Dollinger index

250 ENTREPRENEURSHIP

The question facing Dr. Petrillo is: How likely is EMC to achieve such a market share? This

is, of course, a complicated question involving both patient reactions and competitive reactions.

The competitive advantages of an EMC are convenient service without an appointment and

without the usual lengthy wait at a hospital emergency room. Lower overhead costs make EMCs

less expensive than hospitals for virtually any procedure. The combination of economy and con-

venience created a favorable response in the original EMC trade area and in other cities where

EMC-type facilities have been opened.

In terms of competition, this trade area is served by a general hospital with an emergency

department and eighteen physicians’ offices. Several of the physicians are specialists such as

obstetricians and are therefore not direct competitors of EMC. Still, 11 of the physicians are

either general or family practitioners, so their behavior will affect the EMC sales forecast. Faced

with the EMC’s entry into the market, how are these competitors likely to react?

In rapidly growing markets, the entry of a new competitor does not usually evoke a strong

response. The new entrant’s success is less a function of taking market share from existing com-

petitors than of meeting a growing demand. Yet only under the most optimistic growth projec-

tions is it conceivable that EMC could prosper by serving only new residents in the community.

EMC must attract patients from existing medical facilities. Physicians in private practice with

established patient relationships are not likely to be severely injured by the entrance of EMC.

However, they generally view advertising and aggressive promotion as inappropriate, so they are

likely to “bad-mouth” EMC and raise questions regarding the quality of care it offers. The hos-

pital stands to lose the most and can be expected to react more strongly. Hospitals have recently

adopted advertising programs, modified fee schedules for minor emergencies, and changed

staffing and triage activities to reduce waiting time in emergency departments. In short, the hos-

pital is in a position to negate the EMC’s competitive advantages.

In summary, EMC has very real competitive advantages over traditional medical care

100 200 300 400 500 600 700 800 900 1000

60,000

50,000

40,000

30,000

20,000

10,000

Fixed costs

$26.350

Patient volume/month

Variable costs

Total costs

BEP = 833 patients Revenue @

$37/patient

¾

EXHIBIT 6 .A. 7 Break-Even Analysis for EMC Facility at Logan