CalPERS Decision To Drop Costly Hospitals From HMO Network Could Have Nationwide Effects
CalPERS' decision last week to drop 38 of the most costly hospitals in its Blue Shield of California HMO network beginning in 2005 "sent a message that's likely to resonate with hospital chains, insurance companies and employers" nationwide, the Sacramento Bee reports (Kasler, Sacramento Bee, 5/23). Officials for CalPERS, the third-largest purchaser of health care in the nation, voted on Wednesday to drop the hospitals in an effort to control premium rate increases, which have increased 57% since 2002. Blue Shield indicated that some of the hospitals being dropped had proposed rates for 2005 that exceeded the statewide average by as much as 80%. The move to drop the hospitals is expected to save CalPERS $36 million in 2005 and $50 million annually after that. CalPERS members who are Medicare beneficiaries will not be affected by the decision. Members who are undergoing treatment for a serious illness with providers who are dropped will be able to continue treatment. Members whose providers are dropped but who wish to keep their physician or hospital will be able to enroll in one of two preferred provider plans offered by CalPERS. Sutter Health, Sharp HealthCare, Catholic Healthcare West and Tenet Healthcare are among the hospital systems whose facilities will be dropped from the CalPERS Blue Shield HMO network. Officials for CalPERS said it is unlikely that all 38 hospitals voted out of the network will be dropped in the end, depending on how many decide to continue negotiations to lower prices. CalPERS is scheduled to make final decisions on benefits and rates for 2005 in mid-June. The Department of Managed Health Care must approve all changes (California Healthline, 5/20).
According to the Bee, the CalPERS decision indicates that "[e]mployers will take bold steps to battle rising medical costs, even if it means cutting off thousands of employees' access to their regular hospitals and, in some cases, doctors as well." Recently, employers across the United States have responded to employees' complaints by easing managed care rules and giving patients more freedom to choose providers. Now CalPERS, which some have considered a leader of health care system reform since the early 1990s, "is moving the pendulum back" by ending coverage at hospitals it considers too costly, according to the Bee. "This seems to be the first step by a major employer to reverse that trend and eliminate some high-cost hospitals," Paul Ginsburg, president of the Center for Studying Health System Change, said, adding, "Other employers are going to pay a lot of attention to this move." Peter Lee, president of the Pacific Business Group on Health, praised CalPERS' move, noting that it "is promoting the sort of transparency that many think is the only thing that will bring down health care costs." He added, "What you're seeing is many purchasers saying, 'I may not be CalPERS, but when I talk to my health plan this is what I want my health plan to do.' This is absolutely something we're going to see a lot more of." But Jan Emerson, a spokesperson for the California Healthcare Association, said that CalPERS' influence may be decreasing, adding, "I'm hearing (about) a lot of unhappy rank-and-file CalPERS members. I would think other employers would think twice about creating that level of anxiety among their employees."
Ginsburg also said that hospitals nationwide "are going to take notice" of CalPERS' decision. According to Sheryl Skolnik, an investment analyst at Fulcrum Global Partners, CalPERS' decision may hurt for-profit hospitals that compete for business in urban areas, the Bee reports. Following the announcement of the decision by CalPERS, stock prices for HCA and Tenet fell slightly. But some hospital industry officials said they do not think CalPERS' decision will spur a nationwide movement. "I don't see a trend," Jeff Prescott, a spokesperson for HCA, said. Meanwhile, Joanne Spetz, a health economist at the University of California-San Francisco, said that Sutter, which saw 13 of its hospitals dropped, likely is considering whether it can "convince people to switch (to the PPO) to have access to their facilities. ... They have to demonstrate their value." Karen Garner, a spokesperson for Sutter, said that CalPERS' move does not address the cause of rising hospital costs. She said, "It's time to stop searching for temporary solutions. It's time to start fixing the health care system" (Sacramento Bee, 5/23).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.