Press Release

May 19, 2004

Contact: Clark McKinley/Pat Macht
Office of Public Affairs
(916) 326-3991

CalPERS Adopts Hospital Pricing Reform
Reduced Hospital Network Promises Long-Term Savings

SACRAMENTO, CA - Stepping up its effort to restrain soaring health care costs, the California Public Employees�f Retirement System voted 10-1 today to exclude 38 high-cost hospitals from its largest HMO network while minimizing disruptions for CalPERS members.

�gWithout question, the biggest challenge we face is providing affordable health care for our 1.2 million members,�h said Board President Sean Harrigan. �gPremium increases exceeding 50 percent in the past three years are simply unsustainable. Almost half of our cost increases are driven by hospital charges. We have a situation today when some members can no longer afford to pay their premium. We have a fiduciary responsibility to make sure health care is affordable, and the time has come for this System to take this bold action on their behalf.�h

The plan removes 38 hospitals from the Blue Shield HMO network beginning in 2005 – including four in the greater Sacramento area, 10 in the San Francisco Bay area, seven in the Los Angeles area and five in the San Diego area.

CalPERS and Blue Shield also will keep the door open over the next 30 days to any hospital that agrees to prices at the statewide average.

The impact of the narrower network of hospitals will save up to $36 million next year and $50 million a year thereafter. Thirteen of the excluded hospitals are with Sutter Health, five are with Sharp and five are with Catholic Healthcare West. Three are with the Daughters of Charity and two are with the Tenet systems. Most of the savings would come through excluding selected Sutter hospitals.

�gSutter Health is a huge outlier. Its costs are 60 percent higher than its Northern California peers and 80 percent higher than the statewide average,�h said Sid Abrams, Chair of the Health Benefits Committee. �gWe have to change the dynamics of the marketplace to restrain health care costs. If we continue to be held hostage to high priced hospitals, many more people will be priced out of our program and forced into the growing ranks of the uninsured.�h

Blue Shield said its CalPERS network of about 225 hospitals and 25,600 physicians can accommodate as many as 53,000 members who may have to find new doctors if their physicians are affiliated only with excluded hospitals. Only the HMO�fs Basic Plan enrollees will be affected. Members in the health plan who are also in Medicare are not affected, nor are members who are currently undergoing treatment for a serious illness. The action will allow members who want to keep their physicians and hospital providers an opportunity to do so by signing up this fall for one of two preferred provider plans.

The dropped hospitals are listed below by county, name, and affiliation, where applicable:

In other action, the Board approved a preliminary rate increase of no more than 7.7 percent for the PERS Choice Basic plan in 2005. It is scheduled to take up rate increase proposals for the HMO networks in June.

CalPERS is California�fs largest purchaser of employee health benefits and the third largest in the nation. The pension fund offers health benefits to 1.2 million State and public employees, retirees and their families. For more information about CalPERS, please visit www.calpers.ca.gov.

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