Calculating Adjusted Market Share - accounting for services not offered

Calculating Adjusted Market Share - accounting for services not offered

Is 30% market share "good"? 50%? How about 75%?

What should be your target market share?

These are questions that Strategic Planners and Hospital CEOs wrestle with.  With decades of strategic planning expertise, we have gut feelings when we get to know a market what a target should be.  This article outlines both that gut feel and a mathematical model to help select a target.

The highest impatient market share I've ever experienced was 75%.

Key Factors:

  • 100 beds
  • Offered many services needed by the community of approximately 87,000
  • Medicare case mix index of 1.44
  • The hospital did NOT provide open heart surgery, cardiac cath, radiation therapy or neurosurgery, etc.

Gut feeling told me this hospital was doing just about as good as it could.  I'd look at market share by service line and ZIP code to see what specifically they were missing and set targets at lower, sub levels as opposed to overall.

Conversely, the lowest market share I've seen was a critical access hospital with a primary service area of one ZIP code and 25% market share.

  • 25 beds
  • Located 34 miles from much larger, tertiary academic medical centers

Gut feeling told me this hospital had nowhere to go but up.  Set a target of 26% with a potential market share of 50%.

But what about a hospital in a suburban setting with a primary service area market share of 57%?  What about a critical access hospital with a primary service area market share of 26%?

We're going to walk through two examples demonstrating how to pinpoint market share potential.  Three years of state discharge data on two hospitals' markets -patient ZIP code, MSDRG, discharge year, hospital name and cases was analyzed.  Three years of discharges by DRG were analyzed.  The assumption was made that if the hospital had not had a discharge in a DRG in 3 years, it didn't have the service and those DRGs were omitted from the adjusted market share calculation.  Market share unadjusted and adjusted market share were compared.

Example 1:

In three years, the first example hospital did not have a discharge in 131 of the 744 DRGs, 17.6% of DRGs.    This hospital does not perform open heart surgery or neurosurgery.  Their Medicare Case Mix Index is 1.41.  They have several competitors in the secondary service area and in surrounding areas.  The largest tertiary hospital is 37 miles and approximately 46 minutes away.  In 2012, the example hospital market share was 57.2%.  After removing the DRGs where they did not have a case in three years, their market share rose slightly to 58.7%.  This hospital still has tremendous potential to increase market share in its primary service area even after adjusting for services they do not offer.  Their target could easily be 75% of adjusted market share in the primary service area.

The secondary market share increased only .4% when adjusting for DRGs they did not see in 3 years.  A potential market share of 15% is achievable.

A market share increase of 1% per year is significant growth.  It may take this hospital years to reach its target of 75%.

example one table

Example 2:

In three years, the second example hospital did not have a discharge in 458 of the 744 MSDRGs, 61.6%.  They are a 25-bed critical access hospital 61 miles and approximately 1 hour and 20 minutes from the nearest tertiary medical center.  The primary service area market share increased from 26.1% to 38.1% by removing DRGs where they had no cases from the calculation.  Their target primary service area market share could be 50% of adjusted market share.

The secondary service market share increased 6.8% when removing the DRGs where they have no volume.  30% would be a good target secondary service area market share.

example two table

 Market share is a measure of the breadth of services offered, distance to customers, public perception and physician capacity.  To increase market share ensure you have adequate physician capacity in both primary care and specialists.  Focus your efforts on the primary service area ZIP codes where there is the likely the most potential for increased volume and market share.

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