CalPERS OKs Hospital Reimbursement Project; Seeks Changes in How Hospitals Are Paid for Services.

SACRAMENTO, Calif. -- - The California Public Employees' Retirement System (CalPERS) today advanced a plan for developing a fairer, more sensible way to reimburse hospitals that contract with the System's health plans.

The Board of Administration directed staff to form a purchasers' coalition to collaborate with hospitals on efficiency and quality measures and promote pay incentives for improved performance, and to continue selective contracting efforts that CalPERS began with the Blue Shield network.

"This agenda for change will help us deal with one of the biggest headaches in the health care arena," said Rob Feckner, CalPERS Board President. "There's little correlation between the costs and quality of hospital services. Making matters worse, insurers have to negotiate hospital reimbursements without receiving actual and accurate cost figures."

The "Hospital Reimbursement Project" is intended to reduce health care costs, make hospital reimbursements more stable and predictable, improve the quality of care, and improve access to hospital providers. The plan entails the following agenda:

--Promote competition through objective efficiency and quality benchmarks to differentiate value;

--Ensure the ability to negotiate rates with individual hospitals of a network, based on performance and value for rates charged;

--Give consumers and purchasers accurate information about the cost of specific hospital services;

--Establish standardized, auditable accounting of hospital profit and efficiency that includes patient safety standards;

--Establish "case rates," greatly limit the use of "stop-loss" provisions that trigger costly a-la-carte-type charges, provide "fixed-fee" rates for outpatient services, and simplify automated billing practices; and

--Reward hospitals based on efficiency and quality, which may include such criteria as reduced mortality and re-admission rates and compliance with industry compliance standards.

"We hope to find common ground on the reimbursement issue involving all of the players - including hospital providers," said George Diehr, Chair of the Board's Health Benefits Committee. "Sometime later this year, CalPERS will take a major step by co-sponsoring a health care purchasers' conference, and we'll seek agreement with hospital directors on simplified billing, improved accountability from doctors on efficiency and price variation, and better access to cost figures that make sense."

Meanwhile, CalPERS will continue efforts to make high-value hospitals available to its members by meeting with directors of 24 hospitals and affiliated physician groups that were excluded from the Blue Shield network on January 1. CalPERS also will meet with its contracted health plans, outside actuaries, provider groups and hospitals on maintaining and periodically updating efficiency and quality criteria that were used in making its exclusive network decision.

CalPERS is the nation's third largest purchaser of employee health benefits, and serves 1.2 million public employees, retirees, and their families. For more information on CalPERS, please visit www.calpers.ca.gov.