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.