High Performance EMSHigh Performance EMSFinancial AnalysisFinancial Analysis

Jonathan D. Washko, BS-EMSA, NREMT-PDirector of Strategic Development – REMSA

President – Washko & Associates, LLC

Session OverviewSession Overview

Defining and Calculating Schedule Costs

Defining Direct & Indirect Costs Calculating the Types of Costs per

Unit Hour Calculating the Costs of Accurate

Coverage

A Short Poem…A Short Poem…

A dollar spent (or wasted) A dollar spent (or wasted) here, here,

Cannot be spent (or Cannot be spent (or wasted) there.wasted) there.

HPEMS Financial AnalysisHPEMS 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 DIREDIRE consequences (CLM / CEM Concept)

Hopefully we can show you the pitfalls and mistakes made by others in order to keepkeep youyou from making a CEM!

Schedule CostingSchedule Costing

Where men are men and the CEM’s & CLM’s run freeWhere men are men and the CEM’s & CLM’s run free

Schedule CostingSchedule 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)

WARNING – WARNING – WARNING – WARNING

This CANNOT be emphasized enough

If these calculations get screwed up…

it’s gonna HURT!

BAD!!!

Schedule CostingSchedule Costing

Defining Schedule CostsDefining 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

Wage Conversions Made Simple

Employee working 40 hours a week base (5x8)Paramedic Hourly Wage = $16.83

((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

Using the “count up” method

((40 + 0 + 0) x 52) x $16.83 = $35,000

Non-adjusting Compensation ModelNon-adjusting Compensation Model

Wage Conversions Made Simple

Employee working 45 hours a week base (5x9)Paramedic Hourly Wage = $16.83

((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

Using the “count up” method

((40 + 5 + 2.5) x 52) x $16.83 = $41,570.10

Non-adjusting Compensation ModelNon-adjusting Compensation Model

Wage Conversions Made Simple

Employee working 48 hours a week base (4x12)Paramedic Hourly Wage = $16.83

((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

Using the “count up” method

((40 + 8 + 4) x 52) x $16.83 = $45,508.32

Non-adjusting Compensation ModelNon-adjusting Compensation Model

Defining Schedule CostsDefining Schedule CostsAdjusting 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

Defining Schedule CostsDefining Schedule CostsAdjusting 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.)

Hourly Wage STE Conversions Made Simple

Employee working 40 hours a week base (5x8)Paramedic Base Annual Wage = $35,000

TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

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

Adjusting Compensation ModelAdjusting Compensation Model

Hourly Wage STE Conversions Made Simple

Employee working 45 hours a week base (5x9)Paramedic Base Annual Wage = $35,000

TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

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

Adjusting Compensation ModelAdjusting Compensation Model

Hourly Wage STE Conversions Made Simple

Employee working 48 hours a week base (4x12)Paramedic Base Annual Wage = $35,000

TC ÷ (ST + OT + ½ OT) x 52) = BW or ((ST + OT + ½ OT) x 52) x BW = TC

BW = Base Hourly Wage ST = # of Straight Time Hours Worked / Week

OT = # of Overtime Hours Worked / Week TC = Total Annual Compensation

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

Adjusting Compensation ModelAdjusting Compensation Model

Work Week Non AdjustHourly

Non AdjustAnnual

AdjustedHourly

AdjustedAnnual

40 Hours $16.83 $35,000.00 $16.83 $35,000.00

45 Hours $16.83 $41,570.10 $14.17 $35,000.00

48 Hours $16.83 $45,508.32 $12.94 $35,000.00

Adjusting vs Non-adjusting Adjusting vs Non-adjusting Compensation ModelCompensation ModelImpact ComparisonImpact Comparison

Can you see why this gave SSM such a bad reputation?

Defining Direct & Indirect Defining Direct & Indirect Financial Models and the Cost Financial Models and the Cost

per Unit Hourper Unit Hour

Defining Direct & Indirect CostsDefining 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

Defining Direct & Indirect CostsDefining 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

Defining Direct & Indirect CostsDefining 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…

Defining Direct & Indirect CostsDefining 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 categorySelling services vs budgeting for services

Defining Direct & Indirect CostsDefining 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…

Defining Marginal & Fully Loaded Defining Marginal & Fully Loaded Costs per Unit HourCosts 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

Defining Marginal & Fully Defining Marginal & Fully Loaded Costs per Unit HourLoaded Costs per Unit Hour

Direct Expense Description Costs

Paramedic & EMT Wages, Benefits, Taxes $123,564

Fuel $9,086

Vehicle Maintenance (no labor) $6,432

Employee Uniforms $250

Employee Training $1,500

Disposable Medical Supplies $3,254

Vehicle & Medical Equipment Depreciation $800

Total Direct Expenses $144,886

Total Unit Hours 2,587

Marginal Cost per Unit Hour $56.00

Marginal Cost Per Unit Hour

Defining Marginal & Fully Loaded Defining Marginal & Fully Loaded Costs per Unit HourCosts 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

Defining Marginal & Fully Defining Marginal & Fully Loaded Costs per Unit HourLoaded Costs per Unit Hour

Indirect Expense Description Costs

Management Wages, Benefits & Taxes $42,132

Support Services Wages, Benefits & Taxes $25,154

Facility Costs $2,500

G & A Costs, Legal Fees, Etc. $1,100

Fixed Asset Depreciation $500

Total Indirect Expenses $71,386

Total Unit Hours 2,587

Indirect Cost per Unit Hour $27.59

Marginal Cost per Unit Hour $56.00

Fully Loaded Cost per Unit Hour $83.59

Fully Loaded Cost Per Unit Hour

Cost per Unit Hour FactsCost 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

Calculating the Costs of Calculating the Costs of Accurate CoverageAccurate 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

Costing CoverageCosting 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.

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

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

Questions & Contact Information

REMSAPhone: 775-858-5700 x140Email: jwashko@remsa-cf.comWeb: www.REMSA-CF.com

Washko & Associates, LLCHigh Performance EMS Consulting ServicesPhone: 775-240-6125Email: jw@washkoassoc.comWeb: www.WashkoAssoc.com