The Medicare physician fee schedule amounts are adjusted to reflect the variation in practice costs from area to area. 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 (i.e., the RVUs for work, practice expense, and malpractice). The GPCIs are applied in the calculation of a fee schedule payment amount by multiplying the RVU for each component times the GPCI for that component.
Geographic Practice Cost Index is used along with Relative Value Units by Medicare to determine allowable payment amounts for medical procedures. There are multiple GPCIs: Cost of Living, Malpractice, and Practice Cost/Expense. These categories allow Medicare to adjust reimbursement rates to take into account regional and practice-specific factors. The GPCIs reflect the relative costs of physician work, practice expense, and malpractice expense in a specific area compared to the national average costs for each component.
An example calculation for a Medicare allowed amount is:
2009 Non-Facility Pricing Amount = [(Work RVU * Work GPCI) + (Transitioned Non-Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * Conversion Factor (CF)