SSR Index of Current-Quarter Healthcare Demand Growth, Final 4Q12 Estimate – Expecting a Flu-Related Spike


Our established model of health services demand growth projects 2.8% y/y growth during 4Q12, the product of 0.9% growth in unit demand, and 1.9% price growth. However we are not convinced that the unusually severe flu season has been yet fully reflected in the model’s inputs and, based on our own earlier work, expect upside to the unit demand growth estimate of up to 1 full percent

The current ‘ex-flu’ level of 0.9% unit demand growth is remarkably low – well below the 1.5% growth we normally expect from population growth and aging alone. Ultimately this low level of unit demand is demographically unsustainable; we expect unit demand to normalize in the context of an eventual recovery in employment

Independent of our quarterly forecasts of growth rate, we handicap the odds of a trend break, i.e. a significant acceleration or deceleration in demand. Ignoring flu effects, this model indicates a 93% chance of accelerating demand in 4Q12; this conflicts with our growth model’s expectation of decelerating (ex-flu) growth. The growth model is driven by such factors as employment and hours worked in health settings; the trend-break handicap model is influenced by the facts that current unit demand is remarkably low, and that demand has fallen for an unprecedented six quarters. Still on an ex-flu basis, we believe the growth model’s estimates of 4Q12 more than the trend-break handicap model’s – despite the fact that demand is low and has been decelerating for some time, it’s hard for us to expect accelerating health demand in the face of weak employment and weak hours worked in health settings

During the fourth quarter there were roughly 29 cumulative flu-related hospitalizations per 100,000 population, compared to just 1.2 during the same period in 2011. Looking ahead to 1Q13, we see remaining flu-related demand growth of +/- 43 bps to +/- 2% y/y, based on the historic severity and cumulative hospitalization rates associated with this year’s flu strain (H3N2)

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