KAISER PERMANENTE: CalPERS Audit Finds Errors in Rate Formula
A "new and unprecedented" audit of Kaiser Permanente by CalPERS has found "inconsistencies, inaccuracies and errors" in the HMO's calculations to determine this year's rate increase. The audit, which CalPERS won in exchange for a 10.75% increase from Kaiser, found the HMO excluded "one-time costs from its premium-rate proposals, yet included one-time costs of $35 million in its calculations for determining it 1999 premium-rate increase." In addition, the Wall Street Journal/California Edition reports, the HMO's original request for the increase claimed 2% was due to capitol expenditures while "supporting documentation" shows the actual amount was 2.5%, a difference of $50 million. But while the audit found "math mistakes" in both Kaiser's and CalPERS favor, CalPERS spokesperson Patricia Macht said there were "no major mistakes" indicating the premium increase sought by Kaiser should have been "dramatically altered." Still, "Kaiser is not off the hook," according to Macht, who said, "We're going to hold their feet to the fire and probe and question and analyze where appropriate." Kaiser does not "dispute the bulk" of the findings, but says errors arose because it had to "forecast revenue and expenditures" so far in advance -- in winter or early spring for the following January.
The Journal reports that Kaiser's audit could be a bellwether for other HMOs opening up their books. CalPERS Health Benefits Administrator Margaret Stanley said her organization will likely ask "at least one and maybe more" HMOs to undergo an audit and "will consider negotiating 'audit clauses' into future contracts." The San Francisco-based Pacific Business Group on Health, another large California purchaser of health insurance, said it may audit HMOs jointly with CalPERS. PBGH CEO Patricia Powers said "we would like better information," acknowledging that audits of all the HMOs with which her group contracts are "up for discussion." The Journal reports that the next "likely candidates" are Health Net and PacifiCare of California, as they comprise a large chuck of both CalPERS' and PBGH's business (Benson, 2/24).