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Market-Based demand forecasting promotes informed strategic financial planning - Statistical Data Included

Healthcare Financial Management, Nov, 2001 by Alfred J. Beech

Similarly, the tools used must fit the needs of the organization. Some organizations may find that market-based demand forecasting alone is sufficient to help them understand the financial risks underlying demand. Other organizations may wish to make use of additional risk-assessment tools, such as Monte Carlo simulation, to obtain more information about the relationship between demand and financial risk. (k) Financial planners should be knowledgeable about all such tools to give their organization its best chance to reach its financial goals.

(a.) For a more detailed discussion, see Rice, James A., Market-Based Demand Forecasting for Hospital Inpatient Services, Chicago: Illinois, American Hospital Publishing, Inc., 1985, Chapter 3.

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(b.) Utilization rates also may be defined by admissions, which differ from discharges essentially in terms of timing. Because statewide utilization data are based on discharges, that is the preferable statistic to use in this context. According to the National Association of Health Data Organizations, 44 states collect some kind of statewide, patient-discharge data.

(c.) For more information about the NHDS, which is published by the National center for Health Statistics of the centers for Disease control and Prevention, go to http://www.cdc.gov/nchs/about/major/hdasd/nhds.htm.> (d.) The most recent NHDS data show that discharge-utilization rates have declined substantially since 1980 for all age groups except age 85 and older. Utilization rates have increased, however, from 1995 to 1997 for the 65-and-older age group.

(e.) See, for example, M&R Care Guidelines, an annual publication of Milliman USA that includes benchmarks for loosely managed, moderately managed, and well managed care.

(f.) InterStudy uses the IOC to measure HMO concentration in its The InterStudy Competitive Edge: Regional Market Analysis series.

(g.) Age-specific utilization rates in the service area are also much lower than age-specific NHDS rates.

(h.) The National center for Health Statistics publishes data on visits to emergency departments, including visits per 1,000 population, but only for hospital visits.

(i.) Economic value-added (EVA) is a measure developed by Stern Stewart that calculates the return on an organization's capital, which includes net assets and debt. See Cleverley, William 0., "Calculating the True Value of Healthcare Organizations," 2000 HFM Resource Guide, December 2000, pp. 4-8.

(j.) NPV in each scenario is derived by discounting 2000-04 cash flows at 10 percent, calculating the terminal value by treating the 2004 cash flow as an annuity for the remaining five years, and discounting the terminal value at 15 percent.

(k.) Monte Carlo simulation helps quantify risk by creating probability distributions of a model's outcomes or results. The basic method involves selecting result measures, specifying which assumptions are uncertain, identifying what statistical distributions the assumptions have, and running a number of iterations. Random values are generated in each iteration for each assumption, the model is calculated, and result values are generated. For more information, see Gapenski, Louis C., Accuracy of Investment Risk Models Varies," HEALTHCARE FINANCIAL MANAGEMENT, April 1992, pp. 40.52.
 

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