Key Metrics for Measuring Market Share
Originally published in HealthMR’s Market Research Letter
Volume 1, Issue 2, March 2008
March 2008 – Feature Article
Market share is important to the overall success of home health and hospice providers. As we discussed in the previous issue of Healthcare Market Resource’s Market Research Letter, the larger your market share, the better the market’s perception of your organization and the more it drives your business growth and profitability. In addition, knowing your market share relative to your competitors can help you make better strategic decisions in expanding your business.
How do you determine your company’s market share? There are various methods used to measure market share in the home health and hospice industries, in various aspects of the businesses, including finance, sales, and operations. We define these major metrics, explain why they are important, as well as demonstrate how this information can be used to help move your business forward in today’s competitive market.
1. Revenue: The Ultimate Test of Market Share
Market share, as based on revenue within a defined geographic region, is expressed in the following equation:
Revenue Market Share = Total Revenue of Your Home Care Organization / Total Revenue Collected in the Region
A home care organization’s revenue is the true indicator of market share because not only does it reflect the cash inflow to a business, but it also has a direct influence on the provider’s financial health and ability to grow. This measure of financial market share also reflects a provider’s favorable position relative to their competition, such as obtaining longer patient stays and higher revenue-producing patient mix. One important way providers can grow revenue market share is by trading low-value patients for more high-value patients. By getting more therapy patients and fewer Low Utilization Payment Adjustment patients in home healthcare, for example, you could boost revenue market share without significantly raising cost of service or increasing patient level market share. The net result? Increased profitability.
2. Discharges: A Great Measure of Sales Effort Success
Market share, as based on discharges within a defined geographic region, is expressed in the following equation:
Discharge Market Share = Total Number of Discharges of Your Home Care Organization / Total Number of Patients Discharged in the Region
Traditionally, home care organizations have focused on admissions to determine the success of their sales efforts. Over time, however, measuring market share in terms of discharges is an effective measure of an organization’s ability to increase referrals and convert those referrals to patients. After all, discharges are simply delayed admissions.
The primary reason to look at market share based on discharges is that it best represents the impact of your organization’s sales activity. Sales efforts are primarily focused on generating referrals. Once a home care agency or hospice has a referral, the goal is to convert the referral into an admission, which will eventually become a discharge. Although there may be a lag effect between admissions and discharge, the impact of the lag is not important in determining this metric – unless new patients are significantly skewed towards longer lengths of stay or have unusually high recertification rates.
3. Operational Activity: The Best Measure of Organizational Capacity and Efficiency
Market share, as based on operational activity and measured in episodes (for home health agencies) or days (for hospice providers) within a defined geographic region, is expressed in the following equation:
Operational Activity Market Share = Total Episodes (Days) of Your Home Care Organization / Total Episodes (Days) Billed in the Region
Operational activity metrics drive the utilization of resources and are the unit of service upon which billings are based. The primary reason to look at market share based on units of service is that it is the best measure of an organization’s capacity. It can also be a good indicator for the need to increase operational efficiency. Compared to market share based on discharges, for example, operational activity metrics are higher for hospice providers that attract patients with longer lengths of stay. And, for home healthcare agencies, multi-episode patients are financially attractive because of the premium reimbursement associated with the third episode and beyond.
4. Patients Served: A Top Measure of Market Penetration
Market share, as based on patients served within a defined geographic region, is expressed in the following equation:
Patients Served Market Share = Total Patients Served by Your Home Care Organization / Total Patients Served in the Region
The patient base market share – expressed as patients served market share – demonstrates the ability of a home care organization to keep patients who may use their services several times during the year. If the patients served market share of a home care provider is higher than its discharge market share, it is not doing as well as the competition at keeping the “frequent flyers.” In other words, if a home healthcare agency captured 10% of patients served and 8% of discharges, they are not keeping patients on service for as many episodes of care. For a hospice provider, market share statistics of 10% patients served and 12% discharges indicate more patients are discharged “alive” and returning for service at a later date. This should prompt the question: “Why the revolving door?”
The primary reason to look at market share based on patients served is to understand how home care organizations contribute to the overall penetration of service in their geographical region. The number of patients served divided by the number of patients eligible provides a good measure of market penetration. This information can then be used to determine the best approach for increasing revenue and profitability. If penetration is low in a region, for example, home care organizations would benefit most by focusing on finding new sources of patients who have not received service in the past, rather than fighting for market share.
For health systems, offering home health and hospice services is part of maintaining a continuum of care and meeting their mission to serve the healthcare needs of a community. Thus, measuring patients served market share is an excellent means of seeing if it its achieving this goal.
We hope this has helped give you a better understanding of the various metrics involved in determining market share in the home healthcare and hospice industries. Click here or give us a call at 215-657-7373 for more information about how Healthcare Market Resources Inc.’s in-depth, local market data – Home Health Market Profiles, Market Development Reports and Hospice Market Profiles – can be used to help you determine and successfully grow your company’s market share.