Medicare Payment for Ambulance Services

CMS recently implemented a Medicare fee schedule that changed the way  Medicare pays for ambulance services. Providers’ Total Costs Are Predominantly Readiness Related, and Do Not Vary With Trip Volume

The majority of ambulance providers’ total costs are related to readiness— the need to have an ambulance and crew available when emergency calls  are received. Readiness-related costs are fixed, meaning that  they do not vary with the number of trips a provider makes, as long as the  provider has excess capacity. Fewer Trips Linked to a Higher Cost Per Trip

Providers that make fewer trips tend to have a higher cost per trip than  those that make more trips. Medicare Ambulance Payments for Trips in Rural Counties Are Unlikely to Fully Reflect Differences in Providers’ Cost Per Trip

Although Medicare’s payments generally are higher for trips originating in  the least densely populated rural counties than in other counties, the  payment differential is probably not large enough to account for the higher  costs incurred by low-volume providers likely to serve these areas. This suggests  that the cost per trip is likely higher for providers serving the least densely  populated rural counties. Ambulance providers on average are paid more  for trips originating in the least densely populated rural counties than for  those in the most densely populated rural counties, but the payment  differences are modest and unlikely to reflect the higher cost per trip of  low-volume providers. The modest difference in Medicare payment across rural counties is  dwarfed by the difference in trip volume:  The difference in trip volume  between the least and most densely populated quarters of rural counties is  nearly eightfold. Because trip volume is an indicator of costs, the  Medicare payment differences likely do not fully reflect differences across  rural counties in providers’ cost per trip. In implementing the fee schedule, CMS adjusted the mileage rate for rural  trips to account for the higher cost per trip of providers serving rural areas. Thus, adjusting the base rates for rural trips—the portion of  Medicare’s payment that is designed to pay for providers’ fixed costs—is a  more appropriate way of accounting for rural low-volume providers’ higher  cost per trip than adjusting the mileage rate. As stated in the report, a base rate adjustment is a more  appropriate way of accounting for rural low-volume providers’ higher costs  per trip because base rates reflect fixed costs, and because trip volume is a  better indicator of providers’ cost per trip than is trip length. We also interviewed several individual ambulance providers. Factors affecting ambulance providers’ costs. Analysis of variation in factors affecting costs across geographic areas.
Why GAO Did This Study

The Centers for Medicare & Medicaid Services (CMS) recently implemented a Medicare ambulance fee schedule in which providers are paid a base payment per trip plus a mileage payment. An adjustment is made to the mileage rate for rural trips to account for higher costs. CMS has stated that this rural adjustment may not sufficiently target providers serving sparsely populated rural areas. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) directed GAO to examine rural ambulance costs. GAO identified factors that affect ambulance costs per trip, examined how these factors varied across geographic areas, and analyzed whether Medicare payments account for geographic cost differences. GAO used survey data on ambulance providers and Medicare claims data.

What GAO Found

Trip volume is the key factor affecting differences in ambulance providers' cost per trip. Ambulance providers' total costs primarily reflect readiness--the need to have an ambulance and crew available when emergency calls are received. Readiness-related costs are fixed, meaning that they do not increase with the number of trips provided, as long as a provider has excess capacity. As a result, providers that make fewer trips tend to have a higher cost per trip than those that make more trips. We also found that the length of providers' trips had little effect on their cost per trip. The modest variation in Medicare payments to ambulance providers that serve rural counties probably does not fully reflect their differences in costs because the key factor affecting provider costs--the number of trips--varies widely across rural counties. In 2001, the least densely populated quarter of rural counties averaged far fewer trips than the most densely populated quarter. This suggests that the cost per trip is likely higher for providers serving the least populated rural counties. On average ambulance providers are paid somewhat more for trips in the least densely populated rural counties than for those in other rural counties. However, those payment differences are dwarfed by the difference in trip volume. Because trip volume is a strong indicator of costs, the Medicare payment differences across rural counties likely do not fully reflect differences in providers' cost per trip. In implementing the fee schedule, CMS adjusted the mileage rate for rural trips to account for the higher cost per trip of providers serving rural areas. However, trip volume is a better indicator of providers' cost per trip than is trip length. Thus, adjusting the base rates for rural trips--the portion of Medicare's payment that is designed to pay for providers' fixed costs--is a more appropriate way of accounting for rural low-volume providers' higher cost per trip than adjusting the mileage rate.