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Navigating RVU Geographic Adjustments in Physician Compensation

Do you know how GPCIs (Geographic Practice Cost Indices) impact your compensation as a physician?  Understanding the various elements of RVUs, such as this geographic component, is a “must” to receive equitable and fair compensation. 

In this article, we explain some of the nuances of RVU compensation structures and how to navigate RVU geographic adjustments in physician compensation. Read on to learn more.


What Are RVU Geographic Adjustments and How Do They Affect Physician Compensation?

GPCIs (Geographic Practice Cost Indices) reflect geographic differences in costs of living, practice expenses, and professional liability insurance. As the AMA explains, GPCIs are applied to calculate a Medicare payment schedule amount by multiplying the RVU (Relative Value Unit) for each component times the GPCI for that component.  RVUs portray the time, effort, and resources invested in every medical procedure. 

GPCIs consist of three primary elements: 

  1. Physician Work: The work component of GPCIs reflects the relative cost of physician labor in various localities. For example, regions with higher costs of living or greater demand for healthcare services may have higher Physician Work GPCIs, leading to higher RVU physician compensation in those areas.
  2. Practice Expense: This element of GPCIs measure geographic variations in medical practice inputs such as office rents, staff wages, and overhead costs within various regions of the country. Higher Practice Expense GPCIs indicate higher practice costs, which can lead to higher RVU compensation to offset these expenses. 
  3. Professional Liability Insurance: The insurance component accounts for differences in professional liability insurance costs across regions. Regions with higher liability insurance costs may provide higher RVU compensation to cover these additional costs. 

By accounting for factors such as physician labor, practice expenses, and professional liability insurance, GPCIs ensure that RVU physician compensation is equitable across different regions.  For example, if you are a cardiologist in Dallas, Texas, your expenses will be more than for cardiologists located in Longview, Texas.  The patients in Dallas will expect a higher level of expertise with other competing cardiologists located close by.  And your liability coverage likely will be more in Dallas.  The goal of GPCIs is to ensure that RVU physician compensation reflects the true cost of providing healthcare services. 


Why are RVU Geographical Adjustments Important in Physician Compensation?

Geographical adjustments in physician compensation assure equitable access to healthcare services and address regional variations in practice costs that impact physicians’ compensation. Without appropriate adjustments, physicians practicing in high-cost regions may be under-compensated compared to others in low-cost regions, leading to disparities in physician income and access to medical care.

Beyond ensuring that physicians are properly paid for their services, geographic adjustments can attract and retain physicians in underserved areas and ensure that patients have access to quality care regardless of where they live. By helping physicians offset higher practice costs in regions with limited resources but also higher costs of living, doctors are better able to maintain sustainable practices and deliver essential healthcare services to their communities. 

As we discussed in a previous article, “How Does RVU Physician Compensation Work?”, the healthcare reimbursement system carries limitations, such limiting access to needed care for services that are not well-reimbursed.  If providers are not properly paid, they may decline to offer certain services.  However, geographical adjustments play a vital role in addressing these limitations. By adjusting compensation to reflect the financial challenges that physicians may face, including provider shortages, higher patient complexity, and weaker infrastructure, healthcare systems can incentivize providers to practice in underserved areas and improve access. 

Additionally, geographical adjustments are particularly important for physicians whose families and loved ones have deep roots in specific locations.  Those physicians want to remain where they are located, and their compensation should reflect the efforts they invest in providing care to their communities.  We had a physician client living in a small rural town who was unexpectedly terminated by the hospital.  His wife and two daughters loved their town and did not want to move.  Because of the limitations in his contract preventing him from accepting another comparable position, he decided to move to the nursing home environment to practice his specialty and stay in the rural location.  Moral of that story:  Read your contract before you sign.

Geographical practice costs adjustments help ensure that physicians can support themselves and their families adequately while practicing in regions with higher living costs or limited resources. Geographical adjustments not only promote fairness in compensation but also contribute to the overall well-being and stability of physicians and their families. 


What Are the Challenges and Criticisms of RVU Geographical Adjustments?

Despite their importance in adjusting RVUs, the indices for geographical compensation have faced scrutiny regarding their accuracy and effectiveness. Critics argue that GPCIs may not fully capture geographic cost differences, leading to the very disparities in physician compensation that it hopes to eliminate. 

The two main criticisms of GPCIs are:

  1. Reliance on outdated or inaccurate data sources: Because cost-of-living and local market figures constantly change, some GPCIs may rely on outdated data that inaccurately reflects current practice costs. This can result in inaccurate adjustments, causing physicians’ compensation to inaccurately reflect their efforts.
  2. Potential impact on physician location decisions: Physicians may be incentivized to practice in regions with higher GPCIs, leading to maldistribution of healthcare providers and unequal access to care. This phenomenon can exacerbate the physician shortages that geographical adjustments hope to fix. 

Despite these criticisms, GPCIs remain an essential tool for adjusting RVU physician compensation and promoting fairness in reimbursement rates. Efforts to refine and improve GPCIs, such as updating data sources and accounting for additional factors that influence practice costs, can help address these concerns and ensure that GPCIs accurately reflect geographic cost differences and support equitable physician compensation.


Contact an Expert Today.

As a physician, your compensation is intricately tied to RVUs, which typically serve as the basis for reimbursement rates.  You should understand the significance of geographical adjustments to assure that your compensation aligns with the unique challenges and costs of practicing medicine in different locations.

If you need help in understanding these complexities, contact us today.


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