American Medical Response, Inc.

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American Medical Response, Inc.

2821 South Parker Road
Aurora, Colorado 80014
U.S.A.
Telephone: (303) 614-8500
Fax: (303) 614-8502
Web site: http://www.amr-inc.com

Wholly Owned Subsidiary of Laidlaw Inc.
Incorporated: 1992
Employees: 19,800
Sales: $1.7 billion (1998)
NAIC: 621910 Ambulance Services

American Medical Response, Inc. (AMR) is among the nation’s leading providers of ambulance services. Maintaining a fleet of some 4,000 vehicles and 265 site facilities, AMR operates in 35 states, providing basic transport as well as more specialized services, including critical care transport (involving transport, nursing staff, and intensive care equipment) and advanced life support services (involving transport and paramedic staff). Moreover, the company operates a 911 emergency call and response system. AMR was acquired by the Canadian transportation giant Laidlaw, Inc. in 1997; in the late 1990s, Laidlaw began to flounder and in 2000 was struggling to avoid bankruptcy. As a result, Laidlaw put AMR up for sale in October 2000.

Early 1990s Origins

When Paul M. Verrochi, a 42-year-old entrepreneur from Boston, formed American Medical Response in 1992, he knew nothing about the operations of an ambulance service company. He did, however, know something about building large companies through the consolidation of small businesses, and he was familiar with the service industry. Verrochi and his long-time partner and accountant, Dominic Puopolo, had already successfully expanded two service firms (janitorial and asbestos-removal) through acquisition and consolidation. In fact, the two had overseen more than 150 acquisitions over the years. In the early 1990s, Verrochi and Puopolo were looking for a new opportunity when their banker suggested they consider ambulance services.

At that time the ambulance services industry was highly fragmented, consisting of 2,200 small, privately owned, local businesses as well as numerous municipal and county operations at local fire districts, many of whom wanted to privatize. Consolidation in the industry had occurred only regionally, and no publicly owned ambulance service companies existed. Given the growth and aging of the population and an increase in outpatient care, Verrochi viewed both the growth potential for medical transportation services and the benefits of consolidation as great. Verrochi aimed to create and build the leading provider of ambulance services, and his would become the first such to operate nationwide.

Verrochi hired a consultant to assist in targeting companies to purchase in forming American Medical Response. Four regional companies, with potential to expand in their markets, were settled on: Regional Ambulance Services in San Francisco’s East Bay area; Professional Ambulance Services in Delaware; New Haven Ambulances Services in Connecticut; and Vanguard Ambulance Services, a 98-vehicle fleet in the San Francisco area. Vanguard was the largest of the acquisitions, having recently consolidated some smaller ambulance service companies under its umbrella. AMR formed with the combined annual revenues of $96 million and headquarters in Boston. The entrepreneurs, who remained with the company, received stock in the new company and cash.

Verrochi took AMR public concurrent with the completion of the acquisitions in August 1992. The initial public offering, at $10.25 per share, raised $23.7 million. Flush with cash, the company purchased Mobile Medic Ambulance Services of Gulfport, Mississippi, in November, Ambulance Service Company of Denver in December, and Buck Medical Services of Portland, Oregon, in January 1993.

Verrochi’s strategy for growth involved acquiring “beach-head” companies (the strongest, best-managed providers in a given market) and then expanding to contiguous service areas by purchasing companies in those areas or by placing bids to supply services in surrounding areas. The new AMR company would then be responsible for identifying potential local targets for acquisition. Because the owner of the local company became a partner in the AMR business, Verrochi valued his personal relationship with each new partner, inviting him to dinner with the Verrochi family.

AMR maintained headquarters in Boston but divided its new businesses by region, retaining local management capabilities while consolidating accounting, payroll, purchasing, and human resources as a means to lower overhead, thus lowering the cost per ambulance trip. By eliminating redundant operations and adding new services, AMR hoped to provide geographically and financially efficient ambulance services.

The use of state-of-the art technology also improved operations and cost efficiency. When AMR acquired the Regional Ambulance Service of Fremont, California, it also gained a Global Positioning Satellite (GPS) system. The GPS allowed dispatchers to call for an ambulance that might be closest to the emergency site based on travel time rather than geographic location. GPS tracked each ambulance every 14 seconds, while computer-aided dispatch determined the travel time to the destination based on traffic patterns. Thus an ambulance further away from the emergency site, but unimpeded by traffic jams or construction, might reach the caller more quickly than another unit. While small companies often did not have the capital to invest in technology, AMR’s large regional companies did and thereby provided better service at an ultimately lower cost.

Moreover, GPS proved more cost-efficient to AMR. With the consolidation of two East Bay companies under AMR, 86 vehicles could cover an area that had previously required 100 vehicles. With a fully equipped vehicle costing about $100,000, and annual maintenance on top of that, AMR stood to save millions. The GPS system could coordinate up to 50 911 emergency calls simultaneously in Alameda and Contra Costa counties. AMR hoped to install GPS systems in Denver, Chicago, Connecticut, Mississippi, Philadelphia, and Chicago, when the volume of business allowed for it.

In its first full year in operation, 1993, AMR reported $189 million in revenues and $9.5 million in earnings. Contracts from county and municipal governments comprised approximately two-thirds of AMR’s revenues. Such contracts were obtained through bidding and renegotiation and involved the provider’s ability to meet standards for response times (usually eight to nine minutes, 90 percent of the time), staffing, vehicle and equipment, quality of service, and insurance. The remaining one-third of AMR’s revenues were received primarily from private insurance companies.

AMR’s successful foray into consolidating and privatizing ambulance services prompted other companies to go public and follow Verrochi’s acquisition strategy. These included Rural/Metro in Scottsdale, Arizona, and CareLine of Irvine, California. Moreover, Laidlaw Inc., a Canadian-based transportation services company, formed MedTrans for the purpose of entering ambulance services industry.

However, the public sector found this new industry trend somewhat disturbing. Local fire districts did not relish the competition, and the public expressed concern about the quality of patient care under a profit-oriented corporation. Northern California was a particularly difficult battleground in bidding on contracts. After a struggle with the public and local fire districts, AMR received a four-year extension contract in Santa Clara County, California, worth $25 million in annual revenues. The contract involved a cooperative alliance with the City of San Jose whose fire department provided first responder paramedic service, Basic Life Support within five minutes of the call, while AMR provided Advanced Life Support within nine minutes.

Focus of Growth

AMR’s regional strategy soon proved useful in serving the changing needs of health care insurance providers. Health Maintenance Organizations (HMOs) and Preferred Physician Organizations (PPOs) preferred single source providers to handle local ambulance service needs. AMR’s local networks, which covered larger contiguous areas, including multi-county and multi-state areas, fulfilled this need better than a fragmented system. AMR was thus able to secure lucrative contracts with PruCare, US Healthcare, HMO Blue, Cardiology First and FHP Corporation.

In February 1995, AMR signed a contract with Kaiser Permanente of Portland, Oregon, for the handling of non-emergency transport calls as part of Kaiser’s managed care plan. Under the pioneer agreement, AMR implemented telephone triage to evaluate the caller’s health care needs. Under the controversial program, Kaiser members called a seven-digit telephone, or a toll-free number in outlying areas, instead of 911, to obtain a diagnosis and determine the need for emergency medical care. If emergency care was deemed necessary, the call was transferred to a 911 operator. While AMR and Kaiser viewed this program as more efficient and cost effective, reducing the number of emergency ambulatory services for non-emergency situations, customer concerns centered on the element of risk as the two minutes required to determine need meant the difference between life and death in some circumstances.

Company Perspectives:

The American Medical Response team of compassionate professionals will be the leading provider of medical transportation and pathways to health care.

Coverage of large, geographic service areas also served AMR well in treating bombing victims at the Alfred R. Murrah Federal building in April 1995. By drawing on resources from Tulsa and communities surrounding Oklahoma City, AMR utilized 127 of 131 of its local personnel to respond to the situation without curtailing services to other emergencies. AMR immediately established an Incident Command Structure in Oklahoma City and performed immediate triage to discern patient needs according to the severity of injuries. Paramedics and technicians treated 517 people within the first 90 minutes and transported 210 people in the first hour. AMR also drew on its Critical Incident Stress Management providers from around the country to assist employees and other public safety responders in coping with the crisis.

AMR continued to pursue its acquisition strategy with funds from a secondary stock offering which raised $90 million. AMR had completed a total of 58 acquisitions by the end of 1995, 22 of them in 1995 alone. The largest acquisition in the company’s history occurred in October of that year with the purchase of Ambulance Systems of America, of Natich, Massachusetts, whose operations in Massachusetts, New Hampshire, Rhode Island, Maine, and New Jersey was garnering nearly $100 million in annual revenues. That year AMR responded to 1.7 million calls in 26 states with 10,000 employees and a fleet of over 1,700 ambulances. Revenues reached $483.8 million and earnings reached $24.5 million or $1.35 per share.

To meet the needs of its growing company, AMR restructured in late 1995. Paul T. Shirley, originally owner of Vanguard Ambulance Services, was elected CEO and president of AMR in August, and George De Duff, formerly CEO of AMR West, became the company’s chief operating officer. Consolidation of operations into six regional units shifted administration into regional offices in the Northeast, Mid-Atlantic, South, Great Lakes, Midwest, and West.

Financial Troubles Mar Late 1990s

In January 1997, AMR was purchased by Laidlaw, Inc., as part of Laidlaw’s own aggressive acquisition plan in the transportation industry. Laidlaw paid $40 per share, or an estimated $1.2 billion, for AMR, and then merged it with another of its ambulance service companies, California-based MedTrans. Thus, the two largest ambulance service companies in the United States had combined to create a presence in 34 states, keeping the AMR name. AMR headquarters were moved from Boston to the Denver area and management was restructured into four regions, each with chief financial and operating officers. DeHuff replaced Paul Shirley as CEO upon Shirley’s retirement in August 1997.

About a year after Laidlaw purchased AMR, however, some challenges to AMR’s system began to emerge. With over 100 companies acquired in a short period of time, AMR had difficulties meeting demands of local communities. Specifically, AMR struggled to adapt to local public safety standards, as it tried to apply its own national standards to local situations. The problems resulted in claims of substandard medical services and delayed response times, with some customers, such as the city of Littleton, CO, documenting response times longer that 12 minutes. Unlike ambulances stationed at local fire districts, AMR’s roving vehicles were often too far away, especially in rural and semi-rural areas. AMR had voluntarily discontinued service to some rural areas, as well in Chicago, but the company also lost key contracts in such cities as Dallas, Houston, Boulder, and Oklahoma City.

Another problem involved the collections for unpaid services. Because local laws required ambulance services to respond regardless of a caller’s ability to pay, uncollectible debts remained a hazard of the business. AMR experienced relatively low rates of uncollectible accounts when it first formed, as low as five percent. However, as the company grew and centralized its collections office, it became more difficult to locate customers and collect service bills. Uncollectible bills reached 40 percent of revenues in 1998. While the company recorded revenues of $1.1 billion in 1998, that amount did not include uncollectible bills of $700 million the same year. The discrepancy severely hampered AMR’s ability to provide service and to compete with other companies who bid on large contracts. Finally, the company found itself in competition with new companies, some founded by former employees of acquired companies who were not retained by AMR.

While its ambulance service business shrunk, AMR focused on program development in partnership with health insurance providers. In May 1998 AMR worked with Sutter Health in San Francisco, implementing a mobile health care unit for on-the-job injuries. The service provided first-aid vans rather than ambulances and charged only for actual care. The fee for an emergency ambulance call was $1,200 while van response was $150 per call. AMR and Sutter designed the service, called SutterHealth@Work, to resolve the problem of non-urgent use of the 911 emergency system, which overloaded the emergency response system. SutterHealth@Work also provided vaccinations, drug screening, and other services.

In late 1998 AMR prepared to open a national call center for American Medical Pathways, a new subsidiary formed to perform triage for health care providers. Located in Kenosha, Wisconsin, the call center served Kaiser Permanente members in 18 states. AMR management had hoped to base the service in Denver, but a tight labor market in Colorado led to the location of the call center in Wisconsin. The location raised concerns about the timeliness of emergency response. While a local system used an enhanced Caller ID system to bring up the name, telephone number, and address of the caller, the Pathways system matched the telephone numbers to addresses in a database of Kaiser members. The system facilitated dispatch of paramedics if the caller was unable to communicate the problem. While the call center was sustained by a $600 million, five-year contract with Kaiser, AMR hoped to attract other health care providers to the system. Anthem Blue Cross Blue Shield in New Haven county, Connecticut, opted for a local Pathways program to serve its Medicare HMO patients.

Key Dates:

1992:: Paul Verrochi enters the ambulance business.
1992:: AMR completes four acquisitions and goes public.
1995:: AMR reports earnings of $24.5 million on sales of $483.8 million.
1997:: AMR is acquired by Laidlaw, Inc. and merges with that company’s MedTrans operations.
1999:: A restructuring program seeks to streamline AMR’s operations.
2000:: A struggling Laidlaw puts AMR up for sale.

In early 1999 AMR began to restructure the company. DeHuff resigned as CEO in March, and Laidlaw replaced him with COO John Grainger. Grainger reduced the work force by ten percent, or approximately 2,200 people, and reduced management by 180 positions. AMR scaled back ambulance service operations in Boston and closed operations in Philadelphia as the company was too large to respond to government changes in reimbursement rates. The company lost a contract for Fort Worth, Texas, to Rural/Metro, though it did win bids for a five-year contract in Sonoma County, California, and a four-year contract in Las Cruces, New Mexico. Healthcare provider Humana tested AMR’s Pathways program with Medicare HMO patients in Florida during the summer of 1999.

While AMR struggled to manage its holdings, its parent, Laidlaw, succumbed to financial woes of its own, including a tremendous debt burden and irate stockholders. In an abrupt move, in September 1999, Laidlaw announced that it was putting AMR up for sale, with an asking price of $1.6 million. The company had hoped to divest AMR entirely by August 2000, but acceptable offers were not forthcoming. The parent company had already announced that it was “discontinuing” its relationship with AMR, taking AMR off its financial books in order to focus on stabilizing its own balance sheet. As industry analysts speculated on an impending bankruptcy for Laidlaw, a group known as Harlingwood Equity Partners, consisting of former AMR employees and the former CEO of Rural/Metro offered $500 million for AMR. However, Laidlaw did not accept the offer, and by late 2000 AMR was making inroads in its return to profitability. In March 2001, Laidlaw appointed Jack Edwards as AMR’s new president and CEO. Edwards was charged with enhancing AMR’s value by improving its financial performance.