Emerging California Health Care Market Trends

New Los Angeles and San Diego Regional Market Reports Available

Media Advisory
Jan. 23, 2013

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—New market studies of the Los Angeles and San Diego areas conducted by the Center for Studying Health System Change (HSC) offer a look at emerging trends, including preparations for health reform.

Funded by the California HealthCare Foundation (CHCF) and based on interviews with local health care leaders in 2011-12, the regional market studies assess how the organization, financing and delivery of health care are changing across the state. In recent months, CHCF has published regional market studies of Sacramento, Riverside/San Bernardino, San Francisco and Fresno.

Los Angeles: Fragmented Health Care Market Shows Signs of Coalescing

Illustrating the fragmented nature of the Los Angeles (LA) health care market, scores of hospitals and numerous physician practices are scattered across a vast and congested area that is home to 10 million people. With the exception of Kaiser Permanente, hospital systems and physician organizations tend to operate in isolated silos without an extensive footprint across the county. Key developments include:

• Intense competition for physicians. Physician organizations, hospitals and others are seeking new, tighter affiliations with physicians to gain patients, compete with Kaiser Permanente and prepare for health reform.
• Growing interest in affiliations among hospitals. Although the market is generally considered to have excess inpatient beds, some hospitals face capacity constraints. Hospitals are starting to consider affiliating or even merging with each other, in part to help adjust capacity, expand referral bases, organize service-line strategies and improve care coordination.
• Physician organizations leading integration efforts. Given their experience in accepting financial risk for patient care, LA physician organizations are spearheading efforts to develop accountable care organizations (ACOs). For example, the two largest physician organizations, HealthCare Partners and Heritage Provider Network, are participating in Medicare ACOs, and HealthCare Partners is working with Anthem Blue Cross in a commercial ACO. 
• Fresh leadership for the county’s safety net. New health department leadership is redesigning the extensive county-operated delivery system and collaborating with private hospitals and community health centers to help both public and private safety net providers remain financially viable, use existing capacity efficiently to serve more patients and improve patient care as the county prepares for national reform.
• Safety net interest in ACOs. Unlike other markets studied, there has been substantial ACO activity for the Medi-Cal population, with two ACOs under development that include safety-net hospitals, community health centers and Medi-Cal health plans.

The Los Angeles report is available at http://www.chcf.org/publications/2013/01/regional-market-los-angeles.

San Diego: Health Care Providers Expand Capacity as Competition Increases for Well-Insured Patients

San Diego health care providers generally fared well during the economic downturn, which was not as severe in San Diego as in some other areas of California. Key developments include:

• Substantial hospital construction to meet state seismic requirements and improve competitive positions. In a market historically considered to have inadequate inpatient capacity, current and planned hospital construction has eased concerns. Indeed, as health reform moves forward, there are some concerns that the market may now be moving toward excess capacity for some services and in some geographic submarkets.
• Intensified provider competition in well-insured areas. Hospitals are investing in lucrative service lines, including cardiovascular care, cancer care and women’s and children’s services, particularly in more affluent submarkets in the northern region of the county. Physician organizations that are tightly aligned with hospitals are buying practices in competing hospitals’ service areas to shift patient referrals to their aligned hospitals.
• More limited-network insurance products. Competition from Kaiser Permanente and pressure to offer more affordable insurance products are leading plans and providers to collaborate on an ever-increasing number of new lower-premium commercial products that feature a limited-provider network. Sharp HealthCare—the area’s low-cost provider that has historically embraced capitation, or fixed per-member, per-month payment—is at the center of many collaborations, including ACOs formed with Sharp-affiliated physician organizations.
• Expanded safety net capacity. Facing increased demand for outpatient services because of the economic downturn, many safety net providers expanded capacity. Most notably, San Diego’s extensive, well-established group of federally qualified health centers (FQHCs) was able to use new federal grants to finance expansions and upgrades of existing facilities. Hospitals providing substantial safety net care in economically struggling areas of the county also expanded some services, particularly emergency department (ED) capacity.
• County government takes more active role. Long regarded as having a weak commitment to the safety net, county officials have made health and health care a higher priority in recent years. They approved a 10-year strategic plan aimed at improving the delivery system serving low-income people, including efforts to establish patient-centered medical homes in FQHCs, integrate mental health care with primary care and coordinate health care with other social services.

The San Diego report is available at http://www.chcf.org/publications/2013/01/regional-market-san-diego.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.