We expect 3.0% y/y health services demand growth during 4Q12, the product of 1.1% growth in unit demand and 1.9% growth in pricing. Total demand growth is projected to be 10bp higher than 3Q12–a combination of flat unit demand and a 10bp increase in price growth
Independent of our quarterly forecasts of growth rate, we model the odds of a trend break, i.e. a significant acceleration or deceleration in demand. This model indicates a 95% chance of accelerating demand in 4Q12; when the model indicates more than 75% odds of a trend it has been right 94% of the time. An important variable in the trend break model is the duration of the trailing trend; health services unit demand growth has fallen for an unprecedented six consecutive quarters, a pattern that is highly correlated with an imminent turnaround
Unit demand growth is below the baseline demographic trend of 1.5% (70bp aging effect and 80bp population growth effect), and well below our estimate of 10yr unit demand (2.5%). For this reason alone accelerating demand is a reasonable expectation. Fundamentally however, without employment growth a substantial acceleration in unit demand is unlikely – thus we suspect the model’s estimate of accelerating demand in 4Q12 may be premature
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