IUF | 29 July 2016
Emergency services turn life-threatening under US private equity owners — and a global Trade in Services Agreement would globalize the damage
Private equity funds have surged into US ambulance and firefighting services, with disastrous, even life-threatening results, documented in a recent New York Times article.
Following the Obama administration’s health care reform, private equity funds bet on increased outsourcing and a rapid expansion of revenue. They shopped for emergency service companies, bought them in deals which were loaded with debt, piled on more debt to suck out cash and were unable to deliver basic service when the bet soured. Frantic cost-cutting ensued.
Of the twelve emergency services companies taken under private equity ownership in the period examined by the Times, 3 filed for bankruptcy, leaving behind a legacy of plundered balance sheets, deteriorating service (leading in some cases to patient deaths) and jobless workers.
When TransCare EMS, owned by private equity investors Patriarch Partners, declared bankruptcy in February this year, cities on the East Coast of the United States suddenly found themselves without ambulances and paramedics. Private equity, said the mayor of Mount Vernon, New York, "threatened public safety."
At the time of bankruptcy, 30% of TransCare ambulances were out of operation due to lack of maintenance; vehicles formally in service sometimes required hours to start. Emergency service, Patriarch learned to its apparent surprise, required investment in medical supplies, but there was no money on hand because the cash had been vacuumed out. Ambulances were not properly disinfected and lacked life-saving medicine and equipment. Ambulance crews were instructed to raid hospitals for critical medical supplies the company could no longer purchase.
TransCare, according to Patriarch owner Lynn Tilton, succumbed to "the obstacles inherent to its business model." "With limited free cash flow", Tilton told the Times, "any disruptions in the business can cause unsustainable deterioration." People in need of care had become a ’disruption’ for companies squeezing cash flow to meet interest payments on their junk bonds.
In 2011, private equity house Warburg Pincus acquired RuralMetro, a provider of private ambulance and fire protection services across the United States. Warburg paid USD 730 million to buy RuralMetro and take it private, funding 40% of the purchase with debt. The new owners then quickly piled an additional USD 500 million in debt onto the company’s already overloaded balance sheet. As at TransCare, the scramble for cash led the company to cut back on service, leading to a growing number of municipal fines for poor emergency response. Attacks on wages and pensions couldn’t stave off financial collapse, and in 2014 ownership passed to another private equity fund — Oaktree Capital Management.
Oaktree continued to cut back on investment and concentrated on bill-collecting. "In the four years that private equity led Rural/Metro", writes the Times, "the company was fighting for financial survival. It raised its prices, but patients couldn’t afford those bigger bills. Against that backdrop, the company intensified its collection efforts. And when people didn’t pay, Rural/Metro took them to court."
While slashing service the company filed dozens of lawsuits for unpaid bills for fire protection as well as medical services, although many people phoning for help were unaware that these were for-profit services not provided by government. In one case described by the Times, it took Rural/Metro firefighters one hour to arrive on the scene following a call. The house had burned to the ground, but the company nonetheless billed the owner and then sued to collect, eventually putting a lien on the rebuilt home.
Aggressive bill collection couldn’t save Rural/Metro from declaring bankruptcy in 2015, leaving governments scrambling to repair a ravaged system at public expense.
Bankruptcies, deaths and burned homes however, are unlikely to slow down private equity’s move into emergency services. Private equity in the United States was already aggressively expanding into health care and nursing homes prior to the 2008 financial meltdown with predictably dire consequences for patient care. Post-meltdown, financial pressure on tax-strapped governments and the neoliberal drive to privatize converge with private equity’s quest for assets to pillage and pension funds’ restless search for returns. Private equity’s global assets have increased four-fold since Lehman Brothers collapsed - from approximately USD 1 trillion in 2008 to 4.3 trillion today, greater than Germany’s gross domestic product and some 24% of that of the US. Nearly half the investment is furnished by workers’ retirement money.
But the experience with publicly listed versus private equity-owned companies moving into public services is one of degree only. The grim stories narrated by the Times are a hyper-financialized version of what can happen when services traditionally supplied by governments, because they are considered public goods and essential to the welfare of citizens, are handed over to private corporations.
A small number of transnational companies provide private firefighting and/or ambulance services, but they have extensive global operations. Companies like Falck, G4S and DHL are rapidly expanding corporations moving, each in their way, toward diversification and greater penetration of the public sector. Like Patriarch Partners and Warburg Pincus, they are betting on increased government outsourcing.
G4S, for example, has widened its footprint in the UK’s National Health Service amid controversies over inferior service and systematic overcharging. Local governments have rejected public interest requests for information on the terms of the company’s contracts on the grounds that it could "prejudice the commercial and/or financial interests of the Supplier…and become a barrier to fair trade."
Meanwhile, far-reaching investment agreements are being negotiated in secret with, among other objectives, the goal of transferring even more public assets and services into corporate hands in the name of ’fair’ (alternatively ’free’) trade.
The financial services chapter of the Trans-Pacific Partnership (TPP), the trade and investment treaty secretly negotiated between the United States and 11 Pacific Rim countries which is now up for ratification, would eliminate the capacity of governments to regulate financial ’products’ like the leveraged loans which sunk TransCare and Rural/Metro, and gives investors a mechanism to sue offending governments in special dispute settlement courts beyond the reach of the national legal system. French water and services transnational Violea is currently the subject of legal action for its role in the crisis which exposed the people of Flint, Michigan to elevated levels of lead in drinking water. Violea is notorious as the company which has brought an investor lawsuit against the government of Egypt following a legislated increase in that country’s minimum wage.
TPP, TTIP (the trade and investment package currently being negotiated between the US and the European Union) and CETA (the Comprehensive Economic and Trade Agreement negotiated between the European Union and Canada), all deepen and lock in deregulation while putting public services on the transnational auction block.
The proposed Trade in Services Agreement (TISA) being secretly negotiated by the US, EU, Japan, Canada, Australia, New Zealand, Switzerland and South Korea, may be the most wide-reaching of the current mega-agreements because it potentially puts all public services up for sale. Governments routinely try to pacify criticism by arguing that these agreements exempt "services exercised in the exercise of government of government authority." The fine print, however, taken from the WTO’s General Agreement on Trade in Services (GATS) limits such services to exclusive government monopolies in which there is no ’commercial presence’. As there are pockets of private business activity in virtually all public services, no public service meets the criterion - as Canadian provinces seeking to maintain public medical care learned in the course of the CETA negotiations. The alleged guarantee of a public sector ’carve out’ in services agreements simply does not exist, however frequently governments invoke it.
Additionally, service negotiations outside the WTO operate on a ’negative list’ principle, meaning that all services not specifically named for exclusion in a particular negotiating round are potentially opened up to transnational investors. The reference document defining service sectors is the encyclopedic United Nations’ Services Sectoral Classification List, which includes both ambulance and firefighting services among the thousands of entries.
Fire protection is widely assumed to be a government function, but firefighting within a given country and even subnational jurisdiction frequently includes a mix of public, private and even voluntary forms of organization. Like emergency medical services, It is therefore not exempt from the services negotiations as a service provided ’in the exercise of government authority’. The same is true of many of the services workers and citizens assume to be necessary functions of democratic government. But how many representatives to what are potentially life-changing services negotiations have read and fully digested the intricate taxonomy of the UN Sectoral Classifications List, let alone the rest of us?
The danger is a silent corporate hijacking of vital public services which only becomes known when, as the Times put it, you dial emergency services and Wall Street answers the phone. The only effective antidote is to stop the negotiations and bury the treaties.