Disagreement Between CalPERS, Sutter Health Could Result in Legislation Governing Health Plan, Hospital Chain Contracts

At CalPERS' request, Sen. Deirdre Alpert (D-San Diego) on Monday is expected to introduce a bill (SB 1509) that would make it illegal for a hospital chain to require a health plan to contract with all of its hospitals, the Sacramento Bee reports. CalPERS' support for the bill stems in part from a disagreement with Sutter Health about the possibility that CalPERS would eliminate coverage for its beneficiaries at some Sutter facilities. Sutter and CalPERS on April 8 signed an agreement that would allow CalPERS to eliminate coverage at some Sutter hospitals or maintain coverage for beneficiaries at all Sutter facilities at a discounted rate (Rapaport, Sacramento Bee, 4/17). The agreement would cap Sutter price increases, which could reduce CalPERS' health insurance premiums by about $20 million next year. Although confidentiality agreements prohibit CalPERS from disclosing the exact amount of the negotiated price cap, Sutter officials said they agreed to cap price increases at less than 10% per year for two years. Nationwide, annual hospital prices increase by an average of 5% or 6%, according to the producer price index from the U.S. Labor Department. CalPERS officials previously announced that they were pursuing a plan to save $72 million in premiums, including about $53 million in savings by ending coverage for CalPERS beneficiaries at 15 Sutter-owned hospitals. Sutter began negotiating plans to reduce CalPERS' costs, including proposals to allow Blue Shield of California to exclude the 15 Sutter hospitals from an HMO plan for CalPERS members; to include all Sutter facilities in a health plan for CalPERS members if Sutter would discount prices for them; or to create two separate Blue Shield HMOs for CalPERS members -- one that included all Sutter hospitals but would cost more and one that would exclude Sutter and have lower premiums. CalPERS is scheduled to vote April 20 on its hospital network for next year, including whether to accept Sutter's price cap or eliminate coverage at Sutter hospitals (California Healthline, 4/9).

The agreement "appears to have done little to ease tensions" between CalPERS, which has 1.2 million members and is the third-largest purchaser of health care in the United States, and Sutter, according to the Bee. Following the agreement, Sutter physicians in Modesto, Sacramento and Santa Rosa sent letters to CalPERS members, saying that they might have to find new doctors if CalPERS eliminated coverage at some Sutter hospitals. According to the Bee, CalPERS CEO Fred Buenrostro on Friday responded in a letter to Sutter CEO Van Johnson, alleging that Sutter was "misleading tens of thousands of patients" about the possible effect of proposals under consideration by CalPERS. "It is wrong ... to structure a campaign in which a physician might advise a patient they have cancer and then give that patient a flier on their way out the door suggesting they might be left out in the cold if CalPERS chooses a smaller network option," Buenrostro wrote. Sutter spokesperson Bill Gleeson said that Sutter officials agreed to the provision that would allow CalPERS to eliminate coverage at some Sutter facilities because it was an "option CalPERS demanded," the Bee reports. "We agreed to that deal with the caveat that we believed there could be widespread disruption to patient care," Gleeson said, adding, "I can't imagine why CalPERS would be surprised or upset that we would contact patients to explain what could occur if CalPERS does vote to limit access to Sutter hospitals next year" (Sacramento Bee, 4/17).