Written by: cancermd
1/2/2009 

Geographic Variability of Medicare Fees

By Joseph W. Plandowski

What strikes me about Medicare anatomic pathology fees is how different they are in various locations across the country. Over the past few years, I have provided financial analyses to several hundred specialty practices that have expressed interest in having their own in-office anatomic pathology laboratory. These analyses are usually completed using local Medicare fees.

Most individuals are focused on Medicare anatomic pathology fees in their local area and have no idea that fees for the same Current Procedural Terminology ( CPT ) code can be so different in other areas of the country.

This article offers a look at the differences, using CPT code fees that have been in effect from January 2008 through June 2008.

First, a few basics are in order:

• The Medicare fee schedule by CPT code is published and available online. CPT codes for anatomi c a nd clinical pathology are primarily covered in the 8xxxx series of codes. Within that series, CPT codes from 88000 to 88399 relate to anatomic pathology.

• For each anatomic pathology CPT code, the Medicare fee schedule contains values for Technical (modifier: TC), Professional (modifier: 26), and Global Relative Value Units (RVUs). The Global RVU does not have a modifier associated with it. A Global RVU is simply the addition of the Technical and Professional RVUs for a given CPT code.

• RVUs describe the relative value among CPT codes. The higher the RVU, the more complex it is and the higher its fee. Technical, Professional, and Global RVUs are broken down into Work, Practice Expense, and Malpractice RVUs.

• To calculate the appropriate fee, a complex formula is used. It is described in the Medicare fee schedule and encompasses the RVUs for a specific CPT code, the Geographic Practice Cost Indices (GPCI) for the local area in question, a Budget Neutrality Adjustor, and a Conversion Factor to change RVUs into dollars.

• The local area for a particular CPT code fee may be a state, metro area, city, etc. For example, California has eight different fees to cover eight different areas: Anah ei m/Santa Ana, Los Angeles , Marin/Napa/Solano, Oakland / Berkley , San Francisco , San Mateo , Santa Clara , and rest of California . Illinois has four different fees to cover Chicago , Suburban Chicago, East St. Louis , and rest of Illinois . Massachusetts has two different fees to cover Metropolitan Boston and rest of Massachusetts . North Dakota has only one fee for the state.

• The following states also have one fee per CPT code that covers the entire state: Alabama , Alaska , Arizona , Arkansas , Colorado , Connecticut , Delaware , Hawaii , Idaho , Indiana , Iowa , Kansas , Kentucky , Minnesota , Mississippi , Montana , Nebraska , Nevada , New Hampshire , New Mexico , North Carol ina , Ohio , Oklahoma , Rhode Island , South Carol ina , South Dakota , Tennessee , Utah , Vermont , Virginia , Wisconsin , West Virginia , and Wyoming .

To look at the variability, 10 large cities spread across the US were selected. The cities are: Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New York ( Manhattan), San Francisco, and Seattle. Some interesting Medicare comparables are:

• For the most commonly ordered tissue diagnosis, CPT 88305, reimbursement varies from the lowest at $102.38 in Denver to the highest at $140.12 in San Francisco . That’s a difference of about 37 percent.

• For commonly ordered special stains for microorganisms, CPT 88312, Medicare r ei mbursement varies from the lowest at $91.75 in Denver to the highest at $128.08 in San Francisco . That’s a difference of about 40 percent.

• For a non-Gyn cytopathology slide prepared with thin-layer methodology, CPT 88112, Medicare r ei mbursement varies from the lowest at $98.48 in Atlanta to the highest at $140.62 in San Francisco . That’s a difference of about 43 percent.

• Furthermore, it’s interesting that CPT 88112 has a Medicare reimbursement fee that is higher than CPT 88305 in ei ght of the 10 cities selected, with Atlanta and Los Angeles b ei ng the exceptions.

• San Francisco stands above the rest of the 10 cities in terms of fees. For example, the second highest fee in the first three examples above belongs to New York ( Manhattan) and the difference between the two cities is substantial. For CPT 88305 New York is at $127.53. For CPT 88312 it is at $114.87 and for CPT 88112 it is at $129.14. That puts San Francisco ahead of New York by about 10 percent, 11 percent, and 9 percent, respectively.

• In general, the fees in Chicago and Seattle are in the middle of the 10 selected cities. Lower fees are paid in Miami , Dallas , Atlanta , and Denver . Higher fees are paid in Los Angeles , Boston , New York ( Manhattan) , and San Francisco .

• On a national basis, some of the lowest fees are paid in the rest of Missouri (excludes metro St. Louis and metro Kansas City ), West Virginia , North Dakota , and South Dakota .

Another very interesting look at fee variability comes in comparing San Francisco with Columbia (MO), an area that has some of the lowest Medicare fees in the country. For example, the common tissue diagnosis, CPT 88305, carries a Medicare fee of $88.56 in Columbia ; CPT 88312 carries a $78.11 fee; and CPT 88112 is at $94.23. That puts San Francisco ahead of Columbia by 58 percent, 64 percent, and 49 percent, respectively.

If we look beyond the Medicare dollar values and focus on the GPCIs for Work, Practice Expense, and Malpractice of the various CPT codes for the 10 cities noted, there are some interesting comparables. GPCIs are important drivers of fees. For example:

• There is very little difference in the GPCI for Work. New York is the highest, followed by San Francisco . Miami and Denver have the lowest. The difference from the lowest to the highest is about 6 percent. This is not unexpected because the work involved by a pathologist in diagnosing a tissue slide ( CPT 88305) would intuitively be considered about the same wherever that work was done.

• GPCI for Practice Expense is another issue in terms of differences. The highest is San Francisco followed by Boston and New York . San Francisco leads Boston by about 14 percent. The lowest GPCI for Practice Expense can be found in Denver . The difference between the lowest and highest fees is about 49 percent. Practice Expense is a measure of the cost of operating a practice in various cities across the country.

• A big surprise lies in GPCIs for Malpractice with the lowest to highest amounting to about 414 percent. The highest is in Miami and lowest is in San Francisco . Miami ’s GPCI for Malpractice is about 43 percent higher than the second highest, Chicago . On the other end of the scale, the second lowest GPCI is in Denver and it is about 36 percent higher than San Francisco , which is the lowest. Malpractice GPCI relates to the premiums paid for malpractice insurance.

Comparing the 10 cities selected to the lowest and highest GPCIs found nationally provides some interesting insight. For example, Santa Clara (CA) has the highest GPCI for Work, which is about 8 percent higher than Denver . The GPCI for Practice Expense is about 84 percent higher for San Francisco than it is for Columbia (MO). And Miami has a GPCI for Malpractice that is about 734 percent higher than Minnesota , an astonishingly large difference. These values, along with others, are crunched through Medicare’s complex formula to yield the fees we face every day.

Just because Medicare is a national program, don’t get trapped into assuming the fee Medicare pays in your locality is similar to what everyone else is rec ei ving. That is far from reality. While we may accept the fact that costs are different across the country, some of the differences are substantial and surprising.

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