High-Performance EMS: New Economic Models for EMS

Matt Zavadsky is a featured speaker at EMS World Expo, October 16–20 in Las Vegas, NV.

This is the fifth in a yearlong series of articles developed by the Academy of International Mobile Healthcare Integration (AIMHI) to help educate EMS agencies on the hallmarks and attributes of high-performance/high-value EMS system design and operation.

Over the years economic modeling in our profession has been pretty simple: Respond to a call, transport a patient, get paid (maybe) for the transport. EMS has historically been paid for supplying transportation from Point A to Point B.

However, our world is changing. On the healthcare side, payers and other partners are shifting from volume to value, moving from economic models of healthcare as a transaction to models based on value and patient outcomes. On the public safety side, taxpayers, elected officials and administrators are beginning to ask tough questions like, “Is it really necessary to send a fire engine to every EMS call?” “Is it really necessary to send an ambulance to every EMS call?” and “Do we really need all those paramedics?”^1–4 Those questions are becoming harder to answer as new research questions the outcomes for cardiac arrest victims treated with ALS vs. BLS care and reports better outcomes for trauma patients transported by police car rather than ambulance.^5,6

A changing economic model for EMS is coming—in fact, for some it’s already here. Here is a framework to prepare for different models that may be perceived as more valuable, or ones that more closely align our incentives with those of our partners.

How Much Do You Cost?

It seems like an easy question, but the answer can be more elusive than we think. This is especially true if you run a dual-role department, like a combined fire/EMS department that provides ambulance transport. We need to start with this question because without knowing what it costs to provide your service, it’s impossible to venture into discussion of innovative payment models. One way to begin evaluating the cost of EMS service delivery is to honestly and transparently ask a simple question: “If we were to stop providing EMS services, what costs would we save?”

Let’s look an example using Anytown, USA, a suburban community of 20,000 people served by a combined agency that operates one ALS ambulance staffed with two personnel and one ALS first-response engine staffed with four personnel, all using the traditional 24/48 schedule. The department responds to 1,000 EMS calls a year with a transport rate of 70% and bills for ambulance transport.

The ambulance component—One ambulance on duty 24 hours a day, 365 days a year means the ambulance is on duty 8,760 hours a year (365 x 24). It will take seven full-time employees to staff the one ambulance: two per unit, three shifts (A, B, C) and one FTE to cover for vacations, etc. The full personnel cost for each FTE is $80,000, including wages, overtime, benefits (including pension contributions) and agency-issued equipment (bunker gear, uniforms, etc.). The ambulance costs $150,000 and has $75,000 worth of equipment (stretcher, monitor, etc.). The realistic useful life of the ambulance is five years, so the annual cost of the ambulance including depreciation is $40,000. Other annual expenses for the ambulance component will be maintenance ($10,000), fuel ($15,000) and medical supplies ($18,750). The total annual cost for the ambulance component totals $643,750.

The first-response component—This is where it gets interesting. Because of the dual-role nature of the engine (EMS and fire), not all of its expenses can be attributed solely to EMS. If Anytown Medical and Fire Department stopped responding to EMS calls, the four people on the engine would still be needed to staff the engine for fire calls. Therefore only a portion of their costs can be allocated to EMS.

To staff the engine, you need 15 FTEs (four per shift times three shifts is 12, plus three FTEs to cover for training, vacations and such). The personnel cost for the FTEs would remain even if the department stopped responding to medical calls, so the EMS-allocated cost for the personnel is essentially $0. However, what the department would save annually is the costs for EMT or paramedic differentials ($3,000), EMS training expenses ($1,000), EMS equipment such as the cardiac monitor and drugs ($30,000), fuel for EMS calls ($5,000) and disposable supplies ($10,000). Totaling that all up, the EMS-related costs for the engine come to $49,000 annually.

Based on this information, the annual EMS-related costs for Anytown are $692,750 ($643,750 + $49,000).

We can now estimate the cost per call, cost per transport and cost per unit hour for the EMS service line as follows:

• Cost per unit hour: $692,750/8,760 = $79.08
• Cost per response: $692,750/1,000 = $692.75
• Cost per transport: $692,750/700 = $989.64

As a side calculation, we can now also determine the productivity measure of the ambulance component. Assuming an average time on task of 60 minutes, the unit hour utilization–response (UHU-R) for the department is calculated at 0.114 (1,000 responses divided by 8,760 hours). The unit hour utilization–transport (UHU-T) is then 0.08 (700 transports divided by 8,760 unit hours). In essence this means the ambulance is on a call 11.4% of the time and on a transport 8% of the time it’s on duty.

How Much Do You Make?

For most EMS agencies funding generally comes from tax revenue, fee-for-service revenue or a combination of the two. Let’s look at the fee-for-service component first, as it will lead into a discussion about tax revenue.

Payer mix—When ambulance fees are billed, the collection rate is affected by the payer mix. Medicare and Medicaid have fixed amounts they will pay regardless of what you charge. And in most cases you cannot bill the patient for the difference between your charge and what Medicare or Medicaid pays. If the Medicare allowable rate for an ALS emergency ambulance transport for Anytown is $500, they will pay 80% of the “allowable,” or in this case $400.

Medicaid has a set rate that is often even lower than the Medicare rate, in this case $300. Then come commercial insurers like Aetna, UnitedHealthcare and Blue Cross Blue Shield. While payment practices vary widely from state to state, commercial insurers generally pay more of the ambulance bill. Unfortunately there are generally fewer commercially insured patients transported than Medicare and Medicaid patients, so although each call generates more revenue, there are fewer of them.

Finally there are the private-pay patients, those who lack insurance or who have insurance but have not met their deductible or coinsurance for the insurance to kick in and pay. These are a growing number of patient transports, especially since the advent of the federal marketplace and people opting for high-deductible health plans to keep their monthly premium costs low. These patients generally don’t pay at all or pay a very small amount of the charge. The balance then must be written off as bad debt.

Table 2 provides an analysis of Anytown’s payer mix.

Take note of the Insurance row—note that the amount billed to the commercial insurers and the amounts paid represent an 80% collection rate for that payer, and that even though the commercial insurers represent 21% of the total amount billed, it is 52.3% of the overall cash collected. Conversely the private-pay category is 43% of the total amount billed but only 6.7% of the actual revenue collected. This is a very typical scenario for most EMS agencies.

Note that Anytown Medical and Fire’s revenue from ambulance operations is $225,050 ($321.50 per transport), but its cost is $692,750 ($989.64 per transport). Obviously the service is operating at a loss. The difference between the cost and revenue, in this case $467,700, must be subsidized with tax revenue. What if Anytown wanted to eliminate the tax subsidy? How much would it need to charge to collect enough revenue to meet budget? For simplicity, let’s assume the collection rate of 32% remained constant (more likely it would go down for the reasons mentioned elsewhere). To generate $692,760 in ambulance transport revenue, Anytown would have to charge $3,092.63 per trip ($3,092.63 x 32% = $989.64 revenue per transport).

Alternative Payment Models

Now that Anytown knows all its information about costs and revenue, leaders can engage in conversations with payers about alternative payment models (APMs). Suppose one of its commercial payers suggests two potential payment models, both having nothing to do with whether the patient was transported by their ambulance to the ED. One model is a fixed payment per member per month (PM/PM) regardless of ambulance transport, and the other is payment for the response irrespective of whether the patient was transported. The reason the payer is suggesting this model is because it has done an analysis of Anytown’s transported patients and found 61% are treated and released from the ED. They believe that if Anytown could make patient-centered decisions about patient care, as opposed to financial decisions (only getting paid if they transport), the payer would avoid many expenditures for the ED visit. The downstream savings to the payer would be significant.

PM/PM (capitated) payment model—In this model the payer pays a standard dollar amount per insured member in the service area, and the ambulance service no longer bills for transport. Under this model the service gets paid even if it doesn’t respond—or, put another way, every time it does respond, it costs the service money. What rate would you have to get paid to make this model worthwhile?

Let’s assume Acme Managed Care (AMC) has 1,000 insured members in Anytown, and that population generated 100 transports last year. For those transports AMC paid Anytown Medical $80,000 (80% of the $1,000 bill). To keep Anytown whole from a revenue perspective, AMC would have to pay $6.67 PM/PM. This is generated by taking the $80,000 divided by 1,000 members, yielding $80 annually. The $80 divided by 12 months is $6.67.

Now, Anytown is an innovative EMS agency interested in reducing its tax subsidy, and its leaders know the payer will derive savings from this plan, so they don’t offer that amount to AMC but instead ask AMC what PM/PM amount they are willing to pay. Much to their surprise, AMC offers $10 PM/PM, which would increase the revenue to $120,000 annually! Why? AMC is looking at the downstream savings and wants to incentivize Anytown to change the payment model. AMC may offer this a different way by suggesting they pay the $6.67 (they did the math too!) and offer to share 20% of the savings from reduced ED expenditures with Anytown.

With careful controls and medical protocols promulgated by an innovative medical director, this could be a very attractive model for Anytown.

Response fee vs. transport fee—Suppose AMC wanted to decouple payment from transport. What fee would they need to pay to keep Anytown whole? Recall that AMC paid Anytown for 100 ambulance transports at $800 each. If Anytown’s transport rate is 70%, it’s likely there were actually 143 responses to AMC patients, and of those 100 were actually transported (70% transport rate). Taking the $80,000 over 143 responses means AMC would have to pay $559.44 per response ($80,000/143 = $559.44). The same negotiating strategy applies to this model: Anytown does not offer the rate and asks AMC what they are willing to pay. Not surprisingly, AMC offers to pay the same rate they were paying for the transport, $800, because AMC is looking for the downstream savings. In this model Anytown will have net annual revenue from AMC of $114,000 vs. the previous $80,000. As with the capitated model, AMC may offer the $559.44 response fee with a shared-savings component of the ED expenditure reduction. Either way it’s still a win for both Anytown and AMC.

Conclusion

This is a complicated concept, and simply reading an article is merely dipping your toe into these murky waters—it’s scary because you really don’t know what’s under the surface. The good news is there are resources available to learn more. First, EMS World Expo (October 16–20 in Las Vegas) has a session on this exact topic. Second, the American Ambulance Association is working on a cost-evaluation tool that will help ambulance agencies generate a cost report that can be used for payment reform efforts much like we’ve discussed in this article. Also, the Academy of International Mobile Healthcare Integration (AIMHI) will host a series of webinars and conduct a seminar at the Pinnacle EMS Leadership & Management Conference this summer that will cover some of these topics as well. Finally, the National Association of EMTs and AIMHI will make available an Excel workbook that can help agencies do some simple cost estimates.

Alternative payment models are a near certainty for EMS. Using the approaches outlined in this article could help make their murky waters seem less foreboding and help you feel more comfortable as you start to get wet.

A Word About Collection Rates

An agency’s collection rate, the ratio of charges to collections, is often given too much weight. In the Anytown example, their overall collection rate is 32.2% ($225,050/$700,000). In some financial circles reporting a collection rate of 32% would raise lots of eyebrows, but it’s more understandable when you consider that 79% of their billed patients have either fixed payment amounts or don’t pay at all. If Anytown wanted to focus on improving the collection rate, all leaders really would need to do is reduce the amount they charge. If they lowered their rate to $500 instead of $1,000, the new collection ratio would be much higher, but because the commercial payers generally pay a percentage of the billed amount and the few private-pay patients would be now paying a lower amount, the actual revenue collected would be much less. Is it better to have a high collection percentage or more cash in the door? The latter is usually preferable.

References

1. Rowe J. Costs rise when fire engines respond to medical calls. San Diego Union-Tribune, 2009 Dec 26; www.sandiegouniontribune.com/sdut-region-costs-rise-when-fire-engines-respond-to-2009dec26-story.html.

2. Patterson B. A Long Time In Coming. J Emerg Dispatch, 2013 Nov 15; https://iaedjournal.org/long-time-coming/.

3. District of Columbia Fire and EMS Department. Integrated Healthcare Collaborative Final Report, 2017 Feb 22; https://fems.dc.gov/sites/default/files/dc/sites/fems/page_content/attachments/Integrated%20Healthcare%20Collaborative%20Report%20(PUBLISHED).pdf.

4. Valine K. Modesto rejects $1M firefighter paramedic grant. Modesto Bee, https://www.modbee.com/news/article106080287.html.

5. Reinberg S. More Advanced Emergency Care May Be Worse for Cardiac Arrest Victims: Study. U.S. News & World Report, 2014 Nov 24; https://health.usnews.com/health-news/articles/2014/11/24/more-advanced-emergency-care-may-be-worse-for-cardiac-arrest-victims-study.

6. Avril T. Police transport a good bet for shooting victims, study finds. Philly.com, https://articles.philly.com/2014-01-09/news/459951051_gunshot-victims-police-car-shooting-victims.

Matt Zavadsky, MS-HSA, EMT, is the public affairs director at MedStar Mobile Healthcare, the exclusive emergency and nonemergency EMS/MIH provider for Fort Worth at 14 other cities in North Texas and the recipient of the EMS World/NAEMT 2013 Paid EMS System of the Year Award.