Competition Spurs Northern Expansion in San Diego

SAN DIEGO — Competition is heating up among San Diego’s health care systems as they work to capture the area’s most lucrative patient population in an economic environment of shrinking reimbursement and growing uncertainty.

The northern part of the county, with its wealthier and better-insured population, has seen an expansion of services among a number of the region’s health systems, as outlined in California HealthCare Foundation’s Health Care Almanac, published earlier this year. CHCF publishes California Healthline.

Strategies vary among the region’s big players in terms of how they compete for market share under the Affordable Care Act.

The University of California San Diego Health System is expanding its Thornton Hospital in La Jolla. The new Jacobs Medical Center will offer cardiovascular care, cancer care, specialty surgery, and women’s and children’s services. The facility is scheduled to open in 2016.  

The system also has expanded its outpatient services in the northern part of the county with clinics in Encinitas, Vista and Scripps Ranch, all of which will feed referrals to the new $700 million hospital in La Jolla.

Sharp Healthcare is also looking to expand its presence in San Diego’s wealthier North Central, North Coastal and North Inland regions, albeit via a different path. Instead of building new hospitals, Sharp has chosen to expand exclusively through outpatient clinics.

“Everyone likes to have a strong payer mix. We may just have a different strategy,” said Daniel
Gross, executive vice president of hospital operations for Sharp HealthCare.

The system has expanded its outpatient medical groups into North County Inland with sites in Scripps Ranch and Rancho Bernardo. Sharp opened a new outpatient site in the Sorrento Mesa area, San Diego’s technology corridor, and soon will open an expanded medical office building in the wealthy coastal community of Del Mar.

“So our strategy is to look at medical office building clinic sites,” Gross said. In addition, Sharp just entered into a new partnership with CVS Pharmacies’ Minute Clinic operations to provide medical supervision and oversight in 10 clinics throughout the county.

Scripps Healthcare is facing intense competition in its prime market of La Jolla, particularly with UC-San Diego building its new hospital literally across the street from the Scripps Green Hospital.

Like all other health systems, Scripps is looking to dramatically expand its outpatient capacity, said Chris Van Gorder, Scripps CEO. It currently has 23 outpatient sites throughout the county.

“What we’re trying to do in anticipation of health care reform is make sure that we’re maximizing the use of our inpatient facilities and growing and acquiring ambulatory sites. And we’re doing that both in the north and the south,” Van Gorder said.

Kaiser Permanente has also worked to establish a wide geographic footprint throughout San Diego County.

“Our strategy is about placing our facilities as close to our membership as we can,” said Rodger Dougherty, senior director of public affairs and brand communications for Kaiser Permanente.

Currently, Kaiser has just one hospital in San Diego, but Kaiser has contractual relationships with virtually all other providers in town, including Scripps and Palomar Health, where Kaiser members based in the Northern part of San Diego are treated. Kaiser plans to build a new hospital in Kearny Mesa in Central San Diego, which is expected to open sometime in 2017. Though no additional hospital plans are currently in place, Dougherty said his organization also owns property in both North and East Counties, which will likely be home to hospitals in the future. In response to the growing population in North County, Kaiser is opening a medical office facility this year in the affluent community of Carmel Valley and another further north in the city of Oceanside.

Concerns Raised About Gaps in Access to Care

Van Gorder, as well as others in the community, have for years publicly worried that in building its new hospital in La Jolla, UC-San Diego’s ultimate plan is to dramatically reduce the services provided in its downtown Hillcrest location. One of the possible outcomes from such a shift would be to send poorer and uninsured patients to Scripps’ downtown facility or its Chula Vista hospital further south. Scripps’ downtown hospital, Mercy San Diego, just underwent a large expansion of both the emergency department and trauma center. If that migration were to happen, Van Gorder said, it would destabilize the delivery of care throughout San Diego.

UC-San Diego officials have repeatedly said they have no plans to significantly change the patient mix in the region. The university’s Hillcrest hospital is a teaching facility and that is core to its mission, system officials have said. The hospital maintains emergency department and trauma services, as well as those for HIV/AIDS, psychiatry, orthopedics, hyperbaric medicine, respiratory care and a comprehensive stroke center.

Not everyone sees the expansion north as an attempt to capture the area’s wealthiest patients.

“The reality is that there’s a population growth more in the north than the south,” said Theodore Mazer, communications director for the San Diego County Medical Society. “Therefore, trying to move services north may be driven not only by the wealth of the communities and the insured status of the communities, but also by the projected growth of communities,” Mazer said.

Health systems are expanding services in San Diego’s more economically challenged Central and South regions as well, stakeholders said.

Medicaid Disproportionate Share Cut Worries Hospital Execs

Hospital executives are worried about the ACA’s reduction of Medicaid disproportionate share hospital allotments, which are meant to be offset by the increased number of people with health insurance.

Disproportionate share payments are federal funds paid to hospitals that treat a high number of uninsured patients. The ACA reduces DSH payments overall by $56 billion starting in 2014, though in President Obama’s most recent budget he proposed a delay in cuts. For providers in states choosing not to expand their Medicaid programs and for safety-net hospitals nationwide, cuts to DSH payments are particularly worrisome.

“That’s probably one I’m most concerned with,” Van Gorder said. “In our case, the only way we have any kind of operating margin at all in our disproportionate share hospitals is through disproportionate share funding.”

Although the law aims to dramatically reduce the number of uninsured, in part by expanding Medicaid coverage, the expectation is that provider reimbursement levels will remain low.

“We lose money on every single one of those patients on the hospital side,” Van Gorder said. “Right now, at least if we’re taking care of somebody that’s uninsured and they don’t pay us, it’s considered charity care. In the future, we may be getting a lot more Medi-Cal patients. We’re still losing money, and it’s no longer charity care,” Van Gorder said.

Low reimbursement rates for Medi-Cal are a problem for the entire state, not just hospitals losing disproportionate share funds, according to the medical society’s Mazer.

“Right now we’re fighting a 10% Medi-Cal cut retroactive to 2011.” Mazer said. “That is already creating a barrier for this population in accessing care. And we’re about to throw two to three million more Californians into that account next year,” he added.

Concerns about the impact of low provider reimbursement on access to care aren’t confined to Medicaid.

“We still don’t know what the exchange is going to pay for anything. But it looks like they’re going to pay something under Medicare for commercial services for people who enroll through the exchange,” Mazer said. If that’s the case, he sees fewer providers participating in the networks.

Sandy Ageloff — senior consultant with Towers Watson, a professional services firm — predicted exchange offerings will be noticeably different than other insurance plans. “What we’ve heard from carriers as they develop their networks for the exchanges is that they are definitely looking at narrower networks based on wanting to maximize cost efficiency,” Ageloff said.

“It’s not what a person would necessarily expect to see from their employer-sponsored plan today or even what they’re seeing in the individual market today. The public exchange networks will be different than both of those network configurations,” she said.

Some health plans around the country are looking at their Medicaid network as the starting point for their exchange network, according to Ageloff. “That may mean fewer facilities and facilities geared toward the public health market today,” she said.

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Health Industry Insight Insurance Medi-Cal