Population of Puerto Rico (Millions of people)

Dr. Mario Marazzi-Santiago Instituto de Estadísticas Executive Director August 15, 2015

Population of Puerto Rico (Millions of people) 4.5 4 3.5 3 2.5 2 1.5 1 0.5 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 0

Vital Statistics (Thousands of people) Births 80 70 60 50 40 Deaths 30 20 10 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 0

Net Movement (Thousands of people) 40 20 Net ACS/PRCS ROYA (PR-US) 0-20 -40 Net Passenger (PRPA) Net Pass. (BTS) -60-80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-100

Male Female 75+ 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10_14 5_9 0-4 15 10 5 0 5 10 15 %

Male Female 75+ 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-_4 5_9 0-4 15 10 5 0 5 10 15 %

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 45 United States Puerto Rico 40 35 30 25 20 15 10 5 0

600 500 400 300 200 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 0-100 Source: American Community Survey, Public Use Microdata Sample (PUMS), 3-year estimates, U.S. Census Bureau.

600 500 400 300 200 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 0-100 Source: Puerto Rico Community Survey, Public Use Microdata Sample (PUMS), 3-year estimates, U.S. Census Bureau.

600 500 400 300 200 100 2005 2006 2007 2008 2009 2010 2011 2012 2013 0-100 Source: American Community Survey, Public Use Microdata Sample (PUMS), 3-year estimates, U.S. Census Bureau.

It averages to 138 doctors on net every year; or 1,242 doctors during the whole 9-year period. According to the Puerto Rico Community Survey, there were 10,445 doctors in Puerto Rico during the latest 3-year period (2011-13). Therefore, the net migration of doctors over the 9-year period is equivalent to 12% of all doctors living in Puerto Rico.

Impact of Public Housing Prevalence Bias on Medicare Compensation for Physicians in Puerto Rico

Doctors are paid for treating Medicare patients according to the Physician Fee Schedule, the components of which are reviewed every 3 years. The Physician Fee Schedule compensates doctors based on 2 factors: the complexity of the procedure done to the patient and an estimated local cost of operation (GPCIs).

GPCIs are calculated in different ways using varying data sources. GPCI data sources have changed over time. Puerto Rico has the lowest GPCIs among all 89 payment localities.

GPCI components Source of data Physician Work (PW) GPCI Occupational Employment Statistics BLS/DTRH Practice Expense (PE) GPCI Employee Wage Occupational Employment Statistics BLS/DTRH Purchased Services Occupational Employment Statistics BLS/DTRH Office Rent American/P.R. Community Surveys U.S. Census Bureau Equipment, Supplies, etc. Malpractice Premium (MP) GPCI Equals 1.00 for all counties Malpractice Premiums State Insurance Commissioner Data

In 2012-13, the Puerto Rico Institute of Statistics requested the Puerto Rico State Insurance Commissioner provide up-to-date malpractice premium data to improve the accuracy of the Malpractice Premium (MP) GPCI. the MP GPCI of Puerto Rico increased 18%.

The Median Gross Rent of a 2 bedroom apartment (including energy costs) from the American/Puerto Rico Community Surveys in each location is used as a proxy for the rent of a doctor's office. To the extent the error of this proxy is approximately constant over locations, then the use of this proxy might make some sense.

Public housing tends to depress median housing rents. In those locations where there is a greater prevalence of public housing, one would naturally expect median housing rents to be lower.

AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA PR RI SC SD TN TX UT VA VT WA WI WV WY Puerto Rico: 16% 20 15 U.S. average (excl. territories): 2% 10 5 0 Source: Report Characteristics Report, HUD as of May 31, 2015; American and Puerto Rico Community Survey, U.S. Census Bureau, 2013 3-year estimates.

U.S. median (excl. territories): Puerto Rico: $452 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 AK AR CA CT DE GA IA IL KS LA MD MI MO MT ND NH NM NY OK PA RI SD TX VA WA WV $0 Source: American and Puerto Rico Community Survey, U.S. Census Bureau, 2013 3-year estimates.

Have differences in the prevalence of non-market housing (i.e. public housing) generated a bias in the residential rent statistics prepared by the Centers for Medicare and Medicaid Services to estimate the Office Rent component of the GPCIs? If so, what has been its impact? Are there alternative methods that CMS could employ to correct for this bias?

Use Public Use Microdata Sample (PUMS) of the 2008-10 ACS/PRCS of the U.S. Census Bureau to estimate the median gross rent of a 2-bedroom renter-occupied housing unit in each of the 89 PFS payment localities. Re-estimate the median gross rent after controlling for (excluding) housing units that are likely to be rented on a non-market basis (such as public housing). Use simple criteria developed by HUD to identify nonmarket housing units. Using internal administrative data, HUD prepares estimates for the rent paid by public housing tenants in each of its regions, and then uses these as thresholds: Housing units that pay a rent that is equal to or lower than this rent threshold are considered to be either assisted housing or otherwise at a below-market rent.

Hypothesis test: Ho: Controlling for differences in the prevalence of non-market housing does not significantly change the median gross rent of a 2-bedroom housing unit. Ha: Controlling for differences in the prevalence of public housing does significantly change the median gross rent of a 2-bedroom housing unit Use Mann-Whitney U non-parametric test for 2 indepen. variables to test for a statistically significant difference. Tests were performed at a 95% confidence level. Standard errors were computed using the replicate weights provided in the PUMS.

After controlling for non-market rental housing, the median gross rent of a 2-bedroom housing unit changes in a statistically significant way in all PFS payment localities. Amongst all PFS payment localities, Puerto Rico obtains the lowest estimate for the median gross rent of a 2-bedroom housing unit ($360). Once HUD public housing rent thresholds are applied, Puerto Rico continues to receive the lowest estimate for the median gross-rent of a 2-bedroom housing unit ($510). But, in the case of Puerto Rico, this represents a statistically significant increase of 42%, markedly, the largest amongst all PFS payment localities.

Alabama Arizona Cal, Anaheim-Santa Ana Cal, Marin-Napa-Solano Cal, San Francisco Cal, Santa Clara Cal, Rest of state Connecticut DC, MD-VA Suburbs Florida, Miami Georgia, Atlanta Hawaii-Guam* Illinois, Chicago Illinois, Suburban Chicago Indiana Kansas, Statwide Louisiana, New Orleans Maine, Southern Maine Maryland, Baltimore Massachusetts, Boston Michigan, Detroit Minnesota Missouri, Kansas City Missouri, Rest of state Nebraska New Hampshire New Jersey, Rest of state New York, Manhattan New York, Poughkpsie New York, Rest of state North Dakota Oklahoma Oregon, Rest of state Pennsylvania, Rest of state Rhode Island South Dakota Texas, Austin Texas, Brazoria Texas, Fort Worth Texas, Houston Utah Virginia Washington, Rest of state Wisconsin Puerto Rico 42% 45 40 35 30 25 20 15 10 5 0

$1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 Puerto Rico $0 0% 2% 4% 6% 8% 10% 12% 14% 16% Source: ACS/PRCS, Census Bureau, 2010 3-year estimates (vertical axis). Residents Characteristics Report, HUD, May 31, 2015, and ACS/PRCS, Census Bureau 2013 5-year estimates (horizontal axis).

Puerto Rico Practice Expense GPCI is underestimated by 10% Puerto Rico GPCI is under-estimated by 4% $7-15 million less in annual physician compensation through Medicare Part B. $50 - $60 million less in annual reimbursements through Medicare Advantage, because of the lower benchmark. Total impact (incl. indirect and induced effects) could reach as high as $120 million annually; or about $360 million since 2012.

40% 35% 30% 25% 20% 15% 10% 5% Puerto Rico United States 0% No cash rent Less than $200 $200 to $299 $300 to $499 $500 to $749 $750 to $999 $1,000 or more Source: American and Puerto Rico Community Survey, U.S. Census Bureau, 2013 3-year estimates.

1 0.8 CMS uses HUD s Fair Market Rent as proxy for Office Rent component of CMS begins to use its own uncontrolled rent estimates to serve as the proxy 0.6 0.4 0.2 2010 2011 2012 2013 2014 2015 Source: Addendum E: Geographic Practice Cost Indices, Physician Fee Schedule, CY 2012-2015. 0

Median Gross Rent for 2BR housing unit from ACS/PRCS CY 2015 Practice Expense GPCI Chicago, IL MSA $940 1.037 San Juan, PR MSA $360 0.705 Beaumont, TX MSA $731 0.902

COLI 1 st quarter of 2015 Median Gross Apartment rent Energy Sum Rent for 2BR housing unit from ACS/PRCS CY 2015 Practice Expense GPCI Chicago, IL MSA $1,158 $168 $1,326 $940 1.037 San Juan, PR MSA $848 $438 $1,286 $360 0.705 Beaumont, TX MSA $1,045 $173 $1,218 $731 0.902

1. Correct for the Public Housing Prevalence Bias in the Office Rent component of Puerto Rico Geographic Practice Cost Index a) Exclude housing units with rents below the non-market housing rent thresholds developed by HUD, when estimating the median gross rents. b) Return to using the Fair Market Rents of HUD. The FMR is calculated with great care to control for differences in the quality of the housing stock, as well as for the prevalence of non-market housing. It is also based on the median gross rents obtained from ACS/PRCS. It is available in relatively smaller geographies (not just statewide), and can be easily converted to the PFS payment localities. c) Tie Puerto Rico s office rent to a specific geography in the United States, for instance to Beaumont, TX or to Chicago, IL. 2. Implement one of the above corrections immediately.

First population decline in recorded history as a result of lower fertility and higher net outward migration. About 12% of doctors living in Puerto Rico migrated (on net) to the United States between 2005 and 2013. The calculation of the Office Rent component of the Practice Expense Geographic Practice Cost Index (GPCI) is biased by the relative prevalence of public housing in each PFS payment locality. Alternative data sources exist to resolve this situation.