Serving Northern St. Louis County, Minnesota

Tower’s ambulance service saw margins fall sharply

Shift to paid on-call the biggest factor behind the rising costs for service

Marshall Helmberger
Posted 4/18/19

TOWER—The operational costs for the city of Tower’s ambulance service jumped sharply last year as a result of the department’s shift to paid on-call staffing, nearly eliminating the service’s …

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Tower’s ambulance service saw margins fall sharply

Shift to paid on-call the biggest factor behind the rising costs for service

Posted

TOWER—The operational costs for the city of Tower’s ambulance service jumped sharply last year as a result of the department’s shift to paid on-call staffing, nearly eliminating the service’s profitability in 2018.

Revenues also increased, as the new staffing model allowed the service to handle more inter-hospital patient transfers. But the increase in revenue fell short of projections, while operational costs proved to be higher than expected.

Those conclusions come from the just-completed city financial audit, presented to the Tower City Council on April 8, and largely confirm concerns raised by the Timberjay, which examined the financial implications of the shift to paid on-call in a series of stories early last year.

According to the latest city audit, the ambulance service spent $449,389 in 2018. That’s close to double the $240,000 that the service spent in 2017. Some equipment purchases, including a new cardiac resuscitation device and a new equipment trailer, at a combined cost of $44,000, contributed to the higher costs this year. But the shift to paid on-call was the largest factor behind the sharp increase in expenses, contributing over $100,000 in additional costs for the ambulance service, according to the audit report.

The higher costs and less-than-hoped-for revenue gains took a large bite out of the service’s usual profit margin. In recent years, the service had averaged approximately $105,000 in net profits from the service, which had operated on a paid volunteer model up until April of last year.

This year, with just nine months of paid on-call staffing, the department netted just over $4,000.

Paid on-call staffing costs added $89,000 in wages and payroll taxes, according to the auditors. Rent and utility costs for the staff quarters were not detailed by the auditors, but Ambulance Director Steve Altenburg had estimated the annual cost of housing at $9,000, so the nine-month cost was likely in excess of $5,000. Altenburg had also estimated additional travel costs at $15,000 a year, although the audit doesn’t provide that level of detail. The auditors did report that operational supplies for the department jumped by $5,000, which would be expected given the increased number of patient transfers.

Altenburg had predicted that the department could pay for the higher costs through an increase in inter-hospital transfers, but the service fell short of those predictions. Altenburg had set a goal of three transfers per week, or 150 on an annual basis, to cover the costs of paid on-call staffing, but the service handled only 94 transfers during the nine months of operation of the paid on-call staffing, or an average of 2.4 runs per week.

The average number of transfers dipped significantly in the final two months of the year as other area ambulance services also boosted their transfer numbers. Many other ambulance services, such as Ely, Cook, and Virginia, have hospitals within their service territory, which gives them right of first refusal for inter-hospital transfers. Tower handles transfers only in cases when other services are unable or unwilling to respond.

Ambulance services typically generate more revenue from a patient transfer than from a typical 911 emergency call, which has sparked some competition between area services for the transfer business.

Through March 31 of this year, the Tower ambulance responded to just 25 transfers, or an average of just under two per week. That number, however, does typically increase in the warmer months.

Altenburg had predicted that an increase in transfers would help the service substantially increase its revenue. An estimate he provided to the Timberjay last year projected revenue increases of $218,000 on an annualized basis. The department’s revenues were higher in 2018, but only by $110,000, or roughly half of what Altenburg had projected.

Meanwhile, the department received 361 emergency calls, which shows the department’s emergency call volume has remained relatively stable over the past five years, averaging 342 since 2013.

At the April 8 council meeting, Altenburg tried to put the best face on the disappointing numbers. “We made a lot of money this year, I just spent it all, correct?,” he asked of the auditors. While Altenburg tried to suggest that equipment purchases and higher maintenance costs were responsible for the poor earnings, the shift to paid on-call was, by far, the service’s largest single contributor to the sharp increase in expenditures.

And the paid on-call costs last year reflected just nine months of operation, since the new staffing took effect in April. Assuming the service continues its paid on-call staffing through 2019, the service is unlikely to see much reduction in its operational costs even without higher-than-average equipment purchases.

Newspaper estimates consistent with results

The ambulance service’s 2018 financial results were consistent with concerns raised by the Timberjay a little over a year ago, before the city implemented the paid on-call staffing. In a March 2018 investigative report, the Timberjay estimated that the shift to paid on-call would diminish the ambulance service’s profitability by about 60-65 percent, and the latest results suggest that estimate was very close to reality, despite attacks on the newspaper by Altenburg and council member Kevin Fitton, who both accused the newspaper of inaccurate reporting.

While still profitable, the Timberjay noted that the service’s diminished profitability could make it much harder for the service to cover the cost of ambulance purchases. Area townships do pay an annual per-capita subsidy to help cover the cost of ambulance purchases, but in an interview with the Timberjay last March, Altenburg acknowledged that those subsidies don’t provide for the full cost of vehicle replacement. Altenburg has since tried to convince area townships to accept a doubling of that subsidy, phased-in over three years, but has had mixed success with that effort.

The service ordered a new ambulance and associated equipment in December, at a total cost of $250,000, but those costs don’t appear in the 2018 audit. Those expenditures, combined with the continuation of paid on-call staffing, should push the service’s budget deeply into the red in 2019, likely in excess of $200,000.

Further adding to the concern is the fact that the service will likely need to replace two additional ambulances by 2023, assuming the service continues with its current operational model. A cash flow analysis by the Timberjay suggests that could result in a more than $500,000 cumulative budget deficit over the next five years.

That would almost certainly affect the city of Tower’s finances. For the past several years, surpluses in the ambulance fund have helped the city to cover cash deficits in other parts of its budget. Yet without a significant change in its operations, the city’s ambulance service is likely to become a significant drag on the city’s finances for at least the next five years, making it more difficult for the city to recover from its current cash crunch.

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Lee Peterson

The pilots here should have taken some flying lessons before they loaded Tower and Township folks onto a plane for a fantasy flight that is now in the middle of a crash landing.

Saturday, April 20