Sts-nd Ambulance Rebasing Report 2008 Final 7-31-2008

THE REBASING OF NORTH DAKOTA MEDICAL SERVICE PAYMENT RATES (PROVIDER TYPE: AMBULANCE) RFP#325-01-10-049 July 31, 2008

110 Peach Street, Tinton Falls, NJ 07724 866.448.1834 Phone 208.575.2783 Fax www.safetechsolutions.us

SafeTech Solutions Project Team Gary Wingrove, EMT-P (retired) Project Director Buffalo, Minnesota Nick Nudell, BBA(c), NREMT-P Partner Tinton Falls, NJ John Becknell, BA, NREMT-P Partner San Diego, CA Daniel Patterson, PhD, MPH, EMT-B Statistician Pittsburg, Pennsylvania Brenda Staffan, BA Econ. Economist Reno, Nevada

Acknowledgement The project team would like to thank the urban and rural North Dakota ambulance services that participated in submitting cost data for this contract. We also thank Maggie Anderson, Barbara Fischer, Laura Olson, and Erik Elkins from the North Dakota Department of Human Services (DHS) Medical Services Division for timely responding to information requests and clarification.

Citations This report has been prepared for the state of North Dakota and is in the public domain; however, we ask that in referencing this report the following citation be used: Wingrove, G. L., Nudell, N. G., Becknell, J. L., Patterson, D. P., Staffan, B. J. (2008). The Rebasing of North Dakota Ambulance Provider Medicaid Rates. Tinton Falls, NJ: SafeTech Solutions.

110 Peach Street, Tinton Falls, NJ 07724 866.448.1834 Phone 208.575.2783 Fax www.safetechsolutions.us

Table of Contents EXECUTIVE SUMMARY

4

COLLECT COST INFORMATION FROM SELECT NORTH DAKOTA AMBULANCE SERVICE PROVIDERS AND DEVELOP AN AMBULANCE COST REPORT

9

Overview Data collection, verification, and validation

9 9

EVALUATION OF AMBULANCE SERVICE PROVIDER COST DATA

11

EVALUATION OF AMBULANCE COST DATA SOURCES

13

AMBULANCE FEE SCHEDULE

14

Ambulance Service Provider Cost Determination Air Ambulance Cost Schedules Fixed Wing Air Ambulance Rate Determination Rotor Wing Air Ambulance Rate Determination Ground Ambulance Rate Determination Ground Ambulance Cost-based Fee Schedule

14 14 14 15 16 17

PREPARE A REPORT OF THE ESTIMATED COST TO IMPLEMENT THE CALCULATED NORTH DAKOTA MEDICAID AMBULANCE FEE SCHEDULE. 19 Potential Interim Step

22

DEVELOP REBASING PROCESS TURNOVER PLAN

23

Recommendation for future study and consideration

23

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Executive Summary While hospitals and other health service providers use one or more standardized tools for cost reporting and adjusting base rates, there exists no such resource for the ambulance industry. This gap in resources has prevented many government entities and other payers from updating ambulance payment schemes to respond to public need and demand for ambulances. The North Dakota Department of Human Services (DHS) Medical Services Division contracted with SafeTech Solutions, LLC (STS) to evaluate the cost of providing ambulance services in North Dakota, to develop a costbased fee schedule for ambulance services, and to provide a report outlining the estimated cost of rebasing payment rates used by the North Dakota medical assistance (Medicaid) program if the fee schedule were to be implemented. The project commenced February 15, 2008 and was completed July 28, 2008. SafeTech Solutions is uniquely qualified to perform this task as the lead developer of the Ambulance Service Budget Model Tool for the Rural EMS & Trauma Technical Assistance Center that is available from the US Department of Health and Human Services, Health Resources and Services Administration, Office of Rural Health Policy. The key milestones, deliverables, and tasks for this first of its kind project included: 1) Provide the Division with a report including all calculations, assumptions, and documentation, outlining the estimated cost of rebasing current payment rates used by the North Dakota Medicaid program for ambulance services to payment rates based on the actual cost of providing these services. 2) Use the Division’s Medicaid claim data and cost information from ambulance providers to determine the average urban and rural costs for delivering ground and air ambulance services in North Dakota. The Division provided North Dakota Medicaid claims data, but we also used ambulance provider supplied cost information and cost information from a Project HOPE report, a 2006 American Ambulance Association (AAA) cost study and 2003 and 2007 reports from the United States Government Accountability Office (GAO). 3) Compare North Dakota ambulance service data with other data publicly available from the GAO, a published Project HOPE report, and an American Ambulance Association cost study. 4) Receive and maintain electronic volume and expenditure Medicaid data and store for at least two years in an electronic format approved by the Division and provide access to cost report files during regular working hours. 5) Produce all output and documentation in a format approved by the Division; that is comprehensive and accurate; structured to be easily maintained; continually updated reflecting the current status; and free of errors through the end of the contract period. 6) Designate a Project Director, STS partner Gary Wingrove, to supervise project staff, and remain available to the Division staff Monday through Friday, from 8:00 am until 5:00 pm (CT) each day. 7) Use the Division staff to answer questions regarding policy and procedures, to coordinate responses to questions, and to provide referral to other appropriate staff, if necessary. 8) Deliver each required report, including ad-hoc reports, to the personnel specified by the Division. Reports will not be shared or delivered to any other entity without the written prior approval of the Division. 9) Provide the scheduled number of copies and media for current reports as specified by the Division and develop, update, and maintain a report distribution list during the contract period to incorporate changes required by the Purchasing Agency. 10) Became familiar with the current payment methodologies, reimbursement issues specific to the North Dakota medical assistance program, and the constraints of relevant state and federal laws and regulations. 11) Provide assistance in turning over the project to the Division prior to the conclusion of the contract or in the event of a termination for any reason. Following turnover of operations, we will provide the Division with a Turnover Results Report which documents completion and accurate results of each step of the Turnover Plan. Although not contractually specified we required that all data, assumptions, and calculations be suitable, reasonable, and reproducible for the development of an ambulance cost report and cost-based fee schedules for North Dakota ambulance services. STS performed validation and verification testing on all data, Page 4 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) assumptions, and calculations used to determine ambulance service costs and recommended fee schedules. As used in this report, we define these terms as follows: •

Validation: Confirmation by examination and provision of objective evidence the fulfillment of particular requirements for a specific intended use.

•

Verification: Confirmation by examination and provision of objective evidence the fulfillment of specified requirements.

Although this testing was performed, it is not equivalent to a financial audit and caution should be exerted when interpreting the results. If the underlying data or information is inaccurate or incomplete, the results of the analysis may likewise be inaccurate or incomplete. If there are material defects in the data, it is possible that they would be uncovered by a detailed, systematic review and comparison of the data. Such a review was beyond the scope of this project. Differences between estimated and actual amounts depend on the extent to which future experience conforms to the assumptions made for this analysis. It is almost certain that actual experience will not conform exactly to the assumptions used in this analysis. Actual amounts will differ from projected amounts to the extent that actual experience is higher or lower than expected. This project was designed to respond to North Dakota legislation and uses a small, convenient sample of EMS agencies only from North Dakota. The sample was determined by the Division in consultation with NDEMSA. Other agencies in North Dakota and agencies in other states may differ across important demographic and financial indicators from the agencies participating in this project (extreme selection/participation bias). As a result, our results may be over or underestimates of the outcomes. Future efforts should include consideration of probabilistically sampling EMS agencies from the target geography of interest and geographies in other places with similar characteristics. Limited scope and sample size in this state-specific study may yield results that may differ significantly in other places. Future studies in North Dakota and elsewhere should include additional resources and devise strategies to include a larger sample. These efforts will improve the validity of study results. This report details the cost of implementing a cost-based Medicaid ambulance fee schedule to the state of North Dakota. Another consideration is the cost of not implementing a cost-based fee schedule. Because of the data analysis performed for this report, we discovered that North Dakota ambulance services were uncompensated for 45.3% of the real cost to provide services to Medicaid beneficiaries (see Table 1) in SFY2007. Based on current payment methodologies, we project the net payment deficit in SFY2008 will be approximately $2,197,589 across all ambulance service lines. Table 1: Provider cost of providing Medicaid services with current fee schedule

The provider cost of not implementing a cost based fee schedule for ambulance service providers in SFY2007 SFY2007

SFY2007

SFY2007

Medicaid

Provider

Medicaid

Expenditures

Cost

Underpayments

$2,192,822

$3,993,182.82

$1,800,360

Fixed Wing

$335,889

$428,591.64

$92,703

Rotor Wing

$122,034

$426,560.55

$304,526

$2,650,745

$4,848,335

$2,197,589

Ground

Totals

We discovered the urban ground North Dakota ambulance service cost is significantly higher than the GAO reported in its 2007 national average ambulance cost study. The GAO 1 determined the Medicare payment levels to be 6% (95% confidence interval range of -18% to 6%, GAO report page 24) lower than the national average

1

U.S. Government Accountability Office. (2007). Report to Congressional Committees. Ambulance Providers Costs and Expected Medicare Margins Vary Greatly. Washington, DC: Retrieved July 26, 2008 from http://www.gao.gov/new.items/d07383.pdf Page 5 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) cost of urban ambulance service while we found the North Dakota cost of urban ambulance service to be approximately 50% higher than the 2008 Medicare payment levels. These data on the surface may seem incongruent; however, AAA cost survey data show a disparity between "types" of urban providers 2 depending on Medicare beneficiary transport volume. The AAA found the average cost per transport for urban providers with less than 5,000 Medicare ambulance trips to be 33% higher than those ambulance service providers with between 5,000 and 10,000 Medicare ambulance trips per year, and nearly double the cost of urban providers with at least 25,000 Medicare trips per year. The North Dakota urban ambulance services are sole providers in their area, meaning they capture virtually 100% of the patient volume. Of the three urban ground ambulance providers in this study, the provider with the greatest North Dakota Medicare transport volume has less than 2,100 Medicare trips. A 50% higher cost in urban North Dakota is consistent with existing AAA data for lower volume providers and the GAO which found costs to be higher for providers with a lower ratio of transports per staffed hour. The cost per trip within large metropolitan areas influenced the national average causing a significant urban disparity. In 2004 dollars these costs ranged from $99 to $1,218 (GAO report page 18) across all providers. STS developed SFY2007 base year cost-based fee schedules (see Table 2) for North Dakota ambulance service providers by using ambulance service provider actual expenses and Medicaid data for the number and amounts of claims. The fee schedules for Air Ambulance and Ground Ambulance Services were separately developed and in two primary categories: Urban and Rural. Table 2: Base Year - SFY2007 Ambulance Service Provider Cost-Based Fee Schedule

A0428

BLS

$ 301.43

A0428

BLS

$ 381.71

A0429

BLSE

$ 482.29

A0429

BLSE

$ 610.74

A0426

ALS1

$ 361.71

A0426

ALS1

$ 458.05

A0427

ALS1E

$ 572.71

A0427

ALS1E

$ 725.25

A0433

ALS2

$ 828.93

A0433

ALS2

$ 1,049.70

A0434

SCT

$ 979.64

A0434

SCT

$ 1,240.56

A0425

Ground Mileage

$6.25

A0425

Ground Mileage

$6.25

A0430

FW Base

$ 1,567.57

A0430

FW Base

$ 2,351.36

A0435

FW Mileage

$ 7.49

A0435

FW Mileage

$ 11.24

A0431

RW Base

$ 2,344.77

A0431

RW Base

$ 3,517.16

A0436

RW Mileage

$ 19.96

A0436

RW Mileage

$ 29.94

Rural

Urban

Base Year - SFY2007 Ambulance Service Provider Cost-Based Fee Schedule

The SFY2008 cost-based fee schedules (see Table 3) for North Dakota ambulance service providers were calculated by applying an inflationary adjustment to the base year SFY2007 fee schedule (see Table 15).

2

Hogan C. (2007). AAA 2006 Ambulance Cost Study. McLean, VA: American Ambulance Association. Page 6 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Table 3: SFY2008 Ambulance Service Provider Cost-Based Fee Schedule

A0428

BLS

$313.79

A0428

BLS

$397.36

A0429

BLSE

$502.06

A0429

BLSE

$635.78

A0426

ALS1

$376.54

A0426

ALS1

$476.83

A0427

ALS1E

$596.19

A0427

ALS1E

$754.99

A0433

ALS2

$862.92

A0433

ALS2

$1,092.74

A0434

SCT

$1,019.81

A0434

SCT

$1,291.42

A0425

Ground Mileage

$6.51

A0425

Ground Mileage

$6.51

A0430

FW Base

$1,631.84

A0430

FW Base

$2,447.77

A0435

FW Mileage

$7.80

A0435

FW Mileage

$11.70

A0431

RW Base

$2,440.91

A0431

RW Base

$3,661.36

A0436

RW Mileage

$20.78

A0436

RW Mileage

$31.17

Rural

Urban

SFY2008 Ambulance Service Provider Cost-Based Fee Schedule

The SFY2009 cost-based fee schedules (see Table 4) for North Dakota ambulance service providers were calculated by applying an inflationary adjustment to the SFY2008 fee schedule (see Table 16).

Table 4: SFY2009 Ambulance Service Provider Cost-Based Fee Schedule

A0428

BLS

$330.42

A0428

BLS

$418.42

A0429

BLSE

$528.67

A0429

BLSE

$669.48

A0426

ALS1

$396.50

A0426

ALS1

$502.10

A0427

ALS1E

$627.79

A0427

ALS1E

$795.00

A0433

ALS2

$908.65

A0433

ALS2

$1,150.65

A0434

SCT

$1,073.85

A0434

SCT

$1,359.87

A0425

Ground Mileage

$6.85

A0425

Ground Mileage

$6.85

A0430

FW Base

$1,718.33

A0430

FW Base

$2,577.50

A0435

FW Mileage

$8.21

A0435

FW Mileage

$12.32

A0431

RW Base

$2,570.27

A0431

RW Base

$3,855.42

A0436

RW Mileage

$21.88

A0436

RW Mileage

$32.82

Rural

Urban

SFY2009 Ambulance Service Provider Cost-Based Fee Schedule

The SFY2010 cost-based fee schedules (see Table 5) for North Dakota ambulance service providers were calculated by applying an inflationary adjustment to the SFY2009 fee schedule (see Table 17).

Page 7 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Table 5: SFY2010 Ambulance Service Provider Cost-Based Fee Schedule

A0428

BLS

$347.93

A0428

BLS

$440.60

A0429

BLSE

$556.69

A0429

BLSE

$704.96

A0426

ALS1

$417.51

A0426

ALS1

$528.71

A0427

ALS1E

$661.06

A0427

ALS1E

$837.13

A0433

ALS2

$956.81

A0433

ALS2

$1,211.64

A0434

SCT

$1,130.77

A0434

SCT

$1,431.94

A0425

Ground Mileage

$7.21

A0425

Ground Mileage

$7.21

A0430

FW Base

$1,809.40

A0430

FW Base

$2,714.10

A0435

FW Mileage

$8.65

A0435

FW Mileage

$12.97

A0431

RW Base

$2,706.50

A0431

RW Base

$4,059.75

A0436

RW Mileage

$23.04

A0436

RW Mileage

$34.56

Rural

Urban

SFY2010 Ambulance Service Provider Cost-Based Fee Schedule

Page 8 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Collect cost information from select North Dakota ambulance service providers and develop an Ambulance Cost Report Overview We collected cost data from the North Dakota ambulance services specified by the Division. To determine the makeup of the ambulance service cost study group, the Division collaborated with the North Dakota EMS Association (NDEMSA). The Division and NDEMSA have notified STS of their mutual agreement with the makeup of the study group. The Rural Ambulance Budget Model (Budget Model) format was used to develop standardized estimates of the cost as specified by the RFP. The Rural EMS & Trauma Technical Assistance Center (REMSTTAC) developed the Budget Model under contract for the US Department of Health and Human Services. STS partner Gary Wingrove was the principal author of the Budget Model for REMSTTAC. The data needed to perform a cost analysis across domains and demographics was requested from: 1) four urban ground ambulance services 2) ten rural ground ambulance services 3)

two fixed wing air ambulance services

4) two rotor wing air ambulance services The SFY2007 North Dakota state fiscal year was the most recent period for which Medicaid claim and expenditure data was determined to be complete. A request was sent to each ambulance service designated by the Division requesting cost data for the period July 1, 2006 to June 30, 2007. A multi-step process to verify and validate the submitted data followed. A detailed report of this activity follows.

Data collection, verification, and validation STS received expense (cost) data from the providers in various formats, from simple hand written reports submitted by fax to electronically submitted spreadsheets from enterprise accounting systems. We observed that ambulance service providers with robust accounting systems submitted data rapidly while other service providers, primarily smaller rural services, were slower in providing data. Ambulance services did not provide cost information in a standardized format because unlike other health care segments, regulated cost accounting models for ambulance services do not exist. STS used the Budget Model expense categories (see Table 18 on page 24) to complete collection and verification of the data prior to analysis. Reported expenses matching Budget Model categories were assigned the same category; remaining data points were assigned to appropriate Budget Model categories. Figure 1: Ambulance Service Data Response Rate

Ambulance Service Data Data Not Provided 10%

Data Received 90%

Predictably, some air and urban ground ambulance service providers submitted audited financial statements facilitating data collection and verification due to compliance with the pseudo-standard format of the Budget Model while rural ambulance services required some remote technical assistance. Page 9 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Next, STS validated the cost data through a manual review of each data point to ensure each ambulance service had provided data for all the appropriate cost centers (e.g. such as personnel, vehicles, equipment, etc.) and to assess for reasonableness compared to publicly available data. Expense data from several ambulance services required additional clarification and correction. For example, an ambulance service reporting paid staff but not reporting adequate commensurate salary costs required communication and data adjustment. After data collection, verification, and validation, each ambulance service was provided a Budget Model detailed report to obtain concurrence of the final data and the standardized categories each reported amount was placed in prior to analysis. As a result, several minor clarifications were made. This resulted in validated datasets for three urban ground, nine rural ground, and all four air ambulance services (see Figure 2). Figure 2: Ambulance Services Submitting Data For Analysis

Ambulance Services Submitting Data Urban Ground 19%

Rural Ground 56%

Air Ambulance 24%

Fixed Wing 13% Rotor Wing 12%

Page 10 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Evaluation of Ambulance Service Provider Cost Data The North Dakota ambulance service providers are multidimensional, representing urban, rural, and air ambulance service providers at the basic life support, advanced life support, and specialty care levels. Some use fully paid staff but some also use volunteers or staff members whose expenses are not tracked and attributed to the ambulance service duties they perform. STS ultimately received 16 usable expense data reports from participating ambulance providers. STS identified and quantified submitted data limitations and the potential impact on rebasing rates. Limitations and their impact are explored in Deliverable 2.2: Evaluation of ambulance cost data sources. To calculate the average cost per call for each type of service the following steps were completed: 1. Created a spreadsheet containing aggregate data 2. Summed the expenses of each provider 3. Divided each provider’s expenses by the number of their trips For SFY2007, the weighted average costs per call (see Figure 3) were: $551.57 for urban ambulance services (see Figure 4), $830.32 for rural ground ambulance services; $5,965.05 for fixed wing services (see Figure 5), and $6,017.10 for rotor wing services. Figure 3: Overall North Dakota Ambulance Service Provider Cost Per Call, SFY2007 7000

SFY2007 Cost Per Call

6000 5000 4000 Rural Urban

3000

Rotor Wing 2000

Fixed Wing

1000 0 Air

Ground Service Category

Page 11 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Figure 4: North Dakota Ground Ambulance Service Provider Cost Per Call, SFY2007 $1,000.00

$830.32

$800.00 $600.00

$551.57

$400.00 $200.00 $0.00 Ground Urban

Rural

Figure 5: North Dakota Air Ambulance Service Provider Cost Per Call, SFY2007 $6,030.00 $6,020.00 $6,010.00 $6,000.00 $5,990.00 $5,980.00 $5,970.00 $5,960.00 $5,950.00 $5,940.00 $5,930.00

$6,017.10

$5,965.05

Air Ambulance Rotor Wing

Fixed Wing

Page 12 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Evaluation of ambulance cost data sources In performing this analysis, STS has relied on data and other information provided by the State of North Dakota and ambulance service providers as listed below: 1. Utilization data a. Medical Services Division i. ND SFY2007 Medicaid ambulance utilization data b. American Ambulance Association i. ND CY2006 Medicare data on ambulance service trips: carrier and hospital combined 2. Ambulance service expense data a. 16 designated ambulance service providers i. Budget Model expense categories ii. Payer mixed based on number of trips iii. Total billed miles per year North Dakota Medicaid has historically maintained two ground and two air ambulance service rates. Our contract specified the cost-based fee schedule be developed using the Medicare ambulance fee schedule format with six ground payment levels for each of urban ground and rural ground, plus urban and rural fixed and rotor wing payments. Medicare’s billing rules use the zip code of the patient pickup location to determine if the service qualifies for urban or rural payment rates. North Dakota Medicaid was unable to provide point of pickup zip code details for rural/urban determination. The Division advised STS a new computer system is being developed that may include the capability of capturing the point of pickup zip code. In agreement with Division staff, we determined that urban and rural Medicare data would provide a reasonable assumption of Medicaid patient urban/rural distributions. The Medicaid beneficiary’s home address was then used by the state’s Medicaid data vendor to determine if trips were urban or rural. For comparison purposes, North Dakota ambulance Medicare charge data were also analyzed. The percentage of urban or rural Medicaid beneficiary home address zip code data from the North Dakota ground ambulance expenditure summary was an exact match to the percentage of urban or rural data detail of the Medicare point of pick up usage. The air ambulance Medicare report sample size was insufficient to be usable for this purpose, so the actual Medicaid urban/rural home address based summary data was used for the air ambulance cost-based fee schedule calculations. Since the Medicare and Medicaid air ambulance fee schedule data both have urban and rural base rates and mileage with no other levels of service, this was a reasonable approach. During analysis of Medicaid utilization reports, STS observed a large increase in claims during SFY2007 over SFY2006. After discussing this finding with Division staff, a definite cause remains undetermined. One potential explanation resides with an increasing trend nationwide for ambulance services that historically relied on unpaid volunteer staffing transitioning from not billing to a fee for service. Many of these ambulance service providers have begun collecting fees and reimbursement, resulting in a permanent trend for increased Medicaid utilization and payments. These types of evolutionary system changes will occur in the future, but the rate of continued increased utilization is difficult to predict. During data analysis, STS observed a larger ratio of ALS to BLS claims to Medicaid than Medicare. Medicaid ambulance patients as a whole are generally less seriously ill than their Medicare counterparts. The Medicaid patients that are seriously ill are usually in more of a critical condition, but are fewer when compared to Medicare, which would have resulted in more BLS trips from Medicaid data than Medicare data. During SFY2007 ALS procedure codes were used by North Dakota ambulance services to bill Medicaid whenever an ALS ambulance was dispatched; which is in contrast to the Medicare rules requiring some trips to be billed BLS. In SFY2008, Division staff met with ambulance service providers and jointly adopted Medicaid billing rules that mirror Medicare. As a result of the change to use Medicare billing rules after our study period, STS recommended the use of actual CY2006 Medicare percentages of utilization by levels of care to predict future claims in each category of service; the Division concurred.

Page 13 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Ambulance Fee Schedule Ambulance Service Provider Cost Determination As identified on page 11, the SFY2007 North Dakota ambulance service costs per call by categories are: $551.57 for urban ambulance services (see Figure 4), $830.32 for rural ground ambulance services; $5,965.05 for fixed wing services (see Figure 5), and $6,017.10 for rotor wing services. The following sections detail the cost determination for each category of service. The use of Medicare payment categories for ambulances were stipulated by the Division in consultation with NDEMSA, requiring separate analysis of rotor and fixed wing and rural and urban costs (see Figure 5). The cost variables from the standardized chart of accounts (see Table 18 on page 24) were aggregated to find the total annual cost. The total annual mileage expense cost (calculated with the Medicare payment rate) was then subtracted from the total annual cost to find the total annual cost less mileage (see Figure 6). Figure 6: Illustration of Ambulance Total Annual Cost Less Mileage Calculation

The resulting amount was divided by the total number of ambulance trips to determine the average cost per trip. The ambulance cost-based fee schedules are structured consistently with the Medicare fee schedule (see page 6).

Air Ambulance Cost Schedules Fixed Wing Air Ambulance Rate Determination The base rate is calculated using the following formula: 𝑩𝑩𝑩𝑩𝑩𝑩𝑩𝑩 𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 = 𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪𝑪 𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭𝑭 × 𝑹𝑹𝑹𝑹𝑹𝑹

3 A Microsoft Excel® Solver equation was used to simplify the calculation of the conversion factor. The fixed wing cost-based fee schedule for SFY2007 was calculated as follows:

Table 6: SFY2007 ND Fixed Wing Ambulance Mileage Adjustment

SFY2007 ND Fixed Wing Ambulance Mileage Adjustment HCPC Urban (per call) Rural (per call)

A0435 A0435

Average Miles Per Call 434 382

HCPC Cost per Claim Urban Rural

A0430 A0430

$5,965 $5,965

Medicare Allowed Charge $7.49 $11.24

Mileage Payment Per Claim $3,247 $4,299

Less Mileage

Subtotal

$3,247 $4,299

$2,718 $1,667

3

Microsoft. (2008). Define and solve a problem using Solver. Retrieved July 26, 2008 from http://office.microsoft.com/en-us/excel/HP051996711033.aspx Page 14 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Table 7: Fixed Wing Air Ambulance Base Rate Determination

Fixed Wing Air Ambulance Base Rate Determination Conversion Factor:

$ 1,568

Pickup Location

HCPC

Relative Value Unit

Urban

A0430

1.00

Fee Schedule Base Rate Amounts $ 1,567.57

Rural

A0430

1.50

$ 2,351.36

Rotor Wing Air Ambulance Rate Determination The base rate is calculated using the following formula: 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 × 𝑅𝑅𝑅𝑅𝑅𝑅

A Microsoft Excel® Solver equation was used to simplify the calculation of the conversion factor. The rotor wing cost-based fee schedule for SFY2007 was calculated as follows:

Table 8: SFY2007 ND Rotor Wing Ambulance Mileage Adjustment

SFY2007 ND Rotor Wing Ambulance Mileage Adjustment A0436 A0436

Average Miles Per Call 138 87

Medicare Allowed Charge $ 19.96 $ 29.94

Mileage Payment Per Claim $ 2,752 $ 2,595

HCPC

Cost per Claim

Less Mileage

Subtotal

A0431 A0431

$ 6,017 $ 6,017

$ 2,752 $ 2,595

$ 3,265 $ 3,422

HCPC Urban (per call) Rural (per call)

Urban Rural

Table 9: Rotor Wing Air Ambulance Base Rate Determination

Rotor Wing Air Ambulance Base Rate Determination Conversion Factor:

$ 2,345

Pickup Location

HCPC

Relative Value Unit

Urban

A0431

1.00

Fee Schedule Base Rate Amounts $ 2,344.77

Rural

A0431

1.50

$ 3,517.16

Page 15 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Ground Ambulance Rate Determination Medicare is currently using a combination of artificially developed permanent and temporary mileage adjustments as a rural cost adjustment proxy. We do not believe Congress will continue the mileage proxy adjustments in the long-term. Rural ambulance services generally have fewer trips upon which to spread fixed costs. The time cost of transportation does not vary from urban to rural, therefore the mileage rate is a poor proxy to address increased fixed costs, and the application of a higher base rate to capture the higher fixed costs is more appropriate. Therefore, the use of the urban mileage rate is reasonable for both urban and rural areas. Medicare adopted relative value units (RVUs) (see Table 10) when the Medicare ambulance fee schedule was implemented on April 1, 2002. A relative value unit is generally a factor of the amount of effort, training, and work deemed to be required for a particular service level. The RVU system also factors the complexity of services provided and are distributed across six levels of complexity. To calculate the ambulance service fee with RVU methodology, simply multiply the RVU for the level of service provided by the conversion factor. Based on the RVU methodology, payments for BLS-E (RVU=1.6) are 60% higher than payments for BLS-NE (RVU=1.0); and payments for ALS-E (RVU=1.9) are 70% higher than payments for ALS-NE (RVU=1.2). These RVUs are the method by which the cost of readiness is built into the ambulance fee schedule payment structure. Table 10: Medicare Relative Value Units

Medicare Relative Value Units HCPC

Category

Factor

A0428

BLS-NE

1.0

A0429

BLS-E

1.6

A0426

ALS-NE

1.2

A0427

ALS-E

1.9

A0433

ALS-2

2.75

A0434

SCT

3.25

Since established in 2002, two reports have found similar relationships between BLS and ALS costs as used in the Medicare RVU methodology. The GAO 4 estimated that providers without shared costs specializing in ALS and more complex services had average costs 32% higher than providers without shared costs specializing in BLS transport services (p.21). The AAA 2006 Ambulance Cost Study 5 reported similar ratios (p.33 and 48).

4

U.S. Government Accountability Office. (2007). Report to Congressional Committees. Ambulance Providers Costs and Expected Medicare Margins Vary Greatly. Washington, DC: Retrieved July 26, 2008 from http://www.gao.gov/new.items/d07383.pdf 5 Hogan C. (2007). AAA 2006 Ambulance Cost Study. McLean, VA: American Ambulance Association. Page 16 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Table 11: SFY2007 ND Ground Ambulance Mileage Adjustment

SFY2007 ND Ground Ambulance Mileage Adjustment A0425 A0425

Average Miles Per Call 10 31

Medicare Allowed Charge $ 6.25 $ 6.25

Mileage Payment Per Claim $ 61 $ 194

HCPC

Cost per Claim

Less Mileage

Subtotal

A0425 A0425

$ 552 $ 830

$ 61 $ 194

$ 491 $ 636

HCPC Urban (per call) Rural (per call)

Urban Rural

Ground Ambulance Cost-based Fee Schedule The base rate is calculated using the following formula: 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 × 𝑅𝑅𝑅𝑅𝑅𝑅 A Microsoft Excel® Solver 6 equation was used to simplify the calculation of the conversion factor. The fixed wing cost-based fee schedule for SFY2007 was calculated as follows: Table 12: Urban Ground Ambulance Base Rate Determination

Urban Ground Ambulance Base Rate Determination Conversion Factor:

$ 301

Service Level

HCPC

Relative Value Unit

Fee Schedule Base Rate Amounts

BLS

A0428

1.00

$ 301.43

BLS-E

A0429

1.60

$ 482.29

ALS1

A0426

1.20

$ 361.71

ALS1-E

A0427

1.90

$ 572.71

ALS2

A0433

2.75

$ 828.93

SCT

A0434

3.25

$ 979.64

6

Microsoft. (2008). Define and solve a problem using Solver. Retrieved July 26, 2008 from http://office.microsoft.com/en-us/excel/HP051996711033.aspx Page 17 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Table 13: Rural Ground Ambulance Base Rate Determination

Rural Ground Ambulance Base Rate Determination Conversion Factor:

$382

Service Level

HCPC

Relative Value Unit

BLS

A0428

1.00

Fee Schedule Base Rate Amounts $ 381.71

BLS-E

A0429

1.60

$ 610.74

ALS1

A0426

1.20

$ 458.05

ALS1-E

A0427

1.90

$ 725.25

ALS2

A0433

2.75

$ 1,049.70

SCT

A0434

3.25

$ 1,240.56

Page 18 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Prepare a report of the Estimated Cost to implement the calculated North Dakota Medicaid Ambulance Fee Schedule. A comparison of reimbursement at SFY2007 levels to the cost based fee schedule is provided in Table 14. Utilization data provided by the Division was used to calculate the impact of the new fee schedule to rates reflective of actual costs. Submitted with this report, STS has provided the Division with all Excel files used in the determining expenditure and cost-based fee schedules. Table 14: Cost Based Fee Schedule Change Model

Cost Based Fee Schedule Change Model

Urban Ground Rural Ground Urban Fixed Wing Rural Fixed Wing Urban Rotor Wing Rural Rotor Wing

SFY2007 Medicaid Expenditures

SFY2007 Provider Cost

Difference

Base

$ 665,800

$1,178,498

$ 512,699

Miles

$ 135,994

$ 146,519

$ 10,526

Base

$ 820,965

$ 2,045,331

$ 1,224,366

Miles

$ 570,064

$ 622,834

$ 52,770

Base

$ 23,554

$ 72,875

$ 49,321

Miles

$ 109,123

$ 87,068

$ (22,055)

Base

$ 40,004

$ 75,056

$ 35,051

Miles

$ 163,207

$ 193,593

$ 30,386

Base

$ 5,781

$ 21,772

$ 15,991

Miles

$ 8,528

$ 18,354

$ 9,826

Base

$ 55,960

$ 219,746

$ 163,786

Miles

$ 51,765

$ 166,688

$ 114,923

Total

$ 2,650,745

$ 4,848,335

$ 2,197,590

The SFY2008 estimated cost increases are based on the Consumer Price Index (CPI) as provided in Table 15, Table 16, and Table 17 and are published by the US Bureau of Labor Statistics (BLS). The CPI does not include a specific cost category for ambulance services. STS and the Division jointly determined the use of the Medical Care Services category to be appropriate for this project. This category is defined as “Professional medical services, hospital services, nursing home services, and health insurance imputation.” 7 Preparing for the inevitable increases in cost is prudent because ambulance services are subject to the same cost pressures as a hospital, clinic, or other health provider. Recently, the cost of fuel has more than doubled, placing undue hardship on ambulance services that operate on negative or narrow margins. Because ambulances are mobile and the use of fuel is required to perform ambulance services, it is not possible to mitigate increases in this expense item without effecting the quality of service. The calendar year CPI update was applied rather than a fiscal year update to provide the Division with adequate time to prepare for the change before the start of the state fiscal year. Medicare uses a similar process.

7

U.S. Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes. (2007). Measuring price change for medical care in the CPI. Washington, DC: Retrieved July 26, 2008 from http://stats.bls.gov/cpi/cpifact4.htm Page 19 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) The North Dakota Legislature approved a 4% increase in all SFY2008 ambulance Medicaid payments and added $347,029 to the base budget (see Table 15). The SFY2008 Estimate includes an inflation update of 4.1% based upon the CY2006 Medical care services CPI 8. A 5% ambulance Medicaid payment increase was implemented for the SFY2009 with the continuation of the $ 347,029 appropriation (see Table 16). The SFY2009 Estimate includes an inflation update of 5.3% based upon the CY2007 Medical care services CPI 9. The Legislature has not yet addressed the SFY2010 ambulance services Medicaid payments. The $347,029 appropriation continues without sunset. The SFY2010 Estimate includes a continued inflation update matched with the SFY2009 Estimate at 5.3% (see Table 17). This estimate should be updated once the CY2008 CPI is published. Table 15: Estimate of SFY2008 Inflationary Expenditure Impact

Estimate of SFY2008 Inflationary Expenditure Impact Base Miles Base Rural Ground Miles Base Urban Fixed Wing Miles Base Rural Fixed Wing Miles Base Urban Rotor Wing Miles Base Rural Rotor Wing Miles Legislative Increase Total Urban Ground

SFY2007 +4% Adjustment $ 692,431 $ 141,433 $ 853,804 $ 592,867 $ 24,496 $ 113,488 $ 41,605 $ 169,736 $ 6,013 $ 8,869 $ 58,198 $ 53,836 $ 347,029 $ 3,103,804

SFY2007 Cost Based Model +4.1% CPI CY2006 $ 1,226,817 $ 152,526 $ 2,129,190 $ 648,370 $ 75,863 $ 90,638 $ 78,133 $ 201,531 $ 22,665 $ 19,107 $ 228,755 $ 173,522

$ 534,385 $ 11,093 $ 1,275,386 $ 55,504 $ 51,366 ($ 22,850) $ 36,528 $ 31,795 $ 16,652 $ 10,238 $ 170,557 $ 119,687

$ 5,047,117

$ 2,290,342

Difference

8

U.S. Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes. (2007). Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category and commodity and service group. Washington, DC: Retrieved July 26, 2008 from http://www.bls.gov/cpi/cpid06av.pdf 9

U.S. Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes. (2008). Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category and commodity and service group. Washington, DC: Retrieved July 26, 2008 from http://www.bls.gov/cpi/cpid07av.pdf Page 20 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Table 16: Estimate of SFY2009 Inflationary Impact

Estimate of SFY2009 Inflationary Expenditure Impact Base Miles Base Rural Ground Miles Base Urban Fixed Wing Miles Base Rural Fixed Wing Miles Base Urban Rotor Wing Miles Base Rural Rotor Wing Miles Legislative Increase Total Urban Ground

SFY2008 +5% Adjustment $ 727,053 $ 148,505 $ 896,494 $ 622,510 $ 25,721 $ 119,162 $ 43,685 $ 178,222 $ 6,313 $ 9,313 $ 61,108 $ 56,527 $ 347,029 $ 3,241,643

SFY2008 Cost Based Model +5.3% CPI CY2008 $ 1,291,838 $ 160,610 $ 2,242,037 $ 682,734 $ 79,883 $ 95,441 $ 82,274 $ 212,212 $ 23,866 $ 20,120 $ 240,879 $ 182,719

$ 564,785 $ 12,105 $ 1,345,543 $ 60,224 $ 54,162 ($ 23,721) $ 38,589 $ 33,989 $ 17,553 $ 10,807 $ 179,771 $ 126,192

$ 5,314,618

$ 2,420,000

Difference

Table 17: Estimate of SFY2010 Inflationary Expenditure Impact

Estimate of SFY2010 Inflationary Expenditure Impact

Urban Ground Rural Ground Urban Fixed Wing Rural Fixed Wing Urban Rotor Wing Rural Rotor Wing

SFY2009 Unadjusted

SFY2009 Cost Based Model +5.3% CPI CY2009

Difference

Base

$727,053

$1,360,305

$633,252

Miles

$148,505

$169,123

$20,618

Base

$896,494

$2,360,865

$1,464,371

Miles

$622,510

$718,919

$96,409

Base

$25,721

$84,117

$58,396

Miles

$119,162

$100,500

($18,662)

Base

$43,685

$86,635

$42,950

Miles

$178,222

$223,459

$45,237

Base

$6,313

$25,131

$18,818

Miles

$9,313

$21,186

$11,873

Base

$61,108

$253,646

$192,538

Miles

$56,527

$192,403

$135,876

$5,596,288

$2,701,675

$ 347,029

Legislative Increase Total

$ 3,241,643

Page 21 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Potential Interim Step If the Division determines it is unable to make an immediate transition to a cost-based fee schedule, it may find an interim implementation method to be appropriate. STS recommends consideration be given to a Medicaid Fee Schedule adjustment matching the Medicare Fee Schedule with a cost-based implementation at a later date. The CY2008 Medicare fee schedule ground ambulance conversion factor is $199.67, the North Dakota fixed wing conversion factor is $2,509.15, and the North Dakota rotor wing conversion factor is $2,917.24. The urban ground mileage rate is $6.42, the urban and rural fixed wing mileage rates are $7.69 and $11.54 respectively, and the rotor wing urban and rural mileage rates are $20.50 and $30.75 respectively. We recalculated the costbased SFY2007 table above using these CY2008 Medicare numbers. The resulting state cost is displayed in Table 18. Table 18: Interim Implementation Estimate for Adopting Medicare Ambulance Rates

Interim Implementation Estimate for Adopting Medicare Ambulance Rates

Urban Ground

Base Miles

$665,800 $135,994

2008 Medicare Rate Model $780,652 $150,504

Rural Ground

Base Miles

$820,965 $570,064

$1,069,899 $639,775

$248,934 $69,711

Urban Fixed Wing

Base Miles

$23,554 $109,123

$67,279 $89,393

$43,725 ($19,730)

Rural Fixed Wing

Base Miles

$40,004 $163,207

$169,507 $198,760

$129,503 $35,553

Urban Rotor Wing

Base Miles

$5,781 $8,528

$19,454 $18,851

$13,673 $10,323

Rural Rotor Wing

Base Miles

$55,960 $51,765

$281,029 $171,198

$225,069 $119,433

Total

$2,650,745

$3,656,302

$1,005,557

SFY2007

Difference $114,852 $14,510

Page 22 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Develop rebasing process Turnover Plan STS has provided the Division with all the spreadsheets used to calculate the data presented in this report. Each sheet has been carefully constructed to show cells that are inputs from data, cells that draw information from another part of a spreadsheet, and cells that compute data. STS will provide telephone technical assistance to Division staff, up to 10 hours of technical support, to update the sheets through December 31, 2009.

Recommendation for future study and consideration Based upon our industry knowledge and communications with North Dakota ambulance service providers, there are two factors affecting the cost of providing services to Medicare and Medicaid beneficiaries in which the existing Medicare ambulance fee schedule is lacking, adding to the disparity of care in North Dakota versus more populous regions of the country. Ambulance services and home health providers are directly affected by the cost of fuel. Every patient encounter for both types of provider are dependent on transportation of the care-giver to the patient, and in the case of ambulance, additional transportation of the patient to definitive care. Ambulance services are the only health care segment under the Medicare system where the higher cost of new technologies are not addressed by the payment system. Under Medicare rules, new high cost drugs or technologies can be approved for payment across all sectors except for ambulance services. Ambulance services are limited to a base rate plus mileage payment methodology. Ambulance services with budgetary capacity are disincentivized from purchasing or using specially designed ambulances and stretchers to transport bariatric patients, continuous positive airway pressure (CPAP), 12 lead EKG machines for the identification of ST Elevation Myocardial Infarction, and other improvements. Ambulance services without budgetary capacity to absorb some of these costs are not able to provide the quality and safety enhancements of those in other services. For these reasons STS recommends the Division consider developing a mechanism to recognize the increased costs for providing contemporary medical services, particularly in rural areas (statewide). The Division could consider adding the use of bariatric transport, CPAP, and 12 lead EKG equipment to the approved Medicare list for recognition of the ALS2 level of service.

Page 23 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance) Table 19: Budget Model Standardized Chart of Expense Accounts

Budget Model Standardized Chart of Expense Accounts 6103

Medical Supplies-Patient Care

6104

Gases (oxygen)-Patient Care

6105

Drugs-Patient Care

6106

Laundry & Linen-Patient Care

6108

Equipment Repair-Patient Care

6109

Minor Equipment-Patient Care

6111

Books & Periodicals-Patient Care

6112

Travel & Entertainment-Patient Care

6113

Uniforms

Dispatch 6203

Dispatch Supplies

6209

Dispatch Minor Equipment

6213

Telephone

6214

Radio Maintenance

6215

Radio Antenna (Monthly Fees)

6216

Cell Phone (Monthly Fees)

6217

Pager (Monthly Fees)

Administration 6303

Office Supplies

6308

Office Repair & Maintenance

6309

Office Minor Equipment

6311

Books & Periodicals

6312

Travel & Entertainment

6313

Administration Telephone

6320

Worker's Compensation

6321

Unemployment Tax

6322

FICA Tax

6323

General Liability Insurance

6324

Professional Liability Insurance

6325

Umbrella Coverage

6326

Health Insurance

6327

Pension Plan

6340

Physician Fees

6341

Accounting Fees

6342

Legal Fees Page 24 of 25

SafeTech Solutions - 2008 Rebasing ND Medical Services Payment Rates – Provider Type (Ambulance)

Budget Model Standardized Chart of Expense Accounts 6343

Collection Agency Fees

6344

Software Maintenance Contracts

6345

Consulting Fees

6346

Service Contracts

6347

Management Contract

6348

Claim Processing Contract

6350

Dues & Memberships

6351

Licenses

6352

Donations

6353

Food

6360

Printing & Publication

6361

Advertising

6362

Employment Agencies

Interest Expense 6400

Interest Expense

Building 6503

Facilities Supplies & Services

6508

Building Maintenance

6571

Property Taxes

6572

Utilities

6573

Housekeeping

6574

Laundry-non patient care

6576

Property Insurance

Vehicles 6681

Vehicle Gas & Oil

6682

Vehicle Repairs

Page 25 of 25