Hospital Market Analysis – 4 Areas of Focus

Hospital Building Market Analysis

Your hospital is considering adding one or even several new business lines. You have been assigned the responsibility to analyze the market for these new business lines. You realize you need a hospital market analysis! Where do you start?


Hospital Market Analysis Definition

A hospital market analysis can be defined as a careful evaluation of the business environment that exists for a specific service or service line. It must consider all the important factors in that environment, ranging from demand to payment sources and everything in between. And of course, it could also encompass the environment for an entirely new hospital, not just an expansion of services.


Components of a Hospital Market Analysis

The first component of this type of analysis is the overall size of the market. Volume is usually expressed in terms of the number of patients who need the service. There are several sources of data for this information. Some states publish statistics on hospital utilization in the state that can be parsed down to individual service lines. Private companies also compile hospital services utilization that is available for a fee. The Centers for Medicare and Medicaid (CMS) publishes its MEDPAR files. These contain state-level information on DRGs, discharges, payments, and total hospital days of all Medicare beneficiaries in a given calendar year.

The second major component of a hospital market analysis is the market area. Market areas can be primary and secondary. For instance, in an urbanized area, the primary market area may be the zip codes or census tracts within a 20-minute drive. In a suburban area, that may expand to zip codes within a 30-minute drive. And for rural areas, an hour may be a reasonable time for people to drive to a hospital. Secondary markets can be zip codes farther away, but the percentage of patients who would travel from them would be much lower.


More Components

A third major component is the exact nature of the service you want to offer. Even if you are analyzing the prospects for an entirely new hospital, you need to define the scope of services you will offer. If you are considering an expansion to a service line in an existing facility, demographics will be very important. For instance, a new cardiac catheterization laboratory would attract a heavier concentration of patients covered by Medicare. A new obstetrical service would be more useful to a population of younger people expecting to start families. Is this a service line that is expanding due to new technology or techniques? Are the payment methods likely to be stable for the foreseeable future?

A fourth component is competition. Who offers this service in your expected primary service area? What is their experience with the service? What is their reputation? If this service relies on referrals from physicians, are physicians in the service area willing to refer patients to your hospital?


How does a new Service Line fit in your hospital?

Does the new service line complement other services in the hospital? For instance, a neonatal intensive care unit may be an important addition to a hospital’s obstetrical service.

Do your existing strengths and weaknesses help or hinder a new service line? An analysis of your facility’s strengths, weaknesses, opportunities, and threats (SWOT analysis) can help you answer that question.

  • Evaluate things like financial, physical, and human resources when you consider internal strengths and weaknesses.
  • Assess market trends, demographics, and external relationships (especially referral sources) when you consider external strengths and weaknesses.

Finally, look for outside assistance if you do not have the time or talent to perform a hospital market analysis yourself.

When you need proven expertise and performance

Jim Hook, MPH

Mr. James D. Hook has over 30 years of healthcare executive management and consulting experience in medical groups, hospitals, IPA’s, MSO’s, and other healthcare organizations.