Jack
Stout
June 1984
Several years ago I conducted a bid for ambulance services on behalf of
the City of
In discussion the matter with Mr. Gepford, I quickly learned that a
great deal of solid thinking had already taken place concerning both the
structure and financing of the employee-owned corporation. Experts had already
been consulted regarding the forms of organization necessary to protect
shareholders’ rights while simultaneously insulating the board of directors and
top management from pressures from the field to turn the entire organization
into an early retirement for field personnel.
I was impressed at the level of thinking that I saw, and felt that these
guys had a fighting chance.
The labor leaders formed an organization, submitted a letter of intent
to big, raised reportedly over $100,000 from
participating workers, gained cooperation from a sizable majority of the labor
force and even attended a pre-bid conference in another city to gain
experience. I am told that they had financing arranged for over $300,000 more
in working capital—enough to do the job.
Unfortunately, when the dust settled this employee-owned company failed
to submit a bid. I suspect the time simply ran out. So much time and energy
must have been absorbed in organizing the group,
raising the initial capital and securing additional financing that time ran out
for careful preparation of a prudently priced big proposal.
A year or so after that Kansas City experience, I had the pleasure of
working with the city of Fort Wayne, Indiana, both to help upgrade the
city-operated EMS department (under the command of Fire Chief Anthony J.
Meyers), and to install a public utility model system, eventually requiring
competitive selection of the city’s ambulance provide.
With this jems issue devoted to fire service EMS, I am honored to
present two closely related guest articles—one by Chief Meyers, a 22-year
veteran fire fighter and current fire chief of Fort Wayne, Indiana, and the
other by Mr. Frank Heyman, chief financial officer of the city of Fort Wayne. I
am certain that “Interface” readers will find the experience and opinions of
these men both fascinating and, for some, probably controversial. But neither
fire chiefs nor city controllers are likely to deny that the experience of
these two men is a story well worth telling—Jack Stout
Fire Chief
Nearly four
years ago I
accepted the challenge of converting the
The “Interface” columns in the August and October,
1983 jems issues presented some of
the more visible changes that were necessary to our eventual success. Those
articles are required reading for any fire department official seriously
contemplating entry into the world of competitively awarded contract ambulance
services. I will not repeat here the information provided in those two
articles, except to say that this project’s astounding success is largely
attributable to the professionalism, dedication and downright bravery of our
field paramedics and dispatch personnel. Unless your field personnel are
extremely professional, willing to work harder without nickeling and diming you
to death, are willing to serve both emergency and non-emergency patients
courteously, and above all are willing to risk the great uncertainities of real
organizational change, I advise you to forget it and prepare to exit the
ambulance service industry within the next few years.
I would like to add one comment, however, to what
has already been written about the internal changes made within our
Our fire department provides a superb first
responder program, complete with paramedic, assist training, partially funded
by first responder service charges billed and collected for us by the Ambulance
Authority. But that and the fact that I command both departments ends the list of connections between our fire department and
our
More and more large American cities are beginning to
question whether government should be a provider of ambulance services. And
they are questioning the wisdom and necessity of local tax financing of
Increasingly, the organizational privilege of
existing and serving will have to be earned, competitively. And while the
administrative technology of contracting for fire protection services is still
in its amateur stages of development, compared with something as thoroughly
thought out and tested as the public utility model, you can bet that an equally
sound procurement technology will eventually be developed for fire protection.
When that happens, we’ll all have to
compete for the privilege to serve.
To stay in the ambulance service business as a
contract provider, the organization must be both willing and able to furnish all the required services. That was the first shock to our
Of course it was true that, in order to “peddle our
wares” to a knowledgeable buyer of contract ambulance services, we had to
upgrade our clinical capabilities dramatically, double our unit-hour
utilization ratio, learn system status management, double our response time
performance and cut both labor and overhead costs per unit hour by nearly a
third. We did all that. But as sweeping as those operational changes were, they
were emotionally less dramatic than the enormous expansion in our department’s
overall mission.
Our own city controller’s report in this same
“Interface” column indicates, at least financially, how successful we were—or
rather, how successful our personnel were, with our support. At the time of
this writing, our
The test of competition was held several months ago.
In straight-up competition, apples-to-apples, we beat Shepherd Ambulance
Company of
A properly conducted public utility
model procurement is the Super Bowl, the Grand Nationals, the Olympics of
paramedic provider competition. That competition takes place in stages,
starting with approximately 40 companies from coast to coast, border to
border. The performance requirements,
the risk and sometimes the caliber of competitors scare off many. Those
remaining to through the industry’s most stringent evaluation of organizational
credentials, and some drop out voluntarily. Others are
excluded from competition because they may lack analogous experience of
financial stability, or for other reasons. In the final round, you’re down to
the most qualified and competitive providers in the industry, all bidding to
perform identical services in accordance with performance standards thoroughly
specified by the buyer, and price alone determines the final outcome. The fact
that we made it to the finals at all was, I think, nearly a miracle. The fact
that we finished an extremely close second in this type of competition makes us
proud. We went for the gold medal, but we had to settle for silver.
What does it all mean? We sensed that we were part
of something important. It was an adventure we will never forget. I don’t like
to lose, but Mercy’s win was fair and well deserved, and I am thankful for the
opportunity to compete. I believe our community and our workforce, in the long
run, will benefit from the addition of Mercy’s expertise.
But the nagging question remains: Should a fire
department, or any government agency for that matter,
be in the ambulance service business? The answer is that it depends. If the
community establishes a system structure that, safely and reliably, can reap
the benefits of private sector ambulance service, then I see no reason for
government-operated service. However, the
administrative sophistication for effectively dealing with private ambulance
companies is not wide spread and until it is, I believe government operated
ambulance services should continue to serve.
But another question remains.
Should a government-operated ambulance service try to compete with the
industry’s best private providers, as we did? Before I answer that, let us
stipulate that such competition is not only possible, but, using special
accounting rules, was fairly and effectively accomplished in
Now for the bottom line. I am personally convinced
that if our own EMS managers, dispatchers, street personnel and maintenance
personnel had been structured as a private firm from the very beginning, these
same people—this same combination of talent and dedication—would have made more
progress faster, and would have won the final competition hands down. The
experience was there, the talent was there, and the commitment was there. But
to be completely honest, I must tell you that much of our progress was made in
spite of-—not because of—our
governmental identity.
I believe there are very few advantages, if any, to
operating a business from within the confines of governmental status.
When an intelligent and dedicated group of
government employees attempts to compete head-on in fair-and-square competition
with equally intelligent and dedicated private sector representatives, those in
government, in order to win, must overcome the same obstacles that confront the
private competitors, plus the
additional constraints of public sector administration, budgeting, purchasing,
labor relations, debt financing, etc.!
While it can be done, as we have proven, I must
wonder why it should be done. By the time this article is in print, most of the
City
Controller,
In the summer
of 1980,
the paths of the Chief Financial Officer (CFO) and
City governments are conglomerates of 40 or 50
relatively unrelated subsidiary businesses. One subsidiary does highway
construction, another provides security services, another
supplies water, another runs an airport, another is an engineering
company. The only common thread among these varied operations is that for
various historical reasons, some logical and some not, the city has decided to
operate these services in house, instead of contracting for these services or
simply letting the chips fall in the open marketplace.
Each year at budget time, one or two of these
departments bubble to the surface needing special attention. In 1980 that
department was
As a newly elected administration, having been in
office less than six months, we were a band of brash, optimistic managers who
felt no task could elude our tackle. And anyhow, just how hard could it be to
run ambulances? We would soon find out.
We began our examination of the
Armed with our obviously correct solution, we
developed a new department budget for presentation to city council. Instead of
a $750,000 budget (the level for 1979), we now had a $1.1 million budget with
approximately $850,000 of tax money involved. The remaining $300,000 would come
from the $40 fee charged to those 8,000 people who were transported annually by
our service, even allowing for uncollectables.
We presented the city council with this brilliant
financial analysis and a promise of permanent
Being very persuasive (and possibly sidestepping
some difficult questions), we concluded those 1980 budget hearings with passage
of our city’s first conditional departmental budget hearings with passage of
our city’s first conditional departmental budget. The council said that we
could go ahead with the budget as presented, but only if we came back before the end of the calendar year with a complete
analysis to support our proposed solutions. How do you do that in city
government? Simple, read the literature on the subject, check with other
cities, and then bring in a “national expert” to verify your original position
with the “expert’s” stamp of approval.
We set out to do just that. One system seemed to be
getting the most coverage from a management perspective. The public utility
model operating in
Instead of receiving our desired endorsement, we
quickly found that if we were lucky enough to get an ambulance to the patient
our medics had a fighting chance of applying their trade pretty well. Beyond
that, our system’s performance, both operational and financial, was no public
service bargain. In just six days we could see clearly that our system’s very
structure was seriously flawed and, regardless of funding levels, could never
approach the performance or efficiency of systems of superior design.
Having figured out what the real problem was, we had
a choice. Should we completely remake the system and do it right (which meant admitting
our original ignorance plus an awful lot of work) or should we stick to our
original plan as presented during the summer budget process? Hooked on the
prospect of real progress, and perhaps without fully understanding the size of
the task at hand, we decided to redo the whole system and do it right.
Doing it right in our case meant meeting six
fundamental goals: Produce a system with externally evaluated clinical
standards (both emergency and nonemergency care) equal to any system in
America; take the system out of politics; achieve both efficiency and financial
stability independent of fluctuations in local tax subsidy; run the system
in-house, under the direction of Fire Chief Tony Meyers, as a “third service”—a
“business”’; prepare to face a test of fair competition from the best of
America’s private providers (see “Interface” column, “Showdown in Fort Wayne,” jems, August 1983); and arrange
commercial financing of the entire system upgrade.
jems has previously carried accounts of the
changes within
From the CFO’s perspective, three truly fascinating
facts have emerged. First is the whole question of “cost” of an ambulance
service to the community. How much does the local government put into the
system from tax monies? This is what reporters focus on; that is what city
councils apparently care most about. But local tax subsidy is only the tip of
the iceberg.
Prior to installing our new system,
Explaining how all of this could happen would take
far more space than is available here. However, there are some clues. Under the
old system, someone was actually paying for the service two and three times.
They paid for it through their local taxes, they paid for it through their
federal taxeswhich supported medicare
and medicaid funding, they paid for it through insurance premiums, and they
paid fees. Also, the old system evolved to allow four complete sets of overhead
as apart of the “cost” of the system (three private operators and the city’s
third service). Eliminating excess overhead and maximizing third-party payments
reduced total cost and increased the efficiency of the system by a combination
of improved economies of scale and diversion of cash flow from overhead to
street-level production.
A second fact is really more of a theory. It is
probable that the system pays for itself simply on a “balance of payments”
basis. Under the old system, most of the system’s revenue was generated from
the local
The third major financial fact which came to light
was that modern prehospital care is not a traditional government service. It
is, in fact, an integral part of the American health care industry. As such, it
is most effectively financed in the same way other health care providers
(doctors, hospitals, etc.) are financed. Local tax subsidy is the last source
of money that makes any sense in an ambulance service system, particularly a
multijurisdictional system like ours. (We also serve the unsubsidized areas of
rural
When the paths of the CFO and the