How much competition do you really have? And is it enough to serve the market? This “system capacity” measure is another one of those fundamental metrics that affects organizational performance. In this context, service capacity is essentially the “maximum amount” of a service that can be delivered over a period of time. System-wide service capacity analysis shapes strategy decisions (creating a service in an “under-capacity” market) and drives market rates (falling rates in markets with excess capacity and premium prices in areas of shortage). Capacity is also an issue on an individual organizational basis with regard to economy of scale: what is the minimum amount of capacity for a service that your organization can deliver at the prevailing market rate and still have an acceptable margin?
How does your executive team estimate the system capacity of its current service line? This is part of standard market analysis usually conducted from a service line perspective. Identifying services lines – by service, consumer type, and geographic area – is the first step. From that base, identifying competitors and their “capacity” creates a fuller picture of the market.
The process is slightly different depending on the service line. For services delivered by individual clinical professionals, state licensure lists are often a place to start. Here in Pennsylvania, you can get a list of licensed professionals and programs (including, occupational therapists, physical therapists, psychologists, and social workers). These lists typically include details like license number, name, address, county, certification and expiration date. Here are some state examples for licensure lists:
With that list count, you can estimate “visits per year” per licensed professional in the geographic area of interest and estimate capacity.
For other outpatient/non-residential services, capacity estimates are a little more complicated. Typically, your analysis needs to identify competitive organizations and estimate their capacity (via staffing or revenue) for any particular service line. This can involve web research, surveys, or purchase of proprietary datasets. Estimating the capacity of facility-based services (residential programs, group home services, hospital services) tends to be easier because of state licensure requirements. Licensure lists (such as this one from the Montana Department of Health and Human Services, and these hospitals licensed by the North Carolina Department of Health and Human Services) provide the licensed number of beds for a particular service.
Capacity analysis is a quantitative exercise – and is irrespective of quality measures, consumer preference, rates, and other very relevant factors. But when paired with estimates of consumer demand, capacity estimates are a key factor in both rating markets for developing new services – and for informing your negotiations with payers. A service provider organization is going to have more leverage on rates in a market where service capacity is limited – and very little in a market with an oversupply of provider organizations. More on that tomorrow.