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The Kaiser Tahoe Accord

Link to actual images of the original Tahoe Accord Document at:

Link to Kaiser's write up on the Tahoe Agreement and the how and why it happened in the words of their own doctors.

The Tahoe Accord is the key to the profit linkage between the Plan/Hospitals (same board) and the Permanente groups.  

The 50-50 split of profits was worked out over 50 years ago and is still emphasized in the Permanente Journal as being intact  and operative.  Monies not spent in various pools goes back to the shareholders (The Doctors)  and forms a yearly bonus of  sizable proportion.  This is the biggest motivator for each physician and pharmacist to accept the role of being a business entity. 

Normally physicians get paid 20% of the medical dollar;  the other 80% as patient services.  In Kaiser the physician can get  1 1/2 x as much money if that Permanante physician only orders about half as much medical services per patient as does the 
outside world.  Most inside this system seem somewhat depressed about how they earn their money but vesting targets  (five year mark/ten year mark/, tenure, and great retirement keep them going. 

In 1955, Kaiser Mangement and the Permanente Physician Groups were having disagreements over many different things.  A meeting was held at Lake Tahoe, at the Kaiser Family Compound for the purpose of ironing out these disagreements.  It appears that if these concessions had not been made that Kaiser Permanente would have just kind of faded into the  background and that patients today would not be having so many problems receiving decent medical care. 

The end result of this meeting at Lake Tahoe is as follows: 

Per capita method of contracting  Kaiser had been paying the medical groups a percentage of the prepaid dues.  The change was made so that revenue  became very close to actual operating costs.  The Kaiser Management and the Medical Groups (The Permanente),  jointly agreed on a per capita rate. 

Minimum capital generation requirement 
The base line for financial stability for both the Health Plan and the Doctors was agreed to be a straight-line depreciations  plus 4% per year of the "historical" cost of the land, buildings, and equipment that the program used. 

Incentive compensation 
This is how they decided to handle excess revenue that Kaiser ended up with.  The Kaiser Plan and the Permanente Doctors  just decided to divide it up amongst themselves.  These earnings are supposed to be split equally between the medical groups  and the Hospitals.  This was intended to provide financial incentive to the physicians to stick with the program and of course to keep the Hospital earnings adequate. 

The program revenue concept 
All the money that comes in goes into one big pot.  This is supposed to support all operations. 

Regional financial autonomy 
All Kaiser regions are separate from each other.  They are only accountable to themselves.  They also do not share their money with the other regions. (Some Permanente groups are taxed to help develop others - like Missouri was taxed to help the Washington D.C. build up; this internal redistribution tax also helped Missouri to fail.) So if they run over budget tough luck for the area patients.  Of course the doctors still get to keep their profits. 

Simplified organizational structure 
This is where Kaiser stopped claiming that they owned all the companies.  Thus the creation of the Health Plan, the Hospitals and the medical groups. 

All Permanente Groups are For Profit Corporations or Partnerships. 

The joint management concept 
Since the Regional Management Plans were not working they got rid of them but kept the partnership concept.  They created a joint medical director-regional manager concept.  This made the medical director the chief executive of the medical group. 

The regional manager became the chief executive of both the hospitals and the Health Plan within the region. 

These people became responsible for making it work in their area.  But more important these positions make or break any chance of having a successful career.  These people have implied right of review and concurrence in the matter of  key personnel appointments. 

Physician's retirement plan 
This resulted in a Constitution and Bill of Rights between The Permanente Medical Group and the Kaiser Foundation  Health Plan. 

This clarified the separation between the Insurance Program and the Medical Group.  This also tied the Medical Group into dealing exclusively with the Insurance Program and barred any such contract with any other Insurance Plan.  Most of this Medical Service Agreement dealt with financial matters. 

The Health Plan ended up with the responsibility of providing facilities and equipment and collecting the revenue. 

The Medical Group became responsible for Medical Claims, yet any dispute over claims was reviewed by the Health Plan who also became responsible for enrollee contracts. 

Finally a definition of net Health Plan revenue was finalized.  Funds generated for and contributed to capital, including depreciation plus 4% of the historical cost of land, buildings and equipment was not considered as part of the net Health Plan revenue.  The definition was further clarified over the matter of other revenues collected at the point of service, the registration fees, the co-payments, etc.  Those revenues belong to the Health Plan. 

Fees for medical services rendered by Permanente Physicians to nonmembers, for industrial care, witness fees, fees for medical reports and income from the sale of medical equipment were not for the Health Plan revenue and could be kept by the Permanente. 

Instead of having a negotiated percentage of dues, it became a capitation contract based on a per member per month compensation.  The Health Plan agreed to pay the Permanente 50% of the net Health Plan revenue to be used in community service activities or in the generation of capital. 

The Medical Group retained sole responsibility for establishing a method of distributing to people within the Medical Group. This allowed the physicians the freedom and flexibility to establish incentives for both performance and recruitment. 

For retirement, a predetermined amount was to be deposited with Bank of America, per month into a trust fund for physicians of the Medical Group.  The Medical Group was promised that the IRS would approve this plan.  However, the IRS ruled that these funds represented current and taxable earnings by the Permanente physicians.  Later the IRS changed it's mind in an "X" and "Y" document which tries to hide how it was making exceptions for Kaiser. 

All Permanente Groups are For Profit Corporations or Partnerships. 

Without the Tahoe Agreement there probably would not be a Kaiser Permanente today. 
I am quite certain that any reasonable person, of any age can see how negative human characteristics, such as greed and corruption could take advantage of any reasonably written plan in particular The Tahoe Accord. 

Further information on The Tahoe Accord may be found at:
Can Physicians Manage The Quality and Costs of Health Care? - The Story of The Permanente Medical Group by  John G. Smillie,M.D., Copyright 1991 by McGraw-Hill, Inc., pages 154-165
available for purchase through Kaiser Permanente and McGraw-Hill

The Bancroft Library in Berkeley, California
At the Bancroft Library buried in a folder entitled "Hospitals Administration, 1955" in the carton 
(BANC MSS 83/42c.,Carton 100.
This was held on May 12 and 13, 1955. The accompanying folder is entitled "Hospitals, Administration, Working Council)

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