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Kaiser Permanente

Kaiser Permanente logo
Company type	not-for-profit health plan and hospitals, for-profit medical groups
Industry	Healthcare
Founded	1945
Headquarters	Oakland, California
Revenue	$28 billion USD (2004)
Number of employees	145,000
Website	kaiserpermanente.org

Kaiser Permanente is an integrated health maintenance organization (HMO), based in Oakland, California, which was founded in 1945 by industrialist Henry J. Kaiser and physician Sidney R. Garfield. Kaiser is legally recognized as a non-profit organization, but critics have challenged that status ], because a significant portion of Kaiser's excess income is distributed to for-profit medical groups.

As of 2006, Kaiser operates in nine states and Washington, D.C., and is the largest non-profit HMO in the United States. Kaiser has 8.3 million health plan members, 134,000 employees, 11,000 physicians, 30 medical centers, 431 medical offices, and $22.5 billion in annual operating revenues.

Structure

Kaiser Permanente provides care through eight regional divisions. Each of these regions are comprised of three codependent organisations, a structure which has endured since Kaiser physicians and leaders agreed to this framework, known as the Tahoe Agreement, in 1955.

The organization defines its eight regions, or divisions, as:

• Northern California
• Southern California
• Colorado
• Georgia
• Hawaii
• Mid-Atlantic (vicinity of Washington, D.C. including Maryland and Virginia)
• Northwest (Northwest Oregon and Southwest Washington)
• Ohio

The three organizations which make up each regional entity are:

• Kaiser Foundation Health Plans work with employers, employees, and individual members to offer prepaid health plans. The health plans are not-for-profit and provide infrastructure for and invest in Kaiser Foundation Hospitals and for-profit medical groups.
• Kaiser Foundation Hospitals operate medical centers in three states and outpatient facilities throughout the Kaiser region. The hospital foundations are not-for-profit and primarily rely on the Kaiser Foundation Health Plans for funding. They also provide infrastructure and facilities that benefit for-profit medical groups.
• The Permanente Medical Groups are partnerships of physicians, which provide and arrange for medical care for Kaiser Foundation Health Plan members in each respective region. The medical groups are for-profit partnerships and also receive funding from Kaiser Foundation Health Plans. The first medical group, The Permanente Medical Group, formed in 1948 in Northern California.

The not-for-profit status of Kaiser Foundation Health Plans and Kaiser Foundation Hospitals is challenged by critics of the organization. These critics allege that the organization distributes profit to other organizational entities, half to medical groups and half to hospitals.

History

The history of Kaiser Permanente dates to 1933 in Eagle Mountain and Desert Center, California. There, Garfield opened the Contractors General Hospital, with twelve beds, to treat construction workers building the Los Angeles Aqueduct in the Mojave Desert. The hospital was in a precarious financial state, fueled by Garfield's desire to treat all patients regardless of their ability to pay. Harold Hatch, an insurance agent, proposed that the insurance companies pay the hospital a total amount, in advance, for each worker covered. The financial relationship between the insurance companies and the hospital was efficient, and allowed Garfield to focus on a new idea: preventive health care.

Intrigued by the concept developed by Hatch and Garfield in the Mojave Desert, Henry Kaiser persuaded Garfield to open a prepaid practice for his construction workers building the Grand Coulee Dam in Washington state in 1938. Coverage was later extended to the families of the workers. In 1942, Kaiser established health plans for workers and families at shipyards in Richmond, California and Vancouver, Washington, and at a steel mill in Fontana, California. In 1945, Kaiser membership was opened to the public, as membership had dropped to 11,000 following World War II. When the shipyards closed in 1946, membership dropped to 25,000, from a height of 200,000.

Between 1952 and 1955, membership grew to 500,000, as Kaiser worked with union leaders to extend healthcare to all unionized employees. In 1958, Kaiser added Hawaii to its original three regions in Northern California, Southern California, and Oregon. Membership reached one million in 1963. In 1969, Kaiser added regions in Colorado and Ohio. Nine years later, in 1976, membership reached three million.

By 1977 all six of Kaiser's regions had become federally-qualified HMOs. Some believe President Nixon specifically had Kaiser Permanente in mind when he signed the Health Maintenance Organization Act of 1973, as the organization is mentioned in an Oval Office discussion of the Act.. In 1980, Kaiser acquired a non-profit group practice to create the Mid-Atlantic region, encompassing the District of Columbia, Maryland, and Virginia. In 1985, Kaiser added Georgia.

The geographic footprint of the organization has changed over time. Previously, Kaiser Permanente has operated in a number of regions, including Texas, North Carolina, and the Northeast. The organization sold its Texas operations in 1998. The problems in Texas were so severe that Kaiser Permanente directed its law firm to attempt to block the release of a Texas Department of Insurance report in 1997, which prompted the state attorney general to threaten to revoke the organization's license . In North Carolina, the Industrial Union Department of the AFL-CIO issued a 1996 report critical of Kaiser Permanente quality; the organization closed health plans in Charlotte and Raleigh-Durham in North Carolina four years later. Kaiser Permanente also sold its unprofitable Northeast division in 2000.

During the 1990s, the organization hired public relations firm Bain and Associates to position their brand in Washington, D.C. Subsequently, Kaiser Permanente executives were invited to participate in four White House special panels, and lead the testimony in both the Senate and House hearings. Kaiser Permanente spokespersons were also placed on The MacNeil/Lehrer NewsHour, First Business, and the CBS Evening News to promote the organization and its strategy. A report by the California Nurses Association found that in 1995 the organization paid out $96.1 million to its top four management consultant firms alone. The organization has hired Strategic Partnerships LLC to secure tax incentives and a special hearing for government grants.

In 1995, the organization celebrated its fiftieth anniversary as a public health plan. Two years later, membership reached nine million. In 1997, Kaiser Permanente established an agreement with the AFL-CIO to provide for a more positive relationship between management and labor, known as the Labor-Management Partnership.

In 1999, a number of groups sued the organization over its “In the Hands of Doctors” advertising campaign. The groups charged that doctors were not fully in control of decision-making, or that they were persuaded to limit care with financial bonuses.

In 2004, the organization hired Campbell-Ewald to develop a $40 million dollar ad campaign called "Thrive". The campaign, which focuses on the theme of preventative care, was the first since Kaiser pulled its “In the Hands of Doctors” campaign. Television and radio spots feature voiceovers from West Wing actor Allison Janney.

The campaign's use of Bob Dylan's protest song The Times They Are A-Changin' has been cited as an example of the controversial use of 1960s songs in advertising to appeal to Baby Boomers. . Other coverage includes http://bengodar.blogspot.com/2005/11/dont-criticize-what-you-cant.html, http://www.adpulp.com/archives/2005/08/bob_dylan_shill.php, http://www.ocweekly.com/ink/05/50/lowballasschatter-kane.php, http://www.thephatphree.com/features.asp?StoryID=1702&SectionID=3&LayoutType=1&StoryMonth=11&StoryYear=2005

In 2005, the US and state attorneys general penalized Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and the Hawaii Permanente Medical Group $1.9 million for making improper Medicare and Medicaid claims.

In 2005, the California Department of Managed Health Care levied a historic fine of $200,000 against Kaiser Permanente for disclosing patient information on a public web site.

Tahoe Accord

1. Kaiser Permanente - a three part organization - originally developed as a profit system between two men - Henry Kaiser, Sr. and Sydney Garfield, MD; both were millionaires, Dr. Garfield making $250,000 in profit in four years during the depression from his (pre-Kaiser) "Contractor's Hospital."

2. The reorganization of the prepaid health system came in about 1948 per Dr. John G. Smillie's book on Kaiser - "Can Physicians Manage The Quality and Costs of Health Care? - The Story of The Permanente Medical Group" page 77 - 4th paragraph down - "For tax reasons, it was necessary to establish clear-cut distinctions between the Foundation, a nonprofit trust, the hospitals, a charitable corporation, and the medical group, a profit making partnership. Since Garfield had a proprietary interest in both the hospitals and the medical group under the previous organizational structure, it was necessary to buy him out of the hospitals, which Henry J. Kaiser did, and to restructure his proprietor-employer relationship with the other physicians."

3. All of the original names included "Permanente" (named for a year-round small river in Los Altos - the Plan, the Hospitals, and the Medical group; in 1952 the names changed to the Kaiser Foundation, the Kaiser Foundation Health Plan, and the Kaiser Foundation Hospitals (page 115).

4. The Permanente physicians, not wishing to look like Kaiser employees, kept the name of the Permanente Medical Groups, though that displeased Henry Kaiser and the legacy he wished to create. (Pages 115 - 116)

5. The division of profits between the Hospitals and the Permanente physicians occurred after after "3 days of continuing and frequently stormy discussion" (page158) at the home of Henry Kaiser on Lake Tahoe; the Tahoe Agreement (http://www.kaiserpapers.info/tahoe.html) ended up with a formal division thereafter of the following: "Excess revenue would be equally distributed" between the hospitals and the physicians.

6. The same Tahoe I agreement made sure that the physicians could be present and influence the Health Plan board and the Hospitals Board, the composition of the two being the same; in 1998 there was a reaffirmation of the profit system and acceleration of physician power in the Tahoe II (and also at http://www.natpact.nhs.uk/uploads/BobCrane.ppt - The Bob Crane Power Point Presentation ) and (http://xnet.kp.org/permanentejournal/winter00pj/map.html)agreement setting up the National Partnership Committee.

7. The flow of money from Plan profits to the individual physician in retirement - half of the expected $1.5 billion profit of 1994 going this way - is a subject that has been kept as secretive from the public as the missile launch codes of the President;

Kaiser Permanente and Bonds

Kaiser Permanente has sold over $3 billion in tax free bond . The bonds are sold under a fictitious name for the consortium of Kaiser businesses called the "Credit Group." In its own securities documentation, Kaiser poses as a non-profit: "For-profit enterprises may have access to capital at a lower cost or on more favorable terms than Kaiser Permanente and other nonprofit health care systems." (page 16 - Kaiser Permanente bonds). This ostensible nonprofit grouping included the for profit physicians and created a profit of $1.5 billion in 2004.

Criticism

Kaiser's policy of forcing patients with malpractice claims into arbitration has been highly controversial. In 1991, Wilfredo Engalla died after waiting six months just to have an arbiter appointed. The California Supreme Court found that Kaiser had a financial incentive to wait until after Engalla died; his spouse could recover $500,000 from Kaiser if the case was arbitrated while he was alive, but only $250,000 after he died. Patients and attorneys continue to fight for the right to sue.

Kaiser, along with other HMOs, have come under fire from advocacy groups such as HARP and Kaiser Papers for an alleged policy of withholding information about costly medical services in order to control costs.. Critics charge Kaiser with decreasing service accessibility, accomplished by 'managing' the information provided to patients regarding available services and how to access them. These management strategies include promoting less-costly preventive procedures while suppressing information about other elective and/or expensive services; arranging services to make them easy (e.g., primary care) or difficult (e.g., specialists) to utilize; and using delays for cost containment strategy. Delays may be implemented through the need for referrals, limiting the number of contracted specialists, restricting appointment availability (or making appointments inconvenient), and by increasing office visit waiting periods.

Other quality concerns include overcrowded emergency rooms and long wait times, that have resulted in a number of deaths. Critics have also raised concerns that doctors get bonuses for providing inferior care. In 2002, Kaiser call center representatives were given bonuses for limiting doctor visits.

In 2004, a patient sued Kaiser for elder abuse and was awarded $100,000 in arbitration. Critics have also alleged bias in Kaiser's quality claims, since the main quality measurement organization, the National Committee for Quality Assurance (NCQA) is funded and overseen by a coalition of HMOs.

There are also concerns about patient safety. In April, 2005, 3,200 female patients from four Northern California Kaiser facilities were notified that they might face hepatitis infection due to improperly sanitized equipment during operations dating back four years. The Food and Drug Administration (FDA) has sent Kaiser at least 4 warning letters since 2002 for failing to meet quality standards.

Critics have also accused Kaiser of exploiting patients for medical experiments. Kaiser, along with the Los Angeles County Department of Health and the CDC, injected over 1500 mostly minority babies with unlicensed experimental vaccines with fraudulently-obtained consent from the parents between 1989 and 1991. In 2002, Barbara Loe Fisher, president of the National Vaccine Information Center, a group concerned by the potential link between autism and vaccines (despite rejection of such concerns by government agencies and most of the medical community), testified before the California Senate Committee on Health and Human Services that the pharmaceutical giant Wyeth had paid Kaiser to compare the effects of two experimental vaccines on children in a way that manipulated test results.

Critics have raised further concerns about Kaiser's heavy investment in developing an electronic medical record. Some critics have taken issue with Kaiser's decisions to put revenue-generating aspects of the technology before benefit to patients. A string of technology leaks and blunders have also raised privacy concerns.

Kaiser union members have criticized Kaiser's Labor-Management Partnership as an arrangement that's disadvantageous for workers. Union leaders bargain with management, and then present the outcome to workers as a non-negotiable fait accompli.

Critics of Kaiser's Thrive advertising campaign have raised concerns about advertising fraud and racial profiling.

Kaiser is among a handful of HMOs surveilling patient records compiled for the Vaccine Safety Datalink, a federal program under the auspices of the US Center for Disease Control, designed to gather epidemiological data on millions of American citizens regarding vaccine injury and health outcomes related to mass vaccination programs.

References

1. The Times They Are A-Changin'Newsweek.com
2. Demarketing of Health Services PubMed, 1994

External links

• Kaiser Permanente - Official website
• MSNBC - "Kaiser Permanente bucks the HMO trend"

Criticism

• KaiserPapers.info - The Kaiser Papers (personal accounts, news, etc.)
• KaiserPapersHawaii.org - Kaiser Papers Hawaii: Help for Kaiser Permanente Hawaii Members, member of Managed Care Watch
• KaiserThrive.org - web site that offers criticism of Kaiser's Thrive campaign, member of Managed Care Watch
• Health Administration Responsibility Project - anti-HMO organization
• Corporate Ethics - blog that accuses Kaiser of corruption and fraud

• Healthcare in the United States
• Non-profit organizations
• Hospital networks