STRATEGIC FORECASTING FOR HOSPICE & HOME HEALTH: How to Use Three Different Forecasting Methods

How many Medicare patients will you have on service a year from now? What about 2 years from now? By creating forecasts — mathematical predictions based on your organization’s past performance and market trends — you can significantly improve your business planning for the future. In this month’s feature, we discuss how to use three different quantitative methods of forecasting: simple moving average, weighted moving average, and trendlines.

The Value of Forecasting
Forecasting is an important tool for assessing past and current activity, as well as the growth of your organization. With this information, you can more effectively monitor your marketing efforts, staffing, and operating costs to help ensure profitability in the future. It also lets you see where your agency’s performance stands in comparison to industry norms.

A more thorough forecast will usually take into consideration external market and economic factors, as well as your company’s data. Here we show you different quantitative calculations commonly used to evaluate your data in forecasting. We start with how to calculate a simple moving average and then move on to the more sophisticated methods of weighted moving average and trendlines.

    1. Simple Moving Average
    A simple moving average (SMA) is calculated by adding the data collected over a certain period of time and dividing this sum by the total number of time periods, such as months or years. The formula for a 5-year SMA, for example, would be the following:

    Formula for simple weighted average
    Table displaying the number of hospice patients served in a specific geography over 5 consecutive years. From HealthMR, specialists in hospice marketing.

    Using the data in Table 1, we can calculate the simple moving average of hospice patients served:

    Calculation of simple weighted average

    Therefore, we would then multiply the year 5 level by 1.047 to get a year 6 forecast of 1,256.

    2. Weighted Moving Average
    Compared to a simple moving average, a weighted moving average (WMA) assigns a higher weighting to more recent data. For example, to calculate a 4-year WMA, multiply the current year’s figure by 4, last year’s by 3, and so on until year 1. These results are then added together and divided by the sum of the multipliers (4 + 3 + 2 + 1).

    The following is a formula for a weighted moving average:

    Formula for weighted moving average calculation

    n = number of variables
    p = the data point you’re tracking each time period
    M = the time period you’re using (e.g. month)

    Using the data in Table 1, we can calculate the weighted moving average of hospice patients served:

    Calculation of weighted moving average

    So if we apply this to the year 5 level will get a year 6 level of 1,264, which is eight patients higher than the simple moving average.

    3. Trendlines
    Trendlines are another important method for analyzing data to identify and confirm sales trends. A trendline is a straight line that connects two or more data points over time – such as patients served per year – and then extends to help forecast future performance. By using regression analysis, trendlines help you approximate the best linear relationship among data points.

    Microsoft Excel has an easy-to-use tool that allows you to plug in your own data to create a trendline in a chart and forecast into the future. Click here for more information about predicting with trendlines and step-by-step directions on how to use the Excel forecasting function.

    Which Forecasting Method Is the Best?
    One of the most effective ways to determine the best forecasting method is to test each of them with your actual data. Look at the difference between what you predicted using the various methods compared to the actual results you obtain going forward. The method with the lowest variation may be the best for your situation. This topic is explored in an article we found in OR Notes.

    Healthcare Market Resources Can Help You Strategically Forecast
    Industry-specific forecasting software can help increase the accuracy of projections by also taking into account information on market trends and conditions. In April, Healthcare Market Resources will be launching a multi-year hospice-forecasting product at the National Hospice and Palliative Care Organization’s 25th Management and Leadership Conference. This new product incorporates various market trends in the calculations and will allow you to project the size of your Medicare hospice market on a county basis.

    Forecasting is an important tool for ensuring profitability for your business. Click here or give us a call at 215-657-7373 for ways Healthcare Market Resources can help your agency forecast future success.

    Strategically Forecast Using Healthcare Market Resources’ Data

    If you’ve purchased Healthcare Market Resources data for several years, you can use it to help effectively forecast the size of your market in the future. However, if don’t have previous years’ data, you can now obtain it at a special discounted rate:

    • Data from 2004, 2005, and 2006 is now available at a 75% discount
    • Data from 2007 is now available at a 50% discount
    • Data from 2008 is now available

    Click here to request more information about this special promotion.