Kaiser is the best of HMOs, Kaiser is the worst of HMOs.
To its supporters, Kaiser Permanente is what an HMO should be: an integrated and cost-effective healthcare delivery system that supports its patients, doctors, nurses and the practice of high-quality medicine.
To its detractors, Kaiser is an evil HMO empire, a medical factory that hoards money, mistreats doctors, skimps on nursing staff, suppresses negative information and endangers the lives of its patients.
That Kaiser, the nation's oldest and largest HMO, could be viewed so differently by different people seems bizarre at first blush. But Kaiser is in many ways a giant mirror that reflects the struggles and uncertainties of the evolving American healthcare system.
The question is: What's the true picture of Kaiser?
Amid the sometimes gloomy choruses, no HMO receives more kudos, from the National Commission for Quality Assurance to President Clinton to exacting purchasers like Xerox Corp. and the California Public Employees Retirement System. Consumer surveys by Consumer Reports and Newsweek rate Kaiser highly.
Numerous studies show Kaiser is a quality leader in various areas of healthcare and is improving quality (See chart).
Not-for-profit Kaiser says its goal is to steer 3% of annual revenues to direct community benefit. This year Kaiser will allocate up to $420 million on expected revenues of $14 billion.
In addition, the HMO has shown renewed marketplace vigor. From 1993 to 1994 Kaiser's enrollment grew by a scant 1,000. And Kaiser remained a wallflower while rivals found partners at the dance of mergers (July 17, 1995, p. 34).
All that has changed. Kaiser has since acquired an HMO in New York state and one in the District of Columbia, and it has affiliated with Group Health Cooperative of Puget Sound in Seattle.
Enrollment has soared to 8.7 million-one in 31 Americans-in June from 6.6 million in 1994 (See chart). Kaiser posted net income of $265 million on $13 billion in revenues last year.
Kaiser is considering acquisitions in all the markets where it operates to maintain "strong, sustainable positions" in integrated healthcare, says Jim Williams, senior vice president of strategic development.
It also wants a presence in other major markets such as New York, Chicago and Florida. Kaiser may make one other acquisition this year, he says.
Kaiser's District of Columbia and Atlanta plans are "thriving," says Helen Darling, manager of international compensation and benefits at Xerox Corp. Kaiser's Atlanta plan is Xerox's benchmark HMO in that region, offering the lowest premium for a comprehensive benefit package and meeting high standards of quality, she says.
Xerox, with 48,000 U.S. employees, contracts with 240 HMOs. It has 10,248 Kaiser enrollees nationwide, including 4,244 employees plus their dependents and some retirees, Darling says.
New frontiers. Kaiser also has begun overseas activity. Kaiser Permanente International was formed in October 1996, following "a deluge of requests for help from around the world," says Williams, who is president of KPI. Kaiser is providing management and advisory services in more than a dozen countries, including Japan, Russia and the United Kingdom. Kaiser has formed partnerships with a number of organizations in several countries but so far has no direct investments. The international business "is very much part of the future of Kaiser Permanente," Williams says.
Williams, formerly an executive at an international consulting company, is one of a new breed of top managers at Kaiser. "If you look at the top 100 managers over the last two years, 50 or 60 are new to their positions, and almost 20 to 30 are new to the organization, with half of those coming from outside the industry. There's a fundamental transformation of Kaiser that's going on," Williams says.
For example, Kaiser's new chief information officer, Timothy Sullivan, is the former CIO of First Interstate Bank. Sullivan is helping convert the HMO's multiple information systems into a coherent national system, eliminating redundancies.
Kaiser has taken the lead in several key areas as the healthcare scene changes. Last spring it established what's being called a pioneering pact with labor. Taking its cues from other industries and successful partnerships at companies like Xerox, Levi Strauss & Co. and General Motors Corp., Kaiser's pact with the AFL-CIO is "a model for the healthcare industry," according to Peter Lazes, professor in worker participation and new work systems at the School of Industrial and Labor Relations at Cornell University in New York.
The contract establishes joint partnership committees of managers and union representatives who will review and discuss Kaiser business plans that affect union members.
It's too soon to tell whether Kaiser will follow through by sharing financial information and providing education so all employees can participate in transforming its operations. "If done right, the process of change must be jointly developed," Lazes says.
Cutting-edge technology. In another critical area open to controversy, Kaiser provides comprehensive in-house genetic services, including patient education and counseling, to its 2.6 million enrollees in Northern California. It is taking steps to extend these services nationwide.
Kaiser is among the first HMOs to make the latest genetic test, for the breast cancer gene, available to enrollees. It's so new that other large plans don't cover it yet, a spokesman says.
Girding for a "flood" of demand for the costly test, this summer Kaiser will release guidelines for its appropriate use, says Ronald Bachman, M.D., chief of the genetics department at Kaiser's Oakland hospital.
Because Kaiser wants to tap into consumers' knowledge of their own healthcare needs, the guidelines were developed with advice from breast cancer advocacy groups, he said.
Widely criticized. Despite these accomplishments, Kaiser has recently become one of the most maligned HMOs.
Reports in the media suggest Kaiser's vaunted system-based on an exclusive partnership with physicians-is unraveling under pressures to compete with for-profit plans.
This view is based on widely publicized problems in two of its 12 divisions, California and Texas.
Recent reports describe a powerful player fighting to suppress negative information and scrambling to correct problems in two California hospitals where patients died after long stays in emergency rooms and transport delays.
On top of that, the California Supreme Court found that Kaiser's arbitration system may be fraudulently tilted in its favor.
Although few problems in healthcare can be framed in simple black and white terms, that often happens with Kaiser's. The California Nurses Association, which is fighting for wages and jobs, and Consumers for Quality Care, a Los Angeles-based group opposed to many HMO practices, generate a blizzard of commentary condemning Kaiser.
The California Nurses refused to join the landmark Kaiser labor pact. Quality of care is deteriorating at Kaiser, the CNA charges, and joining the pact-which would be dominated by Kaiser-would create a conflict of interest with nurses' role as patient advocates.
Last month, the San Francisco Chronicle quoted a nurse practitioner and union leader at Kaiser's Oakland medical center saying Kaiser has a "vague overall plan . . . to screw everybody." The story said Kaiser is "often derided as the healthcare equivalent of a fast-food chain."
Kaiser bashing. Alain Enthoven, a Stanford professor and managed-competition pioneer who is a consultant to Kaiser, says casual Kaiser bashing is "dreadful . . . . I wish it were as easy as fast food. Managing medical care is an extremely complex matter."
Kaiser's problems stem from "the difficulty of coping with change in this difficult industry," he says.
"There's nothing seriously wrong with Kaiser," Enthoven adds. "On the contrary, they have the best model of healthcare and they have many of the best people."
Says Xerox's Darling: "I personally have more faith in Kaiser, as a system, than in any other healthcare system." Kaiser is known for taking account of and addressing "any problem that arises," she says.
Kaiser's size, she says, makes it a target for critics. "Apart from size, I certainly don't understand the attacks on Kaiser. They offer a comprehensive set of services at a reasonable cost. They are publicly oriented and provide a lot of community support. I don't think they are getting credit for that."
Texas trouble. David Lawrence, M.D., Kaiser chairman and chief executive officer, told MODERN HEALTHCARE the news media often focus on isolated incidents that are "unrelated to the kinds of things being done to make the organization stronger."
Kaiser's Texas plan made national news in spring when Texas Attorney General Dan Morales told lawmakers he had grounds to shut down the plan but that the issues couldn't be made public. Kaiser had won a restraining order keeping secret a negative state insurance department report on its operations.
Texas, famous for its resistance to HMOs, was "a political hothouse" last winter and spring, says David O'Grady, a plan spokesman. The Legislature was considering a number of anti-managed-care bills.
The insurance department's report was the result of its first quality review of Kaiser, which had received three-year, full accreditation from the NCQA in 1995.
Four days before letting Kaiser see the report, an attorney for the insurance department gave a draft copy to the television news show "Prime Time Live."
Kaiser found the report "erroneous and flawed," a spokesman for the Texas plan says. Besides, it was based on peer-review files, which must be kept confidential under the state's medical practices law unless certain procedures are followed. Kaiser filed suit to keep the report from being released to the public.
When the media got wind of Morales' charges and Kaiser's suit, reporters requested the insurance department report.
Meanwhile, Kaiser and the insurance commissioner reached a settlement. Kaiser agreed to drop its suit and submit the report to the attorney general for a ruling on whether parts of it could be made public.
In the settlement order, the insurance commissioner conceded he would make no decisions on whether allegations against the plan were true. These included charges of wrongful denial of payment for emergency-care claims and failure to follow Kaiser's quality assurance programs and procedures.
Kaiser, for its part, agreed to pay an administrative fine of $1 million. And the Texas plan, which has lost $52 million over the last two years, also agreed to obtain a capital infusion of $80 million from its parent in 1997 and more as required in the future.
Despite that agreement, within days the attorney general ruled that the entire report could be made public. Lawmakers demanded to see it, and it immediately was made available to reporters.
Following an investigation of its own, the NCQA reaffirmed its full accreditation of the Texas plan early this month.
"I honestly believe that except for some very specific and in our view minor issues, we were mistreated in Texas. This was a setup," Lawrence says.
California complaints. Following numerous complaints to the California Department of Health Services, a state inspection of Kaiser's Oakland and Richmond, Calif., hospitals in May found alarming deficiencies in staffing, patient transport, training programs and documentation.
Patients died after prolonged stays in emergency rooms and delays in being placed in critical-care beds. While making no definite finding that the delays caused the deaths, HCFA warned Kaiser to correct the deficiencies or lose its Medicare funding. Kaiser has since corrected the problems and received a clean bill of health from HCFA, although the CNA says problems remain.
How did a respected HMO back itself into such a corner? Faced with surplus hospital beds-Kaiser overbuilt in the 1980s-and the need to make costly earthquake-protection upgrades to its facilities in California and Oregon, Kaiser decided some years ago it would close some hospitals and care for its enrollees through arrangements with community hospitals.
In California Kaiser announced it would close its Oakland facility. It is now caring for some enrollees at Summit Medical Center in Oakland. Eventually, moving care entirely to Summit and upgrading and expanding Summit will save the community about $200 million, Lawrence says.
"Strategically, Kaiser is doing the right thing by not rebuilding their own hospital," Enthoven says. "That would exacerbate the community's problem with underfilled hospitals" and waste resources.
Richmond is a different story.
"In Richmond we elected to open a small hospital against the advice of our hospital planners, because of the history we have, the connection we have to the community," Lawrence says. Richmond has 50 beds and an average daily census of three to nine patients.
Phil Madvig, M.D., Kaiser's associate executive director in charge of quality for Northern California, says Kaiser chose not to staff a critical-care unit at Richmond because inadequate volume would lead to poor quality.
Instead, Kaiser decided on a program to move patients from Richmond's emergency room to other hospitals. "It was a decision made based on a quality-of-care concern, not a decision made to save money," Madvig says.
But Kaiser hadn't adequately planned for the unusual situations at Oakland and Richmond. Lawrence says keeping Oakland staffed was difficult once its closure was announced because staff began to seek other positions. An unusually severe flu season last winter compounded problems.
As for Richmond, "It was just much harder to run this small place than we anticipated. There is not a lot of precedent for how you do this," he says.
The state and Kaiser "discovered simultaneously the problems that we had in Richmond. And we moved immediately to fix them," Madvig says.
"What would have happened had we staffed a critical-care unit there and patients had received poor care or died? We would have second-guessed the decision to put it there. The real thing here is any health organization is going to make mistakes," Madvig says.
Educational experience. Kaiser has learned from its mistakes in Northern California, Madvig says. "This has been an extraordinary educational experience for all of us here. We are learning some things that will result in improved quality and the improved ability for us to handle the kind of change we are going to have to continue to experience," he says.
The CNA says the problems at Oakland and Richmond "are endemic to the Kaiser system" and show that Kaiser is cutting staff without regard for human life. Kaiser is engaged in "medical redlining through hospital closures in communities with aging populations and high concentrations of working people and minority populations," the CNA says.
"That's a flat lie," Lawrence responds. "These are human systems . . . . We're talking about systems that are far more complex to run than airplanes. And so they are not always going to be running appropriately. But it's not because of bad values or venality that they don't work. It's because these are honest mistakes or honest issues in human systems."
Martin Lipp, M.D., a Permanente physician in Northern California for 20 years, says, "You and I could go into any hospital in the entire state and find instances of treatment we would question. But I'll say that quality is better than it has ever been."
Skill levels and standards of care are better than they were in the past, he says. "Medicine in general is more scientifically based than ever. We have better information and are better able to compare treatment outcomes. The result is treatment is more uniform and more related to a clear awareness of outcomes and appropriate use of resources than ever in the past."
Beyond that, Lipp says, at Kaiser "we supervise and run quality checks on all outpatient and inpatient records, which is not true of the average practice out in an office, where records are rarely looked at."
Ruth Given, an economist and director of healthcare policy for the California Medical Association, says, "All these hospitals are really under the same pressures, so you're going to see the same things. If (a hospital) is in the same economic market and competing for the same enrollees, it's unlikely it will be any different."
Healthcare companies "all have to behave similarly because they're all competing against each other. An economist would say Kaiser is no better and no worse. It's just a better target," Given says.
Doctors' gripes. To ensure that the 12 independent Permanente medical groups that serve the health plan can keep pace with Kaiser's expansion, the groups formed the Permanente Federation last year. The federation provides "common governance for a number of issues," says Jay Crosson, M.D., executive director.
Those include expansion and uniformity in quality of care and business performance. The federation established a new company, Perm Corp., to create new businesses.
The federation and Kaiser Foundation Health Plans signed a new national partnership agreement in June reaffirming the physicians' exclusive contract with the health plan.
"The not-for-profit health plan and the self-governing group of physicians . . . are the last best hope for the healthcare industry in this country, because a lot of that is unraveling under the pressure of for-profit health plans and under the extrinsic management of medical care by health plans," Crosson says. At Kaiser, physicians manage the care, he says.
Many physicians share that view from the top.
But doctors also are agonizing over increasing workloads, burnout, salary cuts and an uncertain future.
MODERN HEALTHCARE learned that some doctors in Kaiser's Northwest division feel the health plan is not paying their medical group enough to care for the growing number of enrollees and that physician turnover is too high. They think their medical group should try to get contracts with other payers.
Crosson acknowledges that some doctors are unhappy. Besides complaints about workloads, widespread suspicion by patients of their physician's motives has "created a pall" around the practice of medicine, he concedes.
But Lipp notes that doctors everywhere are under pressure.
They're "feeling a kind of competence creep from below" as other healthcare providers take over duties that were once the sacred preserve of doctors and nurses, Lipp says.
Rhoda Nussbaum, M.D., a Kaiser obstetrician for 19 years, says doctors have a lot of anxiety and a sense of loss of control. Nussbaum has been named to head the HMO's new Women's Healthcare Program, part of Kaiser's recognizing the demands of different groups of enrollees.
"Doctors were like gods before," she says. Now "a new model of healthcare is demanded," one where many voices have a say in how it's done.
But in the midst of wracking changes in healthcare, Kaiser is still "the best place to practice medicine," Nussbaum says.
