Cooling Inflation Equals a Smaller AIF for 2025
By Chuck Humphrey, B.A., EMT-B, CADS*
The Results Are In!
The results are in! No, not the 2024 presidential election results, yet… we mean the results of the annual Ambulance Inflation Factor (AIF) calculation for 2025 have been announced by the Centers for Medicare and Medicaid Services (CMS)!
As per Transmittal 12896, released on October 17, 2024, to the Medicare Administrative Contractors (MACs), the AIF for the new year in 2025 will come in just below last year’s mark at 2.4%.
Lower Inflation = Smaller AIF
As the lasting effects of the aftermath of the COVID-19 pandemic grow smaller and smaller in our ambulance industry, rearview mirrors and inflation cools, so does the AIF get smaller. While slightly less by 0.2% over last year, the industry continues to celebrate yet another positive adjustment for the ninth year in a row.
The year 2016 saw the last negative adjustment of -0.4% followed by positive ticks of no less than 0.2% from 2021 all the way upward to the largest AIF of 8.7% recorded in 2023.
Two Factors…
Here’s a reminder of how the AIF is calculated.
Two factors are combined to arrive at the AIF. The first element of the formula is the Consumer Price Index for all urban consumers (CPI-U) which pulls data from the 12-month period ending in June of the previous year (for this year, June 2023 was the cutoff.) Once that value is arrived at, then the productivity adjustment is configured. Called the Total Factor Productivity (TFP), the value is equal to the 10-year moving average of changes in American economy-wide private non-farm business calculations which begins for the current AIF on January 1, 2015. Once recorded, this value is subtracted from and as an adjustment to the CPI-U.
As such, the resulting AIF value is a product of this formula:
CPI-U – TFP = AIF
Breaking Down the Components
To help you understand the AIF, let’s break down the individual components of the formula used to calculate the AIF.
First, let’s establish the CPI-U
The CPI-U is the statistical metric developed by the U.S. Bureau of Labor Statistics used to monitor then change in the cost of a set list of products. It really is a type of pseudo inflation monitoring device. While not directly measuring inflation, the value provides the Federal government with a window into the price trending of products and predicts the severity of any pending inflation or deflation on the overall economy.
Using a cross-section of 8 major groups across 200 different types of goods and services, government statisticians pull the data to arrive at the CPI-U factor, annually. These 8 major groups include: food and beverages, housing, apparel, transportation, medical care, recreation, education, communication and a catch-all category called “other goods and services” which include such things as tobacco and smoking products, personal care items and services including such outlying services such as funeral expenses and the like.
The tracking of the fluctuations in the prices that urban residents pay to purchase certain sets of what the feds refer to as “basket goods” ensures that the government can effectively follow the cost of living for those persons residing in the sample statistical areas.
We are reminded, of course, of the fact that 80% of the population of the United States resides in an urban setting. As such, the CPI-U data set is a very useful tool as part of the AIF calculation.
Now Subtract the TFP
In March 2010, when the patient Protection and Affordable Care Act was enacted by the U.S. Congress, the Total Factor Productivity was added as an adjustment to the AIF calculation. The TFP measures changes in the economic output per unit of combined units. Indices of the TFP adjustment are pulled within the United States based on private non-farm business and manufacturing sectors of the economy.
The TFP is subtracted from the CPI-U as an adjustment.
The TFP is a compilation of data indicating the joint effects of many variables affecting the economy, including the effect of efficiency resulting from new technologies, economies of scale, managerial skill ratcheting and includes positive changes in organizational factors that surround production. What this means is the government is tempering any notion of rising costs directly impacting the ambulance industry against the nation’s ability to work smarter and more efficiently over time. As such, Congress believed they built in a calculation that offsets inflation through working smarter and more efficiently.
The TFP’s addition to the AIF formula, includes the government’s opinion that the ambulance industry does not require a full inflationary boost as they, in essence, concluded that the industry’s own efficiency offsets the full impact of inflation over time.
2025’s Formula
Having defined the pieces of the formula, we arrive at this year’s AIF calculation.
For the 12-month period ending in June 2023, the Federal Bureau of Labor Statistics has calculated the CPI-U at 3.0%.
The TFP ticked up by 0.2% and landed at 0.6%.
The resulting formula:
CPI-U 3.0% – TFP 0.6% = AIF 2.4%
Next Steps
Now that the AIF is final, the ambulance industry awaits its application to the final National Medicare Ambulance Fee Schedule for 2025. The fee schedule is annually released by CMS using the Public Use File (PUF).
The 2.4% increase does not always equate to a direct 2.4% dollar increase for next year’s ambulance payments from Medicare for all. Final fee schedule values will not be known until the AIF is applied, while factoring in other elements of the fee schedule calculation including the Relative Value Units (RVUs- which remain constant) and the possible “tweaking” of individual Geographic Practice Cost Indices (GPCIs). GPCI adjustments can be implemented geographically across individual charge class areas and have a say in the final fee schedule dollar approval amounts.
Of course, there continues to be discussions regarding any possible changes to the add-on payments and even fee schedule restructuring that could take place at the direction of Congress once the results of the Ground Ambulance Data Collection System (GADCS) project have been fully published and digested by Congress. Anyone of these moves can potentially have wide-reaching implications for the ambulance industry, but there is no indication that there will be any major moves soon.
*Chuck Humphrey is an independent contractor who spent 25 years in the EMS revenue cycle management industry, prior to his retirement from Quick Med Claims. In addition to holding active EMT credentials in Pennsylvania, he is a Certified Ambulance Documentation Specialist via the National Academy of Ambulance Compliance. Humphrey is a periodic guest contributor to the QMC blog and podcast space.
