Kaiser Is Facing Threat of a Shutdown in Texas


Kaiser Permanente, the health-care giant often held out as a national model of quality, low-cost medicine, is facing increasing criticism that its efforts to cut costs are harming patients.

In the latest and potentially most damaging case, authorities in Texas are warning that they may shut down Kaiser's operations because of problems with the quality of patient care and the company's poor financial health.

Earlier this week, Texas Atty. Gen. Dan Morales said the state had "sufficient grounds" to yank Kaiser's HMO license. But what those grounds are could not be determined in part because Kaiser has won a court order blocking release of a state report highly critical of Kaiser.

Such a shutdown would be a major embarrassment for the Oakland-based nonprofit health-care plan, whose success is closely tied to its reputation for quality health care.

Kaiser executives blasted Morales' statements, made at a Texas Senate hearing Tuesday, as "absurd" and "ridiculous."

Spokesman David O'Grady also said Kaiser moved to block release of the report by state insurance regulators because it was "a product of a flawed and faulty review process; it was loaded with inaccuracies and erroneous conclusions."

Kaiser, the largest HMO both in California and the nation, is also facing troubles in its own backyard.

In the Bay Area, federal and state health authorities last month launched a review of complaints surrounding several deaths of patients treated at Kaiser facilities. Investigators from the California Department of Health Services are reviewing allegations of long delays in patient transfers from a Kaiser hospital in Richmond and inadequate staffing levels at two area hospitals.

The complaints stem from Kaiser's plan to close hospitals and streamline its operations in the Bay Area to reduce costs. Throughout California, Kaiser has been struggling to remain competitive amid furious competition from numerous for-profit rivals, such as the Health Net and PacifiCare HMOs.

Kaiser's efforts to lower costs have been denounced by the California Nurses Assn., a labor union that has repeatedly complained that Kaiser's efforts are eroding the quality of patient care. The nurses' group is trying to negotiate a new contract with Kaiser and has been threatening to strike its Northern California facilities.

A Kaiser spokesman in Oakland did not return calls seeking comment. The company has said it is cooperating with the investigation.

Meantime, in Texas, Kaiser is facing angry state regulators and an HMO operation that has posted losses totaling $52 million in the last two years, according to state insurance regulators. Kaiser has 129,000 members in the state, a relatively small presence, mainly in the Dallas-Ft. Worth area.

At a state court hearing Tuesday in Austin, Department of Insurance lawyer Mary Keller testified that the state's investigation was prompted by "alarm buttons" beginning in January 1996.

Those included Kaiser's dismal financial situation and about 20 wrongful-death lawsuits filed against Kaiser and its doctors. An agency official said the suits are still pending and have been filed over the last several years.

Days before the state was going to make the investigative report public, Kaiser won a court order blocking its release. Kaiser wants the report permanently sealed and its still-unspecified sanctions thrown out.

Kaiser claims state regulators broke the law when a draft copy of the report was released by Keller's office to journalists with ABC's "PrimeTime Live" program several days before Kaiser got its copy.

Kaiser lawyers have subpoenaed insurance regulators seeking phone records, written correspondence and other documents related to their contacts with journalists and Texas legislators.

Keller declined comment Wednesday, saying she and other insurance regulators are under a court-ordered gag order sought by Kaiser.

But Keller said at the hearing that Kaiser "had violated its promise both to the department and to the enrollees to have a certain level of oversight over its doctors, hospitals and medical care."

Court papers indicate that regulators have also alleged that Kaiser discouraged emergency care and denied payment for services in some cases. The report, according to court papers, found that Kaiser violated state law in 13 cases related to "quality assurance issues" and that the HMO had inadequate medical oversight, or "peer review."

States typically require HMOs to have a formal peer review process for investigating patient complaints to determine if institutional or human errors were at fault. Such a process is seen as crucial to a health-care company's ability to, for example, identify problem doctors.

Kaiser's "chief concern is that, if the report becomes a public document, it contains patient confidentiality information," O'Grady said.

"That's bogus," replied Ward Tisdale, a spokesman for the state attorney general.

Of the wrongful-death suits, O'Grady said Kaiser is different from other HMOs because it assumes legal liability for its contracted doctors. Thus, comparing one health plan's malpractice suits with another's is an "apples-to-oranges" comparison.

O'Grady also insisted the wrongful-death cases "have no relationship to quality of care."

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