Air Methods CEO: market improving
Air Methods CEO Aaron Todd said the company posted a “good, strong profitable year” in 2009 thanks to a partial rebound in flight hours and lower operating expenses for maintenance and fuel. The market for the nation’s largest helicopter EMS provider improved after a marked decline during 2008 and the first half of 2009 that saw flight hours drop by 10 percent due mainly to the weakened overall economy and, to a lesser degree, changes in patient transport protocols.
“The entire economy was impacting the [fewer] number of trauma events and even the number of babies being born, and that included low-weight births that were occurring,” he said. “And 2008 was a horrific year for safety and that engendered some debate on the appropriate use [of helicopter EMS]. Certainly the cost of these services is not inexpensive. You have to keep pace with inflation and facilitate all the patients you transport for free. All of those things have caused a constant
re-evaluation so that you ensure that only patients who have a medical necessity to utilize the higher capability and talent of air medical [are transported]. Since last April we have seen a two to three percent recovery, maybe a quarter of what was lost” in terms of flight hours.
Although flight hours are still down, Air Methods posted substantially higher net income in the last half of 2009, in part due to price increases, lower maintenance costs from fleet rejuvenation and lower fuel costs. However, even in the highly price-competitive helicopter EMS market, the company must increase prices to compensate for the costs of uncompensated transports and the payment lag for patients covered by Medicaid. “There is always an ongoing inflationary factor in providing these services,” Todd said. “If you look at the 10- to 15-year trend line in air medical the cost of providing these services has far outpaced the rate of inflation.”
Medicare and Medicaid reimbursements are deeply discounted and can often fall below the actual cost of transport, especially when twin-engine helicopters are used. Todd did acknowledge that Air Methods is shifting to more single-engine helicopters in select markets “to keep those programs viable,” but disagreed that single-engine ships were the only way to make money in helicopter EMS. “We still operate a lot of twin-engine aircraft within our community-based operations as do our hospital customers. You just want to make sure that you are utilizing those aircraft because they are the most appropriate aircraft to the conditions, such as flying over water or when you have a lot of IFR conditions.”
Fleet rejuvenation also drives down operating costs. Over the last two years, Air Methods took delivery of 46 new helicopters and saw maintenance costs drop by more than 20 percent. “The OEMs have been doing spare parts price increases that are many percentage points above the inflation rate,” Todd said. “Typically when a manufacturer has no longer been manufacturing an aircraft for 10 years, that is when you start to see the overall [maintenance] costs past the inflection point. On average when aircraft hit 20 years from the date of manufacture, that is when we look to start transitioning into a newer aircraft.”
Overcapacity can also drive costs and, as helicopter EMS hours have fallen off nationwide, consolidation appears certain on a market-by-market basis. “There are many markets within the United States where we have an overcapacity of air medical capability and that is not healthy,” Todd said. “We are very interested but are not looking at acquisitions within air medical simply for the purpose of expanding our footprint. We are trying to provide greater rationality to these services in order to keep them viable financially and to be able to invest in greater quality and safety.”
Todd cited Air Methods’s acquisition and merger of an Atlanta-based program previously owned by Omniflight Helicopters as an example of this strategy. “There was a significant amount of overcapacity in the Atlanta market and this allowed us to merge the programs and streamline operations to ensure long-term viability of the air medical service within that community,” he said.
Todd does not believe the contents of the long-anticipated FAA helicopter EMS rules proposal will be particularly onerous for Air Methods. “Based on those things we think will come out of rulemaking, we believe we are already compliant or will become compliant and we will be a participant in making sure the things that are changed meaningfully impact safety,” he said.