San Diego: Health Care Providers Expand Capacity as Competition Increases for Well-Insured Patients
Health care providers in the San Diego market generally fared well during the economic downturn, which was not as severe there as in some other areas of California. Still, some market trends, along with the advent of health care reform, have put pressure on providers since the region was last studied in 2008.
Key developments include:
- Substantial hospital construction to meet state seismic requirements and improve competitive positions. In a market historically considered to have inadequate inpatient capacity, current and planned hospital construction has eased concerns. Indeed, as health reform moves forward, with payment levels for inpatient services expected to decline and the shift from inpatient to ambulatory services expected to accelerate, there are some concerns that the market may now be moving toward excess capacity for some services and in some geographic submarkets.
- Intensified provider competition in well-insured areas. Hospitals are investing in lucrative service lines, including cardiovascular care, cancer care, and women’s and children’s services, particularly in more affluent submarkets in the northern region of the county. The University of California San Diego (UCSD) Health System, for example, is stepping up competitive pressure by shifting some specialty services to La Jolla from the less-affluent central 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 aligned hospitals.
- More limited-network insurance products. Competition from Kaiser Permanente and pressure to offer more affordable insurance products are leading plans and providers to collaborate on an ever-increasing number of new lower-premium commercial products that feature a limited-provider network. Sharp HealthCare — the area’s low-cost provider that has historically embraced capitation, or fixed per-member, per-month payments — is at the center of many collaborations, including accountable care organizations (ACOs) formed with Sharp-affiliated physician organizations.
- Expanded safety-net capacity. Facing increased demand for outpatient services because of the economic downturn, many safety-net providers expanded capacity. Most notably, San Diego’s extensive, well-established group of Federally Qualified Health Centers (FQHCs) was able to use new federal grants to finance expansions and upgrades of existing facilities. Hospitals providing
substantial safety-net care in economically struggling areas of the county, including the central city and areas to the south, such as Chula Vista, also expanded some services, particularly emergency department (ED) capacity. However, as UCSD shifts inpatient and specialty capacity from the central city — where low-income residents are concentrated — to affluent La Jolla, the adequacy of safety-net access to these services has become a growing concern to some.
- County government takes more active role. Long regarded as having a weak commitment to the safety net, county officials have made health and health care a higher priority in recent years. They approved a 10-year strategic plan aimed at improving the delivery system serving low-income people, including efforts to establish patient-centered medical homes in FQHCs, integrate mental health care with primary care, and coordinate health care with other social services. Although the county has not provided additional funding, it is using implementation of the Low Income Health Program (LIHP) to promote reforms of the safety-net delivery system.
Although significant changes have occurred since 2008, many key characteristics that define the San Diego health care market remain largely unchanged:
- Large, stable, well-established hospital systems
- A substantial proportion of physicians in large medical groups exclusively tied to one of the large hospital systems
- A still-significant proportion of physicians in small, independent practices that participate in health maintenance organizations through independent practice associations
- Slowly declining but still strong HMO enrollment
The safety net in this market remains strong in some respects, and the county government is making a more concerted effort than in the past to improve quality and delivery of care by safety-net providers — particularly FQHCs. Nevertheless, county funding and public support for the safety net, as well as the level of collaboration among safety-net-providers, still lag some other California communities.
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.