Testimony

Before the Committee on Governmental Affairs,

U.S. Senate

United States General Accounting Office

GAO

For Release on Delivery

Expected at 9:15 a.m.

Thursday, November 15, 2001 AMBULANCE SERVICES

Changes Needed to

Improve Medicare

Payment Policies and

Coverage Decisions

Statement of Laura A. Dummit

Director, Health Care—Medicare Payment Issues

GAO-02-244T
Page 1 GAO-02-244T

Mr. Chairman and Members of the Committee:

I am pleased to be here today as you discuss Medicare’s payment and

coverage policies for ambulance services. Currently, program payments

are determined using a complex method based on reasonable costs for

hospital-based providers or based on reasonable charges for ambulance

providers not affiliated with a hospital or other health care facility (known

as freestanding providers). This method has produced wide differences in

payments across providers for the same services. In addition, there has

been considerable variation in Medicare’s determinations of what

ambulance services are covered and what provider documentation is

needed for ensuring claims are paid.

The Balanced Budget Act of 1997 (BBA) required the Medicare program to

change its payment system for ambulance services.1

 In response, the

Health Care Financing Administration (HCFA), now called the Centers for

Medicare and Medicaid Services (CMS), has proposed a fee schedule that

will standardize payment rates across provider types based on national

rates for particular services. As required by BBA, the proposed fee

schedule was developed using a negotiated rulemaking process, and it

involved a committee made up of officials from HCFA and representatives

from various interested parties, including the American Ambulance

Association and the American Hospital Association, among others.2

 In

February 2000, the committee made recommendations to HCFA on

elements of the fee schedule, which the agency used as the basis of its

proposed fee schedule to the maximum extent possible. Under BBA, the

fee schedule was to have applied to ambulance services furnished on or

after January 1, 2000. HCFA published a proposed rule on September 12,

2000,3

 and has received public comment but has not issued a final rule to

date.

 1

P.L. 105-33, Sec. 4531(b), 111 Stat. 251, 450-52.

2

The other members of the Negotiated Rulemaking Committee on Medicare Ambulance Fee

Schedule were from the American College of Emergency Physicians and National

Association of EMS Physicians, Association of Air Medical Services, International

Association of Fire Fighters, International Association of Fire Chiefs, National Association

of Counties, National Association of State Emergency Medical Services Directors, and

National Volunteer Fire Council.

3

65 Fed. Reg. 55,078.
Page 2 GAO-02-244T

In July 2000, we reported on payments for ambulance services with an

emphasis on rural providers. This was in response to congressional

concerns about the circumstances facing some rural ambulance providers

and about beneficiary access to these vital services. My comments today

are based on our July 2000 report4

 and will focus on (1) the unique

concerns of rural ambulance providers, (2) the likely effects of the

proposed fee schedule on these providers, and (3) longstanding issues

affecting the approval of claims made for payment of ambulance services.

In summary, many rural ambulance providers face a set of unique

challenges, which may need consideration in implementing an appropriate

payment policy. As noted in our July 2000 report, those serving large

geographic areas with low population density, unless they rely on

volunteers, tended to have high per-trip costs as compared to urban and

suburban providers because of a lower volume of transports. Rural

providers also tended to have longer ambulance transports than their

urban counterparts, making the adequacy of reimbursement for mileage

costs more central to their overall payments than for providers in more

densely populated areas. Fewer alternatives for transporting rural

residents to hospitals, a substantial reliance on Medicare revenues, and

difficulty maintaining volunteer staff were among other challenges facing

rural ambulance providers.

The proposed Medicare fee schedule will alter the way ambulance

providers are paid. Much of the variation in payment rates among similar

providers will be eliminated. Providers now receiving payments that are

higher than the national average are likely to receive lower payments

under the fee schedule, whereas those that are paid less than the national

average, such as many rural providers, are likely to receive increased

payments. The proposed fee schedule incorporates enhanced payments

for providers that transport beneficiaries in rural areas. These payments

are intended to help sustain essential ambulance service in sparsely

populated areas. However, this adjustment does not sufficiently

distinguish the providers serving beneficiaries in the most isolated rural

areas and may not appropriately account for the higher costs of lowvolume providers. In our July 2000 report, we recommended, and HCFA

agreed, that the payment adjuster needed refinement to better address

these problems.

 4

Rural Ambulances: Medicare Fee Schedule Payments Could Be Better Targeted

(GAO/HEHS-00-115, July 17, 2000).
Page 3 GAO-02-244T

Not only does Medicare’s current ambulance payment method produce

wide and unexplained variation in rates, variation in approvals and denials

of payments may have resulted in unequal coverage for Medicare

beneficiaries. Different practices among carriers, which are the

contractors that process claims for the Medicare program, may have

contributed to the variation in claims denials. For example, in our 2000

review, we found that carriers made different decisions regarding the level

of payment applied to similar claims for advanced emergency transport

services. In addition, claims have been denied because providers did not

properly fill out forms. Confounding consistency problems, the absence of

a national coding system that readily identifies the beneficiary’s medical

condition at the time of the transport has impaired providers’ ability to

convey to carriers information that is needed to approve claims for

payment.

Medicare covers medically necessary ambulance services when no other

means of transportation to receive health care services is appropriate,

given the beneficiary’s medical condition at the time of transport.

Medicare pays for both emergency and nonemergency ambulance

transports that meet the established criteria. To receive Medicare

reimbursement, providers of ambulance services must also meet vehicle

and crew requirements. Transport in any vehicle other than an

ambulance—such as a wheelchair or stretcher van—does not qualify for

Medicare payment.

Medicare pays for different levels of ambulance services, which reflect the

staff training and equipment required to meet the patient’s needs. Basic life

support (BLS) is provided by emergency medical technicians (EMT).

Advanced life support (ALS) is provided by paramedics or EMTs with

advanced training. ALS with specialized services is provided by the same

staff as standard ALS but involves additional equipment.

Currently, Medicare uses different payment methods for hospital-based

and freestanding ambulance providers. Hospital-based providers are paid

based on their reasonable costs. For freestanding providers, Medicare

generally pays a rate based on reasonable charges, subject to an upper

limit that essentially establishes a maximum payment amount.

Freestanding providers can bill separately for mileage and certain

supplies.

Between 1987 and 1995, Medicare payments to freestanding ambulance

providers more than tripled, from $602 million to almost $2 billion, rising

Background
Page 4 GAO-02-244T

at an average annual rate of 16 percent. Overall Medicare spending during

that same time increased 11 percent annually. From 1996 through 1998,

payments to freestanding ambulance providers stabilized at about $2.1

billion. BBA stipulated that total payments under the fee schedule for

ambulance services in 2000 should not exceed essentially the amount that

payments would have been under the old payment system. This

requirement is known as a budget neutrality provision.

In 1997, 11,135 freestanding and 1,119 hospital-based providers billed

Medicare for ground transports. The freestanding providers are a diverse

group, including private for-profit, nonprofit, and public entities. They

include operations staffed almost entirely by community volunteers,

public ventures that include a mix of volunteer and professional staff, and

private operations using paid staff operating independently or contracting

their services to local governments. In our July 2000 report, we noted that

about 34 percent were managed by local fire departments. In several

communities a quasi-government agency owned the ambulance equipment

and contracted with private companies for staff.

The majority of air ambulance transports are provided by hospital-based

providers. An estimated 275 freestanding and hospital-based programs

provide fixed-wing and rotor-wing air ambulance transports, which

represent a small proportion (about 5 percent) of total ambulance

payments.

In our July 2000 report, we noted that several factors characterizing rural

ambulance providers may need consideration in implementing an

appropriate payment policy. These include:

• High per-transport costs in low-volume areas. Compared to their urban

and suburban counterparts, rural ambulance providers have fewer

transports over which to spread their fixed costs because of the low

population density in rural areas. Yet, rural providers must meet many of

the same basic requirements as other providers to maintain a responsive

ambulance service, such as a fully equipped ambulance that is continually

serviced and maintained and sufficient numbers of trained staff. As a

result, rural providers that do not rely on volunteers generally have higher

per-transport costs than their urban and suburban counterparts.

• Longer distances traveled. A common characteristic of rural ambulance

providers is a large service area, which generally requires longer trips.

Longer trips increase direct costs from increased mileage costs and staff

Rural Ambulance

Providers Face

Multiple Challenges
Page 5 GAO-02-244T

travel time. They also raise indirect costs because ambulance providers

must have sufficient backup services when vehicles and staff are

unavailable for extended periods. Current Medicare payment policy

generally allows freestanding providers to receive a payment for mileage.

Nevertheless, mileage-related reimbursement issues, such as the amount

paid for mileage, represent a greater concern to rural providers because of

the longer distances traveled.

• Lack of alternative transportation services. Rural areas may lack

alternative transport services, such as taxis, van services, and public

transportation, which are more readily available in urban and suburban

areas. This situation is complicated by the fact that some localities require

ambulance providers to transport in response to an emergency call, even if

the severity of the problem has not been established. Because of this

situation, some providers transport a Medicare beneficiary whose need for

transport does not meet Medicare coverage criteria and must therefore

seek payment from the beneficiary or another source.

• Reliance on Medicare revenue. Medicare payments account for a

substantial share of revenue for rural ambulance providers that bill

Medicare. Among rural providers, 44 percent of their annual revenue in

1998, on average, was from Medicare, compared to 37 percent for urban

providers, according to Project Hope Center for Health Services, a

nonprofit health policy research organization. Additionally, for some rural

providers, other revenue sources—such as subsidies from local tax

revenues, donations, or other fundraising efforts—have not kept pace with

increasing costs of delivering the services.

• Decreasing availability of volunteer staff. Rural ambulance providers

traditionally have relied more heavily on volunteer staff than providers in

urban or suburban areas. Some communities having difficulty recruiting

and retaining volunteers may have had to hire paid staff, which increases

the costs of providing services.

Medicare’s proposed fee schedule, published in September 2000, reduces

the variation in maximum payment amounts to similar providers for the

same type of services. The considerable variation that exists in the current

payment system does not necessarily reflect expected differences in

provider costs. For example, in 1999, the maximum payments for two

types of emergency transport—one requiring no specialized services and

the other requiring specialized services—were the same in Montana at

$231 for freestanding providers. In North Dakota, the maximum payment

New Fee Schedule

Will Alter the Way

Medicare Pays for

Ambulance Services
Page 6 GAO-02-244T

was about $350 and also did not differ measurably for the two types of

transport services. In contrast, South Dakota’s maximum payment for the

less intensive transport was $137, which was $30 lower than the payment

for the transport requiring specialized services. Per-mile payments also

varied widely. For example, in rural South Dakota, the payment was just

over $2 per mile, compared to $6 per mile in rural Wyoming.

The shift to the proposed fee schedule would narrow the wide variation in

payments to ambulance providers for similar services. The proposed

schedule includes one fee for each level of service. This fee is not

expected to vary among providers except for two possible adjustments—

one for geographic wage and price differences and the other based on the

beneficiary’s location, rural or urban. As a result, a national fee schedule is

likely to provide increased per-trip payments to those providers that under

the current system receive payments considerably below the national

average and decreased payments to providers with payments that have

been substantially above the national average.

As part of its mandate, the negotiated rulemaking committee was directed

to consider the issue of providing essential ambulance service in isolated

areas. The committee recommended a rural payment adjustment to

recognize higher costs associated with low-volume providers to ensure

adequate access to ambulance services. Consistent with the committee’s

recommendation, the proposed fee schedule includes an additional

mileage payment for the first 17 miles for all transports of beneficiaries in

rural areas.

The mileage payment adjustment, however, treats all providers in rural

areas identically and does not specifically target providers that offer the

only ambulance service for residents in the most isolated areas. As a

result, some providers may receive the payment adjustment when they are

not the only available source of ambulance service, so the adjustment may

be too low for the truly isolated providers.

In addition, the proposed rural adjustment is tied to the mileage payment

rather than the base rate and, therefore, may not adequately help lowvolume providers. Such providers may not have enough transports to

enable them to cover the fixed costs associated with maintaining

ambulance service. The per-mile cost would not necessarily be higher with

longer trips. It is the base rate, which is designed to pay for general costs

such as staff and equipment—and not the mileage rate—that may be

insufficient for these providers. For that reason, adjusting the base rate

rather than the mileage rate would better account for higher per-transport
Page 7 GAO-02-244T

fixed costs. In response to our 2000 report, HCFA stated that it intends to

consider alternative adjustments to more appropriately address payment

to isolate, essential, low-volume rural ambulance providers.

Whether or not a claim for ambulance transport is approved varies among

carriers, and these discrepancies can translate into unequal coverage for

beneficiaries. In 1998, between 9 percent and 26 percent of claims for

payment of emergency and nonemergency ambulance transports were

denied among the nine carriers that processed two-thirds of all ambulance

claims. Different practices among carriers, including increased scrutiny

due to concerns about fraud, may explain some of the variation in denial

rates. Following are other inconsistencies in carrier practices cited in our

July 2000 report that may help explain denial rate differences:

• National coverage policy exists only for some situations. Generally,

Medicare coverage policies have been set by individual carriers rather

than nationally by HCFA. For example, in 1998, the carrier covering

ambulance providers in New Jersey and Pennsylvania reimbursed

transports at ALS levels where local ordinances mandated ALS as the

minimum standard of care for all transports. In contrast, the carrier for an

ambulance provider in Fargo, North Dakota, reduced many of the

provider’s ALS claims to BLS payment rates, even though a local

ordinance required ALS services in all cases. (The carrier’s policy has

since changed.)

• Some carriers were found to have applied criteria inappropriately,

particularly for nonemergency transports. For example, for Medicare

coverage of a nonemergency ambulance transport, a beneficiary must be

bed-confined. In the course of our 2000 study, we found one carrier that

processed claims for 11 states applied bed-confined criteria to emergency

transports as well as those that were nonemergency. (The carrier’s policy

has since changed.)

• Providers were concerned that carriers sometimes determined that

Medicare will cover an ambulance claim based on the patient’s ultimate

diagnosis, rather than the patient’s condition at the time of transport.

Medicare officials have stated that the need for ambulance services is to

be based on the patient’s medical condition at the time of transport, not

the diagnosis made later in the emergency room or hospital.

• Ambulance providers are required to transport beneficiaries to the nearest

hospital that can appropriately treat them. Carriers may have denied

Policies for Approving

or Denying Claims

Payment Are Not

Consistent Across

Carriers
Page 8 GAO-02-244T

payments for certain claims because they relied on inaccurate survey

information specifying what services particular hospitals offer when

determining whether a hospital could have appropriately served a

beneficiary. However, the survey information does not always accurately

reflect the situation at the time of transport, such as whether a bed was

available or if the hospital was able to provide the necessary type of care.

• Some providers lacked information about how to fill out electronic claims

forms correctly. Volunteer staffs in particular may have had difficulty filing

claims, as they often lacked experience with the requirements for

Medicare’s claims payment process. An improperly completed claim form

increases the possibility of a denial.

Claims review difficulties are exacerbated by the lack of a national coding

system that easily identifies the beneficiary’s health condition to link it to

the appropriate level of service (BLS, ALS,or ALS with specialized

services). As a result, the provider may not convey the information the

carrier needs to understand the beneficiary’s medical condition at the time

of pickup, creating a barrier to appropriate reimbursement.

Medicare officials have stated that a standardized, mandated coding

system would be helpful and the agency has investigated alternative

approaches for implementing such a system. The agency contends that

using standardized codes would promote consistency in the processing of

claims, reduce the uncertainty for providers regarding claims approval,

and help in filing claims properly.

Overall, the proposed fee schedule will improve the equity of Medicare’s

payment for ambulance providers. Payments will likely increase for

providers that now receive payments that are lower than average, whereas

payments will likely decline for those now receiving payments above the

average. In our July 2000 report, we recommended that HCFA modify the

payment adjuster for rural transports to ensure that it is structured to

address the high fixed costs of low-volume providers in isolated areas, as

these providers’ services are essential to ensuring Medicare beneficiaries’

access to ambulance services. HCFA agreed to work with the ambulance

industry to identify and collect relevant data so that appropriate

adjustments can be made in the future.

Concerns about claims denials need to be addressed separately from

development of the fee schedule. In our view, policies across carriers

should be made consistent. In addition, a uniform system for coding the

Conclusions
Page 9 GAO-02-244T

health condition of beneficiaries using ambulance transport services

would likely improve the processing of ambulance claims and lead to more

transparent decisions about claims payment.

Mr. Chairman, this concludes my prepared statement. I would be happy to

answer any questions that you or other Committee Members may have.

For further information regarding this testimony, please contact me at

(202) 512-7119. Jessica Farb, Hannah Fein, and Michael Kendix made

contributions to this statement.

Contact and

Acknowledgments

(290156)