The California Public Employees' Retirement System, Oakland, relied too heavily on financial analyses by Blue Shield of California when deciding to adopt a restricted HMO network and may have significantly overstated its potential savings, according to a state report. In an effort to control rising benefit costs, CalPERS opted to exclude 24 high-cost hospitals and their associated medical groups from its Blue Shield HMO network as of Jan. 1; Blue Shield estimated the move would save CalPERS $31.4 million in 2005. According to the report by California's Bureau of State Audits, the estimated savings did not take into account disenrollment likely to occur because of the shift. About 34,000 CalPERS beneficiaries statewide dropped out of the Blue Shield HMO during open enrollment. In the Sacramento area alone, the membership decline could cut the estimated savings of $5.5 million for the area to between $1.7 million and $3.5 million, the report said.
The audit bureau concluded that hospital savings, projected at $20.6 million, could drop to $8.9 million if Blue Shield had used a different model for estimating emergency-room costs. Also, the bureau said Blue Shield did not factor in terms of a contract with an unnamed health system, presumably Sutter Health. Sutter agreed last year to let CalPERS choose between excluding some of Sutter's highest-cost facilities or including the entire 26-hospital chain in return for a large discount. The tighter HMO network excluded 13 of Sutter facilities. Blue Shield should have factored the discount into the estimated cost of operating a full provider network, the report said. Read a summary or download a PDF of the full report. -- by Laura B. Benko