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You may be oversizing the market for your next investment. Here's how to think of your TRUE opportunity.

January 3, 2019

    Appropriately sizing your market can mean the difference between a successful program and chaining an anchor to your growth aspirations. In today's tight margin environment, you need to be able to plan around what cases you can capture, rather that which ones are available to capture.

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    We helped McGrath Hospital (a pseudonym) estimate the volume of electrophysiology (EP) cases it could feasibly capture when opening a new EP lab. Originally, McGrath sized its market to around 1,102 EP cases, but, through the use of referral data from Planning 20/20, we were able to help the hospital more accurately assess its projected market capture from growth, local competition, and outmigration—and make a more principled decision about its program investment.

    Volumes resulting from population growth and shift

    We expect the demand for EP services in McGrath's market to grow by 209 encounters over the next five years. Since these patients do not currently receive EP care, they are not loyal to any particular provider and therefore, McGrath should be able to capture a large portion of these patients by opening a new EP lab. As a result, we project that this new lab would allow McGrath to capture 62 new patients from growth in demand, or about 30% of new patients. We made this estimate based on the relative difficulty of capturing organic demand growth.

    Volumes redirected from local competition

    Next, McGrath looked at the number of patients they could take from in-area competitor organizations. Since none of these organizations have a dedicated EP program and are offering only certain services through a rotating physician arrangement, we believe that McGrath can capture 30% of its cases by opening a new EP lab. Using physician referral data, we are able to determine that McGrath’s competition completed 139 cases of EP, which yields 42 cases that McGrath can expect to win after applying our assumed capture rate.  

    Volumes saved from outmigration

    Since no providers in McGrath's market have fully-fledged EP programs, we found that 757 patient encounters left their service area for other organizations last year. To understand how many of these patients McGrath could capture, we looked at the referral patterns of physicians in services that the member already offered, namely cardiac cath. Due to this pre-existing relationship, these physicians would probably prefer to refer to McGrath, should they offer these services. By using cath services as a proxy to see which physicians preferred to refer to them, we found that McGrath could expect to capture 252 EP volumes from physicians who prefer to refer to McGrath, out of the 757 total EP volumes that were being referred out of their market.

    This analysis results in a more informed data point about what is feasible for an organization to achieve with a new investment. Without taking into account its ability to capture patients, this organization would have seen a total market size of 1,102 volumes and believed it could capture some proportion of those. Instead, they are able to make a much more educated assumption about capturing about 360 of those patients and avoid overestimating the future volume of a new lab.


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