Medicare Program; Sustainable Growth Rate for Fiscal Year 1999

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1021-NC]

RIN 0938-AJ09

Medicare Program; Sustainable Growth Rate for Fiscal Year 1999

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice with comment period.

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SUMMARY: This notice announces the fiscal year 1999 sustainable growth

rate (SGR) for expenditures for physicians' services under the Medicare

Supplementary Medical Insurance (Part B) program as required by section

1848(f) of the Social Security Act. The SGR for fiscal year 1999 is

-0.3 percent. The negative fiscal year 1999 SGR is driven by the

projected drop in Medicare fee-for-service enrollment.

DATES: Effective Date: The provisions of the Medicare SGR for fiscal

year 1999 contained in this notice are effective on October 1, 1998.

Comment Date: Written comments will be considered if we receive

them at the appropriate address, as provided below, no later than 5:00

p.m. on December 2, 1998.

ADDRESSES: Mail written comments (an original and three copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1021-NC, P.O. Box 26688,

Baltimore, MD 21207-0488.

If you prefer, you may deliver your written comments (an original

and three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201 or

Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmissions. In commenting, please refer

to file code HCFA-1021-NC. Comments received timely will be available

for public inspection as they are received, generally beginning

approximately 3 weeks after publication of a document, in Room 309-G of

the Department's office at 200 Independence Avenue, SW, Washington, DC,

on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone:

(202) 690-7890).

Comments may also be submitted electronically to the following E-

mail address: [email protected] E-mail comments must include the

full name and address of the sender. All comments must be incorporated

in the E-mail message because we may not be able to access attachments.

Electronically submitted comments will be available for public

inspection at the Independence Avenue address listed above.

Copies: To order paper copies of the Federal Register containing

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888-293-6498) or by faxing to (202) 512-2250. The cost for each paper

copy is $8. As an alternative, you can view and photocopy the Federal

Register document at most libraries designated as Federal Depository

Libraries and at many other public and academic libraries throughout

the country that receive the Federal Register.

This Federal Register document is also available from the Federal

Register online database through GPO Access, a service of the U.S.

Government Printing Office. Free public access is available on a Wide

Area Information Server (WAIS) through the Internet and via

asynchronous dial-in. Internet users can access the database by using

the World Wide Web; the Superintendent of Documents home page address

is http://www.access.gpo.gov/nara/index.html, by using local WAIS

client software, or by telnet to swais.access.gpo.gov, then login as

guest (no password required). Dial-in users should use communications

software and modem to call (202) 512-1661; type swais, then login as

guest (no password required).

FOR FURTHER INFORMATION CONTACT: Elizabeth Holland, (410) 786-1309.

SUPPLEMENTARY INFORMATION:

I. Background

A. Medicare Sustainable Growth Rate

Section 1848(f) of the Social Security Act (the Act), as amended by

section 4503 of the Balanced Budget Act of 1997 (BBA 1997) (Public Law

105-33), enacted on August 5, 1997, replaces the volume performance

standard with a sustainable growth rate (SGR) standard. It specifies

the formula for establishing yearly SGR targets for physicians'

services under Medicare. The use of SGR targets is intended to control

the actual growth in Medicare expenditures for physicians' services.

The SGR targets are not limits on expenditures. Payments for

services are not withheld if the SGR target is exceeded. Rather, the

appropriate fee schedule update, as specified in section 1848(d)(3)(A)

of the Act, is adjusted to reflect the success or failure in meeting

the SGR target.

Amended section 1848(f)(2) of the Act states that ``the SGR for all

physicians'' services for a fiscal year (beginning with fiscal year

1998) shall be equal to the product of--

(A) 1.0 plus the Secretary's estimate of the weighted-average

percentage increase (divided by 100) in the fees for all physicians'

services in the fiscal year involved,

(B) 1.0 plus the Secretary's estimate of the percentage change

(divided by 100) in the average number of individuals enrolled under

this part (other than Medicare+Choice plan enrollees) from the previous

fiscal year to the fiscal year involved,

(C) 1.0 plus the Secretary's estimate of the projected percentage

growth in real gross domestic product per capita (divided by 100) from

the previous fiscal year to the year involved, and

(D) 1.0 plus the Secretary's estimate of the percentage change

(divided by 100) in expenditures for all physicians' services in the

fiscal year (compared with the previous fiscal year) that will result

from changes in law or regulations determined without taking into

account estimated changes in expenditures resulting from the update

adjustment factor determined under subsection (d)(3)(B), minus 1 and

multiplied by 100.''

B. Physicians' Services

Because the scope of physicians' services covered by the SGR is the

same as the scope of services that was covered by the Medicare volume

performance standards, we are using the same definition of physicians'

services for the SGR in this notice as we did for the Medicare volume

performance standards published in the Federal Register (61 FR 59717)

on November 22, 1996. That final notice announced the fiscal year 1997

volume performance standard rates and contained a detailed description

of the scope of physicians' services.

II. Provisions of This Notice

Under the requirements in sections 1848(f)(2)(A) through (D) of the

Act, as amended by section 4503 of the BBA 1997, we have determined

that the SGR for physicians' services for fiscal year

[[Page 59189]]

1999 is -0.3 percent. Our determination is based on the following

statutory factors:

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Percent

Statutory factors change

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Fees........................................................... 2.1

Enrollment..................................................... -4.3

Increase in Gross Domestic Product............................. 1.3

Legislation.................................................... 0.7

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Total...................................................... -0.3

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The specific calculations to determine the -0.3 SGR for physicians'

services for fiscal year 1999 are explained below.

III. Calculation of the Fiscal Year 1999 Sustainable Growth Rate

Our explanation of how we determined the values for each of the

four factors used in determining the SGR for fiscal year 1999 is as

follows:

Factor 1--Changes in Fees for Physicians' Services (Before Applying

Legislative Adjustments) for Fiscal Year 1999

This factor was calculated as a weighted average of the calendar

year 1998 and 1999 fee increases that apply during fiscal year 1999.

Adjustments to the fee increases, such as the move to a single

conversion factor, are accounted for in Factor 4 (the increase in

expenditures resulting from changes in law or regulations).

Most of the fees for physicians' services (as defined in section I.

B. of this final notice) are updated by the Medicare Economic Index

(MEI). However, the BBA 1997 provided for a 0.0 percent update for

laboratory services, which represent about 13 percent of the Medicare-

allowed charges for physicians' services. The following table,

therefore, shows both the MEI and laboratory service updates that were

used in determining the percentage increase in physicians' fees for

fiscal year 1999.

Medicare Economic Index and Laboratory Service Update for Calendar Years

1998 and 1999

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1998 1999

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Medicare Economic Index............................... 2.2 2.4

Laboratory Service.................................... 0.0 0.0

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After taking into account all the elements described above, we

estimate that the weighted-average increase in fees for physicians'

services in fiscal year 1999, before applying any legislative

adjustments to the MEI, will be 2.1 percent for all physicians'

services.

Factor 2--The Percentage Change in the Average Number of Part B

Enrollees from Fiscal Year 1998 to Fiscal Year 1999

Due to the rapid growth in Medicare+Choice plan enrollees (whose

Medicare-covered medical care is outside the scope of the SGR), we

estimate that the average number of Medicare Part B enrollees,

excluding those in Medicare+Choice plans, will decline by 4.3 percent.

This decline was derived as follows:

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Average Medicare part B enrollment (in

millions)

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Fiscal year Overall,

Overall Medicare+Choice excluding

Medicare+Choice

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1998............................................................... 36.609 5.526 31.083

1999............................................................... 36.876 7.131 29.745

Percent change..................................................... -4.3

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Factor 3--Estimated Real Gross Domestic Product Per Capita Growth

in Fiscal Year 1999

Section 1848(f)(2)(C) of the Act, as amended by section 4503 of the

BBA 1997, requires the Secretary to project real gross domestic product

per capita growth for the coming fiscal year. In calculating the SGR,

we estimate that this growth will be 1.3 percent in fiscal year 1999.

Factor 4--Percentage Increase in Expenditures for Physicians'

Services Resulting From Changes in Law or Regulations in Fiscal

Year 1999 Compared With Fiscal Year 1998

Legislative changes contained in the BBA 1997 will affect

expenditures for physicians' services in fiscal year 1999. The most

significant change is the coverage of diabetes outpatient self-

management training services. In addition, residual effects will result

in fiscal year 1999 from the calendar year implementation of the

following legislative changes:

The move to a single conversion factor;

The Medicare coverage changes for screening mammography,

colorectal cancer screening, screening PAP smears, and screening pelvic

exams; and

The changes in payments for nurse practitioners, clinical

nurse specialists, and physician assistants.

In response to changes associated with implementation of the 1998

physician fee schedule, we indicated in the October 31, 1997 Federal

Register final rule (62 FR 59265) that we anticipated that the volume

and intensity of physicians' services furnished to Medicare

beneficiaries would increase by 0.1 percent. We made a compensating 0.1

percent reduction in the conversion factor. At this point, based on the

June 5, 1998 proposed rule (63 FR 30818), we anticipate a 0.3 percent

increase in the volume and intensity of physicians' services during

1999 and that we would make a compensating 0.3 percent reduction in the

conversion factor to assure budget neutrality. For fiscal year 1999,

the weighted average of the calendar year responses is expected to

increase Medicare outlays for physicians' services by 0.2 percent.

Taking into account all of the provisions resulting from changes in

law or regulation, the increase in expenditures for physicians'

services is estimated to be 0.7 percent.

The establishment of the SGR for any year involves the use of

projected values for Medicare beneficiary fee-for-service enrollment

and the real gross domestic product per capita. In addition,

publication of the fiscal year SGR (3 months ahead of publication of

the calendar year update) also involves use of estimated values for the

MEI and for the CPI-U for laboratory service fee increases, as well as

volume and intensity changes in response to the Medicare physician fee

schedule and relative value unit changes for the calendar year. The BBA

1997 clearly anticipated that estimated values would be used; the

statute specifies that each

[[Page 59190]]

of the four factors would be ``the Secretary's estimate.''

While we will use our best efforts to make estimates at the time

the SGR is established, we are concerned that there will be differences

compared to later estimates of some of the components of the SGR. In

some cases, such as projections of Medicare beneficiary fee-for-service

enrollment, the differences between the initial estimate and a later

estimate could be large and as a result could affect the SGR by as much

as 1 percentage point. The difference could occur in either direction

as our initial estimates could turn out to be higher or lower than

later estimates. For example, in Factor 2, we have projected that Part

B fee-for-service enrollees will decrease in FY 1999 by 4.3 percent,

primarily because of enrollment in the new Medicare+Choice options that

are excluded from the SGR. However, we actually use the FY 1999 SGR for

purposes of establishing the update for CY 2000; at that time, we will

have a more recent estimate of the number of enrollees, and that number

could be significantly different from the projected 4.3 percent

decrease. A projection difference of only 1 percentage point would

affect roughly $400 million in spending under the physician fee

schedule.

We do not believe that the Congress, in enacting the SGR,

contemplated such significant variances between estimates made at

different points in time. Therefore, we are considering whether we

should ``adjust'' the SGR or the update for a year, to take into

account more recent estimates, when the subsequent year's update is

determined. Such an adjustment for estimate differences would assure

that the update is related to actual performance. However, we have

concerns about how this could best be accomplished, if at all, under

current law. Therefore, we invite comments specifically with regard to

how an adjustment could be effected consistent with the law and we will

respond in a future notice.

IV. Technical Problems With the Sustainable Growth Rate System

We have begun to forecast the SGR for future years, and it appears

that there is some instability in the SGR system. In the long-term,

updates could oscillate between the maximum increase and decrease

adjustments due to the use of mismatched time periods and the lag

between measurement periods. The solution would be technical and would

involve the matching of time periods for the SGR calculation, the

actual versus target measurement, and the update adjustment. We will

continue to study this potential problem and will propose a legislative

or regulatory remedy in the future as appropriate.

V. Regulatory Impact Statement

Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612), we prepare a regulatory flexibility analysis unless we

certify that a notice will not have a significant economic impact on a

substantial number of small entities. For purposes of the RFA, we treat

all providers and suppliers as small entities. Individuals and States

are not included in the definition of a small entity.

Also, section 1102(b) of the Act requires us to prepare a

regulatory impact analysis if a notice may have a significant impact on

the operations of a substantial number of small rural hospitals. That

analysis must conform to the provisions of section 603 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 50 beds.

Legislative changes contained in the BBA 1997 will affect

expenditures for physicians' services in fiscal year 1999, although the

impact will be slight, and residual effects will result in fiscal year

1999 from the calendar year implementation of the legislative changes

described under Factor 4 in section III. of this notice.

We are not preparing an analysis for either the RFA or section

1102(b) of the Act because we have determined, and the Secretary

certifies, that this notice will not have a significant economic impact

on a substantial number of small entities or on the operations of a

substantial number of small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

notice was reviewed by the Office of Management and Budget.

(Sections 1848(d) and (f) of the Social Security Act)

(42 U.S.C. 1395w-4(d) and (f))

(Catalog of Federal Domestic Assistance Program No. 93.774,

Medicare--Supplementary Medical Insurance Program)

Dated: July 31, 1998.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing Administration.

Dated: October 6, 1998.

Donna E. Shalala,

Secretary.

[FR Doc. 98-29182 Filed 10-30-98; 8:45 am]

BILLING CODE 4120-01-P