With shifting legislation and rising costs, EMS leaders must master the art of financial transparency. This guide demystifies ambulance funding models, cost drivers and how to make the numbers make sense.
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 “cost of readiness.” According to the recent Medicare Ground Ambulance Data Collection System (GADCS) 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 — medical supplies, fuel, maintenance, repairs and any costs associated with technology (e.g., software, cellular connectivity, etc.).
Quantifying the gap between expenses and revenue for EMS services
Takeaways from the First CMS Data Collection Report on Ambulance Services to enhance service levels and reduce costs of service delivery
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’s 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.