Administration and Leadership

Understanding Why EMS Systems Fail

Issue 2 and Volume 40.

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 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 living beyond its means is unquestionably challenged.

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 leader’s 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 reimburse an EMS provider below its actual costs. Reimbursement is typically based on the type of response (emergency or nonemergency), the level of service provided (BLS, ALS, specialty care transport), 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, and how these dollars are spent or divided among competitive providers can affect long-term financial stability. Marketplaces where more than one EMS provider exists yields a diseconomy 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,
nonemergency work or loss-leader wheelchair work in order to move market share from one provider’s pocket to another, thus shrinking the pool of dollars available toward the lower band in the marketplace.

In these 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 nonemergency market is unregulated and competitive in nature.

Even in an exclusive, noncompetitive marketplace, 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 MarketPlaces

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 nonemergency 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. Overregulation 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 long-term viable and sustainable EMS system.

EMS System Design

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. 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’ve 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.

The Politics

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, taxpayers 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. Meeting your city council, mayor or city manager for the first time when a problem arises is too late.

Poor Management & Leadership

Even if it’s not always the fault of your administrators, lack of management or leadership that led to the situation at hand is the reason that gets the most attention in a failed EMS system. Obviously, bad decision making, poor leadership and bad management practices can all put an EMS organization into a tailspin.

A good friend 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 taxpayers if a subsidy is involved.

Bad Outcomes

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.

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, can cause havoc in the media and negatively impact the organization’s reputation, which erodes the public’s and 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.

Other Critical Change Trigger Points

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 otherwise— 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 workplace or Medicare billing compliance issues.

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.

In Summary

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. Learning these intricacies takes time, proficiency, mentoring, education and diverse hands-on experiences.

Sidebar – From the Minds of Many

By A.J. Heightman, MS, EMT-P

During the development of this important article, I reached out to a diverse group of EMS leaders to ask them to candidly tell why they believe EMS systems fail. This included well-respected EMS managers, consultants, attorneys, EMS association leaders, educators, operations directors, medical directors and past and present federal officials.

What follows are key comments in specific categories, without their names presented, because it’s their message and not their name and position that’s most important. Some were edited for clarity.

Read these powerful comments carefully to see if your agency needs to address any of the areas of concern presented to stay fiscally and operationally intact.

Sidebar – Finance

>> EMS is underfunded and poorly reimbursed. The lack of dedicated and stable funding sources will continue to kill EMS systems.
>> The current federal reimbursements don’t meet the average cost of running a call. A 9-1-1 system must be funded to be staffed and ready to answer calls; not just funded for the calls that they answer that happen to have insurance or the ability to pay. Without this funding, systems are doomed to fail.
>> In EMS, physical infrastructure (e.g., ambulances, equipment) has a fixed cost and steadily increases. The only thing that can be fiscally-adjusted is employee costs and benefits. Jim Page called public utility models, “one of the worst threats to EMS ever.” The reason: They were essentially set up to keep EMS employees out of the civil service system and public sector—to keep costs down.
>> While finances are critical, the process to achieve financial stability is the key point. If you look at successful communities like Seattle and King County, Wash., you’ll often find taxpayer-supported levies that allow total financial stability. However, it’s not all roses. While ALS transport in Seattle is “free,” BLS isn’t and is often provided by private agencies.
>> Many EMS services don’t get a subsidy and, in some cases, must pay the cities to operate. The only private companies that have done well are large companies like AMR and Paramedics Plus that spread their costs across multiple markets (wealthy and poor).
>> We need to “manage our business” and stop relying on handouts (donations, tax dollars, grants) and other non-sustaining funds.
>> We must begin to show that we make a difference in outcomes, can be fiscally responsible in running our healthcare business and develop with the next wave of public health.
>> A number of EMS public providers use deficit spending to cover budget shortfalls. These agencies dip into reserves until they’re gone. Then, service must decrease in order to prevent spending more than is received. Solutions should be identified and implemented as soon as revenue doesn’t cover expenses; there shouldn’t be a “hope” that the economy/tax collections will increase.
>> Home rule: In order to compensate for underfunding, systems need to regionalize and take advantage of economies of scale. When home rule comes into play, costs are multiplied by each agency and none of them can succeed.

Sidebar – Politics, Unions & Poor Public Relations

>> Unions demanding to be paid for additional tasks can sink the ship.
>> Politics often chase good leaders from positions because the employees don’t like being held accountable for their actions.
>> The employers/managers put “puppets” in place who pretend to be leaders but actually don’t make a single decision without consulting with the employees first.
>> The more our agency is accurately represented in the public eye, the more it works against the frustration of paramedics and EMTs who feel like no one has any idea who they really are and what they really do.
>> Failure to regularly engage the public and/or local elected officials can impact staffing and the overall budget of the department.
>> Lack of a true balanced review process during RFP processes drives controversy, lawsuits and often result in wasted time and resources when rebidding is required.
>> If your community knows who you are, then your elected officials will too [and] you’re in the best position to get the community and financial support you need.
>> Lack of a common message to political leadership on issues. (One voice, one mission, one vision.)
>> Failure to demonstrate value: If the community, including the general public, elected officials, payers, hospitals and other stakeholders, doesn’t believe you bring them value, EMS becomes a commodity, and something to be bargained with.

Sidebar – Leadership

>> Even the best aircraft carrier, with the best crew, will go in the wrong direction if the captain doesn’t know how to steer the ship in the right direction.
>> A key leadership component is the medical director! He or she can (often) arch over bureaucratic hurdles with a single bound.
>> A top-down management style can hurt system development. (This doesn’t allow lower-level, bright officers to participate in the leadership process.)
>> A “non-EMS” manager in the hierarchy above the EMS leader is a big reason for system and morale decay. This sabotages the program through ego, limited EMS “attention,” fear instilled in those proposing change, or any of the other seven deadly sins.
>> Leaders need to be consistent in their message about the mission of the organization. They shouldn’t allow external or internal forces to change the delivery of quality patient care.
>> Many fire departments have the EMS management structure, but not the EMS leadership they need to develop and prosper.
>> Supervisory positions must be about serving and supporting the crews. It can’t be all about the individual who got the position. He or she must work for the crews, and the crews must work for the community. It’s vital this not be reversed.
>> EMS leaders must be transparent and honest from their financial standing to their protocols, policies and procedures, and hiring practices. They must openly acknowledge errors and work toward solutions.
>> Whether chief, director, shift supervisor, trainer, experienced paramedic, or just “not the new guy,” ego protection at any level ultimately results in system problems.
>> The public will forgive mistakes; they won’t forgive dishonesty.
>> EMS leaders must understand that a static management style doesn’t work in a rapidly changing medical environment. With constant changes in medicine, governmental processes, billing and technology, leaders must evolve their services.
>> EMS leaders must captivate, educate, and solicit buy-in from both internal and external stakeholders. Personnel want to work for good leaders. The public requires EMS for lifesaving capabilities and wants to be able to trust their leaders. When a system functions without these concepts, degradation begins to set in.
>> Lack of mentorship: This ultimately cripples the system when good seasoned leaders haven’t taught, or haven’t been able to teach, lessons learned to the next generation.
>> Leaders who are afraid to make a decision are worse than those that make bad decisions while trying to improve things. After a while, the employees begin to realize that issues aren’t dealt with and problems aren’t solved. They then either start making their own decisions regardless of the outcome or they don’t do their job properly—which affects everyone.
>> Some leaders don’t keep up with the industry and fail to make improvements and changes before they’re mandated to change. They aren’t role models or mentors to their employees.

Sidebar – Quality of Care, True Evaluation & Quality Improvement

>> Not closing the quality assurance (QA) loop is a big problem. You can’t make the same mistakes over and over with no recourse. Many systems are also not using QA to drive education and personal change.
>> Both the fire service and other private providers should embrace a unified program for quality improvement (QI) and provider education. Many of these care teams work together daily, but they don’t train together and build the important team relationships that can eventually benefit patient care.
>> EMS systems must build solid QA/QI initiatives that don’t localize blame. All employees can benefit from learning from the minor mistakes of others.
>> Many EMS systems have misinterpreted the “self-reporting” initiatives that were legislated across the country. Employees should feel comfortable and confident in self-reporting and agencies need to work toward fully legislated peer protection.
>> Some systems have created a volatile situation between QI and personnel. The targeting of employees and the resulting “non-punitive” schedule change is seemingly supported by administration. Consequently, you see mistakes repeated.
>> Agencies miss the opportunity to resolve a systemic problem and create a culture of fear and intimidation. Continuous QI shouldn’t serve to alienate the workforce.
>> Poor care results in frustration, resulting in poor morale, increased sick leave usage and attrition.

Sidebar – Recruitment & Retention of Employees

>> Failing systems lack quality people due to poor recruitment, poor background checks, no probation period and no (or poorly developed/instituted) performance evaluations.
>> Provider retention issues have been on the burner for over 20 years. If a simple comparison to initial training costs were made to the costs associated with adding at least one additional unit, an agency could see benefits in decreasing the operations unit hour utilization and allowing a crew to have a few moments of rest in a busy urban system.
>> Painting the wrong picture for new recruits: No offense to the fine folks from Emergency!, but we don’t need Johnny and Roy as much as we need Dixie. There are plenty of kind, compassionate, caring young people who don’t even consider EMS because of the false impression we paint of some paramilitary, Kevlar-wearing group of knights in dull black armor.
>> Personnel turnover: People always coming and going. This can often be related to low pay and high call volume/demands.
>> Many see no future in EMS as an employee. There isn’t much of a career ladder. Many see EMS as a dead-end job. In addition, many barely make a decent living in EMS.
>> There aren’t many nongovernmental systems that offer incentives or even reasonable benefits. To top it off, many of the supervisors don’t have the training or skills they need for their responsibilities in management. I have said many times that, “You couldn’t pay me enough to do this job: That’s why I volunteer!”