Hospital care is expensive. And, as USA Today points out, it is getting more and more expensive. While hospital costs overall are going up fairly fast, hospital charges have been galloping ahead, up to 30%+ a year in some areas. Of course because insurers pay according to pre-negotiated case- or per-diem rates, hospital charges don’t ressemble reality in any way. Unless of course you’re one of the poor suckers who has no insurance and has to pay them directly. So the increase in hospital charges seems to be an attempt to get more out of the uninsured and the few dumb insurance companies who are paying a proportion of charges.

However, health plans have bascially given up trying to control the costs of care and are passing their costs onto employers. For the past few years, despite the fact that there’s a recession, employers have either tried to pass these costs off onto their employees, or have just sucked it up and paid them. That is of course if they haven’t sent the jobs to India. But maybe the worm is turning. Some 10 years ago Tom Elkin at CalPERS became the proto-typical “big ugly buyer” when he faced down the health plans and told them he wasn’t merely going to pay their increases. That really was a shot heard around the world, and the start of the spread of managed care as a cost containment vehicle. But by the early 2000’s, all that effort has ended, and Blue Cross of California had been beaten into submission (but not into lowering its profits) by the big provider chains. Now CalPERS is getting back into the fray, and it doesn’t seem to have much use for the health plans that should be doing this job for it.

Although the details are not specific, Sutter has agreed to cap hospital costs for CalPERS, and this could roll onto the other big chains in the state including CHW and Tenet.

Sutter’s offer to CalPERS was part of a contract that Sutter signed Thursday with Blue Shield of California, the HMO that insures most of the 1.2 million CalPERS members not covered by Kaiser Permanente. The contract empowered Cal-PERS to purchase an HMO plan from Blue Shield that either would include the price cap for all 26 Sutter hospitals or would allow CalPERS to drop Sutter’s 15 most expensive hospitals from its HMO network. The 45 hospitals CalPERS targeted for possible exclusion from its health plan next year also included facilities owned by two other chains, Tenet and Catholic Healthcare West. Officials at both Tenet and CHW said they have tentative deals in place with Blue Shield that would give CalPERS the ability to cut some of their hospitals from its network next year.

THCB’s regular Sacto correspondent Matt Quinn has his own comment on this:

Is this the next generation of activist employer groups? If plans can’t negotiate better rates, then the employers themselves will. Does this (further) signal the end of managed care as we knew it? Are health plans so untrusted that providers can always go to the “publicity” card in negotiations? If CalpPERS has to do (virtually) all of the work itself (including the heavy-lifting tasks of network management, rate negotiation with providers, retrospective review, etc.), what is it paying plans (other than Kaiser) for?

Leading questions indeed. I’ve been saying that health costs can’t just go up for ever, and there is now some evidence that employers are getting pretty disgruntled.

Tenet stock is back up to $11.20 at Monday’s close, up from a low of $9.15 a few weeks back when rumors of bankruptcy caused some of the weaker hands (e.g. me–curses, curses) to fold, and the stock teetered towards its all time lows. But the story is not quite over yet. The Street.com which tends to be a shill for short-sellers, but often has nuggets of truth in its analysis, reports that several external directors are leaving the board. The WSJ further reports that one of those directors, ex-Toys’R’Us CEO Robert Nakasone made public a very sour resignation letter:

The former director said he opposed the selection in September of an insider, Mr. Fetter, to be chief executive. He said he opposed the board’s decision last July to terminate discussions relating to a possible combination of Tenet with a smaller company, which he didn’t identify. But the final straw that prompted his resignation, he said, was the board’s adoption of a 2004 executive-bonus program that could result in big payouts to about 100 executives, including a $2 million award to Mr. Fetter.

“In 17 years of service on large public company boards, I have never witnessed such a sense of executive entitlement,” Mr. Nakasone wrote. The bonuses might be paid even if financial results this year aren’t any better than those of 2003, he said.

You’ll recall that 2002-2003 wasn’t a banner year for Tenet or its stock price.

Apparently Tenet thinks that Nakasone is just a board member who was disruptive in meetings (and to be fair Bob Kerrey, 9/11 Commision member and Tenet Board member agrees with them). Of course, you can be disruptive in more ways than one. And publicly calling attention to multi-million dollar bonuses for the CEO, when things look bad financially might be seen as a little “disruptive”.