Understanding Ground Ambulance Charges-Part III
Ambulance Billing is Different
Ambulance billing is different.
Really medical billing as a whole is different than any other type of billing or business practice, but ambulance differs at yet another level than even other medical billing disciplines.
In any other business line, one makes a product or delivers a service. The business then charges a price per unit that reflects the costs of producing that product and factors in a margin to not just cover the cost of the product or service, but also hopefully makes the business a profit.
Not so for the medical world.
Widgets
In the medical world, while a procedure or service including an ambulance transport is priced by the service provider or supplier, there is not a guaranteed direct tie to the amount of reimbursement that is received in many cases.
Pricing in any other business line reasonably reflects the expected amount to be collected upon delivery or the sale of the product. In other words, if I am the manufacturer of widgets I determined that I make a widget that costs 50 cents per widget. I decide to price your widgets to sell at $1.50 per widget.
Happily, I make 100 widgets and sell all 100 widgets at full price.
I’ve spent $50.00 to manufacture the widgets and sell them for a total of $150.00 realizing a profit of $100.00. I’ve now covered my costs and have a tidy little profit left over after paying for my costs.
Introducing the Contractual Allowance
In the medical world, pricing is determined based on cost as well. However the direct reimbursement tie-in to the “sale” and delivery of the service or procedure is not quite as clear as with the widget manufacturer.
The medical provider or supplier may arrive at a price but never see the full collection of that pricing.
Let’s say that the hospital decides that a surgical procedure will cost $5,000 to deliver when all is said and done. So, they price out that procedure at $7,500 intending to realize a $2,500 reimbursement to re-invest in technology or operating overhead.
However, the patient is a Medicare beneficiary and Medicare’s fee schedule allowance for that procedure has been set by the Federal Government at $6,000. Medicare pays the hospital and the surgeon the $6,000 allowance and decides that the patient has a co-pay of just $200.
When the patient pays his $200 co-pay the remainder of the $7,500 charge must be dropped and cannot be collected. The hospital corporation and the surgeon forgoes $1,300 less than their full pricing on the procedure.
This is referred to in medical billing as a “Contractual Allowance.”
The Contractual Allowance is the difference between the Gross Charge and the amount realized from the billing process that cannot either by law or by contractual agreement with the payer be collected on the bill either from the insurer or the patient.
Ambulance Application
The same applies for ambulance but with a fairly significant difference.
The ambulance cannot always know the reimbursement level up-front, nor can it choose to deliver or not deliver the service based on that potential reimbursement.
For example, My Town Ambulance Service has determined that it costs $450 to place an ambulance on the street each time the alert tones sound for an emergency.
Let’s say that the patient is a Medicaid beneficiary and lives in Pennsylvania. The Commonwealth has determined that Medicaid pays a whopping $200 when billed for an Advanced Life Support transport (plus mileage at $2.00 per mile when the transport exceeds 20 loaded miles- but we’ll assume for our explanation that the transport does not exceed 20 miles.)
So, My Town Ambulance has just spent $450 to complete the transport and yet will be was reimbursed just $200, now realizing a loss of $250 even though Medicaid paid the bill submitted by My Town in full. The Contractual Allowance is that $250 and cannot be collected from any source.
No Payer Source
Finally, the ambulance service may apply a Gross Charge and Mileage Charge to a particular incident, yet learn that the patient has no insurance coverage and lacks the means to pay.
Now we move from a Contractual Allowance to a potential Write-Off or more aggressive collection activity season. In any event, money was spent maintaining a “readiness to respond” and yet may not be able to collect enough dollars to just break even with the costs to provide the service to the public they serve.
