Kaiser Says It Will Use Independent Hospitals

Moving to end some 50 years of tradition for Kaiser Permanente members in Southern California, the giant health plan said it will begin caring for some Kaiser patients in non-Kaiser hospitals.

Kaiser, which has long touted its tightly controlled network of doctors and hospitals as an alternative to other health plans, said it will likely reduce or eliminate inpatient surgery services at “several” of its 10 medical centers in the region. Those patients instead would be sent to community hospitals that meet Kaiser’s quality standards, company officials said.

Oakland-based Kaiser, with about 2.2 million members in Southern California, has not decided which hospitals will be affected. A final decision won’t be made for four to six months, officials said.

Kaiser members would continue to make office visits to Kaiser doctors at outpatient clinics at the 10 medical centers. Outpatient services will remain open--and may be expanded--at the 10 sites, even if inpatient and emergency room services are shuttered, Kaiser said.

If Kaiser members are sent to outside hospitals, they still would be treated by Kaiser doctors, officials said.

The changes have been anticipated for months as Kaiser has moved aggressively to cut costs in the face of tough competition from such rivals as CaliforniaCare, Health Net and PacifiCare. Kaiser’s Southern California business plan calls for cutting hospitalizations by roughly 25% over the next three years and reducing expenses by roughly $800 million over five years.

Last month, Kaiser’s 2.4-million-member Northern California region announced a similar reorganization that involved sending some Kaiser patients to other Bay Area hospitals.

In California, Kaiser has a long tradition of providing “integrated” medical services in which members get all their medical care from Kaiser doctors at Kaiser-owned hospitals and clinics. Outside this state, Kaiser often operates differently: It owns no hospitals in Texas and several other states, and its members are treated in local community hospitals.

A host of problems are behind the latest moves by Kaiser, the nation’s largest health maintenance organization, with nearly 6.7 million members in 16 states. For one, Kaiser’s greatest strength, its tightly integrated system, has also become a weakness in an intense market.

Unlike Kaiser, most HMOs in California do not directly provide medical services; they contract with individual hospitals and medical groups to form their “provider networks.” That arrangement gives them more flexibility to demand discounts with doctors and hospitals and adjust to geographic shifts in membership.

“Most of the other health insurers in California are able to extract huge discounts from hospitals to take advantage of market overcapacity,” said Jim Lott, senior vice president of the Healthcare Assn. of Southern California.

Kaiser, like other hospitals in California and the nation, is suffering from a severe glut of empty beds, the result of shorter hospital stays, improved medical technology and other cost-containment measures. Hospital use at Kaiser has been falling 8% to 10% a year, and only 50% of Kaiser’s hospital beds are filled on the average day, Kaiser officials said.

Moreover, Kaiser’s membership growth in Southern California has not kept pace with the drop in hospitalization rates, officials said. Also, Kaiser planners overestimated the plan’s membership growth in the 1990s--its member roles actually declined for a few years--and constructed some hospitals that it now doesn’t need. One example is a state-of-the-art hospital in Baldwin Park that was finished but has never admitted a patient.

With far fewer people being hospitalized every year, “we are getting to the point in some services where quality could be jeopardized,” said Ed Carlson, Kaiser’s regional hospital administrator.

The adage that “practice makes perfect” is reflected in a wealth of medical research demonstrating that surgical results are better in hospitals where procedures are performed more frequently.

Kaiser, for example, has pediatric surgery departments at each of its 10 medical centers in Southern California, although the frequency of pediatric surgeries has been dropping nationally. By consolidating its pediatric services at fewer hospitals, Kaiser may be able to improve its treatment results.

“We want our members cared for in facilities that consistently see a high enough number of patients to maintain the skills of personnel and the quality of facility operations,” said Oliver Goldsmith, chairman and medical director of the Southern California Permanente Medical Group.

Kaiser officials contended that most members should notice few changes in services because the bulk of their medical care is delivered in outpatient clinics. If Kaiser contracts out some hospital services to community hospitals, the effect on patients will be mixed, they say.

“If someone lives within 1 mile of a hospital and we contract with one 3 miles away, they’ll have to travel further,” Carlson said. “But other patients will be closer” to the hospital.