Using data to add a new practice site
How demographics can drive a fact-based approach.
By Kay Coulson
Kay Coulson, based in Boulder, Colo., is president of Elective Medical Marketing, a consulting firm that focuses on elective service line growth for surgeons. Her email is firstname.lastname@example.org.
Feeling cramped in your current office? Wondering whether to expand existing office space or open a satellite office in a nearby location? Is there a fast-growing community nearby where you feel a presence is warranted?
Often, a growing practice has several options for expansion. For example, if the practice has done well in a small city, it may look to locate a second office in another small city, perhaps 35 miles from the primary location. Or, a growing nearby suburban area might be a potential choice. Finally, a large but underserved semi-rural area with recently opened highway links could provide a suitable expansion target for long-term growth.
Demographic research can provide data to indicate whether a town like Loveland, Colo., (shown in these photos) can support another ophthalmology office.
COURTESY: VISITOR’S SERVICES, LOVELAND, COLO./ DON REILLY DJR PHOTOGRAPHY
Having several options to choose from makes it imperative for the practice to gather critical information regarding the existing competitive landscape in each potential location, plus age and income demographics. Culling information from multiple sources such as the US Census Bureau, local business organizations, provider-listing Internet sites, highway department traffic counts and other reliable sources I will explore here can be a productive exercise, but knowing how to use this information to increase the chances of success for your new location is far more important.
Here is a method I use to evaluate whether that coveted new location might be a good idea, or whether you have more growth potential in your current location. This isn’t intended to be an exhaustive analysis, but rather a back-of-the-envelope technique to help decide whether full-scale financial analyses, with commensurate consultants, costs and plans, are warranted.
Let’s create a hypothetical case. Assume you are a solo ophthalmologist with one office in Boulder, Colo. You would like to perform more surgery — specifically lens implant and LASIK surgery. You feel the market is fairly saturated with providers in your existing location, but you see a lot of new construction going on in northern Colorado. You’re thinking of opening a satellite office in Loveland, Colo., which is about 35 miles away. Is this a good idea?
First let’s look at the four-step evaluation process. Then we’ll solve our hypothetical case.
1. Determine practice draw radius
Physicians often believe patients will travel long distances to see them. Research from the dental profession indicates patients prefer to drive no more than 10 miles to a doctor’s office. I’ve found the radius to be two to 50 miles, depending on population density and provider concentration. This is a broad range, however, and overestimating the draw radius can severely impact future office profitability.
The best way to determine draw radius is to run a zip code sort of your current patient base. Run a report from your practice management system of patient zip codes for all visits in the past year, concentrating on those that deliver 80% or more of your volume.
Better yet, run the zip codes for surgery patients only. This is the core audience you want to attract, and the number of preoperative, surgical and postoperative visits impacts their willingness to travel. It will give you the most accurate draw radius range. Use a similar radius as a starting assumption for the new location.
2. Evaluate population density
Using US census data that matches your draw radius (www.census.gov), look at population size, age segments and growth trends for the new location. I focus on population between ages 25 and 40 for LASIK, and over age 60 for lens implants. I typically look back at the year 2000, the current year, and forward to 2030 to create a trend line. The size of the population segment under age 25 might influence you to include an OD on staff, add optical to the design or consider a pediatric specialist.
The number of patients ages 25-40 represent the core LASIK audience. Is this segment growing or declining?
Next, look at the patient segment between ages 40 and 60. This, to a certain degree, is ophthalmology’s no-man’s land. These patients are becoming presbyopic; aging out of LASIK, yet too young for cataracts. They generally do not have a high degree of pathology, so this is the group we can do the least for. How big is this segment vs. other segments?
Finally, the over-60 age group is the primary population visiting an ophthalmologist’s office. They need a variety of surgeries, have the most active pathologies, have the most complete insurance coverage and are willing to take action. How big is this group, and what is the growth trend for them in the targeted new location?
The American FactFinder tool on the US Census Bureau’s website (http://factfinder2.census.gov) lets you select just the information you’re interested in to answer these population profile questions.
3. Size up the competition
Next, we need to look at how many MDs and ODs already service the market you want to move into. Practice consultant John Pinto has published excellent benchmarks for desired density; one MD per 20,000 population, and two ODs per MD. With lower provider density the market is easier to break into. With higher density, the cost of marketing and the ability to attract referrals become more difficult.
I gather accurate MD and OD provider counts from www.Healthgrades.com. This is the best physician locator tool on the Internet because provider lists are based on insurance carrier lists. You can narrow providers to just those in your competitive area by using the “distance” sort feature. Type the address of a potential new location into the search box and see exactly how many MDs and ODs are within the target radius.
4. Calculate procedure potential
Lastly, we’ll combine census data with disease incidence to determine how large the surgical markets are in this new location. I tend to not worry about basic eye care. Routine patients will find you if you are a provider with the major insurance carriers. What will drive location success is the ability to attract key surgical volume.
I use Maureen Waddle’s (www.bsmconsulting.com) excellent share-of-market formulas to calculate just how much lens and LASIK surgery exists in the new market. Every physician has in mind the number of surgeries she hopes to capture from the new location, so knowing total market size can give you an idea of how reasonable it will be to capture this share.
If you must capture one-third or one-half of the total market to make this location profitable, you’re sure to provoke response from existing providers. The market size and share metrics provide a reasonableness test of whether the expense, time and aggravation of new office build-out are worth it.
ANALYZE THE METRICS
Now, let’s specifically analyze our hypothetical case, given these four criteria. Should I expand my Boulder location or open a satellite location in Loveland?
Determine office draw radius
Figure 1 A new practice in Loveland could expect ro draw patients primarily from a five-mile radius.
This draw radius covers most of the population of Larimer County, so that’s the census data we’ll use. You can split census data down to zip code, but getting future projections more granular than county data may be difficult.
Determine population size and age segments
Determine the population segments and growth trends using the American FactFinder tool from the US Census Bureau. This will give us population by age for Larimer County, Colo., for the years 2000 and 2012 (Figure 2).
Figure 2. Age data indicates that Loveland is a young market; a red flag for cataract surgery.
I plot this in a PowerPoint graph to help visualize the trend. Looking at this chart, I see the LASIK market segment (25-44) is relatively flat vs. 2000, which is not good given the decline in penetration of LASIK. The 60-plus age segment is growing, but not as much as the under-25 group. This tells me Larimer County is a young market, and there might not be the volume potential for LASIK and lens implants that I would need to see in the next 10 years.
Assess the provider mix
Figure 3. Provider density is not too daunting. Another practice could be accommodated.
Compare the current provider mix to the ratios John Pinto has provided to determine relative opportunity within this market.
In our hypothetical case, the market has room for a few more MDs and almost twice as many ODs. This means there is likely more routine care coming into MD offices than average and that the market will be more affordable than average to compete in.
Calculate surgical market size and required share of market
If more LASIK and lens surgical volume is the goal with this office expansion, how many cases exist in Larimer County, and what share would you need to capture?
A reasonable formula for LASIK eyes today at a projected 2014 US LASIK market of 575,000 eyes is 2.5/1,000 x 1.8 for the population between ages 25-54. The formula for lens implant eyes is 65/1,000 for the population age 65-plus, 3.5/1,000 for the population under age 65 (box, “Market Potential by the Numbers”).
What these estimates show is opening a new office might attract five to 10 LASIK eyes per month (10% to 20% share), certainly not enough to place a dedicated laser in the location.
We might be able to capture 30 to 60 cataract surgeries per month (again 10% to 20% share), which would potentially be the surgical lifeblood of the new location.
Market potential by the numbers
These formulas can help calculate the potential patient base for LASIK and cataract procedures.
Larimer County LASIK market:
121,543 people ÷ 1,000 x 2.5 x 1.8 eyes/person = 547
547 eyes annually
or 46 eyes/month for the entire county
Larimer County cataract market:
39,655 people age ≥65+ ÷ 1,000 x 65 eyes = 2,578 + 270,832 people age < 65 ÷ 1,000 x 3.5 eyes = 948
3,526 cataracts annually
or 294 cataracts/month for the entire county
Armed with these volume projections, you can now begin the financial modeling to see if a new office makes sense.
Following this four-step process, you and your office team can evaluate potential office expansion quickly and accurately, saving yourself time and money, and helping you gain confidence in the opportunity at hand. OM