The Skyrocketing Cost Of Air Ambulances : The Indicator from Planet Money After a catastrophic accident, you may be rushed to the hospital in an air ambulance. It could save your life, but there's no way to predict how much it will cost.

The Skyrocketing Cost Of Air Ambulances

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SYLVIE DOUGLIS, BYLINE: NPR.

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CARDIFF GARCIA, HOST:

Rachel Cohn, how are you?

RACHEL COHN, BYLINE: Hi, Cardiff. How are you?

GARCIA: Good, good. So you were for a little while a producer on THE INDICATOR.

COHN: I was.

GARCIA: Yeah. You're now helping out at one of our favorite podcasts - rival podcast, but we still love it - called "Reply All."

COHN: (Laughter) Yep.

GARCIA: And you've come back because you brought us this really intriguing story about air ambulances.

COHN: Yeah, that's right.

GARCIA: All right. Where does the story begin?

COHN: So the story takes place back in 2008. Back then, this man named David Jones got into a terrible accident on a New Jersey highway. He was driving with his girlfriend at the time, now his wife, Juliet, when their car flipped over and tumbled at 65 miles an hour onto the highway shoulder.

GARCIA: So they're badly injured, I take it.

COHN: Like, really badly injured. So what happened was actually first responders called an air ambulance. That's, like, the helicopter that comes to the side of the highway when you're, you know, in a terrible...

GARCIA: Or if there's bad traffic and you can't get them out any other way, they call a helicopter.

COHN: Exactly. So David was flown out first.

DAVID JONES: So I remember the - hearing the ambulance land. You know, I was completely out of the car getting treated...

COHN: So Juliet was actually still trapped in the car, so emergency services had to cut her out, which took a while. And so they ended up calling a second air ambulance a few hours later.

GARCIA: You said that eventually they made a full recovery.

COHN: Yeah.

GARCIA: But there was a nasty surprise involved here. Tell us about that.

COHN: Exactly. So they were actually going over their bills for their treatment together when they realized that they were charged different amounts for their air ambulance transports - like, very different amounts.

JONES: Had a note written, you know, contemporaneously that - like, it's funny just looking at the note. It says, you know, $1,700 for me and $13,000 for Juliet.

GARCIA: Seventeen-hundred for David and $13,000 for Juliet even though they were transported the exact same distance from the same accident site to the same hospital.

COHN: Yeah. I mean, there was one difference aside from the price, and that's who flew them. So David was flown by a public provider, but Juliet was flown by a for-profit company.

GARCIA: OK, and that is the topic of today's show. This is THE INDICATOR FROM PLANET MONEY, everybody. I'm Cardiff Garcia.

COHN: And I'm Rachel Cohn.

GARCIA: Yes.

COHN: On today's show, we are talking about air ambulances, this part of the American health care industry where prices have skyrocketed and where the normal laws of supply and demand don't seem to apply.

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COHN: To understand how air ambulance services became so expensive, you actually have to go back to a time when they were cheaper, a time when hospitals were the largest provider of the service.

MARTY MAKARY: Air ambulances really grew out of emergency rooms that decided, hey, we want to have a way to get people here faster. They were owned by hospitals. They were part of the hospital system. They were on the master hospital bill and often covered by insurance because it was a hospital service.

GARCIA: So that is Dr. Marty Makary. He's a surgeon and a professor of health policy and management at Johns Hopkins University. Dr. Makary wrote about the air ambulance industry in a book he recently published called "The Price We Pay" - appropriately enough, actually. He says that for a long time, hospitals were not making money from their air ambulances. In fact, some hospitals were even providing air transports at a loss.

MAKARY: Air ambulances traditionally have not been a real revenue center for hospitals because they make money on the patients once they arrive at the hospital from all the services provided.

GARCIA: And so throughout the 1980s and 1990s, that was the business model. Hospitals were not trying to make money on the air transport itself. They provided that service because they could start charging patients once they got to the hospitals. So hospitals provided air ambulances for the majority of air transports. And so although there were some government groups and independent private companies who were providing this service in addition to hospitals, there were virtually no for-profit providers, companies that were trying to make a profit.

COHN: But in 2002, this began to change. That year, the government rolled out a new policy that changed the amount of money that air ambulances providers could make from transporting Medicare and Medicaid patients. Basically, what you need to know is that the new policy made it more lucrative for independent air ambulance providers - that's groups other than hospitals - to offer the service.

So under the previous system, independent providers typically made less money for transporting Medicare and Medicaid patients than hospital providers. But under the new system, all providers were paid at the same rates.

GARCIA: And what this did was to incentivize outside groups thinking of investing in air ambulances because now, they were assured more money for transporting Medicare and Medicaid patients. But also, they could now provide these services for this whole other group of patients, people not covered by Medicare and Medicaid - in other words, people who had private insurance.

And so private companies and private equity firms in particular realized that if those patients could be billed independently of the hospital and outside of their insurance network, there was virtually no limit to what they could be charged.

MAKARY: And so quickly, this second back industry group of private equity companies buying up these air ambulances from hospitals, managing their services and price-gouging patients going around the master hospital bill.

COHN: The result is that the number of air ambulances in the U.S. nearly doubled, and the vast majority today are owned by for-profit providers.

GARCIA: And so here is where the normal dynamics of supply and demand start to go askew, they start to get a little weird. See, in a normal market, that big increase in supply, the supply of air ambulance providers, would usually mean a good thing for consumers because consumers now have more choice. It means more competition between those providers, and it usually means cheaper prices for consumers.

COHN: But in the air ambulance market, that's not what happens. That's because customers in this market can't shop around and compare prices and services. In an emergency situation, the customer doesn't choose which air ambulance provider to call. I mean, the customer might even be unconscious.

GARCIA: That's right.

COHN: The first responders or hospital workers are usually who call an air ambulance. So this big increase in supply, it doesn't bring down the price for people getting air transported.

GARCIA: Instead, the exact opposite happened. Prices have gone way up. So the median price, for example, charged by an air ambulance for a helicopter transport in the United States, that is now more than $36,000. And Air Methods, which is the name of the largest air ambulance provider, it went from charging an average price of $13,000 per air transport in 2007 to charging $50,000 in 2016.

COHN: Now, to be clear, these are the prices that fall on people with private insurance. If you get into an accident and you're on Medicare or Medicaid, your bill will be covered by the government. But if you're one of the millions of people with private insurance, you could be stuck with a very expensive bill.

I mean, many private insurance companies only pay air ambulance providers roughly the same amount that the government pays them, which is, like, between $3,000 to $5,000. And that means that the remainder of the bill, maybe tens of thousands of dollars, is left up to you to pay.

GARCIA: I think the natural question there, Rachel, is how did this happen? Why did the price go up so much even though all these new air ambulance providers got into the business?

COHN: Well, if you ask the Association of Air Medical Services about this, and we did - they're the industry group that represents air ambulances - they suggest that air ambulances have become more expensive to provide. They say there's been an increase in the number of Medicare patients, as well as an increase in the number of rural hospitals that have closed, which means air ambulances have to travel longer distances and operate in less populous areas, which brings greater costs.

GARCIA: But Dr. Makary, he sees things differently. So he says that the main reason these companies are charging so much for their services is because they can. There's nothing to stop them, not the patients who, in that moment, are at their most vulnerable, and not even insurance companies who typically would act as the interface between patients and the provider.

COHN: See, unlike hospitals, independent private providers of air ambulances usually do not have pre-negotiated rates with insurance companies. The Government Accountability Office did a major study recently where they looked at over 20,000 air ambulance transports that took place in 2017. And they found that more than two-thirds of those transports were not in the patient's insurance network. In other words, those patients were not covered for their transports.

GARCIA: And when that's the case, in other words, when a patient is out-of-network, the only thing that constrains the price that they can be charged by an air ambulance company is what they believe the accident victim will be able to pay.

MAKARY: If they send a bill for $10 million, a penny of it will never be paid. But if they set the bill at just above what's considered payable, then there'll be a mass effort to try to pay these bills. And, in fact, that's exactly what we see.

GARCIA: Yeah, we see a situation where people might have to go into a lot of debt and really strain their finances just to be able to pay off that bill.

COHN: Yeah.

GARCIA: Rachel, thanks so much for bringing us this super interesting story.

COHN: Thank you, Cardiff.

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GARCIA: This episode of THE INDICATOR was produced by Leena Sanzgiri, fact-checked by Nadia Lewis. Our editor is Paddy Hirsch. And THE INDICATOR is a production of NPR.

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