EMS Insider, Healthcare Reform

Part 1: Economic Models for EMS 3.0

How much does EMS cost?

While it may seem that this is a relatively simple question, the true answer is as elusive as Big Foot. A lot depends on your perspective. The perception of cost is different if you are a patient, a provider, a taxpayer or a third-party payer such as Medicare, Medicaid or a commercial insurer.

Let’s look at the traditional cost components of EMS.

The Ambulance Component

A private ambulance operator can generally provide with some specificity their average unit hour cost, cost per call and cost per transport. A public ambulance provider, especially one that is dual-role like a fire department, may have more challenges coming up with those numbers due to the concept of shared costs for things like fuel, capital replacement and administrative support services such as payroll, human resources and fleet maintenance. Despite the possible complexities, coming up with a cost for the ambulance component of EMS is generally not difficult. At MedStar Mobile Healthcare, we recently worked with a large municipal fire agency to help determine their cost of service delivery for their ambulance component to help potentially negotiate a different payment model.

Here are two tables that help illustrate the cost comparisons:

Economic models for EMS 3.0

Economic models for EMS 3.0

The First Response Component

The ambulance cost is only one part of the cost of providing EMS. What about the cost of first response? Here again, the calculation is challenging, especially for dual role fire providers due to the shared resource concept. The best way to determine this cost is to ask the dreaded question, “If you were to stop providing EMS, what costs would you save?” Unless you had units dedicated to only EMS response that you could eliminate, personnel costs would remain fairly constant because the same personnel responding to EMS calls would still be needed for fire calls. You would save the costs of EMS training, EMT or paramedic pay differentials, medical equipment and supplies, maybe some wear and tear on the engines used to respond, and cost of fuel.

A 2013 report by IBM Global Analytics estimated the cost of EMS first response for the city of San Jose (Calif.) Fire Department at $210–$260 per call.1 Data from the same report reveals a total cost per call for all calls was $2,517.01 ($155 million budget, and 61,581 calls).

Patient Perspective on Cost

Both those analyses are from the perspective of the provider. If you are the patient, your “cost” of EMS is the amount you have to pay for the EMS response. Generally, the payment for first response is covered through tax dollars (more on that later in part two of this series), so most patients do not receive a bill for the medical first response of the fire engine.

Ambulance bills can vary widely, often dependent on the use of tax dollars to offset the bill. MedStar’s average charge for an emergency ALS ambulance call is $1,500. We receive no tax subsidy, so our cash collections have to cover the cost of service delivery. At the average charge of $1,500, we are able to collect $477.50 per call, thereby covering our costs (see Table 1). So to the patient, the cost of the ambulance is $1,500, less whatever their insurance covers. Interestingly, as patients enroll in high deductible health plans, this “real feel” cost has caused a major outcry. Patients have long been insulated from the real cost of services by only having to pay a small deductible or co-insurance for things like ambulance service and EpiPens.

In Anycity, USA, their average charge is $850, with average cash collected per call at $330, even though their cost of the ambulance trip is $1,189. They are using tax revenue to subsidize the price and the patient’s perception is that the cost is $850, less whatever their insurance covers.

Third Party Payer Perspective on Cost

Congratulations! You are now the CFO for Acme Health Insurance and your company covers the cost of ambulance service. In the scenario above, you love Anycity Fire Department (well, you actually love their taxpayers) for subsidizing your cost for ambulance transport. Not so much the taxpayers in the MedStar system, because they are not subsidizing your expenses. Dang!

By the way, if you were the CFO for Medicare or Medicaid, you don’t really care what the charge is, because you are only going to pay what the government chooses to pay, irrespective of the actual cost of providing the service.

The Real Answer

So far, we have talked about the cost of the prehospital component of the EMS system, but that is only a small part of the true cost. The true cost of our service is largely the result of our economic model. We are paid as a supplier (transportation) not as a provider (of medical care) and most of our eligibility for payment comes as the result of an ambulance transport to a hospital ED. Hence, we are economically incentivized to force the payers to pay more, much more, in downstream expenditures. If they are only going to pay us for transport to an ED, guess what we are going to do?

For a true analysis of what EMS costs, we not only have to estimate the cost of prehospital service delivery, but also the downstream cost that our economic model for reimbursement generates.

 

Combining several public sources, we can calculate these costs as follows:

  • According to the Agency for Healthcare Research and Quality’s Healthcare Cost and Utilization Project (HCUP), there are an average of 421 annual ED visits per 1,000 population2

            o Only one in five ED visits results in a hospital admission (i.e., four out of five ED visits are treated and released from the ED)

  • An American College of Emergency Physicians (ACEP) study found that 17% of ED patients arrive by ambulance and 39% of EMS arrivals to the ED are admitted, compared with 12% of walk-in patients3

            o This means that 61% of the patients brought to the ED by EMS are treated and released from the ED

  • The Centers for Disease Control and Prevention estimates that the average expenditure for an ED visit in 2011 was $9694

 

Assimilating this information, we can estimate that EMS accounts for 22.3 million ED arrivals at $969 each, for a total spend of $21.6 billion in healthcare system expenditures for ED use. Add to that estimated expenditure, the payment for the ambulance transport: 22.3 million ED trips at an average payment of about $421 equals $9.4 billion.

Finally, a study published in the December 2013 issue of Health Affairs found that of Medicare beneficiaries brought to the ED by EMS and not admitted to the hospital, about 34.5 percent had a low-acuity diagnosis that might have been managed outside the ED.

So, to wrap up part 1 of this series, if anyone asks you how much EMS costs the healthcare system, the correct answer seems to be at least $31 billion annually, not including the taxpayer’s cost of EMS first response.

Imagine if our economic model was different, and we were no longer incentivized to spend the healthcare system’s money, but rather, allowed to make patient-centered decisions on the patient’s best resource for medical care?

Stay tuned for part 2 and learn how we make this transition!

References

1. City of San Jose. (n.d.) Operations efficiency diagnostic. Retrieved Sep. 13, 2016, from https://www.sanjoseca.gov/DocumentCenter/View/9529.

2. Weiss A, Wier L, Stocks C, et. al. (June 2014) Overview of emergency department visits in the United States, 2011. Healthcare Cost and Utilization Project. Retrieved Sep. 13, 2016, form https://www.hcup-us.ahrq.gov/reports/statbriefs/sb174-Emergency-Department-Visits-Overview.pdf.

3. Augustine J. (Dec. 17, 2014) Emergency medical services arrivals, admission rates to the emergency department analyzed. ACEP Now. Retrieved Sep. 13, 2016, from http://www.acepnow.com/article/emergency-medical-services-arrivals-admission-rates-emergency-department-analyzed/.

4. National Center for Health Statistics. (2013) Health, United States 2012: With special feature on emergency care. Centers for Disease Control and Prevention. Retrieved Sep. 13, 2016, from http://www.cdc.gov/nchs/data/hus/hus12.pdf.