Should Competing Hospitals Have Competing Emergency Helicopter Programs? by Joe Tye

Since 1972, more than 40 hospital-based emergency air medical service programs have been established in this country, and many other hospitals are now in various stages of planning or implementing programs. Approximately 70,000 patients have received emergency care and transportation through these services and many lives have unquestionably been saved. Several studies have demonstrated that properly staffed, dedicated helicopters operating under careful medical direction can improve clinical outcome in emergency situations.

Hospitals may have several motives for establishing an emergency helicopter service. In addition to improving the quality of emergency medical services within their region, they may perceive other institutional benefits, including:

1. Enhanced hospital image 2. Revitalization of overall

hospital marketing effort 3. Increased referrals of

patients who require critical care 4. Increased admission of non-

emergent patients who want to go to "the hospital where the helicopter is."

Within a region, however, there is a finite limit to the availability of these benefits, in large part because there is a limited number of emergency patients requiring this level of care and transport. The addition of a competing helicopter service to a region which is already served by a program will not result in accrual of a comparable level of benefits to the second hospital, and may in fact reduce the aggregate benefits realized within the community.

I do not believe it is in the best interest of any community for competing hospitals to establish competing emergency helicopters for several reasons. First, these services are characterized by a very high ratio of fixed to variable costs, making cost per patient

transported highly dependent upon volume. High cost per patient will be particularly detrimental if hospitals are forced to make individual cost centers self- supporting. Second, there is a strong relationship between frequency of practice and the proficiency with which flight nurses perform clinical skills. Third, hospital-based helicopter services generally will transfer patients to any appropriate facility other than the sponsoring hospital(s), based upon the referring physician or agency's judgement. Fourth, alternate organizational structures are available to facilitate service sharing in lieu of competition. Most important, a rapid proliferation of unnecessary and duplicative emergency helicopter services, with the high visibility they generate, could seriously damage hospitals' credibility in their efforts to voluntarily control the rate of increase in hospital costs. Each of these points will be elaborated upon below.

Fixed Costs vs Volume

In late 1980, the American Society of Hospital-Based Emergency Air Medical Services (ASHBEAMS) conducted a survey of its membership in order to develop a financial profile of these

operations. Fourteen hospitals operating 17 helicopters responded to the survey. As shown in Table I, the operating cost per patient transported by these 14 services varies inversely with volume, because of the high proportion of fixed cost. In some relatively rural areas, high cost per patient is unavoidable, and should not prohibit otherwise appropriate services. Development of competing helicopter programs within a region, however, will result in reduced volume for each program, thereby increasing cost per patient.

As competition inflates each

"Development of compet ing hel icopter programs within a region wiII result in reduced volume for each program, thereby increasing cos t per patient."

hospital's cost per patient transported, they will be under increased pressure to keep their aircraft flying through intensified marketing efforts, and possible relaxation of patient transport standards. These actions may lead insurors to accuse them of

TABLE 1

Average Operating Cost Per Patient Transported At Hospitals With Service Volume Above And Below 500 Annual Transports

(Fiscal Year 1980)

Programs with more than 500 patients transported

Average Patients Transported Per Average Cost Helicopter Per Patient

678 $987

Programs with fewer than 500 patients tfansported 379 $1,587

4 HOSPITAL AVIATION, JULY 1982

generating inappropriate utilization, resulting in all hospitals- that operate helicopters being subjected to more stringent documentation requirements. Hospitals must recognize, as third party payors will be quick to do, that high fixed cost inhibits genuine price competition among competing helicopter services, since the full amount of any resulting deficit will ultimately result in a higher inpatient charge structure.

Changes in Reimburse- ment Will Jeopardize In- patient Revenue Subsidies

Hospitals which are contemplating initiation of rival helicopter programs may argue that each service can be stir-supporting with revenues generated by additional patients admitted as a result of the transport program. It is likely, however, that changes in the health care financing system will require an end to the practice of subsidizing helicopter operation through inpatient revenue-- regardless of whether that revenue is "incremental" money which is generated by "new" patients who came to the base hospital as a result of the helicopter.

Further evolution of health maintenance organizations and other alternative delivery systems, which encourage price competition among hospitals, will make the inpatient subsidy financing mechanism less tenable in areas where these systems have extensive market penetration. In addition, some states are considering bidding Medicaid services to hospitals, with the low bid becoming the maximum allowable payment for all hospitals. A similar prospective hospital reimbursement system has been proposed for the federal Medicare program. To the extent that a hospital's inpatient rate structure must be used to subsidize a deficit-producing helicopter service, it will be less able to bid competitively for provision of inpatient medical services.

If cost-based reimbursement (which has permitted payment through hospital charges for important services which cannot support themselves, such as emergency helicopter transportation) is eliminated, and

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hospitals are either forced to bid for patient populations based primarily on price, or are subject to limits on their charges through prospective rate approval, many hospitals will have little choice but to price emergency helicopter services at a level sufficient to cover costs. In areas where competing helicopter services have driven up both total costs and cost per patient, the required charge levels to accomplish this could be significantly higher than they will be in areas served by a single program. These regional discrepancies will immediately draw the attention of third party insurors. If insurors attempt to reduce payments for emergency helicopter services, either by adopting more stringent medical necessity criteria or by capping payment rates, hospitals in regions with competing helicopter services may find that they are unable to finance both programs, forcing program termination or consolidation.

Quality is Highly Depen- dent Upon Volume

Anyone who has ever participated in athletics or played a musical instrument appreciates that there is no substitute for practice, practice, practice. The administrators, medical directors, and flight nurses of existing emergency helicopter services likewise recognize that a certain minimum number of flights is essential to maintain the clinical skills of flight crews. This is reflected in the ASHBEAMS Recommended Minimum Quality Standards as follows:

Hospital-based emergency air medical services should have a minimum service volume which is adequate to maintain quality. Because of the direct effect of service v o l u m e on c o s t - e f f e c t - iveness and quality, hospitals in a region which are considering establishment of a program should to the maximum extent possible work together to develop a cooperative venture rather than develop separate and c o m p e t i n g p r o g r a m s .

A number of important clinical studies have identified a strong relationship between frequency of practice and quality of outcome. Luft demonstrated that hospitals which perform a lesser volume of selected major surgical procedures experience relatively high mortality rates. Farber demonstrated an inverse relationship between volume of surgical procedures in a hospital and infection rates. Roggeveen showed that insufficient practice in advanced cardiac life support results in rapid decay of psychomotor skills. The same correlation between frequency of practice and proficiency certainly exists for flight nurses, who must perform their skills quickly and expertly in emergency situations. If the limited number of genuine emergencies within a region must be shared by more than one service, there is a significant danger the quality of care provided by each program will diminish as a result.

Competing Programs Are Not Necessary

Although an emergency helicopter may be based at a single hospital for logistic and quality assurance reasons, it should be available to transport patients to all appropriate hospitals (those with a safe landing site and the clinical resources necessary to provide the level of care required by the patient) within the region.

"Hospitals that operate helicopters but refuse to transport patients to other hospitals risk encouraging these facilities to initiate competing helicopters."

It should be the responsibility of the hospital operating a helicopter to make all necessary arrangements with other hospitals in the region so that they may receive emergency referrals via this mode of transportation. Hospitals that operate helicopters but refuse to transport patients to other hospitals risk encouraging these

facilities to initiate competing helicopters.

Results of the ASHBEAMS financial profile demonstrate that most hospital- based emergency helicopter services do indeed serve more than just the base hospital. Of the patients transported by the 14 responding hospitals during 1980, an average of only 58% were transported to the sponsoring hospital(s), with the remainder going to other facilities. When each hospital within a region is served by an existing service, institutional rivalries should not be allowed to create unneeded additional services.

Alternative Organizational Arrangements are Available

In communities where the competitive environment is such that a helicopter program sponsored by a single hospital is not possible, there are organizational alternatives by which emergency helicopter services may be provided without eliciting a costly helicopter "arms race". One such structure is a shared service between two or more hospitals, where the sponsoring hospitals share proportionately in operational responsibility and financing of the program.

Another potential structure is establishment of an independent corporation to administer the service. Corporate policy would be developed by a board of directors consisting of administrative and medical representatives from each sponsoring hospital. The service would be financially supported by the hospitals until it was able to fully cover costs through transport charges to patients.

Multiple Helicopters and Competing Programs

In certain large population centers, the number of emergency patients requiring helicopter transport may indicate the need for more than one helicopter. The argument might be made that, under such circumstances, it would be appropriate for competing

6 HOSPITAL AVIATION, JULY 1982

programs to be developed in order to satisfy this need. In these situations, however, it is more appropriate to station additional aircraft at the established program. There are significant cost elements associated with operation of a helicopter service that need not be duplicated when adding an aircraft to an existing program. For example, the dispatch center, with its sophisticated communications equipment and round-the-clock staffing, can handle multiple aircraft as well as one with no additional cost.

An emergency helicopter service requires a significant time commitment on the part of the medical director, clinical staff, and hospital administration, which represents a real cost to the sponsoring hospital(s). Stationing of an additional aircraft at an existing program would entail significantly less additional commitment--and cost--than initiation of a totally new program.

Competing Helicopter Ser- vices are Detrimental to the Control of Health Care Costs

Although emergency helicopter services constitute an exceedingly small percentage of the nation's total hospital bill, they are by far the most visible service a hospital can operate. Many in government, business, and the general public already consider hospitals to be "obese" and inefficient. At this time of a constrained national economy and intense scrutiny of hospital costs, nothing could be more damaging to hospitals than a proliferation of unnecessary and duplicative emergency helicopter services. The impact of this damage would be felt by all hospitals, not just those operating helicopter services.

As a result of the great national attention which has been given to health care cost inflation, the public is becoming much more critical of hospitals for their failure to voluntarily control costs. In addition, the federal government is considering a wide range of program budget cuts and regulatory controls, and many businesses are aggressively working

"At this t ime of a constrained national economy and intense scrutiny of hospital costs, nothing could be more damaging to hospitals than a proliferation of unnecessary and duplicative emergency helicopter services."

to establish mechanisms to reduce the amount they spend on health care benefits for their employees. In this climate, hospitals should be very careful about initiating duplicative, competing emergency helicopter services, the most likely effect of which will be to increase cost and reduce quality.

FOOTNOTES

1. Harold S. Luft, et al "Should Operations Be Regionalized?"

New England Journal of Medicine August 27, 1981. 2. Bruce F. Farber, et al "Relationship Between Surgical

Volume and Incidence of Postoperative Wound Infection"

New England Journal of Medicine July 23, 1981. 3. Gayle Roggeveen, et al Paper presented at 53rd Scientific

Session of the American Heart Association, November 17, 1980.

JOE TYE is Assistant Director for Planning at the University of Iowa Hospitals and Clinics in Iowa City. He was one of the founders and is President of ASHBEAMS (American Society of Hospital-Based Emergency Air Medical Services). He graduated with honors from Lake Forest College in 1973, then went on to earn a Master's Degree in Hospital and Health Administration from the University of Iowa in 1976. Since that time, he has served in Emergency Medical Services and Planning functions for the University of Iowa Hospital. Mr. Tye initiated the Air Care helicopter service at the hospital in 1979, and has had several papers published concerning emergency medical services.

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