CalPERS Takes Tough Stand In Giving 38 Hospitals the Boot

Mergers and acquisitions have allowed hospitals to call the shots in negotiations with health plans the last several years. Now, there's indication that the party may soon be over, thanks to the intervention of employers. The California Public Employees' Retirement System has managed to keep HMO premium increases in line with what's going on nationally by refusing to do business with 38 of the most costly hospitals in the Blue Shield of California HMO network. And what goes on in California....

"CalPERS has put a stake in the ground that tells hospitals to play by their rules or lose their business," says Paul Fronstin, director of the health research and education program at the Employee Benefits Research Institute. Expect similar stands across the country. CalPERS has long been a barometer of what can and cannot be done concerning health insurance.

"This is, in many ways, a bellwether action by CalPERS, which marks ... where many large employers and health plans are going," Peter Lee, CEO of the Pacific Business Group on Health, tells the Los Angeles Times.

The CalPERS board approved a plan that includes an average HMO premium increase of 11.4 percent for 2005, the first time it has been near the estimated national average in three years. If the pension fund had not dropped the 38 hospitals, the increase would be more like 14.4 percent, say CalPERS officials. Overall, CalPERS expects to spend $4 billion on health insurance next year.

The move is expected to cut spending for the nation's third-largest purchaser of health care by $36 million in 2005, then save CalPERS about $50 million annually beginning in 2006.

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