Grand Jury Says Open Ambulance Franchise Bids Needed After 37-Year Monopoly

The 2017–2018 San Bernardino County Civil Grand Jury in its final report last month recommended that the county solicit bids for the provision of emergency ambulance support in a wide range of so-called “exclusive service areas” for the first time in 37 years.
Throughout the better part of the last four decades, the current service provider and its corporate predecessor have had an impregnable hold over the region. There have been charges over the years that the county has conferred a monopoly upon that service provider, American Medical Response, by establishing it as the sole provider of ambulance service within a cross section of the county’s exclusive operating zones. This arrangement, some believe, is contrary to the best interest of some county residents, as the resultant lack of competition has allowed American Medical Response to escalate the prices it charges for the service it renders to its customers.
American Medical Response’s primacy in San Bernardino County is the legacy of the fashion in which its predecessor, Mercy Ambulance, utilized a formula of hefty donations to elected county decision makers to enhance its profitability to the detriment of its competitors.
Mercy had formed in the late 1970s, when Terry Russ, Homer Aerts, Steve Dickmeyer and Don Reed, all of whom operated ambulance companies on the west and central portion of San Bernardino’s Inland Valley and had been competing against one another for years, smoked a peace pipe and resolved to merge their operations into one, consolidating and streamlining their dispatch service, and better coordinating it with local fire and police departments. Through efficiencies and the sharing of resources, they were able to overwhelm the other ambulance operators they were in competition with, lower their prices, and induce most of those competitors to either go out of business, move elsewhere, merge with them or sell out to them. After pooling their money and initiating a program of making substantial political contributions to local politicians at both the city and county level, Russ, Aerts, Dickmeyer and Reed then used this newfound political clout and influence to have both the county board of supervisors and various city councils “regulate” the ambulance industry, which included essentially adopting as the minimum requisites for an ambulance operation within their jurisdictions the vehicle, equipment and employee training standards Mercy had in place. The politicians were able to do so by asserting that this enhanced public safety.
Thus, Mercy Ambulance established a political hammerlock on the region. Keeping up its pace of donations to the county’s top local elected officials, the consortium gobbled up ever more key franchises, making its operation yet more lucrative. In turn, the company would use a percentage of the profits it was generating to increase the scope of its political contributions. In return, the grateful politicians ensured that Mercy retained its competitive advantage over its rivals, giving Mercy plum franchises in the county’s most heavily populated areas. While what Mercy established fell slightly short of being an outright monopoly, it was at that point capable of controlling the local ambulance market at will. It then began raising its prices, making up for the rate cuts it had instituted to obtain market dominance and then raising its service rates to a point where customers were openly complaining about being gouged.
Those complaints had little effect, however. As Mercy solidified and expanded its domination of the local ambulance industry and it grew to become preeminent among the county’s campaign donors, the county and many of its cities moved to create franchises in which a single ambulance company was allowed to operate and from which any other companies were prohibited from operating. Not surprisingly, in San Bernardino County Mercy was granted the lion’s share of these exclusive franchises, not to mention the most lucrative ones.
As Mercy grew, so did the scope of its operations and its power. The company added helicopters to its line of service and extended its reach all over 20,105-square mile San Bernardino County – a land area the size of four New England states. But as Russ, Aerts, Dickmeyer and Reed aged and grew wealthier, they began, slowly at first, to disengage from and then inevitably pulled out of the stressful emergency response business entirely. A first step in that direction was selling off – at considerable profit – the Mercy Air wing. Thereafter, they sold or let their heirs take on the ground ambulance fiefdom that Mercy represented, and they withdrew into a retirement of luxury and comfort.
It was at that point that American Medical Response came into San Bernardino County as the new kid on the block. As Mercy withdrew, American Medical Response filled the vacuum, simultaneously taking a leaf out of Mercy Ambulance’s playbook, and it too made hefty political contributions. Over time, favored status would be conferred upon American Medical Response in San Bernardino County that would rival that of Mercy Ambulance a generation before. American Medical Response ultimately bought out Mercy Ambulance, thereby inheriting Mercy’s ambulance service kingdom.
A major player in these issues is ICEMA, which is an acronym for the Inland Counties Emergency Medical Agency. ICEMA oversees emergency service provision issues in San Bernardino, Mono and Inyo counties. With the permission of the boards of supervisors in Mono and Inyo counties, the San Bernardino County Board of Supervisors acts as the governing body of the Inland Counties Emergency Medical Agency. ICEMA is charted “to ensure an effective system of quality patient care and coordinated emergency medical response by planning, implementing and evaluating an effective emergency medical services system including pre-hospital providers, specialty care centers and acute care hospitals.”
According to the grand jury report, “In 1981 San Bernardino County contracted with the primary ambulance service provider and other smaller ambulance providers to conduct a pilot project. As a result of this pilot project, in 1984 the Inland Counties Emergency Medical Agency (ICEMA) established an emergency medical services (EMS) plan that included establishing exclusive operating areas (EOAs) as allowed under California Health and Safety Codes Sections. The plan resulted in contracts being established, without going out to bid with the current providers within the pilot project. On April 20, 2004, twenty years later [and] without going out to bid, ICEMA approved a performance based contract with the primary provider that included setting up six EOAs. The contract was written to expire on April 30, 2012, and included six automatic extensions. In 2010, ICEMA entered into discussion with the emergency medical services providers to negotiate contract extensions with the understanding that a bid process would be needed in the near future.”
The grand jury reviewed the county’s purchasing policies and procedures, pilot project documentation, the emergency medical services contracts, amendments specific to American Medical Response, various statistical reports and business plans.
According to the grand jury report, “The primary ambulance service provider has continued to be a contracted provider to the county for 34 years. During this time frame, the contract has never gone out for a bid. Based upon interviews, the time frame needed to prepare a request for proposal [i.e., a solicitation of bids] for a contract is 18 – 24 months. The grand jury’s interviews and review of documentation validates that there are no set policies which prohibit the extension of contracts. The ambulance services contract is extremely complicated due to the required levels of safety. These levels of safety include but are not limited to adequately trained emergency medical technicians, paramedics and advanced life support (ALS) equipped ambulances. The standard county contract’s life is five years. The board of supervisors has the authority to extend any contract. The contract between the primary ambulance services provider and the county has never gone out for bid since 1984. The current contract has performance monitoring requirements and penalties to which current ambulance service providers must adhere. ICEMA receives a fee for the monitoring of the performance of all contracted providers.”
Obliquely and politely, indeed without directly referencing the degree to which hefty campaign contributions from AMR have bought influence on the board of supervisors, the grand jury report raises the issue of the favoritism shown toward AMR over the years and the way in which the company has been allowed to adhere to older and lower standards that were in place when it obtained the ambulance service franchise while the county is insisting that the companies that would compete with AMR hew to higher and more expensive standards. This phenomenon in which the government shows such favoritism to a preexisting entity that is not shown to a newer entity is referred to as “grandfathering.”
“The primary ambulance service provider has been serving San Bernardino County since 1981,” the grand jury report states. “In the early 1990s, the primary provider formed a corporation with regulations written as ‘successor clauses.’ The successor clauses address the transition from one service provider to another. These regulations allow the provider ‘grandfather rights’ for successive contracts and extensions, addressed in section 1797.201 of the Health and Safety Code. The eleven exclusive operating areas that the primary provider covers have never gone out to bid. The primary provider has ‘grandfathering rights,’ covered in the State of California Health and Safety Code, sections 1797.201, 1797.224 and 1797.226. Additionally, the Inland Counties Emergency Medical Agency cannot put one exclusive operating area out for bid; only the entire contract must be in the bidding process. Ambulance service is considered a critical service as are the police and fire departments in the bidding process, which could take 18 to 24 months. In the grand jury’s interviewing process, it became apparent that county leadership thought it would be difficult to provide the necessary level of critical service in a changeover process.”
According to the grand jury, “The changeover process (successor clause) is covered in section 1797.226 of the State of California Health and Safety Code. The changeover process is addressed as a successor; the successor replaces previous providers. The bidding process has been discussed for five years by the governing bodies. The primary ambulance service provider has all the most populated exclusive operating areas of which eleven of the total twenty-seven were grandfathered. The eleven exclusive operating areas are in the following cities: Rancho Cucamonga, San Bernardino, Redlands, and Victorville. The other ambulance service providers are the San Bernardino County Fire Department, city fire departments, and four other private ambulance service providers.”
Continuing, the grand jury report points out that there are different perspectives as to whether AMR’s potential competitors can perform at the same level it does. “A number of factors are involved in selecting an ambulance service provider,” the grand jury report states. “The primary provider must maintain a 90 percent response time of 9:59 minutes. Based upon our interviews, it was stated that San Bernardino County Fire Department could not provide a more cost efficient level of ambulance services. The fire department stated that it could provide better service, make a profit and cover the entire county. Currently, the department is not monitored for its response time like the primary provider.”
The grand jury alluded to the degree to which AMR and its predecessor, Mercy, had pressed the advantages conferred upon them by the county and then subsumed their competitors, foreclosing any realistic opportunity for competition.
“All decisions regarding the primary ambulance service contract including the extensions are made by the board,” the grand jury stated. “The current ambulance service providers started servicing San Bernardino County in 1981. Eight ambulance service providers that were servicing the county were acquired by the primary ambulance service provider. The acquisition also included the grandfathered exclusive operating areas which the State of California Health and Safety Code 1797.224 allowed. As Health and Safety Code 1797 dictates, if an ambulance provider were providing services in a specific area within a county exclusive operating area, they retain it [or were] grandfathered. The county could lose grandfathering protection and some control could revert over to the state if the contract were put out for bid under the Health and Safety Codes.”
In its findings, the grand jury stated, “The county issues five year contracts and can extend at its discretion. Three of the six extensions were limited to six months or shorter, not allowing the time needed for a request for proposal (18-24 months). Modifying boundaries of existing contracted exclusive operating areas would warrant for the complete bidding process of the contract. Health and Safety Code 1797.224 states if the exclusive operating areas are amended, the entire contract must go out for bid. The primary service provider currently services eleven exclusive operating areas of the twenty-seven exclusive operating areas within the county. This represents nine percent of the geographic area and 80 percent of the total population.”
Ultimately, the grand jury recommended that the county “Create one exclusive operating area that covers the entire county. This would allow one provider to cover the county and require the provider to service populated and rural areas. If one exclusive operating area were created to encompass the remaining sixteen exclusive operating areas, the current provider could retain grandfathering protection.”
Thus, the grand jury said the county should “Create a request for proposal for a new service provider contract.”
-Mark Gutglueck

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