CLEAVELAND: Lessons from Kaiser on health care

CLEAVELAND: Lessons from Kaiser on health care

July 30th, 2009 in Health

Health care for most Americans suffers from fragmentation, poor coordination and needless expense. Kaiser Permanente (KP), the nation's largest not-for-profit health plan, merits study as an alternative to costly inefficiency.

The great majority of KP's business is structured as a health maintenance organization (HMO), offering prepaid health care to members. This concept originated in the 1930s during construction of the Los Angeles aqueduct in the Mojave Desert. Dr. Sidney Garfield devised a plan to provide pre-paid health care for construction workers for a nickel a day for work-related illness or injury. An additional nickel a day would cover care for all other illness and mishaps.

With the outbreak of World War II, industrialist Henry Kaiser enlisted the leadership of Dr. Garfield to establish an HMO to cover thousands of shipyard workers. After the war, the Permanente Health Plan was offered to the public. Two large labor unions supported the plan. In 1952 the organization evolved into the non-profit Kaiser Foundation Health Plan and Hospitals and the Permanente Medical Groups.

Currently, KP has 8.6 million members and offers coverage through its divisions in nine states. KP operates 35 medical centers and 431 medical offices staffed by 14,000 physicians and 167,000 employees, including health professionals and administrators. Operating revenues for 2005 were $40.3 billion.

The HMO's prepaid care is the choice of the great majority of customers. Annual premiums are calculated for each regional plan based on the prior year's experience. If expenses exceed income, the shortfall is covered by reserves. Outpatient, inpatient and mental health care are included, as well as inpatient medications and those outpatient drugs administered in KP clinics. Optional benefits may be purchased that include prescriptions, eye care, dental care and complementary and alternative care such as acupuncture. A variety of other health plans with varying deductibles and co-payments offer wider choices of care-givers and coverage outside regions served by KP.

KP employs a sophisticated, very secure electronic medical record that is readily accessible by every professional involved in a member's care. Utilizing a Health Manager program, a member may e-mail his or her physician, schedule appointments, obtain prescription refills, obtain test results and review records of earlier visits. Prevention of disease is aggressively addressed by on-line vaccine schedules, classes and timely health information. Chronic diseases are managed by carefully coordinated plans of care.

Kaiser negotiates annual payments for the Permanente physicians who receive a fixed salary that is independent of production. In general, the gap between primary care physicians and subspecialists is far smaller than in communities dominated by fee-for-service care. A longtime friend from medical school days served his surgical career in a California KP HMO. He estimated his salary as approximately twice that of a primary care physician. Small annual bonuses were available to recognize clinical excellence. He delighted in the freedom from paperwork and the worry of what might or might not be covered for his patients. He could be a surgeon rather than a businessman. He felt that he could always obtain what was best for each patient without intrusion from outside forces.

According to various analyses, in the markets it serves, KP's cost-effectiveness is 9 percent greater than the average HMO, 25 percent greater than preferred-provider/point-of-service plans, and 19 percent greater than all other plans. In studies conducted by J.D. Power and Associates, four regional KP plans rank highest in patient satisfaction.

HMOs offer health care within a fixed annual budget. Critics contend that this leads to rationing of needed tests and care. Some physicians do not like to work within the structured environment of an HMO. From my reading and from conversations that I have had with KP physicians, I see cost-effectiveness rather than rationing. Savings are realized by reducing paperwork, preventing disease, and carefully coordinating care when illness or injury occur. HMOs should be in the mix of options for health care that is offered to all Americans.

(My next column will examine health care at Mayo-Rochester.)

Contact Clif Cleaveland at