It seems the industry is abuzz with talk about healthcare reform and how community paramedicine programs will help to solve the world’s healthcare woes. While I am a passionate believer in what this future holds for our industry, I am also a realist and pragmatist when it comes to the blocking and tackling that has to happen behind the scenes in order for us to make this vision a reality.

While many groups are focused on the clinical, educational and state regulatory issues related to community paramedicine, few are discussing how to pay for it and even fewer are discussing the fundamental building blocks that must be in place before you can even think about pursuing such a course. Many innovative agencies (including my own) are investing their time, energy, effort and dollars into figuring out how to make this all work for the rest of us, but why are these agencies able to do this, while others are not? What secrets do these trailblazing agencies have that others don’t?

Trailblazing secret

It is clear that significant changes are needed in order to bend the cost curve of healthcare and it is also clear that EMS can play a significant role. But if you want to have a seat at this table, you need to have your financial affairs in order. This is the “secret” of those who are blazing the trail. It’s really no secret, but it comes down to the simple fact that these agencies are able to explore this new frontier because they are at a point of organizational development, structure, leadership, maturity and information richness that they can afford to stick their necks out, make lots of mistakes, learn from them and move on.

The keys to a structured and mature agency are in how it is run. While clinical, operations, communications, training, quality and logistics are all important aspects of any successful EMS agency, none of them can happen without having a deep understanding and mastery of both your revenues and your expenses. Believe it or not, this is also true when looking to throw your hat in the ring of community paramedicine. If your organization can’t easily generate financial data about its existing state, then you honestly shouldn’t even be thinking about entering this next evolution in EMS until you attain this goal.

Cost of providing services

A scary reality was recently exposed about this particular issue, and how unprepared many EMS systems are in their ability to produce simple financial data about their costs and revenues. The American Ambulance Association (AAA) recently invested a substantial amount of money and time to assess the EMS industry’s ability to perform cost reporting—a method used by Centers for Medicare & Medicaid Services (CMS) with healthcare providers to determine their costs of providing services, which is then used to help figure out how much to pay for those services. Disclosure: I am on the AAA board.

A report performed by the Moran Company, “Final Report: Detailing Hybrid Data Collection Method for the Ambulance Industry,” highlights its blinded, confidential and independent test results from a standardized and well-defined dataset from EMS agencies, in order to understand the costs and revenues that EMS systems encounter. The end goal of this approach is to use the data to perform margin analysis on the industry, which is how CMS would typically assess and adjust the levels of reimbursement for most clinical providers and hospitals.

The report found “major challenges” to a requirement that every EMS agency in the U.S. perform cost reporting, and therefore recommends a hybrid approach that uses statistical sampling of a variety of EMS agency types, sizes and locations to generate a representative sample of the industry’s expense and revenue experience. This sample would then be used by CMS to assess EMS margins and adjust accordingly if the margins were found to be inadequate or below cost.

This hybrid method is used by other provider types with complex operational and regulatory issues, which is what the Moran Company found exists in EMS, and is therefore a viable option for the industry and CMS to strongly consider.

This is different than how EMS is currently reimbursed, as we are treated like a supplier and CMS puts us into the same category as durable medical equipment and home oxygen providers. This makes it difficult for EMS to be taken seriously when sitting at the same table as a recognized provider, as we are looked at as a transportation commodity and not a clinical service. If we want our community paramedic efforts to be taken seriously, one of the fundamental changes that must take place is a shift of EMS from a supplier to a provider in the eyes of CMS and other payers.

Tremendous efforts are being undertaken by the AAA to make this a reality for the EMS industry. In order for EMS to make this shift, the ability to perform cost reporting in some form or fashion will be necessary. The quickest and most effective path to this end is what the Moran Company was asked to find out.

Specifically, the Moran Company report found that “(1) Ambulance operations have evolved in response to requirements of state and local jurisdictions and not in response to payers; (2) ambulance operations across the U.S. are overwhelmingly small at the national provider identifier (NPI) level with very limited administrative resources, which makes it difficult for these organizations to produce accurate and detailed data; (3) even in larger operations, reimbursement data are often maintained in vendor software and not readily accessible for reporting; (4) fire department and hospital-based ambulance operations often have their cost data blended with other data from the parent institution; and (5) some states, counties and municipalities have ambulance services that rely partially or entirely upon volunteers, which would require such resources to be monetized to be comparable to operations with all-paid staff.”

Given these industry challenges, an EMS customized hybrid approach to cost reporting using statistical sampling by agencies capable of reporting such data is the most viable option if the EMS industry wishes to pursue clinical provider status. While this report highlights a viable solution to this complex problem, it also highlights the issues I am raising in this article.

Current financial challenges

All this brings to light the fact that EMS agencies need to pay attention to their finances and accounting practices, their chart of accounts and how they perform their financial reporting. As the Moran report clearly identifies, even large EMS agencies have challenges when it comes to these matters. A substantial portion of this problem lies in the fact that the EMS industry lacks standardized practices when it comes to metrics, whether clinical, operational or financial. While many of us measure certain common denominators such as unit hour utilization, most of us measure our financial performance or variables such as bad debt differently, and herein lies some of our challenges.

Although standardized or consensus financial templates do not yet exist for the industry, this should not impede your organization from getting its financial affairs in order to the point that you can glean the data necessary to complete a cost report, or be able to prepare an accurate pro forma estimate of the costs of performing the services you provide on a daily basis or for a new service such as community paramedicine.

To have a successfully reimbursed community paramedic program (or traditional EMS program for that matter) that breaks even or is in the black (hopefully the latter), you must first understand a few things about your expenses. First and foremost, you must understand your cost to provide the service and whether the service should be fully appreciated or marginally appreciated as you build it out. Full appreciation means you would take into account everything necessary to make the service happen, including overhead costs such as administration, capital depreciation, insurance and other indirect expenses. Marginal appreciation only looks specifically at the expenses of the program itself and would not include overhead, but would include direct expenses such as salaries, benefits, fuel, etc. Choosing which approach to use really depends on variables specific to the organization and how it has looked at these decisions in the past. Obviously, a marginal approach lowers the perceived costs, but does not help to cover overhead expenses. A fully loaded approach covers all expenses, but increases the costs shown to provide the new service.

Once you have a handle on this first consideration, you should then figure out your cost per hour, cost per transport and cost per unit hour so that you can use these figures to see how much it costs you to provide the actual service. For a community paramedic call, I would look at the length of the visit as well as the number of visits. Don’t forget to allocate unproductive time (time when not on a call) into the expense equation so that you fully appreciate your total cost of providing the service (Take total hours deployed for the service divided by the number of visits performed during that same time period, which would give you an accurate hours-per-visit ratio, including unproductive time. Multiply this by your cost per hour and to give you a break-even reimbursement.) Remember, programs need a margin in order to perform a mission, so include an allocation for this in your calculations as well so that you cover future capital and reserves necessary for longterm program sustainability.

Once you have a handle on expenses, you then need to look at revenues and payers. Since you know your expenses and what you need to cover your cost plus a reasonable margin, you can then work to negotiate a rate that minimally meets this number (but hopefully exceeds it). Having a firm grasp of your revenue cycle management process and revenue-based finances, as well as your payer sources are other important factors when negotiating with a payer. For example, it would be important to understand how much a payer is reimbursing you for EMS services for the cohort of patients you are trying to migrate to your community paramedicine program.

Also, understanding the downstream impacts of what you do under EMS versus what will happen under community paramedicine to that same cohort, and comparing and contrasting these so the payer can value the benefit, is another important variable you will need to understand if you are to get paid for these services. Knowing downstream payer costs in the continuum of care can be a challenge, however more and more healthcare organizations are shifting to transparent pricing in which they may publish their charges for particular services. While this may not represent what the payer may actually reimburse the agency for on a particular procedure (due to contracted rates and discounts), it is a start. Also, there are lots of sources on the Internet that provide federal and state reimbursement rates that are quickly becoming the standards that commercial payers use to set reimbursement rates for healthcare providers, so this too can be used to help quantify the downstream effects your community paramedic program will have on a particular patient population’s cost to the payer.

Conclusion

As you can see, understanding and mastering your EMS finances is just as important as the services you provide. Having a firm grasp of expenses, revenues and downstream financial impacts will enable you to negotiate with a commercial payer to an end that doesn’t put you out of business just for the sake of having a community paramedic program to brag about.

I truly believe EMS is at a crossroads where it can finally stand up with the ranks of other providers in the eyes of CMS and others. Which path we take will depend on our willingness, ability and agility to adapt to new clinical and operational models, while simultaneously mastering our business acumen so that we don’t bankrupt our services along the way as we transition. Get to know your finances well and you too will be able to successfully transition into the next generation of EMS services.

Lastly (I’m going to jump on my soapbox for a minute), the work that the AAA does financially benefits every single EMS provider in the U.S. (thank you, AAA, for my 2014 CMS rate extensions), yet only a small portion of EMS providers join our efforts. I would ask for each and every agency in the U.S. to join our ranks and collectively work to change and reform legislation so that our patients and communities can benefit from all EMS has to offer as an integral piece of the evolving U.S. healthcare system. Without our collective voice, our ability to go down the path many of us desire with community paramedicine may not be possible. Please consider joining our association and supporting its causes. Thank you.