Short-Term Fixes to the Sustainable Growth Rate Process . 5.1 Effects of Changes in SGR Values

10/30/2006

A fundamental explanation for payment update declines that have been recently experienced and are likely in the near future without significant changes to the SGR process is that spending increases faster than target spending levels.  This over-spending determines the penalty of the UAF, which can more than offset the MEI when the update is calculated.  One policy option is to simply revise the SGR.  Recall that the SGR is calculated from data that measure changes in costs facing providers (in part, the MEI measure), changes in per capita GDP, changes in enrollment in the Medicare fee-for-service program, and changes precipitated by laws and regulations.  The GDP measure is a proxy for real increases in utilization that presumably track beneficiary tastes.  An increased societal preference for health care spending for the elderly might be factored into the update process by changing the GDP measure to “GDP plus.” 

Increasing the size of the SGR component that measures real increases in utilization is one means of recognizing that the elderly should receive benefits from cost-increasing, quality-enhancing technologies without penalizing providers.  An increase in the SGR is also a means of adjusting the spending target to reflect increases in utilization associated with new technologies and increases in utilization that have been hypothesized to accompany  shifts over time from inpatient-based care to care delivered in the office and other settings.    

The model was used to examine effects of an increase in the SGR.  Two changes were made to baseline SGR values, beginning in 2007.  First, baseline SGR values were adjusted to reflect the tendency for error in estimating past values.  CMS updates the SGR value for each year with new information several times after its use in calculating the payment update.  A comparison of SGR ‘baseline’ values used to implement the SGR (‘baseline’ values in Table 12) with their corrected values for the recent five year period, 2001-2005 (‘corrected’ values in Table 12), indicates that the average updated SGR increased by about 9.4 percent.  Thus, baseline SGR values beginning in 2007 were adjusted by increasing each by 9.4 percent (‘adjustments’ in Table 12 are 9.4 percent of ‘baseline’ values).  ‘Adjusted baseline’ SGR values are displayed in Table 12, calculated as the sum of the baseline value and its adjustment for years 2007-2014.

Table 12. Baseline and Revised SGRs
 

SGR (Percent)

Update
Year

Baseline

Corrected

Adjustment

Adjusted
Baseline

Revised
Baseline

2000

2.10

7.30

5.20

na

na

2001

5.60

4.30

-1.30

na

na

2002

5.60

8.10

2.50

na

na

2003

7.50

7.30

-0.20

na

na

2004

7.40

8.10

0.70

na

na

2005

4.30

5.10

0.80

na

na

2006

1.70

1.70

0.00

na

na

2007

0.70

na

0.07

0.77

1.77

2008

3.90

na

0.37

4.27

5.27

2009

3.50

na

0.33

3.83

4.83

2010

2.90

na

0.27

3.17

4.17

2011

3.40

na

0.32

3.72

4.72

2012

4.20

na

0.39

4.59

5.59

2013

4.50

na

0.42

4.92

5.92

2014

3.90

na

0.37

4.27

5.27

Notes: Baseline SGRs were used to calculate baseline CFs (e.g., displayed in Table 3a); values in italics are subject to change.  Corrected values are the most recent revisions to baseline values subsequently published in Federal Registers based on updated data.  Adjustments through 2006 are differences between Corrected and Baseline values; Adjustments from 2007 through 2014 were calculated as 9.4 percent of corresponding Baseline values.  The Adjustment percentage, 9.4 percent, is the average percent difference between Corrected and Baseline values for the years 2001-2005.  The Adjusted Baseline is the sum of Baseline and Adjustment values for years 2007-2014, and the Revised Baseline is the sum of the Adjusted Baseline and 1 percent.

Second, the SGR was increased beginning in 2007 by a single percentage point.  This hypothetical increase was specified as a means of accounting for an increase in preferences for health care.  (Under the current formula, the percent change in GDP, a determinant of the SGR, is a proxy measure of trends in preferences.)  The ‘revised baseline’ values in Table 12 for 2007-2014 are the sum of 1 percent and the ‘adjusted baseline’ value for each year.

Changes in the SGR to the revised values in Table 12 for years 2007-2014 are relatively large, averaging about 37 percent between the years 2008 and 2014 (the 2007 SGR would increase by a factor of 2.5).  Nevertheless, these revisions would have no effect on future CFs and on program spending through 2013.  The reason is that increases in target spending are simply not large enough to offset expected spending increases.  For example, the 2007 spending target would increase from $82.3 to $84.2 billion, while projected spending is $98.3 billion.  The UAF penalty for over-spending would increase from -0.33 to -0.30, which is still well below the 7 percent UAF floor.  The UAF is not expected to rise above the floor in the near future, even with the SGR increases in Table 12.

View full report

Preview
Download

"sgr.pdf" (pdf, 309.97Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®