Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE AMBULANCE PAYMENTS 

tsG, J-7 

4 JUNE GIBBS BROWN 

/ Inspector General 

- NOVEMBER 1997 

f3fl&-
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 

is to protect the integrity of the Department of Health and Human Services programs 

as well as the health and welfare of beneficiaries served by them. This statutory 

mission is carried out through a nationwide program of audits, investigations, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary 

of program and management problems and recommends legislative, regulatory, and 

operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the 

Office of Inspector General. It conducts short-term management and program 

evaluations (called inspections) that focus on issues of concern to the Department, the 

Congress, and the public. The inspection reports provide findings and 

recommendations on the efficiency, vulnerability, and effectiveness of departmental 

programs. 

The OEI’s Chicago Regional Office prepared this report under the direction of 

William C. Moran, Regional Inspector General, and Natalie A. Coen, Deputy 

Regional Inspector General. Principal OEI staff included: 

CHTCAGO REGION HEADQUARTERS 

John Traczyk Stuart Wright 

Thomas Komaniecki Barbara Tedesco 

Suzanne Johnson Alan Levine 

Nora Leibowitz 

Anne Maxwell 

Charles Friedrich 

TO obtain a copy of this report, call the Chicago Regional Office at (312)353-4124. 
Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE AMBULANCE PAYMENTS 

JUNE GIBBS BROWN 

Inspector General 

NOVEMBER 1997 

OEI-05-95-00300 
EXECUTIVE SUMMARY 

PURPOSE 

To determine whether Medicare reimbursement policies and levels of payment for 

ambulance services are prudent. 

BACKGROUND 

From 1987 through 1995, Medicare expenditures for ambulance services have more than 

tripled. In 1987, Medicare allowed charges for ambulance services amounted to slightly 

more than $600 million. In 1995, carriers paid nearly $2 billion to ambulance providers. 

Medicare pays for medically necessary a L,uiance services when the use of other 

methods of transportation would endanger the patient’s health. Two levels of service, 

advanced life sups :t (ALS) and basic life support (BLS), are covered by Medicare. 

Reimbursement is based on the type of vehicle and personnel used (AIS or BLS) and 

the service status (emergency or non-emergency). 

FINDINGS 

Medicare paymentsfor ambulanceservicesappear to lack commonsense. 

In 26 States, Medicare pays more for routine, non-emergency basic life support 

transportation than it does for advance life support emergency transportation. The 

difference, in some areas, is more than $200. In 18 States, Medicare pays more for BLS 

emergency transports without supplies than with supplies. Similar anomalies exist in ALS 

base rates. In 1995, the modal allowed charge for basic life support mileage was $9.25 a 

mile,more than twice the allowed charge for advance life support vehicles and seven 

times greater than the cost of a gallon of fuel. 

Ambulance paymentpoliciesare vulnerableto fraud and abuse. 

Carriers police a significant number of ambulance claims. The complexity of the current 

system enables transportation suppliers to bill for ALS services when BLS services are 

provided; misrepresent the patient’s true medical condition; and, avoid carrier program 

safeguards. Carriers report wide spread abusive situations involving unnecessary 

transports, oxygen, EKGs and other services. Over the past 5 years, the Office of 

Inspector General has had more than 100 convictions involving ambulance suppliers. 

Problems are the resultof extremelycomplexpaymentmethodsand inconsistentpolicies. 

A complex payment system encourages fraud and abuse and thwarts efforts to control 

expenditures. This complexity stems from a payment system that uses four different 

billing methods, recognizes BLS and ALS vehicles, distinguishes emergency and noni 
emergency transports, employs more than 240 different procedure codes and uses more 

than 35 fiscal agents. Payment levels to ambulance providers are not based on the actual 

cost of providing services within geographic areas. 

Carrier interpretations of policy contribute to variance in payments and coverage. In 16 

States the carrier considers payment for oxygen included in the BLS base rate. Other 

carriers consider oxygen to be a prescription drug and allow ambulance suppliers to bill 

using a separate procedure code. Policy differences also exist with regard to EKGs, 

supplies, injections and other services provided during transport. 

RECOMMENDATIONS 

The Health Care Financing Administration’s (HCFA’s) well-intentioned efforts to limit 

ambulance companies to four billing methods using 37 procedure codes has been 

circumvented by idiosyncrasies of the current re r;;onable charge payment methodology 

and the fee-for-service system. At a time when most Medicare Part B services are being 

paid on a fee schedule, ambulance services are among the few services the Medicare 

program still reimburses on a reasonable charge basis. 

Tremendous variation in payments indicates that Medicare reimbursement in many areas 

may be too high. The reasonable charge payment mechanism has resulted in inflated 

charges for ambulance services and does not accurately reflect the real cost of doing 

business in an area. More importantly, the reasonable charge payment method and the 

fee-for-service system provide little or no incentive for providers to control costs. Efforts 

to control expenditures in the fee-for-service system often results in fragmentation of 

services and increased utilization. Extensive carrier reviews of ambulance claims adds to 

program costs. Fraud and abuse in this area has also been well documented. 

We believe that the vulnerabilities we found need to be addressed as soon as possible. 

We recommend that HCFA: 

b seek legislative authority to develop a fee schedule for ambulance transportation. 

In doing so, HCFA should take into consideration the competitive prices available in an 

area including the negotiated rates that exist between managed care entities/hospitals and 

ambulance providers. A fee schedule could also take into account the cost of doing 

business in an area, economies of scale available to providers, adjustments for local 

subsidies and other considerations that may affect the cost of doing business. 

The following interim steps should be taken to help develop the fee schedule: 

b Instruct carriers to examine the inherent reasonableness of current allowable 

charges and adjust them as necessary. 

b Work with the ambulance industry to develop clearer guidelines as to what is or is 

not included in the base rate and what mileage is intended to cover. 

ii 
b Eliminate separate payments for oxygen, supplies, injectables and other services 

such as EKGs. These items should be included in the base rate. 

t Limit the number of procedure codes available to ambulance suppliers for billing. 

At a minimum, restrict use of procedure codes to the 37 specific codes designated 

for ambulance transportation. 

We believe that Medicare ambulance policies could be simplified and that unreasonable 

base rate and mileage payment levels could be reduced. Consistent coverage policies 

should be developed and the number of billing methods and procedure codes currently in 

use reduced. Elimination of many procedure codes would discourage unbundling and the 

routine use of some supplies and services designed simply to enhance payment. Items 

considered essential for life support should be included in base rate reimbursement and 

should not be paid as separate items or services. 

Actual savings from simplification and more uniform policies would depend on how base 

rate and mileage are defined and the fee schedule allowances for these services. If 

implemented, as we have suggested, we project that Medicare could save at least $242 

million annually. Fifty million dollars of these projected savings could be derived solely 

from elimination of separate payments for oxygen, supplies, injectables and other services 

such as EKGs. At least $192 million could be saved annually by limiting the allowed 

charge for mileage to the lower of actual charge or $1 per mile. 

Our savings projections are predicated on the current base rate levels remaining 

unchanged except for increases due to the inflation index charge or changes in customary 

and prevailing charges. Actual savings could be higher if the base rate allowed charge 

for non-emergency transportation is adjusted to ensure that Medicare pays the same or 

less for this service than it does for the base rate for emergency transportation. 

Structuring payments to take into account average miles per gallon, bulk purchasing 

discounts, State and local taxes and other factors could also impact projected savings. 

Savings may be lower if some base rates are increased or policies developed that permit 

unbundling of some services. 

AGENCY COMMENTS 

Since issuing our draft report, Congress passed the Balanced Budget Act of 1997. This 

legislation implements our recommendation and requires that HCFA establish a fee 

schedule for Medicare ambulance payments. We look forward to HCFA’s regulation 

that will carry out the legislation. 

... 111 
TABLE OF CONTENTS 

PAGE 

EXECUTIVESUMMARY .......................................... i 

INTRODUCTION ................................................. 1 

FINDINGS ...................................................... 4 

�  Payments lack common sense ...................................... 4 

�  Policy vulnerabilities ............................................ 7 

�  Complex payment methods and inconsistent policies ..................... 8 

RECOMMENDATIONS ........................................... 12 

AGENCYCOMMENTS ........................................... 13 

APPENDIX.. .................................................. A-l 
INTRODUCTION 

PURPOSE 

To determine whether Medicare reimbursement policies and levels of payment for 

ambulance services are prudent. 

BACKGROUND 

Ambulance services provided to Medicare beneficiaries are covered by Part B of the 

Medicare program, commonly called Supplemental Medical Insurance. Medicare pays 

for medically necessary ambulance services when “...the use of other methods of 

transportation is contraindicated by the individual’s condition, but only to the extent 

provided in regulations.“’ The Health Care Financing Administration (HCFA) 

regulations state that ambulance services are covered only if other forms of 

transportation WOUIcl endanger the Medicare beneficiary’s health. 

Ambulance providers must satisfy State and local requirements to operate within a State 

and must comply with HCFA regulations to qualify for Medicare reimbursement. The 

HCFA defines an ambulance vehicle as one that must: (1) be designed specifically for 

transporting the sick or injured; (2) contain a stretcher, linens, first aid supplies, oxygen 

equipment, and other lifesaving equipment required by State or local ordinances; and, 

(3) be staffed with personnel trained to provide first aid treatment. 

Two distinct levels of service, advanced life support (ALS) and basic life support (BLS), 

are furnished by ambulance providers. To be considered an ALS ambulance, the vehicle 

must: be equipped with specialized equipment and medications, such as defibrillators 

and pulmonary/cardiac monitors; and, maintain radio-telephone contact with physicians 

or hospitals. In most States, the more intensive ALS services are rendered by paramedic 

emergency medical technicians (EMTs), while BLS services are usually rendered by basic 

or ilztemediate EMTs. Types of ALS services include: 

b administering intravenous medications; 

b defibrillating the patient; and, 

b performing other advanced life support services, such as electrocardiogram 

monitoring and airway monitoring. 

Currently, ambulance reimbursement is based on the type of vehicle and personnel used 

(BLS or ALS) and the service status (emergency or non-emergency). Ambulance 

providers submit itemized bills for the services they provide to the Medicare carrier 

serving their area. According to HCFA, approximately 10 percent of the Medicare Part 

B patient population uses ambulance services each year. 

l Section 1861(s)(7) of The Social Security kf. 

1 
Carriers process and pay claims based on the information provided by the ambulance 

companies. From 1987 through 1995, Medicare expenditures for ambulance services 

more than tripled. In 1987, Medicare allowed charges for ambulance services amounted 

to slightly more than $600 million. In 1994, carriers paid $1.8 billion for 21 million 

ambulance services. In 1995, carriers approved nearly 52 million ambulance services and 

paid nearly $2 billion to ambulance providers. The average annual rate of increase in 

ambulance expenses (16 percent) exceeds the average Part B (Supplemental Insurance) 

rate of growth of 9.9 percent. This annual rate of growth for ambulance services is 

comparable to the growth in expenditures Medicare has seen in home health, cataract 

surgery, medical supplies and other problematic areas. 

Medicare pays ambulances using customary and prevailing charge criteria. Concerns 

about the inflationary nature of this payment method led to the introduction of an 

additional fee screen in 198.5 called the “Inflation Indexed Charge.” The aim of the 

Inflation Indexed Charge was to limit annual inceases in Medicare allowable charges for 

certain services, including ambulance services, by restricting the rate of increase. More 

simply put, the Inflation Index Charge became the base rate on which future increases in 

allowed charges would be based. When determining the allowable charge for a 

procedure code billed by an ambulance supplier Medicare carriers pay the lower of the: 

- actual charge billed, 

- provider’s customary charge, 

- prevailing charge, or 

- Intlation Indexed Charge. 

In 1994, HCFA undertook a comprehensive revision to the procedure codes used by 

ambulance providers to bill Medicare. They instructed carriers to eliminate all local 

codes and to begin using standardized coding for all ambulance services. The new 

standardized coding attempted to accommodate all billing patterns in use by ambulance 

providers at that time, while eliminating local codes. 

That same year, HCFA asked carriers to assign one of four billing methods to each 

ambulance provider based on the carrier’s past experience with that ambulance company. 

The four billing methodologies are summarized as follows: 

Method 1: A single, all inclusive charge reflecting all services, supplies and mileage. 

Method 2: One charge reflecting all services and supplies and a separate charge for 

mileage. 

Method 3: One charge reflecting all services and mileage and a separate charge for 

supplies. 

Method 4: Separate charges for service, mileage and supplies. 

2 
Effective January 1, 1995 ambulance providers were to begin using only revised 

procedure codes and the billing method(s) they elected or were assigned by the carrier. 

Most ambulance providers bill Medicare using Methods 2 and 4. 

Previous studies by the Office of Tnspector General (OIG) have contended that Medicare 

pays unreasonably high amounts for ambulance services. Ambulance Services for 

Medicare End-Stage Renal Disease Patierlts: Paymerlt Practices, (OEI-03-90-02131), and 

other studies conducted by carriers, reveal a high incidence of ambulance transports that 

do not meet coverage guidelines. In addition to medically unnecessary transports, OIG 

and other researchers have noted significant variance in payments to ambulance 

providers often within the same geographical areas. 

METHODOLOGY 

We selected a 1 percent random sample from all Medicare claims billed by ambulance 

companies in 1995 and 1996. The 1 percent sample for 1995 was arrayed by allowed 

charges per claim and used to obtain statistical information about the universe of 

Medicare expenditures for ambulance services. Our sample contained 189,340 claims. 

The sample was refined by merging it with HCFA’s zip code file. This enabled us to 

analyze information by State, county and, in some cases, city. We determined the 

minimum and maximum allowable charge for each procedure code billed by ambulance 

providers in 1995. The mean, mode and median allowable charge for each ambulance 

procedure code billed was determined and arrayed by quartile. The number of services 

provided and the number of miles billed was also taken into consideration when deriving 

data about the allowed charge per mile. 

Thirty-seven carriers participated in this study. We visited 5 carriers and contacted 32 

carriers by mail. We a,bo contacted the American Ambulance Association and three 

HCFA regional offices. The contacts were made to obtain information that might help 

us determine why variance in ambulance payments and policies exists. Respondents were 

asked for information about ambulance policies in each State, system inequities and 

vulnerabilities. Information on industry trends and their potential impact on the 

Medicare program was also solicited from respondents. 

The Internet was used to obtain national and regional diesel fuel costs for 1995. 

Additional information was obtained from the Bureau of Labor Statistics, Department of 

Transportation and U.S. Census Department web sites. Information from previously 

issued reports concerning the ambulance industry was also reviewed. 

3 
FINDINGS 

Medicare payments for ambulance services appear to lack common sense. 

Medicare pays for an equal number of non-emergency transports and emergency 

transports each year. In 1995, base rate charges for emergency and non-emergency 

transports each accounted for approximately 20 percent of the ambulance services paid 

for by Medicare. Mileage procedure codes accounted for a third of the services paid. 

Oxygen, supplies, injections and other services make up the remaining 27 percent of the 

services billed by ambulance suppliers and paid by carriers. 

Medicare allowed charges differ widely from State to State, within States and within 

counties. We analyzed the variance in payment that exists for the 37 ambulance 

transportation procedure codes listed in the HCFA Common Procedure Coding System 

(HCPCS). We found tremendous variation in payments for ALS and BLS base rates, 

mileage, supplies, oxygen and other services paid by Medicare. We compared the 

differences in allowed charges to the average hourly wage, housing costs, fuel costs and 

other indicators that reflect the cost of doing business in an area. There was no logical 

correlation between Medicare allowed charges and these economic indicators. 

Base Rate Variation 

In 26 States, Medicare pays more for routine, non-emergency basic life support 

transportation than it does for advance life support emergency transportation. In some 

areas, the amount Medicare pays for basic life support, non-emergency transportation 

exceeds the advance life support emergency base rate by more than $200. In some areas 

there is no difference in the allowable 

Differences Between Ambulance Charges: charge for ALS emergency and BLS nonSupplies Included vs. Supp!ks Billed Scparatcly emergency transportation. 

In 18 States the carriers allow, on 

average, more for the BLS emergency 

base rate without supplies (A0362) than 

they do for BLS emergency base rate with 

supplies (A0322). In 10 States, the ALS 

base rate without supplies is greater than 

the ALS base rate with supplies. The 

ALS base rate without supplies in New 

Jersey is $175 greater than the ALS base 

rate with supplies. In Arkansas the 

difference in ALS base rates with and 

without supplies is only $15. In Texas 

and Illinois there is no difference in the 

payment for these two procedure codes. 

4 
The allowed charge for base rate procedure codes that include supplies frequently 

exceeds the average allowance for supplies billed separately. In 1995, the median 

allowed charge for supplies billed under procedure code A0398 was approximately $10. 

At the same time, we found that in many States carriers allowed significantly more than 

$10 for supplies included in the base rate. In South Dakota Medicare’s allowed charge 

for ALS base rates with supplies was nearly $232 more than the allowed charge for base 

rate without supplies. This charge is more than 23 times greater than the national 

median allowed charge ($10) for ALS disposable supplies. 

In most States, Medicare pays more for supplies when they are included in the base rate. 

The difference in the allowed amounts when supplies are included in the BLS base rate 

ranges from less than $2 in South Dakota to $88 in Idaho. In 22 States, the allowed 

amount for ALS with supplies (A0328) differs from ALS without supplies (A0368) 

anywhere from $4 in Tennessee to nearly $232 in South Dakota. The amount allowed 

for supplies included in the base rate, in .;;::;:c: cases, appears unreasonable. 

Mileage Reimburser xt Variation 

Mileage accounts for nearly 1 out of every 3 services paid and nearly 15 cents out of 

every dollar. In 90 percent of the 3,844 counties in our sample, the allowed charge for 

ambulance mileage was $2 or more per mile.2 In 1995, differences in the average 

allowed charge for mileage varied by as much as $26.23 a miIe. 

Medicare pays more :‘or basic life support mileage than it does for advance life support 

mileage. The modal allowed charge for advance life support mileage was $4.35 a mile. 

The modal allowed charge for basic life support mileage was $9.25 a mile, more than 

twice the allowed charge for advance life support vehicles. The allowed charge for 

advance life support mileage (procedure code A0390) ranged from 19 cents to $11.93 per 

mile. 

The average allowed charge per mile for a basic life support vehicle ranged from a high 

of $11.19 a mile to a low of 27 cents a mile. When the mode was used for this analysis, 

carrier allowances for basic life support mileage ranged from $11.46 to 20 cents a mile. 

Payments by one carrier for BLS mileage varied by more than $22.14. This carrier paid 

$4.10 per mile on one ambulance claim and $26.24 per mile on another claim. While 

these claims represent the extremes, the average payment per mile to ambulance 

providers by this carrier was $6.81. 

In 1995, Medicare paid more per mile than the cost of a gallon of diesel fuel. During 

1995, the average cost of diesel fuel was about $1.20 per gallon.3 One carrier’s average 

allowed charge was $6.81 a mile, five times more than the cost of a gallon of fuel. If 

2 Some counties pay both ,413 and 1313 mileage. If the allowed charge exceeded $2 for both ALS and BLS 

mileage, the county was counted twice. The numhcr of unique counrics in our sample was 3,144. 

3 On-highway diesel prices, self service cash price in cents per gallon, including taxes. Department of Energy data. 

5 
ambulance fuel economy were three miles per gallon, this carrier would be paying at 

least 1,250 percent more than the cost to replace the fuel used. 

It appears that Medicare’s reimbursement for mileage is unreasonable. The Internal 

Revenue Service (IRS) tax code and Federal travel regulations permit recovery of fuel 

and depreciation expenses related to privately owned vehicles at a rate of 31 cents a mile 

or actual costs. Medicare pays more than six times the IRS allowable rate for fuel cost 

and considerably more than actual fuel replacement cost. Medicare mileage payments 

exceeding $1 per mile cost the program nearly $192 million in 1995. 

Other Illogical Variution 

Suppliers with high base rates usually had high mileage rates and high rates for other 

procedure codes they billed. Besides base rate and mileage variance, we found 

considerable variation in virtually all of the procedure codes used by ambulance providers 

to bill Medicare. 

Allowable charges for BLS routine disposable supplies (procedure code A0382) range 

from just under $2 to more than $50 with a median allowed charge of $6.50. Disposable 

$40 

$35 

$30 

$25 

$20 

$15 

$10 

$5 

Average Allowable Charges for Oxygen 

# Washington @ Vermont 

Oklahoma Wisconsin 

supply codes used by ALS ambulance 

providers have differences in 

payments ranging from 25 cents to 

$95.40 with a median allowed charge 

of $10. Some carriers consider 

supplies to be part of the base rate 

and do not reimburse ambulance 

providers for supplies billed 

separately. 

Allowable charges for oxygen vary by 

over 550 percent. In the State of 

Wisconsin allowable charges for 

oxygen average less than $6 and in 

Oklahoma they are just under $7. In 

Washington allowed charges average 

nearly $39 and in Vermont they 

average over $36. The median 

allowed charge for oxygen was 

determined to be $18. In addition to the wide variance in allowed charges for oxygen we 

also found that in 21 States carriers do not pay for oxygen charges submitted by ALS 

providers. In an equal number of States, carriers do not pay for oxygen charges 

submitted by BLS providers. 

Supplies, injectables and other services (e.g., EKGs) are not always payable when billed 

by ambulance providers. The circumstances under which payment maybe made varies 

from carrier to carrier, locality to locality, and by the type of vehicle used to transport the 

6 
patient. Some carriers consider supplies, injectables and other ambulance services that 

are required by law to licensing requirements as not payable. These carriers do not 

recognize separate charges for these services. In 1995, Medicare allowed charges for 

supplies, injectables and other services provided by during ambulance transports totaled 

approximately $50 million. 

Ambulance payment policies are vulnerable to fraud and abuse. 

Carriers find it necessary to review a significant number of ambulance claims. Their 

experiences in processing and paying claims has shown them that vulnerabilities in 

Medicare’s policies and procedures for paying for transportation services are pervasive. 

Carriers report manually reviewing all claims submitted by ambulance providers in 23 

States. A significant number of claims submitted by providers in the remaining States are 

also suspended for manual review. 

Many carriers reported problems with claims that lack origin or destination modifier 

codes. These codes help carriers identify transports that may not be medically necessary. 

Despite carrier efforts to obtain complete claim information, HCFA data shows that 

more than 500,000 base rate services were processed without modifiers indicating pick up 

and destination points. Allowed charges for these services totaled more than $30 million. 

Manual intervention by the carriers in claims processing is costly. Carriers report 

spending inordinate amounts of time and money developing missing information and 

verifying the accuracy of information provided on ambulance claims. In 22 States, 

carriers report problems with providers who misrepresent the bed confinement status of 

patients being transported. 

Another problem repo. ted by at least one carrier involved providers who bill for supplies 

when the ambulance was restocked free of charge by local hospitals. Since the provider 

incurred no expense in securing the supplies, the carrier will not pay for supplies when 

they are billed by providers in this area. Other carriers are aware of this practice in 

some of their jurisdictions, but they have not conducted any studies to determine if 

duplicate payments may have resulted from the practice. 

Another problem reported by carriers involves medically unnecessary transportation to 

dialysis centers (8 States). This problem was also documented in an earlier OIG report 

entitled, Ambulance Services for Medicare End-Stcrge Renal Disease Beneficiaries: Payment 

Practices, (OEI-03-90-02131). In 19 States the carrier reported problems with nonapproved or suspect destinations. In 14 States carriers have problems with providers not 

properly disclosing non-emergency transports. These claims may violate Federal statutes 

when ambulance suppliers falsify destination information in order to obtain payment. 

In 10 States, carriers report problems with provider billings for oxygen, mileage, supplies 

and other services. In these 10 States the carriers question medical necessity for oxygen 

that some ambulance providers routinely provided patients. They also find abusive 
situations involving unnecessary EKGs and other services provided during transportation 

to maximize payments from Medicare. 

Over the past 5 years, the Office of Inspector General has had more than 100 convictions 

and civil judgements involving ambulance suppliers. The convictions and civil judgements 

involve issues reported by carriers in this study as ongoing problems with ambulance 

claims and providers. Appendix A provides brief summaries of several cases illustrating 

problems the Office of Inspector General has uncovered concerning ambulance services. 

The complexity of the current system enables transportation suppliers to bill for ALS 

services when BLS services are provided; misrepresent the patient’s true medical 

condition; and, avoid carrier program safeguards. 

Furthermore, the current appeals system works against carrier efforts to ensure payments 

are made only for medically indicated transportation. All carriers expressed concern 

about the incidence of medically unnecessary ambulance transports. One carrier 

mentioned a tactic that could be used by other ambulance suppliers. This carrier 

revealed that one ambulance provider refuses to provide information concerning medical 

necessity. A substantial number of claims are denied for failure to provide the 

information needed to determine medical necessity. The ambulance provider routinely 

appeals the carrier denials and provides the information originally requested at the 

appeal. This tactic avoids scrutiny for medical necessity by trained carrier staff and, more 

often than not, results in claims that do not meet criteria for payment being paid at the 

hearing level. While this particular practice is unique and adds to program 

administrative costs, many carriers expressed frustration with an appeal system that they 

claim disenfranchises them from the process. 

Problems are the result of extremely complex payment methods and 

inconsistent policie?. 

A complex payment system encourages fraud and abuse and thwarts efforts to control 

expenditures. This complexity stems from a payment system that uses four different 

billing methods, recognizes BLS and ALS vehicles, distinguishes emergency and nonemergency transports, employs more than 240 different procedure codes and uses more 

than 35 fiscal agents to propagate different coverage policies in nearly all 50 States. 

Contributing to the lack of simplicity in the current payment system are 180 different 

geographical areas and more than 8,000 individual providers. Using charges submitted 

during the prior year, carriers annually calculate a prevailing charge and a customary 

charge for each provider in each geographical area. They also calculate an inflation 

index charge for each geographical area and each provider. 

8 
Complex Payment System 

Medicare payment levels to ambulance providers are not based on the actual cost of 

providing services within geographic areas. They were originally based on the procedure 

code and the charges submitted to the program by providers doing business within a 

specific geographic location. Charges submitted during the previous year for each 

procedure code determined the amount carriers would pay. Higher charges in a year 

meant higher Medicare payments the following year. 

In 1995, carriers were processing claims from ambulance companies using approximately 

180 different procedure codes. These codes included uniform national codes defined in 

the HCFA Common Procedure Coding System and local codes deemed necessary by the 

carrier. In 1996, the number of procedure codes billed by ambulance providers and paid 

by carriers had increased nearly 35 percent to 240 codes. In addition to the 37 

ambulance transportation codes, carriers WV-~ paying for medical supplies, injections and 

a number of unknown procedures under local codes in 1996. At this rate, the number of 

different procedure codes being billed by ambulance suppliers could approach 300 by the 

end of 1997. 

The fee-for-service payment system encourages providers to unbundle the services they 

provide and to bill for individual components often using procedure codes outside the 37 

transportation codes provided by HCFA. This, in effect, defeats controls, such as the 

inflation indexed charge, designed to control program costs. Since October 1985, 

payments for ambulnce services have been based on the lower of customary, prevailing, 

inflation indexed or actual charge submitted on a claim. In areas where reimbursement 

rates were high, the resulting inflation indexed charges were high; conversely, in areas 

where reimbursement rates were low, the resulting inflation indexed charges were low. 

The inflation index charge may control the growth rate in expenditures for specific 

procedure codes, however, this control is easily circumvented when services are 

unbundled and when new procedure codes added. The net result is that the payment for 

the original procedure is inflated. 

Inherent in fee-for-service reimbursement is the temptation to accommodate every detail 

of the services provided to patients. Fee-for-service perpetuates the need to create more 

and more procedure codes and to develop policies to address services provided by outlier 

providers. More procedure codes means new sources for increasing revenue. Overtime, 

providers begin to use these new procedure codes not only to bill for new services but 

also to unbundle the services previously included in their base rate payment. Availability 

of procedure codes for billing encourages suppliers to provide services to patients, 

whether medically indicated or not, and bill the services to Medicare. These practices 

result in increased expenditures for the Medicare program. 

Lack of Unijorm Policies 

Policy differences exist concerning current billing methodologies. Carriers were 

instructed by HCFA to assign 1 of 4 methodologies to each ambulance provider based on 
that provider’s past billing practice. This policy was not uniformly implemented and in 

12 States providers can use more than one billing methodology. Allowing providers to 

choose more than one method can potentially affect payment levels to the detriment of 

the program. 

Carrier interpretations of policy contribute to variance in payments and coverage. This 

has resulted in fragmentation of services and disparity in coverage policy. In 16 States 

the carrier considers payment for oxygen included in the BLS base rate. In 21 States it is 

included in the ALS base rate. These carriers consider a portion of the BLS or ALS 

base rate payment as reimbursement for oxygen. Other carriers consider oxygen to be a 

prescription drug and allow ambulance suppliers in their area to bill for oxygen in 

addition to the base rate. 

Policy differences also exist with regard to EKGs, supplies, injections and other services 

provided during transport. In 30 States ambulai;ces are paid additional amounts for 

EKG services provided to patients. In 37 States additional amounts are paid for 

disposable supplies and in 18 States additional payments are made for reusable supplies. 

In areas where providers historically itemized charges for medical supplies, injections, 

night differential and other codes, carrier policies have evolved that perpetuate this 

fragmentation. 

The average amount paid per ambulance trip ($500) does not have a consistent and 

direct relationship to the cost of doing business in a State, county or municipality. 

Medicare’s current payment rates do not take into consideration the cost savings that 

have taken place in the industry. 

In many parts of the country the industry is dominated by a few players. In these areas 

providers can operate more economically because they bulk purchase fuel and supplies 

and are in a better position to negotiate discounts favorable to them. They also purchase 

new technology that enables them to use satellite tracking to monitor all of their vehicles 

and to make the most efficient use of manpower. The rise of managed care has also 

created more aggressive competition among ambulance providers for a share of the 

managed care marketplace. 

Local practice and the reasonable charge payment system have permitted the industry to 

establish a reimbursement environment that favors them financially. One would expect, 

Medicare to pay more for ambulance services in States such as California, Illinois, New 

York and other States where the cost of doing business is higher. Conversely, one would 

expect that Medicare would pay less in Louisiana, Mississippi and other States where the 

cost of doing business is lower. 

Using average hourly wage, housing costs, fuels costs and other measures indicative of 

the cost of doing business, we found that Medicare’s allowed charge has little or no 

relationship to the cost of doing business in an area. For example, Mississippi 

consistently ranks in the top 10 States for base rate reimbursement; yet, the average 
hourly wage paid in Mississippi ranks 47 out the 50 States. Montana ranks in the top 20 

States for these same services, while it ranks 46 out of the 50 States in per capita 

personal income for 1996. 

We asked the carriers what they believed ~1s included in Medicare’s reimbursement for 

mileage. In 24 States, the carrier responsible for processing claims believed the payment 

was intended to cover only the cost of replacing fuel during a covered transport by 

ambulance. In 10 States, the carrier believed mileage reimbursement was intended to 

cover vehicle depreciation as well as fuel replacement costs. An equal number believed 

the amount was intended to cover insurance cost, fuel replacement and depreciation. 

As with base rates, Medicare’s allowed charge for mileage is derived from charges 

submitted by the providers. This encourages providers to raise charges each year. The 

actual cost to secure fuel is not currently taken into account when determining Medicare 

allowable reimbursement. 

11 
RECOMMENDATIONS 

The HCFA’s well-intentioned efforts to limit ambulance companies to four billing 

methods using 37 procedure codes has been circumvented by idiosyncrasies of the current 

fee-for-service payment system. At a time when most Medicare Part B services are being 

paid on a fee schedule, ambulance services are among the few services the Medicare 

program still reimburses on a reasonable charge basis. 

Tremendous variation in payments indicates that Medicare reimbursement in many areas 

may be too high. The reasonable charge payment mechanism has resulted in inflated 

charges for ambulance services and does not accurately reflect the real cost of doing 

business in an area. More importantly, the fee-for-service system provides little or no 

incentive for providers to control costs. Efforts to control expenditure levels in the feefor-service system result in fragmentation of services and increased utilization. Extensive 

carrier reviews of ambulance claims adds to program costs. Fraud and abuse in this area 

has also been well documented. 

We believe that the vulnerabilities we found need to be addressed as soon as possible. 

We recommend that HCFA: 

b seek legislative authority to develop a fee schedule for ambulance transportation. 

In doing so, HCFA should take into consideration the competitive prices available in an 

area including the negotiated rate that exist between managed care entities/hospitals and 

ambulance providers. A fee schedule could also take into account the cost of doing 

business in an area, economies of scale available to some providers, adjustments for local 

subsidies and other consideration that may affect the cost of doing business. 

The following interim teps should be taken to help develop the fee schedule: 

b Instruct carriers to examine the inherent reasonableness of current allowable 

charges and adjust them as necessary. 

b Work with the ambulance industry to develop clearer guidelines as to what is or is 

not included in the base rate and what mileage is intended to cover. 

b Eliminate separate payments for oxygen, supplies, injectables and other services 

such as EKGs. These items should be included in the base rate. 

b Limit the number of procedure codes available to ambulance suppliers for billing. 

At a minimum, restrict use of procedure codes to the 37 specific codes designated 

for ambulance transportation. 

We believe that Medicare ambulance policies could be simplified and unreasonable base 

rate and mileage payment levels reduced. Consistent coverage policies should be 

12 
developed and the number of billing methods and procedure codes currently in use 

reduced. Elimination of many procedure codes would discourage unbundling and the 

routine use of some supplies and services designed simply to enhance payment. Items 

considered essential for life support should be included in base rate reimbursement and 

should not be paid as separate items or services. 

Actual savings from simplification and more uniform policies would depend on how base 

rate and mileage are defined and the fee schedule allowances for these services. If 

implemented as we have suggested we project that Medicare could save at least $242 

million annually. Fifty million dollars of these projected savings could be derived solely 

from elimination of separate payments for oxygen, supplies, injectables and other services 

such as EKGs. At least $192 million could be saved annually by limiting the allowed 

charge for mileage to the lower of actual charge or $1 per mile. 

Our savings projections are predicated on the current base rate levels remaining 

unchanged except for increases due to the inflation index charge or changes in customary 

and prevailing charges. Actual savings could be higher if the base rate allowed charge 

for non-emergency transportation is adjusted to ensure that Medicare pays the same or 

less for this service than it does for the base rate for emergency transportation. 

Structuring payments to take into account average miles per gallon, bulk purchasing 

discounts, State and local taxes and other factors could also impact projected savings. 

Savings may be lower if some base rates are increased or policies developed that permit 

unbundling of some services. 

AGENCY COMMENTS 

Since issuing our draft report, Congress passed the Balanced Budget Act of 1997. This 

legislation implements our recommendation and requires that HCFA establish a fee 

schedule for Medicare ambulance payments. We look forward to HCFA’s regulation 

that will carry out the legislation. 

13 
APPENDIX A 

Examples of Ambulance Cases Investigated By 

The Office of Inspector General 

A- 1 
0 Three related ambulance companies in Connecticut submitted false claims to the 

Medicare program from 1991 to 1994. The companies falsified claims to obtain 

payments for noncovered services. The false claims concealed routine 

transportation of ambulatory patients from their residences or nonskilled nursing 

homes to renal dialysis clinics in order to obtain Medicare payments. 

0 An ambulance provider convicted and sanctioned for Medicaid Fraud in 1986 used 

“front men” to form transportation companies so she could get Medicare payments 

for ambulance service without anyone detecting she was a sanctioned provider. 

Using the fronts, the provider obtained various vehicle licenses for special need 

transportation and then billed Medicare and Medicaid for individual services when 

multiple patients were transported in unlicensed personal vehicles. 

�  A St. Paul, MN based company billed Medicaid and Medicare for basic life 

support ambulance transportation, claiming the rides were medically necessary, 

when a lesser form of transportation would have been appropriate. Consumers, 

too, lost money when they were billed for copayments on the unnecessary 

ambulance rides when a simple van ride would have been appropriate. 

a In Illinois, an ambulance company was convicted of targeting nursing home 

patients and billing for ambulance services when the patients did not need an 

ambulance. The defendants falsified medical and trip records and back dated 

them in an effort to establish the medical necessity of the ambulance transports. 

0 A case in Indiana found an ambulance provider guilty of transporting nursing 

home residents to scheduled medical appointments at doctors’ offices, clinics and 

hospitals. Most ,)f the patients transported were ambulatory or in wheelchairs but 

the provider indicated on claims submitted for payment that the patients were bed 

confined. The provider also routinely billed for oxygen which was not 

administered. 

�  In Ohio, an ambulance provider falsified destinations, medical necessity 

information and ordering physician information. For 7 years the owner altered 

trip tickets submitted by his drivers to reflect that patients were transported to 

covered destinations when in fact patients were transported to doctors’ offices. 

The owner would also change the trip tickets to show that patient’s were 

bedridden when in fact the patients were in wheelchairs and in some instances 

could walk. There were occasions when the company billed for ambulance 

transports when the patients were transported in a company station wagon. 

A-2