Short-Term Fixes to the Sustainable Growth Rate Process . 4.2.2 The Size of the UAF Penalty

10/30/2006

In addition to changes in the UAF penalty floor, the size of the UAF penalty for over-spending can be reduced by lowering the weights applied to the measures of over-spending in the previous year and cumulated spending.  A rationale for the cumulated spending term of the UAF is that CFs can be adjusted to help the Medicare program recover a portion of spending in excess of targets.  On the other hand, it may take years for the program to recover over-spending, even during a time when contemporaneous spending is less than the target.

One way of placing relatively more emphasis on recent practice behavior is to eliminate the cumulated spending term of the UAF.11  Implementing this change beginning in 2007, however, would have little impact.  The CF would not change from its baseline level until 2012 because even without the cumulative component of the UAF, the previous year over-spending penalty is large enough to trigger the -7 percent floor (see Table 9).  As expected, spending from 2006-2013 would increase, but by only 1 percent over baseline.

Another policy option is to reduce the size of the penalty levied against previous year spending.  Effects of simultaneously eliminating the cumulative term of the UAF and reducing the magnitude of the penalty for prior year over-spending by one-half were studied using the model.12  With these changes, the CF for 2007 would decline from its 2006 level by less than under baseline (a decline of 3.6 percent vs. 4.6 percent under baseline, Table 11a).  For 2008-2014, the CF would continue its descent, but at slower rates than under baseline.  Spending with these changes, of course, would exceed baseline spending by 4 percent during 2006-2013, 2 percent during 2000-2013 (Table 11b).

Table 11a. Effects of Simultaneous Changes in the UAF: CFs, 2000-2014
   

Baseline

With Revised UAF Spending Weights
(billions)

Update
Year (t)

SGR

Weight
on Prior
Year
Spending

Weight on
Cumulated
Spending

CFt

Percent Change

Weight on
Prior Year
Spending

Weight on
Cumulated
Spending

CFt

Percent
Change

2000

1.021

0.75

0.33

36.61

5.42

0.75

0.33

36.61

5.42

2001

1.056

0.75

0.33

38.26

4.49

0.75

0.33

38.26

4.49

2002

1.056

0.75

0.33

36.20

-5.38

0.75

0.33

36.20

-5.38

2003

1.075

0.75

0.33

36.79

1.62

0.75

0.33

36.79

1.62

2004

1.074

0.75

0.33

37.34

1.50

0.75

0.33

37.34

1.50

2005

1.043

0.75

0.33

37.90

1.50

0.75

0.33

37.90

1.50

2006

1.017

0.75

0.33

37.90

0.00

0.75

0.33

37.90

0.00

2007

1.007

0.75

0.33

36.16

-4.58

0.38

0.00

36.53

-3.60

2008

1.039

0.75

0.33

34.37

-4.96

0.38

0.00

34.95

-4.33

2009

1.035

0.75

0.33

32.63

-5.05

0.38

0.00

33.55

-4.00

2010

1.029

0.75

0.33

30.93

-5.23

0.38

0.00

32.21

-3.99

2011

1.034

0.75

0.33

29.34

-5.14

0.38

0.00

31.14

-3.32

2012

1.042

0.75

0.33

27.86

-5.05

0.38

0.00

30.36

-2.51

2013

1.045

0.75

0.33

26.50

-4.86

0.38

0.00

29.84

-1.73

2014

1.039

0.75

0.33

25.21

-4.86

0.38

0.00

29.47

-1.22

               

30.20

-2.19

Notes: Simulation estimates are based on revisions to the UAF beginning in 2007.  Revisions include deleting the portion of the UAF that penalizes/rewards providers for cumulative over-/under-spending, and cutting the weight on the previous-year over-/under-spending by 50 percent, to 0.375.  Baseline data in italics are subject to change.

 

Table 11b. Effects of Simulaneous Changes in the UAF: Spending, 2000-2013
 

Baseline (billions)

With Revised UAF
Spending Weights (billions)

Spending
Ratio

Period

Physician

Lab and
Drug

Total

Physician

Lab and
Drug

Total

 

2000-2005

380.4

74.6

455.0

380.4

74.6

455.0

1.00

2006-2010

401.8

99.0

500.8

409.6

99.0

508.6

1.02

2011-2013

228.1

80.3

308.5

249.1

80.3

329.5

1.07

Total

1010.4

253.9

$1,264.3

1039.2

253.9

$1,293.1

1.02

Notes: Spending estimates were derived using CFs displayed in Table 11a, adjusted for data corrections routinely reported by CMS.  The Spending Ratio is the ratio of simulated to baseline spending.

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