Determining Your Market’s True Potential

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In imaging today, volume is the name of the game: The only way to maintain your practice’s financial viability is to keep your volume above a certain level. There’s an upside to this highly leveraged business scenario, though. Once you reach a volume that represents a breakeven point in terms of fixed costs, every subsequent scan goes right to your bottom line. No wonder so many imaging centers are trying to increase their volumes. The traditional inquiry we hear from practice leaders is, “I’ve done everything I can do to cut my costs, and now I’m ready to tackle the volume equation: Where do I start?” There’s an inherent flaw in this question, however. Imaging centers should ask themselves, first, whether they can realistically increase volumes. A quantitative approach to determining your market’s true potential is critical. Art Versus Science There is a science to analyzing the volume potential in your market. It’s not an anecdotal exercise. Don’t think in terms of what you’ve heard from the referring physician you golf with every Sunday; think, instead, in quantitative terms. Do you really understand the key drivers in your market? A basic market-assessment approach includes the definition of several factors: the outpatient imaging service area, the demographic characteristics of your target population, the area’s payor mix and any resulting contractual issues, and relationships that could affect your business. Define your service area geographically. In New York City, it could be just a few blocks; in Cheyenne, Wyo, it could be 100 miles. Don’t forget to consider the locations of your competitors. If a patient has to pass three imaging centers to get to your practice, that patient’s location represents a secondary service area. Next, look at your target population’s demographics. There are four key measures to consider when analyzing the needs of your service area: percentage of the population over age 65, median age, median household income, and percentage of the population living below the poverty line. These data are available on the US Census Web site at www.census.gov. Break these data down by ZIP code, as in the example that follows.
ZIP Code Population Over 65 Median Age Median Household Income Below Poverty
Line
Penetration Base
99999 58,044 6.3% 31.9 $55,767 5.3% 100% 58,044
99998 88,247 5.7% 29.4 $49,975 11.1% 100% 88,247
99997 52,447 3.4% 31.8 $64,798 3.9% 100% 52,447
99996 46,503 25.3% 43.4 $61,020 3.2% 50% 23,252
99995 12,246 19.3% 39.5 $52,512 4.3% 50% 6,123
It is also important to segregate your population by general payor category because utilization rates can vacillate widely from insurer to insurer. For example, if the biggest hospital in town has formed a PHO, you’ll be locked out if you’re not affiliated with that hospital and, instead, you attempt to compete with it. In California, Kaiser does its own imaging at its own facilities, so if your population has a Kaiser component, you have to discount those patients from your potential market. Don’t forget to identify key relationships within your market. Like it or not, if the leader of the biggest orthopedic practice in town is married to a radiologist with an imaging center, you won’t have a shot at that volume. Similarly, if one of your competitors is in a block-lease arrangement with the neurology group in town, you’re never going to get a referral. Demand and Market Share Time for hard math: Once you’ve established your service area’s demographics and removed any restricted populations from your calculations, you’re ready to calculate demand and market share. Utilization rates, a necessary component for this step, can be purchased independently or obtained from a consultant. The following example shows utilization rates per thousand for one service area.
Utilization rates per 1,000 MRI CT Ultrasound
Commercial 69 76 119
Medicare 76 95 144
Other 62 69 101
To determine demand according to modality, multiply utilization rates by your population. To determine current market share, divide your volume into your demand. This formula allows you to identify potential opportunities. For example, if your market share for MRI is at only 10%, you have room for expansion; if it’s at 50%, on the other hand, there might not be much you can do to increase volume. Equally important is estimating the market share held by your competitors. You’re hoping to learn you have the preponderance of the market share, but you also want to see some opportunity for improvement.
Demand MRI CT Ultrasound
Commercial 13,147 14,481 22,674
Medicare 2,935 3,669 5,562
Other 1,756 1,954 2,861
Annual total 17,839 20,105 31,097
Average Daily Volume 71 80 123

 

Then calculate market share.

 

Modality Market Demand Your Volume Your Market Share
MRI 17,839 2,016 11%
CT 20,105 2,520 13%
Ultrasound 31,097 1,764 6%
Once you know how much of the market is up for grabs, you can begin to identify opportunities for more volume and establish realistic targets and goals. Take It to the Streets Freshly armed with utilization-based data, you are finally ready to transition from the science of determining your market’s potential to the art of maximizing newly revealed opportunities. When practices aim to increase volume without quantitative knowledge of the marketplace, they resort to a sequence of traditional sales/marketing methods: hiring a sales representative to meet with referring physicians, experimenting with the mercurial and expensive world of consumer-direct marketing, and getting involved with the community by sponsoring events or participating in health fairs. When you have determined whether it’s realistically possible to increase your volume, however, marketing becomes a whole new ball game. If you know that you only hold 20% of the MRI market share in your community, and you also know that most orthopedic surgeons in your area own MRI scanners and are self-referring, you can focus your efforts on the primary care base, where the most opportunity for new business exists. Do not throw money away by diving blindly into sales and marketing. Instead, use market-driven data to establish a more targeted sales approach and more effective marketing campaigns. Imaging practices need to be asking not, “How do I?” but “Can I?” Without understanding what you can do, you cannot determine what you should do.