United States Government Accountability Office GAO Report to Congressional Committees May 2007 AMBULANCE PROVIDERS Costs and Expected Medicare Margins Vary Greatly GAO-07-383 May 2007 AMBULANCE PROVIDERS H AccountabilityIntegrityReliability ighlights Costs and Expected Medicare Margins Vary Greatly Highlights of GAO-07-383, a report to congressional committees Why GAO Did This Study What GAO Found In 2002, Medicare implemented a Costs of ground ambulance services were highly variable across providers that national fee schedule designed to did not share costs with nonambulance services in 2004, reflecting differences standardize payments for ambulance in certain provider and community characteristics. Costs per transport among services. The Medicare Prescription these providers varied from $99 per transport to $1,218. Providers without Drug, Improvement and shared costs that had higher costs per transport typically had fewer transports Modernization Act of 2003 (MMA) per year, a greater percentage of transports in which more than a basic required GAO to study ambulance medical intervention occurred, more transports in super-rural areas (rural service costs. GAO examined counties with lowest population density), lower productivity—measured as providers’ costs of ground ambulance transports in 2004 and number of transports furnished per staffed hour, and a greater percentage of factors that contributed to cost revenues from local tax support. differences; average Medicare ambulance payments expected Average payments under the national fee schedule in 2010 are expected to be under the national fee schedule in higher than historical payments, but providers’ Medicare margins will vary 2010 and how those payments will greatly. GAO could not assess whether, on average, providers without shared relate to providers’ costs per costs would break even, lose, or profit under the national fee schedule, transport; and changes that because the average Medicare margin for providers without shared costs was occurred in Medicare beneficiaries’ estimated to fall from negative 14 percent to positive 2 percent. However, GAO use of ambulance transports from estimated that approximately 39 to 56 percent of providers without shared 2001 to 2004. GAO estimated costs costs would have average Medicare payments above their average cost per of ambulance transports based on a nationally representative survey of transport under the national fee schedule in 2010. 215 ambulance providers that did not share costs with nonambulance From 2001 to 2004, utilization of ambulance transports per beneficiary services. Providers that shared costs increased 16 percent overall. However, use declined by 8 percent in super- with other institutions or services rural areas. and could not report their costs for ambulance services separately, such Declining utilization coupled with potentially negative Medicare margins in as fire departments, were excluded super-rural areas, which could be exacerbated when the MMA temporary because their reported costs payment provisions expire, raise questions as to whether Medicare payments appeared unreliable. GAO used its will be adequate to support beneficiary access in super-rural areas. survey, Medicare claims, and other data for its analyses. Distribution of Cost per Transport for Providers without Shared Costs, 2004 What GAO Recommends Providers 1,000 GAO recommends that the 900 415 Administrator of CMS monitor 800 utilization of ambulance transports 700 to ensure that Medicare payments 600 are adequate to provide for 500 beneficiary access to ambulance 400 services, particularly in super-rural 300 areas. CMS agreed with GAO’s 200 recommendation. 100 0 www.gao.gov/cgi-bin/getrpt?GAO-07-383. 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Cost per transport in 2004 dollars To view the full product, including the scope Source: 2005 GAO Survey of Ambulance Services. and methodology, click on the link above. Note: Based on a sample of 215 providers, weighted to represent more than 5,200 providers in the For more information, contact Kathleen M. United States that did not share costs with nonambulance services. King at (202) 512-7119 or [email protected]. United States Government Accountability Office Contents Letter 1 Results in Brief 6 Background 7 Costs per Transport Were Highly Variable, Reflecting Differences in Certain Provider Characteristics 17 Average Payments under the National Fee Schedule Will Be Greater Than Average Historical Payments, but Providers’ Expected Medicare Margins Will Vary Greatly 22 MMA Provisions Resulted in Greater Average Payments for Higher- Cost Super-Rural Transports and Adjusted Payments Regionally Where No Significant Cost Differences Were Observed 27 Medicare Beneficiaries’ Use of Ambulance Transports Increased from 2001 to 2004, Except in Super-Rural Areas 29 Conclusions 30 Recommendation for Executive Action 31 Agency and External Comments and Our Evaluation 31 Appendix I Data and Methods 34 Appendix II Comments from the Centers for Medicare & Medicaid Services 52 Appendix III GAO Contact and Staff Acknowledgments 54 Related GAO Products 55 Tables Table 1: Summary of MMA Temporary Payment Provisions, Implemented July 1, 2004 16 Table 2: Estimated Average Cost per Transport for Provider Characteristics That Affect Costs 20 Table 3: Payments Prior to and under the National Fee Schedule after MMA Provisions Expire 23 Page i GAO-07-383 Ambulance Providers’ Cost Table 4: Expected Average Medicare Margins under the National Fee Schedule for Providers without Shared Costs in 2004 Dollars 24 Table 5: Average Payments prior to MMA Implementation and after Implementation 28 Table 6: Percentage Changes in Average Payments prior to MMA Implementation and after Implementation, by Region 29 Table 7: Ambulance Transports per 1,000 Beneficiaries in Urban, Rural, and Super-Rural Areas 30 Table 8: Provider and Local Area Characteristics Included in Analysis of Average Cost per Transport, 2004 41 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 43 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 44 Table 11: Census Divisions 47 Table 12: Average Mile per Transport, First Half of 2004 49 Table 13: Mileage Rates 50 Figures Figure 1: Medicare Ambulance Payment Formula under the National Fee Schedule 13 Figure 2: National Fee Schedule and Regional Fee Schedule 15 Figure 3: Distribution of Cost per Transport for Providers without Shared Costs in 2004 18 Figure 4: Expected Medicare Margins for Urban, Rural, and Super- Rural Providers without Shared Costs 26 Page ii GAO-07-383 Ambulance Providers’ Cost 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 This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page iii GAO-07-383 Ambulance Providers’ Cost 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.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 2002.2 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 1We use the term providers to refer to all types of organizations that provide ambulance transports for Medicare beneficiaries. 242 U.S.C. § 1395m(l). Page 1 GAO-07-383 Ambulance Providers’ Cost used one method—reasonable costs3—to pay hospital-based providers. It used another method—reasonable charges4—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.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.6 Beginning in 3Reasonable-cost payments were based on the provider’s cost of providing ambulance services as reported on cost reports. 4Reasonable-charge payments were based on the bill from the ambulance service provider but were subject to an upper limit. 5The national fee schedule applies to ground and air ambulance services, but this report and our analysis are limited to ground ambulance services only, which include water ambulance services and account for nearly all ambulance services. We use the terms service, transport, and ambulance service to refer to ground ambulance transport services only. 6Pub. L. No. 108-173, § 414, 117 Stat. 2066, 2278-80 (2003). Page 2 GAO-07-383 Ambulance Providers’ Cost 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 20007 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.8 We selected a stratified,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.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 7Pub. L. No. 106-554, appendix F, § 436, 114 Stat. 2763, 2763A-527 (2000). 8The GAO Survey of Ambulance Services asked providers to report on their organizations’ costs of providing ground ambulance services. As such, the survey measures organizations’ expenses, or spending, for ground ambulance services. 9The sample was stratified by five types of ambulance providers: hospital-based, volunteer, fire-based, government, and freestanding. 10To make our survey sample representative of all Medicare ambulance providers, we computed a sample weight for each respondent provider. Page 3 GAO-07-383 Ambulance Providers’ Cost costs.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 11We applied our sample weights to the subgroup so the providers were nationally representative of all ambulance service providers without shared costs. Page 4 GAO-07-383 Ambulance Providers’ Cost compared average payments for urban, rural, and super-rural transports.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.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. 12To define urban, rural, and super-rural transports, CMS uses the metropolitan statistical areas (MSA) definitions established by the Office of Management and Budget. During the period of our study, CMS defined urban transports as those that originate within MSAs and New England county metropolitan areas (NECMA), rural transports as those that originate in rural counties that are outside of MSAs and NECMAs as well as small towns and rural areas within MSAs or NECMAs that are isolated from central areas by distance or other features, such as mountains. CMS defines super-rural transports as those that originate in the bottom 25 percent of rural areas as defined by population density. 13This comparison assumes that providers’ cost structures under the fee schedule would be the same as they were in 2004. Page 5 GAO-07-383 Ambulance Providers’ Cost