Part 1 – How to Define a Service Area
The first step in any planning or marketing project for a hospital/provider is to define a service area. Before demographics or market share can be run, an appropriate service area must be applied. Defining a service area is both art and science.
There are several ways to define a service area. Which one is best? The answer is: it depends.
Regional Strategy Approach
With the regional strategy approach the facility defines a service area as large as possible. A facility may define its primary service area as 75 percent of its inpatients (and/or outpatients) and its secondary service area as the next 15 percent for a total of 90 percent patient origin. This is the “no ZIP Code left behind” definition. This service area definition will most likely incorporate a very large area and ZIP Codes where the hospital has very low market share.
Service Area defined by 75% and 90% of patient origin results in an over-expanded view
Two of the key areas where an overly large service areas cause issues are marketing and physician recruitment. Marketing departments with limited budget and staff struggle to make a meaningful impact over such a large geography. The large area also causes a lack of focus by your physician liaison potentially leading to missed opportunities with great partner physicians close to your facility. However, if a facility is looking at a regional outreach strategy or growing a specialty service line, a larger service area may be appropriate.
Stark-Influenced Definition
The 2004 Stark regulations relative to physician recruitment define a hospital’s geographic service area as the lowest number of contiguous ZIP Codes from which the hospital draws 75 percent of its inpatients. Some hospitals prefer to define their service area in this manner, essentially killing two birds with one stone – the service area for marketing/planning etc. matches the physician recruitment service area. However, what is ideal for physician recruiting may not be ideal for service line marketing and development. If 50 percent of Cardiology patients come from 2 ZIP Codes, but 10 ZIP Codes make up 75 percent of patients in contiguous ZIP codes, cardiology development loses geographic focus.
The Stark defined service area for a hospital is an easy solution, as you should already have these defined. Be careful when using tools out of convenience over selecting the right tool for the job.
Stratasan’s ZIP Code Recommendation
When using ZIP Codes, we prefer a more focused primary service area representing 50 percent patient origin with a secondary service area for the next 25 percent of patients. If a tertiary service area is warranted, then the next 15 percent of patients is sufficient. Sounds simple, right? As football analyst Lee Corso says, “not so fast my friend.” The percentages are science, now for the art.
Reducing your definition to 50% and 75% tightens your ability to know your patient base
When selecting ZIP Codes for a Primary Service Area (PSA) and Secondary Service Area (SSA) as defined above, gather five pieces of information: patient origin by ZIP Code, market share of top 75 percent of patient origin ZIP Codes (if available), population by ZIP Code, and the physical location of the ZIP Code on a map.
Select ZIP Codes for the PSA representing approximately 50% of patient origin (blue area), where the facility has high market share, and that make sense geographically. Select ZIP Codes for the SSA that represent approximately the next 25 percent of patient origin, where the facility has decent market share, and that make sense geographically.
What does “make sense geographically” mean? It means eliminating ZIP Codes on an “island” away from the rest of service area or adding “bullet holes” back in to fill in gaps inside the newly defined service area.
Removing the ZIP (37210) in the northeast on an “island” allows for even further tightening of your Service Area
An example of this is the removal of ZIP 37210 in the map above. The floating ZIP Code is usually a highly populated ZIP Code in a nearby larger city where your facility receives some patients placing the ZIP code in the top 75% of patient origin. However, your market share of that ZIP Code may be very low, 2% for example. You may want to omit this ZIP Code in favor of ZIP Codes closer to the facility where the facility has higher market share. An example is 65432 above. It is a very large ZIP Code in a metropolitan area south of our facility. There are facilities that designate dream ZIP Codes in their service, meaning those they dream of serving. This is fine as long as you don’t actually include these in your real service area, defined as those people you currently serve.
Moving Away from ZIP Codes
But that is not the end of the story. When patient data is available, a custom polygon shape file built from your patient address level geo-coded data can serve as the best solution for all parties involved.
Building a custom Market Service Area based on your patient data tells the most accurate story
The service area above is based on an algorithm between the hospital location and the actual addresses of their current patients. ZIP Codes are built to deliver mail. They have no real influence on where a patient decides to receive healthcare services (when they have a choice).
Large populations are included in your service area by using standard geographic boundaries like ZIP Codes
Overlaying this new approach with the tighter ZIP Code approach helps you visualize the difference.
Tighter Area + Market Share + Population
Using a tighter service area is a great first step into improving your service area definitions. But many times this is not the end of your journey. Adding a quick study of market share and population by ZIP Code keeps a facility from “majoring in the minors.” What we mean by this is focusing too many efforts on the wrong ZIP Codes.
For example, our fictitious Brentwood Medical Center facility gets a mere 3.8% market share of ZIP Code 67891. The other ZIP Codes in the primary service area warrant more attention because we already have better traction but have opportunity to grow. One could even argue that if a facility only gets 4% of a market, then it’s NOT your service area. You may WANT it to be your service area, but it isn’t. In ZIP 87654, our facility gets 27% market share. However, there are only 2,400 people in the ZIP Code. I would recommend focusing on another ZIP Code with more population first. In fact, I am arguing for focusing on two ZIP Codes highlighted in yellow first, then the remaining list in the PSA, other than 67891.
Arriving at Your Destination Definition
Based on all five pieces information, selecting your primary and secondary service areas (whether ZIP Code-based or Market Service Area) is much more precise.
Select ZIP Codes for the PSA that represent approximately 50% of patient origin, where the facility has high market share, and that make sense geographically. Select ZIP Codes for the SSA that represent approximately the next 25 percent of patient origin, where the facility has decent market share, and that make sense geographically.
What does “make sense geographically” mean? It means eliminating ZIP Codes on an “island” away from the rest of service area or adding “bullet holes” back in to fill in gaps inside the newly defined service area.
A floating ZIP Code is usually a highly populated ZIP Code in a nearby larger city where your facility receives some patients placing the ZIP code in the top 75% of patient origin. However, your market share of that ZIP Code may be very low, 2% for example. You may want to omit this ZIP Code in favor of ZIP Codes closer to the facility where the facility has higher market share. An example is 65432 above. It is a very large ZIP Code in a metropolitan area south of our facility. There are facilities that designate dream ZIP Codes in their service, meaning those they dream of serving. This is fine as long as you don’t actually include these in your real service area, defined as those people you currently serve.
The benefits of a well-defined service area are: better use of constrained resources, more focused resources in marketing and physician liaison budgets and personnel, focused development of service lines, and better defined competitors.