Short-Term Fixes to the Sustainable Growth Rate Process . Appendix. SGR Spending Predictions

10/30/2006

Data Sources.  Implementation of the SGR process requires that CMS use the most current information at its disposal to estimate components of the SGR formula, including spending, and components that are used to calculate the SGR (which in turn, are used to calculate annual target spending and cumulated target spending).  As noted in the text, CMS uses current data to re-estimate data items used to calculate the update. 

A number of data sources were used in construction on the SGR simulation model.  These are listed below:

  • Various versions of the Federal Register document calculation of Medicare payment updates over time, and data from these volumes were used in attempts to replicate updates and spending estimates that define the current law baseline:
    • Update for 1997: Vol. 61, No. 227, Tuesday, November 22, 1996
    • Update for 1998: Vol. 62, No. 211, Friday, October 31, 1997
    • Update for 1999: Vol. 63, No. 211, Monday, November 2, 1998
    • Update for 2000: Vol. 64, No. 211, Tuesday, November 2, 1999
    • Update for 2001: Vol. 65, No. 212, Wednesday, November 1, 2000
    • Update for 2002: Vol. 66, No. 212, Thursday, November 1, 2001
    • Update for 2003: Vol. 67, No. 251, Tuesday, December 31, 2002 and Vol. 68, No. 40, Friday, February 28, 2003
    • Update for 2004: Vol. 68, No. 216, Friday, November 7, 2003
    • Update for 2005: Vol. 69, No. 219, Monday, November 15, 2004
    • Update for 2006: Vol. 70, No. 223, Monday, November 21, 2005
    • Preliminary information in support of the Update for 2007 is from M. Kent Clemens, “Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2007,” downloaded from http://www.cms.hhs.gov/SustainableGRatesConFact/Downloads/sgr2007p.pdf
  • First quarter values of the MEI for years 2008-2014 from Global Insight, Inc., downloaded from http://www.cms.hhs.gov/MedicareProgramRatesStats/downloads/mktbskt-economic-index.pdf.
  • Number of fee-for-service Medicare beneficiaries for years 2008-2014 (Table III.A3) and components of increases in total allowed charges (Table IV.B1), from 2006 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (the 2006 Trustees Report).
  • GDP data are from The Budget and Economic Outlook: An Update. Congressional Budget Office. 15 Aug 2005, http://www.cbo.gov/showdoc.cfm?index=1824&sequence=0
  • 1995-1999 population estimates are from the US Census Bureau, http://www.census.gov/popest/archives/EST90INTERCENSAL/US-EST90INT-01.html.
  • Population for 2000 and projections for 2004-2014 are from the US Census Bureau, http://www.census.gov/population/projections/DownldFile1.xls
  • Multifactor Productivity Index values, private non-farm business, from the US Bureau of Labor Statistics, http:data.bls.gov/PDQ/servlet/SurveyOutputServlet.

Spending.  Modeling for this project requires spending projections, and the application of corrections that adjust projections to obtain values actually used by CMS when updates were calculated.  This portion of the Appendix describes how baseline spending estimates were obtained.

Modeling needs included spending estimates by type of service.  Thus, total SGR spending was decomposed into spending for physician services and for the total of drug and lab spending.  Then, SGR-physician spending was be decomposed into spending by type of service: E&M, all non-E&M, and the imaging and ‘other service’ components of spending on non-E&M services.  Adjustment factors were then applied to SGR spending components to ensure that by-year and cumulative spending amounts matched those reported by CMS.

Step 1.  Predict physician, lab, and drug spending components of total SGR spending.  The year 2002 was used as the ‘anchor’ year.  Total SGR spending for 2002 was divided into its physician, drug, and lab components: data from the Federal Register indicated that 83.5 percent of SGR spending was for physician services, 8.5 percent was for drug spending, and 8.0 percent for lab spending (Vol. 67, December 31, 2002).  Data from the 2006 Trustees’ Report were then used to predict physician, lab, and drug spending amounts both forward and back in time.  Predictions began from 2002, obtained using data on yearly percentage changes in physician spending per beneficiary and the number of Medicare fee-for-service beneficiaries.  Similar calculations were used to estimate drug and lab spending over time.  Spending predictions are displayed in Table A1.

Step 2.  Decompose total physician spending (for each year) into spending by type of service.  For years 1999-2004, data from the Physician/Supplier Procedure Summary Master Files (PSPSMFs), obtained from CMS, were used to estimate the fraction of physician  spending on each service group of interest.13  Predicted spending shares are displayed in Table A1; corresponding dollar amounts are displayed in Table A2.

Appendix Table A1. Predicted SGR Physician Spending and Shares by Type of Service, 1996-2013

Calendar
Year

Predicted SGR Spending (billions)

 

Percent Decomposition of SGR
Physician Spending

Physician

Drug

Lab

E&M

Non-E&M

Imaging

"Other"

1996

42.21

2.73

5.25

0.45

0.55

0.12

0.43

1997

42.76

3.06

4.87

0.51

0.49

0.11

0.38

1998

43.84

3.30

4.32

0.50

0.50

0.13

0.37

1999

45.27

3.63

4.29

0.50

0.50

0.14

0.36

2000

50.05

4.18

4.66

0.51

0.49

0.14

0.35

2001

56.59

5.01

5.15

0.50

0.50

0.15

0.35

2002

59.20

6.03

5.67

0.50

0.50

0.15

0.35

2003

64.57

7.21

6.24

0.49

0.51

0.16

0.34

2004

72.11

7.89

6.82

0.48

0.52

0.17

0.35

2005

79.19

8.38

7.53

0.46

0.54

0.18

0.36

2006

83.63

9.46

7.99

0.45

0.55

0.18

0.36

2007

80.13

10.11

8.09

0.45

0.55

0.19

0.35

2008

80.69

11.19

8.45

0.44

0.56

0.20

0.36

2009

81.01

12.34

8.98

0.43

0.57

0.21

0.36

2010

79.44

13.49

9.52

0.43

0.57

0.22

0.35

2011

77.47

14.73

10.04

0.43

0.57

0.24

0.33

2012

76.03

16.08

10.66

0.44

0.56

0.25

0.31

2013

74.65

17.48

11.34

0.44

0.56

0.27

0.29

Notes: Predicted spending amounts are estimated using data from the 2006 Trustees' Report.  Shares are based on spending reported in the 1996-2004 Physician/Supplier Procedure Summary Master Files.

For years 2005-2013, the composition of SGR physician spending could not be observed, but was predicted (predicted shares and corresponding amounts are in italics in Tables A1 and A2).  Data from CMS include annual percent changes in Medicare price (reflecting its current law baseline, past and future) and annual percent changes in the number of program beneficiaries.  Data for 1996-2004 were used to decompose estimates of changes in physician spending into portions attributable to changes in price, changes in the number of fee-for-service beneficiaries, and intensity – residual changes in utilization that underlie changes in total spending, but not attributable to changes in price and the number of program beneficiaries.

 Intensity estimates for 2005-2013 are based on assumptions from values estimated for 2000-2004 (appearing in italics in Table A2).  Intensity values for E&M spending for years 2005-2013 were assumed to be the average for years 2000-2004, 3.7 percent per year.  E&M spending estimates were calculated based on this assumption.  The remainder of predicted physician dollars was for non-E&M services.  Dollar spending amounts for non-E&M were estimated, from which non-E&M intensity values were calculated algebraically.

Similarly, the 2000-2004 average intensity of 10 percent for imaging was assumed for years 2005-2013.  Using imaging and E&M intensity assumptions, corresponding dollar spending amounts were estimated.  The latter were subtracted from total predicted physician spending to obtain total spending for ‘other’ services.  Intensity values for this latter group of other services were calculated algebraically.

Step 3.  Adjust spending amounts for use in modeling.  Spending amounts in Tables A1 and A2 are baseline spending amounts that are used as inputs of the spreadsheet payment update model.  Amounts for years 2000-2006 are corrected to yield values used by CMS when payment updates were calculated.  Baseline SGR physician spending amounts are adjusted when simulated CFs differ from baseline values.

Appendix Table A2. Predicted SGR Physician Spending and Decomposition by Type of Service, 1996-2013
Calendar
Year
Predicted SGR
Physician
Spending
(billions)
Predicted Dollar Decomposition of
SGR Physician Spending (billions)
Factors

Intensity

 

Number of Beneficiaries

E&M

Non-E&M

Imaging

"Other"

E&M

Imaging

"Other"

Non E&M

Price

 

1996

42.21

18.89

23.32

5.17

18.16

NA

NA

NA

NA

1.008

0.985

1997

42.76

22.02

20.74

4.51

16.23

1.185

0.888

0.909

0.904

1.006

0.978

1998

43.84

21.72

22.12

5.84

16.27

0.981

1.288

0.997

1.060

1.028

0.978

1999

45.27

22.82

22.45

6.15

16.29

1.030

1.033

0.982

0.995

1.026

0.994

2000

50.05

25.49

24.55

6.97

17.59

1.046

1.060

1.010

1.024

1.059

1.009

2001

56.59

28.53

28.06

8.33

19.74

1.031

1.101

1.034

1.053

1.053

1.031

2002

59.20

29.87

29.33

8.88

20.44

1.063

1.083

1.051

1.061

0.958

1.029

2003

64.57

31.85

32.72

10.64

22.08

1.022

1.148

1.035

1.069

1.014

1.029

2004

72.11

34.36

37.75

12.39

25.36

1.025

1.106

1.091

1.096

1.038

1.014

2005

79.19

36.49

42.69

13.95

28.74

1.037

1.100

1.107

1.105

1.021

1.003

2006

83.63

37.82

45.81

15.33

30.48

1.037

1.100

1.061

1.074

1.002

0.997

2007

80.13

36.32

43.80

15.61

28.20

1.037

1.100

0.999

1.033

0.934

0.991

2008

80.69

35.69

45.00

16.26

28.74

1.037

1.100

1.076

1.084

0.953

0.994

2009

81.01

35.07

45.94

16.94

29.01

1.037

1.100

1.065

1.078

0.953

0.994

2010

79.44

34.40

45.03

17.61

27.42

1.037

1.100

0.999

1.036

0.953

0.993

2011

77.47

33.70

43.77

18.29

25.48

1.037

1.100

0.984

1.029

0.950

0.994

2012

76.03

33.25

42.77

19.13

23.64

1.037

1.100

0.975

1.027

0.951

1.000

2013

74.65

32.83

41.82

20.03

21.80

1.037

1.100

0.969

1.027

0.950

1.002

Notes: A factor is percent change expressed as a fraction, plus 1; e.g., the factor 1.021 corresponds to a 2.1 percentage increase over the previous year.  E&M spending, non-E&M spending, and non-E&M intensity factors in italics are based on the assumption that E&M intensity is 3.7 percent for years 2005-2013.   Imaging spending, and "other" spending and intensity values in italics are based on the assumption that E&M intensity is 3.7 percent and imaging intensity is 10 percent for years 2005-2013.  Factors measuring price and number of beneficiaries are from the 2006 Medicare Trustees' Report; the price factor is based on percents reported as "Modified Physician Updates," p. 135.  Spending decomposition is based on data from the 1996-2004 Physician/Supplier Procedure Summary Master Files.

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