Rapid change in California’s health system

The pace of change  - mergers, consolidations, physician/hospital affiliation, new construction and shifting of services - in California’s health care system is fast and accelerating.  Several area-specific reports just out from the California Healthcare Foundation provide a great overview of the changes in specific markets, and are well worth study for any payer working in the Golden State.

In a quick review of CHCF’s report on San Diego a few things jump out.

  • Hospital systems’ profitability is generally increasing rather substantially, this in a period when many are investing big bucks in new plant and equipment.  Margins for several systems are into the double digits.
  • Lots of investment is occurring in the wealthier (read – privately insured) areas, such as La Jolla.  No surprise that.
  • Safety net providers are benefiting from federal largesse, using funds to expand services to low-income communities and add medical home capacity as well.

For Los Angeles, the title of the report says it all “Fragmented healthcare system shows signs of coalescing.”  Whether it’s physicians aligning with health systems, hospitals joining together, or health systems merging, there’s lots of efforts to get bigger, increase service areas, and expand services themselves.

Unlike San Diego, LA is a pretty fragmented market, with too many hospital beds, no dominant systems or facilities, and many systems looking to consolidate the market.  Kaiser is the only system with a double-digit share of hospital discharges at 11.8%.  And, also unlike SD, margins for many facilities are negative to just barely above break-even.  There are exceptions; Cedars-Sinai had a 7.6% operating margin in 2010 and UCLA’s was almost twice that.

The study indicates that one driver of the relatively poor financials in LA may be an over-supply of hospital beds at 205 beds/100k people vs the state average of 181.

There’s a wealth of useful information in these studies.  Payers of any stripe doing business in California would be well-advised to read them carefully, and consider the implications for their future.  

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