[GAO-02-244T ] Ambulance Services: Changes Needed to Improve Medicare Payment Policies and Coverage Decisions

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Ambulance Services: Changes Needed to Improve Medicare Payment
Policies and Coverage Decisions (15-NOV-01, GAO-02-244T).

Medicare's payment and coverage policies for ambulance services
are based on reasonable costs for hospital-based providers or on
reasonable charges for ambulance providers not affiliated with a
hospital or other health care facility (known as freestanding
providers). This method has produced wide differences in payments
across providers for the same services. Further, there has been
considerable variation in Medicare's determinations of what
ambulance services are covered and what provider documentation is
needed to ensure claims are paid. The Balanced Budget Act of 1997
(BBA) required the Medicare program to change its payment system
for ambulance services. In response, the Health Care Financing
Administration (HCFA), now called the Centers for Medicare and
Medicaid Services (CMS), has proposed a fee schedule to
standardize payments across provider types based on national
rates for particular services. Under BBA, the fee schedule was to
have applied to ambulance services furnished on or after January
1, 2000. HCFA published a proposed rule on September 12, 2000,
and has received public comment but has not yet issued a final
rule. In this testimony, GAO discusses the unique concerns of
rural ambulance providers and the likely effects of the proposed
fee schedule on these providers. Many rural ambulance providers
face a set of unique challenges in implementing an appropriate
payment policy. Rural providers--particularly those serving large
geographic areas with low population density--tend to have high
per-trip costs compared with urban and suburban providers. The
proposed Medicare fee schedule does not sufficiently distinguish
the providers serving beneficiaries in the most isolated rural
areas and may not appropriately account for the higher costs of
low-volume providers.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-244T
ACCNO: A02465
TITLE: Ambulance Services: Changes Needed to Improve Medicare
Payment Policies and Coverage Decisions
DATE: 11/15/2001
SUBJECT: Emergency medical services
Ground transportation operations
Health care costs
Hospitals
Medical expense claims
Payments
Public health legislation
Medicare Program

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GAO-02-244T

Testimony Before the Committee on Governmental Affairs, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 9: 15 a. m. Thursday, November 15,
2001 AMBULANCE SERVICES

Changes Needed to Improve Medicare Payment Policies and Coverage Decisions

Statement of Laura A. Dummit Director, Health Care- Medicare Payment Issues

GAO- 02- 244T

Page 1 GAO- 02- 244T

Mr. Chairman and Members of the Committee: I am pleased to be here today as
you discuss Medicare?s payment and coverage policies for ambulance services.
Currently, program payments are determined using a complex method based on
reasonable costs for hospital- based providers or based on reasonable
charges for ambulance providers not affiliated with a hospital or other
health care facility (known as freestanding providers). This method has
produced wide differences in payments across providers for the same
services. In addition, there has been considerable variation in Medicare?s
determinations of what ambulance services are covered and what provider
documentation is needed for ensuring claims are paid.

The Balanced Budget Act of 1997 (BBA) required the Medicare program to
change its payment system for ambulance services. 1 In response, the Health
Care Financing Administration (HCFA), now called the Centers for Medicare
and Medicaid Services (CMS), has proposed a fee schedule that will
standardize payment rates across provider types based on national rates for
particular services. As required by BBA, the proposed fee schedule was
developed using a negotiated rulemaking process, and it involved a committee
made up of officials from HCFA and representatives from various interested
parties, including the American Ambulance Association and the American
Hospital Association, among others. 2 In February 2000, the committee made
recommendations to HCFA on elements of the fee schedule, which the agency
used as the basis of its proposed fee schedule to the maximum extent
possible. Under BBA, the fee schedule was to have applied to ambulance
services furnished on or after January 1, 2000. HCFA published a proposed
rule on September 12, 2000, 3 and has received public comment but has not
issued a final rule to date.

1 P. L. 105- 33, Sec. 4531( b), 111 Stat. 251, 450- 52. 2 The other members
of the Negotiated Rulemaking Committee on Medicare Ambulance Fee Schedule
were from the American College of Emergency Physicians and National
Association of EMS Physicians, Association of Air Medical Services,
International Association of Fire Fighters, International Association of
Fire Chiefs, National Association of Counties, National Association of State
Emergency Medical Services Directors, and National Volunteer Fire Council.

3 65 Fed. Reg. 55, 078.

Page 2 GAO- 02- 244T

In July 2000, we reported on payments for ambulance services with an
emphasis on rural providers. This was in response to congressional concerns
about the circumstances facing some rural ambulance providers and about
beneficiary access to these vital services. My comments today are based on
our July 2000 report 4 and will focus on (1) the unique concerns of rural
ambulance providers, (2) the likely effects of the proposed fee schedule on
these providers, and (3) longstanding issues affecting the approval of
claims made for payment of ambulance services.

In summary, many rural ambulance providers face a set of unique challenges,
which may need consideration in implementing an appropriate payment policy.
As noted in our July 2000 report, those serving large geographic areas with
low population density, unless they rely on volunteers, tended to have high
per- trip costs as compared to urban and suburban providers because of a
lower volume of transports. Rural providers also tended to have longer
ambulance transports than their urban counterparts, making the adequacy of
reimbursement for mileage costs more central to their overall payments than
for providers in more densely populated areas. Fewer alternatives for
transporting rural residents to hospitals, a substantial reliance on
Medicare revenues, and difficulty maintaining volunteer staff were among
other challenges facing rural ambulance providers.

The proposed Medicare fee schedule will alter the way ambulance providers
are paid. Much of the variation in payment rates among similar providers
will be eliminated. Providers now receiving payments that are higher than
the national average are likely to receive lower payments under the fee
schedule, whereas those that are paid less than the national average, such
as many rural providers, are likely to receive increased payments. The
proposed fee schedule incorporates enhanced payments for providers that
transport beneficiaries in rural areas. These payments are intended to help
sustain essential ambulance service in sparsely populated areas. However,
this adjustment does not sufficiently distinguish the providers serving
beneficiaries in the most isolated rural areas and may not appropriately
account for the higher costs of lowvolume providers. In our July 2000
report, we recommended, and HCFA agreed, that the payment adjuster needed
refinement to better address these problems.

4 Rural Ambulances: Medicare Fee Schedule Payments Could Be Better Targeted

(GAO/ HEHS- 00- 115, July 17, 2000).

Page 3 GAO- 02- 244T

Not only does Medicare?s current ambulance payment method produce wide and
unexplained variation in rates, variation in approvals and denials of
payments may have resulted in unequal coverage for Medicare beneficiaries.
Different practices among carriers, which are the contractors that process
claims for the Medicare program, may have contributed to the variation in
claims denials. For example, in our 2000 review, we found that carriers made
different decisions regarding the level of payment applied to similar claims
for advanced emergency transport services. In addition, claims have been
denied because providers did not properly fill out forms. Confounding
consistency problems, the absence of a national coding system that readily
identifies the beneficiary?s medical condition at the time of the transport
has impaired providers? ability to convey to carriers information that is
needed to approve claims for payment.

Medicare covers medically necessary ambulance services when no other means
of transportation to receive health care services is appropriate, given the
beneficiary?s medical condition at the time of transport. Medicare pays for
both emergency and nonemergency ambulance transports that meet the
established criteria. To receive Medicare reimbursement, providers of
ambulance services must also meet vehicle and crew requirements. Transport
in any vehicle other than an ambulance- such as a wheelchair or stretcher
van- does not qualify for Medicare payment.

Medicare pays for different levels of ambulance services, which reflect the
staff training and equipment required to meet the patient?s needs. Basic
life support (BLS) is provided by emergency medical technicians (EMT).
Advanced life support (ALS) is provided by paramedics or EMTs with advanced
training. ALS with specialized services is provided by the same staff as
standard ALS but involves additional equipment.

Currently, Medicare uses different payment methods for hospital- based and
freestanding ambulance providers. Hospital- based providers are paid based
on their reasonable costs. For freestanding providers, Medicare generally
pays a rate based on reasonable charges, subject to an upper limit that
essentially establishes a maximum payment amount. Freestanding providers can
bill separately for mileage and certain supplies.

Between 1987 and 1995, Medicare payments to freestanding ambulance providers
more than tripled, from $602 million to almost $2 billion, rising Background

Page 4 GAO- 02- 244T

at an average annual rate of 16 percent. Overall Medicare spending during
that same time increased 11 percent annually. From 1996 through 1998,
payments to freestanding ambulance providers stabilized at about $2. 1
billion. BBA stipulated that total payments under the fee schedule for
ambulance services in 2000 should not exceed essentially the amount that
payments would have been under the old payment system. This requirement is
known as a budget neutrality provision.

In 1997, 11,135 freestanding and 1,119 hospital- based providers billed
Medicare for ground transports. The freestanding providers are a diverse
group, including private for- profit, nonprofit, and public entities. They
include operations staffed almost entirely by community volunteers, public
ventures that include a mix of volunteer and professional staff, and private
operations using paid staff operating independently or contracting their
services to local governments. In our July 2000 report, we noted that about
34 percent were managed by local fire departments. In several communities a
quasi- government agency owned the ambulance equipment and contracted with
private companies for staff.

The majority of air ambulance transports are provided by hospital- based
providers. An estimated 275 freestanding and hospital- based programs
provide fixed- wing and rotor- wing air ambulance transports, which
represent a small proportion (about 5 percent) of total ambulance payments.

In our July 2000 report, we noted that several factors characterizing rural
ambulance providers may need consideration in implementing an appropriate
payment policy. These include:

High per- transport costs in low- volume areas. Compared to their urban
and suburban counterparts, rural ambulance providers have fewer transports
over which to spread their fixed costs because of the low population density
in rural areas. Yet, rural providers must meet many of the same basic
requirements as other providers to maintain a responsive ambulance service,
such as a fully equipped ambulance that is continually serviced and
maintained and sufficient numbers of trained staff. As a result, rural
providers that do not rely on volunteers generally have higher per-
transport costs than their urban and suburban counterparts.

Longer distances traveled. A common characteristic of rural ambulance
providers is a large service area, which generally requires longer trips.
Longer trips increase direct costs from increased mileage costs and staff
Rural Ambulance

Providers Face Multiple Challenges

Page 5 GAO- 02- 244T

travel time. They also raise indirect costs because ambulance providers must
have sufficient backup services when vehicles and staff are unavailable for
extended periods. Current Medicare payment policy generally allows
freestanding providers to receive a payment for mileage. Nevertheless,
mileage- related reimbursement issues, such as the amount paid for mileage,
represent a greater concern to rural providers because of the longer
distances traveled.

Lack of alternative transportation services. Rural areas may lack
alternative transport services, such as taxis, van services, and public
transportation, which are more readily available in urban and suburban
areas. This situation is complicated by the fact that some localities
require ambulance providers to transport in response to an emergency call,
even if the severity of the problem has not been established. Because of
this situation, some providers transport a Medicare beneficiary whose need
for transport does not meet Medicare coverage criteria and must therefore
seek payment from the beneficiary or another source.

Reliance on Medicare revenue. Medicare payments account for a substantial
share of revenue for rural ambulance providers that bill Medicare. Among
rural providers, 44 percent of their annual revenue in 1998, on average, was
from Medicare, compared to 37 percent for urban providers, according to
Project Hope Center for Health Services, a nonprofit health policy research
organization. Additionally, for some rural providers, other revenue sources-
such as subsidies from local tax revenues, donations, or other fundraising
efforts- have not kept pace with increasing costs of delivering the
services.

Decreasing availability of volunteer staff. Rural ambulance providers
traditionally have relied more heavily on volunteer staff than providers in
urban or suburban areas. Some communities having difficulty recruiting and
retaining volunteers may have had to hire paid staff, which increases the
costs of providing services.

Medicare?s proposed fee schedule, published in September 2000, reduces the
variation in maximum payment amounts to similar providers for the same type
of services. The considerable variation that exists in the current payment
system does not necessarily reflect expected differences in provider costs.
For example, in 1999, the maximum payments for two types of emergency
transport- one requiring no specialized services and the other requiring
specialized services- were the same in Montana at $231 for freestanding
providers. In North Dakota, the maximum payment New Fee Schedule

Will Alter the Way Medicare Pays for Ambulance Services

Page 6 GAO- 02- 244T

was about $350 and also did not differ measurably for the two types of
transport services. In contrast, South Dakota?s maximum payment for the less
intensive transport was $137, which was $30 lower than the payment for the
transport requiring specialized services. Per- mile payments also varied
widely. For example, in rural South Dakota, the payment was just over $2 per
mile, compared to $6 per mile in rural Wyoming.

The shift to the proposed fee schedule would narrow the wide variation in
payments to ambulance providers for similar services. The proposed schedule
includes one fee for each level of service. This fee is not expected to vary
among providers except for two possible adjustments- one for geographic wage
and price differences and the other based on the beneficiary?s location,
rural or urban. As a result, a national fee schedule is likely to provide
increased per- trip payments to those providers that under the current
system receive payments considerably below the national average and
decreased payments to providers with payments that have been substantially
above the national average.

As part of its mandate, the negotiated rulemaking committee was directed to
consider the issue of providing essential ambulance service in isolated
areas. The committee recommended a rural payment adjustment to recognize
higher costs associated with low- volume providers to ensure adequate access
to ambulance services. Consistent with the committee?s recommendation, the
proposed fee schedule includes an additional mileage payment for the first
17 miles for all transports of beneficiaries in rural areas.

The mileage payment adjustment, however, treats all providers in rural areas
identically and does not specifically target providers that offer the only
ambulance service for residents in the most isolated areas. As a result,
some providers may receive the payment adjustment when they are not the only
available source of ambulance service, so the adjustment may be too low for
the truly isolated providers.

In addition, the proposed rural adjustment is tied to the mileage payment
rather than the base rate and, therefore, may not adequately help lowvolume
providers. Such providers may not have enough transports to enable them to
cover the fixed costs associated with maintaining ambulance service. The
per- mile cost would not necessarily be higher with longer trips. It is the
base rate, which is designed to pay for general costs such as staff and
equipment- and not the mileage rate- that may be insufficient for these
providers. For that reason, adjusting the base rate rather than the mileage
rate would better account for higher per- transport

Page 7 GAO- 02- 244T

fixed costs. In response to our 2000 report, HCFA stated that it intends to
consider alternative adjustments to more appropriately address payment to
isolate, essential, low- volume rural ambulance providers.

Whether or not a claim for ambulance transport is approved varies among
carriers, and these discrepancies can translate into unequal coverage for
beneficiaries. In 1998, between 9 percent and 26 percent of claims for
payment of emergency and nonemergency ambulance transports were denied among
the nine carriers that processed two- thirds of all ambulance claims.
Different practices among carriers, including increased scrutiny due to
concerns about fraud, may explain some of the variation in denial rates.
Following are other inconsistencies in carrier practices cited in our July
2000 report that may help explain denial rate differences:

National coverage policy exists only for some situations. Generally,
Medicare coverage policies have been set by individual carriers rather than
nationally by HCFA. For example, in 1998, the carrier covering ambulance
providers in New Jersey and Pennsylvania reimbursed transports at ALS levels
where local ordinances mandated ALS as the minimum standard of care for all
transports. In contrast, the carrier for an ambulance provider in Fargo,
North Dakota, reduced many of the provider?s ALS claims to BLS payment
rates, even though a local ordinance required ALS services in all cases.
(The carrier?s policy has since changed.)

Some carriers were found to have applied criteria inappropriately,
particularly for nonemergency transports. For example, for Medicare coverage
of a nonemergency ambulance transport, a beneficiary must be bed- confined.
In the course of our 2000 study, we found one carrier that processed claims
for 11 states applied bed- confined criteria to emergency transports as well
as those that were nonemergency. (The carrier?s policy has since changed.)

Providers were concerned that carriers sometimes determined that Medicare
will cover an ambulance claim based on the patient?s ultimate diagnosis,
rather than the patient?s condition at the time of transport. Medicare
officials have stated that the need for ambulance services is to be based on
the patient?s medical condition at the time of transport, not the diagnosis
made later in the emergency room or hospital.

Ambulance providers are required to transport beneficiaries to the nearest
hospital that can appropriately treat them. Carriers may have denied
Policies for Approving

or Denying Claims Payment Are Not Consistent Across Carriers

Page 8 GAO- 02- 244T

payments for certain claims because they relied on inaccurate survey
information specifying what services particular hospitals offer when
determining whether a hospital could have appropriately served a
beneficiary. However, the survey information does not always accurately
reflect the situation at the time of transport, such as whether a bed was
available or if the hospital was able to provide the necessary type of care.

Some providers lacked information about how to fill out electronic claims
forms correctly. Volunteer staffs in particular may have had difficulty
filing claims, as they often lacked experience with the requirements for
Medicare?s claims payment process. An improperly completed claim form
increases the possibility of a denial.

Claims review difficulties are exacerbated by the lack of a national coding
system that easily identifies the beneficiary?s health condition to link it
to the appropriate level of service (BLS, ALS, or ALS with specialized
services). As a result, the provider may not convey the information the
carrier needs to understand the beneficiary?s medical condition at the time
of pickup, creating a barrier to appropriate reimbursement.

Medicare officials have stated that a standardized, mandated coding system
would be helpful and the agency has investigated alternative approaches for
implementing such a system. The agency contends that using standardized
codes would promote consistency in the processing of claims, reduce the
uncertainty for providers regarding claims approval, and help in filing
claims properly.

Overall, the proposed fee schedule will improve the equity of Medicare?s
payment for ambulance providers. Payments will likely increase for providers
that now receive payments that are lower than average, whereas payments will
likely decline for those now receiving payments above the average. In our
July 2000 report, we recommended that HCFA modify the payment adjuster for
rural transports to ensure that it is structured to address the high fixed
costs of low- volume providers in isolated areas, as these providers?
services are essential to ensuring Medicare beneficiaries? access to
ambulance services. HCFA agreed to work with the ambulance industry to
identify and collect relevant data so that appropriate adjustments can be
made in the future.

Concerns about claims denials need to be addressed separately from
development of the fee schedule. In our view, policies across carriers
should be made consistent. In addition, a uniform system for coding the
Conclusions

Page 9 GAO- 02- 244T

health condition of beneficiaries using ambulance transport services would
likely improve the processing of ambulance claims and lead to more
transparent decisions about claims payment.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions that you or other Committee Members may have.

For further information regarding this testimony, please contact me at (202)
512- 7119. Jessica Farb, Hannah Fein, and Michael Kendix made contributions
to this statement. Contact and

Acknowledgments

(290156)
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