Lessons from Nicholas A. Cummings >>>
An early fan of the Kaiser Permanente System Paul de Kruif changes his mind
and the reasons why
Kaiser Foundation Health Plan also
has delegated risk and clinical
management responsibilities to the
Northern California Permanente Medical Group (TPMG)
Physician 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. | Due to the following contents importance it is being presented exactly as published.
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
"It
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 new
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 it
backward, (2) finding a need and filling it, and (3) standing on one's
head to see the matter differently. Undoubtedly my early mentors
indoctrinated me with the believe that failure is not an option."
Page 22 -
"In
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 was
liberal with his time, and during a succession of lunches and dinners
together, Red grew very sympathetic to our cause. He arranged for
us to get together with H. Paul Brandes, a key attorney in the office
of the California Insurance Commissioner. This resulted in the
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 he
expressed unhappiness with the state bureaucracy, I was able to help im
join the large legal staff of the Kaiser Health Plan.
Red and
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. After
the word "physician" would be inserted "which includes psychologists."
They also pointed out this would be relatively easy to do if a
stealth campaign were mounted with lightning rapidity. What we
had failed to do by persuasion, and what was not possible judically, we
could do legislatively.
page 23 - 1968
......When
the insurance chairs assembled the day before the convention, we were
delighted to see that 42 states were represented. I chared the
panel of Red Halverson and Paul Brandes, who walked the group through a
do-it-yourself legislative kit.
Positioning the Company
pp 168-169
There
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.
EXIT STRATEGY
Most
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 strategy,
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.
IN PERPETUITY
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 examples
are the several Permanente Medical Groups that contract with the
nation's original and largest HMO, the Kaiser Health Plan. The
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: http://en.wikipedia.org/wiki/Paul_de_Kruif
Author of Kaiser Wakes The Doctors - Published 1943 Harcourt, Brace and company
158 pages
De Kruif, Paul, 1890-1971
Mr. de Kruif changed his mind about Kaiser and the following explains his decision - as written in Time Magazine.
Last
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.
"But
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."
http://www.time.com/time/magazine/article/0,9171,891142,00.html
http://www.sierrahealth.org/pdf/UpdateMO.pdf
http://businesspractices.kaiserpapers.info/
In yielding control over clinical care decisions, all HMOs but Kaiser have limited
themselves to an oversight role. Whereas Kaiser Foundation Health Plan also
has delegated risk and clinical management responsibilities to the Northern
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 improving
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.
Oakland, California
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
http://content.healthaffairs.org/cgi/reprint/25/2/569-a?maxtoshow=&HITS=10&h
The Kaiser
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 can speak
first hand about it. This lack of chest s-ray cost them
$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 continued
for six months and she continued to complain of the pain to her physicians
including the ED. The patient was just put on pain meds until an internist
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 type 1
EWS/FU transmutation gene, which is usually lethal. http://www.medicalaw.net/august_1,_2002_legal.htm
The Permanente Journal/Optimal Renal Care
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 insurance.
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. http://xnet.kp.org/permanentejournal/sum99pj/orc.html
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