CalPERS’ Decision To Exclude Some Health Facilities From HMO Network Will Have Limited Effect for Sutter Health
Although the decision last month by CalPERS to drop 38 of the most costly hospitals, including 13 Sutter Health facilities, from its Blue Shield of California HMO network beginning in 2005 "will bring wrenching change to thousands of patients and much of the California health care industry," Sutter's financial health is "likely to remain untouched," the Sacramento Bee reports (Kasler, Sacramento Bee, 5/30). Officials for CalPERS, the third-largest purchaser of health care in the nation, voted last month to drop the hospitals 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 is expected to save CalPERS $36 million in 2005 and $50 million annually after that. Some 53,000 CalPERS members statewide will be affected by the decision. Not-for-profit hospital chain Sutter, 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. Members whose providers are dropped but who wish to keep their physicians or hospitals will be able to enroll in one of two preferred provider plans offered by CalPERS (California Healthline, 5/26).
The CalPERS decision could decrease Sutter's annual revenue by as much as $120 million, or about 2% of the hospital chain's systemwide total, Pat Fry, Sutter's chief operating officer, said. "It's not a huge percentage of our business," Sarah Krevans, Sutter's CEO for the Sacramento region, said. Fry said that it will take some time to evaluate the effect of CalPERS decision on profitability but added that the hospital chain does not expect to scale back its 15-year, $3.5 billion expansion and seismic retrofit program in Northern California. For 2003, Sutter reported operating income of $389 million on revenue of $5.7 billion, the company's best results in 10 years. James Cortez, an analyst for Standard & Poor's, said that Sutter has "some (flexibility), given the strong margins they've been able to attain."
The CalPERS decision could affect as many as 33,000 Sacramento-area residents who use Sutter hospitals and thousands of others who use nine other Sutter facilities throughout the state. However, "there is considerable wiggle room in that projected exodus" because CalPERS members can enroll in a preferred provider organization plan that includes Sutter facilities and some municipalities are considering obtaining health benefits through other organizations that offer a large choice of hospitals, the Bee reports. "I wouldn't say [CalPERS members are] ready to jump ship, but there's a lot of interest in exploring CalPERS alternatives," John Scatterday, a health insurance broker at Keenan & Associates, said (Sacramento Bee, 5/30).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.