What price, Medicare? Geographic variability in Medicare physician payment levels

This study assesses the problems and prospects in developing one or more geographic indices of physician practice costs for Medicare Part B. I used a modified Laspeyres price index approach to compute practice cost indices, aggregated to the level of existing Medicare Part B payment areas and also created an index of Medicare payment levels. In comparing this prevailing charge index with the various geographic practice cost estimates, I found a considerable range in some individual localities' values within practice cost indices that in aggregate appear to be highly correlated. For the most part, estimated costs and prevailing charges appear to be comparable. However, results indicate that not every low paid area is underpaid relative to costs and not every highly paid area is overpaid.