Justice Department Oks Study of California Hospital Costs

The U.S. Department of Justice won’t stand in the way of a long-delayed project aimed at shining more light on California’s rising hospital costs.

That means CalPERS and some of the state’s largest health care purchasers can proceed with plans to launch an extensive study scrutinizing the cost of providing care at more than 300 hospitals statewide.

The California Hospital Association had attempted to block the project, saying it violated federal antitrust laws by potentially releasing proprietary data that could hinder competition within the health care industry.

On Monday, the Justice Department sided with CalPERS, the Pacific Business Group on Health and the California Health Care Coalition, the entities planning to underwrite the Hospital Value Initiative.

Brad Pacheco, a spokesman for the California Public Employees’ Retirement System, welcomed the Justice Department’s decision, saying it “reinforced the importance of transparency.”

CalPERS is the country’s second-largest buyer of health care services, spending more than $5.7 billion last year on health benefits for 1.3 million state and local government employees, retirees and their families.

Jan Emerson, a spokeswoman for the California Hospital Association, declined to be interviewed but said in an e-mail that the announcement by the Department of Justice “does not resolve the anti-competitive concerns California hospitals have about this initiative.”

Emerson said the project’s focus on cost was too narrow and said the quality of care should also be taken into account.

Because of the antitrust concerns, the initiative had been in limbo since 2007, pending government review.

In recent years, soaring hospital costs have been under scrutiny by CalPERS and the state’s largest companies.

In 2006, CalPERS joined the Pacific Business Group in commissioning a study that showed the wide variations in hospital costs across the state.

“The overall goal was to help consumers and purchasers understand which hospitals in California are affordable,” said David Lansky, the president and CEO of the Pacific Business Group.

The group includes some of the state’s largest employers, including Chevron, Safeway, Wells Fargo and Walt Disney Co.

Earlier this month, The Bee used the same methodology to produce a special report that showed private insurers paying substantial negotiated “markups” for hospital care – sometimes more than double what it costs hospitals to provide those services.

CalPERS and its partners plan to look at insurance claims data to figure what out it costs each hospital to provide a specific service. The resulting comparisons could be instructive for companies and consumers looking to rein in medical expenses, Lansky said.

“Purchasers need more transparency,” Lansky said. “They really have a right to know.”

In announcing its decision, the Department of Justice said the project “was not likely to produce anticompetitive effects,” as argued by the California Hospital Association.

In fact, improving public access to hospital pricing information could improve competition, the Justice Department said, by “facilitating more informed purchasing decisions by group purchasers of health care services.”

But the government said it reserved the right to challenge the proposal at a later time if it hinders competition.

In its decision, the Justice Department noted that the data included in the information exchange would be at least 10 months old and would not disclose specific pricing data.

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