www.montereycountynow.com june 20-26, 2024 MONTEREY COUNTY WEEKLY 17 convened an organizational meeting on March 21, 2023. Its charge: To curb the spiraling health care costs in California, while ensuring quality care and equitable access, similar to eight other states in the country that have placed caps on growth in healthcare costs. No doubt health care in California is expensive, but Monterey County is an outlier. Data from the RAND Corporation shows that two of the largest hospitals, CHOMP and Natividad, are in the top 10 percent of the most expensive hospitals in the state, and Salinas Valley Health is in the top 15 percent. Why are hospital prices so expensive in Monterey County? Hospital leaders point fingers at insurance companies, low reimbursement rates for Medi-Cal and Medicare patients, drug costs and the high cost of living that requires higher salaries for staff. Union leaders point to a lack of competition, high administrative salaries, burgeoning reserves and investments. When the OHCA board next meets on Wednesday, June 26 in Sacramento, it is expected to codify a cap on annual spending increases by hospitals and other medical facilities over the next five years. The plan, initially approved by a vote of 6-1 on April 24, will phase in the annual increases, with a 3.5-percent cap in 2025 and 2026, then lowered to 3.2 percent in 2027 and 2028, and then finally 3 percent in 2029 and beyond. It’s potentially good news for the state. But for Monterey County, the fact remains, it’s a 3-percent cap on spending increases on top of prices that were already some of the highest in California. It’s easy to assign blame for high costs in the health care industry, because there are so many middlemen making money. Many entities besides the provider—like drug makers and device makers, pharmacy benefit managers and insurance companies—are profiting in between the patient-provider relationship. Even though regular people (patients) are the ones paying medical bills, they are rarely what medical administrators refer to as “payers.” That term describes the entities—usually insurers—that pay hospitals. Those insurers come primarily in two buckets: government payers (Medicare, Medi-Cal and the military’s Tricare) or private payers (commercial insurance, like Anthem, Blue Shield or United Healthcare). When it comes to private payers, doctors and insurance companies negotiate behind the scenes (more on that later). When it comes to the former, medical providers are stuck with what they get from entities like Medicare and Medi-Cal. (Medicare is the federal program that insures elderly people ages 65 and up. Medicaid is the federal health insurance program for low-income people; California’s version of Medicaid is called Medi-Cal, financed in equal parts by the state and the federal government.) The problem for local hospitals is that what Medicare and Medi-Cal pay is lower than the actual cost of care. While Montage officials were not available for interviews for this story, in January, Montage/CHOMP’s CEO, Dr. Steven Packer, said this issue is the thing that keeps him awake at night as the biggest challenge his system is facing: “It’s the increasing gap between the expenses we incur to provide care and what Medi-Cal pays us and Medicare pays us. It’s continued inadequate government reimbursement.” While there’s behind-the-scenes negotiation with private insurance companies, there’s no equivalent for these government payers; instead, payments are set through rulemaking processes established by the U.S. Centers for Medicare & Medicaid Services (CMS). Local providers are essentially powerless to change these payment formulas. (“The public can comment on proposed payment rates and policies, and CMS encourages public feedback as it works to finalize the payment rates and policies,” a spokesperson for CMS offers.) “Those government plans do not reimburse at a rate that covers the actual costs of providing care to the patients,” Salinas Valley Health’s Chief Administrative Officer Gary Ray says in an emailed statement. The problem comes when a significant portion of patients are government-insured, rather than privately insured—that means the so-called “payer mix,” that blend of the two buckets, skews heavily toward the lower-value payers. “Seventy-five percent of the patients receiving care at Salinas Valley Health are government-insured, meaning they have Medicare or Medicaid,” Ray adds. “Creating equitable solutions in this healthcare environment is extremely challenging. Fewer than 25 percent of the patients in Monterey County have commercial insurance. When there is such an enormous imbalance in the payer-mix, commercial rates are driven higher and nowhere is that more evident than in Monterey County. “When you look at the common drivers of health care costs, inflation, high cost of living and payer mix, Monterey County is unique. Even similar high cost-of-living areas such as the Bay Area and Southern California have a more balanced payer mix. The facts in this situation are frustrating to all of us.” The result of that payer mix (see chart, p. 18) is that local providers are especially reliant on the commercial payers to keep their business model working. That means patients with commercial insurance effectively subsidize those with government insurance, and local hospitals need to negotiate terms with private insurance companies that make the math work out. Those negotiations happen mostly behind the scenes, out of the public eye. But once in a while, they come into clear view. That happens with relative frequency in Monterey County Superior Court, where CHOMP takes insurance providers to court, claiming that insurers are improperly denying payments. An even more public insurance negotiation happened last year when Salinas Valley Health officials decided to announce publicly that they’d reached a stalemate with Anthem Blue Cross. On July 27, 2023, then-SVH CEO Pete Delgado wrote a letter to patients explaining that after five months of negotiations with the insurance company, they could not reach an agreement. With no new contract, thousands of Anthem-insured patients were set to go out of network on Aug. 1. “For months, Anthem, which is among the largest and most profitable insurance companies in the country, has refused to pay us fairly for the services we provide, using its size and power to insist that we accept an unfair contract,” Delgado wrote. “To minimize impact to our community, we offered to extend our current agreement through the end of the year. Anthem flatly refused. Anthem’s action demonstrates that it continues to put its own interests first, at the expense of its members.” Delgado went so far as to suggest patients switch insurance companies. An Anthem Blue Cross spokesperDaniel Dreifuss Dr. Steven Packer, Montage Health’s president/CEO who started as a pulmonologist, announced on June 10 that he’s retiring in 2025. He became CEO of CHOMP in 1999, when it was a 150bed hospital; today it has 250 beds. The organization has grown from 1,200 employees to 2,800. “My family and I are very stressed. Please do what you can to help people just like me."
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