Global Medical Response – Air & Ground Emergency Ambulatory Services – 9 December 2021

Could you give an overview of what’s happening with the reimbursement and regulatory environment?

Isn’t the whole idea behind the No Surprises Act trying to eliminate the need to try to figure out whether a service or hospital is in-network? I know a lot of surprise billing happens when an emergency room has been outsourced and is out-of-network, but now we’re having to worry about whether the helicopter, the fixed wing or the ambulance transport is in-network. How might all this play out? Can you expand on the estimate for a 28% rate cut on the commercial side?

I was surprised that Medicare and Medicaid collectively comprised over 60% of the marketplace. Is that specifically for air transport or does that include ground? If it is just air, I didn’t think it would be as high, because with air transport, I think of highway accidents in remote areas, which are less related to age. These could be older adults living in remote areas, but that suffer the typical events the elderly suffer from and then need transporting. Is the latter more the case?

ESRD [end-stage renal disease] and dialysis is universal coverage, but for the first five years or so, the commercial payer usually foots the bill and the dialysis providers make all their money on commercial. Of course, Medicare pays them less than their operating costs. I believe Envision stated that more than half of the patients it serves are reimbursed at a rate below its cost. This is the classic example, where the typical cost, fully loaded with overhead absorption and everything else, may be USD 10,000 and if you want to make a nice return on your investments, that’s where you get USD 12,000 with the 20% return, given all the vagaries and risks being taken on in this capital-intensive operation, and yet Medicaid is paying at USD 2,500 vs USD 10,000 in operating costs. How is that remotely fair or logical from a payer’s perspective and how do you fight that when it’s the government?

It seems there could be fairly good rationalisation and perhaps this will be the great wash-out. Is it fair, though, to punish small business owners and mom-and-pop stores that can’t compete and, to a larger degree, PE firms and their investors who have grown their businesses and put together great organisations? Why should they have to suffer margin compression and free cash flow impairment, just by rule of fiat, because CMS is not willing to provide a fair rate? If any legislation should happen, shouldn’t it be that CMS pays a fair rate for services rendered, as opposed to using the size of the government to negotiate unreasonable and unfair pricing practices?

There are billing practices from CMS [Centers for Medicare and Medicaid Services] that are unrealistic and then, to your point, managed care is paying USD 48,000 or higher, and this isn’t fair and should be reset. I think everyone agrees the patient shouldn’t be in the middle of this, but why should the providers get the short end of the stick due to the lack of lobbying efforts or power compared to managed care?

How do memberships work and how can we make the best out of them? Can you outline the market opportunity and the risks?

Anyone on Wall Street realises that a steady, expected recurring revenue stream is the name of the game. No one wants vagaries or surprises. There are a lot of benefits, especially around cost. This is all about risk share. A paid membership is a small amount every month, but should I ever need USD 75,000 air medical transport, I’m not going to be out of pocket. I would think that’s very appealing. For the provider, the subscription model is similar to the Spotify or Netflix model, with monthly payments, and then it’s your actuarial risk in terms of making sure you have the coverage necessary. Why is Air Methods, the major competitor, trashing this idea? It seems to be a reasonable model.

Air Methods went a different route – it just went in-patient. Does GMR’s exposure to Medicare and Medicaid generally approximate what you would observe across the board, or do it somehow have a less at-risk profile? You pointed at a 28% commercial pay cut. Is that the average, or will some regions be worse and some better? How is GMR positioned for the potentially very disruptive impact to reimbursement on the managed care side, obviously away from the CMS side?

You mentioned Air Methods purchasing a SaaS company and partnering with a drone company to deliver medical supplies to rural areas. It seems a bit disoriented, as if it’s grasping at straws. Would the smarter move be for Air Methods to figure out how to get into the ground game? You also said that when you own ground, you own air. If I had a major air transport business and the insiders know that ground controls air, and I don’t have a ground element, I’d try a bolt on and build that, just like Falck is doing. This Dutch company is making significant in-roads – it’s certainly winning in San Diego. However, Air Methods, which has to realise this is an important aspect of market competition, doesn’t seem to be approaching it that way. What are your thoughts there?

News broke yesterday about the MedExpress agreement that brought on 350 employees and a fleet of 70 ambulances, which is a great example of what Air Methods could have done – it could have rolled that up. How is GMR taking on the EMS labour challenges? How meaningful could these be around disruption of operations with the lost revenue, higher labour expenses and margin compression? It’s a perfect storm of everything happening at the same time, so there’s potentially massive compression in managed care reimbursement. The company also announced in October 2021 it has signed a new multi-year agreement with Blue Cross Blue Shield of California, which retroactively kicks in July. I think that’s quite a common instance in this business, but can you discuss this renewal and this win? Rural/Metro was a part of AMR, and so when AMR was bought, it came with the issues Rural was facing back in 2013-15. How has that integration changed and evolved, especially regarding coding and billing with DSO [days of sales outstanding] management?

How has Rural/Metro evolved over the last 5-6 years? I was involved with the company when it was having liquidity issues in 2013-14, and we put about USD 125m into the business. I was impressed by what CEO Scott Bartos was doing at the time. The company definitely had its hands full. To what extent has it addressed these issues over the last five years?