Ambulance Providers
Costs and Expected Medicare Margins Vary Greatly Gao ID: GAO-07-383 May 23, 2007In 2002, Medicare implemented a national fee schedule designed to standardize payments for ambulance services. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) required GAO to study ambulance service costs. GAO examined providers' costs of ground ambulance transports in 2004 and factors that contributed to cost differences; average Medicare ambulance payments expected under the national fee schedule in 2010 and how those payments will relate to providers' costs per transport; and changes that occurred in Medicare beneficiaries' use of ambulance transports from 2001 to 2004. GAO estimated costs of ambulance transports based on a nationally representative survey of 215 ambulance providers that did not share costs with nonambulance services. Providers that shared costs with other institutions or services and could not report their costs for ambulance services separately, such as fire departments, were excluded because their reported costs appeared unreliable. GAO used its survey, Medicare claims, and other data for its analyses.
Costs of ground ambulance services were highly variable across providers that did not share costs with nonambulance services in 2004, reflecting differences in certain provider and community characteristics. Costs per transport among these providers varied from $99 per transport to $1,218. Providers without shared costs that had higher costs per transport typically had fewer transports per year, a greater percentage of transports in which more than a basic medical intervention occurred, more transports in super-rural areas (rural counties with lowest population density), lower productivity--measured as number of transports furnished per staffed hour, and a greater percentage of revenues from local tax support. Average payments under the national fee schedule in 2010 are expected to be higher than historical payments, but providers' Medicare margins will vary greatly. GAO could not assess whether, on average, providers without shared costs would break even, lose, or profit under the national fee schedule, because the average Medicare margin for providers without shared costs was estimated to fall from negative 14 percent to positive 2 percent. However, GAO estimated that approximately 39 to 56 percent of providers without shared costs would have average Medicare payments above their average cost per transport under the national fee schedule in 2010. From 2001 to 2004, utilization of ambulance transports per beneficiary increased 16 percent overall. However, use declined by 8 percent in super-rural areas. Declining utilization coupled with potentially negative Medicare margins in super-rural areas, which could be exacerbated when the MMA temporary payment provisions expire, raise questions as to whether Medicare payments will be adequate to support beneficiary access in super-rural areas.
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
May 2007:
Ambulance Providers:
Costs and Expected Medicare Margins Vary Greatly:
GAO-07-383:
GAO Highlights:
Highlights of GAO-07-383, a report to congressional committees
Why GAO Did This Study:
In 2002, Medicare implemented a national fee schedule designed to
standardize payments for ambulance services. The Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (MMA) required GAO to
study ambulance service costs. GAO examined providers‘ costs of ground
ambulance transports in 2004 and factors that contributed to cost
differences; average Medicare ambulance payments expected under the
national fee schedule in 2010 and how those payments will relate to
providers‘ costs per transport; and changes that occurred in Medicare
beneficiaries‘ use of ambulance transports from 2001 to 2004. GAO
estimated costs of ambulance transports based on a nationally
representative survey of 215 ambulance providers that did not share
costs with nonambulance services. Providers that shared costs with
other institutions or services and could not report their costs for
ambulance services separately, such as fire departments, were excluded
because their reported costs appeared unreliable. GAO used its survey,
Medicare claims, and other data for its analyses.
What GAO Found:
Costs of ground ambulance services were highly variable across
providers that did not share costs with nonambulance services in 2004,
reflecting differences in certain provider and community
characteristics. Costs per transport among these providers varied from
$99 per transport to $1,218. Providers without shared costs that had
higher costs per transport typically had fewer transports per year, a
greater percentage of transports in which more than a basic medical
intervention occurred, more transports in super-rural areas (rural
counties with lowest population density), lower productivity”measured
as number of transports furnished per staffed hour, and a greater
percentage of revenues from local tax support.
Average payments under the national fee schedule in 2010 are expected
to be higher than historical payments, but providers‘ Medicare margins
will vary greatly. GAO could not assess whether, on average, providers
without shared costs would break even, lose, or profit under the
national fee schedule, because the average Medicare margin for
providers without shared costs was estimated to fall from negative 14
percent to positive 2 percent. However, GAO estimated that
approximately 39 to 56 percent of providers without shared costs would
have average Medicare payments above their average cost per transport
under the national fee schedule in 2010.
From 2001 to 2004, utilization of ambulance transports per beneficiary
increased 16 percent overall. However, use declined by 8 percent in
super-rural areas.
Declining utilization coupled with potentially negative Medicare
margins in super-rural areas, which could be exacerbated when the MMA
temporary payment provisions expire, raise questions as to whether
Medicare payments will be adequate to support beneficiary access in
super-rural areas.
Figure: Distribution of Cost per Transport for Providers without Shared
Costs, 2004:
[See PDF for Image]
Source: 2005 GAO Survey of Ambulance Services.
Note: Based on a sample of 215 providers, weighted to represent more
than 5,200 providers in the United States that did not share costs with
nonambulance services.
[End of section]
What GAO Recommends:
GAO recommends that the Administrator of CMS monitor utilization of
ambulance transports to ensure that Medicare payments
are adequate to provide for beneficiary access to ambulance services,
particularly in super-rural areas. CMS agreed with GAO‘s
recommendation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-383].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Kathleen M. King at (202)
512-7119 or kingk@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Costs per Transport Were Highly Variable, Reflecting Differences in
Certain Provider Characteristics:
Average Payments under the National Fee Schedule Will Be Greater Than
Average Historical Payments, but Providers' Expected Medicare Margins
Will Vary Greatly:
MMA Provisions Resulted in Greater Average Payments for Higher-Cost
Super-Rural Transports and Adjusted Payments Regionally Where No
Significant Cost Differences Were Observed:
Medicare Beneficiaries' Use of Ambulance Transports Increased from 2001
to 2004, Except in Super-Rural Areas:
Conclusions:
Recommendation for Executive Action:
Agency and External Comments and Our Evaluation:
Appendix I: Data and Methods:
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Appendix III: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Summary of MMA Temporary Payment Provisions, Implemented July
1, 2004:
Table 2: Estimated Average Cost per Transport for Provider
Characteristics That Affect Costs:
Table 3: Payments Prior to and under the National Fee Schedule after
MMA Provisions Expire:
Table 4: Expected Average Medicare Margins under the National Fee
Schedule for Providers without Shared Costs in 2004 Dollars:
Table 5: Average Payments prior to MMA Implementation and after
Implementation:
Table 6: Percentage Changes in Average Payments prior to MMA
Implementation and after Implementation, by Region:
Table 7: Ambulance Transports per 1,000 Beneficiaries in Urban, Rural,
and Super-Rural Areas:
Table 8: Provider and Local Area Characteristics Included in Analysis
of Average Cost per Transport, 2004:
Table 9: Results for Average Cost of an Ambulance Transport Regression-
-Estimated Effects of Selected Provider and Local Area Characteristics
on the Average Cost of Ambulance Transports for Providers, Not
Including Impact of Productivity and Community Tax Support:
Table 10: Results for Average Cost of an Ambulance Transport
Regression--Estimated Effects of Selected Provider and Local Area
Characteristics on the Average Cost of Ambulance Transports for
Providers, Including Impact of Productivity and Community Tax Support:
Table 11: Census Divisions:
Table 12: Average Mile per Transport, First Half of 2004:
Table 13: Mileage Rates:
Figures:
Figure 1: Medicare Ambulance Payment Formula under the National Fee
Schedule:
Figure 2: National Fee Schedule and Regional Fee Schedule:
Figure 3: Distribution of Cost per Transport for Providers without
Shared Costs in 2004:
Figure 4: Expected Medicare Margins for Urban, Rural, and Super-Rural
Providers without Shared Costs:
Abbreviations:
ALS: advanced life support:
BLS: basic life support:
CF: conversion factor:
CMS: Centers for Medicare & Medicaid Services:
CPI-U: Consumer Price Index for All Urban Consumers:
EMS: emergency medical services:
EMT: emergency medical technician:
GPCI: geographic practice cost index:
MMA: Medicare Prescription Drug, Improvement and Modernization Act of
2003:
MSA: metropolitan statistical area:
NECMA: New England county metropolitan area:
NFS: national fee schedule:
RVU: relative value unit:
United States Government Accountability Office:
Washington, DC 20548:
May 23, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable John D. Dingell:
Chairman:
The Honorable Joe Barton:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Charles B. Rangel:
Chairman:
The Honorable Jim McCrery:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
In 2005, ambulance service providers completed more than 12.6 million
ground transports for Medicare beneficiaries.[Footnote 1] Medicare paid
more than $4 billion for ground ambulance transports and is likely the
largest single payer of ambulance services in the United States.
As part of a series of Medicare payment reforms in 1997, Congress
required the Health Care Financing Administration, now the Centers for
Medicare & Medicaid Services (CMS), to develop a national fee schedule
for Medicare ambulance services, which was implemented in
2002.[Footnote 2] Historically, CMS had used two methods to pay for
ambulance services, which resulted in wide variations in payment for
the same service among different types of ambulance service providers.
In particular, CMS had used one method--reasonable costs[Footnote 3]--
to pay hospital-based providers. It used another method--reasonable
charges[Footnote 4]--to pay other, nonhospital-based types of ambulance
service providers. This meant that hospital-based and nonhospital-based
providers were paid different amounts for the same ambulance services.
In 2002, CMS began phasing in a national fee schedule that established
a single payment method for all ambulance services regardless of the
type of provider.[Footnote 5] This fee schedule standardized Medicare
payments for ambulance services. In general, providers strive to keep
their costs of delivering a service at or below the standard fee
schedule rate for that service. Under the Medicare ambulance national
fee schedule, providers that have costs of delivering ambulance
services above the fee schedule payment lose the difference between the
payment amount and their costs, while providers with costs below the
fee schedule payment are able to keep the difference between the
payment amount and their costs. In aggregate, these differences are
known as Medicare margins and express whether the provider makes a
profit or loss on its Medicare transports. Some providers rely heavily
on Medicare revenues and adequate Medicare margins help ensure the
continuing availability of beneficiaries' access to ambulance services.
CMS phased in the ambulance national fee schedule from April 2002
through December 2005. During this transition, the new fee schedule
payments were blended with the previous reasonable-cost payments for
hospital-based providers and reasonable-charge payments for nonhospital-
based providers. In 2003, Congress passed the Medicare Prescription
Drug, Improvement and Modernization Act (MMA), which introduced several
temporary payment provisions, including a regional fee schedule that
overlapped with the transition to the national fee schedule.[Footnote
6] Beginning in July 2004, these temporary payment provisions were
expected to add about $840 million to Medicare payments for ambulance
services through December 2009, when the last of these provisions are
set to expire.
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000[Footnote 7] and the MMA required GAO to study ambulance
service costs. As discussed with the congressional committees of
jurisdiction, in this report we (1) examined the differences in
providers' costs of ambulance transports in 2004 and the factors that
contributed to these cost differences, (2) assessed how the ambulance
national fee schedule in 2010 is expected to affect average ambulance
payments and how those payments will relate to providers' costs per
transport, (3) determined the effect of MMA temporary payment
provisions on ambulance payments, and (4) described the change that
occurred in Medicare beneficiaries' use of ambulance transports from
2001 to 2004.
To examine differences in costs of providing ambulance transports, we
conducted a national survey of ambulance providers in 2005. In our
survey, we requested information about providers' costs, revenues,
transports, and organizational characteristics for their most recently
completed fiscal year.[Footnote 8] We selected a stratified,[Footnote
9] random sample of 500 eligible providers that billed Medicare, and we
received 321 completed questionnaires for a response rate of 64
percent. We used this nationally representative sample of 321 providers
to describe the ambulance industry.[Footnote 10] However, after
excluding two cost outliers, our analysis was further limited to a
subgroup of providers that (1) did not share costs with other
institutions or services or (2) shared costs but reported costs of
ambulance services separately from the costs of their other services.
Our analysis and findings are nationally representative of this
subgroup of ambulance providers, which we refer to as providers without
shared costs.[Footnote 11] We excluded 104 providers that shared costs
of ambulance services with other institutions or nonambulance services
and could not distinguish their costs for providing ambulance services
from other costs, including but not limited to all fire departments. We
excluded these providers because their reported costs appeared to be
unreliable. The resulting sample size for our analysis was 215
providers without shared costs. Although our sample is nationally
representative of an estimated 5,200 providers without shared costs,
the small sample size along with the variability of responses reduces
the precision of our estimates, increasing the range of the 95 percent
confidence intervals we report. A 95 percent confidence interval is the
range within which we expect the true population estimate to fall 95
percent of the time, and it is the range of the confidence interval
that expresses the precision of our estimates.
To examine factors that contributed to differences in costs, we used
our survey data and Medicare data supplemented by data from two other
sources. The Oil Price Information Service was our source for the
average annual retail price of fuel by zip code, and the United States
Postal Service supplied building rents because it tracks its facility
costs in each zip code. We used regression analysis to analyze the
relationships between various provider and local area characteristics
and cost per transport among providers without shared costs. We also
compared Medicare claims data for all nonrespondents with those of
respondent providers without shared costs and determined that our cost
estimates were not biased by nonresponse. See appendix I for details
regarding our survey, other data sources, data limitations, and the
analytic methods we employed.
To assess the effect of the ambulance national fee schedule on
payments, we used Medicare claims data to compute average payments for
ambulance transports in 2001, before the implementation of the
ambulance national fee schedule, and in 2004, 2 years after the phase-
in of the fee schedule had begun. For Medicare payment analyses,
payments were expressed in 2004 dollars to exclude the effects of
inflation. We also compared average payments for urban, rural, and
super-rural transports.[Footnote 12] We used Medicare claims data and
payment formulas as specified in federal regulations to simulate
average payments under the national fee schedule in 2010, after all of
the MMA provisions expire, but computed these payments in 2004 dollars,
the year that best reflects the cost data collected in our survey. To
compare the simulated Medicare payments under the national fee schedule
for providers without shared costs with the costs per transport of
those providers, we computed providers' Medicare margins--the
percentage difference between average Medicare payments and providers'
costs per transport.[Footnote 13] All costs per transport and provider
margins are based solely on our sample of providers without shared
costs, and for this reason, these estimates are reported with their
confidence intervals.
We also assessed the effect of the MMA temporary payment provisions on
payments in 2004 using Medicare claims data by examining the change in
payments from the first half of the year, before the MMA changes went
into effect, with the second half of the year, when MMA payment
provisions had their maximum effect. To assess the change in Medicare
beneficiaries' use of ambulance transports from 2001 to 2004, we used
Medicare claims and CMS enrollment data, which contain information
about beneficiaries, to compute transports per 1,000 beneficiaries for
both years.
We tested the internal consistency and reliability of our survey data
and all non-Medicare data sources and determined that all data sources
were adequate for our purposes. We conducted our work from July 2004
through April 2007 in accordance with generally accepted government
auditing standards.
Results in Brief:
Costs of ground ambulance transports were highly variable across
providers without shared costs, reflecting differences in certain
provider characteristics. Costs per transport for providers without
shared costs averaged $415, but varied from $99 to $1,218 per
transport--a range of more than $1,100. Contributing to the variability
were differences in providers' volume and mix of transports; service
area (urban, rural, or super-rural); productivity, which we defined as
the number of transports per staffed hour; and the percentage of total
revenue derived from local tax support. Providers without shared costs
had higher costs per transport when they had fewer transports per year,
a greater percentage of transports in which more than a basic medical
assessment or intervention occurred, and more transports from super-
rural areas than providers without shared costs that did not have these
characteristics. In addition, providers without shared costs that had
lower productivity and those receiving a greater percentage of revenues
from local tax support had higher costs per transport than providers
without shared costs that had higher productivity and less local tax
support. Other provider and local area characteristics, such as type of
provider, region as determined by census division, building rent, and
price of fuel, did not significantly affect average costs per transport
among providers without shared costs.
Average payments under the national fee schedule in 2010, after all of
the MMA temporary payment provisions are set to expire, are expected to
be higher than payments in 2001, but Medicare margins for providers
without shared costs will vary greatly. In 2010, average ambulance
national fee schedule payments are estimated to be 3 percent higher
overall than payments in 2001, after adjusting for inflation and
assuming that providers bill the maximum amounts allowed. Further, a
greater percentage than the overall increase in payments will accrue to
rural and super-rural transports, on average, while urban transports
will receive a decrease in payments under the national fee schedule in
2010. We could not assess whether providers without shared costs will
break even, lose, or profit, on average, under the ambulance national
fee schedule after the MMA temporary payment provisions expire, because
the 95 percent confidence interval for the average expected Medicare
margin for providers without shared costs spanned from negative 14
percent to positive 2 percent when we took into account the number of
respondents in our sample and the range of their reported costs.
However, across all providers without shared costs, we estimated that
39 to 56 percent will have average Medicare payments above their
average costs per transport under the ambulance national fee schedule
in 2010.
The MMA's temporary payment provisions, which included base-and mileage-
rate increases as well as the introduction of a regional fee schedule,
resulted in raised average ambulance payments overall, particularly for
super-rural transports, which we determined were typically more costly
to provide. However, regional payment adjustments by census division
under the MMA did not appear to be warranted on the basis of regional
cost differences. The regional fee schedule increased payments
substantially for some regions but not others. After controlling for
various characteristics that affected the costs of providing ambulance
transports, we did not discern any significant differences in average
cost per transport across regions.
From 2001 to 2004, Medicare beneficiaries' use of ambulance transports
increased overall, even in those regions that had a decrease in average
payments after the MMA was implemented. However, beneficiaries' use in
super-rural areas decreased by 8 percent over the same period. The
decline in the use of super-rural ambulance transports did not appear
to be related to any significant change in the population of Medicare
beneficiaries residing in super-rural areas.
In light of the variability in ambulance providers' Medicare margins
and the potential for negative margins to have an impact on beneficiary
access, we recommend that the Administrator of CMS monitor utilization
of ambulance transports to ensure that Medicare payments are adequate
to provide for beneficiary access to ambulance services, particularly
in super-rural areas. In its comments on a draft of this report, CMS
stated that it agreed with our recommendation. External commenters
generally agreed with our findings.
Background:
Ground ambulance services are provided by a wide range of organizations
that differ in their organizational structure, types of services
offered, staffing, and revenue sources. Local conditions--including
whether providers are affiliated with other organizations; whether
their service areas are predominately urban, rural, or super-rural; and
the amount of community-dedicated revenues--contribute to this
diversity.
In addition, communities have few, if any, tools to help them decide
the optimal organizational structure, staffing, or amount of funding
for ambulance services, given local conditions. Although there have
been efforts to establish national performance or quality
standards,[Footnote 14] there is limited information about how to best
evaluate the costs of providing ambulance services in a community. In
recent years, industry associations and federal agencies have worked to
develop a data system and mechanisms for measuring the performance of
emergency medical services (EMS); however, these tools cannot yet be
applied to measure performance and evaluate the efficiency of ambulance
services.[Footnote 15] The lack of data and performance standards makes
it difficult to assess whether any given provider is delivering quality
care or whether services are being provided efficiently.
Organizational structures differ in that some ambulance providers are
affiliated with another institution, such as a hospital or fire
department, and in that providers may or may not offer other types of
services, such as hospital services, fire suppression, rescue, or
wheelchair transportation. Providers affiliated with another
institution or that offer other types of services may share resources
and operational costs, such as building space, administrative support,
or personnel, with these other entities and services. About two-fifths
of the ambulance industry shared operational costs with other
institutions or services in 2004.[Footnote 16] Nine percent of the
ambulance industry was affiliated with a hospital, while 37 percent was
affiliated with a fire department and 21 percent was affiliated with
another government agency. Other communities (33 percent of the
ambulance industry in 2004) were served by freestanding, for-profit or
not-for-profit provider organizations.
The types of services offered and the staff employed also vary among
providers. Some providers perform only emergency transports, in
response to a 911 or equivalent call, while other providers offer
nonemergency transports, which are typically transfers from one
facility to another and may be scheduled in advance. In 2004, 45
percent of the ambulance industry performed only emergency transports;
55 percent performed emergency and nonemergency transports. Some
providers perform only basic life support (BLS)[Footnote 17] transports
because their staff are not certified to perform more intensive medical
assessments and interventions, such as advanced life support
(ALS)[Footnote 18] and other more complex services. In 2004, 9 percent
of the ambulance industry specialized in only ALS and more complex
Medicare transports, such as those requiring one or more ALS services
or respiratory care; 14 percent performed only BLS Medicare transports;
and 86 percent provided a mix of BLS, ALS, and more complex Medicare
transports.[Footnote 19] Fire departments are more likely to be
specialized in ALS and more complex services. According to the fire
departments that responded to our survey, 70 percent of their Medicare
transports, on average, required ALS or more complex services; for
other providers ALS and more complex transport services constituted
only 49 percent of their Medicare transports.
Ambulance providers use of a variety of staff to deliver services to
their communities. First, providers and communities determine what
proportion of their staff will be emergency medical technicians (EMT)
trained to perform BLS services, and what proportion will be EMT-
intermediates or paramedics, who have training to perform more
intensive ALS interventions.[Footnote 20] In 2004, 77 percent of
providers that completed our survey reported having at least one staff
member trained as a paramedic, nurse, or physician, but the remaining
23 percent of respondent providers relied on staff with less training
than a paramedic. Other staffing choices include whether to employ
career-oriented paid staff, rely on volunteers, or use a mix of paid
and volunteer staff. Some providers choose to employ cross-trained
staff.[Footnote 21] In 2004, two-fifths of the ambulance industry
relied substantially on volunteer staff.[Footnote 22] In addition,
providers and communities make different choices about whether to
maintain backup vehicles and staff or to rely to a greater extent on
nearby providers for backup assistance.
Providers' service areas can be urban, rural, super-rural, or a mix of
areas. During 2004, CMS defined urban transports as those that
originate within metropolitan statistical areas (MSA) and New England
county metropolitan areas (NECMA), rural transports as those that
originate in rural counties that are outside of MSAs and
NECMAs,[Footnote 23] and super-rural transports as those that originate
in the bottom 25 percent of rural areas as defined by population
density. About half of the ambulance providers served predominately
urban areas, and the other half served predominately rural and super-
rural areas.[Footnote 24] However, three-fourths of all Medicare
transports originated in urban areas. Therefore, rural and super-rural
providers performed fewer transports on average than urban providers.
In addition, rural and super-rural transports were longer than urban
transports, on average, requiring more time and resources per
transport. In 2004, urban Medicare transports averaged 7 miles, while
rural Medicare transports averaged 13 miles and Medicare transports
from super-rural areas averaged 20 miles.
Providers have several potential revenue sources depending on their
communities and their choices about funding ambulance services. Revenue
sources can include community tax support (such as revenue from local
governments); charitable donations; state and federal grants;
subscription programs;[Footnote 25] and reimbursements from Medicare or
Medicaid patients, and private health insurance companies. Not all
providers receive revenues from all sources, and the mix and amount of
revenues available may vary.[Footnote 26] For example, 48 percent of
the ambulance industry indicated that a state or local government
approves the fees they may choose to charge. In communities that limit
ambulance providers' fees, providers may bill Medicare (and other
payers) less than the allowed amount and therefore do not receive the
maximum Medicare payment allowed for their services. In 2004, Medicare
payments for ambulance transports accounted for 31 percent of the
providers' revenues, on average, while Medicare beneficiaries accounted
for about 40 percent of their transports during that same
year.[Footnote 27] However, the percentage of Medicare revenues among
providers ranged from less than 1 percent to 80 percent. Furthermore,
different communities provide different levels of tax support to
address specific issues, such as ensuring a minimum level of service in
remote areas or being equipped with more sophisticated transport
vehicles or having more highly trained staff.
Medicare Ambulance National Fee Schedule:
The ambulance national fee schedule was part of a series of payment
reforms to make Medicare a more equitable and prudent purchaser of
health care services. Phased in from April 2002 through December 2005,
the national fee schedule standardized payment rates and reduced wide
variations in payments for the same service.
Medicare ambulance payments under the fee schedule have two components:
a base-rate payment and a mileage payment.[Footnote 28] The base-rate
component of ambulance payments under the fee schedule consists of the
relative value unit (RVU), the conversion factor (CF), and a geographic
adjustment factor. Ambulance RVUs account for the relative resources
needed to provide services during an ambulance transport.[Footnote 29]
The ambulance CF converts the RVU into a payment expressed in dollars
and is set by CMS annually. Ambulance base-rate payments are also
adjusted by a geographic practice cost index (GPCI), which is intended
to account for regional differences in the cost of providing ambulance
services.[Footnote 30] The mileage component consists of the number of
miles traveled during an ambulance transport multiplied by the
applicable mileage rate. (See fig. 1 for an example of the payment
formula.[Footnote 31]):
Figure 1: Medicare Ambulance Payment Formula under the National Fee
Schedule:
[See PDF for image]
Source: GAO analysis of CMS information.
Note: Payments are expressed in 2004 dollars.
[A] The GPCI is applied to only 70 percent of the unadjusted base rate
payment, which is the product of the RVU and the CF. For example, the
base rate payment equals 1.90 x $176.04 x [0.30 + (0.70 x 1.166)]. The
RVU, CF, GPCI, and mileage rate are based on 2004 values.
[End of figure]
The ambulance national fee schedule was phased in from April 2002
through December 2005 by blending new fee schedule payments with
historical payments. During this transition, the national fee schedule
portion constituted a greater share of the total blended ambulance
payment each year until January 2006, when the historical payment
portion of the blend was discontinued. For example, in the latter part
of 2002, total ambulance payments were a blend of 20 percent under the
national fee schedule and 80 percent under the historical payment
system. In 2004, the blend was 60 percent national fee schedule and 40
percent historical payment system. (See fig. 2 for further details on
the blending of historic payments and national fee schedule payments.)
MMA Temporary Payment Provisions:
The MMA introduced several temporary ambulance payment provisions that
were implemented in 2004, the last of which expires at the end of 2009.
CMS estimates that these payment adjustments will add $840 million to
Medicare ambulance services over the 5 years they are in effect. The
MMA provisions increased payment rates for urban and rural transports
and for transports 51 miles or greater. The MMA also provided a
significant base rate increase for transports originating in super-
rural areas and provided for a new regional fee schedule based on the
nine census divisions.[Footnote 32]
The regional fee schedule was designed to ease the transition from the
historical payment system to the national fee schedule. The
introduction of the regional fee schedule overlapped with the phase-in
of the national fee schedule. The regional fee schedule gave
temporarily higher ambulance payments than what would generally be paid
under the national fee schedule to ambulance providers in census
divisions that had historically higher payments. If the regional base-
rate payment was determined to be greater than the national base-rate
payment for a particular region, then the region received the more
advantageous blend of the regional fee schedule base-rate payment and
the national fee schedule base-rate payment. For example, in the second
half of 2004 under the regional fee schedule, affected regions received
a blend of 80 percent of their regional fee schedule base-rate payment
and 20 percent of the national fee schedule base payment rate. This
base-rate payment was then further blended with historical payments as
a part of the gradual phase-in of the ambulance national fee
schedule.[Footnote 33] The regional fee schedule component of the base
rate blend was reduced each year from 2005 through 2007, and expires at
the end of 2009. (See fig. 2 for further details on the blending of
historical, national fee schedule, and regional fee schedule payments.)
Figure 2: National Fee Schedule and Regional Fee Schedule:
[See PDF for image]
Source: GAO analysis of CMS information.
Note: All years refer to calendar years unless otherwise specified.
[A] January 1, 2001 through March 31, 2002.
[B] April 1, 2002 through December 31, 2002.
[C] The national fee schedule payment portion includes MMA increases of
1 percent and 2 percent for urban and rural transports, respectively,
and an approximate 23 percent base rate increase for super-rural
transports.
[D] The national fee schedule payment portion includes an MMA base rate
increase of approximately 23 percent for super-rural transports only.
[E] July 1, 2004 through December 31, 2004.
[End of figure]
In addition to providing for a regional fee schedule, the MMA
temporarily required higher payment rates for super-rural transports.
As a result, base rate payments for transports originating in super-
rural areas increased about 23 percent. The MMA also provided for a 25
percent increase in the mileage rate for every ambulance mile traveled
exceeding 50. Finally, the MMA required an increase in payment rates
for mileage and transports originating in urban and rural areas by 1
percent and 2 percent, respectively. (See table 1 for MMA temporary
payment provisions and their expiration dates.)
Table 1: Summary of MMA Temporary Payment Provisions, Implemented July
1, 2004:
Payment provision: The regional fee schedule;
Expiration date: December 31, 2009.
Payment provision: An increase in the base rate for super-rural
transports[A];
Expiration date: December 31, 2009.
Payment provision: A 25 percent increase in the urban and rural mileage
rate for every ambulance mile exceeding 50;
Expiration date: December 31, 2008.
Payment provision: A 1 percent and 2 percent increase for urban and
rural transports and mileage, respectively;
Expiration date: December 31, 2006.
Source: 42 U.S.C. § 1395m(l)(10)-(13).
[A] CMS determined that this increase would be approximately 23
percent. 69 Fed. Reg. 40288 (July 1, 2004).
[End of table]
Medicare Margins and Costs:
A provider's Medicare margin under a fee schedule generally depends on
whether the provider's costs of delivering a service are below its
Medicare payments for the service. Under the ambulance national fee
schedule, providers with costs per transport less than the Medicare
payment for that transport are able to retain the difference between
the fee schedule payment and their costs per transport. Likewise,
providers with costs per transport above the national fee schedule
payment will lose the difference between the Medicare payment and their
costs per transport. Therefore, ambulance providers that can control
their costs per transport may have an advantage over those that cannot
control their costs per transport.
A 2003 GAO study found that transport costs are likely to be higher in
less densely populated rural areas because rural providers furnish
fewer transports and because fewer transports were linked to higher
costs per transport.[Footnote 34] As a result, we recommended that CMS
adjust payments for transports in rural counties with particularly low
population density to help ensure Medicare beneficiaries' access to
ambulance services in those areas. Subsequently, the MMA increased
payments for super-rural transports from July 1, 2004, through December
31, 2009. The report also found that the majority of ambulance
providers' costs were related to readiness--the availability of
ambulance and crew for immediate emergency response--and were fixed
costs. Fixed costs, such as staff on call, vehicles, building space,
and administration, generally do not increase as the number of
transports increases. Fuel costs and supplies are not fixed costs
because they increase with the number of transports.
Costs per Transport Were Highly Variable, Reflecting Differences in
Certain Provider Characteristics:
Costs of ground ambulance transports were highly variable across
providers without shared costs; an average ambulance transport ranged
from a low of $99 to a high of $1,218 during 2004, the year for which
we gathered data. The variability of costs per transport reflected
differences in certain characteristics--volume and mix of transports;
service areas (urban, rural, and super-rural); productivity, which we
defined as transports per staffed hour; and amount of local tax
support.[Footnote 35] As expected, low volume, a greater percentage of
ALS and more complex transports, and more transports from super-rural
areas were key characteristics that helped explain why some providers
without shared costs had higher costs per transport. Two other provider
characteristics--productivity and amount of local tax support--were
also associated with higher costs per transport for providers without
shared costs. Other provider and local area characteristics--such as
type of provider, region, building rent, and price of fuel--did not
significantly affect average costs per transport among providers
without shared costs.
Providers' Reported Costs per Transport Were Highly Variable:
Providers' average costs for a ground ambulance transport varied from
$99 to $1,218--a range of more than $1,100--across providers without
shared costs in 2004. Figure 3 shows the wide variation in the reported
costs per transport among providers without shared costs. Five percent
of providers without shared costs had average costs per transport that
were less than $152, while 5 percent of providers had average costs per
transport more than $913. From our sample of providers without shared
costs, we estimated the average cost per transport at $415, with a 95
percent confidence interval--the range within which we expect the
population average cost per transport to fall 95 percent of the time--
of $381 to $450.[Footnote 36] This means that the actual average cost
per transport across ambulance providers in the United States without
shared costs was from $381 to $450 in 2004.
Figure 3: Distribution of Cost per Transport for Providers without
Shared Costs in 2004:
[See PDF for image]
Source: 2005 GAO Survey of Ambulance Services.
Note: Based on a sample of 215 providers, weighted to represent more
than 5,200 providers in the United States that did not share costs with
nonambulance services.
[End of figure]
When we categorized providers without shared costs by service area and
compared the average costs per transport across the groups, average
cost per transport among super-rural providers was statistically
significantly different from that of urban providers, but rural
providers' average cost per transport was not statistically
significantly different from that of urban providers. The average cost
per transport for super-rural providers without shared costs was
$538,[Footnote 37] statistically significantly different from the $370
average cost per transport for urban providers without shared costs.
The 95 percent confidence interval for average costs per transport
among super-rural providers without shared costs ranged from $448 to
$628 and among urban providers without shared costs ranged from $326 to
$414. The average cost per transport among rural providers without
shared costs was $409 within a confidence interval spanning $354 to
$465, an interval that overlapped with the average costs per transport
estimates for both urban and super-rural providers without shared
costs.
Certain Provider Characteristics Contributed to Differences in Costs
per Transport:
The variability of costs per transport among providers without shared
costs reflected differences in certain provider characteristics. The
provider characteristics that contributed to significant differences in
costs per transport were volume, mix of transports, service area,
productivity, and amount of local tax support.[Footnote 38] (See table
2 and app. I for a full description of our methods.)
Table 2: Estimated Average Cost per Transport for Provider
Characteristics That Affect Costs:
Provider characteristics: Volume of transports;
Assigned values: 2,000 or less;
Estimated average cost per transport[A]: $464.
Assigned values: 2,001 - 3,000;
Estimated average cost per transport[A]: 388.
Assigned values: 3,001 - 4,000;
Estimated average cost per transport[A]: 327.
Assigned values: 4,001 - 5,000;
Estimated average cost per transport[A]: 330.
Assigned values: 5,001 - 6,000;
Estimated average cost per transport[A]: 276.
Assigned values: 6,001 or more;
Estimated average cost per transport[A]: 330.
Provider characteristics: Mix of transports;
Assigned values: Only BLS;
Estimated average cost per transport[A]: 360.
Assigned values: ALS or more intensive services;
Estimated average cost per transport[A]: 476.
Provider characteristics: Service area;
Assigned values: Urban only;
Estimated average cost per transport[A]: 358.
Assigned values: Rural only;
Estimated average cost per transport[A]: 420[B].
Assigned values: Super-rural only;
Estimated average cost per transport[A]: 545.
Provider characteristics: Productivity--transports per staffed hour;
Assigned values: 1 transport per 8 hours (0.12);
Estimated average cost per transport[A]: 437.
Assigned values: 5 transports per 8 hours (0.64);
Estimated average cost per transport[A]: 386.
Provider characteristics: Local tax support;
Assigned values: No tax support;
Estimated average cost per transport[A]: 392.
Assigned values: Local tax support as 81% of revenues;
Estimated average cost per transport[A]: 632.
Sources: GAO analysis of 2005 GAO Survey of Ambulance Services and 2004
Medicare claims.
[A] The estimated average cost per transport is for providers without
shared costs. It was created by assigning a value to the provider
characteristic of interest for all cases and using the national average
value for the other characteristics. See app. I. for detailed
information about our methods.
[B] The estimated cost of a rural transport was not significantly
different from the estimated cost of an urban transport.
[End of table]
Providers without shared costs that had lower transport volumes
generally had higher average costs than providers without shared costs
with higher transport volumes. Our analysis affirms the finding of our
prior work, that volume of transports was the main characteristic
affecting providers' costs per transport.[Footnote 39] Because most
ambulance costs are fixed, and therefore do not increase significantly
when a provider completes more transports, it is expected that as the
number of transports provided increases, associated costs per transport
will be lower. In 2004, the volume of transports completed by a
provider without shared costs ranged from 21 to more than 50,000.
Estimated average cost per transport is reduced, from $464 for
providers without shared costs completing 2,000 or fewer transports a
year to $327 for those completing from 3,001 to 4,000 transports.
Although estimated average cost per transport is slightly higher for
4,001 to 5,000 transports, rising to $330, and again above 6,000
transports, rising to $330, every other volume category of provider
without shared costs had lower estimated average costs per transport
than the lowest volume group of 2,000 transports or less.
Also, as expected, we observed that average costs per transport were
higher for providers without shared costs that also had a greater
percentage of ALS and more complex transports (compared with BLS
transports) and those with a greater percentage of super-rural
transports (compared with urban transports)--two characteristics
incorporated into the national fee schedule to account for the
additional costliness associated with more intensive services and
isolated service areas. ALS and more complex transports completed by
providers without shared costs ranged from 0 to 100 percent of
transports provided. We estimated that providers without shared costs
specializing in ALS and more complex transport services had average
costs of $476, which was 32 percent higher than providers without
shared costs specializing in BLS transport services. We estimated that
the average cost of a super-rural transport was $545,[Footnote 40]
while the average cost of an urban transport was $358. Rural transports
were not significantly higher cost than urban transports.
Two other provider characteristics--productivity and amount of local
tax support--were also associated with higher average costs per
transport. Costs were higher when providers without shared costs had
lower productivity or a lower ratio of transports per staffed hour. The
average level of productivity for providers without shared costs was
0.12, or about one transport per 8 staffed hours, and had an estimated
average cost per transport of $437. The second highest level of
productivity for these providers was 0.64, or more than five transports
per 8 staffed hours, and had an estimated average cost per transport of
$386. The impact of productivity on average costs may be explained by
the fixed costs incurred in maintaining readiness--having an ambulance
and crew available to respond to emergency calls. Although providers
may have discretion about staffing and the ability to make backup
arrangements to substitute for additional staff, not all providers can
increase productivity by increasing the number of transports they
provide or reducing the number of staffed ambulance hours. For example,
providers that operate in small or isolated communities with one
ambulance on call may serve only their own community's needs and may
not be able to expand their service area or increase their volume of
ambulance transports.
Average costs were also higher for providers without shared costs that
derived a larger percentage of their total revenues from local tax
support. Among providers without shared costs, those with the largest
percentage of revenues from local tax support (81 percent of revenues)
had estimated average costs that were $240, or 61 percent, above those
with no local tax support. Again, this effect was independent of volume
and mix of transports, service area, cost of labor, use of volunteers,
productivity, and other provider and local area characteristics. The
relationship between greater local tax support and higher average costs
may be explained as the income effect: if an organization has more
money, it is able to and likely to spend more. Moreover, if costs
increase without resulting in additional transports, the average cost
per transport will increase.
Characteristics that did not significantly contribute to the
variability of average costs per transport among providers without
shared costs included type of provider; a provider's region, as
measured by the nine census divisions that defined the regional fee
schedule; building rent; and the price of fuel.
Average Payments under the National Fee Schedule Will Be Greater Than
Average Historical Payments, but Providers' Expected Medicare Margins
Will Vary Greatly:
Average ambulance national fee schedule payments in 2010 are estimated
to be 3 percent higher overall than payments in 2001, after adjusting
for inflation and assuming that providers bill the maximum amounts
allowed. However, the Medicare margins of providers without shared
costs--whether they make a profit or a loss on Medicare transports--
will vary under the national fee schedule. We cannot assess whether
providers without shared costs will break even, lose, or profit on
average under the ambulance national fee schedule in 2010 after all of
the MMA temporary payment provisions have expired, because the 95
percent confidence interval surrounding the average Medicare margin
spans from negative 14 percent to positive 2 percent. However, across
all providers without shared costs, we estimate that 39 to 56 percent
will have average Medicare payments above their average costs per
transport under the ambulance national fee schedule even after all of
the MMA provisions expire.
Average Payments under the National Fee Schedule Will Be Greater Than
Average Historical Payments and Will Be Redistributed from Urban
Transports to Rural and Super-Rural Transports:
Compared with average historical payments in 2001, average payments
under the national fee schedule in 2010 will be 3 percent higher, after
adjusting for inflation and assuming providers will bill the maximum
amount allowed under the national fee schedule. According to our
analysis, urban transports will experience a decrease in payments, on
average, while rural and super-rural transports will receive an
increase that is greater than the overall increase. Average payments
for rural and super-rural transports will increase 20 percent and 15
percent, respectively, while average payments for urban transports will
decline 3 percent compared with average payments prior to the fee
schedule. (See table 3.)
Table 3: Payments Prior to and under the National Fee Schedule after
MMA Provisions Expire:
Transports: Urban;
Payment prior to national fee schedule: $309;
Payments under national fee schedule: $301; Percentage change: -3.
Transports: Rural;
Payment prior to national fee schedule: 303;
Payments under national fee schedule: 363; Percentage change: 20.
Transports: Super-rural;
Payment prior to national fee schedule: 379;
Payments under national fee schedule: 437; Percentage change: 15.
Transports: National;
Payment prior to national fee schedule: 309;
Payments under national fee schedule: 319; Percentage change: 3.
Sources: GAO analysis of 2001 and 2004 Medicare claims.
Notes: All payments are in 2004 dollars. Payments under the national
fee schedule assume that providers charge the maximum allowed amount.
[End of table]
Expected Medicare Margins Will Vary Greatly:
After all of the MMA temporary payment provisions expire, expected
Medicare margins under the national fee schedule will vary greatly
among providers without shared costs. When we compared expected
payments under the national fee schedule in 2010 with providers' costs
per transport, the resulting Medicare margins ranged from negative 194
percent for one provider to positive 76 percent for another provider.
This wide difference is related to the great variability in reported
costs among providers without shared costs.
Among providers without shared costs, we estimated that the average
Medicare margin, or the average percentage difference between these
providers' Medicare payments and their costs, will be about negative 6
percent with a 95 percent confidence interval from negative 14 percent
to positive 2 percent. (See table 4.) This span in the confidence
interval means we cannot assess whether providers without shared costs
would break even, lose, or profit, on average, under the national fee
schedule in 2010 after all of the MMA temporary payment provisions have
expired. Similarly, we estimated that the average Medicare margin for
urban, rural, and super-rural providers without shared costs will be
negative under the national fee schedule, but each estimate will fall
within a broader confidence interval range that includes positive
Medicare margins. The estimated Medicare margin for an urban provider
without shared costs will be negative 18 percent to positive 6 percent,
while the estimated Medicare margin for a rural provider without shared
costs will be negative 13 percent to positive 12 percent. We estimated
that a super-rural provider without shared costs will have an estimated
Medicare margin from negative 35 percent to positive 2 percent, making
it more likely that the average Medicare margin for any given super-
rural provider without shared costs would be negative rather than
positive. However, given the confidence intervals surrounding the
estimated average margin for each subset of providers without shared
costs and the lack of statistical difference between them, we cannot
conclude with certainty that any subset of providers would have
significantly better or worse financial experience under Medicare's
national fee schedule than another. Rather, we can conclude only that
Medicare margins are likely to vary even among urban, rural, and super-
rural providers without shared costs.
Table 4: Expected Average Medicare Margins under the National Fee
Schedule for Providers without Shared Costs in 2004 Dollars:
Providers' predominate service area: Urban;
Payment under national fee schedule: $350;
Average cost (95 percent confidence interval): $370 ( 326 to 414);
Providers' average Medicare margins in percentage (95 percent
confidence interval): -6 (-18 to 6 ).
Providers' predominate service area: Rural;
Payment under national fee schedule: 408;
Average cost (95 percent confidence interval): 409 (354 to 465);
Providers' average Medicare margins in percentage (95 percent
confidence interval): -1 (-13 to 12).
Providers' predominate service area: Super-rural;
Payment under national fee schedule: 471;
Average cost (95 percent confidence interval): 538 ( 448 to 628);
Providers' average Medicare margins in percentage (95 percent
confidence interval): -17 (-35 to 2).
Providers' predominate service area: All;
Payment under national fee schedule: 394;
Average cost (95 percent confidence interval): 415 ( 381 to 450);
Providers' average Medicare margins in percentage (95 percent
confidence interval): -6 (-14 to 2).
Sources: GAO analysis of 2005 GAO Survey of Ambulance Services and 2004
Medicare claims.
Notes: All payments and costs are in 2004 dollars. Payments under the
national fee schedule assume that providers charge the maximum allowed
amount. The range of the confidence interval is affected by the
variability of costs per transport within the sample and the size of
the sample. Providers' average Medicare margin is the average margin
across all providers in the sample.
[End of table]
When we assessed the likely experiences of all providers without shared
costs under the national fee schedule after all of the MMA temporary
payment provisions expire, we estimated that 39 to 56 percent of them
will have positive Medicare margins. Among urban and rural providers,
39 to 65 percent and 34 to 64 percent, respectively, will have positive
Medicare margins, according to our estimations. Among super-rural
providers, however, we estimate that 18 to 51 percent will have
positive Medicare margins, while 49 to 82 percent would have zero or
negative Medicare margins. (See fig. 4.) The breadth of these
confidence intervals reflects the variability of providers' costs in
2004 and expected financial experience under the national fee schedule
after MMA temporary payment provisions expire.
Figure 4: Expected Medicare Margins for Urban, Rural, and Super-Rural
Providers without Shared Costs:
[See PDF for image]
Source: GAO analysis of 2005 GAO Survey of Ambulance Services and 2004
Medicare claims.
Notes: The range of the confidence interval is affected by the
variability of costs per transport within the sample and the size of
the sample. Percentages and confidence intervals are rounded.
[End of figure]
MMA Provisions Resulted in Greater Average Payments for Higher-Cost
Super-Rural Transports and Adjusted Payments Regionally Where No
Significant Cost Differences Were Observed:
The MMA temporary payment provisions, which were implemented by CMS in
the second half of 2004, resulted in raised ambulance average payments
overall, particularly for super-rural transports, which we found
typically more costly to provide. Payment adjustments under the MMA's
regional fee schedule were not justified on the basis of regional cost
differences, as we did not find significant differences in average cost
per transport across regions.
Payment Increases Were Targeted to Higher-Cost Super-Rural Transports:
When we compared ambulance payments in the first half of 2004, prior to
the implementation of the MMA provisions, with ambulance payments in
the second half of 2004, after the temporary payment provisions were
implemented and had their maximum effect, we found that payments, on
average, increased by 5 percent overall. Super-rural transports
received more substantial payment increases than urban or rural
transports. (See table 5.) After MMA temporary payment provisions were
implemented, average payments for urban and rural transports increased
by 5 and 3 percent, respectively, while average payments for super-
rural transports rose by 12 percent, compared with average payments
before the MMA provisions were implemented. Increased payments for
super-rural transports under the MMA were in keeping with our finding
that super-rural transports were more costly than urban transports,
independent of other characteristics that affected ambulance costs.
Table 5: Average Payments prior to MMA Implementation and after
Implementation:
Transports: Urban;
Average payment per transport prior to MMA: $306;
Average payment per transport under MMA: $322;
Average percentage change in payment under MMA: 5.
Transports: Rural;
Average payment per transport prior to MMA: 358;
Average payment per transport under MMA: 370;
Average percentage change in payment under MMA: 3.
Transports: Super-rural;
Average payment per transport prior to MMA: 442;
Average payment per transport under MMA: 497;
Average percentage change in payment under MMA: 12.
Transports: National;
Average payment per transport prior to MMA: 322;
Average payment per transport under MMA: 338;
Average percentage change in payment under MMA: 5.
Source: GAO analysis of 2004 Medicare claims.
Notes: The period prior to MMA implementation for which payments were
computed was January 1, 2004 through June 30, 2004. The period after
implementation of the MMA for which payments were computed was July 1,
2004 through December 31, 2004.
[End of table]
Regional Payment Adjustments Required by the MMA Were Not Justified on
the Basis of Regional Cost Differences:
Regional payment adjustments under the MMA were not warranted on the
basis of regional cost differences. The MMA required a regional fee
schedule, which resulted in ambulance payments for similar services
that differed based on the region where they were provided. When
comparing average regional payments before the implementation of MMA
provisions to payments after implementation of the MMA, when the
regional fee schedule had its greatest effect, we found that average
payments increased substantially for some regions but not others. (See
table 6.) However, we found no significant differences in costs by
region, after controlling for differences in volume and mix of
transports, cost of labor, service area, and other characteristics that
may have affected costs. The regional fee schedule is due to expire on
December 31, 2009.
Table 6: Percentage Changes in Average Payments prior to MMA
Implementation and after Implementation, by Region:
Region: Pacific;
Percentage change in average payments: 19.
Region: New England;
Percentage change in average payments: 12.
Region: Mountain;
Percentage change in average payments: 8.
Region: West South Central;
Percentage change in average payments: 7.
Region: West North Central;
Percentage change in average payments: 3.
Region: Middle Atlantic;
Percentage change in average payments: 3.
Region: South Atlantic;
Percentage change in average payments: 1.
Region: East North Central;
Percentage change in average payments: 1.
Region: East South Central;
Percentage change in average payments: 0.
Source: GAO analysis of 2004 Medicare claims.
Notes: East South Central received a decrease in average payments of -
0.04 percent, which rounds to 0 percent. The period prior to MMA
implementation for which payments were computed was January 1, 2004
through June 30, 2004. The period after implementation of the MMA for
which payments were computed was July 1, 2004 through December 31,
2004. See table 11 in app. I for a listing of the regions, or census
divisions, and their corresponding states.
[End of table]
Medicare Beneficiaries' Use of Ambulance Transports Increased from 2001
to 2004, Except in Super-Rural Areas:
Nationally, the use of ambulance transports by Medicare beneficiaries
increased by 16 percent, from 2001, the year before the transition to
the national fee schedule began, to 2004, the year we studied. (See
table 7.) Medicare beneficiaries' use of ambulance transports in urban
areas experienced the greatest growth, 19 percent, while rural areas
experienced a modest increase of 6 percent. However, Medicare
transports per 1,000 beneficiaries in super-rural areas decreased by 8
percent. The decrease in Medicare beneficiaries' use of ambulance
transports in super-rural areas was driven mostly by a decline in the
volume of transports rather than any significant change in the number
of beneficiaries or the demographic characteristics of beneficiaries
residing in super-rural areas. For example, factors such as age, race,
and gender remained stable in the super-rural Medicare population.
Meanwhile, Medicare beneficiaries' use of ambulance transports
increased in all regions from 2001 to 2004, including one region that
had a decrease in average payments under the MMA compared with before
the implementation of MMA payment provisions.
Table 7: Ambulance Transports per 1,000 Beneficiaries in Urban, Rural,
and Super-Rural Areas:
Area: Urban;
Transports, 2001: 371;
Transports, 2004: 443;
Percentage change, 2001-2004: 19.
Area: Rural;
Transports, 2001: 372;
Transports, 2004: 396;
Percentage change, 2001-2004: 6.
Area: Super-rural;
Transports, 2001: 264;
Transports, 2004: 244;
Percentage change, 2001-2004: -8.
Area: Total;
Transports, 2001: 364;
Transports, 2004: 420;
Percentage change, 2001-2004: 16.
Sources: GAO analysis of 2001 and 2004 Medicare claims and CMS
enrollment data.
[End of table]
Conclusions:
The diversity of the ambulance industry is reflected in its range of
organizations, services offered, staffing, revenue sources, and costs
per transport. We found that certain ambulance provider
characteristics, such as volume, mix of transports, service area,
productivity, and amount of local tax support, affected the cost per
transport of providers without shared costs. For some providers and
communities, these characteristics may be self-determined and may
reflect those communities' preferences for readiness, quality
standards, and ambulance services offered. For example, some
communities may prefer to fund the greater costs of operating at a
higher level of readiness or being equipped with more sophisticated
transport vehicles and more highly trained staff. Other providers and
communities have little or no control over the characteristics that
affect providers' cost per transport. These communities, particularly
more rural areas with low population density, may be constrained by
local conditions, including their financial resources. Therefore, local
conditions and community preferences may explain some of the predicted
variability in the financial experience of providers without shared
costs under the Medicare national fee schedule.
We are unable to discern whether providers without shared costs would
be compensated appropriately under the national fee schedule for two
reasons. First, when providers experience the national fee schedule
payments in 2010 after all of the MMA temporary payment provisions
expire, they may make changes to control or reduce their costs. The
cost data we collected were from 2004 and may not reflect any changes
providers may make to control or reduce their costs in response to the
national fee schedule. Second, we did not assess if Medicare
beneficiaries are receiving quality care that is delivered efficiently.
There are no national performance standards to use as benchmarks for
determining quality and efficiency of services or for assessing whether
providers could increase productivity by increasing the number of
transports they provide or by reducing the number of staffed ambulance
hours. However, current efforts to develop a national data system and
indicators for EMS systems may, in the future, yield useful tools for
measuring efficiency and quality of ambulance services under the
Medicare program.
Based on our survey of ambulance costs, we were able to estimate that
some providers without shared costs would have positive Medicare
margins under the national fee schedule after the MMA provisions
expire, while others would have negative Medicare margins. Among super-
rural providers, we estimated that 18 to 51 percent would have positive
Medicare margins. However, 49 to 82 percent would have zero or negative
Medicare margins. Ideally, Medicare payments should be adequate to
ensure beneficiary access to services while using the program's
resources judiciously. The decline in use of super-rural ground
ambulance transports from 2001 to 2004, a time when payments for super-
rural transports were increased, suggests that Medicare payment levels
may not be linked to the decreased utilization of transports in super-
rural areas. However declining utilization coupled with potentially
negative Medicare margins in super-rural areas, which could be
exacerbated when the MMA provisions expire, raise questions as to
whether Medicare payments will be adequate to support beneficiary
access in super-rural areas.
Recommendation for Executive Action:
In light of the variability in ambulance providers' Medicare margins
and the potential for negative margins to have an impact on beneficiary
access, we recommend that the Administrator of CMS monitor utilization
of ambulance transports to ensure that Medicare payments are adequate
to provide for beneficiary access to ambulance services, particularly
in super-rural areas.
Agency and External Comments and Our Evaluation:
We provided a draft of this report to CMS and to five associations that
represent the ambulance industry: the American Ambulance Association,
the National Association of State EMS Officials, the National Ambulance
Coalition, the National Volunteer Fire Council, and the International
Association of Fire Chiefs. CMS's written comments are reprinted in
appendix II.
CMS stated that, for the most part, the report reinforces its findings.
CMS also stated that it agreed with our recommendation that the agency
monitor utilization of ambulance transports to ensure that Medicare
payments are adequate to provide for beneficiary access to ambulance
services, particularly in super-rural areas. CMS noted that it would
continue to monitor ambulance rates and would make adjustments should
the original assumptions made during the development of the ambulance
fee schedule need to be changed. In addition, CMS also highlighted its
implementation of a refinement in the definition of rural areas that
should enable rural areas within urban areas to receive the benefit of
higher rural payments under the ambulance fee schedule.
CMS noted that we should have discussed in our conclusions the
implications of omitting "shared services" providers from our analysis,
as these providers tend to have higher costs. As we discussed in the
report, ambulance providers that could not separately report the costs
of the ambulance portion of their business were excluded because their
cost data were determined to be unreliable. Consequently, we have no
basis or information to suggest that providers with shared services
have higher or lower costs than other providers.
Ambulance industry associations generally agreed with our findings.
However, the associations raised various concerns regarding our
calculations and assumptions. Two associations questioned the inclusion
in our analysis of ambulance providers that used unpaid staff and
suggested that it might have been more appropriate to focus on
providers who bear the full cost of providing ambulance services. As we
note in the report, use of unpaid staff by ambulance providers is
widespread with an estimated two-fifths of the industry relying
substantially on volunteers in 2004. Thus, in order for our analysis to
be representative of ambulance providers, we included those that used
volunteer staff. We recognize that use of volunteer staff affects
ambulance providers' costs and included the percentage of volunteer
hours as a control variable in our cost model.
Two associations were concerned that we did not allow for the effect of
Medicare bad debt in our analysis and may have therefore overestimated
payments. We acknowledge that bad debt will affect the percentage of
costs recoverable for providing ambulance services. However, we
explicitly state that our payment estimates assume providers are paid
the full Medicare payment amounts. It was beyond the scope of our study
to estimate the effect of Medicare bad debt on ambulance payments or to
determine the extent to which payments should be adjusted to reflect
bad debt.
Two associations expressed concern that our analysis showed a 3 percent
increase in payments to ambulance providers with the transition from
the historical payment system to the fully implemented national fee
schedule and thought payments should have been relatively level. We
note that our analysis incorporated increases in mileage rates over
time that likely accounted for some of this increase. In addition, when
simulating payments under the national fee schedule, we assumed that
providers would bill Medicare for all services they were entitled to
bill. However, as we noted in the report, nearly half of the industry
indicated that a state or local government approves the fees they may
charge, and some providers are required to bill Medicare less than the
allowed amount and therefore do not receive the maximum Medicare
payment allowed under the fee schedule. This discrepancy between the
state or local allowed amount and the actual Medicare payment could
also account for some of the 3 percent increase.
CMS and the associations also provided technical comments and
clarifications, which we incorporated as appropriate.
We are sending copies of this report to other interested congressional
committees and the Administrator of CMS. We will also provide copies to
others upon request. The report will also be available at no charge on
the GAO Web site at http://www.gao.gov.
If you or your staff have any questions, please contact me at (202) 512-
7119 or kingk@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in appendix III.
Signed by:
Kathleen M. King:
Director, Health Care:
[End of section]
Appendix I: Data and Methods:
This appendix describes, in detail, the data and methods we used to
respond to our research objectives and evaluate ambulance providers'
costs per transport and Medicare payments under the national ambulance
fee schedule. We conducted a survey of ambulance costs to collect cost
data. We relied on these survey data for much of our analyses of costs
and supplemented our survey results with information from other
sources, including Medicare claims data, as appropriate. We also
analyzed Medicare claims data to determine the effect of the national
fee schedule and the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MMA) temporary payment provisions on
payments, as well as to describe changes in beneficiaries' use of
ambulance transports over time. We tested the internal consistency and
reliability of the data from our survey and other non-Medicare data
sources and determined that all data sources were adequate for our
purposes. We conducted our work from July 2004 through April 2007 in
accordance with generally accepted government auditing standards.
National Survey of Ground Ambulance Providers' Costs:
To collect data on ground ambulance providers' costs, revenues,
transports, and organizational characteristics for their most recently
completed fiscal year, we mailed a survey to a nationally
representative sample of 500 eligible ambulance service providers that
billed Medicare in 2003.[Footnote 41] We used a two-stage sampling
process to select a stratified,[Footnote 42] random sample of
providers. In the first stage, we selected a preliminary sample of
hospital and nonhospital-based providers for screening. In the second
stage, we conducted telephone screening interviews to confirm
eligibility for the study and, for nonhospital-based providers, to
identify provider type. We obtained 321 completed surveys for a
response rate of 64 percent. We excluded two cost outliers. We also
excluded from our analysis providers that reported sharing ambulance
costs with other institutions or other nonambulance services,
including, but not limited to, all fire departments, after preliminary
analysis revealed problems with the reliability of their reported
costs. The resulting sample size was 215 providers. The results from
our analysis are nationally representative of all Medicare ambulance
providers that can distinguish their costs for providing ambulance
services from the costs of other services they provide.[Footnote 43]
However, the small sample size and the variability of reported costs
reduce the precision of our estimates.
Survey Instrument Development:
To develop our survey instrument, we reviewed other survey instruments
and analyses of ambulance cost data, consulted with experts in survey
methods and the ambulance industry, and tested our survey instrument.
We reviewed cost data collected in 1999 by Project HOPE Center for
Health Affairs, which was a nonprofit health policy research
organization, during a survey effort sponsored by the American
Ambulance Association. We also reviewed other surveys of emergency
medical services, as well as industry and association guidelines about
emergency medical and ambulance services. In addition to surveying
ambulance providers on their costs and revenues, we included questions
to identify organizational and local area characteristics that might
affect ambulance costs, such as the number of emergency transports and
number of volunteer hours.
Industry experts and a survey specialist reviewed and commented on the
draft survey instrument. We conducted a pilot test of the survey with
104 ambulance service providers as well. We redesigned and refined the
instrument based on the experience of the pilot test. Then, to further
refine the wording of our survey questions, we asked four types of
ambulance service organizations and a former volunteer fire chief to
pretest the instrument and point out any issues they noted. These
pretests were conducted mostly by telephone--one pretest was in person.
Sample Design:
We developed separate lists for all hospital-based and nonhospital-
based providers from information maintained by the Centers for Medicare
& Medicaid Services (CMS), the agency that oversees the Medicare
program. Next, we used a two-stage sampling process to select a
stratified, random sample of providers. In the first stage, we sorted
each list by census division and predominant service area (urban,
rural, or super-rural), began sampling the list at a random starting
point, and chose providers at regular intervals from their respective
lists. This method of sampling implicitly included representation
across census divisions and service areas. In the second stage,
telephone screening interviews were conducted with each sampled
provider to confirm eligibility for the study and, for nonhospital-
based providers, to identify their type--volunteer, fire department,
government, or freestanding. Once a provider's type was established,
providers were stratified by type and randomly selected to ensure
somewhat equal representation among all provider types. We developed
initial sample rates for each type of provider and adjusted the rates
midway through the screening process. Each provider representative was
told at the close of the telephone screening call whether the provider
had been selected to participate in our survey. Finally, a survey
instrument was mailed to the selected providers.
To identify nonhospital-based ambulance providers that billed Medicare,
we contacted Medicare carriers[Footnote 44] for a list of ambulance
providers and matched this list to 2003 carrier claims for ambulance
services by provider identification numbers. Our nonhospital-based
sample frame included 12,082 unique provider identification
numbers.[Footnote 45] We later learned that a number of provider
identification numbers in the nonhospital-based sample frame were
duplicate entries for ambulance providers that had more than one
Medicare provider identification number for the same location.[Footnote
46] We analyzed the extent of duplication in the sample frame and
reduced the estimated population size to 7,968. Although our sample
frame included a substantial number of duplicate entries, there were
only 28 duplicates among our first-stage sample of 900 nonhospital-
based providers. The sample weights were adjusted to account for the
duplicate entries in the sample frame.
To identify the total number of hospital-based ambulance providers that
billed Medicare, we matched Medicare's Provider of Service file with
Medicare Part A inpatient and outpatient claims for ambulance services.
We excluded skilled nursing facilities for a total of 828 hospital-
based ambulance service providers. We then selected a first-stage
sample of 150 hospital-based ambulance providers.
To make our survey sample representative of all Medicare ambulance
providers, the population from which the sample was drawn, we computed
a sample weight for each respondent provider. The computation of the
sample weight took into account the type of provider, sample rate, and
the response rate for the type of provider--hospital, volunteer, fire
department, government, or freestanding.
Survey Administration:
We contracted with CODA Inc., an independent survey research firm, to
perform the telephone screening and administer the mailed survey
instrument.[Footnote 47] The contractor screened the 900 nonhospital-
based and 150 hospital-based providers we selected for our first-stage
sample, and mailed the survey instrument to 500 eligible organizations,
randomly sampled by provider type. In order to properly select our
sample with even representation across all types of providers
nationally, we designed our sampling strata using data collected from
our pilot test.
CODA Inc., administered the mailed surveys and conducted all follow-up
and data coding in coordination with us. Our survey period began in
April 2005 and ran through September 2005. The survey instruments were
mailed using Federal Express and 2-day Priority Mail. Telephone contact
was initiated 3 business days after the instrument was mailed to
ascertain when the respondent could return the completed instrument.
Prompting and follow-up requests for data were conducted by phone and
occurred whenever providers' returned instruments were incomplete,
vague, or included conflicting responses to key items. In some cases,
follow-up requests involved multiple contacts, faxing survey
instruments, and spending an hour or more on the phone with the
respondent. On average, more than 4 phone calls were made for each
respondent with as many as 20 calls made to one respondent.
All requests for data were conducted by CODA Inc. staff following
strict protocols that we developed. Respondents were encouraged to
contact CODA Inc. and GAO via toll-free numbers, so that any questions
or problems could be resolved. All survey data were double-key entered
into an electronic file, and computer programs were checked for keying
discrepancies and data inconsistencies. In all, we received 321
completed surveys; this represents a response rate of 64 percent.
Survey Data Validity and Reliability:
In addition to the survey administration procedures described above, we
took several measures to ensure that the data reported on the survey
were valid and reliable.[Footnote 48] First, the survey instrument
included items intended to validate the reported cost data. We also
used strict protocols during follow-up to validate the reported cost
data. For example, if respondents could not provide cost breakdowns by
the categories listed in our survey instrument, a separate phone
protocol was used to verify the reported cost data.
Second, we tested the data for internal consistency and excluded cases
when necessary. Computer analyses were performed to identify and, where
possible, correct any inconsistencies in responses or other errors. We
also excluded 2 providers that appeared to be cost outliers. These
providers had costs per transport that were at least three standard
deviations above the mean of the standard statistical distribution (the
lognormal), and no other variables explained their extraordinary costs.
Through our analyses, we determined that the costs reported by
providers that shared costs with other institutions or offered other
services appeared to be unreliable. We found the costs reported by
these "shared costs" providers to be highly variable, which may reflect
inconsistent methods for separating staff time and other resources
across different services. Therefore, we excluded these providers--
including but not limited to all fire departments--from our analysis.
The resulting sample size was 215 providers, representing a population
of more than 5,200 providers without shared costs.[Footnote 49]
Third, we compared information reported on the survey to information on
Medicare claims submitted by respondents, such as the number of
Medicare transports and percentage of emergency Medicare transports.
All computer syntax was peer reviewed and verified by separate
programmers to ensure that the syntax was written and executed
correctly.
We used providers' total costs and total transports reported on the
survey to compute providers' average costs per transport. This cost
information and other information about revenues and provider
characteristics were used to model ambulance costs per transport.
Although these survey data were self-reported and had not been audited,
based on efforts to validate the data, computer testing, and
corrections and comparisons with Medicare data, we have concluded that
they were sufficiently valid and reliable for our purposes.
Interpretation of Confidence Intervals and Analysis of Nonrespondents:
All sample surveys are subject to sampling error--that is, the extent
to which the survey results differ from what would have been obtained
if we had collected responses from every ambulance provider in the
country. Because we used a sample, it is only one of a large number of
samples that we might have drawn. As each sample could have provided
different estimates, we express our confidence in the precision of our
particular sample's results as a 95 percent confidence
interval.[Footnote 50] This is the interval that would contain the
actual value for all providers for 95 percent of the samples we could
have drawn. As a result, we are 95 percent confident that the reported
confidence intervals based on the mailed survey include the true values
for all providers. For this reason, all costs per transport and
provider margins are reported with their confidence intervals.
We also analyzed 2004 Medicare claims data for survey nonrespondents
and compared this information with similar claims information for
providers without shared costs in our sample. Nonrespondents served
predominantly urban areas rather than rural or super-rural areas. On
average, nonrespondents completed about half the number of Medicare
transports in 2004 compared with providers without shared costs.
Nonrespondents also had a higher percentage of basic life support (BLS)
transports, as opposed to advanced life support (ALS) and more complex
transports, and about the same percentage of nonemergency transports
compared with providers without shared costs.
It is unclear whether nonrespondents had higher or lower costs, on
average, than providers without shared costs. In our regression
analysis of the cost information for providers without shared costs, we
found that those with fewer transports per year generally had higher
costs per transport than those with more transports. Providers without
shared costs that served predominately urban areas had lower costs
compared with providers serving super-rural areas. We also found that
providers with higher percentages of BLS transports had lower costs
compared to providers with no BLS transports. Although nonrespondents'
characteristics differed from those of providers without shared costs,
these differences were associated with both higher and lower costs
among providers without shared costs. Therefore, we have no basis for
concluding that nonresponse has biased our cost estimates in any
particular direction.
Modeling Ambulance Costs per Transport:
We analyzed the relationship between providers' average costs of
ambulance transports and the provider and local area characteristics
that may have affected their average costs. We used regression analysis
to examine the effect of these characteristics on providers' costs per
transport. We then used the results from this regression analysis to
predict the average costs per transport across all providers without
shared costs, based on five key provider characteristics: (1) total
transports per year, (2) percentage of BLS Medicare transports, (3)
percentage of Medicare transports in rural and super-rural areas, (4)
number of ambulance transports per staffed hour, and (5) amount of
revenue derived from local tax support.
To perform these analyses, we identified measures and data sources for
each of the provider and local area characteristics that we identified
as potentially contributing to differences in costs per transport. A
summary of these characteristics, measures we used to assess their
potential relationship to costs per transport, and data sources used is
presented in table 8.
Table 8: Provider and Local Area Characteristics Included in Analysis
of Average Cost per Transport, 2004:
Characteristic: Transport volume;
Measure: Indicator of volume group:
