Emergency Brake

Workers at Southwest Ambulance fought to keep their turf in Chandler, but lost half the city. Now they're locked in a bitter battle to hold ground in Tempe.

When Scottsdale officials were picking an ambulance company to handle 911 calls last year, they didn't look at the factors you might assume would be at issue.

Not price. The state sets the rate for ambulance trips, no matter who is the provider.

Not speed. Promising a faster "response time" didn't guarantee a single point on the city's 1,000-point assessment of would-be providers.

Instead, Scottsdale considered factors like experience (40 points), diversity awareness (10 points) and equipment (80).

And then the city looked at something known in the ambulance business as "enhancements."

That category was worth a full 300 points. And, in effect, points were awarded based on the ambulance companies' answer to a simple question: What are you gonna do for us?

For the winning bidder in Scottsdale, that meant offering to purchase special equipment: 175 portable defibrillators, each worth about $1,700.

And agreeing to hire city firefighters to staff four ambulances. Paramedics are much cheaper — but the company offered, generously, instead to pay some firefighters' salaries, benefits, and even overtime.

And, believe it or not, offering to finance two bomb-sniffing dogs for the Scottsdale Airpark at $10,000 a pop.

The Scottsdale contract represented a big shift in how ambulance contracts are won in the Valley. For almost a decade, Mesa-based Southwest Ambulance had a virtual monopoly on 911 calls. Just doing the work was good enough to keep municipal contracts, year after year.

But last year brought a competitor, PMT, to the Valley's suburbs, and with it a new way of doing business.

One of PMT's owners, Pat Cantelme, led the firefighters' union representing Phoenix, Chandler, Tempe, Peoria, and Glendale for 20 years. A master at retail-level politics, Cantelme knew how to sell his product to the Valley's powerful firefighters' unions, which exert considerable influence on the city politicians who choose ambulance providers (see "Ambulance Chasers," October 27, 2005).

And Cantelme also knew that municipalities would be eager to take whatever "enhancements" they could get.

And so, although Southwest Ambulance offered Scottsdale a faster response time and vowed to dedicate more ambulances to the city, it lost. Cantelme's company, PMT, won the contract, winning better marks for financial depth, diversity awareness — and, of course, all those enhancements.

The Arizona Department of Health Services, which regulates ambulance companies across the state, approved the contract in Scottsdale. But last month, the department wrote a letter to both companies, suggesting that its approval had been a big mistake.

While department regulators didn't reverse their decision about Scottsdale, they indicated that they regretted it — and that, in the future, similar contracts may be dead on arrival.

To that end, the department rejected Chandler's contract, which was based closely on the plan approved by Scottsdale.

The Scottsdale model, assistant attorney general Kevin Ray wrote for the health department, "has become problematic — other municipalities are requesting similar 'EMS enhancements' at significant cost to the ambulance providers."

And that, Ray wrote, could cause major problems down the road.

"These additional and unnecessary costs," he wrote, "if unchecked, will undermine the constitutional and statutory authority of the Department to set rates and charges for ambulance services, will jeopardize the financial health of ambulance providers, and could damage the overall health of the EMS system in Arizona."

The health department's decision will almost certainly change the playing field in the Valley, if not the state as a whole. A number of municipal contracts are set to expire in the next few years, including Tempe, which is currently in the midst of a competitive proposal process — and is already feeling the ripples from the Chandler decision.

And if the department's decision stands, not only could outsiders like PMT have a harder time winning contracts in these cities, but the cities can kiss hundreds of thousands of dollars in perks goodbye.

But if Chandler is any indication, it may not be that simple.

For city officials, getting ambulance companies to finance new equipment, or even pay for more firefighters, seems like a clear win. After all, it shifts costly burdens off taxpayers and onto private companies.

But, as assistant attorney general Ray indicated in his letter to Chandler, there are clear pitfalls to establishing such a system as the norm.

(Ray referred calls for comment to department spokeswoman Andrea Esquer, who deferred to the Department of Health Services. DHS spokesman Michael Murphy did not return repeated calls.)

One potential pitfall: In a desperate attempt to keep municipal contracts and out-enhance their competitors, ambulance providers could bankrupt themselves. That would take Arizona right back to the monopoly it started with.

Another potential problem? Ultimately, someone has to pay. Today the set rate is $643 for a ride in an ambulance in Maricopa County, but the state has been willing to increase rates when requested. Ambulance companies would certainly lobby for increases long before they'd pack up their bags and leave town — and fee increases are no good for sick people or their insurers.  

And we all end up paying, eventually.

That's not because old age and death will claim us all in the end — although that's certainly true.

It's because, via Medicare, the federal government is the single biggest client of most ambulance companies. Any time rates go up, the feds get stuck with the lion's share of the bill.

It doesn't matter who's writing the check today. Ultimately, taxpayers would get to underwrite Scottsdale's proposed $10,000 bomb-sniffing dogs.

That's why one expert believes that the "enhancements" requested by Arizona cities aren't just bad financially. He says they also violate federal anti-kickback laws.

Doug Wolfberg is an attorney with Pennsylvania-based Page, Wolfberg & Wirth, a law firm with a national reputation for its work in the EMS industry. (In that capacity, he says he briefly worked as a consultant for Southwest, which protested that Scottsdale and Chandler's proposed enhancements were a violation of federal law.)

In a recent column for the Journal of Emergency Medical Services, Wolfberg suggests that the federal government ought to take a closer look at contracts like those in Scottsdale and Chandler.

"Medicare is the single largest payer for most ambulance companies, and the federal government intended the Medicare fee schedule to cover such essential ambulance service costs as personnel, equipment, overhead and supplies provided to Medicare beneficiaries — not to supplement municipal taxes," he wrote.

Wolfberg expanded on his comments in a telephone interview with New Times last week.

"Federal law prohibits ambulance companies from giving 'anything of value' to someone who can steer referrals their way," he says. "I think these contracts violate that law. . . . These cities are saying, 'Whoever sweetens the pot the most gets the work.' Well, if the law doesn't prohibit that, I don't know what it prohibits."

Kevin McAnaney, a lawyer with a Washington, D.C.-based solo practice focused on Medicare fraud, disagrees. (McAnaney says he consulted on the Scottsdale and Chandler contracts on behalf of city officials.)

In one recent advisory opinion, McAnaney says, the federal government refused to halt a county from bestowing ambulance contracts on the company offering the highest per-trip "reimbursement" back to county coffers.

Cities used to worry about the anti-kickback laws, but opinions like that have emboldened them, he says.

"It's easy to allege a kickback, but the guidance the government has put out over the last five years has increasingly given municipalities a fair degree of flexibility," McAnaney says. "There's a recognition that as long as what's being given is pretty directly related to EMS work, it's okay."

The Arizona Department of Health Services, however, doesn't look at the potential for Medicare fraud. Its charge is to keep rates low.

And as the letter from assistant attorney general Ray makes clear, that's enough to reject the recent trend toward major enhancements, even without the kickback issue.

"In the future, all ground ambulance contracts submitted to the Department for approval may be rejected if they contain significant additional and unnecessary costs to the ambulance providers," Ray wrote.

That includes, he wrote, requiring ambulance companies to staff their trucks with firefighters — an "additional and unnecessary expense."

Unlike Scottsdale, Chandler didn't end up choosing PMT as its sole provider.

Like Scottsdale, Chandler put out a request for proposals. And, like it had done in Scottsdale, PMT put in a proposal to take away Southwest's turf.

But after getting both companies' proposals, Chandler unexpectedly decided to throw out both.

In ambulance circles, this was taken as a vaguely sinister development. But assistant fire chief Jeff Clark says there's a simple, almost sappy explanation. At a community committee meeting to evaluate the two pitches, he says that a community member asked, "Why can't they co-exist?"

And with that, Clark says, Chandler officials divided the city in half and offered both companies an ultimatum: Accept a city-written contract without negotiation, or walk away and let their rivals have it.

Both companies, not surprisingly, took the contract without protest.

As in Scottsdale, the contracts required that the companies pay for firefighters on some ambulances. And so after the contracts were inked in March, Clark says, Chandler hired 12 new firefighters to take on the increased workload. The ambulance companies were to pay their salaries and benefits.

The new hires were a boon to Pat Cantelme's old union, which gained new membership. But when the state rejected the Chandler contracts last month, their job status suddenly seemed tenuous — and the city that hired them was in an awkward place.  

"We moved forward in good faith and recruited and hired firefighters," Clark says. "We've spent $600,000 on their training."

And so on October 27, Chandler responded to the Arizona Department of Health Services with a sharply worded five-page letter, vowing to keep the contracts in place.

Assistant city attorney James R. Cairns III argued that the state's decision was "deficient and problematic on several fronts": It came much too late. It exceeded the state's authority. And, perhaps most important, it reflected "disparate treatment."

"There is absolutely no justification for the Department having approved the City of Scottsdale contracts while subsequently disallowing Chandler's contracts several months later," Cairns wrote.

He added, ominously, that Chandler "intends to vigorously pursue all legal remedies available to recover any and all damages it incurs due to the deleterious actions of the Department if, in fact, the Department does seek to 'disallow' the City's contracts . . ."

Clark, the assistant fire chief, says that Chandler has asked both ambulance companies to keep working under the contract, despite the health department's decision. Cantelme's company, PMT, says it's in; the city is waiting to hear from Southwest.

Southwest, clearly, has been skeptical of the "enhancement" game even while Cantelme has perfected the art of playing it. Last year, Southwest filed several protests, arguing the Scottsdale contract was encouraging Medicare fraud. And before Chandler yanked its request for proposals, Southwest also wrote letters to that city, suggesting the same thing.

"We're strictly regulated by the state and by federal Medicare laws," says Southwest spokesman Josh Weiss. "When a city asks us to do something we're not allowed to do, we're stuck in a no-win situation."

In a clear jab at Southwest's competitors, Weiss suggests that PMT knows that — and may have purposefully offered "enhancements" that go beyond the rules, knowing it won't have to ante up once regulators take a look.

"We don't think it's fair to win a bid by offering things we know the Department of Health Services is going to deny," Weiss says.

PMT spokeswoman Michelle Angle did not return calls for comment.

Chandler officials seem suspicious that at least one of the companies may have been lobbying behind the scenes to get the contracts thrown out.

In a letter to both companies dated October 27, Chandler assistant chief Clark requested that each cough up any correspondence they've had with the health department about the contract, as well as any analyses they've prepared of how enhancements may affect their bottom line.

And, Clark added sternly, the companies better be prepared to fight to spend money on Chandler's behalf.

If the health department declares its decision final, Clark wrote, "I expect you to appeal that determination."

Although it's the situation in Chandler that's heating up, that isn't the only Valley city that stands to miss out on "enhancements" — and that may be headed for a showdown with the health department.

After years of being served by Southwest, Tempe is now in the process of evaluating proposals from both companies. And, behind the scenes, its actions suggest a willingness to start a fight, just like the one in Chandler.

Both ambulance companies and their supporters have been pouring money into Tempe in recent years.

City records show that, in the past year, City Councilman Ben Arredondo alone has accepted a war chest of contributions: $2,100 from PMT's top brass and their family members, $1,800 from Southwest employees, and another $1,970 from firefighters' unions across the state. And firefighters in Cantelme's old union dumped $2,540 into the coffers of Councilwoman Shana Ellis earlier this year.

But it's unclear whether those contributions will be doing much good.

In August, Tempe Fire Chief Cliff Jones briefed the Tempe City Council on the fact that his staff was issuing a request for proposals. At that point, Mayor Hugh Hallman suggested that Jones seek an advisory opinion from the Department of Health Services, just to make sure everything was kosher.

Jones declined an interview request; an assistant told New Times that he couldn't talk because proposal evaluations are under way. And Hallman, oddly, says he's asked not to be briefed further on the ambulance issue, because he wants to keep the battle from being fought politically.

But records show that Jones received a response from the health department back in September — and it wasn't good news.

The letter, written by assistant attorney general Kevin Ray, lists several problems with the enhancements that Tempe is requesting. The city, Ray wrote, shouldn't require proposers to pay for a city contract administrator, or a training ambulance, or an administrative medical director. Those are all "additional and unnecessary" costs. So is asking the companies to pay for a new radiometric system for the city.  

"The Department intends to closely scrutinize this contract process and future ambulance service contracts to determine if they contain additional and unnecessary costs to the ambulance provider," Ray wrote. "If they do, the Department/Bureau may disallow them."

The letter was a serious indication that Tempe's request for proposals, as written, wouldn't lead to contracts that would pass state muster. Strangely, it doesn't appear to have derailed, or even slowed, the process.

The city did not withdraw its request for proposals. And its evaluation continues on pace.

"I would say at this point, the letter hasn't affected our process one way or another," says Ron Dunham, an assistant city attorney. "We are aware of the letter, of course, as are both ambulance companies. But we just decided to keep going with our process."

And if that seems crazy, well, the ambulance fight in Tempe isn't close to being over. As recent events in Chandler have shown, it might not even be over after Tempe gets a contract signed — or even starts hiring more firefighters.

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