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<strong>CMS</strong>-1403-FC<br />

including 22 “Statewide” localities where all areas within<br />

a State (whether urban or rural) received the same payment<br />

amount for a given service. These localities changed<br />

little between the inception of Medicare in 1966 and the<br />

beginning of the PFS in 1992. Following the inception of<br />

the PFS, we acknowledged that there was no consistent<br />

geographic basis for these localities and that they did not<br />

reflect the significant economic and demographic changes<br />

that had taken place since 1966. As a result, a study was<br />

begun in 1994 which culminated in a comprehensive locality<br />

revision which was implemented in 1997.<br />

The 1997 payment locality revision was based and built<br />

upon the prior locality structure. The 22 previously<br />

existing Statewide localities remained Statewide<br />

localities. New localities were established in the<br />

remaining 28 States by comparing the area cost differences<br />

(using the GAFs as a proxy for costs) of the localities<br />

within these States. We ranked the existing localities<br />

within these States by GAFs in descending order. The GAF<br />

of the highest locality within a State was compared to the<br />

weighted average GAF of other localities. If the<br />

differences between these GAFs exceeded 5 percent, the<br />

highest locality remained a distinct locality. If the GAFs<br />

associated with all the localities in a State did not vary<br />

80

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