[Federal Register Volume 65, Number 69 (Monday, April 10, 2000)]
[Notices]
[Pages 19000-19006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8708]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1110-FN]
RIN 0938-AJ90


Medicare Program; Sustainable Growth Rate for the Year 2000

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

ACTION: Final notice.

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SUMMARY: This final notice implements section 211(a)(2)(C) of the 
Public Law 106-113, the Medicare, Medicaid, and State Childrens Health 
Insurance Program Balanced Budget Refinement Act of 1999 (BBRA), that 
requires us to publish a notice in the Federal Register not later than 
90 days after the date of enactment. This notice includes, based on the 
best available data, our determination of (1) allowed expenditures for 
physicians' services under the Medicare Supplementary Medical Insurance 
program (Part B) for both the 9-month period of April 1, 1999 through 
December 31, 1999, and for calendar year 1999, (2) estimated actual 
expenditures for Part B physicians' services in 1999, and (3) the 
sustainable growth rate (SGR) for calendar year 2000.
    This notice also discusses our plans for making available to the 
Medicare Payment Advisory Commission and the public, by March 1 of each 
year beginning with 2000, an estimate of the sustainable growth rate 
and the conversion factor for the next year and the data used in making 
this estimate, as required in section 211(a)(2)(A) of the BBRA.

EFFECTIVE DATE: The provisions of this notice are effective April 10, 
2000.

FOR FURTHER INFORMATION CONTACT: Marc Hartstein, (410) 786-4539.

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) (Pub. L. 105-33), 
enacted on August 5, 1997, replaced the Medicare Volume Performance 
Standard (MVPS) with a Sustainable Growth Rate (SGR). Section 
1848(f)(2) of the Act 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 aggregate 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 by actual 
expenditures. Rather, the appropriate fee schedule update, as specified 
in section 1848(d)(3) of the Act, is adjusted to reflect the success or 
failure in meeting the SGR target. If expenditures exceed the target, 
the update is reduced. If expenditures are less than the target the 
update is increased.
    As with the MVPS, the statute specifies a formula to calculate the 
SGR based on our estimate of the change in each of four factors. The 
four factors for calculating the SGR are as follows:
    (1) The estimated change in fees for physicians' services.
    (2) The estimated change in the average number of Medicare fee-for-
service beneficiaries.
    (3) The estimated projected growth in real gross domestic product 
(GDP) per capita.
    (4) The estimated change in expenditures due to changes in law or 
regulations.
    Section 211 of the BBRA amended sections 1848(d) and 1848(f) of the 
Act with respect to the physician fee schedule update and the SGR. 
Section 211(b) of the BBRA maintains the formula for calculating the 
SGR, but amends section 1848(f)(2) of the Act to apply the SGR on a 
calendar year (CY) basis beginning with 2000 while maintaining the SGR 
on a fiscal year (FY) basis for FY 1998 through FY 2000. Specifically, 
section 1848(f)(2) of the Act, as amended by section 211(b) of the 
BBRA, states that-- ``* * * [t]he sustainable growth rate for all 
physicians'' services for a fiscal year (beginning with fiscal 1998 and 
ending with fiscal year 2000) and a year beginning with 2000 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 applicable period 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 applicable period to the applicable period 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 applicable period to the applicable period involved; and
    (D) 1 plus the Secretary's estimate of the percentage change 
(divided by 100) in expenditures for all physicians' services in the 
applicable period (compared with the previous applicable period) which 
will result from changes in law and regulations, determined without 
taking into account estimated changes in expenditures resulting from 
the update adjustment factor determined under section 1834 (d)(3)(B) or 
(d)(4)(B) of the Act, as the case may be, minus 1 and multiplied by 
100.''
    Under section 1848(f)(4)(C) of the Act, as added by section 
211(b)(3)) of the BBRA, the term ``applicable period'' means--(1) a FY, 
in the case of FY 1998, FY 1999 and FY 2000, and (2) a CY with respect 
to a year beginning with 2000.
    To make the transition from a FY SGR to a CY SGR in 1999 using the 
FY 2000 SGR, sections 211(b)(2) and (3) of the BBRA require us to 
calculate SGRs for both FY and CY 2000. Section 1848(d)(4)(C) of the 
Act, as modified by section 211(a)(1)(B) of the BBRA, requires us to 
determine the allowed expenditures for both the 9-month period 
beginning April 1, 1999 and for CY 1999. The SGR for CY 2000 is then 
applied to allowed expenditures for CY 1999.
    In making the transition to a CY SGR system, the law essentially 
requires us to use the 2000 SGR twice (both FY and CY) twice to 
determine 2000 allowed expenditures. The FY 2000 SGR is used to 
determine allowed expenditures for the April 1, 1999 to December 31, 
1999 period and the CY 2000 SGR is used to determine CY 2000 allowed 
expenditures. Since we are using the FY 2000 SGR to determine allowed 
expenditures for the April 1, 1999 to December 31, 1999 period, allowed 
expenditures have been increased for components of the SGR that may not 
be reflective of the increase that actually occurs over that period. 
For instance, the FY 2000 SGR includes a portion of the full year 
effect of the new prostate screening benefit that did not become 
effective until January 1, 2000. Similarly, other components of the SGR 
(that is, the increase in physician fees, fee-for-service enrollment, 
real per capita GDP, and legislative factors other than prostate 
screening benefit) may have a different rate of increase in the FY 2000 
SGR than occurred in the April 1, 1999 to December 31, 1999 period.
    The issue described above occurs because the law required 
mismatched

[[Page 19001]]

time periods (that is, allowed expenditures determined on the basis of 
an April 1 through March 30 period increased by an SGR determined on 
the basis of a October 1 to September 30 federal FY) to be used to 
determine allowed expenditures from April 1, 1997 until December 31, 
1999. Another contributing factor is use of 2000 data twice (both FY 
and CY) in making the transition to a CY SGR system. We have analyzed 
the impact on allowed expenditures of the BBA and BBRA relative to a 
system that requires use of matched time periods in establishing the 
SGR from April 1, 1997 until December 31, 1999. Based on current 
estimates, the impact of the BBA and BBRA requirements will increase 
allowed expenditures in CY 2000 by 1 to 2 percent relative to a system 
that required use of matched time periods. This results in a permanent 
1 to 2 percent increase in the physician fee schedule conversion 
factor.
    It is important to note that the FY 2000 SGR is required to be 
revised based on more recent data, but, as explained below, the BBRA 
does not provide for revision of either the FY 1998 or the FY 1999 SGR. 
This means that, for the transition to a calender year SGR system, 
allowed expenditures for the period April 1, 1999 through December 31, 
1999 (determined by applying the FY 2000 SGR to allowed expenditures 
for the 12-month period ending March 31, 1999) are subject to change 
based on revision of the FY 2000 SGR; allowed expenditures for the 
period January 1, 1999 through March 31, 1999 (determined using the FY 
1999 SGR) are not subject to revision.
    As we indicated in the Federal Register notice published on October 
1, 1999 (64 FR 53396) before the November 29, 1999 enactment of the 
BBRA, the statute clearly requires that estimated values be used and 
there is no provision for revising estimates to reflect later data. Our 
actuaries estimate the elements of the SGR based on the best available 
data at the time the estimate is made. However, despite their best 
efforts there may be differences between the actuarial estimate and 
actual data on the rate of change in a component factor of the SGR. Our 
actuary's estimate of the percent change in a component of the SGR may 
be equal to, or higher or lower than, the actual percent change in that 
component, as determined based on later known information. For example, 
our actuaries have estimated the percent change in Medicare fee-for-
service enrollees for each year under both the MVPS and the SGR. For 
the FY 1998 SGR, our actuarial estimate was equal to the percent change 
in Medicare fee for service enrollment that actually occurred. Under 
the MVPS, for each of FYs 1994, 1995, 1996, and 1997, our actuarial 
estimate of the percent change in the Medicare fee-for-service 
population was higher than the actual percent change, based on later 
known information. These differences largely resulted from more 
beneficiaries selecting a managed care plan and fewer beneficiaries 
remaining in the fee-for-service program than our actuaries estimated 
at the time each MVPS was published. For FY 1999, our actuarial 
estimate of the percent change in fee-for-service population used in 
the SGR notice published on November 2, 1998 (63 FR 59188) was lower 
than the actual percent change. (This is largely due to fewer 
beneficiaries selecting a managed care plan than we earlier estimated). 
While there are differences between the MVPS and the SGR, they have the 
same long term impact on payment levels due to differences between 
estimated and actual data. Differences between estimated and actual 
changes in the Medicare fee-for-service population under the MVPS 
resulted in a higher physician fee schedule conversion factor than 
would have occurred if either the estimate were what actually happened 
or if the MVPS had been revised based on later data. The opposite is 
the case for differences between estimated and actual changes in the 
Medicare fee-for-service population under the FY 1999 SGR.
    The BBRA, however, explicitly requires revisions based on later 
known information, beginning with the FY 2000 SGR. In section 
1848(f)(3) of the Act, as added by section 211(b)(5) of the BBRA, the 
first sentence following subparagraph (c) states: ``Nothing in this 
paragraph shall be construed as affecting the sustainable growth rates 
established for fiscal year 1998 or fiscal year 1999.'' Since the BBRA 
does not include provisions for revising any SGR or MVPS before the FY 
2000 SGR, we are not revising the MVPS or SGR (before the FY 2000 SGR) 
based on later known information that indicated the actual increase in 
a component of the SGR or MVPS was different from the earlier published 
estimate.
    In general, the BBRA requires us to publish SGRs for 3 different 
time periods, no later than November 1 of each year, using the best 
data available as of September 1 of each year. Under section 
1848(f)(3)(C)(i) of the Act, as added by section 211(b)(5) of the BBRA, 
the SGR is estimated and subsequently revised twice (beginning with the 
FY and CY 2000 SGRs) based on later data. Under section 
1848(f)(3)(C)(ii) of the Act, there are no further revisions to the SGR 
once it has been estimated and subsequently revised in each of the 2 
years following the initial estimate.
    The requirement of revisions to the SGR based on later data means 
that we will estimate and publish an SGR for the upcoming year, the 
contemporaneous year, and the preceding year by not later than November 
1 of each year. For example, by not later than November 1, 2002, we 
will publish an estimate of the SGR for CY 2003, a revision of the CY 
2002 SGR estimated in the previous year, and a revision of the CY 2001 
SGR first estimated two years earlier and first revised in the previous 
year. Under section 1848(f)(3)(C)(ii) of the Act, this would be the 
final revision to the CY 2001 SGR.
    Sections 1848(f)(3)(A) and (B) of the Act, as added by section 
211(b)(5) of the BBRA, specify special rules with respect to the SGR 
and the CY 2001 and CY 2002 updates. Section 1848(f)(3)(A) of the Act 
requires us, no later than November 1, 2000, to revise the SGRs for FY 
2000 and CY 2000 and establish the SGR for CY 2001, based on the best 
data available, as of September 1, 2000. Section 1848(f)(3)(B) of the 
Act requires us, by no later than November 1, 2001, to revise the SGRs 
for FY 2000 and CYs 2000 and 2001 and establish the SGR for CY 2002, 
based on the best data available as of September 1, 2001. In accordance 
with section 1848(f)(3)(C)(ii) of the Act, there will be no further 
revisions to the FY 2000 and CY 2000 SGRs after its revision in the 
2001 notice.

B. Physicians' Services

    Section 1848(f)(4)(A) of the Act defines the scope of physicians' 
services covered by the SGR. The BBRA made no changes to this 
definition that was also used for the MVPS. For this reason, we are 
continuing to use the same definition of physicians' services for the 
SGR in this notice as we did in prior SGR notices and for the MVPS 
published in the Federal Register (61 FR 59717) on November 22, 1996.

II. Provisions of This Notice

    This final notice implements section 211(a)(2)(C) of the BBRA that 
requires us to publish a one-time notice in the Federal Register, not 
later than 90 days after the date of enactment, containing--(1) Allowed 
expenditures for physicians' services under the Part B program for both 
the 9-month period of April 1, 1999 through December 31, 1999, and for 
CY 1999, (2) estimated actual expenditures for physicians' services in 
1999, and (3) the sustainable growth rate for CY 2000.

[[Page 19002]]

    In general, the update for a year is based on the Medicare Economic 
Index (MEI) as adjusted, within bounds, by the amount of actual 
expenditures for physicians' services compared to allowed (that is, 
growth target) expenditures. A key difference between the MVPS and the 
SGR is that the comparison of actual and allowed expenditures is made 
on a cumulative basis under the SGR while it was made on an annual 
basis under the MVPS. The ``adjustment factor'' in section 
1848(d)(4)(B) of the Act that reflects actual expenditures compared to 
target expenditures is the adjustment to the MEI to reflect 
performance.
    Section 1848(d)(3)(C) of the Act, as modified by the BBA, defines 
allowed expenditures for the 12-month period ending March 31, 1997 as 
equal to actual expenditures for physicians' services during that 
period (that is, April 1, 1996 through March 31, 1997), as we have 
estimated. Section 1848(d)(3)(C) of the Act defines allowed 
expenditures for subsequent 12-month periods to be equal to allowed 
expenditures for physicians' services for the previous year increased 
by the SGR for the FY which begins during the 12-month period. For 
example, allowed expenditures for the 12-month period April 1, 1997 
through March 31, 1998 are equal to allowed expenditures for the 12-
months ending March 31, 1997, increased by the SGR for FY 1998.
    Table 1 shows annual and cumulative allowed expenditures for 
physicians' services for each of the 12-month periods between April 1, 
1996 and March 31, 2000.

                                                     Table 1
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                                                               Cumulative
                                             Annual allowed      allowed
                   Period                     expenditures    expenditures                  FY SGR
                                              (in billions)   (in billions)
----------------------------------------------------------------------------------------------------------------
4/96-3/97..................................           $48.9           $48.9
4/97-3/98..................................            49.6            98.5  FY 1998=1.5%.
4/98-3/99..................................            49.4           147.9  FY 1999=-0.3%.
4/99-3/00..................................            52.3           200.2  FY 2000=5.7%.
----------------------------------------------------------------------------------------------------------------

    In Table 1, for the period April 1996 through March 1997, annual 
allowed expenditures are equal to actual expenditures for the period. 
Annual allowed expenditures for each subsequent year are equal to the 
figure from the prior April 1 through March 31 12-month period (shown 
in the annual allowed expenditure column) multiplied by the SGR figure 
one row down in the right hand column. For example, allowed 
expenditures from April 1997 through March 1998 are equal to $48.9 
multiplied by 1.015. Cumulative allowed expenditures in a year are 
equal to the sum of the annual allowed expenditures figure in the same 
row and annual allowed expenditures for all prior years. Our current 
estimate of the FY 2000 SGR of 5.7 percent (2.1 percent for factor 1, -
0.4 percent for factor 2, 2.7 percent for factor 3, and 1.2 percent for 
factor 4) reflects more recent information and correction an error made 
in calculation of the published FY 2000 SGR as discussed in section D 
below.

A. Allowed Expenditures for April 1, 1999 Through December 31, 1999

    As indicated above, section 211(b) of the BBRA amended section 
1848(f) of the Act to require us to calculate the SGR in future years 
on the basis of a CY. Section 211(a) of the BBRA similarly amends 
section 1848(d) of the Act to require that allowed expenditures be 
determined on a CY basis. Section 1848(d)(4)(C) of the Act, as amended 
by section 211(a)(1)(B) of the BBRA, establishes a transition to a CY 
allowed expenditures system in 1999.
    Section 1848(d)(4)(C)(ii)(I) of the Act, as added by section 
211(a)(1)(B) of the BBRA, specifies that allowed expenditures for the 
9-month period beginning April 1, 1999 must be our estimate of the 
amount of the allowed expenditures that would be permitted for that 
period under section 1848(d)(3)(C) of the Act. That is, allowed 
expenditures for the period April 1, 1999 through December 31, 1999 are 
equal to a portion of the allowed expenditures for the period April 1, 
1999 through March 31, 2000, that are themselves determined by applying 
the FY 2000 SGR to allowed expenditures for the 12-months ending March 
31, 1999.
    As indicated in Table 1, annual allowed expenditures for the period 
April 1, 1999 through March 31, 2000 are $52.3 billion. Our actuarial 
estimate of allowed expenditures for the 9-month period April 1, 1999 
through December 31, 1999 is $39.1 billion. We determined this figure 
by increasing quarterly allowed expenditures from the base period by 
the applicable SGR and adding them to get an annual figure. For 
instance, we increased actual quarterly expenditures from the base 
period (April 1, 1996 through March 31, 1996, July 1, 1996 through 
September 30, 1996, and October 1, 1996 through December 31, 1996) by 
the SGRs for FY 1998, FY 1999, and FY 2000 to determine quarterly 
allowed expenditures for each respective quarter included in the April 
1, 1999 through December 31, 1999 period and added together these 
quarterly allowed expenditures to determine the $39.1 billion annual 
figure. We increased quarterly base expenditures rather than annual 
base expenditures because it better accounts for seasonality in 
expenditures.
    Allowed expenditures for the April 1, 1999 through the December 31, 
1999 period are based on the FY 2000 SGR. As previously discussed, 
section 1848(f)(3) of the Act requires two revisions to the FY 2000 
SGR. The first revision must be made not later than November 1, 2000 
based on the best data available as of September 1, 2000; the second 
revision must be made not later than November 1, 2001, based on the 
best data available as of September 1, 2001.

B. Allowed Expenditures for Calendar Year 1999

    Section 1848(d)(4)(C)(ii)(II) of the Act, as added by section 
211(a)(1)(B) of the BBRA, specifies that allowed expenditures for the 
year of 1999 must be our estimate of the amount of the allowed 
expenditures that would be permitted under section 1848(d)(3)(C) of the 
Act for that year. We are, therefore, calculating allowed expenditures 
for CY 1999 as the sum of allowed expenditures for--(1) The January 1, 
1999 through March 31, 1999 period; and (2) allowed expenditures for 
the April 1, 1999 through December 31, 1999 period.
    Annual allowed expenditures for the period April 1, 1998 through 
March 31, 1999 are $49.4 billion. Our actuarial

[[Page 19003]]

estimate of allowed expenditures for the 3-month period January 1, 1999 
through March 31, 1999 is $12.5 billion that was determined by updating 
quarterly allowed expenditures included in the January 1, 1997 through 
March 31, 1997 period by the SGRs for FY 1998, FY 1999 and FY 2000. 
Adding this figure to the $39.1 billion figure for April 1, 1999 
through December 31, 1999 equals allowed expenditures for 1999 of $51.6 
billion. (Due to rounding, the figures may not add precisely to the 
total for 2000.) Allowed expenditures for the period April 1, 1998 
through March 30, 1999 are equal to allowed expenditures for the 
previous 12-month period increased by the FY 1999 SGR. In the Federal 
Register published on October 1, 1999 (64 FR 53396), we stated that the 
statute clearly requires that we use estimated values and that there is 
no provision for revising estimates once the applicable SGR is 
determined. Although section 211 of the BBRA amends the Act to require 
revisions to previously determined SGRs based on later data 
(unavailable to us at the time the SGR is initially determined), this 
system of revision applies prospectively, beginning with the FY 2000 
SGR. As added by section 211(b)(5) of the BBRA, the flush sentence 
following subparagraph (C) of section 1848(f)(3) states: ``Nothing in 
this paragraph shall be construed as affecting the sustainable growth 
rates established for fiscal year 1998 or fiscal year 1999.''
    Because there is no provision in the Act for revising the FY 1999 
SGR or, consequently, the allowed expenditures for the April 1, 1998 
through March 31, 1999 period, we will not revise the January 1, 1999 
through March 31, 1999 portion of allowed expenditures included in the 
1999 allowed expenditures. However, as indicated above, when we revise 
the FY 2000 SGR, allowed expenditures for April 1, 1999 through 
December 31, 1999 are subject to change.

C. Actual Expenditures for CY 1999

    We currently estimate actual expenditures for CY 1999 to be $50.7 
billion. This estimate is based on actual claims data for services 
furnished during CY 1999 that were received through September 30, 1999, 
and an estimate of expenditures for the year based on claims 
information received in prior years. Expenditure data for claims 
received after September 30, 1999 were unavailable to us at the time we 
made this estimate. As described in more detail below, we are making 
SGR data available through our web site (www.hcfa.Gov/pubforms/
actuary). We will be providing quarterly expenditures under the SGR as 
data become available. Our estimate of actual expenditures for CY 1999 
furnished in this notice will be revised as more complete claims 
information on 1999 expenditures becomes available to us and will be 
included in our web site information.

D. Sustainable Growth Rate for CY 2000

    According to sections 1848(f)(2)(A) through (D) of the Act, as 
amended by section 211(b) of the BBRA, we have determined the CY 2000 
SGR to be 5.8 percent. Our determination is based on estimates of the 
following four statutory factors as indicated in table 2 below:

                                 Table 2
------------------------------------------------------------------------
                                                                Percent
                      Statutory factors                          change
------------------------------------------------------------------------
Fees.........................................................        2.1
Enrollment...................................................       -0.6
Increase in Gross Domestic Product...........................        2.5
Legislation..................................................        1.7
                                                              ----------
    Total....................................................       5.8
------------------------------------------------------------------------
Note: Consistent with section 1848(f)(2), the statutory factors are
  multiplied, not added, to produce the total (that is, 1.021  x  (1-
  0.006)  x  1.025  x  1.017 = 1.058.)

III. Calculation of the CY 2000 Sustainable Growth Rate

    A more detailed discussion of our estimates of the four elements of 
the SGR follows.

Factor 1--Changes in Fees for Physicians' Services (Before Applying 
Legislative Adjustments) for CY 2000

    This factor was calculated as a weighted average of the CY 2000 fee 
increases that apply for physicians' and laboratory services that are 
the different types of services included in the definition of 
physicians' services for the SGR.
    Physicians' services represent approximately 89 percent of allowed 
charges for physicians' services under the SGR. As announced in the 
November 2, 1999 Federal Register (64 FR 59429), the physician fee 
schedule update (before applying the performance adjustment factor) for 
CY 2000 is 2.4 percent. The BBA provided for a 0.0 percent update for 
CY 2000 for laboratory services, which represents about approximately 
11 percent of the Medicare allowed charges for physicians' services 
under the SGR. Table 3 shows both the physicians' and laboratory 
service updates that were used to determine the percentage increase in 
physicians' fees for CY 2000.

  Table 3.--Physicians' and Laboratory Service Update for Calendar Year
                                  2000
------------------------------------------------------------------------
                                                       2000      Weight
------------------------------------------------------------------------
Physicians' Services..............................       2.4%        .89
Laboratory Service................................       0.0%        .11
------------------------------------------------------------------------

    After taking into account the elements described in Table 3, we 
estimate that the weighted-average increase in fees for CY 2000 for 
physicians' services under the SGR (before applying any legislative 
adjustments) will be 2.1 percent.

Factor 2--The Percentage Change in the Average Number of Part B 
Enrollees From CY 1999 to CY 2000

    This factor is our estimate of the percent change in the average 
number of fee-for-service enrollees for CY 2000 as compared to CY 1999. 
Medicare+Choice (M+C) plan enrollees, whose Medicare-covered medical 
care is outside the scope of the SGR, are excluded from this estimate. 
Our actuaries estimate that the average number of Medicare Part B fee-
for-service enrollees (excluding beneficiaries enrolled in M+C plans) 
will decrease by 0.6 percent in calendar year 2000. This estimate was 
derived by subtracting estimated M+C enrollment from estimated overall 
Medicare enrollment as described in table 4 below.

                                                     Table 4
----------------------------------------------------------------------------------------------------------------
                                                           Average Medicare Part B Enrollment  (in millions)
                                                     -----------------------------------------------------------
                        Year                                                                    Overall Part B,
                                                        Overall Part B      Medicare+Choice        excluding
                                                                                                Medicare+Choice
----------------------------------------------------------------------------------------------------------------
1999................................................              37.010               6.194              30.816
2000................................................              37.374               6.746              30.628

[[Page 19004]]

 
    Percent change..................................  ..................  ..................                -0.6
----------------------------------------------------------------------------------------------------------------

    Our actuaries estimate of the percent change in the average number 
of fee-for-service enrollees for CY 2000 compared to CY 1999 of -0.6 
percent is less of a decrease than the estimate of this factor for FY 
2000 because--(1) The historical base from which our actuarial estimate 
is made has changed (that is, we have more information on enrollment 
from CY 1999 that affects our estimates for future years), and (2) the 
applicable time period has changed from the FY to CY.

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in CY 
2000

    Section 1848(f)(2)(C) of the Act, as amended by section 211 of the 
BBRA, requires us to estimate growth in real GDP per capita. This 
factor is applied on a CY basis beginning with the CY 2000 SGR. We 
estimate that the growth in real GDP will be 2.5 percent in CY 2000.
    In the FY 2000 SGR notice published on October 1, 1999 (64 FR 
53396), we estimated that real GDP growth per capita for FY 2000 would 
be 1.8 percent. We are now estimating that real GDP growth per capita 
for CY 2000 to be 2.5 percent. The higher estimate is due in part to 
Bureau of Economic Analysis (BEA) revisions to the historical National 
Income and Product Accounts (NIPA) and in part due to a change in the 
outlook for growth in 2000. The historical revisions, released by BEA 
on October 29, 1999, raised historical real GDP per capita growth by 
0.2 percentage points on average between 1959 through 1998, with larger 
differences in recent years. (For a detailed description of changes to 
NIPA, see Brent R. Moulton, Robert P. Parker, and Eugene P. Seskin, ``A 
Preview of the 199 Comprehensive Revision of the National Income and 
Product Accounts,'' Survey of Current Business (August, 1999): 7-20.) 
Subsequently, the projections of growth in real GDP per capita for 2000 
have been revised upwards to reflect these revisions. Also since the 
October 1, 1999 SGR notice, projections of real GDP per capita in 2000 
have been revised upward to reflect stronger than expected stock market 
performance and less than expected buildup of inventories in 
preparation for Y2K in 1999. Also, the GDP growth figure in this notice 
is calculated on a calendar rather than a fiscal year basis. (Moving 
from a FY 2000 to a CY 2000 estimate of GDP results in a -0.2 percent 
change from 2.7 percent to 2.5 percent.)
    These same methodological changes in GDP measurement also have the 
effect of reducing the MEI. If we were to recalculate the MEI for CY 
2000, based on the GDP measurement changes, it would be 2.0 percent 
rather than the 2.4 percent calculated and used for the 2000 physician 
fee schedule update. However, since such an MEI would not be the one 
used in establishing the 2000 update, and since the price factor in the 
SGR is the ``Secretary's estimate of the weighted average percentage 
increase in physician fees'' for all physicians' services, we are using 
the 2.4 percent increase for the fee component of the CY 2000 SGR. 
Consistent with the law, we are using the 2.4 percent increase in 
physician fees used for the CY 2000 physician fee schedule update.

Factor 4--Percentage Change in Expenditures for Physicians' Services 
Resulting From Changes in Law or Regulations in CY 2000 Compared With 
CY 1999

    Legislative changes contained in the BBA and the BBRA will have an 
impact on expenditures for physicians' services under the SGR in CY 
2000. Section 4103 of the BBA mandates a new prostate screening benefit 
effective January 1, 2000. This provision is estimated to increase 
expenditures in CY 2000 relative to CY 1999 by 1.8 percent. 
Additionally, effective January 1, 2000, section 4513 of the BBA 
removes the requirement that a subluxation of the spine be demonstrated 
by an x-ray before a beneficiary can receive Medicare coverage for 
chiropractic services. This provision will also result in a small 
increase in expenditures in CY 2000. The impact of BBA Medicare 
Secondary Payer provisions will have small marginal impact on reducing 
expenditures in CY 2000.
    Certain BBRA provisions will also have a small impact on 
expenditures in CY 2000. Section 224 of the BBRA increases payments for 
pap smears and will slightly increase expenditures in CY 2000. Section 
221 of the BBRA postponed the implementation of payment caps on 
physical and occupational therapy and speech-language pathology 
services. The effect of this provision on physicians and independent 
practitioners will result in a small increase in the CY 2000 SGR.
    After taking into account these provisions, the percentage change 
in expenditures for physicians' services resulting from changes in law 
or regulations is estimated to be 1.7 percent for 2000.
    After it was enacted in 1997, our actuaries estimated the effect of 
changes in expenditures resulting from the BBA. Their estimates took 
into account the effect of the prostate screening benefit (effective 
beginning with January 1, 2000). However, we inadvertently neglected to 
include it as part of our estimate of factor 4 for FY 2000. Had we 
included the effect of this in our estimate of the changes in law or 
regulations, our estimate of factor 4 for FY 2000 would have been 1.5 
percentage points higher and the overall FY 2000 SGR would have been 
3.5 percent instead of 2.1 percent. We will incorporate the effect of 
the prostate screening benefit in revisions we will make to the FY 2000 
SGR no later than November 1, 2000.

IV. Publication and Dissemination of Information

    Section 211 of the BBRA amends section 1848(d)(1)(E) of the Act to 
require publication and dissemination of information related to the 
physician fee schedule update and SGR at two points during a year. 
Specifically, we must publish in the Federal Register not later than 
November 1 of each year (beginning with 2000) the conversion factor 
that will apply to physicians' services for the succeeding year, the 
update determined (under section 1848(d)(4) of the Act) for the 
succeeding year, and the allowed expenditures (under section 1848(d)(4) 
of the Act) for such succeeding year. Thus, 60 days before the 
conversion factor is actually implemented, we are required to publish 
the conversion factor that will apply for the following calendar year, 
as

[[Page 19005]]

well as the percentage update for that year and the allowed 
expenditures for that year. We plan to implement this provision as part 
of the physician fee schedule final rule that we publish by November 1 
of the year before it is applicable.
    In addition to this November 1 publication requirement, the BBRA 
amended section 1848(d)(1)(E)(ii) of the Act to require that we make 
available to the Medicare Payment Advisory Commission [MedPAC] and the 
public by March 1 of each year (beginning with 2000) an estimate of the 
sustainable growth rate and of the conversion factor that will apply to 
physicians' services for the succeeding year and the data used in 
making this estimate. While the statute requires dissemination of 
information to the MedPAC and the public, it does not require 
publication of this information in the Federal Register. In this 
notice, we provide information on how we intend to disseminate the 
information required by section 1848(d)(1)(E)(ii) of the Act and we 
describe the limitations of the data we plan to make available.
    The statute requires that we make available the following items by 
March 1st of each year:
     An estimate of the SGR for the following year.
     An estimate of the physician fee schedule conversion 
factor for the next year and the data used in making these estimates.
    We plan to make all of this information available on the HCFA web 
site (www.hcfa.gov/pubforms/actuary).
    The March 1 estimate will not necessarily be a good predictor of 
the SGR that we specify by November 1 of each year. While it is the 
best estimate at the time, a figure specified later in the year is 
likely to differ from it for several different reasons.
    We will have more current data on the four factors that comprise 
the SGR formula as of September 1 of a year for publication in the 
November 1st notice, than will be available by March 1. For example, 
for the March 1 estimate, we will need to estimate the percent change 
in fee-for-service enrollment for the following year although we have 
little information on the change in fee-for-service enrollment for the 
current year. Similarly, an estimate of the percent change in real GDP 
per capita for the subsequent year made by November 1 is likely to be 
better than an estimate made by March 1 of that year. In addition, an 
estimate of the changes in law and regulation affecting expenditures 
for physicians' services for the subsequent year would require an 
estimate of the financial impact of policy changes several months 
before the physician fee schedule proposed rule is published.
    We also point out that there may be differences between an SGR for 
a year specified by November 1 and the SGR for the same year as 
subsequently revised based on later data. Specifically, the BBRA 
required the revision of the SGR for a year beginning with the FY 2000 
SGR, in each of the 2 years after it is initially specified, based on 
more current data. Given the required revisions of the November 1 
estimate, and the previously discussed limitations of the March 1 
estimate, we anticipate that the March 1 estimate will not necessarily 
be an accurate predictor of the November 1 SGR.
    The second item we are required to make available by March 1 is an 
estimate of the conversion factor for the following year. This factor 
may be even more difficult to estimate by March 1 than the SGR for the 
following year. The conversion factor for a year is equal to the 
conversion factor for the previous year updated by the physician fee 
schedule update. As with the MVPS, the update is equal to the MEI, 
adjusted (up or down) by the performance of actual expenditures 
compared to target expenditures (called allowed expenditures in the 
statute). For example, the CY 2000 update of 5.5 percent was based on 
an MEI of 2.4 percent and a performance adjustment of 3.0 percentage 
points. (These figures are multiplied, not added. The update of 5.5 
percent is determined by multiplying the MEI of 2.4 percent, or 1.024, 
by the performance adjustment factor of 3.0 percent, or 1.030: 1.024 
x  1.03 = 1.05472). Beginning with CY 2001, the performance adjustment 
compares actual expenditures from March 1, 1996 through the end of a 
year (2000 for the 2001 update) adjusted by the SGR for the following 
year (2001 for the 2001 update) to allowed expenditures from March 1, 
1996 through the end of that next year (2001 for the 2001 update). (We 
will provide more detail on the precise formula for determining the 
physician fee schedule in the update notice that will be published not 
later than November 1, 2000.)
    By March 1 of each year, however, we will have no actual data on 
key elements that comprise the formula for updating the conversion 
factor for the next year. For example, by March 1, 2000, we will have 
no data on actual expenditures for physicians' services under the SGR 
for CY 2000 since we receive expenditure information on a quarterly 
basis during the year, with a lag time after the quarter closes. By 
March 1, the first quarter of the calendar year will not even be 
complete.
    Similarly, we are unlikely to have reasonably complete expenditure 
data on the last quarter of 1999. Finally, the SGR for a year also 
affects allowed expenditures through the end of the next year. We have 
already discussed why the March 1 SGR estimate is likely to change. 
Therefore, by March 1 of each year, we will have only estimates of the 
three data elements required to determine the performance adjustment to 
the MEI (actual expenditures for physicians' services for the current 
year, allowed expenditures through the end of the next year, and the 
SGR for the next year). We provide the above discussion to caution that 
the March 1 estimate of the conversion factor update for the next year 
is not likely to be a good predictor of the update for the year 
specified by November 1. It is only an estimate and will likely change 
based on more current information. We will make our estimate of the 
physician fee schedule conversion factor available on the HCFA web site 
(www.hcfa.gov/pubforms/actuary).
    By March 1, we will also make available on the HCFA web site data 
used in making the estimate of the SGR and conversion factor update. 
Because we will not have any data on actual CY 2000 expenditures and 
because many elements of the SGR will probably change during the year, 
there are limits on the data we can provide. To provide data that will 
be useful, we plan, on a quarterly basis, to post on the HCFA web page 
quarterly expenditures for services covered by the SGR. The estimates 
would update prior quarters where later data were available for that 
quarter. Data would be posted approximately 6 months after the end of 
the quarter (when data for the quarter are reasonably complete).
    Finally, we also point out that the two SGR elements for which 
there has been the largest difference between our actuaries' estimates 
and the actual amounts have been the fee-for-service enrollment numbers 
and real gross domestic product per capita. We note that more recent 
data on these two elements are available during a year on several web 
sites. Actual real GDP for a quarter is available from the home page 
for the Bureau of Economic Analysis of the Department of Commerce 
(www.bea.doc.gov). Population figures are available from the home page 
for the Census Bureau (www.census.gov). Real GDP per capita can be 
calculated from these figures. In addition, monthly M+C enrollments are 
currently available on the HCFA Home page (www.hcfa.gov/stats.mmcc.htm). In April of each year,

[[Page 19006]]

when our Office of the Actuary puts the Trustees Report on the HCFA 
Home page, we will also post the projections of total Medicare Part B 
enrollment for the current and subsequent calendar years, as well as 
for the preceding calendar year, consistent with the Trustees Report. 
Thus, the Medicare fee-for-service enrollment could be determined. With 
these data, during the year after March 1, the public can make 
estimates of actual expenditures relative to the SGR and the 
performance adjustment to the update for a year.

V. Waiver of Proposed Rulemaking and 30-Day-Delay in Effective Date

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite prior public comment on proposed rules. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued.
    We believe that engaging in proposed rulemaking in the context of 
this document is impracticable because section 211 of the BBRA requires 
that this final notice be published in the Federal Register not later 
than 90 days after enactment of this section on November 29, 1999. 
Moreover, in accordance with section 1871(b)(2) of the Act, notice and 
comment provisions do not apply where the law establishes a specific 
deadline for the implementation of a provision and the deadline is less 
than 150 days after the date of the enactment of the statute in which 
the deadline is contained. We also believe that it is unnecessary to 
publish a proposed notice for public comment because we have no 
discretion with respect to the provisions of this notice. We are 
implementing the statute as required by the BBRA.
    Therefore, we find that notice and comment provisions are not 
applicable here and we are issuing this notice in final form. We also 
find that for the above reasons it is prudent to waive the 30 day delay 
in effective date.

VI. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

VII. 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.
    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.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an annual expenditure by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million.
    This notice announces only a SGR rate of increase for CY 2000 and 
does not affect physician expenditures in CY 2000. The SGR announced in 
this notice will be revised later this year. It is the revised SGR that 
will affect allowed expenditures for physicians' services through CY 
2000 and that will be part of a formula for determining the physician 
fee schedule update and conversion factor for CY 2001. As indicated 
above, we will publish the physician fee schedule update for CY 2001 by 
no later than November 1, 2000. It is that update which will affect 
expenditures for physicians' services in CY 2001.
    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.

VIII. Federalism

    We have reviewed this final notice under the threshold criteria of 
Executive Order 13132 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: February 24, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Approved: March 24, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-8708 Filed 4-4-00; 3:42 pm]
BILLING CODE 4120-03-P