San Francisco Bay Area: Downturn Stresses Historically Stable Safety Net

Center for Studying Health System Change


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Background

Approximately 4.2 million people reside in the San Francisco Bay Area (nearly 12% of the state’s population), encompassing a rich diversity of cultures and ethnic backgrounds. Fewer than half the residents are white, and 20% are Asian (almost double the statewide average of 12%). About 28% of residents are foreign born, and nearly 12% are 65 years or older, slightly higher than the California average of approximately 11%. Population growth in the last 10 years has been relatively low (close to 7%) in comparison to the nearly 14% growth rate in California’s population overall. The proportion of Bay Area households with incomes above $50,000 is relatively high (62% vs. a statewide average of 51%), as is the proportion of the population with a college degree (49% vs. 36% statewide). It is estimated that about 8% of Bay Area residents do not have health insurance, considerably lower than the state average of just over 13%.

Historically, the Bay Area economy has been strong, buttressed by a number of Fortune 500 corporations such as Levi Strauss & Company, McKesson Corporation, and Wells Fargo & Company. Tourism is a significant part of the economy in the city of San Francisco, where there is substantial employment in the service and retail sectors. In the broader Bay Area, high-tech industries have been an important source of employment over the past two decades, as have health care organizations. Unemployment in the Bay Area was estimated at 8.4% in January 2009 (compared to 10.6% statewide); this number is expected to rise as the economic downturn continues.

Issues to Track

Bay Area hospital systems are relatively stable, but some financially weak hospitals are vulnerable and may be unable to weather the financial downturn or generate the necessary capital to meet seismic requirements. The health plan market also appears stable, at least with respect to the number of plans. However, plans are struggling to hold down costs, and their main strategy to respond to employer demands is to introduce products with increased patient cost-sharing requirements. The biggest future challenge to the Bay Area health care market may be maintaining a longstanding commitment to a strong safety net for residents, in the face of rising numbers of uninsured and potential reductions in Medi-Cal payment rates.

The following are among the key issues to track:

  • Will other Bay Area health care systems be able to compete effectively with Kaiser on dimensions such as attracting and retaining physicians and in implementing information technology to improve quality of care?
  • To what degree will effects of the economic crisis — declining patient volumes and frozen capital markets — preclude hospitals from implementing their plans to meet seismic standards, and will regulators allow additional time or force closures in response?
  • Will affiliations between Bay Area physicians and hospital systems grow stronger and, if so, what impact will this have on health care quality and costs?
  • How will employer strategies to contain health care costs through leaner benefits and increased cost-sharing requirements affect patients’ use of services and health care providers’ revenues? To what extent will HMO products remain competitive in this environment?
  • Can Bay Area safety-net providers cope with increasing numbers of uninsured residents coupled with eroding funding? Will Medi-Cal payment rates be reduced and will this result in further decreases in physician and other provider participation and a decline in access for enrollees?

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.