Helicopter Ambulance cost - Is it rising.
When Todd addressed the “inefficiency of competition” in the market, he referenced the statistic that the doubling of the U.S. air medical fleet over the past 10 years has helped an estimated 80 million Americans who can access Level 1 or Level 2 trauma centers within an hour only through the use of air medical helicopters. That’s significant, but the expansion of coverage hasn’t been evenly distributed. As the ADAMS maps show (see Figure 1), new bases have clustered in areas where reimbursement rates and payer mixes are most favorable, leaving large areas of the country with close to the same coverage they had a decade ago.
“A helicopter in a rural area improves access to care, but three helicopters in the same rural area do not actually increase access to care, they only increase costs,” observed Tom Judge, executive director of LifeFlight of Maine and a former president of AAMS. “The 2010 study by the GAO showed a 35 percent increase in the number of patients served between 1999 and 2008, but an 88 percent increase in the number of helicopters.”
When the number of helicopters in an area goes up, the number of patient transports per helicopter goes down — which leads to dramatic increases in the cost per transport. That’s because most of the costs associated with running an air ambulance service are fixed costs, which include, according to AAMS, “aircraft and associated maintenance costs; the costs of maintaining highly trained, properly licensed, and experienced flight and medical teams; and the significant costs of necessary safety equipment to ensure patients are cared for in the safest operational environment possible.”
Various industry sources consulted for this article estimated the fixed costs of an air ambulance base with one single-engine helicopter at around $225,000 per month; for a more medically sophisticated program flying twin-engine aircraft, the fixed costs can easily be twice that. The variable costs are relatively small by comparison: for example, Conklin & de Decker estimates the operating cost of an Airbus Helicopters AS350 B3 at around $750 per flight hour, and that of a Sikorsky S-76C+ at about $1,850 per hour. (The cost of medical supplies used during a transport is often factored into fixed costs.)
It’s not hard to do the math. Suppose a base with a single AS350 B3 performs 50 transports per month, with an average transport time of one hour. Then its total costs are its fixed costs ($225,000) plus its variable costs ($750 x 50 = $37,500), or $262,500. Dividing by the number of transports yields $5,250 per transport — which is close to the Medicare reimbursement rate. If that base performs only 35 transports per month, however, then its cost per transport rises to around $7,200, which is well above what Medicare reimburses. (Coincidentally, $7,100 to $7,200 was the average cost per transport for Life Star of Kansas in 2014, according to executive director Greg Hildenbrand. The nonprofit air medical program operates two AS350 B2s and an AgustaWestland AW119 Koala.)
Declining volumes have forced all air ambulance providers, even the nonprofit ones, to raise their rates. As Hildenbrand put it, “I’m blown away by our charges, and we’re charging a fraction of what other providers are charging.” Of course, for-profit providers are looking to do more than break even; they’re striving to continually grow their profits, year after year. So for-profit, community-based providers have raised their prices to compensate for declining volumes and ordinary inflation, then raised them again — and again, and again — to satisfy investors and pay fat executive salaries.
The extent to which they have been able to do so has been remarkable. As Voce Capital observed in its September public letter, “Because its prices are unregulated and demand is relatively inelastic, Air Methods has been able to take price routinely.” But Voce also noted that this is a “controversial practice” that is increasingly difficult for Air Methods to sustain as a public company.
Hospitals (and, by extension, hospital-based air ambulance providers) generally avoid aggressive collection practices because of the associated bad publicity; as Cato’s Michael Cannon pointed out, such negative press “is one of the market’s ways of disciplining providers.” Because community-based air medical providers typically have a lower public profile than hospitals, they haven’t taken the same precautions, but the market’s discipline may finally be catching up with them.
For many years, the air medical industry’s alarming safety record was the subject of critical media coverage. Now, such stories have given way to disturbing accounts of ordinary, insured Americans being driven into bankruptcy by air ambulance bills they can’t afford to pay. These horror stories have helped scare many people into buying “memberships” with community-based air medical providers, augmenting what is for some providers a substantial source of revenue. However, since memberships only protect individuals from balance billing, they haven’t won over insurers, who are still charged sky-high rates for members’ transports — and are finally starting to push back.