Government News
Govt. Agency Defends Accuracy Of Geography-Based Cost Criteria
Psychiatric News
Volume 40 Number 9 page 25-51

The components of the Medicare physician payment formula designed to account for practice-cost differences between geographic areas of the country appear to be "valid in their fundamental design," according to a report by the U.S. Government Accountability Office (GAO).

But the GAO did make some recommendations for refining the methods by which the indices are determined.

The report, titled, "Geographic Adjustment Indices Are Valid in Design, but Data Methods Need Refinement," was released in March.

The geographic practice-cost indices (GPCI) for physician work, practice expense, and malpractice expense as implemented "appropriately reflect broad patterns of geographic differences in the costs of running a medical practice," according to the GAO.

In a letter to Congress, the GAO noted that the geographic-adjustment indices have been criticized by groups representing rural physicians because the indices adjust fees downward when an area's costs and expenses are lower than the national average. Those groups also contend that disparities in Medicare payment related to the GPCIs are affecting the supply of physicians in rural areas.

For instance, the American Academy of Family Physicians has stated that" the formulas used by the Medicare program to reimburse physicians and health care providers for beneficiaries' medical care are not accurately measuring the cost of providing services and are reimbursing physicians and other health care providers in a manner that favors urban providers over rural providers."

The GAO, however, did not agree. "In addition to adjusting for cost differences, the physician-work GPCI is valid in that it also reflects a goal of protecting physician fees in low-cost areas from dropping to levels that could be considered unfair relative to fees in high-cost areas," the GAO said.

The GAO also found that GPCIs appear to have a negligible effect on physicians' decisions to locate in rural areas. "Our interviews with physician-recruitment experts and published studies indicate that income is only one of many factors affecting physicians' decisions to locate in rural areas and in employers' successful efforts to recruit and retain physicians," the GAO wrote in the letter to Congress. "Given GPCIs' limited effect on physician income and income's secondary effect on physician supply, GPCIs are not important factors in physician location, recruitment, and retention."

However, the GAO did find that problems with data and methodology underlying the GPCIs may detract from their accuracy as measures of cost differences. "For example, the wage data used in the work and practice expense GPCIs are not current, and the data used in the malpractice GPCI are not complete," the GAO told Congress.

To address these concerns, the GAO recommended that CMS use data for wages and earnings from the American Community Survey, collect malpractice data from all 50 states, collect data from insurers that account for at least 50 percent of malpractice business in a state, and standardize collection of malpractice premium data.

The GAO report is posted online at<www.gao.gov/new.items/d05119.pdf>.

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