Federal legislation aimed at eliminating surprise medical bills threatens the viability of the U.S. air ambulance industry, according to a report from Moody's Investors Service.
If adopted in its current form, the Lower Health Care Costs Act would be a significant credit negative for air ambulance operators, as the proposed legislation would allow private health insurance companies to reimburse air ambulance operators at rates below what they need to fund their services, according to the Moody's report.
WHY THIS MATTERS
The Lower Health Care Costs Act, if passed in its current form, would mandate the use of median in-network rates when reimbursing for emergency healthcare services provided on an out-of-network basis, but these medians could be lower than what air ambulance operators currently receive from private insurers for out-of-network services.
Air ambulance providers are heavily reliant on private insurance for their profitability, Moody's said. notes. While only about 28% of air ambulance transports carry people with private insurance, these trips generate the bulk of the industry's earnings.
Moody's estimates that air ambulance carriers collect on average $35,000-$40,000 per transport from private insurers, on gross invoices of about $55,000-$60,000 per transport. Compared to that, Moody's estimates that Medicare collections average about $5,000-$6,000 per transport; Medicaid $3,500-$4,000; and self-pay less than $500. These three rates are well below the average cost of transporting a patient by air ambulance.
About 80% of the air ambulance industry's operating costs are fixed.
Absent a complete system overhaul, any decrease in private payer rates without an equivalent increase in government payer rates would threaten the viability of the air ambulance industry, Moody's says.
THE LARGER TREND
Because of the unpredictable and emergency nature of the services they provide, air ambulance carriers, unlike other healthcare companies, typically do not benefit from higher patient volumes when becoming an in-network provider.
Moody's analysts estimate that around 60% of air ambulance transports provided to patients with private insurance still remain out-of-network, and as a result, calculating an appropriate median in-network rate for air ambulance carriers would be difficult, especially in certain geographic regions.
Of the two carriers Moody's rates, Air Methods Corporation is more exposed than Global Medical Response Inc., given its higher leverage and business mix. The company generates about 69% of its net revenue from air ambulance patient transports, against about 34% for Global Medical, which generates 66% of its earnings from its ground transportation business, which rating agency analysts believe is less exposed to legislative risk.
Congress has been working to end surprise medical bills, which occur when a patient, usually inadvertently or due to receiving emergency care, sees an out-of-network provider. Senator Lamar Alexander introduced the Lower Health Care Costs Act in late June.
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