On November 1, Alameda County will have new ambulance service for the first time in nearly two decades. Paramedics Plus is taking over for longtime provider American Medical Response after winning a lucrative county contract in a heated bidding war. But the ambulance giant AMR is not giving up. It has taken its fight to court, claiming that its competitor illegally priced its bid far below what it will cost to provide service here in an effort to push AMR out of the Bay Area.
Although both sides are remaining tight-lipped while the lawsuit plays out in court, bid documents show that Paramedics Plus won the county contract after saying that its patient charges were going to be much lower than AMR's. Paramedics Plus had projected its annual charges at $160.4 million compared with AMR's $332.8 million.
AMR's representatives have said that Paramedics Plus' cost estimates are bogus. Prior to the lawsuit, company reps said that Paramedics Plus did not account for proposed changes in the county's ambulance response time requirements and that those changes had translated into sharp but necessary increases in cost and service hours to meet demand. In a letter to county officials, AMR's Alameda County chief, Mike Taigman, claimed that the health and safety of East Bay residents would be compromised as a result of the switch, and he said the county would "incur significant costs to salvage the system when it fails."
AMR's attorney also says the company has proof that Paramedics Plus violated California's predatory pricing law in capturing the contract, and that the company has underbid contracts elsewhere. That evidence, however, has not yet been presented as part of the lawsuit. "We don't make unfounded allegations," AMR attorney E. Craig Moody said. They're asking an Alameda County Superior Court judge to award them $75 million in damages.
But Anthony J. Myers, former president of Paramedics Plus, said AMR made the same claims after losing bids before, and that Paramedics Plus still has those contracts. Myers told county officials that AMR's business strategy, which calls for exponentially higher profits and overhead costs, was the real reason for the wide price differences. "This is an all too familiar refrain. And AMR has been proved wrong every time," Myers wrote in a June 2010 letter to county health services officials.
Competition for ambulance contracts is fierce, industry insiders say, and in its thirteen years of existence as a for-profit arm of the nonprofit East Texas Medical Center Regional Healthcare System, Paramedics Plus has scored a series of victories. Each has come at the expense of an incumbent AMR, which opened up shop in 1992 and has since become the nation's largest ambulance company, operating in 38 states and most of the Bay Area.
The emergency medical services industry is also deeply incestuous: AMR's bid claims that AMR West Chief Executive Officer Tom Wagner and Alameda County chief Taigman were founders of Paramedics Plus, and Taigman has claimed credit for some of the company's successes. (Paramedics Plus' reps have denied the pair were founders, though they were apparently involved in an early incarnation of the company.) Jeff Taylor, who will run Paramedics Plus' operation in Alameda County, worked for AMR for more than a decade.
But losing the Alameda County contract may have been a particularly tough blow, said Dave Shrader of The Polaris Group, an industry expert who is familiar with the details of the bids. Alameda County is one of the first places AMR ever did business, and the contract is believed to be one of AMR's largest. Shrader said the timing of the loss could also be an issue for the ambulance provider: AMR's parent, Emergency Medical Services Corporation, was acquired by a private equity firm earlier this year, and he said such firms typically expect sustainable profits in order to cash in on their investment.
"There's a lot riding on having a convincing story of ongoing success for the investors. Losing an $80 million contract is not part of that convincing story," said Shrader, who praised both companies and said he's not taking a side in the dispute. "Companies win and lose contracts all of the time. That's the nature of competition. This happens to be a large contract and the timing of its loss is unfortunate for AMR."
AMR had expected to collect roughly $84 million a year from the Alameda County contract, while Paramedics Plus estimated that it will haul in about $59 million. Ambulance companies typically collect just a fraction of what they bill due to unpaid bills and Medicare and Medi-Cal payment rates, which can be lower than what ambulance companies charge, Shrader and others said. Paramedics Plus is contracted to serve all cities in Alameda County except Alameda, Albany, Berkeley, and Piedmont, which have their own paramedic services.
AMR previously raised questions about Paramedics Plus after the company trumped AMR in a contract contest in Tulsa and Oklahoma City, meeting minutes show. "AMR is concerned with the promises that have been made by Paramedics Plus and its ability to perform for the stated price," AMR's Glenn Leland told the Emergency Medical Services Authority in Oklahoma City in 1998, as Paramedics Plus was picked to replace AMR as the ambulance service provider there.
AMR's Taigman also said the company had evidence that Paramedics Plus had underbid contracts before, claiming that Paramedics Plus had requested and received an additional $3.6 million from Pinellas County, Florida after less than two years of providing service in the area; the company sustained $5.5 million in losses there. But EMS officials in Florida stated in a letter to Alameda County that Paramedics Plus never asked them for more money and that they requested the increases for additional service.
Paramedics Plus' Myers also told Alameda County officials that the company still holds every contract it's won, including the contract in Oklahoma; company reps said they've returned $9.7 million in excess profits to that system. Alameda County Health Care Services Director Alex Briscoe told the Board of Supervisors in June 2010 that emergency medical services officials there and in two other locations where Paramedics Plus holds contracts are happy with the company's service.
"Without exception, all of these officials gave Paramedics Plus excellent recommendations for contract compliance, quality of care, treatment of patients and employees, cooperation and community service," Briscoe wrote in a memo reaffirming his recommendation that Paramedics Plus get the contract.
AMR claims things will be different here. In his letters to the county, Taigman claimed that the number of service hours Paramedics Plus offered wouldn't be enough to address changes in the way county officials want ambulance service provided. And he said the county's bid request required officials to toss bids whose prices were artificially low.
Under the current contract, AMR must meet specific response times for 90 percent of the urban, suburban, and rural calls it gets each month. But under the new system being rolled out by county officials, the county's ambulance provider will be required to meet response times based on both the location and the severity of a patient's symptoms, increasing the number of metrics that the provider must meet each month from three to sixty, according to consultant reports that AMR gave the county. The provider also faces steep fines for failing to meet those response times.
Those changes apparently led AMR to propose offering twice as many service hours as it provides now, and to raise patient charges to an average of $3,788 — nearly twice what it now charges and more than even the company's own bid documents say the market may bear. Paramedics Plus, meanwhile, offered to provide roughly the same number of hours AMR provides now and charge an average of $1,897.18 per patient, with base rates less than AMR charges now, court and bid documents show.
"I believe that if the County proceeds with a proposal that provides only the existing level of resources, the proposed system will fail to meet the response time compliance standards specified in the (county's bid request)," wrote Barbara Pletz, who served for more than two decades as administrator of San Mateo County's Emergency Medical Services Agency and is now working as a consultant for AMR. Hers was one of five consultant reports AMR provided to back up their claims.
But in denying AMR's appeal, Alameda County's Briscoe told Taigman that system experts the county consulted with said Paramedics Plus used a "different but equally sound deployment analysis" to build their proposal. And Briscoe told county supervisors that AMR's plan was based on a worst-case scenario happening every hour of every week. Even by the calculations of one of AMR's own consultants, the company had overestimated its need for service hours by about 25 percent, Briscoe told supervisors in his June 2010 memo.
Myers offered another reason for the differences in the companies' bids: Differing business models with wildly different profit expectations and overhead costs. Myers said AMR's bid showed first-year profit projections that were $8.9 million higher than Paramedics Plus', and that AMR planned to make $20.2 million more in profit than Paramedics Plus over the five-year life of the contract. "The real issue is how much profit is enough?" Myers wrote in his June 2010 letter to Briscoe. "Paramedics Plus stands by its belief that it is immoral to make huge profits off emergency health care."
Shrader said he believes leaders at both companies think they've got the right approach to addressing Alameda County's ambulance service needs, but that it will be hard to know who's right until Paramedics Plus puts its plan into action here. The county's own bid process consultant, Fitch & Associates, wrote that ambulance companies' deployment plans are some of the most guarded secrets in the industry.
"It's entirely possible that AMR is correct about Alameda County, that it will be difficult to meet the various county requirements for the price that Paramedics Plus proposed. It is also entirely possible that one competitor operates more efficiently than the other," Shrader said.
"I think that AMR may be worried," he added. "If I had lost to the same competitor repeatedly, I'd be doing some soul searching to try to figure out why."