The Readiness Market

Cost and revenue#

Readiness is the cost: the amount of time that qualified personnel, serviceable equipment, and supplies are properly deployed (Foundations). Transports are the revenue, run through the fee schedule, the payer mix, and collections. The two are different things and they move independently.

The bigger the gap between what a party pays to do and what it gets paid to do, the more risk that party carries. A party that takes on uncertain revenue expects to be paid for the chance that it falls short, so it builds that expectation into what it charges as a risk premium. When a producer bids for an exclusive contract, it carries the gap and builds the premium into its bid.

The gap can be closed by a structural change rather than an operational one: change who buys the readiness and who bills for the transports. The cost structure and the revenue structure then come into line. The risk shrinks and the premium shrinks with it, so the price falls even though nothing about how the service is produced has changed.

When the procuring entity buys unit hours and does the billing, the producer is paid for the thing it controls, producing readiness, and is no longer exposed to transport volume, fee schedules, payer mix, or collections. It has no risk premium to price in. The remaining risk sits with the procuring entity because the procuring entity holds the deployment plan. It determines not just what readiness it wants but what it does with the readiness it has, so it carries the risk because it carries the control and it has levers to mitigate that risk that a private producer does not.

There is also a practical advantage. Bidders forecast transport revenue with their own methodologies, so communities cannot compare bids on a common basis and choose on something other than best fit. Buying a defined quantity of readiness at a stated price removes that guesswork.

Two analogs from other fields make the same move. UK public procurement guidance holds that risk belongs with the party best placed to manage it, because a supplier carrying an inappropriate share of risk loads a high risk premium into the price and shifts its focus to cost cutting (Cabinet Office, The Sourcing Playbook, 2023). Electricity capacity markets pay generators to stay available separately from what they produce, because paying for output alone leaves the fixed cost of staying ready unrecovered (Joskow, Capacity Payments in Imperfect Electricity Markets, 2008). Buying unit hours instead of transports is the same move.

Measure what you pay for#

If a producer is only obligated by the operational response-time clock, nothing else it does is watched. Readiness is expensive and not measured, so it is reduced to the minimum allowed. The system gets the operational response times but not the readiness. That is surrogate-shaving and it is a known result in economics: pay someone for one measurable thing and they stop doing the unmeasured things (Holmström and Milgrom, Multitask Principal-Agent Analyses, 1991; Eggleston, Multitasking and Mixed Systems for Provider Payment, 2005).

This only matters if a producer can cut readiness without hurting its measured score: a producer can meet a 90th-percentile clock with lean posting and deferred maintenance, keep the savings, and let serviceability and crew freshness erode. The fix is to measure readiness as well, so that cutting it is no longer free (see Measurement & the Score).

Allocating unit hours among producers#

Where there is one producer there is nothing to allocate. Where there are several, the procuring entity divides its unit-hour production goal among them. The way it does so is published before anyone bids.

Whatever mechanism a system chooses, four things hold. Allocation rewards quality unit hours delivered, not promises. A producer that fails to deliver forfeits pay for the unit hours it missed; its share is not handed to a rival as a penalty. Terms are short enough that allocation can change without waiting out a multi-year contract. New producers have a real way in.

The mechanism itself (an auction, a scorecard, a proportional share, or a combination) is a local design choice.

Reimbursement follows the provider of record#

Reimbursement eligibility attaches to the enrolled provider of record, the party that bills, not to whoever produces the unit hours. A public body that is the provider of record is eligible for supplemental payments available to public providers. It pays producers an agreed unit-hour price that does not depend on what each would collect on its own. Public and private producers are paid the same agreed price by the public body, even though each would be reimbursed differently if it billed on its own.

This structure is in production today: a public body acting as provider of record and purchasing unit hours from private producers. Since 2023 the City of San Diego has billed for the transports and paid private producers for the unit hours they supply. The Contra Costa County Fire Protection District has held its county's ambulance contract, billed for the transports, and paid a private producer since 2016 (see Citations).