Health reform is driving changes in the make-up of California healthcare markets, whether it's more construction in San Diego County or more integration and affiliations in Los Angeles County.
Recent regional market reports based on interviews with local healthcare leaders highlight the variations and emerging trends in how healthcare is organized, financed and delivered. The Center for Studying Health System Change (HSC) in Washington, D.C., conducted the market studies, which were funded by the California HealthCare Foundation (CHCF).
A common theme for hospitals in both regions is trying to "right size" their capacities, according to Laurie Felland, director of qualitative research and senior health researcher at HSC.
While Los Angeles County has been considered an over-bedded market in part because of its vast size and its need for a lot of large facilities throughout the county to serve its large population, San Diego County has been more under-bedded.
"They're both trying to right-size. We're seeing that kind of activity where some hospitals are affiliating in Los Angeles, and then in San Diego there is some rebuilding for capacity," she said.
It takes awhile to know what the right capacity is. Too much capacity has the potential to drive up costs overall, and insufficient capacity can affect access.
"In Los Angeles, in the county hospital, there has been some struggle with creating a smaller inpatient facility, but still having a lot of demand for inpatient beds. Trying to fit that supply and demand accurately is a challenge," Felland said.
So some hospitals, the report noted, including UCLA, are considering affiliating or merging with each other to adjust their capacity, expand their referral bases, reorganize strategies for service lines and improve care coordination.
Seismic regulations, whose effective date has been extended, have also spurred some of the retro-fitting and rebuilding of facilities, she added.Although Los Angeles County's diverse economy offered some resiliency during the economic downturn, hospitals still experienced lower patient care revenues, the regional report noted. The county has a large, fragmented healthcare market with scores of hospitals and numerous physician practices.
With the exception of Kaiser Permanente, hospital systems and physician groups operate in silos without a large footprint across the county, but healthcare reform and a drop in private insurance enrollment have led to new affiliations among providers in order to gain more patients in preparation for changes in healthcare delivery and payment models.
The regional report offered as an example two large physicians' organizations, HealthCare Partners and Heritage Provider Network. They are growing both their medical groups and independent practice associations (IPAs), according to the report. In November 2012, dialysis provider DaVita purchased HealthCare Partners, which also operates in other states.
Los Angeles physician groups are also leading efforts to develop accountable care organizations (ACOs). This may be because LA hospitals lack broad geographic reach or tight alignment between hospitals and physicians, the report's authors suggested.
"Some LA providers – many already experienced in assuming financial risk for patient care – and payers view ACOs as a way to compete with Kaiser's integrated delivery system," the report said.
For example, HealthCare Partners and Heritage Provider Network are participating in Medicare ACOs, and HealthCare Partners is working with Anthem Blue Cross in a commercial ACO.
Unlike Los Angeles, San Diego County has large hospital systems that are tightly aligned with large medical groups, and the county's healthcare providers generally fared well during the economic downturn.
San Diego's hospitals have been focused on cutting costs, the report noted, adding additional beds through new construction to meet state seismic requirements and to improve competitive positions and are investing in lucrative service lines. Current and planned hospital construction has eased concerns about inadequate inpatient capacity.
As health reform moves forward, pushing payment levels for inpatient services into decline and accelerating a shift toward ambulatory services, the market may be moving toward excess capacity for some services and geographic submarkets, according to the report.
Hospitals are investing in lucrative services, including cardiovascular care, cancer care and women's and children's services, particularly in more affluent submarkets in the northern part of the county. For example, the University of California San Diego (UCSD) is shifting some specialty services to its La Jolla Thornton hospital from its Hillcrest hospital in the city of San Diego.
Physician organizations that are tightly aligned with hospitals are buying practices in competing hospitals' service areas to shift patient referrals to their allied hospitals.
An overriding influence on healthcare organizations in both Los Angeles and San Diego counties is Kaiser Permanente. For instance, the report said, as Kaiser offers more affordable insurance options, health plans and providers are collaborating to compete and provide more limited-network insurance products that feature lower premiums, limited-provider networks and ACOs.