COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Health Department

DATE:

September 25, 2008

BOARD MEETING DATE:

September 30, 2008

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Charlene A. Silva, Director, Health Department

SUBJECT:

Report on Selection of Emergency Ambulance Provider

RECOMMENDATION:

Adopt a Resolution authorizing the Health Department Director to enter into contract negotiations with American Medical Response West for the provision of emergency ambulance services.

VISION ALIGNMENT:

Commitment: Ensure basic health and safety for all.

Goal 5: Residents have access to healthcare and preventive care.

The contract for emergency ambulance service will contribute to this commitment and goal by providing excellent quality emergency ambulance service at a reasonable rate.

BACKGROUND:

Initial Proposal Evaluation Process

In accordance with State law, the County has an exclusive operating area for emergency ambulance services. In March your Board approved the issuance of a Request for Proposals (RFP) for emergency ambulance services within this operating area. The Health Department issued an announcement to all ambulance providers in California, several out-of-state ambulance providers who had previously notified the County of their interest, California local Emergency Medical Services (EMS) agencies, the State EMS Authority, and the local EMS community. The RFP was also posted on the County’s website.

Proposals were received from American Medical Response West (AMR), Pro Transport-1, and Rural/Metro of California (Rural/Metro). The proposals were referred to an Evaluation Committee comprised of a Local EMS Agency Administrator and EMS Agency Medical Director, both of whom are from outside of the County; a consumer and an emergency nurse from the County’s Emergency Medical Care Committee; a retired Fire Chief of a JPA agency; two active Fire Chiefs from systems outside of the County; and the Director of Finance of the Health Plan of San Mateo.

The RFP provided that “the Office of San Mateo County Controller will consult with the Proposal Evaluation Committee on the fiscal ability of each proposer to implement and continue the services as outlined in this RFP.” Due to the scheduling of the events of the proposal evaluation and the time it would take for the Controller to perform the evaluation of each proposer’s fiscal abilities, I determined that the Controller’s consultation would be submitted directly to me prior to bringing a recommendation to your Board. All proposers have had the same opportunity to comment on the Controller’s report, prior to the Board’s action on the recommendation.

Initial Recommendation

The Evaluation Committee made a recommendation to me that negotiations be commenced with Rural/Metro. Based upon this recommendation, I notified the proposers that the Health Department intended to recommend Rural/Metro and that protests of this recommendation could be filed. At that time I began the process of due diligence in preparation for making a recommendation to your Board and for beginning subsequent contract negotiations.

Protest and Further Evaluation Process

AMR and Pro Transport-1 both filed protests. All three proposers were then invited to submit input in regard to all three proposals as well as to statements contained in the protests. Such input was submitted by all three proposers.

The RFP provided that the County could use additional technical experts and three consultant reports were received. The Polaris Group, a North Carolina company that specializes in emergency management services and public safety consulting, reviewed the relative merits of each proposal. Claremont Graduate University School of Information Technology and the Altavista Group, a management and information technology consultancy firm, both reviewed technological aspects of the proposals. The Health Department received the Controller’s report. All proposers have had the same opportunity to comment on all these reports.

Final Recommendation to Board

As discussed below, I granted the AMR protest and I am recommending to your Board that contract negotiations be commenced with AMR. I issued a decision letter and released to the proposers copies of all materials that were reviewed in consideration of the protests. The proposers were advised that the recommendation to enter into contract negotiations with AMR would be considered by your Board and that they could submit material to your Board regarding the matter. Such additional input was submitted by all three proposers. I have reviewed and considered all the material submitted by the proposers, and the recommendation is based upon my review of all these material.

This recommendation before your Board is limited to selecting which emergency ambulance company is to provide services. The negotiation committee, which will consist of County representatives and Joint Power Authority representatives, will take into consideration the recommendations of the EMS Redesign effort. The resulting negotiated agreement will be presented to your Board for its approval in early 2009.

While I have taken into consideration all materials submitted, my recommendation to your Board primarily is based upon the information contained in the actual proposals and the Controller’s report. For that reason, the discussion below essentially focuses on that information and the proposers’ comments related to that information.

It is important to note that the intent of the process is to select a provider which best fits the needs of the County’s EMS system in the current financial climate. My recommendation is a determination of which of the proposers would best serve our system, given its size and operation.

DISCUSSION:

AMR’s Proposal Reflects The Most Experience

The RFP required that “proposers must have experience as the provider of emergency ambulance services for a population of over 400,000 or equivalent experience in a single contiguous area. Such experience should include compliance with fractile response time performance and other regulatory/contractual expectations.” Pro Transport-1’s proposal does not evidence such experience. While Pro Transport-1 has licensed ambulances, its proposal only describes the transport of patients between health care facilities. Pro Transport-1 contends that it did not understand the parameters of the required experience. The RFP process offered two opportunities to direct questions to staff: a proposers’ conference and written questions. While Pro Transport-1 asked whether there were any “additional requirements”, they chose not to seek any clarification of the wording of the requirement. Moreover, while Pro Transport-1 is not the recommended provider, it was not “disqualified” from the process.

While Rural/Metro is currently providing such services for the City of San Diego, AMR is currently providing these services for eight California counties. Rural/Metro now states that it serves multiple markets with populations over 400,000 and in their proposal chose to “highlight” only their San Diego services. A review of the proposal reveals that Rural/Metro did identify four additional out-of-state cities, however, none of these cities have populations over 400,000.

AMR’s Proposal Evidenced The Strongest Financial Position

--Controller’s Report

Each proposer was required to “provide evidence of its fiscal strength to implement and maintain the services outlined within this RFP for the term of the contract period. The proposer must have sufficient capital for contract implementation and financial reserves to sustain operations. The proposer must be free of commitments and potential commitments which might impact assets, lines of credit, guarantor letters, or otherwise negatively affect the company's ability to perform the contract.” The Controller’s report set forth the fiscal capability of each proposer to implement and continue the services. The analysis considered not only the current ability of each proposer to implement the level of services proposed, but also its long-term ability to sustain the required level of services. None of the proposers have taken issue with the methodology, analysis or findings in that report.

The Controller’s report reveals that while Pro Transport-1 appears to be a profitable company, it does not have close to the amount of working capital or net income that AMR does. Pro Transport-1 contends that it has been “disqualified based upon its financial size.” This is incorrect: It has not been disqualified, rather a determination has been made that AMR has a better fiscal capability to perform the services. In considering a company's ability to withstand unexpected events from expanding operations, "financial size" does matter. Companies with larger amounts of working capital are better able to absorb new operational costs and withstand the impact of an unexpected event than companies with smaller amounts of working capital.

The Controller’s report further reveals that Rural/Metro has a negative net worth. Consequently, it may be more difficult for Rural/Metro to borrow funds using its assets as collateral. In addition, it appears that Rural/Metro’s net income declined to a negative $1,009,000 in 2007.

--Macias Consulting Group Report

While Rural/Metro does not contend that the comparative analysis prepared by the Controller is flawed, it chose to submit a separate “analysis of financial indicators and trends related to the evaluation of Rural/Metro’s financial condition for the years (FYs) 2006, 2007 and 2008” prepared by Macias Consulting Group. It should be noted that the Macias report covers financial information that was not contained in Rural/Metro’s response to the RFP, and it is silent on the other two responses. The Controller compared each company's various financial viability indicators to those of others and indicated what each meant in terms of risks of expanding operations. The Macias analysis, on the other hand, evaluated whether or not Rural/Metro is in financial distress without assuming any change in operations. In addition, a few specific observations can be made about the conclusions made by Macias.

In regard to Short-Term Liquidity Analysis, Macias states “these ratios show that Rural/Metro is not in short-term financial distress and maintains the current assets to cover those liabilities that are due within one year.” Macias, however, does not look at these ratios together with the amount of working capital. Rural/Metro has $33 million in working capital whereas AMR has $363 million. This means that AMR will be better able to absorb high start-up costs and to withstand the turbulence and unpredictability of health care costs and reimbursements.

In regard to its Long-Term Liquidity Analysis, Macias concludes that there is “no immediate concern regarding the ability of the firm to remain liquid in the long-term because the firm has improved its long-term liquidity for the last three years.” Macias then states that the optimal cash flow from operations to total liabilities ratio should be .20. However, Macias’ own calculations demonstrate that Rural/Metro’s ratios for the years 2006-2008 range from .06 to .09, which is off by more than one-half the .20 target for each of the years presented. This shows that Rural/Metro may not have the strong ability to pay all debts (including long-term) as they come due. This is echoed in the Controller’s report which reflects a negative long-term debt-to-equity ratio. The long-term debt-to-equity ratio indicates a company's ability to borrow more funds if they run into trouble with the new venture. A negative ratio does not reflect a strong ability to borrow funds.

--Operating expenses

Rural/Metro determined that after six months of using cash from reserves for operations it would fully fund the system through collections from the San Mateo County system. The decision letter pointed out that approximately $617,819 in certain expenses is not contained in each of Rural/Metro’s required annual “Proposed Operating Budget” submissions. In recently submitted material Rural/Metro speaks only to the omitted $236,924 of “County charges” for EMS Oversight and Prevention Coordinator by stating that they are instead contained in the category "Other Personnel". If this $236,924 is moved from “Other Personnel” to “County Charges” that leaves Rural/Metro’s "Other Personnel" budget at $786,672 which is a little more than 1/3 of the amount budgeted by the current provider. Our experience indicates that amount is insufficient.

Additionally, the RFP required “the ambulance provider will provide first responder vehicles with the same durable medical equipment and expendable supplies as are used by provider." Rural/Metro's listing of equipment and supplies does not include everything required for the first responders. Additionally, neither a start up cost nor any projected revenue were set forth in the Rural/Metro proposal.

AMR’s Proposal, As A Whole, Is Superior To The Other Proposals

Rural/Metro’s proposal set forth a faster response time in the urban areas than required by the RFP and a lower patient fee for the initial year than the other two proposers. However, the Controller’s report as well as a closer review of the budget materials contained in the Rural/Metro response have raised a significant question as to whether Rural/Metro will have the long-term financial strength to be able to maintain the faster response times and the lower patient fees, as well as maintain high quality patient services for the duration of the contract. A review of the proposals, the reports and all material submitted by the proposers supports a determination that AMR’s proposal, as a whole, is superior to the proposals of Rural/Metro and Pro Transport-1.

FISCAL IMPACT:

There is no fiscal impact associated with entering into contract negotiations.

ATTACHMENTS:

I. Initial Recommendation

1

Evaluation Committee Recommendation

7/17/08

2

Notice to Proposers Initial Recommendation

7/22/08

II. Protest Correspondence

3

AMR Letter

8/1/08

4

ProTransport-1 Letter

7/31/08

5

Health Director Invitation to Submit Input

8/1/08

6

AMR Letter

8/15/08

7

ProTransport-1 Letter

8/14/08

8

Rural/Metro Letter

8/11/08

III. Decision on Protests

9

Health Director Decision Letter

9/8/08

10

Controller’s Report Financial Ability of Proposers

9/4/08

11

Alta Vista Report

7/16/08

12

Claremont Graduate University Report

7/15/08

13

Polaris Group Report

not dated

IV. Proposer Material Submitted to the Clerk of the Board

14

AMR Board Letter

9/23/08

15

ProTransport-1 Board Letter

9/22/08

16

Rural/Metro Board Letter

9/22/08