San Francisco Bay Area: Health Care Providers Shift Allegiances as Regional Networks Emerge

Originally published by the Center for Studying Health System Change (HSC), a nonpartisan policy research organization that operated with principal funding from the Robert Wood Johnson Foundation.

CHCF Regional Markets Issue Brief -- December 2012

Authors: Ha T. Tu, Joy M. Grossman, Laurie E. Felland, Dori A. Cross

The California HealthCare Foundation (CHCF) commissioned HSC as part of the California Health Care Almanac initiative to carry out interviews across six California communities during 2011 and 2012. The goal was to evaluate shifts in health care organization, financing, and service delivery, with particular attention to how providers were getting ready for health reform implementation.

Bay Area Providers Fared Better Than Most During the Recession

Health care providers throughout the San Francisco Bay Area managed the economic downturn with greater resilience than their counterparts in most other parts of California. The region's economy did not contract as sharply as it did in the Central Valley or Inland Empire, which gave local hospitals and physician groups a degree of financial insulation. Nevertheless, ongoing market pressures and the anticipated consequences of federal health reform drove substantial organizational restructuring in the provider sector since researchers last examined the Bay Area market in 2008.

Growing Financial Divide Among Hospitals

The gap between financially secure and financially distressed hospitals widened during the study period. Large hospital systems, together with a handful of independent facilities holding geographic monopolies in wealthy submarkets, managed to strengthen their already solid bottom lines even as the recession persisted. On the other side of the ledger, most county-operated hospitals and smaller independent safety net institutions that were already under strain in 2008 continued to face serious fiscal challenges, with several confronting the real possibility of shutting their doors.

Seismic Compliance Drives Hospital Construction

California's seismic safety mandates triggered a wave of hospital construction projects across the Bay Area -- a region already viewed as having more inpatient capacity than it needed. Both active and planned building projects raised concerns on two fronts: whether certain hospitals could shoulder the resulting debt loads, and whether new construction would add to an already excessive supply of inpatient beds. These worries carried extra weight as health reform moved closer to implementation, since payment rates for inpatient care were expected to fall and the migration of services from hospital settings to outpatient facilities was expected to pick up speed.

Shifting Provider Alignments and Regional Network Growth

Since the previous study round in 2008, sweeping changes had taken place in how physician organizations -- and in some instances, hospital systems -- aligned with one another. Major providers formed new partnerships as they pursued both consolidation and broader geographic coverage. The upshot was a clear movement toward regionalized provider networks that spanned the Bay Area, a market that had long operated as a collection of separate geographic submarkets with distinct competitive dynamics.

Plans and Providers Collaborate on Accountable Care Organizations

Facing mounting pressure to hold insurance premiums down, health plans and providers in the Bay Area began partnering to establish narrow-network accountable care organizations (ACOs) starting in 2011. These arrangements aimed to coordinate care delivery and control spending through global budgets. At the time of the study, it was too early to gauge whether these new ACOs would prove effective at managing patient care -- particularly at bringing down inpatient utilization rates -- or whether they could stay within their predetermined spending targets.

Safety Net Capacity Grows, but Small Clinics Struggle

The recession pushed more people toward safety net providers for outpatient care, and many of these organizations responded by expanding their capacity to meet rising demand. Federally qualified health centers (FQHCs) were the biggest beneficiaries, winning new federal grants that underwrote their growth. Smaller private clinics, by contrast, found themselves in an increasingly precarious position and faced the prospect of having to consolidate with other clinics simply to remain operational.

Stronger Safety Net Collaboration on Care Delivery

Safety net providers across the Bay Area -- including those participating in the Healthy San Francisco program -- were making meaningful progress on implementing the medical home model, strengthening care coordination among different types of providers, and rolling out other care delivery improvements. A strong collaborative culture within the safety net meant that when one category of provider, such as county-run clinics, adopted a new practice or innovation, it spread quickly to other parts of the safety net, including private clinics. This cross-pollination of ideas and practices helped the Bay Area's safety net function more cohesively than in many comparable markets.

Context Within HSC's Broader California Study

This San Francisco Bay Area report was one of six regional market studies published as part of the California Health Care Almanac project. The other five communities examined were Riverside/San Bernardino (September 2012), Sacramento (September 2012), Fresno (December 2012), Los Angeles (January 2013), and San Diego (January 2013). Together, the six reports provided a detailed picture of how California's diverse health care markets were evolving in the lead-up to major health reform provisions taking effect in 2014.

The full San Francisco Bay Area report was originally available on the CHCF website.

Sources and Further Reading

AHRQ -- Federal health care quality research agency.

CMS -- Quality Initiatives -- Federal quality programs.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research.

Commonwealth Fund -- Research on health care quality.

California HealthCare Foundation -- Funder of the original California regional market studies.