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5 Geographic Practice Cost Indexes
Pages 113-144

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From page 113...
... .1 This chapter describes the history, intent, and evolution of the geographic practice cost indexes (GPCIs) to provide background and context for the committee's findings and recommendations about improving the accuracy of payment.
From page 114...
... For example, physician practices have an increasingly diverse mix of employment arrangements, and advanced practitioners such as nurse practitioners contribute to the work component as well as the practice component of physician work. Accordingly, the phase 2 report will also consider the impact of the committee's phase 1 report recommendations on geographic adjustment to fee-for-service payment in the context of current market trends toward delivery system integration.
From page 115...
... in 1992. The change was intended to make Medicare payments more equitable by basing them on relative input use rather than on historical prices, and to reflect local variation in input prices.
From page 116...
... Department of Health and Human Services (HHS) account for physician work, practice expenses, and malpractice expenses when calcu lating the geographic practice cost indexes (GPCIs)
From page 117...
... In the view of the committee members, proxy data for physician earnings are more accurate than are data on costs paid by providers because the proxy data are independent of local business decisions or other requirements, such as state laws on staffing ratios, which do not necessarily reflect input prices across labor markets. The committee also made a distinction between geographic payments that are intended to adjust payments for input prices and those adjustments that might be made to help reach policy goals, such as addressing shortages of clinical practitioners to maintain or improve access to care.
From page 118...
... GEOGRAPHIC ADJUSTMENT FACTOR COMPONENTS As described above, the GAF is a combination of three independent GPCIs, each used to adjust the fee schedule for geographic variation in input prices for a different component of the cost of physician care. The relative contribution of these three components varies by type of service and the setting where it is provided.
From page 119...
... Current Rule Proposed Rule Current Rule Proposed Rule Expense Category CY 2011 CY 2012 CY 2011 CY 2012 13.12a 12.00a Physician Work 52.47 48.27 Practice Expense 43.67 47.44 30.86 34.39 Employee Compensation 18.65 19.15 18.65 19.15 Office Rent 12.21 10.22 12.21 10.22 5.01b Purchased Services n/a 8.10 n/a Equipment, Supplies, Other 12.81 9.97 0.0 0.0 Malpractice Insurance 3.87 4.30 3.87 4.30 Total 100.00 100.0 47.85 50.75 a Work cost share weight with the one-quarter work adjustment. b Only 62 percent of the purchased services index is adjusted for geographic variation in contracted services.
From page 120...
... The physician work GPCI has some unique characteristics compared to the practice expense GPCI. Practice costs such as office rent and wages of nonphysician personnel are determined in local real estate and labor markets, where geographic variation in input prices is well understood and reasonably well documented.
From page 121...
... The argument against any physician work adjustment is based on the view that physicians providing an equivalent service for a federal program should receive the same reimbursement regardless of where they are located; "work is work." According to this view, Medicare's work RVU already takes into account physician work effort, and it takes no more or less effort to provide the same medical service in different geographic areas (Goertz, 2010)
From page 122...
... The committee's recommended approach to testing various statistical models for predicting physician compensation is discussed in more detail in the following section and in Appendix I How Much of the Variation in Physician Work Should Be Adjusted?
From page 123...
... One subsequent study in the early 1990s found that the one-quarter work adjustment was a better fit than was the full adjustment or no adjustment in a statistical model relating the work GPCI and physician net hourly earnings as measured by the AMA's Socioeconomic Monitoring System survey in 1990 and 1991 (Gillis et al., 1993)
From page 124...
... Which Data Should Be Used for Adjusting Physician Work? Current Sources In CY 2011, CMS computed the work GPCI using the relative median hourly earnings from 2006–2008 Bureau of Labor Statistics (BLS)
From page 125...
... The committee therefore considered several alternative data sources that might provide information on geographic variation in physician earnings for purposes of comparison with the physician proxy data that are used for the work adjustment. These sources included two nonphysician surveys: the BLS OES and the U.S.
From page 126...
... physicians are respondents: respondents: are represented at represented at any East- 24%, East- 22.2%, any level at which level at which data Midwest- 32%, Midwest- 22.5%, wage data are are published) South- 21%, South- 35.1%, published)
From page 127...
... , BLS (2008) , MGMA Physician Compensation and Production Survey: 2010 Report Based on 2009 Data, and U.S.
From page 128...
... CMS used longform Census data for the physician work GPCI until CY 2011. The ACS surveys approximately 2.9 million households annually, with a response rate of 98 percent.
From page 129...
... The Physician Practice Information Survey is a national survey sponsored by the AMA for the purpose of updating the practice cost data used to develop the PE RVUs and to set the cost share weights for the MEI (Kane, 2009)
From page 130...
... Health care industry-level data have a sufficient sample size that is more representative of physician offices than the all industry-level data and addresses the endogeneity problem. Therefore, the committee concluded that BLS health sector-level wage data are a more acceptable data source for computing the employee compensation PE GPCI.
From page 131...
... TABLE 5-3 10 Most Common Occupations in Physician Offices, Compared by Census Regions and Metropolitan and Nonmetropolitan Areas (in percentages) Northeast Midwest South West National Employment Statewide Statewide Statewide Statewide Occupations Shares MSA Non-MSA MSA Non-MSA MSA Non-MSA MSA Non-MSA Medical Assistants 16 15 12 15 11 15 13 23 16 Registered Nurses 11 11 15 14 15 12 11 10 13 Receptionists and Information Clerks 9 13 10 8 10 10 12 6 11 Medical Secretaries 9 9 9 10 9 7 6 14 11 Billing and Posting Clerks 4 6 4 5 5 4 6 5 4 Licensed Practical and Vocational Nurses 4 4 7 5 11 5 10 2 5 Supervisors and Admin.
From page 132...
... For example, the pharmacist occupational category had fewer than 10 observations in the Manhattan, Kansas; Beaumont, Texas; and southern Maine areas. However, in late 2010, additional ACS data became publicly available, offering certain advantages over BLS data, including a higher response rate, larger sample size (including wage data at the zip code level)
From page 133...
... Data available Residential Average price Commercial Residential rent rates Commercial Data on building and Commercial rental rates for of residential rent for federal for 1–4-bedroom properties occupancy, reported rent rates for 0–5+-bedroom properties by government apartments/ leased or as percentage of total properties apartments at region, according properties only detached houses, owned by revenue larger than 40th or 50th to type of utilities, and renters' USPS 10,000 sq. ft, percentile of a house (focus insurance rates at zip code, distribution of on structure, county, and standard-quality utilities, and MSA levels housing units amenities, rather than geography)
From page 134...
... , HUD (2011a) , MGMA Cost Survey for Single-Specialty Practices: 2010 Report on 2009 Data, U.S.
From page 135...
... In the CY 2012 PFS proposed rule, CMS proposed replacing HUD data with ACS residential rent data on the grounds that ACS data provide more detailed geographic information, rely on more current survey data, and will serve as a more standardized data source in the event that ACS wage data are adapted to compute the employee wage index and work GPCI (CMS, 2011b)
From page 136...
... , and fair market rent data from HUD (2011b)
From page 137...
... (1989) required CMS to establish a Medicare PFS that used GPCIs to measure cost differences in physician work, practice expenses, and MP insurance and to adjust Medicare fees accordingly.
From page 138...
... COMMITTEE RECOMMENDATIONS The committee's charge is to evaluate the sources of data and methods used to calculate the GPCIs and to make recommendations about how to improve the accuracy of the geographic adjusters. In order to validate the use of geographic adjustment for the work and practice expense GPCIs, the committee in its analyses first sought to confirm the degree of metropolitan-nonmetropolitan and regional differences in physician compensation and in clinical and administrative staff compensation.
From page 139...
... Recommendation 5-1: The Geographic Practice Cost Index (GPCI) cost-share weights for adjusting fee-for-service payments to practitioners should continue to be national, including the three GPCIs (work, practice expense, and liability insurance)
From page 140...
... The committee recommends that the work adjustment should be based on a systematic empirical process that generates new evidence to confirm the extent of differences in compensation across geographic areas. There is clearly a policy precedent for the current one-quarter adjustment, given that the Geographic Practice Cost Indexes (GPCIs)
From page 141...
... Although acknowledging that there are some regional differences in occupational mix of employees in the limited data available, the committee prefers a consistent set of national weights applied to wage data from the full range of health sector occupations so that hourly wage comparisons can be made. The exceptions are those health professionals who bill independently under Medicare Part B, whose compensation should be captured through the work geographic practice cost index.
From page 142...
... proposed to create a new category for contracted/outsourced services for these labor categories and to create a new purchased services index. Including professional and other labor expenses in labor categories would promote consistency between labor-related hospital and physician payment adjustments, and it would also take into account geographic variations in wages for the services reflected in Bureau of Labor Statistics (BLS)
From page 143...
... 1993. Assessing the Validity of the Geographic Practice Cost Indexes.
From page 144...
... 2010. Final report on GPCI malpractice RVUs for the CY 2010 Medicare physician fee schedule rule.


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