Commentary: California EMS Partnership Goes Sour

In a previous column, I wondered whether "EMS Wars II" is about to happen again. If you remember from the March 2006 column, I pondered whether the fighting between public and private ambulance services was about to erupt again as it did in the 1990s. If you were in the profession then, you may recall that large conglomerates like American Medical Response (AMR), Rural Metro and Medtrans battled fire-based EMS systems for market share. That all slowed down when the 800-pound gorillas suddenly found themselves in not-so-good financial shape. But they have rebounded financially, consolidated or been bought out by new investors, and now it appears they are starting to see greener pastures.

One such episode occurred recently in Stockton, CA. Here's what happened: The Stockton Fire Department has been providing paramedic service since 1975, with firefighter/paramedics responding in small squads doing first response and private ambulances providing transport. In the mid-1980s, the Stockton Fire Department changed the delivery of advanced life support (ALS) to engine companies. All engines were staffed with four firefighters--two EMTs and two paramedics.

For many years, there was a peaceful co-existence between the Stockton Fire Department and several small, "mom-and-pop" private ambulance operations. In the 1990s, AMR bought out those small services and became the primary ambulance service provider in San Joaquin County, which is where Stockton is located. By buying out of the small ambulance services, AMR created a virtual monopoly in the county and in effect was the only game in town.

As with any large private ambulance service, AMR's primary mission is to deliver service, but the company also must earn a profit for its shareholders. Many times, fire department paramedic engines waited at scenes for a long time for AMR ambulances to arrive.

Because the City of Stockton believed it needed more ambulances operating on the street to provide better response times to citizens, the fire department began operating its own ambulance transport service in September 2002. Prior to that, AMR asked the San Joaquin County Board of Supervisors not to issue a permit to the City of Stockton to operate an ambulance service. The board, however, did issue a permit.

Bidding for Services

As soon as other private ambulance services in California saw the market open in San Joaquin County, they also moved in and set up shop. Some of these services eventually pulled out, but the constant movement of ambulance services in and out of the county prompted San Joaquin County officials to start looking at regulating EMS service. San Joaquin County established an Exclusive Operating Area (EOA) arrangement that would be decided by a bidding process after the county issued a Request for Proposals (RFP). The Board of Supervisors publicly expressed its wish that ambulance services would join together and respond to the RFP in a joint partnership.

AMR, a small ambulance service called A-1 and the Stockton Fire Department decided to form a joint partnership for the purpose of responding to the RFP. To accomplish their goal of jointly responding to the RFP as partners, the Stockton Fire Department and AMR formed in a single-purpose joint venture to respond to San Joaquin County's request for "Credentials/Proposals for Emergency Ambulance Service."

The exclusive contract called for the winner to receive a five-year contract to deliver ambulance service in the City of Stockton and other areas in San Joaquin County. That partnership became a reality in June 2003, when all parties signed an agreement.

Consider this: when I signed my name to a loan for the mortgage onmy home, I was held responsible if I defaulted. When I signed my name to an ethical standard for my job, my signature had to be good. What is interesting in the Stockton situation is that AMR signed an agreement with the Stockton Fire Department to enter into the single-purpose joint venture. Stockton and AMR agreed that they would share the failure or the success together when a final decision was made. What is even more relevant is that as a result of forming this partnership, they would have to disclose confidential information to each other about their operations as they prepared to respond to the RFP. Someone who was forward thinking also put in the agreement language that if one party withdrew from the joint venture, the withdrawing party would be excluded from bidding on the RFP. This made sense since confidential inside information had been shared that could be used and exploited against the other.

In March 2005, the Stockton Fire Department and AMR began discussing the profit-sharing plan and what would be allowable costs. Then, with two weeks before the RFP was to be released by the county, Lou Meyer, AMR's regional CEO, announced to the fire chief at the time, Gary Gillis, and the Stockton city manager that AMR was pulling out of the partnership and would respond to the RFP on its own.

One problem--AMR had a wealth of confidential, inside information from the Stockton Fire Department on how it operated its EMS system and its bid parameters. This certainly could help AMR as it developed its response to the RFP. But the big problem, Stockton contends, is that AMR signed an agreement that it would not bid if it pulled out of the joint venture. Stockton contends AMR did not live up to its word and signature.

Transport Unit Shut Down

In the meantime, the county evaluated the RFPs it received from ambulance service providers, including the Stockton Fire Department. Ultimately, the evaluation team recommended AMR and the company was awarded the EOA for San Joaquin County. The end result is that the Stockton Fire Department had to shut down its EMS transport operation on May 1, 2006. Thirty employees of the Stockton Fire Department were to lose their jobs as a result of the county's decision.

The City of Stockton sought an injunction to stop AMR from taking over county operations. At the hearing, the judge, after reading the written agreement that AMR signed, commented that AMR "has a problem." The judge did not issue an injunction, but set the matter to go to trial. As of this writing, no trial date has been set.

Partnerships are a common way of doing business. Most times, the joining of resources, political savvy and financial power is a prescription for success. That is assuming that trust is involved somewhere in that partnership. After all, who would want to go into business with someone they could not trust? It looks like the Stockton Fire Department is learning a hard lesson.

GARY LUDWIG, MS, EMT-P, a Firehouse[R] contributing editor, is a deputy fire chief with the Memphis, TN, Fire Department. He has 28 years of fire-rescue service experience, and previously served 25 years with the City of St. Louis, retiring as the chief paramedic from the St. Louis Fire Department. Ludwig is vice chairman of the EMS Section of the International Association of Fire Chiefs (IAFC), has a master's degree in business and management, and is a licensed paramedic. He is a frequent speaker at EMS and fire conferences nationally and internationally. He can be reached through his website at www.garyludwig.com.

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