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Highlights

The Centers for Medicare & Medicaid Services (CMS) adjusts Medicare physician fees for geographic differences in the costs of operating a medical practice. CMS uses 89 physician payment localities among which fees are adjusted. Concerns have been raised that the boundaries of some payment localities do not accurately address variations in physicians' costs. GAO was asked to examine how CMS has revised the localities; the extent to which they accurately reflect variations in physicians' costs; and alternative approaches to constructing the localities. To do so, GAO reviewed selected Federal Register documents; compared data on the costs physicians incur in different areas with the Medicare geographic adjustment; and used the physician cost data to construct and evaluate alternative approaches.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare and Medicaid Services To help ensure that Medicare's payments to physicians more accurately reflect geographic differences in physicians' costs of operating a private medical practice, the Administrator of CMS should examine and revise the physician payment localities using an approach that is uniformly applied to all states and based on the most current data.
Closed - Not Implemented
CMS officials said they had evaluated and discussed recommendations from the Institute of Medicine (IOM) in the 2013 Physician Fee Schedule Final Rule to base the Medicare physician fee schedule localities on Metropolitan Statistical Areas (MSA). The IOM analysis found that adopting an MSA-based locality structure under the physician fee schedule would result in payment reduction for approximately half of all US counties, particularly rural areas. CMS officials said they agreed with the IOM assessment and had concerns about adopting any national locality reconfiguration that would significantly increase the number of localities. Specifically, they said increasing the number of localities would result in a significant payment reduction for rural areas, as their cost of operating a medical practice would not longer be grouped with higher cost urbanized areas. As a result, CMS officals said they did not believe that the locality structure should be changed.
Centers for Medicare and Medicaid Services To help ensure that Medicare's payments to physicians more accurately reflect geographic differences in physicians' costs of operating a private medical practice, the Administrator of CMS should examine and, if necessary, update the physician payment localities on a periodic basis with no more than 10 years between updates.
Closed - Not Implemented
As of June 2011, CMS had not changed its physician payment localities consistent with GAO's recommendations. CMS non-concurred with the recommendation in the original report and indicated in June 2011 followup that the agency has no further comments. Specifically, CMS noted that the agency considers payment locality issues as concerns are raised by interested parties and otherwise as they determine necessary. CMS believes this approach is more flexible and efficient than conducting a review every 10 years.

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