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

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 -- January 2013

Authors: Ha T. Tu, Joy M. Grossman, Peter J. Cunningham

The California HealthCare Foundation (CHCF) commissioned HSC as part of the California Health Care Almanac project to conduct interviews across six California communities during 2011 and 2012. The research assessed how the organization, financing, and delivery of health care were evolving, with particular attention to how providers and plans were preparing for health reform implementation.

San Diego's Hospital-Centered Delivery System

San Diego's health care delivery system continued to revolve around hospital systems that maintained tight alignment with large medical groups. This organizational structure set the market apart from some other California regions where the relationships between hospitals and physician groups were looser and less formalized.

Private Insurance Erodes Despite Relative Affluence

Notwithstanding San Diego's relative economic prosperity, the share of residents with private health insurance had been declining while enrollment in public coverage programs had grown. This pattern mirrored trends seen across California and nationally, driven by rising premium costs that priced employers and individuals out of the private market, combined with deliberate expansions of Medi-Cal and other public programs that drew in populations that previously went uninsured.

Safety Net Expands in Anticipation of Medi-Cal Growth

The safety net system in San Diego had been building capacity in anticipation of the Medi-Cal expansion scheduled under the Affordable Care Act. Community health centers and public clinics were adding staff, extending hours, and opening new sites to prepare for what was expected to be a large influx of newly eligible patients. These investments reflected a recognition that the coverage expansion would bring new demands on providers who served the Medi-Cal population, and that the existing infrastructure was not sized to handle a sudden surge in enrollment.

Hospitals Invest in Cost Cutting, Bed Expansion, and Profitable Services

San Diego's hospitals were pursuing a three-pronged strategy: cutting operating costs, adding new beds through construction projects, and directing capital toward high-revenue service lines like cardiovascular care, orthopedics, and cancer treatment. These investments reflected a bet that well-insured patients would continue to seek care at institutions with state-of-the-art facilities and strong reputations in specialty services. The competition for well-insured patients was intensifying as hospitals recognized that revenue from commercially insured patients would need to offset the lower reimbursement rates expected from an expanded Medi-Cal population.

Kaiser's Competitive Pressure Spurs Narrow-Network Products

Kaiser Permanente's continued ability to offer affordable insurance options in San Diego was driving competing health plans and providers to collaborate on limited-network insurance products. These products featured lower premiums than traditional broad-network plans by restricting the pool of participating providers and building in accountable care organization (ACO) structures that gave providers shared responsibility for managing costs. The emergence of these products represented a significant shift in a market where consumers had historically favored broad provider choice, and it raised questions about whether narrow-network approaches would gain lasting traction or would be abandoned once economic conditions improved and premium pressure eased.

The full San Diego report was originally available on the CHCF website.

Sources and Further Reading

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

AHRQ -- Federal health care quality research agency.

Health Affairs -- Peer-reviewed health policy research.

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