For the last two decades, competition has been front-and-center in our market-driven system. Hospitals must increasingly make measuring hospital competition a priority to make the right decisions around their markets. However, measuring the competition is complex and having the right data matters as much as pairing it with meaningful methodology and analytics.

Changes in healthcare toward a value-based care model are forcing hospitals to take a broader view of data and competitive analysis. Indeed, clinical, operational and financial measures around quality intersect, making analysis challenging.

Measuring the competition is critical for making decisions around:

• Service lines expansions, additions and closures
• Mergers and acquisitions
• Integrating new service lines post-acquisition
• Physician outreach, engagement and retention

It’s no secret that with value-based care, hospitals and health systems that provide high-quality care and stellar outcomes will rise above the rest and grow their market share. Market intelligence is critical to achieve the goals of value-based care with its quality, efficiency and outcomes measures.

Furthermore, as we continue to see both horizontal and vertical consolidation within the healthcare market, the number of healthcare systems may continue to become smaller within a geographic region, changing the nature of how competition is measured.

According to data reported on the U.S. hospital industry in a 2013 JAMA article (n = 4973):

• 60% of hospitals are part of a health system
• There were 3.2 hospitals within a system on average
• In 2011, there were 432 merger and acquisition deals
• 49% of hospitals owned physician practices
• 41% of physician practices were physician-owned

And… things continue to change, as those of us in healthcare know!

Approaches to Hospital Competitive Measurement

The Herfindahl-Hirschman Index

The HHI is a commonly-used measure of market concentration calculated by squaring the market share of each entity competing in a market and summing the resulting numbers. The Healthy Marketplace Index (HMI), created by the Health Care Cost Institute (HCCI) uses the HHI Index in its methodology. The HMI was developed as a series of metrics to assess the economic performance of health care markets, both across markets and within markets over time. The metrics are related to three aspects of the economic environments of healthcare markets, including price, productivity and competition.

A Relational Approach

An interesting approach to measuring hospital competition was put forth in 2002 by Min-Woong Sohn in 2002 called “A Relational Approach.” The approach conceptualizes competition as an attribute of a relationship between two hospitals and measures competition at the level of each pair of hospitals, the smallest unit at which competition can be measured. This approach can be used to identify the strongest competitor in a market and to estimate the strength of competition received from that competitor. This methodology can produce a ranked list of competitor’s strength and competition and how much competitive pressure a hospital receives from its local competitors.

Data Sources for Measuring Hospital Competition

The primary data sources for measuring hospital competition are:

• Discharge data
• Claims data
• Emergency room data
• Outpatient data
• Demographic data