pg&e workers. they have also agreed to an analysis, about 100,000 of their beneficiaries. most of home if not all are in the bay area. the things i want to say to you is that this has to be done. if i were a planning director today in this area, i would do everything i could to insist that there be complete disclosure not only of the finances, but complete disclosure of all of the issues related to quality care and performance. those are as obscure and concealed as politically possible by the organizations that reflect and support these large private hospital networks. supervisor campos: thank you very much for your thoughts, your insight.

greatly appreciated. we look forward to hearing from you in the future as well. now we are going to hear from our very own catherine dodd. as was noted earlier, you will not find anyone who knows more about these issues than she does. so, to our wonderful director of san francisco health services. >> thank you very much. i have to say that the fix sort of precluded me from even speaking to her before this, i had nothing to do with that comment. [laughter] it is great to be here, and i want to thank you for shedding light and shining a light on the increasing cost of health care for our own employees, but also for employers and employees throughout the bay area. the health services system provides coverage for not just

city and county employees, but also the community college district and the superior court. something that is unusual is we have been collecting data for more than three years. we have been looking at inpatient and outpatient utilization data, as they are reported by managed care. we have used this data to date to kind of great our medical vendors as well as to prepare us for rate negotiation. but you have to remember when we are negotiating rates than not doing a competitive rfp, we're pretty much they say one thing, and we go back and said this is what the data shows, and they make a little progress, and they really kind of have us captive for those subsequent years. it is helpful, but it certainly

does not allow us to assailants of this is going well. unfortunately, we do not have data from years prior to the hospital consolidations that was referred to by the previous speakers, but we do have hospital-specific data, but there are significant differences in what continues to drive up costs and how those differ between the two types of health maintenance organizations. our health services members are spread throughout the bay area pirie the hospital consolidation is not just important in san francisco. it is also important in the east bay. in alameda county, there is only one hospital system, and that is the starter system, and that affects how we negotiate our rates -- that is the sutter system. in the south care -- the south

bay, there is stanford was, and obviously kaiser, and sutter, which will not accept medicare advantage, so we have moved all of our retirees out of the systems in order to save money. we could not do that in the east bay where there was no alternative. supervisor campos: can i ask why they do not accept medicare advantage? >> i should clarify that. they may well accept medicare advantage from other insurers, but blue shield, since i have been here, has been unable to negotiate a medicare advantage contract with them. it is like managed care for medicare, but it saves us close to $2 million a year, having just the members we have in medicare advantage. if we could put them all in, it would save more, but it is what is referred to earlier as the narrowed network model, where we are limiting the physicians and hospitals that the retirees can go to. supervisor campos: what

hospitals do not accept that? is there anyone else besides sutter? >> stanford does not accept medicare advantage. at least, they did not negotiate with blue shield. blue shield really did try this year because our members wanted to continue to go to the broader hospitals. when you turn 65 and are a retiree, you may have been a patient at milton, but once you hit 65, you have to switch positions, switch hospitals, and we do that to save money within the health system. our total health care costs for the health service system, including employee and employer premiums, are close to $700 million. while the city and county portion was less than that, we actually are handling close to $1 billion a year. we spend about $60 billion a year per enrollee. that is not just medical.

that also includes dental and vision. of that, hospital costs make up 40%. that 40% is what you are focused on today. it is important to go back and look at where our members are. you will hear things like we can look at claims data. claims data are only collected in a preferred provider organization. there are collected in a managed-care organization traditionally except for the hospital claims and future service claims. it is often hard to do this kind of analyses when you do not have a pure ppo system. the system -- the speaker from the hospital association point of the california has the lowest costs in the country. that is because we are the highest managed care population in the country. kaiser in northern california, when you look at those counties

in terms of how much was spent -- kaiser insures about one of every three people. that is what helps drive our costs down. i'm going to focus on the two types of hmo's we have because they reflect the different incentives for hospitals generate revenue. the health service system actually pays the claims and premiums for the city plan. when you go to the doctor, we pay the doctor bill. again, only 10% of our membership is there. the rest is divided pretty equally between kaiser and blue shield. those are two different kinds of hmo's. one is a staff model and the other is a non-staff model. in kaiser, there are no fee-for- service costs unless someone is getting care out of the network. there is no incentive to do more to generate more revenue for the hospital.

what you see is what you get. in a non-staff model hmo and in our case, blue shield, physician groups to negotiate with the insurer and amount of money per enrollee per month. some specialty positions are in that and some are not. the fee-for-service portion of the blue shield is negotiated for outpatient surgery for many specialists and four inpatient costs. that makes up 70% of our blue shield costs, our fee-for- service costs. said they are not that capitated. today, i wanted to look at just data from our active members. again, this shows you how the two groups are very comparable in terms of size, age, gender. we are comparing apples and apples in terms of data.

this slide tells you that overall, blue shield has about 22% higher cost than kaiser. it was interesting to me to hear the professor from usc talk about that cost differential because the percentage is kind of balance . but that applies to hospital costs as well. the cost per day is about the same. but that means that 22% is driven by the hospital admissions, so blue shield has a lot more hospital admissions. kaiser members, as you can see, how will grow wings of state -- have long berlin's -- have longer lengths of stay.

blue shield figures include an estimated 25% cost related to professional services. staff model has fewer hospitalizations but longer length of stay. whether that has an impact, which is something i would like us to collect more data on, every admissions is questionable. when you discharge people earlier, they often get readmitted. it is something health care reform is looking at. perhaps we can begin to collect data on that as well. our top hospitals in terms of how much we spend, are in order california pacific, with 145 days per thousand, 33.5 admissions per 1000 enrollees, and an average stay up 4.1. you see staff, and we tell you how much was spent on those individual hospitals. most of these hospitals -- as

has been pointed out -- are members of larger groups. they are affiliated with larger organizations through consolidation. it is important when you look at the data to realize that kaiser actually has many, many hospitals, it makes sense that they have a lot of hospital days. we admitted to those sutter hospitals. the other one that is not on there is the summit medical center in alameda county, which makes up their exclusively consolidated county service. ucsf, mount sinai, and community hospitals -- mount zion. that is how our hospital admissions fell out by affiliation. these are our costs by active employees total hospital costs. it will look at the trend, which

is the next slide, overall, kaiser hospital costs have remained at about -- i think i just got ahead of myself -- this is the same, looking at average hospital cost per day, and other comes up the highest. i should say, those are usually out of network. when you are on a vacation and get admitted, that probably would include trauma centers, uc-davis, etc., so that falls in, but our health plans do not negotiate hospital rates with them, so we pay whatever comes up there. again, kaiser is our largest provider of care. the other hospitals charge more, but it makes for a very small percentage of our total amount. sutter is the second highest in terms of cost per day. ucsf, interestingly enough, came

out with the lowest cost per day, which is actually surprising when we were working with the data. this is a 12-month rolling measure of inpatient versus outpatient costs, so looking at this over the last few years, kaiser costs have remained pretty much the same at about $130 per member per month. there increase is in single digits. it is 8%. outpatient costs have increased 14% sen. more services are being delivered in the outpatient setting, and that is good. in terms of blue shield, their combined hospital data shows a double-digit increase for both, with 11% being the inpatient, at about $150 per member per month and 24% being the outpatient

costs. i think the insights are the kaiser is kind of rolling along at the same amount. even though they have fewer admissions, the hospital costs have gone up, so they are charging as more of her hospital day than they did before. blue shield shows a double-digit increase in both places. this is again an example of the blue shield and kaiser comparison. what we have learned from this is the importance of tracking the many factors over time, which affect hospital utilization. one of which was referred to earlier in the colonoscopy slide, which i want to remind everyone over 50, those screeners are with no cobain now, and that will keep our costs down with early diagnosis. just add a little editorial. but that is fine if you can go

to different places for colonoscopy is, but within our system, there are only two providers. there is no competition. you do not have a choice of where you can go for many of these outpatient procedures that can be very expensive. we need to track both inpatient and hast -- outpatient hospital procedures. hospitals within a staff model had a financial incentive to reduce the emissions, to keep those hospital costs down. hospitals within a non-the model have a financial incentive to increase in patient admissions and cost in order to generate revenue. hospital utilization has a lot of cost drivers, but there are a lot of other factors that need to be tracked. we really need to shift our insurer/dr hospital payment model to increase utilization

and preventive care to increase efficient and eliminate unnecessary care, and that is why, when we were beginning to do our request for proposal this year, we heard about the model of creating an accountable care organization and said, you know, we put that in as a requirement. we wanted that increased transparency and the increased cooperation. blue shield was the only vendor who included an accountable care organization in their response, and at accountable care organization will hopefully create financial rewards for the doctors and hospitals and insurers collecting the data. to increase efficiencies, to provide better data transparency as well as cost transparency, and improve the coordination and quality of patient care. i was sitting there thinking and wanted to end by saying that as we look at consolidation, i heard on the radio yesterday as i was driving home that starbucks is now the second-

largest vendor in the country in terms of the stock market. it comes in right behind wal- mart. i was thinking san francisco has had lots of hearings on starbucks moving into neighborhoods, but what happens is the one vendor, whether it is a coffee vendor or a hospital, sets the high mark of how much can be charged. all the other vendors fall in behind. it is not just about competition. it is really about how we allow those vendors to set the high mark and then how we assist the other vendors in creating real competition, so thank you very much. supervisor campos: just a couple of follow-up questions. on that note, what do you do, though, when you have -- you know, we heard earlier, for instance, in terms of number of beds, sutter, 44%. what leverage do we have if

someone is that large and said that rate at a certain level? what is our leverage? >> as a health service system, we have very little leverage. we have to rely on the insurer to push back and say we need lower rates. i will tell you this year, though, the reason we came in with only 3.1% rate increases was because sutter and the physician group's agreed to not have any rate increase this year. we did get that for multiple years, it would do as well for subsequent budget deliberations, but you are between a rock and a hard place. supervisor campos: since a lot of it, as you said, depends on how much the insurer can push back, i go back to this complaint that was filed by the insurance commissioner that talks about how there are allegedly these agreements between sutter and their insurer, at least one of them, the there are provisions in

their contract that they are not going to question the appropriateness of the charges. so what do you do? is that news to you? is that something that you have heard of before? >> this is actually a question better posed to lucy, who said this actually grew up of something in new york of governor cuomo. it was again one of those unintended consequences where you pass a law because, as you recall, 10 years ago, people were complaining that the insurance companies were saying, "you cannot have that mammogram. you cannot have that procedure." there was kind of a backlash saying, "insurance companies, you cannot say what, as a physician, i think is necessary. it was an unintended consequence that came out in legalese in the contract that is now there. i will say to the public back

the blue shield contracts with sutter and different hospital groups are not public information, but our contracts are completely public information. they are huge. we prefer not to have to put a problem for you, but if people want to examine them, look at our data, it is all on our website. we are a completely transparent organization and would welcome academics and researchers examining and making recommendations for us. supervisor campos: thank you very much. i do not want to lose our quorum, so we have our final speaker, the chief office of health and planning and administration for the california public employees retirement system. this will allow us to have a system of what -- a sense of what the state is doing. >> good afternoon.

thank you for the invitation to speak. i have been here for nearly nine years, and eight of those years have been leading the negotiations for the state of california and for our 1100 contract agencies. this is -- there we go. oh, i'm sorry. i will just cover it quickly. calpers covers 1.3 million active and retired government employees, and we are the second-largest purchaser in the nation, next to the federal government. in 2011, we will spend an estimated $6.7 billion on health care, and we offer both health and maintenance organization or hmo health plans, as well as

our preferred provider organization plans or pp of -- ppo. then, we contract with blue shield, which has over 409,000 members in its hmo, and kaiser has over 500,000 of our members in this plan. we insure both early retirees as well as medicare members. we have 197,000 members in our medicare supplement and senior advantage plans and another 187,000 early retirees. you have seen quite a bit of data coverage in terms of costs and utilization. because the federal government funds medicare to approximately 80%, we do much of our own data analysis on our commercial plant, and we have over 900,000 of our members in our commercial

plan. the reason we look primarily at the commercial plan is because calpers or the state of california and its contract agencies are covering 100% of the cost of health care. i also want to mention the we have three association plans. approximately 93,000 members in those plans, but you have to be an actual member of that association to take advantage of any of those health plans. in 2002, faced with premium increases in the mid-20% to 40% range, calpers launched a series of efforts to focus plan competition on effectiveness in managing costs. but we did not just stop at a price. we also look at quality and outcomes in terms of supporting system changes that improve

both efficiency and effectiveness. we also, -- part of that strategy was to educate our members and make them aware of the cost of care and to take a more active role not only in their own health care decisions, but in their purchasing decisions. in carrying out the strategy between 2002 and the present, calpers had to be pro-active in responding to the health care market changes. these four goals have been our guiding principle in terms of purchasing for over the last three years. two, focus on provider-related goals and the purchase of services, not just on quality measures, but on clinical outcomes. to mitigate variations we see across the state in cost, quality, and clinical outcomes and health services delivery. these costs -- cost, quality, and clinical outcome variations get obscured when our health

plan purchase services from consolidated help systems that require an all or none approach to participation in our health plan network. calpers saw its premiums expand, rise from $3.4 billion in 2003 to over $6.7 billion in 2011. historically, calpers, like other purchasers, will spend anywhere from 45% to 50% of their health costs of hospital services, and that is both the in the space station that it facilities as well as outpatient less than 24 hours services -- that is both the inpatient bedded facilities as well as outpatient less than 24 hours services. in examining hospital cost, specifically, we have seen various in price, quality, and

care practice throughout california. the numbers that you saw, risk adjusted in the commercial market, the differences you saw in southern california and northern california are real. i just wanted to reassure you that we have seen the same thing. when we look at our kaiser data and to our kaiser rate renewals, those costs are divided between northern california costs and southern california costs, and you see the same variation. there is no coherent rationale for why costs vary between facilities or side of service. as you pointed out in your remarks this morning, you could look at the same procedure in the same locale and see those prices vary from 2.5 to three times more between one facility and another in the same geographic area, and we have found no rationale that allows

that to be explained. i want to pause here from my prepared remarks to talk about the colonoscopy benefits. you will probably hear about our hips and knees referenced by saying, and i'll be happy to talk about it, but also in the blue shield plan, we did implement a colonoscopy benefit, whereby if a member seeks their colonoscopy from an ambulatory surgery centers, they do not have a share of costs associated with that for the same facility because those numbers were also real. you can see variations from a few hundred dollars from the same procedure up to $8,000. we saw the same variations for hip and knee replacement that went from $15,000 to $110,000. we also have a pricing program for inpatient hips and knees.

as i said, there are dramatic price variances for the same procedure in the same locale with no relation to quality or clinical outcomes. we have also seen in the rate needed -- negotiations over the last eight years our utilization in terms of increased actually flat in and in many instances decline. yet, our unit costs trend continue to run in the double digits. i want to talk about some of the things that calpers has done that are specific to dealing with the hospital and market and the consolidation of the market. we do not have an option of being able to move our markets or to effect our markets. we have to purchase within the markets as they exist. however, we have had to maintain a proactive stance in responding

to any market condition that drives our costs. in 2003, we build a health-care decision support system in which we acquire all claims for all health plans, so we have nine health plans, and even the encounter data from kaiser, and the encounter data from blue shield flows into our warehouse. currently, that data warehouse has over 1 billion records. we have seven years of data, and we also get lab outcomes data, and we get registration data in our disease management registries. based on our extensive analysis and the data from the system, we first took a look at what our risk pool looks like in terms of burying the cost for both active and retired members and, second, how we index our hospitals to look at those hospitals that we found re