Sacramento: Health Providers Collaborate and Weather Economic Downturn

Center for Studying Health System Change


Largely stable since the last study was conducted in 2008, hospitals and physicians in the Sacramento region weathered the economic downturn fairly well. Still, a number of market trends have posed challenges for the area.

Key developments include:

  • Increased pressures on hospitals to contain costs. Hospitals reported deteriorating payer mixes because of declining commercial coverage; an uptick in public coverage; smaller commercial payment rate increases from health plans; and rising rates of uninsured patients, largely due to the economic downturn. While most hospital systems had strong financial performance despite these pressures, Dignity Health (formerly Catholic HealthCare West) was the exception with its operating margin cut by more than half.
  • Increased use of narrow-network arrangements. The Sacramento market is on the leading edge of developing new health plan-provider collaborations — including accountable care organizations and narrow networks of providers that accept lower payment rates in exchange for exclusivity. These arrangements are aimed at competing better against Kaiser Permanente and preparing for lower payment rates under health reform.
  • Increased dominance of Kaiser. Kaiser is viewed as an even more formidable competitor now, especially given the perception of Kaiser Permanente Health Plan as a lower-cost option. The affordability of health coverage assumed even greater importance during the economic downturn, and it will continue to be a critical issue under federal health reform.
  • Increased pressure on outpatient capacity at safety-net providers. With the economic downturn driving up the proportion of uninsured people and reducing local resources to care for low-income residents, the fragmented safety net’s outpatient capacity is insufficient to keep pace with demand, in spite of considerable growth in community health centers.
  • Growing concerns among Community Health Centers (CHCs) and Federally Qualified Health Centers (FQHCs) about remaining competitive in the Medi-Cal market. With a shift toward capitation within Medi-Cal managed care and new populations transitioning into managed care, the number of enrollees directly assigned to FQHCs and other CHCs has been declining at a time when many of these providers expanded capacity.
  • Concern among stakeholders that the supply of physicians — especially primary care physicians — is inadequate to meet expanded demand. In the words of one respondent, the coverage expansions under health reform will result in a “tsunami of unmet need” among both privately and publicly insured people.

In most other respects, the region’s hospital and physician sectors remained largely stable. The community’s well-established hospital systems — three private, nonprofit systems and one public academic medical center — experienced no significant organizational changes and had little disruption in patient volume or financial performance despite the struggling economy.

Provider consolidation increased moderately, with the large medical groups closely aligned with hospital systems continuing to grow. At the same time, many physicians remain in small private practices and participate in independent practice associations (IPAs) that provide management and other services to support contracting with health maintenance organizations (HMOs). Under this model, HMOs delegate financial risk and utilization management to large physician organizations, such as IPAs and medical groups, in return for capitated payments (fixed per-member, per-month amounts). While the number of HMO enrollees continued to decline slowly since 2008, this delegated capitation model remains an important defining feature of the Sacramento health care market.

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.