A Six-Step Method for Building an NEMT Cost Floor

What to take away

Pricing conversations in this trade usually start in the wrong place, with what somebody else charges. That number carries their wage levels, their geography, their vehicle costs and their utilization. Borrowing it borrows their circumstances and none of their information.

Here is the build-up instead, with the variables named.

Step one: hourly cost of a staffed vehicle

Sum, per year, for one vehicle:

Call that annual total A. Divide by H, the hours you actually staff the vehicle in a year, to get C, your cost per staffed vehicle hour.

Wages are the largest line inside A and the one you cannot look up as a single number. The Bureau of Labor Statistics Occupational Employment and Wage Statistics (OEWS) tables report wages by occupation and metropolitan area; filter them to your own area for the starting figure. Then adjust to what local candidates actually accept, because that number includes the lifting, waiting and paperwork your role demands.

Step two: the utilization factor

Not every staffed hour is a billable hour. Let U be the share of staffed hours you expect to be paid for, after empty repositioning, waiting, no-shows and gaps in the schedule.

Your cost per billable hour is C divided by U. Most informal pricing omits this step, which is why an operation can be busy and short of money at the same time.

Measure U from your own dispatch records over a period that includes a bad week. Do not estimate it optimistically; the whole point of the number is that it is unflattering. Three contract lines decide whether your U assumption survives contact: the cancellation window (does a canceled trip still consume the hour?), the wait rule (how long does a driver hold?), and the completion definition (what turns a delivered trip into a billable one?). Concede on those and your real U falls after you have already priced from the old one. The cancellation window and the other two terms are mapped in full in "Nemt contract terms: signal versus noise."

Step three: time per trip, by type

For each service type you offer, measure T, the total vehicle occupancy in hours from leaving the previous location to being free for the next booking. That includes the approach, the load, the drive, the unload and the empty leg that follows.

Measure it separately by mode and by assistance level, because a wheelchair door-through-door pickup and an ambulatory curb-to-curb pickup are different work. If your service description does not distinguish them, fix the description before you fix the price.

Keep the range, not just the average. A trip that usually takes a short time and occasionally takes twice that is, for pricing purposes, the longer number at least sometimes.

Step four: the cost floor for that trip type

Cost floor = T multiplied by C divided by U, plus any direct costs specific to that trip type.

This is the number below which the trip loses money. It is not a price. It is the line you must not cross, and knowing it is what lets you decline calmly rather than argue.

Step five: the margin, and what it has to fund

Add a margin that covers four things people forget.

Replacement of the vehicle and its conversion at the end of their life, at whatever prices exist then rather than at what you paid. A reserve for a bad month, which in this trade means an account lost, a vehicle off the road, or a payer whose cycle slipped.

The compliance and administrative work that is a permanent cost of being allowed to do this at all: enrollment with your state Medicaid agency before it will pay a claim (non-emergency medical transportation is a federal entitlement under 42 CFR § 431.53, administered by each state's Medicaid program), and the license or permit your state's transportation or health authority requires for the service you run. The work is mapped in the licensing and compliance guide. And a return for the capital and the risk. Owners quietly drop that one and then wonder why the business feels like a job.

If the resulting price is above what the market pays, that is information. It means your cost structure, your utilization or your service mix has to change, not that the margin should shrink.

Step six: convert into the unit the payer uses

The payer will want a per-trip rate, or a base plus mileage, or an hourly figure. Convert your floor plus margin into their unit, and check the conversion against the trips you actually expect from them. The two largest national NEMT brokers, Modivcare and MTM, publish rate structures to contracted providers; your state Medicaid agency publishes an NEMT fee schedule listing maximum reimbursement per trip or per mile. Those published units are the targets you convert to.

The check matters. A per-trip rate that works for a short urban run does not work when the same account sends you across the county, and a base plus mileage structure pays nothing for a long wait. Where your expected mix does not fit their unit cleanly, either price the mix or ask for terms that handle the exceptions. Use the IRS standard mileage rate as a cross-check on the per-mile element: if your conversion implies less per loaded mile than the IRS figure, your fuel and maintenance lines in A are probably too low.

Where each variable comes from

Five figures, none of them borrowed. If any is a guess, mark it as one, because everything downstream inherits that uncertainty.

Say what the price covers

Be plain about what is included, what is not, and what changes the price on the day. The Federal Trade Commission's advertising guidance for small businesses sets the ordinary expectation, and it matters more here because the person reading may be a family arranging transport for a parent under stress.

Where a payer might cover the trip, say that the payer decides and point them to it. Do not answer a coverage question on their behalf.

Keep the records the pricing assumes

None of this works from memory, so occupancy times, wait times, empty mileage, and assistance level delivered must come from the ordinary day.

Keep documents that support what you billed; the Internal Revenue Service's Publication 583, Starting a Business and Keeping Records, describes that general expectation. Systems that make it routine are covered in the finance and dispatch material.

The largest single input, the crew, is a design decision rather than a line item, which is the argument in the hiring and training guide. Vehicle and equipment costs are built in the fleet and premises guide, and the choice of pricing unit is treated at length in the pricing and profit guide.

Common questions

What if my calculated floor is above the rate a broker offers?

Then that work does not pay at your current cost and utilization. Compare your floor against the rate on the broker's or Medicaid agency's published schedule. The options are to improve utilization, change the service mix, or decline. Accepting it and hoping volume fixes it makes the problem larger.

How often should I rebuild this?

When wages move, when you add or change a vehicle, and at every contract renewal. Once a year at minimum, because C drifts quietly.

Should different accounts pay different rates?

They already do, in effect, because their access conditions and appointment patterns consume different amounts of time. Making that explicit in the price is more honest than absorbing it silently.

Is it wrong to price low to win a first account?

It is a decision, not a mistake, provided you know the floor you are below and have a date by which it changes. What ruins operations is being below the floor without knowing it.