In December 2009, NBCNews.com reported on high prices in the air medical industry in an article titled “Air ambulances leave some with sky-high bills.” The story opened with the case of Charlie Taylor, a then 49-year-old man from Lyons, N.Y., who was flown to the hospital by helicopter after a four-wheeler overturned on his chest, breaking seven ribs. Like many air ambulance patients, Taylor appreciated the care he received, but was stunned when he saw the bill for the flight.
Earlier this year, the New York Times published a similar article: “Air ambulances offer a lifeline, then a sky-high bill.” This story highlighted the case of Clarence W. Kendall, an Arizona rancher who was transported by air ambulance after he fell eight feet from a haystack and struck his head on the corner of a truck. The circumstances of the case were similar to Taylor’s, but the details underscored how much has changed in the past five-and-a-half years. Taylor’s bill — which “took his breath away” — was for $8,700, and was covered by his health insurance. Kendall’s bill — which “nearly gave him a heart attack” — was for $47,182 and was not covered by his insurance, leading the provider, Air Methods, to sue him to collect.
The provision of helicopter emergency medical services has always been an expensive undertaking — helicopters aren’t cheap, and neither is the advanced critical care that has come to be associated with rotary-wing air ambulances. But dramatic recent increases in billed charges by for-profit air medical providers are changing the public profile of the industry in the United States. With growing frequency, these providers are in the news not for saving their patients’ lives, but for presenting them with bills in the tens of thousands of dollars, then “resorting to hard edged legal tactics to get paid” (as the Times put it).
The bad press has been so significant that Air Methods shareholder Voce Capital referred to it explicitly in September of this year, when it issued a press release and public letter to the board of Air Methods arguing for the sale of the company to private investors. According to this activist hedge fund, the popular press now “depicts Air Methods as a villain that victimizes the very patients whose lives it saves, allegedly gouging them with rapacious pricing and then targeting them with aggressive collection efforts when they fail to pay.” Voce contends that Air Methods’ disclosures as a publicly traded company — including its “candor regarding its pricing strategy, and disclosures about its collections and the aging of its receivables” — have made it a prime target for negative attention and contributed to its falling stock price, which as of the date of the letter was down 37 percent over 12 months.
Whatever the actual motivations behind Voce’s letter (which triggered a sizable but temporary bump in the stock price), it is correct in observing that “the granular availability” of Air Methods’ data is unique in the air medical industry. Thanks to its financial disclosures, we know that Air Methods has increased its billed charges from an average of $13,198 in 2007 to $40,766 in 2014, according to data compiled by Jon Hanlon of the independent research firm Research 360. Likewise, we know that this tripling of its prices has contributed to a tripling of its net income, which has grown from $27.5 million to $99.4 million over the same time period.
But Air Methods is not alone in its pricing strategy. PHI Air Medical, a division of the publicly traded company PHI Inc., saw a 26 percent increase in profits from 2013 to 2014 alone, which was also helped by rate hikes. According to Research 360, PHI’s average charge per transport for privately insured individuals now exceeds $40,000 in some states, up from around $28,000 just three years ago. Lawsuits and consumer complaints across the U.S. reveal similar figures for companies in the privately held Air Medical Group Holdings (AMGH) and Air Medical Resource Group (AMRG), which do not disclose their financial data. According to a list of North Dakota Insurance Department air ambulance complaints, in 2014, the AMGH company Med-Trans charged $35,923.47 for a helicopter transport of less than 100 miles. Meanwhile, in 2013 an AMRG company, Guardian Flight, charged $50,062.17 for a transport of less than 20 miles.
According to Michael Cannon, director of health policy studies at the Cato Institute, “sticker shock” isn’t unusual in the healthcare industry — hospitals and other providers often set high “list prices,” from which they negotiate discounts for payers based on the payer’s negotiating power, and the return the provider expects to see from taking a tough negotiating stance. Typically, he said, insurance companies who negotiate and pay on behalf of large numbers of subscribers will get substantial discounts (while even larger discounts may go to patients who pay cash). This familiar dynamic is at work for many hospital-based air ambulance programs, which are generally “in network” with major insurance companies, and may be willing to accept as little as half, or less, of their billed charges as payment.
However, the community-based programs that have raised their prices the most have deliberately remained out of network — charging, essentially, whatever they want. Like hospital-based programs, community-based providers will accept very low set reimbursement rates for Medicare and Medicaid patients, and will receive little to no reimbursement for uninsured patients who lack the means to pay. The remaining, privately insured patients are consequently their major source of revenue, and many community-based programs, after accepting an initial payment from a patient’s insurer, will balance bill the patient for the rest.
As Air Methods CEO Aaron Todd noted in a recent earnings call, the company actually collects “very little” from individuals. But the individuals in question don’t necessarily know that. When an air ambulance company threatens a patient with a lawsuit and a lien or the specter of bankruptcy, the patient tends to lean on his or her insurer or employer to cover a larger share of the charges — often resulting in several more payments from the insurance company before the account is closed. (Todd explained in the earnings call, “When we get to the point where we know that we are just working with the patient, we will work very quickly to get the account wrapped up.”)
For many years, insurers have gone along with these price increases, supporting continued growth in what Todd described to Vertical in 2010 as an already saturated market. Now, however, the tide appears to be turning. While the size of insurers’ first payments to Air Methods continues to grow, the rate of growth has decelerated significantly. Meanwhile, workers’ compensation insurance carriers in Texas have mounted a successful challenge to PHI’s high charges, with an administrative law judge finding that the Airline Deregulation Act (ADA) of 1978 does not preempt states’ rights to regulate the business of insurance. North Dakota earlier this year passed legislation that would force air ambulance providers to negotiate with insurers to be placed on a priority call list, and several other states are also considering legislation that would limit what air ambulance providers can charge.
To be sure, protracted legal battles lie ahead on all of these fronts, and the ADA has served the air medical industry well in the past. The industry is also pinning its hopes on proposed legislation in Congress that would raise Medicare reimbursement rates by an immediate 20 percent, giving a significant boost to providers’ bottom lines. Nevertheless, the challenges being faced by the industry are real. In pushing prices ever higher, has the for-profit air medical industry finally reached a limit?
Air Ambulance International