💰 quantitative finance

An Actuarial Cost and Revenue Model for Helicopter Emergency Medical Services: Estimating Population-Based Coverage and Sustainability Thresholds

This paper presents a two-part actuarial model demonstrating that the financial sustainability of Helicopter Emergency Medical Services (HEMS) is highly sensitive to labor costs and payer reimbursement rates, with realistic breakeven thresholds ranging from approximately 184 to over 1,000 annual transports depending on the funding scenario.

Original authors: Robert D. Lieberthal (Thomas Jefferson University, Lieberthal & Associates, LLC), Sabin Ahmed (The MITRE Corporation), David M. Hechtman (The MITRE Corporation), Lauren R. Indrisano (Elevance Health)

Published 2026-06-15✓ Author reviewed ⓘ

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CC BY 4.0

Original authors: Robert D. Lieberthal (Thomas Jefferson University, Lieberthal & Associates, LLC), Sabin Ahmed (The MITRE Corporation), David M. Hechtman (The MITRE Corporation), Lauren R. Indrisano (Elevance Health), Douglas R. Amirault (The MITRE Corporation), Susan Haas (The MITRE Corporation), Varun Saraswathula (Congressional Research Service)

Original paper licensed under CC BY 4.0 (http://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine a helicopter emergency medical service (HEMS) as a 24-hour "lifeboat" station that sits ready to fly at a moment's notice. The authors of this paper wanted to answer a simple but tricky question: How many people does this lifeboat need to save in a year just to pay for itself?

They built a financial "calculator" (an actuarial model) to figure out the exact number of flights needed to break even, meaning the money coming in from insurance equals the money going out to keep the helicopter flying.

Here is how the paper breaks it down, using simple analogies:

1. The Two Sides of the Scale

The model balances two giant buckets:

The Cost Bucket (What you spend): This is heavy and mostly fixed. It includes buying the helicopter (like buying a very expensive car), paying for fuel, insurance, hangar space, and, most importantly, the crew. Because the helicopter must be ready 24/7, you need a full team of pilots, nurses, and doctors on rotation, even if they are sleeping or on vacation. This is like running a restaurant that is open 24 hours a day; you have to pay the staff even if no one orders food.
The Revenue Bucket (What you earn): This is the money insurance companies pay for each flight. The paper looks at three different "price tags" for a flight:
1. The "Dream" Price: The full amount the hospital bills (100% of the charge).
2. The "Real World" Price: What commercial insurance companies actually pay (usually about half of the billed charge).
3. The "Government" Price: What Medicare pays (a fixed, much lower rate that hasn't changed much since 2002).

2. The Results: How Many Flights to Survive?

The authors ran the numbers for a population of about 3.9 million people (specifically those with commercial insurance in Massachusetts). Here is what they found:

The "Dream" Scenario: If insurance paid the full bill every time, the helicopter base would only need to fly about 90 times a year to break even. That's less than one flight a week.
The "Realistic" Scenario: In the real world, commercial insurance pays about 50% of the bill. Under these conditions, the base needs to fly 184 times a year (about 3-4 times a week) just to cover costs.
The "Hard Mode" Scenario: If the helicopter base only got paid what Medicare pays (or if labor costs doubled), the number of flights needed to survive jumps to over 1,000 times a year. That is nearly 3 flights every single day, every day of the year.

3. The "Labor" Elephant in the Room

The paper highlights that labor is the biggest cost driver. Because the helicopter must be ready 24/7, you can't just have one pilot and one nurse; you need a whole team to cover shifts, sleep, and sick days.

Analogy: Think of it like a fire station. You can't close the station at night. You have to pay the firefighters even when the fire truck isn't moving. If you have to pay higher wages (like in a big city), the "break-even" number of flights goes up significantly.

4. The "Dice Roll" (Uncertainty)

To make sure their math was solid, the authors ran a computer simulation 10,000 times, shuffling the numbers slightly (like rolling dice) to see how often the helicopter would fail or succeed.

The Verdict: The simulation confirmed their main findings. Even with uncertainty, the "safe zone" for a commercially insured population is around 190 flights a year. If you fall below that, the program is likely to lose money. If you rely only on government rates, you are almost guaranteed to lose money unless you have a massive volume of patients.

5. What This Means for the "Lifeboat"

The paper concludes that while these helicopters are vital for saving lives, they are financially fragile.

They are not self-sustaining on their own in many areas.
They rely heavily on commercial insurance to subsidize the lower rates paid by government programs (Medicare/Medicaid).
Without enough flights or enough money from private insurance, the "lifeboat" station might have to close, even if the community needs it.

In short: The paper provides a clear map showing that keeping a helicopter emergency service open is a high-wire act. It requires a specific volume of patients and specific payment rates to stay in the air. If the payment rates drop or the number of patients is too low, the financial foundation crumbles, regardless of how many lives are being saved.

Technical Summary: An Actuarial Cost and Revenue Model for Helicopter Emergency Medical Services

Problem Statement
Helicopter Emergency Medical Services (HEMS) provide critical rapid access to care but face significant challenges regarding financial sustainability. While the clinical value of HEMS is documented, operators struggle with high operating costs and a reimbursement landscape that often fails to cover expenses. Specifically, Medicare and Medicaid rates, which apply to a majority of transported patients, have not been substantially updated since 2002 and cover only approximately 50% of current operating costs. Furthermore, the No Surprises Act (2022) has constrained revenue by prohibiting balance billing for privately insured patients. Existing literature has largely focused on clinical outcomes or cost-effectiveness comparisons with ground transport, leaving a gap in research that quantifies the specific financial requirements—particularly the transport volume thresholds—needed to sustain a HEMS base under various funding and reimbursement scenarios.

Methodology
The authors developed a two-part theoretical model to estimate the per-member-per-month (PMPM) cost of sustaining a rotary-wing HEMS base and the annual transport volume required for financial viability.

Cost Structure Framework: The model calculates total annual costs ($TC$) as the sum of capital expenditures (amortized aircraft acquisition and medical equipment) and operating expenses (personnel, fuel, maintenance, facilities, and variable per-patient equipment costs).
- Inputs: Data was drawn from industry sources, including aircraft cost calculators for an EC-145 helicopter, IRS depreciation schedules for a six-year loan at 3.25%, and IMPLAN economic data for personnel wages and benefits.
- Staffing: The model assumes a 24/7 operational requirement, necessitating approximately 4.5 to 5.0 full-time equivalents (FTEs) per role (pilots, EMTs, critical care nurses, and a medical director).
Actuarial Revenue Model: Revenue is estimated based on expected reimbursement per transport multiplied by the number of transports ( $N$ ).
- Revenue Formula: $Total Revenue = N \times (R_b + R_m)$ , where $R_b$ is the base transport fee and $R_m$ is the mileage-based fee.
- Data Sources: Utilization and charge data were derived from the Clarivate Real-World Data set (covering ~3.9 million commercially insured lives in Massachusetts). Reimbursement rates were modeled using three scenarios: 100% charge realization (optimistic), 50% realization of charges (base-case commercial), and CMS Medicare fee schedules (conservative).
Breakeven Analysis: The breakeven point ( $N^*$ ) is defined as the volume where Total Revenue equals Total Cost ( $N^* = TC / (R_b + R_m)$ ).
- Sensitivity Analysis: The model was tested by doubling labor costs to simulate high-wage markets.
- Probabilistic Analysis: A Monte Carlo simulation (10,000 iterations) was conducted to characterize uncertainty in parameters such as realization rates, transport distance, and labor cost multipliers.

Key Results
The study identified that financial viability is highly sensitive to labor costs and payer reimbursement levels.

Breakeven Thresholds:
- Optimistic Scenario (100% charge realization): Breakeven is reached at approximately 90 annual transports.
- Base-Case Scenario (50% commercial realization): Breakeven requires 184 annual transports.
- Conservative Scenario (Medicare rates only): Breakeven exceeds 815 annual transports.
- High-Cost Labor Sensitivity: When labor costs are doubled, the base-case breakeven rises to 260 transports, and the Medicare-only scenario exceeds 1,150 transports annually.
Monte Carlo Simulation:
- The median simulated breakeven under commercial reimbursement was 190 transports, closely aligning with the deterministic base case of 184.
- The 90th percentile for commercial reimbursement reached 304 transports, while the Medicare threshold reached 1,066.
- Probability analysis indicates that at 260 annual transports, there is a ~95.5% probability of viability under commercial reimbursement, but near-zero probability under Medicare-only reimbursement.
PMPM Cost: For the commercially insured population studied, the gross PMPM charge for air ambulance services is approximately $0.66, with a net PMPM cost to payers of $0.65 after accounting for a notional $1,000 patient cost share per episode.

Significance and Claims
The paper claims to introduce a transparent, replicable actuarial framework that links cost structures with population-level utilization and reimbursement data. Its primary contributions are:

Quantifying Sustainability: It provides specific breakeven transport volumes necessary for financial viability under different payer mixes, moving beyond general cost-effectiveness discussions to operational financial planning.
PMPM Estimation: It offers a method for developing PMPM rates for HEMS services applicable to health plan pricing, global budgeting, and subsidy program design.
Policy Insight: The model highlights that sustainable operation requires significantly more transport volume than previously estimated, particularly when reimbursement is constrained (e.g., Medicare rates) or staffing costs increase.

The authors explicitly state that these thresholds are illustrative estimates for strategic planning and policy evaluation rather than precise operational forecasts. They acknowledge limitations, noting that the model focuses on the commercially insured population in Massachusetts and does not currently account for cross-subsidization mechanisms, rural vs. urban cost differentials, or fixed-wing operations, which are identified as directions for future research.