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By Bill Brubaker
Health insurer Kaiser Permanente's Washington operation was handed a stinging rebuke last fall when Verizon Communications Inc. -- a long-time Kaiser customer -- told area employees it wasn't getting its money's worth from the HMO.
Verizon limited 2004 enrollment in Kaiser to employees who were already covered by the regional subsidiary of California-based Kaiser. And it pledged to "consider dropping the plan" altogether in 2005.
Kaiser "is not meeting Verizon's expectations in regard to cost versus value," the telecommunications firm wrote employees.
Verizon's conclusion illustrates one of many challenges that Kaiser is facing in Washington's highly competitive insurance market.
While rivals such as CareFirst BlueCross BlueShield have fattened their membership totals in recent years, Kaiser has struggled to sell its unique brand of health insurance, which largely requires members to be treated by Kaiser doctors at Kaiser facilities.
Over the past three years, Kaiser's enrollment has dropped by more than 40,000, to slightly more than 500,000, in the District, Maryland and Northern Virginia. And the health-maintenance organization has lost money for five consecutive years. Kaiser's national operation has 8.2 million members in nine states and the District.
Kaiser has responded to its challenges by bringing in new executives, who have vowed to save money and improve patient services.
In recent months, Kaiser has reduced staffing at its medical centers, for example, and demanded that doctors see more patients and become more cost conscious when writing prescriptions, according to internal documents obtained by The Washington Post.
An internal newsletter sent to Kaiser Permanente doctors in January read: "In this new and critical year . . . appropriate drug use management, when implemented successfully, can lead to significant cost avoidance."
In a push to retain and attract business, Kaiser executives say they also have cut waiting time for doctors' appointments and introduced a health plan called Flexible Choice. The new plan, which Kaiser described in an internal document as "critical to our growth and long term future," requires a higher premium. But it widens the choices for Kaiser members: They have the option of being treated in an HMO, in a less-restrictive PPO (preferred provider organization) with thousands of doctors, or by any doctor of their choice.
Kaiser must "improve member satisfaction and employer group confidence in the services that we provide" and reshape "community perception on the Kaiser Permanente image and competitive strength," said a confidential document distributed to selected Kaiser employees in September.
Kaiser's traditional HMO plan largely requires members to seek treatment from Kaiser's 895 doctors at the 29 Kaiser-operated medical centers across the Washington-Baltimore region. Like other HMOs, Kaiser generally requires members to obtain referrals from their primary care doctors before they can see specialists.
The Kaiser model provides Americans the convenience of one-stop health care. "It's nice to be able to park your car once and go and see the doctor and get your prescription and your X-ray and your blood tests," said Yancey Phillips, Kaiser's regional associate medical director.
But many Americans prefer a greater choice of doctors and the option to visit specialists without first seeking their insurer's permission. Kaiser's competitors, including market leader CareFirst, which has 3.3 million members, offer HMOs as well as the more flexible PPOs.
"The consumer today is looking for more and more choices," said William V. Little, Kaiser's regional vice president of sales and account management. "We have lost members because of a movement nationally from HMOs toward higher-choice options like PPOs."
Little says Flexible Choice puts members "in the driver's seat" with a range of options. At the end of March, the plan had 1,006 members.
Internal documents distributed to Kaiser employees reveal another motivation for rolling out Flexible Choice: to attract new members to Kaiser in the hope that they will eventually choose the HMO's traditional plan, over the other options, to "receive all of their care."
Kaiser executives confirmed this strategy in recent interviews. "We believe that if people try us, they'll like us," said Philip S. Carney Jr., who heads Kaiser's regional medical operations, based in Rockville.
These executives expect that under some circumstances Flexible Choice members will be seen by Kaiser doctors and come to prefer the traditional HMO plan.
In a confidential booklet distributed to its clinical staff last fall, Kaiser used some unflattering statistics to underscore the importance of Flexible Choice to the insurer's future.
The booklet cited an internal 2001 Kaiser poll that asked non-Kaiser members if they would be willing to consider Kaiser as their health plan. Only 11 percent said they would, down from 22 percent in 1995, the booklet reported.
The 2001 poll also asked Kaiser members if they were satisfied with their health plan. Fifty-seven percent said they were, down from 74 percent in 1995.
Asked about these polls, Susan Whyte Simon, Kaiser's director of media relations, quickly noted that a 2002 poll showed more favorable results. She said the 2002 information was not available when the booklet was being prepared in late spring 2003.
In the Washington region, the HMO known as Kaiser Permanente consists of two operations: a not-for-profit insurer called Kaiser Foundation Health Plan of the Mid-Atlantic States Inc., and a for-profit doctors' group called Mid-Atlantic Permanente Medical Group PC.
The insurance side has been headed since 2000 by Marilyn J. Kawamura, a registered nurse and long-time Kaiser executive. The health care side has been run since last summer by two doctors: Carney, a Kaiser veteran and former hospital administrator, and Phillips, a former Walter Reed Army Medical Center director.
Since taking over, Carney and Phillips have cut staff levels and instructed some doctors to take on more patients and work at multiple locations.
"It hasn't been easy," Phillips said of the downsizing plan. "And it has caused some dislocation for people. But my impression from [meetings with employees] is that people understand and actually are grateful we have taken the steps necessary to assure the success of Kaiser Permanente in the market."
Kaiser's Washington operation has lost members in each of the last four years. Kawamura said the losses are due partly to service deficiencies. Just last month, Kaiser incorrectly wrote 450 members that they had failed to pay their monthly premiums. The HMO apologized for what it called administrative billing errors.
"We haven't always, and consistently, delivered on what we would like to deliver in terms of our service," Kawamura said.
On the health care side, Kaiser generally has received high marks in the annual Maryland HMO report card. Kaiser's Washington operation was rated "commendable" -- below "excellent" and above "accredited" -- after an evaluation three years ago by the National Committee for Quality Assurance. NCQA will evaluate the HMO again in May.
Kaiser competitors Aetna Inc. and Mid Atlantic Medical Services are rated excellent. CareFirst is rated commendable.
Financially, the operation is improving. Kawamura, in a March 17 memo to managers and supervisors, praised Kaiser's recent financial performance.
"Our performance in 2003 exceeded our expectations," she wrote.
Kaiser lost $1.5 million las year and had revenue of $1.4 billion. The division reported a profit of $1.2 million on its core operations after removing losses recognized on investments by Kaiser's parent organization.
"Our financial target was a loss of $15 million" in 2003, Kawamura wrote. Kaiser's losses totaled $19.5 million in 2002, $14.6 million in 2001 and $28.4 million in 2000.
Looking ahead, Kawamura said she hopes to "stabilize" membership in the 500,000 range, then begin an upward trend in 2005.
"What I'm seeing as I read members' letters and
complaints are more
happy-member letters," she said. "And that speaks to the repositioning
of the organization. People are really feeling that we provided good
for them and good service. We're a full-service package and I'm hoping
more and more people will try us."