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Seeking an Edge

By James T. McKenna | August 31, 2016

Air medical operators in the U.S. face an ongoing period of consolidation and political standoff that will likely foil efforts in the short term to improve compensation for their services.

That environment is keeping pressure on operators to pare costs with greater efficiencies within their individual business units. They are forced to balance those efficiency efforts with a number of factors, including political and public pressure over air ambulance business and safety practices and pending and prospective mandates for new safety equipment.

The latter include possible new requirements for helicopter occupant protection measures, including greater use of crash-resistant fuel systems.

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Consolidation in the air medical sector is often a subject concerning takeovers or partnerships among operators, but another aspect is the possible combination of insurance companies. Insurer consolidation leads to increased pressure on service providers like helicopter air ambulance providers to cut costs and reduced leverage in negotiations with insurers over fee and reimbursement schedules.

These and other aspects will be among featured discussions when leaders of the U.S. and international air ambulance industry gather Sep. 26 to 28 in Charlotte, North Carolina, for the annual Air Medical Transport Conference.

In addition to its policy, political and financial debates, the show includes more than education sessions on aviation, clinical, communications, management, research and safety topics.

The event’s main organizer, the Alexandria, Virginia-headquartered Assn. of Air Medical Services (AAMS) estimates more than 120 companies will display their products and services for air and critical-care ground medicine in the show’s exhibit hall.

AAMS expects more than 2,500 people from around the world to attend this year’s event.

A key topic of conversation is likely to be the latest consolidation move: REACH Air Medical Services acquisition California Shock Trauma Air Rescue, or CALSTAR.

The two major California-based air ambulance providers announced the deal June 16 to bring CALSTAR under REACH’s corporate holding company, which is part of REACH Medical Holdings, LLC.

That holding company is in turn part of Air Medical Group Holdings, the Dallas-based firm owned by the multinational private equity firm KKR. In addition to REACH, Air Medical Group Holdings’ subsidiaries helicopter emergency medical service providers Med-Trans Corp. (headquartered in Lewisville, Texas) and West Plains, Missouri-based Air Evac Life Team.

Under the deal with REACH, CALSTAR is to continue operating with its own brand and flight nurse-staffing model.

A Tricky Move

Reimbursement pressures contributed to the decision to pursue the deal, CALSTAR CEO Lynn Malmstrom told the Santa Rosa, California-based newspaper The Press Democrat in June. (REACH is headquartered in Santa Rosa.)

Founded in 1984 and headquartered in McClellan, California (near Sacramento), CALSTAR has about 225 employees and 14 helicopters and airplanes at nine bases of operation. Malmstrom told the newspaper current reimbursement rates for Medicare and other government programs are far below the cost of providing air medical services, in some cases 70% below those costs. He added that private insurance companies are squeezing air ambulance operators on reimbursements.

“There is a lot of pressure on this level right now,” the paper quoted Malmstrom as saying.

REACH, which was founded in 1987, flies more than 40 helicopters and airplanes at more than 30 bases in California, Oregon, Nevada, Wyoming, Montana and Colorado. It also has bases affiliated with hospitals in Texas, and also assists customers in ground transport programs. Combined with the Cal-Ore Life Flight operation, it has about 600 employees.

When they announced the deal, REACH and CALSTAR officials said they foresaw no base closures. They would focus on integrating, supporting and maintaining the services that made both outfits successful.

While the companies didn’t disclose the financial terms of the deal, they did say the transaction’s proceeds would fund a new, not-for-profit foundation to benefit the public.

“Our companies have been competitors for 30 years, built upon similar foundations of high quality services, patient care and loyalty to our communities, to our patients and to our members who rely upon us for safe, reliable air medical transport,” REACH President Sean Russell said.

Malmstrom added, “We want to ensure that the resources of both programs are reviewed and utilized in a manner that is reflective of the best practices from our 30-year commitments to community and patient care, to industry-leading employee training and to the safe operations of one of the most modern rotor and fixed-wing fleets in air medical care.”

Consolidation, however, can be a tricky process. Competitors develop distinctive organizational personalities, practices and philosophies that can be difficult to surrender. Even when such hurdles are not evident, consolidation can be challenging.

Air ambulance giant Air Methods last October acquired Tri-State Care Flight, a 13-year-old provider of critical-care transport in Arizona, New Mexico, Nevada and Colorado with rotary- and fixed-wing aircraft. When the $222.5 million deal (which closed in January) was announced, Air Methods expected the acquisition to perform strongly.

It did so in the first quarter of this year, but second-quarter performance weakened. Air Methods CEO Aaron Todd told financial analysts last month.

“When you factor in the retained volumes from the bases that were consolidated, we estimate Tri-State lost approximately $1.5 million in the quarter,” he said.

Air Methods decided to speed up training that it typically performs over a longer period after an acquisition. That lowered service rates and performance, Todd said.

In March, the first month after Air Methods consolidated five Tri-State bases, “we completed 460 transports,” he said. “Volumes declined to 329 in April and 302 in May before improving to 347 in June and 401 in July,” which is a seasonally slower month than March.“We believe this issue is behind us and are focused on driving performance at Tri-State and all of our bases,” Todd said.

Politics and Protection

AAMS does expect much relief from Washington this year on federally set reimbursement schedules, which also affect private insurance payments.

Given campaigning for the presidency and seats in the U.S. House of Representatives and Senate, it is “unlikely that Congress will have the time or will to consider” the 12 major appropriations bills, which are traditional vehicles for effecting policy changes, the group told members. More likely, it said, Congress will pass continuing resolutions that maintain federal agency funding and policies.

An open question is what action the FAA (which is funded through next year) will take on new requirements for crash-resistant fuel systems and other helicopter occupant protection measures. FAA Rotorcraft Directorate Manager Lance Gant is expected to discuss that at R&WI’s Rotorcraft Technology Summit Sep. 19 and 20 in Fort Worth, Texas. Visit www.rotorcraftsummit.com for more information.

Feature |

U.S. air medical operators work to manage pressures on cost, competition and safety.

Some operators benefit from new fleets’ lower operating costs.

Photos courtesy of Bell Helicopter

A contract to fly Sikorsky S-92s for the Irish Coast Guard has been one of the few bright spots for CHC Group this year.Photo courtesy of Paul Nelhams

Feature |

Need to Know

Politics in Washington won’t make it easy to improve reimbursement schedules for air medical services.Operational consolidation involves unpredictable costs like that of establishing standardized practices and philosophies.

Air medical services seek a host of operating advantages, including the greater capabilities of new aircraft like the H130.

Photo courtesy of Airbus Helicopters / Ryan Mason

Helicopter operators are starting to establish operational control centers in response to an April 22 FAA ruling. The Helicopter Air Ambulance Rule’s FAR 135.619 says helicopter air ambulance operators with 10 or more helicopters must establish operational control centers staffed with operations control specialists and dictates a specific set of requirements to which each must comply.

Previously, such efforts were voluntary. Now operators are working to comply with the new ruling. Many operators are using technology to minimize delays that may be posed by these directives.

Outfits Set Up Operational Control Centers

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