Section One: Base Funding Deficits

Overview of the EMS Industry

Emergency Medical Services (EMS) in the United States (U.S.) are a complex public trust.

The provision for police and fire services falls within what it considered public safety functions. EMS on the other hand, is ternary, meaning it is part public safety, part health care and part public health. The application of EMS is provided to communities throughout the U.S. through diverse models including for-profit and non-profit, volunteer and paid, government services (police, fire and third service), hospitals, private entities, healthcare organizations, entrepreneurs and publicly traded companies.

EMS is a system containing a variety of components that include 9-1-1 telephone access, first responders, trained ambulance personnel and hospitals. Today’s system was largely developed with the passage of the federal EMS Support Act of 1973. In this provision Congress appropriated funding for the development of EMS systems. With the exception of providing for federal agency programs, there has been little funding for EMS systems provided by Congress since that initial Act in 1973. Consequently, EMS systems vary widely in the United States in terms of their organization, operation, quality and access.

Each state operates an agency responsible for regulating the ambulance industry. In most states this regulation is conducted through an office in the health department. While most states have advisory councils or advisory boards, Minnesota, Kansas and Kentucky are unique with their structure of an independent state boards charged with regulating the ambulance industry. On occasion these regulatory bodies may have a small amount of funding directed toward actual patient care. However, nearly all patient-care funding comes from patient or third party billing and in some cases, local taxes.

Charge/Cost Differences

There is only a limited relationship between historical charges and actual costs of providing EMS.

The cost of operating an ambulance service under a volunteer model is less expensive than a paid professional service. Currently in Minnesota, 67% of all EMS personnel are volunteers. Fluctuations in the number of transports for a rural service presents a difficulty when trying to determine when run volume is significant enough to transition to full-time personnel. In addition, the historical volunteer trend is on the decline across the nation.

For a variety of reasons, some local governments have chosen to subsidize out of hospital medical care and transportation. In many locally subsidized operations the provision of EMS is full-time and housed within a police or fire department, thus making a determination of the amount of a tax subsidy difficult if not impossible to calculate. Many EMS agencies, although technically owned by local government, are operated as “enterprise funds” and are not subsidized. Beyond tax subsidies, many EMS agencies are subsidized indirectly by hospitals that own them and absorb losses or provide supplies free of charge to non-owned ambulance services. Operational costs for air ambulance services that are hospital-based are underwritten by those hospitals. For these reasons and others, many ambulance services over time have charged less than the full cost of operation.

Project HOPE, in an upcoming report to the federal Office of Rural Health Policy, defines low volume providers as those who complete less than 3 ambulance transports per day (or 1,095 per year) [1] . In its recent national study (with a statistically valid sample rate), Project HOPE determined that less than 20% of all ambulance services that operate in non-Metropolitan Statistical Areas (MSA) are volunteer, but 63% in that sample data are low volume. 13% of these are full-cost models and they account for 17% of all rural ambulance transports. Project HOPE estimates that rural full-cost low-volume ambulance services experience costs as high as two times their urban counterparts.

Historical Charge/Reimbursement Relationship

The Medicare charge/reimbursement methodology has been flawed since 1965. Reimbursements are fixed artificially low because of local tax subsidies and donations to non-profit ambulance services.

The federal Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) has described the current Medicare ambulance payment methods as “not based on reliable cost data. Instead they simply reflect historical charges.” [2] The Medicare program has reimbursed ambulance service in a fee-for-service model since 1965. While the Medicare program went through structural reimbursement changes over time, ambulance service charges were capped in the mid-1980s and reimbursement switched to the inflation-index model using a reasonable charge methodology. These payments were based on historical charges that were averaged geographically. Since then, reimbursement rates have consistently been limited to levels that fall well below the cost-of-living index.

Some states used to cap, or even prohibit, volunteer ambulance services from seeking reimbursement for their costs. New York still prohibits volunteer ambulance services from billing. Many volunteer ambulance services that were highly subsidized followed the practice of charging “token” amounts of $25. These $25 “bills” were averaged with the bills of full-cost full-time providers to come up with average payments that would apply to a specific geography. This explains why many states with large rural geography ended up with lower reimbursement levels. The “token bills” of volunteer providers and subsidized bills of heavily tax-supported providers significantly dropped the average charge of all providers.

The OIG, when recommending that HCFA “develop a cost model that can be used as a basis for refining the fee schedule as needed to respond to emerging conditions,” has concluded that such “historical charge data contain distortions and variations that undermine their usefulness as a basis for the new payment system.” [3] The OIG continues, “we were unable to locate any sources of cost data that we could use to determine the reasonableness of Medicare rates… this type of information is not widely available.”

Project HOPE conducted a national cost survey during the Negotiated Rule-Making process. The results of this survey have not proved useful in predicting the cost differences or to establish relative values between basic life support (BLS) and advanced life support (ALS) providers. This is due to the fact that the data collected between tax supported and non-tax supported, as well as full-cost and volunteer ambulance services could not be reconciled to demonstrate true cost differences. Similarly, the state of Minnesota under a statutory mandate has attempted to determine cost information between segments of providers in 1993, 1995 and 1999. These attempts, even when contracting with an outside CPA firm familiar with ambulance service operations, have proven to be unsuccessful.

Medicare Assignment

Mandatory Medicare assignment, previously left to the states to decide, will be implemented by the BBA on January 1, 2001.

Assignment of benefits up to this point has largely been controlled by the states. Legislators in Minnesota transitioned all health care providers, except ambulance services, to mandatory Medicare assignment between 1993 and 1996. Ambulance service in many other states has not been subject to mandatory Medicare assignment up to this point either.

Nationally 83.6% of ambulance providers have adopted a practice of always accepting assignment on Medicare claims. These providers submit 96% of all claims. The remaining 4% of claims are supplied by 16.4% of the providers. Since a larger number of services are producing a small number of claims, these numbers point to a strong indication that ambulance services that currently do not accept assignment are predominately rural.

In Minnesota, the only state in the North Central EMS Institute (NCEMSI) service area [4] with mandated financial reporting, 70% of all ambulance services do not accept assignment. According to a 1995 financial data study conducted by the Minnesota Department of Health, Minnesota ambulance services billed $133,748,907. The Medicare portion of this billing was 33.5%, but direct Medicare reimbursement was only 44% of the total amount billed. The result is that the ambulance industry would be projected to lose $25 million (1995 dollars) in Medicare reimbursement if assignment were mandated. It would take $37.2 million in cost shifting to recover lost Medicare funding for that year alone. Due to under-reimbursement from other BBA Medicare cuts, third party payers have no remaining cost shifting options to absorb the cuts proposed in Medicare ambulance reimbursement.

Development of Fee Schedule

The development of the ambulance fee schedule did not begin with a full-cost model.

Since 1965 most health care providers have transitioned through one or more reimbursement methods. Physicians and physical therapists, among others, have moved to a fee schedule structure. Hospitals are reimbursed in a variety of methods today, depending on the service provided. In each of these cases, however, the formula for restructuring reimbursement has always started from a full-cost model. This is not true for ambulance service (see discussion under Historical Charge/Reimbursement Relationship above).

The BBA required HCFA to develop a fee schedule for ambulance service providers that is revenue-neutral using a negotiated rule-making (NRM) proceeding. Those proceedings occurred between February 1999 and February 2000. The proposed rule evolving from these sessions is scheduled to be published in June 2000.

The NRM consensus document sets the relative value for non-emergency basic life support (BLS) ambulance service at 1.0 and sets relative value units (RVU) for other types of ground and air ambulance service. Today there is wide array in national reimbursement rates. The fee schedule will eliminate this disparity on January 1, 2001, when all ambulance providers will begin the transition to being reimbursed the same amount. There will be minor adjustments for geographic costs and 17 miles of premium reimbursement for rural providers.

Disparity of Current Medicare Reimbursement

Current Medicare Reimbursement Varies Widely Between the States

The following charts demonstrate the disparity of Medicare reimbursement between selected states. In some states there are multiple rates being reimbursed. Only the highest average prevailing charges and inflation-index charge (IIC) reimbursement rates are charted because they are more likely to represent more full-cost providers. [5]

HCPC Code A0360 (BLS non-emergency ambulance service, mileage and supplies billed separately).

It is important to read this chart in context with the previous discussion that average charges are skewed because this is not entirely a full-cost industry. The conversion factor for RVU 1.0 will map to this code. Under the code’s current use, however, supplies are billed separately by the ambulance service and reimbursed separately by Medicare. HCFA is requiring supplies to be bundled into the base rate under the fee schedule. While it will not be available until the proposed rule is published, industry experts are predicting the conversion factor at around $170.68 [6] . Except for North Dakota, the average fee charged by ambulance services in 1999 for this code (not including supplies) was higher than the predicted conversion factor. While the IIC reimbursement for some of these states is currently lower than the conversion factor, supplies are not included and it is significantly lower than the IIC in some states that are more likely to operate as full-cost providers. In addition, many providers in the 5-state NCEMSI service area do not currently accept assignment so they are currently recovering full charges.

HCPC Code A0370 (ALS emergency ambulance service, mileage and supplies billed separately).

Once again it is important to read this chart in context with the previous discussion that average charges are skewed because this is not entirely a full-cost industry. The RVU for this code is set at 1.9. Using the predicted conversion factor, that would set reimbursement at $324.29. Under this code’s current use, however, supplies are billed separately by the ambulance service and reimbursed separately by Medicare. HCFA is requiring supplies to be bundled into the base rate under the fee schedule. The average fee charged by ambulance services in 1999 for this code (not including supplies) was higher than the predicted RVU reimbursement in all states. While the IIC reimbursement for some of these states is currently lower than the 1.9 RVU future reimbursement, supplies are not included and it is significantly lower than the IIC in some states that are more likely to operate as full-cost providers.

The $1 billion increase for ground base rates we have proposed will result in less than $80 per ambulance transport (1B/12M transports). It is impossible for us to compute the exact amount because we do not have access to data regarding the projected number of ambulance transports for each category of the fee schedule. HCPC Code A0370 is a standard code used for paramedic transport in emergency medical cases. In addition to mandatory Medicare assignment, the predicted conversion factor will reduce reimbursement under the existing HCPC Code A0370 in Minnesota from $457 to $315 ($145 per transport). Similarly Iowa, North Dakota, Wisconsin, California, Colorado and Oregon (among other states not sampled in our chart) will see substantial decreases in Medicare reimbursement to a similar reimbursement amount [7] .

The Role of “Profit” in EMS

Revenue in excess of expenditures is necessary for capitalization.

Revenue in excess of expenses is necessary for ambulance services in order to re-capitalize fixed equipment. Fixed equipment in the ambulance industry includes ambulances and patient care equipment such as monitor/defibrillator/cardiac pacing units. The cost of a fully equipped ALS ambulance can exceed $100,000. Most ambulance services that are tax-supported have no excess revenue or profit. For the independently operated government, non-profit and for-profit ambulance services, the OIG has concluded that profit is 10 percent of charges. [8] In the OIG analysis, no allocation was made for capital replacement or improvement. Thus their 10 percent “profit” must be reduced accordingly to account for capital costs in a capital intensive industry.

An Industry Facing Impending Financial Crisis: Recommendations for Congressional Action

EMS, the final health care safety net, is jeopardized due to mandatory Medicare assignment and the ambulance fee schedule and immediate Congressional action is needed.

Many rural government-operated ambulance services predict financial insolvency. Some ambulance services are anticipating reduction in service provided to Medicare beneficiaries from paramedic-level ALS to EMT-level BLS. One urban ambulance service has already informed their union they will decrease community staffing standards (reducing their crew configuration from 2 paramedics to a one-paramedic, one EMT crew), where allowed by law, as a direct impact of Medicare reimbursement reductions. Another ambulance service has announced it will stop providing convalescent transportation (wheelchair) to Medicare beneficiaries and others in July 2000. These are examples of actions being taken in local communities that may impact the quality of care and certainly the access to that care in the NCEMSI service area. These changes are reflections of impending actions by ambulance services across the country.

A letter developed by The Minnesota Emergency Medical Services Regulatory Board warns local and state elected officials expressing concern due to the impact of the BBA. The letter says, “As the state board responsible for regulating licensed ambulance services, we are concerned that a significant reduction in reimbursement and mandatory assignment of payment may impact the quality of pre-hospital emergency care provided the citizens and the visitors within Minnesota communities.” The letter continues, “we strongly recommend that public and private policy makers vigorously plan for this coming fiscal impact on ambulance operations …” It also warned that these changes may result “in significant financial shortfalls for ambulance services, because many already operate on a very small margin or even at a loss. It is possible that some ambulance services will fail.” [9] (Emphasis added)

Due to the following conclusions, it is imperative that Congress act now to preserve the final health care access safety net.

1.       The ambulance industry in the US is not a full-cost model, thus the current payment methodology is flawed and costs are grossly understated in prevailing charges.

2.       Other fee schedules created by Congress have started with a full-cost model and simply nationalized payments. Federal ambulance payment policy should be consistent with the real costs of providing service.

3.       Low-volume (mostly rural) providers are particularly vulnerable.

4.       Mandatory Medicare assignment is particularly burdensome for the 5-state area. The state of Minnesota (the only state in the NCEMSI service area that collects financial data) has estimated a 27% impact to total ambulance service revenue by assignment alone.

5.       Current Medicare reimbursement is based on a flawed system and does not accurately reflect the cost of providing ambulance service. Because the development of the fee schedule started at a less than cost model, the resulting reimbursement will be woefully inadequate.

We suggest the following Congressional action:

1.       Increase the base ambulance funding in the Health Care Financing Administration’s (HCFA) Medicare budget by $1.2 billion.

•     $50 million should be dedicated to improve reimbursement for air ambulances in a manner developed in collaboration with the Association of Air Medical Services (AAMS). AAMS has been instrumental in providing actual cost information for helicopter air ambulances, however they have acknowledged that their data sample for fixed-wing air ambulances was inadequate. We suggest that the proposed fixed-wing air ambulance reimbursement is too low, but guidance for dividing this enhancement between fixed-wing and helicopter air ambulances is best received from AAMS.

•      $150 million dedicated to improve reimbursement for rural ground ambulance services in a manner developed in collaboration with the federal Office of Rural Health Policy.

•      $1 billion dedicated to improving all ground ambulance base rates by directly impacting the conversion factor.

While these efforts will not move the industry to full-cost status, we believe they will:

a.        limit the number of financial failures of ambulance services;

b.        limit the amount of increased and new local taxes; and,

c.        preserve access (although in some areas it will result in increased emergency response and transport times) to citizens.

Section Two: Prudent Layperson Standard

Medicare frequently unjustly denies reimbursement for emergency medical care.

When the public has an emergency a prompt response from EMS is essential to sustain life and provide quality outcomes. To accomplish this, EMS providers must be fairly reimbursed at a level that assures their financial viability. Denials of reimbursement by Medicare for emergencies are an increasing problem for EMS providers and ultimately result in higher cost because of lengthy appeals.

Often Medicare contractors (carriers and fiscal intermediaries) will pay or deny ambulance claims of Medicare beneficiaries based on a diagnosis which is made later in the emergency room. When a citizen experiences chest pain they do not know if it is because of a life-threatening heart attack or some other non life-threatening condition. State laws (scope of practice, equipment or state licensure) prohibit ambulance personnel from diagnosing medical conditions in the field. In these cases the patient must be diagnosed and further treated by physicians in the emergency room.

These are recent examples [10] of emergency ambulance Medicare beneficiaries claims denied payment through Medicare:

•      A man mowing with a power scythe and tractor fell. The rotating blades severely cut his upper arm. He tried to walk home but was too faint from blood loss so he had to crawl. His wife dialed 9-1-1; he was transported by ambulance to the hospital and ultimately had orthopedic surgery.

•      A 66 year old man was found in a shopping center parking lot, slumped over the steering wheel of his car. The car was in drive, against a light pole with the tires spinning. A policeman requested an ambulance. The driver was treated and transported to the hospital.

•      A 74-year-old man was complaining to his family about an upset stomach when he collapsed. The family started CPR and called 9-1-1. Paramedics continued CPR en route to the hospital.

•      A 74-year-old female complained of flu symptoms and was acting confused. Her family called 9-1-1. The paramedics found her blood sugar severely low, below 40 and found she had a history of diabetes.

In denying payment for these ambulance services, Medicare sent a letter to the beneficiary that said, “Medicare regulations provide that certain conditions must be met in order for ambulance services to be covered. Medicare pays for ambulance service only when the use of any other method of transportation would endanger your health.” In each of these emergency medical cases, Medicare denied payment, claiming the ambulance wasn’t necessary.

Recommendation for Congressional Action

The 1997 BBA contained a provision basing reimbursement under Medicare for emergency room services on a “prudent layperson” standard. It is logical that ambulance services be reimbursed under the same standard.

Section Three: Critical Access Hospitals 

Critical Access Hospital-based ambulance services are not eligible for cost-based reimbursement.

Because of impending financial failures in the hospital industry, the BBA contained a provision for small rural, isolated hospitals to convert to critical access hospital (CAH) status. Eligibility for this program was expanded by the BBRA. One reason many rural hospitals convert to CAH status is that they are then reimbursed on a cost-basis for services provided to Medicare beneficiaries. Whether due to statutory limitations or by the interpretation of HCFA, unlike every other service within the hospital, CAH hospitals will not receive cost-based reimbursement for ambulance services they provide, they will be reimbursed by the new ambulance fee schedule.

CAH authorization is contained within the Medicare Rural Hospital Flexibility Program. In order to maintain hospitals in rural areas this Program allows flexibility in the both type of services offered and staffing levels. It also allows for greater flexibility in physician availability for emergency room coverage.  The physician may be as long as 30 minutes away and be available on-call for patient emergencies and still qualify the CAH as having an open emergency department. These allowances are vital to keep isolated hospitals in business.

Changes in staffing and physician availability create additional strains for EMS resources. Since CAHs are located in rural or frontier areas, often they are served by volunteer basic emergency medical technician (EMT) personnel serving on BLS ambulance services. Such ambulance services do not have adequate resources or licensure to treat and transport critically ill or injured patients that require a higher level of medical professional (nurse, physician’s assistant or physician) during transport to secondary or tertiary hospitals that are sometimes hours away. Because of staffing flexibility for CAHs, nurse, physician’s assistant or physician resources may not be available immediately to supplement the ambulance staff for the transfer.

During conversion to CAH status hospitals are required by Medicare to establish referral and transfer plans with EMS agencies. In some areas using air ambulances minimizes the burden, however air ambulances are not always available. This is primarily due to the need to transport another patient or because of inclement weather.

Sometimes the hospital already operates the ambulance service. Given the impact of the new ambulance fee schedule on community ambulance providers, rural hospitals will be requested to assume the operation of the ambulance service and become the provider of last resort. Usually low volume rural BLS ambulances currently serve the community. It is appropriate in some of these circumstances to convert the ambulance service to full-time ALS service because the paramedics can be used in flexible staffing throughout other parts of the hospital. However, since these are usually low volume services, without cost-based reimbursement there is not enough revenue to make the conversion.

Recommendation for Congressional Action

There are other programs currently under fee schedules and operated by hospitals that automatically convert to cost-based reimbursement during CAH conversion. Congress should clarify in statute that CAH-owned ambulance services are eligible for cost-based reimbursement.

Section Four: Mileage Definition 

Current reimbursement methodology places EMS providers and beneficiaries at odds between two conflicting federal priorities.

The DHHS has historically encouraged hospitals to join or form networks. In fact, the HCFA awarded Minnesota’s state Office of Rural Health a State Rural Health Network Reform Initiative grant in 1994 to “assist rural communities in building the infrastructure necessary for the development and implementation of rural health networks”. In addition, the Medicare Rural Hospital Flexibility Program includes a network component.

From a patient care perspective it is important for rural hospitals to be part of a network, either formally by contract or informally through transfer agreements. It assures ease of access to appropriate secondary or tertiary hospitals as well as providing improved continuity of care. Medicare saves money because more patients are moved back to the rural hospital from the network hospital sooner to complete rehabilitative care in a less expensive environment. Hospital stays are shortened when a patient is re-admitted to the local hospital where the family support network exists in the local community.

Unfortunately, there is inconsistency between two federal policies. While HCFA is promoting or mandating that rural hospital be part of a formal network, their payment policy for ambulance services for inter-hospital transfer is limited to the “closest appropriate” hospital. For example, heart surgery may be available in a non-network hospital 30 miles away and also in a network hospital 50 miles away. Physicians make transfer destination decisions based on appropriate patient care, respecting network options when appropriate. A significant savings to Medicare for the cost of the overall hospitalization expenditure offsets an additional small expenditure in ambulance mileage in a network system with case management.

The payment methodology can place ambulance services and beneficiaries in an uncomfortable position in circumstances where the network hospital is not the closest appropriate hospital because the beneficiary is financially responsible for the cost of the increased distance. Modifying the inter-hospital ambulance mileage reimbursement policy would allow efficiencies and cost-effectiveness to be realized. The current HCFA terminology “closest appropriate facility” is not always the “closest appropriate network facility”.

Recommendation for Congressional Action

Although federal policy encourages network development for efficiency and cost-effectiveness, reimbursement does not reflect the same commitment. It is imperative that Congress enact a statutory change to set inter-hospital mileage reimbursement for ambulance service to be covered either to the closest appropriate hospital or to a hospital with specialized services within the same contracted or ownership network.