As private equity investment in healthcare services has boomed over the past decade, select funds have turned an eye toward one of the most important and challenging areas of healthcare services: ambulance and medical transportation. In part two of our series on private equity investment in medical transportation, we’ll examine how private companies, including those backed by private equity, can contribute to the improvement of care by reducing costs and augmenting quality.
First, it makes sense to take a moment to define what improvements look like in the context of medical transportation. As with all corners of the U.S. healthcare system, the structural makeup of the medical transportation industry makes optimizing the notoriously difficult tradeoff between cost and quality difficult to balance. A few of the complicating elements of the industry include the coexistence of municipal and private services, stubbornly low Medicare and Medicaid reimbursement rates in many regions, and a shortage of highly trained paramedics and EMTs. Solutions to reduce the cost to provide care, reduce the cost to patients and taxpayers, improve response times, or improve the quality of care delivered in transit are in the best interest of all stakeholders in the medical transportation value chain.
In that context, private medical transportation companies can often provide care at a lower cost than alternative services. As opposed to public or municipal ambulance services, which are less inclined to contract with commercial payors, private ambulance operators possess the negotiating power and financial incentive to form strong agreements with insurance companies. Public ambulances are also often more costly to operate because geographic boundaries, population density, and local politics commonly contribute to suboptimal scheduling and positioning in the field, impairing response times. Municipal services can rarely flex resources between emergency and non-emergency work effectively, augmenting the amount of costly idle time as well. Finally, government-adjacent ambulance agencies are protected by select safe-harbors regarding Office of the Inspector General (“OIG”) anti-kickback statutes, protecting public-sector ambulance services from what in the private sector would be considered fraud. Effective payor contracting, fewer geographic limitations on service areas, the ability to provide multiple levels of service, and robust regulations make private medical transportation companies with strong management a superior option in many cases than alternative modes.
On the quality side, private medical transportation companies are differentiated as well. Whereas many municipal ambulance services, particularly in rural and suburban areas, employ paramedics and EMTs that experience significant idle time in the field, private ambulance services are incentivized to optimize uptime and activity. Less idle time gives caregivers the routine experience that they need to stay sharp and maintain lifesaving skills, with the added benefit of giving paramedics and EMTs a fulfilling work experience. At the same time, private companies’ ability to move resources around between geographies means that they can serve the same regions more effectively than municipal services, while employing the same or fewer medical professionals. In an industry where staffing skilled medics is challenging due to labor shortages, increasing the probability that a skilled, experienced EMT or paramedic responds to a medical emergency is a key quality measure. Private medical transportation companies also are subject to oversight and competitive pressures that municipal services are not. Private companies must deliver high-quality services to the populations they serve, or else risk being replaced – an effective system of periodic checks and balances that dedicated, ingrained public services do not experience. Private equity excels in aggregating the expertise of professionals in multiple industries to apply best practices and implement operational improvements for companies of all types. The dynamics of the medical transportation industry force private equity sponsors to deploy that expertise in order to maintain and grow their business.
MHT Partners, a leading healthcare investment bank, believes that private investment can be a force for good in the ambulance and medical transportation industry, and that companies providing excellent care with an eye toward all stakeholders in the value chain are poised for success. While certain public services have excelled at addressing issues of cost and quality, many of the core challenges in the medical transportation system can be addressed by a competitive industry made up of private operators as well. If you would like to learn more about MHT’s healthcare services advisory practice, please e-mail Taylor Curtis (firstname.lastname@example.org) or Alex Sauter (email@example.com).