KETR

As Rural Hospitals Die, Air Ambulances Rise. But at What Cost?

Jul 13, 2018

Air ambulances are filling the void left by the increased number of hospitals shuttering in rural areas. But as patients get stuck with ever bigger bills, legislators and industry insiders call for some changes.

In the past four years, at least 80 rural hospitals have shuttered forever. And more rural hospitals have closed in Texas than in any other state. Depending on the study and how the term “rural” is defined, the number is anywhere between 14 and 18 rural closures in Texas since 2010.

In the swelling rural hospital vacuum, air ambulance companies have grown a lot more important. Medical helicopters increasingly reach deeper into remote areas where ground ambulances might take actual hours to get to. They also take patients from existing rural hospitals—often running on small staffs and are unequipped to deal with major emergencies—to emergency wards in major cities, sometimes hundreds of miles away.

But while no one argues over the need for medical helicopters, rural areas or not, they’re not cheap. Not to run, and certainly not for patients who get a ride on one and then get stuck with what’s called a “balance bill.” That’s the share of the air evacuation a patient might be responsible for, even after the insurance copay.

While the bills keep coming in and the number of air ambulance companies grows, lawmakers at the federal and state levels are trying to rein in costs through legislation. The problem they’re having is how air ambulance companies are regulated.

On the other hand, air ambulance providers say they don’t want to stick people with large balance bills and would like to see some more transparency from companies themselves. But for providers, the problem isn’t so much the regulations on their industry as it is the regulations surrounding the insurance industry itself, and around Medicare.

So let’s look at how this all fits together.

What’s Happening to Rural Hospitals?

In January 2018, Becker’s Hospital Review released a sobering report on the state of rural hospitals. Among its findings is the fact that 26 states have seen at least one rural hospital close since 2010.

One of the trouble areas for rural hospitals lies in recruiting physicians or clinicians, says Molly Gamble, editor in chief of Becker’s Hospital Review. Doctors and specialists typically find more—and, of course, more lucrative—opportunities in larger urban areas.

Most in danger of closing are the independent hospitals without the “lifelines” networked hospitals have—for example, partnerships that help broaden physician networks and generate referrals, she says.

Another problem is the cost of the cutting edge, namely the demands of IT infrastructure investments.

“Those can also be difficult to pull off in a way that doesn’t completely cripple the organization’s finances,” she says.

Numbers are hard to come by in terms of what hospitals lay out for technology upgrades. But a 2005 report from the American Health Association, cited in a 2014 article by the MarketList, placed median annual hospital capital investment at $7,00,000 and average operating expenses at $1.7 million.

“As capital investments are a major hindrance,” the report stated, “smaller hospitals are reluctant to adopt these technologies.”

And that doesn’t even factor in so-called specialty hospitals that operate in niches like tuberculosis or cancer treatment.

So, rural hospitals, unable to keep up with the demands, from basic to boutique, shutter their doors. And that leaves a lot of room for medical helicopters. Particularly privately owned ones.

The Rise of Privately Owned Air Ambulance Providers

In 2017, the Government Accountability Office released the federal government’s first hard look at what is happening with the air ambulance industry. It found that “the number of ambulance helicopters has grown steadily from an estimated fewer than 100 helicopter air ambulances in the early 1980s to 1,045 in 2016.”

According to the report, 75 percent of air ambulances in operation in the United States today are owned by private firms.

That increase is almost entirely due to private equity. As more and more public and hospital-affiliated helicopter companies closed or merged, private ownership became the norm. And as more rural hospitals folded and air ambulances became a bigger business, private investment firms stepped in to make profits. (The same dynamic, incidentally, has happened in the ground ambulance industry, where private equity firms have made a lot of profit in a lucrative market, as a 2016 report in the New York Times shows.)

But the ability for that growth to have occurred dates back to 1978, when Congress passed the Air Deregulation Act. That’s the bill that allowed air carriers to set rates in a free market. Competition among carriers was supposed to help regulate prices.

However, air ambulances got swept up in the ADA. Consequently, air ambulance companies are considered air carriers, not medical companies. That means air ambulances are regulated under the same federal rules that allow major airlines to set rates as they see fit, which in turn means that only an act of Congress can change how air ambulance companies are regulated in what they charge.

And that’s what some lawmakers are trying to fix—without, it should be noted, a lot of luck so far.

A Brief Look at Industry Costs

According to the GAO, air ambulance providers reported that medical flight charges increased from $13,000 in 2007 to nearly $50,000 in 2015. James Swartz, president and CEO of CareFlite, a nonprofit air ambulance provider based in Garland, says operating costs to his company per flight tend to range between $10,000 and $15,000.

Helicopter ambulance costs are high for exactly the reasons one would expect—personnel and equipment. Air ambulances need to be fully staffed, with trained pilots and medical professionals, and each flight needs to have more than a dozen people on board to help a patient.

Costs are much higher in rural areas, Swartz says, because of the lower number of runs. Less populated rural areas, in other words, means longer times per call and fewer people overall to go get. And most calls are events like heart attack or stroke. That means a huge percentage of providers’ customers are covered under Medicare or Medicaid. And that means less money to the companies themselves.

According to the GAO report, Medicare paid an average $6,502 to air ambulance companies in 2016, while the average cost of a medical flight was about $30,000. And under Medicare rules, air ambulance providers are not allowed to balance bill Medicare patients, so whatever Medicare pays a provider, that’s all the provider will get.

So just how do providers earn enough income to cover operating costs that Swartz says adds up to about $3 million a year? One way is through memberships.

Air Ambulance Memberships

Especially if you live in a rural area, you might have gotten something in the mail selling a membership package to an air ambulance company. In Northeast Texas, the three main private providers are CareFlite, AirEvac Lifeteam, and PHI Cares. The latter two are for-profit.

Around the country, numerous privately owned air medical companies offer membership plans, generally for anywhere from $50 to $85 a year, per person. For the price of an annual membership, members will not receive a balance bill. It is, Swartz says, a form of supplemental insurance.

One might be tempted to ask how getting small-change membership money from someone can justify the enormous costs of running an air medical operation. But when you add up the amount of memberships these providers sell, the numbers get less strange.

CareFlite, for example, has 400,000 members in the general DFW area, Swartz says. AirEvac, the largest private provider in Northeast Texas, claims 3 million members nationally. Many of those members are covered by family plans or as part of group packages paid for by employers, Swartz says.

While exact totals for what membership fees bring in can be nebulous, it’s clear they add up to a lot of money for air ambulance companies. But even then, membership fees can’t float the entire operation of a medical helicopter provider.

So air ambulance members generally—but by no means always—need to be covered by private insurance that will pay something towards a flight bill. Insurance companies generally pay about 40 percent of an air ambulance bill, which is what providers will accept as payment in full if you are a member of their company.

The Catch?

The caveat to air ambulance memberships is, the company you’re a member of has to be the one to pick you up.

“If you enter into a subscription service with Ambulance ABC and ABC is called to come and get you, sure that may work,” says Jon Godfread, state insurance commissioner of North Dakota. “But if there are seven different providers in that state and ABC isn’t the one that’s called, you’re really out of luck.”

Swartz says the best way, for now, to hedge against playing air ambulance roulette is to buy as many memberships to as many companies as serve where you live and work. It might cost a couple hundred dollars a year (in the case of the three main Northeast Texas companies, it’s $185 a year), he says, but that’s better than losing your house to a lien for a giant balance bill you can’t pay.

Even then, Godfread says, he doesn’t want EMTs on an emergency call—the ones who general make the decision to call in a helicopter—rooting through his wallet to find out what insurance he has. That goes for membership ID as much as which air ambulance providers serve which hospitals, and which hospitals are in which benefits networks; because your insurance might not want to pay if you go to an out-of-network hospital.

Air Ambulance Companies Do Want Their Money

Swartz’s sentiment about losing your house is not hyperbole. Betsy Imholz, special projects director at the Consumers Union, the advocacy arm of Consumer Reports, recalls a case her office got involved in that almost cost a woman her home.

“A young woman whose father fell on the job … was airlifted and died before he reached the hospital,” Imholz says. “The company went after the family when they couldn’t get the full payment that were asking for and put a lien on the family home of about $30,000 to $35,000.”

Only bringing media attention on the family’s plight got the company to back off, she says.

Godfread says he too has seen balance bills in North Dakotans’ hands totaling as much as $40,000.

“You add that on top of the medical bills that are likely coming out of a situation that you need an air ambulance ride, they lead to financial ruin,” he says.

Making the Call and Flight Safety

The decision to call an air ambulance is not the patient’s. Generally, a person in need of an airlift is in quite bad shape, so the call is made by medical personnel. And whether they call a company you might be a member of is still a roll of the dice.

But that’s not exactly as sinister as it might sound.

“A lot of times it has to do with the potential outcome for the patient,” says Kim Saenz, nurse manager for Commerce and Quinlan Medical Centers at Hunt (County) Regional Healthcare. “If you need an air ambulance, you need the one that’s the closest to you.”

Hunt Regional is one of those rural hospital systems that, though it’s survived, is not equipped for major emergency cases like severe trauma. Saenz says patients are rarely flown into Hunt Regional, but are often flown out to bigger and more specialized care centers, usually in Dallas or Tyler.

Saenz occasionally is the one to say a patient needs a helicopter to elsewhere. But if the patient is a member of Ambulance ABC, there’s no guarantee that ABC will come. It might be because the company is already on another run, or is down for a day of preventive maintenance.

“AirEvac will let us know, ‘We have to do preventive maintenance on this day,’” she says. “’From 7 a.m. to 7 p.m. we will not be in service.’ So on those days, we would go to the next provider.”

Or, a provider might be grounding the air crew for fatigue. Air ambulance companies are on-call 24/7, but it’s not the same crew working nonstop, of course.

It’s called the two-thirds rule.

“If any one of the three [crew] feels like it’s a safety issue due to crew fatigue, they cannot take a call,” she says.

Crashes among air ambulance companies are a major and growing concern. In 2008, The National Transportation Safety Board named EMS pilot as the most dangerous job in the United States. A 2017 report by the FAA shows that air ambulance crashes declined annually between 2013 (146 crashes, 30 fatal) and 2016 (106 crashes, 17 fatal).

For comparison, in 2015, the trade website EMSWorld reported that ground ambulance crashes average 29 a year, claiming 33 lives.

All that said, medical crews generally try to be accommodating, Saenz says.

“Certainly, if a patient requests something we would try to honor that,” she says. “But again, if I can’t do what you need, I need to get you wherever you need to go, the quickest method I can.”

The Legislative Approach

To reiterate, no one has it in for air ambulance providers. Lawmakers and industry watchdogs, in fact, will go out of their way to say how valuable medical helicopters are.

The problem among lawmakers is that air ambulance companies charge some patients crippling amounts of money, because they can. Remember, these companies are regulated by the FAA as air carriers, so they can charge what they see fit.

Also, most air ambulance companies are private companies. That means that although their operations are protected at the federal level against state-level rules, private air ambulance companies don’t have to file reports the way government or public agencies must.

This lack of transparency in the industry is a major concern for lawmakers and the GAO, whose report is actually titled “Data Collection and Transparency Needed to Enhance DOT Oversight.” But it’s also a concern within the industry, judging by how “selected stakeholders” in air ambulance companies responded to something the GAO asked.

The question was whether the U.S. Department of Transportation should increase data collection “for investigations and/or increases pricing transparency.” Eleven of 15 said yes. None said no.

At the lawmaker level, an effort is underway in the U.S. Senate to open the doors on private air ambulance companies. Senate Democrats Jon Tester of Montana and Claire McCaskill of Missouri (both unavailable to comment for this story) are currently pushing to exempt air ambulances from the Air Deregulation Act.

Across the aisle, Republican Dean Heller of Nevada has been attempting to up Medicare reimbusements to air ambulance flights. That bill was introduced in 2017 and was cosponsored by Republican Sen. Cory Gardner and Democrat Sen. Michael Bennet, both of Colorado The measure is intended to ensure access to rural residents, regardless of their condition or financial status—something of a selling point to rural folks, given that rural Americans are less likely to be insured.

Over in the U.S. House, U.S. Representative Rob Woodall, a Georgia Republican, is right now shopping legislation aimed at creating greater transparency in private air ambulance company reporting.

But something federal bills, regardless of chamber or party, have in common is that lawmakers want to give states more control over rates.

“What we’re trying to do,” Woodall says, “is … on the one hand, provide transparency so folks can see what their healthcare is costing them, what the air transport is costing them, and understand the billing practices. And, secondarily, then allow state insurance commissioners to regulate the healthcare side of that, as every state insurance commissioner does for every other healthcare service in the state.”

Some states, like North Dakota and Montana, have tried to rein in air ambulance companies. But their efforts were quashed by federal courts that said states couldn't make rules governing a federally overseen industry.

Other states, like Texas, have tried to bring down rates by finding ways to fund air ambulance companies by bolstering Medicare. State Rep. Jon Zerwas (R-28th) had a bill in the 2017 session of the Texas Legislature, but it eventually fizzled out.

“If you look at just the business of moving people,” Zerwas says, “it’s very difficult to make it work.”

Zerwas wants to take five dollars from every traffic fine in the state and apply it towards a Medicare payment fund that helps air ambulance companies weather the times they don't get paid.

“That total amount could be added to funds for air ambulances and perhaps offset some of their losses,” he says. “It’s not …going to make these things necessarily profitable, but it certainly is going to offset some of the losses and perhaps keep them in business so that they can service large regions of the state.”

Zerwas says his bill – which he plans to put back on the 2019 State Legislative agenda – is meant to relieve burdens on Texans while helping a necessary business stay in business.

The Industry’s Approach

While lawmakers try to hammer out a way to rein in air ambulance costs and practices, Rick Sherlock, president of the Association of Air Medical Services, a Washington, D.C.-based trade organization whose membership consists mostly of privately owned air ambulance companies, says his organization supports efforts for greater transparency and increased Medicare reimbursements.

“When you look at our industry, 10 out of 10 times our programs respond to the most sick, ill, and injured patients,” he says. “But when you look at the patient demographics in the United States, out of those 10 patients, you still have about 10 percent of Americans that are uninsured.”

Roughly another quarter are Medicaid patients, Sherlock says. Both are populations that pay extremely low, if any, amounts towards an air ambulance bill. So with the balance falling upon the insured, the costs to help buoy an expensive business like air medical services are not evenly distributed. Sherlock says he would like to see legislation address the root cause of the problem, namely this imbalance.

For James Swartz at CareFlite, the root problem is not transparency or reporting, it’s the way healthcare benefits operate.

“In healthcare, the main financing mechanism in the United States is health insurance,” Swartz says, “and then there are government programs—Medicare and Medicaid. And those of us who have insurance pay significantly more through our insurance carriers than the people who are in the government programs.”

In Texas, which is one of 17 states to have not expanded its Medicare program, he says, the undue burden falls squarely on those with healthcare benefits.

“Health insurance companies are exempt from the antitrust regulations of the United States,” he says. “It would be against the law for me to have a discussion with another ambulance company and say ‘Let’s both raise rates.’ However, there are some entities, by law, by Congress, that are exempt from those requirements.”

One is insurance, he says. The other is Major League Baseball. And to fix the problems with air ambulances and the high costs involved for everyone, that exemption needs to be rethought.

Barring a seismic shift in public policy, the solution could be what the GAO (and Rick Sherlock) are calling for—better transparency.

“You’d want to obviously get two years’ worth of cost data,” Sherlock says. “You also have to make sure the costs are reflected accurately, to what’s being submitted and what’s being collected. And, oh by the way, it would require mandatory quality-of-care reporting across a … number of quality-of-care categories.”

What Sherlock is not a fan of is legislation aimed at putting greater control in states hands, i.e., bills like the McCaskill bill looking to exempt air ambulance companies from the ADA. Sherlock says such efforts to put air ambulances under state controls will create a “patchwork” of regulations that will make crossing state lines with patients—which 30 percent of air medical flights do—harder, he says.

This, he adds, puts a lot of weight on patients at a time when they should be concerned with getting through a medical crisis, and not about bureaucracy.

The GAO’s Conclusions

The Government Accountability Office is working on a sequel to its 2017 air ambulance study, due later this year or early next. In the existing report, the agency offered four recommendations to the USDOT:

  • communicate a method to receive air ambulance, including balance billing, complaints;
  • take steps to make complaint information publicly available;
  • assess available data and determine what information could assist in the evaluation of future complaints;
  • consider air ambulance consumer disclosure requirements.

The DOT’s response was to agree with all recommendations except the third. In a letter, the DOT shot down that recommendation thusly:

“We do not believe an assessment of federal or industry data would yield information relevant to our determinations in future cases.”