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Health Care Showdown: What's Driving A Wedge Between The Valley's Medical Giants?

Nov 17, 2015

If there’s one word that epitomizes the state of health care today, it’s change. Nowhere is that more clear than in the San Joaquin Valley’s hospital landscape, where longtime friends have turned into bitter rivals.

But what’s behind the shifting alliances that have divided much of the Fresno health care market in recent years? The answer could be one word, networks.

Earlier this year, Craig Wagoner the CEO of Fresno’s Community Regional Medical Center made an announcement that might have puzzled a lot of people.

“We will be exploring the possibility of building a dedicated women’s and children’s hospital on this campus,” Wagoner said.

But what would be the point of that?

The Fresno area already has a dedicated pediatric facility with Valley Children’s Hospital in Madera. For decades Community and its affiliates worked closely with them. But in recent years, the partnership has turned into a rivalry.

"We will be exploring the possibility of building a dedicated women's and children's hospital on this campus," Craig Wagoner

Wagoner’s announcement is just the biggest in a series of strategic moves by the two health care giants that could reshape how and where you get care. But what’s driving this change? Some have suggested the split is about turf battles or grudges that go back decades.

But there’s something else behind these moves, an emerging trend that has providers forming their own, self-contained network of services. Experts say it’s the result of insurance industry efforts to reduce costs by limiting choices. The key is a complete offering of life-long care.

Take a listen to a recent commercial from Community.

“That’s why Community Medical Centers is building the one network with the resources to care for your family through all of life’s stages,”

Again, the key word is ‘network’. Community pairs hospitals in Fresno and Clovis with the area’s largest group of primary care doctors, plus residents and specialists from their partner UCSF, including in pediatrics. A dedicated women and children’s wing would be a big move into Valley Children’s historic territory.

Children’s has responded by establishing their own network, with residents and specialists from Stanford and a new partnership with Community’s rival Saint Agnes, plus other Dignity Health hospitals in the valley.

"I don't think there is necessarily a shadow or a guiding hand behind this. It is just the way these forces are lining up in health care," Economist Joseph Penbera

The driver behind these rival networks is money. Dr. Joseph Penbera is a Fresno based economist. 

“I don’t think there is necessarily a shadow or a guiding hand behind this. It is just the way these forces are lining up in health care,” Penbera said.

He said insurance companies are increasingly adopting what are known as ‘narrow network’ plans.  They typically charge consumers less, as long as they stay in a limited network of providers.

Building a self-contained network that provides care from birth to death means Community and Children’s could make themselves more appealing to insurers. And for stand-alone hospital like Children’s, not being in a comprehensive network could be deadly.

“I think what they are doing is do what I think that should do. That is to develop the critical mass to try and stay in the game and be competitive. Otherwise, they are going to die,” Penbera said.

There is big money on the line for the hospitals that can convince insurance companies to pick them and exclude their competition.

Holding down costs is key. 

"Hospitals are clearly under a lot of pressure," Paul Ginsberg

"Hospitals are clearly under a lot of pressure ,” said Paul Ginsberg, a professor of public policy at the University of Southern California.

Ginsberg said a wide network of providers can result in out of control inflation. Narrow network plans can give insurance companies more bargaining power, and hold down costs.

“It really increases the competitiveness between hospitals because they are competing with each other to be in a narrow network,” Ginsberg said.

The sacrifice is choice. The reward is lower costs. That means your insurance company could dictate which hospital network you can use. For example, insurance company ‘A’ might only offer Community’s group in its network and insurance company ‘B’ might choose just Children’s and its allies, such as St. Agnes.

Of course, narrow network plans themselves have been around for some time, but the creation of the insurance exchange has accelerated the trend among hospital leaders.

"It is very, very difficult for me to imagine networks will be created that are so narrow just as a practical matter that payers will only partner with one provider or one network," Children's CEO Todd Suntrapak

“They tend to be very forward thinking. They can see an early part of a trend and they will often jump on it and respond to it, rather than say ‘oh, we can wait a few years’,” according to Ginsberg.

It’s a move that’s not lost on Valley Children’s CEO Todd Suntrapak:

“There certainly is pressure in health care today, both in our valley and outside the valley in the state of California, for the creation of narrow networks or the ability to work with them. Or in some cases providers being out of network because a narrow network has been created,” Suntrapak said.

But he dismisses the possibility of the health care market totally fragmenting.

“It is very, very difficult for me to imagine networks will be created that are so narrow just as a practical matter that payers will only partner with one provider or one network. I just don’t think that that is practical,” Suntrapak said.

"I think that the more services you can provide the more attractive you are to insurance companies," Community's Aldo Delatorre

Still, this move is in its embryonic stages. According to a recent review of the insurance market in the valley, most plans still offer broad networks, which consumers say they want. But study author Bruce Spurlock said when consumers actually pick individual plans on the Covered California exchange they tend to pick narrow network plans that cost less.

“And if that system were to grow. That could accelerate this move by insurers to get in an exchange type environment just like Covered California,” Spurlock said.

Currently, exchange plans are only a small part of the market. But if this trend moves into the employer-based insurance market, narrow networks could be in Ginsberg’s words ‘hard to hold back’.

And if that happens, it’s absolutely essential for hospitals to offer a complete set of services, including pediatric care.

Aldo Delatorre is Senior Vice President of Managed Care and Strategic Alliances at Community.

“I think that the more services you can provide the more attractive you are to insurance companies,” Delatorre said.

But Delatorre says these days, it’s not enough to just be a network.

To win the love of insurers and consumers, hospitals need to make sure they have crafted a strong brand. Think Nike versus Reebok, but for health care.

“Price is important. As [is] recognition of the brand. A blue brand for example is a widely known brand compared to some other new entrants. Than then I think there is some association of the brand within your community. So I think both the health plan and the delivery system,” Delatorre said.

Community already has its brand name. It’s an open question how Children’s and its partner hospitals would brand themselves to signal that they provide more than pediatrics.

But there is still a big unanswered question: Will these rival networks actually hold down health care costs?

Economist Joseph Penbera says this type of consolidation in other industries has early positive effects but long term it decreased healthy competition.

“In this particular case, as these two institutions fight for whatever they feel they need to fight for, the jury is out as to whether that is going to result in cost, quality, innovation or anything else. We really don’t know,” Penbera said.

The stakes are high, not just for the hospitals and insurance companies, who stand to make or lose a lot of money, but for the people whose access to the right doctor might mean the difference between life and death.