Medicare Program; Sustainable Growth Rate for Fiscal Year 2000

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1058-FN]

RIN 0938-AJ60

Medicare Program; Sustainable Growth Rate for Fiscal Year 2000

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

ACTION: Final notice.

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SUMMARY: This final notice announces the fiscal year 2000 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 Act). The SGR for

fiscal year 2000 is 2.1 percent.

EFFECTIVE DATE: The provisions of the Medicare SGR for fiscal year 2000

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

[[Page 53395]]

FOR FURTHER INFORMATION CONTACT: Raymond Bulls, (410) 786-7267.

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) (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

sustainable growth rate for all physicians' services for a fiscal year

(beginning with fiscal year 1998) shall be equal to the product of--

(A) 1 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 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 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 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) which 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, we have determined that the

SGR for physicians' services for fiscal year 2000 is 2.1 percent. Our

determination is based on the following statutory factors:

------------------------------------------------------------------------

Percent

Statutory factors change

------------------------------------------------------------------------

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

Enrollment................................................. -1.6

Increase in Gross Domestic Product......................... 1.8

Legislation................................................ -0.2

------------

Total.................................................. 2.1

------------------------------------------------------------------------

The specific calculations to determine the 2.1 percent SGR for

physicians' services for fiscal year 2000 are explained below.

III. Calculation of the Fiscal Year 2000 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 2000 is as

follows:

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

Legislative Adjustments) for Fiscal Year 2000

This factor was calculated as a weighted average of the calendar

year 1999 and 2000 fee increases that apply during fiscal year 2000.

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 provided for a 0.0 percent update in 1999 and

2000 for laboratory services, which represents about 11 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 2000.

Medicare Economic Index and Laboratory Service Update for Calendar Years

1999 and 2000

------------------------------------------------------------------------

1999 2000

------------------------------------------------------------------------

Medicare Economic Index........................... 2.3 2.3

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

------------------------------------------------------------------------

After taking into account all the elements described above, we

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

services in fiscal year 2000, 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 1999 to Fiscal Year 2000

Due to the 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 1.6 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

----------------------------------------------------------------------------------------------------------------

1999.......................................................... 36.866 6.116 30.750

2000.......................................................... 37.178 6.917 30.261

Percent change............................................ .............. ............... -1.6

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[[Page 53396]]

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

Fiscal Year 2000

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

BBA, 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 1.8 percent in fiscal year 2000.

Factor 4--Percentage Change in Expenditures for Physicians' Services

Resulting From Changes in Law or Regulations in Fiscal Year 2000

Compared With Fiscal Year 1999

Legislative changes contained in the BBA will have some residual

effects on expenditures for physicians' services in fiscal year 2000.

In addition, there are some miscellaneous provisions that will have a

small impact.

Taking into account all of the changes in law or regulation that

may affect expenditures for physicians' services, the decrease in

expenditures for physicians' services is estimated to be -0.2 percent.

IV. The Use of Estimates in Computing the Sustainable Growth Rate

Section 1848(f) of the Act clearly requires that each year, the

Secretary establish the SGR for the upcoming fiscal year beginning

October 1 based on the Secretary's estimate[s] of four factors: The

percentage increase in physicians' fees, the percentage increase in

fee-for-service enrollment, the projected percentage growth in per

capita gross domestic product, and the percentage change in

expenditures for physicians' services resulting from changes in law or

regulations. Because the calculation of the SGR for a given year is

based on projected values, updates may be either lower or higher than

they would have been if we had used later data. Thus, we initially

considered revising estimates of the factors used in setting the SGR

when later data had become available. However, as we indicated in the

notice with comment period published in the Federal Register (63 FR

59188) on November 2, 1998, we had concerns about whether we had the

statutory authority to make these revisions under current law and

invited comments regarding how an adjustment could be made consistent

with the law. The comments we received and our response are discussed

below.

Comment: The American Medical Association and numerous physician

organizations suggested that congressional intent should be interpreted

to authorize adjustments for projection error. These commenters also

suggested a number of different approaches for making such adjustments.

The various approaches suggested rely on later data.

Response: We do not believe that we have the authority to make

adjustments based on Congressional intent because the statutory

language clearly requires that estimated values be used for computing

the SGR and there is no provision for revising the estimates to reflect

later data. Our actions are controlled by the clear statutory language.

Thus, we will not be able to make adjustments to the SGR based on later

data.

However, the Administration's legislative package for fiscal year

2000, released in February 1999, contains a legislative proposal to

adjust the SGR if later data are different from earlier estimates, as

well as to address issues relating to the instability of the SGR

discussed below. The changes proposed are all budget neutral. If

Congress enacts this proposal for fiscal year 2000, we would revise the

SGR for fiscal year 2000 as appropriate.

V. 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. As

discussed above the Administration has submitted a legislative proposal

to the Congress that will address these factors and result in less

oscillation in the physician fee schedule update.

VI. 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 physicians 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 604 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 will affect expenditures

for physicians' services in fiscal year 2000, although the impact will

be slight, and residual effects will result in fiscal year 2000 from

the calendar year implementation of these changes.

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.

We have reviewed this final notice under the threshold criteria of

Executive Order 13132 of August 4, 1999, and have determined that it

does not significantly affect the rights, roles, and responsibilities

of States.

(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: September 1, 1999.

Michael M. Hash,

Deputy Administrator, Health Care Financing Administration.

Approved: September 20, 1999.

Donna E. Shalala,

Secretary.

[FR Doc. 99-25527 Filed 9-28-99; 9:58 am]

BILLING CODE 4120-01-P