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The Impact of Change™
Impact of Change® Forecaster

Product Documentation
SG-2 Forecasting Philosophy
1. Comprehensive - Forecasts should incorporate a broad range of significant

drivers of utilization; a forecast that only focuses on one driver cannot reliably
forecast total utilization. SG-2 has identified six key drivers of utilization:
a. Population
b. Technology
c. Economy
d. Consumerism
e. Shift to In Setting
f. Sociocultural Factors
2. Timely - Forecasts should incorporate the latest information available about

changes occurring across the key factors driving change: emerging technologies,
population trends, etc.
3. Locally specific - Forecasts should reflect local market conditions as the

practice of health care varies widely from market to market.
4. Precise - Forecasts relative precision results from the precision of the input data;
precision of forecast variables’ empirical timings and impact factors is critical.
SG-2, LLC Proprietary and Confidential, All Rights Reserved, 2002. Page
1 of 16
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. The IoC forecasts utilization based on changes in
population, technology, economic, consumerism, sociocultural factors and shifts in care settings.
Population
Impact of Change® Inpatient Discharges
Technology Database
Socio-cultural
Inpatient Days
Economy
Consumerism
2000 - 2010 Outpatient Services
Shift in Setting
SG-2 Landscape of Factors
Technology Economy Socio-Cultural

• Minimally Invasive Surgery • Insurance Coverage • Obesity
• Imaging • Unemployment • Smoking
• Immune Modulation • Total Employment • Physical Activity
• Targeted Drug Therapies • Gross Domestic Product • Lifestyle
• Genetic Engineering • Cost Inflation
• Implantables
• Biologicals
• Medical Informatics Consumerism Outpatient Shift
• Discretionary Utilization • Technology Driven
Change in Site of Care
SG-2, LLC Proprietary and Confidential, All Rights Reserved, 2002. Page 2 of 16
Mathematical Approach to Modeling the Impact of Change
SG-2 uses the deterministic, difference equations1 to model future utilization. The Impact of Change
model starts with an initial set of conditions (current volumes and use rates) and builds in factors
(population, technology, the economy, consumerism, sociocultural factors, and changes in clinical
practice setting) developing over time that affect the initial volumes to generate a sequential
evolution utilization over time.
1
Goldberg, S. "Introduction to Difference Equations," Dover Press, 1986.
Technology Impact SG-2 Technical Brief
The IoC uses logistic or S-shaped curves to model the impact of technology adoption and diffusion on
utilization.
SG-2 has developed a set of National technology market curves. On a custom, project basis, SG-2 modifies
the timing and relative impact of technologies based on the likely local market conditions and clinical practice
over the decade.
Approach to modeling technology:

1. Timing: SG-2 assigns the following variables for each "technology item" in the model
a. ts = Start Year
b. ti = Inflection Year
c. td = Decline Year
d. r = rate of growth
e. Item scale factor
2. Mapping: Map technologies to utilization variables (DRG and Outpatient procedures) that will be
affected by the technology.
3. Impact Factors: Assign an impact factor (IF) for each mapping. The impact factor determines the
magnitude and direction of the technology’s effect.
4. Calculation parameters: SG-2 assigns various calculation parameters. One example of a calculation
parameter is a probability scale factor that allows SG-2 to customize technology timings for a local
market forecast.
Example of Technology Timing Assignment in the IoC:
Example #1 of a Technology Adoption Curve from the IoC:
Timing Progression Chart
1.2
1.
.8
Fractional Impact
.6
.4
.2
.
2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
This shows a technology that starts in 2005, reaches widespread use in 2008, and declines rapidly in 2010.
Example #2 of a Technology Curve from the IoC:
Timing Progression Chart
.7
.6
.5
Fractional Impact
.4
.3
.2
.1
.
2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
This shows a technology that starts in 2003, reaches widespread use in 2007, and plateaus in 2009.
Example of Impact Factors Assigned in IoC:
Example of a Resultant Discharge Utilization Forecast from IoC:

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
Economic Impact SG-2 Technical Brief
Assumptions
1. Based on empirical studies, SG-2 models a reduction in inpatient utilization when people become
uninsured. SG-2 models the timing of this economic effect by determining a likely scenario for
unemployment.
2. The economic effect is applied globally across all utilization. – e.g. even non-discretionary utilization is
affected. The only exception is acute, trauma-related care.
3. The economic effect is applied only to non-Medicare populations.
Approach to Modeling the Economic Effect:

5. SG-2 uses empirical data from the Bureau of Labor Statistics and local market sources when possible.
The unemployment rate is δ. Increasing unemployment is a positive number; while decreasing
unemployment is a negative number.
6. The "utilization depressor" is µ.
7. The "negative bias factor" is κ. Using this in an exponential accentuates the change on the positive (or
increasing unemployment) side.
∆ = δ • µ • e (κ • δ )
Example of Unemployment Curve in IoC:
Unemployment Curve Chart
.02
.015
"Change in unemployment" Impact
.01
.005
-.005
-.01
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
∆:
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).
Implementation:
These "rates" are then integrated and applied to the non-Medicare component of utilization volumes.
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.
Example Results of Economic Effect from IoC:
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
Consumerism Impact SG-2 Technical Brief
Assumptions
1. The consumerism effect captures the likelihood of utilization being a rational purchase decision. This
effect alters utilization based on a person’s individual responsibility for payment; if the person is
responsible for payment, they may forego or delay utilization of health care services. The consumer effect
is closely related to the economic effect.
2. DRGs and Outpatient codes are determined to be either discretionary or non-discretionary. The consumer
effect is applied to discretionary DRGs and outpatient groupings only.
3. SG-2 has determined a likely market scenario for the likelihood of more health care cost responsibility
being shifted to consumers.
Example of Consumerism Effect Expressed in IoC:
Consumerism Curve Chart
12.
10.
8.
Fractional Impact
6.
4.
2.
.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Example of Discretionary DRG Flags in IoC:
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
6.10 Carpal Tunnel Release Y
Example Results of the Economic Effect in the IoC:
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
Sociocultural Impact SG-2 Technical Brief
Assumptions
1. Sociocultural factors influence utilization demand for health care services. These effects act progressively
over a forecast period rather than follow a logistic S-shaped curve.
2. Sociocultural "meta-trends" often involve socio-cultural shifts within a population that are similar to
demographic changes but involve factors beyond simply population change.
3. SG-2 identifies sociocultural effects that have been studied empirically, and also includes the effect of
sociocultural factors that SG-2 anticipates will have an effect over the forecast period. Examples of
sociocultural factors include:
a. Obesity – increased vascular disease related services and other co-morbities
b. Increasing reliance of ERs for primary care
c. Increasing consumer expectation to have an medical intervention: ex: knee surgery or spinal
surgery to reduce pain and allow for more active lifestyle
Approach to modeling sociocultural factors:

1. SG-2 has identified a set of sociocultural factors to be modeled and determined which utilization types
(DRG, OPC, etc.) are affected.
2. SG-2 determined from literature and/or "micro-model" estimations the percent yearly change in utilization
attributable to that sociocultural factor.
3. The effect of each factor is expressed discretely in the model over time.
Example sociocultural factors:
Example Results of a Sociocultural Effect in the IoC:
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

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The Impact of Change™

Impact of Change® Forecaster

SG-2 Forecasting Philosophy

1. Comprehensive - Forecasts should incorporate a broad range of significant

2. Timely - Forecasts should incorporate the latest information available about

3. Locally specific - Forecasts should reflect local market conditions as the

About the Impact of Change® Forecaster

SG-2 Landscape of Factors

Technology Economy Socio-Cultural

Mathematical Approach to Modeling the Impact of Change

Technology Impact SG-2 Technical Brief

Approach to modeling technology:

Example of Technology Timing Assignment in the IoC:

Example #1 of a Technology Adoption Curve from the IoC:

Timing Progression Chart

Example #2 of a Technology Curve from the IoC:

Timing Progression Chart

Example of Impact Factors Assigned in IoC:

Example of a Resultant Discharge Utilization Forecast from IoC:

Economic Impact SG-2 Technical Brief

Approach to Modeling the Economic Effect:

Example of DRG Medicare fractions:

DRG DRG Description Medicare Fraction

The rates can be applied to:

1. Initial utilization volumes or

Treatment of Medicare Fractions

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

Example Results of Economic Effect from IoC:

Population / Economic "Wedge"

Economic Effect Detail

Consumerism Impact SG-2 Technical Brief

Example of Consumerism Effect Expressed in IoC:

Consumerism Curve Chart

Example of Discretionary DRG Flags in IoC:

DRG DRG Description Discretionary DRG?

Population / Consumerism "Wedge"

Sociocultural Impact SG-2 Technical Brief

Approach to modeling sociocultural factors:

Example sociocultural factors:

Example Results of a Sociocultural Effect in the IoC:

Effect of obesity on DRG 127 Heart Failure & Shock

Yearly Discharge Growth Chart

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