CalPERS Drops 38 Hospitals From Its Preferred Network

Big healthcare buyer says excluded hospitals price services 60% to 80% higher than peers

IF CALPERS HAS ITS WAY, 38 hospitals and 17 physician groups will no longer be able to provide services to its healthcare network.

On May 19, 2004, the California Public Employees’ Retirement System (CalPERS) announced a list of providers that it was excluding from its provider network for 2005. The news was a bombshell in California and nationally, because CalPERS is seen as a source of innovation which is rapidly copied by other employers and health insurers.

The hospitals excluded from the 2005 provider network are considered to be high-cost outliers. CalPERS, and its network administrator, Blue Shield of California, estimate the move will save the plan between $25 million and $50 million next year. This action will affect the care of approximately 415,000 CalPERS members.

High-Cost Outlier Claims

Hardest hit among the 22 hospitals targeted in Northern California is Sutter Health. It operates 26 hospitals and CalPERS wants to exclude 13 of those hospitals because of their high costs. Blue Shield claims these hospitals cost between 60% and 80% more than comparable hospitals. Sutter officials deny this. Because Blue Shield has not released the data it uses to make this claim, there is no way to challenge that estimate.

CalPERS is attempting to control the increase in the cost of its healthcare benefits. During the past three years, CalPERS’ health insurance premiums have risen 57%! It provides health benefits to 1.4 million public employees, retirees, and their families.

What makes this a national story is the move by a major healthcare buyer to exclude providers from a network because of claims that they have “excessive charges.” By taking this move, CalPERS is limiting the choices of health providers available to its members. Health industry experts believe this may encourage employers in other regions of the United States to identify “high-cost” hospitals and either exclude them from their employee’s provider network, or charge employees who use these hospitals a higher deductible or out-of-pocket fee.

Laboratory directors and pathologists can consider this development to be another step on the road to measure provider outcomes and the cost-effectiveness of their health services. THE DARK REPORT interprets CalPERS’ action as a significant signal that healthcare buyers are ready to become more selective in deciding which physicians, hospitals, and laboratories will be part of their provider network. It is early warning that laboratories and pathology groups should take active steps to improve outcomes and reduce their costs.


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