CalPERS targets hospitals
Plan would no longer use facilities with above-average costs
Kathy Robertson
Sacramento Business Journal

Dec. 22, 2003

Staff Writer
The state's largest buyer of health benefits wants to stop sending patients to hospitals that charge more than the statewide average.

High average costs and the concentration of state workers here mean the proposed move by California Public Employees' Retirement System execs could hit especially hard in Greater Sacramento.

The plan, which is still being developed, would be aimed at the No. 1 driver of skyrocketing healthcare costs: hospitals. Those that can't justify higher-than-average costs could be tossed out of the CalPERS network.

The giant healthcare purchasing program wants to contract with hospitals one-by-one, working only with those that provide good value for the dollars spent, according to a preliminary proposal. It would mean a bold move by CalPERS to regain clout in the marketplace, and a huge shift away from the current practice of contracts covering all the hospitals in a particular health system. The systemwide approach gives hospitals an edge in negotiations.

The focus is on Northern California, where hospital costs are generally higher than the statewide average, but the move could hit Sacramento the hardest. Hospitals here typically received far more money per patient per day in 2001 than the statewide average -- and more than hospitals in California's other large urban areas -- according to an analysis last year by the Sacramento Bee.

Discussions continue between CalPERS staff and three big healthcare systems with a lot of Northern California hospitals: Sutter Health, Catholic Healthcare West and Tenet Healthcare Corp. No details have been fleshed out and no formal plan approved.

Reaction to the proposal this week was mixed.

"The short answer is 'yes,' " said Sutter spokesman Bill Gleeson. "We're really trying to be responsive to the plans and CalPERS. They are the customers." For Sutter, that means 41,000 HMO patients in the Sacramento region alone.

"As a provider of services to many CalPERS members, we have a strong interest in working with them to improve quality, access and affordability," said Mark Klein, CHW spokesman. "Our network of hospitals and physicians serves as an important component of the CalPERS network."

Klein declined comment on the idea of CalPERS working with some but not all the hospitals in the network.

"It's a proposal," said Tenet spokesman Steven Campanini. "Once something is finalized, we'll comment."

Mandating price with market power: The $3.4 billion CalPERS health benefits program is the second largest in the nation. It covers 1.24 million active and retired state and local government employees and their families, including more than 225,000 in Greater Sacramento.