There is an article on Modern Healthcare from last week entitled Envision ponders the once-unthinkable sale of its ambulance business. For those of you unfamiliar with the Envision name you are probably more familiar with their ambulance holdings, American Medical Response (AMR).
The article cites the following from Envision CEO Chris Holden at the Raymond James Institutional Investors Conference:
At Raymond James, Holden said Envision’s debt is about 4.3 times EBITDA, which is above the 3 to 4 times EBITDA that the company feels comfortable at.
If AMR were to be sold, it would bring Envision down into that range, he said.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amorization. While this is not used in the accounting calculations to determine profit/loss, it is used in financing strategies as an indicator of how an operation is performing.
It is also worthwhile to note that AMR is not the only division Envision is looking to divest from. The smaller “population health management” Evolution Health is also apparently being shopped around. You may be asking yourself, what exactly is “population health management”? That is the corporate speak for Mobile Integrated Healthcare.
Healthcare Is Not A Free Market
A lot of the talk regarding the newly proposed American Health Care Act (Trumpcare) is that it returns healthcare to the status of a free market. There is an article in Forbes that denies this entitled There Is Never A ‘Free Market’ In Healthcare. This is an interesting article, especially the part where a free market is defined:
In a free market, goods and services are allocated through transactions based on mutual consent. No one is forced to buy from a particular supplier. No one is forced to engage in any transaction at all. In a free market, no transactions occur if a price cannot be agreed.
The author makes it a point in the very next paragraph about how it is not a market transaction due to the condition that the consumer may be in when the services are needed:
The medical industry exists almost entirely to serve people who have been rendered incapable of representing their own interests in an adversarial transaction. When I need health services I often need them in a way that is quite different from my desire for a good quality television or a fine automobile. As I lie unconscious under a bus, I am in no position to shop for the best provider of ambulance services at the most reasonable price. All personal volition is lost. Whatever happens next, it will not be a market transaction.
What he fails to recognize is that it is not a market transaction from the perspective of the medical industry either. For that matter the healthcare industry is placed at a greater disadvantage than the patient. The Emergency Medical Treatment and Labor Act (EMTALA) of 1986, signed into law under Republican President Ronald Reagan, REQUIRES the medical industry to provide emergency care regardless of the ability for the recipient of those services to an agreed upon price.
The Fast Food Industry equivalent of this would be if there was a law that required restaurants to give everyone who came in and said they were hungry a cheeseburger. If they said they were still hungry after that, another cheeseburger. A cheeseburger until they were no longer hungry and THEN ask them to pay for the cheeseburger. If they can’t pay for it, oh well… they can go on their merry way. The restaurants can still bill them for said cheeseburger(s), but it’s a bill they can ignore for years and by the time the restaurants get around to collecting on it (if there is anything to collect) the cost of collection can be much greater than the cost of the cheeseburger. The food delivery guy is the equivalent of EMS in this scenario.
Why The Prospect Of Trumpcare Has Envision Looking To Divest From EMS
I will be the first person to tell you that the ACA was far from perfect or even good legislation. I was not a fan of the way the ACA “controlled” healthcare costs through price setting of services regardless of the cost of those services, a practice carried over from the Centers of Medicare and Medicaid. I was also not a fan of the way the ACA empowered fourth-party managers with little or nor incentive to work with providers, while the one-sided “customers always right” mantra empowered patients that had little to no understanding of what healthcare actually means. If it takes a village to raise a child, it takes a village to care for the sick.
What it did do was, through the personal mandate, provide some funding for the unfunded EMTALA mandate. Yes, it took over 20 years, but there was finally a way to cut down on the costs of rendering free services to the uninsured. It was with this change that running 9-1-1 service for an ambulance company was not necessarily going to be a financial loss. With the ACA being repealed and replaced with a plan that by the Congressional Budget Office estimate 24,000,000 people will be uninsured bringing 9-1-1 service back into the financial red.
Envision, at the end of the day, is a corporation that needs to make money for their shareholders. Continuing to support such an expansive EMS operation and fund Mobile Integrated Healthcare (that still lacks a clear financial incentive or proven reimbursement model) does not make business sense in a “free market” economy.
EMS has historically been plagued with underfunding from the government and over expectations of the public. This has created a lowly compensated work force in a demanding environment with a greater provider churn rate then the other Allied Health Services. This spiraling downward cycle will continue until private EMS agencies are no longer viable business models, forcing municipal funded services to take on the inter-facility work draining their resources more, and finally resulting in the complete Federalization of the Emergency Medical Services across the board. This isn’t a 5-year, 10-year, or even 20-year outlook (hopefully). However in 50-years or maybe 100-years, this is where I think EMS will be. You won’t trace that result back to the AHCA of 2017 or ACA of 2009, but rather to EMTALA of 1986.
While EMTALA may be the source of the business implosion, it is the moral requirement of the American way… until of course it isn’t anymore. In the meantime AMR, the largest Emergency Medical Service provider in the United States is up for sale.