Chief Jeff Johnson’s editorial on the financial crisis facing the fire service and public sectors today could not be more accurate. Though most of us have not dealt with a health pandemic of this magnitude or a near complete shutdown of our economy in our lifetime, we have dealt with financial crisis before. Does 2008-2011 ring a bell?
As a fire chief of a metropolitan fire district in California during that time, almost overnight we lost 25% of our tax revenue due to the collapse of the real estate market. A majority of fire agencies operate on three basic revenue sources - property taxes, EMS revenues, and fire prevention fees. (There are a few agencies that also collect an EMS tax.)
As Chief Johnson suggested, it was then, and is today, a time for bold decisions rather than analysis paralysis.
So where does a Fire Chief start?
As you rush to develop a long-term plan, start with the low-hanging fruit. With a few exceptions, most fire agencies (especially Districts) operate on property taxes, and in cities, sales tax and transient occupancy taxes, as well as a host of other fees. Historically, these taxes and fees are for the provision of fire suppression, mitigation, and prevention of hostile fires. When they were originally developed, no one considered emergency medical service (EMS) delivery as a fire department function. It wasn’t until the 1970s that the provision of EMS by fire departments was contemplated and implemented.
The delivery of pre-hospital EMS by fire departments was just considered an added value and little or no additional funding was provided for the delivery of these services. In some rare cases a subscription fee and/or EMS tax was passed, but most agencies were resistant to charge for these services, either through a tax or a fee system, primarily because the elected officials construed this as an impact to the taxpayer.
As Fire Chiefs, we sit here today knowing much more about health care financing and the delivery of pre-hospital EMS than we did over the last several decades. This leads me to your first piece of low-hanging fruit: First Responder Fees and commercial insurance. Since EMS is a value add in most cases with no additional funding provided, there is room to grow here and not on the backs of the tax payers, but rather through the commercial health insurance that your citizens or their employers pay for.
No matter what state you’re in, there are four payer mixes in health care financing: 1 - commercial insurance, 2 – Medicare, 3 – Medicaid, and 4 - private pay (uninsured). The one payer mix of the four that will pay for a first responder fee is commercial insurance (and to a much less degree, private pay).
What is a first responder fee? It is a fee charged for the first response of your engine, truck company, and/or squad to an emergency medical call and providing BLS or ALS care. You may say, “We already get tax dollars for our department to respond.” Yes, you do, but as stated above, the tax dollars you receive are for fire-related responses. Taxes historically and legally pay for services that the entire population enjoys. In other words, if your neighbor’s house catches on fire and the fire department doesn’t come, it is likely your house will catch on fire; therefore, the fire response is a universal benefit and covered by your taxes. If, however, your neighbor has a heart attack at three in the morning, the likelihood of you catching that heart attack is zero. The difference is the patient who is having a medical issue – the fire department’s response is specific to the patient’s needs and not the public in general. This is similar to a fee for a fire prevention plan review – the service benefits the individual or company, but not the taxpayer.
In today’s all-risk fire departments, EMS is between 70 and 90% of what we do and it is a special benefit to the individual who needs that response. It was never contemplated in the general tax structure.
How do you develop a First Responder Fee?
First things first, check your state laws to ensure there is nothing that prevents you from instituting a cost recovery mechanism, such as a First Responder Fee. (And if you are one of the few agencies that collect an EMS tax, be sure to check into the legalities of implementing an additional fee and ensure there are no conflicts or political implications in doing so.)
Next, determine your total cost of providing the service as it relates to the delivery of EMS and subtract any other costs such as fire suppression. A detailed analysis must be conducted to hold up to legal and taxpayer scrutiny. Once you know your costs, then you spread this over the number of EMS responses, which gives you a maximum validated fee you can charge. It is important to note here that you do not have to charge the max!
You’ll also need to determine your payer mix, which I referred to above, and calculate your revenue from that payer mix. Remember - commercial insurance is the only consistent payer. Medicare and Medicaid don’t pay, and very few private pay either.
We have seen fees between $100 and $400 per call. Let’s take $300 as a reasonable fee. If you run 1,000 EMS calls a year and your commercial insurance payer mix is 25%, then take $300 (the fee) multiplied by 250 calls (the number of calls that are commercial insurance), which equals $75,000. You can reasonably expect about 80% to 90% of that from commercial insurance. Of course, you will need to deduct billing and collection costs, which are typically between 3 and 5%.
Your elected officials will ask about those who can’t afford it. Though everyone has to be billed, you are not required to collect from all who are billed. I would suggest a compassionate collection policy that addresses those who cannot afford to pay by either waiving the fee or working out a minimal payment plan.
Another question you will be asked is if this will cause insurance rates to go up. The answer is no. These fees have always been baked into the commercial insurance market. In reality, if you do not charge for your services, you are supplementing the commercial insurance industry. Who wants to do that?
If your elected officials are still not satisfied, ask them how many times over the last 20 years has their employer health insurance company offered to cut their annual premiums. Most likely, the answer is “never” and in fact, the premiums tend to go up by double digits every year! Why wouldn’t we charge the carriers for the services that we provide and that the insured has already paid for?
Your biggest pushback may come from your rank and file who are concerned about the reactions they’ll receive from the public they interact with. A solid training session and a laminated cheat sheet with common questions they may encounter, along with answers they can provide, will be helpful and ease their concerns.
In my previous life as a Fire Chief, our agency ran around 60,000 EMS calls a year and billed a first responder fee we had developed and implemented. In the first four years of implementation, we had only two people come to a board meeting to protest. After addressing their concerns, one of them came back and publicly complimented our agency’s handling of her concerns.
First responder fees are not the end all and are certainly not meant to replace the invaluable long-range planning element, but they are a good first step to generate additional revenue and provide some relief to your financial and budget problems.
Kurt Henke
Principal/Managing Partner
AP Triton LLC
khenke@aptriton.com
707-266-4309