have downtime between calls, they could be utilized doing other things, he said.

"It could be follow up on a patient to make sure they're compliant with their medication," he said.

Falck Chief Executive Allan Sogaard Larsen said he sees room for growth in many emerging markets, such as in South America or India.

The companies are also in intense competition with one another. Rural/Metro recently nabbed an estimated $45 million-a-year contract from AMR to provide ambulance service in Santa Clara County, Calif., the hub of Silicon Valley.

Meanwhile, in Las Vegas, a judge dismissed the lawsuit brought against AMR and the unions are appealing. Settlement talks between the parties recently broke down, said Terry Coffing, an attorney for the unions.

Dr. Edward Racht, AMR's chief medical officer, calls some of the union attacks "demoralizing," though he acknowledges the broader climate. "There's tension about, 'Is this going to impact my job? Is this going to impact my long-term retirement?'" he said.

Jeff Hurley, president of one firefighters union branch in North Las Vegas, puts it differently.

"We're just the ones fighting back."

(Reporting by Dan Levine and Martha Graybow, Editing by Martin Howell)