Healthcare Almanac

Healthcare Almanac is a projection of healthcare utilization, revenue and cost over the next 15 years.  The projection is based on the information from Provider Almanac and Population Almanac.  The basis for the calculation is the population of the United States at an age/sex statistical cohort and applying utilization rates to create the national healthcare utilization.  The total healthcare utilization is then valued at DRG and APC rates to determine the healthcare revenue.  The healthcare cost is then calculated by applying cost to revenue rates.  

This calculation is fairly simple but has many complexities.  The population growth may vary from one area of the United States to another.  DRG rates vary from year to year.  Cost to revenue ratios vary from provider to provider. 

Once the national calculations are complete, the information is allocated to market area and provider.  There will be significant variations in healthcare utilization, revenue and cost based on the migration of an aging population.  The impact will be shown for each healthcare provider. 

To show the impact, each step of the calculation will have several calculation methods.  There will be projected financial statements for the first five years, 7 year, 10 year and 14 year projections.  These eight statements will have 3 population projection methods, 4 use rate methods or sources, 3 DRG rate projection methods and 3 cost to charge projections for department cost.  This will result in 864 projected financial statements per provider.  The user can also enter adjustments to the projections. 

Below is a description of the calculations.   

Step 1 - Population of US allocated to Service Areas

The combination of Population Almanac and the Census Bureau population projections are used to create the population of the United States by geography and 22 age/sex catagories.  The projected population is based on the first 5 years, 7 year, 10 year and 14 year projection.  The geographies are states, counties, city/places and zip codes.  The counties that are MSAs are identified for urban and rural reporting.  The population is created in four projection methods for each hospital provider.  The population is allocated to each hospital provider by revenue amount with age/sex by county profile, revenue amount with age/sex by zip code radius, cost report cases or FTE's with age/sex by zipcode radius and state data with state data use rates with age/sex based on use rate.

 

Step 2 - User Rates times the Population equals Utilization in Cases/Visits

The use rates are used to calculate the population of the United States for each population allocation method by provider.  The use rates are calculated at the age/sex and DRG intersection on a rate per thousand.  The use rates are obtained from three sources.  The HCUP data is used to calculate a nation DRG rate with a statistical average.  The four states of CA, TX, NY and FL are used to create a group of data with use rates by age/sex and DRG intercept.  These four states may be separated to provide a more accurate count at the state level.  The last use rate method is the four states plus the MEDPAR data for the 65 and over veneficiaries.  The goal of this step is to create the case/visit counts by provider.   

 

Step 3 - Case/Visit Counts times the DRG/APC Rates by Provider equals Revenue

The DRG/APC rate determines the amount of revenue for a hospital provider.  These rates will be adjusted by wage index and captial payments based on the CMS DRG Pricer formula.  The past history of the DRG rates will be used to project the the DRG rates for the next fourteen years.  A DRG rate is based on casemix that is based on estimated utilization.  The DRG casemix is adjusted each year in the "Final Rule".   The first DRG rate table will be a standard inflation factor for each year with no change in casemix.  The second rate will be the average increase/decrease for the last five years meaning that any trend will be projected.  The third rate will be a combination of factors for a DRG rate that is the most accurate projection.  This rate may include a user defined inflation rate or casemix adjustment.

 

Step 4 - Total Revenue times Cost to Revenue Ratios plus Overhead Cost equals Profits

The cost to revenue ratios will be similar to the calculations for the DRG rates.  Overall, the first set of cost to revenue ratios will be a flat 3% inflation factor.  The second set of cost to revenue rations will be a calculation of the last four years of average department rates.  The third set will be some combination of factors to get the most accurate calculation of net profit.