The new federal health care law is giving millions of uninsured Americans health coverage -- and many of them are expected to get long-delayed surgeries and seek other crucial medical care.
So why are some hospitals up for sale or desperately seeking to align with others?
One reason is that the health law pressures hospitals to reduce costs and offer better value through new rules that reward them more for the quality of care they deliver than for the number of patients they treat.
"If hospitals cannot adapt and play under the new rules," said Maribeth Shannon, a director at the California HealthCare Foundation, "it will be a challenge for them to survive."
Just this month in the Bay Area, the financially strapped nonprofit Daughters of Charity Health System, based in Los Altos Hills, announced it will sell its six hospitals -- four in the Bay Area and two in Los Angeles. And last week, UCSF Benioff Children's Hospital and Children's Hospital in Oakland formally linked arms to help broaden their services and cut costs. In October, Sutter Health transferred ownership of the beleaguered San Leandro Hospital to the Alameda Health System.
Perhaps most notably, the health care law signed by President Barack Obama in March 2010 imposes significant cuts in hospital reimbursements for Medicare -- about $155 billion nationwide from 2010 to 2020. California's more than 400 general acute-care hospitals stand to lose about $17 billion, according to the California Hospital Association.
The law also reduces Medicare payments to hospitals that report excessively high rates of avoidable readmissions within 30 days of discharge for patients who were treated for heart attacks, heart failure or pneumonia.
Next year, Medicare reimbursements also will be reduced at hospitals where patients picked up an infection that lengthened their stay.
The Affordable Care Act, widely known as "Obamacare," also encourages doctors and hospitals to form "accountable care organizations." These networks of providers -- including primary care doctors, specialists, hospitals and home health care services -- work together to coordinate the patients' care.
It's a different health care model than the "fee-for-service" system that exists in the U.S. today -- in which economic incentives are built around providing more treatments, not fewer.
The new system is similar to Kaiser Permanente's model, which coordinates the work of its primary care physicians, specialists, hospitals, pharmacies and laboratories. The end-to-end experience for patients enables Kaiser to improve the quality of care and find efficiencies that reduce costs.
"When you move to those kinds of models -- as Kaiser has done so successfully -- where you handle many patients on an outpatient basis, you reduce the need for patient hospitalization," said Mark Laret, CEO of UCSF Medical Center and the UCSF Benioff Children's Hospital.
Jim Moloney, a managing director at Cain Brothers, a New York-based investment bank that focuses exclusively on the medical services industry, put it this way:
"The benefit of the ACA is that now those people ideally will get access to primary care and other lower-cost early services where they are treated early, before they have to go to an emergency room."
The law also encourages states to expand their Medicaid programs for the poor -- called Medi-Cal in California -- to cover any uninsured U.S. resident who doesn't earn enough to buy a private plan on the new health insurance exchanges. Since Oct. 1, California has signed up at least 584,000 new Medi-Cal recipients.
While the Medicaid expansion will increase the number of patients with health coverage, Medicaid payments are still much lower than reimbursement rates from private insurers.
So the decision by the Daughters of Charity to sell its six hospitals didn't surprise Laret. That's because "safety net" hospitals like these often treat a disproportionate number of low-income and Medi-Cal patients. With Medi-Cal payment rates so low, Laret said, "many hospitals have just not been able to make it."
Last week's "affiliation" between the children's hospitals, in the works for two years, will help both UCSF Benioff and Children's Hospital Oakland, where Medi-Cal patients make up 50 percent and 70 percent of their businesses, respectively. The affiliation will enable them to coordinate their services for children among physicians in both systems, save money through buying supplies in bulk, while streamlining services like accounting, billing and human resources.
Moloney, Shannon and others said the health care law will also accelerate the years-long trend of moving more medical care from hospitals to less expensive satellite facilities such as outpatient or surgical care centers, where new technologies reduce the need for inpatient hospital procedures.
Said Wanda Jones, a veteran Bay Area health care consultant: "We cannot look on the hospital anymore as the centerpiece of health care."
From 2001 to 2010, 37 hospitals closed, resulting in the loss of 4,700 beds. During the same period, 16 hospitals were opened, adding 1,510 beds.
The number of skilled nursing beds in California hospitals fell by one-third from 2001 to 2010. Emergency department beds increased steadily during the same period.
In California, uncompensated care at hospitals as measured by charity care and bad debt rose by 50 percent between 2001 and 2010 to $2.4 billion.
Source: California HealthCare Foundation