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June 14, 2018

The air ambulance industry is skyrocketing (and so are the bills)

Daily Briefing

    The air ambulance industry is booming due to medical advances, hospital closures, and loose regulations, but the sometimes-lifesaving flights can carry five-figure charges that, for privately insured patients, often lead to protracted billing disputes, John Tozzi reports for Bloomberg.

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    The rise of air ambulances—and their prices

    According to data compiled by Ira Blumen, a professor of emergency medicine and director of the University of Chicago Aeromedical Network, only a few dozen medical helicopters existed when the air-ambulance business began in the early 1980s. At the time, the flights were run mostly by hospitals.

    Since then, the number of air ambulances has increased exponentially, with nearly 900 helicopters making 300,000 flights each year in the United States, according to Blumen's data.

    Several factors have fed higher demand. For instance, the advent of new heart attack and stroke treatments means more patients can survive these events if they receive speedy treatment. In addition, the closure of rural hospitals in recent years has made air ambulances "lifelines for remote communities," Tozzi writes.

    But the growth in air ambulances has outpaced demand for their services, Blumen's data show. Each ambulance flew about 600 patients a year in the 1990s, while today, each carries about 350.

    Meanwhile, prices for air ambulances have risen "dramatically" since the birth of the industry in the 1980s, Tozzi reports. According to a Government Accountability Office report, the average charge for a medical helicopter flight increased from $14,000 in 2010 to $30,000 in 2014. For one air ambulance company, Air Methods, the average charge increased from $13,000 in 2007 to $49,800 in 2016.

    One factor behind the price hikes is a lack of regulation, Tozzi reports. Thanks to a provision in the 1978 Airline Deregulation Act, air-ambulance providers are considered air carriers—much like Delta Air Lines or American Airlines—and as a result have very few restrictions on what they can charge.

    Further, a Medicare payment formula in 2002 "effectively raised the payment amounts for air ambulance," the according to GAO.

    But JaeLynn Williams, EVP of Air Methods, an air ambulance operator, said that Medicare and Medicaid reimbursements for air ambulance services are too low to cover the actual costs of the service.

    Paying the bills

    One West Virginia family learned just how expensive these flights can be when their three-year-old son, West Cox, was taken from Princeton Community Hospital to CAMC Women and Children's Hospital to treat his 107-degree fever.

    Air Methods charged the family $45,930 for the 76-mile flight.  Their insurance, a commercial state employee plan, paid only $6,704, leaving the family with the rest of the bill. The Coxes sued Air Methods in 2017 and is seeking class action status on behalf of other patients in West Virginia who have received similar bills.

    In a separate instance in 2015, Michael Roth hit his head after a fall at a work site and was flown 18 miles via helicopter to Westchester Medical Center in New York. Roth ultimately died from the injury, and his family received with a $34,495 bill from Rocky Mountain Holdings LLC—a subsidiary of Air Methods. The company put a lien on the Roth estate and dragged on a dispute for two years before Roth's insurer, Aetna, paid the remainder of the claim after a TV reporter began looking into the dispute.

    Some states and the federal government have taken steps to try to rein in air ambulance costs. West Virginia in 2016 passed a law limiting how much state employee health plans will reimburse for air ambulance services. However, in response to a legal challenge by the air ambulance company Air Evac EMS a federal court ruled that federal preemption blocks states from enforcing the caps. According to Tozzi, the industry has used similar arguments to successfully block regulation in other states.

    Meanwhile, Sen. Jon Tester (D-Mont.) has introduced legislation that would roll back the current status of air-ambulance companies, Tozzi reports. A separate Federal Aviation Administration reauthorization bill that passed through the House in April would also make air ambulance companies subject to state regulation.

    Industry cites lower reimbursement from government payers, desires to negotiate

    Williams defended Air Methods billing practices but declined to comment on specific cases.

    "The fundamental problem is that the current reimbursement rates by Medicare, Medicaid, and some of the private insurance companies fall well short of what it actually costs to provide this lifesaving service." Williams said. She declined to comment on specific patients' cases.

    Seth Myers, the president of Air Evac EMS, said that his company loses money on flying Medicaid and Medicare patients, which Myers said accounts for about 75% of the people Air Evac flies. "I fly people based on need, when a physician calls or when an ambulance calls," he said. "We don't know for days whether a person has the ability to pay."

    In an effort to remedy this, Williams said that Air Methods has hired "nearly 25" patient advocates since 2016 to "help them navigate the very complex process with their insurers." Williams also said that Air Methods will "help [patients] get the payments for these lifesaving critical emergency services that they're entitled to."

    Williams also said that Air Methods is "100% committed to going in-network" with a number of private insurers. "We need to hold … insurers' feet to the fire to say we need a reasonable rate," she said, adding that some health plans often won't agree to a network contract with Air Evac to help lower costs.

    Air ambulances remain profitable

    Even so, air ambulance operators are turning profits, according to Tozzi. Air Methods, for example, had an average annual profit margin of 9.1% from 2012 to 2016, Tozzi reports. Air Methods declined to comment on its current profitability or to disclose financial details.

    Further, while air ambulances were initially operator mainly by hospitals, wealthy investors have become attracted to the air ambulance business, Tozzi reports. According to the GAO, two-thirds of medical helicopters in 2015 belonged to three for-profit providers.


    For their part, consumer advocates and insurers contend that air ambulances choose to stay out of network to maximize revenue, Tozzssi reports.

    Highmark Blue Cross Blue Shield in response to a complaint a West Virginia customer filed last year over an Air Methods bill wrote that it tried to negotiate a contract with the air ambulance provider but that Air Methods "refuses to discount its services by more than 3% of its total charge."

    Separately, Betsy Imholz, director of special projects at Consumers Union, said the fault lies with air-ambulance providers who are "using consumers as leverage with the insurance companies." She added that she believes "in many cases, [there is] price gouging going on" (Tozzi, Bloomberg, 6/11).

    Download the Cost Control Playbook for our 3-pronged strategy for cost reduction

    Feeling pressure to maintain margin performance and secure financial sustainability? You’re not alone. Providers of all sizes, locations, types, and patient/payer mixes report a substantive decrease in operating margins and budget turmoil. While margins are still relatively healthy (between 2.5% and 3.0%), costs are quickly outgrowing revenue.

    That’s why we’ve created the Cost Control Playbook—a one-stop destination for system-wide cost control strategies.

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