|Founder||Henry J. Kaiser
Sidney R. Garfield
Oakland, California, USA
|Bernard J Tyson,
Health Plan and Hospitals CEO
Jack Cochran, M.D.,
Federation Executive Director
see section below
|Revenue||$53.1 billion USD (2013)|
|$2.7 billion USD (2013)|
Number of employees
|174,415 employees (2013)
17,425 physicians (2013)
Kaiser Permanente is an integrated managed care consortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield. Kaiser Permanente is made up of three distinct but interdependent groups of entities: the Kaiser Foundation Health Plan and its regional operating subsidiaries; Kaiser Foundation Hospitals; and the regional Permanente Medical Groups. As of 2014, Kaiser Permanente operates in eight states and the District of Columbia, and is the largest managed care organization in the United States.
Kaiser Permanente has 9.1 million health plan members, 174,415 employees, 17,425 physicians, 48,285 nurses 38 medical centers, and 608 medical offices. For 2013, the non-profit Kaiser Foundation Health Plan and Kaiser Foundation Hospitals entities reported a combined $2.7 billion in net income on $53.1 billion in operating revenues. Each Permanente Medical Group operates as a separate for-profit partnership or professional corporation in its individual territory, and while none publicly reports its financial results, each is primarily funded by reimbursements from its respective regional Kaiser Foundation Health Plan entity. KFHP is one of the largest not for profit organizations in the United States.
Kaiser has had disputes with its employee's unions, faced civil and criminal charges for patient dumping, faced action by regulators over the quality of care it provided, especially to patients with mental health issues, and has faced criticism from activists and action from regulators over the size of its cash reserves.
- 1 Structure and governance
- 2 History
- 3 Quality of care
- 4 Research and publishing
- 5 Concerns and violations
- 6 References
- 7 External links
Structure and governance
Kaiser Permanente provides care throughout seven regions in the United States. Two or three (four, in the case of California) distinct but interdependent legal entities form the Kaiser system within each region. This structure was adopted by Kaiser Permanente physicians and leaders in 1955.
Each entity of Kaiser Permanente has its own management and governance structure, although all of the structures are interdependent and cooperative to a great extent.
On November 5, 2012, the board of directors announced that Bernard Tyson, Kaiser's president and chief operating officer for the last two years, would replace Halvorson. He was the first African American to hold that position.
The two types of organizations which make up each regional entity are:
- Kaiser Foundation Health Plans (KFHP) work with employers, employees, and individual members to offer prepaid health plans and insurance. The health plans are not-for-profit and provide infrastructure for and invest in Kaiser Foundation Hospitals and provide a tax-exempt shelter for the for-profit medical groups.
- Permanente Medical Groups are physician-owned organizations, which provide and arrange for medical care for Kaiser Foundation Health Plan members in each respective region. The medical groups are for-profit partnerships or professional corporations and receive nearly all of their funding from Kaiser Foundation Health Plans. The first medical group, The Permanente Medical Group, formed in 1948 in Northern California. Kaiser doctors become Permanente stockholders after three years at the company.
In addition, Kaiser Foundation Hospitals operates medical centers in California, Oregon and Hawaii, and outpatient facilities in the remaining Kaiser Permanente regions. The hospital foundations are not-for-profit and rely on the Kaiser Foundation Health Plans for funding. They also provide infrastructure and facilities that benefit the for-profit medical groups.
Kaiser Permanente is administered through eight regions, including one parent and five subordinate health plan entities, one hospital entity, and nine separate, affiliated medical groups:
|Various legal entities serve the areas of the US where Kaiser operates-California (the largest two), Colorado, Georgia, Hawaii, mid-Atlantic, and Pacific Northwest.|
In addition to the regional entities, in 1996, the then-twelve Permanente Medical Groups created The Permanente Federation, a separate entity, which focuses on standardizing patient care and performance under one name and system of policies. Around the same time, The Permanente Company was also chartered as a vehicle to provide investment opportunities for the for-profit Permanente Medical Groups. One of the ventures of the Permanente Company is Kaiser Permanente Ventures, a venture capital firm that invests in emerging medical technologies.
The history of Kaiser Permanente dates to 1933 and a tiny hospital in the town of Desert Center, California. At that time, Henry J. Kaiser and several other large construction contractors had formed an insurance consortium called Industrial Indemnity to meet their workers' compensation obligations. Dr. Sidney Garfield had just finished his residency at Los Angeles County-USC Medical Center at a time when jobs were scarce; fortunately, he was able to secure a contract with Industrial Indemnity to care for 5,000 construction workers building the Colorado River Aqueduct in the Mojave Desert. Soon enough, Garfield's new hospital was in a precarious financial state (with mounting debt and the staff of three going unpaid), due in part to Garfield's desire to treat all patients regardless of ability to pay, as well as his insistence on equipping the hospital adequately so that critically injured patients could be stabilized for the long journey to full-service hospitals in Los Angeles.:19–26
However, Garfield won over two Industrial Indemnity executives, Harold Hatch and Alonzo B. Ordway. It was Hatch who proposed to Garfield the specific solution that would lead to the creation of Kaiser Permanente: Industrial Indemnity would prepay 17.5% of premiums, or $1.50 per worker per month, to cover work-related injuries, while the workers would each contribute five cents per day to cover non-work-related injuries. Later, Garfield also credited Ordway with coming up with the general idea of prepayment for industrial healthcare. Garfield also later explained that he did not know much at the time about other similar health plans except for the Ross-Loos Medical Group.
Hatch's solution enabled Garfield to bring his budget back into the positive, and to experiment with providing a broader range of services to the workers besides pure emergency care. By the time work on the aqueduct concluded and the project was wrapped up, Garfield had paid off all his debts, was supervising ten physicians at three hospitals, and controlled a financial reserve of $150,000.
Garfield returned to Los Angeles for further study at County-USC with the intent of entering private practice. However, in March 1938, Consolidated Industries (a consortium led by the Kaiser Company) initiated work on a contract for the upper half of the Grand Coulee Dam in Washington state, and took over responsibility for the thousands of workers who had worked for a different construction consortium on the first half of the dam. Edgar Kaiser, Henry's son, was in charge of the project. To smooth over relations with the workers (who had been treated poorly by their earlier employer), Hatch and Ordway persuaded Edgar to meet with Garfield, and in turn Edgar persuaded Garfield to tour the Grand Coulee site. Garfield subsequently agreed to reproduce at Grand Coulee Dam what he had done on the Colorado River Aqueduct project. He immediately spent $100,000 on renovating the decrepit Mason City Hospital and hired seven physicians.
Unlike the workers on Garfield's first project, many workers at Grand Coulee Dam had brought dependents with them. The unions soon forced the Kaiser Company to expand its plan to cover dependents, which resulted in a dramatic shift from industrial medicine into family practice and enabled Garfield to formulate some of the basic principles of Kaiser Permanente. It was also during this time that Henry Kaiser personally became acquainted with Garfield and forged a friendship which lasted until Kaiser's death.
World War II
In 1939, the Kaiser Company began work on several huge shipbuilding contracts in Oakland, and by the end of 1941 would control four major shipyards on the West Coast. During 1940, the expansion of the American defense-industrial complex in preparation for entrance into World War II resulted in a massive increase in the number of employees at the Richmond shipyard. In January 1941, Henry Kaiser asked Garfield to set up an insurance plan for the Richmond workers (this was merely contract negotiation with insurance companies), and a year later Kaiser asked Garfield to duplicate at Richmond what he had done at Desert Center and Mason City. Unlike the two other projects, the resulting entity lived on after the construction project that gave birth to it, and it is the direct ancestor of today's Kaiser Permanente.
On March 1, 1942, Sidney R. Garfield & Associates opened its offices in Oakland to provide care to 20,000 workers, followed by the opening of the Permanente Health Plan on June 1. From the beginning, Kaiser Permanente strongly supported preventive medicine and attempted to educate its members about maintaining their own health.
In July, the Permanente Foundation formed to operate Northern California hospitals that would be linked to the outpatient health plans, followed shortly thereafter by the creation of Northern Permanente Foundation for Oregon and Washington and Southern Permanente Foundation for California. The name Permanente came from Permanente Creek, which flowed past Henry Kaiser's first cement plant on Black Mountain in Cupertino, California. Kaiser's first wife, Bess Fosburgh, liked the name. The first Permanente Hospital opened in Oakland on August 1, 1942. Three weeks later, the Richmond Field Hospital opened, and the Northern Permanente Hospital opened two weeks later to serve workers at the Kaiser shipyard in Vancouver, Washington. In 1944, Kaiser decided to continue the program after the war and to open it up to the general public.
Meanwhile, during the war years, the American Medical Association (AMA) (which opposed managed care organizations from their very beginning) tried to defuse demand for managed care by promoting the rapid expansion of the Blue Cross and Blue Shield preferred provider organization networks.
Courage to Heal, a novel by KP Historical Society President, Paul Bernstein, MD, is based on the story of Garfield's life, his struggles with the AMA, and the origins of Kaiser Permanente.
In 1948, Kaiser established the Henry J. Kaiser Family Foundation, (also known as Kaiser Family Foundation), a U.S.-based, non-profit, private operating foundation focusing on the major health care issues facing the nation. The Foundation, not associated with Kaiser Permanente or Kaiser Industries, is an independent voice and source of facts and analysis for policymakers, the media, the health care community, and the general public.
The end of World War II brought about a huge plunge in Kaiser Permanente membership; for example, 50,000 workers had left the Northern California yards by July 1945. Membership bottomed out at 17,000 for the entire system but then surged back to 26,000 within six months as Garfield aggressively marketed his plan to the public. Sidney Garfield & Associates had been a sole proprietorship, but in 1948, it was reorganized into a partnership, Permanente Medical Group.
During this period, a substantial amount of growth came from union members; the unions saw Kaiser Permanente care as more affordable and comprehensive than what was available at the time from private physicians under the fee-for-service system. For example, Fortune magazine had reported in 1944 that 90% of the U.S. population could not afford fee-for-service healthcare. Kaiser Permanente membership soared to 154,000 in 1950, 283,000 in 1952, 470,000 in 1954, 556,000 in 1956, and 618,000 in 1958.
From 1944 onward, both Kaiser Permanente and Garfield fought numerous attacks from the AMA and various state and local medical societies. Henry Kaiser came to the defense of both Garfield and the health plans he had created.
In 1951, the organization acquired its current name when Henry Kaiser unilaterally directed the trustees of the health plans, hospital foundations, and medical groups to add his name before Permanente. However, the physicians in the Permanente Medical Group deeply resented the implication that they were directly controlled by Kaiser, and successfully forced him to back off with respect to their part of the organization. That same year, Kaiser Permanente also began experiments with large-scale multiphasic screening to identify unknown conditions and to facilitate treatment of known ones. Simultaneously, although no one questioned his medical competence, Garfield's deficiencies as an executive were becoming apparent as the organization expanded far beyond his ability to manage it properly.
Henry Kaiser became fascinated with the healthcare system created for him by Garfield and began to directly manage Kaiser Permanente and Garfield. This resulted in a financial disaster when Kaiser splurged on the new Walnut Creek hospital; his constant intermeddling led to significant friction at every level of the organization. The situation was not helped by Kaiser's marriage to Garfield's head administrative nurse (who had helped care for Kaiser's first wife on her deathbed), convincing Garfield to marry the sister of that nurse, and then having Garfield move in next door to him. Clifford Keene (who would eventually serve as president of Kaiser Permanente) later recalled that this arrangement resulted in a rather dysfunctional and combative family in charge of Kaiser Permanente.
Keene was an experienced Permanente physician whom Garfield had personally hired in 1946. During 1953 he had been trying to get a job at U.S. Steel, but on the morning of December 5, 1953, with internal tensions worsening day by day, Garfield met with Keene at the Mark Hopkins Hotel in San Francisco and asked him to turn around the organization. It took Keene 15 years to realize that Kaiser had forced Garfield to ask Keene to become his replacement. Due to the chaos on the board, Keene at first took control with the vague title of Executive Associate, but it soon became clear to everyone that he was actually in charge and Garfield was to become a lobbyist and "ambassador" for the HMO concept.
However, even with Garfield relieved of day-to-day management duties, the underlying problem of Henry Kaiser's authoritarian management style continued to persist. After several tense confrontations between Kaiser and Permanente Medical Group physicians, the doctors met with Kaiser's top adviser, Eugene Trefethen, at Kaiser's personal estate near Lake Tahoe on July 12, 1955. Trefethen came up with the idea of a contract between the medical groups and the health plans and hospital foundations which would set out roles, responsibilities, and financial distribution. Trefethen, already a successful attorney, went on to a successful career with Kaiser Permanente and in retirement became a famous vintner.
While Keene and Trefethen struggled to fix the damage from Kaiser's micromanagement and Garfield's ineffectual management, Henry Kaiser moved to Oahu in 1956 and insisted on expanding Kaiser Permanente into Hawaii in 1958. He quickly ruined what should have been a simple project, and only a last-minute intervention by Keene and Trefethen in August 1960 prevented the total disintegration of the Hawaii organization. By that year, Kaiser membership had grown to 808,000.
Managed care era
Having overseen Kaiser Permanente's successful transformation from Henry Kaiser's healthcare experiment into a large-scale self-sustaining enterprise, Keene retired in 1975. By 1976, membership reached three million. In 1977, all six of Kaiser Permanente's regions had become federally qualified health maintenance organizations. Historians now believe then-President Richard Nixon specifically had Kaiser Permanente in mind when he signed the Health Maintenance Organization Act of 1973, as the organization was mentioned in an Oval Office discussion of the Act, where John Ehrlichman characterized Kaiser's philosophy thus: "All the incentives are toward less medical care, because the less care they give them, the more money they make." In 1980, Kaiser acquired a non-profit group practice to create its Mid-Atlantic region, encompassing the District of Columbia, Maryland, and Virginia. In 1985, Kaiser Permanente expanded to Georgia.
By 1990, Kaiser Permanente provided coverage for about a third of the population of the cities of San Francisco and Oakland; total Northern California membership was over 2.4 million.
Elsewhere, Kaiser Permanente did not do as well, and its geographic footprint changed significantly in the 1990s. The organization spun off or closed outposts in Texas, North Carolina, and the Northeast. In 1998, Kaiser Permanente sold its Texas operations, where reported problems had become so severe that the organization directed its lawyers to attempt to block the release of a Texas Department of Insurance report. This prompted the state attorney general to threaten to revoke the organization's license. Kaiser Permanente closed health plans in Charlotte and Raleigh-Durham in North Carolina four years later. The organization also sold its unprofitable Northeast division in 2000. The Ohio division was sold to Catholic Health Partners in 2013.
In 1995, Kaiser Permanente celebrated its fiftieth anniversary as a public health plan. Two years later, national membership reached nine million. In 1997, the organization established an agreement with the AFL-CIO to explore a new approach to the relationship between management and labor, known as the Labor Management Partnership. Going into the new millennium, competition in the managed care market increased dramatically, raising new concerns . The Southern California Permanente Medical Group saw declining rates of new members as other managed care groups, notably HealthCare Partners, flourished.
In 2002, Kaiser Permanente abandoned its attempt to build its own clinical information system with IBM, writing-off some $452 million in software assets. This information technology failure led to major changes in the organization's approach to digital records. Under George Halvorson's direction, Kaiser looked closely at two medical software vendors, Cerner and Epic Systems, ultimately selecting Epic as the primary vendor for a new system, branded KP HealthConnect. Although Kaiser's approach shifted to "buy, not build," the project was unprecedented for a civilian system in size and scope. Deployed across all eight regions over six years and at a cost of more than $6 billion, by 2010, it was the largest civilian electronic medical record system, serving more than 8.6 million Kaiser Permanente members, implemented at a cost exceeding a half million dollars per physician.
Early in the 21st century the NHS and UK Department of Health became impressed with some aspects of the Kaiser operation, and initiated a series of studies involving several healthcare organisations in England. Visits occurred and suggestions of adopting some KP policies are currently active. The management of hospital bed-occupancy by KP, by means of integrated management in and out of hospital and monitoring progress against care pathways has given rise to trials of similar techniques in eight areas of the UK.
In 2002, a controversial study by California-based academics published in the British Medical Journal compared Kaiser to the British National Health Service, finding Kaiser to be superior in several respects. Subsequently, a group of health policy academics who were experts on the NHS published a competing analysis claiming that Kaiser's costs were actually substantially higher than the NHS and for a younger and healthier population.
Quality of care
In the California Healthcare Quality Report Card 2013 Edition, Kaiser Permanente's Northern California and Southern California regions, Kaiser received four out of four possible stars in Meeting National Standards of Care. Kaiser North and South also received three out of four stars in Members Rate Their HMO. However, in September 2014 Kaiser was fined $4,000,000 by the California Department of Managed Health Care (DMHC) for failing to provide people with adequate mental health services. The fine was based on a DMHC report that published in March 2013 that identified major flaws; DMHC conducted a follow up investigation which published in April 2015. The report found Kaiser had put systems in place to better track how patients were being cared for, but still had not addressed problems with actually providing mental health care that complied with state and federal laws. Kaiser's challenges on this front were exacerbated by a long, unresolved labor dispute with the union representing therapists.
KP's performance has been attributed to three practices: First, KP places a strong emphasis on preventive care, reducing costs later on. Second, its doctors are salaried rather than paid per service, which removes the main incentive for doctors to perform unnecessary procedures. Thirdly, KP attempts to minimize the time patients spend in high-cost hospitals by carefully planning their stay and by shifting care to outpatient clinics. This practice results in lower costs per member, cost savings for KP and greater doctor attention to patients. A comparison to the UK's National Health Service found that patients spend 2–5 times as much time in NHS hospitals as compared to KP hospitals. 
Research and publishing
Kaiser operates a Division of Research, which annually conducts between 200 and 300 studies, and the Center for Health Research which in 2009 had more than 300 active studies. Kaiser's bias toward prevention is reflected in the areas of interest—vaccine and genetic studies are prominent. The work is funded primarily by federal, state, and other outside (non-Kaiser) institutions.
Concerns and violations
The organization has come under scrutiny for management, patient care, financial and technology issues, primarily in its Northern and Southern California regions.
In order to contain costs, Kaiser requires an agreement by planholders to submit patient malpractice claims to arbitration rather than litigating through the court system. This has triggered some opposition.
Wilfredo Engalla is a notable case. In 1991, Engalla died of lung cancer nearly five months after submitting a written demand for arbitration. 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. The Foundation for Taxpayer and Consumer Rights contends that Kaiser continues to oppose HMO arbitration reform.
Watchdogs have accused Kaiser of abusing the power imbalance inherent in the arbitration system. Kaiser engages in many cases whereas a customer will usually engage in just one and Kaiser can reject any arbitrator unilaterally, thus they can select company-friendly arbitrators over those that rule in favor of customers. As a large organization, Kaiser can also afford to spend much more on lawyers and orators than the customer, giving them more advantages. In response to criticisms, Kaiser established an Office of Independent Administrators (OIA) in 1999 to oversee the arbitration process. The degree to which this is independent has been questioned.
Patients and consumer interest groups sporadically attempt to bring lawsuits against Kaiser Permanente. Recent lawsuits include Gary Rushford's 1999 attempt to use proof of a physician lie to overturn an arbitration decision.
In one case, Kaiser attempted to significantly expand the scope of its arbitration agreements by arguing it should be able to force nonsignatories to its member contracts into arbitration, merely because those third parties had allegedly caused an injury to a Kaiser member which Kaiser had then allegedly exacerbated through its medical malpractice. The California Court of Appeal for the First District did not accept that argument: "Absent a written agreement—or a preexisting relationship or authority to contract for another that might substitute for an arbitration agreement—courts sitting in equity may not compel third party nonsignatories to arbitrate their disputes."
Kaiser settled five cases for alleged patient dumping—the delivery of homeless hospitalized patients to other agencies or organizations in order to avoid expensive medical care—between 2002 and 2005. During that same period, the Department of Health and Human Services' Office of the Inspector General settled 102 cases against U.S. hospitals which resulted in a monetary payment to the agency.
In 2006, Los Angeles city officials filed civil and criminal legal action against Kaiser Permanente for patient dumping, which was the first action of its kind that the city had taken. The city's decision to charge Kaiser Permanente reportedly was influenced by security camera footage, allegedly showing a 63-year-old patient, dressed in hospital gown and slippers, wandering toward a mission on Skid Row. At the time that the complaint was filed, city officials said that 10 other hospitals were under investigation for similar issues. Kaiser settled the case, paying $5,000 in civil penalties and agreeing to spend $500,000 on services for the homeless.
Kidney transplant program violations
In 2004, Northern California Kaiser Permanente initiated an in-house program for kidney transplantation. Prior to opening the transplant center, Northern California Kaiser patients would generally receive transplants at medical centers associated with the University of California (UC San Francisco and UC Davis). Upon opening the transplant center, Kaiser required that members who are transplant candidates in Northern California obtain services exclusively through its internal KP-owned transplant center.
While it was in operation, the Kaiser program had a 100% survival rate, which is better than other transplant centers. However, patients who needed a kidney were less likely to be offered one. Northern California Kaiser performed 56 transplants in 2005, and twice that many patients died while waiting for a kidney. At other California transplant centers, more than twice as many people received kidneys than died during the same period. Unlike other centers, the Kaiser program did not perform riskier transplants or use donated organs from elderly or other higher-risk people, which have worse outcomes.
Northern California Kaiser closed the kidney transplant program in May 2006. As before, Northern California Kaiser now pays for pre-transplant care and transplants at other hospitals. This change affected approximately 2,000 patients.
Inadequate mental health care
In June 2013, the California Department of Managed Health Care levied a $4 million fine, the second largest in the agency's history, against Kaiser for not providing adequate mental health care to its patients. Alleged violations of California's timely access laws included failures to accurately track wait times and track doctor availability amid evidence of inconsistent electronic and paper records. It was also found by the DMHC that patients received written materials circulated by Kaiser dissuading them from seeking care, a violation of state and federal laws. DMHC also issued a cease and desist order for Kaiser to end the practices.
Kaiser appealed the findings, the order, and the fine, and sought to keep the proceedings closed, but in September 2014, in the face of the administrative judge's order to keep the proceedings open, and facing the beginning of public testimony, Kaiser withdrew the appeal and paid the $4 million. It also issued a statement which denied much of the wrongdoing. Kaiser faces ongoing inspections by DMHC and three class-action lawsuits related to the issues identified by the DMHC.
While Doctors of Medicine (M.D.) and Doctors of Osteopathic Medicine (D.O.) are partners within the for-profit physician groups, many employees are members of various unions and guilds, depending on their role and service area.
KP's California operations were the target of four labor strikes in 2011 and 2012, two (Sept 2011 and Jan 2012) involved more than 20,000 nurses, mental health providers, and other professionals. The National Union of Healthcare Workers (NUHW) has accused Kaiser of deliberately stalling negotiations while profiting $2.1 billion in 2011 and paying its CEO George Halvorson $9 million annually. The workers were dissatisfied with proposed changes to pensions and other benefits.
On 11 November 2014, up to 18,000 nurses went on strike at KP hospitals in Northern California over Ebola safeguards and patient-care standards during union contract talks. 21 hospitals and 35 clinics in the San Francisco Bay Area were affected.
Jamie Court, president of the Foundation for Taxpayer and Consumer Rights has said that that Kaiser's retained profits are evidence that Kaiser policies are overpriced and that health insurance regulation is needed.
State insurance regulations require that insurers maintain certain minimum amounts of cash reserves to ensure that they are able to meet their obligations; the amount varies by insurer, based on its risk factors, such as its investments, how many people it insures, and other factors; a few states also have caps on how large the reserves can be.
Kaiser has been criticized by activists and state regulators for the size of its cash reserves. As of 2015, it had $21.7 billion in cash reserves, which was about 1,600 times the amount required by California state regulations. Its reserves had been a target of advertising by Consumer Watchdog supporting Proposition 45 in California's 2014 elections. At the end of 2010 Kaiser held $666 million in reserves, which was about 1,300 times the minimum required under Colorado state law. Those funds were in Kaiser's risk-based capital account, held to pay for disasters or major projects. In 2008, the Colorado regulator required Kaiser to spend down its reserves; after negotiations Kaiser agreed to spend $155 miilion of its reserves giving credits to its clients and building clinics in underserved parts of the state.
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