0945Overton Finance Fundamentals Annual Meeting Handouts/MDC 2015...EMS Finance Fundamentals Jerry Overton Chair ... The Old Axiom “Nothing in life ... $10.00 $20.00 $30.00 $40.00

1/8/2015

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EMS Finance FundamentalsEMS Finance

Fundamentals

Jerry Overton

ChairBoard of Accreditation

International Academies of Emergency Dispatch

Jerry Overton

ChairBoard of Accreditation

International Academies of Emergency Dispatch

Conflict of Interest Disclosure

NONE

A conflict of interest exists when an individual is in a position to profit directly or indirectly through application of authority, influence, or knowledge in relation to the affairs of ABC. A conflict of interest also exists if a relative benefits or when the organization is adversely affected in any way.

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Or . . .

The Old Axiom

“Nothing in life is free!”

EMS Finance

“Is this the best we can do with the financial resources

available?”

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EMS Finance Misconceptions

• Price (Rates) = Costs• Component Costs = System Costs

• More Local Tax Support = Better Service

• Volunteers = Free Service

Total Cost of Providing Service

Emergency Medical Services Costs –

Definitions

Cost Definitions

• Direct Costs• Indirect Costs• Fixed Costs• Marginal Costs

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Cost Definitions

• Direct Costs – A cost that can be traced specifically to a particular service of product• Paramedic Labor• Fuel• Medical Supplies

Cost Definitions

• Indirect Costs – A cost that cannot be traced to a particular service

• Administrative Overhead • Information Technology• Marketing • Billing Service• Legal and Accounting• Insurance

Cost Definitions• Fixed Cost – A cost that does not

change in total for a given time or activity• Vehicles• Communication Infrastructure

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Cost Definitions

• Marginal Cost – A cost that fluctuates in total in direct proportion to changes in activity• The addition of additional staffing (Unit Hours) to a schedule

Total Cost of Providing Service

Emergency Medical Services Costs –

General Principles

The Cost of Producing Service

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General Principles

• Cost of Readiness• Productivity• Revenues

“Without data, data will be made up.”

General Principles

General Principles

• Before Proceeding• All Cost Centers Identified• All Costs Accurately Reported

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General Principles

• Cost of Readiness

Cost of Readiness• Strategically Deployed

Distribution Network• Production Capacity Must Exceed

Supply and Demand• Time Dependent Service Delivery

Cost of Readiness• Fixed Costs• NOT Volume Driven Unless

Excess Capacity Exceeded• Length of Trip has Little Effect

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Special Considerations

• Urban • Suburban• Rural

General Principles• Cost of Readiness

• Productivity

ProductivityKey Concepts

• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport

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Total System Cost per Capita

Total System CostPopulation Served = Cost per Capita

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

Fort W

ayne,

IN

Fort W

orth, T

X

Kansas C

ity, M

O

Oklahom

a City

, OK

Pinellas C

ounty, F

L

Reno, NV

Richmond

, VA

Tulsa,

OK

Clark Coun

ty, W

A

Davenpo

rt, IA

Little R

ock,

AR

Mecklen

burg, N

C

Montere

y Cou

nty, C

A

Solano Coun

ty, C

AMean

Median

Total System Cost Per CapitaUnited States

Productivity


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Cost per Unit Hour

Basic Terminology

Unit Hour - A fully equipped and staffed ambulance on a response or waiting for a response for one hour.

Unit Hour Costs

EMS does not manufacture accidents and illness.

EMS only manufactures Unit Hours and . . . then waits.

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Unit Hour Costs

• Ranges from $75-$150 Cost per Unit Hour

• Direct Labor Costs Comprise Over 70% - 80% of the Total Average Unit Hour

• Marginal Unit Hour Costs are 60 - 75% of total Unit Hour Costs

Cost per Unit Hour

Total CostsTotal Number of Unit

Hours= Total Unit Hour

Costs

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

Fort W

ayne,

IN

Fort W

orth, T

X

Kansas C

ity, M

O

Oklahom

a City

, OK

Pinellas C

ounty, F

L

Reno, NV

Richmond

, VA

Tulsa,

OK

Clark C

ounty,

WA

Davenpo

rt, IA

Little R

ock,

AR

Meck

lenburg

, NC

Monte

rey C

ounty,

CA

Solano Coun

ty, C

AM

ean

Media

n

Cost Per Unit HourUnited States

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Unit Hour Costs

• Unit Hour Costs are Powerfully Affected by Economies of Scale

• Far Less Money is Wasted in the Production of Unit Hours than is Wasted from Squandered Unit Hours

Unit Hour Costs

• Unit Hour Cost is:• A Poor Predictor of Cost per Transport

• A Poor Predictor of Clinical Quality

Productivity• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport

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Unit Hour Utilization

Basic Terminology

Utilization -How frequently the unit hour is used

Productivity

• Unit Hour Utilization• Responses• Transports• Patients Treated (Treat and Release)

• Work Load • Post to Post Moves• Equalization

Unit Hour Utilization Ratio

Basic TerminologyUnit Hour Utilization - A measurement of the productivity of the system calculated by dividing the number of transportsby the number of unit hours produced for a given period.

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The U/UH Ratio

U (Utilization)UH (Unit Hours)

Patients Transported During PeriodUnit Hours Produced During Same

Period


4 Transports12 Unit Hours

600 Transports1800 Unit

Hours

= .33 U/UH

= .33 U/UH


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Productivity


Cost per Transport

Cost per Unit HourProductivity (U/UH) = Cost per

Transport

Cost per TransportExample:

8,000 Patients16,000 Unit Hours

$100.50

$100.51

= .50

= $200 per Transport


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Cost per Transport

$ 4 X 8,000 Patients/Year = $32,000/Year

Combining Principles• Cost of Readiness• Productivity

Impact

Productivity is a far more powerful cost driver than cost

per unit hour.

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Cost per Transport

Example:

$100.33

$100.25



Cost per Transport

$97 X 8,000 Patients/Year = $776,000/Year

Cost per Transport

System A System BCost per unit hour $125 $100U/UH ratio .40 .30Cost per transport $312 $303.00Patient charge $624 $606.00(50% collection)

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Cost per Transport

ExclusiveNon-Exclusive

(Subsidy Constant)

Non-Exclusive (Total Bill Constant)

Unit Hour Cost $99.75 $99.75 $99.75Unit Hour Utilization 0.47 0.42 0.42Transport Frequency (hour) 2.13 2.37 2.37Cost Per Patient Transport $212.23 $237.50 $237.50Less: Subsidy Per Transport $58.14 $58.14 $83.41Sub-Total $154.09 $179.36 $154.09Collection Percentage 40% 40% 40%Total Bill $385.24 $448.40 $385.23

$0.00

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

Fort W

ayne,

IN

Fort W

orth, T

X

Kansas C

ity, M

O

Oklahom

a City

, OK

Pinellas C

ounty, F

L

Reno, NV

Richmond

, VA

Tulsa,

OK

Clark Coun

ty, W

A

Davenpo

rt, IA

Little R

ock,

AR

Mecklen

burg, N

C

Montere

y Cou

nty, C

A

Solano Coun

ty, C

AMean

Median

Cost Per TransportUnited States

Factors Affecting Productivity

• Population Density• Road Systems and Barriers• Seasons• Location of Health Care Facilities• Hospital Diversions

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General Principles• Revenues

• Local Tax Support• Reimbursement

Tax Support/Rate Tradeoff Analysis

• Tool for Analysis of Financial Performance

• Provides for the Identification of Ultimate Need for Revenues

• Establishes Affordability• By Payor• By Local Government

Tax-Support/Rate Tradeoff Analysis

$0

$100

$200

$300

$400

$500

$600

$700

$800

$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50

Tax Support per Capita per Year

Tota

l Ave

rage

Bill

$30 cost per capita

$10 tax support per capita = $400 average ambulance bill

(If there was…) $0 tax support = $575 average emergency ambulance bill

Tax support / rate tradeoff line

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Reimbursement

• Collection Percentage Variables• Payor Mix

• Medicare• Medicaid

• Billing System• Management of A/R

BillingsTypical Payor Mix

39%

20%

26%

15%

Medicare Medicaid

Private Pay Commercial Insurance/HMO

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Reimbursement

• Medicare• Medicaid• Private Paying Patients • Commercial Insurance

• HMO Contracts • Other Contracts

Medicare

• Federal Authorization• Federal Regulation• Federal Funding• Carrier Administered• Approximately 40% - 45% of patients

The Medicare Fee Schedule

• Components of the Base Rate• National Relative Values

• BLS = 1.00• BLS-E = 1.60• ALS1 = 1.20• ALS1-E = 1.90• ALS2 = 2.75

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Ambulance Inflation Factor

• 2003 1.1 • 2004 2.1 • 2005 3.3 • 2006 2.5 • 2007 4.3• 2008 2.7

• 2009 5.0 • 2010 0.0• 2011 -0.1• 2012 2.4• 2013 0.8• 2014 1.0• 2015 1.4


Ambulance Conversion Factor•2008 $194 •2010 $210 •2011 $208•2012 $213•2015 $229


National Conversion Factor x RVU• BLS= $229• BLS-E= $366• ALS-1= $275• ALS-1E=$435• ALS-2= $629

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The Impact - 2015Reimbursement vs. Cost

Reimbursement Level:

• BLS-E= $366

• ALS-1E=$435

Cost per Transport: (Assumes $125 per UH)

•.33 U/UH=$378

•.25 U/UH=$500

The Outlook

• Growing Federal Budget Deficit

• Legislative Proposals Complex• Not “High Visibility”• Post Election Year

Medicaid

• Federal Authorization• Indigent/Special Cases• Federal/State Cost Sharing

• Rates Determined by the State• Assignment

• 20% – 30% of Patients

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Medicaid

• “Transportation” Emphasis• Traditionally Low Reimbursement Rates

• Low Priority - Lack of Constituency

• State Budget Issues• Deficits Faced by 36 States

• Post Election Year – Federal AND State

Private Paying Patient

Insurance

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Special Topics

Non Emergency Transports

• Increase in Economic Efficiency• Increase in Gross Revenues• Clinical Oversight Needed

Non Emergency Transports

• Revenues• Impact on Net Revenues Must be Assessed• Medical Necessity• Payors

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Rural Costs Structures• Fewer Transports to Spread Fixed

Costs• Greater Geographic Coverage• “Centralized” Transports

Capital Purchases

Useful Lifevs.

One Time Expense

Cost and Useful Life

Vehicle Cost = $100,000Useful Life = 5 YearsAnnual Depreciation = $ 20,000

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Defining Useful Life• Predetermined Replacement Schedule

• Local Factors• Safe Driving

Safe Driving

EHS Collision Claim HistoryCost per claim per 100,000 Kms

$1,725

$1,049

$751

$416

$229$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

$1,800.00

2000/2001 2001/2002 2002/2003 2003/2004 2004/2005

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$100,0005 years

$100,0007 years

= $20,000 per Year

= $14,285 per Year$5715 per Year

Raising Rates and The Impact

• Payor Mix Must be Understood• Collection percentage for each

payor required• Important: $100 increase

does not equal $100 additional revenue

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The Issue of Assignment

Medicare – 40% to 50%Medicaid – 20% to 25%Total - 60% to 75%

Typical Payor Mix with Corresponding Increased Revenue

Projected $100 Increase

Medicare - 40% x $100 x 0 = $0.00 Medicaid - 20% x $100 x 0 = $0.00Com Ins - 20% x $100 x .75 = $15.00Private Pay - 20% x $100 x .10 = $2.00

Total 100% = $17.00

Typical Payor Mix with Corresponding Increased Revenue

Projected $100 Increase

$17.00 x 40,000 patients = $680,000

“The medical equipment now surpasses the vehicle in nearly all ambulance purchases.”

Dr. Jeff Goodloe

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BUT . . .

Ongoing Expenses Continue!!!

Annual Salary Increases

Health, Vehicle Insurance

Fuel

Vehicle and Equipment Replacement

And . . .

The Risk . . .POLITICAL

FALLOUT

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The Potential of Enhanced Governmental Support

• Additional Tax Subsidization• Federal - Health Care Reform• State - Budget Crisis• Local - Tax Limitations

Service Alternatives

• Increasing Emergency Response Times

• Deferral of Capital Purchases

• System Design Changes

The Impact of the Economy

“The Long View:How the financial downturn will change health care” January 2009

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“After the CrisisDifferential Strategies”

• Focus on Care Integration• Focus on Quality and IT• New Importance for Lowering Costs

of Service• Focus on Economies of Scale

Economic Efficiency

The ability to produce more service of higher quality from

available dollars.

EMS is Protocol Driven

Resource Reallocation

Dispatch

Treatment and

Transport

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Load of Work Variance• Time of Day• Day of Week

Prospective Evidence of A Circadian Rhythm for Out-of-Hospital

Cardiac ArrestsLevine et al. JAMA 1992; 267:2935-2937

Prospective Evidence of A Circadian Rhythm for Out-of-Hospital

Cardiac ArrestsLevine et al. JAMA 1992; 267:2935-2937

0

10

20

30

40

50

60

70

80

Ca

rdia

c A

rre

st

Vic

tim

s,

No

.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour of the Day

System Status Management

The art and science of matching the production capacity of an EMS system to the changing patterns of demand placed on that system.

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Improved Efficiencies

Example:

$100.25

$100.27


=$370 per Transport

Improved Efficiencies

$30 X 40,000 Patients/Year = $1,200,000/Year

Levels of Efficiency• High quality with above-average

cost;• Low quality with below-average

cost;• Low quality with above-average

cost; and,• Performance Based EMS--

above-average service at below-average cost.

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The Future. . .

THE OPPORTUNITY -Integration INTO the Health Care Community

THE OPPORTUNITY -Integration INTO the Health Care Community

The IOM –EMS is Health Care

• Continuum of Care

• Health Care Professionals

• Provision of Clinical Care

• Integrating with the Community

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Soo . . . . .

Summary• “Nothing in life is free!!!”• For any meaningful analysis,

ALL costs must be identified• Understanding concepts

ultimately maximizes patient care

• Medical Directors MUST Engage!!!

“There are two times in a man’s life when he should not speculate; when he can afford it and when he can’t”

Mark Twain

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Discussion . . .

[email protected]

Documents

0945Overton Finance Fundamentals Annual Meeting Handouts/MDC 2015...EMS Finance Fundamentals Jerry Overton Chair ... The Old Axiom “Nothing in life ... $10.00 $20.00 $30.00 $40.00