How to Combine Market Data With Financial and Operational Evidence

By Two Pillars & Co Advisory Group · Sources checked October 2026

Why do decisions need all three kinds of evidence?

Hospitals often make decisions on one kind of evidence. A market study shows strong demand, so a service is added without testing the economics. A financial model shows a positive margin, so a line is expanded without checking staffing. An operational plan is sound, but the market is too small. Each failure is common and avoidable. Combining the evidence forces the question each source cannot answer alone.

What does the market evidence provide?

Market evidence sizes demand, share and flow. It defines the area, using constructs such as the Dartmouth Atlas hospital service areas and referral regions,^[3] counts utilization by area residents from all-payer discharge data such as HCUP and New York’s SPARCS public files,^[1][2] and estimates the hospital’s share, leakage and competitors. It also reveals trends such as age mix and care-setting shifts.

Its output is a range of expected volume for the hospital under stated assumptions: for example, 300 to 500 additional cases a year within three years.

What does the financial evidence add?

Financial evidence converts volume into money. Use internal data to estimate net revenue per case by payer, based on contracts and Medicare rates; direct variable cost per case; step-fixed costs such as staffing blocks; capital; and overhead treatment. Public data cannot supply these, as explained in the article on public data and profitability. Medicare, for example, pays by diagnosis-related group using prospectively set base rates adjusted by wage index and other factors, so revenue per case is known only after applying the hospital’s own wage index and add-ons.^[4]

Output: contribution per case, break-even volume and the cumulative cash requirement under each scenario.

What does the operational evidence add?

Operational evidence tests whether the hospital can deliver the volume with the quality, access and safety patients and regulators expect. It covers staffing availability and cost, beds and procedure rooms, equipment, scheduling and turnaround, supply chain and information systems. Often the binding constraint is people: if the plan needs two more anesthesiologists and none can be recruited, the volume will not materialize.

Output: a capacity plan showing when each constraint binds and what it costs to relax it.

How do you combine them?

Build a single model with three linked parts. The market part gives the volume range. The financial part converts volume into contribution. The operational part sets the maximum volume deliverable and the cost of reaching it. Then run at least three scenarios: base, downside (lower share, slower ramp, worse payer mix) and upside. Show the decision in terms of expected contribution, worst-case loss, break-even timing and the conditions that would trigger a stop or a pivot.

An invented example: market data suggest 400 recapturable cases; financial data show contribution of $3,500 per case at the expected payer mix and $1.2 million in annual step-fixed costs; operations show that a single operating room team can handle 350 cases a year. Break-even volume is 343 cases, just under capacity. The decision is marginal: a modest share shortfall eliminates profit, and a second team would be needed beyond 350 cases. The numbers are illustrative only. The interactive example below shows such a model.

Frequently asked questions

What to do next

1. Define the decision and the volume range from market data.
2. Convert volume to contribution using internal payer and cost data.
3. Test capacity and staffing limits.
4. Run base, downside and upside scenarios and set review triggers.