|Lessons from Nicholas A. Cummings
An early fan of the Kaiser Permanente System Paul
de Kruif changes his mind
and the reasons why
Foundation Health Plan also
has delegated risk and clinical
management responsibilities to the
Northern California Permanente Medical Group (TPMG)
Workflow At Kaiser Permanente
August 1, 2002
Mindset To Not Order Tests
Because ORC contractually guarantees a
5% reduction in costs, the program is appealing on the basis of quality
as well as cost reduction.
to the following contents importance it is being presented exactly as
Remember this is about medical care and not banking and that it puts at
risk patient lives.
From The Collected Papers of Nicholas
A. Cummings; Volume II: The Entrepreneur in Psychology -
The Best Way to Move Public Policy - pp17 - 18
was at Kaiser Permanente that I learned that often the best way to move
public policy (or such slow-moving bodies as the APA) is to form an
organization that accomplishes that which was previously regarded as
impossible, or undesirable. This resulted in my founding of a series of
organizations, all of them surprisingly effective and successful.
It is probably that not only the importance of establishing
organizations to move policy was learned at Kaiser Permaentne, but also
the organizational techniques that made them successful in spite of
conventional wisdom to the contrary. These included (1) doing
backward, (2) finding a need and filling it, and (3) standing on one's
head to see the matter differently. Undoubtedly my early
indoctrinated me with the believe that failure is not an option."
Page 22 -
one of my many futile visits with executives of the insurance industry
during which AHCIRSD pleaded the cause of professional psychology, Rog
introduced me to Red Halverson, the executive vice president of the
Occidental Life Insurance Company. Red and I became instand
friends, and since he was based in Los Angeles, I visited him
frequently over the next several weeks to seek his advice. He
liberal with his time, and during a succession of lunches and dinners
together, Red grew very sympathetic to our cause. He arranged
us to get together with H. Paul Brandes, a key attorney in the office
of the California Insurance Commissioner. This resulted in
conceptual breakthrough I had been seeking.
At that meeting, 45
years ago, Paul Brandes and I bonded, and we have remained close
friends ever since. He is retired now, but at one point, when
expressed unhappiness with the state bureaucracy, I was able to help im
join the large legal staff of the Kaiser Health Plan.
Paul pointed out how three words inserted by amendment into the
insurance codes of the states would make it mandatory for insurers to
reimburse psychologists if they reimburses psychiatrists.
the word "physician" would be inserted "which includes psychologists."
They also pointed out this would be relatively easy to do if
stealth campaign were mounted with lightning rapidity. What
had failed to do by persuasion, and what was not possible judically, we
could do legislatively.
page 23 - 1968
the insurance chairs assembled the day before the convention, we were
delighted to see that 42 states were represented. I chared
panel of Red Halverson and Paul Brandes, who walked the group through a
do-it-yourself legislative kit.
Positioning the Company
are essentially three ways to position a company, and this must
be done at the outset as it is difficult to change once the
company has succeeded (or failed): a start-up with exit strategy, a
start-up in perpetuity, or an options-only strategy.
start-ups have as their goal an initial public offering (IPO) within
five years. The VCs insist on this as their best means for
cashing out. It also makes the founders' stock liquid,
establishes a war chest to use for acquisitions, finances expansion,
and wipes out debt. At this point, ownership shifts from a
closely held private company to one that is publicly traded; in the
health industry, usually on NASDAQ. If this is to be a
it should be positioned in the business plan with factors that would
signal the successful initiation of an IPO, as will be discussed later
in this section.
Although the preceeding
strategy is sought in almost every start-up there is an unusual kind of
group, seemingly limited to healthcare, where the goal is one of
perpetuation without an exit strategy. The outstanding
are the several Permanente Medical Groups that contract with the
nation's original and largest HMO, the Kaiser Health Plan.
purpose is to provide a stable, practitioner-owned environment in which
to practice for one's entire career. This strategy, which is
particularly attractive to the practitioner, is discussed more fully
elsehwere (Cummings, 1996).
By Paul de Kruif:
Author of Kaiser Wakes The Doctors - Published 1943 Harcourt, Brace and
De Kruif, Paul, 1890-1971
Mr. de Kruif changed his mind about Kaiser and the following explains
his decision - as written in Time Magazine.
week Writer de Kruif recanted. In GP, published by the American Academy
of General Practice, he violently attacked group practice in general,
and the Kaiser plan in particular. Wrote De Kruif: "[I was] sold a bill
of goods, that the ancient, close, personal relation between doctors
and their patients—that's the pride and the unique distinction of
family physicians—was no longer necessary . . . The good old
family doctor? He'd soon be a relic, replaced by integrated groups of
specialists, all streamlined under an ultramodern hospital roof . . .
It dazzled me to watch the plan's huge profits build and actually pay
off beautiful hospitals. I fell for the plan's economics offering what
seemed complete surgical and medical care for a few dollars a month.
now . . . I know that . . . its physicians are not servants of their
patients—but, primarily, of the bookkeeping of the plan. It isn't
the condition of his patient that dictates the time and care the doctor
devotes to the sufferer; it's the red and black of the plan's economics
. . . .[That] isn't the kind of medicine I'd pick for my family."
In yielding control over
clinical care decisions, all HMOs but Kaiser have limited
themselves to an oversight role. Whereas Kaiser Foundation Health Plan
has delegated risk and clinical management responsibilities to the
California Permanente Medical Group (TPMG), the health plan remains
involved in the operations of its closely affiliated providers.
The five largest delivery systems that are key institutions for
Physician Workflow At Kaiser Permanente
In his paper (Sep/Oct 05), J.D. Kleinke incorrectly states that Kaiser
Permanente controls the workflow of the physicians it employs.
In fact, Kaiser Foundation Health Plan and Hospitals sells health
insurance and operates hospitals. Permanente medical groups, owned and
operated by physicians with independent boards of directors, provide
medical care to health plan members, and it is they, therefore, that
employ the physicians.
The medical groups, rather than the health plan, control the
physicians’ workflow. As a result, physicians designed, as well
as put in place, a robust clinical health information technology (HIT)
system. Although this distinction might seem a small one, it carries
larger strategic and operational implications.
Both parts of Kaiser Permanente agree on the benefits of advanced HIT
systems, but physicians are responsible for the metrics of physician
workflow, and they are also accountable for quality, service, and
access. As Kleinke points out, a prepaid, integrated medical care
system is more capable of concerted economic action than the fragmented
fee-for service system that prevails in most parts of the country. In
addition, eliminating an incentive for increased coding levels alters
workflow design in potentially beneficial ways. Although such an
approach need not necessarily improve quality or efficiency, it is at
least one way to implement quality and service improvements in an
IT-driven comprehensive health care system.
George K. York and Robert M. Pearl
The Permanente Medical Group Inc.
L e t t e r s
HEALTH A F FA I R S ~ Vo l u m e 2 5 , Nu m b e r 2 5 6 9
physicians (Permanente Medical Group) lose
alot of cases like this one because
of a mindset
to not order tests. This is not told to
the physicians but it
is part of the culture. I worked for them as a contract physician and
first hand about it. This lack of chest s-ray cost
$1,782,570. That would pay for alot of x-rays. A
female aged 24
began having left posterior rib pain for no good reason. This
for six months and she continued to complain of the pain to her
including the ED. The patient was just put on pain meds until an
finally did an x-ray. The patient had a mass which turned out
to be a
Ewing's Sarcoma. The patient is not curable at this
time. Most of
the award was future earnings. Kaiser had the audacity
to say it wasn't
their fault since the patient had her recurrent disease due to a non
EWS/FU transmutation gene, which is usually lethal.
The Permanente Journal/Optimal Renal
Interview with Ramon Hannah, MD & Joe Carlucci, conducted by
Scott Rasgon, MD
ORC was formed as a Limited Liability Corporation in August 1997 as a
joint venture between Fresenius Medical Care North America (FMCNA) and
Southern California Permanente Medical Group (SCPMG). Shortly
thereafter, SCPMG offered half its interest in ORC to PermCo, which
subsequently began offering to the Permanente Medical Groups the
opportunity to invest in ORC.
How does Medicare fund dialysis care for
patients seen in managed care and fee-for-service practices? What
percentage of the Medicare budget is used for ESRD care?
J. Carlucci: Medicare funding
for ESRD is changing. In the past, Medicare funded ESRD care through a
"cost" program in which Medicare and the insurer shared in the Part A
(hospital/facility) and Part B (professional or other practitioner)
component, with Medicare assuming up to 80% of the allowed charges.
This payment mechanism is being phased out under the Balanced Budget
Act of 1997. Patients are now being converted to a "risk" plan, in
which Medicare calculates the average costs for Part A and Part B
payments on a statewide basis (the so-called average annualized per
capita cost, or AAPCC) and gives the managed care plan 95% of that
amount annually for the total cost of the patient's care. The managed
care organization (MCO) is therefore "at risk" for keeping the cost of
care below an average of about $3700 per patient per month (PPPM),
equivalent to $44,500 per year nationally.
Progressively shifting costs to the private sector
has long been a Medicare strategy. The Balanced Budget Act of 1997
provided for extending the Medicare secondary-payer period to 30
months; this means that individual insurers or health plans must pay
the total cost of care for 30 months after the patient begins dialysis.
Actuarial data suggest that the mean annual cost of care for an ESRD
patient is between $60,000 and $80,000 per patient per year, versus the
mean annual Medicare reimbursement amount, $44,500. Although ESRD
patients represent <1% of the Medicare population, their care
accounts for >6% of Medicare costs.
How does ORC generate income?
J. Carlucci: To date, ORC has
signed three contracts on a capitated (ie, case rate) basis and is paid
a fixed sum each month per ESRD patient. In addition, the payer
reimburses ORC on a fee-for-service basis for the pre-ESRD patient
population enrolled in the program.
ORC has also signed contracts with commercial
underwriters to mitigate outlier costs or to purchase stop-loss
ORC generates income in two distinct ways. The
first is by operating an effective, high-quality ESRD care program
which produces cost savings by improving the health of ESRD patients,
thus ensuring that they subsequently require fewer resources. At the
end of the operating year, total cost of care is subtracted from total
income derived from capitated payments; the surplus is divided
(according to a preset formula) by ORC. After costs have fallen below
the Medicare AAPCC (revenue to health plan from Medicare, using a
capitated formula), cost savings are passed on to the health plan.
Income is generated also by providing preESRD
services such as availability of a multidisciplinary team and various
patient education programs, for which ORC charges a
per-patient-per-month (PPPM) fee.
Health plans have a difficult time determining the
actual annual cost of care for an ESRD patient. Within the KP system,
the number seems to be between $55,000 and $65,000 PPPY; other health
plans have reported expenses as high as $70,000 PPPY. Because ORC
contractually guarantees a 5% reduction in costs, the program is
appealing on the basis of quality as well as cost reduction.