Ailing Health Care System May Get Kaiser-Style Cure : Reform: Clinton advisers look to nation’s largest HMO as a model because of its emphasis on cost containment.

Nurses at Kaiser Permanente use daily phone calls to monitor women at risk of giving birth prematurely. And the nation’s largest health maintenance organization has safely encouraged thousands of women who have had Cesareans to deliver subsequent children vaginally.

Together, these programs have reduced hospital stays, slashed medical bills, speeded recoveries and given strong starts to babies who otherwise might have died.

To Kaiser, this is the essence of “managed care”--a large dose of preventive medicine and an emphasis on cost and effectiveness of treatment.

As the Clinton Administration agonizes over how to provide health care to all Americans without putting the nation too deeply in hock, policy-makers increasingly have Kaiser on their minds.

Although oft-maligned for hefty premium increases, bus station-like waiting rooms and assembly-line medicine, Kaiser has grown into the world’s largest non-governmental health care system, with 6.6 million members. It has earned respect for its ability to deliver quality care for a reasonable cost. In its home state of California, where Kaiser dominates, the organization has seen four generations of some families through a gamut of health concerns--from births to broken bones to brain surgery.

Many health care experts predict that whatever proposals emanate from First Lady Hillary Rodham Clinton’s health care task force, the program will favor plans that look a lot like Kaiser.

“Kaiser works, and what you’re looking for is something that works,” said Roger F. Greaves, president and chief executive of Health Net, a competing HMO based in Woodland Hills.

Started half a century ago as a health plan for steel and shipyard workers, Kaiser is a pioneer in the field of prepaid health care. It initiated the idea that management and doctors should work together as partners. Individuals--or, in most cases, their employers--pay a fixed fee for each plan member no matter how much care is provided. Many members also pay a fee, usually $2 or $5, each time they see a doctor or buy a prescription. Except in unusual cases, members see only Kaiser doctors.

By teaming up with these doctors, the HMO is better able to control expenses for a range of services--from inoculations to intravenous feedings at home to the most advanced surgeries--and keep premiums lower than those of traditional health insurance plans.

At a time when fierce competition and rising prices have driven many health networks out of business and induced others to join forces, Kaiser has endured independently.

By dint of a costly, rocky expansion, it operates in 16 states and the District of Columbia, with more than 9,000 physicians and 74,000 other employees. In California, where it has 4.7 million members, it dwarfs its nearest HMO rival, Health Net, with barely one-fifth that number.

“You have Kaiser, and literally you have all the rest,” said Peter Boland, a managed care consultant with Boland Healthcare in Berkeley.

Kaiser’s 1992 financial results indicate enviable strength in a troubled industry. Net income leaped 63% to $796 million. Kaiser’s $11 billion in revenue last year would have placed it 43rd, just ahead of Rockwell International, on the Fortune 500.

As a nonprofit organization, with no shareholders for whom to put dividends aside, Kaiser establishes a desired profit level and sets premiums accordingly, then reinvests earnings to build or improve hospitals and clinics and to buy equipment.

Much of the idea behind prepaid health plans is to keep costs low by eliminating the incentive that private practitioners, or so-called fee-for-service physicians, have to perform unnecessary tests and procedures. Kaiser’s improvement last year resulted in part because it is offering more services at its hospitals, rather than contracting with specialists elsewhere.

To many Americans, the suggestion that the future of health care lies in managed care and HMOs raises frightening specters: restricted choice in doctors, long waits for appointments and, most important, shoddy or inattentive care. HMOs are fine, critics maintain, but only if the patient is healthy.

Take the case of Shirley Smith, a Bay Area police officer and divorced mother of two who in visits to a Kaiser facility over three years complained about a breast lump, only to be told that there was no cause for concern. In April, 1988, after she had begun experiencing leg pain and muscle weakness, she switched to Blue Cross, where a doctor immediately hospitalized her.

By that time, cancer had spread to her lungs and bones. She died two months later at 42.

Her parents filed a wrongful death claim, contending that Kaiser should have diagnosed the cancer. Under a pact that Kaiser requires of members, the claim was heard by an arbitration panel rather than in court. Kaiser mounted a vigorous defense, maintaining that its treatment of Smith had met acceptable standards. The panel found otherwise and awarded Smith’s family $40,000, much of which went for legal fees.

Smith’s father, James Cassidy of Paso Robles, said the Kaiser doctors never asked to take blood samples from his daughter. “In my opinion, they didn’t know how to practice medicine,” he said.

In sharp contrast are Gerald and Lorraine Christensen of San Francisco, who have been members since 1949 and have nothing but praise for Kaiser. Their sole complaint is that they have outlived the practices of a couple of their doctors.

“We’re a Kaiser family,” Gerald Christensen, 72, said as he propped up his foot, encased in a padded bootie. He broke his right ankle in three places in January when he slipped on a wet step in his back yard, and Kaiser surgeons inserted metal plates.

Lorraine, 68, feels right at home at Kaiser’s recently updated hospital in San Francisco, where her fourth daughter was born 38 years ago, when newborns were kept in sliding drawers next to their mothers’ beds, and where she had surgery for a benign growth in her brain. The families of two of their daughters also are members, as are Lorraine’s brother and sister-in-law and her 94-year-old father, who is being cared for at home under his Kaiser plan.

The Christensens scoff at critics’ concerns about impersonal care at HMOs. One physician treated Gerald for high blood pressure for 22 years; Lorraine’s record was 34 years with another doctor. They now see Phillip Madvig, 43, the facility’s physician-in-chief.

“We wanted a young doctor because we didn’t want him to retire,” Lorraine quipped.

Sharon Rooney of Oakland has no complaints about Kaiser’s doctors but says the rest of the organization needs serious retooling.

“Once you get to the doctors, you’re fine,” Rooney said. “But everything up to that point is a bureaucratic nightmare. I don’t know if it’s possible to give good service in an organization that huge.”

Rooney said she has waited 40 minutes on hold before getting through to make an appointment. She once scheduled a routine Pap smear six months in advance, only to receive a notice that her doctor would be off that day and that she would have to wait another six months. She complained to her doctor, who squeezed her in when someone else canceled.

Like all doctors, Kaiser physicians are subject to review by internal peers and outside agencies and trade associations. They also come under informal scrutiny because of the way Kaiser operates. Patient records do not stay under wraps with an individual doctor. They go with the patient, so that Kaiser doctors are constantly reviewing one another’s work, noted Frank Murray, medical director of Kaiser’s Southern California medical group in Pasadena.

Doctors get paid a fixed salary. But each year, the Southern California group, for example, sets aside a portion of income to be distributed to all doctors if the group meets certain goals, such as satisfying plan members’ expectations or making sure that a set proportion of children get immunized against various diseases.

Traditionally, Kaiser has built or bought its hospitals. But the expansion that began in Hawaii in 1958, then spread in the 1970s and 1980s as Kaiser bought struggling HMOs elsewhere, prompted Kaiser to rethink its costly bricks-and-mortar approach.

In most of its 10 regions outside California, Kaiser now tends to build outpatient clinics, which are less expensive, and have its physicians refer patients to community hospitals.

Many Kaiser members have good things to say about their physicians. And that probably says something about the dramatic changes occurring in U.S. medicine. As insurance companies reduce reimbursements and as private practitioners find it more difficult to operate in traditional ways, more of the best qualified doctors are viewing HMOs favorably for their steady income, reduced paperwork, regular hours, malpractice insurance and paid vacations.

Before joining the Permanente Medical Group in San Francisco two years ago, Dr. Kristie A. Bobolis--”Dr. B” to her patients--considered private practice and academia. But the UC Irvine graduate was impressed with the caliber of Kaiser’s physicians and found that the salary, combined with health and retirement benefits, was competitive. Some Kaiser doctors start at higher salaries than their counterparts in private practice, but pay increases are more gradual, she said.

Working for Kaiser was also a plus when she recently had a baby and worked part time, something that would have been far more difficult had she been on her own.

“You don’t have the same headaches as with private practice,” she said one afternoon in her small office at Kaiser’s San Francisco hospital. “With decreasing reimbursements (to private practitioners), salaries aren’t all that terrific. These days, it’s harder and harder to make your overhead.”

Although one goal is to eliminate unneeded tests and procedures, Bobolis said Kaiser does not pressure physicians. “Anything anybody needs, they get,” she said. She noted, however, that Kaiser educates its doctors about how much tests cost and urges them to prescribe less expensive but equally effective medications.

Several pilot programs aimed at cutting costs are under way in Kaiser’s regional operations. In Denver, Kaiser has seen a 45% drop in the rate of prostate surgery as men with enlarged prostate glands have learned more about their symptoms by watching a videodisc and have decided to live with them rather than risk the complications of surgery. In Northern California, after orthopedists agreed to use a certain type of hip prosthesis, they negotiated a volume discount, saving $2 million a year.

Kaiser Permanente has attempted to balance quality of care with cost since its founding by the late Henry J. Kaiser, a steel and shipbuilding magnate whose mother died when he was 16 because of improper medical treatment.

The idea was that of a young Los Angeles surgeon named Sidney R. Garfield, who in 1933 had set up a prepaid health plan for Los Angeles workers building the California Aqueduct.

Five years later, when Kaiser’s company was chosen to help finish Grand Coulee Dam in rural eastern Washington, his son, Edgar F. Kaiser, persuaded Garfield to set up a prepaid health plan for Kaiser construction workers. Later, the plan was opened to dependents at the union’s behest.

In 1942, Garfield began establishing a plan for workers at Kaiser shipyards in the Bay Area and at a Kaiser steel mill in Fontana.

When the wartime shipyards closed, membership plummeted, but Kaiser Permanente expanded to the Los Angeles Harbor area to cover port employees and later spread to metropolitan Los Angeles, where it began accepting members from the community.

The Permanente came from a creek near a Kaiser plant in San Jose that flowed in all seasons. Spanish for lasting or stable , it was also used for one of Kaiser’s cement brands.

Efforts to build Kaiser networks in Texas, Georgia, North Carolina, the Northeast and the Kansas City area have proved harrowing. Until last year, most of them lost money. All told, since 1984 Kaiser Foundation Health Plan has lent nearly $400 million, most raised in the bond markets, to the cash-poor regions. To date, they have repaid just $46 million.

“They were a drain on us financially, (but) they are not now,” Dr. David M. Lawrence, 52, Kaiser’s chairman and chief executive, said in a recent interview at the headquarters in Oakland. “We underestimated the challenges involved in taking our model elsewhere.”

Kaiser has reasons for keeping its expansion alive. With its far-flung empire, the HMO is an easier sell to employers and organizations with nationwide operations. But, perhaps more important, Kaiser wants to show the rest of the nation a thing or two about health care and be poised to benefit from its scope.

“Kaiser is absolutely on the right track in terms of expanding,” said William Hembree, director of Health Research Institute, a think tank in Walnut Creek, east of San Francisco.

Kaiser, whose premiums have recently been at the high end for HMOs in California, got a big dose of free market forces early last year when the influential California Public Employees Retirement System decided that Kaiser rates for its 900,000 enrollees were soaring too high without explanation. The group froze new Kaiser enrollments after the HMO sought premium increases of more than 10%, even though boosts at other HMOs were averaging just over 6%.

The threat shook Kaiser up, and it embarked on a major cost-cutting strategy. In June, it announced that 1993-94 premiums would rise 6% to 7%. Later, after the public employees retirement system decided to require a $5 co-payment from its members for physician office visits, Kaiser took the unusual step of reducing its rates for the system by as much as 3.3%. (Even so, for the year beginning Aug. 1, family premiums for the system’s Kaiser enrollees in Southern California will be $448.42 a month, the highest in the region for an HMO.)

Kaiser’s action placated the retirement system, which lifted its enrollment freeze April 1, four months ahead of schedule.

“They’re trying to become more efficient and respond,” said Tom J. Elkin, assistant executive officer responsible for the group’s health benefits program.

Kaiser CEO Lawrence acknowledges that “those were unsustainably high increases, and we knew it.” They came about because rapid membership growth during the late 1980s forced Kaiser to spend far more than anticipated on medical care and building. Kaiser’s goal now is to hold premium increases to about 6% a year.

Meanwhile, as California and the nation embrace health care reform and an anticipated greater role for HMOs, the question is whether Kaiser can rise to the occasion.

“We’ll be under pressure to accept large numbers of new people,” Lawrence said. “Being able to respond and keep the care at levels we think are appropriate is going to be a real challenge.”