SSR Index of Current-Quarter Healthcare Demand Growth: Final 2Q14 Estimates

Richard

We expect 4.1% (nominal) y/y growth in US health services demand during 2Q14, the product of 2.6% growth in demand intensity and 1.5% growth in price. Following the BEA’s nearly unprecedented downward revision of its 1Q14 demand estimate, our projection of intensity is sharply lower than our initial 2Q14 estimate

The surprise demand spike reported by BEA for 1Q14 has been completely revised away in the agency’s final reported figures. We speculated recently that BEA had erred in using its judgmental trend to call for an immediate ACA-driven uptick in services consumption. Final reported numbers – which rely on more rigorous survey data than the preliminary numbers – showed that our final 1Q14 estimate was a mere 10bp off, and that there was actually a sequential dip in consumption from 4Q13. In short, whether because of late enrollment, plan features or other reasons, the ACA does not appear to have materially impacted demand in the first 3 months of 2014

Independent of our quarterly growth rate models, we handicap the odds of a trend break, i.e. a significant acceleration or deceleration in demand. The trend-break model indicates that sequential acceleration in demand intensity during 2Q14 (from 1Q14) is only slightly more likely than a deceleration (66%); i.e., quarter on quarter movement is very nearly a toss-up

Pricing growth remains anemic, although we expect observed y/y price dynamics to improve substantially this quarter as sequester-related cuts to Medicare reimbursement annualize out of the base period observations. In spite of this (mathematical) improvement in government pricing, commercial pricing is weakening

We continue to believe intensity of demand will grow as ACA enrollment gains play through and as employment improves. However, consistent with our observations throughout 2014, and with the BEA’s about face on the impact of the ACA in 1Q14, the timing of demand growth remains unclear. We still favor healthcare sub-sectors that are: 1) positively levered to gains in US per-capita intensity; and 2) have stable pricing, such as Non-Rx Consumables (e.g. BDX, BCR, COV, CFN, OMI)

For our full research notes, please visit our published research site

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