Give peace a chance. Or else.
That's what the California Public Employees Retirement System-long the 800-pound gorilla among activist pension funds-is telling feuding health plans and providers.
CalPERS claims contract terminations between the two are beginning to affect patient care among the 1 million public employees in its health insurance purchasing pool.
According to CalPERS, more than 400 employees who receive benefits through the pool have asked to switch health plans before open enrollment this year to keep their primary-care physicians, a dramatic rise from the past. Of the 400 requests made to switch plans, about 75% have been granted because of medical necessity, CalPERS officials said.
"We've been experiencing a high volume of provider networks and health plans terminating their agreements. So far, 10 health plans and 30 provider groups have had difficulties through Oct. 1 of this year," said CalPERS spokeswoman Nancy Quinlan. "If a medical group disbands, that's one thing. But these terminations are starting to become a standard business practice, and what we're asking them to do is put the patients before the profits."
To enforce that request, CalPERS is considering levying severe financial penalties against a health plan that terminate contracts prior to its open enrollment period, or imposing a "patient-care protection guarantee" that would lock plans and providers in for a fixed period of time.
CalPERS entered the fray in October, taking out a full-page advertisement in the Sacramento (Calif.) Bee to address apparently onerous contract negotiations between Foundation Health Plan and University of California at Davis Medical Center. Titled "Enough is Enough," it declared that both sides could reach an agreement if they "put patients first" and made concessions.
"Our members, who are your patients, are fed up with the money war . . . . and with being pawns and victims of this unprofessional dispute," declared Margaret T. Stanley, assistant executive officer of CalPERS' health benefits services, in a statement to the media. "So, as a major purchaser of healthcare, I call on other purchasers large and small to join us in urging the two sides to settle their differences quickly and restore patients to their physicians."
As it turns out, Foundation and UC Davis terminated their contract Nov. 1, affecting about 11,000 Foundation enrollees, including 3,000 who receive coverage from CalPERS.
"We wanted to renegotiate the contract, and Davis did not," said Foundation spokeswoman Lisa Haines.
Davis officials didn't return phone calls seeking comment.
Industry observers say CalPERS indirectly contributes to the problem by being tough on rate negotiations with health plans. It has won premium decreases the past four years in a row, including a 1.7% drop for 1997.
"This type of situation is inevitable. Between the downward pressure from purchasers like CalPERS and the upward pressures from real organized medical groups and multihospital systems, health plans may be forced not to reduce premiums as much as they had in the past," said Peter Boland, president of Boland Healthcare, a Berkeley, Calif.-based consulting firm.
The alternative, Boland added, is to either reduce reimbursements to providers or cut loose marginal performers and give more business to the remainder.
"My guess is over time, purchasers like CalPERS may instead shift from rate reductions and focus on quality of care and treatment outcome investments, by receiving a guaranteed set of dashboard indicators on performance and customer value," he said. "You can only squeeze the health plans so far before you have to look at a different set of tactics."
Boland noted that another option for CalPERS is to pressure the publicly traded health plans in which it invests.
But CalPERS believes it can have it both ways.
"We don't think the rate reductions we've negotiated have anything to do with these conflicts," Quinlan said. "There are still a lot of inefficiencies HMOs can take out of their systems while still providing quality care."
Meanwhile, the HMOs say they are listening but could do without CalPERS' characteristic bluntness.
"We'll keep their comments in mind, but the flip side is we had a contract we needed to negotiate. They may not have been aware of all the details involved in that," said Foundation's Haines.
"From the health plan's point of view, having the same physician will contribute to the quality of care a patient receives, and on that point, we're certainly in sync with CalPERS," said Myra Snyder, chief executive of the California Association of HMOs. "But the way we work with our partners to resolve problems is to talk with them first. Going public with a full-page ad is not really a step everyone thinks of in terms of solving problems with partners."