In the Public Interest: Examining Kaiser’s deal with Santa Cruz County

A Kaiser Permanente building
(Bryan Chan / Los Angeles Times)

In this edition of In the Public Interest, Christopher Neely digs into the Access to Medical Care Agreement approved last week by county supervisors with Kaiser Permanente and what it means on the local health care scene.

This story was originally featured in this week’s In the Public Interest newsletter from Christopher Neely. Be first the first to hear about politics and policy news in Santa Cruz County — sign up for Christopher’s email newsletter here.

Will Kaiser Permanente’s new multimillion-dollar agreement with Santa Cruz County actually expand health care access to the county’s most vulnerable populations as intended? Without an evidenced-based answer, some believe the deal, despite best intentions, might even limit access to low-income and underinsured residents, and also cause financial harm to other local health care providers.

The debate at the Santa Cruz Board of Supervisors meeting last Tuesday centered on how to commit Kaiser, with its unique model of health care, to providing specific community benefits, as it is that unique model that causes concerns among some local health care providers, supervisors and advocates.

Let’s try to brush the blooms of the thorny shrub that is health care. Kaiser is a health insurance provider that requires its patients to choose among its own network of Kaiser doctors and specialists. It is what’s called a closed system: Kaiser is the health insurance company and the doctor. It has facilities in Scotts Valley, Santa Cruz and Watsonville, and has some doctors inside Watsonville Community Hospital. Kaiser is also working on a larger specialist care facility in Live Oak.

Because of this system, Kaiser doctors, at least for now in Santa Cruz County, do not treat Medi-Cal, most Medicare, and uninsured patients — which are often the lower-income, sicker and more expensive patients for doctors. This approach contrasts with the other big local health care providers such as Sutter Health, Dominican Hospital and Watsonville Community Hospital, which accept uninsured and government-insured patients but most often lose money doing so because the insurer, aka the government, does not reimburse doctors and hospitals for the full cost of care. Thus, hospitals and doctors rely on patients with private insurance, which pays more, to subsidize the losses incurred by the government’s failure to cover the cost of treating vulnerable patients.

This is where Kaiser’s model bristles against traditional health care providers. Since it is not taking the same losses on low-income and government-insured patients, Kaiser can operate more efficiently and offer health insurance at attractive rates, making it an easy choice for some to drop their more expensive plans and enter the Kaiser system. Yet, as doctors and hospitals lose those privately insured patients to Kaiser, they also lose that critical subsidy that balances out the losses of treating those more vulnerable.

Kaiser has expanded its presence from Scotts Valley down to Santa Cruz and Watsonville since it moved into the county. Understanding the complications brought by Kaiser’s model, the county government wanted to try to commit Kaiser to an agreement that ensured Kaiser’s growth meant greater access to medical care for the most vulnerable populations in the county — especially when it comes to local specialist and primary care, which are in short supply. The county holds similar agreements, known as Access to Medical Care Agreements, with Dominican, Suttter and Watsonville Community Hospital.

California Assembly Speaker Anthony Rendon appointed District 3 Santa Cruz County Supervisor Justin Cummings to...

After a multiyear negotiation, that agreement came in front of the supervisors last Tuesday. It was the first of its kind for Kaiser anywhere in the state. Although it was unanimously approved, some supervisors made it clear the agreement fell short of expectations and their support was based on a verbal commitment to revisit the agreement in 2025.

As per the 10-year contract, Kaiser will invest 2% of its annual local health insurance business revenue — roughly $4.5 million for 2022 — into local community benefits, defined as either free care to low-income or uninsured patients, grants toward the county’s top health needs, or recruitment of doctors to Santa Cruz County. It is an either/or agreement, and Kaiser will meet the terms so long as it spends the money toward one of those areas.

The agreement allows Kaiser to count the $3 million grant given to the Pajaro Valley Healthcare District to keep Watsonville Community Hospital open, and a separate $4.5 million pledge made to PVHCD in 2022, toward its annual $4.5 million community benefit requirement. This is convenient for Kaiser — in order for Kaiser to operate in Santa Cruz County, it relied on a partnership with Watsonville Community Hospital, as local law requires health care providers to partner with a hospital.

Santa Cruz County Supervisor Zach Friend
Santa Cruz County Supervisor Zach Friend.
(Kevin Painchaud / Lookout Santa Cruz)

Supervisors Zach Friend and Manu Koenig pushed against the deal, as it offered no requirements on how and whether access to medical care would be expanded for low-income and vulnerable populations. The agreement also allows Kaiser to meet its community benefits through grants and physician recruitment, and doesn’t require Kaiser to offer care to low-income and vulnerable patients outside of its network.

“This is about adding capacity to a burdened system,” Friend said. “Those with the lowest access in our community that need specialty care are relying on these agreements to provide that. If the fundamental need here is to increase capacity, then I don’t know that the agreement actually does it.”

Koenig’s attempt to amend the contract to include metrics on how access is expanded was discouraged by county counsel Jason Heath, who said it would require going back to the negotiating table. Friend and Koenig settled for a verbal commitment that the agreement represented a starting point, and that Kaiser and the county were open to amending it in the future.

At the meeting, Kaiser spokesperson Joe Foster said the organization agreed this contract is only the beginning and could be revisited. In an emailed statement, Kaiser said it is committed to boosting the local health care ecosystem for everyone, regardless of affiliation.

“Everything we do is focused on creating a positive impact for our members and for the communities we serve, regardless of their affiliation with Kaiser Permanente, and we take pride in the successes we’ve had toward building healthier communities,” spokesperson Karl Sonkin said via email. “We have partnered with other health care systems in the community, including our affiliation and financial contributions to Watsonville Community Hospital to ensure its successful future and to ensure others in the community have access to quality care.”

But there are parallel concerns. The Access to Medical Care Agreements with Dominican, Sutter and Watsonville Community Hospital are coming up for renegotiation in the next couple years. According to numbers reported to the state, between 2021 and 2022, Dominican spent more than $87 million, or roughly 20% of its total expenses, on community benefits, which include the losses it took on caring for government-insured or uninsured patients. According to the state’s Department of Health Care Access and Information, Sutter spent $15.5 million on the same in 2021, similarly about 20% of its total expenses.

Dr. Larry deGhetaldi, who retired from Sutter Health last month as vice president of governmental medical affairs, said Sutter, Dominican and Watsonville Community Hospital could look at Kaiser’s $4.5 million requirement and seek similarly low community benefit agreements. No doctor is required to treat a patient on Medi-Cal, but deGhetaldi says it is part of the culture of health care in Santa Cruz County to never turn them away. However, should the financial situation turn dire for these providers, that could change, thus decreasing access to medical care.

“Nothing pisses doctors off more than an imbalance [among peers] in treating the low-income and expensive patients,” deGhetaldi told me. “That starts in medical school.”

And Kaiser will begin working with more government-insured patients next year thanks to a controversial deal it made with the state in 2022 — which Santa Cruz County opposed — that will expand its Medi-Cal coverage by 25% statewide; however, Kaiser will maintain the power to choose which Medi-Cal patients it accepts into its system, an option not afforded to other health plans. By not partnering with the local Medi-Cal alliance nor committing to serve a certain number of Medi-Cal patients, deGhetaldi contends Kaiser will take the path of most business sense: choose the healthier and thus less-expensive Medi-Cal patients.

Linda Gorman, spokesperson for the Central California Alliance for Health, which oversees the system of local Medi-Cal patients, says the county’s agreement leaves a big question mark on how Medi-Cal patients will be served.

“Neither the State Department of Health Care Services nor Kaiser have made the Alliance aware of how many Medi-Cal patients Kaiser will serve,” Gorman said via email. “Kaiser has said that they will not contract directly with the Alliance and will not provide services to Alliance members. At this time, it is unclear to the Alliance how the agreement may impact access for Medi-Cal beneficiaries in Santa Cruz County.”

Of Note

Monica Martinez, CEO of Encompass Community Services.
(Kevin Painchaud / Lookout Santa Cruz)

2024 watch: Encompass Community Services CEO Monica Martinez has officially launched her bid for the District 5 county supervisor seat. Martinez, of Felton, is the second candidate to formally announce their plans for the North County seat currently occupied by Supervisor Bruce McPherson. Although McPherson has not made his future plans public, many believe he will be stepping down after his term expires in 2024. As I reported last month, Sheriff Jim Hart is also mulling a run.

Oversized vehicle watch: A couple weeks ago, I wrote that the City of Santa Cruz was attempting to lean on an old coastal development permit from the California Coastal Commission for its project to resize street parking spots on the Westside to make them too small to fit recreational vehicles and campers. The city attempted to ban these oversized vehicles through an ordinance, but it was challenged and awaited a verdict from the commission, so the resizing plan was meant to circumvent that challenge. Well, the Coastal Commission is saying not so fast, and has let the city know it disagrees with the parking plan, likely bringing the project to a halt.

Note from Sacramento: Rookie Assemblymember Dawn Addis has a proposed a bill that would end the statute of limitations on child sexual assault cases. Under current law, child sexual assault victims only have until their 40th birthday to seek justice in civil court. The bill cleared the Assembly Judiciary Committee last week with an 11-0 vote and now heads to the Appropriations Committee, which will look at the financial impact of the law change.

Know This Number

29: The number of homes in Boulder Creek crushed under falling trees during the March 21 storm that brought nearly 90-mph winds to parts of the Santa Cruz Mountains, according to Community Bridges’ Tonje Switzer. Switzer said her organization is still tallying damage, and believes another 22 homes could have suffered damage as well.

In this installment of In the Public Interest, Lookout politics and policy correspondent Christopher Neely examines what...

The Week Ahead

It’s a light week for big meetings, but the City of Santa Cruz will be hosting a virtual public unveiling of the city’s housing element on Tuesday, April 4, at 6 p.m. The housing element lays out the city’s vision for fulfilling the state mandate to plan for more than 3,600 units over the next eight years. The housing element process happens in eight-year cycles, though this one carries more pressure as the state has promised to crack down on communities who fail to do enough to boost housing supply. The state has already sued Huntington Beach for its failure, and rejected Oakland’s housing element, threatening to take away some local housing control if changes are not made.

Weekly News Diet

Satellite photos from NASA show California on Aug. 16, 2022 (left) and on March 26, 2023.
(NASA MODIS Maxar via Los Angeles Times)

Local: The überpowerful California Coastal Commission will have a hyperlocal vote after state Assembly Speaker Anthony Rendon appointed District 3 County Supervisor Justin Cummings to fill a vacancy on the 12-member commission. Cummings, who was left off an initial, illegal list of local nominations, comes to the commission at a time of great significance for Santa Cruz County, as the community recovers from the winter storms and stares down increasing impacts from sea-level rise.

Golden State: The sunshine offers a reminder that this unrelenting and historically wet winter brings some upside: We are going to be looking at lush, green hillsides and vistas for months to come. This is apparent even from space. The Los Angeles Times published side-by-side satellite images of California, comparing the parched look of the state last August to now, and the difference is remarkable.

Globe: On Thursday, Russian President Vladimir Putin had Wall Street Journal reporter Evan Gershkovich, an American, arrested and charged as a spy. Although Russia has expelled its fair share of foreign reporters over the years, Gershkovich’s arrest and charges are tactics not seen since the Cold War. (Anton Troianovski for the New York Times)

One Great Read

The End of the English Major” by Nathan Heller for the New Yorker

Over the past decade, the number of students majoring in English and history has fallen by a third, those studying the humanities have overall fallen by 17%, while science, technology, engineering and math majors have skyrocketed in popularity. Nathan Heller, perhaps the most brilliant writer working in journalism today, asks the question: What will it mean to have a generation of college graduates with “less education in the human past than any that has come before?”

The piece, featured in the New Yorker’s Feb. 27 issue, brims with humanities doom and gloom, staggering figures charting the investment into data science and engineering programs, and rationalizations from students and university faculty on why STEM is the discipline du jour and of the future. However, the most intriguing part of the piece was also oddly encouraging. English professors at Arizona State University told Heller that their virtual English/humanities courses are made up largely of people in their 30s and 40s:

“Partly, it was a cohort thing, given that the older students represent the views of older generations. But it was also a matter of life experience. The university has a partnership with Starbucks, which pays for its baristas to earn bachelor’s degrees online (a recruitment tool for the coffee company and a revenue source for the school), and what someone who has been in the grind of life wants to learn most isn’t necessarily linear algebra.”

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