Administration and Leadership, EMS Insider

It’s Time to Resurrect the Public Utility Model Concept—But This Time for Healthcare

In 1980, Jack Stout introduced the world to the Public Utility Model EMS system.  This radical and disruptive ideology was born in the pages of JEMS.  The problem Jack was trying to solve was the challenge associated with properly managing the scarcity of resources that existed in the EMS industry in the face of in-market competition for ambulance services in communities where private EMS delivery systems existed.

Past Challenges

The challenge many communities in America were facing at the time was that free-market competition for EMS services within a marketplace negatively impacted patient care, employee well-being and financial sustainability.  Although this seems counter intuitive to what we are taught about free markets—that availability, price and quality impact demand—Jack and his team of economists and behavioral scientists at the University of Oklahoma proved that this was not the case for EMS services.

The reason for this is relatively simple: the quality, price and availability of EMS services within a community doesn’t typically impact service demand.  This means that what influences people’s use of EMS services has nothing to do with these factors, but rather are based on uncontrollable things such as socioeconomics, age, health, population density, social determinants of health and natural and man-made influences such as weather, pandemics and disasters. 

The other important fact Jack’s team realized was that, because of these factors and how EMS reimbursement works, the pool of dollars available to pay for these services from user fees was essentially fixed, and free-market competition only served to lower the pool of available dollars when price sensitivity was applicable (such as in the non-emergency transportation market). 

Another important factor was that this fixed pot of money was split amongst in-market competitors, causing an often-massive diseconomy of scale based on the number of competitors in the market place.

The Public Utility Model EMS System

The Public Utility Model EMS system served to solve this problem by switching free-market competition within a marketplace to free-market competition for an entire marketplace, thus consolidating the marketplace.  This forced consolidation enabled a significant economies of scale gain, freeing up dollars to be spent to improve patient care quality, employee well-being and promote long-term financial sustainability. 

This approach leveraged three separate entities: (1) An oversight authority that managed the marketplace, collected all revenues, owned the capital assets and contracted for and managed a separate service provider; (2) an EMS contractor that functions under a performance based contract, won through a competitive bid process, for the provision of EMS services within the managed marketplace and paid for by the authority; and (3) an independent medical control board, responsible for managing the clinical and quality aspects of the EMS system. 

The idea behind this structure was to separate out these system elements, so that the providers of these elements could focus on their primary missions (revenue maximization, EMS operations, clinical care), thus improving their overall effectiveness and efficiency by eliminating the conflicts of interest and lack of balance of power that these elements often create under a single structure.     

The value created under this model was vast.  Communities that adopted these models saw their markets stabilize, care improve, response times drop, costs contained, revenues increased, employee wages and benefits improve, accountability and transparency blossomed and these systems had their capital assets modernized and continuously refreshed…a win for all involved.  Not all was successful in these models however, and we have seen some structural modifications over the years to adapt to industry consolidation that has led to less choices for operations contractors.      

While the modern Public Utility Model structure has morphed in some communities, the concepts it brings to the table such as the legal elimination of in-market competition, performance-based compensation, separation of revenue, capital asset management, clinical oversight, operational functions and the economies of scale this brings, could have massive positive implications if properly adopted and applied to healthcare systems and marketplaces. 

Current Challenges

The most significant challenge in our U.S. healthcare system is the lack of delivery of care systems—not the care itself.  Just like EMS suffered from in the 1960s and 1970s (and in some communities still does), healthcare delivery systems have evolved to what they are today predicated on fee for service economics. They weren’t intelligently designed from the start to maximize effectiveness, efficiency nor produce quality outcomes. 

Rather, healthcare delivery systems have evolved around the needs of providers (not patients) and are bound by the constraints this evolutionary process has naturally constructed.  Healthcare delivery systems are often stove-piped, non-integrated, de-centralized individual based decision-making models that lack a central point of control and the separation of the three conflicting elements (revenue, operations, clinical oversight)—which causes most of the inefficiency and ineffectiveness we see in much of today’s modern healthcare facilities and systems.

Public Utility-Based Healthcare

I believe that enabling public utility based healthcare could work to solve many of the challenges facing healthcare today, and the massive economies of scale gained in the communities they operate in would serve to lower costs, improve quality and make healthcare sustainable. 

This is likely a pipe dream of mine, bit we’re seeing similar characteristics emerge in marketplaces where healthcare consolidation is naturally attempting to achieve greater economies of scale.  Although this natural market consolidation will serve to achieve some of the financial elements needed to fix our system challenges, it doesn’t create the proper structure and balance of powers necessary to fix the lack of intelligent operational design plaguing healthcare today.             

Healthcare may never adapt the public utility model concept, but communities struggling with EMS sustainability, patient care or performance challenges should again consider adoption of utility economic strategies in their system design. Single provider models, no matter where they exist or how they are provided, clearly help to eliminate resource scarcity through the economies of scale gained.

Though the public utility model EMS system is only one means to this end, the balance of power and accountability elements of these systems should be seriously considered for inclusion if you are looking to consolidate your marketplace for sustainability reasons. 

I end this article with some insight I’ve gathered based on my experience observing change over the long haul: “Necessity may be the mother of invention, but also drives acceptance of the previously unacceptable.” 

Necessity is always money.  This means that ideas for change or improvement of the past—which can be forgotten or dismissed in the environment of the day—are often accepted in the future, when the environment or situation necessitates a change that was hard to swallow in the past.

 

EMSology: The Art & Science of EMS

This is the third article in Jonathan Washko’s EMSology series, which aims to share the wealth of knowledge and wisdom that Jonathan has gathered in his 30-plus years in EMS. 

He’s worked with countless EMS agencies at both the bottom and top of their games from around the U.S. and other countries.  This series covers a variety of topics, along with best practices learned from other leaders in the industry. 

EMSology includes commentary on a variety of important topics, including: 

  • Healthcare models and policy changes;
  • Leadership and mentoring; 
  • Process improvement; and
  • High-performing teams.

To learn more about how you can integrate your EMS system into a coordinated healthcare system, look to NAEMT and AIMHI on the web for resources, follow @EMSOLOGY or @JonathanWashko on Twitter for for quick insights and links to other resources.