What is MEI (Medicare Economic Index)?

Definition

The Medicare Economic Index (MEI) is an index, maintained by CMS, that measures the year-over-year change in the input costs of operating a physician practice. It combines weighted indexes for clinician compensation, practice expense, and malpractice insurance. MEI is a primary input into the annual update of the Medicare Physician Fee Schedule conversion factor, which directly determines what APCM PMPM rates pay each calendar year.

What MEI measures

MEI tracks the change in the cost of the inputs a typical physician practice consumes to deliver services — not the change in physician earnings, and not patient-side healthcare inflation. CMS constructs MEI as a weighted index of three component cost categories:

• Physician and clinical staff compensation — wages and benefits for the practice’s clinical workforce.
• Practice expense — non-compensation operating costs including rent, utilities, medical supplies, professional services, information technology, and administrative staff.
• Professional liability insurance — malpractice premiums.

The weights and the underlying price series are derived from federal data sources, including Bureau of Labor Statistics employment cost indexes and producer price indexes. CMS publishes the methodology in the annual Medicare Physician Fee Schedule Final Rule.

MEI methodology and recent revisions

MEI methodology has been periodically revised to better reflect contemporary physician-practice cost structures. The most consequential recent revision was the rebased MEI methodology CMS implemented through the CY2023 PFS rulemaking, which updated the cost-category weights using more recent Medical Group Management Association and Census Bureau data. The rebased methodology shifted the relative weight of practice expense versus clinician compensation, which in turn affected how downstream payment rates respond to changes in those cost categories.

CMS evaluates whether MEI weights and inputs remain representative as part of its periodic rulemaking. The methodology in force for any given calendar year is documented in that year’s Physician Fee Schedule Final Rule.

How MEI flows into APCM rates

MEI does not directly set APCM PMPM rates. The path runs through the Physician Fee Schedule conversion factor:

1. CMS publishes a national MEI value annually as part of the Physician Fee Schedule rulemaking cycle.
2. MEI is one of several statutorily defined inputs into the annual update of the Medicare Physician Fee Schedule conversion factor. Other inputs include the statutorily fixed payment-update factor for the relevant year, budget-neutrality adjustments triggered by relative-value-unit changes, and any congressionally enacted adjustments.
3. The updated conversion factor multiplies the relative value units assigned to each Physician Fee Schedule code — including the APCM codes G0556, G0557, G0558 and the behavioral health add-on codes G0568, G0569, G0570 — to produce the national payment rate for that code.
4. National rates are then geographically adjusted via the Geographic Practice Cost Index to produce locality-specific payment amounts.

A rising MEI exerts upward pressure on the conversion factor, but statutory update factors and budget-neutrality offsets can — and frequently do — partially or fully offset it. In some recent years, the statutory update factor has been negative, producing conversion-factor reductions despite positive MEI growth.

Practical implication for APCM revenue planning

APCM PMPM rates change year over year as the Physician Fee Schedule conversion factor changes. Because conversion-factor updates are the net of MEI, statutory update factors, budget-neutrality adjustments, and congressional action, year-over-year APCM rate changes are not a simple read-through from MEI. Practices modeling multi-year APCM revenue should consult the CY-specific PFS Final Rule rather than projecting from MEI movement alone.

For practices participating in alternative payment models — for example MSSP ACOs or ACO REACH — MEI also influences the benchmark calculations those programs use, though the specific application varies by model.

Primary sources

• Centers for Medicare & Medicaid Services. CY2023 Medicare Physician Fee Schedule Final Rule — MEI rebasing methodology.
• Centers for Medicare & Medicaid Services. CY2025 Medicare Physician Fee Schedule Final Rule — current methodology and conversion-factor calculation.
• Centers for Medicare & Medicaid Services. CY2026 Medicare Physician Fee Schedule Final Rule.
• MACPAC and MedPAC reports on the Physician Fee Schedule update mechanism.

Related concepts

For the payment structure MEI ultimately affects, see What is PMPM?. For the framework MEI affects most directly in the APCM context, see What is APCM?. For the ACO programs MEI also influences, see What is the MSSP? and What is ACO REACH?. For the strategic context, see The APCM Opportunity.