At the moment, Congress is considering the Lower Health Care Cost Act, proposed by the Senate HELP Committee. It is an important step toward protecting patients from excessive air ambulance charges.
The draft bill would cap out-of-network rates to the local median negotiated in-network rate for the same insurer, thereby protecting patients with little negotiating power in emergency situations while still preserving the autonomy of air ambulance providers.
Air ambulances play a critical role in emergent medical transportation. They go above urban traffic, road conditions and challenging terrain to treat the sick and injured.
Helicopter ambulances can fly 120 miles; jet-powered ambulances travel at up to 550 miles per hour.
When it comes to billing patients, however, air ambulances prices are sky-high. Our study, published in the July Health Affairs, found that in Colorado patients can expect to receive an average bill of around $44,000 for an air ambulance transport.
In contrast, the Medicare program, which pays based on the cost of delivering the service, pays around $6,800 per trip, making Colorado the second highest charged state in the West.
Why are air ambulance charges so high? The simple answer is they can. When patients can compare prices and check the provider’s network status before receiving services, the charges are moderate compared to the Medicare rates.
However, for medical specialties where patients generally cannot chose the physician, let alone check the physician’s network status, the charges are much higher than what Medicare pays. This pattern holds for air ambulances.
When patients cannot check a providers’ network status or compare prices in advance, a market failure occurs — high charges don’t affect the provider’s demand, which motivates even higher charges. Staying out-of-network becomes the optimal profit maximization model.
This is exactly what most air ambulance providers are practicing. A recent GAO report found that 69% of air ambulance transports of privately insured patients were out-of-network. It’s no surprise this lucrative industry has attracted substantial funds from private equity investors.
A lucrative industry for investors brings financial nightmares for patients, who are often shocked by the surprise air ambulance bills.
Out-of-network patients often pay the full charge or a small discount off the charge. The air ambulance industry has argued that they have to charge high to stay afloat due to the low reimbursement from Medicare and Medicaid.
However, it is unclear why a single trip should cost average privately insured patient two-thirds of their annual household income.
For air ambulances, no federal law currently addresses the market failure caused by patients’ lack of options. It is challenging for states to tackle this issue because of the restriction by the Airline Deregulation Act of 1978.
On the sea, ironically, the law of salvage has long recognized the plight of a vessel owner facing marine perils. If the salvor, who has rescued the vessel in risk, demands excessive financial reward after the rescue, then the court will assess that the salvor acted in “bad faith” and thus not enforce the demand.
The same principle should apply to air ambulance transports.
When a patient is unable to say no to a health care provider and walk away, a market failure is bound to occur, which is typified by air ambulance trips with sky-high charges.
Congress can act to bring reasonable pricing to the air ambulance market.
Ge Bai, an associate professor of accounting at Johns Hopkins Carey Business School, and Gerard Anderson, a professor of medicine at the Johns Hopkins School of Medicine, are among the authors of the study titled “Air Ambulance with Sky-High Charges,” published by Health Affairs on July 1, 2019.