By Jared Heim
January 25, 2016
As a health system you have a good sense of what your service area is, right? Major health systems often employ analysts who track patient demographics. But if you don’t have real-time insight into your true service area, or if consolidation or acquisitions are causing shifts in your service area, now is the time to start tracking and analyzing it in a more robust manner. Why? Because when you understand your service area, you can be sure you are capturing the maximum market share and, thus, maximum revenue possible.
To determine your service area, you want to answer the question: who do you serve now? This can be coupled with the question: who will you be serving in the future?
Map Your Service Area
To discover your current service area, you should look to patient data to draw an initial outline. Your primary service area is typically where 75-80% of your inpatient discharges came from. You also can have a secondary service area that typically includes an additional 5-10% of your inpatient discharges. Everything left over is what we call “in migration” – those patients who were visiting town or came from other zip codes not typically served by your facilities. Although there has been a distinctive shift to outpatient procedures, inpatient volumes are still a readily available resource to provide accurate insight into your service area.
Once you have your service area defined, you should review a map to identify if there are any “gaps” of surrounding zip codes that were not included because the admission rates from those zip codes were low. Overall, this process can reveal unique patterns of patient utilization. For example, a metro health system may be drawing patients from a rural county, despite that county having a hospital of its own.
To dig in deeper to this, your state’s Hospital Association has data on individual facilities that should be available to you. Their data allows you to discover competitor volumes and also gain insight into why certain zip codes in your service area may have low admission rates.
Use Analytical Tools to Estimate Patient Utilization and Market Share
Market estimators enable you to evaluate patient utilization, market share and predict future growth trends. One way to generate this data is through a subscription to analytical software. These analytical tools can be utilized to generate inpatient/outpatient market estimates and patient utilization rates based on claims data, geography and zip codes. This data looks at historical usage rates and incorporates future changes in populations based on market demographic information. More importantly, the market estimators can identify growth in service lines either currently offered, or that will be added in the future. This can also help facilitate discussions with payors regarding reimbursement strategies such as bundled payments for services or collaborative agreements with other facilities within an accountable care organization.
Understand the Payor Mix
Once you have a clear definition of your service area and how it may change in the future, it’s important to understand the respective payor mix within that area. The Affordable Care Act (ACA) has changed the payor mix for most health systems. There are generally three payor buckets: government (Medicare/ Medicaid), commercial insurance and self-pay. In areas with significant volumes of self-pay patients (the uninsured), hospitals and health systems have often taken losses on self-pay revenue.
Now, previously self-pay patients can obtain coverage either through the health insurance exchanges or through expanded Medicaid programs (35 states have expanded Medicaid to qualify more people). The ACA also provides subsidized insurance options through the health insurance exchange. All of this can generate more pay for providers (certainly more than what we have seen previously). Simply put, there should be more money available for hospitals and health systems to capture as revenue due to the changes in insurance policies and coverage.
Help People Get Insured
It can also be worthwhile for hospitals and health systems to invest in efforts to educate patient populations and communities on the various insurance options included either in the health insurance exchange or through expanded Medicaid coverage. Dedicated staff and patient navigators that help people understand their options through the exchanges (including premium subsidies that are available) and obtain the proper insurance coverage can result in higher profit margins. Many people qualify for Medicaid, but are not aware of it and do not apply. Previously, Medicaid was difficult to obtain and often required a monthly enrollment. The ACA has changed that to an annual enrollment.
Knowing the market in your service area, maintaining a strong understanding of it and connection to it, and identifying opportunities to gain market share can lead to improved financial return. With planning and patient education, you can maximize your revenue potential from your market. All of this will help your organization take proactive measures to help offset the negative impacts of future reimbursement pressures.