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Should an EMS Agency Increase its Fees to Improve Collections?

by Jack Donahue on February 9, 2018 at 2:50 PM


Increasing charges for 911 emergency services provided to the citizens of your community can be a sensitive topic. However, this issue is commonly being discussed as EMS agencies around the country are experiencing decreasing revenue and rising costs. The decreasing revenue is largely being driven by legislative changes, such as the removal of the insurance mandate and industry happenings that include the rapid growth in high deductible and HMO insurance plans.

The changes are shifting the payment responsibility to the patient instead of the insurance company and, unfortunately, when this occurs, collection success drops significantly. As a result, agencies may consider adjusting their charges to address industry trends and ensure they continue meeting emergency service expectations.

The following highlights points of consideration when attempting to tackle this sensitive topic.

Understanding Sources of Revenue

First, a clear understanding of the four sources of EMS revenue cycle management (RCM) revenue and their behavior related to charge increases is required. The four sources are Medicare, Medicaid, commercial insurance, and self-pay. The outcome of a charge increase will differ for each of these pay classes.

Medicare will pay a federally mandated reimbursement limit or your charge, whichever is lower. The reimbursement limit is based on a combination of level of service and geographic region. Medicaid has a state-mandated reimbursement limit that is lower than Medicare. The reimbursement amount varies with level of service. 

Commercial insurance, however, will pay 100% of the charge. In contrast, the self-pay class includes those who are uninsured. Self-payers can be billed the full charge, although an extremely low percentage of payers in this class actually pay the full amount, if any amount at all.

Two of the four pay classes—Medicare and Medicaid—put downward pressure on collection rates when raising charges due to the inability to actually receive the increased billed amount. Commercial and self-pay will also see a decrease in collection rates for reasons explained below.  That being said, while collection rates may go down, the revenue brought into the EMS agency will go up.

For example, assuming charges are set at or above the Medicare-allowed amounts, the following outcomes are to be expected:

  • Medicare – No additional revenue. Contractual adjustments will increase, the gross collection rate will decrease and the net collection rate will not be impacted.
  • Medicaid – No additional revenue. Contractual adjustments will increase, the gross collection rate will decrease and the net collection rate will not be impacted.
  • Commercial insurance – Significant additional revenue. Contractual adjustments will increase if there are contracts established with commercial payers (most agencies do not), write-offs will increase (bad debt will increase), the gross collection rate will decrease and the net collection rate will decrease.

The net collection percentage lowers for a couple reasons. First, some commercial payers will continue to pay less than the amount charged, known as short pay. Short pays are appealed, but in many cases are unsuccessful in getting additional payment from the insurer. By increasing charges, the gap between the charge and short pay amount becomes greater; hence, the net collection percentage goes down.

Second, deductibles and copayment percentages are now calculated on a higher charge.  The deductible or copayment amount is a self-pay responsibility and thus results in a lower net collection percentage for the same reasons explained below. 

  • Self-pay – Minor additional revenue. Write-offs will increase, the gross collection rate will decrease, and the net collection rate will decrease. The additional collections will not be in proportion to the amount of the charge increase; hence, the net collection percentage will go down.

Setting Charges

When setting your charges, consider the guidelines outlined below. By following this approach, the financial burden of providing the emergency services is shifted from the tax base to those who actually use the services.

  1. Set charges in accordance with other agencies, including national trends. Look for agencies that have applied the rationale explained in this document and run a similar service model.
  2. Set charges to cover usage costs, including the cost of preparedness. The revenue allows you to provide excellent service with highly trained and qualified personnel, the best equipment and low response times. Utilize the tax subsidy to fund expansion, new equipment, continuous training and so forth.
  3. Set charges above what the anticipated Medicare-allowable rates will be at the time you expect to do the next charge increase. Doing this ensures that maximum Medicare reimbursement is received.
  4. Set charges at least 200% above the Medicare-allowable amount to capture the maximum auto insurance personal injury protection (PIP) reimbursement. If your fee is below this amount, you may be leaving potential auto insurance revenue on the table.
  5. Use the same charges for BLS, ALS1 and ALS2. The base cost of preparedness is very similar for each type of call. Implementing similar charges improves the patient experience if they use services frequently because this eliminates the confusion from understanding why one emergency transport is billed at a different amount than another.
  6. Build in an annual charge increase. For example, tie your charges to the consumer price index or healthcare inflation so that each year charges are increased accordingly. Doing so allows you to set your charges correctly today and avoid the need for adjustments in the future.

Emergency services such as 911 response have rapidly gained importance in recent years, particularly as a result of the increased threat of terrorism, pandemic illnesses and disaster responses. Accordingly, communities have a greater interest in ensuring adequate funding for such a valuable service. By increasing charges to an amount where collections will cover costs, the financial burden is shifted to those who use the service rather than the community tax base.

Ensuring that citizens are not unduly burdened by charge increases is the area that produces the most concern among municipal leaders. The strategy chosen when approaching increased charges will largely depend upon the degree to which they are worried about this item. Here at Intermedix, we have a great deal of experience in addressing charge adjustments and would be well-prepared to work with your department to develop a policy that addresses your concerns and, most importantly, meets your agency’s and community’s specific needs.

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This post was written by Jack Donahue

Jack Donahue is the Executive Vice President of EMS at Intermedix. Prior to joining Intermedix, Jack is the Senior Manager at Arthur Anderson. Jack holds a bachelor’s degree in Business Administration from the University of Notre Dame. He also holds both a Master of Business Administration and an Executive Masters in Health Administration from the University of Florida.

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