The growth in physician employment is creating some new challenges when defining service areas for physician manpower planning. Frequently, initial discussion with clients regarding the service area reveals the misconception that the analysis to support employment decisions must be based on regulatory compliant service area.
Not true. You are freed from those limitations. But employment decisions for the larger “strategic” market can carry increased financial risk, and it becomes critically important to consider other factors when defining that larger market. Trade patterns, competitors, market share, service line goals, etc. should play a role when defining the larger market and deciding how you will slice that market into manageable parts.
Not Either/Or, Analyze Both
Whether or not you currently recruit into employed situations, it will benefit you to analyze both the regulatory compliant and larger strategic markets. This is particularly germane for “urban” facilities that are limited by Stark III to a 75% service area. The reason is simple: While the 75% market is the core market, its analysis provides limited help in addressing growth goals, particularly when there are strong competitors within the core market. ”Rural” facilities, on the other hand, often find the allowable 90% regulatory market to be sufficient to their needs for private practice and/or employed recruits. However, a review of discharges and market share within the context of growth goals is recommended before making that determination.
Even if your organization exists within a market of staunchly independent practices and recruitment will be limited by regulatory compliant service area needs, analysis of the larger surrounding market provides valuable intelligence that can be helpful in defining opportunities for your private practices to expand through satellite offices, build referral patterns, and define other outreach activities.
Defining the Larger Strategic Market
There are increased risks when recruiting on the basis of needs documented for the larger market. As you move away from your core market you will likely be moving toward an outlying competitor’s market and going up against trade patterns and established provider/patient relationships. While that should not be a deterrent, it will be important to weigh those risks when developing the recruitment plan. Thoughtful definition of the larger market on the frontend can help you better manage that risk.
Our experience is that a market defined too large can reduce the value of the analysis. That can be mitigated to some extent by the inclusion of submarket analyses, which provide insight into the supply and net needs for smaller, more cohesive population groups. Submarkets might be defined at the county level, by smaller groups of zip codes, along trade routes, or bands according to travel distance, etc. Analyses based on travel distance can be particularly beneficial, knowing that travel distance is less of an issue for patients when seeking the services of a subspecialist than a primary care physician.
One of the biggest challenges faced when working with clients to define the larger market is the lack of a current strategic plan, which would provide guidance. In this situation, our recommendation is to consider the resources available and knowledge of the area to reign in the market to a manageable size, keeping in mind that the analysis represents a snapshot in time and will be revisited. In fact, with the frequent movement of physicians and increasing competition for those physicians, it is a growing trend to undertake analysis on an annual basis. And, as you build your geographic presence, year-to-year, the market will naturally expand.
Defining the Compliant Market
The compliant market is defined by Stark III regulations as the smallest number of contiguous zip codes that represent 75% of patient volume for “urban” providers and up to 90% of patient volume for “rural” providers. For many urban facilities, analysis of discharges by zip code finds one clearly defined compliant market. Occasionally, an option will present itself where peripheral zip codes represent identical patient volumes. In that instance, you will have choices to make. The deciding factors are usually which zip code presents greater opportunity and less risk.
One client located near a major metropolitan area had the choice of two zip codes for its compliant market, one north and one south. We recommended the southern zip code for two reasons: 1) While the northern zip code was a more populous zip code, an analysis of discharges per 1000 population found that zip code relating more to metro area providers, and 2) the southern zip code presented opportunity, fewer competitors and less risk.
Be Strategic in Defining Your Service Areas
The service area(s) sets the parameters of your analysis and will impact the quality of findings and opportunities. It is, therefore, critical to carefully consider how they are defined and chose well among your options, remembering that financial risk directly correlates.
Healthcare Strategy Group works with 30-40 clients a year developing physician needs analyses and manpower plans, and can bring that expertise to your organization.