High Performance EMS Financial Analysis

1. High Performance EMSFinancial Analysis Jonathan D. Washko, BS-EMSA, NREMT-P Director of Strategic Development – REMSA President – Washko & Associates, LLC

2. Session Overview • Defining and Calculating Schedule Costs • Defining Direct & Indirect Costs • Calculating the Types of Costs per Unit Hour • Calculating the Costs of Accurate Coverage

3. A Short Poem…A dollar spent (or wasted) here, Cannot be spent (or wasted) there.

4. HPEMS Financial Analysis • So why are we discussing this in an SSM class? • The changing of shift schedules and deployment plans have a direct economic impact on your system (either good or bad) • Mistakes made in not recognizing the financial impacts of these changes can have DIRE consequences (CLM / CEM Concept) • Hopefully we can show you the pitfalls and mistakes made by others in order to keepyou from making a CEM!

5. Schedule Costing Where men are men and the CEM’s & CLM’s run free

6. Schedule Costing • Flexible schedules and work weeks are necessary in order to efficiently and effectively match supply with demand • Schedule costing allows you to determine how much each type of schedule costs and its impact on your budget • Helpful knowledge when designing schedules to meet demand to ensure the most efficient schedule possible • Two Types of Schedule Costing Models • Non-adjusting (traditional approach) • Adjusting (controversial approach)

7. Schedule Costing WARNING – WARNING – WARNING – WARNING This CANNOT be emphasized enough If these calculations get screwed up… it’s gonnaHURT! BAD!!!

8. Defining Schedule Costs Non-adjusting compensation model (Traditional approach) • Base hourly field wages remain the same no matter the length of the work week • Scheduled overtime costs / compensation rise and fall based on hours worked • Creates disparate annual compensation between providers based on length of scheduled work weeks • Creates an inappropriate inverse pay to workload relationship • This approach, if you are not careful, will bite you in the A$$, especially if you use quite a bit of scheduled overtime in your schedules

9. Non-adjusting Compensation Model Wage Conversions Made Simple • Employee working 40 hours a week base (5x8) • Paramedic Hourly Wage = $16.83 Using the “count up” method ((40 + 0 + 0) x 52) x $16.83 = $35,000 ((ST + OT + ½ OT) x 52) x BW = TC

10. Non-adjusting Compensation Model Wage Conversions Made Simple • Employee working 45 hours a week base (5x9) • Paramedic Hourly Wage = $16.83 Using the “count up” method ((40 + 5 + 2.5) x 52) x $16.83 = $41,570.10 ((ST + OT + ½ OT) x 52) x BW = TC

11. Non-adjusting Compensation Model Wage Conversions Made Simple • Employee working 48 hours a week base (4x12) • Paramedic Hourly Wage = $16.83 Using the “count up” method ((40 + 8 + 4) x 52) x $16.83 = $45,508.32 ((ST + OT + ½ OT) x 52) x BW = TC

12. Defining Schedule Costs Adjusting Compensation Model (a.k.a. Straight Time Equivalent Model – Controversial approach) • Base hourly field wages adjust based on the length of the scheduled work week and shift length • Scheduled overtime costs / compensation are built into the employee’s annual compensation • Equalizes annual compensation between providers based on length of scheduled work weeks • Creates an appropriate pay to workload relationship (which is what makes this legal in the US) • Gives you maximum flexibility to produce Unit Hours and shift configurations that are affordable • This approach is what gave SSM a bad reputation as a means by which to save money for obvious reasons

13. Defining Schedule Costs Adjusting Compensation Model (a.k.a. Straight Time Equivalent Model – Controversial approach)…continued… • Employee’s hourly wage adjusted based on the length of the shift worked in OT situations • PT / PRN wages also adjust based on the length of the shift worked • Causes your payroll folks to get a bit excited. Need to ensure payroll systems can handle various rates by provider if using this method • Is not an easy approach to sell (hence the “where men are men” statement), but can economically turn the tides for many systems (reduction or elimination of subsidy, improvement of profits, improved employee compensation, better equipment, etc.)

14. Adjusting Compensation Model Hourly Wage STE Conversions Made Simple • Employee working 40 hours a week base (5x8) • Paramedic Base Annual Wage = $35,000 Using the “count up” method $35,000 ÷ ((40 + 0 + 0 ) x 52) = $16.83 / Hour ((40 + 0 + 0) x 52) x $16.83 = $35,000 TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

15. Adjusting Compensation Model Hourly Wage STE Conversions Made Simple • Employee working 45 hours a week base (5x9) • Paramedic Base Annual Wage = $35,000 Using the “count up” method $35,000 ÷ ((40 + 5 + 2.5 ) x 52) = $14.17 / Hour ((40 + 5 + 2.5) x 52) x $14.17 = $35,000 TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

16. Adjusting Compensation Model Hourly Wage STE Conversions Made Simple • Employee working 48 hours a week base (4x12) • Paramedic Base Annual Wage = $35,000 Using the “count up” method $35,000 ÷ ((40 + 8 + 4 ) x 52) = $12.94 / Hour ((40 + 8 + 4) x 52) x $12.94 = $35,000 TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

17. Adjusting vs Non-adjusting Compensation ModelImpact Comparison Can you see why this gave SSM such a bad reputation?

18. Defining Direct & Indirect Financial Models and the Cost per Unit Hour

19. Defining Direct & Indirect Costs • HPEMS Financial Overview • Most HPEMS systems cost budget and/or pro forma new business using the Direct and Indirect method • This approach provides a framework to easily build financial models that can be automatically adjusted by changing transports, unit hours and UHU projections • This enables the capabilities of “what if” scenario modeling for system changes based on changing assumptions and performance variables

20. Defining Direct & Indirect Costs • Direct Costs (Above the line) • Those costs involved directly in the production of unit hours • Typically variable in nature based on hours worked, miles driven, number of ambulances equipped, per call fees (like contracted dispatch or billing services), etc. • Strongly effected by Unit Hour Utilization and system efficiency • What is being priced and for what purpose will effect what expenses go into what category • Selling services vs budgeting for services

21. Defining Direct & Indirect Costs • Examples of Direct Costs • Field Wages • Field Payroll Taxes • Field Benefit Costs • Field Uniforms • Field Training • Ambulance Depreciation • Medical Equipment Depreciation • Medical Supplies • And so on…

22. Defining Direct & Indirect Costs • Indirect Costs (Below the line) • Overhead costs • Typically fixed costs that do not vary with the addition or subtraction of unit hours • Seldom effected by Unit Hour Utilization but may be effected by department efficiency • What is being priced and for what purpose will effect what expenses go into what category • Selling services vs budgeting for services

23. Defining Direct & Indirect Costs • Examples of Indirect Costs • Management Overhead / Allocations • Facilities Costs • Support Services Overhead • General Expenses • Legal Expenses • Utilities • Communications Costs • Fixed Asset Deprecation • And so on…

24. Defining Marginal & Fully Loaded Costs per Unit Hour • Marginal Costs Per Unit Hour • All the costs associated with producing one more unit hour • These costs are typically variable in nature • The calculation of this number enables organizations to assess the effects of taking on new business on a marginal basis (increasing transport volumes) • It also allows for the costing of system inefficiency and the cost of Lost Unit Hours • Assumes that overhead and support services do not expand or contract when business volumes change (+/-) • Calculated by taking total Direct variable costs divided by the total number of Unit Hours

25. Defining Marginal & Fully Loaded Costs per Unit Hour Marginal Cost Per Unit Hour

26. Defining Marginal & Fully Loaded Costs per Unit Hour • Fully Loaded Costs Per Unit Hour • All the costs associated with running an EMS agency on a per Unit Hour basis • The calculation of this number allows for benchmarking and comparisons against other services, bidders, system designs and budgetary variance reporting • Calculated by taking the total Direct variable and Indirect Fixed costs and dividing by the total number of Unit Hours

27. Defining Marginal & Fully Loaded Costs per Unit Hour Fully Loaded Cost Per Unit Hour

28. Cost per Unit Hour Facts • Average cost / unit hour divided by UHU = cost per patient transport • Cost per patient transport divided by collection rate = average user fee at zero subsidy • The industry range of average cost per unit hour is $25 to $80 (1988) • Marginal cost/unit hour ranges from about 40% to 60% of average UH costs • Direct street labor costs (non-management) make up more than 50% of total average unit-hour costs • Unit Hour costs are powerfully affected by economies of scale • Unit-Hour cost is a poor predictor of clinical quality • Unit-Hour cost is a poor predictor of cost per patient transport • Unit-Hour cost is a poor predictor of subsidy requirements • Far less money is wasted in the production of unit hours than is wasted from squandered unit hours

29. Calculating the Costs of Accurate Coverage A Real World Example…. The cost savings of an all ALS model versus tiered ALS & BLS model The effect of using Adjusted versus Non-adjusted Schedule Costing

30. Costing Coverage • Client of Washko & Associates looking to convert from a tiered ALS / BLS model to an all ALS model • Wanted to assess the impact of this conversion to determine the savings (if any) • Also wanted to look at the impact of moving to a 48 hour work week from a 40 hour work week • Wanted to assess the impact of both the non-adjusted and the adjusted schedule costing approach and their impacts to the bottom line.

31. The Impacts of Shift Configuration Changes WITHOUT STE Adjustments and a Comparison of ALS versus Tiered Model Savings

32. The Impacts of Shift Configuration Changes WITH STE Adjustments and a Comparison of ALS versus Tiered Model Savings

33. Questions & Contact Information REMSA Phone: 775-858-5700 x140 Email: jwashko@remsa-cf.com Web: www.REMSA-CF.com Washko & Associates, LLC High Performance EMS Consulting Services Phone: 775-240-6125 Email: jw@washkoassoc.com Web: www.WashkoAssoc.com