Ambulances are Monopolies — and They Should Be Regulated Accordingly

Originally published on August 29, 2016, on the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics Bill of Health blog.

You go to your local urgent care with a headache and a fever, and the doctor suggests a trip to the hospital for further evaluation — just to make sure there isn’t anything serious causing your symptoms. She offers an ambulance, and you accept. You could probably walk or Uber, but you’re not feeling well, and the doctor has offered to arrange the ride. Why not?

This was the story of Joanne Freedman. She didn’t think too much about it, until she received a $900 bill for the two-block ambulance ride she took to the hospital. While Joanne’s experience was particularly egregious, it is not wholly uncommon. Ambulance pricing is one of the most variable and least transparentcomponents of health care costs, with rides ranging from tens to thousands of dollars. This is in part because there are many ambulance providers, and they all have different relationships with different insurance companies. It’s also in part because ambulance rates are generally set according to the services the ambulance is equipped to provide, not necessarily the services actually provided. Some ambulance companies have contracts with municipalities that make them the only game in town, while others are in more diverse markets with multiple providers competing for patients. All this combines to create an incredibly complex industry with very little consistency from ambulance to ambulance.

But is this disjointed, free-market system the best way to structure emergency transportation? The arguments underlying the justification of a free, unregulated market hinge on the ability of consumers to police the industry through choice. If the seller of a good sets the price too high, consumers will buy from a different seller until she brings the price down to what consumers are willing to pay.  This is, in theory, what allows markets to find the right prices for goods and services more efficiently than any government agency or regulator ever could.

These arguments may hold up in certain markets — if a company sells a stick of gum for $500, chances are it’ll find its gum sales drop precipitously. However, when applied to the emergency transportation industry, they just don’t pan out. This is in large part because, to any one individual consumer, ambulances are essentially monopolies. Not only do consumers have no means of price comparison on the spot — as they usually require ambulances in high-stress, time-sensitive situations — they often have no control over their ambulance service provider. When a patient calls 911 or when a physician orders an ambulance, the patient have no agency in determining which ambulance comes to get him or her. As a result, the patient faces a market with exactly one option. While the ambulance industry is actually quite diverse, with many providers ranging from small municipal divisions to large private companies, to any one consumer, the market is functionally a monopoly.

Not only are consumers faced with a single ambulance provider, they are often in no position to make a rational cost-benefit analysis for accepting or rejecting these services. Consumers have little to no information about the cost of ambulance services at the time they are required to accept them, and they may not even know whether their situations constitute emergencies — which impacts how much their insurance companies will pay for rides. Can we really expect patients in this position to make rational decisions about whether or not to get in the ambulance?

All of this suggests that the ambulance market is in need of more robust regulation.  While it’s something of an economic boogeyman, we actually have a pretty good way of regulating industries where monopoly power is part of an efficient market: price control.

The most prominent examples of price-controlled monopoly markets are those for utilities.  As electric grids were built up across the country to bring power to people’s homes, it became clear that the most efficient means of purveying electricity was to have a single provider wire houses. This avoided the redundant investment of multiple companies trying to build their own wiring networks to every residence. This posed municipalities with a dilemma. Do they try to encourage the inefficiency of redundant wiring to enable competition between power providers, or do they allow a monopolist to control the market for electricity in a given area?  The “Goldilocks” solution on which many municipalities settled was price-regulated, government-sanctioned monopolies. A single provider got the entire market, but was largely unable to exploit that dominance to squeeze money out of consumers.

While the market for ambulance services isn’t exactly like that for utilities, the two share an important attribute: a monopoly is the optimal market structure. We want the ambulance market to be a monopoly on an individual level. We don’t want 911 calls to trigger ambulance races to the most lucrative patients, and we don’t want patients to have to weigh the costs and benefits of various providers while reeling from a car crash or having a heart attack. The market actually works best — in terms of getting patients to the hospital as quickly as possible with as little red tape as possible — when patients only have one option. The market has evolved to capture this kind of efficiency, but the regulation hasn’t kept pace. This is why stories of patients like Joanne Freedman being blindsided by bills for ambulances they had no hand in selecting are now commonplace. It’s time the regulation caught up, and started treating ambulances like the situational monopolies they are (and should be).

Price controls for the ambulance market would have to be nuanced. Different ambulances are more expensive to operate than others based on the services they are equipped to provide, and the set prices should reflect that. There should also be analogous requirements on how much insurance companies must pay for both emergency and non-emergency ambulance rides, and those should balance out so insured patients aren’t unwittingly on the hook for the difference between the cost of a ride to the hospital and what insurers are willing to pay.

Regulating prices isn’t the only possible solution for the wild west of ambulance pricing. Municipalities could go back to operating ambulances as a public service, as they did in the mid-20th century. But however we choose to rein in the market, one thing is for sure: the status quo is not acceptable. Even the staunchest libertarians concede that there is occasionally a role for government regulation in instances of true market failure. For patients calling 911 for an ambulance, traditional market forces are powerless to save them from unknowingly incurring substantial costs. The government has both the means and responsibility to intervene, and price controls are a tried and true method of protecting consumers from monopolists — be they ambulances or utilities. Going to the hospital in an ambulance is scary enough. Patients shouldn’t have to worry about going bankrupt on the way.