CalPERS implements strategies to combat hospital cost variations and improve member care

The San Francisco County government meeting held on July 4, 2025, focused on significant healthcare cost management strategies implemented by CalPERS, particularly in relation to hospital services and insurance plans. The discussions highlighted the ongoing challenges of price variation for medical procedures and the measures taken to address these disparities.

The meeting began with a presentation on the colonoscopy benefit under the Blue Shield plan, which allows members to receive the procedure at ambulatory surgery centers without a share of cost, contrasting sharply with the costs associated with outpatient hospital facilities. The speaker noted that costs for similar procedures can vary dramatically, with examples ranging from a few hundred dollars to as much as $8,000 for colonoscopies, and hip and knee replacements costing between $15,000 and $110,000.

A key point of discussion was the implementation of a reference pricing program for inpatient hip and knee surgeries, aimed at addressing the stark price differences that do not correlate with quality or clinical outcomes. Despite a flattening or declining utilization trend over the past eight years, hospital unit costs have continued to rise significantly, often in double digits.

The meeting also covered CalPERS' proactive measures in response to hospital market consolidation. In 2003, CalPERS established a healthcare decision support system to analyze claims data from multiple health plans, which now includes over a billion records. This data-driven approach allowed CalPERS to evaluate the risk pool and identify hospitals that provide good value for the money spent, leading to the creation of a narrow hospital network in 2005. Hospitals that did not meet specific cost and quality thresholds were excluded from this network.

Further discussions included the regional pricing strategy for contracting agencies, which reflects the geographic cost variations. For instance, the premium for Blue Shield's Access Plus plan in the Bay Area is $675, compared to $428 in Los Angeles. This pricing strategy aims to align premiums with actual regional costs.

In 2008, CalPERS also narrowed its physician networks, introducing lower-cost health plans while ensuring members retained their primary care physicians. The transition involved moving 101,000 Blue Shield members into a more cost-effective plan, although some members expressed reluctance due to the desire for specialist access.

The meeting concluded with a reiteration of the ongoing challenges in managing healthcare costs and the need for transparent information to empower members in their healthcare choices. The discussions underscored CalPERS' commitment to mitigating unwarranted regional variations in hospital costs and outcomes while preserving member choice in health plans and providers.