Privatization.org Policy Issue - Emergency Medical Services

1. Trends

National

The International City/County Managers Association (ICMA) conducts periodic surveys that ask municipalities and counties how services are provided. Of the nearly 1,600 respondents to the most recent available survey (based on 1997-1998 data), 36.9 percent of municipalities and counties had privatized ambulance service. The Journal of Emergency Medical Services (JEMS) surveys EMS provision in America's 200 largest cities, and finds that first response is dominated by public fire departments (nearly 97 percent). However, private for-profit firms most commonly provide patient transport (38 percent). Since an additional 4.3 percent of patient transporters are private not-for-profit firms, private firms account for 42.1 percent of patient transporters.

Since the JEMS survey only includes cities (and not, for example, counties), it actually understates the degree to which private providers serve large populations. For example, the survey overlooks two celebrated private providers. A private provider serves the 1 million residents of Pinellas County, Florida. Tulsa and Oklahoma City combined efforts and created the Emergency Medical Services Authority (EMSA) to oversee emergency medical service. EMSA contracts with a private provider to serve the 1.1 million residents in its jurisdiction.

California

The 1990s have seen heated controversies over who should be providing paramedic service in California. In 1993, Huntington Beach ousted its private paramedic provider in favor of its fire department, and in the closing months of 1994 Sacramento did likewise. Fire departments often see paramedic service as a logical extension of their public-safety mission, especially as the trend in fire incidence continues its long downward path (down 23 percent between 1982 and 1992, according to the National Fire Protection Association), leaving less traditional activity to justify the community’s investment in firefighters, stations, and equipment. Currently, Santa Barbara, San Diego, San Jose and Oakland all contract out emergency medical services (EMS).

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2. Cost Savings Potential

A Reason Foundation study found that contracting would dramatically lower the cost of emergency ambulance services in Los Angeles, from $57.6 million at present to an estimated $29.9 million. Because of the higher collection rate, it would increase revenues from the present $12 million to an estimated $15 million. The net taxpayer cost (expenses minus revenues) would drop from today's $45.6 million to just $14.9 million. This would mean a savings of two-thirds of the present cost, saving $30 million per year.

Staffing efficiency was an important factor in Pinellas County, Florida's decision to accept the bid of a private firm over the local fire department. The fire department staffing schedules were 24 hours on, 48 hours off. Such an arrangement hampers both performance and cost containment. Thanks to an approach called "peak-load staffing," the private ambulance provider responds to 1/3 more EMS calls, with 1/3 of the employees, at 2/3 of the cost.

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3. Technology Improvement Potential

Private providers often emphasize technological development and implementations. Automatic Vehicle Location (AVL) technology allows EMS providers to quicken response time by locating and dispatching the ambulance nearest to the emergency site. In 2002, JEMS noted that private providers are more likely to use AVL technology: "Private transport agencies continue to report the highest percentage of AVL use at 40 percent, with the fire department transport providers reporting the second highest rate at 20 percent." Similarly, in 2000, 70 percent of private EMS providers report using defibrillation devices to treat patients suffering from heart attacks, compared to 40 percent of public fire departments.

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4. Best Practices/Case Studies

Best Practices

Over the past 20 years, a great deal has been learned about emergency medical services and about its paramedic components. The single most important lesson is that the key to superior emergency medical services is not, per se, whether government or the private sector is the paramedic provider, but rather whether the system is designed and structured for efficient and effective performance.

The best examples of EMS contracting out, are public-private partnerships in which the city fire department provides first-responder services and a single private ambulance contractor is responsible for all transports using an all-ALS fleet. This cost-effective arrangement combines the organizational stability, reliability, and community support of the fire department with the innovation and efficiencies of the private sector.

Such systems can be found in Las Vegas, Pinellas County (Florida), Kansas City, Syracuse, and Fort Worth (see Table1). These systems provide consistently high levels of service without excessively high user fees and with very low (or no) taxpayer subsidy.

Table 1. Best Practice Cities
*City*	*Model*	*U:UH Ratio*	*Collect Rate*	*Response Time*	*Taxpayer Subsidy*
Pinellas County	PUM	.60	85%	4.5-5 min/ 90% calls	none
Las Vegas	franchise	.50	67%	8 min/90%	none
Syracuse	franchise	.41	77%	8 min/90%	none
Fort Worth	PUM	.37	62%	8 min/90%	$3-6.00
Kansas City	n/a	.35	65%	8 min/90%	$2.50

Importance of System Design. Among American cities, one can find a wide range of system designs, with a wide range of unit costs, productivity levels, response-time performance, and per capita subsidies. Ironically, higher levels of subsidy do not generally correlate with higher productivity. In fact, what are now termed "high-performance" Emergency medical services systems generally have among the lowest levels of taxpayer subsidy. And they generally end up using a mix of public-sector and private-sector resources, each doing the task at which it is most cost-effective. Those systems recognized as high-performance are clustered in the two lowest subsidy categories (see Table 2).
Key Design Features. Common features appear in these high-performance systems, in marked contrast to the features of the (generally older-design) lower-performance systems. These features lead to higher productivity and lower unit costs, while achieving stringent fractile response-time standards. In most high-performance systems, public officials have opted to translate the lower costs into low or zero levels of taxpayer subsidy, with most of the costs being derived from user fees (reimbursed by third parties). These key design features are the following:

Flexible Production Strategy. The entire fleet consists of ALS units staffed by paramedics who respond to all medical calls without resorting to error-prone call screening; these same units also transport all patients who require transport. All high-performance systems now use the flexible production strategy.
Peak-Load Staffing. Calls for emergency medical services occur in statistically predictable hourly and day-of-week patterns. This means it is possible, as high-performance systems do, to adjust staffing patterns to match the expected peak loads. In most cases the change from 24-hour shifts and constant staffing to peak-hour staffing and event-driven deployment will mean that more units are on duty during the busiest hours of the day, significantly reducing response times during those critical times. This is not possible using traditional 24-hour-a-day fire department staffing.
Event-Driven Deployment. Paramedic units must be stationed near statistically predictable locations of high demand. These may change over the 24 hours of the day and the seven days of the week. They will seldom correspond to the fixed locations of fire stations.
Performance-Based Contracting. High levels of performance can only be assured if there is a clear specification of the desired objectives (e.g., in terms of response time, productivity, and cost and/or subsidy level) and means of holding the provider contractually accountable.

Figure 1. Features of High-Performance EMS Systems

1. All calls for service go to a single, centrally staffed control center (avoiding the risks of patient self-triage).
2. Priority dispatch by paramedics replaces call screening.
3. The all-ALS fleet (working in concert with the fire department first-responders) eliminates the risk of sending the wrong unit.
4. Providers are held to strict standards of response-time reliability.
5. Peak-load staffing replaces 24-hour shifts.
6. System status management (moving resources according to demand) replaces static deployment.

Case Studies

Case Study: Richmond, Virginia

Lesson: Without a performance-based contract, accountability suffers.

Lesson: Privatization works best when competition flourishes.

Prior to 1991, Richmond’s EMS was operated by a combination of a private provider and four volunteer squads. There was no performance-based contract to enforce accountability, and little hope for competition. Equipment was shoddy, some areas were not served, response time was slow, and sometimes ambulances didn’t show up at emergencies at all. The private provider simply asked for more and more subsidies for poorer and poorer performance.

Richmond yearned for a system that appreciated competition and enforced accountability. The city’s mounting frustration prompted the formation of the Richmond Ambulance Authority (RAA). RAA would oversee emergency medical service and shop for private providers. Richmond began by opening the contract to competitive bids. Now the new private provider is subjected to strict performance measures and oversight. Today the contract is not a long-term commitment. It comes up for bid periodically, and poor performance can dissolve a contract at any time. The RAA even owns the EMS infrastructure in hopes of providing a smoother transition in the event the city decides to change providers. Since 1991, Richmond’s public-private-partnership has developed into a worldwide model for performance. Some performance improvements include:

Better cardiac arrest survivability rate: Prior to 1991, the chances of surviving an out-of-hospital cardiac arrest were less than 5 percent. Today, the chances of surviving an out-of-hospital cardiac arrest have increased to 20 percent.
More advanced equipment: Prior to 1991, the city had a tiered ambulance fleet with both Basic Life Support (BLS) and Advanced Life Support (ALS) ambulances. A cardiac arrest patient might only receive the lower-tech BLS ambulance. Today ALS equipped ambulances respond to all emergency calls.
Faster response time: Prior to 1991, ambulance response times were slow varied from one part of the city to another. Today, ambulances are on the scene of life threatening emergencies in less than 8 minutes and 59 seconds in more than 90 of all responses.

Case Study: Hawaii

Lesson: Poorly conceived contracts and weak performance monitoring can hurt privatization.

Hawaii’s Emergency Medical Services and Injury Prevention System Branch is responsible for allocating over $30 million in EMS contracts. The state auditor revealed a system unfamiliar with many of the foundations of successful privatization. Some of the troubling findings:

“In 1996, the branch improperly entered into a continuous agreement with a collection agency without going through a competitive award method…”
“The branch also disregarded sound contracting practices by allowing contractors to render services before contracts were fully and properly executed … [The branch’s] $17.21 million contract with the City and County of Honolulu for FY2001-02 was not signed until more than eight months into the contract period."
“[The branch] made little effort to monitor the performance of many of its contracts. We found that required reports, including reports on drug utilization and service provision, were missing or unaccounted for. We also found that inadequate contract monitoring resulted in a number of questionable contract expenditures.”
“[L]ax controls over the branch’s billing process for emergency transport services resulted in revenue loss to the State … [W]e estimate that the State lost approximately $1 million in uncollected fees for ambulance services provided in Maui, Hawaii, and Kauai counties during [FY200-01].”

Case Study: Pinellas County, Florida

Lesson: Privatization allows for performance upgrades.

Lesson: Efficient system design improves performance and saves money.

Prior to the late 1980s, Pinellas County public EMS inspired little confidence. After the county turned to privatization and opened the contract up for bid, service improved substantially. Still, even though officials were pleased with the provider’s performance, they decided to again open the contract to competitive bidding. Although the incumbent provider (Sunstar) won the bid, the result was higher performance standards, including:

Faster response time: Emergency response times were reduced by 30 seconds, with 90 percent reliability.
Faster non-emergency response: Compliance was increased from 90 percent to 95 percent.
Better equipment: Equipment and software in the dispatch/communications center was upgraded.

Before the county awarded the new contract, the local fire department entered a bid to provide EMS. An important factor in the county’s decision was system design. The fire department staffing schedules are 24 hours on, 48 hours off. Such an arrangement hampers both performance and cost containment. Thanks to an approach called “peak-load staffing,” the private ambulance provider responds to 1/3 more EMS calls, with 1/3 of the employees, at 2/3 of the cost.

Since the new contract, Pinellas County’s EMS has received many performance awards. In 2001, it became the first provider to be a repeat winner of Florida’s Provider of the Year Award.

Case Study: Emergency Medical Services Partnership, San Diego, CA

In January 1997, San Diego put out to bid ambulance service in the city. In a unique innovation, the city fire department formed a partnership with a private ambulance firm, Rural/Metro, to bid for the five year contract. Two other bids were submitted as well. Under the Rural/Metro-Fire Department proposal, ambulance service would cost the city $1.5 million a year for the first three years, and nothing for the last two—a total of $4.5 million, far lower than the other two bids. The full council will vote to approve the contract in March.

There are several unique features of the arrangement. First, the Fire Department will share the risk of poor performance with Rural/Metro. If the service is losing money, then the Fire Department will shut down a ladder company and transfer the personnel to ambulances, allowing Rural/Metro to reduce its personnel and cut its own costs. If the service performs better financially than expected, the city subsidy can be reduced. Second, a number of HMOs in the region have agreed to use the city contractor to transport their members to hospitals in emergencies. This helps make all of the proposals more financially sound.

The public-private partnership also will benefit the city by using Rural/Metro for billing and collecting. Private services have much higher collection ratios than does the public sector. Also, Rural/Metro will provide a much-needed upgrade to the city's dispatch system.

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5. How-to-Tips

Applicable Techniques

Franchising
Public-Private Competition
Competitive Contracting
Commercialization

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6. Contact Information

Practitioners	Ted Beam Rural/Metro Corporation P.O. Drawer F Scottsdale, AZ 85252 (602) 994-3886
Practitioners	Larry Holms Fire Authority Director P.O. Box 86 Orange County, CA 92666-0086 (714) 744-0400
Experts	Adrian Moore Reason Public Policy Institute 3415 S. Sepulveda Blvd., Suite 400 Los Angeles, CA 90034 (310) 391-2245

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7. Research/Articles

Robin Johnson The Future of Local Emergency Medical Services, Policy Brief 18, Reason Public Policy Institute, August 2001.
Robert W. Poole, Jr., Privatizing Emergency Medical Services: How Cities Can Cut Costs and Save Lives, How-To Guide No. 14, Reason Foundation, May 1996.

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8. Legislation

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9. Links

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