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