Kaiser winning back doctors amid increasing enrollment

The HMO's group-model system has aided its financial recovery and its ability to attract physicians.

By Leigh Page, amednews staff. May 14, 2001.

Kaiser Foundation Health Plan's dramatic turnaround in the past few years is bringing renewed attention to the HMO's group-model system, which plan physicians say is virtually hassle-free.

The HMO's parent, nonprofit Kaiser Permanente, based in Oakland, Calif., reported net income of $584 million for 2000, after losing $500 million in 1997 and 1998. Overall revenues were $17.7 billion in 2000 and $16.8 billion in 1999 -- on a 1999 net loss of $6 million, according to Kaiser spokeswoman Laura Marshall.

Allan Baumgarten, a Minneapolis-based managed care finance and policy analyst, said the group model played a key role in turning around Kaiser, the nation's third-largest managed care company, with 8.1 million enrollees.

While many employers still want wider access to physicians and hospitals than the group model can provide, "this is a good time" for the model, Baumgarten said.

Because most of its hospitals and physicians are in-house, Kaiser has more control over utilization and costs than other health plans that contract with independent physician groups, Baumgarten said.

What's more, he said, "other health plans were once able to transfer risk to hospitals and physician groups, but they can't do that anymore."

Kaiser exited four markets nationwide in recent years, but it remains in nine states. Besides California, where it has 6.1 million enrollees, it has operations in Colorado, Hawaii and the metropolitan areas of Portland, Ore.; Washington, D.C.; Atlanta; and Cleveland. Building and expanding facilities in existing markets, Kaiser hired 68 doctors in 2000 alone, and each opening has four to five applicants, the company said.

While nationwide HMO enrollment is shrinking, Kaiser reports enrollment growth of about 5% a year in its remaining markets.

Sharon Levine, MD, associate executive director of The Permanente Medical Group, representing Kaiser's Northern California physicians, said her medical group keeps salaries at about the same rates that self-employed doctors make, but Kaiser salaries include health insurance and other benefits that self-employed doctors have to pay out of their incomes.

She said the net surplus pays for physicians' incentive payments of 0.5% to 4% of income, but the rest of the money is plowed back into capital improvements.

Patrick Martin, MD, who joined Kaiser's 550-member Colorado Permanente Medical Group a year ago, said the Kaiser system is attractive because it's "a team effort" and there are no managed care rules like prior authorizations.

Because physicians like it and other large groups have not been hiring, "Kaiser is getting the pick of the best physicians," Baumgarten said.

Kaiser's rebirth

Baumgarten said Kaiser's group model remains a rarity, and other group models are not as successful, perhaps because group models have to be large before they can provide the wide access to physicians and hospitals that employers seek.

InterStudy Publications, in St. Paul, Minn., reports that only 13 of the 568 HMOs operating in 2000 were group models, while 194 more were partly group model.

But Baumgarten said Kaiser had shown that because the HMO, physicians and hospitals collaborate, the group model can keep administrative costs low. Kaiser's California operations, for example, spent 96.1% of its premium on medical care, while Blue Cross of California reinvested 77.5%; Blue Shield of California, 82.6%; and PacifiCare, 84.3%, said the California Dept. of Managed Health Care.

There are other reasons for Kaiser's turnaround, said Jay Crosson, MD, executive director of the Permanente Federation, which represents Kaiser's medical groups.

In the late 1990s, he said, Kaiser allowed enrollment to rise beyond capacity, forcing it to make disadvantageous contracts with outside hospitals and doctors to cover the excess.

Nationally, Dr. Crosson said, Kaiser also learned that its system works best in large urban areas -- and sometimes it doesn't work even there. For example, "the Dallas area was quite hostile to the idea of Kaiser Permanente," he said.

Kaiser culture

Dr. Martin said he was thankful to switch to Kaiser after barely surviving Colorado's troubled managed care market.

As a solo physician, he said, he spent two hours a day dealing with managed care problems at various contracted HMOs. And in 1999, when several troubled HMOs withheld payments, he did not make any money and had to live off his savings.

At Kaiser, the formulary is much more expansive than at other HMOs, and "there's nobody telling the doctor that he cannot hospitalize a patient," Dr. Martin said. With no managed care paperwork, he said he spends more time with each patient.

But Dr. Martin conceded that Kaiser is not for everybody.

Doctors "who aren't able to work in a team setting have difficulty adjusting," he said, adding that Kaiser is "a culture that does not tolerate inappropriate stuff."

Dr. Martin said he receives regular utilization profiles and that doctors discuss utilization in groups and one-on-one with Kaiser experts.

Meetings are an important part of the Kaiser culture he said. Every three months, all of the plan's Colorado doctors meet most of the day, with break-out sessions.