Americans can’t afford the helicopters that they want

“Air ambulances, backed by private equity firms, leave patients with $45,000 bills” (LA Times) was sent to me by several different friends. A kid took a 66 nm helicopter ride, which would be about $500 round-trip in a flight school’s four-seat Robinson R44. The cost was $45,930 in a presumably magnificent turbine-powered machine. The parents’ presumably gold-plated university-affiliated health insurance plan paid out $6,704 for this trip, which should more than cover marginal operating expenses even for a deluxe turbine helicopter. But the operator has been fighting for three years to get paid the remainder.

The median charge to Medicare for a medical helicopter flight more than doubled to almost $30,000 in 2014, from $14,000 in 2010, according to a report last year by the U.S. Government Accountability Office. Air Methods’ average charge ballooned, from $13,000 in 2007 to $49,800 in 2016, the GAO said. Medicare, the federal health program for people 65 and older, pays only a fraction of billed charges; Medicaid, the state-federal program for the poor, pays even less.

In other words, after every four flights the turbine helicopter operator bills enough to purchase a decent-condition four-seat Robinson R44. After every eight flights the turbine helicopter operator bills enough to purchaes a brand-new Robinson R44.

Thanks to the decision by Americans to spend all of their wealth on health care, this Medicare biller turns out to be worth more than a medium-sized airline:

Wealthy investors attracted by the industry’s rapid growth have acquired many of the biggest air-ambulance operators, leaving control of the business in the hands of private-equity groups. American Securities LLC bought Air Methods for $2.5 billion in March 2017. Rival Air Medical Group Holdings, which includes Air Evac and several other brands, has been owned by New York private-equity firm KKR & Co. LP since 2015. Two-thirds of medical helicopters operating in 2015 belonged to three for-profit providers, the GAO said in its report.

Despite the apparent glut, air-ambulance operators are profitable. Air Methods had an average annual profit margin of 9.1% from 2012-16. Over the same period, companies in the Standard & Poor’s 500 Health Care Providers & Services index had margins of 7.9%, on average. PHI, a helicopter company that operates medical flights and transports for oil and gas drillers, reported average operating margins of 15.7% from 2014-17 in its medical segment, compared with 10.4% for the benchmark index in the same period.

As with everything else in the U.S. health care system, analysis under Econ 101 cannot be done:

Seth Myers, president of Air Evac, said that his company loses money on patients covered by Medicaid and Medicare, as well as those with no insurance. That’s about 75% of the people it flies.

According to a 2017 report commissioned by the Assn. of Air Medical Services, an industry trade group, the typical cost per flight was $10,199 in 2015, and Medicare paid only 59% of that.

One part of Econ 101 that does seem to apply is that a monopolist will price according to someone’s ability to pay:

In West Virginia, the Cox family went through two appeals with their health plan. After they retained a lawyer, Air Methods offered to reduce their balance to $10,000 on reviewing their tax returns, bank statements, pay stubs and a list of assets. The family decided to sue instead.

“I felt like they were screening us to see just how much money they could get out of us,” Tabitha Cox said. “I think about people that really struggle — single moms, people that don’t have the financial blessings that we have. Bottom line, it’s just not fair.”

(Why would a single mom be someone who “really struggles”? Under West Virginia family law, the maximum parental profit from obtaining custody of a single child is about $24,000 per year. Any child support award obtained above that number will generally be put into trust for the child on reaching adulthood. Children are simply not nearly as profitable as in a lot of other U.S. states.)

I’ve read that a lot of U.S. states have more dedicated medical evacuation helicopters than does the entire country of Canada. In the old days police and/or military helicopters would be used as necessary (they have to make up all kinds of training missions to stay proficient; why not fly patients every few days instead?). Or patients would be transferred on highways in heavily equipped ambulances. The helicopter is an old technology, having been mass-produced starting in the 1940s. The life-saving benefits of getting to a trauma center were well-known even then and documented by automobile manufacturers in the 1960s (they sponsored studies showing that the cost per life saved would be much lower with helicopter ambulances than with airbags and maybe even than with seatbelts (which are cheap, obviously, but most minivans get scrapped with all 7 or 8 seatbelts never having been needed).

Why is it 70 years after helicopters began hovering off assembly lines that we have this industry and this debate?


17 thoughts on “Americans can’t afford the helicopters that they want

  1. Mememe: Complying with regulations gets more expensive every year, that’s for sure. However, a company that operates numerous helicopters should be able to spread the cost. The increased level of regulation mostly kills off the small enterprises. I guess that has enabled the big operators to raise prices as it has become impractical for a trauma hospital to buy a good used helicopter and hire a couple of pilots.

  2. My idea for lowering costs: have air ambulances put in competing real-time bids when a 911 call goes out; lowest bidder gets the dispatch.

  3. Air Methods offered to reduce their balance to $10,000 on reviewing their tax returns, bank statements, pay stubs and a list of assets

    When a medical provider asks for my income, I usually write in 401% of Federal Poverty Level. It’s none of their business. If they demand tax returns, I would sue on principle.

  4. It is interesting to compare Boston Medflight (and really the entire network of HAA providers in New England) with other parts of the country. There are probably around 15 helicopters serving all of NE. Compare that with PA (similar geographic size and population) with about 50 helicopters. Lots of fixed cost sitting around with $$$ having to be recovered from flights. The big operators have been adding lots of ships while the number of flights has generally stayed level.

    As with other things medical, the rest of the world has a different model when it comes to HAA. Interestingly enough they also fly twin engine IFR capable ships while many of the US operators fly old JetRangers…

  5. A couple of points. I have been told by our local helicopter system that average cost per flight in this semi rural environment is $7000. Medicare pays approximately $3000. Medicaid pays less than $1000, and the average collection rate for uninsured patients is near zero. The Helicopter system claims that they have to collect $13,000 per insured patient to cover the losses on Medicaid, Medicare, and self-pay patients. The crazy inflated charges have nothing to do with what is actually collected except that the charges are always going to be set at least a few thousand dollars over what the most lavish insurance policy will pay for emergency out of network care to avoid leaving money on the table. Not everybody can pay the marginal cost of a flight when there are multiple patients paying significantly less then the marginal cost of a flight.

    Stating that any of this has anything to do with a free market is silly. These are people that are essentially fighting over government contracts and government mandated prices. They are also not allowed to refuse care for people that have no ability to to pay. Whether or not the government should make up that shortfall or you pass it on to private insurance is another matter but those costs are either going to be paid or the services not provided.

    Furthermore, comparing the prices of a fully stocked, and staffed air ambulance to a Robinson helicopter is absolutely silly. As is harkening back to the old days where on trained military aircrews would airlift patients for practice. The standard of care is vastly above that and non-medical aircrews would not be certified to participate in any of this activity. That would be the equivalent of allowing Uber to provide ambulance services to critically ill people.

  6. Philg, I should have made my parenthetical an addendum.

    Now to stray back to the outskirts of the topic…

    One thing that this blog has changed my mind about is general aviation. I used to think of it as an inherently elitist vanity. Now I think it has the potential for popular and practical use.

  7. This is similar for ambulance transport cost of several thousand dollars to drive the 2 miles to my house and then 1 mile to the hospital. The total operating cost of even a big rig like that is $100 or less. I ak paying for the crew as well, but that is not many thousands of dollars.

  8. What we actually need is an all-American hi-tech solution, like a smartphone app. Every time someone is moved to a med helicopter or an ambulance car, they should click a button to accept all the cookies as well as being held responsible for the medical costs not covered by their insurance regardless of what those costs may be. If they fail to accept (maybe they are in a coma, or just feeling cheap), the money will be extort^^^^^claimed by legal means.

    This will certainly increase availability of the best medical care for all Americans (except for the hedge fund managers, who are obviously un-American).

  9. Most healthy public companies have a net profit margin of about 5%. These guys are crying all the way to the bank!

  10. Notwithstanding the astronomical cost of a medivac helicopter flight, I’d like to know what % of these flights are done for patients who have a very low chance of survival. Or who would have survived, even if they were transported in a less expensive way, like an ambulance. Is it possible that medivac flights are overutilized? Certainly the patient is not in a very good position to judge whether they actually need such an expensive solution to the problem.

  11. G C,
    In my area, southern Virginia, it’s entirely up to the EMT who is running the call as to whether air transport is needed. There was a recent case here where a medical transport helicopter was called in for a person with an injured finger.

  12. Air evacuations providers exist now as a for profit business.
    If it’s viewed as a public emergency service, we have the wrong model.
    Tier 1 Trauma hospitals would or could be funded with craft deployed strategically.
    The business now is similar to the towing business. Competition to get the airlift, fight about the price later.
    Not many airlifted patients get up and say, “I think we will just drive to the emergency room.” Same for the ambulance business.
    How many providers have been found racking up fees for “necessary transportation” that was really a taxi ride.
    Bottom line, we want competition but can’t adequately control price gouging.

  13. Focusing on the per trip costs is slightly wrong, as the primary expense for the carrier is having a staffed up medical crew and helicopter team available within fewer than 100 miles from whereever you are.

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