Geographic Practice Cost Index (GPCI): How Medicare Adjusts Physician Payments by Location

• GPCIs adjust Medicare physician payments by location, ensuring reimbursement reflects regional differences in labor, overhead, and malpractice costs. 
• Practice expense GPCIs often have the greatest financial impact, particularly for services with high staffing or facility costs. 
• GPCI updates redistribute payments rather than change total Medicare spending, making geographic shifts in reimbursement an ongoing operational and financial consideration for practices. 

There is a component of 2026 reimbursement for skin substitute application that many providers may not be aware of. The Geographic Practice Cost Index (GPCI) is a foundational component of the Medicare Physician Fee Schedule (MPFS), shaping how physician payments vary across the country.  

The Geographic Practice Cost Index (GPCI) is Medicare’s mechanism for adjusting physician payments based on where care is delivered. While the Relative Value Unit (RVU) system establishes the relative resources required to furnish a service, GPCIs modify those RVUs to account for geographic differences in the cost of practicing medicine.¹ With sweeping changes in the 2026 Medicare Physician Fee Schedule (MPFS) as they relate to reimbursement for skin substitute application, it is vital that stakeholders better understand this concept. 

Each Medicare payment locality has three separate assigned GPCIs—one for physician work, one for practice expense, and one for professional liability insurance.¹ One applies these indices directly to the corresponding RVU components before using the national conversion factor to calculate final payment amounts.

Under the Medicare Physician Fee Schedule, payment for a given service is calculated using the following formula¹: 

[(Work RVU × Work GPCI) + (Practice Expense RVU × PE GPCI) + (PLI RVU × PLI GPCI)] × Conversion Factor 

This structure ensures that the same CPT® code can yield different reimbursement amounts depending on local economic conditions, while maintaining a nationally standardized valuation of physician work.¹ Interested parties can browse their region’s GPCIs by downloading from the Centers for Medicare and Medicaid Services 2026 addenda 1832-F.²  

Physician Work GPCI 

The work GPCI reflects geographic variation in physician labor costs using wage data from highly educated professional occupations. By statute, only one-quarter of geographic cost-of-living differences are applied to this component, which limits variation. Congress has also established a national floor of 1.00 for work GPCIs, with a higher permanent floor for Alaska to support workforce stability.¹

Practice Expense (PE) GPCI 

The PE GPCI captures regional differences in the cost of operating a medical practice, including staff wages, office rent, purchased services, and miscellaneous expenses. This component shows the widest influence on services with high overhead and includes statutory payment protections for designated “frontier states.”¹

Professional Liability Insurance (PLI) GPCI 

The PLI GPCI accounts for geographic variation in malpractice insurance premiums. Although this index varies widely across the country, it typically represents a small portion of total RVUs and therefore has a limited overall effect on most payments.¹

GPCIs do not increase or decrease total Medicare spending; instead, they redistribute payments across geographic areas. Compared with earlier Medicare payment systems, GPCIs have significantly narrowed payment disparities, with most localities now falling within 10% of the national average.¹ CMS updates GPCIs at least every three years, making periodic changes an important consideration for practices operating on thin margins or in high-cost or rural regions. 

When it comes to skin substitutes specifically, there is a problematic observation – the product cost does not vary geographically, as the system’s premise would assume. Thus, reimbursement in areas with lower GPCI components will be lower as well, despite equal cost to the provider to obtain that product. This shines a light on potential additional challenges for those providing care in rural or under resourced areas. 

1. American Medical Association. Geographic practice cost indices (GPCIs). American Medical Association; n.d. Accessed January 6, 2026. 
2. Centers for Medicare & Medicaid Services. Medicare Physician Fee Schedule Federal Regulation Notice: CMS-1832-F. CMS; published November 5, 2025. Accessed January 6, 2026. https://www.cms.gov/medicare/payment/fee-schedules/physician/federal-regulation-notices/cms-1832-f