[Federal Register Volume 63, Number 211 (Monday, November 2, 1998)]
[Pages 59188-59190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29182]

Federal Register / Vol. 63, No. 211 / Monday, November 2, 1998 / 

[[Page 59188]]



Health Care Financing Administration
RIN 0938-AJ09

Medicare Program; Sustainable Growth Rate for Fiscal Year 1999

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

ACTION: Notice with comment period.


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.
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    This Federal Register document is also available from the Federal 
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guest (no password required).

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


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

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

                       Statutory factors                          change
Fees...........................................................      2.1
Enrollment.....................................................     -4.3
Increase in Gross Domestic Product.............................      1.3
Legislation....................................................      0.7
    Total......................................................     -0.3

    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 

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
                                                          1998     1999
Medicare Economic Index...............................      2.2      2.4
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 1999, before applying any legislative 
adjustments to the MEI, will be 2.1 percent for all physicians' 

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:

                                                                       Average Medicare part B enrollment  (in
                            Fiscal year                                                              Overall,
                                                                      Overall   Medicare+Choice     excluding
1998...............................................................     36.609         5.526           31.083
1999...............................................................     36.876         7.131           29.745
Percent change.....................................................                                      -4.3

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