As EMS systems and ambulance agencies enter one of the most tumultuous times in our young industry, it is crucial that we articulate the economics of EMS delivery in a transparent and consistent manner, using proper terminology.
| More: eBook: How to fund community paramedicine
Current events that will likely alter the EMS economic model include:
- Patient protection/balance billing legislation
- Medicare cost reporting
- Essential service designation
- Federal legislation that has the potential to dramatically change Medicare and Medicaid reimbursement and Ground Emergency Medical Transport (GEMT) programs
Ambulance service is a critical link in the healthcare chain, not only representing the first point of contact for patients in emergencies, but also moving patients throughout the healthcare system. Behind the medical care delivered by EMS personnel lies a complex financial ecosystem that keeps these lifesaving resources serving local communities and health systems.
This article explores the financial dynamics of ambulance services, including revenue models, cost structures, and tips to effectively communicate the economic challenges we face in a dynamically changing healthcare and regulatory landscape.
Direct costs and cost drivers
There are three primary drivers of direct costs in ambulance service delivery:
- Response time. Shorter response time goals mean more available ambulances will be needed to meet that goal. Longer response time goals mean less ambulances are needed. This is the definition of the 鈥渃ost of readiness.鈥� According to the recent Medicare Ground Ambulance Data Collection System () report, labor (including wages and benefits) represents 69% of the cost of ambulance service delivery, so it makes sense that the more resources deployed in the system, the higher the cost.
- Staffing level. Advanced Life Support (ALS) ambulances cost more to operate than Basic Life Support (BLS) ambulances due to wages, equipment and medication expenses. Wage expenses are compounded by overtime and pay incentives that may be necessary to meet staffing goals for ALS units.
- Resource deployment model. EMS responses generally increase during the day and decrease overnight. Static or fixed deployment models, where the same number of ambulances are staffed 24/7, lead to either a potential shortage of ambulances during peak demand times, or an overabundance of resources during lower response volume periods. Staffing the number of 24/7 units based on peak demand times leads to underutilized resources and higher costs.
Other direct costs that should be included in the cost-of-service delivery include capital depreciation and operational expenses 鈥� medical supplies, fuel, maintenance, repairs and any costs associated with technology (e.g., software, cellular connectivity, etc.).
EMS overhead costs
Overhead costs include costs for dispatch services, medical direction/quality management, administration and facilities. Some of these costs could be shared with other non-ambulance delivery functions and determining the allocation of those costs is important. For example, if an ambulance is housed at a station that also houses fire trucks and police cars, the facility cost for the percentage of the space the ambulance takes up in the station should be counted as a cost for ambulance services.
An often-overlooked cost in ambulance service delivery is the cost of uncompensated care. Uncompensated represents the financial burden of providing services without receiving payment, either due to charity care or bad debt. While it鈥檚 not a direct expense like employee salaries, it reduces the revenue an ambulance provider can collect, impacting financial stability and ability to provide services.
Explaining EMS costs
Explaining ambulance service delivery costs to laypersons is an art and a science. Stating an annual total expense number may not adequately communicate the cost-of-service delivery. There are several ways you can make costs more understandable:
- Cost per response (responses/total expenses)
- Cost per transport (transports/total expenses)
- Cost per patient contact (patient contacts/total expenses)
- Cost per unit hour (staffed unit hours/total expenses)
It may be beneficial for agencies to start tracking costs and revenue on a per-patient-contact basis, as innovative agencies are engaging in effective treatment in place models that reduce the actual number of transports, making the per-transport metric perhaps less relevant. Each of these metrics, tracked over time, can be very useful in explaining service delivery costs to stakeholders.
Revenue streams: Where the money comes from
EMS systems are essentially funded from two buckets: Fee for service (FFS) revenue and tax subsidies. When the cost-of-service delivery, based on desired service level, exceeds the FFS revenue that is generated from those services, public tax subsidies will likely be necessary. As good stewards of public dollars, ambulance service leaders should do all they can to maximize FFS revenue to reduce tax burden on local communities. This includes a fee structure that is realistic for the cost-of-service delivery. For example, if your transport cost is $1,000, billing less than $1,000 for the service not only undervalues your services, but places an undue burden on the taxpayer as a result of lower FFS revenue.
Medicare and Medicaid reimbursements for ambulance service are based on a fee schedule (which often reimburse less than the cost of service delivery) and do not currently allow patient balance billing. Therefore, patients covered by these programs are not impacted by your fee structure. Commercial insurers typically reimburse a percentage of what is billed, so billing less than the cost-of-service delivery is in essence using tax dollars to subsidize commercial insurers. Ambulance agencies can minimize fee impacts on patients by implementing billing policies that allow for writing off large bills to patients who lack insurance coverage.
Managing your revenue cycle
Effective ambulance billing is complicated, and heavily dependent on technology and computer interfaces. As such, many ambulance agencies have made the strategic decision to outsource their billing to companies that have the wherewithal to invest in technology and personnel training to help assure ambulance claims are appropriately processed and paid.
The companies can also develop statistical analysis and reports that can help monitor the revenue cycle and recommend policies and procedures to maximize FFS reimbursement. It is important to note that outsourcing your billing function does not relieve your responsibility to vigorously monitor the billing agency鈥檚 performance and regulatory compliance.
Explaining revenue
Just like costs, explaining revenue data can be complex and breaking down revenue to explainable metrics for laypersons is essential. There is often a misunderstanding between total billed charges (gross revenue) and the actual cash received (net revenue). It is important for agencies and their stakeholders to know both data metrics. While both metrics are important, the actual dollars received is more meaningful, as those are the amounts that are used to offset the cost-of-service delivery.
The most recent revealed that while the national average base fee billed charge for an ALS emergency call is $1,330, the actual amount collected is $513. When comparing costs for service delivery to the revenue received, ambulance agencies should be using their amounts collected, not billed charges.
Like costs, FFS revenue should be broken down on a per response, per patient contact, and per transport basis to help paint the revenue picture:
- Net revenue per response (responses/total FFS net revenue)
- Net revenue per transport (transports/total FFS net revenue)
- Net revenue per patient contact (patient contacts/total FFS net revenue)
- Net revenue per unit hour (staffed unit hours/total FFS net revenue)
If your agency receives a tax subsidy, you should complete this same analysis for the tax revenue component of your funding.
Putting the EMS economic picture together
Once you鈥檝e collected your costs, fees for service and any subsidy revenue, you can now create simple tables and charts that paint the economic picture of your service delivery model. These metrics should be tracked and reported at lease monthly, to identify any trends or outliers.
We are in very turbulent financial times for EMS and ambulance service delivery, and our profession needs to be able to express complex financial data in terms that the public, elected officials and regulators can understand. We also need to be consistent with how we are tracking and reporting these complex analyses.
Elected and appointed officials, and the public, have a limited understanding of what it takes to provide effective EMS and ambulance delivery. Too often, we are perceived as simply a 鈥渞ide to the hospital,鈥� when the true value of service delivery is getting the right resource to the right patient, at the right time and in the right setting. Using transparent, consistent and digestible tools to educate our stakeholders may help them understand that the ride to the hospital is the least expensive part of what we do.
We hope this will assist agencies with developing and reporting their economic situations to effectively guide public policy decisions. If you need any assistance developing financial reports like these for your agency, please feel free to let us know.
Helpful resources:
Table 1: Example Financial Analysis Table
| Acme Ambulance Service | |||
| March | April | May | |
| Staffed unit hours | 12,249 | 12,051 | 12,266 |
| Responses | 4,287 | 4,218 | 4,293 |
| Patient contacts | 3,858 | 3,796 | 3,864 |
| Transports | 3,215 | 3,164 | 3,220 |
| Net revenue | $1,649,423 | $1,629,203 | $1,677,490 |
| Expenses | $1,768,388 | $1,733,598 | $1,786,961 |
| Operating income | -$118,964 | -$104,396 | -$109,472 |
| Tax subsidy | $118,964 | $104,396 | $109,472 |
| Cost per unit hour | $144.38 | $143.85 | $145.69 |
| Net revenue per staffed unit hour | $134.66 | $135.19 | $136.76 |
| Income per staffed unit hour | -$9.71 | -$8.66 | -$8.93 |
| Tax subsidy per staffed unit hour | $9.71 | $8.66 | $8.93 |
| Cost per response | $412.50 | $411.00 | $416.25 |
| Net revenue per response | $384.75 | $386.25 | $390.75 |
| Operating income (loss) per response | -$27.75 | -$24.75 | -$25.50 |
| Tax subsidy required per response | $27.75 | $24.75 | $25.50 |
| Cost per patient contact | $458.33 | $456.67 | $462.50 |
| Net revenue per patient contact | $427.50 | $429.17 | $434.17 |
| Operating income (loss) per patient contact | -$30.83 | -$27.50 | -$28.33 |
| Tax subsidy required per patient contact | $30.83 | $27.50 | $28.33 |
| Cost per transport | $550.00 | $548.00 | $555.00 |
| Net revenue per transport | $513.00 | $515.00 | $521.00 |
| Operating income (loss) per transport | -$37.00 | -$33.00 | -$34.00 |
| Tax subsidy required per transport | $37.00 | $33.00 | $34.00 |
