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