The Hospital Cooperative Model for EMS

Among the various corporate structures that have evolved to provide EMS in the United States is the hospital cooperative model. Officially known as the Cooperative Hospital Service Organization (CHSO), it’s a membership organization whose participants are nonprofit hospitals. Designated under the Internal Revenue Service code as a 501(e), the CHSO provides an organizational configuration for multiple hospitals interested in working together to provide EMS in their communities, while reducing costs to themselves and maintaining some control.

As members of the cooperative, the hospitals share membership and governance. They may choose to fund the cooperative, or, if it is large enough and managed well enough, the CHSO can function fiscally independently from its members. Either way it provides members the opportunity to reduce the expenses and risk they’d normally incur by operating an emergency medical service as part of their organizations.

When the cooperative stands alone financially, it eliminates all EMS costs for hospital members while allowing them to maintain shared control over the operation. But even when member hospitals financially support the cooperative, it still promotes operational economies of scale that help reduce costs.

Making Decisions

Members of the cooperative hold the status of either voting patron or nonvoting patron. Voting patron members sit on the Board of Trustees and govern the organization. Nonvoting patron members enjoy the benefits of the CHSO but do not participate in its governance. In both cases, however, all members maintain a “fund balance” in the entity. The fund balance is the accumulated net income the CHSO generates year after year that has not been distributed to the members.

Typically the CHSO hires its own staff, owns its own equipment and is responsible for its own budget. It operates as a stand-alone corporation but is governed by its voting patron members. They appoint representatives from their organizations to sit on the Board of Trustees. If a CHSO is dissolved, its remaining assets and cash after its liabilities are paid must be distributed to its members in accordance with the proportion of its fund balance.

The IRS requires that a hospital cooperative allocate all of its annual net income to each of its members, regardless of voting status, either by direct distribution of cash or assignment to their individual fund balances. Allocation of the net income must be proportional to the business performed by each member. This would normally be considered a prohibited remuneration or kickback and violate federal law. However, CHSO regulations include a safe harbor that exempts payments from CHSO members that support the cooperative’s operational costs, as well as all payments from the CHSO to its members required by IRS rules.

CHSOs can provide other shared services for their members, but IRS regulations strictly limit which types. Hospital cooperatives can perform data processing, purchasing (including group insurance), warehousing, billing and collection (including the purchase of patron accounts receivable on a recourse basis), food, clinical, industrial engineering, laboratory, printing, communications, record center and personnel (including selection, testing, training and education) services. However, the exact nature of the services provided within these categories must be only what the members would be permitted to perform on their own within their IRS nonprofit designation. In other words, if the nonprofit member hospital would be prohibited from performing a particular service under its IRS designation, the CHSO can’t perform it either. The CHSO can perform no other services than those enumerated by the IRS code.

Because EMS essentially includes the components of “clinical” (provision of healthcare to patients), “billing and collection” (for the services provided), “personnel” (to perform the clinical function) and “communications” (with EMS units and medical command), and since EMS can be performed individually by nonprofit hospitals within their individual nonprofit designations, then it qualifies under the IRS code as a permissible service for a CHSO.

Intimate Relationships

CHSOs can exist even when hospitals otherwise compete in a marketplace. Some hospitals see EMS as a subset of the larger healthcare industry, but one that should be void of rivalry. For this reason, some choose to join forces through the neutrality and shared-governance model of the CHSO in order to provide EMS. In this way they remain involved in EMS, keep this part of the healthcare market from engaging in competitive practices that could harm patients, and allow for their EDs and physician staff to be involved in the clinical oversight of care.

By virtue of its corporate structure, the CHSO has a propensity for intimate relationships with the various sections of its member hospitals, especially emergency departments, that interface with the EMS patients the cooperative treats. This tends to enhance integration of medical care provided in the prehospital and in-hospital segments. Likewise, the emergency department medical directors of CHSO member hospitals can be more likely to collaborate on EMS treatment regimens and develop consensus protocols than other organizations.

This model also provides a much easier path for the hospitals within a particular EMS region to not only cooperate and standardize treatments to patients, but streamline the process of care delivery between EMS providers and hospital clinicians. In addition, quality assurance programs are more readily unified and enriched.

Conclusion

CHSOs that perform EMS can represent a significant improvement over individual hospital-operated EMS services because of the cooperative and integrated nature of their organizations and members. Even the relationship between a cooperative’s clinical providers in the field and the member hospitals’ staffs can be significantly closer than in other delivery models.

Cooperative hospital service organizations can be an excellent structure through which to provide regional EMS on a nonprofit basis, with the highest level of cooperation, coordination and integration of constituent hospitals possible. Consider them when feasible as a delivery model for EMS.

Vincent Robbins, FACHE, is president and chief executive officer of MONOC, New Jersey’s hospital cooperative mobile health service.