Medicaid/Medicare Medicare Physician Compensation

Medicare Pricing Distortions and Patient Satisfaction

The cost of operating a physician practices differs across states.  For instance, rent is much higher in New York City than Nebraska.  Labor costs are much higher in Los Angeles than in La Crosse, Wisconsin.  To account for differences in the cost of operating a practice, Medicare adjusts reimbursement rates in their standard physician fee schedule based on these geographic factors using the geographic practice cost index (GPCI).

However, these these areas are not very precisely defined.  There are only 89 regions in the country.  This means that many region comprise whole states.  Further, expensive areas–such as San Diego–are lumped together in with less expensive areas–rural California.  I have worked with CMS directly and developed reports to evaluate the GPCI system.

One question is, even if the GPCIs are imprecise, does it affect patient care?  A paper by Brunt and Jensen (2014) asks whether patients in areas where Medicare payment rates are “too low” are less satisfied with their care than patients in areas where payment rates are “too high.”

Using data from the Medicare Current Beneficiary Survey, the authors measure patient satisfaction.  But how does one measure whether the GPCI’s are too generous or not generous enough?  What is the gold standard?  The authors replicate the standard GPCI methodology, but calculate the GPCIs at a smaller geographic level Census Public Use Microdata Areas (PUMAs).  In addition, the current work GPCI is constrained to only vary +/- 25% from the national average; the authors do not impose this restriction.

Using this approach, the authors find:

In geographically favorable areas, patients are 12% more likely to be very satisfied with their overall quality of medical care, 10.51% less likely to be satisfied, and 1.51% less likely to be dissatisfied with it, compared with geographically unfavorable areas.

These findings extend to patient’s satisfaction with access to care, as well. In geographically favorable areas, patients are 3.84% more likely to be very satisfied with the availability of medical services at night and on weekends, 2.55% less likely to be satisfied, and 1.29% less likely to be dissatisfied.


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