Illustration by Jon Krause /

Geographic payment adjustments: Medicare's disputed borders

The map Medicare uses to set physician pay rates based on location could become more nuanced if Congress adopts recommendations for revised localized payments.

By Charles Fiegl amednews staff — Posted Nov. 26, 2012

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Physicians practicing in all parts of the country long have agreed that Medicare payments have been too low for too long, but a growing chorus of health policy officials say these doctors' rates also are inaccurate when compared with one another.

Medicare uses geographic adjustments to pay more in areas deemed to have higher costs of providing care to seniors. The Centers for Medicare & Medicaid Services employs a patchwork of 89 pay locales to set rates in a budget-neutral environment. As a result, a doctor treating a Medicare patient in midtown Manhattan receives more than a doctor providing the same service in rural West Virginia.

In some places, large geographic swaths are considered part of the same region, meaning all doctors in an immediate area receive the same adjustments to their pay. But in other places, the practice just down the road — where building rents, equipment costs and staff salaries are practically the same — could get higher pay for providing the exact same service.

In many areas, the gradations of pay based on geography are relatively slight, and for the most part the factor does not appear to register highly with physicians considering their financial situations.

Physicians in relatively high-cost Maryland, for instance, can practice in one of three payment jurisdictions. Gene Ransom III, CEO of MedChi, the Maryland State Medical Society, said he's unaware of any physician choosing a practice based on the Medicare adjustment for that location. “All I hear is raising the tide for all boats,” he said.

But physician focus on the bigger picture of pay rates is separate from the fact that states have outgrown the Medicare geographic boundaries established years ago. In Georgia, for example, population has grown significantly in the Atlanta area and in northern parts of the state, said Donald J. Palmisano Jr., the Medical Assn. of Georgia's executive director and CEO. Georgia doctors, however, are put into one of only two pay jurisdictions: one centered around Atlanta and one composed of the rest of the state.

The California Medical Assn. has argued for Medicare geographic payments to be based on actual market costs. The association, which represents physicians in both rural and urban areas, said any payment changes should more precisely reflect the costs of running a practice from each type of locale.

“The current system is outdated and not distributing payments accurately,” said CMA President James G. Hinsdale, MD. “A great example is San Diego, a county that is still designated as rural and clearly is not. Our belief at CMA is that payment accuracy will help to improve seniors' access to care in these underpaid regions.”

Physicians in Iowa have argued that the current system would be more equitable if it factored in unique costs to rural physicians, such as travel expenses and access issues. In 2010 testimony, Michael Kitchell, MD, past president of the Iowa Medical Society, questioned why rural doctors' rates were so low compared with other states.

“There simply is a point at which substantial inequities in Medicare payment make it too difficult for a low-paid state to effectively manage the costs of advancing technology in medical administration, as well as medical diagnosis and treatment, increasing demands of the regulatory system, and the growing needs of an aging citizenry,” Dr. Kitchell said. “For Iowa, that point has been reached.”

Texas also has experienced growth spurts in such places as Sugar Land and Plano, which once were classified as rural but now should be considered urban, said Michael E. Speer, MD, president of the Texas Medical Assn. Many physicians in cities want rates to be readjusted to account for their higher rents and other overhead costs.

But raising rates for some would mean lowering pay for others due to the budget-neutrality requirement. Physicians in Texas and Georgia say they don't want rural doctors' fees to drop because urban doctors get more.

“We would like to see them raise rates across the board, given that they haven't been raised above inflation for a decade,” Dr. Speer said. “Instead of dealing with 10% here or 10% there, I would rather address the whole issue of inadequate payment.”

The American Medical Association has long advocated that any changes to geographic pay rates not be subject to budget-neutrality requirements.

Divining the costs of providing care

Medicare uses a complex system when adjusting payments to reflect the costs of practicing medicine across the country. Such expenses as rent, staff salaries and the cost of living in an area are designed to be reflected in pay rates, said Steve Zuckerman, PhD, a senior fellow at the Urban Institute in Washington. Zuckerman was involved in researching a Medicare geographic adjustment system in 1989-90.

Prices for goods and services, including medical care, vary in all 50 states. The Bureau of Labor Statistics keeps national and localized consumer price indices for a range of these goods and services. Since the baseline years of 1982-84, costs for medical care have increased by more than 430% in the Midwest urban centers of Chicago, Gary, Ind., and Kenosha, Wis. In New England, they've increased by 570%, according to the bureau.

CMS is required to account for such price differences using indexes that adjust the portions of doctors' fees attributed to practice expenses, medical liability costs and the amount of physician work required to provide care. Each locale has geographic practice cost indexes, or GPCIs, that are multiplied by the relative values corresponding to each of these factors, which then impacts the final amount that Medicare pays a doctor for a given service in a particular area.

The current GPCI locality map was charted in 1997. There are 89 total localities: 36 statewide areas, such as Colorado and Montana; 37 higher-cost locales for urban centers, such as Miami and St. Louis; and 16 “rest of area” jurisdictions for settings outside of cities in states such as Texas and Virginia.

In North Carolina, for instance, which has a statewide pay area, the 2013 GPCI for work is 0.971, practice expense is 0.927 and liability is 0.695. In Portland, Ore., the figures are 1.005 (work), 1.044 (practice expense) and 0.625 (liability). Taken together, those figures would lead to higher pay for services in Portland.

However, there is a second force affecting geographic adjustments, Zuckerman said — Congress. Lawmakers in recent years have adopted Medicare payment legislation to change the geographic indexes and prevent them from decreasing rates by the full amount in areas deemed to be low-cost. Since 2004, the adjustment for work has been raised to 1 for all locales with index values below that floor. The provision, which costs about $500 million a year, expires Dec. 31. If Congress extends it, North Carolina's work GPCI would be raised from 0.971 to 1 in 2013, almost the same as Portland's 1.005 figure.

Federal law mandates that the work adjustment in Alaska be set at 1.5. The 2010 health system reform law also set a practice expense floor of 1 for so-called frontier states, those with a majority of counties having six people or fewer per square mile — a list that includes the Dakotas, Montana, Nevada and Wyoming. Rate protections for hospitals and physicians in frontier states will cost Medicare $2 billion from 2010-19, according to the Congressional Budget Office.

“The frontier states provision is about fairness,” said Rep. Rick Berg (R, N.D.) in 2011 during debates on eliminating the pay floor to reduce federal deficits. “We believe that the frontier states provision is needed to protect seniors' access to care in rural states like North Dakota and Montana.”

Resistance to new payment borders

Supporters of payment floors that counteract the Medicare geographic pay system cite their necessity for patient access in rural and other underserved areas. By receiving higher rates than Medicare has intended for areas deemed low-cost, enough physicians in those regions will be able to run profitable practices that meet seniors' health needs, they said.

But physician work force shortages persist even though Congress regularly has raised pay in rural areas, said the Urban Institute's Zuckerman, who was part of a recent Institute of Medicine committee tasked with studying geographic pay reforms. Some urban areas with higher rates also have work force problems.

Bruce Steinwald, an independent consultant who also served on the IOM panel, suggested that work force initiatives be more targeted and not rely on geographic adjustments. For instance, physicians could receive subsidies or participate in loan-forgiveness programs for practicing in designated shortage areas.

The IOM committee recommended a coordinated approach to work force problems along with a major overhaul of the geographic system. In 2011, an IOM report advocated for drawing a new map to adjust physician payments with 441 markets instead of the current 89.

This level of specificity, along with other IOM recommendations, would increase the accuracy of payments throughout the country, the authors said. Such changes would lead to an average pay reduction of 3% to physicians in nonmetropolitan areas and an average increase of less than 0.5% for doctors in metropolitan counties, though some individual counties could experience double-digit rate changes, according to another IOM report released July 17 of this year.

“The byproduct of more payment localities is some shift from rural to urban,” Steinwald said. “Taken as a whole, it's hard to generalize, and it's not true in every case.”

Medicare already uses 441 jurisdictions to adjust payments to hospitals. The implementation of shared savings programs and accountable care organizations — in which hospitals and physicians work together to improve quality of care and restrain costs — should strengthen the case to align geographic adjustments between the physician and hospital sides of the program. “It makes sense to use the same payment areas,” Zuckerman said.

The Medicare Payment Advisory Commission also recently studied geographic adjustments and recommended that Congress stop raising the GPCI work floor year after year. The action by lawmakers to preserve the higher rates for rural areas is a scattershot approach to solving patient access issues, MedPAC members said. One analysis shows that even communities without access problems benefit from the floor.

The IOM and MedPAC recommendations, however, received a cool reception from CMS and rural lawmakers in Congress, both of whom have given little indication that they would entertain such an overhaul anytime soon.

Although the approach is not perfect, raising the floor does help rural areas, said MedPAC Commissioner Alice Coombs, MD, a critical care specialist and anesthesiologist at Milton and South Shore hospitals in Weymouth, Mass. A better plan in her estimation would be to continue the work floor while a new strategy is developed.

“Now, that's in a perfect world,” Dr. Coombs said. “I know you can't have everything the way you want it.”

Back to top


Location, location, location matters for Medicare pay, too

Physicians in California repeatedly have called for revising geographic Medicare rate adjustments to reflect more accurately the costs of running practices in different parts of the state. Santa Cruz has a population of 270,000, but it is defined under the system as a lower-cost, rural jurisdiction, along with 46 other counties in the “rest of California.” Some doctors say the resulting lower payments have led to a low number of physicians in Santa Cruz. This comparison is based on 2012 pay rates and includes cities within roughly 50 miles of each other.

Location Midlevel
office visit
Upper GI
endoscopy biopsy
Treatment of
retinal lesion
San Francisco $84.30 $437.99 $623.07
San Mateo $84.09 $436.55 $621.42
Santa Clara $83.66 $432.96 $617.82
Marin/Napa/Solano $79.54 $408.24 $585.76
Rest of California $73.15 $367.85 $537.95

Source: Physician fee schedule search, Centers for Medicare & Medicaid Services (link)

Back to top

How Medicare GPCIs affect physician pay

Medicare geographic practice cost indexes are among several factors affecting the final fee that a doctor in a particular area receives for a service. Each locality has GPCIs that are applied to the relative value units (RVU) for a given service based on physician work requirements (Work), practice expenses (PE) and professional liability insurance costs (MP). The resulting figure is multiplied by a conversion factor (CF) to determine the dollar amount for a service:

  [(Work RVU x Work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = $

For an established patient midlevel office visit by a San Francisco physician in 2012:

  [(0.97 x 1.072) + (1.03 x 1.360) + (0.07 x 0.516)] x 34.0376 = $84.30

For the same service by a physician in a rural California county in 2012:

  [(0.97 x 1.024) + (1.03 x 1.085) + (0.07 x 0.547)] x 34.0376 = $73.15

Source: Physician fee schedule search, Centers for Medicare & Medicaid Services (link)

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn