Conducting a Market Analysis

December 10, 2009

Like it or not, given our weakened economy, medical practices no longer have the option of relying on self-referrals to guarantee that patients (and payers) will continue to line up at their doors.

Like it or not, given our weakened economy, medical practices no longer have the option of relying on self-referrals to guarantee that patients (and payers) will continue to line up at their doors. Those days are long gone. Today’s medical practice must be proactive, understand the market(s) in which it operates, and plan for the future if it is to thrive, let alone survive. Conducting a competitive market analysis is a critical first step toward the financial success of any medical practice.

An investment of time. Given the importance of understanding your market, a competitive market analysis should not be done between patients or on the fly. It takes preparation. It takes time and thought. It is, in my opinion, imperative; with the end result reflecting the amount of time and effort devoted to the exercise.

The tools and tasks. Practices often use the PEST (Political, Economic, Social, Technological) and/or SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses to understand their market base. PEST analyses provide a framework of macro-level factors of import (e.g., Medicare cuts) that may influence key strategies; SWOT analyses help identify/prioritize internal/external factors that bear directly on the organization and its objectives.

To conduct these types of analyses, I recommend the following steps:

  • Convene several physicians and key managers to do a PEST analysis together; I have found that “group think” works better in developing a PEST analysis. It is helpful to do the PEST analysis first to provide a framework for the SWOT analysis.

  • Have each of your physicians and management team, as well as key employees in different offices/departments, complete a SWOT analysis from their respective perspectives. Often, key insight is provided by those on the front line who communicate with other offices, hospitals, and patients. Combine these analyses, discarding duplicate and extraneous comments.

  • Pull referrals for two to three years. Look at trends by referring physician/mid-level provider, by group, by type of referral (e.g., by service type, by provider) and by each location. Look at this same data by referring group affiliations to hospitals/health systems. Increasingly acquisitions have an impact on referrals, as hospitals/health systems obligate their “owned” practices to refer to other “owned” practices.

  • Review payer mix for the past three years, paying special attention to any shifts of 5 percent or more for any payer. These shifts may be tied to major employer changes in insurance coverage and may guide you to new marketing opportunities.

  • Estimate your “value” to each major payer, i.e., what percent of a payer’s business within your specialty is done by your group. This step helps identify potential negotiating leverage as well as risk from having too many of your eggs in one basket.

  • Compare your practice to your competitors; a focused SWOT analysis works well here. Are your competitors growing/aging/aligning in ways that help or hurt your practice? Should you consider pre-emptive relationships with hospitals/health systems/other groups?

  • Think beyond traditional competitors. Are there others (freestanding ancillary centers, nonphysician providers, hospitals) impinging upon your traditional “turf”?

The data.

Having collected this valuable information, protect it! Share it with key stakeholders, but only under an assurance of confidentiality. This information is valuable to you but perhaps priceless to your competitors. Schedule a half-day retreat for your team to evaluate the findings and set a strategic course for the future of your practice.

Action and inaction both carry risks. Chart your course using hard data. Knowing your practices’ strengths, weaknesses, and competition - and acting on this knowledge - is a great way to improve your market position, and ultimately the financial success of your practice.

Lucien Roberts, III, MHA, FACMPE, is executive director of Neuropsychological Services of Virginia. He also consults with medical groups and health systems in areas such as compliance, physician compensation, negotiation, strategic planning, and billing/collections. He may be reached at lucien.roberts@yahoo.com.