Regulation of Emergency Medical Services: Phase Two
Chapter 1

Findings Summary 

      ·       Government agencies pay for about two-thirds of the number of ambulance trips in Connecticut
·       Third party payers, including government, already determine what rates they will pay for ambulance services
·       The largest government payer, Medicare, is currently re-examining its rate structure for ambulance services, and the results are expected to be implemented in 2001
·       There is currently a statutory cap of $500 on the amount insurance companies must pay for emergency ambulance trips
·        Medicaid reimbursement for basic life support transport is currently $99.25; it has not been increased in more than 10 years and is significantly lower than the Medicare rate for BLS
·       DPH rate setting has not had a great impact on keeping overall EMS costs down; between 1994 and 1998 they rose at double the rate of increases in the consumer price index for health care and transportation
·       Some providers complain about the cumbersome nature of the annual rate review process
·       Setting maximum rates does not appear to have standardized costs.  Rates charged among even the top commercial providers vary by 20 to 25 percent
·       The current rate-setting process is based on a cost-plus system, so there is no incentive to establish competitive rates or keep costs down
·       Connecticut is one of only four states that sets ambulance rates Connecticut has moved away from full rate setting in other areas, especially in health care 

Recommendation Summary

Raise Connecticut's Medicaid rate for ambulance services.  Reform and streamline the current rate application process. Only ambulance companies charging above the statewide rate and requesting a rate hike would be required to file a detailed rate application.  All other ambulance companies would be required to file only a summary financial statement, including total revenues, total expenses, and volume of emergency and non-emergency business. 
 

Background  

   Connecticut began setting commercial ambulance rates in 1967.  Responsibility for setting rates rested with the public utilities commission.  In 1974, rate-setting authority was transferred to the Commission on Hospitals and Health Care, and one year later it was again moved, this time to the health department. In 1980, the statute was modified to require the health commissioner to establish rates for certified as well as commercial ambulance companies, and required that the commissioner develop regulations concerning the rate-setting process.  Those regulations were not developed until 1988. 

The regulations require DPH to set maximum allowable rates by classification  -- i.e., basic life support (BLS), advanced life support (ALS) or paramedic, and invalid coach -- for each provider that bills for service.  Maximum level rates are also set for each provider for ancillary charges like mileage, night calls, and the like. 

 The rate-setting process and time frame are laid out in regulations.  The rates are set for a calendar year,  based on a provider’s costs and financial experience for a 12-month period for the previous May through April.  (For example, 1999 rates are established based on provider costs of May 1, 1997 through April 30, 1998).  By July 15^th of each year, providers must submit to DPH extensive financial information.  After a review process, which may involve a hearing, the commissioner establishes the rates by December 15 for use beginning on January 1.  Until this year, every provider had to file the detailed financial information, including: loans taken out; interest rates; capital purchases; salaries and fringe benefits paid; and expenses like marketing and advertising.   

 Early in 1999, DPH issued a policy change, although not by regulation, that substantially impacts the rate setting process.  Beginning July 15, 1999 (for year 2000 rates) only those providers charging above a certain threshold set by DPH ($280 BLS level) and/or handling more than 1,200 calls per year had to submit a comprehensive filing. 

Consumer Protection 

A major reason for rate regulation is to protect consumers from extremely high prices in areas where competition cannot be expected to keep costs down.  In Connecticut, emergency ambulance transportation is non-competitive because the state designates exclusive territories for individual ambulance companies to answer all emergency medical calls in that area. Thus, in a strict economic sense, it would seem that rate regulation is necessary. However, the committee believes the vast majority of consumers are already protected through their government payer or their private health insurer.  Because ambulance transportation is part of the health care system, health insurers typically reimburse it, and those insurers are often setting their own ambulance service payment rates. 

Government payers.  Government pays for the largest portion of ambulance calls.   Medicare, the federal health insurance program for those persons 65 or older, makes up the largest portion.   As Figure I-1 shows,  Medicare clients make up about 55 percent of EMS calls.  Another 12 percent of calls are comprised of state Medicaid clients who are not in a managed care program.  Thus, about two-thirds of the ambulance calls are paid by government.

 
        Medicare, which is totally federally financed, sets rates for ambulance services for four different regions in Connecticut.  In 1999, the regional rates ranged from $260 to $318 for basic life support service.  The same rate is paid whether the ambulance transport is emergency or non-emergency.

        Medicaid, the state-administered medical assistance program for Connecticut's poor and disabled, is reimbursed for half its costs by the federal government.  The Medicaid rate for BLS -basic ambulance transportation on an emergency or non-emergency basis -- is currently $99.25 statewide, and has not increased in more than 10 years.   Other rates, for paramedic level service ($153.45), for waiting time ($34.87 for initial hour), were also set before 1990.

Program review compared Connecticut's Medicaid BLS-level rates with those of other New England states and the results are shown in the table below. 

         While the rate in Connecticut is comparable to those in other states, the program review committee finds the Medicaid rate for ambulance services is not adequate.  First, the Medicaid rate is significantly lower than Medicare rates.  Second, as mentioned, Connecticut has not increased its Medicaid rate in more than a decade, so it certainly has not kept pace with inflation.  Third, the committee expressed concern that, because urban areas include a higher Medicaid population than other areas of the state, the low Medicaid rates affect EMS providers serving large cities more acutely. 

For the above reasons, the Legislative Program Review Committee recommends that the Medicaid rate for ambulance services be raised. 

            The committee's recommendation did not set a level to which the rate should be raised, but requested staff to estimate the costs of  increasing the BLS level service to $200.  As shown in the previous graph, about 12 percent (48,000) of all ambulance transports in the state are Medicaid clients.   It is unknown how many Medicaid patients are transported at the BLS level and how many require the ALS (paramedic level).  If all calls are reimbursed at the BLS rate, and that is raised to $200, an increase of about $100 a call, it would cost an additional $4,800,000 (48,000 *$100 increase per call).   

Committee staff discussions with both state Department of Social Services and Health Care Financing Administration Region I Office indicate that the federal government reimburses for 50 percent of Medicaid costs, including ambulance costs.  Therefore, the net cost increase to the state would be approximately $2.4 million.  

It is important to note this cost estimate does not address increasing rates for any of the ancillary charges, like mileage and waiting times, nor does it address raising the paramedic level (ALS) rates.  If these were also raised it would add to the state's Medicaid costs. 

Third party payers.  Of the remaining one-third of  transports that are not government-paid, many are covered by health maintenance organizations (HMOs) or other health insurers that have contracts with major ambulance companies at rates the two parties negotiate.  For example, American Medical Response, the largest ambulance company in Connecticut, has contracts with most Connecticut HMOs.  Committee staff interviewed AMR officials, and was told that HMOs negotiate lower rates than those set by DPH, and that their contracts with HMOs prohibit providers from billing patients for the balance.  Thus, HMO ambulance contracts also protect  consumers from high ambulance costs. 

The statutory cap.  As mentioned in phase one of the EMS study, the statutes (C.G.S. § 38a-525) set a $500 maximum limit on the amount private insurance companies must pay for each emergency ambulance transport.  Program review was unable to determine the full extent insurers use the limit, but identified the state’s largest health insurer, Anthem Blue Cross/Blue Shield, as employing the cap.  Anthem officials indicate that if the ambulance is an in-network provider, the provider would be prohibited from billing the patient for the balance over the $500.  Out-of-network providers would be allowed to bill the client for whatever Anthem did not pay, although the company indicates total costs for an ambulance trip seldom exceeds the $500 insurance cap. 

Rate Regulation and Costs 

Impact on costs.  Rate regulation has not kept overall ambulance service costs down in Connecticut. Program review obtained ambulance cost information from DPH rate summary reports and individual rate filings and analyzed the data using several different measures, and finds that costs have risen at a dramatic rate.  The first measure used is overall ambulance company revenues, which are funds raised from all sources by all charging ambulance providers in the state. Figure I-2 below shows that between 1994 and 1999, revenues in Connecticut increased about 75 percent, from $93 million to almost $163 million.  

Expenses for all ambulance services in Connecticut have also increased, rising about 73 percent from 1994 to 1999.  To examine what that means for Connecticut residents, the expenses were analyzed on a per capita basis by dividing annual ambulance expenses by the Connecticut population for the same years.  The results are graphed in Figure I-3, and show the cost per-capita for ambulance service in Connecticut for the six-year period rose 68 percent, from $29 in 1994 to $49 in 1999.

             Since not all expenses can be explained by increasing demand for ambulance service, the study also examined the trend in costs for individual trips.   The total industry expenses were divided by total ambulance calls (both emergency and non-emergency)  for each year from 1994 to 1999.  The results are graphed in Figure I-4  below, and show that in 1994 the average cost per trip was $299;  by 1999 the average cost had risen to $414, an increase of more than $100 per trip (38 percent). 

Connecticut’s increases in ambulance service costs were compared with annual increases in the consumer price index (CPI) for two similar service areas -- medical and transportation.  The graph in Figure I-5 illustrates that, until 1999, the costs of ambulance services in Connecticut far outpaced the increases in health care or transportation. 

            Another negative consequence of the recent changes has been to boost the rates for those providers that had been charging less than $280. They were allowed to automatically raise their rates to a new “statewide” rate of $280, without requiring justification. Seventy-one providers bumped their rates to the $280 level, an average increase of $30. Three services kept rates at or below $280, and two providers dropped their rates to $280, escaping the full rate review process.  Thus, a rate-setting process put in place to keep costs in check may have contributed to raising rates for the consumer. 

Further, restricting individual provider rates has not been very successful.  For the 1999 rate year, 92 providers requested a rate hike. DPH approved 63 at the levels requested; 13 received more than requested; and only 18 received less than requested.[1]  The committee believes the benefit of those rate reductions to the consumer was minimal.  Of those providers that had their rates reduced,  the average reduction DPH made was $14.70 on an average rate request of $309.  The department was questioned about granting higher rates than had been requested in 1999, and DPH responded that it was done to bring low-charging providers up to a certain rate level in anticipation of using the $280 statewide rate for the 2000 rate year.  Again, a rate-setting system put in place to keep costs in check actually raised costs to the consumer. 

No standardization of rates.   Because rates are cost-based, and vary by provider there is really no standard or statewide rate.  Even among the high-volume commercial providers, price ranges are great – for example, one company charges $280 for a basic transport, while another charges $334, a 20 percent difference. Mileage cost differences are even more pronounced – among the top commercials one charged $7 a mile while another charged $9.50, a difference of 26 percent.  Variation is even greater if rates among all providers, not just commercials, are considered.  

Further, because rates are established for different service components, the overall charge for ambulance transport may be very different from the BLS rate.  When mileage, night call fees, and/or paramedic intercept fees are added, the charge can be substantially higher than the basic rate.  For example, as illustrated in Figure I-4 above, the average cost for an ambulance trip during 1999 was $414.  The BLS rate for the highest charging provider in the state was $386.  Thus, while maximum rates are set by DPH, they are established for so many different components for every provider, it is difficult for a consumer to know what the rates actually mean and if he/she is overcharged or not.  

Cost-plus rates.   As stated above, EMS rates are based on provider expenses.  Thus, the higher a provider’s costs that can be justified, the more a provider can charge.  Total charges generate revenue, and both officer salaries and profits depend on a company’s net revenues -- established by DPH policy at 6.8 percent and 6 percent, respectively. The more revenue generated, the higher corporate officers’ salaries that can be paid, and the more profit that can be earned. 

In addition to being a disincentive to keeping costs down, non-commercial providers complain that the cost-plus system builds an inherent unfairness into the system.  Municipal and non-profits do not pay corporate level salaries and therefore are not built into expenses.  Further, the rate of return on net revenue for municipals and non-profits is limited to 2 percent, compared to the 6 percent of net revenue for-profit companies are allowed to keep. 

Link to DON is weak.   The connection between the determination of need and rate- setting components is vague.  In fact, two of the biggest cost drivers in ambulance services have been outside the determination of need process.  One is due to ambulance companies raising the level of service from Basic Life Support to Advanced Life Support, thereby increasing costs.   

A second cost-driver occurs when an ambulance company purchases another and raises rates to the buyer’s level.  For example, when AMR purchased Medstar Ambulance in 1995, AMR’s base rate was $30 higher. When AMR bought L&M, Professional, and Trinity ambulance companies, AMR’s BLS rate was about $40 higher than the rates charged by the three companies it purchased.  Upon purchasing the companies, AMR charged the higher rates, and has subsequently increased rates each year since, creating greater costs for ambulance services in Connecticut. 

State moving away from setting rates.  Connecticut is one of only four states that sets statewide rates for ambulance services.  Further, Connecticut has reduced its rate-setting functions in other medical areas like hospitals.  Since 1993, the Office of Health Care Access has limited financial review of hospitals to their budgets rather than setting individual hospital charges.  The committee believes that if the state could remove itself from establishing rates for hospitals --  which involves over $4 billion dollars for inpatient services -- it can certainly lessen its rate-setting role in the $163 million ambulance service area.           

         The committee recognizes that rate setting by DPH has not been very effective in keeping overall ambulance transportation costs down and that other consumer protections exists in controlling ambulance service prices, like managed care contracts and insurance caps.  For these reasons, the program review committee recommends EMS rate regulation should be reformed as follows:   

Rates currently filed and approved by the Department of Public Health would remain in effect.  Effective July 1, 2000, regulations concerning rate filing (Sec. 19a-179-21(f)) shall be modified to require only charging providers who wish to increase rates to submit complete financial information currently required by regulation.  Rate increase requests could be filed at any time, but no more than annually. Detailed financial and operational information supporting the request would have to be filed for the time period from the provider’s last rate review. 

Charging providers willing to stay at current rates would be required to file, by July 15 of each year, an audited summary financial statement, including total revenue, total expenses, emergency and non-emergency call volume, and a written declaration that no change in the current maximum rates has occurred.

 If the recommendation were in place, there would be an incentive for providers to continue operating under existing rates, becoming more efficient to keep more profits or put the money back into the business.  If the rate regulation process and the information required for increasing rates is as cumbersome as providers complain -- and it does appear time-consuming, tedious and detail-oriented -- providers will want to keep their existing rates rather than encounter a rate approval process that can be avoided. This will save time and money for both providers and the state, and could potentially stabilize ambulance service costs overall. 

           The committee examined a number of alternatives to the current rate-setting process -- for example, setting one statewide at the median or average of all providers, and allowing only future increases equal to the consumer price index, or a rate rollback for all providers.  However, setting a universal rate retrospectively is nearly impossible.  If set too low, it could have serious service implications (e.g., layoffs), and if set too high it could provide a financial windfall for some providers without benefiting the consumer.  The committee concluded the most workable proposal is to keep the rate-setting structure in place but limit its use to providers that request a hike.  Providers will now have an incentive to escape regulatory review if their rates do not change.        

  The recommended change would bring the rate approval process in line with the models used for public utility and some lines of insurance.  Under those models, the rate review process occurs only when requests for rate hikes are made, and attention and resources are focused only on those companies requesting the increases.  The recommendation still provides a check to ensure that large commercial companies, which cover such a large part of the market, cannot unilaterally raise prices. 

The committee was reluctant to radically change the rates in Connecticut,    recognizing the federal Health Care Financing Administration is now looking at its Medicare rates for ambulance services nationwide.  The results of this negotiated rule making, as it is termed,  are likely to become effective in 2001.  HCFA decisions in this area are likely to have a significant impact, especially considering  the percentage of ambulance transports in Connecticut that are Medicare clients.  Thus, without being able to predict what HCFA will do, the committee determined it would be premature to alter rates at this point. 

Rate review administration. Earlier this year, DPH, through a memorandum of agreement, shifted the administrative functions for ambulance rate review to the Office of Health Care Access.  The health department transferred one fiscal support staff, and one year of funding of $50,000 – almost all of which was to pay a consultant DPH had contracted with for the past several years to do the rate reviews. 

The change to OHCA makes administrative sense, since review of health care capacity and financing is part of the health access agency’s responsibility.  However, the committee believes the arrangement between the agencies should continue to be an informal one for the present.  Both DPH and OHCA indicate the transfer is an experiment to construct an improved rate review process.  The first year in the health care access agency has not gone smoothly by many accounts. Because setting EMS rates was a new area for OHCA, agency staff needed to develop knowledge of the area.  Also, based on its staff's observations, the committee concluded both the rate request forms and agency communication regarding provider submissions need to improve. 

The health department has also established a number of subcommittees to advise DPH on various aspects of EMS, including a rate review subcommittee. However, the committee found that a few of the subcommittee’s proposals have been implemented informally, without benefit of regulatory change.  Some areas already restructured (like a statewide threshold for full rate review) appear to run counter to the current regulations and should have gone through the full regulations review process before adoption.  The committee therefore recommends: 

By January, 1, 2001, the financial summary forms and the full rate request filings shall be on forms issued by the Department of Public Health.  Further, if the department needs additional information pursuant to Sec. 19a-179-21(f)(2) of EMS regulations, DPH must specify the additional the financial and operational information it wants. 

The regulations review subcommittee established by DPH to examine the rate-setting  process shall review the regulations concerning rates and issue its report to the Department of Public Health by July 1, 2000.  The health department shall seek  to have the regulations revised through the normal regulation review process. 

If forms could be revised to fit the needs of all providers and filled out easily, the revisions could: eliminate confusion about where to account for certain expenses on the form; reduce the number and extent of requests for additional information;  and make the rate setting and financial submittal process more uniform, consistent, and fair.  However, any change affecting the current rate regulations should be formally adopted, so that all interested parties will be informed and have input prior to implementation.

Certified Providers Charging for Non-Emergency Transport Services  

            Phase two of the EMS study called for an review of whether certified -- non-licensed -- providers should be allowed to perform and charge for non-emergency ambulance transports.  Program review staff developed information that favored allowing certain certified providers  meeting specific thresholds to do non-emergency work.  However, the committee believes such action would be premature at this time, since no data exist on the number of non-emergency transports in a given town or on the potential impact expanding the scope of service for certain certified companies would have on the provision of emergency ambulance service.