Short-Term Fixes to the Sustainable Growth Rate Process . 5.4 Additional Refinements

10/30/2006

Refinements to the SGR process that have been discussed above can be considered simultaneously.  Tables 15a and 15b document effects on CFs of sequentially imposing two refinements on the rebased model with drug and lab spending excluded from SGR spending: use of the higher SGR values (displayed in Table 12), e.g., to accommodate desire for higher target spending; and elimination of the cumulated spending portion of the UAF, e.g., to reduce effects of past behavior on the update.  

An increase in the SGR in addition to elimination of drug and lab spending would increase CFs because higher spending targets reduce levels of over-spending and make it easier for providers to achieve update increases.  With larger SGRs, the CF in 2010 would be $38.03 (Table 15a) versus $34.69 (Table 14a).  When the cumulated spending portion of the UAF is then eliminated, rates at which CFs fall would be reduced because the penalty of over-spending is lessened (Table 15b), which would increase CFs even more through 2010.

Table 15a. Rebasing V. Modification of SGR Spending with Revised SGRs:CFs, 2007-2014
 

Rebased

Less Lab and Drug
Spending, With Revised
SGRs

Update
Year (t)

SGR

CFt

Percent
Change

SGR

CFt

Percent
Change

2007

1.007

38.88

2.60

1.018

38.88

2.60

2008

1.039

37.19

-4.36

1.053

38.22

-1.70

2009

1.035

35.35

-4.95

1.048

38.05

-0.45

2010

1.029

33.55

-5.08

1.042

38.03

-0.05

2011

1.034

32.51

-3.10

1.047

38.90

2.30

2012

1.042

32.23

-0.87

1.056

40.54

4.20

2013

1.045

32.39

0.50

1.059

42.47

4.77

2014

1.039

32.74

1.08

1.053

44.53

4.83

Notes: Rebased estimates on left side are as in Table 13a; baseline data in italics subject to change.  Estimates on right side were derived by (1) rebasing after deleting drug and lab spending from SGR spending, and (2) using SGR values that were revised to reflect CMS's revision experience and increased by 1 percentage point (values displayed in Table 12).  Rebased means that in calculating the CF for 2007, the target for 2006 is estimated spending for 2006, and initial cumulated actual and target spending amounts are set to total estimated 2006 spending; the SGR formula was then applied for years 2007-2014.

At the same time, relative rates of increase in CFs would be reduced because cumulated under-spending does not occur when the cumulated spending portion of the UAF is eliminated.  The latter would occur during 2011-2014 (Table 15b versus 15a). 

Each refinement would increase program spending.  Spending with rebased targets would be $774.9 billion between 2007 and 2013 (v. $711.9 billion under baseline).  During this period, elimination of drug and lab spending from total SGR spending would increase program spending by $25.1 billion ($800.0-$774.9 billion, Table 14b).  Increases in the SGR would increase spending by an additional $63.5 billion ($863.5-$800.0 billion, Table 16a).  Elimination of the cumulated spending portion of the UAF would increase spending by another $6.4 billion ($869.9-$863.5 billion, Table 16b).

Table 15b. Rebasing V. Modification of SGR Spending with Revised SGRs and UAF: CFs, 2007-2014
 

Rebased

Less Lab and Drug Spending,
With Revised SGRs and UAFs

Update
  Year (t)

SGR

Cumulated
Spending
Weight

CFt

Percent
Change

SGR

Cumulated
Spending
Weight

CFt

Percent
Change

2007

1.007

0.33

38.88

2.60

1.018

0.00

38.88

2.60

2008

1.039

0.33

37.19

-4.36

1.053

0.00

38.67

-0.56

2009

1.035

0.33

35.35

-4.95

1.048

0.00

38.75

0.21

2010

1.029

0.33

33.55

-5.08

1.042

0.00

38.82

0.18

2011

1.034

0.33

32.51

-3.10

1.047

0.00

39.49

1.72

2012

1.042

0.33

32.23

-0.87

1.056

0.00

40.71

3.09

2013

1.045

0.33

32.39

0.50

1.059

0.00

42.24

3.76

2014

1.039

0.33

32.74

1.08

1.053

0.00

43.96

4.07

Notes: Rebased estimates on left side are as in Table 13a; baseline data in italics subject to change.  Estimates on right side were derived by (1) rebasing after deleting drug and lab spending from SGR spending, (2) using SGR values that were revised to reflect CMS's revision experience and increased by 1 percentage point (values displayed in Table 12), and (3) eliminating the cumulated spending term from the UAF.  Rebased means that in calculating the CF for 2007, the target for 2006 is estimated spending for 2006, and initial cumulated actual and target spending amounts are set to total estimated 2006 spending; the SGR formula was then applied for years 2007-2014.

 

Table 16a. Rebasing V. Modification of SGR Spending with Revised SGRs: Spending, 2007-2013
 

Rebased (billions)

Less Lab and Drug
Spending, With Revised
SGRs

 

Period

Physician

Lab and
Drug

Total

Physician

Lab and
Drug

Total

Spending
Ratio

2007-2010

347.4

82.2

429.6

368.0

82.2

450.2

1.05

2011-2013

265.0

80.3

345.4

333.0

80.3

413.3

1.20

Total

612.4

162.5

$774.9

701.0

162.5

$863.5

1.11

Notes: See notes, Table 15a.  Spending estimates were derived using CFs displayed in Table 15a.  The Spending Ratio is the ratio of spending with revisions (right side) to baseline rebased spending (left side).

 

 

Table 16b. Rebasing V. Modification of SGR Spending with Revised SGRs and UAF: Spending, 2007-2013
 

Rebased (billions)

Less Lab and Drug
Spending, With Revised
SGRs and UAFs

 

Period

Physician

Lab and
Drug

Total

Physician

Lab and
Drug

Total

Spending Ratio

2007-2010

347.4

82.2

429.6

372.8

82.2

455.0

1.06

2011-2013

265.0

80.3

345.4

334.3

80.3

414.7

1.20

Total

612.4

162.5

$774.9

707.2

162.5

$869.7

1.12

Notes: See notes, Table 15b.  Spending estimates were derived using CFs displayed in Table 15b.  The Spending Ratio is the ratio of spending with revisions (right side) to baseline rebased spending (left side).

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