The Kaiser Papers A Public Service Web SiteIn Copyright Since September 11, 2000
This web site is in no manner affiliated with any Kaiser entity and the for profit Permanente
Permission is granted to mirror this web site -
Please acknowledge where the material was obtained.

No HMO Fits All Anymore 
Kaiser Hopes to Stem Loss of Members by Expanding Choices 

By Bill Brubaker
Washington Post Staff Writer


By Bill Brubaker
Washington Post Staff Writer
Monday, May 5, 2003; Page E01 

Throughout its 23 years in the Washington market, Kaiser Permanente has been to HMOs what McDonald's has been to hamburger chains: the original. 

But unlike McDonald's, which expanded its products far beyond burgers and fries, Kaiser stuck to its roots as a plain-jane HMO, a restrictive health insurance plan that requires Kaiser patients to be treated mostly by Kaiser doctors at Kaiser facilities.

Now something as revolutionary as McDonald's 1983 rollout of Chicken McNuggets is headed to the Washington health insurance market: Kaiser is seeking regulatory approval to offer a plan, as soon as this fall, that would allow patients to visit the doctors and hospitals of their choice.

"We have to change," said Marilyn J. Kawamura, chief executive of the Kaiser Foundation Health Plan of the Mid-Atlantic States.

Kaiser did not have much choice, Kawamura said. The nonprofit insurer, part of California-based Kaiser Foundation Health Plan Inc., has been losing members and money. 

Kaiser's mid-Atlantic operation lost $19.5 million in 2002, $14.6 million in 2001 and $28.4 million in 2000, according to data released by the insurer. And 2002 was the third year of what Kawamura had described as her three-year "recovery plan." 

"The overall market share in HMOs over the past several years has declined," Kawamura, who took over the Rockville-based plan in 2000, said in a recent interview. "That's a well-known trend. And the economy certainly has not been helpful to us."

Kawamura was more blunt about Kaiser's failings in a Feb. 28 letter to the HMO's 6,000 employees and 950 physicians in Maryland, Virginia and the District. The doctors are employed by an independent entity called Mid-Atlantic Permanente Medical Group. 

Kaiser's overall strategic plan "is a sound one," said the letter, co-authored by the insurer's acting medical director, Stacy D. Lundin. "At the same time, we know that the 2002 financial results are unsatisfactory; performance at this level will not support the implementation of even the best plan."

The letter, a copy of which was obtained by The Washington Post, described steps being taken to make Kaiser's core product, the HMO, more attractive to employers, the major buyers of health insurance. The letter also described an organization rife with problems. 

"We lost members in 2002, and as a result, did not meet our growth forecast," the letter said. "Our membership shortfall resulted in lower dues and co-pay revenue. The membership loss was driven in part by layoffs due to local economic conditions."

At the end of 2002, Kaiser had 517,553 members in the region, down from 545,990 in 2000 and 525,801 in 2001.

"We did not reduce our variable medical office costs enough to compensate for the lower dues and co-pay revenue," the letter said. "The amount we spent on pharmaceuticals in 2002 increased at a higher rate than we anticipated."

The declining stock market compounded Kaiser's problems, the letter said, forcing the insurer's national organization to dip further into operating income to pay for its employees' retirement benefits. 

Unmentioned in the letter was that the HMO's longtime medical director, Adrian E. Long, resigned on Dec. 31. Kawamura declined to comment on his departure. Long could not be reached for comment.

The letter acknowledged that "the services and choices we make available to our customers are not competitive enough to retain and grow our business."

Kaiser has been losing ground to its top competitors -- CareFirst Blue Cross Blue Shield, which has 3.2 million members, and Mid Atlantic Medical Services Inc. (MAMSI), which has 1.9 million. CareFirst and MAMSI have long offered a broad menu of insurance options, including health-maintenance organizations (HMOs) and preferred-provider organizations (PPOs). MAMSI, which is for-profit, has made more money and steadily attracted new members in the past two years.

"Some of our product portfolio hasn't been as rich as some of the employers would like it to be," Kawamura said in the interview. "We were not offering some of the products that purchasers were looking for."

Kaiser's new health insurance product, to be offered initially only to employer groups, would give patients three options, said Bill Little, the insurer's regional vice president of sales and marketing. A similar plan is being offered in some other Kaiser markets.

Patients could participate in an HMO and receive treatment in Kaiser's 29 medical centers or at 12 hospitals in the Washington-Baltimore region. That is the least expensive option. A patient typically would make a $10 co-payment for a primary-care office visit, Little said.

Members could choose from a PPO network of more than 10,000 non-Kaiser physicians. A primary-care visit typically would cost about $20, and patients would have a larger choice of hospitals, Little said.

Or they could receive treatment from any doctor or hospital in the United States. That option, known as an indemnity plan, is the most expensive: Patients would pay 30 percent of any charges. A $200 office visit would cost a patient $60. 

"You can move among the three tiers," Little said. If a patient were unable to get an appointment with his physician in the PPO network, Kaiser could guarantee access to a doctor through the HMO.

Kawamura, a registered nurse who joined Kaiser Permamente as an executive in 1988, said the main HMO product is being fine-tuned.

"We did some research in 2001 and we asked a lot of our patients what was really important to them," she said. "One of the things that we did hear, over and over again, was that they wanted the access to their physicians. They wanted to be able to see their own physician when they wanted to."

By December, a new appointment scheduling system, known as Easy Access, will guarantee HMO patients access to the same doctor on every visit, Kawamura said. The program is running at 16 of the 29 medical centers. Kaiser has opened five new centers since January 2002.

"Historically, if you called up and Dr. Jones was booked, you wouldn't see Dr. Jones," Kawamura said. "We'd offer you another appointment with someone else. But today you would see Dr. Jones."

For routine visits, the average waiting time at the 16 medical centers using the new system is 3.5 days, Kaiser said. As recently as two years ago, the waiting time for a non-urgent visit was two weeks.

Kaiser's national organization also plans to spend $1.8 billion over the next three years to create an vast electronic archive of medical records for the HMO's 8.4 million members in nine states and the District. 

The system would give Kaiser doctors and nurses faster access to medical records, test results and scientific literature. Kaiser members could go online to get test results and other information on their health.

The archive plan was announced in February after Kaiser's national organization scrapped a project to automate patient records. That resulted in a $442 million impairment charge on Kaiser's 2002 financial statement. The Kaiser Foundation Health Plan reported net income of $70 million on revenue of $22.5 billion last year.

Locally, Kaiser is pinning some of its hopes on what it calls the "three-tier point of service" plan. 

Little said a better name may be in order.

"What should we call it?" he said with a laugh. "Super choice? Prime gold?" 

By any name, Little said, the new product represents "a big shift in thinking" for the country's best-known HMO.

2003 The Washington Post Company 


news at