Short-Term Fixes to the Sustainable Growth Rate Process . Footnotes


1 E.g., GAO, Medicare Physician Payments: Concerns about Spending Target System Prompt Interest in Considering Reforms.Washington GAO, Report #GAO-05-85, October 2004.

2 Data presented in this section are based on NORC’s analysis of allowed charges from the Physician/Supplier Procedure Summary Master Files (PSPSMFs) for years 1996-2004.  These files and their use in SGR modeling are described in more detail below.

3 Utilization of chemotherapy and other drugs reflected in Tables 2 and 3 is only a portion of the drug spending included in the drug component of the SGR process, but its relatively rapid growth applies to the total, not just to the portion reflected in Tables 2 and 3.

4 CMS, Office of the Actuary, “Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2002,”, March 19, 2001.

5 The SGR “process” refers to the entire update process.  By contrast, the SGR is the factor used to compute spending targets, a part of the SGR process.

6 E.g., CMS, Estimated Sustainable Growth Rate and Conversion Factor for Medicare Payments to Physicians in 2006, December 21, 2005.

7 Two types of adjustments have been incorporated into the model.  The first adjusts for year-to-year changes in actual and target spending that are used to determine the year’s payment update.  The second adjusts for changes in total program spending based on the most recent data available from the Federal Register through late 2006 and in the 2006 Trustee’s Report (CMS,  2006 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds)This latter adjustment is embodied in total, cumulated spending estimates that are reported in tables describing hypothetical changes to the SGR process compared to spending under current law.

8 The model produced for this study was designed to also study the use of the SGR framework in estimating updates by type of service (Analysis of the Exemption of E&M Services on Alternative Spending Targets for Medicare Physician Payments, Final Report presented to DHHS/OS/ASPE, October 2006).  Thus, modeling required estimates of various components of SGR physician spending.  Predictions of the level and composition of spending on physician services included in SGR spending were not available from CMS publications.  Instead, data from the PSPSMFs for years 1996-2004 were used to study spending for groups of services, e.g., E&M services, imaging procedures, and the remainder of non-E&M services that affect calculation of the SGR update.  Spending shares for these groups of services were calculated and used to estimate spending by service group for the years 2005-2013.  How predictions were obtained is summarized in the Appendix.

9 A recent citation of both theories and their relevance to current policy is on p. 79, of the Medicare Payment Advisory Commission’s (MedPAC’s) Report to the Congress: Increasing the Value of Medicare (MedPAC: Washington, DC), June 2006.

10 The primary determinant of the fee component of the SGR is the MEI, but the fee component also depends on measures of changes in drug and lab spending.  In this analysis, it has been assumed that fee component of the SGR is the MEI for years 2008-2014.

11 The weight for the accumulation component was set to 0 (instead of 0.33) to examine the effect of removing the cumulative component of the UAF.

12 The previous-year weight was reduced from 0.750 to 0.375.

13 The PSPSMFs include data from all Medicare Part B Carriers.  Each annual file represents procedure-specific billing data for physician/supplier services rendered to beneficiaries during the calendar year (e.g., 2004) and processed through June of the following year (e.g., June 30, 2005).  Services included in the PSPSMFs that are included in spending used to calculate the physician update each year were identified using separate data files for 1998-2004, obtained from the CMS website.  The latter files identify services and procedures (including special services, e.g., J-codes for drugs) covered under Medicare Part B in each calendar year.  These files contain an indicator identifying whether spending for a service was included in the SGR calculation for a given year.  The SGR indicator was added to the PSPSMF data.  For services rendered during 1996 and 1997, the SGR indicator from the 1998 list was used.  Certain types of services (e.g., some outpatient lab services) are not included in the PSPSMF data but are included in the SGR calculation.  Thus, expenditure estimates are somewhat less than total annual expenditures used in the calculation of payment updates.  But differences are small.  For example, total physician spending for 2000 from the PSPSMF is $47.0 billion, whereas CMS’s estimate used in calculating the 2001 CF was $46.8 billion.

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