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April 1, 1998
by root
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California is nearing the completion of years of consolidation on both the provider and the payor side. The commercially-insured population is almost entirely capitated and inpatient utilization is low--average length of stay has declined from 5.7 days in 1986 to 4.47 days in 1995, according to the California Office of Statewide Health Planning and Development. The California Healthcare Association (CHA), Sacramento, predicts that by the year 2000 there will only be three or four integrated health systems providing care in the metropolitan areas. The CHA also forecasts rapid growth in Medicare and Medicaid HMOs, and the consolidation of the state’s 30 HMOs to 10 plans in the next five to 10 years. The association predicts that California’s healthcare bill will reach $200 billion by the year 2000--about 13 percent of national healthcare spending.

While widely regarded as the most progressive state for healthcare reform (along with Minnesota), California is plagued by the daunting challenge of delivering care to large populations across sprawling metropolitan areas, coupled with high percentages of non-English speaking and indigent people. An estimated 22 percent of California’s 33 million residents do not have health insurance, compared with a national uninsured population of 18 percent. Eighty-four percent of those uninsured are workers or have family members who work, according to a recent study conducted by UCLA and UC Berkeley.

Is the California experiment working? There is still much controversy over whether all the mergers and downsizing in the state have reaped the intended financial benefits. "There is very little evidence that these mergers are reducing administrative costs," observes Albert Lowey-Ball of ALB Inc., a healthcare management consulting firm in Sacramento.

In a recent report on the future of California healthcare, the CHA predicts more hospital closures into the millennium as bed occupany rates dip to 43 percent, while managed care profits will hover at only three to five percent. Additionally, reports of shortages in emergency room care and nursing units have drawn headlines in California newspapers of late.

The source of all the current healthcare despair is reimbursement, says Al Holloway, president and CEO of the IPA Association of America, Oakland. "It’s dollars, from everyone’s perspective," he says. Rate wars involving HMOs, employers and consumers are the fundamental source of conflict for a purchasing market demanding better access to high quality care at prices most managed care organizations cannot support.

On many levels, consumer views and demands will play a growing role in healthcare delivery throughout the state. Lowey-Ball, an adjunct professor in health policy and economics at UCSF, predicts public resistance to any further consolidation and expansion by healthcare organizations will result in anti-trust regulation as well as lawsuits over HMO tactics to restrict access to care. A second major trend, he predicts, will be "substantial moves in determining competitive approaches to providing services to the underinsured and the uninsured." The CHA also predicts a growing accountability of healthcare organizations to the public and increased requirements for quality and performance data. Consumers will continue to demand more choice in plans and in care--with specialty care and alternative medicines becoming more available by health plans, according to the CHA.

Broadly speaking, healthcare and managed care are virtually synonymous in California. An estimated 90 to 95 percent of California’s insured population excluding Medicare and Medicaid recipients is enrolled in an HMO or PPO. There will come a day in the near future when the term "managed care"--becoming as obvious to healthcare as Windows is to the desktop--will die off, just as all other trends in the Golden State eventually do to make room for the next new idea or buzzword. What happens in California healthcare this year will probably set the stage for the next national revolution in healthcare: the branding of care into consumer product lines.

Two organizations based in Northern California may prove powerful trendsetters in the long-term plan of the state’s healthcare industry. One is Kaiser Permanente, the managed care dinosaur without which no story on California healthcare would be complete. The other is UCSF Stanford Health Care, the landmark and controversial 1997 merger of two of the nation’s most prestigious medical traditions. The potential for success in each organization is great--Kaiser with its strong track record in customer service and patient-friendly policies, and UCSF Stanford’s legacy of excellence in clinical research and academic medicine. Yet integrating and managing geographically-dispersed, decentralized entities and competing in the tumultuous California healthcare market will be a defining challenge for both into the next century.

UCSF Stanford Health Care Breaks Tradition

The merger of UCSF Medical Center and Stanford Health Services last fall was one of historic proportions, marking the first time two academic medical centers affiliated with different medical schools came together under one roof. Bringing the systems together was a painstaking process fraught with controversy: Lawsuits threatened to unravel the deal altogether. Civic organizations and unions protested about the merging of public funds from UCSF into a privately-held company, and fought for public access to information in the new organization.