High Performance EMS Financial Analysis

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High Performance EMSFinancial Analysis

• Jonathan D. Washko, BS-EMSA, NREMT-P
• Director of Strategic Development REMSA
• President Washko Associates, LLC

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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

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A Short PoemA dollar spent (or wasted) here,
Cannot be spent (or wasted) there.
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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 keep you from
  making a CEM!

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Schedule Costing
Where men are men and the CEMs CLMs run free
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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)

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Schedule Costing
WARNING WARNING WARNING WARNING
This CANNOT be emphasized enough If these
calculations get screwed up its gonna HURT!
BAD!!!
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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

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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
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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
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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
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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 employees 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

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Defining Schedule Costs

• Adjusting Compensation Model (a.k.a. Straight
  Time Equivalent Model Controversial
  approach)continued
• Employees 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.)

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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
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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
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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
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Adjusting vs Non-adjusting Compensation
ModelImpact Comparison
Can you see why this gave SSM such a bad
reputation?
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Defining Direct Indirect Financial Models and
the Cost per Unit Hour
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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

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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

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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

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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

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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

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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

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Defining Marginal Fully Loaded Costs per Unit
Hour
Marginal Cost Per Unit Hour
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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

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Defining Marginal Fully Loaded Costs per Unit
Hour
Fully Loaded Cost Per Unit Hour
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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

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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

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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.

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The Impacts of Shift Configuration Changes
WITHOUT STE Adjustments and a Comparison of ALS
versus Tiered Model Savings
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The Impacts of Shift Configuration Changes WITH
STE Adjustments and a Comparison of ALS versus
Tiered Model Savings
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Questions Contact Information REMSA Phone
775-858-5700 x140 Email jwashko_at_remsa-cf.com Web
www.REMSA-CF.com Washko Associates, LLC High
Performance EMS Consulting Services Phone
775-240-6125 Email jw_at_washkoassoc.com Web
www.WashkoAssoc.com