The air ambulance industry is charting a new course.
Many hospitals are questioning traditional contracts that limit their control of helicopter programs' expenses. Others don't want any responsibility for such programs' bottom lines.
Their belt-tightening is forcing air ambulance operators to open their books. Some are preparing to change how they work with hospitals.
The majority of the nation's 217 helicopter ambulance programs contract with national operators, such as Denver-based Air Methods Corp. Typically, hospitals lease helicopters from operators and pay them a monthly retainer and usage fee for pilots, non-medical personnel and maintenance. Most programs don't collect enough from patients and payers to cover their costs.
"There was a time we thought this was the only way," said Nina Merrill, executive director of the Association of Air Medical Services in Pasadena, Calif. "Now everyone is evaluating whether it works."
Flying their own.Several hospitals said they are considering buying their own helicopters or leasing directly from a manufacturer. One such hospital is 570-bed Loyola University Medical Center in Maywood, Ill.
A medical helicopter costs from $1.5 million to $5 million, depending on its technical sophistication. However, buying might cost less than leasing because the hospital will be able to account for depreciation, said Connie Schneider, director of Loyola's air medical department. Buying also will allow it to adopt new helicopter technology. "I'm trying to explore options," Ms. Schneider said.
Other hospitals are asking operators to detail their expenses. "Now they want a breakdown. Can we save in any areas? Can we have one administration center instead of two?" asked Don Klick, vice president of marketing at Dallas-based OmniFlight, which operates 30 air medical programs involving more than 100 hospitals. "It puts the onus on us to be accountable for all of our costs," Mr. Klick said.
Meanwhile, competing programs are consolidating to save money (Aug. 10, 1992, p. 30). About four hospitals are in the average air transport program today, up from two in 1990, according to WinterGreen Research, a Lexington, Mass.-based firm.
Earlier this month, 426-bed Grant Medical Center and 656-bed Ohio State University Hospitals in Columbus, Ohio, announced a merger of their air transport programs. The programs' budgets total $9 million. Operating efficiencies will cut expenses by $500,000 to $1 million, said Rod Crane, a consultant who will head the new program.
The program also will involve specialty ground ambulances to transport critical-care patients. Those ambulances could replace some helicopter transports.
Partners.Such systems present a new type of client for air transport operators. "If we're going to have an operator run our aircraft, we do need to look at alternative relationships," Mr. Crane said. "We need to be a partner."
Yet, OmniFlight and other operators see potential business in the healthcare system's cost-cutting.
As hospitals link up in regional networks, they're designating particular facilities as the only providers of some advanced medical services. That means they'll need more helicopters to move patients about, operators argue. Demand for interhospital transports will turn the air medical industry into a $1 billion business in five years, from $335 million in 1993, analysts said.
Companies said they're expanding fixed-wing operations to meet the anticipated demand and eyeing ventures in ground transportation, too.
Covering all bases.Integrated
medical transport companies, running all three forms of transportation independent of hospitals, might be on the horizon, said Terrance Schreier, chief executive officer of Air Methods.
Air Methods is considering joint ventures with other transport companies in some markets, Mr. Schreier said. The company might bill payers directly for all three services, instead of charging hospitals. "Hospitals are asking for ways in which we can be not just a vendor, but a provider," Mr. Schreier said.
While talk of such radical change is occurring, Air Methods and another major operator have wrestled with some financial troubles.
In April, Air Methods canceled a preferred stock offering because it would dilute the value of its stock too much. It recently cut 36 positions, or 11% of its work force, Mr. Schreier said. "We want to make sure that we are profitable," he said.
The company still expects to report "significant" operating losses for its fiscal year ending June 30 because it wrote off part of the business of an air charter company it acquired. Its revenues, however, are growing. Air Methods added four hospitals this fiscal year and now serves 56, Mr. Schreier said.
Rocky Mountain Air, of Provo, Utah, expects to come out of bankruptcy this summer, said Russell Spray, president and chief operating officer. The company serves 52 hospitals.
It filed for Chapter 11 bankruptcy protection last November after it lost $12.9 million in its logging operations. It's now divesting that business and other troubled ventures. The hospital contract business, however, is doing well, Mr. Spray said.