Two of the most prestigious names in Southern California healthcare — Cedars-Sinai and UCLA — are getting shut out of a major insurance plan for being too expensive.
In a bold cost-cutting move, Anthem Blue Cross has eliminated doctors affiliated with the hospitals from a health plan offered to about 60,000 employees and dependents at the cash-strapped city of Los Angeles.
The city opted for Anthem's plan because it will save $7.6 million in annual premiums next year by excluding physicians from the two institutions known for tending to the Southland's rich and famous. About 2,200 city workers and family members are expected to lose access to their doctors under the plan.
This dramatic step shows that even some of the most-respected names in medicine can't get by on reputation alone at a time when the U.S. is grappling with a $2.6-trillion healthcare bill annually. Major hospitals and medical groups face growing pressure to justify their charges. And employers increasingly are willing to risk the ire of workers by cutting popular providers to clamp down on costs.
"Purchasers are sending a signal that certain prices are just unaffordable," said David Lansky, chief executive of the Pacific Business Group on Health, which represents large companies such as Walt Disney Co. "We want great teaching and medical research institutions to survive. Whether that should happen by charging everyone in society a higher rate for routine services is more debatable."
City officials are sending letters this week to employees informing them that their Cedars-Sinai and UCLA doctors will no longer be covered under Anthem's Select health plans, effective Jan. 1. About 27,000 city workers and their families are enrolled in Anthem. Of those, the city said less than 10% have UCLA or Cedars physicians.
An additional 32,000 city employees and family members with Kaiser Permanente aren't affected, and most Los Angeles police officers, firefighters and retirees are covered by separate contracts.
"Implementation of the narrow network was a difficult choice, but one made necessary by the city's fiscal constraints," a city spokesman said. Los Angeles is expected to be the biggest employer to offer Anthem's Select plan.
Officials at Cedars-Sinai and UCLA criticized the rationale for the move, saying the increased costs are tied to their world-class medical research and cutting-edge treatments in areas such as cancer or organ transplants that benefit the entire community.
Thomas Priselac, chief executive of Cedars-Sinai Medical Center, said these exclusions offer a "false economy" because they don't reduce costs in the healthcare system overall.
"It just pushes the cost onto those who continue getting care at those facilities," Priselac said. "Secondly, it doesn't recognize the reason why places like Cedars and UCLA are more expensive than the typical community hospital."
For its part, UCLA said its hospitals treat a large number of patients in Medi-Cal, the government program for the poor and disabled.
"Other providers don't have to deal with the expenses UCLA has to deal with," said Santiago Muñoz, chief strategy officer for the UCLA Health System.
But he said UCLA is also committed to eliminating unnecessary costs because "we know employers and health plans are concerned with affordability, and so are we."
Cedars and UCLA have long captured the public's attention because celebrities have sought out treatment there for years. Anthem Blue Cross told city officials that the public often perceives care is better there because Hollywood stars such as Jodie Foster, for instance, went to Cedars to have her baby.
But their costs are up to 50% higher than competitors and the quality of care isn't measurably better, according to Steven Scott, general manager of group sales for Anthem Blue Cross.
Scott told city officials recently that Cedars and UCLA are among "the most notorious" for higher costs and "taking out those physician groups produces a substantial difference in cost."
Anthem isn't alone in pursuing this strategy. Many insurers are aggressively pitching these sharply limited networks, which offer fewer choices and lower-priced doctors and hospitals, as a cost-cutting tool at a time when U.S. health insurance premiums have climbed three times as fast as inflation and wages over the last decade.
Healthcare experts say these tougher tactics could help push down rates.
"Organizations like Cedars and UCLA are going to have to make some substantial changes to get their prices more in line," said Cheryl Damberg, a senior researcher at Rand Corp., a nonprofit think tank in Santa Monica. "My guess is Cedars and UCLA are hoping employees will raise Cain and create a backlash."
Some employers have been reluctant to make changes like this and force workers and their families to switch doctors or travel farther to see certain specialists. But the financial appeal is clear: potential savings of 10% to 25% depending on how restrictive the narrow network is.
Woodland Hills insurer Health Net Inc. started rolling out these more limited networks in 2008, and about 35% of its commercial customers have signed up.
Industry giant WellPoint Inc., which owns Anthem Blue Cross in California, offers plans that include as few as 30% of the company's full list of providers.
Anthem's Select network being used by the city of L.A. excludes the physician groups affiliated with Cedars and UCLA, which together have more than 2,000 primary-care doctors and specialists. Anthem doesn't bar the hospitals from the narrow network, but use of those facilities is reduced without Cedars and UCLA doctors making referrals.
Union officials who represent city workers endorsed the move, but they worry about people getting surprised by big medical bills because they don't realize their regular doctor is out of their health insurer's network. For instance, city workers may be responsible for 30% or more of the medical charges incurred outside the Anthem network.
"We hope we are doing the right thing and nobody falls through the cracks," said Paul Bechely, who represents city workers in Laborers' International Union Local 777. "UCLA and Cedars are celebrity hospitals, and they want a substantial amount more than what other hospitals charge."
Another major insurer, Blue Shield of California, ended a lengthy contract dispute with UCLA and other UC system providers last month over their rates.
DEC, an electronics manufacturer in Santa Ana, went with a narrow network from UnitedHealthcare this year that cut its premiums 14%.
The plan limits patients to six large medical groups, not including those affiliated with UCLA and Cedars. Frederik Rodenhuis, DEC's owner, said his 55 employees share in the savings since workers are responsible for 40% of the premiums.
"For some of them it was a hassle to change doctors again," Rodenhuis said. "But as costs go up and up, you are looking for ways to keep prices low for employees and for the company."