CalPERS Health Committee Recommends Dropping 36 Hospitals, Implementing Regional Pricing Plan

[CAL/AAEM News Service]

CalPERS Health Committee Recommends Dropping 36 Hospitals, Implementing Regional Pricing
Plan
 
May 19, 2004 
  

The CalPERS health committee on Tuesday voted 8-1 to recommend dropping 36 of the most
costly hospitals from its HMO network, the Sacramento Bee reports. Eleven of those
hospitals are owned by Sutter Health. CalPERS originally had planned to drop 38 hospitals
but eliminated two Sutter facilities from that list after price adjustments were made.
Committee members said more hospitals could be restored if their prices are reduced
(Chan, Sacramento Bee, 5/19). Under the proposal, CalPERS also would drop 17 physician
groups from its HMO network (Colliver, San Francisco Chronicle, 5/19). CalPERS had
estimated that dropping 38 hospitals would save $25 million to $50 million in 2005 by
reducing premium rate increases 1.9% to 3.8% (California Healthline, 5/13). 

 
Ramifications

CalPERS' decision to drop the hospitals would mean as many as 53,000 members covered by
Blue Shield of California have to switch providers or join a preferred provider
organization plan to keep their coverage in 2005 (San Francisco Chronicle, 5/19). Two
CalPERS officials said they will urge colleagues to wait until 2006 to implement the
changes to allow members adequate time to find other health care providers. The proposal
would not affect Medicare beneficiaries who receive supplemental coverage through
CalPERS. In addition, members receiving "active care such as pregnancy and cancer
treatment" would not have to switch providers until after their treatment is complete,
according to the Bee. CalPERS' decision could have further ramifications that could
"inspire a trend among health care buyers that would require workers to shoulder a
greater portion of the cost if they want more expensive hospitals and doctors," the Bee
reports (Sacramento Bee, 5/19). 

 
Reaction

"The time has come for us to take bold action on behalf of our 1.2 million participants,"
Sid Abrams, CalPERS health committee chair, said in a statement (Vesely, Oakland Tribune,
5/19). CalPERS President Sean Harrigan said, "We have an opportunity to change the
dynamics in the marketplace so that health care costs are more affordable for all
Californians" (Sacramento Bee, 5/19). He added, "We're all very concerned about the
dislocation that will occur" as a result of eliminating the hospitals from the HMO
network. However, he said that members who wish to preserve access to specific doctors or
hospitals can still join a PPO (Silber, Contra Costa Times, 5/19). Paul Markovich, senior
vice president at Blue Shield, said that CalPERS officials "rightly see [the move to drop
the hospitals] as a momentous decision, and the message is CalPERS isn't going to
tolerate cost outliers." Bill Gleeson, a spokesperson for Sutter, said, "We are very
disappointed. It is extremely unfortunate that the committee took this action despite our
commitment to help hold the line on rate increases" (San Francisco Chronicle, 5/19). He
added, "We made a generous offer that would have reduced CalPERS' projected costs while
preserving member access to our entire network. We were led to believe by CalPERS staff
that our offer achieved their cost-savings parameters." Joanne Spetz, a health economist
with the University of California-San Francisco, said, "CalPERS is pretty influential.
... This definitely could be a warning shot to other hospitals if they want to raise
prices." 

 
Regional Pricing Plan

The CalPERS health committee on Tuesday also voted unanimously to divide the state into
regions and charge different rates for health coverage based on where members live
(Contra Costa Times, 5/19). The move is part of an effort to retain members after public
agencies representing 37,000 members withdrew from CalPERS at the beginning of the year,
in part because they had negotiated lower health insurance premium rates with other
health plans. In August, 27 public agencies announced that they would discontinue health
insurance coverage through CalPERS and would instead find their own coverage, citing the
fund's 2004 health insurance rate increases. Twenty of the agencies that withdrew from
CalPERS are in Southern California, where health care costs are lower and there is more
hospital competition than in Northern California. The withdrawals came after CalPERS
board members in May 2003 did not approve a regional pricing plan that would have
required members in Northern California to pay higher premiums than those in Southern
California (California Healthline, 3/17). Health committee members said they voted for
the proposal "because it will stave off the exodus of Southern California agencies for
CalPERS," according to the Times. A spokesperson for CalPERS said that analysts had
projected a loss of 100 Southern California agencies in 2005, which would have raised
premium rates for remaining members by about 7%. The Times reports that as a result of
the new pricing plan, Blue Shield members in the Bay Area and Sacramento will face a 9%
premium rate increase, while members in Los Angeles will see a decrease of 19%, and
members in other areas of Southern California will see a decrease of 9% (Contra Costa
Times, 5/19). The full 13-member CalPERS board is expected to approve both
recommendations Wednesday (Sacramento Bee, 5/19).  


Source: California Healthline (http://www.californiahealthline.org) 


=====
Cyrus Shahpar & Brian Potts 
Managing Editors, CAL/AAEM News Service 
UC-Irvine



	
		
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