Unfortunately, many “failed” EMS systems are measured by recent events, no matter how successful they may have been in the past. Finances, changing political climates, poor leadership, or a significant high-profile event can all trigger a system to be declared as “failed.” In some cases, a combination of these factors can create a perfect storm (what I’ve come to call a “critical change trigger point”) that ultimately yields a replacement of the existing system or incumbent provider.
Because no industry-accepted standards exist in terms of measuring success of an EMS system, oftentimes decision makers have only anecdotal or best practice comparative data to contrast against. This lack of standardized industry benchmarking gives a wide berth for naysayers to cast stones, often relying on raw emotions or carefully crafted (and frequently biased) data to influence public policy or decision makers.
Also, as systems begin to financially fail, a tradeoff is usually applied by leadership where quality, service reliability and compensation are sacrificed in order to remain viable or to meet financial targets. If done improperly, this can begin a downward spiral that feeds upon itself, thus creating a negative synergistic effect and decreasing the time of survival versus prolonging it.
This article is written with the intent of sharing experiences in EMS system turnarounds as a mechanism to help EMS leaders and political decision makers better understand the variables that influence EMS system success and failure, with the hope that future EMS system collapses can be avoided. Additionally, I hope to provide the tools necessary to help make unbiased, informed decisions if your EMS system finds itself being called into question or labeled as “failed.”
Understanding EMS finance & economics
One of the most significant critical change trigger points is finances. An EMS system that finds itself living beyond its means is unquestionably challenged, and leaders who continue finding themselves at the well looking for more money will quickly be called into question.
Although finance troubles are often blamed on poor leadership, they actually have many root causes. Labor rates, benefits, poor productivity, operational design and market regulation all have a significant direct impact on the financial viability of an EMS organization, as does revenue cycle management and payor mix. Being a consummate steward of the complex financial drivers and interrelationships of an EMS system is an important leadership requirement that often exceeds even the most seasoned leaders’ acumen and capability.
Two fundamental yet misunderstood topics are the finances and economic variables that drive EMS systems. EMS systems typically generate revenue through billing insurance, tax subsidies, memberships, direct sales, diversification into other lines of business or grants or fundraising. They spend a majority of these revenues on direct and indirect labor and benefits, with the remaining dollars going to infrastructure, fuel, medical supplies, fleet maintenance, dispatch, billing and other essential items with hopefully some left over for recapitalization and profit or fund balance development.
Billing in EMS is a complex myriad of government and private reimbursement mechanisms designed to provide compensation when a patient is transported. EMS is normally reimbursed on a set schedule of fees, negotiated rates or charges based on a convoluted and complex set of rules and regulations that often (at the government level) reimburse an EMS provider below its actual costs. Reimbursement is typically based on the type of response (emergency or non-emergency), the level of service provided (BLS, ALS, SCT), the distance the patient was transported and the geographic location of the patient (rural vs. urban). Some other regional reimbursement mechanisms exist for rural providers and tiered response systems.
Private insurances typically pay based on negotiated rates or will pay full charges to a point, but in these cases will often (unless illegal in the state) penalize a non-network provider by sending the payment directly to the patient, thus making it difficult for the provider to collect. This is done as a way to strong arm the provider into a lower negotiated rate.
More important to understand is that governmental and commercial EMS reimbursement rates aren’t tied to local EMS market conditions, competition, regulations or EMS operational system design, and therefore have a baked-in cost assumption. Demand for EMS services within a particular market place (a county for example) doesn’t ebb and flow based on price and availability of EMS service, as a normal market would, but rather is influenced by uncontrollable things like population demographics and size, socioeconomics, population health, education and outside influences such as seasonality or things like influenza.
Given this, there’s essentially a set amount of dollars that are available in the marketplace (with an upper and lower band), and how these dollars are spent or divided among competitive providers can affect the long-term financial stability of those in the marketplace. Marketplaces where more than one EMS provider exists yields a dis-economy of scale; things like dispatch, administrative, billing, fleet and other EMS functions are duplicated, thus driving up costs without an equal rise in dollars available to meet these expenses. In addition, competition often drives prices down in things like facility-paid, non-emergency work or loss-leader wheelchair work in order to move market share from one provider’s pocket to another, thus compounding the problem and shrinking the pool of dollars available toward the lower band in the marketplace. In these types of marketplaces, a fragile balance may exist in terms of tradeoffs between quality, wages and long-term viability depending on payor mix, commercial rates, available subsidies and things like cost of living. Markets that have great payor mixes, lower costs of living or have adequate state regulations on commercial insurance payors may have better opportunity for successful competition versus those that don’t.
Because of these diseconomies of scale, subsidies may be needed in order to meet a certain level of operational and clinical performance expectations. This is especially true in markets where exclusive emergency rights exist, but the non-emergency market is unregulated and competitive in nature.
Even in an exclusive, non-competitive market place, revenues may not exceed expenses due to inadequate volume, operational system design, payor mix and over regulation. However, it does maximize the potential revenue into one consolidated entity, which provides for a much higher financial threshold and expense tolerance as the same pool of dollars aren’t divided among many agencies.
No matter your EMS market situation, it’s clear that a focus on getting every dollar available owed to your EMS system is a key variable that must be diligently cultivated and monitored to help keep your system viable. If you operate in a competitive marketplace, the financial fragility of your agency is dependent on many variables including market share, payor mix, market driven loss-leader practices and market share gaining competitive practices. The more aggressive these variables become, the more unstable a provider may become.
Unregulated vs. regulated market places
EMS market regulations exist for a variety of reasons. Many communities have learned the hard way what an unregulated EMS market can mean, and much of the work Jack Stout did in the 1980s dealt with unregulated competitive emergency marketplaces where the lack of regulation allowed for bad consequences for patients and employees and provided for an unstable and unreliable public safety design.
While much of the U.S. has regulated its emergency marketplaces, it has left non-emergency markets somewhat alone. This, too, has had unintended negative consequences. But even worse, some unregulated markets in the U.S. have left the door wide open for rampant fraud and abuse. Because of the lack of local market regulations in some states or municipalities, the federal government has recently had to step in to put a moratorium on the provision of new NPIs (the numbers issued to an agency by Medicare for billing purposes). Many at the federal level are blaming private EMS for the problem, when in fact it’s the lack of market share regulation that allowed this to occur.
For legitimate EMS agencies in these affected regions, the impact of these problems can be financially devastating. When the predatory pricing these thugs use shifts the market share, the legitimate company is left on the losing end of the equation.
Too much regulation can also have unintended consequences that affect long-term system viability. Over-regulation of response times or excessive fees imposed by a regulator are key examples of significant cost drivers that may exceed the revenues available within a marketplace. Careful due diligence by regulators and the consultants they hire to help competitively bid a regulated market is a must if they desire to build a longterm viable and sustainable EMS system.
System design is the largest factor in influencing the costs of service provision.
Station-based static models are more expensive than high-performance-based temporally deployed ones and often require a tax subsidy to survive (I’ll be waiting for the emails on this one). This is mainly due to productivity issues of each design (they’re on opposite sides of the spectrum) as well as the cost of infrastructure and capital needed to carry each (again, on opposite sides of the spectrum).
Although often controversial based on who has a dog in the fight, the facts speak for themselves in the many turnarounds I have been involved with over my 28-year career: High-performance EMS systems that operate in a temporally deployed fashion are more cost effective than any other design and can frequently be self-sustaining, meaning they can live off of their reimbursements without the need for tax subsidies. This is especially true in areas with 100% exclusive market rights to the entire pot of revenues. Those that declare otherwise aren’t fully accounting for all their costs.
However, sitting in an ambulance for 12 hours on a street corner can be a frustrating circumstance, especially for those who’ve never done it before. Additionally, productivity of a high-performance EMS system also needs to be balanced so that staff can get appropriate breaks, meals and facility use. Every system has a sweet spot that balances patient care, employee well-being and long-term financial sustainability, but finding that sweet spot is both an art and a science that only skilled operators are able to attain.
Internal, local, state and federal politics associated with our EMS systems and industry can also influence success. I’ve seen well-run, highly effective and efficient EMS systems become devastated due to poor politics where votes or political pandering are put in front of proper, pragmatically driven decisions. Ultimately, it’s the patients, tax payers and providers who get hurt in these situations, but unfortunately the public is typically uninformed.
Given this, EMS leaders must both understand the climate as well as how to influence it. This typically means having someone in your organization involved in government affairs or leveraging a leader who’s built relationships with decision makers that allow for open and transparent dialogues when the crap hits the fan. Meeting your city council, mayor or city manager for the first time when a problem has arisen is too late.
Poor management & leadership
The reason that gets the most attention in a failed EMS system is the lack of management or leadership that led to the situation at hand (even if it’s not always the fault of your administrators). Obviously, bad decision making, poor leadership and bad management practices can all put an EMS organization into a tailspin.
Remember there’s also a difference between managing tasks and leading people; an EMS leader must be good at both. Managing deals with processes, compliance, regulations and finance. Leadership deals with people and getting them to successfully and happily work together to meet an end goal.
A good friend and client of mine told me this proverb: Leaders who don’t know what they don’t know are unconsciously incompetent; leaders who do know what they don’t know and do nothing about it are consciously incompetent.
Both are egregious as it’s a leader’s responsibility to keep a vigilant lookout on the horizon for the next iceberg that needs to be dodged.
Bad leadership and management decisions can also have long-term and expensive financial impacts on an EMS system’s existing and future operators, as well as its viability. I can’t tell you how many request for proposals I’ve seen where the regulations get piled on because of the incumbent’s or previous operator’s bad behaviors. While a regulator’s intent here is a valid one, placing excessive moratoriums or fines for bad behavior as a prevention mechanism can completely devastate the fragile financial balance of an EMS system, thus driving up costs that reimbursements may not cover or that get passed on to tax payers if a subsidy is involved.
Every EMS system has bad outcomes whether we like to admit it or not. These are usually patient care related, but can also be related to employee, vehicle operation or another type of insurable risk or liability. If a bad outcome leads to a lawsuit that comes with a substantial award to the plaintiff, the impact can be devastating (a great example is the lawsuit with EVAC Ambulance in Daytona, Fla., where the award from a bad clinical outcome exceeded the agency’s insurance coverage. The seven-figure difference had to be paid directly by the EMS agency and its owners—in this case, the city of Daytona).
Additionally, high-profile situations where an individual was harmed by a clinician, a bad system design, a bad process design or a failed piece of equipment (such as a defibrillator), can cause all kinds of havoc in the media and thus negatively impact the reputation of the organization, which erodes the public’s confidence and the regulator’s confidence of the EMS agency or operator. This is why a solid quality improvement program for all aspects of an EMS system is essential. While many leaders see quality improvement as a cost center, think of it as a cost savings center that’s hopefully preventing bad outcomes, no matter the type of liability (clinical, operational, revenue cycle and so on).
Staff and staffing issues, union issues, compliance issues and organizational cultural issues are just a few other trigger points.
These are less frequent than those discussed earlier, but are still worth mentioning. Excessive human resource issues (union or not) can clearly impact an agency’s ability to survive and can be large distractors, especially for smaller EMS organizations that aren’t equipped or experienced in dealing with such situations. The same holds true for compliance issues such as OSHA and CMS billing practices.
The one thing to highlight here are the sizeable financial costs to the EMS agency these issues can all have. High turnover is expensive, as are poorly negotiated collective bargaining agreements and fines and levies for poor compliance practices. If you operate on a paper-thin margin like most EMS systems do, the costs of these items can be enough to put the organization into the red and ultimately lead to its demise—even not-for-profit systems. Remember: no margin, no mission. This holds true for all business structures.
EMS leaders must be skilled in a variety of acumens and have situational awareness so they’re always “consciously competent” about their businesses and the impacts their decisions can have on their organization’s survival and success.
EMS isn’t the business it used to be. It’s a complex intertwined mesh of clinical, operational, financial, regulatory and managerial variables that each impact each other in some fashion. Understanding and responsibly influencing these interconnections is what separates a marginal leader from a superior one. Learning these intricacies takes time, proficiency, mentoring, education and diverse hands-on experiences. With time, an EMS leader will hone his or her craft and become a master captain at keeping their EMS ship out of tumultuous waters. To this end, one of my favorite leadership quotes comes from John Masefield: “All I ask is a tall ship, and a star to steer her by.”