A new market study for California is planned for early fourth quarter 2009. To be notified of publication, please send E-mail to: Baumg010@tc.umn.edu.
California Health Care Market Report 2006: Changes signal an end to the relative tranquility of the past few years.
Here are key findings of the new report:
1. The migration away from HMOs continues, putting pressure on physician organizations. Physician organizations built their medical management and administrative systems under the capitated/delegated model, but now face a steady erosion of their patient base as employers shift their benefits from the HMO model to PPOs and similar arrangements. All of this has left physician groups scrambling to retool themselves to attract PPO patients, with limited success so far. ion.
In a trend that seems counterintuitive, the more enrollees HMOs lose the more profitable they have become.
2. Health plans are pushing back against hospitals. For the past few years, consolidated hospital systems had the upper hand in their negotiations with health plans, and they used that leverage to secure higher payment rates and to exit risk-sharing arrangements. Now the pendulum of economic power may be swinging back to the health plans for two reasons: the construction of new hospital capacity, and the most recent mega-mergers by health plan companies. In a few recent cases, the pushback has come from large purchasers of health benefits, such as CalPERS.
3. Hospitals are spending major funds on new construction. In a related development, hospitals are in the midst of a construction boom that is likely without precedent. However, hospitals face significant financial challenges in the next few years. In addition to the pushback from health insurers, they also may see a period of reduced utilization as patients either lose coverage or see significant reductions in their benefits. The greatest challenge to hospitals in the next five years may be the soaring cost of building materials.
4. Kaiser is expanding and creating new challenges. Kaiser is in the midst of a huge investment program, constructing new hospitals and physician clinics, sometimes in areas where Kaiser contracted with the local providers. As new Kaiser facilities come on-line in places like Ventura County in the south and Vacaville in the north, the Kaiser Permanente HMO is dropping its contracts with local physician and hospitals.
5. Consumer protections are an issue. Most new product designs are now brought to the Department of Insurance as PPO plans because it is easier to get approval. Another concern for both DMHC- and CDI-regulated plans is the state role in ensuring appropriate access to care. Recent problems with the Kaiser kidney transplant program raised the question: Is it the state?s responsibility to respond to complaints after the fact, or should state regulators be more pro-active in scrutinizing arrangements for the delivery of care before they are put into effect?
6. Purchasers are demanding value and health plans want transparency. Employers have been turning to their health plans asking them to demonstrate value, namely cost savings and improved quality and access. In turn, the health plans have been asking their providers for more transparency, wanting to see the differences in provider quality, costs and how they practice. The quest for transparency has taken a variety of forms, including Pay for Performance initiatives and the identification of high-performing provider networks.
7. The uninsured and the underinsured continue to challenge the health care system. According to data from the 2005 Current Population Survey, 21.3% of Californians under age 65 have no health insurance. Much of the care provided to people without insurance is provided by a fraying safety net of public hospitals, some community hospitals and community health centers. In the past few years, concerns have been expressed about the underinsured: individuals and households that have coverage that is subject to significant cost-sharing in the form of co-payments and high deductibles.
Free copies of the report are available from the California HealthCare Foundation.