What San Diego's Ambulance Contract Is Worth
Big players want to run the city’s ambulance system. Here’s what a contract with the city might bring in for whoever eventually wins.
Lots of people want to run San Diego’s ambulances. There’s money in medical emergencies.
The city’s inching toward putting its ambulance service contract out to bid, and two private companies, with high-powered lobbyists in tow, and the city’s fire union have all made clear they’d like the job.
Just how much money they’re all fighting over, however, isn’t clear. A New York private equity fund owns the city’s current ambulance provider, Rural/Metro, and its financial information isn’t public.
Dissecting what the city’s ambulance contract could be worth provides a window into why everyone wants it so badly. You can do a rough estimate in two easy (and one not-so-easy) steps.
How Often People Use Ambulances
Every time someone calls 911 for medical help, the city sends an ambulance. Those ambulances take people to the hospital 90,000 times a year. That’s the first key data point.
What Ambulance Trips Cost
When someone goes to the hospital in an ambulance, Rural/Metro charges that person. The average patient charge is written into the company’s contract with the city and now stands at $1,820. This is the second key data point.
From here, the calculation seems relatively straightforward – and it looks like the ambulance contract is worth a ridiculous amount of money: $163.8 million a year.
Now comes the hard part. Rural/Metro doesn’t get all the money it actually bills people. Medicare, the federal health plan for senior citizens, says that the company can only receive up to $444 for the highest-priority ambulance rides in San Diego no matter what the company charges everyone else. Some other people don’t pay their bills.
The percentage of ambulance bill payments the company gets – its collection rate – is the not-so-easy step to figuring out the ambulance contract’s value.
Michael Simonsen, Rural/Metro’s spokesman, wouldn’t say what the company’s collection rate was. His competitors, he said, would love to know.
“They have smart people,” Simonsen said. “They can try and figure it out.”
What matters is what kind of health insurance the people taking the ambulance trips have, said Bob Holdsworth, a Connecticut-based EMS consultant.
Medicare patients make up more than a third of ambulance riders statewide, according to the California Ambulance Association. Ambulance systems also collect less than their sticker price from patients with Medi-Cal, the state-run insurance for residents with low incomes, and those with federal military insurance, because those health plans, like Medicare, also pay ambulance providers lower rates. Add in the uninsured and those with private insurance to round out what a collection rate might look like.
“It’s a function of who is in the ambulance,” Holdsworth said.
Frank De Clercq, the head of the local fire fighters union, has tried to do the math when figuring out how the city’s Fire-Rescue Department might be able to compete for the ambulance contract. He estimated that Rural/Metro’s current collection rate is around 33 percent.
Let’s assume De Clercq is right. If the 33 percent collection rate is right, then annual ambulance revenue works out to $54.6 million.
“I think you’re in the ballpark,” Simonsen said.
This estimate means that San Diego’s ambulances bring in just a little less than the Tampa Bay Rays baseball team’s payroll this year.
The $54.6 million figure also matches up well with what Rural/Metro has put on paper recently.
Before private equity fund Warburg Pincus finalized its purchase of the company in 2011 – Rural/Metro’s now in bankruptcy – the company talked about San Diego’s ambulances in a Securities and Exchange Commission filing.
Rural/Metro said it expected to make $55 million a year in revenue in its two-year contract with the city that ended this June. That number included the value of the company’s transport services between hospitals and additional revenue for providing services at special events. Both of those services could well be in the city’s next ambulance contract – and the $54.6 million estimate doesn’t take their values into account.
But a few trends show that ambulance revenues in San Diego are growing. The average cost of an ambulance trip has gone up almost 40 percent in the last four years and Rural/Metro’s seen a spike in calls, meaning more rides to the hospital.
Of course, none of these numbers take into account how much it costs to provide ambulance services to the city.
For instance, Rural/Metro pays the city more than $10 million a year for the exclusive right to transport 911 patients, a number that has increased along with an ambulance trip’s price tag.
“By far, the biggest beneficiary of this contract financially is the city of San Diego,” Simonsen said.
Rural/Metro’s ambulances go to about 120,000 911 calls each year, but only take someone to the hospital three-quarters of the time. That means the company doesn’t get any money from a quarter of its ambulance responses.
And whoever ends up winning a new contract has to supply enough ambulances, EMTs, paramedics and computer programs to make sure they show up to medical emergencies when they’re supposed to.
To make money off the deal, ambulance providers will have to figure out how to do all of it for less than roughly $54.6 million.