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Taking the Pulse of Health Care

July 02, 1989

In a bold move to control costs and assure quality in health care, the California Public Employes Retirement System (PERS) has authorized a committee of nationally recognized experts to draw up an extraordinary reform package. The project may have an impact as early as next year, and inevitably will have national implications.

The importance of the move lies in the fact that PERS, in addition to providing retirementprograms, also contracts for health insurance for some 700,000 state and other public employees and their dependents. That makes it the single most influential buyer of health care in California.

Public employes now face a bewildering choice among 26 different health insurance options. One of the first goals of PERS is to establish standardized benefits so that individuals can see clearly the cost differences for the same kinds of services and choose more prudently. But as research progresses, the program also is intended to establish standards of care by evaluating outcomes of medical treatment and the appropriateness of particular procedures.

And the program also will focus on identifying centers of excellence so that complex surgical procedures and treatments can be directed to those who do them best. There already is significant research showing remarkable differences in death rates, including evidence that some of the most effective providers of complex surgery are also the least costly.

"If we are purchasers of health care, we can insist that we only negotiate with agencies with high standards of care," according to Dr. Forrest H. Adams, formerly of UCLA, who is chairman of the PERS Health Benefits Advisory Council. His vigorous leadership led to approval by the PERS board of the new program, and he has been able to bring onto his council some other leading figures in health care. The panel now includes Alain C. Enthoven of Stanford, Dr. Robert Brook of RAND and UCLA, Dr. Steven Schroeder of UC San Francisco, Dr. Mark R. Chassin, an independent consultant, and Dr. Ralph W. Schaffarzick, a consultant to the Blue Cross/Blue Shield National Assn.

Enthoven's own research on the use of so-called "managed competition" to control health-care costs is one of the major elements being pursued. To implement truly competitive bidding, the council has been developing standardized health-care benefits for health maintenance organizations such as Kaiser Permanente, preferred provider organizations such as Blue Cross Prudent Buyer and other programs. The goal, as Enthoven pointed out in a council report, is "to assure that everybody makes a fully cost-conscious choice and that every person who joins an economical health plan gets to keep the savings generated by that decision."

The PERS reform program ultimately will require legislative authority because the added administrative cost, while small compared with the $700-million billings, must come from premiums, not retirement reserves, according to Craig W. Hartung, PERS chief of information and program development. Approval should not be difficult to obtain, however, because of the prospect for both savings and improved quality in health care.

The innovations are all the more important in the face of lagging efforts to improve health coverage in the state and in the nation. A stalemate in Sacramento, and preoccupation with the federal budget deficit in Washington, have made it difficult to move ahead with broad reforms that would provide health insurance to 5 million Californians and 32 million other Americans with no protection. The PERS study can, in the meantime, make a meaningful advance in developing more effective national programs, both in containing costs and in assuring quality.

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