Working families in Monterey County are facing a crisis in affording the high hospital costs in the area. In recent months, hospitality workers, teachers, and representatives of farmworkers have spoken at meetings of the Office of Health Care Affordability (OHCA) Board to share their challenges with health care affordability in Monterey County, where prices for hospital care and insurance are among the highest in the state.

Their testimonials underscore a health affordability crisis in Monterey County that is beyond that of the rest of the state. To develop a more complete picture of why health care costs are so high in this Central Coast county, there is an urgent need to collect and analyze data that can help point to causes and solutions to the problem.

Major industries for employment in Monterey County include agriculture and leisure and hospitality. The county is one of economic extremes–a large number of workers earn low wages, at the same time it is home to some of the wealthier California communities.

Testimonials

Clementina Gonzalez, a Monterey hotel housekeeper, drove three hours to Sacramento to share her story in March. Gonzalez’s troubles paying her medical bills began a decade ago when she was hospitalized at Community Hospital of the Monterey Peninsula for treatment for anemia. She paid over $10,000 in out-of-pocket costs even with insurance. Gonzalez and her family tried their best to take care of the medical bills but did not have the resources to pay them quickly enough to avoid the bills being sent to collections. Her credit was damaged, and she and her family were forced to cut back on food and other expenses to pay the medical bills. Gonzalez’s illness recently worsened. She went to Natividad hospital in Salinas and has acquired thousands of dollars in additional debt, beginning the worry and hardship again.

At the same meeting, Hector Azpilcueta, Secretary-Treasurer of UNITE HERE Local 483, described how, as part of the union’s most recent contract negotiations for Monterey area hospitality workers, a set amount of money was allocated to wages, pension, and health insurance. Azpilcueta subsequently told the Labor Center that, due to excessive hospital costs in Monterey County, workers covered by this contract will not get a wage increase this year.  Instead, the $.50 hourly increase negotiated for the coming year will pay for health insurance. (This is consistent with a broader association between higher hospital prices and lower wages for workers with job-based coverage.) Azpilcueta says, “Our members deserve meaningful wage increases and access to health care, but expensive hospitals in Monterey make it very difficult to live and work in this area.”

Kati Bassler, a second-generation teacher and president of the Salinas Valley Federation of Teachers, described in May how the school district has difficulty attracting and retaining educators, due in part to the inability of teachers to afford health insurance premiums and out-of-pocket costs. Hospital care is so expensive that the union urges pregnant teachers to make it part of their birth plan to deliver at a hospital outside the county if they can.

Patrick Pine, administrator of the United Farm Workers’ health plan, has also provided comments to the OHCA Board. He told the Labor Center that one farmworker’s spouse was informed by Salinas Valley Health that even though she had health insurance she needed to prepay her share–over $10,000–for her $47,000 surgery. Pine was able to arrange for the surgery to be done at Santa Clara Valley Medical Center in San Jose for roughly half that price with no share of cost for the patient. He was able to save more than $15,000 for the union’s plan even after paying for transportation. Pine reports that “referrals like these are becoming more difficult to arrange because Community Hospital of the Monterey Peninsula and Salinas Valley Health have been buying up local doctor groups, clinics, and labs and restricting their ability to refer to other hospitals or surgery centers.”

These health care affordability challenges are not isolated to Monterey County, as discussed in Labor Center’s blog series Rising Health Care Costs in California: A Worker Issue. However, the challenges are particularly severe in the Monterey area as hospital prices for employer plans are 50% higher than the statewide median. We do not yet have a complete picture of why prices are so high in this region, but there are new opportunities at the state level to explore and better understand what is driving the high health care prices in Monterey.

Hospital prices in Monterey/Salinas are among the highest in California

Three hospitals serve the Monterey/Salinas region: Community Hospital of the Monterey Peninsula (CHOMP), a non-profit hospital in Monterey; Natividad Medical Center, a public hospital in Salinas; and Salinas Valley Health, a district hospital formerly known as Salinas Valley Memorial Hospital. (A fourth hospital in the southern part of Monterey County is not addressed in this post because it is far from where most workers in the County live–- approximately 45 minutes driving distance from Salinas and 75 minutes from Monterey.)

According to RAND analysis of hospital claims data collected from participating self-insured employer health plans around the country, from 2018 to 2020 the employer-plan prices for inpatient and outpatient services at the three hospitals were 4.2 to 4.5 times Medicare prices. This is approximately 50% higher than the median California hospital, where employer-plan prices were found by RAND to be 2.7 times Medicare prices. In the Bay Area, a high cost-of-living region with relatively high health care costs, the median hospital had employer-plan prices that were 3 times Medicare prices (Chart 1). CHOMP and Natividad were among the top 10% of highest-priced hospitals in the state, and Salinas Valley Health was in the top 15%.

A study by UC Berkeley Petris Center researchers found that, after accounting for regional wage differences, employer-plan prices for vaginal childbirth without complications in 2016 were higher in Monterey/San Benito Counties than in any other California region. The average Monterey County price was at least $14,000 more than the average price in San Francisco or San Mateo Counties. Normal childbirth is the most common type of hospital admission and the service is relatively similar from place to place, making it a good benchmark for comparison.

Covered California premiums in the Monterey, San Benito, and Santa Cruz region were higher than in any other Covered California region between 2020 and 2023. Hospital prices are likely a significant factor in these higher premiums given that hospital care made up approximately 37% of private health insurance expenditures in the U.S. in 2021, more than physician and clinical services (27%) and prescription drugs (13%). Additionally, research has shown that it’s primarily price growth , not changes in utilization, that drives health care spending growth.

Why are hospital prices high in Monterey County?

Market concentration is likely a significant factor in the high cost of hospital care in Monterey County. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration used by the U.S. Department of Justice and the Federal Trade Commission in evaluating mergers. The index is on a scale of 0 to 10,000, with higher numbers signifying greater market concentration. HHI estimates for hospitals in the Monterey region vary based on the methods and definition of the market–from 3,339 based on UC Berkeley Petris Center analysis of American Hospital Association Annual Survey Database with the market defined by the county, to in the range of 6,000-8,000 based on estimates analysis by the Yale Tobin Center for Economic Policy with the market defined as all hospitals within a 30-minute drive time. Using either estimate, the market is considered highly concentrated because it has an HHI of more than 2,500.

Research has shown that the level of competition in hospital markets is correlated with prices. A study by Cooper, Craig, Gaynor, and Van Reenan found that monopoly hospital markets with one hospital within a 15-mile radius (relevant to CHOMP) are associated with prices that are 12.5% higher than in markets with four or more hospitals. Duopoly markets with two hospitals within 15 miles (relevant to Natividad and Salinas Valley Health) are associated with prices that are 7.6% higher.

Understanding market concentration in the area helps to explain why these hospitals can obtain higher prices–patients in the region have no other options–but it does not explain how the revenues from the higher prices are spent.

Wages for health care workers are similar between the Salinas, California, metropolitan area (which includes the city of Monterey and surrounding area) and the state as a whole; therefore this factor likely does not explain a lot of the price difference. The median hourly wages for registered nurses and medical assistants in the Salinas area were slightly below the statewide median in May 2022, based on analysis of data from the U.S. Bureau of Labor Statistics. The Salinas area median wages for LPNs/LVNs, physical therapists, and nursing assistants were 2% to 6% higher than the statewide median wages (Chart 2).

Could the higher employer-plan prices in this region reflect cost shifting from Medi-Cal or Medicare? In 2022, public payers paid for 71% of hospital discharges at CHOMP, 76% at Salinas Valley Health, and 82% at Natividad, compared to 72% of hospital discharges statewide, based on data reported by hospitals to the state.* Public payers include Medi-Cal, Medicare, and, where applicable, county indigent programs.

• While the reason for high prices at these specific hospitals is unclear, the common assumption that hospitals charge private payers more to make up for public payer shortfalls has not been borne out in the research. A large body of economic research has failed to find evidence of hospitals shifting costs from public payers to private payers.
• If high commercial prices resulted from having large shares of Medi-Cal patients, California public and district hospitals–which generally have a high Medi-Cal share of patients–would charge the highest commercial prices, but research has shown that this is typically not the case.
• It is also worth noting that the federal Medicare Payment Advisory Commission (MedPAC) found that Medicare payments to hospitals were near cost for relatively efficient hospitals in 2021, suggesting that CHOMP should not need to charge more to compensate for disproportionately high Medicare share of patient discharges (54% compared to 39% statewide).

Uncompensated care costs, including bad debt, charity care, and expenses related to county indigent care programs, as a share of operating expenses were slightly higher at Natividad (2.6%) than the state hospital average (2.0%) in 2019, but not different enough to significantly explain the higher-than-average prices. At the other area hospitals uncompensated care costs were relatively close to the statewide average (2.1% at Salinas Valley Health) or below average (1.4% at CHOMP), according to hospital financial data reported to the California Department of Health Care Access and Information.

Are higher prices contributing to a higher level of care or better quality of care? It is difficult to know for these specific hospitals but research has addressed this question more broadly. Wang and Anderson examined the costs at non-profit hospitals and found that having high commercial-to-Medicare ratios was associated with greater operating margins and administrative costs for nonprofit hospitals and smaller increases in spending on services directly benefiting patients. Crispin and Whaley found that higher hospital prices were not associated with improved clinical quality. Cooper, Doyle, Graves, and Gruber found that in concentrated hospital markets additional spending on high-priced hospitals did not lead to reduced mortality.

Opportunities for California to further examine this problem

While it is clear that workers with job-based coverage in this region are facing particularly high health care costs and that market concentration is a factor, more data and analysis would be helpful in developing a deeper understanding of the factors driving the higher prices in the area and how the revenues from those higher prices are being spent. The situation in Monterey County demonstrates the value of two state initiatives that are currently being implemented in California: the Office of Health Care Affordability (OHCA) and the Health Care Payments Data program (HPD), both housed within the Department of Health Care Access and Information (HCAI).

OHCA will collect, analyze, and report data on total health care expenditures, in addition to setting spending targets that can be progressively enforced. Over the longer term, successful implementation of these mandates for OHCA could help ensure that the health care affordability problems in Monterey do not become worse. OHCA will also conduct cost and market impact reviews on prospective changes in ownership, operations, or governance for health care entities, including mergers. OHCA has the authority to conduct cost and market impact reviews if data indicate adverse impacts on cost from consolidation, market power, or other market failures. A cost and market impact review focused on Monterey County hospitals could help shed light on the factors underlying the high health care prices in the region, the impacts of that pricing on consumers, and how market structure affects access to care, equity, and affordability.

HPD is California’s new “all-payer claims database” and will include claims and encounters submitted by California payers. The first data was released in June 2023 and more detailed and comprehensive data will become available in waves over the next several years. Once the HPD is fully implemented, it can be used by HCAI and researchers to better understand health care price and utilization trends in specific markets and health care sectors. In Monterey County, this data could be used to further examine prices paid by the gamut of payers across a range of services over time. The data could also shed light on the relative contributions of each health care sector in making Monterey a high-cost health care region.

With OHCA and HPD, California has new tools for studying and understanding, and ultimately addressing the high health care prices in Monterey, which have been causing care access and financial security hurdles for workers and their families, while also putting a squeeze on their wage growth.

*This paragraph was edited on August 20, 2024 to include more comprehensive and updated payer mix data.