San Francisco Bay Area: Health Care Providers Shift Allegiances as Regional Networks Emerge

Center for Studying Health System Change


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Health care providers in the San Francisco Bay Area weathered the economic downturn better than providers in most other areas of California, in large part because the downturn was less severe in the Bay Area. Still, a number of market trends and the expected effects of health reform have pressured providers, leading to significant organizational change in the provider sector since the region was last studied in 2008.

Key developments include:

  • Widened gap between have and have-not hospitals. Large systems, along with a few independent hospitals with geographic monopolies in affluent submarkets, were able to improve already strong financial performance even during the recession. In contrast, most county hospitals and smaller independent safety-net hospitals that were struggling in 2008 continue to struggle, and some in the latter group face potential closure.
  • Substantial hospital construction to meet state seismic standards. In a market already considered to have surplus capacity, current and planned hospital construction raises concerns about some hospitals being able to manage their debt burden and adding to excess inpatient capacity. These are particular concerns as health reform moves forward, given that payment levels for inpatient services are expected to decline, and the transfer of services from inpatient to ambulatory settings is expected to accelerate.
  • Shifting alignments among providers and growing regionalization of provider networks. Since 2008, dramatic changes have occurred in affiliations among physician organizations — and in some cases, hospital systems. New alignments have formed among major providers as they seek both to consolidate and expand their geographic reach. The result is a growing trend toward regionalization of provider networks across the Bay Area, which historically has had many distinct geographic submarkets.
  • Increased plan-provider collaborations to form accountable care organizations (ACOs). Under pressure to keep insurance premiums in check, health plans and providers began joining forces to form narrow-network ACOs in 2011. It remains to be seen how successful these emerging ACOs will be in managing care — particularly in reducing inpatient utilization — and keeping within their global budgets.
  • Expanded safety-net capacity. With the economic downturn leading to increased demand for outpatient services, many safety-net providers expanded capacity. Most notably, federally qualified health centers (FQHCs) won new federal grants to finance growth. In contrast, small private clinics are struggling and some are merging with other clinics to survive.
  • Increased collaboration, particularly on care delivery improvements, across the safety net. Bay Area safety-net providers — such as those participating in Healthy San Francisco — are making strides in implementing the medical home model, improving care coordination across providers, and introducing other care delivery changes. Strong collaboration within the safety net means that innovations adopted by one type of provider — for example, county clinics — are readily spread and adopted by other providers, such as private clinics.

Despite the many organizational changes taking place in the provider sector, many key characteristics that define the Bay Area health care market remain constant. These include an abundant supply of hospital beds and health care practitioners compared to other California markets; a substantial proportion of physicians belonging to large medical groups exclusively affiliated with one of the large hospital systems; a still significant proportion of physicians remaining in small, independent practices that participate in health maintenance organization (HMO) contracting through independent practice associations (IPAs); and slowly declining but still strong commercial HMO enrollment. The safety net remains strong, extensive, and collaborative, and continues to benefit from widespread public support from both residents and elected officials.

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.