Medicare physician payments: impacts of changes on rural physicians

Medicare payment disproportionately impacts rural physicians compared to urban. For example, 51% of rural physicians, compared to 44% of urban physicians, receive at least 38% of their payments from Medicare.1 Thus, the Medicare physician payment system is of significant rural interest. In this policy brief, we present the effects of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 on physician payment rates in rural areas. Specifically, we examine the impact of creating a floor of 1.00 in the geographic practice cost index (GPCI) for work expense. We also show the effects of the Medicare incentive payment (MIP) for providing services in shortage areas and of the bonus for practicing in a physician scarcity area. Our principal findings are the following: (1) Increases to the GPCI for work expense accounted for a substantial percentage of the two-year increases in total payment to physicians in rural payment areas. (2) Increases in the conversion factor (CF) (base payment) accounted for most of the increases in total payment in all but 6 of the 89 Medicare payment localities; in those 6 areas, the dominant factor was GPCI adjustment. (3) Bonus payments are a more direct means of targeting increased payments to physicians in specific areas than is a general increase in one part of the payment formula.