oversight

Ambulance Services: Medicare Payments Can Be Better Targeted to Trips in Less Densely Populated Rural Areas

Published by the Government Accountability Office on 2003-09-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




September 2003
                 AMBULANCE
                 SERVICES
                 Medicare Payments
                 Can Be Better
                 Targeted to Trips in
                 Less Densely
                 Populated Rural Areas




GAO-03-986
                 a
                                                September 2003


                                                AMBULANCE SERVICES

                                                Medicare Payments Can Be Better
Highlights of GAO-03-986, a report to           Targeted to Trips in Less Densely
congressional committees
                                                Populated Rural Areas



The Centers for Medicare &                      Trip volume is the key factor affecting differences in ambulance providers’
Medicaid Services (CMS) recently                cost per trip. Ambulance providers’ total costs primarily reflect readiness—
implemented a Medicare                          the need to have an ambulance and crew available when emergency calls are
ambulance fee schedule in which                 received. Readiness-related costs are fixed, meaning that they do not
providers are paid a base payment               increase with the number of trips provided, as long as a provider has excess
per trip plus a mileage payment.
An adjustment is made to the
                                                capacity. As a result, providers that make fewer trips tend to have a higher
mileage rate for rural trips to                 cost per trip than those that make more trips. We also found that the length
account for higher costs. CMS has               of providers’ trips had little effect on their cost per trip.
stated that this rural adjustment
may not sufficiently target                     The modest variation in Medicare payments to ambulance providers that
providers serving sparsely                      serve rural counties probably does not fully reflect their differences in costs
populated rural areas. The                      because the key factor affecting provider costs—the number of trips—varies
Medicare, Medicaid, and SCHIP                   widely across rural counties. In 2001, the least densely populated quarter of
Benefits Improvement and                        rural counties averaged far fewer trips than the most densely populated
Protection Act of 2000 (BIPA)                   quarter. This suggests that the cost per trip is likely higher for providers
directed GAO to examine rural                   serving the least populated rural counties. On average ambulance providers
ambulance costs. GAO identified
factors that affect ambulance costs
                                                are paid somewhat more for trips in the least densely populated rural
per trip, examined how these                    counties than for those in other rural counties. However, those payment
factors varied across geographic                differences are dwarfed by the difference in trip volume. Because trip
areas, and analyzed whether                     volume is a strong indicator of costs, the Medicare payment differences
Medicare payments account for                   across rural counties likely do not fully reflect differences in providers’ cost
geographic cost differences. GAO                per trip.
used survey data on ambulance
providers and Medicare claims                   In implementing the fee schedule, CMS adjusted the mileage rate for rural
data.                                           trips to account for the higher cost per trip of providers serving rural areas.
                                                However, trip volume is a better indicator of providers’ cost per trip than is
                                                trip length. Thus, adjusting the base rates for rural trips—the portion of
GAO recommends that CMS better                  Medicare’s payment that is designed to pay for providers’ fixed costs—is a
target the rural adjustment to trips            more appropriate way of accounting for rural low-volume providers’ higher
in less densely populated rural                 cost per trip than adjusting the mileage rate.
counties by adjusting the base rates
for ground ambulance services
provided in those counties. CMS
stated that the report will be useful
as the agency develops a proposed
rule to address appropriate
payment for ambulance services
furnished in rural, low-volume
areas.




www.gao.gov/cgi-bin/getrpt?GAO-03-986.

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and methodology, click on the link above.
For more information, contact Laura A.
Dummit, (202) 512-7114.
Contents



Letter                                                                                                    1
                             Results in Brief                                                             3
                             Background                                                                   4
                             Ambulance Providers’ Trip Volume Is the Main Factor Affecting
                               Their Cost Per Trip                                                       10
                             Medicare Ambulance Payments for Trips in Rural Counties Are
                               Unlikely to Fully Reflect Differences in Providers’ Cost Per Trip
                                                                                                         14
                             Conclusions                                                                 20
                             Recommendation for Executive Action                                         20
                             Agency and External Reviewer Comments and Our Evaluation                    20


Appendixes
              Appendix I:    Data and Methods                                                            25
             Appendix II:    Characteristics of Rural Counties Grouped by Medicare
                             Population Density                                                          30
             Appendix III:   Comments from the Centers for Medicare & Medicaid
                             Services                                                                    34
             Appendix IV:    GAO Contacts and Staff Acknowledgments                                      35
                             GAO Contacts                                                                35
                             Acknowledgments                                                             35


Related GAO Products                                                                                     36


Tables                       Table 1: Ground Ambulance Services Covered by Medicare’s
                                      Ambulance Fee Schedule                                              7
                             Table 2: Ambulance Providers’ Cost Components, 1998                         10
                             Table 3: Relative Cost Per Trip for Full Cost Ambulance Providers,
                                      1998                                                               13
                             Table 4: Characteristics of Urban and Rural Counties, 2001                  15
                             Table 5: Average Number of Medicare Ambulance Trips, Population
                                      and Land Area, by Counties Grouped by Population
                                      Density, 2001                                                      16
                             Table 6: Characteristics of Rural Counties and Their Ambulance
                                      Providers, by Counties Grouped by Population Density,
                                      2001                                                               18




                             Page i                                      GAO-03-986 Rural Ambulance Services
          Contents




          Table 7: Average Number of Medicare Ambulance Trips, Trip
                    Length, and Estimates of Average Medicare Paymenta per
                    Ambulance Trip, by Rural Counties Grouped by Population
                    Density                                                         19
          Table 8: Full Cost Ambulance Providers by Average Number of
                    Trips Per Day, 1998                                             26
          Table 9: Full Cost Ambulance Providers by Average Number of
                    Trips Per Year, 1998                                            26
          Table 10: Rural Counties Grouped by Total Population Density and
                    by Medicare Population Density, 2001                            30
          Table 11: Average Number of Medicare Ambulance Trips, Population
                    and Land Area, by Counties Grouped by Medicare
                    Population Density, 2001                                        31
          Table 12: Characteristics of Rural Counties and Their Ambulance
                    Providers, by Counties Grouped by Medicare Population
                    Density, 2001                                                   32
          Table 13: Average Number of Medicare Ambulance Trips, Trip
                    Length, and Estimates of Average Medicare Paymenta per
                    Ambulance Trip, by Rural Counties Grouped by Medicare
                    Population Density                                              33


Figure   Figure 1: The Relationship between Cost Per Trip and Total
                    Ambulance Trip Volume for Full Cost Providers With
                    5,000 or Fewer Annual Trips, 1998                               12




          Page ii                                   GAO-03-986 Rural Ambulance Services
Contents




Abbreviations

ALS          advanced life support
ARF          Area Resource File
BBA          Balanced Budget Act of 1997
BIPA         Medicare, Medicaid, and SCHIP Benefits Improvement and
             Protection Act of 2000
BLS          basic life support
CMS          Centers for Medicare & Medicaid Services
EMT          emergency medical technician
HCFA         Health Care Financing Administration
HHS          Department of Health and Human Services
HRSA         Health Resources and Services Administration
MSA          metropolitan statistical area
OMB          Office of Management and Budget
RUCA         rural-urban commuting area
RUCC         rural-urban continuum code
SCT          specialty care transport
UIC          urban influence code
Y2K          Year 2000

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Page iii                                            GAO-03-986 Rural Ambulance Services
A
United States General Accounting Office
Washington, D.C. 20548



                                    September 19, 2003                                                                                   Leter




                                    Congressional Committees

                                    In 2001, Medicare paid over $2 billion for over 10 million ambulance trips
                                    for its 40 million elderly and disabled beneficiaries. Ambulance providers1
                                    that deliver Medicare-covered services range from small community, one-
                                    vehicle operations staffed entirely by volunteers to large privately owned
                                    firms or government agencies that operate many vehicles and rely on paid
                                    staff. Medicare covers medically necessary ambulance services when
                                    other means of transportation, such as a wheelchair van or a taxi, are
                                    inadvisable, given the beneficiary’s medical condition at the time.
                                    Medically necessary ambulance trips include both emergency care, such as
                                    responses to 911 calls, and nonemergency care, such as transfers from one
                                    hospital to another.

                                    In 2002, the Centers for Medicare & Medicaid Services (CMS) implemented
                                    a congressionally mandated ambulance fee schedule that substantially
                                    changed the way Medicare pays for ambulance services. Under the fee
                                    schedule, providers receive a base payment per trip, which varies by the
                                    kind of service provided, and a mileage payment, which varies by the length
                                    of the trip. A rural adjustment, which is applied to the mileage payment,
                                    increases the payment for trips that begin in rural areas, generally defined
                                    as areas outside of metropolitan areas. CMS has stated that this approach
                                    to a rural adjustment was the only one feasible at the time the agency was
                                    developing the fee schedule. However, as we have stated before2 and as
                                    CMS has acknowledged, this adjustment may not sufficiently target the
                                    increased payments to providers serving sparsely populated rural areas.
                                    These providers may incur higher per trip costs than other providers
                                    because of their low volume of ambulance trips. We have recommended
                                    that CMS develop a more refined rural adjustment, and CMS is exploring
                                    alternative approaches to adjusting payments for rural ambulance trips.


                                    1
                                     The Centers for Medicare & Medicaid Services uses the term “provider” to refer to
                                    institutional providers of ambulance services, including hospitals and skilled nursing
                                    facilities, and uses the term “supplier” to refer to freestanding ambulance providers—that is,
                                    those not associated with a hospital, skilled nursing facility, or other facility. In this report,
                                    unless otherwise indicated, we use the term “provider” to refer to all organizations that
                                    provide Medicare ground ambulance services—both institutional and freestanding.
                                    2
                                     U.S. General Accounting Office, Rural Ambulances: Medicare Fee Schedule Payments
                                    Could Be Better Targeted, HEHS-00-115 (Washington, D.C.: July 17, 2000).




                                    Page 1                                                   GAO-03-986 Rural Ambulance Services
Developing a Medicare payment method for ambulance services that
maintains beneficiary access to these services has been complicated by the
wide variation in ambulance providers, their volume of trips, and the areas
they serve. For example, ambulance providers in rural areas where there
are few people are likely to be idle more often than providers in more
densely populated areas, and may need to earn more per trip to maintain
ambulances and crews. As a result, payments that are appropriate for
providers serving densely populated urban areas may not be appropriate
for those serving less densely populated rural areas. Recognizing cost
differences across providers in the payment method is important because
many providers rely on Medicare revenue and their continuing availability
is critical to ensuring beneficiaries’ access to services.

The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000 (BIPA) directed us to examine the cost of ambulance services
in rural areas.3 This report (1) identifies the factors that account for
differences in ambulance providers’ costs per trip, and (2) analyzes the
geographic differences, particularly among rural areas, in the factors
affecting ambulance providers’ costs and whether Medicare’s payments for
ambulance services under the fee schedule account for geographic
differences in costs.

Our analysis focused on ground ambulance services and did not include air
ambulance services, which account for less than 1 percent of annual
Medicare-covered ambulance trips. To identify the factors that influence
ambulance providers’ costs, we used data from the 1999 National Survey of
Ambulance Providers, conducted by the Project HOPE Center for Health
Affairs.4 This survey, the sole national data source on the costs of providing
ambulance services, obtained responses from a nationally representative
sample of 421 ground ambulance providers that participated in Medicare.
To determine how the factors affecting ambulance providers’ costs vary
geographically, we used data from the 2001 Area Resource File (ARF),
which is maintained by the Health Resources and Services Administration
(HRSA), to examine the characteristics of urban and rural counties, such as
their population and land area. In addition, we used Medicare claims data
for 2001 to determine the number and length of Medicare-covered


3
Pub. L. No. 106-554, Appendix F, §221(b), 114 Stat. 2763A-463, 486-87 (2000).
4
 The Project HOPE Center for Health Affairs is a nonprofit health policy research
organization.




Page 2                                               GAO-03-986 Rural Ambulance Services
                   ambulance trips delivered in urban and rural counties, and the number of
                   providers that served those areas.5 We also used these data to estimate
                   Medicare’s average payments for ambulance trips under the fee schedule.
                   Finally, we interviewed experts from eight industry and professional
                   organizations as well as several ambulance providers. These data were
                   adequate for addressing the issues in this report. Where appropriate, we
                   examined the data for implausible values and tested the data for internal
                   consistency. For more details on our data and methods, see appendix I.
                   We performed our work from November 2001 through September 2003 in
                   accordance with generally accepted government auditing standards.



Results in Brief   Ambulance trip volume is the key factor affecting differences in ambulance
                   providers’ average cost per trip. The majority of ambulance providers’ total
                   costs are related to their need to have ambulances and crew available when
                   an ambulance is required. As long as a provider has excess capacity, these
                   readiness-related costs are fixed and do not increase with the number of
                   trips. Consequently, providers that make fewer trips tend to have a higher
                   cost per trip than those that make many trips. For example, providers
                   surveyed by Project HOPE that averaged 3 or fewer trips per day had a cost
                   per trip that was nearly twice as high as the average cost per trip among
                   providers that averaged 9 to 12 trips per day.

                   The modest variation in Medicare payments to ambulance providers that
                   serve rural counties probably does not fully reflect their differences in cost
                   per trip because the key factor affecting provider costs—the number of
                   trips—varies widely across rural counties. In 2001, trip volume was much
                   lower in the least densely populated quarter of rural counties than in the
                   most densely populated quarter. Medicare per-trip payments are somewhat
                   higher on average for trips provided in the least densely populated rural
                   counties than for trips in other rural counties. However, the modestly
                   higher payments are unlikely to fully account for the higher cost per trip of
                   low-volume providers, which are most likely to serve the least densely
                   populated rural counties. The Medicare payment differences are due to the
                   greater length and the resulting higher mileage payments for trips in the
                   least densely populated rural counties. The cost differences, however, are


                   5
                    Our analysis focused on ambulance services paid under Medicare’s ambulance fee schedule
                   and therefore excluded services paid for by Medicare managed care organizations. Further,
                   our analysis did not include any ambulance services for Medicare beneficiaries that were
                   not billed to Medicare.




                   Page 3                                              GAO-03-986 Rural Ambulance Services
                              due to a higher fixed cost per trip, for which Medicare’s base rates are
                              intended to compensate.

                              We recommend that the Administrator of CMS better target the Medicare
                              rural payment adjustment to trips provided in rural counties with
                              particularly low population density by adjusting the base rates, rather than
                              the mileage rate, for ground ambulance services provided in those
                              counties.

                              In written comments on a draft of this report, CMS stated that the report
                              will be useful as the agency develops a proposed rule to address
                              appropriate payment for ambulance services furnished in rural, low-
                              volume areas. The eight ambulance associations that commented on the
                              draft report generally agreed with our findings and recommendation.
                              However, four of the associations raised concerns about using counties to
                              identify rural areas when targeting rural payments.



Background                    In recent years, the ambulance industry has experienced several changes.
                              In 2002, CMS implemented a new Medicare fee schedule for ambulance
                              services, replacing the previous system that paid providers on a reasonable
                              cost or reasonable charge basis. In addition, according to industry experts,
                              many volunteer providers have reported greater difficulty maintaining
                              adequate staff. Rural providers in particular have begun to rely more
                              heavily on paid staff. Experts also told us that while many rural volunteer
                              providers have not billed Medicare—or have billed nominal amounts—
                              more of these providers have begun billing for services.



Characteristics of Medicare   Recently, both the number of ambulance providers that bill Medicare and
Ambulance Providers           the number of ambulance trips paid for by Medicare have increased. From
                              1998 to 2001, the number of ambulance providers that billed Medicare
                              increased from just under 9,300 to over 9,700, and the total number of trips
                              paid for by Medicare rose from roughly 8 million to over 10 million.

                              Medicare ambulance providers include a wide variety of provider types. In
                              1998, about 8,200 freestanding providers and 1,100 hospitals and other
                              institution-based providers billed Medicare for ground trips. Freestanding
                              providers are a diverse group, including private for-profit, not-for-profit,
                              and public entities. They range from small community one-vehicle
                              operations to large fire and rescue departments serving major metropolitan



                              Page 4                                       GAO-03-986 Rural Ambulance Services
areas. They include operations staffed almost entirely by community
volunteers, public ventures that include a mix of volunteer and paid
professional staff, and private firms that use only paid staff. In 1998,
volunteer staff accounted for 80 percent or more of full-time equivalent
personnel for over one-third of Medicare ambulance providers.6 About
one-third of freestanding Medicare ambulance providers are managed by
local fire departments.

Medicare ambulance providers also vary in the types of services they
provide. Some deliver only basic life support (BLS) while others deliver
advanced life support (ALS) services.7 In addition to responding to
emergencies, ambulance providers may provide nonemergency
transportation, such as transfers from one hospital to another. For some
ambulance providers, nonemergency trips account for a significant share
of their trips; for others, such trips account for few or none of their trips.
Some ambulance providers are the sole providers serving their
communities, while others operate in areas with multiple ambulance
providers.

Medicare ambulance providers also differ in the percentage of their trips
covered by Medicare and in their reliance on Medicare revenue. In 1998,
Medicare beneficiaries on average accounted for about half of the total
trips by providers that billed Medicare. However, Medicare beneficiaries
accounted for less than one-quarter of trips for 13 percent of Medicare
providers, and accounted for over 80 percent of annual trips for 9 percent
of providers. On average, Medicare revenue accounted for 41 percent of
providers’ cash receipts.8 Other sources of ambulance providers’ revenue
include local tax subsidies and payments from private insurers, Medicaid,
and individuals.

Requirements affecting ambulance providers vary by location. States and
localities may require certain training for ambulance staff, establish
maximum payment rates that licensed providers are allowed to charge, or
specify response times through contracts with providers. Some


6
 See Penny E. Mohr and others, Findings from the 1999 National Survey of Ambulance
Providers (Bethesda, Md.: 2000), p.13.
7
 ALS services are provided by personnel with advanced training and involve assessments by
them or the provision of advanced interventions or procedures.
8
See Mohr and others, pp. 19-20.




Page 5                                              GAO-03-986 Rural Ambulance Services
                       jurisdictions—such as those that provide financial support to ambulance
                       providers—prohibit providers from billing for services. In addition, some
                       communities require all ambulance providers to maintain ALS capacity on
                       all vehicles.



Medicare Payment for   CMS recently implemented a Medicare fee schedule that changed the way
Ambulance Services     Medicare pays for ambulance services.9 The fee schedule, mandated by the
                       Balanced Budget Act of 1997 (BBA), recognizes seven levels of ground
                       ambulance services, ranging from BLS services to specialty care transports.
                       (See table 1.) Under the previous payment system, Medicare paid
                       institutional providers on a reasonable cost basis and freestanding
                       providers on a reasonable charge basis. This approach led to wide
                       differences in payments across providers for the same services. The new
                       fee schedule standardized payment rates across provider types by applying
                       the same payment rates to both institutional and freestanding providers.10
                       The fee schedule’s payment rates are updated annually. Medicare’s
                       payment is based on the lesser of the actual charge or the applicable fee
                       schedule amount.




                       9
                        The fee schedule took effect April 1, 2002. The BBA had directed that the fee schedule be
                       effective for services furnished on or after January 1, 2000. CMS stated that several
                       factors—other statutory obligations, the scope of systems changes required to implement
                       the fee schedule, and the need to ensure that its computer systems were compliant with
                       Year 2000 (Y2K) requirements—delayed implementation of the fee schedule. 67 Fed. Reg.
                       9100. A federal district court order, issued on January 16, 2003, required the Department of
                       Health and Human Services (HHS) to adopt a fee schedule for freestanding providers for the
                       period of January 1, 2000, through March 31, 2002. Lifestar Amb. Serv., Inc. v. U.S., 211
                       F.R.D. 688 (M.D. Ga. 2003). On April 16, 2003, CMS published a notice in the Federal
                       Register stating that Medicare’s fee schedule would apply to ambulance trips provided by
                       freestanding providers during that period. 68 Fed. Reg. 18654. Payments would be adjusted
                       retroactively. HHS has appealed the court’s decision.
                       10
                        Several other changes to the way ambulance services are paid for were introduced with
                       the fee schedule. For example, in accordance with the BBA, all providers must accept the
                       Medicare payment amount as full payment for covered services and may only collect
                       allowed cost-sharing amounts from beneficiaries. In addition, Medicare will pay a BLS rate
                       for services furnished at the BLS level even when an ALS vehicle is used. This latter
                       provision will be phased in over several years. As specified by BIPA, ambulance providers
                       that are critical access hospitals or entities owned and operated by them are exempt from
                       the fee schedule and paid on a reasonable cost basis if there is no other ambulance provider
                       within 35 miles. Critical access hospitals are small, isolated hospitals that have an annual
                       average length of stay of 4 days or less.




                       Page 6                                               GAO-03-986 Rural Ambulance Services
Table 1: Ground Ambulance Services Covered by Medicare’s Ambulance Fee Schedule

Level of ambulance
service                  Definition                                          Staffing requirements                                   Base rate (2003)a
Basic life support       Transportation by ambulance and the                 The ambulance must be staffed by an                                $172.42
(BLS)                    provision of medically necessary supplies and       individual who is qualified in
                         services, including the provision of BLS            accordance with state and local laws
                         ambulance services as defined by the state.         as an emergency medical technician-
                                                                             basic (EMT-Basic).
BLS-emergency            BLS level of service provided in immediate          Same as BLS                                                        $275.87
                         response to a 911 call or the equivalent.
Advanced life support,   Transportation by ambulance and the                 ALS personnel are individuals trained                              $206.90
level 1 (ALS1)           provision of medically necessary supplies and       to the level of the emergency medical
                         services, including an ALS assessment by            technician-intermediate (EMT-
                         ALS personnel or the provision of at least one      Intermediate) or EMT-Paramedic.c
                         ALS intervention.b
ALS1-emergency           ALS level of service provided in immediate          Same as ALS1                                                       $327.60
                         response to a 911 call or the equivalent.
ALS2                     Transportation by ambulance and the                Same as ALS1                                                        $474.16
                         provision of medically necessary supplies and
                         services, including (1) at least three separate
                         administrations of one or more medications by
                         intravenous push/bolus or by continuous
                         infusion,d or (2) the provision of at least one of
                         seven ALS2 procedures.e
Paramedic ALS            EMT-Paramedic services furnished by a               EMT-Paramedic                                                      $301.74
intercept                provider that does not furnish the ground
                         ambulance transport, provided the services
                         meet certain requirements.f
Specialty care           Hospital-to-hospital transportation of a            SCT is necessary when a patient’s                                  $560.37
transport (SCT)          critically injured or ill patient, including the    condition requires ongoing care that
                         provision of medically necessary supplies and       must be furnished by one or more
                         services, at a level of service beyond the          health professionals in an appropriate
                         scope of the EMT-Paramedic.                         specialty area, such as nursing or
                                                                             respiratory care, or a paramedic with
                                                                             additional training.
Source: CMS.

                                                Note: GAO summary based on information in CMS’s final rule as published in the Federal Register, a
                                                subsequent program memorandum regarding definitions of ambulance services, and the ambulance
                                                fee schedule public use file for calendar year 2003. See 67 Fed. Reg. 9100, CMS’s Program
                                                Memorandum AB-02-130 (Sept. 27, 2002).
                                                a
                                                 This is the base rate for each level of service prior to the geographic adjustment for differences in
                                                wages across areas.
                                                b
                                                 An ALS assessment is an assessment performed by an ALS crew as part of an emergency response
                                                that was necessary because the patient’s reported condition at the time of dispatch was such that only
                                                an ALS crew was qualified to perform the assessment. An ALS assessment does not necessarily
                                                result in a determination that the patient requires an ALS level of service. An ALS intervention is a
                                                procedure that is, in accordance with state and local laws, beyond the scope of practice of an EMT-
                                                Basic.




                                                Page 7                                                        GAO-03-986 Rural Ambulance Services
c
 An EMT-Intermediate is an individual who is qualified, in accordance with state and local laws, as an
EMT-Basic and who is also certified, in accordance with those laws, to perform essential advanced
techniques and to administer a limited number of medications. An EMT-Paramedic is an individual who
has the qualifications of an EMT-Intermediate and, in accordance with state and local laws, has
enhanced skills that include being able to perform additional interventions and administer additional
medications.
d
    This excludes certain solutions.
e
    These include chest decompression, cardiac pacing, surgical airway, and other procedures.
f
 Paramedic ALS intercept services are most often furnished for an emergency ambulance trip in which
a local volunteer ambulance that can furnish only BLS services is dispatched to transport a beneficiary.
If the beneficiary needs ALS services, another provider dispatches a paramedic to meet the BLS
ambulance at the scene or enroute to the hospital. The ALS paramedics then provide ALS services for
the beneficiary. In general, Medicare payment may be made only to the provider furnishing the trip.
However, the BBA provided that payments also could be made for the ALS provider under limited
circumstances. CMS has stated that New York is the only state in which providers meet the statutory
requirements for Medicare payment.


For most ambulance services, the fee schedule payment is the sum of a
base payment and a payment for mileage.11

• The base payment for a trip, which is intended to pay for fixed costs
  such as staff and equipment, reflects both a base rate and a geographic
  modifier. The base rate varies by the level of ambulance service
  provided. The geographic modifier, which is applied to 70 percent of the
  base rate, is intended to account for wage differences across areas.12

• The mileage payment reflects both the length of a trip and the per-mile
  payment rate. For trips in which the beneficiary is picked up in an
  urban area, the per-mile rate is $5.53. Because of the fee schedule’s rural
  adjustment, the per-mile rate for rural trips is 150 percent of the urban
  mileage rate for each of the first 17 miles ($8.30) and 125 percent of the
  urban mileage rate for miles 18 through 50 ($6.91).13 The urban mileage
  rate applies to every mile over 50 miles. The mileage payment applies



11
     For paramedic ALS intercept services, there is no separate payment for mileage.
12
 The modifier is the same as that applied to the practice expense component of Medicare’s
physician fee schedule.
13
  The mileage rate increase for the first 17 miles was not mandated by law, but was specified
in CMS’s final rule. The increase for miles 18 through 50 is a temporary increase mandated
by law. BIPA required that, for miles 18 through 50 of a rural trip, the mileage rate should be
increased by at least half as much as the mileage rate increase established for the first 17
miles of a rural trip. BIPA stated that this increase would apply to ground ambulance
services provided on or after July 1, 2001, and before January 1, 2004. Pub. L. No. 106-554,
§221, 114 Stat. 2763A-463, 486.




Page 8                                                       GAO-03-986 Rural Ambulance Services
     only to “loaded miles”—the miles the beneficiary is transported by
     ambulance.

Under the fee schedule, rural areas are defined as areas outside of
metropolitan statistical areas (MSA) and New England County
Metropolitan Areas, as well as parts of MSAs that are identified as rural by
the Goldsmith modification.14 MSAs are groups of counties containing a
core of at least 50,000 people, together with adjacent areas that have a high
degree of economic and social integration with that core.15 The Goldsmith
modification identifies small towns and rural areas within large
metropolitan counties that are isolated from central areas by distance or
other features, such as mountains. About one-quarter of the roughly 3,100
counties in the United States are in MSAs, and about 75 of those counties
have areas that are identified as rural under the Goldsmith modification.

The ambulance fee schedule will be phased in over several years. During
this period, payments will be based in part on the fee schedule’s service-
specific payment rates and in part on the amounts that Medicare would
have paid under the prior payment system. The proportion of the payment
based on the fee schedule will increase each year until 2006, when provider
payments will be based entirely on the fee schedule.16 In 2003, payments
are based on 40 percent of the fee schedule payment and 60 percent of the
rates under the prior system.17




14
 CMS has stated that it could not easily adopt and implement other methods for recognizing
geographic differences in population density within the constraints necessary to implement
the fee schedule in a timely manner. 67 Fed. Reg. 9100.
15
 CMS currently uses the MSA definitions established by the Office of Management and
Budget (OMB) and in effect prior to June 6, 2003, when OMB announced revised definitions
based on the 2000 census.
16
 Medicare payment for ambulance services is based on the lesser of the actual charge or the
applicable fee schedule amount. During the transition period, the applicable fee schedule
amount is a blended payment, not the fee schedule payment.
17
  In response to the federal district court order that required HHS to adopt a fee schedule for
freestanding providers for the period of January 1, 2000, to March 31, 2002, CMS issued a
notice in the Federal Register that specified blended payments applicable to 2000, 2001, and
early 2002. 68 Fed. Reg. 18654-55.




Page 9                                                 GAO-03-986 Rural Ambulance Services
Ambulance Providers’         Trip volume is the major determinant of differences across providers in the
                             average cost per trip. Ambulance providers’ total costs primarily reflect
Trip Volume Is the           readiness—having an ambulance and crew available when emergency calls
Main Factor Affecting        are received. These readiness-related costs are fixed costs, meaning that
                             they do not increase with the number of trips provided, as long as the
Their Cost Per Trip          provider has the excess capacity to make additional trips. Consequently,
                             providers that can spread these fixed costs across more trips have a lower
                             average cost per trip than providers that make fewer trips.



Providers’ Total Costs Are   The majority of ambulance providers’ total costs are related to readiness—
Predominantly Readiness      the need to have an ambulance and crew available when emergency calls
                             are received. Readiness-related costs include costs of labor, vehicles,
Related, and Do Not Vary
                             building space, and administration, as well as the cost of any back-up
With Trip Volume             vehicles and crew, which constitute a reserve that permits responses to
                             multiple simultaneous calls as well as scheduled maintenance on other
                             vehicles. (See table 2.) Readiness-related costs are fixed, meaning that
                             they do not vary with the number of trips a provider makes, as long as the
                             provider has excess capacity. For example, total vehicle costs do not
                             increase significantly when a provider makes more trips. Likewise,
                             building and administrative costs are largely unaffected by trip volume.
                             However, if a provider were to add another ambulance and crew to respond
                             to higher volume, its fixed costs would rise substantially.



                             Table 2: Ambulance Providers’ Cost Components, 1998

                             Cost component                                                           Percentage of total costs
                             Labor costs                                                                                          65
                             Administrative costs                                                                                 14
                             Vehicle and equipment costs                                                                          11
                             Building costs                                                                                         6
                             Supply costs                                                                                           3
                             Total costs                                                                                         100
                             Source: Project HOPE.

                             Note: GAO analysis of data from Project HOPE’s National Survey of Ambulance Providers. Fuel costs
                             are included in the vehicle and equipment costs category. These data are for full cost providers. Those
                             that did not report costs for all five components were excluded. Full cost providers are defined as
                             those that have 80 percent or more of their staff comprised of paid employees rather than volunteers,
                             and that pay for 80 percent or more of their garage and office space. These data are for the fiscal year
                             preceding the survey, which for most providers included 6 months or more of calendar year 1998. Cost
                             component categories do not add to 100 percent due to rounding.




                             Page 10                                                     GAO-03-986 Rural Ambulance Services
                          In contrast, an ambulance provider’s costs for fuel and supplies (such as
                          drugs and oxygen) are variable because they increase with the number of
                          trips. These costs, however, account for a small fraction of ambulance
                          providers’ total costs.18



Fewer Trips Linked to a   Providers that make fewer trips tend to have a higher cost per trip than
Higher Cost Per Trip      those that make more trips. Figure 1 illustrates the average relationship
                          between ambulance providers’ cost per trip and their total trip volume, for
                          providers that made 5,000 or fewer trips.19 As trip volume increases, the
                          cost per trip decreases. Our statistical analysis considered other factors
                          that affect providers’ costs, notably trip length, but trip volume was most
                          strongly related to the cost per trip.




                          18
                           In the available data on ambulance costs, fuel costs are not always reported separately, so
                          they are included in the vehicle and equipment costs category.
                          19
                               Total trip volume includes all of a provider’s trips, not just those covered by Medicare.




                          Page 11                                                        GAO-03-986 Rural Ambulance Services
Figure 1: The Relationship between Cost Per Trip and Total Ambulance Trip Volume
for Full Cost Providers With 5,000 or Fewer Annual Trips, 1998




 Above
average
cost per
     trip




  Below
average
cost per
     trip
            0         500         1,000     1,500         2,000   2,500    3,000   3,500   4,000   4,500   5,000
            Total trips
                        Predicted cost per trip
                        Average cost per trip for all providers
                        Providers' actual cost per trip
Source: Project HOPE.


Note: GAO analysis of data from Project HOPE’s National Survey of Ambulance Providers. The curve
represents the predicted average cost per trip, based on our statistical analysis of providers’ total
costs, controlling for variation in type of service and trip volume, both of which were statistically
significant. Total trip volume includes all of a provider’s trips, not just those covered by Medicare.
These data are for full cost providers. Full cost providers are defined as those that have 80 percent or
more of their staff comprised of paid employees rather than volunteers, and that pay for 80 percent or
more of their garage and office space. Providers with over 5,000 trips were excluded. We found
similar results when we analyzed all full cost providers. These data are for the fiscal year preceding
the survey, which for most providers included 6 months or more of calendar year 1998.




Page 12                                                                   GAO-03-986 Rural Ambulance Services
In addition, we found that providers surveyed by Project HOPE that
averaged 3 or fewer trips per day had an average cost per trip that was
nearly twice as high as the cost per trip among those that averaged 9 to 12
trips per day.20 (See table 3.) Providers that averaged 4 to 8 trips per day
had a cost per trip that was 1.3 times as high as the average cost among
providers with 9 to 12 trips per day.



Table 3: Relative Cost Per Trip for Full Cost Ambulance Providers, 1998

Providers’ average number of total trips                  Cost per trip relative to the average for
per day (range)                                              providers with 9 to 12 trips per day
3 or fewer                                                                                             1.94
4 to 8                                                                                                 1.30
9 to 12                                                                                                1.00
Source: Project HOPE.

Note: GAO analysis of data from Project HOPE’s National Survey of Ambulance Providers. The
relative cost per trip is the ratio of the average cost per trip for each group of providers to the average
cost per trip of providers that averaged 9 to 12 trips per day. Total trip volume includes all of a
provider’s trips, not just those covered by Medicare. These data are for full cost providers. Full cost
providers are defined as those that have 80 percent or more of their staff comprised of paid employees
rather than volunteers, and that pay for 80 percent or more of their garage and office space. Providers
that had daily trip volumes outside the ranges shown above were excluded. The cost differences are
statistically significant at the .05 level between the 3 trips or fewer group of providers and the other two
groups (4 to 8 trips and 9 to 12 trips). The cost difference between the second and third groups was
statistically significant at the .10 level. Significance was assessed using a one-tailed test. These data
are for the fiscal year preceding the survey, which for most providers included 6 months or more of
calendar year 1998.




20
 These data are for full cost providers, defined as those that have 80 percent or more of
their staff comprised of paid employees rather than volunteers, and that pay for 80 percent
or more of their garage and office space. These data are for the fiscal year preceding the
survey, which for most providers included 6 months or more of calendar year 1998.




Page 13                                                        GAO-03-986 Rural Ambulance Services
Medicare Ambulance         Although Medicare’s payments generally are higher for trips originating in
                           the least densely populated rural counties than in other counties, the
Payments for Trips in      payment differential is probably not large enough to account for the higher
Rural Counties Are         costs incurred by low-volume providers likely to serve these areas. Far
                           fewer Medicare-covered ambulance trips are typically provided in rural
Unlikely to Fully          counties than in urban counties. Trip volume also varies widely across
Reflect Differences in     rural counties, with the least densely populated generally having
Providers’ Cost Per        substantially fewer trips than the most densely populated. This suggests
                           that the cost per trip is likely higher for providers serving the least densely
Trip                       populated rural counties. Ambulance providers on average are paid more
                           for trips originating in the least densely populated rural counties than for
                           those in the most densely populated rural counties, but the payment
                           differences are modest and unlikely to reflect the higher cost per trip of
                           low-volume providers.



Rural and Urban Counties   Rural counties, as defined by Medicare’s ambulance fee schedule, tend to
Differ in Ambulance Trip   have a much lower volume of ambulance trips than counties defined as
                           urban.21 In 2001, rural counties averaged about 1,200 Medicare-covered
Volume and Population
                           trips (both emergency and nonemergency), while urban counties averaged
Density                    about 9,100 trips. The lower number of trips in rural counties suggests that
                           providers that serve these areas likely have a higher cost per trip than other
                           providers.

                           The difference in the volume of Medicare ambulance trips provided in rural
                           and urban counties largely reflects differences in their population density.
                           Not surprisingly, the number of Medicare ambulance trips in a county is
                           strongly related to its population, with counties with fewer residents
                           having fewer trips. Trip volume is also related to a county’s land area,
                           although to a lesser extent.22 Population density—the ratio of population
                           to land area—reflects both of these measures. (See table 4.)



                           21
                             We classified counties as urban if they were in an MSA and as rural if they were not in an
                           MSA, using 2001 Area Resource File data. The roughly 75 urban counties that contain areas
                           identified as rural by the Goldsmith modification are included in the urban county group.
                           We used the beneficiary’s address as a proxy for where each trip originated, since the 2001
                           national claims files did not contain that information. (See app. I for details.)
                           22
                            Larger counties have somewhat fewer trips than smaller counties, after accounting for
                           county population.




                           Page 14                                              GAO-03-986 Rural Ambulance Services
                             Table 4: Characteristics of Urban and Rural Counties, 2001

                                                     Average       Average            Average
                                                   number of      length of         population
                                                    Medicare      Medicare             density                        Average
                                                  ambulance ambulance                (persons/        Average        land area
                                                        trips trips (miles)           sq. mile)     population      (sq. miles)
                             Urban
                             counties                  9,144              14                747        276,791              844
                             Rural
                             counties                  1,153              23                  47         23,942           1,132
                             Sources: HRSA and CMS.

                             Note: GAO analysis of HRSA and CMS data. We classified counties as urban if they were in an MSA
                             and as rural if they were not in an MSA. The roughly 75 urban counties that contain rural areas as
                             identified by the Goldsmith modification are included in the urban county group. We used the
                             beneficiary’s address as a proxy for where each trip originated.




Dominant Providers in Less   The number of Medicare ambulance trips provided in rural counties varies
Densely Populated Rural      markedly with population density, with the least densely populated rural
                             counties tending to have fewer trips than other rural counties. For
Counties Provide Fewer
                             example, the quarter of rural counties that are the most densely populated,
Trips                        with 52 or more persons per square mile, averaged over 2,200 Medicare
                             trips in 2001.23 (See table 5.) In contrast, only about 300 Medicare trips, on
                             average, were made in the quarter of rural counties that are the least
                             densely populated, with 11 or fewer persons per square mile. Even fewer
                             Medicare trips—only about 200—were made in frontier counties, which are
                             counties with 6 or fewer persons per square mile.24 This suggests that the
                             cost per trip is likely higher for providers serving the least densely
                             populated rural counties.




                             23
                                  We also grouped counties according to their Medicare population density. See app. II.
                             24
                              “Frontier” is a term used to describe counties with very low population density, and in
                             most cases frontier counties are defined as those with six or fewer persons per square mile.




                             Page 15                                                  GAO-03-986 Rural Ambulance Services
Table 5: Average Number of Medicare Ambulance Trips, Population and Land Area,
by Counties Grouped by Population Density, 2001

                                                          Average
                                                        number of
                                                         Medicare             Average land
                                     Number of         ambulance     Average          area
County categories                     counties               trips population   (sq. miles)
Urban counties                                854             9,144        276,791               844
Rural counties                              2,273             1,153         23,942             1,132
 52+ persons/sq. mile                         569             2,254         45,612               502
 30-51 persons/sq. mile                       568             1,290         25,351               654
 12-29 persons/sq. mile                       568               771         16,744               898
 0-11 persons/sq. mile                        568               296          8,021             2,477
    7-11 persons/sq. mile                     182               470         12,288             1,491
    0-6 persons/sq. mile                      386               214          6,009             2,942
Sources: HRSA and CMS.

Note: GAO analysis of HRSA and CMS data. We classified counties as urban if they were in an MSA
and as rural if they were not in an MSA. The roughly 75 urban counties that contain rural areas as
identified by the Goldsmith modification are included in the urban county group. Rural counties are
grouped by quartiles of total county population density. The first quartile (0-11 persons per square
mile) is further divided into frontier counties (0-6 persons per square mile) and nonfrontier (7-11
persons per square mile). We used the beneficiary’s address as a proxy for where each trip originated.




Page 16                                                    GAO-03-986 Rural Ambulance Services
The dominant providers in the least densely populated rural counties tend
to have far fewer trips than the dominant providers serving other rural
counties. Overall, rural counties vary little in the number of providers
serving them. However, in most rural counties, one or two providers
dominate, delivering the bulk of Medicare trips, with others having a much
smaller share. We found that in 2001, about 70 percent of the trips in a rural
county were typically supplied by two providers. The number of trips
made by these dominant providers varied with counties’ population
density. In the quarter of rural counties with the lowest population density,
the median number of Medicare trips made by each of the top two
providers—in all of the counties they served—was 275.25 (See table 6.) In
contrast, the median number of Medicare trips made by the top two
providers was much higher—over 2,100 trips—in the quarter of rural
counties that were the most densely populated.26




25
 Providers’ trips are not necessarily limited to one county, since providers may serve
multiple counties.
26
 The total number of trips made by these providers would be expected to be double the
number of Medicare trips, since Medicare beneficiaries account on average for roughly half
of providers’ total trip volume.




Page 17                                               GAO-03-986 Rural Ambulance Services
                           Table 6: Characteristics of Rural Counties and Their Ambulance Providers, by
                           Counties Grouped by Population Density, 2001

                                                                                                  Percentage of  Number of
                                                                                                      a county’s   Medicare
                                                                                                       Medicare ambulance
                                                                                  Number of          ambulance    trips in all
                                                                                   Medicare       trips covered counties for
                                                                                   providers        by the top 2 each of the
                                                                                   serving a      providers in a        top 2
                                                                Number of            countya              county   providers
                           County categories                     counties           (median)            (median)    (median)
                           Rural                                       2,273                  5                 70           1,100
                                52+ persons/sq. mile                     569                  8                 68           2,168
                                30-51 persons/sq. mile                   568                  6                 70           1,422
                                12-29 persons/sq. mile                   568                  6                 69              832
                                0-11 persons/sq. mile                    568                  4                 74              275
                                  7-11 persons/sq. mile                  182                  5                 71              433
                                  0-6 persons/sq. mile                   386                  4                 75              215
                           Sources: HRSA and CMS.

                           Note: GAO analysis of HRSA and CMS data. We classified counties as rural if they were not in an
                           MSA. Rural counties are grouped by quartiles of total county population density. The first quartile (0-11
                           persons per square mile) is further divided into frontier counties (0-6 persons per square mile) and
                           nonfrontier counties (7-11 persons per square mile). We used the beneficiary’s address as a proxy for
                           where each trip originated.
                           a
                            Providers that delivered less than 1 percent of their total Medicare trips in a county were excluded
                           from the count of providers serving that county.




Medicare Ambulance         Ambulance providers on average are paid 16 percent more for trips
Payments Are Somewhat      originating in the least densely populated quarter of rural counties than for
                           trips in the most densely populated quarter.27 (See table 7.) Payments for
Higher for Trips in Less   those trips are higher because the trips are generally longer, resulting in a
Densely Populated Rural    higher mileage payment. In 2001, while trips that began in the most densely
Counties                   populated quarter of rural counties averaged 18 miles, trips in the least
                           densely populated quarter averaged 30 miles. The rural adjustment, which
                           provides a higher per-mile rate for the first 50 miles of rural trips, also
                           contributed to the higher mileage payments.




                           27
                            Payment estimates were calculated by applying 100 percent of the 2003 Medicare
                           ambulance fee schedule rates to Medicare ground ambulance trips delivered in 2001.




                           Page 18                                                      GAO-03-986 Rural Ambulance Services
The modest difference in Medicare payment across rural counties is
dwarfed by the difference in trip volume: The difference in trip volume
between the least and most densely populated quarters of rural counties is
nearly eightfold.28 Because trip volume is an indicator of costs, the
Medicare payment differences likely do not fully reflect differences across
rural counties in providers’ cost per trip.29



Table 7: Average Number of Medicare Ambulance Trips, Trip Length, and Estimates
of Average Medicare Paymenta per Ambulance Trip, by Rural Counties Grouped by
Population Density

                                                          Average             Average         Average
                                                        number of            length of       Medicare
                                                         Medicare            Medicare     payment per
                                    Number of          ambulance          ambulance        ambulance
County categories                    counties                trips       trips (miles)            trip
Rural counties                             2,273              1,153                  23             $463
52+ persons/sq. mile                         569              2,254                  18             $434
30-51 persons/sq. mile                       568              1,290                  21             $446
12-29 persons/sq. mile                       568                771                  25             $465
0-11 persons/sq. mile                        568                296                  30             $505
     7-11 persons/sq. mile                   182                470                  27             $490
     0-6 persons/sq. mile                    386                214                  31             $512
Sources: HRSA and CMS.

Note: GAO analysis of HRSA and CMS data. We classified counties as urban if they were in an MSA
and as rural if they were not in an MSA. The roughly 75 urban counties that contain rural areas as
identified by the Goldsmith modification are included in the urban county group. Rural counties are
grouped by quartiles of total county population density. The first quartile (0-11 persons per square
mile) is further divided into frontier counties (0-6 persons per square mile) and nonfrontier counties (7-
11 persons per square mile). We used the beneficiary’s address as a proxy for where each trip
originated.
a
 Payment estimates were calculated by applying 100 percent of the 2003 Medicare ambulance fee
schedule rates to Medicare ground ambulance trips delivered in 2001. These estimates reflect the mix
of ambulance services provided in the different county categories as well as the geographic
adjustment to account for wage differences across areas.




28
 There is a similar difference in trip volume for the dominant providers serving these
counties.
29
     Differences in trip volume likely result in smaller differences in cost per trip.




Page 19                                                         GAO-03-986 Rural Ambulance Services
Conclusions           Refining Medicare’s ambulance fee schedule to adequately account for cost
                      differences in providing ambulance services across various geographic
                      areas is important to ensuring beneficiaries’ access to services. Access is a
                      particular concern in rural areas, since providers’ cost per trip is likely to
                      be higher because they provide fewer trips. Moreover, our analysis shows
                      that the cost per trip is likely to be highest in the least densely populated
                      rural counties. While the fee schedule incorporates a rural adjustment to
                      raise payments for trips provided in rural areas, its definition of “rural” is
                      broad. As a result, the fee schedule’s rural payment adjustment does not
                      sufficiently target trips provided in the least densely populated rural
                      counties.

                      In implementing the fee schedule, CMS adjusted the mileage rate for rural
                      trips to account for the higher cost per trip of providers serving rural areas.
                      However, trip volume is a better indicator of providers’ cost per trip than is
                      trip length. Thus, adjusting the base rates for rural trips—the portion of
                      Medicare’s payment that is designed to pay for providers’ fixed costs—is a
                      more appropriate way of accounting for rural low-volume providers’ higher
                      cost per trip than adjusting the mileage rate.



Recommendation for    To help ensure that Medicare beneficiaries’ access to ambulance services is
                      adequate, we recommend that the Administrator of CMS better target the
Executive Action      rural payment adjustment to trips provided in rural counties with
                      particularly low population density by adjusting the base rates, rather than
                      the mileage rate, for ground ambulance services provided in those
                      counties.



Agency and External   We received written comments on a draft of this report from CMS. We also
                      received comments from eight ambulance associations: American
Reviewer Comments     Ambulance Association,30 American Hospital Association, Association of
and Our Evaluation    Air Medical Services, National Association of State Emergency Medical
                      Services Directors, National Volunteer Fire Council, Rural EMS Advocate,
                      American College of Emergency Physicians, and the National Association
                      of EMS Physicians.

                      30
                       The American Ambulance Association represents many types of ambulance providers. In
                      this section we refer to it as representing ground ambulance providers because they account
                      for the majority of the association’s members.




                      Page 20                                              GAO-03-986 Rural Ambulance Services
CMS                      CMS stated that the report will be useful as the agency develops a proposed
                         rule to address appropriate payment for ambulance services furnished in
                         rural, low-volume areas. CMS also noted that the report reflects the
                         complexity of the issues and the need for careful analysis to ensure that
                         payment adjustments are made only for those ambulance providers that
                         require additional payment because of their low volume, rather than, for
                         example, inefficiency or competition from another provider. CMS’s
                         comments appear in appendix III. CMS also provided technical comments,
                         which we incorporated as appropriate.




Ambulance Associations   The associations that reviewed the draft report generally agreed with our
                         findings and recommendation. All of the associations agreed with the need
                         to address the higher cost of providing ambulance services in rural areas.
                         Six agreed that an area’s ambulance trip volume reflects its population
                         density, while the remaining two associations did not address this issue.
                         The majority of the associations agreed that CMS should adjust the base
                         rates to recognize the higher cost per trip of providing ambulance services
                         in areas with low population density. However, three associations went
                         further, proposing to use both mileage and base rates to address the higher
                         costs in rural areas. While supporting the principle of paying higher base
                         rates to providers in rural areas where costs are high, the state EMS
                         directors’ and EMS physicians’ associations were concerned that higher
                         payments for rural providers could be at the expense of other providers.

                         Four associations raised concerns about using counties as the geographic
                         areas for applying the adjustment. These associations said that a system
                         that used counties would not accurately target rural ambulance payments.
                         Three of these associations noted that, because counties may include both
                         densely and sparsely populated areas, a system that used counties could
                         overpay some providers and underpay others. They proposed using zip
                         codes as the geographic areas for assessing population density and
                         applying the adjustment. The rural ambulance association, in particular,
                         also advocated the use of multiple rural categories based on population
                         density to adjust payments for rural trips. The fourth association
                         emphasized the need for a system that ensures that all areas with
                         sufficiently low population density are eligible for an appropriate payment
                         adjustment.




                         Page 21                                     GAO-03-986 Rural Ambulance Services
Our Response   GAO and the ambulance associations agree with the need to adjust
               payments for rural trips and that the adjustment should be applied to the
               base rate. With respect to adjusting payments for rural trips in low
               population density areas, we believe the adjustment should be applied to
               the base rate. We believe that the mileage rate for any trip, rural or urban,
               is best suited to compensating ambulance providers for costs that vary with
               trip length. As stated in the report, a base rate adjustment is a more
               appropriate way of accounting for rural low-volume providers’ higher costs
               per trip because base rates reflect fixed costs, and because trip volume is a
               better indicator of providers’ cost per trip than is trip length. With respect
               to possible payment reductions for other providers, implementing our
               recommendation could have this effect. If a revised rural adjustment is
               implemented in a way to keep total Medicare expenditures the same, some
               providers could face lower payments.

               With respect to the geographic unit used to identify trips for the rural
               adjustment, we agree that, since counties are relatively large geographic
               units, it is possible for trips in some areas to be overpaid and others
               underpaid. Moreover, in principle, a rural classification system that uses a
               smaller geographic unit, such as zip codes, might better target payments to
               trips in areas with low population density. Yet our analysis indicates that
               zip codes do not explain variation in trip volume as well as counties.
               Further, county boundaries tend to be more stable over time than zip code
               boundaries. In addition, a variety of technical difficulties hinder the use of
               zip codes for ambulance payments, including the absence of zip codes for
               some rural areas. With respect to multiple adjustment categories, we did
               not address whether there should be a single adjustment or whether there
               should be multiple adjustment amounts to reflect differing levels of
               population density. A decision on single or multiple categories would
               require balancing increased precision with increased complexity.


               We are sending copies of this report to the Administrator of CMS,
               appropriate congressional committees, and other interested parties. We
               will also make copies available to others upon request. This report is also
               available at no charge on GAO’s Web site at http://www.gao.gov.




               Page 22                                      GAO-03-986 Rural Ambulance Services
If you or your staffs have any questions, please call me at (202) 512-7114.
Other GAO contacts and staff acknowledgments are listed in appendix IV.




Laura A. Dummit
Director, Health Care—Medicare Payment Issues




Page 23                                     GAO-03-986 Rural Ambulance Services
List of Committees

The Honorable Charles E. Grassley
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable W.J. “Billy” Tauzin
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives

The Honorable William M. Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives




Page 24                             GAO-03-986 Rural Ambulance Services
Appendix I

Data and Methods                                                                                  AA
                                                                                                   ppp
                                                                                                     ep
                                                                                                      ned
                                                                                                        n
                                                                                                        x
                                                                                                        id
                                                                                                         e
                                                                                                         x
                                                                                                         Iis




             1999 National Survey of Ambulance Providers. To identify the factors that
             influenced ambulance provider costs, we used the 1999 National Survey of
             Ambulance Providers. This survey, conducted by the Project HOPE Center
             for Health Affairs under the sponsorship of the American Ambulance
             Association, is the only nationally representative source for ambulance
             providers’ costs. Project HOPE selected a stratified random sample of
             providers that had billed Medicare in 1997, obtained 421 completed
             questionnaires, and reported a response rate of 56 percent.1 The survey
             included questions on costs, total number of trips by type of service,
             geographic location, and total mileage.

             We took several steps to ensure that the Project HOPE data were suitable
             for our analysis. We examined the accuracy and completeness of the data
             by testing for implausible values and internal consistency. In addition, we
             questioned an anomalous result in Project HOPE’s initial analysis of its
             data, which raised concerns about the credibility of the data: emergency
             advanced life support (ALS) trips cost less than nonemergency basic life
             support (BLS) trips.2 In response, Project HOPE provided us with
             information about its subsequent analysis, which showed the expected
             result—ALS trips cost more than BLS trips, after controlling for providers’
             volume. This result resolved our major concern about the data.

             We limited our analysis of the factors affecting differences in providers’
             costs to full cost providers—those providers that paid for 80 percent or
             more of their staff and paid for 80 percent or more of their office and
             garage space. The costs reported by these providers are more likely to
             reflect the full cost of providing ambulance services. We also excluded
             ambulance providers that were part of fire departments, because about half
             could not separate ambulance costs from other costs. Finally, we excluded
             one provider that reported implausible values. After these exclusions, we
             had 114 cases for analysis. Certain analyses that did not pertain to all full
             cost providers used a smaller number of cases. (See tables 8 and 9.)




             1
              See Penny E. Mohr and others, Findings from the 1999 National Survey of Ambulance
             Providers (Bethesda, Md.: 2000), p.11.
             2
              See Mohr and others, p. 25.




             Page 25                                          GAO-03-986 Rural Ambulance Services
Appendix I
Data and Methods




Table 8: Full Cost Ambulance Providers by Average Number of Trips Per Day, 1998

Providers’ average number of total trips
per day                                                         Percentage of full cost providers
3 or fewer                                                                                           22
4 to 8                                                                                               27
9 to 12                                                                                                9
13 to 20                                                                                               7
21 or more                                                                                           35
Total                                                                                               100
Source: Project HOPE.

Note: GAO analysis of data from Project HOPE’s National Survey of Ambulance Providers. Total trip
volume includes all of a provider’s trips, not just those covered by Medicare. Full cost providers are
defined as those that have 80 percent or more of their staff comprised of paid employees rather than
volunteers, and that pay for 80 percent or more of their garage and office space. These data are for the
fiscal year preceding the survey, which for most providers included 6 months or more of calendar year
1998. The number of full cost providers is 114.




Table 9: Full Cost Ambulance Providers by Average Number of Trips Per Year, 1998

Providers’ average number of total
trips per year                                                  Percentage of full cost providers
5,000 or fewer                                                                                       58
5,001 to 10,000                                                                                      20
More than 10,000                                                                                     22
Total                                                                                               100
Source: Project HOPE.

Note: GAO analysis of data from Project HOPE’s National Survey of Ambulance Providers. Total trip
volume includes all of a provider’s trips, not just those covered by Medicare. Full cost providers are
defined as those that have 80 percent or more of their staff comprised of paid employees rather than
volunteers, and that pay for 80 percent or more of their garage and office space. These data are for the
fiscal year preceding the survey, which for most providers included 6 months or more of calendar year
1998. The number of full cost providers is 114.


Area Resource File. The Area Resource File (ARF), which is maintained by
the Health Resources and Services Administration (HRSA), is a county-
based health resources information database that contains data from many
sources, including the U.S. Census. From the 2001 ARF, we obtained
county data on land area in 1990 and total population in 2000, which we
used to calculate population density. We also obtained data on the number
of persons age 65 and over in each county in 1999, which we used as a
proxy for Medicare beneficiaries. The ARF is a standard data source that is



Page 26                                                     GAO-03-986 Rural Ambulance Services
Appendix I
Data and Methods




well documented and widely used, so we did not independently verify its
accuracy or completeness.

Medicare claims files. We used Medicare claims data to determine the
volume and length of all ground-based Medicare-covered trips, as well as
Medicare’s payments for those trips. We used the 2001 national claims
history 100 percent nearline file for physicians and suppliers to identify
claims for ambulance services by freestanding providers, and the 2001
outpatient 100 percent standard analytic file to identify claims for
ambulance services by institutional providers. We used the zip code of the
beneficiary’s primary address as a proxy for the point where the ambulance
picked up the beneficiary because the point of pickup is not recorded in the
2001 data.3 Although we did not independently verify the reliability of the
national claims files, we screened the files and excluded claims that were
denied, claims that were superseded by an adjustment claim, and claims for
services in other years. We retained all final claims for 2001.

Provider interviews. To gain an understanding of the ambulance industry,
we interviewed experts from eight industry and professional organizations.
We also interviewed several individual ambulance providers.

Factors affecting ambulance providers’ costs. To examine the effect of
selected factors on ambulance providers’ costs, we analyzed the Project
HOPE survey data using a simplified version of a model reported by Project
HOPE.4 In our model, the natural logarithm of total costs is a function of
the number of trips, the number of trips squared, and the proportion of the
total trips that are ALS.5 We tested a number of additional terms, including
length of trips, but they were all either statistically insignificant or
significant but with very small effects. We restricted our model to


3
 Beginning January 1, 2001, CMS required ambulance providers to include the point of pick-
up zip code on all claims, and on April 1, 2002, began using it for payment, to determine
whether the rural adjustment should be applied. Although the CMS contractors—fiscal
intermediaries and carriers—that pay the claims have had the point of pick-up zip code in
their data bases, it was not incorporated into the national claims history files until April 1,
2003.
4
See Mohr and others, pp. A1-A3.
5
 The Project HOPE model resembles a type of model frequently used by health services
researchers for analyzing costs of health care. For example, see T. Grannemann and others,
“Estimating Hospital Costs,” Journal of Health Economics, vol. 5, no. 2 (1986), and J.
Nyman, “The Marginal Cost of Nursing Home Care,” Journal of Health Economics, vol. 7,
no. 4 (1988).




Page 27                                                GAO-03-986 Rural Ambulance Services
Appendix I
Data and Methods




providers with 5,000 or fewer total trips per year because we were
primarily interested in rural providers, which generally have fewer trips.6
However, our sensitivity analyses showed that the results were broadly
similar when the model was applied to all full cost providers.7 Our model
has an adjusted R2 of 0.48, indicating that the model explains 48 percent of
the variance in costs. In general, when trip volume declines, the estimated
cost per trip increases, although less than proportionately. That is, a 10
percent decrease in trip volume is associated with an increase in cost per
trip of less than 10 percent.

Analysis of variation in factors affecting costs across geographic areas. To
examine differences between urban and rural areas in factors affecting
ambulance costs, we grouped counties with similar characteristics. We
followed CMS in classifying counties in metropolitan statistical areas
(MSA) as urban counties and counties outside MSAs as rural.8 However,
for our analysis we did not apply the Goldsmith modification that CMS uses
to identify as rural certain areas within MSAs.9 These rural areas are
typically small, so we did not treat them as rural counties because that
would distort our urban and rural comparisons. Our sensitivity analyses
determined that our findings would have been generally the same if we had
considered these areas as rural counties, although in some cases the
differences between urban and rural counties would have been heightened.

To examine differences among rural counties, we grouped them based on
their population density. Population density—the ratio of population to
land area—is a commonly used measure of rurality. We used population
density to group counties into quartiles, and then divided the least densely
populated quartile of rural counties into frontier counties—those with six
or fewer persons per square mile—and nonfrontier counties, because of
our interest in the most sparsely populated rural areas. Using this


6
 Although some rural providers have more than 5,000 total trips per year, most have less
than 5,000 total trips per year.
7
The coefficients had the same signs, although they differed in magnitude.
8
 MSAs are groups of counties containing a core of at least 50,000 people, together with
adjacent areas that have a high degree of economic and social integration with that core.
New England County Metropolitan Areas are considered urban.
9
 The Goldsmith modification identifies small towns and rural areas within large
metropolitan counties that are isolated from central areas by distance or other features,
such as mountains. CMS uses a Goldsmith modification based on 1980 census data.




Page 28                                               GAO-03-986 Rural Ambulance Services
Appendix I
Data and Methods




grouping, we found that ambulance trip volume decreased steadily from
the most densely populated rural counties to the least densely populated.
We also examined several other classification systems: urban influence
codes (UIC), which classify counties based on each county’s largest city
and its proximity to other areas with large, urban populations; rural-urban
continuum codes (RUCC), which classify metropolitan counties by the size
of the urban area and nonurban counties by the size of the urban
population and proximity to a metropolitan area; and rural-urban
commuting areas (RUCA), which classify census tracts using patterns of
urbanization, population density, and daily commuting patterns, and then
map the census tracts into zip codes.10 These systems are more complex
than the system we used, and we found that they did not help explain
variation in trip volume as well as counties grouped by population density.

To confirm the effect of population density on trip volume, we did several
additional analyses. We regressed counties’ annual volume of Medicare
trips (expressed as natural logarithms) on population and land area
(expressed as natural logarithms). Population had a positive effect on the
number of trips, while land area had a negative effect. An increase of 1
percent in population increased the number of trips by about 1 percent in a
county, while an increase of 1 percent in land area decreased the number of
trips by about 0.1 percent.11 Population density combines the two effects:
a 1 percent increase in population density increases the number of trips by
0.7 percent.12




10
 For more information on UICs, see http://www.ers.usda.gov/Briefing/Rurality/urbaninf/; for
more information on RUCCs, see http://www.ers.usda.gov/Briefing/Rurality/ruralurbcon/;
and for more information on RUCAs, see
http://www.fammed.washington.edu/wwamirhrc/rucas/rucas.html.
11
  The adjusted R2 for the model is 0.74. The adjusted R2 is a measure of the proportion of the
variation in the dependent variable (the natural logarithm of trips) accounted for by the
independent variables (the natural logarithms of land area and population).
12
     The adjusted R2 for the model is 0.60.




Page 29                                                GAO-03-986 Rural Ambulance Services
Appendix II

Characteristics of Rural Counties Grouped by
Medicare Population Density                                                                                             Appendx
                                                                                                                              Ii




               Total population density is strongly related to Medicare population density.
               (See table 10.) For example, 525 rural counties with the lowest total
               population density were also lowest in terms of Medicare population
               density. In total, 83 percent of all rural counties were in the same density
               quartile, regardless of whether total population or Medicare population
               was used to group rural counties. Our results with respect to county
               characteristics and ambulance services would have been similar had we
               used Medicare population density to group counties rather than total
               population density. (See tables 11, 12, and 13.)



               Table 10: Rural Counties Grouped by Total Population Density and by Medicare
               Population Density, 2001

                                                                Medicare population density

                                                      7.6 +        4.3-7.5        1.8-4.2          0-1.7
                                                 Medicare      Medicare       Medicare        Medicare
               Total population              beneficiaries/ beneficiaries/ beneficiaries/ beneficiaries/
               density                            sq. mile       sq. mile       sq. mile       sq. mile
               52+ people/sq. mile                       505                  61                  3                 0
               30-51 people/sq. mile                       64               423                 79                  2
               12-29 people/sq. mile                        0                 83               444                 41
               0-11 people/sq. mile                         0                  0                43               525
               Source: HRSA.

               Note: GAO analysis of the 2001 Area Resource File. Bolded numbers refer to the number of counties
               that fall in the same quarter of rural counties—whether rural counties are grouped by total population
               density or Medicare population density. We used the number of persons age 65 and over in each
               county in 1999 as a proxy for the number of Medicare beneficiaries.




               Page 30                                                     GAO-03-986 Rural Ambulance Services
Appendix II
Characteristics of Rural Counties Grouped
by Medicare Population Density




Table 11: Average Number of Medicare Ambulance Trips, Population and Land Area,
by Counties Grouped by Medicare Population Density, 2001

                                                   Average
                                                 number of
                                                  Medicare                               Average
                               Number of        ambulance               Average         land area
County categories               counties              trips           population       (sq. miles)
Urban counties                         854             9,144             276,791               844
Rural counties                       2,273             1,153               23,942            1,132
 7.6+ Medicare
 beneficiaries/sq. mile                569             2,279               45,362              517
 4.3-7.5 Medicare
 beneficiaries/sq. mile                567             1,265               24,836              646
 1.8-4.2 Medicare
 beneficiaries/sq. mile                569               752               16,584              841
 0-1.7 Medicare
 beneficiaries/sq. mile                568               315                8,961            2,527
Sources: HRSA and CMS.

Note: GAO analysis of HRSA and CMS data. We classified counties as urban if they were in an MSA
and as rural if they were not in an MSA. The roughly 75 urban counties that contain rural areas as
identified by the Goldsmith modification are included in the urban county group. We used the
beneficiary’s address as a proxy for where each trip originated. We used the number of persons age
65 and over in each county in 1999 as a proxy for the number of Medicare beneficiaries.




Page 31                                                  GAO-03-986 Rural Ambulance Services
Appendix II
Characteristics of Rural Counties Grouped
by Medicare Population Density




Table 12: Characteristics of Rural Counties and Their Ambulance Providers, by
Counties Grouped by Medicare Population Density, 2001

                                                                     Percentage
                                                                  of a county’s
                                                                       Medicare            Number of
                                                  Number of          ambulance               Medicare
                                                   Medicare       trips covered     ambulance trips
                                                   providers        by the top 2       in all counties
                                                   serving a        providers in      for each of the
                               Number of             countya           a county      top 2 providers
County categories               counties            (median)           (median)               (median)
Rural counties                       2,273                    5                70                 1,100
  7.6+ Medicare
  beneficiaries/sq. mile               569                    9                67                 2,080
  4.3-7.5 Medicare
  beneficiaries/sq. mile               567                    6                69                 1,366
  1.8-4.2 Medicare
  beneficiaries/sq. mile               569                    6                71                   834
  0-1.7 Medicare
  beneficiaries/sq. mile               568                    4                74                   308
Sources: HRSA and CMS.

Note: GAO analysis of HRSA and CMS data. We classified counties as rural if they were not in an
MSA. We used the beneficiary’s address as a proxy for where each trip originated. We used the
number of persons age 65 and over in each county in 1999 as a proxy for the number of Medicare
beneficiaries.
a
 Providers that delivered less than 1 percent of their total Medicare trips in a county were excluded
from the count of providers serving that county.




Page 32                                                      GAO-03-986 Rural Ambulance Services
Appendix II
Characteristics of Rural Counties Grouped
by Medicare Population Density




Table 13: Average Number of Medicare Ambulance Trips, Trip Length, and Estimates
of Average Medicare Paymenta per Ambulance Trip, by Rural Counties Grouped by
Medicare Population Density

                                                      Average            Average         Average
                                                    number of           length of       Medicare
                                                     Medicare           Medicare     payment per
                                 Number of         ambulance         ambulance        ambulance
County categories                 counties               trips      trips (miles)            trip
Rural counties                          2,273             1,153                 23             $463
7.6+ Medicare
beneficiaries/sq. mile                    569             2,279                 19             $434
4.3-7.5 Medicare
beneficiaries/sq. mile                    567             1,265                 21             $448
1.8-4.2 Medicare
beneficiaries/sq. mile                    569               752                 25             $467
0-1.7 Medicare
beneficiaries/sq. mile                    568               315                 29             $501
Sources: HRSA and CMS.

Note: GAO analysis of HRSA and CMS data. We classified counties as urban if they were in an MSA
and as rural if they were not in an MSA. We used the beneficiary’s address as a proxy for where each
trip originated. We used the number of persons age 65 and over in each county in 1999 as a proxy for
the number of Medicare beneficiaries.
a
 Payment estimates were calculated by applying 100 percent of the 2003 Medicare ambulance fee
schedule rates to Medicare ground ambulance trips delivered in 2001. These estimates reflect the mix
of ambulance services provided in the different county categories as well as the geographic
adjustment to account for wage differences across areas.




Page 33                                                   GAO-03-986 Rural Ambulance Services
Appendix III

Comments from the Centers for Medicare &
Medicaid Services                                               Appendx
                                                                      iI




               Page 34        GAO-03-986 Rural Ambulance Services
Appendix IV

GAO Contacts and Staff Acknowledgments                                                         Appendx
                                                                                                     iIV




GAO Contacts      Jonathan Ratner, (202) 512-7107
                  Phyllis Thorburn, (202) 512-7012



Acknowledgments   Major contributors to this report were Martha Kelly, Robin Burke, Eric
                  Wedum, Michael Kendix, and Jessica Farb.




                  Page 35                                    GAO-03-986 Rural Ambulance Services
Related GAO Products


             Ambulance Services: Changes Needed to Improve Medicare Payment
             Policies and Coverage Decisions. GAO-03-244T. Washington, D.C.:
             November 15, 2001.

             Rural Ambulances: Medicare Fee Schedule Payments Could Be Better
             Targeted. GAO/HEHS-00-115. Washington, D.C.: July 17, 2000.




(290155)     Page 36                                GAO-03-986 Rural Ambulance Services
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