HA 620 Unit 1 market failure analysis example

No Choice at the Curb: Market Failure in Emergency Ground Ambulance Services in One Rural County

Student Name

Health Care Administration, Herzing University

HA 620: Healthcare Economics, Finance, and Resource Management

Instructor Name

January 15, 2026

No Choice at the Curb: Market Failure in Emergency Ground Ambulance Services in One Rural County

The Market

The market analyzed is emergency ground ambulance transport in one composite rural county of about 45,000 residents, spread over 900 square miles. Two organizations provide emergency transport. A county-owned service covers the county seat and the eastern half; a private company, owned since 2021 by a regional ambulance group, holds an exclusive contract with the county for the western half and the interstate corridor. Neither competes with the other for 911 calls; dispatch sends whichever unit covers the address.

Three parties are separate in this market, as they usually are in health care. The buyer in the moment is the patient, or often a bystander who dials 911, who does not choose the provider and often cannot consent. The seller is whichever ambulance organization covers the location. The payer is the patient's insurer, Medicare or Medicaid, or the patient directly if uninsured. The county, through its contract, sets the terms of access but not, for commercially insured patients, the price.

The Failure Mechanisms

Four mechanisms combine, and they are identified separately because each suggests a different remedy.

No demand-side choice. The central condition of a working market, that buyers compare offers and choose, is absent. In an emergency no one shops for an ambulance. Price therefore cannot discipline the seller through lost customers. Kenneth Arrow's classic account of medical care identified exactly this feature of health services: demand is irregular and unpredictable and arises in circumstances where the buyer cannot act as an informed shopper (Arrow, 2001).

Local monopoly by design. Each half of the county has a single provider by contract. Exclusivity has a logic, since duplicate ambulance fleets in a sparse county would be wasteful, but it also removes competitive pressure on price.

Information asymmetry. The patient does not know, at the time of transport, whether the ambulance is in the insurer's network or what it will charge. Charges are set by the provider and learned only when the bill arrives.

A gap in third-party payment protection. Federal law now protects patients from most surprise out-of-network bills, including for air ambulance services, but the No Surprises Act does not apply to ground ambulance services (Adler et al., 2023). When the ambulance is out of network, the insurer pays its allowed amount and the patient can be billed the balance.

Evidence of the Failure

National claims studies show how these mechanisms play out. Among members of a large national insurer between 2013 and 2017, 71% of ambulance rides involved a potential surprise bill, with a median potential bill of $450 for ground transport; ground ambulance surprise bills were less costly than air ambulance bills but far more common (Chhabra et al., 2020). A second study found that 28% of commercially insured emergency ground transports from 2014 to 2017 led to a potential surprise bill, and that transport by a private-sector ambulance brought substantially higher allowed amounts, patient cost sharing, and surprise bills than transport by a public-sector ambulance (Adler et al., 2023).

In our composite county, the private company is out of network with two of the four largest commercial insurers. A resident of the western half who is commercially insured with either of them and calls 911 will, in most cases, receive a balance bill. A resident of the eastern half will not. The difference depends on an address, not on any choice the patient made.

Why This Is a Market Failure, Not Only a High Price

High prices alone do not prove a market has failed; a high price can reflect high cost. Ground ambulance services do carry high fixed costs, because a county must keep crews and vehicles ready around the clock whether or not anyone calls, and in a sparse county each transport carries a large share of that readiness cost. The failure lies elsewhere: in the absence of any mechanism that would bring the price toward cost. With no buyer choice, a contractual monopoly, hidden network status, and a gap in balance billing protection, nothing in the market signals to the provider that a charge is too high. A public provider in the same county, with the same readiness costs, bills at lower allowed amounts, which is consistent with the national finding that public-sector ambulances have lower allowed amounts than private ones. That comparison, within one county, is the strongest local evidence that the western half's prices reflect market power rather than cost.

What the Failure Costs, and Whom

Patients bear the direct cost: balance bills they could not have avoided. Some delay calling 911 for fear of the bill, which is a health cost that no claims study captures. Insurers bear less than they would in a working market, because the balance is shifted to the patient. The private provider gains pricing power it would not have if patients could choose. The county bears a political cost, since residents blame the county for the contract.

Remedies Matched to Mechanisms

Because the mechanisms differ, so do the remedies. For the protection gap, a state balance billing law for ground ambulances would remove patients from the dispute; a number of states have adopted some form of such protection, though the details vary widely. Such laws must set a payment standard, and the choice matters: when New York tied out-of-network ground ambulance payment to usual and customary rates that typically reflect charges, ambulance prices rose relative to control states (Xu et al., 2025). A standard based on a multiple of Medicare rates would be less inflationary. For the local monopoly, the county can write in-network participation with the major insurers, or a rate schedule, into the next exclusive contract. For the information asymmetry, required disclosure of network status to the county and the public would help insurers and employers negotiate, even if patients cannot use it in the moment. Nothing will restore demand-side choice in an emergency; the remedy for that mechanism is to make choice unnecessary by fixing the other three.

The county's contract with the private company renews in 18 months. That renewal, not a state law, is the fastest lever available locally, and it is the recommendation of this analysis. The county and providers are composite; the evidence is published.

References

Adler, L., Ly, B., Duffy, E., Hannick, K., Hall, M., & Trish, E. (2023). Ground ambulance billing and prices differ by ownership structure. Health Affairs, 42(2), 227-236. https://doi.org/10.1377/hlthaff.2022.00738

Arrow, K. J. (2001). Uncertainty and the welfare economics of medical care. Journal of Health Politics, Policy and Law, 26(5), 851-883. https://doi.org/10.1215/03616878-26-5-851

Chhabra, K. R., McGuire, K., Sheetz, K. H., Scott, J. W., Nuliyalu, U., & Ryan, A. M. (2020). Most patients undergoing ground and air ambulance transportation receive sizable out-of-network bills. Health Affairs, 39(5), 777-782. https://doi.org/10.1377/hlthaff.2019.01484

Xu, W. Y., Garmon, C., Retchin, S. M., & Li, Y. (2025). The impacts of New York's balance billing regulation on ground ambulance pricing. Health Services Research, 60(2), Article e14387. https://doi.org/10.1111/1475-6773.14387