Sacramento Area: Large Health Systems Grow in a Pricey and Tumultuous Market

A CHCF Regional Market Study

Len Finocchio
James Paci


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Regional Markets Study

The Sacramento area is one of seven markets included in the 2020 Regional Markets Study. 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 Sacramento area — a region spanning El Dorado, Placer, Sacramento, and Yolo Counties — stands out among other inland California localities in boasting relatively high household incomes and a stable economy. Yet the region has also experienced troubling developments in recent years, including higher health costs and more people experiencing homelessness. Four large health systems — Dignity Health, Kaiser Permanente, Sutter Health, and UC Davis Health — continue to dominate the Sacramento area hospital market, a trend that likely contributes to the region’s high private health insurance premiums. The region’s hospitals post the highest average operating margins of the seven regional markets studied and negotiate among the highest commercial payment rates in the state. All four systems continue to expand their footprints, building new office and hospital space while affiliating with a growing number of medical groups.

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

  • The market for Medi-Cal managed care plans in Sacramento County became more crowded and chaotic, and more change is likely coming. In 2017, the state Department of Health Care Services (DHCS) added two health plans to the Sacramento County market, which had four existing plans. One new entrant, UnitedHealthcare Community Plan, ended its contract prematurely and exited the market in 2018, causing nearly 8,000 Medi-Cal enrollees to move to other plans and networks. The state plans to recontract with health plans serving the county starting in 2021, so the field of participating plans in Sacramento may change yet again.
  • The market experienced increased consolidation between hospitals and medical groups, with hospitals’ operating margins increasing substantially. By 2019, 70% of primary care physicians and 80% of specialists belonged to practices controlled by a hospital or health system. Increases in the health systems’ commercial payment rates and operating margins have coincided with this consolidation.
  • Health systems and Federally Qualified Health Centers (FQHCs) expanded capacity. Hospitals and FQHCs alike added new facilities and expanded existing ones. Many are replacing aging infrastructure: Kaiser, Sutter Health, and Dignity Health all plan to replace hospitals to comply with the state’s 2030 seismic requirements. FQHCs also expanded their scope of services, particularly for behavioral health care.
  • Providers engage in a range of value-based payment models. Large hospital and health systems in the region are increasing capabilities to manage risk-based payments. These systems often share risk with their medical groups and affiliated independent practice associations (IPAs).
  • FQHCs are caring for more Medi-Cal patients as other providers decline to contract with Medi-Cal managed care plans. FQHCs increasingly serve as primary care homes for Medi-Cal enrollees as small medical clinics close and large medical groups shift patients to FQHCs.
  • A complex behavioral health services system for Medi-Cal enrollees is making strides to meet service needs amid insufficient inpatient capacity and workforce shortages. To bring care to populations in need, counties’ mental health providers collaborate with criminal justice agencies and with organizations providing services to people who are unsheltered.
  • Health information exchange is siloed and limited. Health systems typically exchange data internally through electronic health record (EHR) systems, with limited data sharing with FQHCs and health plans. Health systems and clinics are not prioritizing broader data exchange given other demands on time, resources, and leadership.

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

Len Finocchio, DrPH, is principal consultant, and James Paci, JD, MPP, is a policy analyst with Blue Sky Consulting Group, a firm that helps government agencies, nonprofit organizations, foundations, and private-sector clients tackle complex policy issues with nonpartisan analytical tools and methods.