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A brief discussion of each of these eight steps is in order.

Service Area Demographics/Geography-- A "new market", whether it be new service line or satellite hospital, has a defined primary and secondary service area with specific demographic and geographic features. HealthCare Concepts has a unique approach to defining service areas which is more market driven than statistically driven, but regardless of the approach taken, the demographics and geography are going to yield a profile which is the first step in examining the new market. Obvious information may include population growth, household income, managed care penetration, age specific change, etc. Geographically, there may be some barriers such as rivers, lakes, mountains, or even major highways such as turnpikes which can form a boundary between service areas. The demographics and geography provide the first clues as to whether a new market opportunity is worth pursuit. Answers to questions such as: Is there a significant enough population base to support the service?; Would we be getting into the market too early or early enough to value from a demographic shift?; or, Is the population mix one that is consistent with the mission, vision, and values of our organization? Assuming that positive results are obtained, such as a young and growing market for obstetrics or an aging market for heart care, or an ethnic mix appropriate to a specific new subspecialty, the next step is market position assessment.

Market Position-- Your current market position is a good indicator of potential success and level of investment required to achieve your objectives. If you are currently the market leader in heart diagnostics, entering a new market involving cardiac rehabilitation or fitness will be boosted by the strength of the existing product line. However, if as a provider you have never had a pediatric inpatient unit but wish to explore that possibility, you may have little market position or strength from which to launch that endeavor. At a larger scale, the creation of a new satellite hospital often depends upon the hospital's current market position in the service area or geography where the new satellite would be placed. A 30% or higher draw in current market would be a strong indicator of the potential for providing a diagnostic or inpatient satellite facility. Obviously, market position alone can never be a singular determinant of action or decision-making regarding a "new market". Competition is another key ingredient.

Competition--- All industries which manufacture a product or provide a service must be highly sensitive to the competition when considering "new markets". If you are the 30% market share player in the previously mentioned service area considering a satellite facility, and you are the market leader in that satellite service area, it is a very different situation than if in a two-provider market your competition has a 70% share in that same service area. That would make them the clear market leader and provide a flag of caution in your endeavor to establish a new market, especially a satellite hospital, in that area. It could be a little like a destroyer taking on a battleship in naval combat. Opportunity for success would involve great peril. On the other hand, if you have a significant strength in behavioral medicine while your competition has disjointed or weak programs in that service line, then the opportunity to expand into that new market with a specific program could be quite successful. Competition in today's medical world comes from many sources and is not limited only to other hospitals. All forms of competition must be considered. Again, the assessment of competition can be viewed at many levels depending upon your purpose for approaching a "new market".

Barriers-- In addition to competition, there are other barriers which should be considered before pursuing a new market. These could be political involving local, regional or even state politicians or bureaucracies. If certificate of need law still exists in your state, then the ability to enter a market without opposition is extremely important. Opposition can be expensive and time consuming and, in some cases, completely destroy the intent of the effort. Community support/opposition is another barrier that should be considered. The organization's past reputation and affiliations are of significance when seeking community support for a new service line or physical presence in a new market. Often considerable groundwork must be done to prepare the community for acceptance of your vision. Capital can be a third major barrier to success. If the project cannot be sufficiently funded including appropriate staffing, start-up operations, and of course facility and equipment capital, a "new market" attempt will be programmed for failure from the beginning. Realistic expectations of capital requirements are very important. Many other barriers may occur depending upon the specific situation and ones antennas must be up to recognize them and realistically assess their magnitude as a part of the overall planning process. At times, physicians and the medical community may be a barrier to your endeavor.

Physician Support/Alignment--As the gatekeepers to most medical diagnosis, treatment, and care, physicians must be properly assessed in association with "new market" developments. HealthCare Concepts uses unique approaches to assessing or evaluating physician support based on data available in many states' general public records. In our world of managed care and contracts for the provision of health services, it is difficult to maintain an assessment of physician practice patterns and loyalties. However, it is extremely important to any new venture to know the degree of support that venture will have from the medical community. In some cases, it may require only a few loyal physicians in a specific discipline to assure success. In other cases, physicians may be the competitors or may at least provide barriers to success due to existing loyalties and other practice patterns not always obvious. A proper and complete assessment of physician support, or at least lack of opposition, can be critical to your decision process. At times, they may be partners in the effort, and that also requires appropriate assessment of the non-partner medical community. As gatekeepers, volume can often be completely controlled by the medical staff.

Payors/Reimbursement-- Another gatekeeper may be the payors in the community. In assessing a new market, one must be aware of the major players in that new demographic or geographical area. If contracts are awarded selectively by third party payors, or by shear age distribution (Medicare), you may find that when entering a new market there is a significantly different enrollment or distribution of patients than in your organization's current primary market. This could make or break your economic analysis of the success of the new product or service area. If Medicare business is considered a good payor category, then seeing an aging population in a new market area with an already high percentage of 65 and older residents could be a sign of an excellent opportunity for services such as cancer or heart. On the other hand, obstetrics in that same market might not prove highly successful in the long run. If you do not have contracts with one or more of the significant HMO's or PPO's in the area being considered, then contractual relations may be more important than service line expansion in the near-term strategy of the organization.

The last two assessments have more to do with pulling together information from the first six than they do with creating new unique information for review. After all, a wise decision regarding a new market is going to depend upon a blend of conditions and positions which will measure the opportunity for success. The first of these consolidated assessments is value.

Value to the Organization or Community-- One must consider the overall value to the organization in approaching the new market, the measurement of value to the organization will depend upon the organization's culture, mission, and vision. What may be highly valuable to a Catholic controlled healthcare provider may be of less value to a county hospital or for-profit venture. Measures of value involve meeting community need, contribution margin, and even the organization's management culture which could fall into one of four categories: inactive, reactive, preactive, or interactive. That culture can bring weight to the value of a proposed endeavor involving a new market. Preactive and interactive organizations tend to value expansions to service line or carving out a new market at a high level, sometimes at a level exceeding good financial analysis, as it is part of their culture to take risks in order to establish or maintain a leadership position. A few key issues which must be considered under the assessment of value are as follows:

• Cannibalization - To what degree does the establishment of this new market cannibalize existing business from your current location or service. If the answer is that significant reduction in volume will occur in the current active location, then a second assessment must be applied that establishes whether this is positive for the organization (already over capacity at current site) or negative if it would further drain capacity from an already struggling service.
• Contribution Margin is always important to assess in that decisions should involve priorities on behalf of the organization and any addition to or drain from contribution margin can affect other products and services being provided.
• Community Need is important for all healthcare organizations to keep on their value scale. Is there a health need in the community (this new market) that your organization is best suited to provide? If so, this contributes to the value assessment.

Other issues emerge under value assessment which take into consideration the many sub-factors of demographics, geography, market position, competition, medical staff culture, and reimbursement. When these factors are blended with the corporate mission and vision, a value analysis emerges which helps direct the decision making.

Finally, a combined resource allocation assessment should be put together which places the new market venture in the context of the overall healthcare provider organization's strategic plan. All organizations have limited resources and must make decisions on how to allocate those resources on an annual or quarterly basis. HealthCare Concepts uses a tool for assisting hospitals to assess the "greatest gain for investment" when comparing multiple opportunities. Gain does not, in this case, necessarily refer to financial gain but rather a gain in the context of opportunity. For example, a provider with a strong service line in obstetrics (75% market share) may wish to invest in changing its philosophy of care delivery in support of that service. This may be evaluated as a good idea. However, by contrast, the provider may have a 30% market share in pediatrics with an opportunity to establish a physician practice in a community not being served by the hospital. The pediatric investment might provide greater opportunity for market growth (greatest gain) when compared with the investment required in the obstetrics service line. Until some picture of the combined resource allocation of the organization can be created, a decision to pursue a singular opportunity or "idea du jour", cannot be properly placed in perspective or priority alignment for strategic purposes. In fact, this is the single greatest fallacy in most strategic decisions for healthcare organizations. There is a tendency to ignore the overall strategic plan, assuming the organization has one, and chase fresh ideas brought to the surface by enthusiastic department directors, physicians, or even competitors, and lose context of the need to allocate resources to advance the opportunities of greatest strategic value to the organization.

Healthcare Concepts recognizes the occasional need to pursue or seize an opportunity not otherwise anticipated. However, a pattern of such pursuit generally leads to chaos in overall planning, distribution of capital, and diminished morale within the organization. Such a culture is not healthy in the long-term although it may seem opportunistic in the short term. The criteria stated in this response is a much more organized and appropriate approach to take in the vast majority of situations where a "new market" is being explored. Where the hospital does not possess the tools or the time to complete an assessment of this nature, they should consider seeking assistance so that they maximize the use of the available and limited resources of the organization.

Copyright 2001. HealthCare Concepts, Falls Place Mezzanine 1, 531 South Main Street, Greenville, SC 29601, 864-370-4770