The Art (and Science) of Defining Service Areas – Part 2

The Art (and Science) of Defining Service Areas – Part 2

This post is a follow-up case study to illustrate the detail outlined in Part 1 found here.

Case Study – Memorial Hospital, Anytown, USA.  In the last blog post, we covered how to define a service area.  In this post, we will cover a case study demonstrating the pros and cons of different service area definitions focusing on competitor identification.  Below is a case study based on a real hospital and real service areas blinded to protect the innocent.

Anytown is a city of 33,000 located in Mine County population 159,000, 20 miles north of a metropolitan city with population of 752,000.  Below is a table of market share by hospital by the different service area definitions discussed in-depth in the previous blog post.  Eighteen ZIP Codes represent 90 percent patient origin, 7 ZIP Codes represent 75 percent patient origin (all contiguous ZIP Codes meeting Stark service area definition) and 2 ZIP Codes represent 50 percent patient origin.   The 7 ZIP Code area is essentially the primary service area (PSA) and secondary service area (SSA) defined by PSA being 50 percent patient origin (the 2 ZIP Code area referenced above) and the SSA the next 25 percent of patient origin combined.


The table above demonstrates how the competitors change based on the definition of service area.  Using the two larger service area definitions, the primary competitor is Neighbor Hospital.  However, when only looking at the two ZIP Codes that make up 50 percent of patient origin, Large Medical Center becomes the primary competitor.  If market share by service line is available, look at outmigration by service line to Large Medical Center.  The only services out-migrating may be tertiary services Memorial Hospital doesn’t provide.  In that case, our focus would shift to Nearby Town Medical Center as our primary competition if they are seeing patients in service lines where we offer the services.  In the 7 ZIP service area, Neighbor Hospital is our primary competitor, followed by Nearby Town Hospital.

Also, notice the how the market share percentages change as the service area changes.  Using the 18 ZIP Code definition, our hospital has a market share of 13.1%.  When using the 7 ZIP Code service area our market share is 27.7%.  Using the 2 ZIP Code definition, our market share is 56.9%.  I am arguing the primary service area of our hospital is the 2 ZIP Code definition.  Those are the people we primarily serve.

This exercise demonstrates the importance of a thoughtful, deliberate service area definition.  A well-defined service area assists with targeted marketing and physician business development.  It also assists in understanding who your true competitors are by service line.  The service area definition is both science and art involving the use of analytics and judgment.



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