EMS World

OCT 2018

EMS World Magazine is the most authoritative source in the world for clinical and educational material designed to improve the delivery of prehospital emergency medical care.

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PROMOTING INNOVATION IN EMS 14 OCTOBER 2018 | EMSWORLD.com Full Cost Analysis In busy systems that lack the capacity to allow existing resources to conduct addi- tional activities, a full cost accounting approach may be necessary. This requires an analysis of all costs associated with the intervention. Modifying the example used previously, let's change Anytown EMS' UHU to 0.550, making it unreasonable to use existing on-duty ambulances for home visits. Therefore Anytown will have to hire, train, and equip an employee for the service enhancement. A typical annual cost analy- sis for this is shown in Table 2. Once we have the total yearly cost, Any- town should consider what capacity this new unit would provide if it were exclusively supporting this specific program. If a visit takes one hour, after allowing for travel time between visits, Anytown could probably per- form approximately five visits per day. If they work 48 weeks a year, minus two weeks for training, continuing education, and administrative duties, they could at most perform about 1,150 visits per year. Assum- ing a more realistic efficiency level of 80%, we could expect an annual visit capacity of 920. Dividing our annual costs by our capac- ity gives us a cost per visit of $117.39. Note the calculation: In this instance a unit has the capacity to perform approxi- mately 920 visits per year. If the hospital only contracts for 260 home visits (one visit per patient), the cost per patient might be $413.46. However, pricing according to that cost would likely seem outlandish relative to other options the hospital might have for postdischarge care. Pricing off the price per visit would be much more attractive and might stimulate a higher number of referrals or even attract new customers. It is true that if the volume is only 260 in the first year, the program would not be pay- ing for itself. But like any business we have to price for sustainability and may need to find alternative value-added tasks for the provider while Anytown works to grow the volume of its new innovative service line. In both of these scenarios, the overhead costs for program administration and billing would be similar and should, to some extent, be taken into account for the financial analy- sis. Also note that in this analysis we used one person working a 40-hour week. If the service were required to operate 24/7, or if two persons were necessary to operate it, the cost would be substantially higher. Potential Revenue Lost Many EMS innovations designed to improve the experience of care and reduce costs have another cost that's often not con- sidered. Let's say one of the goals of the Anytown EMS partnership with its hospital is to reduce preventable emergency depart- ment visits and hospital admissions. This could mean fewer ambulance transports for Anytown EMS. Let's say 30% of the patients referred into the program were expected to use an ambulance. Thirty percent of 260 patients is 78 ambulance trips avoided. Recall from our earlier column that the average revenue generated per transport for Anytown EMS is $319.20. Running 78 fewer ambulance transports at $319.20 apiece means a revenue loss of $24,897.60. Pure cost accounting would add this cost to the two previous cost analyses, resulting in a new per-home-visit marginal cost of $130.64 and a fully allocated cost of $509.22. If the program is targeted toward Medicaid patients or the uninsured (who may also have the most to gain from this assis- tance), this potential revenue loss would be lower. Pricing: Lessons Learned All through this series we've demonstrated how to determine the cost of service deliv- ery. We have not yet discussed the value proposition. Healthcare partners often per- ceive value much differently than we might. One of the lessons learned through mul- tiple EMS innovations is to never, ever be the one to offer the price for the innovation service delivery. It is important to know your cost, but when the time comes to discuss what the payer is willing to pay, allow them to make the first offer. In many cases we have found the payer is willing to pay more than we were going to charge. This is largely due to the additional value of the cost avoidance experienced through advantages such as reduced ED visits and hospital admissions. We've invested a lot of your time over the last three columns on the finance of EMS innovation. In our next column we will embark on the clinical consideration of EMS innovations. ABOUT THE AUTHORS Matt Zavadsky, MS-HSA, NREMT, is chief strategic integration officer at MedStar Mobile Healthcare, the exclusive emergency and nonemergency EMS/MIH provider for Fort Worth and 14 other cities in North Texas. He is a member of the EMS World editorial advisory board. Kevin G. Munjal, MD, MPH, is an emergency physician who completed an EMS fellowship with the New York City Fire Department (FDNY). He is the founder and chair of the New York Mobile Integrated Healthcare Association (NYMIHA), an organization seeking to empower EMS providers to play a larger, more integrated role within the healthcare system by promoting new models of mobile healthcare. Marginal Cost for Home Visits Medical director stipend $5,000 Instructor for personnel training $1,500 Miscellaneous supplies $1,000 Forms/printing $500 Fuel for home visits $500 Accelerated vehicle depreciation $500 Scale $70 Total cost $9,070 Home visits per year 260 Agency cost per visit $34.88 Fully Allocated Cost for Home Visits Personnel (Includes pay, pay- related, benefi ts, uniforms, etc.) $90,000 Vehicle/decals/radio ($30,000 over 5 years) $6,000 Cardiac monitor ($20,000 over 5 years) $4,000 Training expense (Instructor pay) $1,500 Forms/printing $500 Miscellaneous supplies $1,000 Medical Oversight/QA $5,000 Total yearly cost $108,000 Table 1 Table 2

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