Kaiser Permanente

founded: 1945

Contact Information:

headquarters: 1 kaiser plaza
oakland, ca 94612 phone: (510)271-5800 fax: (510)271-6493 url: http://www.kaiserpermanente.org

OVERVIEW

Kaiser Permanente is the largest not-for-profit health maintenance organization (HMO) in the United States. Headquartered in Oakland, California, the organization serves 8.2 million members in nine states and the District of Columbia. As an integrated health delivery system, Kaiser organizes and provides all aspects of members' medical care, including preventive care, hospitalization, medical treatment, and pharmacy services. Kaiser is comprised of three segments: Kaiser Foundation Health Plans, Inc.; Kaiser Foundation Hospitals; and the Permanente Medical Groups. The three groups cooperate under mutually exclusive contracts to provide one-stop health care services.

Kaiser Foundation Health Plans is a consortium of regionally based not-for-profit, public-benefit corporations that contract with groups and individuals to provide prepaid comprehensive medical and hospital care. Kaiser Foundation Health Plans works with Kaiser's Hospitals and Permanente Medical Groups to provide a full range of medical services. Kaiser Foundation Hospitals owns and operates hospitals in California, Oregon, and Hawaii, as well as numerous outpatient facilities in other states. The organization provides or coordinates hospital services for Kaiser members. Also providing services to members is Permanente Medical Groups, the second component of the Kaiser network. The Medical Groups segment consists of self-managed partnerships or professional corporations of physicians who assume the full responsibility for providing and coordinating all medical care for Kaiser members. Within the Kaiser network of services there are 29 medical centers, 42 medical offices, and 11,345 physicians.

Kaiser is divided into seven regions: California, Colorado, Georgia, Hawaii, Mid-Atlantic (Maryland, Virginia, and District of Columbia), Northwest (Washington and Oregon), and Ohio. A division of each of the three segments of service and care (Health Plans, Hospitals, and Physicians) operates within each region. Kaiser provides services in its Northwest region through a partnership with Group Health Cooperative based in Seattle, Washington. Most members are covered by Kaiser through their employers who may pay all or part of the monthly cost. Qualified individuals who do not have coverage may also become members through their employers.

COMPANY FINANCES

Kaiser Permanente posted a 78 percent increase in earnings during the fourth quarter of 2001 compared to the previous year. During that quarter, the organization had a net income of $187 million on revenues of $5 billion, up from $105 million net income on revenues of $4.6 billion in 2000. Considering all of 2001, net income grew 17 percent to $681 from $584 million in 2000. Revenues increased by $2 billion to $19.7 billion from $17.7 billion. The bottom line figures for 2001 reflect the second straight year Kaiser posted a net income after recording three consecutive years of net losses from 1997 through 1999.

HISTORY

Kaiser Permanente had its beginnings during the Great Depression when Dr. Sidney R. Garfield opened Contractors General Hospital, a 12-story facility designed to care for the thousands of workers who were building the Los Angeles Aqueduct. Establishing his hospital in the middle of the Mojave Desert, six miles outside the small town of Desert Center, Garfield began treating sick and injured contract workers. The doctor soon ran into financial difficulties as the insurance companies were slow in paying claims and some of the men he treated held no coverage.

Insurance agent Harold Hatch offered Garfield a possible solution, suggesting that the insurance companies could pay in advance a flat-rate daily fee for every worker covered. The upfront money would solve the hospital's immediate need for cash, and Garfield would be able to focus on health maintenance and safety rather than after-the-fact medical treatment. Thus, prepayment insurance coverage was introduced, a form of business that Kaiser continues to practice. The insurance company agreed to pay $.05 per day for each worker covered. Garfield offered workers the option of paying another $.05 out of their own pockets to gain coverage for non-work-related accidents and illnesses. The prepay concept worked, and soon Garfield's hospital was back in the black.

When work on the aqueduct was coming to a close, Garfield, who was planning to start a private practice in Los Angeles, was contacted by an employer in need of health coverage for the 6,500 workers who were building the Grand Coulee Dam in Colorado. Jumping at the chance, Garfield transformed a run-down hospital into his headquarters and recruited other physicians to join him in a group prepaid practice. Once again the formula was a success and was affirmed by the physicians, the workers, the employer, and the insurance company.

FAST FACTS: About Kaiser Permanente

Ownership: Kaiser Permanente is a privately held, notfor-profit organization.

Officers: George C. Halvorson, Chmn. and CEO; L. Dale Crandall, EVP and CFO; Richard G. Barnaby, Pres. and COO

Employees: 55,300

Principal Subsidiary Companies: Kaiser Permanente is an organization of three business segments that are linked by exclusive contracts: Kaiser Foundation Health Plans, Inc.; Kaiser Foundation Hospitals; and Permanente Medical Groups.

Chief Competitors: Kaiser competes against for-profit health maintenance organizations on a national and regional level. Important competitors include Aetna, Blue Cross, CIGNA, Humana, Pacificare, and Well-Point Health Networks.

As this project wound down, the United States was entering World War II, and Garfield's next project was even bigger than his last. Henry Kaiser, who owned Kaiser Shipyards in Richmond, California, saw his business increase due to the demand for ships, aircraft carriers, and other vessels. However, the many new workers brought in to step up production were inexperienced and often in poor health. With 30,000 employees to care for, Kaiser turned to Garfield for help. Garfield obliged and set up his third prepaid group practice for Kaiser's workers. At its peak, when employee numbers reached their highest, Garfield's plan covered approximately 200,000 shipyard workers and their families.

At the end of the war, workers vacated the shipyards by the thousands, and only about 12 of Garfield's physician team of 75 remained. However, Kaiser was duly impressed by the prepaid plan and wanted to continue it. To that end, the Permanente Health Plan was formed on October 1, 1945 and officially opened to the public. Within ten years, membership reached more than 300,000. Growth was due in large part to support from several major unions that endorsed the plan for their members.

In 1952 the health plans and hospitals changed the name from Permanente to Kaiser to build on Kaiser Industries' national recognition. The physician group voted to keep the Permanente name. Thus, the entire organization became known as Kaiser Permanente. From the 1970s, Kaiser Permanente expanded its regional coverage with varied success, but membership grew rapidly until the organization became the largest single HMO in the United States.

STRATEGY

Kaiser focuses its appeal to the public on the tag line, "In the Hands of Doctors." The organization's strategy is to distinguish itself from competitors by emphasizing Kaiser's integrated care system that empowers members' physicians to act as the ultimate decision-makers at every level of care. Because of the partnership between Permanente doctors and Kaiser Foundation Health Plans and Hospitals, physicians are able to manage patients' care without interference from health plan administrators. The organization also promotes the over-arching influence its physicians have on the entire network of care and services. For example, physicians dictate the drugs that are placed on the organization's recommended list, participate in developing clinical guidelines for most effective treatments, and address the value of new medical technology or procedures.

Six principles guide Kaiser's business model: social purpose, partnership, integration, prevention, comprehensive benefits, and choice. As a not-for-profit organization, Kaiser envisions the social benefit of its services beyond the scope of the profit line, and the company is involved in a wide range of activities beyond direct patient care, including a strong investment in medical research. Partnership is the cornerstone of Kaiser. It is what distinguishes it from its competition. According to Kaiser's organizational vision, integrated care is more effective and efficient than segmented care for both the patient and the administrator and allows for better quality and more innovative care.

Kaiser was a driving force in the introduction of preventive care. By allowing generous benefits, members are able to seek care before medical problems arise or become serious. Comprehensive benefits address the broad spectrum of medical issues, including well-baby care, emergency room visits, hospitalization, surgery, allergy treatment, lab services, and home health care. Choice is the final principle that governs Kaiser's operational strategy. Members choose a personal physician within the Permanente network who provides and coordinates all their care, including specialists, diagnostics, medications, therapy, and hospitalization. A member's physician alone has the authority to make all medical decisions; no administrative or outside authority is necessary.

CHRONOLOGY: Key Dates for Kaiser Permanente

1933:

Dr. Sidney R. Garfield establishes a prepayment health plan for workers on a construction project in the Southern California desert

1938:

Henry Kaiser persuades Dr. Garfield to set up a group practice prepayment plan for Grand Coulee Dam construction workers

1942:

Dr. Garfield establishes group practice prepayment plans for workers and their families at Kaiser-managed shipyards in the San Francisco Bay Area; membership reaches 200,000 during World War II

1955:

Kaiser Permanente is reorganized; membership reaches 500,000

1963:

Membership reaches 1 million

1968:

Membership reaches 2 million

1976:

Membership reaches 3 million

1985:

Membership nears 5 million; the organization includes 12 regions

1997:

Membership approaches 9 million; the organization, overwhelmed by rapid expansion, posts a net loss for the year

1999:

Membership declines to slightly more than 8 million; organization posts third consecutive annual net loss

2001:

Organization posts second consecutive annual net income, announces plans to withdraw from unprofitable markets

INFLUENCES

Centering its image on its physicians, Kaiser steers away from negative images of HMO management, to which Kaiser itself had contributed. In 1997 the organization instituted a money-saving program that rewarded nurses for cutting costs. The practice received widespread negative attention as critics claimed that such a strategy could only lead to a decline in the quality of care. In fact, Kaiser was subsequently involved in two wrongful-death suits based on negligence caused by cost-cutting.

Kaiser had few friends between 1997 and 1999. In 1998 the organization posted a loss of $288 million, and losses between 1997 and 1999 totaled $560 million. Its poor financial performance was blamed on Kaiser's surge of new members who were enticed to join when Kaiser lowered rates to expand its membership base. However, membership grew too rapidly, rising by 20 percent. Kaiser found it could not accommodate the increased numbers, which resulted in expensive referrals to nonKaiser physicians and decreased member satisfaction with the quality of services.

To right the sinking ship, Kaiser raised its monthly premiums, which helped revenues grow but did little to improve relations with members. The organization also took action to improve its operational efficiencies and abandoned several regions into which Kaiser had expanded without positive results, including Texas, North Carolina, and Kansas. To appease members, new and improved customer services were added, including decreased wait time on customer service telephone lines, the introduction of the option to make appointments online, and the taking of steps to improve the quality of care.

The most significant influence on Kaiser's operations is the rapid rise of medical costs. Also, unlike most HMOs, the organization is burdened with substantial fixed expenses, including a largely unionized workforce and a capital-intensive infrastructure of hospitals and medical facilities. Additionally, as medical technology advances, new procedures and treatments become available but they are accompanied by large price tags. Kaiser must decide how to conduct business so that its members receive quality care and yet it keeps its operations financially solvent.

CURRENT TRENDS

Kaiser attempted to extend its regional coverage but, in several cases, was unsuccessful. In the mid-1990s, under pressure to improve its profits, the organization began pulling out of regions that were not performing well. David Lawrence, who served as Kaiser's chairman and chief executive officer from 1991 until May of 2002, told the San Francisco Chronicle, "We had the naive belief that we were good people, we believed in what we were doing and it had worked in California, Oregon, Colorado, Hawaii, and by God it was going to work elsewhere. Expansion is hard to do and do well. You've got to be very systematic about it, and I don't think we were."

Despite its several failed attempts to extend its territory, Kaiser has succeeded in growing its membership base. In California, Kaiser covers one out of every three insured individuals. During the organization's 10 years under Lawrence's leadership, membership increased from 6.5 million in 16 states and the District of Columbia to 8.2 million in 8 states and the District of Columbia. Membership growth under James Vohs, Lawrence's predecessor, was even more dramatic, tripling in just 15 years.

Another recent trend is the move to integrate advanced technology. Kaiser invested nearly $2 billion in an electronic medical records system that is scheduled to be operational in Northern California in the fall of 2002. The system will then be gradually phased into other areas and regions. The goal of the new technology is to increase quality of care and reduce medical mistakes and missteps.

In March 2002 Kaiser announced that it would drop coverage of 7,800 low-income HMO members in Colorado as of June 1 due to a payment dispute with the state's health officials. Having lost $4.4 million on Medicaid plans in 2001 and approximately $2 million in each of the prior two years, Kaiser warned officials that unless reimbursement rates increased, the organization would be forced to withdraw. Kaiser will maintain roughly 2,300 disabled and elderly patients.

PRODUCTS

Kaiser offers a wide range of health plans that cover individuals of all ages and companies of all sizes. Its policies are divided within five primary divisions: individual and family coverage, Medicare eligible, small businesses, mid-sized and large employers, and nationwide employers. Individual plans include the Personal Advantage, which provides individual and family options; Cares for Kids Child Health Plan-1, which targets uninsured children; continuing coverage, which transitions group coverage into individual policies; and Steps Plan, which provides options for individuals whose income is too high to qualify for federal or state-funded programs or those who cannot afford a full-priced plan. Senior Advantage is tailored for Medicare-eligible members. Members have easy access to specialists and continuous, around-the-world coverage for urgent care. Kaiser's plans require virtually no paperwork.

Kaiser's business options no longer require qualifying medical exams, and the application process was streamlined. A traditional plan for a small business (defined as 2 to 50 employees) requires no deductibles and offers low cost office visit co-payments, low prescription drug co-payments, worldwide coverage for emergency care, and hospitalization. Large group coverage provides a wider range of plan options, including an HMO plan, a Dual-Choice PPO plan, an Added-Choice POS plan, as well as supplemental coverage, occupational coverage for work-related injuries, and options for those who live outside the Kaiser coverage area. Nationwide business plans can be customized to the needs and specifications of the employer.

CORPORATE CITIZENSHIP

A commitment to community has been a longstanding tradition of Kaiser. In 1996 the organization adopted an official policy of direct community benefit investment (DCBI) with the goal of improving the health of communities in which Kaiser is a presence and increasing access to affordable health care. The DCBI policy focuses on three major areas: improving children's health, improving the health of the uninsured via subsidized coverage, and advancing medical knowledge through research. The DCBI program also provides opportunities for education and training programs in the health sciences through grants, equipment, expertise, and volunteerism.

TO YOUR HEALTH

Kaiser's award-winning Web site offers a rich array of health information under three sections. "To Your Health" addresses topics such as nutrition, preventative measures, and exercise; "Just for Kids" features health-themed games and activities for children; and "Food and Nutrition" includes tips for good health and recipes. Several health-related educational videos are also offered for a small price. Each Kaiser region offers its own individual Web site, accessible through the main site at http://www.kaiserpermanente.org. Regional sites provide health tips as well as information on local opportunities for health education and screenings.

EMPLOYMENT

Approximately 1,000 of Kaiser's more than 26,000 employees are based at Kaiser's national headquarters in Oakland, California. Corporate career opportunities are primarily within the national leadership team and as high-level consultants who work with divisions on business management issues such as quality, finance, marketing, and governmental relations. Staffing within regional offices is handled locally. Kaiser does actively recruit specialists in information technology to assist in advancing its capabilities in management and medical information technology.

SOURCES OF INFORMATION

Bibliography

colliver, victoria. "david m. lawrence: ceo led kaiser through storm." the san francisco chronicle, 31 march 2002.

"kaiser foundation." hoover's company profiles, 2002. available at http://www.hoovers.com.

"kaiser paring down its medicaid patients." pr newswire, 22 march 2002.

"kaiser permanente awards $285,000 in scholarships for nursing students." business wire, 13 march 2002.

kaiser permanente home page, 2002. available at http://www.kaiserpermanente.org.

"kaiser permanente: improved operations helped net surge 78% in 4th period." the wall street journal, 1 march 2002.

"a positive financial performance in 2001 prepares kaiser for future challenges." company press release, 28 february 2002. available at http://www.kaiserpermanente.org.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. kaiser permanente's primary sic is:

6324 hospitals and medical health service plans

also investigate companies by their north american industry classification system codes, also known as naics codes. kaiser permanente's primary naics code is:

524114 direct health and medical insurance carriers