Strategic Factors In U.s. Health Care

Human Resources, Capital, And Technology

Howard S Berliner

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367288860
• eBook ISBN: 9781000313239
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Politique sociale

The Conservation of Human Resources, Columbia University, of which I am the director, has been carrying out over the past three years an inquiry into selected forces that are altering the structure and functioning of the U.S. health care system. The funding for the project was provided by the Robert Wood Johnson Foundation and the principal investigator was Howard Berliner, an Associate Research Scholar on the Conservation staff.

1
Health Care Forecasting: A Retrospective, 1970-1980

Before engaging in a survey of the major factors that will have an impact on the U.S. health care system in the 1990s, it will prove instructive to examine how successful prior attempts at forecasting have been.

This chapter traces the development of forecasting as a tool for analysis of the health care sector during the period of 1970-1980. It examines critically five components of the health system for which forecasts were made: national health expenditures, capital needs, human resources supply and requirements, technological innovation, and organizational change within the delivery system. Each component is assessed in terms of its correspondence with what actually happened; the reasons for its congruence or lack of congruence; and refinements in forecasting methodology that would improve the accuracy of the estimates. The underlying assumptions of the forecasts are examined for their validity and sensitivity. The aim is not to second-guess past forecasts or to invalidate assumptions made with the best data and techniques available fifteen years ago. Rather the aim is to better understand the dynamics of the health care system so that future forecasts may prove more accurate.

Same Reflections on Forecasting

It may be useful to begin with an agreement on terminology. The term forecast is defined as "a prophecy, estimate or prediction of a future happening or condition" and is differentiated from projection which is "an estimate of future possibilities based on a current trend." In this chapter the two are used synonymously.

A 1984 issue of Business Week contained an article entitled "Economic Forecasting: Few Hits, Many Errors."¹ The article noted that in 1980 forecasters were unable to foresee the oncoming recession; that in 1981 they predicted a recovery that never materialized; and that in late 1982 they failed to anticipate the level of economic growth that actually occurred. Despite these lapses the author foresaw little slackening of demand for further forecasts.

The difficulties inherent in forecasting for an entire economy are obvious. It is not an appreciably easier task when the effort is narrowed to a specific sector of the economy, and yet in any industry assumptions and predictions about the future are essential both for managing current operations and for strategic planning. At the simplest level, a view of the future is integral to any planning process. Since the aim of any intervention is to influence the shape of the future, estimates of that future are essential to the planning process.

The rapid change that the U.S economy is currently undergoing and has already undergone makes it difficult to measure its future parameters. In the examples we studied, forecasts made for more than two years became inaccurate and were often found to be wholly awry by the end of ten years. Forecasts made for more than a decade had very little validity at all.

Future developments in any sector of the economy not only are affected by forces that impinge directly upon that sector but also are affected by forces in the larger domestic and international environment. No matter how accurate a forecast for a particular subsector, it is difficult to foresee how the world and national economies will change and to specify the implications of these changes for a particular subsector.

Forecasts and the Health Care Delivery System

The health system in the United States has grown rapidly over the past twenty years, and much of its growth has been concentrated in the decade under study, 1970-1980. In 1971, the increasing importance of the health sector was recognized by Standard and Poor's Industry Survey, an annual report that discusses the growth potential of major U.S. industries.² The survey reordered the category that includes the health industry from "Drugs, Cosmetics and Health Care" to "Health Care, Drugs and Cosmetics." This semantic change was a reflection of the rapid growth of the health care sector in the five-year period following the introduction of Medicare and Medicaid in 1966. In 1960, health care represented 5.3 percent of gross national product (GNP), rising in 1965 to 6 percent. Its share of GNP then soared, reaching 7.5 percent in 1970, 8.6 percent in 1975, 9.1 percent in 1980, 10.7 percent in 1985, and a projected 11.4 percent in 1987, when it is estimated that $511.9 billion will be spent on health care goods and services.³ Thus, in just twenty-five years health care spending doubled as a percentage of GNP. As the sector has become a more significant factor in the domestic economy, the need to predict how and at what rate further growth may be expected is of increasing importance.

Health care financial managers also have felt the need for greater specificity and rigor in their perceptions of future developments in the health sector and in response to their demands. Hospitals, the journal of the American Hospital Association, has contracted with Merrill-Lynch Economics for a series of quarterly economic forecasts it publishes for its readership⁴. These forecasts enable health care providers to make investment decisions that are informed by macroeconomic trends.

The widely invoked image of the U.S. health care system as a cottage industry composed of a large number of small providers is belied by reality. Although individual units still predominate, the structure of the health system has been altered significantly by the growth of multi-institutional chains, institutional mergers, and large physician groups.⁵ As the magnitude and hence the risk of financial decisions have increased, the need for more and better information about the future has become critical.

By virtue of its sheer size the health industry not only exercises a direct effect on the overall economy but also influences the vitality of other industrial sectors. Medical supply, construction, pharmaceuticals, computers, and software development, to name a few, are industries greatly affected by what happens within the health sector. The future of the health system is also important to corporations planning employee fringe benefit policies, unions devising bargaining strategies, and governments attempting to reconcile tax revenues with entitlement outlays. All these factors have encouraged the growth of health care forecasting in recent years.

It should be noted that forecasting was in its infancy during the 1970s, and therefore the sophistication of the efforts examined varies considerably from area to area. A variety of methodologies has been developed—econometric and simulation modeling, morphological analysis, trend extrapolation, intuitive techniques, and so on.⁶ The quantitatively based methods used to forecast national health expenditures, capital needs, and human resources requirements are easier to analyze than nonquantitative methods applied to the areas of technological and organizational change. Accordingly, the style of analysis differs in the various sections of this chapter. We begin with forecasts of national health expenditures.

Forecasting National Health Expenditures: 1970-1980

The increasing centrality of the federal government in the financing of health care since the mid-1960s has stimulated efforts to forecast national health expenditures by a wide range of interested agencies including the Social Security Administration, the Congressional Budget Office, the Office of Management and Budget, and the Health Care Finance Administration. Most of the findings of these agencies are used solely for internal planning and are not published.

Characteristically, forecasts of national health expenditures analyze four factors to estimate projected growth. These factors are demographic changes in the population, changes in the intensity of health care services, changes in the utilization of health care services, and changes in the rate of inflation. The underlying assumption is that recent historical patterns will continue. Some forecasts distinguish between changes in the overall inflation rate (e.g., as reflected in the consumer price index [CPI]) and changes in the rate of inflation within the health sector (e.g., as reflected in the medical care consumer price index). For the period 1970-1980, the medical care consumer price index outpaced the overall CPI by a rate of 7.5 percent.

A forecast of national health expenditures for 1975 and 1980 performed by the Office of Research and Statistics of the Social Security Administration (SSA) in 1969 and published in 1970 has been examined. It represents a prototypical effort.⁷

In its calculations, the SSA forecast did not isolate inflation rates, utilization, or intensity; instead the SSA used a composite growth factor for all three components. Because individual components are indistinguishable, the influence of the relative overestimation or underestimation of any one of these factors upon the final estimate cannot be assessed. For example, the specific effect of inflation cannot be examined separately. Both low and high estimates were calculated, based on alternative assumptions.

In Table 1.1 summaries of the results of the forecast are presented, and the projections are compared with actual national health expenditures for 1975 and 1980 in terms of health expenditures as a percentage of GNP, absolute health expenditures, and the percentage difference between the SSA high projection of total health expenditures and actual health expenditures.

As can be seen, the forecast of health expenditures as a percentage of GNP was far more accurate than the forecast of absolute health expenditures. The reason for this was the unforeseen rise in inflation in the wake of the first Organization of Petroleum Exporting Countries (OPEC) oil crisis in 1973.

In Table 1.2 the projected spending by different segments of the health industry is analyzed vis-a-vis the actual spending for those segments. In this table the highs and lows projected by SSA are compared with actual expenditures in absolute dollar terms.

TABLE 1.1
SSA Projections Versus Actual Expenditures, 1975 and 1980

TABLE 1.2
SSA Spending Breakdowns Versus Actual Breakdowns, 1975 and 1980 (in billions of dollars)

TABLE 1.3
Differences Between High Projections and Actual Expenditures, 1975 and 1980 (in billions of dollars)

As revealed in Table 1.2, the 1975 forecasts for hospital services and physician services are close to the actual values. Nursing home services, however, are almost double the high projection. For 1980, the gap between projection and actuality widened considerably, and again the estimates for nursing home services are the least accurate. Since the baseline data for these forecasts were derived from the early to mid-1960s, well before the boom in nursing home development, historical trends were a poor guide to the enormous spurt in nursing home utilization and expenditures. The differences between the projected highs and the actual values for the individual components of national health expenditure are detailed ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables
• Introduction
• 1 Health Care Forecasting: A Retrospective, 1970-1980
• 2 Changing Employment Trends in the U.S. Health Care Delivery System: 1985-2000
• 3 Critical Issues in Capital for Health Care
• 4 The Rapid Progress of Medical Technology
• About the Author
• Index