oversight

Ambulance Providers: Costs and Medicare Margins Varied Widely; Transports of Beneficiaries Have Increased

Published by the Government Accountability Office on 2012-10-01.

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

                             United States Government Accountability Office

GAO                          Report to Congressional Committees




October 2012
                             AMBULANCE
                             PROVIDERS
                             Costs and Medicare
                             Margins Varied
                             Widely; Transports of
                             Beneficiaries Have
                             Increased



To access this report
electronically, scan this
QR Code.
Don't have a QR code
reader? Several are
available for free online.




GAO-13-6
                                               October 2012

                                               AMBULANCE PROVIDERS
                                               Costs and Medicare Margins Varied Widely;
                                               Transports of Beneficiaries Have Increased
Highlights of GAO-13-6, a report to
congressional committees




Why GAO Did This Study                         What GAO Found
Since 2004, Congress has authorized            Ground ambulance providers’ costs per transport for 2010 varied widely. The
supplemental temporary payments,               median cost per transport for the providers in GAO’s sample was $429, ranging
called “add-on” payments, to augment           from $224 to $2,204 per transport. Provider characteristics that affected cost per
Medicare fee schedule payments to              transport were volume of transports (including both Medicare and non-Medicare
ambulance providers. The add-on                transports), intensity of transports (the proportion of Medicare transports that
payments increased payments for                were nonemergency), and the extent to which providers received government
transports in urban, rural, and super-         subsidies. Higher volume of transports, higher proportions of nonemergency
rural (the least densely populated)            transports, and lower government subsidies were associated with lower costs per
areas by $175 million in calendar year
                                               transport. Providers reported that personnel cost was the largest cost component
2011, according to the Medicare
                                               in their 2010 total costs and the biggest contributor to increases in their total
Payment Advisory Commission. In
2007, GAO reported a decline in
                                               costs from 2009 to 2010.
transports by beneficiaries in super-          The median Medicare margin, including add-on payments, was about +2 percent
rural areas and recommended that the           in 2010 (meaning that providers' Medicare payments per transport exceeded
Centers for Medicare & Medicaid                their overall costs per transport) for the providers in GAO’s sample, but Medicare
Services (CMS) monitor beneficiary             margins varied widely for those providers. When GAO removed the add-on
use of ambulance transports to ensure          payments, payments decreased for the providers in the sample, resulting in a
access to services, particularly in            lower median Medicare margin of -1 percent. Due to the wide variability of
super-rural areas. The Middle Class
                                               Medicare margins for providers in the sample, GAO cannot determine whether
Tax Relief and Job Creation Act of
                                               the median provider among the providers in the population that the sample
2012 required GAO to update the 2007
report. GAO examined, for 2010 (the            represents had a negative or positive margin. The median Medicare margin with
most recent year complete data were            add-on payments ranged from about -2 percent to +9 percent, while the median
available when GAO began the study),           Medicare margin without add-on payments ranged from about -8 percent to
(1) ground ambulance provider costs            +5 percent.
for transports, (2) the relationship           Ground ambulance transports for all Medicare fee-for-service beneficiaries grew
between Medicare payments and                  33 percent from 2004 to 2010. Transports by beneficiaries nationwide grew the
provider costs, and (3) beneficiary use
                                               most in super-rural areas (41 percent) relative to urban and rural areas. The
of ground ambulance transports. To do
                                               increase overall is attributable primarily to an increase of 59 percent over this
this work, GAO sent a survey to a
sample of eligible providers based on
                                               period in basic life support (BLS) nonemergency transports, which include
the 2007 report sample asking for              noninvasive interventions, such as administering oxygen. In comparing this
provider costs and characteristics. The        growth by service area, BLS nonemergency transports in super-rural areas grew
sample is representative of all ground         the most—by 82 percent. Representatives from an ambulance provider
ambulance providers that billed                organization suggested the increase in transports may be from increased billing
Medicare in 2003 and 2010, were                by local governments. Some local governments that used to provide Medicare
operational in 2012, and did not share         transports free of charge may bill Medicare now because of increased budgetary
costs with nonambulance services or            pressures. The Department of Health and Human Services Office of Inspector
air ambulance services. GAO also               General has cited improper payments—which can be the result of billing
performed a regression analysis to             mistakes—as one potential cause for increases in Medicare ambulance
examine factors that affect costs,             utilization and has stated that the Medicare ambulance transport benefit is highly
analyzed Medicare claims and                   vulnerable to abuse, with some payments for transports not meeting program
enrollment data, and interviewed               requirements.
representatives of ambulance provider
organizations. CMS reviewed a draft of
this report and had no comments.

View GAO-13-6. For more information, contact
James C. Cosgrove, (202) 512-7114 or
cosgrovej@gao.gov.

                                                                                       United States Government Accountability Office
Contents


Letter                                                                                               1
                       Background                                                                    6
                       Providers’ 2010 Costs per Transport Varied Widely, Reflecting
                         Differences in Certain Characteristics, and Personnel
                         Constituted the Largest Cost Category                                     10
                       Median Medicare Margin for Providers in Sample Was about 2
                         Percent in 2010, but Medicare Margins Varied Widely across
                         Providers                                                                 18
                       Ambulance Transports Increased from 2004 to 2010, with the
                         Largest Growth Occurring in Super-Rural Areas                             22
                       Agency and Industry Comments and Our Evaluation                             24

Appendix I             Data and Methods                                                            27



Appendix II            GAO Contact and Staff Acknowledgments                                       40



Related GAO Products                                                                               41



Tables
                       Table 1: Ambulance Providers’ 2010 Median Costs per Transport,
                                by Predominant Service Area                                        12
                       Table 2: Ambulance Providers’ 2010 Median Medicare Margins, by
                                Predominant Service Area                                           19
                       Table 3: Ambulance Providers’ Estimated Range of 2010 Median
                                Medicare Margins, by Predominant Service Area                      22
                       Table 4: Ambulance Transports per 1,000 Beneficiaries in Urban,
                                Rural, and Super-Rural Areas                                       23
                       Table 5: Provider Characteristics Included in Analysis of Total Cost
                                and Cost per Transport, 2010                                       32
                       Table 6: Results for Ambulance Costs Regression—Estimated
                                Effects of Selected Provider and Local Area
                                Characteristics on the Total Cost of Providing Ground
                                Ambulance Transports                                               33




                       Page i                           GAO-13-6 Ambulance Providers’ Costs and Margins
Figures
          Figure 1: Ambulance Providers’ Distribution of 2010 Costs per
                   Transport                                                                        11
          Figure 2: Illustrated Relationship between 2010 Cost per Transport
                   and Volume of Transports for Ambulance Providers with
                   20,000 or Fewer Transports, Based on Regression Model                            14
          Figure 3: Average Percentage of Ambulance Providers’ Total Cost
                   Accounted for by Certain Cost Components                                         16
          Figure 4: Ambulance Providers’ Distribution of 2010 Medicare
                   Margins, by Predominant Service Area                                             20
          Figure 5: Medicare Ambulance Payment Formula                                              36




          Abbreviations

          AAA               American Ambulance Association
          ALS               advanced life support
          BLS               basic life support
          CMS               Centers for Medicare & Medicaid Services
          EMS               emergency medical services
          GPCI              geographic practice cost index
          HHS               Department of Health and Human Services
          MSA               metropolitan statistical area
          NASEMSO           National Association of State EMS Officials
          NPI               National Provider Identifier
          OIG               Office of Inspector General
          PTAN              Provider Transaction Access Number



          This is a work of the U.S. government and is not subject to copyright protection in the
          United States. The published product may be reproduced and distributed in its entirety
          without further permission from GAO. However, because this work may contain
          copyrighted images or other material, permission from the copyright holder may be
          necessary if you wish to reproduce this material separately.




          Page ii                                 GAO-13-6 Ambulance Providers’ Costs and Margins
United States Government Accountability Office
Washington, DC 20548




                                   October 1, 2012

                                   The Honorable Max Baucus
                                   Chairman
                                   The Honorable Orrin G. Hatch
                                   Ranking Member
                                   Committee on Finance
                                   United States Senate

                                   The Honorable Fred Upton
                                   Chairman
                                   The Honorable Henry Waxman
                                   Ranking Member
                                   Committee on Energy and Commerce
                                   House of Representatives

                                   The Honorable Dave Camp
                                   Chairman
                                   The Honorable Sander Levin
                                   Ranking Member
                                   Committee on Ways and Means
                                   House of Representatives

                                   Since 2004, Medicare payments to ambulance providers have been
                                   augmented by supplemental temporary payments. These supplemental
                                   payments, called “add-on” payments, increased payments for ground
                                   ambulance transports by $175 million for calendar year 2011, according
                                   to estimates from the Medicare Payment Advisory Commission. In
                                   calendar year 2010, the most recent year for which complete data were
                                   available when we began this study, ambulance providers furnished
                                   almost 16.6 million ground ambulance transports for approximately
                                   5.1 million Medicare fee-for-service beneficiaries. The Centers for
                                   Medicare & Medicaid Services (CMS), which administers the Medicare
                                   program, paid ground ambulance providers approximately $5.2 billion for
                                   these transports, which includes the add-on payments.




                                   Page 1                          GAO-13-6 Ambulance Providers’ Costs and Margins
We reported in 2007 that the costs of providing ground ambulance
transports varied greatly across providers, as did Medicare margins (the
relationship between the cost of providing a transport and the Medicare
payment for a transport). 1 This variation reflected differences in provider
and community characteristics, such as the provider’s volume of
transports and the service area it predominantly serves. We also found
that in super-rural areas (where the population density is the lowest of the
rural areas), the number of ground transports per 1,000 Medicare
beneficiaries declined from 2001 to 2004. We recommended that CMS
monitor the utilization of ambulance transports to ensure that
beneficiaries had access to services, particularly in super-rural areas.
Subsequently, Congress increased payments for urban and rural
transports. 2

Because Congress would like information about the adequacy of
Medicare payments to ambulance providers and the need to continue
authorizing the add-on payments, the Middle Class Tax Relief and Job
Creation Act of 2012 required us to update the information in our 2007
report. 3 We examined (1) 2010 ground ambulance providers’ costs for
furnishing transports, (2) the relationship between 2010 Medicare
payments and ground ambulance providers’ costs, and (3) Medicare
beneficiaries’ use of ground ambulance transports in 2010.




1
 GAO, Ambulance Providers: Costs and Expected Medicare Margins Vary Greatly,
GAO-07-383 (Washington, D.C.: May 23, 2007). CMS defines urban transports as those
that originate within metropolitan statistical areas (MSA) and New England county
metropolitan areas. It defines rural transports as those that originate in areas that are
outside of MSAs and New England county metropolitan areas, as well as transports that
originate from certain areas that are within MSAs and New England county metropolitan
areas but that are isolated from central areas by distance or other features, such as
mountains. CMS defines super-rural transports as those that originate in the bottom
25 percent of rural areas as defined by population density. For purposes of the add-on
payment policies, super-rural transports are a type of rural transport.
2
 Medicare Improvements for Patients and Providers Act of 2008, Pub. L. No. 110-275,
§ 146, 122 Stat. 2494, 2548 (amending Social Security Act § 1834(l)(13)).
3
 Pub. L. No. 112-96, § 3007(d), 126 Stat. 156, 190. In addition, the act directed the
Medicare Payment Advisory Commission to study Medicare ambulance payments,
including the appropriateness and effects of the add-on payments, and provide
recommendations for reforming the ambulance fee schedule, as appropriate. Pub. L.
No. 112-96, § 3007(e), 126 Stat. 190.




Page 2                                  GAO-13-6 Ambulance Providers’ Costs and Margins
To examine 2010 ground ambulance providers’ costs for transports, 4 in
April 2012, we sent a web-based survey to a random sample of 294
eligible ambulance providers to collect data on their costs, revenues,
transports, and organizational characteristics in 2010. 5 We received
completed surveys from 154 providers, for a response rate of 52 percent. 6
Our sample was based on our 2007 report’s sampling frame, which was
representative of all ground ambulance providers that billed Medicare in
2003. 7 Because we found previously that cost data from ambulance
providers that shared operational costs with other services, such as those
provided by fire departments or air ambulance services, were unreliable,
we excluded these providers from our current sample, as was done in the
2007 report; however, unlike the sample for the 2007 report, we also
excluded providers that shared operational costs with a hospital. 8


4
 In our 2007 report and for this report, we limited our review to ground ambulance
providers and transports. For purposes of this report, we distinguished an ambulance
provider and its service location(s) by the unique combination(s) of its Medicare National
Provider Identifier(s) (NPI) and Provider Transaction Access Number(s) (PTAN), which
are used by providers to bill Medicare.
5
 Because 2010 was the most recent year for which complete Medicare claims data were
available from CMS when we began this study, we asked providers to report cost and
transport data for 2010 in the survey. Most providers in our sample submitted relevant
information regarding one service location; however, some providers submitted relevant
information regarding multiple service locations. See app. I for more information on how
we accounted for multiple service locations in our analysis.
6
 We received surveys from 172 providers; however, 11 of these providers were excluded
because they reported in their surveys that they shared costs with nonambulance
services. We also excluded 3 providers that were not able to provide total cost or total
transports information and 1 provider that was not confident in the total cost amount
provided. We also excluded 3 providers with costs per transport that were outliers—more
than three standard deviations from the mean of the lognormal distribution. We did not
obtain complete information for all survey respondents. Therefore, some analyses do not
include all 154 respondents.
7
 While CMS uses the term “ambulance providers” to refer to institution-based
organizations and the term “ambulance suppliers” to refer to non-institution-based or
freestanding organizations, for purposes of this report, we will refer to all organizations
that provide ambulance services as ambulance providers.
8
  In the 2007 report, certain providers, including hospital-based providers, were included in
the analysis if they said they were able to report costs separately from other services;
however, all fire departments were excluded. We found the costs reported by these and
other providers with shared costs may reflect inconsistent methods for separating staff
time and other resources across different services, raising questions about the reliability of
data from providers with shared costs. Because the populations represented by the
samples we used for our current report and our 2007 report differ, the results of the two
reports are not directly comparable.




Page 3                                    GAO-13-6 Ambulance Providers’ Costs and Margins
Therefore, our sample is representative of the population of
approximately 2,900 ground ambulance providers that billed Medicare in
2003 and in 2010, were still operational in 2012, and did not share costs
with nonambulance services or air ambulance services (an estimated
26 percent of the ambulance industry in 2010). We selected these
providers because they do not have to estimate costs across multiple
business lines and represent mature organizations, void of potentially
expensive start-up costs.

Using the survey data, we calculated providers’ costs per transport and
examined how costs per transport varied across providers. 9 We also
determined which of the following cost components most contributed to
providers’ total cost, as well as to increases in total cost: personnel;
vehicle; 10 fuel; medical supplies, equipment, and communications;
building or facility; overhead and administration; or other. 11 We performed
a regression analysis to investigate the relationship between providers’
total cost and characteristics such as service area (urban, rural, or super-
rural), volume of transports, mix and intensity of Medicare transports, 12
level of government subsidies received, use of volunteer staff, 13 and type
of ownership. We divided predicted total cost by total transports to derive
cost per transport.

To ensure the reliability of the survey data, we incorporated internal data
checks in the survey instrument, contacted providers that submitted
inconsistent or incomplete data, and excluded three providers with


9
 Because providers do not generally track their costs by Medicare and non-Medicare, we
obtained information for providers’ total costs. For the providers in our sample, we
calculated providers’ costs per transport for all of their transports and assumed that this
cost was similar for Medicare cost per transport and non-Medicare cost per transport.
10
 Vehicle costs included lease and maintenance.
11
  This list of cost components was included in the survey, and providers indicated the
percentage that each component contributed to their total cost.
12
  The mix of transports refers to the proportion of Medicare advanced life support (ALS)
transports provided (as opposed to basic life support [BLS] transports), while the intensity
of transports refers to the proportion of Medicare nonemergency transports provided (as
opposed to emergency transports). We used Medicare claims data to determine the mix
and intensity of transports covered by Medicare.
13
  For purposes of this report, volunteer staff refers to staff who respond to emergencies
and staff ambulance transports (e.g., field staff) but who are not paid or are paid a nominal
stipend.




Page 4                                   GAO-13-6 Ambulance Providers’ Costs and Margins
reported costs per transport that were more than three standard
deviations from the mean of the lognormal distribution for survey
respondents. Using Medicare claims data for all survey recipients, we
were able to test for potential nonresponse bias for the characteristics
contained in the claims data. The nonresponse analysis did not find any
statistically measurable bias that would affect our analyses of providers’
costs.

The survey data had some important limitations. We assumed that
providers’ total cost per transport was equivalent to their Medicare cost
per transport. This may introduce some bias since the mix and intensity of
ambulance services used by Medicare beneficiaries may be different than
those used by non-Medicare beneficiaries, and this could affect providers’
Medicare cost per transport. Similarly, providers generally do not track
costs by urban, rural, or super-rural transports. Therefore, we classified
providers by their predominant service area and there is likely to be some
measurement error in identifying the full effect of service area on costs. 14
Cost data reported in the survey are subject to some variability depending
on the accounting methodology used by ambulance providers. 15 In
addition, the survey data were self-reported. Also, the small sample size
and variability of self-reported costs limit the precision with which we can
generalize our results.

To provide context for the factors associated with the costs of providing
ambulance services, we reviewed wage and workers’ compensation
insurance data from the Bureau of Labor Statistics, health insurance data


14
  As we did in the 2007 report, we classified providers as super-rural if 60 percent or more
of their Medicare transports in 2010 originated in a super-rural zip code. We classified
providers as rural if they did not meet the super-rural definition and 60 percent or more of
their Medicare transports in 2010 originated in rural or super-rural zip codes. We classified
providers as urban if they did not meet the rural or super-rural classifications.
15
  Providers that use cash-basis accounting record receipts and outlays when cash is
received or paid, without regard to when the activity occurs that results in revenue being
earned, resources consumed, or liabilities increased. Providers that use accrual-basis
accounting record receipts and outlays during the period in which resources are
consumed or liabilities are increased, rather than when obligations are made or cash flows
occur. For example, a provider that uses cash basis accounting would likely record the full
cost of purchasing a new ambulance at the time it was purchased, whereas a provider that
uses accrual basis accounting would likely spread the cost of purchasing the ambulance
over a number of years. According to the American Ambulance Association (AAA), many
private (for-profit and nonprofit) providers use accrual basis accounting, while government
providers vary in the accounting method they use.




Page 5                                   GAO-13-6 Ambulance Providers’ Costs and Margins
             from the Kaiser Family Foundation, and fuel data from the Department of
             Energy, and interviewed an official of the National Association of State
             EMS Officials (NASEMSO).

             To determine the relationship of 2010 Medicare payments to ground
             ambulance providers’ costs, we used Medicare claims data to calculate
             Medicare payments in 2010 for the providers in our sample, and we
             calculated Medicare margins—the percentage difference between the
             Medicare payment per transport and cost per transport. Using the
             Medicare ambulance fee schedule and claims data, we calculated each
             provider’s Medicare payment per transport with and without the add-on
             payments. We then calculated the Medicare margin for each provider by
             subtracting its cost per transport (as calculated in the methodology for
             objective 1) from its Medicare payment per transport and dividing this
             amount by its Medicare payment per transport.

             To examine Medicare fee-for-service beneficiaries’ use of ground
             ambulance transports in 2010, we analyzed 2010 Medicare claims and
             beneficiary enrollment data to calculate the number of transports per
             1,000 beneficiaries. We also analyzed 2004 Medicare claims and
             beneficiary enrollment data to determine the change in beneficiaries’ use
             of ground ambulance transports from 2004 to 2010. In addition, we
             interviewed officials of the American Ambulance Association (AAA). We
             assessed the reliability of Medicare claims and enrollment data and found
             these data sufficiently reliable for our purposes. (See app. I for additional
             details about our scope and methodology.)

             We conducted this performance audit from April 2012 to September 2012
             in accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             Ground ambulance services are provided by a wide range of
Background   organizations that differ in organizational structure, staffing types, types of
             transports offered, and revenue sources. Medicare payments for
             ambulance services are made up of two components: a service-level
             payment for the type of transport provided and a mileage payment.




             Page 6                             GAO-13-6 Ambulance Providers’ Costs and Margins
Diversity of the Ambulance   Providers may be affiliated with an institution (such as a hospital or a fire
Industry                     department) and share resources and operational costs, or they may be
                             independent and freestanding. In addition, providers may be for-profit,
                             nonprofit, or government-based. Providers may rely heavily on
                             volunteers, use both volunteers and paid staff, or use only paid staff.
                             Providers may specialize in nonemergency transports, or offer both
                             nonemergency and emergency (those responding to a 911 call)
                             transports. Also, some providers offer only basic life support (BLS)
                             services, while others offer advanced life support (ALS) services. ALS
                             services require the skills of a medical technician who is more specialized
                             and trained, such as a paramedic, than the technician who can provide
                             BLS services. 16

                             Revenue sources depend on the resources available in communities and
                             communities’ choices about funding ambulance services. They may
                             include community tax support, charitable donations, in-kind
                             contributions, state and federal grants, subscription programs, 17 and
                             payments from Medicare or Medicaid and private health insurance
                             companies (including patient copayments or coinsurance). The mix and
                             amount of revenues available may vary. Communities differ by the level
                             of tax support for specific services, such as ensuring a minimum level of
                             service in remote areas, sophistication of transport vehicles, and the
                             training level of the staff.


Medicare Ambulance           Medicare pays ambulance providers through a national fee schedule.
Payment Policy               (See fig. 5 in app. I for an overview of the Medicare ambulance payment
                             formula.) Payments have two components:




                             16
                               BLS services include basic, noninvasive interventions, such as administering oxygen;
                             ALS services involve invasive or specialized care, such as administering drugs
                             intravenously.
                             17
                               A subscription program is an arrangement in which an ambulance provider is paid an
                             annual fee for providing emergency transportation for a community.




                             Page 7                                 GAO-13-6 Ambulance Providers’ Costs and Margins
1. service-level payment: for the type of transport provided, such as an
   ALS Level 1 transport; 18 and
2. mileage payment. 19

Currently included in Medicare’s payments to ground ambulance
providers are different levels of add-on payments for urban, rural, and
super-rural transports. The add-on payments increase payments for
urban and rural transports by 2 and 3 percent, respectively. There is also
an add-on payment applicable to super-rural transports, consisting of the
3 percent rural amount and an additional increase of 22.6 percent for a
portion of the super-rural payment. 20 The add-on payments were
originally implemented under the Medicare Prescription Drug,




18
  The service-level payment is determined by a base rate that is adjusted to account for
the mix and intensity of the service using a constant multiplier called the relative value
unit. The service-specific amount is then adjusted by an estimate of the different costs of
operating ambulance services in different regions of the country. Under the Medicare
program, there are seven levels of ambulance transports: (1) BLS nonemergency
transports, (2) BLS emergency transports, (3) ALS Level 1 nonemergency transports,
(4) ALS Level 1 emergency transports, (5) ALS Level 2 transports, (6) specialty care
transports, and (7) paramedic intercepts. Paramedic intercepts are when ambulance
providers perform ALS services but do not transport the patient. Throughout this report we
use the term BLS to refer to BLS nonemergency transports and BLS emergency
transports. We use the term ALS to refer to transports that are ALS or higher, including
ALS Level 1 nonemergency transports, ALS Level 1 emergency transports, ALS Level 2
transports, specialty care transports, and paramedic intercepts.
19
  The mileage payment is determined by the number of miles traveled with a patient
during an ambulance transport and the mileage base rate. Since 2002, CMS has
increased the rural mileage rate (which also applies to super-rural transports) by
50 percent for miles 1 through 17. See 67 Fed. Reg. 9100 (Feb. 27, 2002) (adding subpart
H to 42 C.F.R. part 414); 42 C.F.R. § 414.610(c)(5)(i)(2011) (this mileage rate increase is
not set to expire). Also see fig. 5 in app. I for an overview of the Medicare ambulance
payment formula.
20
  The urban and rural add-on payment rates apply to the service-level and mileage
payments, whereas, for super-rural transports, the 3 percent increase applies to the
service-level and mileage payments and the 22.6 percent increase applies only to the
service-level payment. For purposes of this report, we refer to all of these increases as
add-on payments.




Page 8                                   GAO-13-6 Ambulance Providers’ Costs and Margins
                       Improvement, and Modernization Act of 2003, 21 temporarily extended by
                       subsequent acts, 22 and most recently extended through the end of 2012
                       by the Middle Class Tax Relief and Job Creation Act of 2012. 23


Providers’ Costs and   Providers paid under a fee schedule generally have an incentive to keep
Medicare Margins       their costs to deliver services at or below the fee schedule rate. Some
                       providers rely heavily on Medicare revenues, and adequate Medicare
                       margins for these providers may help ensure that beneficiaries have
                       access to ambulance services. In our 2007 report, we found that
                       providers with lower transport volumes generally had higher costs per
                       transport than providers with greater transport volumes. 24 Because of
                       high fixed costs for maintaining readiness—the availability of an
                       ambulance and crew for immediate emergency responses—providers
                       with low volumes, which still need to maintain readiness, tended to have
                       higher costs per transport. Other significant factors that affected cost per
                       transport included level of volunteer staff hours, percentage of Medicare
                       transports that are BLS, percentage of Medicare transports that are
                       super-rural, and level of community tax support.




                       21
                        Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L.
                       No. 108-173, § 414(c), 117 Stat. 2066, 2279 (adding paragraphs (12) and (13) to Social
                       Security Act § 1834(l)).
                       22
                         The Medicare Improvements for Patients and Providers Act of 2008, Patient Protection
                       and Affordable Care Act of 2010, Medicare and Medicaid Extenders Act of 2010, and
                       Temporary Payroll Tax Cut Continuation Act of 2011 all extended and, in some instances,
                       further increased these payments after the provisions in the Medicare Prescription Drug,
                       Improvement, and Modernization Act of 2003 for urban and rural services and for super-
                       rural services expired at the end of 2006 and 2009, respectively. Medicare Improvements
                       for Patients and Providers Act of 2008, Pub. L. No. 110-275, § 146(a), 122 Stat. 2548;
                       Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 3105(a) and
                       (c), 124 Stat. 119, 417, 418; Medicare and Medicaid Extenders Act of 2010, Pub. L.
                       No. 111-309, § 106(a) and (c), 124 Stat. 3285, 3287; and Temporary Payroll Tax Cut
                       Continuation Act of 2011, Pub. L. No. 112-78, § 306(a) and (c), 125 Stat. 1280, 1285.
                       23
                        Pub. L. No. 112-96, § 3007(a) and (c), 126 Stat. 190.
                       24
                         This affirmed findings from our 2003 report that volume of transports was a primary
                       driver of cost per transport. See GAO, Ambulance Services: Medicare Payments Can Be
                       Better Targeted to Trips in Less Densely Populated Rural Areas, GAO-03-986
                       (Washington, D.C.: Sept. 19, 2003).




                       Page 9                                 GAO-13-6 Ambulance Providers’ Costs and Margins
                             Providers’ costs for providing ground ambulance transports were highly
Providers’ 2010 Costs        variable in 2010, ranging from a low of $224 per transport to a high of
per Transport Varied         $2,204, with a median cost per transport of $429. The variability of costs
                             per transport reflected differences in certain provider characteristics, such
Widely, Reflecting           as volume of transports, intensity of Medicare transports, and level of
Differences in Certain       government subsidies received. Providers reported that personnel costs
Characteristics, and         accounted for the largest percentage of their total costs in 2010 and
                             contributed the most to increases in total costs between 2009 and 2010.
Personnel Constituted
the Largest Cost
Category
Median Cost per Transport    The median cost per ground ambulance transport for providers in our
in 2010 Was $429, but        sample was $429 in 2010, but providers’ costs per transport ranged from
Costs per Transport Varied   a low of $224 to a high of $2,204. Five percent of providers had costs per
                             transport that were less than $253, and 5 percent had costs per transport
Widely across All            that were more than $924. Figure 1 shows the distribution of 2010 costs
Providers                    per transport for providers in our sample.




                             Page 10                           GAO-13-6 Ambulance Providers’ Costs and Margins
Figure 1: Ambulance Providers’ Distribution of 2010 Costs per Transport




                                        Notes: Data were from the 2012 GAO Survey of Ambulance Services. Data represent a sample of
                                        154 ground ambulance providers in the United States that billed Medicare in 2003 and 2010, were
                                        still operational in 2012, and did not share costs with nonambulance services or air ambulance
                                        services.
                                        a
                                         The median cost per transport was $429.


                                        Among the population of providers from which our sample was drawn, the
                                        estimated median cost per transport ranged from $401 to $475, which
                                        represents the 95 percent statistical confidence interval around the
                                        median and is the range within which we expect the population median
                                        cost per transport to fall in 95 percent of the samples we could have
                                        drawn. 25




                                        25
                                          Because our cost per transport information is estimated from a sample of providers, we
                                        report all costs per transport with confidence intervals. The range of the confidence
                                        interval is affected by the variability of the data we collected from our sample and the size
                                        of our sample. See app. I for a full discussion of our sample, methods, and calculations.




                                        Page 11                                    GAO-13-6 Ambulance Providers’ Costs and Margins
Super-rural providers had estimated median costs per transport that were
significantly higher than urban providers (see table 1). 26 The variability
associated with our survey data did not allow us to conclude that rural
providers’ estimated median costs per transport were significantly
different from super-rural or urban providers. As will be discussed later,
when we controlled for other provider characteristics that affected cost
per transport using regression analysis, differences in cost per transport
by service area were not significant. 27 This could mean that provider
characteristics other than service area were more important in explaining
the variation in cost per transport.

Table 1: Ambulance Providers’ 2010 Median Costs per Transport, by Predominant
Service Area

                                              Sample median            Estimated range of median
                                                                                                 b
    Providers’ predominant                  cost per transport                cost per transport
                a
    service area                                      (dollars)                          (dollars)
    Urban                                                 $397                             $374 to 410
    Rural                                                  469                              404 to 550
    Super-rural                                            545                              445 to 639
Source: GAO analysis of GAO and CMS data.

Notes: The table shows median costs per transport for providers in our sample and the 95 percent
confidence interval of the median costs per transport for the population of providers represented by
our sample. Cost data were from the 2012 GAO Survey of Ambulance Services and data on
providers’ predominant service area were from 2010 Medicare claims. Results are based on a sample
of 153 ground ambulance providers, representing approximately 2,900 providers in the United States
that billed Medicare in 2003 and 2010, were still operational in 2012, and did not share costs with
nonambulance services or air ambulance services. The sample included 70 urban providers, 57 rural
providers, and 26 super-rural providers. One provider that was included in the survey data analysis
was excluded here because we could not identify complete relevant Medicare claims data.
a
 We classified providers as super-rural if 60 percent or more of their Medicare transports in 2010
originated in a super-rural zip code. We classified providers as rural if they did not meet the super-
rural definition and 60 percent or more of their Medicare transports in 2010 originated in rural or
super-rural zip codes. We classified providers as urban if they did not meet the rural or super-rural
classifications.
b
 The range is the 95 percent confidence interval—the interval that would contain the actual population
value for 95 percent of the samples we could have drawn. The range of the confidence interval is
affected by the variability of the cost data we collected from our sample and the size of our sample.




26
    The difference between these medians is statistically significant at the 0.05 level.
27
  For our regression analysis, we used measures of service area that reflected the
percentages of a provider’s transports that originated in urban, rural, and super-rural zip
codes. This was different from our measure of a provider’s predominant service area and
enabled us to include more information about a provider’s service area in the regression
analysis.




Page 12                                         GAO-13-6 Ambulance Providers’ Costs and Margins
Volume of Transports and     The variability of costs per transport among providers reflected
Other Provider               differences in certain provider characteristics. On the basis of our
Characteristics              regression analysis, the provider characteristics that contributed to
                             statistically significant differences in total cost, and therefore cost per
Contributed to Differences   transport—after holding other characteristics constant—were volume of
in Costs per Transport       transports, 28 intensity of Medicare transports, 29 and the level of
                             government subsidies received. 30 Because some ambulance costs are
                             fixed, and therefore do not increase significantly when a provider
                             completes more transports, it is expected that as the number of transports
                             provided increases, associated costs per transport will be somewhat
                             lower. Figure 2 illustrates the relationship between cost per transport and
                             volume of transports, based on our regression analysis. At approximately
                             600 transports, the decline in cost per transport becomes less
                             pronounced. 31




                             28
                              Total transport volume includes all of a provider’s transports, not only those covered by
                             Medicare.
                             29
                               In our previous report, we found that the intensity of transports—that is, the proportion of
                             emergency transports provided as opposed to nonemergency transports—did not
                             contribute to significant differences in costs per transport. See GAO-07-383.
                             30
                               We performed a regression analysis to investigate the relationship between providers’
                             total cost and characteristics such as service area (urban, rural, or super-rural), volume of
                             transports, mix and intensity of Medicare transports, level of government subsidies
                             received, use of volunteer staff, and type of ownership. We divided predicted total cost by
                             total transports to derive cost per transport. See table 6 in app. I for additional details
                             about this analysis.
                             31
                               After 600 transports, each increase of 10 transports results in a decrease in cost per
                             transport of less than 0.10 percent.




                             Page 13                                  GAO-13-6 Ambulance Providers’ Costs and Margins
Figure 2: Illustrated Relationship between 2010 Cost per Transport and Volume of Transports for Ambulance Providers with
20,000 or Fewer Transports, Based on Regression Model




                                        Notes: The curve illustrates the cost per transport at different volumes of transports, based on our
                                        regression analysis of total costs. The regression analysis included 11 variables, of which 3 were
                                        found to be statistically significant in explaining the variation in providers’ total costs: transport
                                        volume, intensity of Medicare transport (emergency vs. nonemergency), and receipt of government
                                        subsidies. Total transport volume includes all of a provider’s transports, not only those covered by
                                        Medicare. Data were from the 2012 GAO Survey of Ambulance Services, 2010 Medicare claims, and
                                        the Medicare Ambulance Fee Schedule Public Use File. The figure represents providers with 20,000
                                        or fewer transports, approximately 85 percent of our sample.


                                        Our regression analysis found two other provider characteristics to be
                                        statistically significant in explaining the variation in providers’ total costs—
                                        the intensity of Medicare transports (that is, the proportion of Medicare
                                        nonemergency transports provided) and the level of government
                                        subsidies received. With these results, we determined for our sample that
                                        when the percentage of Medicare nonemergency transports decreases,
                                        the predicted cost per transport increases. 32 For example, when the


                                        32
                                          We did this by comparing predicted cost per transport calculated for different values for
                                        these variables while holding the values of other variables at their regression sample
                                        mean. See app. I for a more-detailed discussion of this methodology.




                                        Page 14                                      GAO-13-6 Ambulance Providers’ Costs and Margins
                          percentage of Medicare nonemergency transports decreases from the
                          average of about 26 percent to about 19 percent, the predicted cost per
                          transport increases by about 3 percent. This increase in predicted cost
                          per transport results from a higher volume of emergency transports,
                          which are more costly. In contrast, when providers’ percentage of
                          revenues accounted for by government subsidies decreases, their
                          predicted cost per transport also decreases. For example, when the level
                          of government subsidies decreases from the average of about 9 percent
                          to about 7 percent, the predicted cost per transport decreases by about
                          2 percent. Ambulance providers with fewer resources may have more
                          financial pressure to restrain their costs. The Medicare Payment Advisory
                          Commission has found this to be the case in the hospital industry. 33

                          Characteristics that did not contribute significantly to differences in costs
                          per transport, after holding other characteristics constant, included
                          service area, the mix of Medicare transports, the use of volunteer staff,
                          and type of ownership. 34 Although we found that costs per transport for
                          super-rural providers were significantly higher than costs per transport for
                          urban providers (see table 1), these estimates were based on providers’
                          reported cost data. After holding other characteristics constant using
                          regression analysis, we found that service area did not contribute to
                          significant differences in costs per transport.


Providers Reported That   Providers in our sample reported that personnel costs accounted for the
Personnel Cost Was the    largest percentage of their total cost in 2010 and contributed the most to
Dominant Factor in 2010   increases in total cost between 2009 and 2010. Of the 143 providers that
                          reported the percentage of their total cost accounted for by certain cost
Total Cost and Growth     components, 136 reported that personnel costs accounted for the
between 2009 and 2010     greatest percentage of their total cost in 2010. On average, personnel
                          costs accounted for over 60 percent of these providers’ total cost in 2010


                          33
                           See Medicare Payment Advisory Commission, Report to the Congress: Medicare
                          Payment Policy (Washington, D.C.: March 2011).
                          34
                            In our previous report, we found that the providers’ service area and the mix of Medicare
                          transports—that is, the proportion of Medicare ALS or higher transports provided as
                          opposed to BLS transports—contributed to significant differences in costs per transport.
                          Providers that offered only super-rural transports had estimated average costs per
                          transport that were higher than providers that offered only urban transports. Similarly,
                          providers that offered only ALS or more intensive transports had estimated average costs
                          per transport that were higher than providers that offered only BLS transports. See
                          GAO-07-383.




                          Page 15                                 GAO-13-6 Ambulance Providers’ Costs and Margins
(see fig. 3). Overall, the percentage of total cost accounted for by various
cost components was fairly consistent across urban, rural, and super-
rural providers in our sample. One exception was that super-rural
providers reported higher proportions of their costs being devoted to
medical supplies, equipment, and communication compared to urban
providers. A potential explanation for this difference could be that super-
rural providers in our sample tended to have higher proportions of
Medicare ALS transports, which require the use of more sophisticated
supplies and equipment.

Figure 3: Average Percentage of Ambulance Providers’ Total Cost Accounted for by
Certain Cost Components




Notes: Data were from the 2012 GAO Survey of Ambulance Services. Percentages are based on
reported data from a sample of 154 ground ambulance providers in the United States that billed
Medicare in 2003 and 2010, were still operational in 2012, and did not share costs with
nonambulance services or air ambulance services. Analysis excludes 11 providers that could not
determine cost component percentages. “Other” category includes percentages for cost components
not specified in the survey, such as insurance (including workers’ compensation, liability, and building
insurance), billing services, bad debt, and depreciation.


In addition, 118 of the 154 providers in our sample reported an increase
in their total cost from 2009 to 2010. Of providers that reported an
increase, the majority cited personnel costs and fuel costs (100 providers




Page 16                                       GAO-13-6 Ambulance Providers’ Costs and Margins
and 81 providers, respectively) as contributing to the increase in total
cost. 35 According to the Bureau of Labor Statistics, average hourly wages
for the ambulance industry remained fairly stable between 2009 and
2010. 36 However, some providers reported that increases in the cost of
health insurance and workers’ compensation insurance as well as
increases in education and training requirements, among other things,
contributed to increases in personnel costs.

Consistent with what providers reported, we found national data sources
that supported increases in providers’ health insurance costs, education
and training requirements, and fuel costs between 2009 and 2010.
According to the Kaiser Family Foundation, the average annual health
insurance premium for family coverage increased 3 percent between
2009 and 2010. 37 Additionally, according to a NASEMSO official, many
providers experienced increases in education and training costs as a
result of transitioning to updated national emergency medical service
standards (known as the National Emergency Medical Services [EMS]
Education Standards) issued by the Department of Transportation in
2009. 38 Although the standards are not required, the vast majority of
states adopt them, according to the NASEMSO official. Also, according to
the Department of Energy, average fuel costs increased from roughly
$2.50 a gallon in 2009 to $3.00 a gallon in 2010 (2012 dollars). 39 In terms


35
  Providers were asked to list up to three cost components, in rank order, that contributed
to the increase in total cost. Of the 118 providers that reported an increase in total cost, 75
providers ranked personnel costs first as contributing to the increase.
36
  See U.S. Bureau of Labor Statistics, Occupational Employment and Wage Estimates:
National 5-digit NAICS Industry-Specific Estimates for the Ambulance Services Industry
(Washington, D.C.: 2009 and 2010). The wage estimate from the Bureau of Labor
Statistics is a composite of various occupations that participate in the ambulance industry,
including management occupations, business and financial operations occupations, health
care practitioners and technical occupations, and office and administrative support
occupations.
37
 See The Kaiser Family Foundation and Health Research & Educational Trust, Employer
Health Benefits: 2011 Annual Survey (Menlo Park, Calif., and Chicago, Ill.: 2011).
38
  These standards define the competencies, clinical behaviors, and judgments that must
be met by entry-level EMS personnel to meet practice guidelines defined in the National
EMS Scope of Practice Model. According to a NASEMSO official, to the extent that the
updated standards include new medical practice techniques, including the use of new
medications and equipment, EMS personnel who were trained using the previous
standards will need to be trained in these new techniques.
39
  These estimates refer to both retail gasoline and diesel prices.




Page 17                                   GAO-13-6 Ambulance Providers’ Costs and Margins
                         of workers compensation insurance, our survey respondents reported
                         trends that were not substantiated by national data, though it is possible
                         that national data are not generally representative of the ambulance
                         industry. According to the Bureau of Labor Statistics, the average amount
                         that employers paid for workers’ compensation insurance decreased
                         slightly between 2009 and 2010, from $0.44 to $0.43 per hour worked by
                         an employee. 40


                         The median Medicare margin, including add-on payments, was about
Median Medicare          positive 2 percent in 2010 for the 153 providers in our sample. 41 When we
Margin for Providers     removed the add-on payments, we found that payments decreased for
in Sample Was about      the providers in our sample, resulting in a lower median Medicare margin
                         of negative 1 percent for those providers. See table 2.
2 Percent in 2010, but
Medicare Margins
Varied Widely across
Providers




                         40
                           See U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation –
                         December 2009 (Washington, D.C.: March 2010) and U.S. Bureau of Labor Statistics,
                         Employer Costs for Employee Compensation – December 2010 (Washington, D.C.: March
                         2011). These estimates are for all civilian workers, which include private industry and state
                         and local government workers.
                         41
                          One provider that was included in the survey data analysis was excluded here because
                         we could not identify complete relevant Medicare claims data.




                         Page 18                                  GAO-13-6 Ambulance Providers’ Costs and Margins
Table 2: Ambulance Providers’ 2010 Median Medicare Margins, by Predominant Service Area

                             Median Medicare
Providers’              payment per transport           Median cost                Median Medicare margin       Median Medicare margin
predominant             with add-on payments           per transport                with add-on payments       without add-on payments
            a
service area                         (dollars)              (dollars)                        (percentage)                  (percentage)
Urban                                       $404                   $397                              1.6%                                -0.5%
Rural                                        517                     469                               2.9                                  0.1
Super-rural                                  620                     545                               0.3                               -14.3
All providers                               $464                   $429                              1.7%                                -1.0%
                                       Source: GAO analysis of GAO and CMS data.

                                       Notes: All payments and costs were expressed in 2010 dollars. Payment data and data on providers’
                                       predominant service area were from 2010 Medicare claims, and the payment data assumed that
                                       providers charged the maximum allowed amount under the ambulance fee schedule. Cost data were
                                       from the 2012 GAO Survey of Ambulance Services. Margins were calculated from 2010 Medicare
                                       claims and the 2012 GAO Survey of Ambulance Services. The results represent a sample of 153
                                       ground ambulance providers in the United States that billed Medicare in 2003 and 2010, were still
                                       operational in 2012, and did not share costs with nonambulance services or air ambulance services.
                                       The sample included 70 urban providers, 57 rural providers, and 26 super-rural providers. One
                                       provider that was included in the survey data analysis was excluded here because we could not
                                       identify complete relevant Medicare claims data.
                                       a
                                        We classified providers as super-rural if 60 percent or more of their Medicare transports in 2010
                                       originated in a super-rural zip code. We classified providers as rural if they did not meet the super-
                                       rural definition and 60 percent or more of their Medicare transports in 2010 originated in rural or
                                       super-rural zip codes. We classified providers as urban if they did not meet the rural or super-rural
                                       classifications.


                                       There was wide variability in Medicare margins for all providers,
                                       irrespective of their predominant service areas. See figure 4 for the
                                       distribution of 2010 Medicare margins with and without add-on payments
                                       for the providers in our sample, by predominant service area. 42




                                       42
                                         A Medicare margin of 0 percent indicates that an ambulance provider broke even on its
                                       Medicare transports, that is, its Medicare payment per transport equaled its cost per
                                       transport.




                                       Page 19                                            GAO-13-6 Ambulance Providers’ Costs and Margins
Figure 4: Ambulance Providers’ Distribution of 2010 Medicare Margins, by Predominant Service Area




                                        Page 20                             GAO-13-6 Ambulance Providers’ Costs and Margins
Notes: Payment data and data on providers’ predominant service area were from 2010 Medicare
claims, and the payment data assumed that providers charged the maximum allowed amount under
the ambulance fee schedule. Cost data were from the 2012 GAO Survey of Ambulance Services.
Margins were calculated from 2010 Medicare claims and the 2012 GAO Survey of Ambulance
Services. The results represent a sample of 153 ground ambulance providers in the United States
that billed Medicare in 2003 and 2010, were still operational in 2012, and did not share costs with
nonambulance services or air ambulance services. The sample included 70 urban providers, 57 rural
providers, and 26 super-rural providers. One provider that was included in the survey data analysis
was excluded here because we could not identify complete relevant Medicare claims data. We
classified providers as super-rural if 60 percent or more of their Medicare transports in 2010
originated in a super-rural zip code. We classified providers as rural if they did not meet the super-
rural definition and 60 percent or more of their Medicare transports in 2010 originated in rural or
super-rural zip codes. We classified providers as urban if they did not meet the rural or super-rural
classifications.


We could not assess whether the median provider in the population
represented by our sample had a positive or negative Medicare margin
because the range of the 95 percent confidence interval for the median
Medicare margin—both with and without add-on payments—included
both positive and negative margins. (See table 3.) The range of the
confidence interval is affected by variability in the size of Medicare
payments allowed under the fee schedule, variability in the cost data we
collected from our sample, and the size of our sample. As a result, we
could not determine the extent of the effect of adding or removing the
add-on payments on the median Medicare margin. Similarly, we could not
find any significant differences in the median Medicare margins between
providers with predominantly urban, rural, or super-rural service areas.




Page 21                                      GAO-13-6 Ambulance Providers’ Costs and Margins
Table 3: Ambulance Providers’ Estimated Range of 2010 Median Medicare Margins, by Predominant Service Area

                         Medicare payment
Providers’               per transport with             Median cost                Median Medicare margin       Median Medicare margin
predominant               add-on payments              per transport                with add-on payments       without add-on payments
            a
service area                      (dollars)                 (dollars)                        (percentage)                  (percentage)
Urban                           $382 to 420               $374 to 410                          -5.3 to 5.2%                      -7.5 to 3.3%
Rural                            488 to 546                404 to 550                         -17.1 to 17.9                      -20.6 to 15.3
Super-rural                      605 to 648                445 to 639                          -6.3 to 24.2                      -25.5 to 10.7
All providers                   $434 to 493              $401 to 480                          -2.3 to 9.3%                       -8.4 to 5.3%
                                       Source: GAO analysis of GAO and CMS data.

                                       Notes: All payments and costs were expressed in 2010 dollars. Payment data and data on providers’
                                       predominant service area were from 2010 Medicare claims, and the payment data assumed that
                                       providers charged the maximum allowed amount under the ambulance fee schedule. Cost data were
                                       from the 2012 GAO Survey of Ambulance Services. Margins were calculated from 2010 Medicare
                                       claims and the 2012 GAO Survey of Ambulance Services. The table shows the range of the
                                       95 percent confidence intervals for the population of providers; the range of the confidence interval
                                       was affected by variability in the size of Medicare payments allowed under the fee schedule, the
                                       variability of the cost data we collected from our sample, and the size of our sample. The results were
                                       based on a sample of 153 ground ambulance providers, representing approximately 2,900 providers
                                       in the United States that billed Medicare in 2003 and 2010, were still operational in 2012, and did not
                                       share costs with nonambulance services or air ambulance services. The sample included 70 urban
                                       providers, 57 rural providers, and 26 super-rural providers. One provider that was included in the
                                       survey data analysis was excluded here because we could not identify complete relevant Medicare
                                       claims data.
                                       a
                                        We classified providers as super-rural if 60 percent or more of their Medicare transports in 2010
                                       originated in a super-rural zip code. We classified providers as rural if they did not meet the super-
                                       rural definition and 60 percent or more of their Medicare transports in 2010 originated in rural or
                                       super-rural zip codes. We classified providers as urban if they did not meet the rural or super-rural
                                       classifications.



                                       Ambulance transports for all Medicare fee-for-service beneficiaries in the
Ambulance                              nation increased by 33 percent from 2004 to 2010. All three service
Transports Increased                   areas—urban, rural, and super-rural—experienced growth. Transports
                                       per 1,000 beneficiaries in super-rural areas grew the most, by 41 percent,
from 2004 to 2010,                     and transports per 1,000 beneficiaries in rural and urban areas increased
with the Largest                       by 35 percent and 32 percent, respectively. 43 (See table 4.)
Growth Occurring in
Super-Rural Areas


                                       43
                                         To make our 2004 and 2010 calculations of transports per 1,000 beneficiaries
                                       comparable, we updated and revised our 2004 calculations from GAO-07-383 to include
                                       all beneficiaries who are dually eligible for Medicare fee-for-service and Medicaid.




                                       Page 22                                            GAO-13-6 Ambulance Providers’ Costs and Margins
Table 4: Ambulance Transports per 1,000 Beneficiaries in Urban, Rural, and Super-
Rural Areas

                                                                         Percentage change,
 Area                       Transports, 2004      Transports, 2010                2004-2010
 Urban                                  348                     459                      32%
 Rural                                  305                     412                        35
 Super-rural                            188                     265                        41
 All                                    328                     436                      33%
Source: GAO analysis of CMS data.



The increase in ambulance transports from 2004 to 2010 is attributable
primarily to an increase in BLS nonemergency transports, which rose by
59 percent from 2004 to 2010. Super-rural areas experienced the largest
increase in BLS nonemergency transports (82 percent). The increase in
Medicare beneficiaries’ use of ambulance services did not appear to be
caused by changes in the demographic characteristics of beneficiaries.
For example, factors such as age, race, and sex remained stable from
2004 to 2010 in urban, rural, and super-rural areas.

Representatives we spoke with from one ambulance provider
organization suggested that some of the increase in ambulance
transports was attributable to increased billing for Medicare ambulance
services at the local-government level. Some local governments that
provided ambulance transports free of charge had been reluctant in the
past to bill insurers such as Medicare because patients would then be
financially responsible for out-of-pocket insurance costs, such as
deductibles and copayments. The increased out-of-pocket costs for
patients had the potential to result in less community support of
ambulance providers through fewer charitable contributions and fewer
volunteers. However, these local governments have begun to bill
Medicare as well as other insurers because of increased budgetary
pressures. Representatives we spoke with also added that the
introduction of the national fee schedule in 2002 may have contributed to
increased billing because it allowed providers to better anticipate the
amount of revenue they could receive from Medicare.




Page 23                                        GAO-13-6 Ambulance Providers’ Costs and Margins
                      The Department of Health and Human Services (HHS) Office of Inspector
                      General (OIG) has explored increases in ambulance utilization and has
                      cited improper payments as one potential cause. 44 For example, HHS
                      OIG found that nonemergency transports, including BLS nonemergency
                      transports, made up the majority of improper payments for ambulance
                      services, and particularly transports for dialysis services. 45 HHS OIG also
                      found that Medicare’s ambulance transport benefit is highly vulnerable to
                      abuse and found that many ambulance transports paid for by Medicare
                      did not meet Medicare program requirements, including transports that
                      were not medically necessary.


                      We provided a draft of this report to HHS and invited representatives of
Agency and Industry   AAA to review the draft. HHS had no general or technical comments on
Comments and Our      behalf of CMS. The AAA representatives provided oral comments and
                      generally agreed with our findings; however, AAA had some questions
Evaluation            regarding our methodology and conclusions, which we clarified in the
                      report where appropriate and discuss below. In addition, AAA provided
                      technical comments, which we incorporated as appropriate.

                      AAA representatives questioned whether the Medicare margin results
                      were comparable to those of the 2007 report and were concerned that
                      readers would conclude that providers’ Medicare margins have increased
                      over time. We clarified in the report that we do not consider the results
                      reported in 2007 and in the current report to be directly comparable
                      because the samples examined in each report were different and we
                      reported median Medicare margins in the current report whereas in 2007
                      we reported average Medicare margins. AAA representatives noted that
                      our sample contains providers that have been in business since at least
                      2003 and that the cost data from this sample may not be representative of
                      all ambulance providers. We agree that the providers in our sample


                      44
                         Improper payments can be the result of billing mistakes on the part of ambulance
                      providers as well as fraud and abuse. Fraud generally involves intentional acts of
                      deception or representation to deceive with knowledge that the action or representation
                      could result in gain, while abuse typically involves actions that are inconsistent with sound
                      fiscal, business, or medical practices and result in unnecessary cost. See GAO, Medicare:
                      Improvements Needed to Address Improper Payments in Home Health, GAO-09-185
                      (Washington, D.C.: Feb. 27, 2009).
                      45
                        See HHS OIG, Medicare Payments for Ambulance Transports (Washington, D.C.: 2006)
                      and HHS OIG, Medical Necessity of Medicare Ambulance Services (Washington, D.C.:
                      1998).




                      Page 24                                  GAO-13-6 Ambulance Providers’ Costs and Margins
represent mature and well-established organizations—an advantage
because this approach avoids start-up organizations with potentially high
start-up costs, as described in our scope and methodology. Despite the
differences in the samples and the type of measure used for reporting
Medicare margins, both of these studies showed wide variation in costs
per transport and Medicare margins.

AAA representatives had some questions about the results of our
regression analysis. For example, the regression results suggest that
ambulance providers that receive a greater proportion of government
subsidies tend to have higher costs. The representatives theorized that
providers with higher costs seek additional government support and did
not think this finding was consistent with how their industry operates. As
described in the report, the Medicare Payment Advisory Commission
found an association between increased resources and increased costs
in the hospital industry and theorizes that such hospitals face less
pressure to control costs. We found an association in the ambulance
industry but determining causality was beyond the scope of our work.
AAA representatives also questioned the regression analysis results that
indicated that providers’ use of volunteer staff did not significantly
contribute to differences in providers’ total costs, because our survey data
indicated that personnel costs were, on average, 61 percent of providers’
total costs. The results may be a consequence of the relatively small
sample size and, in addition, a small proportion of providers in our sample
using volunteer staff (21 percent).

Finally, the AAA representatives commented that ground ambulance
providers’ current Medicare payments are lower than those we calculated
for 2010 because of the expiration of a required temporary increase in
Medicare payments for certain geographic areas, 46 the implementation of
a policy for reporting fractional mileage, 47 and the introduction of a
productivity adjustment relative to the annual inflation adjustment of the



46
  A required increase in the practice expense portion of the geographic practice cost index
(GPCI) for certain areas expired at the end of 2011, resulting in payment reductions for
those areas. See Pub. L. No. 111-148, § 3102(b)(2),124 Stat. 416.
47
  Starting in 2011, for payment purposes, CMS required that providers specify the number
of miles traveled during a transport rounded up to the nearest tenth of a mile (up to
100 miles). Previously, providers reported the number of miles rounded up to the nearest
whole number. See 75 Fed Reg. 73170 (Nov. 29, 2010) (discussion of policy contained in
section VII.B. of preamble).




Page 25                                 GAO-13-6 Ambulance Providers’ Costs and Margins
fee schedule. 48 In addition, AAA noted that the cost of fuel has increased
since 2010. We acknowledge that these factors likely lowered Medicare
payments and increased costs for some providers after 2010, 49 the most
recent year for which data were available when we began our study.


We are sending copies of this report to other congressional committees
and the Administrator of CMS. In addition, the report is available at no
charge on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of the report. GAO staff who made major contributions to
this report are listed in appendix II.




James C. Cosgrove
Director, Health Care




48
  CMS increases fee schedule rates each year for inflation. However, starting in 2011, the
amount of the increase for inflation was reduced by a measure of overall productivity in
the economy. See Pub. L. No. 111-148, § 3401(a), 124 Stat. 480.
49
  However, for some providers, Medicare payment rates increased after 2010.
Specifically, beginning in 2011, CMS increased the practice expense portion of the GPCI
for states meeting certain criteria, deemed as "frontier" states. In 2011, those states were
Montana, Nevada, North Dakota, South Dakota, and Wyoming. See Pub. L. No. 111-148,
§ 10324(c), 124 Stat. 960.




Page 26                                  GAO-13-6 Ambulance Providers’ Costs and Margins
Appendix I: Data and Methods
                     Appendix I: Data and Methods




                     This appendix describes the data and methods we used to respond to our
                     research objectives. We conducted a survey of ambulance providers to
                     collect data on their costs and other characteristics. We relied on these
                     survey data for much of our analyses and supplemented our survey
                     results with information from other sources, including Medicare claims
                     data, as appropriate. We also analyzed Medicare claims data to
                     determine payments to ambulance providers as well as to determine the
                     number of Medicare ambulance transports. We tested the internal
                     consistency and reliability of the data from our survey and the Medicare
                     claims data and determined that all data sources were adequate for our
                     purposes. We conducted our work from April 2012 through September
                     2012 in accordance with generally accepted government auditing
                     standards.


                     To collect data on ground ambulance providers’ costs, revenues,
National Survey of   transports, and organizational characteristics for calendar year 2010, or
Ground Ambulance     for the fiscal year that corresponded to all or the majority of a provider’s
                     calendar year 2010 data, we sent a web-based survey to a random,
Providers’ Costs     nationally representative sample of 294 eligible ambulance providers. 1
                     We obtained data from 154 providers for a response rate of 52 percent,
                     after excluding cost outliers and surveys with unreliable data. 2 We
                     determined that our sample was nationally representative of the
                     approximately 2,900 ambulance providers that billed Medicare in 2003
                     and 2010, were still operational in 2012, and did not share costs with
                     nonambulance services or air ambulance services. 3 However, the small


                     1
                      See the section titled “Sample Design” within this appendix for more information on
                     eligible providers.
                     2
                      We obtained survey data from 172 providers; however, 11 of these providers were
                     excluded because they reported in their surveys that they shared costs with
                     nonambulance services. We also excluded 3 providers that were unable to provide total
                     cost or total transports information and 1 provider that was not confident in the total cost
                     amount provided. We also excluded 3 outliers with a cost per transport more than three
                     standard deviations from the mean of the lognormal distribution. We did not obtain
                     complete information for all survey respondents. Therefore, some analyses do not include
                     all 154 respondents.
                     3
                      We excluded providers that shared operational costs with nonambulance services
                     because, in our 2007 report, we found costs reported by these types of providers to be
                     highly variable and unreliable. See GAO, Ambulance Providers: Costs and Expected
                     Medicare Margins Vary Greatly, GAO-07-383 (Washington, D.C.: May 23, 2007). Because
                     the populations represented by the samples we used for our current report and our 2007
                     report differ, the results of the two reports are not directly comparable.




                     Page 27                                  GAO-13-6 Ambulance Providers’ Costs and Margins
                    Appendix I: Data and Methods




                    sample size and the variability of reported costs reduced the precision of
                    our estimates.


Sample Design       We drew potentially eligible providers for our survey from an existing
                    sample, originally developed for our 2007 report, of 900 non-hospital-
                    based ground ambulance providers that billed Medicare in 2003. 4
                    Through Internet searches and phone contacts to ambulance providers,
                    we excluded any providers that (1) were no longer in business; (2) shared
                    costs with nonambulance services, such as those providers affiliated with
                    a fire department; or (3) we were otherwise not able to contact. 5 As we
                    did for the 2007 report, we excluded ground ambulance providers that
                    also provided air ambulance services. After all exclusions, we had 294
                    eligible providers for potential survey participation. On the basis of the
                    number of providers that were eligible for our sample and the number of
                    providers that responded to our survey, we calculated sample weights to
                    estimate how many Medicare ambulance providers our sample
                    represented.


Survey Instrument   To develop our survey instrument, we modified the survey instrument
Development         used for our 2007 report, which was mailed to ambulance providers, to
                    tailor it to our current objectives and format it for use as a web-based
                    survey. 6 We retained questions about ambulance providers’ costs,
                    revenues, and transports, as well as questions to identify organizational
                    characteristics that might affect ambulance providers’ costs, such as the




                    4
                     For our 2007 report, we generated a nationally representative list of 900 non-hospital-
                    based ambulance providers from information maintained by the Centers for Medicare &
                    Medicaid Services, the agency that oversees the Medicare program, and the agency’s
                    contractors that process Medicare claims. This list was developed from 2003 claims data
                    and was stratified based on the predominant service area of providers (urban, rural,
                    super-rural) and the nine U.S. census divisions.
                    5
                     We obtained contact information for some of these providers from the American
                    Ambulance Association (AAA). We made up to three phone calls to attempt to contact a
                    provider before we excluded it from our survey sample.
                    6
                     To develop the survey instrument for the 2007 report, we reviewed other survey
                    instruments and analyses of ambulance cost data, consulted with experts in survey
                    methods and the ambulance industry, and tested the survey instrument with ambulance
                    providers.




                    Page 28                                GAO-13-6 Ambulance Providers’ Costs and Margins
                        Appendix I: Data and Methods




                        use of volunteer staff. 7 We added questions related to changes in total
                        cost (increases or decreases) from 2009 to 2010 and the cost
                        components that most contributed to the changes. We also asked
                        providers for their National Provider Identifier (NPI), which providers use
                        to bill Medicare, and their Provider Transaction Access Number (PTAN).
                        These numbers enabled us to identify and analyze Medicare claims for
                        the providers we surveyed. 8 We needed these current identifiers to link
                        the providers in our sample to Medicare claims data because our sample
                        was based on the sampling frame of our 2007 report, and Medicare has
                        implemented a new identification system since then.

                        We sought feedback on our survey instrument from both internal and
                        external sources. It was reviewed by internal survey experts and
                        pretested on seven ambulance providers. We also consulted with the
                        American Ambulance Association (AAA), an industry group that
                        represents ambulance providers. On the basis of the feedback we
                        received, we modified the survey instrument as appropriate.


Survey Administration   We sent our survey by e-mail to 294 eligible ambulance providers on
                        April 12, 2012. 9 We asked providers to complete the survey within
                        2 weeks of receipt. We later extended this deadline 2 weeks to give
                        providers more time to complete the survey. Providers were encouraged
                        to contact us by e-mail or a toll-free number so that we could resolve any
                        questions or problems. We sent three reminder e-mails to providers that
                        had not yet completed the survey (6, 14, and 21 days after sending the
                        survey to providers) and made two rounds of reminder telephone calls to


                        7
                         For purposes of this report, volunteer staff refers to staff who respond to emergencies
                        and staff ambulance transports (e.g., field staff) but who are not paid or are paid a nominal
                        stipend.
                        8
                         An NPI is a unique national identification number for covered health care providers as
                        established under the Health Insurance Portability and Accountability Act of 1996. See
                        Pub. L. No. 104-191, § 262, 110 Stat. 1936, 2021 (adding Social Security Act § 1173). A
                        PTAN is a Medicare-only number issued by Medicare contractors to providers when they
                        enroll in the Medicare program. For various reasons, such as multiple service locations,
                        some providers have more than one NPI-PTAN combination, and providers submitted the
                        NPI-PTAN combination or combinations that corresponded with the service location(s) we
                        surveyed.
                        9
                         Approximately 2 weeks before sending the survey instrument to providers, we sent an e-
                        mail to the ambulance providers in our sample to notify them about the survey and to
                        verify that we had accurate e-mail addresses.




                        Page 29                                  GAO-13-6 Ambulance Providers’ Costs and Margins
                           Appendix I: Data and Methods




                           encourage participation. AAA and the National Association of Emergency
                           Medical Technicians encouraged providers to participate in the survey.
                           When providers returned surveys that were incomplete, invalid, or
                           resulted in conflicting responses to key items, we conducted follow-up by
                           phone and e-mail.


Survey Data Validity and   We took steps to ensure that the data reported in the survey were valid
Reliability                and reliable. First, we included in the survey instrument questions
                           intended to validate the reported cost data. For example, we asked
                           providers whether certain cost components (such as personnel costs)
                           were included in the total cost amount submitted, and we asked how
                           confident providers were about the total cost amount submitted. As a
                           result, we excluded from our analyses one provider that was not confident
                           in the total cost amount. Second, we conducted analyses to identify any
                           incomplete data or inconsistencies in responses. If we found such data,
                           we contacted the provider to try to obtain complete or corrected data. We
                           excluded three providers that were not able to provide complete data on
                           total cost or total transports. Third, we used a lognormal distribution to
                           exclude outliers with a cost per transport more than three standard
                           deviations from the mean. We excluded three providers with costs per
                           transport that were outliers. All computer programs we used for our
                           analyses were peer reviewed to verify that they were written correctly and
                           executed properly. On the basis of our efforts to validate the data,
                           including computer testing and corrections, we concluded that the data
                           were sufficiently valid and reliable for our purposes.


Interpretation of          All sample surveys are subject to sampling error—that is, the extent to
Confidence Intervals and   which the survey results differ from what would have been obtained from
Analysis of                the population instead of the sample. The sample is only one of a number
                           of samples that we might have drawn. As a result, we reported the results
Nonrespondents             of our analyses with their 95 percent confidence intervals. The 95 percent
                           confidence interval refers to the range of values within which we would
                           expect the true population value to fall in 95 percent of the samples we
                           could have drawn. 10




                           10
                             The range of the confidence interval is affected by the variability of the responses within
                           the sample and the size of the sample.




                           Page 30                                  GAO-13-6 Ambulance Providers’ Costs and Margins
                     Appendix I: Data and Methods




                     We analyzed 2010 Medicare claims data for the survey nonrespondents
                     and compared this information with similar claims data for providers in our
                     sample. 11 Using Medicare claims data for all survey recipients, we were
                     able to test for potential nonresponse bias for the characteristics
                     contained in the claims data. The nonresponse analysis did not find any
                     statistically measurable bias that would affect our analyses of providers’
                     costs.


                     We used regression analysis to investigate the relationship between
Modeling Ambulance   providers’ total cost and provider characteristics that may have affected
Costs                their costs. We opted for a total cost model using a logarithmic functional
                     form because it is well grounded in microeconomic theory. Although we
                     considered using a similar model of the same functional form with cost
                     per transport as the dependent variable, we determined that the
                     parameter estimates of such a model would be similar to the total cost
                     model. Provider characteristics included in our model were: (1) volume of
                     transports, (2) cost of doing business, (3) mix of Medicare transports,
                     (4) intensity of Medicare transports, (5) service area, (6) use of volunteer
                     staff, (7) receipt of government subsidies, and (8) ownership type. We
                     used those results to produce a graph illustrating the relationship between
                     cost per transport and volume of transports. We also used the results of
                     the regression analysis to estimate the effect on providers’ cost per
                     transport of reducing the value of each of two variables that were
                     significant in the regression. See table 5 for the characteristics included in
                     the model, how each characteristic was measured, and the data source
                     for each characteristic.




                     11
                       We were able to identify NPIs and PTANs for approximately 92 percent of our
                     nonrespondents. We were unable to identify NPIs and PTANs for the remainder despite
                     attempting to match available contact information for nonrespondents with the Centers for
                     Medicare & Medicaid Services’ (CMS) NPI registry and Medicare claims data.




                     Page 31                                 GAO-13-6 Ambulance Providers’ Costs and Margins
                                           Appendix I: Data and Methods




Table 5: Provider Characteristics Included in Analysis of Total Cost and Cost per Transport, 2010

Characteristic                   Measure                                                             Source of data
Volume of transports             Number of transports (Medicare and other) provided                  GAO Survey of Ambulance Services
Cost of doing business           Geographic practice cost index (GPCI) for the provider’s zip Medicare Ambulance Fee Schedule
                                     a
                                 code                                                         Public Use File
Mix of transports                Percentage of Medicare transports that are ALS                      Medicare claims
Intensity of transports          Percentage of Medicare transports that are nonemergency             Medicare claims
             b
Service area                     Percentage of Medicare transports that are rural                    Medicare claims
                                 Percentage of Medicare transports that are super-rural              Medicare claims
                       c
Use of volunteer staff           Indicator variables for percentage of field staff hours that are GAO Survey of Ambulance Services
                                 volunteer: greater than or equal to 20 percent and less than
                                 20 percent but greater than 0
Receipt of government subsidies Percentage of total revenues from government subsidies               GAO Survey of Ambulance Services
                 d
Ownership type                   Indicator variables for ownership type: nonprofit and local         GAO Survey of Ambulance Services
                                 government
                                           Sources: GAO and CMS.
                                           a
                                            The practice expense portion of the GPCI in the physician fee schedule is used to adjust payments
                                           in the ambulance national fee schedule to account for the different costs of operating ambulance
                                           services in different regions of the country.
                                           b
                                            The excluded category was the percentage of Medicare transports that are urban. To estimate the
                                           regression, one of the service area categories had to be excluded.
                                           c
                                            The excluded category was no use of volunteer staff. To estimate the regression, one of the
                                           volunteer categories had to be excluded.
                                           d
                                            The excluded category was for-profit ownership type. To estimate the regression, one of the
                                           ownership type categories had to be excluded.



Cost Regression                            Our regression analysis modeled total cost at the provider level as a
Analysis—Methods and                       function of the provider characteristics described above. We used
Results                                    ordinary least squares to model the log of total costs for a provider. 12 The
                                           model was specified in log-log form to conform to standard
                                           microeconomic theory regarding cost functions. The two continuous
                                           independent variables—transport volume and geographic practice cost
                                           index (GPCI)—were entered in log form. The remaining variables were
                                           not entered in log form because they were either indicator variables
                                           (value of 0 or 1) or percentage variables (values ranging from 0 to 1.00).
                                           Three of the explanatory variables in the regression were statistically
                                           significant at the 1 percent or better level in explaining the variation in
                                           providers’ total costs: total transports, percentage of revenues from


                                           12
                                               Ordinary least squares is a standard method of regression analysis.




                                           Page 32                                      GAO-13-6 Ambulance Providers’ Costs and Margins
                                            Appendix I: Data and Methods




                                            government subsidies, and percentage of Medicare transports that were
                                            nonemergency. 13 Table 6 shows the regression results.

Table 6: Results for Ambulance Costs Regression—Estimated Effects of Selected Provider and Local Area Characteristics on
the Total Cost of Providing Ground Ambulance Transports

                                Variable used to measure                                 Parameter     Standard
Characteristic                  characteristic                                            estimate         Error        t-Value      Prob < |t|
Volume of transports            Log of total transports                                       0.94           0.03         32.25            <.0001
Cost of doing business          Log of GPCI                                                   0.83           0.61           1.37             0.17
Mix of transports               Percentage of Medicare transports                             0.09           0.15           0.64             0.53
                                that are ALS
Intensity of transports         Percentage of Medicare transports                            -0.47           0.18          -2.65             0.01
                                that are nonemergency
             a
Service area                    Percentage of Medicare transports                             0.02           0.09           0.22             0.82
                                that are rural
                                Percentage of Medicare transports                             0.14           0.11           1.27             0.21
                                that are super-rural
                       b
Use of volunteer staff          Use volunteer staff for 20% or more                          -0.04           0.10          -0.35             0.73
                                of field staff hours
                                Use volunteer staff for less than 20%                         0.18           0.12           1.46             0.15
                                of field staff hours but more than 0%
Receipt of government subsidies Percentage of total revenues from                             0.83           0.18           4.73           <.0001
                                government subsidies
                 c
Ownership type                  Nonprofit                                                    -0.13           0.09          -1.49             0.14
                                Local government                                             -0.09           0.08          -1.03             0.30
                                Intercept                                                     6.68           0.29         23.00            <.0001
                                Adjusted R-square                                             0.94
                                Observations                                                  144
                                            Sources: GAO analysis of GAO and CMS data.

                                            Note: Data were from the 2012 GAO Survey of Ambulance Services, 2010 Medicare claims, and the
                                            Medicare Ambulance Fee Schedule Public Use File.
                                            a
                                             The excluded category was the percentage of Medicare transports that are urban. To estimate the
                                            regression, one of the service area categories had to be excluded.
                                            b
                                             The excluded category was no use of volunteer staff. To estimate the regression, one of the
                                            volunteer categories had to be excluded.
                                            c
                                             The excluded category was for-profit ownership type. To estimate the regression, one of the
                                            ownership type categories had to be excluded.




                                            13
                                              We tested the model for heteroscedasticity and determined that this did not affect our
                                            results.




                                            Page 33                                        GAO-13-6 Ambulance Providers’ Costs and Margins
                        Appendix I: Data and Methods




                        We used the regression results to predict the log of total cost and then
                        converted it to total cost by taking the antilog. We applied an adjustment
                        to the resulting prediction of total cost to account for the fact that our
                        regression was for log total cost rather than total cost. 14 We then divided
                        total cost by total transports to derive cost per transport. We used this
                        method to produce predictions of cost per transport for the range of 1 to
                        20,000 transports shown in figure 2 of the report. 15

                        We also used the regression results to estimate the effect on cost per
                        transport of a reduced percentage of revenues from government
                        subsidies and a reduced percentage of nonemergency transports. In each
                        case, we held the other variables in the regression model at their
                        regression sample mean and calculated cost per transport for the sample
                        two ways: one with the value of the variable of interest set at its sample
                        average and another with it set at a value 25 percent less. We reported
                        the difference between these two values for each variable.


                        To examine the relationship between Medicare payments and providers’
Calculating Medicare    costs, we used Medicare claims data to calculate Medicare payments in
Ambulance Payments      2010 for the providers in our sample, and we calculated Medicare
                        margins—the percentage difference between providers’ Medicare
and Use of Transports   payments per transport and their costs per transport. To examine
with Claims Data        ambulance transports per 1,000 Medicare beneficiaries, we used
                        Medicare claims data and Centers for Medicare & Medicaid Services
                        (CMS) 2010 Medicare enrollment data. We found CMS’s claims and
                        enrollment data to be sufficiently reliable for the purposes of this report.




                        14
                          W. G. Manning and J. Mullahy, “Estimating Log Models: To Transform or Not To
                        Transform,” Journal of Health Economics, vol. 20, no. 4 (2001). See section 2.1 for a
                        description of the adjustment necessary for converting the predicted log of the dependent
                        variable to its unlogged value.
                        15
                          We examined our data for potentially influential observations using four standard tests.
                        Three of the four tests failed to identify any observations that should be deleted on the
                        basis of their influence on the regression results. We had previously excluded three
                        outliers and also had verified that the data for other potential outliers were correct.




                        Page 34                                 GAO-13-6 Ambulance Providers’ Costs and Margins
                   Appendix I: Data and Methods




Medicare Payment   We calculated 2010 Medicare payments for the providers in our sample
Calculations       using Medicare carrier claims data. We identified relevant ambulance
                   claims for 153 providers by using the NPIs (which providers use to bill
                   Medicare) and PTANs reported by providers on the survey. 16 We
                   excluded any Medicare claims without either service-level or mileage
                   payments and any claims with service-level payments that were more
                   than three standard deviations from the mean of the log distribution for all
                   such claims. We also excluded any claims for transports with multiple
                   patients because the calculations for these payments require additional
                   information not available on Medicare claims.

                   See figure 5 for the payment formulas specified in the Medicare
                   ambulance fee schedule.




                   16
                     One provider that was included in the survey data analysis was excluded in the payment
                   and margin analyses because we could not identify complete relevant Medicare claims
                   data.




                   Page 35                                GAO-13-6 Ambulance Providers’ Costs and Margins
                                     Appendix I: Data and Methods




Figure 5: Medicare Ambulance Payment Formula




                                     a
                                      The relative value unit is a constant multiplier that adjusts the service-level base rate to account for
                                     the mix and intensity of the service.




                                     Page 36                                        GAO-13-6 Ambulance Providers’ Costs and Margins
Appendix I: Data and Methods




b
 The practice expense portion of the GPCI in the physician fee schedule is used to account for the
different costs of operating ambulance services in different regions of the country. Of the service-level
payment without add-on payments (which is the product of the relative value unit and the service-
level base rate), 70 percent is adjusted by the GPCI and the other 30 percent is not adjusted by the
GPCI. For example, in the hypothetical example for an urban transport, the full formula for the
service-level payment without add-on payments is (0.70 x [1.90 x $209.65] x 1.218) + (0.30 x [1.90 x
$209.65]).
c
 Since 2002, CMS has provided a 50 percent increase to the mileage payment rate for miles 1
through 17 of transports originating in rural or super-rural zip codes. See 67 Fed. Reg. 9100 (Feb. 27,
2002) (adding subpart H to 42 C.F.R. part 414); 42 C.F.R. § 414.610(c)(5)(i) (2011) (this mileage rate
increase is not set to expire).
d
 In 2010, temporary add-on payment policies included a 2 percent increase to service-level and
mileage payment rates for transports originating in urban zip codes, a 3 percent increase to service-
level and mileage payment rates for transports originating in rural zip codes, and a 22.6 percent
increase to rural service-level payment rate for transports originating in super-rural zip codes.


To calculate service-level payments, we used the type of transport
identified on the claim to determine the associated relative value unit,
which is a constant multiplier that adjusts the service-level base rate to
account for the mix and intensity of the service, and we used the 2010
service-level base rate of $209.65. We used the zip code where the
transport originated to determine the adjustment from the geographic
practice cost index (GPCI), which is used to account for the different
costs of operating ambulance services in different regions of the
country. 17 In accordance with CMS’s payment methodology, we adjusted
70 percent of the service-level payment by the GPCI, and we did not
adjust the other 30 percent by the GPCI. We also used the zip code
where the transport originated to determine the applicable urban, rural, or
super-rural add-on payment rate. To calculate mileage payments, we
used the number of miles reported on the claim and the 2010 mileage
base rate of $6.74. We used the zip code where the transport originated
to determine the applicability of the permanent mileage increase for miles
1 through 17 for rural and super-rural transports and to determine the
applicable urban, rural, or super-rural add-on payment rate.

The total fee schedule payment for each transport is the sum of the
service-level and mileage payments. We calculated payments with and
without the applicable add-on payment rates, and we assumed that
providers charged the maximum allowed amount under the ambulance




17
  We used the GPCIs that were in effect for 2010, which included a required temporary
increase in the practice expense portion of the GPCI for certain areas; this increase
expired at the end of 2011. See Pub. L. No. 111-148, § 3102(b)(2), 124 Stat. 416.




Page 37                                       GAO-13-6 Ambulance Providers’ Costs and Margins
                           Appendix I: Data and Methods




                           fee schedule. 18 All payments are expressed in 2010 dollars. To ensure
                           that our payment calculations were comparable to actual payments made
                           based on the claims, we compared the payments we calculated with add-
                           ons to the payment amounts on the claims for a random sample of 6,000
                           urban, rural, and super-rural claims, and we found the difference in the
                           amounts to be less than 1 percent.

                           For the providers in our sample, we reported the median of providers’
                           Medicare payment per transport by predominant service area (urban,
                           rural, or super-rural) and for all providers. 19 To calculate each provider’s
                           Medicare payment per transport, we divided the sum of the provider’s
                           Medicare payments by the sum of its Medicare transports.


Medicare Margin            To calculate each provider’s Medicare margin, we used the provider’s
Calculations               cost per transport, as calculated from the survey responses, and its
                           Medicare payment per transport, described in the previous section. We
                           subtracted the provider’s cost per transport from its Medicare payment
                           per transport, and we divided this amount by the provider’s Medicare
                           payment per transport. For the providers in our sample, we reported the
                           median Medicare margin and the distribution of providers’ Medicare
                           margins by predominant service area (urban, rural, or super-rural) and for
                           all providers.


Calculating Number of      To calculate ambulance transports per 1,000 Medicare beneficiaries, we
Ambulance Transports per   used Medicare carrier and outpatient claims data, and CMS enrollment
1,000 Medicare             data—used for purposes of determining Medicare eligibility for covered
                           services—from 2004 and 2010. To calculate the number of transports, we
Beneficiaries              counted any Medicare claims for ground transports in these years for
                           which there was both a service-level and a mileage payment. We



                           18
                            In some cases, communities may limit the amount their ambulance providers charge
                           Medicare; however, according to NASEMSO, this is not a common practice.
                           19
                             As we did in the 2007 report, we classified providers as super-rural if 60 percent or more
                           of their Medicare transports in 2010 originated in a super-rural zip code. We classified
                           providers as rural if they did not meet the super-rural definition and 60 percent or more of
                           their Medicare transports in 2010 originated in rural or super-rural zip codes. We classified
                           providers as urban if they did not meet the rural or super-rural classifications. Since some
                           providers furnish transports in more than one area, there is likely to be some
                           measurement error in identifying the full effect of service area on costs.




                           Page 38                                  GAO-13-6 Ambulance Providers’ Costs and Margins
                            Appendix I: Data and Methods




                            excluded claims with service-level payments outside of three standard
                            deviations from the mean of the log distribution for all such claims for
                            each of these years. We counted Medicare beneficiaries as the number of
                            months beneficiaries were enrolled in Medicare Part A or B in 2010
                            divided by 12. We then divided the number of transports by the number of
                            enrolled Medicare beneficiaries and multiplied the quotient by 1,000. We
                            also examined the change in transports per 1,000 Medicare beneficiaries
                            from 2004 to 2010.


Medicare Data Reliability   Medicare claims data, which are used by the Medicare program as a
                            record of payments made to health care providers, are closely monitored
                            by both CMS and Medicare Administrative Contractors—contractors that
                            process, review, and pay claims for Medicare Part B–covered services,
                            including ambulance services. The data are subject to various internal
                            controls, including checks and edits performed by the contractors before
                            claims are submitted to CMS for payment approval. Although we did not
                            review these internal controls, we assessed the reliability of Medicare
                            claims data by reviewing related CMS documentation, interviewing
                            agency officials about the data, and comparing payments in a sample of
                            claims to expected payments based on Medicare’s published ambulance
                            fee schedule. We determined that the Medicare claims data were
                            sufficiently reliable for the purposes of this report. In addition, we
                            assessed the reliability of CMS’s enrollment data by reviewing related
                            CMS documentation and comparing the enrollment data to published
                            sources. We determined that Medicare enrollment data were sufficiently
                            reliable for the purposes of this report.




                            Page 39                         GAO-13-6 Ambulance Providers’ Costs and Margins
Appendix II: GAO Contact and Staff
                  Appendix I: Data and Methods




Acknowledgments

                  James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov
GAO Contact
                  In addition to the contact named above, Christine Brudevold,
Staff             Assistant Director; Ramsey Asaly; Carl S. Barden; Stella Chiang;
Acknowledgments   Carolyn Fitzgerald; Leslie V. Gordon; Corissa Kiyan; Rich Lipinski;
                  Elizabeth T. Morrison; Aubrey Naffis; and Eric Wedum made key
                  contributions to this report.




                  Page 40                          GAO-13-6 Ambulance Providers’ Costs and Margins
Related GAO Products
             Appendix I: Data and Methods




             Ambulance Providers: Costs and Expected Medicare Margins Vary
             Greatly. GAO-07-383. Washington, D.C.: May 23, 2007.

             Ambulance Services: Medicare Payments Can Be Better Targeted to
             Trips in Less Densely Populated Areas. GAO-03-986. Washington, D.C.:
             September 19, 2003.




(291033)
             Page 41                        GAO-13-6 Ambulance Providers’ Costs and Margins
GAO’s Mission         The Government Accountability Office, the audit, evaluation, and
                      investigative arm of Congress, exists to support Congress in meeting its
                      constitutional responsibilities and to help improve the performance and
                      accountability of the federal government for the American people. GAO
                      examines the use of public funds; evaluates federal programs and
                      policies; and provides analyses, recommendations, and other assistance
                      to help Congress make informed oversight, policy, and funding decisions.
                      GAO’s commitment to good government is reflected in its core values of
                      accountability, integrity, and reliability.

                      The fastest and easiest way to obtain copies of GAO documents at no
Obtaining Copies of   cost is through GAO’s website (http://www.gao.gov). Each weekday
GAO Reports and       afternoon, GAO posts on its website newly released reports, testimony,
                      and correspondence. To have GAO e-mail you a list of newly posted
Testimony             products, go to http://www.gao.gov and select “E-mail Updates.”

Order by Phone        The price of each GAO publication reflects GAO’s actual cost of
                      production and distribution and depends on the number of pages in the
                      publication and whether the publication is printed in color or black and
                      white. Pricing and ordering information is posted on GAO’s website,
                      http://www.gao.gov/ordering.htm.
                      Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                      TDD (202) 512-2537.
                      Orders may be paid for using American Express, Discover Card,
                      MasterCard, Visa, check, or money order. Call for additional information.
                      Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO      Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                      Visit GAO on the web at www.gao.gov.
                      Contact:
To Report Fraud,
Waste, and Abuse in   Website: http://www.gao.gov/fraudnet/fraudnet.htm
                      E-mail: fraudnet@gao.gov
Federal Programs      Automated answering system: (800) 424-5454 or (202) 512-7470

                      Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-
Congressional         4400, U.S. Government Accountability Office, 441 G Street NW, Room
Relations             7125, Washington, DC 20548

                      Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs        U.S. Government Accountability Office, 441 G Street NW, Room 7149
                      Washington, DC 20548




                        Please Print on Recycled Paper.