value for dollars spent. that is, they have both quality components and cost components that we felt were reasonable in terms of our expenditures, and we eliminated hospitals that could not meet certain cost and quality thresholds. that was what we called our narrow hospital network for blue shield in 2005. and, yes, we did eliminate all of the sutter from our hospital providing system, except for select services and hospitals in the bay area where we are required to keep certain services to meet requirements. supervisor campos: i'm wondering if you can continue and maybe we can come back to the point when supervisor farrell is here. a measure, happy to come back to any point you want. i want to point out that the gag rules are real. we did have difficulty in building our data warehouse from

getting actual claims data from not our ppo because we are self- funded. we did not have any problem getting the data, but we did have difficulty with blue shield. in 2007, calpers sponsor of legislation to require our health plans to submit data to calpers. ashley was passed and signed by governor schwarzenegger and of limited as article 6, section 2285 4.5 in the public employees hospital and medical care act. we did get full claims data from all of our plans. in 2005, when we remove some of our high cost hospitals from our system, we also set regional prices for our contract agencies so that those premiums actually reflected the geographic cost of the region. if you look at blue shield's

single party premium, or access clause in the bay area, it is $675. for that same premium by los angeles, the access plus is $420. supervisor campos: if we could go back to the point you made in trying to respond to the hospital changes to mitigate the effect of hospital consolidation, one of the strategies was to narrow hospital networks for blue shield in 2005. i wonder if you could go back to that. >> certainly. what we did was we built our data warehouse in 2003 and brought in all of our health claims data. we also engaged, and it is a little bit different study -- similar, but we engaged them to conduct a similar study, and

what they did was we said we are going to spend huge amounts of money paying for hospitals, we want to determine the value for those dollars spent. so we index our hospitals from high to low based on both cost and quality criteria. and then select the the hospitals in our network, giving hospitals we are going to exclude from the network the opportunity to either improve their quality or reduce their prices. those hospitals that chose not to do that were eliminated from our network. supervisor campos: can you say which hospitals? >> i looked at the list. it was the sutter hospitals. there were some hospitals down south. it was a small list, but a significant list in the sense that some of those hospitals eliminated were part of large systems. supervisor campos: thank you.

>> as i was explaining, we regionally price our contacting agencies. we do that based on the actual cost of the region. i was illustrating the premium for a single party under blue shield axis-plus of the bay area is $675, compared to the same product via los angeles at $428. as the sub costs rolls up to actual premium differentials in terms of how we set premiums for our contract agencies. the state requires a single statewide rate, so you will not see the same phenomenon when we purchased for state assets. we also narrowed our physician networks to 2008. we did that for both the blue shield product as well as the p

po. we added blue shield net value and first select. again, we were purchasing physician services based on this cost to quality and have allowed us to said in-house plans with in this product. for the net value product, as long as the networked -- it is a similar design, we have not yet done anything in which we are moving any members. they voluntarily go into those plans. one of the reasons our members have difficulty going into the plan is they like to maintain

the ability to pick a specialist. primary care guides the selection of specialty services on the hmo side because it gives them more choice. . we have not seen quite as much movement. we seek solutions that mitigate unwarranted regional variation in hospital costs, quality, and out comes while preserving member choices. hospital costs, we continue to

that solutions. one of the ways we move to reference pricing for hips and knees was as he did this morning that the cost of care so widely varied for the same service without a better outcome within the same markets. that level of transparency allows us to say we can design a product for our member and they can choose. or do they want to have the option of going outside of the 46 hospitals that do the kids and these were 30,000 or less and go to a higher price hospital and pay the difference? ucsf is one of our 46 doing our hips and knees.

the document under blue shield, that is an integrated health model. in the first year, which we've highlighted, we paid 50 -- we say $15 million. we're now starting to see additional savings this year of $9 million, and we expect to move forward in terms of starting to see savings each year in terms of guiding our

members to an integrated health model. we are seeing savings by reductions in hospital days, reductions in the admissions, and greater efficiencies for both the hospital and physicians as well as better coordinated care, and we are going to continue to watch that model as it unfolds, both for our members as well as any future accountable care organizations that blue shield will be developing in other parts of the state. i want to point out something i think you need to pay attention to because we are starting to pay attention to it. that is that cost management of the implantable medical devices -- we worry that we will see a proliferation in the market of multi-competing companies with multiple models and direct to

consumer advertising similar to what happened to the pharmacy industry. we're trying to get ahead of that curve as part of our strategies for managing our markets moving forward. finally, we were -- we actively sponsored the patient safety initiative. we will be doing more work in patient safety as it relates to not just improving quality, but releasing costs. we have been working closely with health and human services to demonstrate our commitment and our efforts and to coordinate as they roll out patient safety in their health care reform. i did not mention health care reform, but we implemented a number of provisions that included increasing the eligibility for up to 26 for our dependence, eliminating cost share and preventive services, eliminating lifetime limits, converting our annual dollar limits, and applying for $200

million in an early retiree reinsurance, and it was mentioned by the hospital association speaker or one of our speakers that health care reform has been cited for one of the reasons that hospital costs have been going up. that is not our experience. in fact, we were read a lot about that, that we would see market response to health care reform that would not be warranted. we already had in 2008 eliminated most, schering for preventive services, and for the early retiree reinsurance program, it was nice that the federal government recognize our commitment for early retirees. that concludes my remarks, and i am happy to answer any questions. supervisor campos: thank you very much.

i want to thank all the panelists for your very insightful presentations. i think we all learned a lot, and i want to thank my colleagues on the committee as well as members of the audience for their patients -- patience in listening to a very complicated subject matter. if it is ok, i wanted to take a very short break and then come back so that we can hear from the public. we're just going to take a very short break and be back from recess shortly. thank you.