If it were an industrial manufacturer, the Kaiser-Permanente Medical Care Program, a giant health maintenance organization, would rank as No. 250 on the Fortune 500, right up there with Polaroid and Clorox.
Last year, Kaiser-Permanente took in $907 million in revenues. This year, the total will exceed $1 billion. Although it is a nonprofit corporation, Kaiser-Permanente is still a business, run by people who are in the business of supplying health care.
Kaiser-Permanente is the largest nongovernment supplier of health care in the United States - with more than 3 million members, 3,100 physicians, 26 hospitals with 5,700 beds and 66 medical facilities. Nonprofit or not, Kaiser-Permanente is big business.
Kaiser-Permanente also represents a fascinating marriage of business and medicine, bringing the techniques of the board room to bear on the problems of health care.
Although Kaiser-Permanente may not be perfect or ideal, it is the standard by which all other prepaid, group health plan, in the country are judged. It is universally cited by advocates of health maintenance organizations - also known as HMOs - as an example of what the system can deliver when given an opportunity.
Other HMOs also have been cited - the Group Health Cooperative of Puget Sound, the Harvard Community Health Plan and the Rutgers Community Health Plan. But Kaiser is the colossus of the movement, operating in six states - California, Hawaii, Oregon, Washington, Colorado and Ohio.
Kaiser-Permanente began in the late 1930s, when industrialist Henry J. Kaiser was building the Grand Coulee Dam in the state of Washington. Kaiser contracted with a young surgeon, Sydney Garfield, to provide comprehensive health care for his employees at a flat, prepaid rate.
The arrangement worked well enough in the early days of World War II so that when Kaiser began making steel in Fontana, Calif., and ships in the San Francisco Bay area and in Portland, Ore., he again asked Garfield to provide medical care.
The war ended, the shipyards closed, but the medical-care program struggled along - eventually opening its membership to other groups and the general public in order to survive. In time, Kaiser-Permanente prospered and separated itself from Kaiser Industries, so that today employees of the industrial firm now account for less than 3 per cent of the health plan's membership.
In the roughly 40 years the health plan has been operating in one form or another, the managers have developed these principles - Dr. Garfield's "genetic code" - that are rigidly adhered to in the operation of the system.
Group practice, Kaiser combines under one roof the personnel and equipment needed to support a multi-specially practice, allowing physicians to consult easily with each other.
Integrated facilities. Kaiser attempts to locate outpatient facilities adjacent to its hospitals for the convenience of both physician and patient.
Prepayment and the reversal of economics. Kaiser members pay in advance for whatever medical care they may need. Physicians and hospitals in turn are paid a predetermined amount, which they cannot exceed in spending without suffering financially. The prepayment theoretically gives the hospitals and the physicians a vested interest in keeping patients healthy rather than in treating them when ill.
Voluntary enrollment. Kaiser insists that when a group offers the health plan to its members, they be given an alternative. Kraiser, as one official explained, has no interest in having disgruntled members who belong because they have no choice.
Physician responsibility. Kaiser physicians are expected to accept responsibility for providing comprehensive care to the membership. They are not permitted to practice medicine outside the Kaiser group, although they may see fee-for-service patients who pay Kaiser. Physicians, as one official put it, are consulted on "every decision" involving operation of the plan and treatment of its members.
The relationship of the physicians to the rest of the Kaiser plan is key. Kaiser has a central organization - the Kaiser Foundation Health Plan - which arranges financing and provides certain administrative services to the six regional plans. The regional plans are basically semiautonomous, financially independent organizations.
The Kaiser system is not a monolith. What may be standard practice in one region or one medical center may be an exception in another. The Walnut Creek Medical Center outside of San Francisco, for example, sterilizes its equipment and reuses it. But the Sunnyside Medical Center outside Portland has opted for disposable supplies.
Each region has a foundation health plan, which is a nonprofit organization. There is a separate Kaiser Foundation Hospitals, a nonprofit, charitable corporation that contracts with the health plan to provide all necessary hospital services. The hospital management is almost identical to the health plan's. The hospitals, although primarily for Kaiser members, are also open to the community and to private physicians.
Medical care is provided in each of the six regions by a Permanente Medical Group (the Permanente Clinic in Oregon) comprising separate, independent groups of physicians. The physicians do not work for Kaiser. They are employed by the medical groups, which are partnerships (a professional corporation in Oregon) run by the physicians themselves. The medical groups contract with the health plan in their region to supply medical care in return for a set fee per patient member that is negotiated between the health plan and the group.
Physicians, salaried employees of the group, are generally invited to become partners after three years. The medical groups share the financial risk with the health plan. Excessive laboratory tests and other procedures would reduce the medical group's income, and thus reduce the bonus payment to physicians. Excessive hospitalization could result in lower fees the following year or higher rates for members, which could result in members leaving the plan and a reduction in personnel - including physicians.
"One of the important elements of the program is the responsibility of the physicians . . . to participiate in the whole cross-section of the program, to be aware of costs and economics throughout." Kaiser Foundation Health Plan senior vice president Robert J. Erickson said in an interview. "In most hospitals, for example, most of the physicians on the hospital staff have no responsibility whatsoever. Physicians contribute 70 per cent of the health-care cost, but physicians in the country are responsible only for the 20 per cent that goes into their pocket. In this system, they're responsible for the whole 70 per cent. And that's of tremendous importance."
At every level of the Kaiser-Permanente organization, from the region down to the area medical facilities, the head of the health plan shares authority and responsibility with the head of the medical group.
Part of Kaiser's business approach includes detailed collection of information on hospitalization patterns, which are published monthly within each region, so that physicians and administrators can see how the system is performing.
That kind of data collection, combined with past experience for utilization rates means, according to the Oregon region's vice president for hospitals, James L. DcLong, that "we can plan right down to a gnat's eyebrow what to expect."
The regional data is not the end of it. On a quarterly basis, the central Kaiser office collects and distributes the same information for the whole system so that each region can compare its performance to the others.
However good the quality of medical care in the Kaiser system may be - and the quality of care is not a matter of controversy - Kaiser still has the kinds of problems that a patient could encounter in a private, fee-for-service system.
Art Williams, a 34-year-old employee of the Chevron Oil Corporation who lives in Pleasanton, Calif., showed up at a walk-in clinic one Sunday afternoon in November with a pain in his abdomen. The physician on duty, according to Williams, told him he had a problem with his stomach muscle and that he should go home.
At 2 a.m. the following morning, Williams said he awoke in pain, dressed and had his wife, Dixie, drive him back to the Kaiser Walnut Creek medical facility, where he was examined by the physician on duty. At 8 a.m., after the physician on duty checked with a surgeon, Williams underwent surgery to have his appendix removed. Williams said the surgeon told him after the operation that his appendix would have burst in another 24 hours.
"In general, we're pleased with the whole deal," Williams said. "I guess my feeling is that this is more of an isolated event."
"We've got over 3 million patients." said Dan Scannell, director of public relations for the Northern California region. "I get to see a lot of horror stories. Oh, we've got them."
Where Kaiser is faulted - besides being criticized for having long waiting periods for appointments for routine physician visits - is in delivering quality care without frills. One Kaiser official, in defending the program, did not deny that a patient would not get all the attention that he or she might like. What the patient would get, the official said, is "appropriate care, the care you need."
On the other hand, Kaiser physicians and nurses assert that they are concerned with caring for patients as well as treating them. "When you see so many patients, there is a feeling that the patient is not considered." Charlotte Dyke, a nurse at Kaiser's Walnut Creek facility in northern California, said. "We like them to know that they are - valuable, precious to us."
Despite the shortcomings, the Kaiser program appears to be growing. With lower premiums in most areas than competitive plans, the membership is growing steadily. In northern California, for example, the cost of Kaiser coverage is $80.59 a month compared to $109.22 for Blue Cross-Blue Shield.
Kaiser-Permante is only one form of HMO. In Seattle, the Group Health Cooperative of Puget Sound, which serves about 18 per cent of the local market with its 225,000 enrollees, is run by its membership.
The central medical and financial principles of Group Health - group practice, prepayment - are the same as in Kaiser. But in Group Health, the membership actually is in charge, setting the policy for management. The relationship of the physicians to the plan is less clear than in Kaiser.
Physicians in Group Health do have some control over hiring, medical policy and salaries, as well as ways to affect policy and planning as it is being carried out.
What Kaiser and Group Health and other larger HMOs have in common is that they are systems of health care, large enough to centralize services like laboratory work and x-rays, to purchase expensive devices where needed without having a proliferation of equipment to satisfy physicians within the system who might otherwise be concerned about losing patients.
In some instances, like open-heart surgery, Kaiser sends its members to fee-for-service surgeons and pays the bill because Kiaser officials have determined that a patient will be better served for less money than if the plan had its own capability to performe these services.
Because Kaiser is so successful, it is widely cited as a model of what an HMO can and should be. Whether or not the Kaiser experience can be repeated, however, is open to question. As one expert put it, "Kaiser was lucky. It had a shipyard and a war."
Kaiser had the continuing support of a businessman with adequate funds to get the program started and a cadre of physicians who believed strongly in the principles of prepaid group medicine.
Whether or not it is easier, for some reason, to develop prepaid group plans on the West Coast - where the largest and most successful plans are located - is another question. Kaiser has taken over a faltering plan in Cleveland, according to Kaiser officials, to demonstrate that prepaid medicine could be developed successfully in other areas of the country.
Kaiser-Permante has no present plans for expansion, according to its officials. What Kaiser is doing instead is selling its experts to corporations on a cost-reimbursement basis and giving it to nonprofit groups.
Health maintenance organizations - even where they are properly managed - cannot deliver medical care at bargain rates.
"Nothing said by me . . . should lead any listener to the conclusion that appropriate medical care is inexpensive. It isn't," Kaiser Foundation's senior vice president Arthur Weissman told the Council on Wage and Price Stability in August, 1976.
"Moreover, it is erroneoue to conclude . . . that organized health-care systems will reserve the current trend of health-care escalation. What I have learned from experience in the Kaiser-Permanents Medical Care Program is that organized systems can and do moderate health care costs.'
Whether the concept is attractive or not, Kaiser-Permanent's style, practice and habits are those of the modern business organization."There's nothing more than free enterprise, private enterprise than our program," Dr. Cecil Cutting, former executive director of the Northern California Permanente Medical Group, said.