Market share is a measure of breadth of services offered, distance to customers, public perception and physician capacity. Our hypothesis is, all things being equal; people prefer to go to the closest hospital. It is the "all things being equal" part where we lose patients. If patients perceive a difference in quality, lack of service available locally, or lack of availability to schedule an appointment with a physician; they will pass the closest hospital for another.
Below is a case study representing many of the lessons we have learned over our years in hospital planning and strategy. For our statistical model we looked at distance between the centroid of the ZIP codes to the area hospitals, the case mix index as a proxy for services offered and the HCAHPS percentage score for "would definitely recommend" as a proxy for preference, to determine target market share.
Using the primary and secondary service area (PSA and SSA) of the sample hospital, we analyzed market share data by ZIP code. We calculated the distance from the ZIP code to our sample hospital (Hospital A) and to three primary competitor hospitals (Hospitals X, Y, and Z). Competitors were chosen based on market share of our sample hospital's service area.
We then compared their Medicare Case Mix Index and percentage of "would definitely recommend" from HCAHPs. For every ZIP code in which Hospital A was the closest hospital, the hospital had the highest market share. Hospital A maintained higher market share in closer ZIPs even when one of the other hospitals had a higher case mix index and/or higher percentage of "would definitely recommend". The high r2 values of distance from hospital and market share demonstrate the two factors have a high correlation.
This illustrates each of the four hospitals' distance and market share in relation to the ZIP codes within Hospital A's combined service area. The x axis shows the miles from the hospital to the centroid of the ZIP code and the y axis is the market share of the hospital in that ZIP code. The closer a ZIP code is to the hospital, the higher the market share. For example, the highest market share is over 60% and the distance is approximately 2 miles. Distance from hospital and market share are highly correlated. Our sample Hospital A is the blue line.
With distance established as the primary driver of overall market share for a hospital, what role did the other two factors play?
How does the CMI and "would definitely recommend" influence a hospital's market share? We performed this same analysis in another market and compared the two results. Let's call the second example Hospital B. In our two examples, Hospital A and Hospital B, the average distance to Hospital A from the PSA ZIP codes was 5.6 miles and distance to Hospital B from the PSA ZIP codes was 5.0 miles. The market share of the PSA ZIP codes was 55% in Hospital A above and 61% in the second study, Hospital B. Hospital B has higher case mix index and higher percentage of "would definitely recommend". Higher case mix and higher "would definitely recommend" resulted in a higher market share.
Another key part of any market share analysis is physician capacity. For those of you old (or experienced) enough to remember Henderson on Corporate Strategy by Bruce Henderson, Founder and CEO of The Boston Consulting Group, "Capacity is the determinant of market share." If the physicians referring to the hospital have little to no capacity for new patients, then growing market share is impossible. Focus physician strategy on the ZIP codes closest to the hospital. Ensure there is adequate capacity, good referral relationships and room to grow.
Market share is driven by: distance to patients, case mix, patient satisfaction and physician capacity.
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