How It Really Works -- from a former American Home Shield Employee: American Home Shield (AHS) is owned by Service Master. I would like to explain how the system works. The system is based on a budget. The company makes money by selling policies.
The contractors are set up in different programs or types. Some of the contractors are paid a flat rate, no matter what, which includes labor and materials. Example: A flat-rate vendor will be paid $123 to change out a hot-water heater, which includes the hot water heater. Other contractors are paid a base rate, $102; then AHS will provide the hot-water heater. Some contractors are paid a rate based upon the size of the hot water heater -- 40 gallon, 50 gallon, etc. This includes the labor and hot-water heater. Example: 40 gallon - $475, labor and parts.
Same thing with the heating and air conditioning vendors. Flat rate for the vendor - $198 for the call, labor, materials, etc. Some vendors have a price guideline that sets a price for a certain repair for that problem. Example: a bad blower motor that is standard type - $215 includes labor and parts. On repairs that AHS will provide the equipment (like a condenser, compressor, or furnace), the price may be $250 with AHS providing the unit.
Why would a company install a hot water heater or a furnace, labor and equipment, so cheap? They make up the difference in the non-covered items. Non-covered items (not covered in the contract): permits, disposal of old equipment, code upgrades, modifications. So they can afford to buy and install a hot water heater when they can charge the customer $800 or $1000 in non-covered items. It works the same way for the air conditioner or furnace vendors.
The vendors get work based upon their rankings and cost effectiveness. They agree to do work at certain prices and get more work, but they are expected to keep their cost per call at a certain point. The average, let’s say, is $131. So when their average cost per call starts to go up, the pressure begins to mount.
So how do the companies work to keep the cost down? Find a way to keep the cost down to AHS by diverting some of the cost -- in areas not covered by AHS. Again permits,;code upgrades, modifications, disposal fees, etc. The call gets denied due to: not normal wear and tear (Section A-1B of contract), not installed correctly (Section F or G), improperly repaired (Section F or G), lack of maintenance (Section F or G), or not in good working order at the start of the contract (Section A-1C) .
Now let me make this very clear: maintenance is critical to everything. The manufacturers require maintenance to everything, air conditioners, hot water heaters, and even your dishwasher. A technician can go out and say the unit is not cooling because of maintenance issues, which may be true; but before any further diagnosis can be made, it needs cleaning, which can be true also. A dirty air conditioning unit will affect the pressure readings on the gauges used. The company may want several hundred dollars to clean the unit, which may not be out of line if they have to recapture the Freon, cut the evaporator coil out, and acid wash the unit, then reinstall. But you can get the unit cleaned and still get it denied because the unit was determined to have failed from lack of maintenance.
Everything is based upon budgets and what does the contract say. Example: I had a vendor call in and say the evaporator coil was 30 years old and installed incorrectly. I asked him how a 30 year old unit could have been installed incorrectly and worked good for 30 years? He said it was his professional diagnosis. I went to a supervisor; and the response was, “we have to go by their professional opinion.”
The technicians are always concerned about their numbers. Think about this. If you were going to pay someone $102 or so to go out and make a repair, and it turns out the repair actually is going to cost the company $150 in parts and five hours of labor at $65 per hour or $325, it costs $475; but they get $102 -- what do you think you just created? This is an environment for dishonesty.
I have talked to many owners who have said their contractor relations representative is on them about their numbers. One of the things they will do is say they do not work on that item or can’t make the repair in a timely manner and get it transferred to another company. This delays service for the customer, again just to get out of making the repair, so they can keep the numbers down. Then the other company is frustrated because it affects their numbers.
One vendor calls in saying the a/c unit is sitting in four inches of dirt, installed wrong, neglected, lack of maintenance; and the customer calls in, disputes the denial, and a second company goes out and determines it is the condenser fan motor that is bad. How do you have two companies that are licensed professionals come up with two different conclusions? I have tried to get a vendor fired, because everything he called in was a denial and used racial remarks about the customer. That was two years ago, and he is still a vendor for AHS.
The authorizations department has some good people, but they are frustrated when they have a flat rate company (gets paid one price, no matter what the cost is in labor and materials) call in, and it is a denial. Everybody feels 99% of the time they are being lied to by the vendor, when the vendor is flat rate.
Management’s position: We send the company several thousand work orders a year, and do the math; they are making money. How many times do they go out to a customer and no problems are found, and they get paid $125 for a few minutes of work? Example: 130 calls a week times $125.00 = $16,250 for a week’s work, or $845,000 for the year. So what if they have to replace a major item every once in a while?
It’s all about the numbers. Anything that can be diverted back to the customer is a good thing. Customer pays AHS several hundred dollars and then gets to turn around and pay the vendor for the cost of the repairs. AHS does spend some money; but again it is all about the numbers, margins between the number of customers, and the number of work orders placed with the combination of calls per cost averages. They make a lot of money off customers who do not know they have a warranty with AHS. Usually in a real estate transaction, the buyer may never know they got a contract; so they do not use it, $496 in the pocket of AHS.
The next area is with the realtors selling the policies. They tell the customer to get an AHS warranty; and if anything goes wrong, they will cover it. So the seller of the house will go along, but no money exchanges hands during the listing period. At the close of escrow, the cost is put back into the sale of the home; so the new home buyer paid for the contract. The realtor gets a kick-back from AHS to sell the warranty. The kicker is if a work order is placed early on it could be denied for rust in the first 30 days or not in good working order at the start of the contract. Then the customer has to get it repaired and send in a proof of repair showing it has been repaired before AHS will reinstate coverage on that item. AHS will say if you were told AHS would cover this (etc.), you need to go back to your realtor and take it up with them. Everything is designed to shift the blame or responsibility on to someone else. The contract is set up that way; the company is set up that way also.
The employees in the call centers are under the pressure to get on and off the phones in a certain amount of time -- 475 seconds for certain positions. They have to take the diagnosis, order equipment, etc. in 475 seconds; then call a customer; and if it turns into a heated disagreement, the 475 seconds still hold. They can repeat the company mantra, “read your contract, we don’t cover for lack of maintenance, code upgrades, permits, modifications, or the technician is a licensed professional, it is in your contract, I am sorry you feel that way blah, blah, blah.”
I could tell you nightmare after nightmare. I tried my best to do the right thing at that company. I went out of my way to protect customers and the company when either one was being ripped off. Yes, there are dishonest customers and contractors. Many of the problems facing the customers and the industry could be solved very easily, but you have to have strong leaders with backbone and integrity, and they don’t have that.
Service Master’s Mission Statement is to “Honor God in all We Do.” It is a joke. The only thing they will honor is the almighty dollar. I have seen more Bibles on desks, Bible verses on walls and plaques, but they do not understand the meaning behind those verses. I would rather have leaders who could define integrity and live it than use a Bible for decoration.