Ambulance Services: Medicare Payments Can Be Better Targeted to Trips in Less Densely Populated Rural Areas
Published: 2003-09-19T00:00:00

Fast Facts:

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

section_title: Letter
paragraphs: In 2001, Medicare paid over $2 billion for over 10 million ambulance trips  for its 40 million elderly and disabled beneficiaries.  Ambulance providers  that deliver Medicare-covered services range from small community, one- vehicle operations staffed entirely by volunteers to large privately owned  firms or government agencies that operate many vehicles and rely on paid  staff.  Medicare covers medically necessary ambulance services when  other means of transportation, such as a wheelchair van or a taxi, are  inadvisable, given the beneficiary’s medical condition at the time.   Medically necessary ambulance trips include both emergency care, such as  responses to 911 calls, and nonemergency care, such as transfers from one  hospital to another.
In 2002, the Centers for Medicare & Medicaid Services (CMS) implemented  a congressionally mandated ambulance fee schedule that substantially  changed the way Medicare pays for ambulance services.  Under the fee  schedule, providers receive a base payment per trip, which varies by the  kind of service provided, and a mileage payment, which varies by the length  of the trip.  A rural adjustment, which is applied to the mileage payment,  increases the payment for trips that begin in rural areas, generally defined  as areas outside of metropolitan areas.  CMS has stated that this approach  to a rural adjustment was the only one feasible at the time the agency was  developing the fee schedule.  However, as we have stated before and as  CMS has acknowledged, this adjustment may not sufficiently target the  increased payments to providers serving sparsely populated rural areas.   These providers may incur higher per trip costs than other providers  because of their low volume of ambulance trips.  We have recommended  that CMS develop a more refined rural adjustment, and CMS is exploring  alternative approaches to adjusting payments for rural ambulance trips.
Developing a Medicare payment method for ambulance services that  maintains beneficiary access to these services has been complicated by the  wide variation in ambulance providers, their volume of trips, and the areas  they serve.  For example, ambulance providers in rural areas where there  are few people are likely to be idle more often than providers in more  densely populated areas, and may need to earn more per trip to maintain  ambulances and crews.  As a result, payments that are appropriate for  providers serving densely populated urban areas may not be appropriate  for those serving less densely populated rural areas.  Recognizing cost  differences across providers in the payment method is important because  many providers rely on Medicare revenue and their continuing availability  is critical to ensuring beneficiaries’ access to services.
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection  Act of 2000 (BIPA) directed us to examine the cost of ambulance services  in rural areas.  This report (1) identifies the factors that account for  differences in ambulance providers’ costs per trip, and (2) analyzes the  geographic differences, particularly among rural areas, in the factors  affecting ambulance providers’ costs and whether Medicare’s payments for  ambulance services under the fee schedule account for geographic  differences in costs.
Our analysis focused on ground ambulance services and did not include air  ambulance services, which account for less than 1 percent of annual  Medicare-covered ambulance trips.  To identify the factors that influence  ambulance providers’ costs, we used data from the 1999 National Survey of  Ambulance Providers, conducted by the Project HOPE Center for Health  Affairs.  This survey, the sole national data source on the costs of providing  ambulance services, obtained responses from a nationally representative  sample of 421 ground ambulance providers that participated in Medicare.   To determine how the factors affecting ambulance providers’ costs vary  geographically, we used data from the 2001 Area Resource File (ARF),  which is maintained by the Health Resources and Services Administration  (HRSA), to examine the characteristics of urban and rural counties, such as  their population and land area.  In addition, we used Medicare claims data  for 2001 to determine the number and length of Medicare-covered  ambulance trips delivered in urban and rural counties, and the number of  providers that served those areas.  We also used these data to estimate  Medicare’s average payments for ambulance trips under the fee schedule.   Finally, we interviewed experts from eight industry and professional  organizations as well as several ambulance providers.  These data were  adequate for addressing the issues in this report.  Where appropriate, we  examined the data for implausible values and tested the data for internal  consistency.  For more details on our data and methods, see appendix I.   We performed our work from November 2001 through September 2003 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: In recent years, the ambulance industry has experienced several changes.   In 2002, CMS implemented a new Medicare fee schedule for ambulance  services, replacing the previous system that paid providers on a reasonable  cost or reasonable charge basis.  In addition, according to industry experts,  many volunteer providers have reported greater difficulty maintaining  adequate staff.  Rural providers in particular have begun to rely more  heavily on paid staff.  Experts also told us that while many rural volunteer  providers have not billed Medicare—or have billed nominal amounts— more of these providers have begun billing for services.
subsections: section_title: Characteristics of Medicare Ambulance Providers
paragraphs: Recently, both the number of ambulance providers that bill Medicare and  the number of ambulance trips paid for by Medicare have increased.  From  1998 to 2001, the number of ambulance providers that billed Medicare  increased from just under 9,300 to over 9,700, and the total number of trips  paid for by Medicare rose from roughly 8 million to over 10 million.
Medicare ambulance providers include a wide variety of provider types.  In  1998, about 8,200 freestanding providers and 1,100 hospitals and other  institution-based providers billed Medicare for ground trips.  Freestanding  providers are a diverse group, including private for-profit, not-for-profit,  and public entities.  They range from small community one-vehicle  operations to large fire and rescue departments serving major metropolitan  areas.  They include operations staffed almost entirely by community  volunteers, public ventures that include a mix of volunteer and paid  professional staff, and private firms that use only paid staff.  In 1998,  volunteer staff accounted for 80 percent or more of full-time equivalent  personnel for over one-third of Medicare ambulance providers.  About  one-third of freestanding Medicare ambulance providers are managed by  local fire departments.
Medicare ambulance providers also vary in the types of services they  provide.  Some deliver only basic life support (BLS) while others deliver  advanced life support (ALS) services.  In addition to responding to  emergencies, ambulance providers may provide nonemergency  transportation, such as transfers from one hospital to another.  For some  ambulance providers, nonemergency trips account for a significant share  of their trips; for others, such trips account for few or none of their trips.   Some ambulance providers are the sole providers serving their  communities, while others operate in areas with multiple ambulance  providers.
Medicare ambulance providers also differ in the percentage of their trips  covered by Medicare and in their reliance on Medicare revenue.  In 1998,  Medicare beneficiaries on average accounted for about half of the total  trips by providers that billed Medicare.  However, Medicare beneficiaries  accounted for less than one-quarter of trips for 13 percent of Medicare  providers, and accounted for over 80 percent of annual trips for 9 percent  of providers.  On average, Medicare revenue accounted for 41 percent of  providers’ cash receipts.  Other sources of ambulance providers’ revenue  include local tax subsidies and payments from private insurers, Medicaid,  and individuals.
Requirements affecting ambulance providers vary by location.  States and  localities may require certain training for ambulance staff, establish  maximum payment rates that licensed providers are allowed to charge, or  specify response times through contracts with providers.  Some  jurisdictions—such as those that provide financial support to ambulance  providers—prohibit providers from billing for services.  In addition, some  communities require all ambulance providers to maintain ALS capacity on  all vehicles.
section_title: Medicare Payment for Ambulance Services
paragraphs: CMS recently implemented a Medicare fee schedule that changed the way  Medicare pays for ambulance services.  The fee schedule, mandated by the  Balanced Budget Act of 1997 (BBA), recognizes seven levels of ground  ambulance services, ranging from BLS services to specialty care transports.   (See table 1.)  Under the previous payment system, Medicare paid  institutional providers on a reasonable cost basis and freestanding  providers on a reasonable charge basis.  This approach led to wide  differences in payments across providers for the same services.  The new  fee schedule standardized payment rates across provider types by applying  the same payment rates to both institutional and freestanding providers.   The fee schedule’s payment rates are updated annually.  Medicare’s  payment is based on the lesser of the actual charge or the applicable fee  schedule amount.
For most ambulance services, the fee schedule payment is the sum of a  base payment and a payment for mileage.
The base payment for a trip, which is intended to pay for fixed costs  such as staff and equipment, reflects both a base rate and a geographic  modifier.  The base rate varies by the level of ambulance service  provided.  The geographic modifier, which is applied to 70 percent of the  base rate, is intended to account for wage differences across areas.
The mileage payment reflects both the length of a trip and the per-mile  payment rate.  For trips in which the beneficiary is picked up in an  urban area, the per-mile rate is $5.53.  Because of the fee schedule’s rural  adjustment, the per-mile rate for rural trips is 150 percent of the urban  mileage rate for each of the first 17 miles ($8.30) and 125 percent of the  urban mileage rate for miles 18 through 50 ($6.91).  The urban mileage  rate applies to every mile over 50 miles. The mileage payment applies  only to “loaded miles”—the miles the beneficiary is transported by  ambulance.
Under the fee schedule, rural areas are defined as areas outside of  metropolitan statistical areas  (MSA) and New England County  Metropolitan Areas, as well as parts of MSAs that are identified as rural by  the Goldsmith modification.  MSAs are groups of counties containing a  core of at least 50,000 people, together with adjacent areas that have a high  degree of economic and social integration with that core.  The Goldsmith  modification identifies small towns and rural areas within large  metropolitan counties that are isolated from central areas by distance or  other features, such as mountains.  About one-quarter of the roughly 3,100  counties in the United States are in MSAs, and about 75 of those counties  have areas that are identified as rural under the Goldsmith modification.
The ambulance fee schedule will be phased in over several years.  During  this period, payments will be based in part on the fee schedule’s service- specific payment rates and in part on the amounts that Medicare would  have paid under the prior payment system.  The proportion of the payment  based on the fee schedule will increase each year until 2006, when provider  payments will be based entirely on the fee schedule.  In 2003, payments  are based on 40 percent of the fee schedule payment and 60 percent of the  rates under the prior system.
section_title: Ambulance Providers’ Trip Volume Is the Main Factor Affecting Their Cost Per Trip
paragraphs: Trip volume is the major determinant of differences across providers in the  average cost per trip.  Ambulance providers’ total costs primarily reflect  readiness—having an ambulance and crew available when emergency calls  are received.  These readiness-related costs are fixed costs, meaning that  they do not increase with the number of trips provided, as long as the  provider has the excess capacity to make additional trips.   Consequently,  providers that can spread these fixed costs across more trips have a lower  average cost per trip than providers that make fewer trips.
subsections: section_title: Providers’ Total Costs Are Predominantly Readiness Related, and Do Not Vary With Trip Volume
paragraphs: The majority of ambulance providers’ total costs are related to readiness— the need to have an ambulance and crew available when emergency calls  are received.  Readiness-related costs include costs of labor, vehicles,  building space, and administration, as well as the cost of any back-up  vehicles and crew, which constitute a reserve that permits responses to  multiple simultaneous calls as well as scheduled maintenance on other  vehicles.  (See table 2.)  Readiness-related costs are fixed, meaning that  they do not vary with the number of trips a provider makes, as long as the  provider has excess capacity.  For example, total vehicle costs do not  increase significantly when a provider makes more trips.  Likewise,  building and administrative costs are largely unaffected by trip volume.   However, if a provider were to add another ambulance and crew to respond  to higher volume, its fixed costs would rise substantially.
In contrast, an ambulance provider’s costs for fuel and supplies (such as  drugs and oxygen) are variable because they increase with the number of  trips.  These costs, however, account for a small fraction of ambulance  providers’ total costs.
section_title: Fewer Trips Linked to a Higher Cost Per Trip
paragraphs: Providers that make fewer trips tend to have a higher cost per trip than  those that make more trips.  Figure 1 illustrates the average relationship  between ambulance providers’ cost per trip and their total trip volume, for  providers that made 5,000 or fewer trips.  As trip volume increases, the  cost per trip decreases.  Our statistical analysis considered other factors  that affect providers’ costs, notably trip length, but trip volume was most  strongly related to the cost per trip.
In addition, we found that providers surveyed by Project HOPE that  averaged 3 or fewer trips per day had an average cost per trip that was  nearly twice as high as the cost per trip among those that averaged 9 to 12  trips per day.  (See table 3.)  Providers that averaged 4 to 8 trips per day  had a cost per trip that was 1.3 times as high as the average cost among  providers with 9 to 12 trips per day.
section_title: Medicare Ambulance Payments for Trips in Rural Counties Are Unlikely to Fully Reflect Differences in Providers’ Cost Per Trip
paragraphs: Although Medicare’s payments generally are higher for trips originating in  the least densely populated rural counties than in other counties, the  payment differential is probably not large enough to account for the higher  costs incurred by low-volume providers likely to serve these areas.  Far  fewer Medicare-covered ambulance trips are typically provided in rural  counties than in urban counties.  Trip volume also varies widely across  rural counties, with the least densely populated generally having  substantially fewer trips than the most densely populated.  This suggests  that the cost per trip is likely higher for providers serving the least densely  populated rural counties.  Ambulance providers on average are paid more  for trips originating in the least densely populated rural counties than for  those in the most densely populated rural counties, but the payment  differences are modest and unlikely to reflect the higher cost per trip of  low-volume providers.
subsections: section_title: Rural and Urban Counties Differ in Ambulance Trip Volume and Population Density
paragraphs: Rural counties, as defined by Medicare’s ambulance fee schedule, tend to  have a much lower volume of ambulance trips than counties defined as  urban.  In 2001, rural counties averaged about 1,200 Medicare-covered  trips (both emergency and nonemergency), while urban counties averaged  about 9,100 trips.  The lower number of trips in rural counties suggests that  providers that serve these areas likely have a higher cost per trip than other  providers.
The difference in the volume of Medicare ambulance trips provided in rural  and urban counties largely reflects differences in their population density.   Not surprisingly, the number of Medicare ambulance trips in a county is  strongly related to its population, with counties with fewer residents  having fewer trips.  Trip volume is also related to a county’s land area,  although to a lesser extent.  Population density—the ratio of population  to land area—reflects both of these measures.  (See table 4.)
section_title: Dominant Providers in Less Densely Populated Rural Counties Provide Fewer Trips
paragraphs: The number of Medicare ambulance trips provided in rural counties varies  markedly with population density, with the least densely populated rural  counties tending to have fewer trips than other rural counties.  For  example, the quarter of rural counties that are the most densely populated,  with 52 or more persons per square mile, averaged over 2,200 Medicare  trips in 2001. (See table 5.)  In contrast, only about 300 Medicare trips, on  average, were made in the quarter of rural counties that are the least  densely populated, with 11 or fewer persons per square mile.  Even fewer  Medicare trips—only about 200—were made in frontier counties, which are  counties with 6 or fewer persons per square mile.  This suggests that the  cost per trip is likely higher for providers serving the least densely  populated rural counties.
The dominant providers in the least densely populated rural counties tend  to have far fewer trips than the dominant providers serving other rural  counties.  Overall, rural counties vary little in the number of providers  serving them.  However, in most rural counties, one or two providers  dominate, delivering the bulk of Medicare trips, with others having a much  smaller share.  We found that in 2001, about 70 percent of the trips in a rural  county were typically supplied by two providers.  The number of trips  made by these dominant providers varied with counties’ population  density.  In the quarter of rural counties with the lowest population density,  the median number of Medicare trips made by each of the top two  providers—in all of the counties they served—was 275.  (See table 6.)  In  contrast, the median number of Medicare trips made by the top two  providers was much higher—over 2,100 trips—in the quarter of rural  counties that were the most densely populated.
section_title: Medicare Ambulance Payments Are Somewhat Higher for Trips in Less Densely Populated Rural Counties
paragraphs: Ambulance providers on average are paid 16 percent more for trips  originating in the least densely populated quarter of rural counties than for  trips in the most densely populated quarter.  (See table 7.)  Payments for  those trips are higher because the trips are generally longer, resulting in a  higher mileage payment.  In 2001, while trips that began in the most densely  populated quarter of rural counties averaged 18 miles, trips in the least  densely populated quarter averaged 30 miles.  The rural adjustment, which  provides a higher per-mile rate for the first 50 miles of rural trips, also  contributed to the higher mileage payments.
The modest difference in Medicare payment across rural counties is  dwarfed by the difference in trip volume:  The difference in trip volume  between the least and most densely populated quarters of rural counties is  nearly eightfold.  Because trip volume is an indicator of costs, the  Medicare payment differences likely do not fully reflect differences across  rural counties in providers’ cost per trip.
section_title: Conclusions
paragraphs: Refining Medicare’s ambulance fee schedule to adequately account for cost  differences in providing ambulance services across various geographic  areas is important to ensuring beneficiaries’ access to services.  Access is a  particular concern in rural areas, since providers’ cost per trip is likely to  be higher because they provide fewer trips.  Moreover, our analysis shows  that the cost per trip is likely to be highest in the least densely populated  rural counties.  While the fee schedule incorporates a rural adjustment to  raise payments for trips provided in rural areas, its definition of “rural” is  broad.  As a result, the fee schedule’s rural payment adjustment does not  sufficiently target trips provided in the least densely populated rural  counties.
In implementing the fee schedule, CMS adjusted the mileage rate for rural  trips to account for the higher cost per trip of providers serving rural areas.   However, trip volume is a better indicator of providers’ cost per trip than is  trip length.  Thus, adjusting the base rates for rural trips—the portion of  Medicare’s payment that is designed to pay for providers’ fixed costs—is a  more appropriate way of accounting for rural low-volume providers’ higher  cost per trip than adjusting the mileage rate.
section_title: Recommendation for Executive Action
paragraphs: To help ensure that Medicare beneficiaries’ access to ambulance services is  adequate, we recommend that the Administrator of CMS better target the  rural payment adjustment to trips provided in rural counties with  particularly low population density by adjusting the base rates, rather than  the mileage rate, for ground ambulance services provided in those  counties.
section_title: Agency and External Reviewer Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from CMS.  We also  received comments from eight ambulance associations:  American  Ambulance Association, American Hospital Association, Association of  Air Medical Services, National Association of State Emergency Medical  Services Directors, National Volunteer Fire Council, Rural EMS Advocate,  American College of Emergency Physicians, and the National Association  of EMS Physicians.
CMS stated that the report will be useful as the agency develops a proposed  rule to address appropriate payment for ambulance services furnished in  rural, low-volume areas.  CMS also noted that the report reflects the  complexity of the issues and the need for careful analysis to ensure that  payment adjustments are made only for those ambulance providers that  require additional payment because of their low volume, rather than, for  example, inefficiency or competition from another provider.  CMS’s  comments appear in appendix III.  CMS also provided technical comments,  which we incorporated as appropriate.
subsections: section_title: Ambulance Associations
paragraphs: The associations that reviewed the draft report generally agreed with our  findings and recommendation.  All of the associations agreed with the need  to address the higher cost of providing ambulance services in rural areas.  Six agreed that an area’s ambulance trip volume reflects its population  density, while the remaining two associations did not address this issue.  The majority of the associations agreed that CMS should adjust the base  rates to recognize the higher cost per trip of providing ambulance services  in areas with low population density.  However, three associations went  further, proposing to use both mileage and base rates to address the higher  costs in rural areas.  While supporting the principle of paying higher base  rates to providers in rural areas where costs are high, the state EMS  directors’ and EMS physicians’ associations were concerned that higher  payments for rural providers could be at the expense of other providers.
Four associations raised concerns about using counties as the geographic  areas for applying the adjustment. These associations said that a system  that used counties would not accurately target rural ambulance payments.   Three of these associations noted that, because counties may include both  densely and sparsely populated areas, a system that used counties could  overpay some providers and underpay others.  They proposed using zip  codes as the geographic areas for assessing population density and  applying the adjustment. The rural ambulance association, in particular,  also advocated the use of multiple rural categories based on population  density to adjust payments for rural trips.  The fourth association  emphasized the need for a system that ensures that all areas with  sufficiently low population density are eligible for an appropriate payment  adjustment.
section_title: Our Response
paragraphs: GAO and the ambulance associations agree with the need to adjust  payments for rural trips and that the adjustment should be applied to the  base rate. With respect to adjusting payments for rural trips in low  population density areas, we believe the adjustment should be applied to  the base rate.  We believe that the mileage rate for any trip, rural or urban,  is best suited to compensating ambulance providers for costs that vary with  trip length. As stated in the report, a base rate adjustment is a more  appropriate way of accounting for rural low-volume providers’ higher costs  per trip because base rates reflect fixed costs, and because trip volume is a  better indicator of providers’ cost per trip than is trip length.  With respect  to possible payment reductions for other providers, implementing our  recommendation could have this effect.  If a revised rural adjustment is  implemented in a way to keep total Medicare expenditures the same, some  providers could face lower payments.
With respect to the geographic unit used to identify trips for the rural  adjustment, we agree that, since counties are relatively large geographic  units, it is possible for trips in some areas to be overpaid and others  underpaid. Moreover, in principle, a rural classification system that uses a  smaller geographic unit, such as zip codes, might better target payments to  trips in areas with low population density.  Yet our analysis indicates that  zip codes do not explain variation in trip volume as well as counties.   Further, county boundaries tend to be more stable over time than zip code  boundaries.  In addition, a variety of technical difficulties hinder the use of  zip codes for ambulance payments, including the absence of zip codes for  some rural areas.  With respect to multiple adjustment categories, we did  not address whether there should be a single adjustment or whether there  should be multiple adjustment amounts to reflect differing levels of  population density.  A decision on single or multiple categories would  require balancing increased precision with increased complexity.
We are sending copies of this report to the Administrator of CMS,  appropriate congressional committees, and other interested parties.  We  will also make copies available to others upon request.  This report is also  available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions, please call me at (202) 512-7114.   Other GAO contacts and staff acknowledgments are listed in appendix IV.
section_title: Data and Methods
paragraphs: 1999 National Survey of Ambulance Providers.  To identify the factors that  influenced ambulance provider costs, we used the 1999 National Survey of  Ambulance Providers.  This survey, conducted by the Project HOPE Center  for Health Affairs under the sponsorship of the American Ambulance  Association, is the only nationally representative source for ambulance  providers’ costs.   Project HOPE selected a stratified random sample of  providers that had billed Medicare in 1997, obtained 421 completed  questionnaires, and reported a response rate of 56 percent.  The survey  included questions on costs, total number of trips by type of service,  geographic location, and total mileage.
We took several steps to ensure that the Project HOPE data were suitable  for our analysis.  We examined the accuracy and completeness of the data  by testing for implausible values and internal consistency.  In addition, we  questioned an anomalous result in Project HOPE’s initial analysis of its  data, which raised concerns about the credibility of the data: emergency  advanced life support (ALS) trips cost less than nonemergency basic life  support (BLS) trips.  In response, Project HOPE provided us with  information about its subsequent analysis, which showed the expected  result—ALS trips cost more than BLS trips, after controlling for providers’  volume.  This result resolved our major concern about the data.
We limited our analysis of the factors affecting differences in providers’  costs to full cost providers—those providers that paid for 80 percent or  more of their staff and paid for 80 percent or more of their office and  garage space.  The costs reported by these providers are more likely to  reflect the full cost of providing ambulance services.  We also excluded  ambulance providers that were part of fire departments, because about half  could not separate ambulance costs from other costs.  Finally, we excluded  one provider that reported implausible values.  After these exclusions, we  had 114 cases for analysis.  Certain analyses that did not pertain to all full  cost providers used a smaller number of cases.  (See tables 8 and 9.)
Area Resource File.  The Area Resource File (ARF), which is maintained by  the Health Resources and Services Administration (HRSA), is a county- based health resources information database that contains data from many  sources, including the U.S. Census.  From the 2001 ARF, we obtained  county data on land area in 1990 and total population in 2000, which we  used to calculate population density.  We also obtained data on the number  of persons age 65 and over in each county in 1999, which we used as a  proxy for Medicare beneficiaries.  The ARF is a standard data source that is  well documented and widely used, so we did not independently verify its  accuracy or completeness.
Medicare claims files.  We used Medicare claims data to determine the  volume and length of all ground-based Medicare-covered trips, as well as  Medicare’s payments for those trips.  We used the 2001 national claims  history 100 percent nearline file for physicians and suppliers to identify  claims for ambulance services by freestanding providers, and the 2001  outpatient 100 percent standard analytic file to identify claims for  ambulance services by institutional providers.  We used the zip code of the  beneficiary’s primary address as a proxy for the point where the ambulance  picked up the beneficiary because the point of pickup is not recorded in the  2001 data.  Although we did not independently verify the reliability of the  national claims files, we screened the files and excluded claims that were  denied, claims that were superseded by an adjustment claim, and claims for  services in other years.  We retained all final claims for 2001.
Provider interviews. To gain an understanding of the ambulance industry,  we interviewed experts from eight industry and professional organizations.   We also interviewed several individual ambulance providers.
Factors affecting ambulance providers’ costs.  To examine the effect of  selected factors on ambulance providers’ costs, we analyzed the Project  HOPE survey data using a simplified version of a model reported by Project  HOPE.  In our model, the natural logarithm of total costs is a function of  the number of trips, the number of trips squared, and the proportion of the  total trips that are ALS.  We tested a number of additional terms, including  length of trips, but they were all either statistically insignificant or  significant but with very small effects.  We restricted our model to  providers with 5,000 or fewer total trips per year because we were  primarily interested in rural providers, which generally have fewer trips.   However, our sensitivity analyses showed that the results were broadly  similar when the model was applied to all full cost providers.  Our model  has an adjusted R of 0.48, indicating that the model explains 48 percent of  the variance in costs.  In general, when trip volume declines, the estimated  cost per trip increases, although less than proportionately.  That is, a 10  percent decrease in trip volume is associated with an increase in cost per  trip of less than 10 percent.
Analysis of variation in factors affecting costs across geographic areas.  To  examine differences between urban and rural areas in factors affecting  ambulance costs, we grouped counties with similar characteristics.  We  followed CMS in classifying counties in metropolitan statistical areas  (MSA) as urban counties and counties outside MSAs as rural.  However,  for our analysis we did not apply the Goldsmith modification that CMS uses  to identify as rural certain areas within MSAs.  These rural areas are  typically small, so we did not treat them as rural counties because that  would distort our urban and rural comparisons.  Our sensitivity analyses  determined that our findings would have been generally the same if we had  considered these areas as rural counties, although in some cases the  differences between urban and rural counties would have been heightened.
To examine differences among rural counties, we grouped them based on  their population density.  Population density—the ratio of population to  land area—is a commonly used measure of rurality.  We used population  density to group counties into quartiles, and then divided the least densely  populated quartile of rural counties into frontier counties—those with six  or fewer persons per square mile—and nonfrontier counties, because of  our interest in the most sparsely populated rural areas.  Using this  grouping, we found that ambulance trip volume decreased steadily from  the most densely populated rural counties to the least densely populated.   We also examined several other classification systems: urban influence  codes (UIC), which classify counties based on each county’s largest city  and its proximity to other areas with large, urban populations; rural-urban  continuum codes (RUCC), which classify metropolitan counties by the size  of the urban area and nonurban counties by the size of the urban  population and proximity to a metropolitan area; and rural-urban  commuting areas (RUCA), which classify census tracts using patterns of  urbanization, population density, and daily commuting patterns, and then  map the census tracts into zip codes.  These systems are more complex  than the system we used, and we found that they did not help explain  variation in trip volume as well as counties grouped by population density.
To confirm the effect of population density on trip volume, we did several  additional analyses.  We regressed counties’ annual volume of Medicare  trips (expressed as natural logarithms) on population and land area  (expressed as natural logarithms).  Population had a positive effect on the  number of trips, while land area had a negative effect.  An increase of 1  percent in population increased the number of trips by about 1 percent in a  county, while an increase of 1 percent in land area decreased the number of  trips by about 0.1 percent.  Population density combines the two effects:   a 1 percent increase in population density increases the number of trips by  0.7 percent. is a measure of the proportion of the  variation in the dependent variable (the natural logarithm of trips) accounted for by the  independent variables (the natural logarithms of land area and population).
section_title: Characteristics of Rural Counties Grouped by Medicare Population Density
paragraphs: Total population density is strongly related to Medicare population density.   (See table 10.)  For example, 525 rural counties with the lowest total  population density were also lowest in terms of Medicare population  density.  In total, 83 percent of all rural counties were in the same density  quartile, regardless of whether total population or Medicare population  was used to group rural counties.  Our results with respect to county  characteristics and ambulance services would have been similar had we  used Medicare population density to group counties rather than total  population density.  (See tables 11, 12, and 13.)
section_title: Comments from the Centers for Medicare & Medicaid Services
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Major contributors to this report were Martha Kelly, Robin Burke, Eric  Wedum, Michael Kendix, and Jessica Farb.
section_title: Related GAO Products
paragraphs: Ambulance Services: Changes Needed to Improve Medicare Payment  Policies and Coverage Decisions. GAO-03-244T. Washington, D.C.:  November 15, 2001.
Rural Ambulances: Medicare Fee Schedule Payments Could Be Better  Targeted. GAO/HEHS-00-115. Washington, D.C.: July 17, 2000.
subsections: section_title: GAO’s Mission
paragraphs: The General Accounting 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.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail this  list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs