Kaiser Permanente

Each entity of Kaiser Permanente has its own management and governance structure, although all of the structures are interdependent and cooperative to a great extent. There are multiple affiliated nonprofits registered with the U.S. Internal Revenue Service. According to Form 990 governance questions, Kaiser Foundation Hospitals and Kaiser Foundation Health Plan do not have members with the power to appoint or elect board members, meaning that the board itself nominates and appoints new members.[3]

James A. Vohs was appointed CEO in 1978 and chairman in 1980, and he would serve until his retirement in 1992. He was the first chairman to not be a member of the Kaiser family.[4]

David M. Lawrence served as chairman and CEO until his retirement in 2002.[5]

George Halvorson became the chairman and CEO until his retirement in December 2013.[6]

On November 5, 2012, the board of directors announced that Bernard J. Tyson, Kaiser's president and chief operating officer for the last two years, would replace Halvorson,[7] marking the first time an African American was appointed as chairman.[8] Tyson died in November 2019.[9] Greg A. Adams assumed the role of chairman and CEO in December 2019.[10]

As of 2021, Kaiser Permanente had 12.5 million health plan members, 216,776 employees, 23,597 physicians, 63,847 nurses, 39 medical centers, and 724 medical facilities.[11][12][1] As of December 31, 2018, the nonprofit Kaiser Foundation Health Plan and Kaiser Foundation Hospitals entities reported a combined $2.5 billion in net income on $79.7 billion in operating revenues.[13]

The two types of organizations which make up each regional entity are:

• Kaiser Foundation Health Plans (KFHP) work with employers, employees, and individual members to offer prepaid health plans and insurance. The health plans are not-for-profit and provide infrastructure for and invest in Kaiser Foundation Hospitals and provide a tax-exempt shelter for the for-profit medical groups.
• Permanente Medical Groups are physician-owned organizations, which provide and arrange for medical care for Kaiser Foundation Health Plan members in each respective region. The medical groups are for-profit partnerships or professional corporations and receive nearly all of their funding from Kaiser Foundation Health Plans. The first medical group, The Permanente Medical Group (TPMG), formed in 1948 in Northern California. Permanente physicians become stockholders in TPMG after three years at the company.[14]

In addition, Kaiser Foundation Hospitals (despite the plural name, a single legal entity) operates medical centers in California, Oregon,[15] and Hawaii, and outpatient facilities in the remaining Kaiser Permanente regions. The hospital foundation entity is not-for-profit and relies on the Kaiser Foundation Health Plans for funding. It also provides infrastructure and facilities that benefit the for-profit medical groups.

Kaiser Permanente is administered through eight regions, including one parent and six subordinate health plan entities, one hospital entity, and nine separate, affiliated medical groups:

In addition to the regional entities, in 1997, the then-twelve Permanente Medical Groups created The Permanente Federation LLC, a separate entity, which focuses on standardizing patient care and performance under one name and system of policies.[17] Around the same time, The Permanente Company was also chartered as a vehicle to provide investment opportunities for the for-profit Permanente Medical Groups.[18] One of the ventures of the Permanente Company is Kaiser Permanente Ventures, a venture capital firm that invests in emerging medical technologies.[19]

One of Kaiser's six other office buildings in Oakland

The history of Kaiser Permanente dates to 1933 and a tiny hospital in the town of Desert Center, California. At that time, Henry J. Kaiser and several other large construction contractors had formed an insurance consortium called Industrial Indemnity to meet their workers' compensation obligations. Sidney Garfield had just finished his residency at Los Angeles County-USC Medical Center at a time when jobs were scarce; he was able to secure a contract with Industrial Indemnity to care for 5,000 construction workers building the Colorado River Aqueduct in the Mojave Desert. Soon enough, Garfield's new hospital was in a precarious financial state (with mounting debt and the staff of three going unpaid), due in part to Garfield's desire to treat all patients regardless of ability to pay, as well as his insistence on equipping the hospital adequately so that critically injured patients could be stabilized for the long journey to full-service hospitals in Los Angeles.[20]^: 19–26

However, Garfield won over two Industrial Indemnity executives, Harold Hatch and Alonzo B. Ordway. It was Hatch who proposed to Garfield the specific solution that would lead to the creation of Kaiser Permanente: Industrial Indemnity would prepay 17.5% of premiums, or $1.50 per worker per month, to cover work-related injuries, while the workers would each contribute five cents per day to cover non-work-related injuries. Later, Garfield also credited Ordway with coming up with the general idea of prepayment for industrial health care and explained that he did not know much at the time about other similar health plans except for the Ross-Loos Medical Group.[21]

Hatch's solution enabled Garfield to bring his budget back into the positive, and to experiment with providing a broader range of services to the workers besides pure emergency care. By the time work on the aqueduct concluded and the project was wrapped up, Garfield had paid off all of his debts, was supervising ten physicians at three hospitals, and controlled a financial reserve of $150,000.[22]

Garfield returned to Los Angeles for further study at County-USC with the intent of entering private practice. However, in March 1938, Consolidated Industries (a consortium led by the Kaiser Company) initiated work on a contract for the upper half of the Grand Coulee Dam in Washington state, and took over responsibility for the thousands of workers who had worked for a different construction consortium on the first half of the dam. Edgar Kaiser, Henry's son, was in charge of the project. To smooth over relations with the workers (who had been treated poorly by their earlier employer), Hatch and Ordway persuaded Edgar to meet with Garfield, and in turn Edgar persuaded Garfield to tour the Grand Coulee site. Garfield subsequently agreed to reproduce at Grand Coulee Dam what he had done on the Colorado River Aqueduct project. He immediately spent $100,000 on renovating the decrepit Mason City Hospital and hired seven physicians.[23]

Unlike the workers on Garfield's first project, many workers at Grand Coulee Dam had brought dependents with them. The unions soon forced the Kaiser Company to expand its plan to cover dependents, which resulted in a dramatic shift from industrial medicine into family practice and enabled Garfield to formulate some of the basic principles of Kaiser Permanente. It was also during this time that Henry Kaiser personally became acquainted with Garfield and forged a friendship which lasted until Kaiser's death.[24]

Kaiser Field Hospital in Richmond, California. Defunct since 1995

In 1939, the Kaiser Company began work on several huge shipbuilding contracts in Oakland, and by the end of 1941 would control four major shipyards on the West Coast. During 1940, the expansion of the American defense-industrial complex in preparation for entrance into World War II resulted in a massive increase in the number of employees at the Richmond shipyard.[25] In January 1941, Henry Kaiser asked Garfield to set up an insurance plan for the Richmond workers (this was merely contract negotiation with insurance companies), and a year later Kaiser asked Garfield to duplicate at Richmond what he had done at Desert Center and Mason City.[26] Unlike the two other projects, the resulting entity lived on after the construction project that gave birth to it, and it is the direct ancestor of today's Kaiser Permanente.[27]

On March 1, 1942, Sidney R. Garfield & Associates opened its offices in Oakland to provide care to 20,000 workers, followed by the opening of the Permanente Health Plan on June 1.[28] From the beginning, Kaiser Permanente strongly supported preventive medicine and attempted to educate its members about maintaining their own health.[29]

In July, the Permanente Foundation formed to operate Northern California hospitals that would be linked to the outpatient health plans, followed shortly thereafter by the creation of Northern Permanente Foundation for Oregon and Washington and Southern Permanente Foundation for California. The name Permanente came from Permanente Creek, which flowed past Henry Kaiser's Kaiser Permanente Cement Plant on Black Mountain in Cupertino, California. Kaiser's first wife, Bess Fosburgh, liked the name. An abandoned Oakland facility was modernized as the 170-bed Permanente Hospital opened on August 1, 1942 (this facility evolved over the decades into today's flagship Kaiser Oakland Medical Center). Three weeks later, the 71-bed Richmond Field Hospital opened. Six first aid stations were set up in the shipyards to treat industrial accidents and minor illness. Each first aid station had an ambulance ready to rush patients to the surgical field hospital if required. Stabilized patients could be moved to the larger hospital for recuperative care.[30] The Northern Permanente Hospital opened two weeks later to serve workers at the Kaiser shipyard in Vancouver, Washington.[31] Shipyard workers paid seven cents per day for comprehensive health care coverage, and within a year, the shipyard health plan employed sixty physicians with salaries between $450 and $1,000 per month. These physicians established California Physicians Service to offer similar health coverage to the families of shipyard workers.[30] In 1944, Kaiser decided to continue the program after the war and to open it up to the general public.[27]

Meanwhile, during the war years, the American Medical Association (AMA) (which opposed managed care organizations from their very beginning) tried to defuse demand for managed care by promoting the rapid expansion of the Blue Cross and Blue Shield preferred provider organization networks.[32]

Courage to Heal, a novel by KP Historical Society President Paul Bernstein, MD, is based on the story of Garfield's life, his struggles with the AMA, and the origins of Kaiser Permanente.

In 1943, Henry J. Kaiser and Dr. Sidney R. Garfield opened a 50-bed hospital, housing six physicians for the 3000 employees and their families at the new Kaiser Steel Mill in Fontana, California, offering a pre-paid health care plan for $0.60/week for adults, and $0.30/week for children. In 1945, the Kaiser Permanente health plan was opened to the public.

In 1948, Kaiser established the Henry J. Kaiser Family Foundation (also known as Kaiser Family Foundation), a U.S.-based nonprofit, private operating foundation focusing on the major health care issues facing the nation.[33] The Foundation, not associated with Kaiser Permanente or Kaiser Industries, is an independent voice and source of facts and analysis for policymakers, the media, the health care community, and the general public.[33]

The end of World War II brought about a huge plunge in Kaiser Permanente membership; for example, 50,000 workers had left the Northern California yards by July 1945. Membership bottomed out at 17,000 for the entire system but then surged back to 26,000 within six months as Garfield aggressively marketed his plan to the public.[34] Sidney Garfield & Associates had been a sole proprietorship, but in 1948, it was reorganized into a partnership, Permanente Medical Group.[35]

During this period, a substantial amount of growth came from union members; the unions saw Kaiser Permanente care as more affordable and comprehensive than what was available at the time from private physicians under the fee-for-service system. For example, Fortune magazine had reported in 1944 that 90% of the U.S. population could not afford fee-for-service health care. Kaiser Permanente membership soared to 154,000 in 1950, 283,000 in 1952, 470,000 in 1954, 556,000 in 1956, and 618,000 in 1958.[36]

From 1944 onward, both Kaiser Permanente and Garfield fought numerous attacks from the AMA and various state and local medical societies. Henry Kaiser came to the defense of both Garfield and the health plans he had created.[37]

In 1951, the organization acquired its current name when Henry Kaiser unilaterally directed the trustees of the health plans, hospital foundations, and medical groups to add his name before Permanente.[38] However, the physicians in the Permanente Medical Group deeply resented the implication that they were directly controlled by Kaiser, and successfully forced him to back off with respect to their part of the organization. That same year, Kaiser Permanente also began experiments with large-scale multiphasic screening to identify unknown conditions and to facilitate treatment of known ones.[39] Simultaneously, although no one questioned his medical competence, Garfield's deficiencies as an executive were becoming apparent as the organization expanded far beyond his ability to manage it properly.[40]

Henry Kaiser became fascinated with the health care system created for him by Garfield and began to directly manage Kaiser Permanente and Garfield. This resulted in a financial disaster when Kaiser splurged on the new Walnut Creek hospital; his constant intermeddling led to significant friction at every level of the organization. The situation was not helped by Kaiser's marriage to Garfield's head administrative nurse (who had helped care for Kaiser's first wife on her deathbed), convincing Garfield to marry the sister of that nurse, and then having Garfield move in next door to him. Clifford Keene (who would eventually serve as president of Kaiser Permanente) later recalled that this arrangement resulted in a rather dysfunctional and combative family in charge of Kaiser Permanente.[41]

Keene was an experienced Permanente physician whom Garfield had personally hired in 1946. During 1953 he had been trying to get a job at U.S. Steel, but on the morning of December 5, 1953, with internal tensions worsening day by day, Garfield met with Keene at the Mark Hopkins Hotel in San Francisco and asked him to turn around the organization. It took Keene 15 years to realize that Kaiser had forced Garfield to ask Keene to become his replacement. Due to the chaos on the board, Keene at first took control with the vague title of Executive Associate, but it soon became clear to everyone that he was actually in charge and Garfield was to become a lobbyist and "ambassador" for the HMO concept.[42]

However, even with Garfield relieved of day-to-day management duties, the underlying problem of Henry Kaiser's authoritarian management style continued to persist. After several tense confrontations between Kaiser and Permanente Medical Group physicians, the doctors met with Kaiser's top adviser, Eugene Trefethen, at Kaiser's personal estate near Lake Tahoe on July 12, 1955. Trefethen came up with the idea of a contract between the medical groups and the health plans and hospital foundations that would set out roles, responsibilities, and financial distribution.[43] Trefethen, already a successful attorney, went on to a successful career with Kaiser Permanente and in retirement became a famous vintner.

While Keene and Trefethen struggled to fix the damage from Kaiser's micromanagement and Garfield's ineffectual management, Henry Kaiser moved to Oahu in 1956 and insisted on expanding Kaiser Permanente into Hawaii in 1958. He quickly ruined what should have been a simple project, and only a last-minute intervention by Keene and Trefethen in August 1960 prevented the total disintegration of the Hawaii organization.[44] By that year, Kaiser membership had grown to 808,000.[45]

Having overseen Kaiser Permanente's successful transformation from Henry Kaiser's health care experiment into a large-scale self-sustaining enterprise, Keene retired in 1975.[46] By 1976, membership reached three million. In 1977, all six of Kaiser Permanente's regions had become federally qualified health maintenance organizations. Historians now believe then President Richard Nixon specifically had Kaiser Permanente in mind when he signed the Health Maintenance Organization Act of 1973 since the organization was mentioned in an Oval Office discussion of the Act, where John Ehrlichman characterized Kaiser's philosophy thus: "All the incentives are toward less medical care, because the less care they give them, the more money they make."[47] In 1980, Kaiser acquired a nonprofit group practice to create its Mid-Atlantic region, encompassing the District of Columbia, Maryland, and Virginia. In 1985, Kaiser Permanente expanded to Georgia.[48]

By 1990, Kaiser Permanente provided coverage for about a third of the population of the cities of San Francisco and Oakland; total Northern California membership was over 2.4 million.[49]

Elsewhere, Kaiser Permanente did not do as well, and its geographic footprint changed significantly in the 1990s. The organization spun off or closed outposts in Texas, North Carolina, and the Northeast. In 1998, Kaiser Permanente sold its Texas operations, where reported problems had become so severe that the organization directed its lawyers to attempt to block the release of a Texas Department of Insurance report. This prompted the state attorney general to threaten to revoke the organization's license.[50] Kaiser Permanente closed health plans in Charlotte and Raleigh-Durham[51] in North Carolina four years later. The organization also sold its unprofitable Northeast division in 2000. The Ohio division was sold to Catholic Health Partners in 2013.[52]

In 1995, Kaiser Permanente celebrated its fiftieth anniversary as a public health plan. Two years later, national membership reached nine million. In 1997, the organization established an agreement with the AFL-CIO to explore a new approach to the relationship between management and labor, known as the Labor Management Partnership. Going into the new millennium, competition in the managed care market increased dramatically, raising new concerns. The Southern California Permanente Medical Group saw declining rates of new members as other managed care groups flourished.

In 2002, Kaiser Permanente abandoned its attempt to build its own clinical information system with IBM, writing off some $452 million in software assets. This information technology failure led to major changes in the organization's approach to digital records. Under George Halvorson's direction, Kaiser looked closely at two medical software vendors, Cerner and Epic Systems, ultimately selecting Epic as the primary vendor for a new system, branded KP HealthConnect. Although Kaiser's approach shifted to "buy, not build," the project was unprecedented for a civilian system in size and scope. Deployed across all eight regions over six years and at a cost of more than $6 billion,[53] by 2010, it was the largest civilian electronic medical record system, serving more than 8.6 million Kaiser Permanente members, implemented at a cost exceeding a half million dollars per physician.[54] As of 2020 KP HealthConnect supports 12.2 million members.

Early in the 21st century, the NHS and UK Department of Health became impressed with some aspects of the Kaiser operation and initiated a series of studies involving several health care organizations in England.[55][56] Visits occurred and suggestions of adopting some KP policies are currently active. The management of hospital bed-occupancy by KP, by means of integrated management in and out of hospital and monitoring progress against care pathways has given rise to trials of similar techniques in eight areas of the UK.

In 2002, a controversial study by California-based academics published in the British Medical Journal compared Kaiser to the British National Health Service, finding Kaiser to be superior in several respects.[55] Subsequently, a group of health policy academics who were experts on the NHS published a competing analysis claiming that Kaiser's costs were actually substantially higher than the NHS and for a younger and healthier population.[57]

In 2006 Kaiser settled five cases for alleged patient dumping—the delivery of homeless hospitalized patients to other agencies or organizations in order to avoid expensive medical care—between 2002 and 2005. Los Angeles city officials had filed civil and criminal legal action against Kaiser Permanente for patient dumping, which was the first action of its kind that the city had taken.[64] The city's decision to charge Kaiser Permanente reportedly was influenced by security camera footage, allegedly showing a 63-year-old patient, dressed in hospital gown and slippers, wandering toward a mission on Skid Row (this footage was prominently featured in the Michael Moore 2007 documentary Sicko). At the time that the complaint was filed, city officials said that 10 other hospitals were under investigation for similar issues.[64] Kaiser settled the case, paying $5,000 in civil penalties and agreeing to spend $500,000 on services for the homeless.[65] During that same period, the Department of Health and Human Services' Office of the Inspector General settled 102 cases against U.S. hospitals that resulted in a monetary payment to the agency.[66][67]

In 2004, Northern California Kaiser Permanente initiated an in-house program for kidney transplantation. Prior to opening the transplant center, Northern California Kaiser patients would generally receive transplants at medical centers associated with the University of California (UC San Francisco and UC Davis). Upon opening the transplant center, Kaiser required that members who are transplant candidates in Northern California obtain services exclusively through its internal KP-owned transplant center.

While it was in operation, the Kaiser program had a 100% survival rate, which is better than other transplant centers. However, patients who needed a kidney were less likely to be offered one.[68] Northern California Kaiser performed 56 transplants in 2005, and twice that many patients died while waiting for a kidney. At other California transplant centers, more than twice as many people received kidneys than died during the same period. Unlike other centers, the Kaiser program did not perform riskier transplants or use donated organs from elderly or other higher-risk people, which have worse outcomes. Northern California Kaiser closed the kidney transplant program in May 2006. As before, Northern California Kaiser now pays for pre-transplant care and transplants at other hospitals. This change affected approximately 2,000 patients.[69][70]

In order to contain costs, Kaiser requires an agreement by planholders to submit patient malpractice claims to arbitration rather than litigating through the court system. This has triggered some opposition.[79]

Wilfredo Engalla is a notable case. In 1991, Engalla died of lung cancer nearly five months after submitting a written demand for arbitration. The California Supreme Court found[80] that Kaiser had a financial incentive to wait until after Engalla died; his spouse could recover $500,000 from Kaiser if the case was arbitrated while he was alive, but only $250,000 after he died. The Foundation for Taxpayer and Consumer Rights contends that Kaiser continues to oppose HMO arbitration reform.[81]

Watchdogs have accused Kaiser of abusing the power imbalance inherent in the arbitration system. Kaiser engages in many cases whereas a customer will usually engage in just one and Kaiser can reject any arbitrator unilaterally, thus they can select company-friendly arbitrators over those that rule in favor of customers. As a large organization, Kaiser can also afford to spend much more on lawyers and orators than the customer, giving them more advantages. In response to criticisms, Kaiser established an Office of Independent Administrators (OIA) in 1999 to oversee the arbitration process. The degree to which this office is actually independent has been questioned.[82]

Patients and consumer interest groups sporadically attempt to bring lawsuits against Kaiser Permanente. Recent lawsuits include Gary Rushford's 1999 attempt to use proof of a physician lie to overturn an arbitration decision.[83]

In one case, Kaiser attempted to significantly expand the scope of its arbitration agreements by arguing it should be able to force nonsignatories to its member contracts into arbitration, merely because those third parties had allegedly caused an injury to a Kaiser member which Kaiser had then allegedly exacerbated through its medical malpractice. The California Court of Appeal for the First District did not accept that argument: "Absent a written agreement—or a preexisting relationship or authority to contract for another that might substitute for an arbitration agreement—courts sitting in equity may not compel third party nonsignatories to arbitrate their disputes."[84]

While Doctors of Medicine (M.D.) and Doctors of Osteopathic Medicine (D.O.) are partners within the for-profit physician groups, many employees are members of various unions and guilds, depending on their role and service area.

KP's California operations were the target of four labor strikes in 2011 and 2012 — two (September 2011, January 2012) involved more than 20,000 nurses, mental health providers, and other professionals.[85] The National Union of Healthcare Workers (NUHW) has accused Kaiser of deliberately stalling negotiations while profiting $2.1 billion in 2011 and paying its CEO George Halvorson $9 million annually. The workers were dissatisfied with proposed changes to pensions and other benefits.[86]

On November 11, 2014, up to 18,000 nurses went on strike at KP hospitals in Northern California over Ebola safeguards and patient-care standards during union contract talks. 21 hospitals and 35 clinics in the San Francisco Bay Area were affected.[87]

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights has said that Kaiser's retained profits are evidence that Kaiser policies are overpriced and that health insurance regulation is needed.[88]

State insurance regulations require that insurers maintain certain minimum amounts of cash reserves to ensure that they are able to meet their obligations; the amount varies by insurer, based on its risk factors, such as its investments, how many people it insures, and other factors; a few states also have caps on how large the reserves can be.[89]

Kaiser has been criticized by activists and state regulators for the size of its cash reserves. As of 2015, it had $21.7 billion in cash reserves, which was about 1,600% the amount required by California state regulations.[90] Its reserves had been a target of advertising by Consumer Watchdog supporting Proposition 45 in California's 2014 elections.[90] At the end of 2010 Kaiser held $666 million in reserves, which was about 1,300% of the minimum required under Colorado state law.[89] Those funds were in Kaiser's risk-based capital account, held to pay for disasters or major projects.[89] In 2008, the Colorado regulator required Kaiser to spend down its reserves; after negotiations Kaiser agreed to spend $155 million of its reserves giving credits to its clients and building clinics in underserved parts of the state.[89]

Kaiser has been fined nearly $500,000, more than any other health care employer in California, by the California Division of Occupational Safety and Health for its violations regarding patient and staff safety following outbreaks of COVID-19 in its hospitals across the state, particularly in the Bay Area.[91] Kaiser is responsible for more than 10% of all COVID violations in California.[92] A COVID-19 outbreak sickened 92 people at Kaiser San Jose Medical Center on Christmas Day 2020.[93][94] Kaiser San Leandro received the largest portion of fines, nearly $90k, for delays in reporting COVID infections and for failure to ration medical equipment according to pandemic regulations.[95]