Medicare Relative Value Payment Amount
The payment amount for each service paid under the physician fee schedule is the product of three factors:
(1) a nationally uniform relative value for the service (2) a geographic adjustment factor for each physician fee schedule area; and (3) a nationally uniform conversion factor for the service. The
conversion factor converts the relative values into payment amounts.
For each physician fee schedule service, there are three relative values (1) an RVU for physician work; (2) an RVU for practice expenses; and (3) an RVU for malpractice expense. For each of these
components of the fee schedule, there is a geographic practice cost index (GPCI) for each fee schedule area. The GPCIs reflect the relative costs of practice expenses, malpractice insurance, and
physician work in an area compared to the national average for each component.
The general formula for calculating the Medicare relative value payment amount for a given service in a given fee schedule area can be expressed as:
Payment=[(RVU work x GPCI work) + (RVU practice expense x GPCI practice expense) + (RVU malpractice x GPCI malpractice)] x Conversion Factor
The Conversion Factor for calendar year (CY) 2006 is $37.8975
Geographic Practice Cost Index Definition
For each of the three relative value unit (RVU) components of the fee schedule, there is a geographic practice cost index (GPCI) for each fee schedule area. The GPCIs reflect the relative costs
of practice expenses, malpractice insurance, and physician work in an area compared to the national average for each component. For example, the GPCIs for the state of Mississippi compared to
Manhattan, NY are as follows.




Relative Value Unit

Mississippi

Manhattan, NY

Work RVU

0.957

1.094

Practice Expense RVU

0.837

1.351

Malpractice RVU

0.779

1.668

The national average GPCI for all components is equal to 1.00.