Regional Health Care Market Studies Identify Emerging California Trends

Overview: California Health Care Markets in Transition

In December 2012, the Center for Studying Health System Change (HSC) released two new regional market studies examining health care delivery in the San Francisco Bay Area and the Fresno region. Funded by the California HealthCare Foundation (CHCF) and drawn from interviews with local health care leaders conducted between 2011 and 2012, these reports provided a window into how two very different parts of California were adapting to economic pressures and preparing for the coverage expansions set to take effect under the Affordable Care Act.

The contrast was striking. The Bay Area, one of the most affluent metropolitan regions in the state, was undergoing rapid provider consolidation and building new organizational structures to manage care more efficiently. Fresno, one of California's poorest areas, was struggling just to maintain adequate provider capacity while lagging behind in health reform readiness. Together, the two studies painted a picture of a state where geography and income determined not only the quality of available health care but also the pace at which the system was evolving.

These reports followed up on a previous round of California market studies that HSC researchers had completed in 2008 for the same funder, allowing for direct comparisons of how conditions had shifted over the intervening four years.

San Francisco Bay Area: Provider Consolidation and Network Regionalization

Bay Area health care providers fared better during the recession than their counterparts in most other parts of California, largely because the economic downturn hit the region less severely. But even with that relative advantage, market forces and the looming effects of federal health reform pushed providers into significant organizational restructuring between 2008 and 2012.

A Growing Gap Between Hospital Haves and Have-Nots

Large hospital systems and a handful of independent facilities holding geographic monopolies in wealthy submarkets managed to strengthen their finances even during the recession. On the other side, county hospitals and smaller independent safety-net institutions that were already in trouble in 2008 continued to deteriorate. Several of those smaller safety-net hospitals faced the real possibility of closing their doors entirely.

Seismic Compliance Driving Hospital Construction

California's seismic safety requirements were forcing substantial hospital construction throughout the Bay Area. In a market that already had more inpatient beds than it needed, these building projects raised serious questions. Hospitals taking on large construction debt risked financial strain, particularly as health reform was expected to reduce payment rates for inpatient services and accelerate the shift of care delivery from hospital settings to outpatient and ambulatory facilities.

Shifting Provider Alliances and Regional Network Growth

Perhaps the most notable change since 2008 was the dramatic reshuffling of affiliations among physician organizations and hospital systems. Major providers were forming new alliances aimed at both consolidating their positions and expanding their geographic footprint. The Bay Area had historically operated as a collection of distinct local submarkets, but these new partnerships were driving a trend toward broader regional provider networks that crossed traditional geographic boundaries.

Early Accountable Care Organization Formation

Facing pressure to hold down insurance premiums, health plans and provider groups began teaming up in 2011 to create narrow-network accountable care organizations (ACOs). These arrangements gave providers global budgets and accountability for managing patient care across settings. Whether these early ACOs would succeed at reducing inpatient utilization and staying within their budgets remained an open question at the time of the study.

Safety Net Expansion and Innovation

The recession drove up demand for outpatient services among uninsured and low-income populations, prompting many safety-net providers to expand their capacity. Federally qualified health centers (FQHCs) were among the biggest beneficiaries, winning new federal grants that financed their growth. Smaller private clinics, however, were in a more difficult position and faced the prospect of merging with larger organizations to stay afloat.

One bright spot was the degree of collaboration occurring across Bay Area safety-net providers. Organizations participating in programs like Healthy San Francisco were making measurable progress in adopting the patient-centered medical home model, improving care coordination among different provider types, and rolling out other delivery system reforms. A strong culture of cooperation meant that when one part of the safety net -- say, county clinics -- adopted an innovation, it tended to spread quickly to private clinics and other providers in the network.

Fresno: Growing Demand Meets Limited Capacity and Slow Reform Preparation

The Fresno region told a very different story. It remained one of the poorest parts of California, and the recession had pushed Medi-Cal enrollment and uninsurance rates even higher. Population growth continued, though at a slower pace than during the early 2000s. The combination of rising demand and limited supply strained the area's already thin provider base, particularly when it came to physician availability.

Hospital Expansion Focused on Inpatient Beds

Unlike the Bay Area, where excess inpatient capacity was a concern, Fresno-area hospitals were actively building out their inpatient bed counts and expanding service lines. The goal was to relieve genuine capacity constraints while also competing more aggressively for commercially insured patients, a shrinking population in a region where public insurance and uninsurance dominated. Most hospitals had survived the downturn, but ongoing financial pressures remained a constant reality.

Physician Alignment Efforts Gaining Little Ground

Hospitals in the Fresno region were trying to build closer ties with physicians, including establishing medical foundations to recruit doctors to an area that had long struggled with physician shortages. But the results were underwhelming. Most physicians in the region continued to practice in independent solo or very small group settings and showed little appetite for formal alignment with hospital systems.

Clinic Capacity Growing but Still Not Enough

FQHCs and hospital-operated rural health clinics were adding capacity and improving patient access in underserved communities, but demand continued to outpace supply. These expansions created a secondary effect: growing competition for Medi-Cal patients in rural areas and intensifying competition among all provider types to recruit physicians to the region.

Health Reform Readiness Lagging Behind

The Fresno region trailed other parts of California in preparing for the coverage expansions scheduled under the Affordable Care Act. Fresno County was one of only a small number of California counties that had not yet committed to participating in the Low Income Health Plan (LIHP), an optional county-level program designed to provide health care services to low-income uninsured adults and eventually transition most enrollees to Medi-Cal once they became eligible in 2014. Tulare County, the second-largest county in the region, was set to launch its LIHP participation in January 2013, getting a late start compared to most of the state.

Broader Context: A Statewide Research Series

The San Francisco and Fresno reports were part of a larger series of CHCF-funded regional market studies covering California's major health care markets. Studies of Sacramento and the Riverside/San Bernardino area had been published in September 2012, with reports on Los Angeles and San Diego expected in the following months. Together, these studies offered one of the most detailed pictures available of how health care delivery and financing were evolving across America's most populous state during a period of significant economic and policy change.

Why These Findings Mattered

The side-by-side comparison of the Bay Area and Fresno markets highlighted several dynamics that would prove relevant well beyond California. The consolidation of providers into larger regional networks, the formation of ACOs, and the widening financial gap between well-positioned health systems and struggling safety-net providers were trends playing out in markets across the country. The Fresno findings, meanwhile, underscored the challenges that rural and economically disadvantaged regions faced in preparing for a major expansion of insurance coverage -- challenges that went beyond just signing up for new programs and extended to the fundamental question of whether enough doctors, clinics, and hospitals existed to serve newly covered populations.

The research was conducted by HSC, a nonpartisan policy research organization based in Washington, D.C., and affiliated with Mathematica Policy Research. HSC's mission was to provide objective, timely analysis of the nation's changing health system to inform policymakers and contribute to better health care policy.

Sources and Further Reading

California HealthCare Foundation (CHCF) -- Funder of the regional market studies series covering California health care markets.

CMS -- National Health Expenditure Data -- Official data on U.S. health spending trends.

Kaiser Family Foundation -- Health Costs -- Analysis of health care costs and spending.

Health Affairs -- Peer-reviewed health policy research.

Robert Wood Johnson Foundation -- Health policy research and programs.

Commonwealth Fund -- Research on health care costs and system performance.