Assessing the validity of the geographic practice cost indexes

Data on physician practice inputs were used to test the degree to which the geographic practice cost indexes (GPCIs) of the Medicare physician payment schedule reflect geographic variation in input prices. For purposes of this study, input quantity information was collected through the American Medical Association's Socioeconomic Monitoring System survey in 1990 and 1991. These data, along with practice expense information, were used to construct unit input prices. The GPCIs were correlated with input prices; however, "real" or GPCI-adjusted prices varied significantly across locations. We conclude that the GPCIs are useful, but imperfect measures of geographic differences in physician practice input prices.