THE IDEALISTIC HMO: CAN GOOD CARE SURVIVE THE MARKET?

By Marc Shaffer

Most managed care companies, like Humana, sell insurance. They don't actually provide health care. That's a far cry from the original non-profit HMO's like Kaiser Permanente. Launched more than 50 years ago by industralist Henry Kaiser to offer inexpensive, prepaid health care for his workers, Kaiser still takes a pioneering approach to health care, combining doctors, hospitals and insurance in one plan. It was born as a radical experiment -- a group practice with the social mission of lifetime care, doctors on salary making the big decisions. Over more than fifty years, Kaiser has grown in size and influence. Once a pariah, today Kaiser has more than 8 million members in 11 states and the District of Columbia.

Our broadcast focuses on the original home to Kaiser Permanente, the Northern California region, principally the San Francisco Medical Center. That is where on World Aids Day 1995, AIDS activists converged to protest Kaiser's conservative approach to treating HIV and AIDS. Rather than shrink from the pressure, Kaiser Permanente took the bold step of bringing its harshest critics inside the organization, making them leaders of its unique HIV advisory board.

Despite the fact that people with HIV and AIDS are among the most costly patients - averaging close to $20,000 a year in drug costs alone - Kaiser launched a public ad campaign touting its beefed up HIV program. "Most health plans would never do an advertisement saying, 'We take good care of HIV,' because they would then get HIV patients who are expensive and they'd lose money on them," says health care analyst Dr. Thomas Bodenheimer, a San Francisco physician who works outside Kaiser.

On another front, Kaiser's long-term mentality may save 68-year-old Vivian Hannawalt's life. In 1999 the retired attorney, a 15-year member of Kaiser, was given a colon cancer screening exam that, since 1994, Kaiser has been providing to low-risk patients over 50, once every ten years. Hannawalt had no symptoms, nor any known risk factors. The exam revealed that Hannawalt had cancer and that the disease had spread. While her odds have greatly worsened due to the spread of the cancer, had she waited for symptoms before being tested, as many Americans do, her chances of survival would be dramatically worse.

Kaiser's pioneering screening program is unique in its form and impact. Kaiser chose to use an expensive video exam called a sigmoidoscopy, despite up-front costs of $7 million dollars and $5 million more each year to do exams. It's an investment that won't pay off financially in cover treatment costs for cancer patients for 15 years.

Kaiser's commitment to the long-term, its social orientation, and its integrated structure give the HMO a big advantage in helping members manage chronic illnesses - people like 12-year-old diabetic Dillon Moore. Moore's family joined Kaiser in 1998 after moving to the San Francisco area from Cleveland, Ohio.

At Kaiser Dillon sees a regular team of providers every three months for as long as an hour or two. It's a welcome change from the care he received at the prestigious Cleveland Clinic, where care was more hurried and impersonal. "In Cleveland we'd see a different resident every time we went in," says Dillon's mother, Debbie Lyttle. "There wasn't the continuity of care that there is here."

Forty-one-year-old Kaiser diabetic, Roberta Kuhlman shares Lyttle's enthusiasm. A life-long Kaiser member, Kuhlman worked for seven years with a special team of Kaiser care providers to become pregnant. During her struggle, Roberta had excellent insurance coverage through her employer. But after giving birth three years ago, Kuhlman chose to leave her job to take care of her new daughter full-time, and lost those generous benefits.

Now as a self-insured individual, Kuhlman must pay for all her drugs and pharmacy benefits out of pocket — $5,000 a year. Nonetheless, Kuhlman has chosen to remain in Kaiser: "Kaiser is worth that much," says Kuhlman, "given the chronic disease that I have and given that I'm trying to get pregnant one more time."

But her choice had its downside. When Kuhlman's doctor recommended that she try an insulin pump to manage her diabetes, a device that was fully covered for Dillon Moore, Kuhlman learned that as a self-insured individual the pump wasn't covered and the $5,000 price tag put it out of reach.

Kuhlman's dilemma is what Kaiser CEO David Lawrence calls the "fundamental problem right now in American health insurance coverage." With the cost of health care ever rising and employers and the government fighting to pay less and less of those expenses, Dr. Lawrence admits "it's harder and harder to carry out our social mission."

To compete in the new bottom-line health care marketplace, beginning in the early 1990s Lawrence turned to high-priced business consultants to reshape the HMO into a tough market player. Among the many changes, Kaiser cut rates in order to grow explosively and it has sometimes abandoned its time-tested formula of integrated one-stop health care services, instead contracting with outside physicians and hospitals to care for its members.

In 1995, at the height of these market-driven changes, Kaiser opened a brand-new medical center across the bay from San Francisco in Richmond, California, a largely poor, black community that is home to Kaiser's first medical clinic. Kaiser chose to run only a stand-by emergency room and to transfer more seriously ill patients to other area hospitals. After four Kaiser members died during such transfers the government threatened to cancel Kaiser's Medicare contract and Kaiser considered closing the Richmond E.R. altogether. After the community erupted in protest, Kaiser relented, choosing to open a full service emergency department, with an intensive care unit and operating rooms.

As for Kaiser's 1990s business strategy, it was a bust. The HMO lost more than half a billion dollars in 1997 and 1998 and pulled out of long-established markets. Now, Kaiser has dropped efforts to be the low-cost HMO and is counting instead on beating other health plans by emphasizing quality care. But being the best is no guarantee of business success in today's cost-obsessed marketplace. Despite the fact that Kaiser significantly outscored rival Blue Cross of California on quality ratings in a recent review by the Pacific Business Group on Health, PBGH awarded its latest blue ribbon as top HMO to Blue Cross. Its officials cited lowcost as a major factor in that award.

As Kaiser's price keeps rising, its strengths as an integrated, coordinated, community-oriented HMO with a demonstrated long-term commitment to its members may prove of little consequence to many purchasers of health care. Health ethicist and Kaiser consultant John Golensky warns: "Kaiser is in dire danger, but much more importantly, the American people are in dire danger around health care... Kaiser is the last chance for a comprehensive non?profit health system in the country. I don't know if it will succeed."