california Health Care Almanac regional markets issue brief September 2012 Sacramento: Health Providers Collaborate and Weather Economic Downturn Summary of Findings the perception of Kaiser Permanente Health Plan as a Largely stable since the last study was conducted in 2008, lower-cost option. The affordability of health coverage hospitals and physicians in the Sacramento region weathered assumed even greater importance during the economic the economic downturn fairly well. Still, a number of market downturn, and it will continue to be a critical issue under trends have posed challenges for the area. federal health reform. ▶▶ Increased pressure on outpatient capacity at safety- Key developments include: net providers. With the economic downturn driving ▶▶ Increased pressures on hospitals to contain costs. up the proportion of uninsured people and reducing Hospitals reported deteriorating payer mixes because local resources to care for low-income residents, the of declining commercial coverage; an uptick in public fragmented safety net’s outpatient capacity is insufficient coverage; smaller commercial payment rate increases to keep pace with demand, in spite of considerable from health plans; and rising rates of uninsured patients, growth in community health centers. largely due to the economic downturn. While most ▶▶ Growing concerns among community health centers hospital systems had strong financial performance despite and federally qualified health centers about remaining these pressures, Dignity Health (formerly Catholic competitive in the Medi-Cal market. With a shift HealthCare West) was the exception with its operating towards capitation within Medi-Cal managed care and margin cut by more than half. new populations transitioning into managed care, the ▶▶ Increased use of narrow-network arrangements. The number of enrollees directly assigned to federally qualified Sacramento market is on the leading edge of developing health centers (FQHCs) and other community health new health plan-provider collaborations — including centers (CHCs) has been declining at a time when many accountable care organizations and narrow networks of of these providers expanded capacity. providers that accept lower payment rates in exchange for ▶▶ Concern among stakeholders that the supply of exclusivity. These arrangements are aimed at competing physicians — especially primary care physicians — is better against Kaiser Permanente and preparing for lower inadequate to meet expanded demand. In the words payment rates under health reform. of one respondent, the coverage expansions under health ▶▶ Increased dominance of Kaiser. Kaiser is viewed as an reform will result in a “tsunami of unmet need” among even more formidable competitor now, especially given both privately and publicly insured people. In most other respects, the region’s hospital Table 1. D emographic and Health System Characteristics: Sacramento Region vs. California Sacramento California and physician sectors remained largely stable. Population Statistics, 2010 The community’s well-established hospital Total population 2,149,127 37,253,956 Population growth, 10-year 19.6% 10.0% systems — three private, nonprofit systems Population growth, 5-year 5.9% 4.1% and one public academic medical center — Age of Population, 2009 Persons under 5 years old 6.9% 7.3% experienced no significant organizational Persons under 18 years old 25.8% 26.3% changes and had little disruption in patient Persons 18 to 64 years old 62.6% 62.8% Persons 65 years and older 11.5% 10.9% volume or financial performance despite the Race/Ethnicit y, 2009 struggling economy. White non-Latino 58.9% 42.3% Black non-Latino 7.1% 5.6% Provider consolidation increased moderately, Latino 19.4% 36.8% with the large medical groups closely aligned Asian non-Latino 10.1% 12.1% with hospital systems continuing to grow. Other race non-Latino 4.5% 3.1% Foreign-born 14.6% 26.3% At the same time, many physicians remain Education, 2009 in small private practices and participate in High school diploma or higher, adults 25 and older 89.4% 82.6% College degree or higher, adults 25 and older 40.9% 37.7% independent practice associations (IPAs) that Health Status, 2009 provide management and other services to Fair/poor health status 11.6% 15.3% Diabetes 7.5% 8.5% support contracting with health maintenance Asthma 16.2% 13.7% organizations (HMOs). Under this model, Heart disease, adults 6.6% 5.9% Economic Indicators HMOs delegate financial risk and utilization Below 100% federal poverty level (2009) 13.2% 17.8% management to large physician organizations, Below 200% federal poverty level (2009) 28.1% 36.4% Household income above $50,000 (2009) 53.8% 50.4% such as IPAs and medical groups, in return for Unemployment rate (2011) 12.5% 12.4% capitated payments (fixed per-member, per- Foreclosure rate* (2011) 5.2% n/a month amounts). While the number of HMO Health Insurance, All Ages, 2009 Private insurance 64.7% 55.3% enrollees continued to decline slowly since Medicare 9.9% 8.8% 2008, this delegated capitation model remains Medi-Cal and other public programs 15.3% 21.4% Uninsured 10.1% 14.5% an important defining feature of the Sacramento Supply of Health Professionals, per 100,000 population, 2008 health care market. Physicians 191 174 Primary care physicians 63 59 Dentists 74 69 Market Background Hospitals, 2010 Community, acute care hospital beds per 100,000 population 163.3 178.4 The Sacramento region (see map on the last Operating margin with net disproportionate share hospitals (Kaiser excluded) 8.0% 2.4% page) has a population of 2.1 million people Occupancy rate for licensed acute care beds (Kaiser included) 62.3% 57.8% Average length of stay (in days) (Kaiser included) 4.2 4.5 spanning four counties: El Dorado, Placer, Paid full-time equivalents per 1,000 adjusted patient days (Kaiser excluded) 16.4 15.8 Sacramento, and Yolo. After strong growth Total operating expense per adjusted patient day (Kaiser excluded) $3,276 $2,856 during the last decade, population growth *Foreclosure rates in 367 metropolitan statistical areas nationally ranged from 18.2% (Miami, FL) to 1% (College Station, TX). Sources: US Census Bureau, 2010; California Health Interview Survey, 2009; State of California Employment Development Department, Labor has leveled off in recent years. Compared to Market Information Division, “Monthly Labor Force Data for California Counties and Metropolitan Statistical Areas, July 2011” (preliminary data not seasonally adjusted); California HealthCare Foundation, “Fewer and More Specialized: A New Assessment of Physician Supply in California,” June 2009; UCLA Center for Health Policy Research, “Distribution and Characteristics of Dentists Licensed to Practice in California, 2008,” the rest of California, the Sacramento area May 2009; California Office of Statewide Health Planning and Development, Healthcare Information Division, Annual Financial Data, 2010; www.foreclosureresponse.org, 2011. is less ethnically and racially diverse with a much higher proportion of white residents ©2012 California HealthCare Foundation 2 and a much lower proportion of Latinos and foreign-born Cost-Containment Pressures in an Otherwise Stable residents. Sacramento-area residents continue to have slightly Hospital Market higher education and income levels than state averages; While the Sacramento market’s hospital sector continues they also have substantially higher rates of private health to be strong and stable, it has faced increasing pressures to insurance, thanks largely to Sacramento’s position as the seat contain costs since 2008. The region has three longstanding, of state government. private nonprofit systems: Sutter Health Sacramento Sierra The Sacramento region’s unemployment rate closely Region, with five hospitals in the market; Mercy Health tracks California’s average rate. In November 2011 — the Care, also with five hospitals and a member of Dignity month of the site study — unemployment was 11.0% versus Health; and Kaiser Permanente with three hospitals. 10.9% statewide. This represented a decline from the area’s The region also has one public academic medical center, peak unemployment of 12.9%, reached in early 2010, but University of California Davis (UC Davis) Health System, was still more than double the baseline unemployment with one hospital. rate before the 2007– 09 recession (5.3% in 2007). State Market shares — largely unchanged in recent years — government continues to be the primary force in the local are not particularly skewed toward any single system. Sutter economy. However, state budget woes led to program cuts and Dignity each have nearly 30% of inpatient discharges, and staff layoffs during the downturn. followed by Kaiser (24%) and UC Davis (15%). However, Declining county revenues and budgets also led to Kaiser’s share of the coveted commercial market is estimated reductions in state and county health programs and staff, at to be as much as 40%, reflecting the fact that commercial the same time that demands on these programs increased. enrollees of Kaiser Permanente Health Plan comprise the From 2007 to 2009, the uninsured rate rose from 8.6% to majority of Kaiser hospitals’ patient base. 10.1% in the metropolitan area. Still, the presence of state Kaiser, regarded by the other hospital systems as their government as an employer — despite budget problems — main competitor at the time of the last regional analysis, helped maintain the Sacramento market’s favorable payer is considered to be an even more formidable competitor mix: 64.7% privately insured vs. 55.3% statewide. Among now, especially given the reputation of Kaiser Foundation the six California communities tracked in this study, the Health Plan as a lower cost option. Affordable health Sacramento region’s proportion of residents with private coverage became a central consideration during the insurance coverage remained second only to the Bay Area. economic downturn and is expected to become even more Within the greater Sacramento market, the affluent critical under health reform. Sutter and Dignity regard each towns of Roseville, El Dorado Hills, and Folsom have other as primary rivals when competing for commercial large concentrations of well-insured residents and growing patients enrolled in non-Kaiser health plans. Despite robust populations. Along with Elk Grove in south central competition among the hospital systems, respondents agreed Sacramento County — also growing though not as affluent that the environment remains generally cordial rather than — these communities represent growth areas, both current contentious. and planned, for health care providers. At the other end of Hospitals have faced escalating pressures to contain costs the economic spectrum, parts of the city of Sacramento and since 2008, largely as a result of the economic downturn. rural areas of El Dorado, Placer, and Yolo counties represent Hospitals reported deteriorating payer mixes because of some of the most financially strained communities in the declining commercial coverage, an uptick in public coverage, market. and rising rates of uninsured patients. Health plans also are ©2012 California HealthCare Foundation 3 ratcheting down commercial payment rate increases under faces the most severe financial strain. To a lesser extent, the pressure from purchasers to slow premium increases. Before system’s two largest hospitals in the market, Mercy General the recession, hospitals and commercial health plans largely Hospital and Mercy San Juan Medical Center, are struggling operated in a “pass-through” environment, where high — with eroding margins as well. Only Mercy Hospital of often double-digit — payment rate increases typically were Folsom, which serves an affluent, well-insured submarket, passed on to employers in premium increases of similar maintains strong margins. magnitude. More recently, hospitals have accepted lower Hospitals continue to invest in lucrative service lines and commercial rate increases. expand capacity in growth areas to increase their share of Yet, even with increased revenue pressures, hospital commercial patients and revenues. In recent years, all four financial performance remained strong. In 2010 — the hospital systems constructed new inpatient and ambulatory most recent year public data are available — the aggregate facilities, not only to meet state seismic requirements but also operating margin across Sacramento-area hospitals was a to strengthen service lines. Prominent examples of expansions robust 8.0%.1 Given the persistently low payment rates in growth areas with well-insured populations include Sutter, from public payers and the pushback against commercial Dignity, and Kaiser all expanding ambulatory facilities in rate increases, hospitals all reported undertaking aggressive Elk Grove; and Sutter and Kaiser both expanding inpatient cost-cutting measures to help protect their bottom lines. In services in Roseville, including maternity, neonatal intensive addition, Sutter, Dignity, and UC Davis all benefited from care, and pediatric intensive care services. the state hospital fee program, which helped hospitals offset losses on Medi-Cal patients.2 Moderate Increase in Physician Consolidation Sutter maintained especially strong operating margins: The Sacramento market’s relatively consolidated physician 13.3% in 2010, up slightly from 12.6% in 2008. sector — which focuses on commercially insured and Respondents indicated that this reflects its negotiating Medicare patients — continues to be dominated by four leverage with health plans, which stems from being seen as large medical groups and two large IPAs, each affiliated an essential provider. UC Davis, while not achieving margins exclusively with a hospital system. Kaiser and UC Davis of the same magnitude as Sutter, managed to increase its each continue to contract directly with a single large medical operating margin from 2.8% in 2008 to 4.8% in 2010. group, while Sutter and Dignity both rely on the medical Discontinuing Medi-Cal managed care and commercial foundation model to align physicians.4 capitation, as well as revenues from the hospital fee program Kaiser’s physician arm, The Permanente Medical Group, and the Delivery System Reform Incentive Payments employs about 1,400 physicians in greater Sacramento. In (DSRIP) from the California’s Bridge to Reform Medi-Cal the UC Davis Health System, physicians are employed by waiver, were key contributors to its improved financial the university and belong to the UC Davis Medical Group, performance in 2011.3 which numbers approximately 700 physicians — but only Dignity proved the exception to strong and improving about 400 full-time equivalents, since physician faculty financial performance in the market, with its operating members also are engaged in research and teaching. margin more than halved (to 4.2%) between 2008 and 2010. The Sutter Medical Foundation includes Sutter Medical According to respondents, Dignity continues to lose financial Group with approximately 500 physicians. The foundation ground. Among Dignity hospitals, Methodist Hospital of also contracts with Sutter Independent Physicians — an IPA Sacramento, which serves a low-income area, reportedly with about 600 physicians — for capitated contracts. Within ©2012 California HealthCare Foundation 4 the Sacramento region, both organizations are under the membership of Sutter Independent Physicians and Hill umbrella of Sutter Physician Alliance, which acts as a single Physicians. network, allowing patient referrals between the medical Since 2008, there has been no movement toward group and the IPA for capitated contracts. Admissions to specialists choosing to exclusively contract with a single Sutter hospitals are reportedly split evenly between the IPA. In fact, the development of narrow-network insurance medical group and the IPA. products (discussed below) may have slowed consolidation Much smaller than Sutter’s medical foundation is the activity for fear it may close off opportunities for physicians Dignity Health Medical Foundation. The foundation’s to participate in a rival system’s exclusive contract with a presence in the Sacramento area is represented primarily health plan for a narrow-network product. by Mercy Medical Group, which has grown to about 250 physicians. Despite being aligned through the medical Providers, Plans Experiment with Narrow-Network foundation, Dignity hospitals and Mercy Medical Group Contracts are not as integrated as the Sutter hospitals and Sutter Providers in the Sacramento region viewed the current Medical Group. market environment as a transition from the status quo The physician sector experienced substantial to a less secure future under health reform. As pressures consolidation prior to 2008; consolidation has been to compete on affordability increase and are expected to moderate since then. The large groups aligned with Kaiser, intensify under health reform, providers are further focusing Sutter, and Dignity all continued to grow, using diverse on improving efficiency. All systems reported not only strategies to draw new hires from within and outside the continuing efforts to reduce input costs but also a new — market. Kaiser is still perceived as holding a competitive or heightened — focus on streamlining care delivery across edge in recruiting physicians — particularly primary care inpatient and ambulatory settings with the goal of reducing physicians — reportedly by offering higher compensation as per-patient spending while maintaining or improving quality. well as a work-life balance that many recruits find attractive. A notable recent development is the collaboration Still, many physicians remain in smaller, independent between providers and health plans to develop narrow- single-specialty practices and belong to IPAs for HMO network arrangements, with providers accepting lower contracting. Two IPAs dominate the market: Sutter payment in exchange for exclusivity. Non-Kaiser providers Independent Physicians and Hill Physicians. Hill admits hope to use narrow networks to better compete with patients exclusively to Dignity hospitals in Sacramento but Kaiser and to work toward more efficient care delivery in does not participate in Dignity’s medical foundation, instead preparation for health reform. negotiating directly with health plans for HMO contracts. Stakeholders and observers see Sacramento as having the Hill and Mercy Medical Group regard each other as right market conditions for new payment and contracting competitors and generally do not engage in mutual referrals, models: large hospital systems that, together with aligned in contrast to Sutter’s medical group and IPA. physician organizations, can serve as exclusive networks; While some primary care physicians are exclusively physician experience with and enthusiasm for capitation; aligned with one IPA, specialists typically belong to and the need for providers to compete with a strong Kaiser multiple IPAs, motivated by the need to maintain sufficient system. patient volume. Overall, there is substantial overlap in the Like other historic strongholds of capitation in California, the Sacramento region has seen an enrollment decline in ©2012 California HealthCare Foundation 5 recent years in network-model HMOs associated with the service payment for Dignity’s hospital services, capitation for delegated capitation model. This decline stems not only Hill’s professional services — but a three-way risk-sharing from the economic downturn, but also from competition pool, with both upside and downside risk, was added. In from Kaiser’s closed-panel HMO model, and from preferred 2010, the partners targeted $15.5 million as the amount of provider organization (PPO) products, including lower- cost savings needed to break even, given the zero premium premium, consumer-directed health plans. As a result, trend. providers have been motivated to seek opportunities to revive At the end of the pilot year, Blue Shield reported that capitation. total savings exceeded $20 million, so the $5 million All these factors have combined to make Sacramento difference between actual and targeted savings constituted the first California market to become “a giant Petri dish” the shared savings pool for that year. Much of the savings and “a laboratory to test out new models and relationships,” stemmed from reductions in readmissions and lengths of according to respondents. Hospital executives acknowledged stay. Inpatient revenue losses to Dignity reportedly were the need to get these efforts well under way while their offset in part by the ACO driving more referrals to Dignity’s systems still have some financial cushion to invest in outpatient facilities. The Blue Shield NetValue plan is offered infrastructure and absorb potential losses. at a lower premium than the Kaiser CalPERS product. CalPERS ACO Health Net PremierCare Network The first and most prominent new narrow-network The other, newer narrow-network offering in Sacramento contracting arrangement was the accountable care is the Health Net PremierCare Network, an HMO organization (ACO) developed for the California Public collaboration between Health Net and the Sutter system, Employees’ Retirement System (CalPERS) by Blue Shield of including Sutter’s hospitals, affiliated medical group, and California, Dignity, and Hill Physicians. It was built within IPA. Sutter, long regarded as the market’s high-cost provider, an existing Blue Shield product, NetValue HMO, which is reportedly using this arrangement as a way of “testing the already excluded Sutter and other higher-priced providers, waters” and taking “prudent, contained risks” to work on including Mercy Medical Group. Blue Shield and its provider reducing system costs through care management. Under this partners viewed this collaboration as a way to retain and new contractual arrangement — built on an existing HMO perhaps increase their CalPERS business — for which Kaiser contract — payment methods remained unchanged, but and Anthem Blue Cross compete vigorously on the health rates were lowered. plan side — by improving efficiency of care and slowing Unlike the CalPERS ACO, the PremierCare premium trends. collaboration does not include any shared risk or savings The CalPERS ACO began as a one-year pilot in 2010 pool. Like the CalPERS ACO, this product also tracks and performed well enough to gain a contract extension Kaiser HMO pricing, with premiums aimed at undercutting through 2012. Under the arrangement, the partners agreed to Kaiser by about 5%. Targeted to a broad swath of mid- a global budget that required total provider payments to be size employers from as few as 50 lives to as many as a few lowered to reflect reduced premium trends negotiated with thousand, the product was rolled out in 2011 and is still CalPERS: zero for 2010 and, according to one respondent, building enrollment, with some school districts already “positive but significantly lower than other HMO premiums” signed up. The product is considered too new to measure its in 2011. Payment methods remained unchanged — fee-for- impact on costs. ©2012 California HealthCare Foundation 6 Fragmented Safety Net Faces More Demand County Medically Indigent Services Program (CMISP, a Over the past few years, the rising number of uninsured Sacramento County program with state funding support that people has increased demands on a safety net already pays providers to care for low-income uninsured residents); considered insufficient to meet the needs of uninsured and other low-income uninsured people, including and low-income residents. Sacramento County’s safety net undocumented immigrants. is characterized by a county government and county-run The scaled-back safety-net role of UC Davis can be traced health clinic struggling with budget cutbacks; a collection of to two key developments. The first is the 2008 termination historically small, private community health centers (CHCs) of its contract with Sacramento County to provide only loosely affiliated with one another; and several hospitals emergency department (ED), inpatient, and specialty care to providing some level of care to low-income people. Of the CMISP enrollees. Through a third-party administrator, the CHCs, some are FQHCs: organizations eligible to receive county started contracting with a broader set of hospitals at both federal grants and enhanced, cost-based Medi-Cal lower payment rates. As a result, many enrollees instead seek payments. Repeated attempts over the years to bring safety- services at Sutter and Dignity, which still contract with the net providers together to create a more coordinated system county. While no longer under contract, UC Davis provides of care for low-income people have largely fallen flat. The some services to medically indigent patients, primarily neighboring counties — El Dorado, Placer, and Yolo — have through the ED. UC Davis sued the county for unpaid more safety-net capacity and infrastructure relative to the size services provided after the contract termination; a state court of their low-income populations. judge found the county liable for nonpayment of ED care, but the amount of the award is yet to be determined. Changing Safety-Net Roles of Hospitals The second development is the withdrawal of UC Davis The safety-net roles of hospitals in the Sacramento region from all but one Medi-Cal managed care contract, a move have shifted in recent years. Perhaps the most notable that reportedly helped its bottom line. UC Davis continues development is that UC Davis is no longer perceived as to participate in fee-for-service Medi-Cal. the main safety-net hospital, with Sutter and Dignity both assuming greater roles. While the three systems provided Fragmented Providers relatively similar levels of services to low-income people Primary care safety-net providers in the Sacramento market in 2008, by 2010, Sutter and Dignity’s volume had risen remain fragmented, each focusing on a certain low-income while volume at UC Davis had declined. The payer mix subgroup — Medi-Cal, medically indigent, other uninsured at UC Davis — which has improved slightly over the past — or an ethnic population. Overall, capacity for Medi-Cal few years — is still more heavily weighted toward Medi-Cal enrollees is growing, while capacity for medically indigent and uninsured patients compared to Sutter and Dignity. enrollees is contracting. However, the two larger systems — each with multiple Two of the four hospital systems in the region continue hospitals and twice the bed capacity of UC Davis — both to operate primary care clinics focused on low-income provide more inpatient and outpatient services to the total patients. Dignity runs four clinics that serve as key sources of population of low-income people in the market. care for low-income, primarily uninsured people, including Low-income groups include enrollees in public insurance undocumented immigrants. With the economic downturn, including Medi-Cal and Healthy Families (Children’s the loss of eligibility for CMISP by undocumented Health Insurance Program or CHIP); enrollees in the immigrants, and patient visits doubling since 2008, these ©2012 California HealthCare Foundation 7 clinics are operating at capacity. UC Davis continues to FQHC and Look-Alike Designations operate medical resident teaching clinics that focus on Community health centers that meet a host of federal Medicare and Medi-Cal patients, and UC Davis medical requirements under Section 330 of the Public Health Service Act students run seven weekend clinics focusing on certain are deemed federally qualified health centers (FQHCs). FQHCs uninsured ethnic groups. primarily treat Medicaid and low-income uninsured people. Clinics operated by Sacramento County serve as the sole FQHC designation provides benefits including federal grants to subsidize capital and operational costs, cost-based payments designated source of primary care and prescription drugs for per Medicaid patient visit (Prospective Payment System CMISP enrollees. Budget woes led to dramatic downsizing of payments based on previous average costs for an individual these clinics — from six, including three full time, in 2008, health center that are updated annually for medical inflation), to only one staffed at 50%. As a result, CMISP enrollees discounted pharmaceuticals, access to National Health Service reportedly wait longer for care and/or end up in hospital Corps clinicians, and medical malpractice liability coverage. EDs. One respondent characterized the county’s budget and A smaller number of health centers have FQHC look-alike status, which provides most of the benefits that FQHCs receive but not program cuts as “an ongoing dismantling of the public health federal grants. In managed care arrangements, FQHCs and look- system.” alikes receive “wraparound” payments from the state to account Historically, the development of FQHCs in the for the difference between what the health plan or intermediary Sacramento region has lagged many other California (such as an IPA) pays the health center and the cost-based rate communities, but since 2008, several clinics gained full to which the health center is entitled. FQHC status or look-alike status, which allow cost-based Medi-Cal payments and other benefits (see sidebar). Of eight FQHC organizations in the area — five full FQHCs Challenges with Medi-Cal Managed Care and three look-alikes — half gained their federal status since Sacramento County continues to organize Medi-Cal 2008, and many are in expansion mode. In particular, The managed care through a Geographic Managed Care (GMC) Effort, a full FQHC, has experienced a significant increase model, in which the state contracts with multiple managed in patient visits (to 45,000 annually) since 2008. Likewise, care plans and pays each plan on a capitated basis.5 In Health and Life Organization (HALO), a look-alike, saw contrast, Yolo County has a single, county-owned Medi-Cal visits nearly triple (to 50,000 annually) over the same period. plan, referred to as a County Organized Health System, For most clinics, gaining FQHC status has helped while El Dorado and Placer counties continue to operate to boost financial performance; however, The Effort has fee-for-service Medi-Cal. Currently, four health plans — struggled financially, reportedly as a result of too-rapid Anthem Blue Cross, Health Net, Molina, and Kaiser — expansion and a payer mix with too high a proportion of participate in the GMC market in Sacramento County. uninsured patients relative to Medi-Cal. After posting a Western Health Advantage, a local provider-sponsored plan, negative 15% operating margin in 2010, the health center withdrew from Medi-Cal in early 2010. In using a GMC laid off staff and installed new management, which is model, Sacramento County does not have a public, or so- addressing provider-productivity issues and improving the called “local initiative” plan; in other California counties, clinic’s financial performance. The Effort will further extend such plans place a particular emphasis on including CHCs its capacity and geographic scope by collaborating with and other safety-net providers in their networks. (See Dignity to take over most of the system’s clinics for low- Medi-Cal Managed Care Models on page 9.) income patients, as well as build new health centers. ©2012 California HealthCare Foundation 8 In shifting to capitation, the Medi-Cal plans appeared to Medi-Cal Managed Care Models be motivated by the need to reduce their cost trends to better In California, Medicaid managed care is organized at the county level. Thirty of the state’s 58 counties have implemented reflect trends in the capitated payments that they receive managed care using one of three models, which dictate the from the state. Because of budget pressures, state payment type and number of health plans with which the California rates to Medi-Cal health plans have been flat or increased Department of Health Care Services contracts to serve Medi-Cal only slightly for many years. The plans’ unwillingness to enrollees. The most common models are the County Organized contract directly with FQHCs/CHCs on a capitated basis Health System (COHS) and the Two-Plan Model. In a COHS, the county runs a single health plan that covers all managed apparently reflected doubts about those clinics’ ability to bear care enrollees. In the Two-Plan Model, enrollees can chose financial risk, manage utilization, and ensure adequate access between a county-operated plan (known as a “local initiative”) to specialty care for Medi-Cal patients — especially since and a private health plan. In Geographic Managed Care (GMC) FQHCs in the Sacramento area are relatively new and small, there is no local public plan, but rather several private health with no track record of being able to manage risk. plans compete for Medi-Cal enrollees. GMC is used in just two counties: Sacramento and San Diego. CHC concerns about remaining competitive in the Medi-Cal market are escalating as the state moves the Seniors and Persons with Disabilities (SPD) population, known as Aged, Blind, and Disabled in other states, into managed About four years ago, Sacramento County’s Medi-Cal care. The transition began in mid-2011 and was completed plans (excluding Kaiser) began moving from fee-for-service in May 2012. Prior to this transition many SPD enrollees payment to capitation for physician services, bringing received care at CHCs, which could lose substantial payment methods for their Medi-Cal HMO contracts in line Medi-Cal patients and revenues once these enrollees with methods used on the commercial side. In moving to transition into managed care and are assigned primarily to capitation, the plans began contracting exclusively with IPAs IPA members. — most notably, River City Medical Group and Employer Hospitals have joined community clinics in raising Health Services (EHS), both longstanding participants in questions about the adequacy and appropriateness of care Medi-Cal under fee for service.6 provided to Medi-Cal enrollees under the GMC model. The CHCs have struggled financially with this change. EHS hospitals’ main concern is that many Medi-Cal managed care has an exclusive arrangement with the Sacramento Family patients reportedly come to EDs for non-emergency services. Medical Center, a large for-profit Medi-Cal provider with Hospitals suggested that these patients resort to seeking care 11 clinics. River City is willing to contract with CHCs in in inappropriate, costly settings because their care is not the region, but CHCs reported challenges getting enrollees well-managed and they are often unaware of their assigned assigned to them and consequently serve fewer Medi-Cal primary care physician. Largely in response to these concerns, managed care patients than they had anticipated as they Sacramento County convened a stakeholder advisory expanded capacity. Some CHCs also noted being more likely committee to meet regularly to assess the GMC model. to receive sicker enrollees. Further, CHCs reportedly face problems with low, slow, or no payment for the patients they do treat, which affects their financial health and ability to care for uninsured patients. ©2012 California HealthCare Foundation 9 Preparing for Reform Issues to Track Most stakeholders in the Sacramento region believed that Recent developments in the Sacramento health care market hospital inpatient capacity is sufficient to handle the increase generate a number of outstanding questions to track over the in insured patients resulting from coverage expansions next several years: under national health reform. In support of those views, ▶▶ To what extent will new contracting arrangements such as respondents noted that uninsured patients now generally ACO-like programs between providers and health plans receive the inpatient care they need, and care is expected to continue to grow? How effective will these collaborations shift from inpatient to ambulatory settings under reform. be in improving efficiency, expanding enrollment and However, there was an even greater consensus among competing with Kaiser? stakeholders that the physician supply — especially primary care physicians — is inadequate to meet expanded demand. ▶▶ How will hospitals fare financially under health reform? In the words of one respondent, the coverage expansions Can costs be contained and efficiency improved to will result in a “tsunami of unmet need.” Some FQHCs maintain their relatively strong financial performance? are planning additional primary care expansions but are ▶▶ Will the construction boom lead to overcapacity, constrained in part by their inability to recruit physicians — particularly on the inpatient side as care moves to a particular challenge in a market where they must compete ambulatory settings, resulting in increased financial against Kaiser and other system-affiliated large groups that pressures for hospital systems? offer compensation packages that safety-net providers have difficulty matching. The number of specialist physicians per ▶▶ Will the independent physicians currently practicing capita is generally considered adequate, but there is concern in both the Sutter and Dignity systems move toward that specialists may not accept newly insured patients covered exclusive alignment with a single system? under Medi-Cal or the California Health Benefit Exchange if ▶▶ How will provider participation in Medi-Cal change the payment rates are as low as many expect.7 under health reform? In particular, how will Medi-Cal The Sacramento region is not implementing any participation of UC Davis and its broader safety-net role mainstream community-wide initiatives to prepare for evolve? reform, and the safety-net activities that are underway lag behind some other California communities. As part of the ▶▶ To what extent will the community be able to expand Bridge to Reform — California’s Medicaid waiver program primary care capacity to keep pace with demand as more — the Low Income Health Program (LIHP) is being people gain health insurance? implemented at the county level to transition uninsured ▶▶ Will the GMC Medi-Cal model survive in Sacramento people to insurance when Medi-Cal eligibility expands in County? What will be the impact on FQHCs’ Medi-Cal 2014.8 Sacramento County set a low-income threshold for patient bases and financial viability? LIHP eligibility (67% of federal poverty, compared to 200% of federal poverty for CMISP and 133% for the Medi-Cal expansion under reform) and has not yet begun enrolling people. ©2012 California HealthCare Foundation 10 Endnotes 1. California Office of Statewide Planning and Development, Healthcare 7. California was the first state to create a health benefit exchange following Information Division, Annual Financial Data, 2010. Data reflect each the passage of federal health care reform. The California Health Benefit hospital system’s fiscal year. Exchange is an independent public entity that will provide a mechanism for individuals and small businesses to shop for and buy health insurance 2. Passed by the California legislature in 2009, the Hospital Quality beginning in 2014. The Exchange will be the sole means by which eligible Assurance Fee Program (commonly known as the hospital fee program) individuals and small businesses can access federal subsidies and credits to generates additional funding for hospitals serving relatively large numbers help pay for insurance coverage. of Medi-Cal patients. Hospitals pay a fee based on their overall volume of inpatient days; after the addition of federal matching dollars, the funds 8. The Low Income Health Program does not itself provide health insurance are redistributed to hospitals based on their Medi-Cal inpatient days and but requires counties to provide a benefit similar to Medi-Cal. In outpatient visits. Approximately 20% of hospitals are net contributors to Sacramento County, this represents an expansion of services beyond what the program. While the program originally only covered the period from the currently provides in its CMISP; for example, the expansion includes a April 2009 through December 2010, it has been renewed twice to 2013. mental health benefit, transportation services, and a requirement to meet Payments were first made to hospitals at the end of 2010. the Department of Managed Health Care’s timely access to care law. 3. Since its inception in 2011, the Delivery System Reform Incentive Program (DSRIP) has provided payments to California public hospitals for identifying and meeting numerous milestones around improving their infrastructure, care delivery processes, and quality outcomes over a five-year period. 4. Because California’s corporate practice of medicine law prohibits hospitals from directly employing physicians, some hospitals sponsor medical foundations as a way to align with physicians. Under a medical foundation model, physicians either contract with the foundation through an affiliated IPA or are part of a medical group that contracts exclusively with the foundation through a professional services arrangement. University of California hospitals, county hospitals, and some nonprofit organizations such as community clinics are among the entities allowed to employ physicians directly, through exceptions to the corporate practice of medicine prohibition. 5. Sacramento’s pilot dental managed care program for children came under fire following a series of stories in February 2012 in the Sacramento Bee. Issues are being closely monitored by the Department of Health Care Services (DHCS). In addition, legislation was introduced to make Sacramento’s managed care dental program voluntary rather than mandatory. 6. One CHC holds a grandfathered arrangement with a plan: Midtown Medical Center with Anthem Blue Cross. ©2012 California HealthCare Foundation 11 Del Norte Regional Markets Study: Sacramento In November/December 2011, a team of researchers from the Center for Studying Health System Change (HSC) conducted interviews with health care leaders in the Sacramento region to study that market’s local health care system and update a similar study conducted in October, 2008. The Sacramento market encompasses the Sacramento–Arden-Arcade–Roseville, California, Metropolitan Statistical Area and includes El Dorado, Placer, Sacramento, and Yolo counties. Placer Sacramento is one of six markets being studied on behalf of the California HealthCare Yolo El Dorado Sacramento Foundation to gain important insights into regional characteristics in health care Marin Bay Area Contra affordability, access, and quality. The six markets included in the project — Fresno, Costa San Francisco Alameda Mariposa Los Angeles, Riverside / San Bernardino, Sacramento, San Diego, and the San Mateo Madera San Francisco Bay Area — reflect a range of economic, demographic, Fresno health care delivery, and financing conditions in California. Tulare Kings HSC researchers interviewed 25 respondents specific to the Sacramento market, including executives from hospitals, physician organizations, community clinics, and San Bernardino Los programs for low-income people. Interviews with Angeles 18 health plan executives and other respondents at Riverside the state level also informed this report. San Diego ▶▶ or the entire regional markets series, visit f www.chcf.org/almanac/regional-markets. About the Authors About the Foundation Ha Tu, Laurie Felland, Joy Grossman, Divya Samuel, and Lucy Stark of the The California HealthCare Foundation works as a catalyst to fulfill the Center for Studying Health System Change (HSC). HSC is a nonpartisan promise of better health care for all Californians. We support ideas and policy research organization that designs and conducts studies focused on innovations that improve quality, increase efficiency, and lower the costs the U.S. health care system to inform the thinking and decisions of of care. For more information, visit us online at www.chcf.org. policymakers in government and private industry. More information is California Health Care Almanac is an online clearinghouse for key data available at www.hschange.org. and analysis examining the state’s health care system. For more information, go to www.chcf.org/almanac. ©2012 California HealthCare Foundation