Revenue cycle management: Lessons for the fire service CFO
Fire-based EMS revenue structures and a success story in operating on user fees while providing excellent service
Fire department call volumes reflect far more EMS responses than fully-involved fires. Today's fire chiefs face unique challenges in staffing, equipping, housing, transporting and training the right crews for the job with the myriad of incidents they respond to. Learn more in this Special Coverage Series: Leveling up Fire-Based EMS.
By Steven Knight, PhD
Fire service agencies have been participating in the delivery of emergency medical services since the early 1970s. While many fire service agencies have been providing fully integrated fire suppression as well as EMS patient care and transport services, there are agencies just now contemplating providing advanced life support first responder services. In other words, there is considerable variability in the service delivery models where EMS is concerned.
During and shortly after the 2007 recession, many municipal fire departments wanted to begin providing patient transportation services in an effort to bring in additional revenues. However, the fiscal solvency and sustainability of the delivery model varies as widely as the EMS delivery models themselves.
Unless the agency has sufficient capacity to create a transport program with little to no additional staffing, the fully loaded cost of dual trained firefighter emergency medical technicians or paramedics typically exceeds the available revenue recovery. Many variables can change the dynamic, including:
- Staffing strategies
- Deployment strategies
- Pay and benefits negotiations
- The community’s payer mix
Fire-based EMS revenue structures
In general, there are two dichotomous mechanisms for revenue generation where EMS transportation is concerned:
First, when the fire service provides patient transport services, it is typically subsidized through the municipal budgeting process in a similar fashion as the fire suppression services or the police department. In other words, the potential revenues from the program are separated from the expenditures as the commitment to provide the desired level of service has already been established through policy.
The second occurs when the fire service provides transport services funded through a special taxing district or run through an enterprise fund. If there is a special EMS funding mechanism such as a metropolitan service taxing unit or a metropolitan service benefit unit, the revenues are generally restricted to use for EMS services only and are not fungible with other expenditure areas.
Local policy may dictate that the EMS program must be sustainable within this revenue structure. Alternatively, the municipality may set up an enterprise fund which requires the EMS program to function autonomously through cost recovery revenues or user fees billed in a fee for service strategy.
Finally, a hybrid of the two may exist where the user fees are also augmented through special taxing strategies and the aggregate revenue from user fees and taxes. Through this lens, one could argue that it would be a partially subsidized service model.
The impact of revenue cycles and why we have to manage them well
Revenue cycles are simply the cycles in which revenue is realized or becomes available to cover expenses. For example, with a bi-weekly pay cycle, additional revenues are available within that cycle. The revenue cycle is highly dependent on the accuracy, timing and internal processes of the billing activity.
Simply put, the greatest contributor to a positive and timely revenue cycle is the quick and accurate billing process. In our experience, best practice is to send out bills within the first 48 hours of the service. The enlarged costs from insurers have created an environment where first billing has greater success. In some cases, agencies are billing 30 to 90 days after the service is provided.
Late billing processes may be less successful as aggregate limits may have been exceeded, which would transition from insurer to self-pay. In addition to the timeliness of the internal billing processes, there is an inherent lag time for payment from the various payers that could also cause delayed payments. Therefore, if an agency was running an unsubsidized program, the revenue and expenditure cycles must be aligned.
Conversely, a subsidized, or partially subsidized program can assist in rounding out the rough edges of the revenue cycle. For example, in the vast majority of municipal budget processes, the annual expenditure budget is established with net zero “revenue.” In this manner, the entire year’s worth of revenue to support the approved expenditure budget is established at the beginning of the fiscal year. If there are changes in projections or the environment, then mid-year adjustments are made. Although uncomfortable for the agency, in all cases the adjusted expenditure value is fully funded. Therefore, the department is not dependent on revenue cycles to cover expenditures in a fully funded subsidy model.
When considering a partial subsidy, the special revenue structure may provide for a portion of the funded “revenue” and expenditure budget. The remainder of the necessary revenue is dependent on the revenue cycle of user fees. This hybrid approach affords the agency some insulation from the realities of difficulties in revenue cycles but still reinforces the need to manage the cycle well.
Finally, even with a timely billing process, inaccuracies in coding and documentation as well as incomplete patient care reporting can lead to denied claims or delays in captured revenue. Therefore, a superior quality assurance and quality improvement program must be in place with highly trained staff that understands the relationship between clinical care and appropriate revenue capacity.
Case Study: operating solely on user fees
A government owned ambulance service that operates solely on user fees yet still provides excellent service: how can this be?
The Lincoln (Nebraska) Fire & Rescue Department has operated its 911 ALS transport ambulance service since 2001, which may not seem particularly newsworthy; however, the interesting aspect is the LF&R has operated this service exclusively as an enterprise fund since its inception, meaning it has operated on user fees only with no taxpayer subsidy. This is somewhat of an anomaly for the region as the agency struggles each year to find comparable publicly owned providers that don’t receive taxpayer subsidies.
In the early stages of the program, LF&R also provided non-emergency/inter-facility transfer services through a partnership with a local private EMS provider. Due to the growing demand for 911 emergency transport services, LF&R eventually divested itself of the non-emergency transports to the private sector and concentrated its efforts and resources on its core mission. After 17 years, even in light of drastically reduced revenues for 911 emergency transport providers, the agency continues to operate a highly cost-effective service to the City of Lincoln and surrounding areas.
Today, LF&R operates seven front-line paramedic transport units 24-hours a day with the ability to field five additional units during times of high demand. Annual calls for service exceed 24,000, with 15,000 resulting in transports. Its annual operating expenditures for 2016/17 was $6,230,000, with $1 million in net revenue, though historical net revenue has been averaging closer to $300,000 per year.
The story behind LF&R’s success does not stop at its ability to operate solely on user fees for almost two decades. The real story is its high level of success in the area of cardiac survival. In 2013, the agency began to investigate the best practices used by other EMS systems in achieving much higher cardiac survival rates as compared to the national average. Over the past few years, LF&R has implemented many of these strategies with remarkable results.
For four years in a row, LF&R has been awarded by the American Heart Association’s – Mission: Lifeline program; one silver and three gold awards. LF&R participates in the Cardiac Arrest Registry to Enhance Survival with reported cardiac survival rates among some of the highest for metropolitan size agencies. The community has also been a huge supporter with over 15,000 PulsePoint users within a total population of approximately 300,000.
LF&R has a adopted the mission to keep exploring new ideas and techniques to provide measurable improvements in patient care, yet it also balances this pursuit of excellence with an eye on efficiency so that the community can be assured it is getting some of the best service but without being burdened with supporting this level of service through tax dollars.
About the author
Steven Knight, PhD, is a partner with the public safety/EMS consulting firm, Fitch & Associates. He serves as the fire service practice lead. You can contact him directly at firstname.lastname@example.org