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

Richard

We expect 6.8% (nominal) y/y growth in US health services demand during 2Q14, the product of 5.2% growth in demand intensity and 1.5% growth in price. Our estimate of demand intensity is sharply higher in 2Q14 – reflecting an expectation that Affordable Care Act (ACA) related enrollment gains will increase intensity by approximately 2% – but moderated by 30bps sequentially from the initial 2Q14 estimate

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 during 2Q14 is likely (92%)

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. For this reason, we 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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