Annexing the neighbor's backyard increasing service area: Doylestown Hospital in Doylestown, Pa., developed a large-scale, innovative ambulatory care center on the southern fringe of its service area

Healthcare Financial Management, April, 2005 by Alan M. Zuckerman

The center has drawn millions of dollars of new business from outside its traditional service area, and essentially extended Doylestown Hospital's primary service area five miles to the south.

> AtlantiCare Regional Medical Center, Atlantic City, N.J., was a sole community hospital when it built a small satellite hospital about 10 miles to the west about a5 years ago. The satellite blossomed into a major tertiary facility and has significantly expanded the system's market into the rapidly growing communities in a 200-square-mile area to the west of the original hospital.

> University of Iowa Hospitals and Clinics, Iowa City, Iowa, has established dozens of outreach clinics throughout the state, so that 75 percent of its inpatients originate from outside its central location in Iowa City and Johnson County, allowing a large, tertiary teaching medical center to thrive in a rather sparsely populated region.

How did these healthcare organizations expand their service areas when the odds were not necessarily in their favor?

My February column addressed the opportunities for revenue growth in organizations' backyards by increasing market share. This column moves from the mundane to the more glamorous--expanding the service area and enlarging the organization's sphere of influence. Expanding the service area inevitably infringes on the turf of one or more other providers, and can trigger aggressive competitive responses, especially in urban areas. Although this strategy has great appeal to many providers, it is not for the faint of heart or those without the resources to weather the fierce competitive battles that can arise.

For organizations that decide they are prepared to cope with the ramifications of encroaching upon another provider's turf with the potential payoff of increased revenue, there are four approaches that can be used.

Affiliating with or Acquiring Other Providers

This "buy" versus "make" approach allows providers to target growing service areas through affiliation or acquisition arrangements. The decision to pursue this approach is usually driven by a sense of urgency or a window of opportunity, a lack of internal resources to readily expand the service area, and a strong complementarity among the organizations involved in the affiliation or acquisition.

A wide range of affiliation opportunities exists with varying degrees of operational and organizational integration and control. Strategic alliances, service-specific affiliations, shared services organizations, joint ventures, management contracts, joint operating agreements, mergers or acquisitions, and cosponsorships are among the most common affiliation arrangements among healthcare providers.

Healthcare organizations considering affiliations must carefully evaluate clinical and financial implications, governance and management issues, cultural compatibility, impact of quality of care, access, and market position. There are also the risks associated with venturing into unrelated geographic or service markets. Successful growth may be harder to achieve the further afield (geographically or by degree of service relatedness) the new venture is. Laurel Health System, a not-for-profit, integrated health and human services organization headquartered in Wellsboro, Pa., is a nationally recognized model of how acquisition and affiliation can create a strong and successful network of healthcare services across a large service area.

Developing Highly Specialized Services

Highly specialized services can draw patients from beyond a hospital's or system's traditional service area, particularly if they are more convenient or accessible than other alternatives. Specialized services can also create a halo effect by attracting more patients for all services and generating increased volumes in ancillary tests and procedures.

Services that can increase the regional draw of patients include angioplasty, pediatric subspecialties, specialty inpatient rehabilitation, and neuroscience programs such as spine centers, headache clinics, and stroke centers. The lack of well-organized programs for services such as these increases the probability that initiating a new service will attract patients from outside the service area. High Point Regional Health System in High Point, N.C., has used its heart and neurosciences centers, among other specialized programs, to draw patients from well beyond its original primary service area. High Point has developed a number of centers of excellence that have effectively redefined and greatly expanded the area it serves.

Enhancing Community Outreach Programs

Both marketing existing services to populations outside the traditional service area and developing programs to reach new patient populations can increase the service area for healthcare providers. This approach can include screening and educational programs in schools, senior centers, and other community centers, and linking with community partners to identify and address unmet health needs. Community outreach efforts have the added benefit of often being the first to identify new and growing needs of ethnic populations.