CalPERS saves $37 million as medical groups coordinate healthcare


An effort by three healthcare organizations that saved the California Public Employees’ Retirement System $37 million in the last two years is gaining national attention as Medicare and employers search for ways to control rising medical costs.

Blue Shield of California teamed up with the Dignity Health hospital chain, previously known as Catholic Healthcare West, and Hill Physicians Medical Group to coordinate care for 41,000 CalPERS members in the Sacramento area, starting in 2010.

The early results of this unusual collaboration among healthcare adversaries were published Tuesday in the medical journal Health Affairs as part of a look at payment reform efforts nationwide.

Last year, U.S. Health and Human Services Secretary Kathleen Sebelius praised the program and said it was on the federal government’s “radar screen” as a model for other areas.

Under federal healthcare law, Medicare officials are awarding contracts to dozens of similar alliances among doctors, hospitals and health plans in what are called accountable-care organizations. Medicare is trying to move away from conventional fee-for-service medicine that encourages volume rather than quality of care or efficiency.

These new collaborations for seniors and private-sector workers seek to reward doctors and hospitals for coordinating care among the chronically ill and cutting hospital admissions while still meeting quality measures. If they succeed at managing their patients, participants can share in the savings.

Experts said it remains to be seen whether this idea can work on a larger scale, particularly in areas where care is more fragmented.

“Until these organizations are tied together where they all share in those savings or losses, no one really has an incentive to reach beyond their immediate area,” said Susan Ridgely, a senior policy analyst at Rand Corp., a Santa Monica think tank.

Blue Shield said CalPERS saved $37 million for 2010 and 2011 compared with what healthcare costs would have been without the program. In the first year, the cost per person dropped 1.6% to $393 a month. The average cost for CalPERS members outside the program increased 10% to nearly $436 a month for the same period.

CalPERS is eager to wring some savings from the $7 billion it spends annually on medical care for 1.3 million active and retired government employees and their families. Overall, its health premiums will rise 9.6% next year.

The state agency said that it was pleased with the savings achieved thus far and that it was expanding the integrated approach with Blue Shield to Orange County and other areas.

Much of the savings in the CalPERS’ program came from shorter hospital stays, according to Blue Shield. In the first year, both the number of inpatient days and hospital readmissions declined 15%. The number of hospital stays lasting more than 20 days was cut in half.

Paul Markovich, Blue Shield’s president and incoming chief executive, attributed many of those reductions to improved oversight of patients leaving the hospital.

He said case managers reviewed patients’ prescriptions to avoid harmful interactions, checked on them by phone within 48 hours of discharge and booked a doctor’s appointment for them within 10 days.

“All of us had some information on these patients, but no one could see the full picture,” Markovich said.

Those hospital savings, however, posed a challenge because Dignity, the state’s biggest hospital chain, was taking the biggest hit financially among the three organizations.

“This had to be financially viable for all of us,” Markovich said.

In response, Blue Shield agreed to transfer patients who initially sought care at an out-of-network hospital back to a Dignity facility once they were stable. Hill Physicians, which already referred about 70% of its patients to Dignity hospitals, agreed to send more people to those facilities.

Mary Carol Todd, a senior vice president at Dignity Health, said the partnership was structured so people involved in patient care were shielded from financial discussions held at the executive level.