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<strong>CMS</strong>-1403-FC<br />

C. The Update Adjustment Factor (UAF)<br />

Section 1848(d) of the Act provides that the PFS<br />

update is equal to the product of the percentage change in<br />

the MEI and the update adjustment factor (UAF). The UAF is<br />

applied to make actual and target expenditures (referred to<br />

in the statute as “allowed expenditures”) equal. Allowed<br />

expenditures are equal to actual expenditures in a base<br />

period updated each year by the sustainable growth rate<br />

(SGR). The SGR sets the annual rate of growth in allowed<br />

expenditures and is determined by a formula specified in<br />

section 1848(f) of the Act.<br />

The PFS update is set under a formula specified in<br />

section 1848(d)(4) of the Act. Section 101 of the<br />

MIEA-TRHCA provided a 1-year increase in the CY 2007 CF and<br />

specified that the CF for CY 2008 must be computed as if<br />

the 1-year increase had never applied. Section 101 of the<br />

MMSEA provided a 6-month increase in the CY 2008 CF, from<br />

January 1, 2008, through June 30, 2008, and specified that<br />

the CF for the remaining portion of 2008 and the CFs for CY<br />

2009 and subsequent years must be computed as if the<br />

6-month increase had never applied. Section 131 of the<br />

MIPPA extended the increase in the CY 2008 CF that was<br />

applicable for the first half of the year to the entire<br />

year, provided for a 1.1 percent increase to the CY 2009<br />

949

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