[Federal Register Volume 64, Number 85 (Tuesday, May 4, 1999)]
[Proposed Rules]
[Pages 23798-23805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11080]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Standards; Health Services Industries

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) is proposing to 
increase the size standards for eleven of the nineteen industries under 
Standard Industrial Classification (SIC) Major Group 80, Health 
Services. The current size standard is $5 million in average annual 
receipts for all health services industries. Depending on the industry, 
the proposed size standards are $7.5 million, $10 million, or $25 
million. The proposed revisions are being made to better define the 
size of business in those industries that the SBA believes should be 
eligible for Federal small business assistance programs.

DATES: Submit comments on or before July 6, 1999.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator 
for Size Standards, 409 3rd Street, SW., Mail Code 6880, Washington DC 
20416.

FOR FURTHER INFORMATION CONTACT: Robert N. Ray, Office of Size 
Standards, (202) 205-6618.

SUPPLEMENTARY INFORMATION: The SBA has historically applied a common 
size standard for all industries under SIC Major Group 80, Health 
Services. The current size standard of $5 million for all nineteen SIC 
codes in this major group was established on April 22, 1994 (58 FR 
16513), at which time it was increased from $3.5 million. In response 
to requests from Federal agencies and small businesses, the SBA 
analyzed the size standards for the health services industries and, on 
the basis of that review, believes that size standards higher than $5 
million should be established for eleven of the nineteen SIC codes in 
the health services industries. The table below lists the health 
services industries for which the SBA is proposing revised size 
standards:

------------------------------------------------------------------------
                                                          Proposed size
                                                            standard
         SIC Code                    Industry             (millions of
                                                            dollars)
------------------------------------------------------------------------
8011......................  Offices and Clinics of                  $7.5
                             Doctors of Medicine.
8051......................  Skilled Nursing Care                    10.0
                             Facilities.
8052......................  Intermediate Care                        7.5
                             Facilities.
8062......................  General Medical and                     25.0
                             Surgical Hospitals.
8063......................  Psychiatric Hospitals.....              25.0
8069......................  Specialty Hospitals,                    25.0
                             Except Psychiatric.
8071......................  Medical Laboratories......              10.0
8082......................  Home Health Care Services.              10.0
8092......................  Kidney Dialysis Centers...              25.0
8093......................  Specialty Outpatient                     7.5
                             Facilities, N.E.C.
8099......................  Health and Allied                        7.5
                             Services, N.E.C..
------------------------------------------------------------------------

    For the following eight health services industries, the SBA 
believes the current $5 million is appropriate:

------------------------------------------------------------------------
                                                          Size standard
         SIC Code                    Industry             (millions of
                                                            dollars)
------------------------------------------------------------------------
8021......................  Offices and Clinics of                  $5.0
                             Dentists.
8031......................  Offices and Clinics of                   5.0
                             Doctors of Osteopathy.
8041......................  Offices and Clinics of                   5.0
                             Chiropractors.
8042......................  Offices and Clinics of                   5.0
                             Optometrists.
8043......................  Offices and Clinics of                   5.0
                             Podiatrists.
8049......................  Offices and Clinics of                   5.0
                             Health Practitioners,
                             N.E.C..
8059......................  Nursing and Personal Care                5.0
                             Facilities, N.E.C..
8072......................  Dental Laboratories.......               5.0
------------------------------------------------------------------------


[[Page 23799]]

    Below is a discussion of the SBA's size standards methodology and 
the analyses leading to the proposed size standards. As part of this 
discussion, the SBA will explain why it has decided to retain the $5 
million size standard for eight of the health services industries. SBA 
also discusses its analysis to determine whether any firm under a 
proposed size standard would be considered dominant within an industry. 
This is followed by a discussion of an alternative size standard 
approach considered by SBA.

Size Standards Methodology

    In considering the appropriateness of a size standard the SBA 
evaluates the structural characteristics of an industry and the 
participation of small businesses in SBA programs. For the analysis of 
the size standards for the health services industries, five evaluation 
factors describing the structural characteristics of an industry and 
small business participation in SBA programs were assessed. These 
evaluation factors were: (1) Average firm size, (2) distribution of 
firms by size, (3) start-up costs, (4) industry competition, and (5) 
the competition for Federal procurements. The SBA generally considers 
these five to be the most important evaluation factors in establishing 
or revising a size standard for an industry. It will consider and 
evaluate other information shown to be relevant to the decision on the 
size standard. Below is a brief description of the five evaluation 
factors.
    1. Average firm size is total industry revenues (or number of 
employees) divided by the total number of firms operating in the 
industry. If an industry has an average firm size significantly higher 
than the average firm size of a group of comparative industries (in 
this case, industries with the anchor size standard of $5 million in 
revenues), this fact may support establishing a higher size standard 
than the one in effect for the group of related industries. Conversely, 
data showing an industry with a lower average firm size relative to the 
related group of industries tends to support a lower size standard.
    2. The distribution of firms by size examines the proportion of 
industry sales, employment, or other economic activity accounted for by 
firms of different sizes in an industry. If the preponderance of an 
industry's output is by smaller firms, this may support a low size 
standard. The opposite is the case for an industry in which the 
distribution of firms indicates that output is concentrated among the 
largest firms in an industry.
    3. Start-up costs affect a firm's initial size because entrants 
into an industry must have sufficient capital to start a viable 
business. To the extent that firms in an industry have greater start-up 
capital requirements than firms in other industries, the SBA is 
justified in considering a higher size standard. As a proxy measure for 
start-up costs, SBA examines the average level of assets for firms in 
an industry. An industry with a relatively high level of average assets 
per firm as compared with the average assets per firm of the group of 
comparative industries with $5 million size standards is likely to be a 
capital intensive industry in which start-up costs tend to be higher 
for firms entering the industry. For those types of industries, that 
circumstance may support the need for a relatively high size standard.
    4. The SBA assesses industry competition by measuring the 
proportion or share of industry sales obtained by firms above a 
relatively large firm size. In this proposed rule, SBA analyzes the 
proportion of industry sales generated by the four largest firms in an 
industry--generally referred to as the ``four-firm concentration 
ratio.'' If a significant proportion of economic activity within an 
industry is concentrated among a few relatively large producers, SBA 
tends to set a higher size standard to assist firms in a broader size 
range to compete with firms that are clearly dominant in the industry.
    5. Competition for Federal procurements. The SBA also evaluates the 
impact of a size standard on its programs and other applications of 
size standards to determine whether small businesses defined under the 
existing size standard are receiving a reasonable level of assistance. 
This assessment mainly focuses on the proportion or share of Federal 
contract dollars awarded to small businesses. In general, the lower the 
share of Federal contract dollars awarded to small businesses in an 
industry which receives significant Federal procurement revenues, the 
greater is the justification for a size standard higher than the 
existing one. As another factor to evaluate the impact of a proposed 
size standard on SBA programs, the volume of guaranteed loans within an 
industry and the size of firms obtaining loans in its financial 
assistance plans is sometimes assessed to determine whether the current 
size standard may inappropriately restrict the level of financial 
assistance to firms in that industry. If small businesses receive ample 
assistance through these programs, a change to the size standard may 
not be appropriate. Since the SBA reviewed the health services size 
standards primarily because of the concerns about the application of 
the size standard to Federal procurement, the proposed rule reviews 
Federal contract awards to small businesses to assess the program 
impact of proposed size standards.
    The SBA has established ``anchor'' size standards of 500 employees 
for the manufacturing and mining industries and $5 million for the 
nonmanufacturing industries. If the structural characteristics of an 
industry are significantly different from the average characteristics 
of industries with the anchor size standard, a size standard higher or 
lower than the anchor size standard may be supportable. For the 
industries under review in this proposed rule, the SBA compares the 
characteristics of the five evaluation factors for each industry to the 
average characteristics of the nonmanufacturing industries which have 
the anchor size standard of $5 million (hereafter referred to as the 
nonmanufacturing anchor group). If the characteristics of an industry 
are similar to the average characteristics of the nonmanufacturing 
anchor group, then the anchor size standard of $5 million is considered 
an appropriate size standard for that industry. If, however, the 
industry characteristics significantly differ from the average 
characteristics of the nonmanufacturing anchor group, then a size 
standard above or below $5 million may be appropriate.

Evaluation of Industry Size Standards

    The SBA analyzed the size standards for the health services 
industries by comparing their industry characteristics to the average 
characteristics of the nonmanufacturing anchor group. A review of these 
factors leads to a recommended size standard for each industry. The 
five tables below show the characteristics for each industry and for 
the nonmanufacturing anchor group. SBA examined economic data on these 
industries from a special tabulation of the 1992 Economic Census 
prepared on contract by the U.S. Bureau of the Census, asset data from 
Dun and Bradstreet's 1998 Industry Norms and Key Business Ratios, and 
Federal contract award data for fiscal years 1996 and 1997 from the 
Federal Procurement Data Center.

Offices and Clinics of Health Practitioners (SIC Codes 8011-8049):

    The SBA is retaining the $5 million size standard for six (SIC 
codes 8021, 8031, 8041, 8042, 8043, 8049) of the seven industries 
comprising offices and clinics of health practitioners. For the

[[Page 23800]]

seventh industry, Offices and Clinics of Doctors of Medicine (SIC code 
8011), the SBA proposes a $7.5 million size standard. Table 1 shows the 
characteristics of these seven industries.

                 Table 1.--Industry Characteristics of Offices and Clinics of Health Practitioners and the Nonmanufacturing Anchor Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry sales by firms of                               Percent of
                                                                         ---------------------------------------                                Gov't
                                                               Average                                             Average      Four-firm      procure-
                          Category                            firm size                                           assets per  concentration      ment
                                                             (mil. dol.)    <$5Mil.      <$10Mil.     <$25Mil.   firm  (mil.      ratio       dollars to
                                                                                                                    dol.)                       small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................         0.85         51.0         61.0         67.0          0.5          15.0            NA
Doctors of Medicine (8011).................................         0.83         67.7         75.3         81.3          0.3           5.2           9.4
Dentists (8021)............................................         0.34         98.3         99.1         99.7          0.1           0.3          77.3
Doctors of Osteopathy (8031)...............................         0.44         97.0         99.1         99.2          0.3           0.8           (*)
Chiropractors (8041).......................................         0.22         99.6         99.9         99.9          0.1           0.4           (*)
Optometrists (8042)........................................         0.32         95.5         97.6         99.9          0.1           1.2           (*)
Podiatrists (8043).........................................         0.26         99.2         99.9         99.9          0.2           1.0           (*)
Health Practitioners, N.E.C. (8049)........................         0.30         90.3         94.8         96.5          0.1           1.2         75.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = not available.
*Insignificant amount of Federal contracting.

    Except for Offices and Clinics of Doctors of Medicine (SIC 8011), 
the characteristics of each of the industries of Offices and Clinics of 
Health Practitioners provide no basis for a higher size standard than 
$5 million. Specifically, the average firm size of these industries is 
significantly below the average firm size of the nonmanufacturing 
anchor group. The percent of industry sales by firms of $5 million and 
less, $10 million and less, and $25 million and less shows that small 
firms dominate these industries. The low four-firm concentration ratios 
also indicate that small businesses are highly competitive in these 
industries. For the two industries that have a significant amount of 
Federal contracting activity, Offices and Clinics of Dentists and 
Health Practitioners Not Elsewhere Classified (SIC codes 8021 and 
8049), small clinics and offices received more than three-fourths of 
the dollar value of Federal contracts, which also indicates no need for 
a change to the current size standards. The Federal procurement 
competition factor was not evaluated for the other four industries 
since the amount of Federal contracts awarded in fiscal years 1996-97 
is insufficient to draw any meaningful conclusions on effect of the 
size standard on small business participation in Federal procurement.
    A $7.5 million size standard is proposed for the industry of 
Offices and Clinics of Doctors of Medicine (SIC code 8011). Four of the 
five evaluation factors are similar to the average characteristics of 
the nonmanufacturing anchor group and do not support a change to the 
current size standard. However, the share of Federal contracts awarded 
to small Offices and Clinics of Doctors of Medicine, supports an 
increase to the current size standard. Small Offices and Clinics of 
Doctors of Medicine received only 9.4 percent of the dollar value of 
Federal contracts awarded during fiscal years 1996-97. A review of 
Federal contract awards for the services of medical doctors reveals a 
significant amount of contract awards to non-business entities and 
institutional providers such as Native American tribes, educational 
institutions, and hospitals. The large discrepancy between the 
participation of small businesses in the Federal market versus the 
share of total industry revenues obtained by small Offices and Clinics 
of Doctors of Medicine occurs because of the non-business and 
institutional providers competing for and obtaining Federal contracts 
for physician care. To strengthen the abilities of these small 
businesses to compete with these other types of providers, the SBA 
proposes a $7.5 million size standard. This should allow existing small 
businesses to grow to a more substantial size without losing their 
small business status. The SBA expects that a size standard moderately 
higher than the current size standard will help small firms in this 
industry to compete for Federal contracts without including businesses 
so large that they could harm the opportunities of much smaller-sized 
small businesses to compete successfully for Federal contracts.

Nursing and Personal Care Facilities (SIC Codes 8051, 8052, and 
8059)

    The three industries comprising nursing and personal care 
facilities display sufficiently different industry characteristics to 
warrant different size standards. Table 2 shows the industry 
characteristics. A discussion of the size standard for each industry 
follows.

                    Table 2.--Industry Characteristics of Nursing and Personal Care Facilities and the Nonmanufacturing Anchor Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry sales by firms of                               Percent of
                                                                         ---------------------------------------   Average                      Gov't
                                                               Average                                            assets per    Four-firm    procurement
                          Category                            firm size                                           firm (mil.  concentration   dollars to
                                                             (mil. dol.)    <$5Mil.      <$10Mil.     <$25Mil.      dol.)         ratio         small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................         0.85         51.0         61.0         67.0          0.5          15.0            NA
Skilled Nursing Care Facilities (8051).....................         5.57         25.8         42.7         57.3          4.2          11.9          29.1
Intermediate Care Facilities (8052)........................         2.36         46.8         61.3         76.8          2.1           6.7          30.8

[[Page 23801]]

 
Nursing and Personal Care Facilities, N.E.C. (8059)........         1.04         52.8         70.6         82.8          0.7           5.9         25.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = not available.

    The characteristics of Skilled Nursing Facilities (SIC code 8051) 
support a size standard of $10 million. Four of the five evaluation 
factors--average firm size, average assets per firm, distribution of 
sales by firm size, and competition in Federal procurement--support a 
size standard higher than $5 million. Average firm size is over six 
times higher than the average firm size of the nonmanufacturing anchor 
group, indicating that a size standard among SBA's highest receipts-
based size standards ($20 million to $25 million) may be appropriate 
for this industry. Similarly, average assets per firm are more than 
eight times higher than that of the nonmanufacturing anchor group, and 
supports the highest receipts-based size standard. The distribution of 
sales by firm size supports a size standard higher than $5 million, but 
much lower than $25 million. The level of small business participation 
in Federal contracting (29.1 percent) also supports a small increase to 
the size standard. The four-firm concentration ratio is the only factor 
that does not support a size standard above $5 million. Although two 
factors support a very high receipts-based size standard, that level 
would not be a reasonable size standard since businesses with sales of 
$25 million or less capture well over half of total industry sales. In 
consideration of these factors taken together, the SBA proposes a $10 
million size standard for this industry.
    The characteristics of the Intermediate Care Facilities industry 
(SIC code 8052) support a size standard of $7.5 million. The average 
size firm in this industry is over twice the nonmanufacturing anchor 
group average and supports a size standard about twice the $5 million 
anchor size standard. Average assets per firm is over four times the 
average for the nonmanufacturing group and supports a size standard 
among SBA's highest receipts-based size standards ($20 million to $25 
million). The distribution of sales by firms in this industry supports 
a size standard at the anchor size standard of $5 million. The four 
firm concentration ratio supports a size standard no higher than $5 
million. The difference between the level of small business 
participation in Federal contracting (30.8 percent) and the share of 
total industry revenues obtained by small businesses also indicates 
that a small increase to the size standard is appropriate to better 
take into consideration Federal contracting patterns. In consideration 
of each of these factors taken together, the SBA is proposing a $7.5 
million size standard for this industry.
    The SBA is retaining the $5 million size standard for the industry 
of Nursing and Personal Care Facilities, Not Elsewhere Classified (SIC 
code 8059). None of the industry factors reviewed support a size 
standard above the $5 million since they are similar to those of the 
nonmanufacturing anchor group. A small increase to the size standard 
could be supported based on the percentage of Federal contracting 
dollars obtained by small business (25.8 percent). However, without any 
of the four evaluation factors pertaining to industry-wide 
characteristics also supporting an increase to the size standard, the 
SBA is reluctant to increase a size standard above its current level 
based solely on the small business share of Federal contract dollars of 
an industry unless that share were significantly below the overall 
Federal small business share of 21 percent. Here, small businesses 
received about a quarter of Federal contract dollars in fiscal years 
1996 and 1997.

Hospitals (SIC Codes 8062, 8063, and 8069)

    The SBA proposes a $25 million size standard for each of the three 
hospital industries--General Medical and Surgical Hospitals (SIC code 
8062), Psychiatric Hospitals (SIC code 8063) and Specialty Hospitals 
(SIC code 8069). The industry data in Table 3 show that these 
industries are comprised predominately of large businesses, in which 
the average firm size and average asset size per firms are in the 
multimillion dollar levels and small hospitals under the $5 million 
size standard account for one percent or less of industry revenues. 
Further, the low percentage of Federal contract dollars to small 
General and Surgical Hospitals (3.5 percent) supports a significant 
increase to the size standard for this industry. The four-firm 
concentration ratio is the only factor that does not support a size 
standard above $5 million; however, the unique structure of the 
hospital industries renders this factor inconsequential. Accordingly, 
the SBA considers its highest receipts-based size standard of $25 
million appropriate for the three hospital industries.

                                  Table 3.--Industry Characteristics of Hospitals and the Nonmanufacturing Anchor Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry sales by firms of                               Percent of
                                                                         ---------------------------------------   Average                      Gov't
                                                               Average                                            assets per    Four-firm    procurement
                          Category                            firm size                                          firm  (mil.  concentration   dollars to
                                                             (mil. dol.)    <$5 Mil.    <$10 Mil.    <$25 Mil.      dol.)         ratio         small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................         0.85         51.0         61.0         67.0          0.5          15.0            NA
General Medical and Surgical Hospitals (8062)..............        83.99          0.4          1.3          4.8         89.0           5.8           3.5
Psychiatric Hospitals (8063)...............................        27.61          1.0          4.4         20.9         21.0          16.5           (*)

[[Page 23802]]

 
Specialty Hospitals, Except Psychiatric (8069).............        40.76          0.9          2.8         11.2         44.8           5.2           (*)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = not available.
* Insignificant amount of Federal contracting.

Medical and Dental Laboratories (SIC Codes 8071 and 8072)

    The Medical Laboratory Industry (SIC code 8071) has significantly 
different characteristics from the Dental Laboratory Industry (SIC code 
8072). These differing characteristics support different size standards 
for these two industries. Table 4 shows the characteristics of these 
two industries. The average size firm and average assets per firm of 
Medical Laboratories are two times or more than the nonmanufacturing 
anchor group averages, and therefore, supports a twice the anchor size 
standard of $5 million. The distribution of sales by firm size in this 
industry and the relatively low percent of the dollar value of Federal 
Government contract awards to small businesses support a size standard 
moderately above $5 million. The four-firm concentration ratio is the 
only factor that does not support a size standard above $5 million. In 
consideration of these factors, the SBA proposes a $10 million size 
standard for this industry. The $5 million size standard is being 
retained for Dental Laboratories. None of the four of the evaluation 
factors related to industry structure support a size standard above $5 
million, since the characteristics are below those of the 
nonmanufacturing anchor group for each factor. The Federal procurement 
competition factor was not evaluated for this industry because the 
amount of Federal contracts awarded in fiscal years 1996-97 is 
insufficient to draw any meaningful conclusions on effect of the size 
standard on small business participation in Federal procurement.

                       Table 4.--Industry Characteristics of Medical and Dental Laboratories and the Nonmanufacturing Anchor Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry sales by firms of                               Percent of
                                                                         ---------------------------------------   Average                      Gov't
                                                               Average                                            assets per    Four-firm    procurement
                          Category                            firm size                                          firm  (mil.  concentration   dollars to
                                                             (mil. dol.)    <$5 Mil.    <$10 Mil.    <$25 Mil.      dol.)         ratio         small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................         0.85         51.0         61.0         67.0          0.5          15.0            NA
Medical Laboratories (8071)................................         2.01         29.7         38.4           NA          1.0          26.5          18.3
Dental Laboratories (8072).................................         0.26         91.2         95.3         99.9          0.1           4.7          (*)
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA = not available.
* Insignificant amount of Federal contracting.

Miscellaneous Health & Allied Services, Not Elsewhere Classified 
(SIC Codes, 8082, 8092, 8093 and 8099)

    The four miscellaneous health and allied services industries 
display differing characteristics. Table 5 shows the characteristics of 
these four industries. A discussion of the size standard for each 
industry follows.

 Table 5.--Industry Characteristics of the Miscellaneous Health & Allied Services (Not Elsewhere Classified) Industries and the Nonmanufacturing Anchor
                                                                          Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry sales by firms of                               Percent of
                                                                         ---------------------------------------   Average                      Gov't
                                                               Average                                            assets per    Four-firm    procurement
                          Category                            firm size                                           firm (mil.  concentration   dollars to
                                                             (mil. dol.)    <$5Mil.      <$10Mil.     <$25Mil.      dol.)         ratio         small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................         0.85         51.0         61.0         67.0          0.5          15.0            NA
Home Health Care Services (8082)...........................         2.55         27.4         36.7         52.4          0.9          13.9           (*)
Kidney Dialysis Centers (8092).............................         5.59         23.5         30.1         3.75          4.3          46.6           (*)
Specialty Outpatient Facilities, N.E.C. (8093).............         1.24         50.6         67.5         78.7          0.8           2.9           4.3
Health and Allied Services N.E.C. (8099)...................         1.28         37.7         48.8         67.1          0.7           9.1          7.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA=not available.
*Insignificant amount of Federal contracting.


[[Page 23803]]

    Two factors support a size standard higher than $5 million for the 
Home Health Care Services industry. The average size firm in this 
industry is three times the nonmanufacturing anchor group average and 
supports a size standard about double the anchor size standard. Also, 
the distribution of sales by firm size in this industry and the average 
assets per firm support a size standard about twice the anchor size 
standard. Average assets per firm and the four firm concentration ratio 
do not support a size standard above $5 million. The Federal 
procurement competition factor was not evaluated for this industry 
since the amount of Federal contracts awarded in fiscal years 1996-97 
is insufficient to draw any meaningful conclusions on effect of the 
size standard on small business participation in Federal procurement. 
In consideration of these evaluation factors, the SBA is proposing a 
$10 million size standard for this industry.
    The SBA proposes a size standard of $25 million for Kidney Dialysis 
Centers (SIC code 8092). All four industry structure factors support 
establishing a size standard at or near the SBA's highest receipts-
based size standard ($25 million). Average firm size and average assets 
per firm are between six to eight times the average of the 
nonmanufacturing anchor group. The concentration ratio shows that 
almost half of industry sales are by the four largest firms in the 
industry; and the distribution of sales by firm size shows that smaller 
firms in the industry account for less than one-third of total industry 
sales. The Federal procurement competition factor was not evaluated for 
this industry since the amount of Federal contracts awarded in fiscal 
years 1996-97 is insufficient to draw any meaningful conclusions on 
effect of the size standard on small business participation in Federal 
procurement. Accordingly, the SBA is proposing a $25 million size 
standard for this industry.
    SBA proposes a $7.5 million size standard for Specialty Outpatient 
Facilities (SIC 8093) and for Health and Allied Services, Not Elsewhere 
Classified (SIC code 8099). Four of the evaluation factors do not 
support a higher size standard than $5 million since their levels are 
similar to those of the nonmanufacturing anchor group averages. 
However, the Federal procurement competition factor strongly supports a 
higher size standard for these two industries. During fiscal years 
1996-97, small businesses in the industries of Specialty Outpatient 
Facilities and Health and Allied Services, Not Elsewhere Classified, 
received only 4.3 percent and 7.6 percent, respectively, of total 
dollar value of Federal contract awards. A review of Federal contract 
awards in these two industries shows that a significant amount of 
Federal contracts were awarded to non-business entities and 
institutional providers (Native American tribes, educational 
institutions, and hospitals). The large discrepancy between the share 
of Federal contracts awarded to small businesses and the share of total 
industry revenues obtained by small businesses may be attributed 
primarily to non-business and institutional providers competing for and 
obtaining Federal contracts under these two SIC codes. As with the 
proposed size standard for Offices and Clinics of Doctors of Medicine, 
the SBA believes that a higher size standard will strengthen small 
businesses by allowing them to become more competitive and to grow to a 
more substantial size without losing small business status. The SBA 
expects that a size standard moderately higher than the current size 
standard will help small businesses to compete for Federal contracts 
without harming smaller-size small businesses which also compete for 
Federal contracts.

Dominant in Field of Operation

    Section 3(a) of the Small Business Act defines a small concern as 
one that is: (1) Independently owned and operated, (2) not dominant in 
its field of operation, and (3) within detailed definitions or size 
standards established by the SBA Administrator. The SBA considers as 
part of its evaluation of a size standard whether a business concern at 
or below a recommended size standard would be considered dominant in 
its field of operation. This assessment generally considers the market 
share of firms at a proposed size standard or other factors that may 
show whether a firm can exercise a major controlling influence on a 
national basis in which significant numbers of business concerns are 
engaged.
    The SBA has determined that no firm at or below the proposed size 
standards for each of the health services industries would be of a 
sufficient size to dominate its field of operation. The largest firm at 
the proposed size standard level generates less than 0.11 percent of 
total industry sales in every industry with a proposed size standard 
revision. This level of market share effectively precludes any ability 
for a firm to exert a controlling effect on an industry.

Alternative Size Standards

    The SBA considered as an alternative size standard retaining a 
common size standard for all nineteen health services under Major Group 
80. As the industry evaluations show, significant differences exist 
among the structures of the various health services industries. The SBA 
believes that these differences are significant, and warrant different 
size standards for these industries. These differences are especially 
apparent for the industries in the Hospitals and Miscellaneous Health 
and Allied Services (Not Elsewhere Classified) industry groups. Thus, a 
common size standard for all nineteen industries would not adequately 
identify all small businesses engaged in a variety of health services.
    The SBA welcomes public comments on its proposed size standards for 
the health services industries. Comments on alternatives to the 
proposal, including the common size standard discussed above, should 
present the reasons that make them preferable to the proposed size 
standards.
    The SBA is particularly interested in comments on the proposed $7.5 
million size standards for the Offices and Clinics of Doctors of 
Medicine (SIC 8011), Specialty Outpatient Facilities (SIC 8093) and 
Health and Allied Services, Not Elsewhere Classified (SIC 8099). As 
discussed above, the SBA proposal to increase size standards for these 
industries is based on existing small business participation in Federal 
contracting. Comments are welcome on this single factor providing a 
sufficient basis for increasing these industries' size standards. A 
related question concerns whether the proposal to increase size 
standards in these industries will be effective. If the size standards 
are increased, would small businesses in these industries have more 
opportunities in the Federal procurement market or are there other 
factors, such as the types of health services the Federal Government 
purchases, that would continue to prevent small businesses from getting 
a larger proportion of Federal contracts? In addition, if the size 
standards are increased will the smallest firms be able to compete 
effectively for Federal contracts? Another related concern is that the 
proposed size standards for these industries would also be used for 
other program purposes (e.g., regulatory flexibility analyses as 
performed for regulatory actions, state and local procurement programs, 
and SBA financial assistance programs), not just for defining a small 
business for Federal procurement programs. For those industries where 
Federal procurement has influenced our selection of a size standard, is 
the proposed size standard still considered reasonable for other

[[Page 23804]]

program uses or would it be inappropriate for other applications? These 
are important issues in which SBA would appreciate comments.
    SBA is also concerned whether different business relationships in 
the Health Services Industries, such as networks and alliances, have 
any implications for its small business size standards. In calculating 
the size of a firm, a firm must include the revenues of all its 
affiliates. Affiliation is defined in 13 CFR 121.103 and basically 
means that any firm that controls or has the power to control another 
is considered an affiliate. Is SBA's definition of affiliation still 
adequate under these new and varied arrangements? If not, how should 
SBA treat these arrangements to ensure a workable small business size 
standard?
    Finally, SBA notes that small businesses in the Health Services 
Industries receive a substantial portion of their revenues from 
Medicare and Medicaid reimbursement payments. SBA has proposed size 
standards based on an analysis of industry data from all sources of 
revenues (which includes Medicare and Medicaid revenues as well as all 
other sources of revenues), and for some industries, on how small 
businesses have performed in the Federal market. However, as explained 
above, competition for Federal procurements was not evaluated for 
several industries because the amount of total Federal contract dollars 
awarded within an industry was ``insufficient to draw any meaningful 
conclusions on the effect of the size standard on small business 
participation in Federal procurement.'' However, in these cases there 
may have been significant Medicare/Medicaid revenues. For three 
industries, the proposed size standard was based solely on the basis of 
competition for Federal procurements. Since Medicare and Medicaid 
expenditures comprise a large proportion of industry revenues, should 
SBA consider the distribution of these types of revenues to small 
businesses in evaluating size standards for the Health Services 
Industries? If so, in what ways should Medicare and Medicare revenues 
affect size standards and what data exist that SBA could use to 
evaluate different size standards? Also, are there any other aspects of 
the Medicare and Medicaid programs pertaining to small businesses that 
should influence SBA's assessment of the Health Services size 
standards? If so, how and what are the implications on these size 
standards?

Compliance With Executive Orders 12612, 12788, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601-12), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    The SBA certifies that this rule, if adopted, would be a 
significant rule within the meaning of Executive Order 12866. 
Immediately below, the SBA sets forth the analysis required by E.O. 
12866 and the Regulatory Flexibility Act for this proposed rule.

(1) Description of Entities to Which the Rule Applies

    The SBA estimates that 4,700 additional firms would be considered 
small as a result of this rule, if adopted. These firms would be 
eligible to seek available SBA assistance provided that they meet other 
program requirements. Of the additional firms gaining eligibility, more 
than half would be Offices and Clinics of Doctors of Medicine, and 
Skilled Nursing Care Facilities. Firms becoming eligible for SBA 
assistance as a result of this rule cumulatively generate more than $50 
billion in annual sales; total sales in all eleven industries receiving 
a size standards increase are $540 billion.

(2) Description of Potential Benefits of the Rule

    The most significant benefits to businesses that would obtain small 
business status as a result of adoption of this rule are: (1) 
Eligibility for the Federal Government's procurement preference 
programs for small businesses, 8(a) firms, small disadvantaged 
businesses and small businesses located in Historically Underutilized 
Business Zones; and (2) eligibility for SBA's financial assistance 
programs. The SBA estimates that firms gaining small business status 
could potentially obtain Federal contracts worth $220 million per year 
under the small business set-aside program, the 8(a) program or 
unrestricted contracts. This represents approximately seven percent of 
the $3.2 billion the Federal Government awarded in these eleven health 
services industries during fiscal year 1997. The added competition for 
many of these procurements also would likely result in a lower price to 
the government for procurements set aside for small businesses, but the 
SBA is not able to quantify this benefit. Under the SBA's 7(a) 
Guaranteed Loan Program and Certified Development Company (504) 
Program, SBA estimates that $4 million in new loans could be made to 
these newly defined small businesses. During fiscal year 1997, SBA 
guaranteed $683 million in loans to these two financial programs for 
firms in the health services industries. Because of the size of the 
loan guarantees, most loans are made to small businesses well below the 
size standard. For example, more than 95 percent of the 1997 loans were 
made to firms with less than $3.5 million in revenues. Thus, increasing 
the size standard will likely result in only a small increase in small 
business guaranteed loans to businesses in these health services 
industries.

(3) Description of Potential Costs of the Rule

    The changes in size standards as they affect Federal procurement is 
not expected to add any significant costs to the Government. As a 
matter of policy, procurements may be set aside for small business or 
under the 8(a) program only if awards are expected to be made at 
reasonable prices. Similarly, the rule should not result in any added 
costs associated with the 7(a) and 504 loan programs. The amount of 
lending authority SBA can make or guarantee is established by 
appropriation.
    The competitive effects of size standard revisions differ from 
those normally associated with other regulations which typically burden 
smaller firms to a greater degree than larger firms in areas such as 
prices, costs, profits, growth, innovation, and mergers. The change to 
size standards is not anticipated to have any appreciable effect on any 
of these factors, although small businesses, 8(a) firms, or small 
disadvantaged businesses much smaller than the size standard for their 
industries may be less successful in competing for some Federal 
procurement opportunities due to the presence of larger, newly defined 
small businesses. On the other hand, with more and larger small 
businesses competing for small business set-aside and 8(a) 
procurements, contracting agencies are likely to increase the overall 
number of contracting opportunities available under these programs. The 
new size standards, if adopted, would not impose a regulatory burden 
because they do not regulate or control business behavior.

(4) Description of the Potential Net Benefits From the Rule

    Based on the above discussion, the SBA believes that, because the 
potential costs of this rule are minimal, the potential net benefits 
would be approximately equal to the total potential benefits. Most of 
the impact of this rule will be on Federal procurement.

[[Page 23805]]

(5) Description of Reasons Why This Action Is Being Taken and 
Objectives of Rule

    The SBA has provided in the supplementary information a statement 
of the reasons why these new size standards should be established and a 
statement of the reasons for and objectives of this rule.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch.35, 
the SBA certifies that this rule would not impose new reporting or 
record keeping requirements, other than those required of SBA. For 
purposes of Executive Order 12612, the SBA certifies that this rule 
does not have any federalism implications warranting the preparation of 
a Federalism Assessment. For purposes of Executive Order 12778, the SBA 
certifies that this rule is drafted, to the extent practicable, in 
accordance with the standards set forth in section 2 of this order.

List of Subjects in 13 CFR Part 121

    Government procurement, Government property, Grant programs--
business, Loan programs--business, Small business.

    Accordingly, SBA proposed to amend 13 CFR part 121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation of part 121 continues to read as follows:

    Authority: Pub. L. 105-135 sec. 601 et. seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.

    2. Amend (121.201, in the table ``Size Standards by SIC Industry'', 
under the heading DIVISION I--SERVICES, to add the following entries 
after ``7822 Motion Picture and Video Tape Production'' to read as 
follows:

8011...................................  Offices and Clinics of Doctors of Medicine................         $7.5
8051...................................  Skilled Nursing Care Facilities...........................         10.0
8052...................................  Intermediate Care Facilities..............................          7.5
8062...................................  General Medical and Surgical Hospitals....................         25.0
8063...................................  Psychiatric Hospitals.....................................         25.0
8069...................................  Specialty Hospitals, Except Psychiatric...................         25.0
8071...................................  Medical Laboratories......................................         10.0
8082...................................  Home Health Care Services.................................         10.0
8092...................................  Kidney Dialysis Centers...................................         25.0
8093...................................  Specialty Outpatient Facilities, N.E.C....................          7.5
8099...................................  Health and Allied Services, N.E.C.........................          7.5
 

    Dated: April 28, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-11080 Filed 5-3-99; 8:45 am]
BILLING CODE 8025-01-P