Los Angeles: Vast and Varied Health Care Market Inches Toward Consolidation

A CHCF Regional Market Study

Jill Yegian
Katrina Connolly


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Regional Markets Study

Los Angeles County is one of seven markets included in the Regional Markets Series. This is the fourth round of the study; CHCF published the first set of regional reports in 2009. The markets included in the 2020 release — Humboldt/Del Norte, Inland Empire, Los Angeles, Sacramento, San Diego, San Francisco Bay Area, and the San Joaquin Valley — reflect a range of economic, demographic, care delivery, and financing conditions in California.

The Los Angeles health care market — as varied as it is vast — juggles the needs of more than 10 million people across a geographically diverse landscape. More than 80 general acute care hospitals are scattered throughout Los Angeles County, an area twice the size of Delaware with 10 times the population. The county includes 88 cities, and the historically fragmented health care sector tends to serve distinct geographic areas where residents live and work. Only two health systems operate on a countywide scale: Kaiser Permanente, an integrated delivery system with a health plan, owned hospitals, and tightly aligned employed physicians serving primarily commercial and Medicare patients across the market;  and the Los Angeles County Department of Health Services (LACDHS), which operates the countywide safety-net system. Over the past several years, the Los Angeles market has inched toward greater consolidation as two major health systems — Cedars-Sinai and Providence — have expanded: Cedars by affiliating with community hospitals both north and south of its flagship medical center, and Providence through a merger with St. Joseph Health to strengthen its regional presence.

The region has experienced a number of changes since the prior study in 2015–16. Key developments include:

  • Medi-Cal coverage expansion continues to fuel growth of L.A. Care Health Plan, the local public plan. The 2014 Medi-Cal expansion under the federal Affordable Care Act has helped push L.A. Care enrollment to more than two million people, about two-thirds of Medi-Cal managed care enrollment in the county. However, many residents are ineligible for Medi-Cal and remain uninsured — primarily those who are undocumented. To help fill this access gap, the county operates My Health LA, a program providing care — not coverage — to about 140,000 adults with low incomes.
  • Enrollment in Medicare managed care continues to grow, while commercial health maintenance organization (HMO) enrollment stagnates. In 2019, for the first time, more than half of Los Angeles Medicare beneficiaries opted for Medicare Advantage rather than fee-for-service Medicare. In the commercial market, HMO enrollment flattened, except for Kaiser. Limited opportunities for growth in commercial HMO enrollment have sparked interest among some providers in a broader portfolio of risk-bearing arrangements, including direct contracting with employers.
  • The Los Angeles hospital market has consolidated slightly in recent years — primarily through closures and new affiliations and partnerships. Numerous hospitals and health systems, none with a dominant market share, operate in the market, typically in specific geographic areas rather than countywide. The six largest health systems accounted for half of acute inpatient market share — with no system accounting for more than 11% of discharges.
  • Los Angeles continues as a stronghold for large capitated, delegated physician organizations. Across the county, large medical groups and independent practice associations (IPAs) accept clinical responsibility and financial risk through capitation — fixed per-person per-month payments — to care for assigned patient populations. Optum, a part of UnitedHealth Group, has acquired large and well-respected physician groups across Southern California, including the 2019 acquisition of DaVita HealthCare Partners in Los Angeles. Across Southern California, Optum either employs or is affiliated through IPAs with more than 7,000 physicians — a scale rivaled only by Kaiser’s Southern California Permanente Medical Group. Optum holds full-risk contracts for almost a half-million people in Los Angeles.
  • Los Angeles County government, which plays a critical safety-net role, divides responsibility for physical and behavioral health services across three departments. LACDHS, with a $6.2 billion operating budget, runs an integrated delivery system of hospitals and clinics serving Medi-Cal enrollees and the uninsured. The Department of Mental Health operates the countywide plan for Medi-Cal enrollees with serious mental health conditions requiring specialty care, while the Department of Public Health’s Substance Abuse Prevention and Control unit functions as a specialty substance use disorder (SUD) managed care plan, contracting with providers to facilitate delivery of SUD treatment services. Coordination  is a significant challenge for all involved.
  • The 131-bed Martin Luther King Jr. Community Hospital (MLKCH), which opened in 2015, provides much-needed services to one of the county’s most disadvantaged areas. South Los Angeles, with just over a million residents, experienced significant health care access, quality, and safety issues before and after Martin Luther King Jr./Drew Medical Center closed in 2007. A new community hospital, MLKCH, opened in 2015. By 2018, the hospital had a 70% occupancy rate, with 95% of discharges associated with government payers — 71% Medi-Cal and 24% Medicare — and the 29-bed emergency department (ED) had almost 100,000 visits.
  • Collectively caring for about 1.7 million patients, more than 60 Federally Qualified Health Centers (FQHCs) continue to play an essential and growing safety-net role for Medi-Cal enrollees and uninsured people in the county. Between 2014 and 2018, the number of FQHC patients increased by 33%, and the number of FQHC patients covered by Medi-Cal increased by 50%. Primary care services expanded, but ensuring adequate access to specialty care for FQHC patients remains a significant challenge. While Los Angeles’s FQHCs share a common mission, they vary tremendously in size, geography, strategies, and areas of focus.
  • The COVID-19 pandemic hit Los Angeles hard in 2020. Through August 2020, Los Angeles County experienced an infection rate about a third higher than the state as a whole and a COVID-19 death rate 75% higher than statewide. The pandemic has amplified underlying health disparities affecting Black and Latinx populations, who have been disproportionately impacted by the virus.

Since 2009, CHCF has published a series of regional market studies that examine the health care markets in specific regions across California. These studies highlight the range of economic, demographic, and health care delivery and financing conditions in California. They are published as part of the CHCF California Health Care Almanac, an online clearinghouse for key data and analyses examining California’s health care system.

About the Authors

Jill Yegian, PhD, is principal of Yegian Health Insights, and a Blue Sky Consulting Group affiliate, and Katrina Connolly, PhD, is senior consultant of Blue Sky Consulting Group. Blue Sky Consulting Group helps government agencies, nonprofit organizations, foundations, and private-sector clients tackle complex policy issues with nonpartisan analytical tools and methods.