Here’s the Sacramento Bee’s report on CalPERS paring down the list of hospitals it will contract with in the Blue Shield HMO product. Although some big names like Cedars Sinai are on this list, the real deal is the fight between CalPERS and Sutter. Sutter operates 13 hospitals in the Sacramento-San Francisco region. However, it’s not CalPERS denying access to hospitals that is the big deal. It’s the issue with physicians affiliated with those hospitals.

While in the SF Bay Area many primary care physicians contract with either an umbrella group like Hill or Brown and Toland and as such CalPERS employees can get to their physicians another way, in Sacramento somewhere in the region of 50,000 CalPERS employees are likely to have to change primary care physicians to a non-Sutter affiliated doc. I suspect that the squealing from that will be fairly loud. The employees can opt for the PPO to keep their docs, but that will cost them more in premiums and co-pays. As a contrast SBC unionized phone employees (including those in the Sacramento are) about to strike because they face co-pays for the first time. The issue was the same in grocery workers strike that lasted most of the past 9 months.

So this one needs to be watched. CalPERs believes that there is still overcapacity of hospitals in the Sacramento region, or else it wouldn’t have tried this. It’s also staying away from the “all or nothing” tactics that Blue Cross tried on with Sutter in its losing contract dispute a few years back. But if Sutter has managed to keep prices 80% higher than everyone else (as CalPERS claims) their market power may be enough to see them through this. Whether CalPERS employees will go along is another matter.