Geographic adjustments are intended to ensure that the Medicare Program does not overpay hospitals and practitioners in certain areas and underpay in other as a result of geographic difference in price for resources such as clinical and administrative staff salaries and benefits, office or hospital space (rent), malpractice insurance (premiums), and other resources that are part of the cost of providing care. As a result, Medicare’s Inpatient Prospective Payment System (IPPS), other Institutional Prospective Payment Systems (PPSs), and the Medicare Physician Fee Schedule (PFS, or fee schedule), all employ geographic adjustments factors (GAFs). The two geographic adjustments applied to Medicare payments for care provided by hospitals and practitioners are the hospital wage index (HWI) and three geographic practice cost indexes (GPCI). The index compares difference in price or quantity for a group of goods and services relative to an average value derived from a standard baseline geographic area or time period. The fundamental rationale for geographic adjustment is to create a payment structure that adjusts payments for the input price difference, such as employee compensation, that providers face when they provide care.
GPCIs helps to standardize the differences in resource costs incurred across geographic areas when those costs are compared with the national average costs for the physician work, practice expense and malpractice insurance components of the fee schedule. Specifically, the three adjustments are provided for the following: 1) Physician work reflects the time, skill, effort, judgement, and stress associated with providing one service relative to other services according to the Healthcare Common Procedure Coding System (HCPCS) codes. On average, as of 2011, work accounted for 52.5 % of the geographic adjustment factor within the fee schedule. 2) Practice expense considers certain price for maintaining a clinical practice, including salaries and benefits for administrative and clinical employees, rent, equipment, and supplies. Practice expense (PE) associated with supplies and equipment are not adjusted geographically because they are purchased in a national market in which prices are similar across the country. On average as of 2011, the PE GPCI accounted for 43.7 % of the geographic adjustment. 3) Professional liability insurance (PLI) represents payment for professional liability malpractice expenses and on average, account for 3.9 % of the geographic adjustment.
A Medicare carrier, or Medicare Administrative Contractor (MAC), serves as the primary point of contact for Medicare providers, oversees the administration and processing of both Medicare part A and part B policies, also acts as the provider’s chief source for coverage, billing, and enrollment questions. In addition, Medicare carriers also handle claims appeals, identify billing errors, and answer any beneficiary inquiries. Medicare carriers vary by state and work with their area’s assigned providers to ensure they meet enrollment requirements.
The current Physician Fee Schedule (PFS) locality structure was developed and implemented in 1997. There are currently 89 total PFS localities; 34 localities are statewide areas.