Notice: This CMS-approved document has been submitted - Philips ...

CMS-1403-FC
services, and are adjusted for differences in resource
costs among payment localities using the GPCIs. As a
result, PFS payments vary between localities. Although the
PFS payment for a particular service is actually adjusted
by applying a GPCI to each fee schedule component, for
purposes of discussion and comparison, we calculate a
geographic adjustment factor (GAF) for each locality.
These GAFs reflect a weighted average of the GPCIs within
the locality and can be used as a general proxy for area
practice costs. A GAF is calculated to reflect a
summarization of the GPCIs, (which is used only to make
comparisons across localities). The GAFs are not an
absolute measure of actual costs, nor are they used to
calculate PFS payments. Rather, they are a tool that can
be used as a proxy for differences in the cost of operating
a medical practice among various geographic areas (for
example counties) for the purpose of assessing the
potential impact of alternative locality configurations.
Prior to 1992, Medicare payments for physicians’
services were made on the basis of reasonable charges.
Payment localities were established under the reasonable
charge system by local Medicare carriers based on their
knowledge of local physician charging patterns and economic
conditions. A total of 210 localities were developed;
79