|A. KAISER PERMANENTE NATIONAL ORGANIZATION||2-1-4|
|B. NORTHERN CALIFORNIA REGION||2-3-6|
|3. ALTERNATIVE PAYMENT PLANS TO TPMG PHYSICIANS||3-1-10|
|A. IN A PROPRIETORSHIP||3-1|
|B. IN A PARTNERSHIP||3-3-12|
|C. IN A CORPORATION||3-5-14|
|4. FACTORS INFLUENCING MEDICAL PRACTICE IN KAISER PERMANENTE||4-1|
|B. PHYSICIAN ATTRIBUTES||4-3|
|a. The Professional Imperative||4-3-19|
|b. The Technology Imperative||4-4-20|
|c. Physicians' Compensation||4-7-23|
|d. Physician-Patient Relationships||4-9-25|
|C. ORGANIZATIONAL ATTRIBUTES||4-3|
|a. Physician-Member Ratio||4-10|
|b. Cost Containment||4-11-27|
|c. Organizational Structure||4-14-30|
|d. Quality Assurance||4-15-31|
|e. Leadership Development||4-15|
|D. ENVIRONMENTAL AND COMMUNITY ATTRIBUTES||4-16-32|
|a. Competition for Patients/Members||4-16|
|b. Competition for Physicians||4-19-35|
|c. General Economic Factors||4-19|
|d. Legislative, Ethical, and Social Factors||4-20-36|
The Permanente Medical Group (TPMG) in Northern California contracts with Kaiser Foundation Health Plan to provide comprehensive medical care to Health Plan members within the Kaiser Foundation Hospitals and their associated medical offices. Forty years ago, this Medical Group had 30 physicians taking care of 40,000 Health Plan members. Now TPMG has more than 2,000 physicians providing care to almost two million members. TPMG has been organized as a proprietorship (1942-48), as a partnership (1948-82), and as a corporation since 1982. Payments to TPMG physicians include a basic Monthly Income which is supplemented by fringe benefits, a pension plan, and an Incentive compensation plan linked to the financial success of the Kaiser Permanente program in the region. Kaiser Permanente operates under an annual operating budget formulated by managers of all professional and administrative departments. Health Plan generates an income flow, primarily from numbers' dues, to pay TPMG physicians, cover all operating requirements, and pay for facilities and capital equipment.
This review of the Northern
California Region of Kaiser
Permanente, an organization derived from a union of Industry and
attempts to analyze factors Influencing Its success, with special
to payments to TPMG physicians. It is important to know that,
its industry founders developed a financial organization which
Permanente financially self-supporting, and recognized the need for the
professional autonomy of physicians and their responsibility
balancing; quality of care with costs. Secondly, Its
recognized the expertise and
Incentives for maintaining
and perpetuating these goals
and principles have been supported by many factors, including the
of payment for physicians' services. A fixed annual
incentives to prudently use Health Plan dollars. On a
decision level for balancing quality of care with
of the individual TPMG physician is negligibly affected by providing
or less than necessary procedures, office visits,
The Kaiser Permanente
Medical Care Program, usually referred
to as "Kaiser Permanente", is a group practice, prepayment plan. It
comprehensive medical and hospital services to about five
enrolled members in twelve operating regions--Northern California,
organized on a decentralized basis,
with each of its twelve regions managing its own operations.
all decisions on the day-to-day management of health care
facilities are made at the regional level, through a structure
of separate but closely cooperating organizations
Among these cooperating organizations, the Kaiser Foundation Health Plans, which are nonprofit and charitable corporations In each of the regions, contract with individual and group subscribers (enrollees/members) to arrange for their comprehensive health care benefits in return for dues paid on a monthly basis. Health Plans, in turn, contract with Kaiser Foundation Hospitals and Permanente Medical Groups to provide hospital and medical services, respectively, required to meet these covered health benefits of its members in these regions. Kaiser Foundation Health Plans generally prefer not to rely on community hospital beds, since it has been a basic principle of Kaiser Permanente to operate in integrated outpatient and inpatient services with a unified professional staff and medical records as well as administrative control of available beds and operational costs. Kaiser Foundation Hospitals are nonprofit and charitable corporations which own and operate community hospital facilities in their regions, provide or arrange hospital services, and sponsor charitable, educational, and research activities.
Permanente Medical Groups
are partnerships or professional
corporations of physicians--one Medical Group in each region.
full responsibility for providing and arranging the medical
to satisfy Health Plans' contracts with the membership is assumed in
region by a Permanente Medical Group. Each
Medical Groups is responsible for its own physician recruitment and
patterns and for the quality of medical services for the
Kaiser Permanente's principles of operation have always included; (a) prepayment of health plan dues under a community rating structure, which tends to provide a predictable flow of income; (b) organized group practice for the physicians in each region: (c) hospital and medical office services integrated into medical centers ("vertical integration"), with detached or satellite medical offices operated as extensions of thenearest medical center; (d) voluntary enrollment of health plan members, with a dual choice for an alternative plan available to group subscribers; (e) comprehensive benefits including preventive care and health promotion; and (f) physician participation in management, in that physician leaders participate in all major policy decisions, in allocation of resources, and in planning and directing the program. (1)
This organizational structure and these operational principles have created a partnership-like approach between the professions of medicine and management and have assured physicians and managers of a voice in all major policy decisions.
In the Northern California region, Kaiser Permanente had its beginnings as a prepaid industrial health care program for the World War II workers in the Kaiser-managed shipyards in Richmond, California. In August, 1942, the Health Plan for non-industrial care was started in the Richmond shipyards, and the Plan had 90,600 shipyard workers in March, 1943.(2) At the end of the War, the shipyards closed, and in October, 1945, the Health Plan membership decreased to 14,500.(3) In 1946, the service area was expanded across the San Francisco Bay with the opening of medical offices in San Francisco. (4,5)
Since then, growth in the Northern California region has been steady with the addition of both medical centers and free-standing medical offices paralleling increases In membership. At the end of 1984, this region , included 13 hospitals, 19 outpatient medical offices, 1,789 physicians and 14,884 employees. It served a total membership of more than 1.7 million people--or approximately one of every four people In the San Francisco Bay Area.(6,7) The range of resources and scope of services qualify the Northern California Region as one of the largest and most comprehensive private sector health care delivery systems anywhere.
In the Northern California
region, as in the others, Kaiser
Permanente's financial organization is complex; its success depends
close planning, cooperation and support between the three
entitles in the region. The dues paid by its Health Plan
are the primary assurance of the financial success of the
The Medical Group operates on a year-to-year contract withHealth
The Medical Group budget
in the Northern California
region includes all
the outpatient offices and the outpatient non-doctor personnel, all
located in and out of
A combined operating budget
for Medical Group, Hospitals
and Health Plan is put together each fall which includes the financial
requirements estimated by managers for regional service
as those of the physicians-in-chief and administrators of the 13
centers. These, in turn, include the
of the individual
professional departments, The budgetary process flows upward
downward through the organization so that the final budget represents a
coordinated program for the
coming year financed from dues paid by or on behalf of the
Meanwhile, regional management must agree on several key issues: staffing ratios for physicians, nurses, and non-nursing personnel, patient day forecasts for each hospital, capital needs for expansion or refurbishing of existing facilities, new facilities and equipment, and new or modified Health Plan benefits. About five percent of the Hospital's operating costs is used for its community services budget for charity, medical research and education.
Plan membership is
forecast by a regional Department
of Medical Economics using statistical formulas, economic reports,
data, and information from Health Plan marketing
The biggest factors in predicting membership are the regional economy
competition. Based on this forecast, they also
and service population projections, which are used for medical center
allocations. Once regional management has approved the
membership forecast, program
revenues are estimated. Eighty percent of revenues come from
The last step in creating a budget is projecting what it will cost to provide administrative and medical services, pay salaries and benefits, and purchase supplies. Over the past 25 years annual rate increases have averaged 9.1 percent. (5) Health Plan does not seek to maximize revenue. Its rates are set at a level that can meet contractual obligations to members and remain competitive in the marketplace. Health Plan seeks to generate an income flow sufficient to cover all operating requirements and sufficient capital for facility improvement and reasonable growth. It has always been a conscious objective of the program to provide good quality of care at a reasonable cost.
In the beginning of
organization, all physicians
were employees, and they were paid a monthly salary in accordance with
a schedule established by the sole proprietor and medical
R. Garfield, M.D. About once a year, the medical
with his chiefs of services and they reviewed each physician's
Criteria for salary adjustments included the physician's level of
responsibility, tenure, assessment of professional skills by
of service, and the going market rate for new physician
In these beginning years, Permanente had to aggressively
supervising the quality of medical
care was delegated to the chiefs of services, who were urged by the
director to "always recruit the best physicians."
early that the mission of the Kaiser Permanente program was to provide
"Good quality care at a cost the members can
afford." Another (aphorism
frequently heard was that "Poor quality medicine
out to be expensive medicine." Accordingly,
The organization was in considerable debt in those early years, incurred by the purchase of its facilities. Dr. Garfield's strong control on costs is still remembered to this day by the "Pencil Stub Club", so named because in order to obtain a new lead pencil in those early days, a used short stub was required for exchange. New facilities were added in accordance with the slow establishment of bank credit. Maintaining a positive cash flow was a serious problem due to the relatively low capitalization and small membership base. Competition for patients from fee-for-service community physicians was severe. Individual physicians were aware of the need to control expenses to the extent that they were so informed by administration. Although a pharmacy committee published a drug formulary informing physicians of available low cost, in-house manufactured generic drugs (by Royfield, Inc.), physicians were never forbidden to order whatever they felt was needed for their patients.
Reliable statistics are not
available for the proprietorship
period. Data published for 1944 apply to the wartime shipyard
The first useful statistics for the Health Plan are for 1949
service entirely to community members. Health Plan membership was about
13,000 In 1944 and 70,000 In 1948, The ratio of physicians to
members averaged about
B. PARTNERS IN A PARTNERSHIP (TPMG, 1948-82)
By 1948, It had become apparent to Dr. Garfield that the program was growing so rapidly that a for-profit, sole proprietorship was no longer suitable. Accordingly, there were established the two non-profit entitles: Kaiser Foundation Health Plan, Inc., and Kaiser Foundation Hospitals, Inc., (originally called "Permanente" Instead of "Kaiser"); and the for-profit partnership, The Permanente Medical Group. In 1948, there were only seven founding partners; but partners rapidly were added after they completed three years of employee status. As Kaiser Permanente's reputation grew and competition from fee-for-service groups decreased, physician acquisition became easier and patients joined the Health Plan in Increasing numbers. By 1974, TPMG had about 1,200 physicians, of whom 730 (this figure must be confirmed as the microfiche did not read it clearly It could be 330) were partners, Health Plan membership exceeded one million members, and the physician-to-member ratio was reduced to below l:1000.(8,9)
TPMG (their typo) was governed by an Executive Committee comprised of the Executive Director, Physicians-In-Chief, and one elected Representative from each Medical Center. The partnership negotiated each year with Health Plan for a basic per capita payment--a contractually agreed upon dollar amount per member per month. In addition, Health Plan reimbursed TPMG for specified expenses not within Medical Group's control, such as office rental, equipment, etc.
After three years of
salaried employment by TPMG, physicians
were eligible for election to become partners. In order to
a base of working capital for TPMG, at the time of election to
each physician made a modest financial contribution to the partnership
which was returned to the physician
upon termination from the
Partners would draw monthly against a fixed annual income and also
periodically in any incentive compensation plan which was
linked to the
financial success of the program as a whole. An
arrangement between the Health Plan, Hospitals and Medical Group was
in the late 1950s and has been continued to the present time with some
modifications. The incentive formula was based on the
concept that If the
Northern California region as a whole had planned and performed well,
there should still be some net revenue remaining for the
one-half of this net revenue was distributed to the Medical Group to be
Health Plan and Medical Group projected for each year the financial operating requirements agreed upon for the Medical Group, to be made up by a fixed per capita payment based upon the actual membership during the year and a contingent contractual incentive payment. In order to develop a dollar requirement. for Health Plan's dues rate for the year, there was included a targeted amount for the contingent incentive payment. The contingent contractual payment was an additional amount agreed upon in advance that became an addition level of earnings for Medical Group partners to be distributed among them on a share alike
was contingent because even though a mutually agreed upon target figure
was included in the financial forecast, it was more or less dependent
the overall results of operations for the year, and thus was
predictable. Through this incentive compensation
the partners shared in both favorable and adverse financial
were directly involved in the financial success of the total
It was not considered to be a "surplus" or an
In 1982, TPMG became incorporated in order to implement an IRS qualified retirement program with protected pension funds, and to better protect its physicians' personal assets from seizure from lawsuits against TPMG. The articles of incorporation were carefully drafted so as to impact TPMG as little as possible in its internal organization and operation and in its relations with the Health Plan and Hospitals. The hoped for result was that TPMG physicians would continue to perform as they did in the partnership but for them to have greater personal financial security.
Inc., is governed by
a Board of Directors, constituted
similarly to the partnership's Executive Committee, and with similar
responsibilities and duties. All partners at the
were designated "senior physicians". For their initial
now transferred to TPMG, Inc., they received shares which provided
voting rights and eligibility
to receive dividends. Currently, payments to TPMG physicians
divided into four portions:
(a) "distributed earnings", which constitute the basic fixed monthly income of senior physicians;
(b) "undistributed income", which is
"at risk" and is
paid out on a quarterly basis;
(c) If there are earnings in excess of the targeted sum for (a) and (b), this amount is analogous to the "Incentive compensation" of the former partnership, and is divided equally between Medical Group and Hospitals in accordance with the "corridor concept", which was developed during the partnership period; and
(d) lastly, there is a dividend declared and distributed after each year's financial books are closed.
TPMG, Inc., in 1984 had
more than 2,000 physicians and
provided care to almost two million Health Plan members. The
rate of growth in the Health Plan's membership has slowed, and
Group physicians are now acutely aware of the need to control Health
dues in order to meet the intense competition from the new
tend to have a younger group of members, and as yet have not built-up
their full utilization experiences and costs.
physicians include the professional's
desire to serve the patient, ego and
fear and insecurity. The physician's practice of medicine
Permanente, as in any health maintenance organization (HMO), will be
by the operational principles of the organization. For Kaiser
as described in Section 2.A., these included voluntary enrollment of
plan members who receive comprehensive services by prepayment
group practice within integrated care facilities. As in any
practice situation, the
Fear and insecurity are not
the best, but they certainly
can be strong motivators. Job insecurity and financial
motivate physicians to join professional groups, societies,
even unions; and to seek secured tenured positions. These feelings
physicians to support their organizational objectives and
policies. Physicians who feel insecure seek the greater
security of a group practice. A sole proprietorship
degree of insecurity since, unless protected by a specified term of
the sole proprietor may fire an employed
Ego and self satisfaction
motivate physicians to fulfill
their personal objectives and drive individuals to excel in their
to achieve professional and organization status and rank, and
and respect. The professional ethic, the
serve the patient first, motivates the physician to consider
first, then loyalty to the medical profession and,
to the organization. The organization seeks
physicians who are ambitious to excel, who consider the
advantages of group practice
exceed its disadvantages (i.e., they are group practice
The practice of medicine combines clinical judgment In decision-making, interpersonal skills for communication, and the appropriate use of current medical technology. Professionalism is the imperative to achieve and maintain the respect of one's professional peers. This drives the physician to attempt to excel in technical skill with current technology, to attain a reputation for a high quality of medical practice, to advance within one's organization and in professional societies, to seek academic affiliations and clinical professional appointments, to conduct clinical investigations, and to publish in peer-reviewed journals.
The physician-patient relationship is governed by organizational, legal, ethical, and moral considerations. The physician often faces patients who have unrealistic expectations and limited finances, practices a profession short on science and long on art, works within an environment with limited resources and with an increasing tendency to regulate, ration and budget. As a result, the clinical and management decision-making process associated with many physician-patient encounters is becoming increasingly complex. More health care organizations seek policies and strategies which will permit the physician to satisfy professional and patient expectations for good quality of care services at affordable and competitive costs.
Physicians are motivated to satisfy and win the trust and confidence of their patients and to earn the respect of their professional associates and peers. This motivation results in physicians joining professional societies and in writing for professional publications. In group practice, pride in the professional status of the group is a good assurance of the quality of its care.
The survival of any HMO depends upon the extent to which its physicians can (a) commit to the organization's goals, objectives, and principles, (b) practice at an acceptable level of professional excellence while allocating their services within a fixed budget which is based upon health plan dues rates, and (c) accept physician incomes within the prevailing competitive market. It is generally acknowledged in Kaiser Permanente that it is essential to recruit Permanente physicians of high quality who will make a career commitment to the program, and to convince them that their professional careers are intimately involved with and dependent upon the success of the total program.
The peer pressures on
physician specialists to acquire
and use the same innovations in technology employed by others in their
specialty must be balanced in a HMO by the financial
constraints of the
fixed budget. This requires prudent allocation of
among competing alternative technologies and specialties and
incentives to obtain the most cost-effective technology. This
is present in any hospital with a fixed budget; but an
essential difference is that
the HMO cannot balance an overspent equipment budget by utilizing the
equipment to generate
The assessment of
technology is a necessary management
tool for a HMO, whose expenditures are limited by prospective annual
and whose revenues are primarily generated by periodic
dues from its members. Within the constraint of a fixed
the HMO administration. strives to Improve managerial
care processes to decrease costs yet provide adequate quality and
quantity of services to satisfy and
This they try to do by selecting the most cost-effective technology,
lower cost personnel when
Although a physician traditionally attempts to provide clinically effective care at a cost acceptable to the patient, per capitation prepayment reverses the traditional financial incentives of fee-for-service practice. Thus Kaiser Permanente advises Health Plan mernbers to seek "well care" in addition to "sick care". Under a fee-for-service or cost-reinbursenent financial arrangement, a medical care provider's income is dependent upon revenues generated from the services provided to patients. In Kaiser Permanente, under community-rated dues, the program profits from its well members, with the additional direct financial incentive to provide to the sick the most appropriate effective care at the lowest cost.
Within the usual HMO financing structure, an increase in the use of a technology may increase expenses and not generate revenues as it might in a fee-for-service or cost-reimbursement program. Accordingly, the HMO has incentives to acquire and employ only those technologies that maintain or increase the effectiveness of medical care yet contain or decrease costs. Under the newly increasing competition from other HMOs, Kaiser Permanente physician-managers must prudently select cost-eftective technology to sustain an appropriate balance between quality of medical care services to its patients and costs (dues) for its members.(1) However, Kaiser Permanente can regionalize expensive high technology centers, share these services with multiple facilities, and spread its costs over a large mernbership base.
Northern California assesses new
medical technology by a variety of management review
purchasing department routinely studies competitive pricing
medical products, New laboratory equipment and the use of
procedures are reviewed by a "Laboratory Utilization
by one physician specialist from each of the 13 Northern California
centers. New Imaging
Basic Compensation -- Few will question the importance of physicians' compensation as a factor influencing their satisfaction with professional practice. The majority of physicians in the U.S.A. are still compensated on some basis for their individually provided services. An increasing number of physicians now work within an organizational or group environment where they receive fixed incomes, sometimes with profit-sharing incentive programs. Under a fee-for-service or cost-reimbursement arrangement, physicians have a financial incentive to increase their services since, generally, more services tend to generate more revenues than expenses. Under a fixed prepayment or prospective budgetary arrangement, physicians have a financial incentive to furnish only necessary and appropriate services, while providing a good quality of care and satisfying patients' expectations.
A generally accepted hypothesis is that an appropriate provision of health care services will be achieved when the physician's professional judgment is not subject to direct influence by monetary considerations. However, it is generally viewed that the collecting of fees from patients for professional services or being reimbursed by a third party for the costs of services provided can furnish incentives for some unnecessary services in order to increase revenues. On the other hand, it is expected that a fixed budgetary operation can provide incentives for prioritizing some expensive services or scarce resources in order to contain costs within the allocated budget.
A physician's individual
compensation in TPMG has always
been established as a basic monthly income. For an
this is paid
salary. For a shareholder
(as formerly for a partner), this is received monthly as a
against an estimated annual income. This basic
periodically by the corporation's Board of Directors (as formerly by
partnership's Executive Committee), upon recommendation of the
physician-in-chief and chief-of-service. The basic income
upon the physician's professional and technical
Fringe Benefits--Fringe benefits to TPMG physicians are a substantial portion of their total income and are an expense of the Health Plan. Physicians continually seek greater fringe benefits in lieu of basic compensation. These benefits include annual holidays, vacation leave, sick leave, educational leave, disability leave, paid time for administration, for hospital rounds, and for research, compensating pay for night duty, supplemental pay for extra half-days beyond 10 half-days per week, health insurance, life insurance, dental insurance, pension plan, and medical liability coverage.
Since TPMG operates on a fixed annual budget It controls the total amount allocated for fringe benefits, TPMG'S Board periodically distributes a survey questionnaire to all shareholders asking them to rank their priorities for each of the above fringe benefits for the distribution of any increase in compensation in the next year. Almost uniformly the majority of physicians rank as the highest priority an increase in basic monthly income over any fringe benefit.
is generally agreed in the
Northern California region that the incentive compensation payment,
has averaged less than 5 percent of the average physician's
is an .important concept in physician compensation, but it is
certain that the incentive compensation arrangement has any
effect on utilization of resources. The available utilization
(e.g., age-sex rate of office visits and hospital
days per 1000 members per
different in Kaiser Permanente regions with and in those
compensation programs.(6) Perhaps the most important aspect
incentive compensation arrangement is that it embodies in
Physicians joining TPMG
have already been trained
in their professional responsibilities to their
The attributes of a health
care organization which influence
significantly the physician's practice include the size of the program,
the number of patients in a physician's panel
ratio), the size and composition of the physician group, the
comprehensiveness of the services provided,
continuing medical education and research opportunities, the
administrative structure of the group
(i.e., proprietorship, partnership,
corporation), the supporting personnel, facilities, and equipment, its
ratio is sometimes used as
a proxy measure of the availability of physician services to the
served. The average ratio of full-time equivalents of TPMG
to Health Plan members has steadily decreased over the past 40 years,
from 1:1200 in 1944-48. to 1:955 In 1974, to l:890 In
proportionate increase in the number of physicians has been due
availability of physicians to HMOs as they became more acceptable,
benefits and now specialist services being provided by Health
high technology surgery, imaging services,
etc.) and increased amounts of physician time for other
Permanente which, favor cost containment
and improved productivity include; (a) integrated facilities,
permit conservation of physician time by minimizing travel
and hospital; (b) substituting office care for hospital care when
(c) shared support services (laboratory,
x-ray, medical records,
etc., between offices and hospital) to exploit possible economies of
Due to the constant
uncertainty about treatment,
patients and physicians are encouraged to seek a "second
diagnosis, physicians tend to
increase the certainty
of their decisions by ordering second tests and multiple diagnostic
all of which are Intended to decrease the likelihood of error
malpractice suits but result in increased medical costs.
learn to select the most necessary and appropriate procedures
certainty of diagnosis and quality of treatment, to defend against
liability claims, and to
contain costs sufficiently to
meet market competition.
Medical Group physicians have always had to adapt to this environment,
but the current
Cost control is dependent upon physicians appropriately using resources. Patients often expect and sometimes ask for specific diagnostic tests or treatment procedures. Whenever these are inappropriate or unnecessary, physicians must take the time to persuade patients that their request is not in their best interest. Physicians must balance being the representative of the Health Plan and advocate of the patient.
most conspicuous saving
In a HMO has been the result
of its lower utilization of general hospital services. Since
surgeons do not earn more per hour in surgery nor are they
for the number of surgeries they perform, they do not have
incentives to do "unnecessary"
This attribute has resulted in some critics accusing HMOs of "skimping"
on the duality of care. It is an important
continuing responsibility for the medical care of its members provides
incentives for both Health Plan and patient to benefit from a
in appropriate, effective care.(13) Skimping on quality may
some short tern costs but can result in more expensive long
care If the
inappropriately treated patient becomes
more severely ill. Furthermore, since members
and have the free choice to switch to alternative programs of care, or
sue for malpractice, skimping on quality is
not conducive to
long term health of a HMO. Similarly, physicians themselves
eventually switch to an alternative system where they
can practice a
of quality care compatible with their professional
'A continuing inhouse training and development program moves TPMG physicians up its organizational ladder. Each chief at a departmental or facility level selects and trains one or more assistant chiefs, the majority of whom eventually assume increasing Management responsibilities in existing or new facilities. Selected administratively placed physicians receive educational leave for external training in business management at recognized university schools of business.
External factors which significantly influence the physicians' practices within a health care organization include the amount of community competition for patients, the economic status of the community, legislation, methods of payment for care services, and the socio-educational status of the service population.
In the early years, the severe competition for patients from the surrounding fee-for-service physicians was the greatest threat to Kaiser Permanente's survival, patients were then unfamiliar with prepaid group practice, and the greatest influx of new members came from unions and industries through their negotiated health and welfare benefits.
In the middle years, the main competition was from the health insurance indemnification plans (e.g., Blue Cross-Blue Shield Plans). Competition from the fee-for-service physicians gradually decreased, and there was as yet no serious competition from other HMOs.
Following the enactment of the Health Maintenance Organization (HMO) Act of 1973, Kaiser Permanente became acutely aware of the rapid acceptance of the HMO concept in the country and the emergence of serious competition from other HMOs.(14) Currently, increasingly severe competition has developed from other HMOs which have many of the same attributes as Kaiser Permanente for providing comprehensive health care services at an affordable cost, and they can compete very effectively against Kaiser Permanente.
Some critics have accused HMOs of "skimming" from the available population pool a favorable selection of the healthy young enrollees. Surprisingly, this is an emerging problem for an older HMO, like Kaiser Permanente, The termination rate in Health Plan members after two years of enrollment is very much lower than it is in the first two years. In addition, non-terminated members naturally age each year. Newly formed HMOs, with which Kaiser Permanente is now competing, have a higher proportion of new enrollees with a younger average age, which puts new HMOs in a favorable competitive position. Some new HMOs specialize in selecting young members with a favorable health experience, which permits them to easily compete with Kaiser Permanente which community rates its dues over its entire membership's experience.
HMOs have to compete on price (dues to members), benefits (services provided), access (availability of facilities and ability to obtain desired services in an acceptable time), and quality of care (patient outcomes and satisfaction with professional services).
In this competitive environment, a technology innovation which improves the quality of care often introduces a new or increased cost. As for any hospital with a fixed budget. priorities must be established to permit adding new technology within the budgetary constraints. Kaiser Permanente's physician- managers have always participated in these difficult decisions which require carefully balancing quality of care and costs.
Patients usually select physicians on the basis of reputation, recommendations of friends, or on referral from other physicians. Members select the Health Plan primarily on cost, scope of benefits, recommendation of employers or unions, media marketing, and reputation. Members mainly leave the Health plan because they change jobs or move out of the area; but some leave because of dissatisfaction with accessibility to services (excessive wait for appointments), dissatisfaction with non-professional services (e.g., telephones busy, clerks discourteous, etc.), or dissatisfaction with quality of professional services (e.g., "Doctor didn't explain y problem", "Treatment didn't help", etc.). With increasing demand for lower cost care, much of the risk and responsibility is being transferred to the physicians, who must establish, e.g., the appropriate use of hospital care vs. outpatient care vs. home care. The challenge to the HMO is to maintain a competitive level of quality in the appropriate setting at an affordable competitive price.
Physicians joining and
remaining with Kaiser Permanente
are, of course, a self-selected group, who enjoy the
stimulus of group practice with ready access to specialized
acceptable stable incomes and fringe benefits, regular, predictable
hours, and relief from the business aspects of medical
In return they accept some restrictions in professional autonomy and
of their control over patient workload and
time, the physicians become aware of the need to consider
the program for the services they order for their
Serious differences between professional and organizational objectives
may lead to physician
The state of the nation's economy affects the economic status of the Health Plan member population, The adverse effects of inflation or recession in the regional economy upon dues revenues can be lessened only to the extent that Kaiser Permanente can effect internal economies, increase productivity, or raise Health Plan dues. A HMO, along with the rest of the health care industry, is not insulated against the impact of inflation, which increases operating costs of utilities, of supplies, of remuneration to professional and non-professional personnel, and of capital expenditures such as facilities and equipment. Organized labor continually pressures Kaiser Permanente to increase its union workers' salaries and to also increase Health Plan's benefits to union members, all with minimal increases in member dues.
The control of the practice of medicine by laws, licensing, and regulatory agencies have a major impact on all medical practitioners, Including TPMG physicians, The ethical standards promulgated by professional societies are having an increasing influence on medical decision-making, especially as to the responsibility for rationing and allocating scarce services (e.g.. organ transplants), which is shifting directly onto physicians. TPMG physicians incur some benefits from participating in a large organization with resources responsible for helping to inform and advise them in accommodating to new legislation and regulations.
Social and cultural
In the population served substantially
affect TPMG physicians' practice and costs. The current
interest in health promotion and physical fitness has required
of health educators and counselors to meet members' expectations.
First Annual Report of
the Permanente Foundation
Hospital," Permanente Foundation Med Bull
Garfield, S.R., "Second
Annual Report of the Permanente
Permanente Foundation Med Bull
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This paper represents the personal views of the author. The writer acknowledges with thanks the critical review of this paper by Walter Caulfield,M.D., Vice President and Regional Medical Centers Administrator Kaiser Foundation Hospital and Health Plan of Northern California; Cecil Cutting, M.D.. fornerly, Executive Director of TPMG; Dwight Fitterer, M.D., Treasurer of TPMG, Inc.; Bernard Rhodes, Executive Vice President of Central Kaiser Foundation Hospitals and Health Plan; Bruce Sams. M.D., Executive Director of TPMG, Inc.: Joseph Sender, .M.D.., Chairman of the Board of TPMG,
Inc.; and Edmund Van Brunt, M.D., Director of Department of Medical Methods Research of TPMG.
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