Factors to Consider for Fire Departments Thinking about Providing Ambulance Service
August 18, 2015
By Joe Maruca
Photo courtesy of Lauralee Veitch
Many fire departments expand into providing emergency ambulance service because they believe that the revenue generated by ambulance billing can help pay for fire department operations. In many cases this is true, and in many cases it is not true. Before deciding to provide ambulance services through a fire department, it is important for firefighters and political leaders to understand all of the costs and benefits, including new revenue and expenses as well as implications for public policy, public safety, and public service.
Revenue and Demographics
An ambulance service generates billing revenue from three main sources: private insurance companies, government insurance programs, and private pay individuals. The revenue generated by your ambulance billings will depend on the mix of these three sources, and your community demographics will determine that mix.
If you have a large population aged 65 and over, your mix of revenue will shift towards Medicare. If you have a large population living at or near the poverty line, your revenue mix will shift towards Medicaid and private pay (uninsured).1 If your community has a large population that are of working-age and are not living at or near the poverty line, your revenue mix will shift towards private insurance programs. A younger age demographic tends to have fewer chronic health issues and use emergency ambulance service less than older age groups.
Another demographic factor that will affect your ambulance revenue is population density and geography. The more dense your population, the more emergency calls you can expect in a compact area, and the shorter distance/time between incidents and the hospital. This results in more efficient ambulance utilization and makes your service more likely to break-even or become profitable. By contrast, if your ambulance is protecting a small, highly scattered population (low population density) then it is harder to make a profit because of low call volume and long distances covered.
Putting it into Perspective
Putting some real life numbers to these concepts should help explain the issues and give you a framework for analyzing your service. My department, located in Massachusetts, protects a community of 3,200 people over 14 square miles. This is a low density of 229 people per square mile. The average age of our community is 59 years old, more than 10 years older than the national average. Our ambulance transports about 350 patients to the hospital each year, and the ambulance responds to another 100 EMS calls each year that don’t result in a patient transport. We are an ALS/Paramedic ambulance service.
Because our community is old and getting older, 196 of our 350 patient transports (56 percent) last year were on Medicare, Medicaid, or MassHealth. Our average reimbursement for these patients in FY 2014 was $352/patient. This means we collected $68,992 in revenue. Because government insurance programs do not allow providers to balance bill the patient for any difference between the cost of providing service and the Medicare/Medicaid rate, we must accept the rate as payment in full.
Another 31% of the patients we transport use private insurance to pay for their ambulance trips. Our average reimbursement for these patients in FY 2014 was $977/patient. This means we collected $105,516 in revenue from private insurance.
Additionally, in FY 2014, 13 percent of our patients had no insurance. While we serve a wealthy community with a median household income of $81,548, we collect only a negligible amount from the uninsured. The uninsured population is made up mostly of out-of-state transient/tourist patients, as well as some homeless and students at our local community college. We only collected about $10,000 in revenue from uninsured patients.
Finally, in FY 2014 our ambulance responded to about 100 EMS calls that did not result in an ambulance transport. Because the only pre-hospital emergency medical service that insurance will pay for is ambulance transport, our department bears all of the cost of responding to these calls.
Our total ambulance revenue for FY 2014 was $181,998. This is a lot of money and many firefighters and chiefs would love to get this kind of revenue stream. It probably represents three or four times the fire department operational budget of many similar sized communities. The problem is that it costs our department $900,000 to provide the service at the level of quality demanded by our citizens. This is where public policy, public safety, and public service collide with the financial aspects of providing ambulance service.
Staffing an Ambulance Service
A decade ago, our community was in crisis because we had trouble getting the ambulance on the road in less than eight minutes, and people were waiting an average of 16 minutes for the ambulance. Citizens demanded better service. Our ambulance needs to arrive on location at a call for EMS in eight minutes or less 90 percent of the time. This means hiring staff, especially during the daytime, to get the ambulance on the road immediately. If we weren’t in the ambulance business we wouldn’t have this staff.
Our community also wants ALS/Paramedic level service. This is what people see on TV and what they’ve become conditioned to expect from EMS. Our residents know that surrounding communities have ALS/Paramedic level service and they don’t want to be left out. Consequently, our full-time staff must be firefighter/paramedics. Our department has grown over the past 20 years to include five full-time firefighter/paramedics (along with 40 volunteers) in order to meet both the quality (ALS/Paramedic) and eight-minute response time expected by our community.2
With 450 EMS calls each year, and 70 percent of them occurring between 10am and 4pm, it is necessary to have two firefighters at the fire station each weekday from 8am to 6pm when volunteer firefighter availability is at its lowest and when the few available volunteers are more likely to be further out of town. Nights and weekends, our department has one firefighter/paramedic at the fire station in order to get the ambulance on the road quickly.
Even though we had started our ambulance service (at the ALS/Paramedic level) in the early 1970s3 and had run it on a volunteer basis for 30 years, times changed. It was no longer good enough that we had the best of intentions and did the best we could as volunteers. The community changed and wanted better service. If you get into the ambulance business be prepared for rapid changes you can’t control such as rising public expectations, changes to medical protocols, increased training requirements, and new laws such as the Affordable Care Act (“Obamacare”). Whatever system and cost structure you put in place initially for providing ambulance service will be subject to change based on external demands that you can’t control.
The costs of operating an ambulance are significant. In today’s market it is easy to spend $200,000 to purchase a quality ambulance that will give you 10 years of service. Amortizing the cost of purchasing this ambulance means that your annual cost just to own the ambulance is $20,000/year. Then there is the auto insurance and malpractice insurance ($6,000/year), medical supplies and drugs ($30,000/year), vehicle maintenance ($4,650 is our five-year average), diesel fuel ($2,400/year), service contracts for the maintenance of the stretcher and defibrillator ($1,500/year), and cleaning/disinfecting/sanitizing the ambulance ($1,000/year). This all adds up to at least $65,550 per year.
Then you have to add in your training and certification/licensing costs. Each EMT needs at least 40 hours of training bi-annually and each paramedic needs at least 50 hours. Do you pay your EMTs and paramedics for training, or do they expect to be unpaid volunteers for these hours? We pay our volunteers a training stipend of $20 per training session (regardless of the time). This costs about $8,000 per year. If you hire any full-time staff you will have to pay them overtime to attend EMS training off-duty. Additionally, our department pays $3,750 for the annual recertification/licensing fees for our EMTs and paramedics.
There is also the administrative cost of generating and collecting ambulance bills. We hire a billing company to handle our billing and collections. Our annual fee is 2 percent of what we collect, or $3,640 in FY 2014.
There are additional expenses related to maintaining maintenance records for the ambulance, the defibrillator, the drugs, and our stretcher. We pay to renew our ambulance license, our drug license, and our annual ambulance inspection. (These will vary state to state and is dependent somewhat on what level of ambulance − BLS or ALS − you provide.) There is record keeping and updating of records related to hospital affiliation agreements, medical control agreements, EMS radio system agreements, procurement of supplies and equipment, HIPPA compliance, Medicare/Medicaid compliance, and a myriad of administrative compliance that isn’t needed in the fire service. There is a cost associated with answering weekly subpoenas for medical records for patients involved in car crashes, products liability injuries, and medical malpractice cases.
If you are a volunteer fire chief you have suddenly more than doubled your administrative workload by going into the emergency ambulance business. While it is difficult to attach a dollar value to the cost of this entire additional administrative burden, we estimate that it costs us $18,000 for hiring administrative staff.
To this point the expenses of operating our emergency ambulance add up to $96,940 per year and the revenue we receive is about $185,000 per year. This represents a potential profit of $88,060 per year. However, if you have to hire even a single full-time firefighter/EMT or firefighter/paramedic, all of the profit is wiped out.
The salary, employer’s health insurance contribution, life insurance, uniform allowance, educational stipends, employer’s pension contribution, employer’s Medicare contribution, and other employee expenses cost our department an average of $75,000 per firefighter/paramedic per year. In addition, there are overtime costs associated with required training, covering their vacations and sick time, and responding off-duty to emergency calls. This overtime cost averages $25,000 per firefighter/paramedic per year. Then there is the pension contribution, FICA expense, health insurance benefits, unemployment taxes, life insurance benefits, dental insurance benefits, and vision insurance benefits. Our cost for a single career firefighter/paramedic is $115,000 to $125,000 per year.
The employee costs your department might someday face to hire even modest daytime coverage will vary with the costs of labor and benefits in your region. There are many areas of the country that would experience significantly lower costs than what my department has, but they will still be substantial compared to the revenue stream you can expect.
Benefits of Providing Ambulance Service
So if you can’t turn a profit operating an emergency ambulance, then why should you venture into the ambulance business? There are plenty of reasons that come back to the topics of public policy, public safety, and public service.
If your fire department won’t operate the emergency ambulance service for your community, who will? You could hire a private ambulance company, but they need to make a profit, so unless you are willing to subsidize their losses and guarantee them a profit this isn’t a good option. You could rely on a neighboring community that needs to increase its revenue with more ambulance transports. Or you could create a shared regional ambulance service. These are common approaches, but how far away is the ambulance and will it be available enough to serve your community? In many cases, the next town’s ambulance or a regional ambulance could be 10, 20, or 30 minutes drive time away, and that isn’t a great option for people who are seriously injured or ill.
Making the Determination
Before your fire department goes into the emergency ambulance service, make sure you do a comprehensive analysis of your market demographics, project your transports and non-transports, and calculate your projected revenue. Then estimate your expenses in detail. Don’t simply look at what another nearby community’s experience is because if their demographics and geography are different than yours, your revenue and expenses could be radically different from theirs. I recommend you project your revenue and expenses out over at least three years in order to see how increasing call volumes and contractual increases in expenses might change your operating budget.
You also need to consider a critical intangible cost of becoming an emergency ambulance service. There is the added wear and tear on your volunteers. Even with a few full-time staff you will still be heavily reliant upon your volunteer force to respond to EMS calls and to cover for overlapping emergency calls.
In our community, EMS is 60 percent of our emergency calls. If we were not responding to EMS calls we would have 300 emergency calls per year. With EMS we are responding to 650 emergency calls per year. This is requires more volunteers and places a greater burden on our volunteers. It almost doubles the amount of training that volunteers need to participate in. There is no dollar amount that we can attach to this, but there is clearly a cost in volunteer time, volunteer burnout, and additional administrative duties by volunteers.
The dollar amounts in this article are unique to my department and the costs of doing business in our region. They don’t necessarily apply to other regions. Each state has its own workforce rules and regulations, its own insurance rules and rates, its own ambulance licensing scheme and costs, and its own performance expectations and standards. However, I think you will find that each category of cost exists in every region. Before you make the decision whether or not to add emergency ambulance service in your fire department, you need to determine and analyze these costs and revenue streams.
Even if you can’t make a profit with emergency ambulance service, there may be sound public policy, public safety, and operational reasons that it makes sense for your department to be in the ambulance business. Just make sure you plan your operational systems, expenses, and revenue stream in advance, and that you get into providing emergency ambulance service for the right reasons.
Joe Maruca is the Chief of the West Barnstable (MA) Fire Department. He is also the NVFC’s Massachusetts Alternate Director and a member of the NVFC EMS/Rescue Section. Chief Maruca represents the NVFC on the NFPA Ambulances Technical Committee.
1 In theory everyone should, by legal mandate, have either private or government insurance, but at the moment, we still see 5% to 10% of our patients uninsured. It is beyond the context of this article to explore this issue.
2 In some parts of the country, you can get paramedics from a regional source such as a hospital, but that is not available in our area.
3 Our ALS/Paramedic service started at the same time LA County started their service made famous by the TV show “Emergency.”