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Nations's Largest Business Health Coalition Annouces 1999 Rate Trends

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Physicians Rate the HMOs Data Better, Quality Needs Improvement

San Francisco, CA, June 23, 1998 – The Pacific Business Group on Health Negotiating Alliance has concluded its rate negotiations with HMOs. Coalition members endorse value based purchasing, with demonstrable improvements in quality management and other performance indicators each year. The trend for plan year 1999, for the twelve HMOs with which Alliance employers spend in excess of $500 million in premium, is 3.8%, exclusive of Kaiser; 8.1% with Kaiser. The non-Kaiser trend is consistent with the California general and medical CPI, and below premium trends approaching 10% nationwide. PBGH's cumulative California trend for 1995-1999 is -5%. By putting the brakes on the inflationary spiral of health care costs, many employers will be paying a lower premium than they did five years ago. The trend in Arizona, where the Alliance entered its second year of negotiations, is 4.2%.

Rate Stability a Key Issue for 1999. In this fifth year of negotiations in California, rising drug costs, major financial losses experienced by several health plans and uncertainty about the financial impact of legislative proposals proved to be a major challenge. "In spite of this cost pressure, we were very pleased that most health plans stayed in line with the CPI," noted Sherrie Matza, Vice President, Bank of America and this year's Chair of the Negotiating Alliance. "However, we were especially disappointed with the rate action of our largest carrier, Kaiser. We need to keep a lid on inflation to protect our employees and consumers from higher out-of-pocket costs." Kaiser and PBGH agreed to establish quarterly meetings to monitor operational and financial performance.

Saddled with out-of-state losses and non-contract expenses stemming from its rapid growth exceeding capacity, Kaiser's rate trend was clearly an exception to the overall pattern. Some employers may freeze Kaiser enrollment in 1999 or add alternative HMOs. In contrast, the three-year agreements with Health Net and PacifiCare beginning in 1998 enabled Alliance members to maintain rate stability. More important, this type of purchaser-plan partnership affords the opportunity to focus on quality and care management issues. Alliance members also expect continuing savings from operational consolidation following recent plan mergers.

"Rate stability and long-term pricing arrangements are critical so that we can focus our discussions on quality and data management improvements. These areas hold the key to long-term solutions for keeping costs reasonable," added Patricia E. Powers, President, PBGH Negotiating Alliance. Each year the Alliance negotiates HMO performance targets in the areas of customer service, quality of care, data improvements, and partnerships with the physician community.

Coalition-wide Support for Quality Improvement Fund. For the first time in 1998, employers across the entire coalition, including non-Negotiating Alliance companies, hinged membership on a contribution to a PBGH Quality Improvement Fund. The Fund, which totals approximately $1 million annually, supports consumer information projects, quality of care and outcomes research, and the California Cooperative Healthcare Reporting Initiative, which publishes annual report cards on health plan performance and member satisfaction. This broad-based commitment of employers will enable PBGH to accelerate the implementation of new quality improvement projects, especially at the delivery system level.

Third Annual HMO Performance Assessment by Doctor Groups. Health plan performance and quality improvement are thoroughly reviewed as part of the RFP process. "While HMOs have made strides in improving their information systems and preparing for year 2000 transition issues, there continues to be room for improvement in quality," noted Matza. This evaluation was confirmed by the results of the PBGH Physician Group Survey to Assess HMO Performance (see attached summary for more details). Evaluating how well health plans and medical groups work together is increasingly important in an environment where patient care is a shared responsibility. Strong communication between health plans and physician groups is a prerequisite for sustained improvements in cost efficiency, access, and quality of care. Health plans have made strides in developing information systems to improve the transfer and integrity of eligibility and encounter data, a key component of quality measurement and improvement. "There is a need for stronger incentives and cooperation with physicians to measure quality of care and health outcomes," said Powers. "In 57% of contracts, HMO efforts to provide quality benchmark data were considered to be poor or very poor. This is why PBGH has launched an important strategic initiative to promote health plan quality-based incentives at the provider level."

New survey questions addressed formulary management, operational aspects of recent plan mergers, and referral authorization processes, including expedited referral and direct access programs. Other HMO performance areas assessed by the physician groups include: the service relationship, data reporting, the financial relationship, consumer education, utilization management, and quality improvement. Survey findings revealed that PacifiCare, followed by Health Net, ranked relatively high in many areas of performance, although their merged entities, FHP and Foundation, respectively, were rated poorly. Kaiser, with its single physician group, was not a part of the survey.

Pacific Business Group on Health Negotiating Alliance members:
APL Limited
Automobile Club of Southern California
Bank of America*
Bank of the West
Bechtel Corp.*
BHP Co., Ltd.*
Chevron Corp.
Federal Reserve Bank of San Francisco
Fireman's Fund Insurance Co.*
LSI Logic Corp.
McKesson Corp.*
Mervyn's California*
Pacific Bell
Pacific Gas & Electric Company
Safeway Inc.*
Stanford University
Stanislaus County
Union Bank of California
Varian Associates*
VLSI Technology*
Wells Fargo Bank*

*Negotiating Alliance employers who participated in the Arizona negotiations

Clark Miller
Senior Communications Manager
Pacific Business Group on Health
Telephone: (415) 615–6302
E–mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it


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Nicole Kohleriter
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