CalPERS Adopts New Health Care Strategic Plan.

Business Editors/Health/Medical Writers

SACRAMENTO, Calif.--(BUSINESS WIRE)--May 14, 2003

Saying that the managed health care model is broken, the California Public Employees' Retirement System (CalPERS) today approved an 11-point strategic plan aimed at rewriting the book on health benefit purchasing for its 1.2 million enrollees.

The plan includes proposals for improved disease management, incentives for doctors and hospitals to improve the quality of care, collaborative ventures with other big purchasers, efforts to make the program more attractive to local public agencies, and support of state and federal legislation addressing the health care crisis.

The CalPERS Board of Administration also directed that one major element of the plan -- multi-year contracts with HMOs -- be implemented soon with Blue Shield to help reduce costs. The Board plans to approve 2004 rates on June 18.

Today's adoption of the strategic plan concludes 20 months of work, including dozens of meetings with stakeholders and numerous hearings and workshops. The plan responds to dramatic changes in the marketplace since the 1990s, when CalPERS was better able to restrain the soaring costs of hospital, physician, and pharmaceutical services.

"Employer-based coverage is on life-support," warned Sean Harrigan, President of CalPERS Board of Administration. "This plan deals with a number of extremely difficult issues, and it is our best hope for keeping our health plan working for our members," he said.

Sid Abrams, Chairman of the Health Benefits Committee, said the plan offers remedies for dealing with a difficult marketplace.

"The underlying forces driving health care premiums in recent years are killing prospects for affordable health care: high cost of chronic conditions like diabetes and asthma, escalating hospital costs, and out of control prescription drug price hikes. Even this plan is not a panacea for solving the health care crisis. But it will help our members get more for the health care dollar and bring our partners in line."

A key path for providing greater price stability and value is establishing longer term contracts with strategic partners. Premiums for each year would be based on a pricing mechanism to be spelled out in the agreement with Blue Shield.

The Board also voted to seek legislation that would give itself authority to set up "a regional pricing plan" and alternative benefit designs for local public agencies and schools -- should CalPERS decide to pursue those recommendations some day.

However, on a 7-4 vote, Board members declined to accept a recommendation for regional pricing in 2004, as proposed by staff. Under this concept, public agency and school members in high-cost regions would pay more than those in low-cost regions.

Some public agencies reportedly are either leaving CalPERS or considering affiliation with less expensive plans that are available in some areas. Proponents argue that regional pricing would provide an incentive for agencies and schools in lower-cost areas to remain in the CalPERS program. Without regional pricing, it is likely that some public agencies will leave CalPERS, causing further increases to all remaining agencies. Opponents say regional pricing would create inequities among members and regions.

The Board deferred action until June on a proposal to give Blue Shield members incentives to use more cost-effective hospitals.

Other elements of the plan include:

-- Requiring health plan partners to have at least three care

management programs to identify high risk individuals, to

provide case management and five chronic disease management

programs, and to assess their effectiveness. Chronic condition

care will account for 60 percent of future program costs,

analysts say.

-- Demanding that HMOs give network doctors and hospitals

incentives to follow treatment practices that are clinically

proven to be effective. Members of CalPERS self-insured

preferred provider plans, PERSCare and PERS Choice, will be

given incentives to use designated Blue Cross hospitals that

have the best performance record for coronary artery bypass 

graft surgery.

-- Formation of a coalition with other large health care

purchasers to share information and collaborate in efforts to

gain more negotiating clout in the marketplace. CalPERS will

explore the feasibility and cost-effectiveness of joint

purchasing with other states and/or private entities and

whether a pharmacy carve-out would be clinically and

financially more effective, and join other states to support

research toward development of a formulary based on the most

clinically cost-effective drugs.

"A purchasing coalition could be most effective with hospital

costs, which are driving up premiums more than any sector of

the health care market," Abrams said. "CalPERS can't do it

alone, but if we're joined by other coalition partners maybe

we can have more leverage with hospitals. We're going to have

to be part of a greater effort."

-- The Board directed staff to join other purchasers to encourage

hospitals to collect and publish data on quality and relative

cost; and to give members information to select physicians and

hospitals that offer the best quality for the lowest cost.

-- CalPERS also plans to tap the resources the Pacific Business

Group on Health and other major players to give enrollees

one-stop shopping to obtain comparative information about

health plans, doctors, and hospitals; to make plan selections;

budget for health care; and make decisions about clinical

treatments.

-- CalPERS will step up communications, marketing and consumer

information efforts to improve relations with local public

agencies and schools.

-- Recognizing the need to attract and retain local governments

in the health program, the plan calls for exploring the demand

and feasibility of new products such as dental and vision

plans, and establishing a better outreach effort.

-- Greater advocacy for state and federal action. CalPERS will

seek state and federal restrictions on drugs manufactured in

other countries, direct-to-consumer advertising, patent

extensions; and support legislation for a Medicare pharmacy

benefit.

-- Establishment of a Rural Assistance Task Force to address

alternatives to rural health care delivery, and two Health

Benefits Advisory Panels. These panels would be comprised of

separate stakeholder groups for the State and local agencies

to advise staff about various strategic issues, as needed --

including possible benefit options for public agencies and

schools to be introduced as early as 2005.

CalPERS, the nation's third-largest purchaser of employee health benefits after the federal government and General Motors, spends an estimated $3.4 billion a year on its health program. A copy of the executive summary of the plan is available on the CalPERS Web site, found at www.calpers.ca.gov.