[Federal Register Volume 65, Number 223 (Friday, November 17, 2000)]
[Rules and Regulations]
[Pages 69432-69439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29523]


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

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Standards; Health Care

AGENCY: Small Business Administration.

ACTION: Final rule.

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

SUMMARY: The Small Business Administration is adopting new size 
standards for 19 Health Care industries and retaining the existing $5 
million size standard for the remaining 11 Health Care industries. The 
North American Industry Classification System classifies Health Care 
industries under Subsector 621, Ambulatory Health Care Services; 
Subsector 622, Hospitals; and Subsector 623, Nursing and Residential 
Care Facilities. These revisions are made to more appropriately define 
the size of businesses in these industries that SBA believes should be 
eligible for Federal small business assistance programs.

DATES: This final rule is effective on December 18, 2000.

FOR FURTHER INFORMATION CONTACT: Gary M. Jackson, Assistant 
Administrator for Size Standards, (202) 205-6618.

SUPPLEMENTARY INFORMATION: On May 4, 1999, the Small Business 
Administration (SBA) proposed revisions to 11 size standards for the 
Health Care industries (64 FR 23798). At that time, SBA size standards 
were established for industries defined by the Standard Industrial 
Classification (SIC) System. Effective October 1, 2000, SBA established 
its size standards based on industries defined by the new North 
American Industry Classification System (NAICS), and no longer uses the 
SIC System (65 FR 30836, dated May 15, 2000). Accordingly, the changes 
to the Health Care size standards adopted in this final rule pertain to 
the NAICS industries.
    The NAICS makes several noteworthy changes to the Health Care 
industries listed in the SIC System. First, the NAICS changes the 
terminology of the health related industries to ``Health Care'' from 
``Health Services'' under the SIC System. Second, the NAICS establishes 
a Sector (equivalent to a Division in the SIC System) titled ``Health 
Care and Social Assistance.'' Health Services was a Major Group under 
the Services Division with 19 industries. The Health Care industries 
are grouped into three Subsectors (equivalent to a Major Group in the 
SIC System). Third, the number of Health Care industries increases to 
30 NAICS industries from 19 Health Services SIC industries.
    SBA has decided to adopt the proposed revisions of May 4, 1999 to 
the Health Care size standards. Most SIC Health Services industries 
correspond to a NAICS industry. However, there are some Health Services 
industries, or activities within an industry, that are combined with 
other SIC industries to form a new Health Care NAICS industry. In these 
cases, SBA has followed the guidelines it used to establish NAICS size 
standards. These guidelines are described in the proposed rule of 
October 22, 1999 (64 FR 57188) and the final rule of May 15, 2000 (65 
FR 30836). In most cases, the NAICS size standard is the same as or 
higher than the size standard SBA had proposed for the SIC industry. 
Two activities in one Health Services industry, however, were 
reclassified into industries outside of the Health Care with a size 
standard lower than proposed for their SIC industries. The following 
table lists the proposed size standards by SIC industry and adopted 
size standards corresponding to the NAICS industries.

----------------------------------------------------------------------------------------------------------------
                                              Proposed size                                        Adopted size
                                                standard                                             standard
       SIC code            SIC industry       (millions of     NAICS code       NAICS industry     (millions of
                                                dollars)                                             dollars)
----------------------------------------------------------------------------------------------------------------
8011.................  Offices and Clinics             $7.5
                        of Doctors of
                        Medicine.
                       Surgical and          ..............          621493  Freestanding                   $7.5
                        Emergency Centers.                                    Ambulatory
                                                                              Surgical and
                                                                              Emergency Centers.

[[Page 69433]]

 
                       HMO Medical Centers.  ..............          621491  HMO Medical Centers             7.5
                       Offices of            ..............          621112  Offices of                      7.5
                        Physicians, Mental                                    Physicians, Mental
                        Health Specialists.                                   Health (part).
                       Offices of            ..............          621111  Offices of                      7.5
                        Physicians Except                                     Physicians (except
                        Mental Health.                                        Mental Health
                                                                              Specialists)
                                                                              (part).
8021.................  Offices and Clinics              5.0          621210  Offices of Dentists             5.0
                        of Dentists.
8031.................  Offices and Clinics              5.0
                        of Dentists.
                       Offices of Doctors    ..............          621111  Offices of                      7.5
                        of Osteopathy,                                        Physicians (except
                        Except Mental                                         Mental Health
                        Health.                                               Specialists)
                                                                              (part).
                       Offices of Doctors    ..............          621112  Offices of                      7.5
                        of Osteopathy,                                        Physicians, Mental
                        Mental Health.                                        Health Specialists
                                                                              (part).
8041.................  Offices and Clinics              5.0          621310  Offices of                      5.0
                        of Chiropractors.                                     Chiropractors.
8042.................  Offices and Clinics              5.0          621320  Offices of                      5.0
                        of Optometrists.                                      Optometrists.
8043.................  Offices and Clinics              5.0          621391  Offices of                      5.0
                        of Podiatrists.                                       Podiatrists.
8049.................  Offices and Clinics              5.0
                        of Health
                        Practitioners, NEC.
                       Mental Health         ..............          621330  Offices of Mental               5.0
                        Practitioners,                                        Health
                        Except Physicians.                                    Practitioners
                                                                              (except
                                                                              Physicians).
                       Offices of Physical,  ..............          621340  Offices of                      5.0
                        Occupational,                                         Physical,
                        Recreational, and                                     Occupational, and
                        Speech Therapists                                     Speech Therapists
                        and Audiologists.                                     Audiologists
                                                                              Offices of All
                                                                              Other.
                       Other Offices of      ..............          621399  Miscellaneous                   5.0
                        Health                                                Health
                        Practitioners.                                        Practitioners.
8051.................  Skilled Nursing Care            10.0
                        Facilities.
                       Continuing Care       ..............          623311  Continuing Care                10.0
                        Retirement                                            Retirement
                        Communities.                                          Communities (part).
                       All Other Skilled     ..............          623110  Nursing Care                   10.0
                        Nursing Care                                          Facilities (part).
                        Facilities.
8052.................  Intermediate Care                7.5
                        Facilities.
                       Continuing Care       ..............          623311  Continuing Care                10.0
                        Retirement                                            Retirement
                        Communities.                                          Communities (part).
                       Mental Retardation    ..............          623210  Residential Mental              7.5
                        Facilities.                                           Retardation
                                                                              Facilities.
8059.................  Nursing and Personal             5.0
                        Care Facilities,
                        NEC.
                       Continuing Care       ..............          623311  Continuing Care                10.0
                        Retirement                                            Retirement
                        Communities.                                          Communities (part).
                       Other Nursing and     ..............          623110  Nursing Care                   10.0
                        Personal Care                                         Facilities (part).
                        Facilities.
8062.................  General Medical and             25.0          622110  General Medical and            25.0
                        Surgical Hospitals.                                   Surgical Hospitals
                                                                              (part).
8063.................  Psychiatric                     25.0          622210  Psychiatric and                25.0
                        Hospitals.                                            Substance Abuse
                                                                              Hospitals (part).
8069.................  Specialty Hospitals             25.0
                        Except Psychiatric.
                       Children's Hospitals  ..............          622110  General Medical and            25.0
                                                                              Surgical Hospitals
                                                                              (part).
                       Substance Abuse       ..............          622210  Psychiatric and                25.0
                        Hospitals.                                            Substance Abuse
                                                                              Hospitals (part).
                       Other Specialty       ..............          622310  Specialty (except              25.0
                        Hospitals.                                            Psychiatric and
                                                                              Substance Abuse)
                                                                              Hospitals.
8071.................  Medical Laboratories            10.0
                       Diagnostic Imaging    ..............          621512  Diagnostic Imaging             10.0
                        Centers.                                              Centers.
                       Medical               ..............          621511  Medical                        10.0
                        Laboratories,                                         Laboratories.
                        Except Diagnostic
                        Imaging Centers.
8072.................  Dental Laboratories.             5.0          339116  Dental Laboratories           (\1\)
8082.................  Home Health Care                10.0          621610  Home Health Care               10.0
                        Services.                                             Services.
8092.................  Kidney Dialysis                 25.0          621492  Kidney Dialysis                25.0
                        Centers.                                              Centers.
8093.................  Specialty Outpatient             7.5
                        Facilities, NEC.
                       Family Planning       ..............          621410  Family Planning                 7.5
                        Centers.                                              Centers (part).
                       Outpatient Mental     ..............          621420  Outpatient Mental               7.5
                        Health Facilities.                                    Health and
                                                                              Substance Abuse
                                                                              Centers.
                       Other Specialty       ..............          621498  All Other                       7.5
                        Outpatient                                            Outpatient Care
                        Facilities.                                           Centers.
8099.................  Health and Allied                7.5
                        Services, NEC.
                       Blood and Organ       ..............          621991  Blood and Organ                 7.5
                        Banks.                                                Banks.
                       Medical Artists.....  ..............          541430  Graphic Design                  5.0
                                                                              Services (part).
                       Medical Photography.  ..............          541922  Commercial                      5.0
                                                                              Photography (part).
                       Childbirth            ..............          621410  Family Planning                 7.5
                        Preparation Classes.                                  Centers (part).
                       Other Health and      ..............          621999  All Other                      7.5
                        Allied Services.                                      Miscellaneous
                                                                              Ambulatory Health
                                                                              Care Services.
----------------------------------------------------------------------------------------------------------------
\1\ 500 Employees.


[[Page 69434]]

    As shown in the table, the adopted size standard for doctors of 
osteopathy is $7.5 million, although the proposed size standard for 
this industry was $5 million. Under the NAICS, SIC 8031 (Offices and 
Clinics of Doctors of Osteopathy) was combined into NAICS 621111 
(Offices of Physicians) and NAICS 621112 (Office of Physicians, Mental 
Health Specialists). These two industries were substantially created 
from SIC 8011 (Offices and Clinics of Doctors of Medicine), where SBA 
proposed and is adopting $7.5 million. Consistent with SBA's guidelines 
in establishing NAICS size standards, the size standard for the SIC 
code that accounted for the greatest amount activity within the new 
NAICS is the size standard adopted for that NAICS code. The size of the 
offices and clinics of medical doctors industry is significantly larger 
than the offices and clinics of doctors of osteopathy industry.
    A similar situation arose with SIC codes 8052 (Intermediate Care 
Facilities) and 8059 (Nursing and Personal Care Facilities, Not 
Elsewhere Classified). SBA proposed $7.5 million for SIC 8052 and $5 
million for SIC 8059. However, most of SIC 8052 and all of SIC 8059 
were combined with SIC 8051 (Skilled Nursing Care Facilities) to form 
two NAICS industries--NAICS 623311 (Continuing Care Retirement 
Communities) and 623110 (Nursing Care Facilities). SIC 8051 is much 
greater in size than both SIC 8052 and 8059 combined. Thus, the $10 
million size standard proposed for SIC 8051 is adopted for both NAICS 
623311 and 623110.
    The size standard for Dental Laboratories changed to 500 employees 
effective October 1, 2000. This industry involves the manufacture of 
dentures, crowns and other dental appliances. Under the SIC system, the 
manufacture of dental appliances was classified as a manufacturing 
activity unless the dental appliances were produced on a custom or 
individual basis. The SIC system classified those latter activities 
within the Services Division under the Dental Laboratories industry 
(SIC 8072). NAICS now classifies all manufacturing of dental appliances 
as manufacturing, and placed the Dental Laboratories industry under the 
manufacturing sector--NAICS 339116. SBA's long standing policy has been 
to establish a size standard no lower than 500 employees for a 
manufacturing industry. This change was discussed and proposed in the 
October 22, 1999 proposed rule. SBA received no comments on this change 
and adopted the 500 employee size standard for NAICS 339116 in the May 
15, 2000 final rule.
    Two activities within SIC 8099, Health and Allied Services, Not 
Elsewhere Classified, were reclassified to industries in the 
Professional, Scientific, and Technical Services Sector with a size 
standard lower than proposed for SIC 8099. The activity of Medical 
Artists was combined with SIC 7336, Commercial Art and Graphic Design 
to form NAICS 541430, Graphic Design Services. The $5 million size 
standard for SIC 7336 was adopted for NAICS 541430 since it accounts 
for virtually all of the new NAICS industry.
    The activity of Medical Photography was classified into NAICS 
541922, Commercial Photography. That NAICS industry is the same as the 
SIC 7335 with the addition of Medical Photography. The $5 million size 
standard of SIC 7335 was adopted for NAICS 541922 since it accounts for 
virtually all the activities within the NAICS industry.

Background

    SBA proposed changes to size standards based on its analysis of the 
latest available economic characteristics data on the Health Care 
industries from the U.S. Bureau of the Census (the Census Bureau) and 
Federal contract award data from the Federal Procurement Data Center. 
(At the time of the proposed rule, these data, and SBA's size 
standards, were based on the SIC system. To be consistent with the 
newly implemented NAICS size standards, the remainder of this rule will 
use the NAICS terminology to refer to industries affected by this rule. 
In a few cases, however, references are made to SIC industries to 
ensure the information discussed is accurate.) With regard to the 
economic characteristics data, SBA evaluated average firm size, 
distribution of industry receipts by size of firm, start-up costs, and 
industry competition of firms in the Health Care industries. SBA 
compared these characteristics to the average characteristics of all 
industries with a $5.0 million size standard (the most common size 
standard established for nonmanufacturing industries and referred to as 
the ``anchor'' size standard for the nonmanufacturing industries). 
Doing so enabled SBA to determine whether it should propose size 
standards for the Health Care industries that would be the same, 
higher, or lower than the $5 million anchor size standard.
    In addition to the economic characteristics data, SBA reviewed the 
percent of total Federal contract dollars awarded to Health Care small 
businesses to determine if small businesses were obtaining a reasonable 
share of Federal contracts. For three industries covering Offices and 
Clinics of Medical Doctors, Specialty Outpatient Facilities, and Health 
and Allied Service--Not Elsewhere Classified (formally SIC codes 8011, 
8093, and 8099, respectively), the proportion of Federal procurement 
was so much lower than that of firms at the anchor size that SBA 
proposed increasing those three size standards from the anchor size of 
$5 million to $7.5 million. For a further discussion of SBA's size 
standard methodology and analyses leading to the proposed size 
standards see the proposed rule of May 4, 1999 (64 FR 23798). What 
follows is a summary of the comments received and an explanation of the 
decision to adopt the proposed increases to the Health Care industries.

Discussion of Comments on the Proposed Rule

    SBA received 17 timely comments on the proposed size standards. Two 
of these included comments by others in their organization. Of the 17 
comments, two were from Federal agencies, one comment came from an 
industry association, and the remainder came from representatives of 
Health Care firms.
    In summary, one commenter supported the proposed size standards 
without comment. One hospital association generally supported the 
proposed rule, but had several recommendations to modify it, which are 
discussed below. All of the others supported an increase in the size 
standards, but higher than the ones proposed by SBA.
    The commenters raised eight major issues concerning the proposed 
size standards. Because of the comments, we reevaluated the data before 
adopting the proposed size standards. The issues are: (1) What are the 
true small business contracting opportunities in the Health Care 
industries; (2) do the proposed size standards provide for an 
appropriate increase to the existing size standards; (3) whether there 
should be a common size standard for all Health Care industries; (4) 
whether there should be an employee-based size standard; (5) whether we 
should establish a new industry code for Health Maintenance 
Organizations; (6) whether we should have the same size standard for 
doctors of medicine as for doctors of osteopathy; (7) whether Medicare 
and Medicaid distributions should be counted as Federal procurements; 
and (8) whether the receipts of affiliated health care services should 
be included in gross

[[Page 69435]]

income. Below we explain our response to each issue.

What Are the True Small Business Contracting Opportunities in the 
Health Care Industries?

    The supporters of size standards higher than those proposed most 
often gave reasons relating to Federal contracting as the basis for a 
change. Commenters stated that firms at the proposed size standard are 
not large enough to compete successfully for the size and type of 
contracts offered in today's procurement environment. They stated that 
in recent years Federal contracts have grown progressively larger and 
more comprehensive. These contracts are generally multi-year and 
regional and often include services other than health care such as 
establishing, recruiting, and monitoring doctor or dentist practices. 
These commenters argued that size standards higher than those proposed 
are needed to recognize the size of small firms that can perform on 
these newer contracts.
    Specifically, comments expressed a consistent and serious concern 
that the proposed size standard of $7.5 million for Offices and Clinics 
of Doctors of Medicine (SIC 8011), Intermediate Care Facilities (SIC 
8052), Specialty and Outpatient Facilities (SIC 8093), and Health and 
Allied Services, NEC (SIC 8099) would preclude most firms from Federal 
procurement. They contended that the impact of keeping the size 
standards as low as proposed would be that few firms could qualify as 
small given the size of the health care contracts, and those that did, 
would quickly outgrow their small business status. Likewise, some 
Federal contracting officials expressed concern that the government 
would lose ``stellar performers'' who would no longer be considered 
small after receiving just two or three contracts.
    In addition, several comments raised the issue that very few 
hospitals would qualify as small with the proposed $25 million size 
standard. They believed that if this size standard were adopted for 
hospitals, Federal agencies would be limited in their ability to 
support small business programs, such as the small business set-aside 
program.
    Procuring agencies' comments opposing the ``low'' proposed size 
standards for hospitals also stated that they currently have problems 
meeting their commitment to include more small businesses because 
finding for-profit hospitals in some areas is difficult. If the for-
profit hospitals (that is hospitals that qualify as businesses) are 
usually larger than the proposed $25 million size standard, agencies 
will not be able to set aside contracts for health care services.
    SBA acknowledges that Federal agencies are issuing larger contracts 
than in the past. However, contract award data from the Federal 
Procurement Data System do not substantiate that large dollar contracts 
dominate Federal contracting to an extent that significantly limits 
small business opportunities. The vast majority of Federal contract 
awards are still within a size that small businesses should be capable 
of performing. Without verifiable data showing that large contracts 
adversely impact small business opportunities, these comments do not 
support establishing size standards to accommodate what appears to be a 
small proportion of overall contracting. Nonetheless, we are 
researching Federal procurement patterns and trends in greater detail 
to determine whether a separate size standard for Federal procurement 
of Health Care may be justified in the future.

Do the Proposed Size Standards Provide for an Appropriate Increase 
to the Existing Size Standards?

    Most of the comments addressed the question of what size standard 
should be adopted for all of the Health Care industries. All of the 
comments agreed that the size standard should be increased, but most of 
the comments disagreed with the proposed size standards. Most of the 
comments supporting an increased size standard substantiated their 
comments with reasons related to Federal procurement. However, other 
reasons were also given for supporting higher size standards in the 
industry, such as the mergers and affiliations with Health Maintenance 
Organizations (HMOs) that were generally not a force in the health care 
industries just a decade ago.
    Commenters also pointed out that an increased size standard is 
justified because the cost of entry into these industries has also 
increased over time, especially technology costs. These technology 
costs include costs for specialty diagnostic and treatment equipment 
such as computer-aided imaging. Commenters cited high start-up costs 
because of the specialty equipment and the high-paid staff needed to 
operate them as reasons for increasing size standards in the 
industries. They pointed out that not all doctors' offices are similar, 
some are ``high-risk'' specialties such as radiology, obstetrics and 
gynecology, and anesthesiology. These types of offices have high start-
up and operating costs in addition to the physician and nursing 
compensation. Therefore, if all of the specialties have the same size 
standard, some offices within the same industry will be at a bigger 
disadvantage to remain within the ``small'' status.
    SBA is not convinced, at this time, that an additional increase 
over the size standards proposed is justified. Many of the factors 
discussed above are reflected in the Census Bureau data that SBA uses 
to evaluate industry size standards. Later this year SBA will receive 
the 1997 Economic Census on the Health Care industries. If any 
significant differences are observed between the 1992 and 1997 data, 
SBA will consider a larger size standard where appropriate.

Whether There Should Be a Common Size Standard for All Health Care 
Industries?

    A majority of the commenting firms and both Government agencies 
argued for a common size standard all Health Care industries. The most 
often mentioned size standard was $25 million. The basis for these 
comments was the merger, affiliation and HMO activity that has 
integrated the various industries more so than in the past. For 
example, hospitals have home health care businesses, HMOs link formerly 
independent private offices together into larger networks, and 
independents (that decide not to join an HMO) may merge or affiliate to 
continue to be viable in this new environment. These firms integrate 
the skills of each profession to offer quality services to their 
clients.
    SBA agrees with the desirability of establishing the same size 
standard for industries in the same Subsector provided that industry-
specific factors are reasonably consistent within that Subsector. 
However, neither the industry characteristic data nor the Federal 
procurement data supports one size standard for all Health Care 
industries. For example, we could find no justification in the economic 
characteristics data to continue the same size standard of $5 million 
for general medical and surgical hospitals and physician's offices. 
Accordingly, SBA does not believe that there should be a common size 
standard for all Health Care industries. Because the data support 
different levels, whichever one was selected would only fit some of the 
industries. Furthermore, based on the data, no case could be made to 
support that a $25 million size standard would be appropriate for all 
Health Care.

[[Page 69436]]

Whether There Should Be an Employee-Based Size Standard?

    Two comments recommended that SBA adopt an employee-based size 
standard for all Health Care industries rather than a receipts-based 
size standard. The comments provided no supporting evidence showing why 
number of employees is a better measure of size than receipts. The 
Small Business Act requires us to use receipts as the basis for size 
standards in the service industries (Small Business Act 
(Sec. 3(a)(2)(C))). In addition, SBA's policy has been to use employee-
based size standards for manufacturing, mining and wholesale, and 
receipts-based size standards for most non-manufacturing industries. 
Therefore, SBA will continue to use receipts as the basis for size 
standards in the Health Care industries.

Whether We Should Establish a New Industry Code for HMOs?

    Some of the comments expressed the need for a new industry to cover 
the HMO industry. On October 1, 2000, SBA implemented size standards 
based on NAICS industries. The NAICS lists three codes for HMOs--(1) 
facilities actually providing health care listed as an ``HMO Medical 
Center'' (NAICS 621491), (2) health practitioners contracting to 
provide their services to subscribers of prepaid health plans within 
``Offices of Physicians'' (NAICS 62111), and (3) organizations that 
underwrite and administer health and medical insurance policies, but 
which do not directly provide health care services as ``Direct Health 
and Medical Insurance Carriers'' (NAICS 524114).
    Because HMOs have not previously been designated as a separate 
industry, the Census Bureau has not collected the same data for HMOs as 
it has collected for SIC industries. Now that the NAICS has identified 
specific industries for HMOs, the 1997 Economic Census will have data 
on HMOs. We expect to have that data later this year and will review 
the HMO size standards at that time.

Whether We Whould Have the Same Size Standard for Doctors of 
Medicine as for Doctors of Osteopathy?

    In response to SBA's review of the Health Care size standards and 
to our proposal to increase the size standards for doctors of medicine, 
we received comments recommending that doctors of medicine and doctors 
of osteopathy have the same size standards. The commenters stated that 
both health care providers basically meet the same educational 
requirements and perform the same services. The proposed rule included 
doctors of osteopathy in the group of health care services remaining at 
the $5 million while the size standard for doctors of medicine was 
proposed to be $7.5 million.
    Based on the comments, we agree that the same standard should be 
adopted for doctors of osteopathy and doctors of medicine recognizing 
that the two professions should be considered as one for most purposes. 
Furthermore, NAICS recognizes that these two types of practitioners 
should be considered the same and combined doctors of osteopathy and 
doctors of medicine into a new industry titled ``Offices of 
Physicians'' (NAICS code 62111). As previously discussed, $7.5 million 
is being adopted for this industry and results in the same size 
standard being applicable to doctors of medicine and doctors of 
osteopathy.

Whether Medicare and Medicaid Distributions Should Be Counted as 
Federal Procurements?

    Although we specifically requested comments on this issue in the 
proposed rule, we received only one comment. A hospital association 
representing nearly 5,000 hospitals took a strong stand against this 
approach. It contended that the payments are to and for health care 
beneficiaries, not the health care provider. As such, these payments 
are not discretionary but mandatory payments for services obtained by 
beneficiaries. In addition, it stated that health care services are 
purchased by beneficiaries based on consumer preference in a 
competitive environment. SBA agrees and does not believe the 
distribution of Medicare and Medicaid funds should influence the 
establishment of size standards.

Whether the Receipts of Affiliated Health Care Services Should Be 
Included in Gross Income?

    The Health Care industries are continuing to evolve. Since the 
advent of managed care changed the Health Care landscape, other 
networks and alliances have emerged to respond to this new environment. 
Many hospitals own or control home health services, physician clinics, 
medical laboratories or dialysis centers. SBA's regulations require 
that the income of all affiliates be included when calculating average 
annual receipts. We received one comment on this subject. A hospital 
association recommended that income from such hospital affiliates not 
be taken in consideration when calculating either the average annual 
receipts of the hospital or the home health services, physician 
clinics, medical laboratories or dialysis centers so that hospital 
affiliates could qualify as small businesses.
    Affiliation is a key concept in determining which businesses are 
small. One of the criteria for being a small business under the Small 
Business Act (Sec. 3(a)) is that it be independently owned and 
operated. Businesses owned or controlled by other concerns have access 
(actual or potential) to resources not available to other similar 
businesses. The Census Bureau data we use to evaluate size standards 
captures affiliation through ownership among businesses. Other new 
relationships in terms of networks and alliances may have to be looked 
at on a case-by-case basis. We believe our current affiliation 
regulations are adequate to distinguish relationships that lead to 
control, and, thus, when we should consider businesses affiliated (see 
13 CFR 121.103).

Why We Are Adopting These Size Standards?

    Comments to the proposed rule generally argued for higher size 
standards because of trends in Federal procurement. They also argued 
that the proposed size standards were not high enough to effectively 
help small businesses obtain additional Federal contracting 
opportunities. They recommended that we adopt a much higher size 
standard, such as $25 million, but did not identify supporting data.
    In view of these comments, SBA had three viable options; (1) adopt 
the proposed standards, (2) revise the size standards upward based on 
comments without supporting data, or (3) suspend action on the size 
standards and wait for more current data.
    SBA decided to go with option one--adopt the size standards as 
proposed. SBA does not believe that the reasons given by the comments 
for a $25 million size standard, in the absence of supporting data, are 
sufficient to support that level. SBA cannot follow larger and larger 
Federal contracts with increasing size standards when industry 
characteristics do not otherwise support the action. Also, size 
standards are used for purposes other than Federal procurement, such as 
regulatory flexibility analyses and SBA financial assistance programs. 
Thus, we need to ensure that size standards are viable for a variety of 
uses.
    Because most of the comments expressed concerns in the Federal 
procurement area, we recognize that we need to consider establishing a 
size standard just for the purpose of Federal procurement of Health 
Care. Our preliminary work on this approach

[[Page 69437]]

shows that more research is needed to determine if size standards 
larger than adopted by this final rule are supportable and how to best 
describe Federal procurements for Health Care. If we believe a 
different standard(s) is justified, a new proposed rule will be issued. 
Meanwhile, firms in these industries will benefit from the increase 
made in this final rule. SBA chose not to suspend action on the 
proposed size standards until we have more current data because the 
proposed higher size standards will make more opportunities available 
for small businesses than retaining the current size standards and all 
of the commenters supported higher size standards for the Health Care 
industries.

Compliance With Executive Orders 12866, 12988, and 13132, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866.
    This is not a major rule under the Congressional Review Act, 5 
U.S.C. 800.
    Under the Regulatory Flexibility Act (RFA), this rule may have a 
significant impact on a substantial number of small entities. 
Immediately below, SBA sets forth a final regulatory flexibility 
analysis (FRFA) of this final rule addressing the following questions: 
(1) What is the need for and objective of the rule, (2) what are the 
significant issues raised by the commenters in response to the initial 
regulatory flexibility analysis (IRFA), (3) what is SBA's assessment of 
those IFRA issues, (4) what changes if any are made from the proposed 
rule as a result of the comments on IFRA, (5) what is SBA's description 
and estimate of the number of small entities to which the rule will 
apply, (6) what is the projected reporting, record keeping, and other 
compliance requirements of the rule, and an estimate of the classes of 
small entities which will be subject to the requirements, (7) what type 
of type of professional skills are necessary to prepare the required 
reports or records, (8) what are the steps SBA has taken to minimize 
the economic impact on small entities, (9) what are the legal policies 
or factual reasons for selecting the alternative adopted in the final 
rule, and (10) what alternatives did SBA reject.

(1) What Is the Need for and Objective of the Rule?

    These revisions are made to more appropriately define the size of 
businesses in these industries that SBA believes should be eligible for 
Federal small business assistance programs.

(2) What Are the Significant Issues Raised by the Commenters in 
Response to the IRFA?

    The comments raised eight major issues concerning the proposed size 
standards, but none of the comments addressed the IRFA in the proposed 
rule.

(3) What Is SBA's Assessment of Those IFRA Issues?

    No issues were raised in response to the IFRA, so SBA had no issues 
to assess.

(4) What Changes if any Are Made From the Proposed Rule as a Result of 
the Comments on IFRA?

    None, since no comments were received on the proposed rule 
concerning the IRFA.

(5) What Is SBA's Description and Estimate of the Number of Small 
Entities to Which the Rule Will Apply?

    SBA estimates that 4,700 additional firms will be considered small 
as a result of this final rule. These firms will 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 twelve industries receiving a size 
standards increase are $544 billion.

(6) What Is the Projected Reporting, Record Keeping, and Other 
Compliance Requirements of the Rule and an Estimate of the classes of 
small entities Which Will Be Subject to the Requirements?

    The new size standards are not expected to impose any additional 
reporting, record keeping or compliance requirements on small entities 
because a change in size standards does not affect their business 
operations. Increasing size standards provides more access to SBA 
programs that assist small businesses, but does not impose a regulatory 
burden as they neither regulate nor control business behavior.

(7) What Type of Professional Skills Are Necessary to Prepare the 
Required Reports or Records?

    No reports or records are required as a result of changing the size 
standards.

(8) What Are the Steps SBA Has Taken to Minimize the Economic Impact on 
Small Entities?

    Most of the economic impact on small entities will be positive. The 
most significant benefits to businesses that would obtain small 
business status as a result of adoption of this final 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) the eligibility for SBA's financial assistance 
programs such as 7(a) and 504 business loans. SBA estimates that firms 
gaining small business status could potentially obtain Federal 
contracts worth $325 million per year under the small business set-
aside program, the 8(a) program or unrestricted contracts. This 
represents 7.4 percent of the $4.4 billion the Federal government 
awarded in these nineteen Health Care industries during fiscal year 
1999. Under SBA's 7(a) Guaranteed Loan Program and Certified 
Development Company (504) Program, SBA estimated that less than $4 
million in new loans could be made to these newly defined small 
businesses. During fiscal year 1999, $600 million in loans were 
guaranteed by SBA under these two financial programs for firms in the 
Health Care 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% of the 1999 loans were made to firms with 
less than $3.5 million in receipts.) Thus, increasing the size standard 
would likely result in only a small increase in small business 
guaranteed loans to businesses in these Health Care industries.
    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 affect on any 
of these factors. Firms affected by this rule-making would be eligible 
to seek available SBA assistance provided that they meet other program 
requirements. However, 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

[[Page 69438]]

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.

(9) What Were the Legal Policies or Factual Reasons for Selecting the 
Alternative Adopted in the Final Rule?

    As stated in 15 U.S.C. 632(a)(3) and 13 CFR 121.102, SBA is to 
consider the differences in industries when establishing size 
standards. SBA is not convinced, at this time, that an additional 
increase over the size standards proposed is justified. Many of the 
factors discussed in the comments are reflected in the Census Bureau 
data that SBA uses to evaluate industry size standards, so they are 
already included in our analysis published in the proposed rule. Later 
this year SBA will receive the 1997 Economic Census on the Health Care 
industries. If any significant differences are observed between the 
1992 and 1997 data, SBA will consider new size standards where 
appropriate. Nonetheless, we are researching Federal procurement 
patterns and trends in greater detail and will evaluate the 1997 
Economic Survey data to determine whether an increased size standard 
for Federal procurement of Health Care is justified.

(10) What Alternatives Did SBA Reject?

    SBA acknowledges that Federal agencies are issuing larger contracts 
than in the past. However, contract award data from the Federal 
Procurement Data System do not substantiate that large dollar contracts 
dominate Federal contracting to an extent that significantly limits 
small business opportunities. The vast majority of Federal contract 
awards are still within a size that small businesses should be capable 
of performing. Without verifiable data showing that large contracts 
adversely impact small business opportunities, these comments do not 
support establishing size standards to accommodate what appears to be a 
small proportion of overall contracting.
    For purposes of Executive Order 13132, SBA has determined that this 
rule does not have any federalism implications warranting the 
preparation of a Federalism Assessment.
    For purposes of Executive Order 12988, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in section 3 of the order.
    For the purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA certifies that this rule does not impose new reporting or 
recordkeeping requirements.

List of Subjects in 13 CFR Part 121

    Administrative procedure and practice, Government procurement, 
Government property, Grant programs--business, Loan programs--business, 
Reporting and recordkeeping requirements, Small businesses.

    For reason stated in the preamble, SBA is amending 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: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and 
662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

    2. In Sec. 121.201, amend the table ``SIZE STANDRDS BY NAICS 
INDUSTRY,'' under the heading SECTOR 62--Health Care and Social 
Assistance, revise the entries Subsector 621--Ambulatory Health Care 
Services, Subsector 622--Hospitals, and Subsector 623--Nursing and 
Residential Care Facilities, to read as follows:


Sec. 121.201  What size standards has SBA identified by North American 
Industry Classification codes?

* * * * *

                     Size Standard by NAICS Industry
------------------------------------------------------------------------
                                                       Size standards in
                                    Description            number of
         NAICS codes           (N.E.C.=Not elsewhere      employees or
                                    classified)           millions of
                                                            dollars
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------
              Sector 62--Health Care and Social Assistance
------------------------------------------------------------------------
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------
             Subsector 621--Ambulatory Health Care Services
------------------------------------------------------------------------
621111......................  Offices of Physicians                 $7.5
                               (except Mental Health
                               Specialists).
621112......................  Offices of Physicians,                $7.5
                               Mental Health
                               Specialists.
621210......................  Offices of Dentists....               $5.0
621310......................  Offices of                            $5.0
                               Chiropractors.
621320......................  Offices of Optometrists               $5.0
621330......................  Offices of Mental                     $5.0
                               Health Practitioners
                               (except Physicians).
621340......................  Offices of Physical,                  $5.0
                               Occupational and
                               Speech Therapists and
                               Audiologists.
621391......................  Offices of Podiatrists.               $5.0
621399......................  Offices of All Other                  $5.0
                               Miscellaneous Health
                               Practitioners.
621410......................  Family Planning Centers               $7.5
621420......................  Outpatient Mental                     $7.5
                               Health and Substance
                               Abuse Centers.
621491......................  HMO Medical Centers....               $7.5
621492......................  Kidney Dialysis Centers              $25.0
621493......................  Freestanding Ambulatory               $7.5
                               Surgical and Emergency
                               Centers.
621498......................  All Other Outpatient                  $7.5
                               Care Centers.
621511......................  Medical Laboratories...              $10.0
621512......................  Diagnostic Imaging                   $10.0
                               Centers.
621610......................  Home Health Care                     $10.0
                               Services.

[[Page 69439]]

 
621910......................  Ambulance Services.....               $5.0
621991......................  Blood and Organ Banks..               $7.5
621999......................  All Other Miscellaneous               $7.5
                               Ambulatory Health Care
                               Services.
------------------------------------------------------------------------
                        Subsector 622--Hospitals
------------------------------------------------------------------------
622110......................  General Medical and                  $25.0
                               Surgical Hospitals.
622210......................  Psychiatric and                      $25.0
                               Substance Abuse
                               Hospitals.
622310......................  Specialty (except                     $5.0
                               Psychiatric and
                               Substance Abuse)
                               Hospitals.
------------------------------------------------------------------------
         Subsector 623--Nursing and Residential Care Facilities
------------------------------------------------------------------------
623110......................  Nursing Care Facilities              $10.0
623210......................  Residential Mental                    $7.5
                               Retardation Facilities.
623220......................  Residential Mental                    $5.0
                               Health and Substance
                               Abuse Facilities.
623311......................  Continuing Care                      $10.0
                               Retirement Communities.
623312......................  Homes for the Elderly..               $5.0
623990......................  Other Residential Care                $5.0
                               Facilities.
 
*                  *                  *                  *
                  *                  *                  *
------------------------------------------------------------------------


    Dated: November 9, 2000.
Aida Alvarez,
Administrator.
[FR Doc. 00-29523 Filed 11-16-00; 8:45 am]
BILLING CODE 8025-01-P