Hospital Intelligence Brief
How Hospitals Can Evaluate Service Demand in Their Markets
Demand is not the number of people in a market. It is the number who need a service, can reach it and will choose it. Each step can be estimated from public data.
Short answer
To evaluate service demand, define the market area, count current use of the service by area residents from discharge data, adjust for population growth and aging, account for access and competition, and compare the result with the hospital’s capacity and share. Public sources such as HCUP and SPARCS provide the counts; the Dartmouth Atlas provides geography.[1][2][3]
What does “demand” mean for a hospital service?
Hospitals use the word demand loosely. It can mean the number of people with a condition, the number who seek care, or the number who are treated at a particular hospital. These are different. Need is the clinical requirement in a population. Demand is the care people actually seek. Utilization is the care actually delivered. And the hospital’s share is the part it delivers. Good analysis separates these because the strategy for each gap is different.
How do you define the market?
Start with geography. The Dartmouth Atlas of Health Care defines hospital service areas as local health care markets for hospital care, consisting of ZIP codes whose residents receive most of their hospitalizations from hospitals in that area. It defines hospital referral regions as regional markets for tertiary medical care, each containing at least one hospital that performs major cardiovascular procedures and neurosurgery.[1] Common services like general medicine and obstetrics are local; complex services like neurosurgery are regional.
Choose the geography that fits the service. A hospital considering a new orthopedic program might use its primary and secondary service areas, defined by the share of its patients that come from each ZIP code. One considering a regional cancer program would use a larger area.
How do you count current use?
Use all-payer discharge data. The Healthcare Cost and Utilization Project provides encounter-level data from 1988 and is built from state data organizations and other partners.[2] In New York, the SPARCS public files give inpatient discharges by facility and by county of residence, and annual files with diagnosis groupings, procedure groupings and severity.[3] Group discharges by service line, for example by APR DRG or major diagnostic category, and by patient residence. The result is current utilization by area residents for each service.
Convert to rates. Divide discharges by population to get a use rate per 1,000 residents, ideally by age group. Compare the rate with other areas or with the state average. A low rate may reflect healthy residents, access problems or leakage; a high rate may reflect need, supply or practice patterns.
How do you project future demand?
Apply current use rates by age to projected population by age. Aging populations use more inpatient care. Adjust for care-setting changes: MedPAC reported that Medicare fee-for-service inpatient stays per capita remained nearly 15 percent below 2019 levels, and that about one-quarter of that decline came from the shift of knee and hip replacements from inpatient to outpatient settings after they were removed from the inpatient-only list.[4] A projection that ignores such shifts can overstate inpatient demand.
Add a range. Present low, medium and high scenarios, since population and care patterns are uncertain. And revisit the projection yearly.
What else shapes whether demand reaches the hospital?
Access and competition. How far must patients travel? How long are waits? Which competitors serve the same area, and with what capacity, quality and payer contracts? A market with large demand but strong, well-located competitors may be harder than one with moderate demand and no alternative. Compare the hospital’s capacity to the demand it could serve. Where demand exceeds capacity, the hospital loses patients despite need; where capacity exceeds demand, cost per case rises.
Finally, validate with local knowledge: talk to physicians, payers and community leaders. The interactive example below uses invented figures to show how need, use and share relate.
Frequently asked questions
How do hospitals estimate demand for a service?
By defining the market area, counting current use by area residents, adjusting for population and age trends and care-setting shifts, and comparing with capacity and competition.
What is a hospital service area?
A collection of ZIP codes whose residents receive most of their hospitalizations from the hospitals in that area, per the Dartmouth Atlas.[1]
Where can I get hospital discharge data?
AHRQ’s HCUP databases and, for New York, the SPARCS public use files on Health Data NY.[2][3]
Do shifts to outpatient care affect demand?
Yes. MedPAC noted that about a quarter of the decline in inpatient stays per capita since 2019 came from knee and hip replacements moving to outpatient settings.[4]
How far ahead should a demand projection look?
Typically five to ten years for capital decisions, with scenarios, revisited yearly.
What to do next
- Define the primary and secondary service areas for the service.
- Count discharges by area residents and compute use rates.
- Project demand with age and care-setting scenarios.
- Compare demand with capacity and competitor position.
Optional · interactive example
See it in an interactive example.
Hospital Market Explorer: a market dashboard comparing a five-hospital market by service category, an outmigration capture scenario, evidence-linked answers from APIS, and a sample brief, all on synthetic data.
The experience below uses a synthetic five-hospital market built to look like public discharge data. It is not New York data, or data for any real market, and every figure is illustrative. The counts are discharges, not dollars.
- Select the Obstetrics row. Compare each hospital’s discharges and share in that category.
- Switch the period selector between the full year and a single quarter. Does the picture hold?
- Ask APIS “Which service categories are losing share?”
Explore Your Hospital’s Opportunities
Two Pillars can help hospital leadership investigate market, financial, operational and strategic questions using relevant organizational data, public information and a structured assessment process. A good first step is a market scan that uses public discharge data to show where your service area’s patients go and which gaps are worth a closer look.
Sources
- Dartmouth Atlas of Health Care, Glossary. Accessed October 2026.
- Agency for Healthcare Research and Quality, HCUP-US Overview (Healthcare Cost and Utilization Project). Accessed October 2026.
- New York State Department of Health, Hospital Inpatient Discharges (SPARCS De-Identified): 2024. Accessed October 2026.
- Medicare Payment Advisory Commission (MedPAC), Report to the Congress, March 2026, Chapter 3: Hospital inpatient and outpatient services. Accessed October 2026.
Sources checked October 2026. This guide is general information for healthcare leaders and is not legal, financial, clinical or compliance advice. Figures and rules are cited to the sources below and may have changed since they were accessed, so confirm anything you rely on against the current source. Two Pillars & Co is independent of the organizations cited. See our editorial policy.