california Health Care Almanac regional markets issue brief december 2012 Fresno: Health Providers Expand Capacity, but Health Reform Preparation Lags Summary of Findings ▶▶ Expanded clinic capacity still falling short of demand The Fresno region remains one of the poorest areas in in underserved communities. Federally qualified health California. With the economic downturn, Medi-Cal centers (FQHCs) and hospital-operated rural health enrollment rates have been driven even higher than in clinics (RHCs) are expanding capacity and improving prior years, and the proportion of the population with no patient access, although demand still outstrips supply. As insurance has continued to expand. The population has a result of these expansions, competition for Medi-Cal continued to grow, although at a slower pace than during the patients in rural areas is heating up, and competition early 2000s. These factors have strained already inadequate to recruit physicians across the region is growing more provider capacity, particularly of physicians. intense. Key developments since the last study was conducted in ▶▶ Limited preparations for national health reform. 2008 include: The region trails other areas of the state in preparing for coverage expansions under reform. Fresno County is ▶▶ Focus on inpatient capacity. Hospitals are expanding one of only a few California counties that have not yet inpatient beds and services to ease overall capacity committed to participating in the Low Income Health constraints and to compete aggressively for the shrinking Plan (LIHP), an optional county program to provide base of commercially insured patients. Most hospitals health care services to low-income, uninsured adults weathered the economic downturn, although they and to transition most enrollees to Medi-Cal once they continue to face financial pressures. become eligible in 2014.1 The second-largest county ▶▶ Little traction on hospital efforts to align with in the region, Tulare, will get a late start, launching the physicians. Hospitals are making efforts to align more LIHP in January 2013. closely with physicians, including developing medical foundations to compete more effectively with other A defining characteristic of the Fresno market remains provider organizations in recruiting physicians to the unchanged since 2008: Health maintenance organizations area. Most physicians, however, continue to work in (HMOs) play a much more limited role in the region than independent solo and very small practices and show little elsewhere in the state. For example, Kaiser Permanente interest in hospital alignment efforts. Health Plan, a large, closed-model HMO, maintains only a modest presence in the Fresno area even as it has strengthened its competitive position in many parts of the state in recent years. As in the rest of the state, Table 1. D emographic and Health System Characteristics: Fresno vs. California Fresno California total HMO enrollment continues to decline Population Statistics, 2010 because of competition from lower-priced Total population 1,694,727 37,253,956 Population growth, 10-year 17.9% 10.0% preferred provider organization (PPO) products Population growth, 5-year 7.8% 4.1% — including lower-premium, consumer- Age of Population, 2009 Persons under 5 years old 9.5% 7.3% directed health plans — and the overall erosion Persons under 18 years old 30.0% 26.3% in commercial coverage from the economic Persons 18 to 64 years old 60.7% 62.8% Persons 65 years and older 9.3% 10.9% downturn. As a result of the relatively limited Race/Ethnicit y, 2009 role of HMOs, health system features that White non-Latino 36.0% 42.3% Black non-Latino 3.8% 5.6% typically develop in tandem with HMOs, such Latino 51.6% 36.8% as large physician organizations operating under Asian non-Latino 5.4% 12.1% the delegated-capitation model, are uncommon Other race non-Latino 3.1% 3.1% Foreign-born 23.6% 26.3% in the market.2 Education, 2009 High school diploma or higher, adults 25 and older 72.3% 82.6% College degree or higher, adults 25 and older 22.6% 37.7% Market Background Health Status, 2009 The Fresno region spans nearly 16,000 Fair/poor health status 19.8% 15.3% Diabetes 8.2% 8.5% square miles in the center of the San Joaquin Asthma 17.3% 13.7% Valley of Central California, encompassing Heart disease, adults 6.0% 5.9% Economic Indicators urban and rural areas of Fresno County and Below 100% federal poverty level (2009) 27.3% 17.8% the surrounding counties of Tulare, Kings, Below 200% federal poverty level (2009) 53.6% 36.4% Household income above $50,000 (2009) 36.6% 50.4% Madera, and Mariposa. With a population of Unemployment rate (2011) 16.5% 12.4% 1.7 million, the region continues to grow faster Foreclosure rate* (2011) 5.2% n/a than California as a whole, although growth has Health Insurance, All Ages, 2009 Private insurance 42.0% 55.3% slowed relative to the early 2000s. Medicare 7.4% 8.8% The region is home to some of the poorest Medi-Cal and other public programs 33.7% 21.4% Uninsured 16.9% 14.5% communities in the state and country, stemming Supply of Health Professionals, per 100,000 population, 2008 largely from the rural region’s economic reliance Physicians 118 174 Primary care physicians 45 59 on agriculture and related businesses. The Dentists 43 69 economic downturn worsened the already-bleak Hospitals, 2010 Community, acute care hospital beds per 100,000 population 165.6 178.4 economic picture, and the region continues Operating margin with net disproportionate share hospitals (Kaiser excluded) 1.9% 2.4% to lag state averages on most socioeconomic Occupancy rate for licensed acute care beds (Kaiser included) 64.4% 57.8% Average length of stay (in days) (Kaiser included) 4.4 4.5 indicators (see Table 1). The proportion of Paid full-time equivalents per 1,000 adjusted patient days (Kaiser excluded) 14.1 15.8 the population with incomes below 200% of Total operating expense per adjusted patient day (Kaiser excluded) $2,092 $2,856 the federal poverty level continued to climb, Note: Mariposa County is not included in estimates using CHIS data for Fresno. *Foreclosure rates in 367 metropolitan statistical areas nationally ranged from 18.2% (Miami, FL) to 1% (College Station, TX). reaching 53.6% in 2009 compared to 36.4% Sources: US Census Bureau, 2010; California Health Interview Survey, 2009; State of California Employment Development Department, Labor Market Information Division, “Monthly Labor Force Data for California Counties and Metropolitan Statistical Areas, July 2011” (preliminary data statewide. Growing unemployment contributed 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,” May 2009; California Office of Statewide Health Planning and Development, Healthcare Information Division, Annual Financial Data, 2010; to worsening poverty, with the 2011 www.foreclosureresponse.org, 2011. unemployment rate of 16.5% almost double ©2012 California HealthCare Foundation 2 the 2007 rate of 8.3% and well above the statewide average a smaller community hospital in the more affluent area of of 12.4%. Moreover, annual unemployment rates obscure Clovis. even higher seasonal unemployment rates in the agribusiness Saint Agnes, the only California hospital operated by sector, which has been under additional pressure because of Trinity Health System of Michigan, is the second-largest water shortages. The unadjusted monthly unemployment provider in Fresno County, with about half as many rate peaked in March 2010 at 18.5%, compared to 12.8% discharges as CMC (15.7%). Kaiser, with one smaller facility, statewide that month. has a much lower market share at about 4.9% of discharges. The downturn also eroded the already-low rates of private However, Kaiser’s share of the commercial market is higher health coverage in the region. By 2009, the share of people than what is reflected by inpatient discharges, given that with private health insurance was only 42%, down from commercial enrollees comprise the majority of the hospital’s 46.8% in 2007 and continuing to lag the state average of patient base. 55.3%. More than half of the population was on Medi-Cal The demands on safety-net providers are significant in or was uninsured in 2009, compared with 35.9% statewide. the Fresno area because of the disproportionately high rate The Fresno region remains an outlier on other of poverty, and CMC plays a pivotal safety-net role in Fresno demographic measures as well, with a much higher County and the region. After acquiring the county’s only proportion of Latinos and much lower proportions of Whites public hospital in 1996, CMC signed a 30-year agreement and Asians. The population overall has lower educational with Fresno County to be the exclusive provider under the attainment levels and poorer health. The concentration of County Medically Indigent Services Program (CMISP), agribusiness jobs attracts large numbers of undocumented a county program with state funding that pays providers and mostly uninsured immigrants to the area. to care for low-income, uninsured residents. Under the program, CMC provides all primary, specialty, and inpatient Most Hospitals Weather the Downturn care for medically indigent residents, as well as more limited The Fresno region’s health care system is segmented care for prison inmates, primarily at the CRMC campus. geographically, for the most part along county lines, although (Fresno County is one of the few California counties that patients in more rural areas often travel to neighboring devote a portion of CMISP funds to pay for prison health counties or even farther for specialty care. The region’s major care.) CMC is also by far the largest inpatient provider of health care providers have experienced little organizational Medi-Cal services and uncompensated care in the county and change since the last study was conducted in 2008. the region, even after adjusting for its larger size. Fresno County is served by three of the largest hospital The largest providers of hospital care outside of Fresno providers in the region, along with some smaller hospitals in County are the Kaweah Delta Health Care District and the county’s more rural areas. Community Medical Centers the Adventist Health Central Valley Network. The district- (CMC), the dominant provider in the region, serves as a owned Kaweah Delta Medical Center, similar in size to referral center for outlying counties and accounted for about Saint Agnes with a 15% market share, is the biggest of three a third of inpatient discharges across the five-county area district hospitals in Tulare County and plays the largest in 2010 (32.3%). CMC’s three facilities include its flagship safety-net role. Adventist Health Central Valley Network, hospital, Community Regional Medical Center (CRMC) part of a multistate hospital system, owns or manages four in downtown Fresno, which accounts for the majority of smaller acute care hospitals in Kings County and rural CMC’s discharges, along with a specialty heart hospital and southern Fresno County, with 10.2% of patient discharges. ©2012 California HealthCare Foundation 3 Most of the remaining hospitals are smaller rural district Saint Agnes, long viewed as a financially strong hospital, hospitals, with the exception of Children’s Hospital Central began experiencing financial pressure in 2008. Although California in Madera County, which serves as a pediatric it reported a 4.1% operating margin that year, in 2009 its referral center for the Fresno region and beyond. margin dropped close to breakeven (0.3%) and then dipped While hospitals’ financial performance continues to be into the negative in 2010 (– 0.4%), with losses reportedly mixed, most Fresno-region hospitals have maintained or even growing even larger in 2011. improved operating margins since 2008. Nonetheless, CMC Saint Agnes’s weakening financial performance resulted, dropped below breakeven in 2010, Saint Agnes has faced in part, from leadership turmoil at the hospital and increased multiple years of losses, and some of the very smallest rural competitive pressure from CMC. The two organizations district hospitals are seeing substantial and mounting deficits. have long had a contentious relationship. With a new CEO Hospitals continue to struggle with a poor payer mix, which in place since early 2011, Saint Agnes is still working to has worsened somewhat during the economic downturn. regain its footing after repeated management turnovers that Adding further pressure, commercial insurers are slowing hurt relationships with physicians. In 2008, the hospital rate increases from double to single digits. Hospitals reported experienced highly publicized outbreaks of Legionnaires’ mitigating the downward pressure on margins by reducing disease and methicillin-resistant Staphylococcus aureus expenses. Some hospitals’ bottom lines also benefited from (MRSA) infections, with the latter leading to a three-month state hospital fee program payments starting at the end of closure of its cardiac surgery program. Some physicians 2010, which helped reduce losses on Medi-Cal patients.3 already were unhappy with Saint Agnes’s earlier decision to CMC had operating margins of more than 5% in 2008 replace community-based heart specialists with physicians and 2009 but faced an operating loss of – 0.9% in 2010, from outside the market. Despite stabilizing the reopened the most recent year of publicly available data.4 By 2011, cardiac program, the hospital still is working on broader however, CMC’s finances reportedly rebounded, even after turnaround efforts to improve physician relationships and excluding the hospital fee program payment and despite financial performance. growing losses on its CMISP contract. In more rural parts of the region, some of the smallest Under the CMISP contract, Fresno County pays CMC hospitals are struggling to remain open in the face of a fixed annual payment to provide care regardless of actual mounting losses. In Fresno County, Kingsburg District program enrollment. The payment amount increases Hospital shut down in 2010 while Adventist took over the annually only by the rise in the Consumer Price Index, and long-term lease on Sierra Kings District Hospital that same CMC’s reported expenditures on indigent care have risen year. In Kings County, a third hospital, Corcoran District more substantially than payments since 1996. More recently, Hospital, has been in discussion with Adventist about a CMISP enrollment and related program costs increased potential partnership. because of the economic downturn and eligibility expansions starting in 2010. CMC publicly reported that the amount of uncompensated care provided to CMISP patients was about $62.5 million in 2011, up from about $51 million in 2010. As a result of CMC’s mounting losses, tensions between CMC and the county have grown. ©2012 California HealthCare Foundation 4 Hospitals Expand Amid Competition for Commercially practice association (IPA) in the area, Santé Community Insured Physicians. Since 2008, the number of inpatient beds in the region has With limited risk sharing, little competitive pressure for increased by almost 15% — more than 300 beds — and patients from Kaiser, and tight physician supply, Fresno-area hospital emergency departments (EDs) have expanded. physicians do not have the same incentives as physicians Hospitals are undertaking these construction projects in other California markets to consolidate into large primarily to ease capacity constraints and to better compete physician-owned medical groups or to tightly align with for the limited number of commercially insured patients. hospitals. Two IPAs continue to support limited professional Some of the largest hospitals also are competing for insured risk contracting under commercial HMOs and Medicare patients by expanding capacity to support lucrative service Advantage. Santé Community Physicians, the larger of the lines, including cardiovascular services, neurosurgery, and two, operates in Fresno, Madera, and Kings Counties. This orthopedics. Together, CMC, Saint Agnes, and Kaweah physician-owned IPA is aligned with CMC and is supported Delta (along with Kaiser) provide the bulk of the facility- by the jointly owned MSO. Santé admits primarily to CMC, based specialty care in the market, although they compete to excluding Saint Agnes from its commercial HMO networks. some extent with local physician-owned surgical facilities and The smaller Key Medical Group operates in Tulare and Kings providers outside the region. Counties. CMC has expanded the most. The system added a large number of specialty beds at CRMC as part of an effort to Chronic Physician Shortages improve the downtown safety-net facility’s payer mix. The The Fresno region continues to have chronic shortages of system is doubling the size of the smaller Clovis Hospital to PCPs and specialists, with a physician supply of 118 per 205 beds to compete more aggressively with nearby Saint 100,000 population, well below the state average of 174. Agnes in the most affluent and growing part of Fresno Most communities in the region are designated as shortage County. Saint Agnes added a relatively modest 35 beds, while areas under government programs. Provider organizations Kaweah Delta and Adventist each added 75 or more beds. — including hospitals, medical groups, Kaiser, FQHCs, and RHCs — continue to face many challenges in recruiting Physicians Slow to Align with Hospitals physicians to the market, including low payment rates, a Both primary care physicians (PCPs) and specialists in the poor payer mix, and such quality-of-life considerations as region tend to work in independent solo and very small poor air quality and lack of employment opportunities for practices. Exceptions include Kaiser’s Permanente Medical spouses. In addition, there is resistance from established Group, with about 225 physicians, and a few other large, physicians who see new physicians as competition for an mostly physician-owned medical groups ranging from 50 ever-shrinking pool of commercially insured patients. Finally, to 100 or more physicians. Most of these groups, located with the exception of Kaiser, the market has few options to in Fresno County, are aligned with CMC. The aligned attract young physicians looking for salaried employment in groups have a close referral relationship with the system and large medical groups. may receive administrative support through a management The Fresno area’s physician shortages create access barriers services organization (MSO) jointly owned by CMC and for both insured and uninsured patients, including long the community physicians who own the largest independent wait times for appointments. Reflecting the PCP shortages in the commercially insured population, the IPA Santé, ©2012 California HealthCare Foundation 5 pays member PCPs a 10% bonus on monthly capitation Group has expanded from around 200 to 225 physicians, rates to accept new HMO patients. Access to physicians adding both PCPs and specialists. Local hospitals reported is an even greater challenge for low-income patients and being at a competitive disadvantage in physician recruiting those in the more remote areas, particularly for specialty relative to Kaiser and large systems in other California care. As few private practice physicians accept Medi-Cal or markets. Even local RHCs and FQHCs are rivals in the medically indigent patients, most specialty care for these recruiting competition because they potentially can offer patients is provided at CMC in Fresno, and to a lesser extent, higher compensation than private practices since they at Kaweah Delta, the other three Tulare County district receive cost-based Medi-Cal and Medicare rates (see sidebars hospitals, and Adventist. Because of limited capacity at these “FQHC and Look-Alike Designations” and “Rural Health facilities, wait times for specialty care often exceed a year, Clinics Compared to FQHCs”). prompting some patients to travel outside the area — for To compete more effectively with other provider example, to the Bay Area. organizations on physician recruitment, Fresno-area hospitals Despite the persistent and acute physician shortages in are ramping up efforts to develop medical foundations which the region, community-wide recruiting efforts have been are already in place in many large systems across the state.5 limited. Local providers have collaborated to some extent The foundation model provides a vehicle to offer more- on graduate medical education programs, which may help competitive packages to recruit and retain physicians than increase local physician supply, since physicians often what hospitals would otherwise legally be allowed to offer. settle where they do their training. For example, CMC Moreover, foundations can strengthen hospital-physician has expanded its longtime program with the University of relationships by aligning financial incentives, exerting California, San Francisco, which also includes partnerships greater leverage with health plans through joint contracting, with other hospitals and clinics in the region. However, and implementing quality improvement programs. Risk because of competitive tensions, in part, other providers are contracting has not been a focus of foundation development now establishing separate programs with different medical in the Fresno area, in contrast to some other California schools. For example, Kaweah Delta is starting its own markets. program with University of California, Irvine. Similarly, Physicians, who historically have been fiercely safety-net primary care organizations serving the Central independent and distrustful of hospitals in this market, are Valley have other training programs in place — for example, showing little interest in hospitals’ overtures. For example, to support medical students from the valley who promise to Kaweah Delta’s proposal to develop a medical foundation return to the area to practice — and are working to expand was rejected outright by affiliated physicians before it got partnerships to place primary care residents in FQHCs. off the ground. CMC is taking a different approach. Rather than having the system directly sponsor the foundation, Fierce Competition Among Providers for Physicians Santé, CMC’s affiliated IPA, is working to establish an Overall, the region’s provider organizations compete intensely independent medical foundation that would be allowed to for physicians with each other and with providers from other accept grants from CMC to support physician recruitment. markets. Kaiser is viewed as a stiff competitor on physician However, no medical groups had agreed to participate at recruitment and is reportedly able to offer more attractive the time of the site study. Physician reluctance to participate compensation packages, including higher salaries and loan in medical foundations reportedly reflects, in part, concern forgiveness programs. Since 2008, the Permanente Medical about competition from new recruits and the possibility that ©2012 California HealthCare Foundation 6 hospitals will use medical foundations to constrain physician is contractually obligated to serve CMISP patients, other autonomy or redirect revenues from physicians. patients — particularly Medi-Cal — are often referred to Clinica Sierra Vista, the major FQHC serving the city of FQHC Capacity Expanding but Still Inadequate Fresno, with eight sites. The more rural parts of Fresno The Fresno region’s safety net remains fragmented. Each County are served by Valley Health Team on the west side, of the five counties operates its own medically indigent with three sites, and United Health Centers of the San programs, and a geographically distinct set of providers serves Joaquin Valley to the southwest, with six sites in Fresno the uninsured and low-income populations. These providers County and one each in Tulare and Kings Counties. include hospitals and FQHCs: organizations eligible to In Tulare County, Family HealthCare Network (FHCN) receive both federal grants and cost-based Medi-Cal is the largest FQHC; it has 10 sites in that county and one payments. The exception to distinct county safety-net in Kings County. Tulare Community Health Clinic is an systems is CMC in Fresno County, which serves as the safety- FQHC with three sites. The Tulare County government also net hospital for patients in surrounding areas when inpatient operates three FQHC look-alike clinics, the only county procedures and services are unavailable locally. Even within government in the region to provide direct patient care. counties, there is little coordination or collaboration among Madera County has just one FQHC, Camerena Health, with safety-net providers. four sites serving the county’s western half. The primarily In Fresno County, CMC maintains an ambulatory rural Kings County has two FQHCs, while Mariposa care center — which it recently moved to a new facility County has only a single, non-FQHC health center. with 104 exam rooms — as a source of primary care and Several FQHCs in the region, including Clinica Sierra some specialty care to CMISP and other patients. Because Vista, United Health Centers, and Camerena Health, have the ambulatory care center is at full capacity, and CMC each added one or two new clinic sites and have increased capacity at existing clinics, either through construction or by extending operating hours. More construction is FQHC and Look-Alike Designations underway or planned by these clinics as well as others, In the Fresno region, FQHCs are the main providers of primary including FHCN. The FQHC expansions were funded by and preventive health services to Medi-Cal and low-income, a combination of tax-exempt bonds and federal grants from uninsured patients, with the exception of CMC’s ambulatory care center. FQHCs must meet a host of federal requirements the 2009 stimulus package and the 2010 Patient Protection under Section 330 of the Public Health Service Act. FQHC and Affordable Care Act. designation provides benefits including federal grants to Although most FQHCs have expanded capacity, Tulare subsidize capital and operational costs, cost-based payments County closed some clinic sites in 2009 because the clinics per Medicaid and Medicare patient visit (for Medicaid, were operating at a loss and the county faced budget Prospective Payment System payments based on previous average costs for an individual health center that are updated shortfalls. The county’s remaining clinics continue to struggle annually for medical inflation), discounted pharmaceuticals, because they are contractually obligated to serve CMISP access to National Health Service Corps clinicians, and medical patients and are less able to compete for Medi-Cal patients malpractice liability coverage. The Tulare County government with the growing number of FQHC sites in the county. operates clinics that have FQHC look-alike status; this status Despite expansions, FQHCs in the region struggle to provides most of the benefits that FQHCs receive but not federal grants. provide adequate access to the large and growing number of uninsured and Medi-Cal patients. Some clinics reported ©2012 California HealthCare Foundation 7 that patients filled added capacity almost immediately. Most Center, have expanded the number of RHCs they operate, respondents agreed that a substantial amount of unmet need often in the same communities where other RHCs and remains, particularly in the more remote eastern areas of FQHCs are located. Hospitals are acquiring existing RHCs Madera and Mariposa Counties in the foothills of the Sierra or converting private practices in some locations, while in Nevada Mountains. others, they are adding net capacity by building new clinics. Although some FQHCs have experienced negative Since 2008, Adventist grew the most, primarily through margins in recent years because of such factors as expansion acquisitions, expanding from 16 to 23 RHCs. It has plans to activity and some loss of direct state funding, no FQHCs operate about 30 clinics by 2014. Kaweah Delta, which had were considered financially troubled at the time of the site one RHC in 2008, added two more with plans for a fourth. study. The loss of state funding was more serious for Fresno Tulare Regional Medical Center opened at least four RHCs, County FQHCs, which do not receive significant CMISP some of which were acquisitions. funds. Although some clinics are struggling to finance Hospitals in the Fresno region are investing in RHCs not expansions and electronic health record implementation, only to improve ambulatory care access in rural areas — now they view such investments as necessary for long-term viability. Mental health service capacity in Fresno County, already Rural Health Clinics Compared to FQHCs inadequate, has shrunk over the past three years. The RHCs, certified by the federal government, are located in rural psychiatric crisis center closed in 2009, and the county’s areas that face shortages of physicians to serve Medicare mental health budget was cut further in 2010. Mental and Medicaid patients. Like FQHCs, they receive cost-based health–related visits to FQHCs and EDs reportedly have payments for these patients at rates that are generally increased as a result, and ED capacity at CMC has been significantly higher than what private practice physicians are paid for the same patients. While similar, RHCs and FQHCs are particularly strained. To help alleviate the problem, Fresno overseen by different divisions of the US Department of Health County provided funding to United Health Centers to start and Human Services: RHCs by the Centers for Medicare and a behavioral health program that includes onsite case workers Medicaid, and FQHCs by the Health Resources and Services and social workers. Administration. Unlike FQHCs, RHCs are not required to treat uninsured patients, Hospital-Owned Rural Health Clinics: Filling a Need or and they are ineligible for federal grants to help pay for such care. Although many California RHCs post sliding-scale fees Competing with FQHCs? for the uninsured, RHCs typically serve a higher proportion of Rural health clinics play a large role in providing care in the insured patients (Medi-Cal, Medicare, and commercially insured) Fresno region’s rural areas, alongside FQHCs (see sidebar). than FQHCs. About 40% of California’s 300 RHCs are located in the While RHCs were originally intended to promote primary care five-county Fresno area. While the majority of these RHCs access, they can expand their scope of services to provide are independent clinics, including physician-owned practices, specialty care. This is another way that RHCs differ from FQHCs: many rural hospitals also operate RHCs. Adventist is the Unlike RHCs, FQHCs must obtain state and federal permission to expand services, which FQHCs report is a time-consuming and largest hospital owner by far, with 23 RHCs in the Fresno frustrating process in California. FQHCs also face stricter federal region plus more elsewhere in California and in other states. governance requirements and other more intensive certification Since 2008, Adventist and other large rural hospitals, and reporting requirements. including Kaweah Delta and Tulare Regional Medical ©2012 California HealthCare Foundation 8 and as demand grows with coverage expansion under health will be ineligible to transition into Medi-Cal in 2014. Fresno reform — but also to draw patients to their facilities from a County did collaborate with Kings and Madera Counties to broader geographic area. Hospitals also are leveraging RHC create a local Medi-Cal managed care plan in 2009 (CalViva patient volumes and cost-based payments to help recruit and Health), motivated in part by the potential for CalViva retain physicians, especially specialists.6 Having more local Health to help facilitate implementation of the LIHP and specialists improves access for all of the hospital’s patients, federal health reform. However, counties in the region have not just those visiting the hospital’s RHCs, and helps support ended up pursuing different strategies with regard to the hospital specialty-service lines. Hospitals reported that their LIHP. While most California counties have committed to RHCs are profitable, with cost-based payments helping to participating in the LIHP, Fresno County withdrew its initial offset any losses from Medi-Cal patients being referred to application. Tulare County was one of several counties with their hospitals. However, other respondents disputed this applications on hold, although the county now plans to claim. implement the LIHP in January 2013 for the remaining year The growth in hospital-operated RHCs has sparked of the program. competitive tension with rural FQHCs over Medi-Cal A stalemate between Fresno County and CMC patients and has further accelerated competition for about modifying the contract designating CMC the physicians across the region. These FQHCs are concerned exclusive provider for CMISP patients has stymied LIHP that they will have difficulty cross-subsidizing care for the development. While the county proposed that CMC uninsured if hospitals aggressively expand RHCs and are remain the primary provider under the LIHP and the able to compete effectively for Medi-Cal patients while restructured CMISP program, CMC proposed establishing taking fewer uninsured patients than FQHCs. FQHCs are a larger provider network. The parties also have not agreed particularly concerned about the financial burden of serving on how to pay for the LIHP: Even with the new federal high numbers of undocumented immigrants who are not matching dollars, the combined costs for CMISP and currently eligible for CMISP (outside of Fresno County) LIHP are expected to exceed the county’s current spending. and will be ineligible for coverage expansions in 2014. Both the county and CMC were particularly concerned While there is tension between Tulare County’s largest about the potential for increased costs of treating the FQHC — FHCN — and Kaweah Delta over the hospital’s large undocumented immigrant population that would be RHC expansions, FHCN and Adventist Health are exploring ineligible for the LIHP but would remain eligible for CMISP. collaborations that may include integrating some aspects Despite efforts to facilitate additional discussions by the of care. For example, rather than compete for primary care Fresno Healthy Communities Access Partners, a nonprofit patients, Adventist RHCs would serve as specialty care stakeholder organization working to improve health care referral sites for primary care patients treated at FHCN access, most respondents were skeptical that the county clinics, as well their own. would submit a revised LIHP application. Some respondents were concerned that failure to Preparing for Reform: Limited Collaborations participate in the LIHP will preclude transitioning eligible County governments and providers were doing little uninsured people to Medi-Cal coverage in a timely fashion coordinated community-wide planning for health reform in 2014. For example, FQHCs in Fresno County now are despite the importance of coverage expansions for this region largely excluded from the CMISP program and will miss and the large number of undocumented immigrants who out on a new funding source under the LIHP that could ©2012 California HealthCare Foundation 9 be used to expand and upgrade facilities. More generally, Issues to Track some respondents believed that forgoing participation in the ▶▶ How will hospitals fare financially under health reform? LIHP is a lost opportunity to begin the process of moving Will Saint Agnes regain its financial footing? away from a fragmented and inefficient system focused on ▶▶ How will Fresno County restructure its CMISP program hospital-based care at CMC to a more integrated system after the 2014 Medi-Cal expansions to provide care to that incorporates primary care–focused FQHCs and other those who remain uninsured, including undocumented providers. immigrants? The county’s CMISP program will continue to be important under health reform, given the many ▶▶ How will CMC’s safety-net role, and that of other undocumented immigrants who will be ineligible for hospitals and FQHCs, evolve with health reform? Medi-Cal, but its future remains unclear. Some respondents ▶▶ Will community clinic expansions meet patient demand worried that health reform implementation could trigger a under health reform? Will rural FQHCs and hospital- prolonged renegotiation of the CMISP agreement between owned RHCs continue to compete for insured patients or the county and CMC, and that neither entity will take begin to collaborate? responsibility for the medically indigent until the matter is resolved. ▶▶ Will the already short supply of physicians grow enough Despite the lack of community-wide collaboration, to meet expanded demand under health reform as more individual provider organizations are preparing for reform. people gain health coverage? FQHCs and hospital-owned RHCs are expanding capacity ▶▶ Will physicians begin to aggregate into larger physician- to improve access for the newly insured. Recruitment and owned organizations or become increasingly affiliated retention of physicians continues to be the greatest concern with FQHCs and RHCs? Will hospitals be successful in in terms of needed capacity for these organizations and aligning physicians to support recruiting and, ultimately, the market as a whole. Kaiser has hired more physicians more clinical integration? and plans to expand ambulatory centers in anticipation of expanded enrollment. ▶▶ Will Kaiser become a more substantial competitor for Despite cost-cutting efforts, safety-net hospitals fear commercially insured people in this market? Will new health reform will negatively impact finances, with expected contracting and payment arrangements between other Medicare and Medi-Cal funding cuts unlikely to be offset by health insurers and providers gain traction? increased revenues from coverage expansions. Although two of the largest hospitals and affiliated IPAs — CMC/Santé and Kaweah Delta/Key Medical Group — are exploring new contracting arrangements with commercial health plans, Fresno lags other markets in these efforts. One provider respondent noted, “Fresno is not typically a test market.” Another said, “We’re going to let bigger markets do that first.” ©2012 California HealthCare Foundation 10 Endnotes 1. The LIHP is part of the Bridge to Reform, California’s Medicaid waiver program. The LIHP does not provide health insurance but requires participating counties to provide benefits similar to Medi-Cal, which may require expanding services beyond what is currently provided under CMISP. Counties receive federal matching funds to help support the cost of the LIHP. 2. HMOs in California typically operate under the delegated-capitation model, passing on financial risk and utilization management responsibilities to large physician organizations such as independent practice associations and medical groups, in return for capitated payments (fixed per-member, per-month amounts). 3. Passed by the California legislature in 2009, the Hospital Quality Assurance Fee Program (commonly known as the hospital fee program) generates additional funding for hospitals serving relatively large numbers 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 are redistributed to hospitals based on their Medi-Cal inpatient days and outpatient visits. Approximately 20% of hospitals are net contributors to the program. While the program originally only covered the period from April 2009 through December 2010, it has been renewed twice to 2013. Payments were first made to hospitals at the end of 2010. 4. California Office of Statewide Health Planning and Development, Healthcare Information Division, Annual Financial Data, 2010. Data reflect each hospital system’s fiscal year. 5. 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. 6. Because of California’s corporate practice of medicine law, hospitals cannot employ physicians in RHCs directly in the same way FQHCs can, instead contracting with physicians in private practice through a professional services agreement. ©2012 California HealthCare Foundation 11 Del Norte Regional Markets Study: Fresno In January/February 2012, a team of researchers from the Center for Studying Health System Change (HSC) conducted interviews with health care leaders in the Fresno region to study that market’s local health care system and update a similar study conducted in November 2008. The region* encompasses the Fresno-Madera California Economic Area, as defined by the Bureau of Economic Analysis, and includes Fresno, Tulare, Kings, Madera, and Mariposa counties. Placer The Fresno region is one of six markets being studied on behalf of the California HealthCare Yolo El Dorado Sacramento Foundation to gain insights into regional characteristics in health care affordability, Marin Bay Area Contra access, and quality. The six markets included in the project — Fresno, Los Angeles, Costa San Francisco Alameda Mariposa Riverside / San Bernardino, Sacramento, San Diego, and the San Francisco Bay San Mateo Madera Area — reflect a range of economic, demographic, health care delivery, Fresno and financing conditions in California. Tulare Kings HSC researchers interviewed 26 respondents specific to the Fresno market, including executives from hospitals, physician organizations, community clinics, and San Bernardino Los programs for low-income people. Interviews with 18 Angeles health plan executives and other respondents at the Riverside state level also informed this report. San Diego ▶▶ for the entire regional markets series, visit www.chcf.org/almanac/regional-markets. *Expanding the study site from Fresno County, or the Fresno Metropolitan Statistical Area, to the five-county region allowed for greater exploration of rural health care issues in this community. About the Authors About the Foundation Joy Grossman, Peter Cunningham, and Lucy Stark of the Center for Studying The California HealthCare Foundation works as a catalyst to fulfill the Health System Change (HSC). HSC is a nonpartisan policy research promise of better health care for all Californians. We support ideas and organization that designs and conducts studies focused on the U.S. health care innovations that improve quality, increase efficiency, and lower the costs system to inform the thinking and decisions of policymakers in government of care. For more information, visit us online at www.chcf.org. and private industry. More information is available at www.hschange.org. California Health Care Almanac is an online clearinghouse for key data and analysis examining the state’s health care system. For more information, go to www.chcf.org/almanac. ©2012 California HealthCare Foundation