AIF Announced for Calendar Year 2020

R4407CP

What is R4407CP? The identifier number on the tail section of an aircraft, perhaps? Good guess…but no! R4407CP is the Change Request Transmittal Number released just a few days ago announcing the Ambulance Inflation Factor (AIF) for 2020.

The AIF is an important piece of the formula to calculate the 2020 Medicare Ambulance Fee Schedule for ambulance services provided to Medicare patients.

AIF Announced For Calendar Year 2020

First, let’s take a look at how the AIF is calculated.

Two factors combine to arrive at the annual ambulance adjustment factor.

The first element of the calculation is the Consumer Price Index for all Urban consumers (CPI-U) for the 12-month period ending in June of the previous year. Once that value is recorded, then a productivity adjustment equal to the 10-year moving average of changes in economy-wide private, non-farm business Multi-Factor Productivity (MFP) beginning January 1, 2011 is subtracted as an adjustment.

The resulting calculation is represented by the following formula:

CPI-U – MFP = AIF

What exactly is the CPI-U?

The CPI-U or Consumer Price Index for all Urban consumers is the statistical metric developed by the U.S. Bureau of Labor Statistics used to monitor the change in the cost of a set list of products. Simply put, it is an inflation pseudo-tracking device. While not directly measuring inflation, the value gives the federal government a good idea of whether the nation is in a period of inflation or deflation and predicts the severity of the trend.

To get there, government statisticians use a cross-section of eight major groups across 200 different types of goods to come up with the CPI-U factor. They are: Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication, and a category called Other Goods and Services (tobacco and smoking products, personal care products and services such as hair care, funeral expenses, etc.).

By monitoring the fluctuations in the prices urban dwellers pay to purchase a set “basket” of goods, the government can effectively track the cost of living for people living in these statistical areas. Since urban consumers represent approximately 80% of the population in the United States, the CPI-U is a very good barometer to gauge relative costs.

Now, what’s that MFP?

The MFP or the Multifactor Productivity adjustment measures changes in output per unit of combined inputs.

Output of combined inputs? How’s that for government-speak?!

Indices of MFP adjustment are produced in the United States for private business, private non-farm business and manufacturing sectors of the economy. The private, non-farm business MFP values are used for the purpose of calculating the AIF.

Multifactor Productivity measurements reflect the joint effects of many variables including new technologies, economies of scale, managerial skills and changes in the organization of production. In other words, the government recognizes the result of inflation on the ambulance industry and associated rising costs, they also believe that we tend to become smarter and work more efficiently over time, thus offsetting some of the impact of inflation. And so, the government bean counters theorize that we don’t need as many extra dollars as inflation may initially indicate to balance the books because we have more efficiency constantly building into our systems.

Now let’s see how all this works out for 2020.

The CPI-U for 2020 has been calculated at 1.6% down from last year’s value of 2.9% which is a reflection of slower inflation over the past year. The MFP ticked up by 0.1%, rising from last year’s value of 0.6% to 0.7%.

If we apply these numbers to the formula above, the result is an AIF that checks in at 0.9% this year.

1.6% – 0.7% = 0.9%

Once again, the ambulance industry will benefit from a positive gain in 2020!

Final Release

Now that the AIF has been announced, our industry will look forward to the final National Medicare Ambulance Fee Schedule allowances with the release of the Public Use File (PUF).

Lay wisdom would tally 0.9% as the actual increased dollar value for next year’s ambulance payments from Medicare. That said, final payment amounts won’t be known until all calculations are completed and the PUF is announced. We anticipate that the Relative Value Units (RVUs) will be unchanged, though the Geographic Practice Cost Indices (GPCI) regional adjustment variable may realign within certain locales.

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