The Funding Struggle

By By James T. McKenna | October 1, 2015
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A Bell206 configured for air-medical transport. Photo courtesy of Metro Aviation

Thirteen years. That is how long U.S. aeromedical industry advocates say it has been since air ambulance operators have been working under the current regime for cost reimbursement.

In 2002, the U.S. Centers for Medicare and Medicaid Services set the schedule of fees it would pay for ambulance transportation by ground or air. That agency didn’t so much identify costs to be reimbursed as it altered the way planned spending was divided, said Rick Sherlock, president and CEO of the Assn. of Air Medical Services (which hosts the annual Air Medical Transport Conference in Long Beach, California, this month.) The agency’s own documents note that it did not distinguish between fixed-wing and helicopter air ambulances in setting the fee schedule and had no intention of doing so.


Rectifying that is a top priority this year for that association and its allies in the U.S. Congress. The group also is working to mitigate risks to medical helicopters by drones and other airspace hazards and is continually persuading the public and elected representatives of the benefits that air ambulance operations bring to local communities.

The cost-reimbursement problem is rooted in the same set of problems that led to the passage of the federal Patient Protection and Affordable Care Act in 2010; those problems include rising health care costs and decreasing numbers of Americans with health insurance.

Missing Break-Even

As Sherlock explained it, two out of every 10 patients transported by air don’t have health insurance to pay for their flights or treatments aloft, nor do they pay for such services out of pocket. Five of 10 rely on Medicare or Medicaid programs. The remaining three have insurance that pays for such services.

Though private insurance once reimbursed air ambulance services for “usual and customary” costs, insurance providers over the years have generally indexed their payments to the Medicare fee schedule (which industry advocates agree doesn’t cover actual costs).

“The combination of payments from Medicare and from private insurers, together with the charges for which the patient is directly responsible, is significantly less than the break-even cost for an air ambulance—even before the aircraft leaves the ground,” Sherlock said.

To solve the problem, the association is counting on tandem bills in the House of Representatives and the Senate. The House bill (H.R. 822) was proposed by Rep. Pete Sessions, a Dallas Republican, and Rep. Gregory Meeks, a Democrat from Jamaica, New York. They are co-chairs of the Congressional Air Medical Caucus.

Sessions also is the chairman of the powerful House Committee on Rules, which controls how all legislation moves through that chamber of commerce.

The House bill has 24 co-sponsors.

Sen. David Vitter, a Republican from Louisiana, sponsored the Senate bill (S.1149), which has four co-sponsors.

The bills are identical in how they frame the problem and the proposed solution. The 2002 Medicare air ambulance fee schedule was developed through negotiated rule-making that prohibited it from increasing federal spending. “As such,” the bills say, “the Medicare air ambulance fee schedule has never reflected true costs.”

Fundamental Imbalance

Since that schedule was implemented, “reimbursements have only been adjusted by inflationary updates averaging 2.2% a year,” the bills say, but air ambulance “operational readiness and safety enhancement costs have grown” far faster than that rate. That creates “a fundamental imbalance within the air ambulance fee schedule.”

The legislation would require the federal Health and Human Services Department, which oversees the Medicare/Medicaid agency, to set up a system for air ambulance providers to report 15 basic operational costs at an average air base.

The costs would include aircraft ownership expenses, communications, employee expenses, fuel, insurance, maintenance, marketing and medical supplies.

They also would include overhead support, recurring training (for aviation, maintenance, communication and clinical personnel), rent and utilities, safety enhancement capital costs and recurring costs, as well as supplies and travel.

Congress’ Government Accountability Office (GAO) then would be required to analyze the cost data and report on it four years after the changes take effect. Congress presumably would use that report for future rate adjustments. Also, the GAO and the Health and Human Services Department would have to issue an annual report on certain industry measures of the clinical quality of air ambulance services.

As an interim fix, the bills call for a 20% increase in the air ambulance base rate the first year after they become law and subsequent annual adjustments of 5% for three subsequent years (after which the GAO cost-data report would be due.)

The association and its allies are presenting the fee-schedule changes as a means of ensuring and improving health care for Americans.

The authors of the legislation argue that the “fundamental imbalance” in the air ambulance fee schedule must be fixed “to preserve access to timely care for tens of millions of Americans.”

Sherlock offers statistics that say 339 trauma care facilities in the U.S. have closed in the last 25 years and that 80 million Americans live one hr or more from a Level 1 or 2 trauma center “even if they are flown.”

(A Level 1 center is a regional resource that provides 24-hr in-house coverage by general surgeons and prompt specialist care, such as orthopedic surgery, neurosurgery and oral, maxillofacial, pediatric and critical care. A Level 2 center can start definitive care for all injured patients on a 24-hr basis.)

A fix for fee schedules faces challenges.

Critics’ Arguments

One comes from critics who argue that the current reimbursement scheme promotes poor and dangerous care by encouraging for-profit businesses to cut corners in order to boost their air ambulance earnings. A leading voice among critics is Dr. Michael Abernethy, an emergency physician and chief flight physician with the University of Wisconsin Health and its respective Med Flight operation.

Under current Medicare guidelines, he maintained, all HEMS programs receive the same reimbursement for each mile a patient is transported regardless of aircraft size, level of care or capabilities. There is no reason to provide better training to crews or acquire more capable aircraft, Abernethy wrote.

“There are still many excellent programs whose mission is focused on safety and quality patient care,” he said. But “there is absolutely zero financial incentive for quality.”

Such points feed into a larger criticism that commercial air ambulance providers are less safe than public-service ones. This argument was presented in an October 2014 article in the Journal of Trauma and Acute Care Surgery, “Probable cause in helicopter emergency medical services crashes: What role does ownership play?”

That article provoked a response from Sherlock, who argued that “fiduciary care” is a fundamental business concept, and all air medical providers “have financial responsibilities, whether they answer to owners, shareholders, a nonprofit board of directors or taxpayers.” He added, “The same holds true for hospitals, doctors, other medical providers and any other for-profit or not-for-profit business of any kind.”

Voluntary Improvements

Two MD902 Explorers are part of the Essex and Herts Air Ambulance Trust, which relies on private funding to provide free support to the areas of Essex and Hertfordshire, England. Photo courtesy of MD Helicopters

Sherlock argued that the U.S. air ambulance industry has invested voluntarily in operational and safety improvements like night vision goggles, helicopter terrain awareness warning systems, operational control centers, autopilot systems, flight data monitoring and quality assurance programs­, not to mention implementation of safety management systems.

“The result is an industry-wide safety culture that reaches across all business models,” he said, adding that the culture “was fostered voluntarily and unilaterally” while the FAA spent three years on the 2014 helicopter air ambulance rule.

Air ambulance services certainly interest investors. Earlier this year, the leading global investment firm KKR & Co. L.P. acquired Lewisville, Texas-headquartered Air Medical Group Holdings Inc. from Bain Capital and Brockway Moran & Partners. Air Medical Group Holdings and its affiliates (Air Evac Lifeteam, Med-Trans Corp. and Eagle Med) operate 222 helicopters and 25 fixed-wing aircraft from 231 bases in 27 states. Last year, its aircraft transported more than 75,000 patients and its ground ambulances transported another 120,000.

Another challenge to the fee-schedule fix is the current political environment in Congress, which does not foster tolerance for legislation that increases federal spending.

To increase spending on air ambulance reimbursements, the bills’ sponsors will have to come up with offsetting savings from other budget bottom lines.

Sherlock said air ambulance proponents have offset options in mind. But he didn’t want to discuss them until the two bills have been “scored” by the Congressional Budget Office to avoid having the savings applied to other initiatives. The budget office is required to score, or assess, any non-mandatory spending in legislation for its impact on federal, state, local and private-industry budgets.

Separately, the air medical association is working with other aviation trade associations to persuade members of Congress to address the dangers of unmanned aircraft systems (UAS) and unlighted meteorological towers to low-flying air ambulances and other aircraft.

In one of the latest drone-related episodes, the Carilion Clinic urged UAS operators to steer clear of air ambulances. Carilion, which owns and operates eight hospitals in western Virginia, said helicopters serving those facilities have had two drone encounters just this year.

Sherlock said the associations want language included in FAA reauthorization legislation requiring anti-collision aids on drones.


An End To U.S. HEMS?

On March 26, the FAA updated Advisory Circular (AC) 135-14. The AC’s stated purpose “is to provide information on policy and identify best practices” for air ambulance operations from multiple sources, including the 2014 rules for those operations.

But right from the start, AC 135-14B proposes important changes for this industry sector’s lexicon.

“The term Emergency Medical Service/Helicopter (EMS/H or HEMS) is obsolete,” the document says. That term is being replaced with “helicopter air ambulance,“ because although a critical life-and-death medical emergency might exist, “air ambulance flights are not operated as an emergency. Pilots and operator management personnel should not make flight decisions based on the condition of the patient, but rather upon the safety of the flight.”

It goes on to call on management to “discourage the use of the term ‘mission’ to describe flight assignments.” “Mission” is derived from military aviation policies that factor in “acceptable losses,” it says, and might affect the normal civil go/no-go decision-making process.

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