Serving Northern St. Louis County, Minnesota

Analysis: Township’s concern over transfers justified

Data show transfers may lose money for TAAS

Marshall Helmberger
Posted 2/26/20

TOWER— The three ambulances maintained by the Tower Area Ambulance Service spend much more time on the road than they used to, and that’s raised questions with area townships who help pay …

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Analysis: Township’s concern over transfers justified

Data show transfers may lose money for TAAS

Posted

TOWER— The three ambulances maintained by the Tower Area Ambulance Service spend much more time on the road than they used to, and that’s raised questions with area townships who help pay for replacing those ambulances.
The switch by the Tower Area Ambulance Service from its paid-per-call staffing model to a 24-hour paid on-call service has nearly tripled the TAAS payroll since 2017 and the service has turned to non-emergency inter-hospital transfers as a means of generating additional revenue to help pay for it.
While those transfers generate substantially more revenue than standard emergency calls, they also come with substantial additional costs, for which TAAS Director Steve Altenburg has not always clearly accounted.
That’s been a sticking point with township officials in the TAAS service territory, who have been arguing for more than a year that they need a better accounting of how the increase in the number of non-emergency transfers is affecting the longevity of the service’s ambulances and TAAS’s profitability.
And they have been unwilling to agree to the city of Tower’s request, as recommended by Altenburg, to increase their contributions to the ambulance replacement fund until they have a better sense of the financial costs, and potential financial benefits, of the increase in transfers.
Based on the city’s records, TAAS ambulances drove 34,740 miles on non-emergency transfers in 2019, or an average of 11,580 miles per ambulance. That accounted for nearly two-thirds of the miles driven by TAAS ambulances last year, and that’s fueled the argument by area townships that the transfers are hastening the need for ambulance replacement. To account for that, township officials have argued that the TAAS should be transferring a portion of the proceeds from their transfers to the ambulance replacement fund. At this point, the townships and the city have yet to agree on how much money that might entail, although an earlier contract proposal by the TAAS, which was rejected by the townships, would have transferred $18.75 per transfer into the ambulance replacement account. That proposal would have added $2,475 to the replacement account in 2019.

Calculating the actual cost per mile
So how much do all those miles on the ambulances actually cost?
That’s the question the Timberjay sought to answer through a review of city ambulance expenditures and other data. While there are multiple ways to assess the cost of operations of an ambulance, the method we selected looked at TAAS expenses related to ambulance operations and divided those costs by the number of miles driven to determine a cost per mile.
When it comes to ambulance operations, the largest single expense, which has never been properly accounted-for by TAAS, is depreciation. For those not familiar with accounting, depreciation is the calculated cost, typically done annually, of the declining value of a major asset. Depreciation can be easy to overlook, because it doesn’t necessarily affect an operation’s cash flow from year-to-year, except when you need to replace the asset.
In the case of ambulances, which are now costing TAAS about $220,000 per unit, calculating straight depreciation is relatively straightforward. Assume you start with an ambulance worth $220,000. Eight years later, after driving it an average of just over 18,000 miles per year, what remains is an eight-year-old ambulance, with approximately 145,000 miles on it. At best, that asset is worth $10,000, leaving the total depreciation at $210,000. Divide that into the number of miles driven by the rig, and it comes to a depreciation cost of $1.46 per mile.
This depreciation estimate is actually substantially lower than other area ambulance officials have determined. An analysis by Jim Gray, who oversees the financial accounting for the Orr Area Ambulance Service, set the cost of depreciation for Orr’s ambulance much higher, at $2.86 per mile. Gray reached that estimate by assuming full depreciation at seven years and 70,000 miles.
While depreciation is one of the largest single costs of operating an ambulance, fuel, repairs and maintenance, and insurance also add to the total cost per mile. The Timberjay’s analysis took the cost of each type of expense, based on 2019 actual TAAS expenditures, and divided the cost by the number of total miles to determine the cost per mile. Based on that analysis (see chart), the basic cost to operate a TAAS ambulance is $2.08 per mile, not including staffing.
A typical emergency call might average 65 miles, or cost the TAAS $135 to operate its ambulance, based on the estimated cost per mile of $2.08. But the typical transfer averages about 315 miles, costing the TAAS more than $650 just for ambulance operation.

Staffing costs have jumped sharply
Determining staffing costs for each mile of operation can be done in several ways, but the most straightforward is dividing the total cost of ambulance staff by the number of miles. For the TAAS, the shift to a paid on-call staffing model has nearly tripled the ambulance staff costs for the service, from $54,100 in 2017, to nearly $158,000 in 2019. While those staff members are driving more miles and generating more revenue than at any time in the past, it’s also clear that those additional revenues have failed to keep pace with TAAS’s rising costs.
On a per-mile basis, the basic cost of TAAS ambulance staffing (this does not include administrative staff) comes to $2.87 per mile. Social Security and Medicare taxes add 22 cents per mile, while unemployment costs add another 18 cents, for a total of $3.27 per mile.
Combine that with the $2.08 cost of basic ambulance operation and it equals a cost per mile of $5.35.

Do transfers pay?
While transfers routinely provide substantially more revenue than emergency calls, for some small ambulance services, it isn’t clear that substantially ramping up staffing in anticipation of accepting more transfers requests actually generates a net financial benefit.
Gray’s detailed analysis for the Orr Area Ambulance Service suggested that many transfers, depending on the pick-up point and ultimate destination, would actually lose money for the OAAS once all costs, including depreciation, are added in. That’s why the department ultimately decided not to accept transfers from anywhere but the Cook Hospital, which helps subsidize the OAAS through its tax levy.
Gray is quick to point out that his analysis only applies to the OAAS and that the numbers might be more favorable in areas with a higher percentage of private-pay patients, whose insurance companies typically pay a higher rate for ambulance service than public programs like Medicare or Medicaid.
But his numbers also suggest that the expectation that transfers would allow the TAAS to cover the cost of its shift to paid on-call, were overly optimistic.
Using the per-mile basis for assessing costs, the average transfer would cost the TAAS $1,674 (313 miles x $5.35/mile) to accept, while generating an average payment of $1,468, according to city records. That suggests the TAAS is losing money, perhaps significant amounts, on some of its transfers.
It could be argued that TAAS’s staffing costs would exist whether or not it accepts a transfer, but that’s only true with paid on-call staffing. Prior to the shift to paid on-call, TAAS operated on a modified volunteer model, where staff were paid only when they responded to emergency calls— or accepted transfers, which are optional for ambulance services in Minnesota. That was a far more efficient staffing model, at least financially, and it helped keep TAAS operations in the black. Prior to the shift to paid on-call, TAAS regularly generated annual surpluses of $100,000-$115,000. That’s if annual ambulance replacement contributions from the townships (which are not operational revenues) are added to the revenue total. Since then, TAAS surpluses have all but disappeared.
An analysis produced by Breitung Supervisor Chuck Tekautz helps to clarify why transfers have failed to fill that financial gap. Tekautz, using 2018 data, compared the revenue generated per mile from non-emergency calls versus transfers. The 315 emergency runs that TAAS made in 2018 put 20,475 miles on TAAS ambulances and generated $191,883, according to Tekautz. That equals revenue of $9.37 per mile driven by a TAAS ambulance.
By contrast, while the average transfer generated a payment of $1,468, they required putting far more miles (313 miles on average versus 65 miles) on TAAS ambulances than emergency calls. Transfers generated $170,266 in revenue for the TAAS, which comes to just $4.69 per mile driven.
That’s actually below the estimated cost of $5.35 per mile to operate a TAAS ambulance, suggesting that, on average, transfers are not consistently generating profits for TAAS as director Altenburg has repeatedly claimed.
While Tekautz examined the issue from the perspective of revenue per mile, a similar conclusion is achieved when considering the costs of emergency runs versus transfers. If the average TAAS emergency run totaled 65 miles in 2018, it cost the service $347.75 (65 x $5.35 per mile). If the average emergency run generated $609 in revenue, it left a “profit” margin of $261.25 per call. By contrast, when assessed on a cost-per-mile basis, the $1,674 cost of the average transfer would appear to exceed the revenue generated from it by just over $200 per run.
To be fair, emergency responses do use the lion’s share of the TAAS medical supplies budget, and those costs do need to be added to the final tab. Based on 2019 city expenditure data, the TAAS spent approximately $27,300 on medical supplies and oxygen for its ambulances. Assuming that 100 percent of those supplies were utilized on 911 calls, it would add an average cost of $86 to an emergency run, which would lower the profitability of emergency calls from the earlier estimate of $261.25 per call to $174.25.
“He [Altenburg] says the money is in the transfers, but the numbers say otherwise,” said Tekautz. “You’re losing money in my opinion.”
Tekautz also shares the concern expressed by many other township officials that the shift to additional transfers is putting too many unnecessary miles on TAAS ambulances, hastening the need for replacement. “The basic bottom line is, if you just did emergency calls, you’d only be putting about 20,000 miles per year on your ambulances,” said Tekautz. “Now, with the transfers, we’re putting almost 60,000 miles a year on [the ambulance fleet]. That means rather than a six-year replacement turnaround on ambulances, you’re down to just two years.”
And at more than $200,000 to replace an ambulance, that’s an expense that the TAAS is currently struggling to meet.

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