Impact of Change® Forecaster

Product Documentation

SG-2 Forecasting Philosophy

1. Comprehensive (forecasts should incorporate a broad range of signficant

drivers of utilization; e.g. a forecast that only focuses on one driver cannot
reliably forecast total utilization)

2. Timely (forecasts should incorporate the latest information available about

emerging technologies, population trends, etc.

3. Locally specific (forecasts should reflect local conditions as the practice of

health care is highly regional)

4. Precise (Precision in the input data and empirical timings and impact factors is
critical)

The Impact of Change™

About the Impact of Change® Forecaster

The Impact of Change® Forecaster quantifies the impact of changes in the business and technology
of health care on utilization of health care services. In addition to population changes, the IoC
forecasts utilization based on technology, economic and sociocultural drivers as well.

Impact of Change® Inpatient Discharges

Technology
Database

Inpatient Days
Economy

2002 - 2010 Outpatient Services

Socio-cultural

Specific Examples of Factors

Technology Economy Socio-Cultural

Minimally Invasive Surgery Insurance Coverage Obesity

Imaging Unemployment Smoking
Immune Modulation Total Employment Physical Activity
Targeted Drug Therapies Consumer Confidence Lifestyle
Genetic Engineering Gross Domestic Product
Implantables Cost Inflation
Biologicals
Medical Informatics

The Impact of Change™

Data Sources

Demographics

Utilization

Inpatient

Outpatient

Mathematical Approach

The most powerful approach to modelling changes over time, given initial conditions (e.g. initial
population, use-rates/volumes), is to use differential equations. The time variable, however, is
typically discrete (e.g. one-year intervals) so it is extremely common on economic and social sciences
modelling to use what are termed difference equations.1 This is the basic approach used with the
IoC.

Essentially, one takes the initial conditions, along with factors (developing over time) that affect the
initial conditions and generates a sequential evolution over time of utilization.

Some details on how these drivers are constructed is described in the pages following.

1
Goldberg, S. "Introduction to Difference Equations," Dover Press, 1986.
The Impact of Change™
Technology Impact SG-2 Technical Brief

Assumptions
1. Most models of technology adoption involve a "logistic" or S-shaped diffusion & adoption curve.
2. "National" adoption curves are the "sum" of many individual regional/institutional curves and are hence
"spread" out. By definition, then, the local adoption metrics will be different than the national one.

Approach:
1. Timing: Assign the following variables for each "technology item"
a. ts = Start Year
b. ti = Inflection Year
c. td = Decline Year
d. r = rate of growth
e. Item scale factor
2. Mapping: Map all technologies to utilization variables
3. Impact Factors: Assign an impact factor (IF) for each mapping (most are zero).
4. Calculation parameters: Most importantly the probability scale factor.

Timing:

The Impact of Change™

The equation:

 Sgn( ( tb + t ) − ts ) + 1  − aPs (( Sgn( Sgn(ts − tb ))+ 1)(ts − tb ) )   [ Sgn( td ) • Sgn( Sgn( ( tb + t ) − td ) + 1) ] •  − r ( t2b − th )  
T (t ) = 
 2
• e

( 2
) ( 
• 
1
− r ( ( tb + t ) − ti ) 2
)
•e
 


 1+ e   
The curve:

Timing Progression Chart

1.2

1.

.8
Fractional Impact

.6

.4

.2

.
2003 2004 2005 2006 2007 2008 2009 2010 2011

Year

The Impact of Change™

The curve (another example):

Timing Progression Chart

.7

.6

.5
Fractional Impact

.4

.3

.2

.1

.
2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

The Impact of Change™

Impact Factors:

" Based on titrating to additional 800 procedures in 2002 (est.) and approximately 4000 on "waiting-list" with
given national timings 0.06 IF was determined to be optimal"

The result:
Yearly Discharge Growth Chart

45,000

40,000

35,000
Cumulative Percent Change

30,000

25,000

20,000

15,000

10,000

5,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

The Impact of Change™

Economic Effect SG-2 Technical Brief

Assumptions
3. Studies show a 25% reduction in utilization (inpatient) with an increase in unemployment. Effect is
indirect via loss of employment determined health insurance benefits.
4. The effect is probably "across-the-board" – e.g. even non-discretionary utilization is affected. The only
exception is probably acute, trauma-related care.
5. By corollary, does utilization increase by 25% if unemployment declines? Probably by not as much.

Approach:
5. Get change in unemployment forecasts from Bureau of Labor Statistics and SG-2 analysis. Need. This is
δ. Increasing unemployment is a positive number; while decreasing unemployment is a negative number.
6. The "utilization depressor" is µ. Usually set to -0.25
7. The "negative bias factor" is κ. Default is 25. Using this in an exponential accentuates the change on the
positive (or increasing unemployment) side.

∆ = δ • µ • e (κ • δ )
Current Defaults:

The Impact of Change™

δ:
Our current national set looks as follows:

Eastern Mass, SSM/Cent. Missouri and ANOVA were all run with these national numbers.

Unemployment Curve Chart

.02

.015
"Change in unemployment" Impact

.01

.005

-.005

-.01
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

The Impact of Change™

∆:
Applying the above equation (with defaults for κ and µ) to the national δ's, we get the following results:

∆
Year δ No kappa (with Kappa
2001 .0042 -0.00105 -0.00117
2002 .0167 -0.00417 -0.00634
2003 -.002 0.0005 0.000476
2004 -.004 0.001 0.000905
2005 -.002 0.0005 0.000476
2006 0 0 0
2007 0 0 0
2008 -.004 0.001 0.000905
2009 -.001 0.00025 0.000244
2010 -.001 0.00025 0.000244

"Delta" Chart
∆
0.02

0.015 Pure
Kappa
No Kappa
0.01

0.005

-0.005

-0.01
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

These ∆ 's are the "changes in rate" that will be applied to the utilization volumes (non-Medicare component –
see below).

The Impact of Change™

Implementation:
These "rates" are then integrated and applied to the non-Medicare component (for DRGs) or total (for OPCs)
utilization volumes. Currently the Medicare fractions are "hard-coded" (non time & space dependent) into the
core DRG table.

Example of DRG Medicare fractions:

DRG DRG Description Medicare Fraction

1.00 Craniotomy >17 X Trauma 0.3429158
1.10 Craniotomy >17 X Trauma 0.3429158
2.00 Craniotomy For Trauma >17 0.5328467
2.10 Craniotomy For Trauma >17 0.5328467
3.00 Craniotomy Age 0-17 0
3.10 Craniotomy Age 0-17 0
4.00 Spinal Proc 0.1917476
4.10 Spinal Proc 0.1917476

The rates can be applied to:

1. initial utilization volumes or

2. "nonlinearly" multiplied against population-driven utilization.

Treatment of Medicare Fractions

There are two sources for medicare fraction:

a. "Hard-coded"in the DRG tables directly or

b. derived directly from the age-group identifier of the relevant dataset. E.g. If the age group is
greater than 65 then the medicare fraction is 1; other wise it is zero. If the age grouping spans 65
then the medicare fraction is some number between 0 and 1 – appropriately weighted at the time
that the age group designation is defined.

The default is to use option (2); if option (2) does not yield a medicare fraction (e.g. for undefined or global age
group designations) then option (1) will be applied. Option (2) also allows for the medicare fraction to change
over time as the proportion of the population over 65 likewise changes.

The Impact of Change™

Results:

National data; linear run. Using κ, m defaults

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Economic 157,348 157,170 156,203 156,244 156,383 156,460 156,462 156,462 156,599 156,640 156,679 -0.4%
Population 157,348 161,549 166,054 170,891 176,088 181,679 187,701 194,194 201,204 208,782 216,987 37.9%

Population / Economic "Wedge"

NHDS National 2000 - 2010 SG-2 Forecast

Economic
250 Population

200

150

100

50

0
2000 2001
2002 2003
2004 2005
2006 2007
2008 2009 2010

Economic Effect Detail

157,600

157,400

157,200

157,000

156,800

156,600

156,400

156,200

156,000

155,800

155,600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The Impact of Change™

Consumer Effect SG-2 Technical Brief

Assumptions
1. The consumer effect is closely related to the economic effect.
2. Applies to discretionary DRGs/OPCs only
3. Grows over the decade by an SG-2 determined curve

Approach:
1. Convolute D's from economic analysis with the SG-2 Consumerism curve.
2. These are the new rates
3. Apply only to discretionary DRGs (non-Medicare fraction) or discretionary OPCs (total fraction)

Consumerism Curve Chart

12.

10.

8.
Fractional Impact

6.

4.

2.

.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

DRG DRG Description Discretionary DRG?

1.00 Craniotomy >17 X Trauma N
1.10 Craniotomy >17 X Trauma N
2.00 Craniotomy For Trauma >17 N
2.10 Craniotomy For Trauma >17 N
3.00 Craniotomy Age 0-17 N
3.10 Craniotomy Age 0-17 N
4.00 Spinal Proc N
4.10 Spinal Proc N
5.00 Extracranial Vascular Procs N
5.10 Extracranial Vascular Procs N
6.00 Carpal Tunnel Release Y

The Impact of Change™

DRG DRG Description Discretionary DRG?
6.10 Carpal Tunnel Release Y

The Impact of Change™

Results:

Population / Consumerism "Wedge"

NHDS National 2000 - 2010 SG-2 Forecast

250

Consumerism
200 Population

150

100

50

0
2000 2001 2002 2003 2004 2005
2006
2007 2008
2009
2010

Consumerism Effect Detail

157,500

157,400

157,300

157,200

157,100

157,000

156,900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The Impact of Change™

Sociocultural Impacts SG-2 Technical Brief

Assumptions
1. Many effects act roughly progressively over the forecast period (e.g. without a logistic curve, etc.).
2. These "meta-trends" often involve socio-cultural shifts within a population that are similar to
demographic changes but involve factors beyond simply population change. Examples, include "obesity",
increasing reliance of ERs for primary care, increasing acceptability of cosmetic surgery, etc.
3.

Approach:
1. Identify the sociocultural factor (potentially locally specific)
2. Identify which utilization parameters (DRG, OPC, etc.) are affected
3. Determine from the literature and/or "micro-model" an estimation of th percent yearly change in
utilization attributable to that sociocultural factor. This number is termed the impact factor (IF).

Example sociocultural factors:

The Impact of Change™

Example Result: Effect of obesity on DRG 127 Heart Failure & Shock

Yearly Discharge Growth Chart

1,050,000

1,040,000

1,030,000
Cumulative Percent Change

1,020,000

1,010,000

1,000,000

990,000

980,000

970,000

960,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

The Impact of Change™