A Response to Steven Brill

Robert PearlAs CEO and Executive Director of The Permanente Medical Group at Kaiser Permanente, I have been following with interest the exchange between Malcolm Gladwell and Steven Brill, prompted by Gladwell’s critique of Brill’s book (America’s Bitter Pill).  Gladwell accurately points out that the solution to the problems of the American health care system that Brill puts forth in the book are very close to the structure of Kaiser Permanente.  We provide world class hospital and ambulatory care to millions of Americans through our dedicated, physician-led Permanente medical groups, and pay for it through the not-for-profit Kaiser Foundation Health Plan.

Brill dismisses Gladwell’s criticism explaining that “Kaiser Permanente is not the same because it doesn’t have a monopoly, or oligopoly power, in any of its communities. It’s not a teaching hospital. It doesn’t have the network of high-quality doctors, or isn’t perceived to, like New York Presbyterian has in New York or the Cleveland Clinic has in Cleveland.”

Brill’s comments are not accurate. In our Northern California region, as an example, we sponsor 13 different residency programs, and train 500 residents a year.  In addition, our teaching hospitals serve as training sites for all the major academic medical centers in the region for both medical students and residents. We have partnerships with several East Coast medical schools to provide medical school clerkship opportunities. And, on any given day, there are more medical students on our campuses than at the sponsoring medical schools.

Our quality and health outcomes have been pace-setting: a 30% lower risk-adjusted mortality rate from cardiovascular disease than the communities in which we operate; nation leading performance in stroke prevention and sepsis treatment, and a 50% reduction in death rate compared to the rest of the nation for patients with HIV/AIDS. And when the Centers for Disease Control chose California hospitals to care for the sickest patients with Ebola, two of the four destination sites were Kaiser Permanente hospitals.

Our Division of Research is the largest clinical and epidemiologic research facility in the U.S. outside of a university or federal institution with over a hundred million dollars a year in research grants.

And contrary to Brill’s assertion, over 1,000 of our physicians have academic appointments in university hospitals.  We are the preferred practice option for many of the best trained physicians in the nation today, and have more than 10 highly qualified physician applicants for every new opening.

With nation leading quality, advanced information technology and our pick of the best physicians, it’s no surprise that over 40% of the insured population in Northern California choose us as their health care provider. It’s true that we do not exercise monopoly power – nor has that ever been our goal – and we think the fact that consumers and patients can choose to join us or select another provider, is a great catalyst of improvement and creative innovation, not a failure.

Rather than challenge Mr. Brill, or continue the debate, I invite him to visit us in Northern California, as experts like Malcolm Gladwell, Clay Christensen, and Atul Gawande have done. He can judge for himself whether this 70 year-long, continuously operating partnership between an integrated delivery system and a not-for-profit health plan isn’t in fact what he envisions as the model for health care in this country.

If he does, he will see that what he proposes is actually alive and well — a proven solution to the health care challenges the country faces.

Robert Pearl, MD is CEO and Executive Director of the Permanente Medical Group.


51 replies »

  1. Personal preferences don’t count. You have a personal preference towards the ACA and perhaps that affects how you perceive things. You also don’t seem to be fond of classical insurance where risk is a major determinant of the premium. Instead you prefer to place one person’s risk onto another’s premium. You don’t like underwriting, but that is what real insurers need to do if one expects them to sell real insurance which classically is based upon risk.

    Your basic point is that underwriting leaves some people uninsured. I would prefer if you would say leaves some people with less care than perhaps they should get because they lack adequate funds. In the past I suggested subsidies for those people, but there too you placed a stumbling block saying subsidies decrease the tax base.

    You don’t seem so concerned about the working folk that lost their insurance because of the ACA and the ACA itself that eats up the revenue the tax base provides. You say we have to give a failed program, the ACA, a chance yet you immediately close down any potential solutions outside of the ACA.

    I think all those preferences and all those stumbling blocks are telling us something. I don’t think you really hate being a naysayer.

  2. My personal preference, as I’ve said before, would be to get rid of the tax deduction in a revenue neutral way, probably as part of a broad based tax reform effort. I hate to be a naysayer but I just don’t see any political support for it either among unions or very many of the remaining 150 million plus people who get their health insurance through an employer. Of course, it doesn’t affect me directly because I have Medicare.

    Subsidies for lower income people would presumably have to come after they spend some defined maximum percentage of their adjusted gross income for health insurance and, to qualify for a subsidy the coverage couldn’t exceed some defined maximum actuarial rating, currently 70% under the ACA.

    Getting rid of age bands and guaranteed issue would return us to the world of medical underwriting which, in turn, means we would need expensive assigned risk pools to cover the comparatively small percentage of the population that can’t pass underwriting. Those never worked very well in the past. Medical underwriting, by the way, includes age as a key risk factor and older people would likely be charged around six times as much as the young even if they are comparatively healthy.

  3. “There are several challenges…”

    The only challenge is to isolate the socialist leftists that believe in coercion and let the public know how costly and unfair the present set up is. Once that is done the spineless one’s will fall into line and do what should have been done years ago.

    It will not be a perfect transfer and one shouldn’t kill themselves or the idea just to make sure that perfection exists.

    I really don’t care about these age bands which are nothing more than transferring one person’s costs to another. Get rid of coercive community rating. It isn’t really insurance which is what we need; real tried and proven insurance.

    I think you are making things more complicated than they need be. Get rid of the tax deduction in a revenue neutral way or provide all individuals with the tax deduction instead of the employer. Alternatively provide a fixed lump or some type of hybrid. Things can be managed over a period of years if needed.

  4. Allan,

    Giving the employee control over the tax preference is a fine idea that I would gladly support. There are several challenges aside from the political aspect though. The biggest one has to do with how to translate the value of the employer contribution to the individual employee level. Employers generally require employees to contribute either the same amount in dollars or as a percentage of the premium depending on whether they need single or family coverage. Some employers will vary the contribution based on income with the lowest paid employees contributing nothing or very little. In the insurance market, by contrast, policies are priced based on age and smoking status under ACA rules with a maximum age rating band of 3 to 1.

    So employers would probably have to figure out a way to reallocate their contribution to individual employees in a way that lines up better with how policies are priced in the market. If the contribution were reallocated based on age but not smoking status and depending on whether single or family coverage was needed, new tax rules would be required that would, in effect, carve out that piece of income into a separate category that would be exempt from both income and payroll taxes. Or, it could be subject to income tax but not payroll taxes with the cost of the policy deducted from it to determine a net carve out amount. If there is anything left over, that could presumably be moved to a health savings account. I find it hard to envision the IRS or Congress going along with this especially since it would make the tax code even more complicated than it already is.

    In addition, suppose healthy employees would like to forego health insurance and just pocket the money or direct it to their HSA. That fouls up the community rated aspect of employer provided health insurance and doesn’t work for health insurers if those healthy people could just wait until they get sick and expect to sign up for insurance on a guaranteed issue basis.

    I like the movement toward private exchanges with the employer providing a defined contribution that employees can use to buy health insurance with choices among multiple carriers each offering multiple options including high deductible plans, HMO’s and PPO’s. I hope it gains traction quickly. The policies could still be priced on a community rated basis as long as the employer contribution is enough to cover all or almost all of the cost of the least expensive plan. Refusing health insurance and pocketing the defined contribution could not be an option under this approach. Employees would have to use it or lose it. An exception would be if the employee were covered under a spouse’s plan.

  5. Barry, there is no secret as to why we don’t have transparency today and you know full well that we could have it relatively quickly by providing the tax break to the employee instead of the employer, ending third party payer. That would also reduce fraud, marginal care, and other costs while providing more patient specific care making sure the patient gets what the patient wants. Today none of that happens because the end user, the insured, has little control. Instead the insured is treated like a child and is told when and how his diapers will be changed.

    This is a disgusting set of affairs.

  6. Following up on what Peter1 said, it’s impossible for patients to shop for care when insurer contract reimbursement rates, which can differ materially among providers, are hidden from patients by confidentiality agreements prohibiting disclosure? Beyond that, how is the patient to tell whether the tests the doctor ordered are really necessary or just defensive medicine? Also as I’ve said many times, care that must be delivered under emergency conditions is, by definition, not shopable. There needs to be special rules governing how much can be charged under those circumstances.

    For price transparency to become a reality would probably require legislation. Insurers and hospitals will both fight it because the bigger insurers and largest hospital systems both benefit from the status quo and don’t want to make it easier for their smaller competitors compete. Even with price transparency, though, it will be quite a challenge to define and measure care quality.

    At least with prescription drugs, the patient can call pharmacies in his area to find out what their retail price is which can also vary considerably. I did that several years ago for my own prescriptions and, in one case, found a 55 fold variation between the lowest price retailer (Costco) and the highest (Stop & Shop). The drug was Simvastatin which at the time retailed for $9.99 at Costco for a 90 day supply vs. $$550.00 at Stop & Shop! At least the pharmacy benefit managers (PBM’s) organize their drug formulary into tiers with varying patient copays based on a combination of the PBM’s cost and efficacy within the therapeutic class.

  7. Doctor Palmer, care to bargain your price? What parameters would you apply to giving a lower price?

    Do you post your prices? Run weekly specials? Advertise, “lowest prices in town”?

    When you need hospital care who do you bargain with; the hospital, the surgeon, the anesthesiologist, the lab, the x-ray tech, all of them?

  8. You hit the nail, Nguyen,…having other people pay your bills is the root cause of our health care dysfunction. [ I think] I just wonder if vouchers or Medibucks would bring us part way back to a situation wher patients can say to themselves “my marginal cost for this health care intervention is equal to its marginal benefit to me.” This is called shopping. If this would work, then we can have some insurance function along with some shopping function and we can maintain some altruism and subsidies. People who buy health care services have to be aware of prices, at least somewhat. It’s never going to be perfect, but high prices are the bete noir of our failing system. Subsidized vouchers for the poor might be a decent solution but many students of our system believe the public is too stupid to do any shopping for health care. Alas, they may be stupid for thinking this.

  9. I have just read the “what I learned from my $190,000 surgery” on the Time and I think the US will go to bankruptcy court one day if we cannot control the health care costs.

    What I learned when I came to live in Minnesota in 2005 was the cost for prenatal ultrasound which I paid only $10 (colorful image with a CD) at International Women Hospital in Saigon Vietnam compare to $500 for a black and while image at Hennepin Medical Center. The high tech machines are very similar, because these machines are developed by a few companies like GE.

    In Vietnam, the health care providers list their charges in front of their facilities. High demand providers will charge more if patients want to see them.

    If we want to lower the health care costs in the US, I think the payers or patients should take care and negotiate the costs to pay. I means if we let people pay more from their pockets, they will be see the costs and raise their voice. For now, people never have a chance to care about what they actually pay, because insurers pay for the bills.

    I have more to share and I am a PhD student working in medical device research in Minnesota.


    Bill Nguyen

  10. Just as FFS has an incentive for doing something, FFnonS (fee for non service) has an incentive for not doing something. And there is no reason these incentives should be more or less powerful.

    Capitation has an incentive for not doing something. Bundling has an incentive for not wanting to find or intervene in extraneous diseases outside the bundle. And it has an incentive to discover additional bundles. It is mixed.

    The incentives in “value” have got to be a mix of capitation and bundling.

    Kaiser must have an FFnonS because it is a large capitation scheme.

    Commercial insurance has a FFnonS but its client physicians and hospitals have a FFS incentive.

    If every provider were a wonderful ethical god, there is no reason why any of these incentives could be called good or bad. This not being the case, in FFnonS the patient must have, on average, over the long haul, less work done on him, and less attention, less paperwork, less documentation, than the FFS patient.

    The added work done on the FFS patient may be harmful or useful, but the added attention and documentation has got to be useful. As Allan says, the reduced documentation and attention given the FFnonS patient can hide a lot of mischief and hide and prevent a lot of litigation and explanation of morbididy and mortality. Not good.

    Allan wins.

  11. Barry I quote you occasionally below,

    Unfortunately you demonstrate a bit of naiveté and too much desire to move us away from FFS. The principle means of gaining patients is and was to appeal to the healthy, not to the sick. That is why so many Medicare HMO’s gave out free eyeglasses and free hearing aids (poor quality). There were more delays for the sick than the healthy and the healthy obtained an abundance of care since they didn’t need any. Today there may be payments for risk, but those payments can be easily gamed.

    Suddenly you have a new method because there are opinion polls on the net. What do you think they were appealing to before? Opinion polls.

    Ah you say, but now we have electronic health records. Do you think the majority of people want or need these records? Let’s see HEENT: Normal, Lungs: Normal, Heart: Normal. Do you really find that so desirable? Maybe you prefer the medical lingo records: Lungs: clear to percussion and auscultation. Just what part of that health record do you think appeals to the bulk of people that are healthy? Many of the sick might be desirous of such records. But, why give it to them? Maybe they will leave along with their high costs and provide the HMO with a better bottom line.

    Alternatively maybe they are appealing to those with chronic disease. Let us assume there are two HMO’s and one is excellent in treating the expensive disease diabetes. Ever hear of ADVERSE SELECTION? All the diabetics will go to the excellent HMO bankrupting it. The HMO’s want to be known as the best in treating the healthy, not the sick. They want healthy patients that pay premiums and don’t cost very much.

    You got me, though, on shared decision making. In FFS the physician is supposed to provide all the alternatives so the patient can choose the best for him. HMO’s have shared decision making down pat. ‘I’m glad we agree you don’t want that workup/ surgery. Have a lousy hearing aid instead.’

    Bundling: Do you know what that is? Do you realize bundled products are nothing new in healthcare or in any retail store? ‘Buy two get the third free.’ Alternatively in the physicians office your office visit was bundled long before those mental midgets in Washington knew what bundling was. Were you ever charged for a Blood Pressure check when you were having an office visit? That is one part of the office visit that is bundled. There are natural bundles and unnatural bundles where generally the former work and the latter don’t. Indiscriminate management of the type you seem to prefer leads to the latter type of bundling.

    “Finally, you’ve suggested in the past that the worst case under fee for service is providing too much care that is probably still marginally useful … However, sometimes too much care can cause harm …”

    Take note I said *generally*. Most of the times it provides marginally better care or good care. Dealing in exceptions is not a good way to prove one’s case, but it seems that this is the only thing you have brought to the table.

    “I just question how often it happens and how big a risk it is ”

    Have the incentives changed? No.

  12. Allan,

    I can think of several ways the healthcare market and HMO’s could evolve, especially over the 25+ years since the Ware study was done.

    Suppose, for example, back in the 1980’s and 1990’s, the primary strategy of HMO’s was to offer the lowest insurance premium in the market and to incentivize their doctors to skimp on care if necessary to make the numbers work as you suggest. Now, over 25 years later the combination of social media, patient satisfaction surveys, changes in perceived patient expectations and the advent of electronic records could easily change the HMO operating mentality and culture. They could determine, for example, that to succeed in the marketplace of today, they have to use electronic records and the most current guidelines to do the best possible job in the management of chronic disease which accounts for 75% of healthcare costs according to the experts. The availability of electronic records makes it a lot easier to ensure that they bring patients in for checkups at appropriate intervals. Shared decision making in areas like elective surgery could result in fewer surgeries and more patient satisfaction. The availability of social media makes the potential penalties for getting caught skimping on care more severe and more likely than they might have been 25 years ago. In the end, the HMO’s may believe they have no choice but to tell their doctors that they need to do the right thing for patients which means to apply their knowledge and expertise and make sure patients get the care doctors think is appropriate and necessary even if it’s expensive sometimes. Management will compete in the marketplace not on price but on population management, care quality and patient satisfaction.

    I also think the point Joe made about the potential for bundled payments where the approach makes sense to reduce fraud and eliminate unexpected and unpleasant billing surprises is a big deal especially as more insurance plans have high deductibles, narrow networks or both.

    Finally, you’ve suggested in the past that the worst case under fee for service is providing too much care that is probably still marginally useful but may cost more than it’s worth. However, sometimes too much care can cause harm like false positives that lead to unnecessary biopsies and even surgeries.

    I understand your examples of how withholding care can happen without patients or families realizing it. I just question how often it happens and how big a risk it is in today’s world as compared to the world of the 1980’s and 1990’s.

  13. Thank you Joe for limiting your comments to Kaiser. I am sure they are better than some of the early Medicare HMO’s that were sued into providing better care or went out of business. Anecdotal knowledge of the type you provide is insufficient and shouldn’t be used in this type of discussion. I hope you are right about Kaiser’s improvement, but that means all the earlier defenders of Kaiser were wrong so in the future some might be saying the same about your defense today.

    Ware is not ancient history. When we do a study on a specific subject those results are good indefinitely. The Ware study was dealing with incentives so the study is as good today as it was years ago unless the incentives have changed. One of the ways to prove change would be if Kaiser became transparent,

    You talk about new entrants, but the regulations behind the ACA prevents real innovation and protects the good old boys. An easy example to understand is the medical loss ratio. New entrants frequently have higher administrative costs and that favors the big guys. By the way who had influence over the laws? The big guys.

  14. Barry, I believe in choice. I can render an opinion, but I wouldn’t use force to make a person do what I think is best. Thus if the patient had free choice I might suggest a FFS plan, but believe the ultimate decision is his.

    As far as Ware, anything is possible, but the incentives haven’t changed since Ware was published in the 90’s and the study was of high quality. Why would you think things are different today then they were before. If you remember they said things were fine with HMO’s in the 90’s..

    You focus on the fact that the conclusion only included the elderly and chronically ill poor. That goes without saying because the study was limited in length and we don’t expect too many serious illnesses to develop in the young and healthy. Then you say maybe it would be better today. Maybe a cow will turn into a horse or maybe the sun will never rise after tomorrow. Your basis for your position isn’t based on incentives, history, or facts rather it is based upon maybe something else will occur and that is a very poor way to analyze these things. But that is what people do when they want to promote something without data or evidence. These problems wouldn’t exist or wouldn’t exist to the same extent if the government weren’t micromanaging health care.

    When Medicare patients choose Kaiser there is a problem with selection. When Medicare patients want off of Kaiser there is a problem with adverse selection. MA is being paid more. Kaiser is a near monopoly in many areas. These are some of the problems one must also consider. The playing field must be level.

    It wasn’t that long ago that Kaiser lost the pill splitting case and that demonstrated the direction they were taking. From records reviewed I believe some of the policies of Kaiser are off base. Are they the worst organization on the planet? No. They are perceived to be better than they are and that 50:50 split has terrible connotations. Remember to become a Kaiser partner one first has to absorb the culture. That is dangerous as well.

    You like transparency and so do I. Let Kaiser be more transparent and it will improve quality wise though I don’t know what will happen to its bottom line. What happens if a retired physician partner at Kaiser says things not approved by Kaiser? Will he lose a part or all of his pension? That is what it appears.How have they changed the diabetic guidelines from that of the ADA? When does their search for a cause to a problem end? If a cardiogram is normal does that mean a person has no cardiac disease. How about a plain stress test? Let them be transparent

    To date no system has ever produced better results than the marketplace where free competition exists. Open healthcare to the marketplace and even Kaiser will improve or go out of business. But some don’t want a market place. They don’t even want FFS and are willing to force others to be insured in the fashion of their desires. That is totalitarian or socialistic in nature. Coercion vs voluntary is the real argument and we know that dictators use coercion.

  15. First of all, Allan, I am not arguing here for all HMOs over all time. I have only made comments about Kaiser. My anecdotal knowledge of people with serious cases going to Kaiser and getting good results is all based on Kaiser of Northern California (though the family experience with Kaiser includes Southern California and Hawaii as well). And I have noted improvements in quality since the 1990s — which are documented in a series of studies that Pearl mentioned.

    Ware’s data is from 1986 to 1990, which is really ancient history on this question. And many structures called “HMOs” are really quite different from staff HMOs like Kaiser, and especially back then really did structure their incentives toward denial of care.

    And the idea that Kaiser is so huge that it “can kill most new insurers even if those insurers have a better idea” does not match what is actually going on in the market place, where especially in Southern California some new insurers (such as Molina) are specifically going after the low end of the market. Kaiser is worried about market share in most of its major markets, and is right to be, because most of the new entrants to the market are buying on price alone, and Kaiser cannot be the low cost leader in any market.

  16. Allan,

    So, if employees had a defined contribution / voucher from their employer to select a plan among multiple choices from multiple carriers, and they chose Kaiser or some other HMO plan, that would be fine by you? Or, if someone were asking your opinion before they made their choice, would you tell them to avoid HMO’s at all costs as long as there is a decent fee for service plan available at an affordable premium?

    I suspect most people have never heard of the Ware study. I know I hadn’t until you made me aware of it. Since it was done in the 1980’s and Kaiser and others have worked hard to improve their care quality over the years, especially since 2000, maybe the results would be different if a similar study were done today. I don’t know. Even based on Ware, though, the worse outcomes were among the elderly and the poor but most people with employer coverage are neither elderly nor poor. Medicare beneficiaries who choose Kaiser today are making a free choice because they could have chosen standard FFS Medicare or a competing MA plan in the market. Does that then make an HMO fine for them whether they know about Ware or not? As for the poor, many states have already moved to managed care from unmanaged care to save money or are in the process of moving. So maybe for them, the choice is an HMO or nothing.

  17. Not just theory. The data backs up what I am saying. Go to the Ware outcome study that compares FFS and capitated care. “Conclusions.–During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems”

    The numbers of complaints and the rulings tell us even more.

    Unless you have a good unbiased study proving your position the incentives created by capitation lead to one conclusion and that is the conclusion I have written about over and over and over again. Denial of care is a great risk where capitation exists..

    Understand Joe, if we were dealing in a true market place with many sellers and many buyers where the tax exemption was given to all, not just employers, I would have no objection to the HMO capitated system. I am sure there are many good and well trained doctors at Kaiser. People should be free to voluntarily choose what they wish as long as they pay the price. However, they are not free for the tax law has created employer sponsored insurance. Kaiser itself is huge and with the laws set in its favor can kill most new insurers even if those insurers have a better idea.

    Kaiser was said to be a wonderful place in the 1990’s, yet in some of your posts you seem to indicate a vast improvement. Maybe Dr. Pearl said such a thing. I don’t remember, but if that is the case then maybe in another 20 years you will see that it needed even more improvement.

  18. Though I hate to say doctors are influenced by money, they are. They have families, expensive homes and cars, and expensive college bills. There is a point where the doctor can justify his actions and not even recognize what he is doing. After all, the rationalization goes,’ the patient picked the insurance company and knew that medical care had to be restricted.’ The rationalization continues: ‘the patient saved some bucks in exchange for this type of risk’. All the HMO has to do is move the physician just a tad and large amounts of money are saved.

    In the early days of Medicare HMO’s one HMO put in writing (dumb) their handbook of treatment. One sentence said “Delay in treatment means profit”. Another one had a training video where it showed the trainers telling people to approve those patients that were not covered by ERISA while denying care to those that were. One has to understand ERISA law to know why that was said.

    It’s not really denying care because most of the time the work-up doesn’t reveal what one is looking for and becomes a giant waste of money unless of course something deadly is found. But, that won’t be known because the test wasn’t done.

    As far as my not being realistic, that just isn’t true. You have simply closed your eyes and your ears. That is the normal way we accept disturbing news that might make us change what we firmly want to believe. Your claim about Kaiser saving money on unneeded care is true, but a bit of needed care is in the mix as well and you can’t tell what is needed and what is not.

    By the way if Kaiser phased out doing colonoscopies how do Kaiser doctors remove polyps that are likely malignant. Do they use a magic wand? I won’t comment about your interpretation of the studies nor your choice of studies.Our death rate from colon cancer has been significantly reduced because of the ability to do colonoscopy.

    I am glad that in your case you did’t require knee surgery and got better. I would think twice before having knee surgery. But the other side of the coin is that surgery or testing that is needed is never done and that salesmanship of a less expensive way of handling things can be more important than a solid understanding of medicine.

    Understand salesmanship works on both sides of the track FFS and capitation the major differences are:

    Capitation: No paper trail. The potential of denying needed care that leads to the death of a patient or other significant harm

    FFS: A paper trail with many people as witnesses that are involved. The potential of providing too much care where most of the time the care might have marginal benefits.

  19. Good theory, Allan. It is not my observation that it is happening that way (intentionally under diagnosing people to avoid costs). Of course, one would have to be a Kaiser doc to know for sure.

    And yes, there have been lawsuits and complaints. But any large medical system generates lawsuits and complaints. If one wanted to really study the question, one would have to ask 1) how many are there, and have the numbed changed over time, 2) how old are they, and have the numbers or types of complaints changed as Kaiser has refocused on quality in this century, and 3) what types of complaints are common? In other words, is there a pattern of under diagnosis of problems such as aortic stenosis, and does that pattern seem intentional (such as just not doing the right tests, versus doing the tests and burying or misinterpreting the data)?

    So I am not seeing the problem that you point to, but neither of us has the data to prove it one way or the other. And my anecdotal experience of friends with serious life threatening and life-changing diseases suggests that the opposite is true: Good care, extensive testing, comprehensive followup.

  20. No I don’t have data, Barry. My remarks are based on working with a wide variety of clients over the years, including Kaiser and other large insurers and large providers and IDNs, and hearing what their concerns are — and with Kaiser, experience that goes way back beyond the 35 years I have been a Kaiser member. My kids were born at Kaiser, and so was their mother. Her parents we’re members back in the 40s when Kaiser docs were being called Communists.

    It is clear that Kaiser’s clientele over the years was municipal and other government employees, unions, and very large employers. Later it expanded to Medicare, then to small groups and individuals. The market changed in the 90s and changed further in this century which meant that more and more people, through their employer or not, pay at least part of the premium, and have a choice. Kaiser is very focused on this fact.

  21. One need not ‘screw’ too many to save a huge amount of money. One only has to ‘screw’ the expensive one’s where there is no paper trail. Doing it correctly means one’s reputation is not in jeopardy even if the patient’s life is. Take a patient symptom that has more than one diagnosis. Pick something like dehydration for a syncopal episode where the diagnosis is Aortic Stenosis that requires cardiac surgery to prevent sudden death. Aortic Stenosis is my favorite example so it should be well known to you. A diagnosis of dehydration avoids all the work-up and most expensive treatments and is reasonable if the patient was working outside on a ladder. Dehydration is the more frequent diagnosis, but we don’t need good physicians to diagnose the easy diagnosis, we need the good physician to make the hard diagnosis or the diagnosis most likely to be missed. The diagnosis of Aortic Stenosis can be missed where the slight murmur wasn’t heard or intentionally missed. If an older person dies of sudden death at a later date it will be called a heart attack which is the reasonable assumption and frequently used as the default on a death certificate. No suit, no loss of reputation and no significant expenditures by the HMO. The patient is dead and the family believes the best of care was given even after they read the records. The foundation gets its 50% and pays its multimillion dollar salaries to its leaders and the other 50% goes to the physician partners. It is a dangerous game.

    California has MICRA which inhibits law suits. Kaiser has arbitration procedures which leads to many cases that sealed so that Kaiser’s reputation can be maintained and the patient or family compensated. Further there are very good reasons for judges in arbitration cases to favor Kaiser. …And last they have good access to the powers in control some of them their own.

    We know that capitated care produces a lot of suits based upon court records and in fact has led to the HMO model being severely tarnished. One should look up on the net complaints by individuals that say they were treated unfairly by Kaiser and other HMO’s. I hesitate to use this as an argument because anyone can write anything, but listen to the complaints and think of why those complaints exist and how easy it is for the healthcare organization to deny needed care. They show a pattern that is seen in capitated care where the record may reflect only one individual’s thinking and no paper trail. That is why a number of years ago a patient bill of rights was introduced into Congress.

    In the alternative to the capitated system there is a paper trail. If one wishes to do something that person must demonstrate proof. If it is a CABG then many nurses, doctors and other people are involved. There are also pictures to prove overuse. That is what is lacking when the patient dies before the pictures are taken.

  22. Those are very interesting comments, Joe, especially about the heavy infrastructure costs and the need to sustain a positive reputation. Do you have any data on the number of Kaiser insured members who chose Kaiser themselves as opposed to having a union or employer choose it for them and how that mix has changed over the last 10-20 years?

    From a patient’s perspective, I can understand at an intellectual level that expensive care could be denied to try to save money if the health system is being paid on a capitated as opposed to a fee for service basis. However, assuming their insurance premium is competitive for the scope of coverage offered and their doctors, hospitals and other facilities are a reasonable distance from my home, the overriding question comes down to which set of providers do I trust the most to provide the care that I need when I need it and provide it competently and professionally without providing a lot of care that I don’t need? Presumably, Kaiser didn’t achieve a 40% market share in Northern CA by constantly screwing people. From your description, at least in Northern CA and with the exception of mental healthcare, I would trust them.

  23. There is not a direct path between “denying care” and “making more money.” There might well be if Kaiser had captive patients. But Kaiser is in highly competitive markets everywhere. As I mentioned before, because of their unified structure they don’t scale as easily as other organizations. They need a good chunk of market share to even stay in a given market. And because of their structure, they also cannot expect to be the low-cost leader anywhere.

    This means that to make more money, they have to both cut their actual costs of providing care (so that they can hit the 80-85% medical loss ratio while offering premiums that are at least competitive) and maintain or grow market share. And that second part depends strongly on reputation. And the market is becoming much more consumer-driven. It used to be that you had Kaiser because your union or your company chose Kaiser. Now the individual does, much more. It doesn’t take too many “they killed Mom by cutting off her care” stories to begin to cost them serious market share. When they lose market share, unlike another health plan, their infrastructure costs do not go down easily and instantly. Each lost customer spreads the cost of that big infrastructure over fewer customers, so they will have to raise rates, and therefore lose more market share — it’s a scenario of doom for them. They simply must keep up their reputation for quality.

    (Before someone jumps in and says, “But what about mental health?!?” — I’ve said before, that’s a big fail, and because of the very picture I just painted, they need to fix it quick and visibly enough that they can stanch the bleeding to their reputation.)

    (And I too was mystified and put off by Dr. Pearl’s implying that critics in this conversation are somehow puppets of the union. I wold advise him to have somebody on his staff do a little research before he says any such thing.)

  24. If Kaiser were really run entirely by the bean-counters, maybe you would see that sort of thing happen. The reality is considerably more subtle. First, these are doctors making the care decisions. What you are picturing is actively hurting patients by denying them care that the doctors really feel would help. In my experience, it’s very hard to get doctors to do that, especially doctors working together in a group, especially doctors working together in a group to guidelines that they have agreed on. The scenario you are imagining is not realistic and as far as I can tell is not happening. That is really what caused the rebellion in the ’90s — the doctors felt that they were being pushed to skimp on care. They rebelled and changed the organization.

    Where Kaiser saves money is on unneeded care. For instance, most of healthcare does colonoscopies as mass screening, at a cost of $10 billion per year, when much less expensive and intrusive methods are really just as effective according to the medical literature. Kaiser phased out doing the colonoscopies a few years ago.

    I came into Kaiser demanding a new knee when I was 55, because I have an old injury the limits my motion in the right knee, and arthritis was making it worse. They put me through a whole session with someone all set up to show me on digital X-ray what was going on, then showed me how cortisone injection and some physical therapy would cure most of my problem and talked about the limitations of new knees, including that if I got one so young, I might well need a new one at 70 or 75, and there is substantial risk that there would no longer be enough good bone for another one. They never said no, and we can always go back and have another look at it. But I decided that they were right, went the painkillers-and-yoga path, and am a happy camper. Turns out this was a well-thought-through program for people exactly like me: aging Boomer men who still want to be athletes and are looking for the high tech solution, and don’t realize that is probably to the best for them.

    Those are examples of how they save money, mostly by cutting out unnecessary, unhelpful care, and by planning the care more efficiently.

  25. ” But it does sound like there is a personal incentive for the doctors as a group to practice in highly efficient ways. And note that simply denying care at any particular point is often not efficient from the whole-case or while-life point of view.”

    Why? If just occasional expensive cases are denied then a lot of profit is made without the vast population knowing what is happening. Even the individual patient might not be in the know. Who is to find out if something was denied when a denial can mean no paper record?

    Changing a guideline can influence costs. Kaiser I believe has its own guidelines for many diseases. Making those guidelines skimp on care can save vast amounts of money whether good or bad for the patient.

  26. “We provide world class hospital and ambulatory care to millions of Americans through our dedicated, physician-led Permanente medical groups, and pay for it through the not-for-profit Kaiser Foundation Health Plan.”

    I should have also commented on this. Kaiser is often called a non profit organization. As mentioned above the split on profits is 50:50 where 50% goes to physician partners.

    But, noting it is non profit doesn’t mean big profits aren’t being made. For 2012 listed on IRS form 990 we see the President and CEO George Halvorson being paid 9,800,351. There are a bunch of others being paid greater than $1 Million.

    I personally don’t have a problem with high salaries if they are justified, but that non-profit status is an artificial status created by the IRS and doesn’t make the organization into what one might normally call a charity.

    I do have a problem where denial of treatment especially expensive treatments can be incentivized by this 50:50 split between the officers of the company and the treating physicians all incentivized to reduce costs leaving the patient all by himself without any agent.

    Perhaps someone can better explain how the patient is protected.

  27. @Joe: “You need physicians who think differently, in more naturally collaborative ways, and are willing to work with the efficiencies inherent in not getting paid fee-for-service. ”

    In Kaiser’s case what the physician gets is a 50:50 split of the profits.

    One might say that is not exactly a fee for every service, but it is a division of profits that can incentivize denying care that should otherwise be provided.

    Perhaps Dr. Pearl would like to talk about the division of profits and what Kaiser has done to prevent the denial of care?

  28. You nailed it – Spread is the real challenge

    Here in the PNW for example we have the 50 year old Group Health Cooperative (integrated payer provider system that is literally owned by its members) with some of the highest rated quality metrics and patient satisfaction scores in the state.

    They have already implemented both an EHR as well as medical homes and have closed (outsourced) all of their in-patient care over the last few years (although they have their own floors in some hospitals). They were the first to develop a mobile app for Epics EHR and they have opened up urgent care clinics in local pharmacies.

    Last year however they lost 20,000 members and had to lay off 40 providers largely as the result of a new player in the region – Humana which offered a zero deductible plan and their margins are razor thin but their plans don’t cost any less than the Blues do. Seniors who are price sensitive switched.

  29. Actually there are very very few health care organizations that integrate mental health as most people have health insurance but aren’t part of an integrated system like Kaiser offers.

    So the vast majority of people are forced to forage for their own mental health care outside of any coordination with primary care and increasingly psychiatrists and psychologists are opting out of private insurance coverage.

    Can you give us an example of any other organization in the California market that does better or that even offers integrated mental and clinical care?

  30. I agree Bobby. Being a Kaiser patient for more than 10 years, I can’t say enough good things (I was previously a patient in one of the University of California systems).

  31. Yes, it’s a bit weird that Robbie Pearl thinks John Grohol who is a great pioneer in online mental health based in Boston is some kind of California union rep. And indeed while Kaiser has been making strides in mental health, the $4m fine suggests that indeed there was a problem–beyond union posturing.

    So it would be great to hear more from Kaiser on the reality of the mental health issue…

  32. A question about Kaiser mental health services:

    Is part of the current controversy the result of philosophical differences between Kaiser’s medical leadership and its union about the efficacy of alternative types of mental health treatment? For example, does Kaiser emphasize “cognitive” (i.e., short-term) therapeutic approaches, while the union rank and file prefer a more classical Freudian style of treatment?

  33. Kaiser does many things very well, but they have a serious knowledge transfer problem: one part of the organization will figure out a way to solve a clinical or business problem but often there are difficulties transfering the knowledge to other parts of the organization. It is partly a cultural issue: Kaiser takes pride in giving its local physician groups and hospitals a high degree of autonomy, but the flip side of the coin is that one local group may resist making changes that another group made because of the “not invented here” mindset. Don’t get me wrong—over the past 20 years Kaiser has made serious efforts to standardize best practices across its regions, and it has achieved some notable successes, but much more work needs to be done before all of its regions can achieve the success of its West Coast plans. If you check out the very interesting article referenced below (and read between lines), you can get a sense of the problem I am talking about.


  34. Strangely, I believe Dr. Pearl is insinuating I have some sort of connection with the union of mental health workers on strike against Kaiser. I’m a healthcare journalist, so no, I have no connection to said union (and would declare a competing interest if I did). I have never been a member of a union, nor has any member of my family.

    My only point was that this advertorial by Dr. Pearl was all gloss and shine about Kaiser’s achievements, while offering little of the kind of balanced picture that paints the true reality of Kaiser — complicated, messy, still a work-in-progress. I don’t want to dismiss the accomplishments of this organization.

    But I did want to point out they still have a ways to go in certain areas of the care spectrum. There is no “crisis in mental health” across the nation. There are simply some organizations unwilling to pay competitive wages for mental health services for parity now demanded by federal law. Other organizations have no trouble meeting the needs of their covered lives and are doing a stellar job.

    I hope to count Kaiser among those organizations in the future.

  35. “It is unfortunate that this blog is being used by the union.”

    Care to be more specific Mr. Pearl?

  36. A strong, well-supported relationship with a primary care doctor is the most powerful tool in populate health management. The two are not opposed at all.

  37. At present we are in protracted bargaining with the union representing some of our mental health workers. It is unfortunate that this blog is being used by the union. The facts are that Kaiser Permanente’s mental health services have received the highest ratings from the State of California for several years as publically reported on the Office of the Patient Advocate website (http://www.opa.ca.gov/Pages/ReportCard.aspx). That said, we are always looking for ways to improve. Over the past few years we have expanded our mental health access, hired new staff and built additional facilities. Across this nation there is a crisis in mental health, as psychiatrists and other clinicians are working hard on how to care for the growing numbers of individuals with major problems like depression. I have written extensively on the consequences of mental health issues on the lives and health of patients, and Kaiser Permanente is deeply committed to providing superior mental health care and service, equal to the quality of care and service we deliver in all aspects of clinical care. We have outstanding mental health providers, and we remain hopeful that the union will return to the bargaining table and bargain in good faith. Trying to use this blog as an avenue to gain negotiating power is not in the best interests of our patients or our mental health professionals.

  38. Dr. Pearl make many excellent points about Northern California in his rebuttal of Mr. Brill’s dismissal of Kaiser Permanente. I would also like to point out that Kaiser Permanente in the nation’s capital has been recognized as a nation wide leader in quality and service. JD Powers has named KP in the Mid Atlantic as top in customer satisfaction 6 years in a row. KP Mid Atlantic outanks all local competitors in the quality of medical outcomes as ranked by respected national organizations. With over 500,000 members in Maryland, Virginia and the DIstrict of Columbia, KP has a firm footing in the east coast. Unlike California, KP does not own its own hospitals and has still managed to set the standard for quality care. The integrated model can and should be done other places in the country!

  39. Thanks Joe. That’s very helpful.

    It will be interesting to see how the larger hospital systems elsewhere in the country will evolve as insurers move toward value based contracts and away from pure fee for service. Maybe we will see more of these systems get into the insurance business and shift their emphasis to population management while they try to keep as much of the utilization as possible within their own system so they can better control it.

    Population management has conceptual appeal from an efficiency and cost perspective for the economy and the society but I wonder how it will ultimately affect the individual doctor-patient relationship especially for primary care.

  40. > withhold necessary but expensive care

    In my experience and that of a number of close friends, they do their best by you as doctors. I have had friends go through Kaiser with difficult cancers, brain tumors, seriously big stuff, and they are uniformly happy with their medical care. Other aspects of service and quality have varied over tie, but th fear that they will write you off if you are too expensive and/or too old, that has not appeared in my experience.

    >What role does utilization play in determining bonuses?

    Others can speak to this more authoritatively than I can. I have not heard of anything direct, but I may have just not heard of it. What I do know is interesting, though, and it points at overall efficiency, not just gross utilization. As Pearl mentioned, the health plan is not-for-profit. The doctors are not NFP. They are a series of medical groups, of a corporate form that I believe is called a “mutual benefit corporation,” that is, it is for the profit of its members, not of outside investors. As I understand it, every year any margin left over after expenses is split 50/50 between the health plans and services side (the NFP) and the doctors. What they do with that, how much they hand out as bonuses and how much they plow back into their operations or use in other ways, is not known, since they are not a public corporation. But it does sound like there is a personal incentive for the doctors as a group to practice in highly efficient ways. And note that simply denying care at any particular point is often not efficient from the whole-case or while-life point of view.

  41. Joe,

    Thanks very much. Your comments make perfect sense to me.

    While I think getting away from fee for service is necessary if we hope to save money, my main question is how does the organization respond in treating patients with serious conditions and expensive fixes especially if they are older, say, 75+, when it would appear that there is a financial incentive to withhold necessary but expensive care whereas under a fee for service model, there wouldn’t be? Second, what role, if any, does utilization of services play in determining physicians’ bonus compensation at Kaiser?

  42. I have been a Kaiser patient for nearly 40 years. I am mostly a fan.

    A few thoughts:

    Quality: Kaiser went through an internal shake-up in the late 1990s which put an overarching executive committee in place. This gave the doctors more power in the overall group. Since then their medical quality has consistently improved. Those quality numbers Pearl cites are real, and they are all from this century. This is due to concerted efforts on the part of Kaiser clinicians.

    Mental health: Fail. Yes, in this area, Kaiser has not done what it needs to do to provide parity as the law requires.

    Why doesn’t it work elsewhere? Because it is hard to start it all at once. You need a population that is willing to consider it and think it normal. You need physicians who think differently, in more naturally collaborative ways, and are willing to work with the efficiencies inherent in not getting paid fee-for-service. You need facilities where they can all work together — the staff model simply does not work that well when you are leasing space in other organizations’ facilities. And to do all this you need the financial power of a significant market base. Major chicken-and-egg problem.

    It is no accident that all the places that we speak about who have a different funding or staff in model and set the marks for truing different things – Kaiser, Mayo, Cleveland Clinics, Geisinger, Scott & White — are old, with long-time roots in their home ground. It’s just not easy to start that from scratch. But nonetheless, that is what many organizations are trying to do across the country, because the only path out of the current mess for providers is to try to find some way out of the fee-for-service model.

  43. This is an East Coast vs. West Coast fight. Mr. Brill is East Coast, grew up in Queens NY in the 1950s, graduated from Yale, while the vast bulk of Kaiser Permanente exists on the West Coast, so I do not believe that Mr. Brill was fully inoculated in KP culture. I live in Cleveland Ohio and thanks to all the advertising by the Cleveland Clinic, you would think the Cleveland Clinic is the best of all places. It’s not.

    In the San Francisco/Oakland area, 4 out of every 10 lives have Kaiser insurance and medical care provided by The Permanente Medical Group. Many of Kaiser hospital facilities dwarf those along the East Coast and can only continue to thrive if they provided care that people valued. Overall, the Permanente medical providers have made significant improvements in patient safety and treatment in the last 10 years.

    For me, the problem with the Kaiser Permanente model is that it has had no significant success in expanding its model in the last 20+ years to other regions, though you are seeing all large healthcare systems trying to emulate the Permanente value-based healthcare model. I believe this is likely not in response to being the best idea for patients (as KP believes), instead, it is in response to the external market forces from the PPACA.

    I also believe that the reason that KP has been unable to expand into new regions is that most large metropolitan areas are now aligned into 1-3 medical systems, so that expansion into a new region would be extremely cost-prohibitive.

  44. Those were interesting comments about the less than stellar mental health care. Also, if I were a Kaiser member and needed sophisticated and expensive treatment for a serious disease or condition, I would be afraid that their payment model would give them too much incentive to deny necessary care.

    What I really wonder about, though, is that for all Kaiser’s success in Northern CA and, I think, Southern CA, why hasn’t it been able to replicate its model anywhere near as successfully outside of California? Is patient acceptance of HMO’s the issue? Is it the need for huge infrastructure, critical mass and market share? Is it difficulty in finding good doctors who will buy into their culture? There must be a logical explanation that has broader implications for healthcare reform on a national basis. What is it?

  45. Hi Matt, while I appreciate your defense of Kaiser, I’d rather hear it from the “horse’s mouth” so-to-speak about their efforts in mental health in California. The union representing mental health workers actually had to file a lawsuit to get Kaiser to change their practices! How crazy is that?

    No, that’s not the standard across America, let me assure you. Many healthcare systems properly fund and pay for mental health treatment. Kaiser, for some reason, believes people with mental health needs in California are second-class citizens. Actions speak louder than words, and their actions have been consistent and clear there for many years.

    If, in the past year, they are finally ramping up staffing to reduce the 22-week wait times for a neuropsych exam, kudos. But we would need to see years of consistent care before we say, “Oh yeah, they get it.”

    Until then, Kaiser will always be a second- or third-rate system in my eyes. Treating those who have less influence with indifference and lesser-quality care.

  46. John–For sure Kaiser has had bad issues with its mental health staff, and if you go far enough back with its kidney transplant unit. But, unmentioned in your piece about them, they have actually stepped up hiring in those units to try to make things better. And IMHO the current issues with mental health and the past one with kidney transplants are more incompetence than malfeasance. However, they were the first to put in a big EMR system wide and clearly have made massive improvements in much of their system.

    I’m not a member so you don’t have to believe me, but Pat Salber is, and you might want to read her pieces about them

    So whatever you think about Robbie Pearl’s self promotion (and indeed he can at the least be accused of that) there is much excellent stuff happening within Kaiser, and the dismissal of that by Brill is cause for him to get on his high horse).

    Having said all that, I’m kind of with Jonathan Bush’s remarks at Health 2.0 last year. if Kaiser is the standard we are aiming at, it doesn’t say much for the rest of American medicine

  47. Steven Brill is a smart, well-intentioned guy who’s worked hard and learned a lot about US health care and health policy pretty fast. At the same time, he imagines he understands a lot more than he actually does about it.

    Dr. Pearl has gently but firmly stuck a pin in his balloon here. There’s a lot of air in there, so it may take a few more to bring it down to treetop level.

  48. Wow. I’ve never read a more self-serving piece of propaganda for one’s own company.

    Kaiser is, in my opinion, a horrible company that underpays its mental health professionals and mistreats its covered lives by providing less-than-mandated care for them:


    They’ve been fined by the state after an investigation demonstrated they violated state laws in providing the basic mental health care to their customers that they promised to offer.

    Now, they’re apparently circumventing state law by providing timely first appointments for mental health treatment, but not providing followup care until months later.

    Kaiser does not provide “world-class care” to millions of Californians who have mental health concerns. They have a well-documented history of actually keeping their behavioral healthcare system in California a second-tier — and second-class — system.

    If Kaiser wants to be taken seriously, they would lead — not follow — in behavioral healthcare treatment for their covered lives. Because health care is nothing without attention to mental health concern as well.

  49. Robert–Brill is repeating tired stuff from 1988 (Jay Rockerfeller’s Pepper Commission report), updated a little. Yes it’s true that nothing much has got better since then and it is sad, but his stuff (and the recent NY Times pieces) are a repeat from then and the WSJ pieces on hospital prices in early 2003.

    One thing that has changed is the IT enablement of KP (and a ton of process stuff too) that’s resulted in the good health process numbers you cite here. But instead Brill is repeating the assumed wisdom of 1988 too. Which even then wasn’t accurate.

    How he wants to save money by extending New York style teaching hospital medicine to everyone, I have no idea. I guess I have to read his book –Matthew