1/8/2015 1 EMS Finance Fundamentals EMS Finance Fundamentals Jerry Overton Chair Board of Accreditation International Academies of Emergency Dispatch Jerry Overton Chair Board of Accreditation International Academies of Emergency Dispatch Conflict of Interest Disclosure NONE A conflict of interest exists when an individual is in a position to profit directly or indirectly through application of authority, influence, or knowledge in relation to the affairs of ABC. A conflict of interest also exists if a relative benefits or when the organization is adversely affected in any way.
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1/8/2015
1
EMS Finance FundamentalsEMS Finance
Fundamentals
Jerry Overton
ChairBoard of Accreditation
International Academies of Emergency Dispatch
Jerry Overton
ChairBoard of Accreditation
International Academies of Emergency Dispatch
Conflict of Interest Disclosure
NONE
A conflict of interest exists when an individual is in a position to profit directly or indirectly through application of authority, influence, or knowledge in relation to the affairs of ABC. A conflict of interest also exists if a relative benefits or when the organization is adversely affected in any way.
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Or . . .
The Old Axiom
“Nothing in life is free!”
EMS Finance
“Is this the best we can do with the financial resources
available?”
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EMS Finance Misconceptions
• Price (Rates) = Costs• Component Costs = System Costs
• More Local Tax Support = Better Service
• Volunteers = Free Service
Total Cost of Providing Service
Emergency Medical Services Costs –
Definitions
Cost Definitions
• Direct Costs• Indirect Costs• Fixed Costs• Marginal Costs
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Cost Definitions
• Direct Costs – A cost that can be traced specifically to a particular service of product• Paramedic Labor• Fuel• Medical Supplies
Cost Definitions
• Indirect Costs – A cost that cannot be traced to a particular service
• Administrative Overhead • Information Technology• Marketing • Billing Service• Legal and Accounting• Insurance
Cost Definitions• Fixed Cost – A cost that does not
change in total for a given time or activity• Vehicles• Communication Infrastructure
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Cost Definitions
• Marginal Cost – A cost that fluctuates in total in direct proportion to changes in activity• The addition of additional staffing (Unit Hours) to a schedule
Total Cost of Providing Service
Emergency Medical Services Costs –
General Principles
The Cost of Producing Service
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General Principles
• Cost of Readiness• Productivity• Revenues
“Without data, data will be made up.”
General Principles
General Principles
• Before Proceeding• All Cost Centers Identified• All Costs Accurately Reported
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General Principles
• Cost of Readiness
Cost of Readiness• Strategically Deployed
Distribution Network• Production Capacity Must Exceed
Supply and Demand• Time Dependent Service Delivery
Cost of Readiness• Fixed Costs• NOT Volume Driven Unless
Excess Capacity Exceeded• Length of Trip has Little Effect
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Special Considerations
• Urban • Suburban• Rural
General Principles• Cost of Readiness
• Productivity
ProductivityKey Concepts
• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport
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Total System Cost per Capita
Total System CostPopulation Served = Cost per Capita
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Fort W
ayne,
IN
Fort W
orth, T
X
Kansas C
ity, M
O
Oklahom
a City
, OK
Pinellas C
ounty, F
L
Reno, NV
Richmond
, VA
Tulsa,
OK
Clark Coun
ty, W
A
Davenpo
rt, IA
Little R
ock,
AR
Mecklen
burg, N
C
Montere
y Cou
nty, C
A
Solano Coun
ty, C
AMean
Median
Total System Cost Per CapitaUnited States
Productivity
• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport
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Cost per Unit Hour
Basic Terminology
Unit Hour - A fully equipped and staffed ambulance on a response or waiting for a response for one hour.
Unit Hour Costs
EMS does not manufacture accidents and illness.
EMS only manufactures Unit Hours and . . . then waits.
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Unit Hour Costs
• Ranges from $75-$150 Cost per Unit Hour
• Direct Labor Costs Comprise Over 70% - 80% of the Total Average Unit Hour
• Marginal Unit Hour Costs are 60 - 75% of total Unit Hour Costs
Cost per Unit Hour
Total CostsTotal Number of Unit
Hours= Total Unit Hour
Costs
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Fort W
ayne,
IN
Fort W
orth, T
X
Kansas C
ity, M
O
Oklahom
a City
, OK
Pinellas C
ounty, F
L
Reno, NV
Richmond
, VA
Tulsa,
OK
Clark C
ounty,
WA
Davenpo
rt, IA
Little R
ock,
AR
Meck
lenburg
, NC
Monte
rey C
ounty,
CA
Solano Coun
ty, C
AM
ean
Media
n
Cost Per Unit HourUnited States
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Unit Hour Costs
• Unit Hour Costs are Powerfully Affected by Economies of Scale
• Far Less Money is Wasted in the Production of Unit Hours than is Wasted from Squandered Unit Hours
Unit Hour Costs
• Unit Hour Cost is:• A Poor Predictor of Cost per Transport
• A Poor Predictor of Clinical Quality
Productivity• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport
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Unit Hour Utilization
Basic Terminology
Utilization -How frequently the unit hour is used
Productivity
• Unit Hour Utilization• Responses• Transports• Patients Treated (Treat and Release)
• Work Load • Post to Post Moves• Equalization
Unit Hour Utilization Ratio
Basic TerminologyUnit Hour Utilization - A measurement of the productivity of the system calculated by dividing the number of transportsby the number of unit hours produced for a given period.
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Unit Hour Utilization Ratio
The U/UH Ratio
U (Utilization)UH (Unit Hours)
Patients Transported During PeriodUnit Hours Produced During Same
Period
Unit Hour Utilization Ratio
4 Transports12 Unit Hours
600 Transports1800 Unit
Hours
= .33 U/UH
= .33 U/UH
Unit Hour Utilization Ratio
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Productivity
• Total System Cost per Capita• Cost per Unit Hour• Unit Hour Utilization Ratio• Cost per Transport
Cost per Transport
Cost per Unit HourProductivity (U/UH) = Cost per
Transport
Cost per TransportExample:
8,000 Patients16,000 Unit Hours
$100.50
$100.51
= .50
= $200 per Transport
= $196 per Transport
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Cost per Transport
$ 4 X 8,000 Patients/Year = $32,000/Year
Combining Principles• Cost of Readiness• Productivity
Impact
Productivity is a far more powerful cost driver than cost
per unit hour.
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Cost per Transport
Example:
$100.33
$100.25
= $303 per Transport
= $400 per Transport
Cost per Transport
$97 X 8,000 Patients/Year = $776,000/Year
Cost per Transport
System A System BCost per unit hour $125 $100U/UH ratio .40 .30Cost per transport $312 $303.00Patient charge $624 $606.00(50% collection)
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Cost per Transport
ExclusiveNon-Exclusive
(Subsidy Constant)
Non-Exclusive (Total Bill Constant)
Unit Hour Cost $99.75 $99.75 $99.75Unit Hour Utilization 0.47 0.42 0.42Transport Frequency (hour) 2.13 2.37 2.37Cost Per Patient Transport $212.23 $237.50 $237.50Less: Subsidy Per Transport $58.14 $58.14 $83.41Sub-Total $154.09 $179.36 $154.09Collection Percentage 40% 40% 40%Total Bill $385.24 $448.40 $385.23
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
Fort W
ayne,
IN
Fort W
orth, T
X
Kansas C
ity, M
O
Oklahom
a City
, OK
Pinellas C
ounty, F
L
Reno, NV
Richmond
, VA
Tulsa,
OK
Clark Coun
ty, W
A
Davenpo
rt, IA
Little R
ock,
AR
Mecklen
burg, N
C
Montere
y Cou
nty, C
A
Solano Coun
ty, C
AMean
Median
Cost Per TransportUnited States
Factors Affecting Productivity
• Population Density• Road Systems and Barriers• Seasons• Location of Health Care Facilities• Hospital Diversions
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General Principles• Revenues
• Local Tax Support• Reimbursement
Tax Support/Rate Tradeoff Analysis
• Tool for Analysis of Financial Performance
• Provides for the Identification of Ultimate Need for Revenues
• Establishes Affordability• By Payor• By Local Government
Tax-Support/Rate Tradeoff Analysis
$0
$100
$200
$300
$400
$500
$600
$700
$800
$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50
Tax Support per Capita per Year
Tota
l Ave
rage
Bill
$30 cost per capita
$10 tax support per capita = $400 average ambulance bill
(If there was…) $0 tax support = $575 average emergency ambulance bill