A geographic practice cost index (GPCI) has been established for every Medicare payment locality for each of the three components of a procedure's relative value unit (RVU): work, practice expense, and malpractice. The GPCI reflects the relative costs of physician work, practice expense, and malpractice insurance in an area compared to the national average costs for each component.
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The GPCIs are applied in the calculation of a Medicare payment schedule amount by multiplying the RVU for each component of a procedure by the GPCI for the locality in which the service is furnished.
GPCIs allow for considerably less variation in physicians' costs of practice than under the previous reasonable charge system. The GPCIs are based on the premise that the costs of practice resources are similar across the country, but that the costs of operating a medical practice can vary significantly from one area to another.
Physician Work (Cost-of-Living)
The work GPCIs are designed to reflect the relative cost of physician labor by Medicare locality and are measured from salary information of individuals with higher education.
To address physician workforce needs, Congress established a 1.0 floor for for physician work RVUs and incentivizes Alaska by establishing a permanent 1.5 floor (the highest work GPCI.) The remaining work GPCIs range from 1.002 to 1.1. Because the cost-of-living GPCI (work) accounts for only one quarter of geographic differences, the range is small.
Practice Expense
The practice expense GPCIs are designed to measure geographic variation in the prices of inputs to medical practice. They are comprised of four component indices: employee wages, purchased services, office rent and equipment, supplies, and other miscellaneous expenses.
Congress established the following states as "Frontier States": Montana, Nevada, North Dakota, South Dakota, and Wyoming. The practice expense GPCIs for these states are set at a 1.0 floor. The remaining PE GPCIs range from 0.852 (Mississippi) to 1.435 (San Jose, California.)
Malpractice Expense
The Professional Liability Insurance (PLI), which Medicare regulations refer to as the malpractice GPCI, account for geographic differences in PLI premium costs. These have the most variation of the three GPCIs, ranging from 0.3 (Minnesota) to 2.5 (Miami).
36 states and territories have a single set of GPCIs. The remaining 14 states differentiate GPCIs by urban and rural areas. California has the most differentiation, with 29 different geographic localities.
Geographic Adjustment Factor (GAF)
The three GPCI components can be combined into a composite GPCI (or GAF) by weighting each by the share of Medicare payments accounted for by the work, practice cost, and PLI components. GAF indicates how Medicare payments in a locality differ from the national average (the average being 1.00).
GAFs are not used in the calculation of the Medicare payment schedule amount, but are a useful measure to illustrate the overall effect of geographic adjustments under the PFS across Medicare fee schedule areas.
See also
Other Physician Fee Schedule Sources:
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