Tobacco User Fees: Further Action Needed to Ensure Calculations Are Based on Complete and Accurate Data

Tobacco use causes more than 480,000 deaths each year, according to the Department of Health and Human Services (HHS). To protect the public, the Family Smoking Prevention and Tobacco Control Act granted FDA, an agency within HHS, authority to regulate tobacco products. To fund FDA's tobacco regulation activities—such as those aimed at preventing youth use of tobacco products—the act authorizes FDA to assess and collect a specified total amount of user fees from tobacco manufacturers and importers each fiscal year. The total amount of user fees are to be allocated based on the individual manufacturers' and importers' market share in six FDA-regulated tobacco product classes.

GAO was asked to review FDA's tobacco user fees. This report examines FDA's process for the calculation, billing, and collection of these fees. GAO reviewed the relevant law and regulations, as well as FDA policies and procedures, and interviewed FDA officials.

In fiscal year 2017, the latest data available at the time of our analysis, the Food and Drug Administration (FDA) assessed about $635 million in user fees to tobacco manufacturers and importers of six classes of FDA-regulated tobacco products—cigarettes, snuff, chewing tobacco, roll-your-own tobacco, pipe tobacco, and cigars. (See figure.)

FDA has a process that is designed to ensure accurate calculation, billing, and collection of tobacco user fees. However, the agency has not completed a key step in this process—its year-end reconciliation—since doing so for fiscal year 2015. FDA procedures provide that the agency will conduct this year-end reconciliation annually after receiving necessary data from the Department of the Treasury's Alcohol and Tobacco Tax and Trade Bureau (TTB) and U.S. Customs and Border Protection (CBP). FDA relies on this year-end reconciliation to ensure that its user fee calculations are based on complete and accurate data—that is, that all manufacturers and importers subject to tobacco user fees were assessed fees correctly, based on accurate market share data. Incomplete or inaccurate data for one manufacturer or importer affects the market share—and the user fee amount—for all other manufacturers and importers in its product class.

FDA has not completed this year-end reconciliation in recent years because of delays in obtaining the quality data it needs from TTB and CBP. While FDA has reported receiving most of the data for fiscal years 2016 through 2018 and has plans for completing the reconciliation for those years, the agency faces a risk of repeating delays in its reconciliation efforts in the future because it does not have reasonable assurance that it will receive quality data in a timely manner moving forward. Until FDA consults with TTB and CBP to determine and document the procedures and time frames that will allow FDA to obtain the quality data it needs to complete this key step in a timely manner, the agency risks repeating these delays.

GAO is recommending that FDA consult with TTB and CBP to determine and document procedures for FDA to obtain quality data so the agency can complete its annual reconciliation process in a timely manner. HHS agreed with GAO's recommendation.

Tobacco is the leading cause of preventable death, disease, and disability  in the United States, and it is a significant contributor to health care  costs. Tobacco use causes more than 480,000 deaths per year,  according to the Department of Health and Human Services (HHS). To  protect the public and create a healthier future for all Americans, the  Family Smoking Prevention and Tobacco Control Act (Tobacco Control  Act) granted HHS’s Food and Drug Administration (FDA) authority to  regulate the manufacturing, marketing, and distribution of tobacco  products.

The Tobacco Control Act authorizes FDA to assess and collect user fees  from tobacco manufacturers and importers for FDA’s tobacco regulation  activities, such as those aimed at preventing youth use of tobacco  products. The act specifies the total amount of user fees FDA can  assess and collect each fiscal year (e.g., $712 million in fiscal year 2019),  as well as how these user fees are to be allocated among individual  tobacco manufacturers and importers of six different classes of tobacco  products: cigarettes, snuff, chewing tobacco, roll-your-own tobacco, pipe  tobacco, and cigars. The act requires FDA to assess user fees for each  manufacturer and importer based on its market share of each tobacco  product class. Manufacturers and importers are required to provide FDA  with information on the volume of tobacco products they have introduced  into the U.S. market, as well as on the amount of federal excise taxes  they have paid on these products; the agency uses these data to  calculate manufacturers’ and importers’ market share and user fees.  FDA bills and collects tobacco user fees from manufacturers and  importers on a quarterly basis.

You asked us to review FDA’s calculation, billing, and collection of  tobacco user fees from tobacco manufacturers and importers for fiscal  years 2015 through 2017. This report examines FDA’s process for the  calculation, billing, and collection of tobacco user fees.

To address our objective, we examined (1) the Tobacco Control Act and  related regulations, (2) FDA’s documented policies and procedures used  to manage the calculation, billing, and collection of tobacco user fees, and  (3) relevant federal internal control standards. We also interviewed FDA  officials about the mechanisms FDA used to ensure it had the information  it needed to calculate, bill, and collect accurate user fees for all eligible  tobacco manufacturers and importers. We compared the process FDA  designed to manage the calculation, billing, and collection of tobacco user  fees to criteria from relevant federal internal control standards regarding  quality information, communication with external parties, and control  activities. For example, we reviewed FDA documentation to determine whether key duties and responsibilities related to calculating, billing, and  collecting tobacco user fees were adequately divided among different  FDA offices and staff so that no one individual controlled all key aspects,  which helps reduce the risk of error, waste, or fraud. We also reviewed  FDA’s procedures for calculating tobacco user fees for one fiscal quarter  (1) for each tobacco product class, and (2) for each individual  manufacturer and importer within five of the six tobacco product classes,  based on its market share (measured by the federal tobacco excise taxes  paid). In addition, we reviewed the amounts FDA billed tobacco  manufacturers and importers, as well as the agency’s efforts to collect  unpaid user fees. We assessed the reliability of the data we received  from FDA by reviewing related documentation, performing data reliability  checks (such as examining data for missing values), and interviewing  FDA officials, and determined these data were sufficiently reliable for our  audit objective.

We conducted this performance audit from January 2018 to October 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The Tobacco Control Act specifies the total amount of tobacco user fees  that FDA is authorized to assess and collect each fiscal year (beginning  with fiscal year 2009) and stipulates those fees must be used for FDA’s  tobacco regulation activities. FDA collected about $4.5 billion in tobacco  user fees from fiscal year 2010 through fiscal year 2018, according to  FDA budget documents, and has ongoing authority to assess and collect  $712 million from tobacco manufacturers and importers annually starting  in fiscal year 2019. See table 1 for the total user fees the Tobacco  Control Act authorized FDA to collect, by fiscal year.

All of FDA’s activities related to regulating tobacco products—including  activities aimed at preventing youth use of tobacco products, educating  the public about tobacco products and the risks associated with their use,  and issuing regulations on the marketing and advertising of tobacco  products—are funded through tobacco user fees, as required by the  Tobacco Control Act.

FDA’s Center for Tobacco Products (CTP), which was established  by the act, is responsible for executing FDA’s tobacco regulation  responsibilities. Within CTP, the two main offices involved in  carrying out FDA’s tobacco user fee responsibilities are the Office of  Management and the Office of Compliance and Enforcement.

CTP’s Office of Management staff duties include—but are not  limited to—calculating individual tobacco manufacturer’s and  importer’s market share quarterly within each tobacco product  class, as well as completing FDA’s year-end reconciliation  process to ensure its market share calculations for each fiscal  year are based on complete and accurate data.

CTP’s Office of Compliance and Enforcement staff are involved in  FDA’s efforts to implement and enforce the Tobacco Control Act  by (1) informing tobacco manufacturers and importers that they  must pay the required quarterly tobacco user fee, if they have not  done so, by the due date, and (2) working to obtain voluntary  compliance, or taking advisory or enforcement actions, when  manufacturers or importers continue to fail to comply with the user  fee requirements.

FDA’s Office of Financial Management is responsible for calculating  the quarterly assessments for each tobacco product class, and for  activities related to the billing and collection of tobacco user fees. For  example, FDA’s Office of Financial Management generates quarterly  invoices for individual manufacturers and importers based on CTP’s  market share calculations. Additionally, this office processes tobacco  user fee payments received and works with CTP’s Office of  Compliance and Enforcement to help collect user fee payments from  tobacco manufacturers and importers that do not pay a quarterly  assessment by the due date.

Tobacco Control Act Requirements for Assessing and Collecting Tobacco User Fees

The Tobacco Control Act establishes requirements regarding the  calculation, billing, and collection of tobacco user fees.

Calculation. For each fiscal year, total user fees are to be allocated in  1.  Class allocation. The amount of total user fees for a fiscal year  (e.g., $635 million for fiscal year 2017) is allocated among the  different tobacco product classes subject to user fees; this  allocation is based on each class’s share of the gross domestic  volume of tobacco products introduced into the U.S. market.  2.  Individual allocation. The amount of user fees allocated to each  manufacturer or importer is proportional to its market share within  a given class of tobacco products. For example, a manufacturer  with 50 percent of the cigarette market would be required to pay  50 percent of user fees allocated for the cigarette product class.

The act specifies that no manufacturer or importer of tobacco  products shall be required to pay a user fee in excess of the  percentage share of such manufacturer or importer.

See figure 1 for a summary of the tobacco user fee allocation  process under the Tobacco Control Act.

Notifications to each manufacturer or importer of the amount of its  quarterly tobacco user fee assessments are to be sent at least 30  days before the end of the quarter for which the assessment is made.

Collection. Tobacco user fee payments are due the last day of each  quarter. If a manufacturer or importer does not pay its user fee  assessments by the last day of the relevant quarter, the act states that  tobacco product shall be deemed adulterated.

FDA Regulations and Processes to Calculate, Bill, and Collect Tobacco User Fees

Since the enactment of the Tobacco Control Act, FDA has issued several  final rules (regulations) regarding its process to calculate, bill, and collect  tobacco user fees, including the following:  In 2014, FDA issued a final rule requiring tobacco manufacturers and  importers to submit to FDA the information needed to calculate  individual tobacco user fees, starting with fiscal year 2015. This rule  applied to the four classes of tobacco products FDA initially regulated:  cigarettes, snuff, chewing tobacco, and roll-your own tobacco. Fiscal  year 2015 was the first year for which FDA obtained the data directly  from manufacturers and importers to calculate individual tobacco user  fee assessments.

In 2016, FDA issued a final rule extending FDA’s regulatory authority  to all tobacco products, including pipe tobacco and cigars (but  excluding accessories of newly deemed products). Using its  deeming authority, FDA issued another final rule requiring that pipe  tobacco and cigar manufacturers and importers submit to FDA the  information required to calculate user fees for these tobacco product  classes. FDA began collecting tobacco user fees from the pipe  tobacco and cigar classes in fiscal year 2017.

See appendix I for a timeline of events related to FDA tobacco product  user fees.

FDA’s process for calculating, billing, and collecting user fees involves  five steps. First, FDA collects the data needed to calculate the quarterly  user fee allocations for each tobacco product class and, within each  class, for individual manufacturers and importers. For its quarterly class  allocation calculations, FDA collects data on the total volume (units) of  tobacco products introduced into the U.S. market for each tobacco  product class from the Department of the Treasury’s Alcohol and Tobacco  Tax and Trade Bureau (TTB)—these data are published on the TTB  website. FDA also collects data from individual manufacturers and  importers on the volume of and federal excise taxes paid for their tobacco  products introduced into the U.S. market in each product class. Tobacco  companies submit these data to FDA as part of required monthly report  submissions. Second, FDA uses the TTB data it collected to calculate  the quarterly class allocations. Third, FDA calculates the user fees owed  by individual manufacturers or importers within a given product class,  based on their market share in each tobacco product class and the  quarterly class allocation it previously calculated. Fourth, FDA bills—that  is, generates and mails user fee invoices to—tobacco product  manufacturers and importers each quarter. Fifth, FDA collects user fee  payments. User fees that are not received by FDA by the last day of the  quarter are considered late, and are subject to financial charges  beginning 30 days past the invoice due date and for each 30-day period  that the assessment remains unpaid. Figure 2 shows the steps in FDA’s  process to calculate, bill, and collect user fees.

Amount of Tobacco User Fees Assessed by Product Class

From fiscal year 2015—the first year that FDA obtained data directly from  manufacturers and importers to calculate user fee assessments—through  fiscal year 2017—the most recently available data at the time of our  analysis—FDA assessed and collected about $1.8 billion in tobacco user  fees. During this time, the vast majority of the total user fees assessed  and collected each fiscal year were from manufacturers and importers of  cigarettes. See figure 3 for user fees that FDA assessed, by product  class, for fiscal years 2015 through 2017.

FDA Has A Process for Administering Tobacco User Fees but Has Not Completed a Key Activity to Ensure Completeness and Accuracy

FDA’s Process Is Designed to Ensure User Fee Calculations, Billings, and Collections Are Complete, Accurate, and Timely

FDA’s process is designed to ensure the quarterly user fees it calculates,  bills, and collects each fiscal year are complete and accurate. This  process is also designed to ensure user fee invoices are billed to tobacco  manufacturers and importers in a timely manner and to help the agency  ensure user fee payments are collected in a similar manner. Additionally,  FDA has designed procedures to retroactively adjust its quarterly  individual user fee calculations to include relevant excise tax data not  reported to FDA at the time these calculations were completed. The  agency’s year-end reconciliation process is designed to make these  adjustments to ensure that the user fees assessed for a given fiscal year  are complete and accurate.

Calculation. FDA’s process related to its quarterly individual user fee  calculations includes procedures to ensure its individual quarterly user fee  assessments are complete and accurate. Tobacco manufacturers and  importers provide monthly reports to FDA on the volume of and excise  taxes paid on tobacco products introduced into the U.S. market, and  those data are reviewed by CTP’s Office of Management for accuracy. If  CTP identifies incomplete data or inaccurate reporting, it will contact the  appropriate manufacturer or importer in an attempt to resolve  discrepancies (e.g., differences between what the company reported to  FDA and the supporting document it provided) prior to calculating  individual market share for the quarterly billing cycle. However, according  to agency officials, if the team is unable to resolve any discrepancies by  the time it must submit market share percentages to FDA’s Office of  Financial Management for the quarterly billing process, it uses the  potentially incomplete or inaccurate data for its market share calculations.  FDA officials stated that the agency may make adjustments to individual  market shares and resulting user fees based on late or amended data it  receives from manufacturers and importers after that data is received.  While this is an option, FDA generally relies on its year-end reconciliation  process to make all adjustments resulting from late or amended data  received at one time, according to FDA officials.

Billing: FDA’s process related to quarterly tobacco user fee billing  includes procedures to ensure the invoices it creates for individual  tobacco manufacturers and importers are complete and accurate—based  on CTP’s market share percentages calculated using the monthly excise  tax data submitted to FDA by manufacturers and importers—and mailed  in a timely manner. For example, FDA’s billing procedures provide for  quarterly user fee assessments to be calculated automatically in FDA’s  Tobacco Billing Portal.

Collection: FDA’s process related to the collection of quarterly tobacco  user fees includes  procedures to help it ensure quarterly tobacco user  fee payments received are complete, accurate, and timely recorded. FDA  has also designed mechanisms to identify and collect payment from  tobacco manufacturers and importers who do not pay their invoices by  the quarterly user fee due date (i.e., the last day of the applicable fiscal  year quarter). For example, FDA has an internal system that is designed  to generate alerts to warn staff of unpaid invoices that are approaching  30, 60, and 90 days past due so FDA can issue notification letters to  inform the tobacco manufacturers and importers that their invoices are  overdue and provide instructions for making a payment.  (See appendix II for additional information on FDA’s process for the  calculation, billing, and collection of tobacco user fees.)

Outside of its tobacco user fee calculation, billing, and collection cycle,  FDA’s procedures state that FDA will review TTB data to develop a list of  current tobacco permit holders that may be subject to user fees.  According to FDA officials, reviewing this list helps the agency ensure it  has included all manufacturers and importers within relevant tobacco  product classes in its individual quarterly user fee calculations. FDA  procedures state that CTP’s Office of Management contacts the permit  holders that have not reported monthly data to FDA, if identified, to inform  them that (1) they are required to report monthly data to FDA for  purposes of making user fee market share calculations, and (2) the permit  holder may be required to pay quarterly tobacco user fees as a result of  these data.

User Fee Adjustments: FDA has also designed procedures to  retroactively adjust its quarterly individual user fee calculations to include  relevant excise tax data that were misreported or not reported to FDA at  the time these calculations were completed. Individual quarterly user fee  assessments are based on the market share of manufacturers and  importers within each tobacco product class. As a result, FDA needs to  recalculate all individual market share percentages within a given class of  tobacco products if it receives new or amended data related to the excise  taxes paid by manufacturers and importers in that class, to ensure  compliance with the Tobacco Control Act. According to FDA’s  procedures, FDA may recalculate its individual quarterly market share  percentages to include changes identified by late or amended data  submissions from individual tobacco manufacturers and importers, and  FDA will recalculate market shares to include changes identified during its  year-end reconciliation process.

Late or amended data submissions. According to FDA’s  procedures, FDA can receive data from tobacco manufacturers and  importers that did not previously submit monthly data to FDA and  were therefore excluded from FDA’s initial quarterly market share  calculations. FDA can also receive late or amended data from tobacco  manufacturers and importers that previously reported incomplete or  inaccurate monthly data to FDA. According to FDA, in some  instances, these late or amended data are data that FDA had  requested during its monthly review process, but were received after  FDA completed its quarterly market share calculations. According to  FDA, companies may also voluntarily provide updated reports that the  company itself determined were a correction to previously submitted  data.

Year-end reconciliation based on annual tax records from TTB  and U.S. Customs and Border Protection (CBP). FDA’s procedures  state that it will make annual adjustments to user fees for each fiscal  year as part of its year-end reconciliation process. FDA’s procedures  state that, by FDA request, TTB and CBP will provide an annual  report listing the tobacco excise taxes paid by each manufacturer and  importer subject to the tobacco user fee requirement. FDA officials  stated that FDA submits an annual request to TTB and CBP for their  records of the excise taxes paid by each tobacco permit holder in the  six relevant tobacco product classes for the prior fiscal year. As of  July 2019, FDA officials stated that because TTB and CBP have up to  3 years to update and finalize their data files, CTP plans to update its  procedures to include two reconciliation processes for each fiscal  year. According to FDA officials, the first reconciliation, the year-end  reconciliation process, would begin immediately following the end of a  fiscal year, and the second reconciliation would occur 3 years after  that fiscal year ends.

FDA’s Year-End Reconciliation Process  Following the close of each fiscal year, the  Food and Drug Administration’s (FDA) Center  for Tobacco Products (CTP) initiates the  year-end reconciliation process by requesting  official records from the Alcohol and Tobacco  Tax and Trade Bureau (TTB) and U.S.  Customs and Border Protection (CBP). This  process is designed to ensure that the  tobacco user fees assessed that year are  complete—that is, that all manufacturers and  importers subject to user fees were assessed  user fees—and accurate—that is, that the  user fees assessed each quarter were based  on accurate market share information.  As designed, the year-end reconciliation  includes steps for FDA to compare the  information the agency used to calculate  quarterly user fees with independent  information obtained from TTB and CBP on  the individual tobacco manufacturers and  importers who paid tobacco excise taxes (to  ensure FDA has a complete list of those who  should pay user fees) and the amounts paid  (to ensure FDA used the right amounts to  calculate market share and user fees).

According to FDA officials, the year-end reconciliation is designed to  identify and make any needed corrections to its individual market share  calculations based on findings of new, amended, or missing excise tax  payments using the annual tax data provided by TTB and CBP (see  sidebar). For example, FDA officials stated that FDA will use the data  obtained from TTB and CBP to help identify tobacco manufacturers or  importers that should have been assessed user fees but were not, due to  the companies not reporting monthly data to FDA as required (non- reporters). This process also enables FDA to identify and address  fraudulent reporting by tobacco manufacturers and importers who  knowingly failed to submit or submitted false information in monthly forms  sent to FDA.

If FDA recalculates its quarterly market share percentages based on  findings of new or amended excise tax data, FDA’s procedures specify  that FDA will then make necessary adjustments to individual tobacco user  fee assessments. FDA officials stated that FDA can apply necessary  market share adjustments to individual user fee assessments in a  subsequent quarterly invoicing cycle, or after the agency completes its  year-end reconciliation process based on annual tax data from TTB and  CBP. According to FDA officials, in order to limit the need to re-invoice  companies multiple times outside of the regular billing cycle, FDA prefers  to send the adjusted invoices out once the year-end reconciliation  process is complete. However, the officials stated that they can make  changes outside of the year-end reconciliation. For example, the officials  reported making adjustments to individual user fee assessments for the  cigar class once, for the first quarter of fiscal year 2017. In that instance,  after receiving updated reports from two cigar companies that had initially  reported incorrect excise tax data to FDA, FDA officials stated that the  agency (1) recalculated the market share of cigar manufacturers and  importers based on the amended data FDA received from both  companies and (2) made necessary adjustments to the market share  percentages and associated user fees for that class for that quarter.

FDA Has Not Completed Its Year-End Reconciliation Process to Ensure User Fees Are Based on Complete and Accurate Data since Fiscal Year 2015

According to FDA, the agency has not completed its year-end  reconciliation process since completing the reconciliation for fiscal year  2015—the first year that FDA obtained data directly from manufacturers  and importers to calculate user fee assessments. FDA designed the year- end reconciliation process to ensure the agency’s individual user fee  calculations are based on complete and accurate data and accurately  reflect the market share of each tobacco manufacturer and importer. FDA  procedures state that FDA will conduct an annual adjustment for each  fiscal year using data received from TTB and CBP for individual  manufacturers and importers.

According to FDA officials, the agency has been unable to complete the  reconciliation process for fiscal years 2016 through 2018 because it  identified problems with the quality of data it had initially received from  TTB and CBP for those years. FDA officials stated that the agency has  worked with TTB and CBP, and officials believe they have determined the  reasons for the data problems. Specifically, FDA officials said that  changes in both the TTB and CBP internal data systems affected the data  fields that FDA needs to complete the reconciliation process.

As of July 2019, FDA officials had received revised excise tax and volume  data for fiscal years 2016 and 2017 from CBP and TTB. They also  received revised 2018 data from CBP and had requested, but not yet  received, revised 2018 data from TTB. FDA officials said that once they  have received the remaining 2018 data and determined that the data from  both agencies are of sufficient quality, they will be able to perform the  annual reconciliation process for those fiscal years.

According to FDA officials, before they can be certain the data are of  sufficient quality, the agency needs to modify its internal data system to  accommodate a new CBP data format, and then run the data through the  updated system. As of July 2019, FDA projects these modifications to its  data system will be completed by the end of calendar year 2019. Once  the modifications are finished, FDA projects it will complete the  reconciliation process for fiscal year 2016 within 3 to 6 months, and then  complete the reconciliation for fiscal years 2017 and 2018 in 3- to 6- month intervals consecutively after that.

While FDA has identified the steps to perform the year-end reconciliation  process for fiscal years 2016 through 2018, it could also face delays in  the future, because it does not have reasonable assurance that it will  receive quality data from TTB and CBP in a timely manner to complete  the reconciliation process for future years. According to FDA officials,  their efforts to obtain the data they need from TTB and CBP have focused  on fiscal years 2016 through 2018, and they have not determined  procedures or time frames for obtaining data from TTB and CBP for future  years. However, according to FDA officials, the agency was considering  possible actions for obtaining data in future years. One possible option  the agency was exploring was the possibility of FDA gaining direct access  to CBP’s and TTB’s data systems to obtain the data needed for the year- end reconciliation. According to officials, as of July 2019, CBP had  offered this direct access to its data, and the officials expect to pursue this  option with TTB officials for similar access. In addition, the agency  reported efforts to schedule meetings with TTB and CBP to discuss  establishing memorandums of understanding, or other written  agreements, that would establish expectations—such as time frames and  data format—with the agencies to obtain the quality data needed for the  year-end reconciliation.

As of September 2019, FDA reported it had scheduled a meeting with  CBP officials and was working to schedule a meeting with TTB officials,  but the agency had not yet determined procedures or time frames for  obtaining the needed data from these agencies for future years. Federal  internal control standards call for agencies to use quality information to  achieve their objectives. As part of this standard, agencies obtain  relevant data from reliable sources in a timely manner and process these  data into quality information that supports their internal control system.  Federal internal control standards also call for agencies to externally  communicate the quality information necessary to achieve its objectives.  As part of this standard, agencies communicate quality information  externally through reporting lines so that external parties can help the  entity achieve its objectives and address related risks. For example,  information communicated includes significant matters relating to risks,  changes, or issues that impact the agency’s internal controls. Consulting  with TTB and CBP, determining procedures and time frames for FDA to  receive the quality data it needs in future years, and documenting them in  a written agreement would help to address this risk. Without completing  the year-end reconciliation process in a timely manner, FDA cannot  ensure that the data it uses to calculate individual user fees are complete  and accurate. Until it works with TTB and CBP and resolves this issue,  FDA is at increased risk that user fees may not be properly assessed on  individual tobacco manufacturers and importers based on their market  share of each tobacco product class.

FDA collects user fees from tobacco manufacturers and importers for its  tobacco regulation activities—including important activities such as  educating the public about the risks associated with the use of tobacco  products and preventing youth use of these products. The agency has  designed a process with several steps for assessing these fees, including  a year-end reconciliation, to ensure that the calculations are complete  and accurate—that is, that all companies subject to user fees pay them,  and that no companies are assessed fees in excess of their market share.  However, for several years, FDA has faced serious delays obtaining the  quality data it needs from TTB and CBP to complete the year-end  reconciliations, according to FDA. Until FDA consults with these agencies  to determine and document the procedures and time frames that will  allow FDA to obtain the quality data it needs to complete this key step in a  timely manner, the agency risks repeating these delays. Without  performing its year-end reconciliation, FDA is at increased risk of allowing  some companies—such as those who did not report information to FDA  or who did not report accurate information—to not pay their required  share of user fees, while other companies pay too much.

The Commissioner of FDA should consult with TTB and CBP to  determine and document—for example in Memorandums of  Understanding or other written agreements—procedures and time frames  for FDA to receive quality data from TTB and CBP that will allow FDA to  complete its reconciliation process in a timely manner. (Recommendation  1)

We provided a draft of this product to HHS for comment. In its comments,  reproduced in appendix III, HHS generally agreed with our  recommendation. The agency commented that it recognized GAO’s  thorough review of FDA’s tobacco user fee program and stated that it is  critically important for FDA to have a tobacco user fee collection program  that is accurate, complete, and predictable. FDA also stated that it has  prioritized making the necessary enhancements to its internal data  system to accommodate the new format of TTB and CBP data files, and  that these changes are on track to be completed by the end of 2019.

HHS also provided technical comments, which we incorporated as  appropriate.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of Health and Human Services,  FDA Commissioner, and other interested parties. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or DeniganMacauleyM@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix IV.

Appendix I: Timeline of Events Related to Food and Drug Administration Tobacco Product User Fees

Appendix II: Additional Information on FDA’s Process Related to Tobacco User Fee Calculation, Billing, and Collection

This appendix provides additional information on the Food and Drug  Administration’s (FDA) process, which is designed to ensure the quarterly  user fees it calculates, bills, and collects each fiscal year are complete  and accurate and that user fee invoices are billed to and collected from  tobacco manufacturers and importers in a timely manner.

Calculation. FDA’s process related to its quarterly user fee calculations  include procedures to ensure the tobacco product class and individual  manufacturer and importer allocations are accurate. According to FDA’s  procedures, at the start of each fiscal year, FDA Office of Financial  Management, Division of User Fees staff (1) calculate the percentage  share for each tobacco product class and (2) enter these percentage  shares into FDA’s User Fee System, which automatically calculates  quarterly class allocations for each tobacco class. According to FDA  officials, FDA’s Office of Financial Management, Division of User Fees  staff, as well as Center for Tobacco Products’s (CTP) Office of  Management, User Fee Management Team staff, review the class  allocation calculations to verify the percentage shares were accurately  calculated for each tobacco product class before entering the class  percentages into FDA’s User Fee System. Prior to calculating individual  market share percentages that are the basis for individual user fees, the  User Fee Management Team within CTP’s Office of Management reviews  the monthly data reported to FDA by tobacco manufacturers and  importers for accuracy. According to FDA’s procedures, the CTP User  Fee Management Team checks to ensure that the volume and excise tax  data reported on each FDA form 3852 are accurate based on the  accompanying supporting documents. According to FDA procedures, if  the CTP User Fee Team identifies incomplete or inaccurate monthly  reports, it contacts the appropriate tobacco manufacturers or importers to  request the missing documentation or an amended FDA form 3852 and  tries to resolve any inaccuracies prior to calculating individual market  share for the quarterly billing cycle.

Billing. According to FDA’s procedures, the CTP User Fee Management  Team submits market share percentages to the FDA Office of Financial  Management, Division of User Fees in the month prior to the date that  invoices are to be issued. For example, for the first quarterly invoicing  cycle (October through December), the CTP User Fee Management  Team would submit market share percentages on November 15 and  invoices would be mailed by the Division of User Fees by December 1.  Using the market share data, the Division of User Fees calculates the  quarterly user fee amount assessed to individual manufacturers and  importers within each tobacco product class as part of its quarterly  invoicing process. FDA officials stated that, prior to creating quarterly  invoices, the Division of User Fees reviews CTP market share data to  ensure it received all necessary data. Prior to mailing quarterly invoices  to individual tobacco manufacturers and importers, FDA officials stated  that division staff verifies that the invoices created are complete and  accurate by comparing the invoice information to the CTP market share  data.

Collection. FDA’s Office of Financial Management, Division of User Fees  utilizes different mechanisms to identify and notify tobacco manufactures  and importers who do not pay their invoices by the quarterly user fee due  date (i.e., the last day of the applicable fiscal year quarter).

According to FDA’s procedures, the Division of User Fees uses a  program within FDA’s User Fee System—referred to as the Dunning  Tracker—to track relevant invoice data, including the date user fee  payments are due and the amounts owed. The Dunning Tracker is  designed to generate alerts to warn division staff of unpaid invoices  that are approaching 30, 60, and 90 days past due so they can issue  Dunning notification letters—which inform the tobacco manufacturers  and importers that their invoices are overdue and provide instructions  for making a payment. The Dunning notification letters also inform  tobacco manufacturers and importers of the amount of additional  charges assessed based on the number of days that the payment is  late. According to FDA officials, division staff verify that a Dunning  notification letter is issued for each tobacco manufacturer or importer  with an outstanding invoice and that the appropriate charges have  been assessed.

According to FDA officials, the Division of User Fees also maintains  an arrears list—a list of tobacco manufacturers and importers who  have not paid their quarterly user fees on time. FDA’s procedures  provide that the Division of User Fees will share the arrears list with  the CTP Office of Compliance and Enforcement to assist that office’s  efforts to obtain compliance with the user fee requirements. FDA  officials stated that the office monitors the arrears list and takes  enforcement action when appropriate. The officials said that the office  will first issue information letters, separate from the Dunning  notification letters, to each tobacco manufacturer and importer on the  arrears list to try to obtain voluntary compliance on the user fee  payments owed. FDA officials stated that if the office is unable to  obtain compliance after it issues the information letter, it may take  further action, such as notifying the delinquent company that all  tobacco products manufactured and imported by it are adulterated.  Agency officials told us that, in 2014, FDA notified three individual  tobacco manufacturers that all the tobacco products they  manufactured were adulterated due to these companies’ failure to pay  their tobacco user fees.

According to FDA’s procedures, the Division of User Fees refers  delinquent debt to the Department of Health and Human Services (HHS)  Program Support Center when outstanding invoices reach 90 days past  due. The Program Support Center will pursue collection efforts per its  standard procedures and issues two reports each month to the Division of  User Fees to inform it of which debts have been collected and which are  uncollectable.

Appendix III: Comments from the Department of Health and Human Services

In addition to the contact named above, Kim Yamane (Assistant Director),  Matthew Byer (Analyst in Charge), Sam Amrhein, Julie Flowers, Jackie  Hamilton, Derry Henrick, Vikki Porter, and LaDonna Towler made key  contributions to this report.

The Food and Drug Administration charges tobacco manufacturers a fee to fund regulation activities (such as educating the public about risks associated with tobacco). These fees, which are based on companies’ market shares, were about $635 million in FY 2017.

FDA is supposed to check its fee calculations and make adjustments at the end of each year, but the most recent adjustment was completed for fiscal year 2015. Challenges in obtaining the needed data from 2 other agencies have delayed the process.

To help avert future delays, we recommended that FDA work with the agencies to get the needed information in a more timely manner.


Air Ambulance: Available Data Show Privately-Insured Patients Are at Financial Risk

Air ambulances provide emergency services for critically ill patients. Relatively few patients receive such transports, but those who do typically have no control over the selection of the provider, which means privately-insured patients may be transported by out-of-network providers.

The Joint Explanatory Statement accompanying the 2017 Consolidated Appropriations Act includes a provision for GAO to review air ambulance services. Among other objectives, this report describes (1) the extent of out-of-network transports and balance billing and (2) the approaches selected states have taken to limit potential balance billing.

GAO analyzed a private health insurance data set for air ambulance transports with information on network status and prices charged in 2017 (the most recent data available). Although this was the most complete data identified, the data may not be representative of all private insurers. In addition, GAO interviewed officials in six states (Florida, Maryland, Montana, New Mexico, North Dakota, and Texas) selected in part for variation in approaches to limit balance billing and location. GAO also interviewed air ambulance providers, health insurers, and Centers for Medicare & Medicaid Services and Department of Transportation (DOT) officials. DOT provided technical comments on a draft of this report, which GAO incorporated as appropriate, and the Department of Health and Human Services had no comments.

Privately-insured patients transported by air ambulance providers outside of their insurers' provider networks are at financial risk for balance bills—which, as the figure shows, are for the difference between prices charged by providers and payments by insurers. Any balance bills are in addition to copayments or other types of cost-sharing typically paid by patients under their insurance coverage.

According to GAO's analysis of the most complete data identified for air ambulance transports of privately-insured patients, 69 percent of about 20,700 transports in the data set were out-of-network in 2017. This is higher than what research shows for ground ambulance transports (51 percent in 2014 according to one study) and other emergency services. Air ambulance providers that GAO spoke with reported entering into more network contracts recently, which could lower the extent of out-of-network transports in areas covered by the contracts.

While out-of-network transports may result in balance billing, the data GAO analyzed do not indicate the extent to which patients received balance bills and, if so, the size of the bills. In addition, as GAO reported in 2017, there is a lack of national data on balance billing, but some states have attempted to collect information from patients. For example, GAO reviewed over 60 consumer complaints received by two of GAO's selected states—the only states able to provide information on the amount of individual balance bills—and all but one complaint was for a balance bill over $10,000. Patients may not end up paying the full amount if they reach agreements with air ambulance providers, insurers, or both. The amounts of potential balance bills are informed in part by the prices charged. GAO's analysis of the data set with transports for privately-insured patients found the median price charged by air ambulance providers was about $36,400 for a helicopter transport and $40,600 for a fixed-wing transport in 2017.

The six states reviewed by GAO and others have attempted to limit balance billing. For example, the six states have taken actions to regulate insurers, generate public attention, or both. As required by recent federal law, the Secretary of Transportation has taken steps to form an advisory committee to, among other things, recommend options to prevent instances of balance billing.

Air ambulances provide emergency services for critically ill patients,  primarily in life-threatening situations. First responders call for air  ambulances to transport patients from the scene of an injury or an  accident to hospitals. Physicians also call for air ambulances to transport  patients between hospitals when patients need higher levels of care, such  as specialized trauma, cardiac, or stroke care.

The air ambulance industry, particularly as it relates to air ambulance  helicopters, has seen numerous changes in recent years. In 2017, we  reported that between 2010 and 2014 the median prices charged by air  ambulance providers for helicopter transports approximately doubled, and  the number of air ambulance helicopters grew by more than 10 percent.  We also found that various factors, such as the costs for and volume of  transports, may play a role in air ambulance prices, but we concluded that  an in-depth analysis of those factors is not possible due to a lack of data,  including data on the total number of transports.

A health care billing practice known as balance billing may pose financial  risk to patients covered by private health insurance who receive air  ambulance services. Balance billing is when privately-insured patients  receive a bill from a health care provider for any difference between the  amount charged and the payment from the insurer for the service. For  privately-insured patients who receive air ambulance services, balance  billing can occur when they are transported by air ambulance providers  outside of their insurers’ provider networks, which means the providers  and insurers do not have an agreed-upon payment rate. For example,  one consumer in North Dakota reported receiving a balance bill of  approximately $34,700 for an air ambulance transport from Dickinson,  North Dakota, to Bismarck, North Dakota, in November 2017. The air  ambulance provider had charged $41,400, and the patient’s insurer had  paid $6,700, leaving a balance of approximately $34,700.

There has been interest among federal and state policymakers and  others in the issues of out-of-network air ambulance transports and  potential balance billing. For example, the Secretary of Transportation  has taken steps to form an advisory committee on air ambulance patient  billing, as required by the Federal Aviation Administration (FAA)  Reauthorization Act of 2018, which became law in October 2018. Among  other things, the committee is directed to recommend steps that states  can take to protect consumers.

The Joint Explanatory Statement accompanying the 2017 Consolidated  Appropriations Act includes a provision for us to review air ambulance  services. In this report, we describe  1.  changes in geographic distribution of air ambulance services, 2.  the extent of out-of-network air ambulance transports and balance  billing for these services, and  3.  what is known about the approaches selected states have taken to  limit potential balance billing for out-of-network air ambulance  transports.

For all three objectives, we interviewed officials in six states—Florida,  Maryland, Montana, North Dakota, New Mexico, and Texas—that were  selected to achieve variation among states in the growth in the number of  air ambulance bases, the types of those bases (that is, helicopter or fixed- wing, which are the two types of air ambulances), the approaches taken  in the state to limit balance billing, and geographic location. We also  interviewed officials from the three largest independent air ambulance  providers, five national health insurers dominant in our selected states,  and officials from the Centers for Medicare & Medicaid Services and the  U.S. Department of Transportation (DOT). To gain additional context, we  also interviewed academic researchers and a consumer group who have  examined the issue of balance billing, and we interviewed officials from  local air ambulance providers and hospitals in three states (Maryland,  Montana, and Texas) where we conducted site visits.

To describe changes in the geographic distribution of air ambulance  services, in addition to the interviews, we analyzed data in the Atlas &  Database of Air Medical Services (ADAMS) on the locations of air  ambulance providers’ bases for 2012 and 2017, the most recent year for  which data were available. We consulted with officials from the  Association of Air Medical Services about limitations of the data, including  that (1) these data are voluntarily reported by air ambulance providers  with, according to officials, an estimated 95 percent of helicopter air  ambulance providers and 90 percent of fixed-wing air ambulance  providers in each year; and (2) the data include some air ambulance  providers that do not offer air ambulance services on a full-time basis or  that have a primary mission other than air medical services. We assessed  the reliability of the ADAMS data by reviewing related documentation,  interviewing relevant officials, checking for internal consistency, and  comparing our results across data sets and to published sources. We  determined the data were sufficiently reliable for the purposes of our  reporting objectives.

To describe the extent of out-of-network air ambulance transports and  balance billing for these services, in addition to the interviews, we  analyzed private health insurance claims from FAIR Health for 2012 and  2017, the most recent year for which data were available, regarding the  status of air ambulance transports as in- or out-of-network and the prices  charged for those transports. FAIR Health is an independent, nonprofit  organization that collects data for and manages a database of private  health insurance claims data. The FAIR Health data set contains claims  for around 24,100 transports in 2012 and 33,800 transports in 2017 from  all 50 states and the District of Columbia, including claims from over 50  insurers in each year (including both fully-insured and self-insured plans).  The data set accounted for 110.1 million covered lives in 2012 and 145.0  million covered lives in 2017. This was the most complete data source  we identified with data on prices charged for and the network status of air  ambulance transports for privately-insured patients. However, the FAIR  Health data may not be representative of all private insurers and therefore  cannot be generalized. Our results on prices charged are based on all  transports in the FAIR Health data. Our results on the extent of out-of- network transports are based on a subset of about 13,100 transports  (accounting for about 58.6 million covered lives) in 2012 and about  20,700 transports (accounting for about 87.3 million covered lives) in  2017 with information on network status. We assessed the reliability of  the FAIR Health data by reviewing related documentation, interviewing relevant officials, checking for internal consistency, and comparing our  results across data sets and to published sources. We determined the  FAIR Health data were sufficiently reliable for the purposes of our  reporting objectives.

We conducted this performance audit from October 2017 to March 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Air ambulance providers use either helicopters or fixed-wing aircraft, as  shown in Figure 1, depending on where and how far they are transporting  patients.

Helicopters are generally used for transports from the scene of the  accident or injury to the hospital or for shorter-distance transports  between hospitals. Helicopter bases may be at hospitals, airports, or  other types of helipads, and a provider may need to fly from its base  to the scene or a hospital to pick up the patient being transported. Air  ambulance providers typically respond to calls for helicopter  transports within a certain area around their bases in part to ensure  appropriate response times.

Fixed-wing aircraft are generally used for longer-distance transports  between hospitals. Fixed-wing bases are at airports, and the patient is  transported by ground ambulance to and from the airports.

Air ambulance providers respond to emergencies without knowing  patients’ health insurance coverage, such as whether the patient has  private insurance, Medicare, Medicaid, or no insurance. According to  our previous analysis of information from eight selected air ambulance  providers, in 2016, Medicare patients received 35 percent of helicopter  transports, privately-insured patients received 32 percent, Medicaid  patients received 21 percent, uninsured patients received 9 percent, and  patients with other types of coverage such as automobile and military- sponsored insurance received a small percentage.

Relatively few patients receive air ambulance transports, but those  patients who do generally have no control over the decision to be  transported by air ambulance or the selection of the air ambulance  provider, as shown in Figure 2. For privately-insured patients, this means  they cannot necessarily choose to be transported by air ambulance  providers in their insurers’ network and can potentially receive a balance  bill from the providers for the difference between the price charged by the  provider and the amount paid by the insurer. This amount is in addition to  copayments, deductibles, or other types of cost-sharing that patients  typically pay under their insurance. Air ambulance providers are  prohibited from sending balance bills to Medicare and Medicaid patients,  while uninsured patients might be held responsible by the air ambulance  provider for the entire price charged.

With many types of health care services, both health care providers and  insurers have incentives to negotiate and enter into contracts that specify  amounts that providers will accept as payment in full, thereby avoiding the  potential for balance bills for those services. Insurers can offer—and  health care providers may be willing to accept—payment rates that are  much lower than the providers’ charged amounts because the providers  may receive more patients as an in-network provider. Furthermore, when  patients are choosing insurance plans, they may consider how many or  which providers are in-network, particularly for providers such as  hospitals or certain physicians.

The emergency nature of most air ambulance transports, as well as their  relative rarity and high prices charged, reduces the incentives of both air  ambulance providers and insurers to enter into contracts with agreed- upon payment rates, which means air ambulance providers may be more  often out-of-network when compared with other types of providers.  Decisions by first responders and physicians on which air ambulance  provider to call are typically not based on the patient’s insurance plan,  meaning that being in-network may not increase air ambulance providers’  transport volume. As a result, according to stakeholders we spoke to, if  insurers offer payment rates that are much lower than the air ambulance  providers’ charged amounts, the air ambulance providers may be less  willing than other health care providers to accept those payment rates.  Furthermore, given the relative rarity of air ambulance transports, patients  may not anticipate needing air ambulance transports and may not choose  insurance plans based on which or how many air ambulance providers  are in insurers’ networks.

Approaches by states or the federal government to limit balance billing  may target providers, insurers, or both. Examples of approaches  described in research on balance billing include a cap on the amount that  providers can charge or a requirement for insurers to pay the full amount  charged by providers. However, according to the research, targeting just  providers or insurers can result in undesired outcomes. Capping the  amount providers can charge could result in insurers that underpay for  services, which could lead some providers to reduce service or exit the  market altogether. Conversely, requiring insurers to pay the full amount  charged by providers could result in providers that overcharge for  services, which could lead to higher premiums charged to patients.

The authority of states to address issues related to air ambulance  balance billing is affected by the following federal laws:

Airline Deregulation Act of 1978 (ADA): A provision in this law  preempts state-level economic regulation—i.e., regulating rates,  routes, and services—of air carriers authorized by DOT to provide air  transportation. In general, courts have held that air ambulances are  considered to be air carriers under the ADA’s preemption provision,  and courts, DOT, and state attorneys general have determined  specific issues related to the air ambulance industry that can and  cannot be regulated at the state level.

McCarran-Ferguson Act of 1945: This act affirmed that states have  the authority to regulate the business of insurance. For example,  states may review insurers’ health insurance plans and premium  rates. In instances of balance billing, states can determine whether  the insurer paid a provider in accordance with its policy for paying for  out-of-network services.

Employee Retirement Income Security Act of 1974 (ERISA):  ERISA provides a federal framework for regulating employer-based  pension and welfare benefit plans, including health plans. Although  states may regulate health insurers, ERISA preemption generally  prevents states from directly regulating self-insured employer-based  health plans.

In 2017, as previously mentioned, we reported on the increase in prices  charged by helicopter air ambulance providers and on the lack of data on  the factors that may be affecting prices charged. We also found only  limited information was available related to several key aspects of the  industry, ranging from basic aspects—such as the composition of the  industry by type of air ambulance provider, the prices charged by air  ambulance providers, and the number of overall transports—to the more  complex, such as the extent of contracting between air ambulance  providers and insurers or the extent of balance billing to patients.

Given DOT’s authority to oversee certain aspects of the industry, we  made four recommendations to DOT in 2017 to increase transparency  and obtain information to better inform their oversight of the air  ambulance industry: (1) communicating a method to receive air  ambulance complaints, including those regarding balance billing; (2)  taking steps to make complaint information publicly available; (3)  assessing available federal and industry data to determine what  information could assist in the evaluation of future complaints; and (4)  considering consumer disclosure requirements for air ambulance  providers, such as established prices charged and the extent of  contracting with insurers. DOT has taken steps to respond to the first two  recommendations, including adding information to its website describing  how air ambulance complaints can be registered and used by DOT. It has  also listed the number of air ambulance complaints filed with DOT each  month starting in January 2018—23 air ambulance complaints have been  filed with DOT through November 2018. DOT has not yet acted on the  remaining two recommendations.

Air Ambulance Providers Added Bases from 2012 through 2017

Air ambulance providers added helicopter bases from 2012 through 2017,  according to our analysis of the ADAMS data. Specifically, there were  752 bases in the 2012 data and 868 bases in the 2017 data. When we  compared the data for each year, there were 554 bases in both years of  data (i.e., existing bases), 314 bases in the 2017 data only (i.e., new  bases), and 198 bases in the 2012 data only (i.e., closed bases); the new  and existing bases are shown in Figure 3. This addition in bases also  increased the total area served by helicopter bases by 23 percent.  Several air ambulance providers told us about their decisions to open  new bases. For example, one air ambulance provider told us that one  way it evaluates the need for a new base in an area is to ask hospitals in  that area about the number of transports they typically require and the  length of time it takes helicopters to arrive to pick up patients.

Along with adding helicopter bases, air ambulance providers also added  fixed-wing bases from 2012 through 2017, according to our analysis of  the ADAMS data. Specifically, there were 146 bases in the 2012 data and  182 bases in the 2017 data. When we compared the data for each year,  there were 114 bases in both years of data (i.e., existing bases), 68  bases in the 2017 data only (i.e., new bases), and 32 bases in the 2012  data only (i.e., closed bases); the new and existing bases are shown in  Figure 4. Both the existing and new bases are more prevalent in the  Western and Southern parts of the United States. Given that fixed-wing  aircraft are used for longer-distance transports and that patients are  brought to the base rather than picked up by fixed-wing aircraft, we did  not measure the area or any changes in the area served by fixed-wing  bases, which are usually airports.

Based on our previous work, we further analyzed two trends related to  where air ambulance providers have chosen to locate their new bases.

New bases in rural areas: About 60 percent of the new helicopter  bases and about half of the new fixed-wing bases in the ADAMS data  were in rural areas. We previously reported that some helicopter air  ambulance providers told us that the lower population density in rural  areas leads to fewer transports per helicopter at rural bases. They  also said that, despite the lower population density, rural areas may  have greater need for air ambulance transports. This may be due to,  for example, the closure of some rural hospitals and the establishment  of regional medical facilities, such as cardiac and stroke centers that  provide highly specialized care.

New bases in areas with existing coverage: For just under half of  the new helicopter bases in the ADAMS data, the area served  overlapped with existing air ambulance coverage by more than 50  percent. On one hand, according to some stakeholders we spoke to,  the new helicopters may help enhance available services by, for  example, being able to respond to a call if the existing ambulance  resources are in use or otherwise unavailable. On the other hand,  as we have previously reported, some air ambulance providers told us  that when helicopters are added to bases in areas with existing  coverage, those helicopters are not serving additional demand. As a  result, the same number of transports is spread out over more  helicopters, reducing the average number of transports per helicopter.

The FAA Reauthorization Act of 2018, which became law in October  2018, requires the FAA to assess the availability of information to the  general public related to the location of heliports and helipads used by  helicopters providing air ambulance services and to update current  databases or, if appropriate, develop a new database containing such  information. This could provide additional information about base  locations going forward.

Available Data Indicate About Two- Thirds of Air Ambulance Transports for Privately-Insured Patients Were Out-of- Network but Not Extent of Balance Billing for these Services

In the FAIR Health data on air ambulance transports for privately-insured  patients, about two-thirds of the approximately 13,100 and 20,700  transports with information on network status were out-of-network in 2012  and 2017, respectively. (See Table 1.) The proportions were similar for  both helicopter and fixed-wing transports in each year.

The proportion of out-of-network air ambulance transports in the FAIR  Health data set is higher than what research shows for ground ambulance  transports and other types of emergency services. For example, one  study found that 51 percent of ground ambulance transports in 2014 were  out-of-network, and the same study and another one found that 14 and 22  percent of emergency department visits in 2014 and 2015 involved out-of- network physicians, even at in-network hospitals.

Air ambulance providers and insurers we spoke to confirmed that their  proportion of out-of-network transports was high in 2017, but some also  reported they have recently been entering into more network contracts.  For example, one of the large independent air ambulance providers and a  national insurer entered into a contract that covered patients in five states  as of August 2018. These contracts could decrease the extent of out-of- network transports and balance billing in the future for these states.

Increases in the prices charged for air ambulance transports may  exacerbate the financial risks related to balance billing for those with  private insurance. In 2017, the median price charged by air ambulance  providers for a transport was approximately $36,400 for a helicopter  transport and $40,600 for a fixed-wing transport, according to our analysis  of FAIR Health data. The prices charged in 2017 were an increase of  over 60 percent from 2012, when the median price charged was  approximately $22,100 for a helicopter transport and $24,900 for a fixed- wing transport. There is limited information on what insurers pay for out- of-network services.

While out-of-network transports may result in balance billing, the FAIR  Health data we analyzed do not indicate the extent to which patients  received balance bills and, if so, the size of the bills. In addition, as we  previously reported, there is a lack of comprehensive national data about  the extent and size of balance bills, and air ambulance providers are  generally not required to report such data.

However, some states have attempted to collect information from patients  about balance billing for air ambulance services. Therefore, to provide  insights into potential balance bill amounts, we reviewed data on  consumer complaints that two of our selected states had received about  specific incidents of balance billing for 2014 through 2018. Data for  Maryland contained about two dozen complaints with information on the  specific amount of balance bills, and those amounts ranged from $12,300  to $52,000. Data from North Dakota contained three dozen complaints  with information on the specific amount of balance bills, and those  amounts ranged from $600 to $66,600, though all but one amount was  over $10,000.

Given that providers may agree to reduce amounts that patients would  otherwise owe or insurers may increase their payments to providers,  along with limited national data, the extent to which patients actually pay  the full amounts of balance bills received is also unclear. Generally,  officials from air ambulance providers we spoke to said that they first  encourage patients to appeal to their insurers for increased payment. If  these appeals do not fully address the balance bill, the providers may  offer various payment options. For example, officials from one air  ambulance provider said that it offers a discount of up to 50 percent off  the balance bill if the patient pays the remaining 50 percent immediately.  Alternatively, the provider requests detailed financial information—such  as income, obligations and debts, and medical bills—to determine  whether to potentially offer other discounts or a payment plan. This  process can take multiple months, and officials from another air  ambulance provider said patients who do not respond to letters and calls  may be more likely to be referred to a collections process. Air ambulance  providers we spoke with said that they use discretion on how much  assistance to offer, and not all patients receive discounts after providing  all relevant documentation. Even with discounts, according to data from  some air ambulance providers we spoke with, the amount patients pay  can still be in the thousands of dollars.

Selected States Have Attempted to Limit Potential Air Ambulance Balance Billing through Insurance Regulation and Public Attention

Four of our selected states attempted to limit balance billing through the  regulation of insurers (Montana, New Mexico, North Dakota, and Texas).  Additionally, four states have attempted to limit balance billing through  education and public pressure on stakeholders (Florida, Maryland, New  Mexico, and North Dakota).

Four of the six states we selected—Montana, New Mexico, North Dakota,  and Texas—have attempted to limit balance billing by air ambulance  providers through the regulation of insurers, as shown in Table 2. Three  states have faced challenges in federal district court related to whether  their attempts to limit balance billing by air ambulance providers are  preempted by the federal ADA. As of January 2019, the case in New  Mexico was dismissed on procedural grounds, and the cases in North  Dakota and Texas have been decided.

The hold-harmless requirement and dispute resolution process  established by Montana’s law is an example of how states are attempting  to limit balance billing by regulating the business of insurance. Under the  hold-harmless requirement, the financial risk for potential balance billing  is transferred from patients to the insurer by limiting the patients’ out-of- pocket costs to their cost-sharing responsibilities. However, according to  state officials, the dispute resolution process established by this law had  not yet been used as of December 2018. The requirement and process  apply to transports for patients covered by Montana-regulated insurance  plans. It does not apply to transports for individuals in most self-insured  plans subject to ERISA, nor does it apply to transports for individuals,  such as tourists, covered by insurance plans regulated by other states.  The stated purpose of the law establishing this process is to prevent state  residents from incurring excessive out-of-pocket expenses in air  ambulance situations in a manner that is not preempted by the ADA.

Officials in Montana and North Dakota reported receiving fewer consumer  complaints about balance billing after implementing their laws to limit  balance billing. One reason for this decrease in consumer complaints,  according to officials in Montana, was that uncertainty over the possible  effects of the law has made most air ambulance providers more willing to  enter into contract negotiations with insurers. The officials added that  shortly after the law’s enactment, a large insurer and a large air  ambulance provider entered into a network contract. Additionally, another  air ambulance provider in Montana confirmed that although it had  provided out-of-network transports, it had not sent balance bills to  patients since the law took effect. Officials in both states could not  comprehensively report the extent to which instances of balance billing  may have decreased in their state.

As required by FAA Reauthorization Act of 2018, the Secretary of  Transportation has taken steps to form an advisory committee on air  ambulance patient billing. DOT issued a solicitation in December 2018  for applications and nominations for membership on this advisory  committee. The committee is to consist of representatives from state  insurance regulators, health insurance providers, patient advocacy  groups, consumer advocacy groups, and physicians specializing in  emergency, trauma, cardiac, or stroke care, among others. The Act  directs the advisory committee to issue a report within 180 days of its first meeting and to make recommendations that address the following,  among other things:

The disclosure of charges and fees for air ambulance services;

Options and best practices for preventing balance billing—such as  improving network and contract negotiation, dispute resolutions  between health insurers and air medical service providers, and  explanations of insurance coverage;

Steps that states can take to protect consumers consistent with  current legal authorities regarding consumer protection; and

The recommendations from our 2017 report, including any additional  data that DOT should collect from air ambulance providers and other  sources to improve its understanding of the air ambulance market and  oversight of the industry.

Officials in three selected states—Florida, New Mexico, and North  Dakota—have provided information to educate consumers and other  stakeholders about balance billing for air ambulance transports. The  Florida Office of the Insurance Consumer Advocate and the New Mexico  Office of Superintendent of Insurance reviewed air ambulance transports  in their states and issued public reports with recommendations to improve  transparency and education, among other recommendations. Florida’s  report, issued in June 2018, recommends that insurers and air ambulance  providers improve transparency about the availability of in-network air  ambulance providers in a given area and provide information about rate  justifications and billing practices to help consumers anticipate potential  out-of-network costs. New Mexico’s report, issued in January 2017,  recommends educating emergency room physicians and other health  care providers about the impact of air ambulance bills on consumers and  on how to select in-network air ambulance providers. Additionally, since  2017, the North Dakota Insurance Department has produced a publicly  available guide showing which air ambulance providers are in-network  with the three insurers in the state. This guide is part of the state’s  requirement that, for non-emergency transports, hospitals inform patients about the network status of air ambulance providers. Although the three  large independent air ambulance providers we spoke with told us that  non-emergency transports comprise only a small percentage of air  ambulance transports, officials in North Dakota said some dispatchers  and first responders reported using the guide to call in-network air  ambulance providers when possible for emergency transports.

Finally, one additional selected state—Maryland—has increased public  awareness of air ambulance balance billing, which has generated public  pressure on air ambulance providers and insurers to encourage the two  sides to negotiate contracts. The Maryland Insurance Administration  convened a public meeting in September 2015 with the goal of raising  public awareness about air ambulance balance billing in the state. The  meeting involved statements from patient, air ambulance, hospital, and  insurer stakeholders. One of the large independent air ambulance  providers said that public pressure following the meeting, as well as  subsequent engagement from the state insurance commissioner, were  factors in securing a contract with a large insurer in the state.

We provided a draft of this report to the Department of Health and Human  Services and DOT for review and comment. The Department of Health  and Human Services told us they had no comments on the draft report,  and DOT provided technical comments that we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Administrator of the Centers for Medicare & Medicaid  Services, the Secretary of the Department of Transportation, and other  interested parties. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  James Cosgrove, Director, Health Care at (202) 512-7114 or  cosgrovej@gao.gov or Heather Krause, Director, Physical Infrastructure  at (202) 512-2834 or krauseh@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix I.

Appendix I: GAO Contacts and Staff Acknowledgments

In addition to the contacts named above, Lori Achman (Assistant  Director), Heather MacLeod (Assistant Director), Corissa Kiyan-Fukumoto  (Analyst-in-Charge), William Black, George Bogart, Stephen Brown,  Krister Friday, Matthew Green, Barbara Hansen, Giselle Hicks, and Vikki  Porter made key contributions to this report.

Air Ambulance: Data Collection and Transparency Needed to Enhance  DOT Oversight. GAO-17-637. Washington, D.C.: July 27, 2017.

Air Ambulance: Effects of Industry Changes on Services Are Unclear.  GAO-10-907. Washington, D.C.: Sept. 30, 2010.

An air ambulance can quickly transport you to a hospital in an emergency. But how much could it cost you?

The data we reviewed indicated that in 2017, about 2/3 of air ambulance transports for patients with private insurance were out-of-network. Generally, insurance only pays for a portion of an out-of-network service.

In that case, you could be billed for the difference between what the air ambulance provider charges and what your insurance paid—which is known as "balance billing" or "surprise medical billing."

Almost all of the consumer complaints we reviewed involved balance bills of over $10,000.