Colorado Will Pay Hospitals to Close Expensive Free-Standing ERs
Colorado health officials so abhor the high costs associated with free-standing emergency rooms they’re offering to pay hospitals to shut the facilities down.
The state wants hospitals to convert them to other purposes, such as providing primary care or mental health services.
At least 500 free-standing ERs have set up in more than 20 states in the past decade. Colorado has 44, 34 owned by hospitals.
The trend began a decade ago with hopes these stand-alone facilities would fill a need for ER care when no hospital was nearby and reduce congestion at hospital ERs.
But that rarely happened.
Instead, these emergency rooms — not physically connected to hospitals — generally set up in affluent suburban communities, often near hospitals that compete with the free-standing ERs’ owners. And they largely treated patients who did not need emergency care, but still billed them and their insurers at expensive ER rates, several studies have found.
“We don’t want hospitals to have stand-alone ERs, so we are willing to pay to shut them down,” said Kim Bimestefer, executive director of Colorado’s Department of Health Care Policy & Financing, which oversees the state’s Medicaid program. She said using these facilities to treat common injuries and illnesses leads to higher costs for Medicaid, which the state partly finances, and other insurers.
Colorado’s move is part of a new initiative that requires hospitals to improve their quality of care to qualify for millions of dollars in Medicaid payments. Hospitals can choose among goals provided by the state such as lowering readmission rates or screening patients for social needs such as housing. Converting free-standing ERs to meet other needs is one of those goals.
“Money talks,” Bimestefer said in explaining why the state is offering the financial incentives.
Money has been a major driver of the boom in free-standing emergency centers. Hospitals used them to attract patients who could be referred to the main hospital for inpatient care. They are also seen as a way to compete with rivals. For instance, in Palm Beach County, Florida, for-profit hospital chain HCA Healthcare has opened free-standing ERs near competing hospitals in Palm Beach Gardens and Boynton Beach.
In addition, the massive amounts of private equity funds flowing into health care have further fueled the growth of independently owned stand-alone ERs.
The Denver-based Center for Improving Value in Health Care found that most conditions treated in these facilities are more appropriate for lower-acuity, lower-cost urgent care centers. Patients can pay 10 times more in a free-standing ER than in an urgent care center for treatment of the same condition, the organization’s studies show.
Adam Fox, deputy director of the Colorado Consumer Health Initiative, said free-standing ERs have not been placed where health care services are scarce. Instead, they’ve opened in middle- and upper-income neighborhoods where most people have health insurance and access to care. “This push from the state will help” as hospitals rethink whether these facilities still make sense financially, he said.
In the past few years, Colorado has moved to make owning these facilities less attractive with laws preventing them from sticking patients with surprise bills for high fees because the ER was out of their insurer networks. It also has required that patients without true emergencies be told they can get treatment for a lower price at an urgent care facility.
The law requires a free-standing ER to post a sign informing patients it is an emergency room that treats emergency conditions. It must also specify the prices of the 25 most common services it provides.
Even before the new policy begins to roll out later this year, some Colorado hospitals started converting these facilities. UCHealth has turned nine in the past two years into primary or urgent care centers and one into a specialty center. It still has nine others in operation across the state.
The conversions were not prompted by state actions, according to Dan Weaver, a spokesperson for UCHealth, part of the University of Colorado. “Neither surprise billing legislation nor price transparency played a role in these decisions — we converted them because we felt patients in these communities needed urgent care, primary care and/or specialty care services close to home,” Weaver said.
He added that the hospital system always stressed that people should use lower-cost services, including urgent care, primary care or virtual urgent care, in nonemergencies.
Ryan Westrom, senior director of finance at the Colorado Hospital Association, said hospitals have converted some of these centers to services such as urgent care in response to changes in insurance reimbursement and other factors. He said he wasn’t sure whether many hospitals will accept the state payments to close their free-standing ERs.
HealthONE, which has eight free-standing ERs in the Denver area, said it has no plans to close any despite the state incentive payment.
Vivian Ho, a health economist at Rice University in Houston who has tracked the growth of these stand-alone emergency rooms, applauded Colorado’s effort.
But she worries hospitals may decide it’s not worth closing a free-standing emergency department and forfeiting the profits: “You have to attack free-standing EDs from multiple angles to get people to stop going to them and to get hospitals from using them as a way to generate extra revenues for care that can be delivered at lower-cost sites.”
Ho said the covid pandemic, which dampened demand for emergency care, and recent federal surprise billing legislation may hurt the growth of free-standing ERs.
They are already facing headwinds. Adeptus Health, the Texas company that’s been leading the trend there and started dozens of the free-standing emergency rooms, often in conjunction with hospitals, filed for bankruptcy this year. And numerous stand-alone facilities closed at least temporarily during the pandemic as demand for care fell dramatically.
Advisers to Medicare are also pushing back on the growth. A recent proposal from the Medicare Payment Advisory Commission, which reports to Congress, would cut Medicare payment rates 30% on some services at stand-alone facilities within 6 miles of an emergency room in a hospital.
According to a MedPAC analysis of five markets — Charlotte, North Carolina; Cincinnati; Dallas; Denver; and Jacksonville, Florida — 75% of free-standing facilities were within 6 miles of a hospital with an emergency department. The average drive time to the nearest such hospital was 10 minutes.
Markian Hawryluk, KHN’s senior Colorado correspondent, contributed to this article.
Phil Galewitz: [email protected], @philgalewitz
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To start 2021, Sara Kollman, a top nurse administrator with Kaiser Permanente based in Colorado, found herself in a place she wouldn’t have imagined a year ago: working as an ICU nurse in a hospital in southern California.
“Never in my 30 years have I walked through the ICU and seen so many people that aren't expected to live, that are on their bellies to help oxygenate their lungs and they're just very, very, very ill,” she said.
It’s been exhausting, emotional duty. She describes meeting a mother and her daughter, a similar age to her own, coming in for a final farewell for another family member.
“It was a rough day,” she said. “It just really hit me hard.”
In her regular professional life, Kollman is Chief Nursing Officer for Kaiser Permanente Colorado. But when Kaiser's California system put out the call for help, she volunteered. Kollman was assigned to the hard-hit LA region, at Downey Medical Center, southeast of downtown.
There, she described an intensive care ward overflowing with COVID-19 patients, many on ventilators, fighting for their lives, many not making it.
On one recent day, the hospital brought in a second morgue trailer to handle the many dead bodies
“Because the internal morgue and the current morgue trailer were completely full,” Kollman said. “There was no more room.”
Kollman is one of Kaiser Colorado’s 50 frontline providers who stepped up. They’re filling in for their California counterparts, who are overworked, overwhelmed and exhausted by a tsunami of cases.
She says, like so many nurses, stepping up to care for others is part of her identity.
“Being a nurse is part of my DNA and that's what we do, especially in the ICU. You run to the coding patient. You're there to assist as soon as someone starts to deteriorate or become unstable,” she said. “There was no question for me about going to help. That's where the need is and that's where you go.”
Hospitals are hitting their breaking points
The need for health care back-up reflects a tough reality. Many U.S. hospitals hit a breaking point as COVID-19 hit record levels.
Patti Harvey, a senior vice president with Kaiser Permanente Southern California, says certain ICU providers are in especially high demand, like medical assistants and respiratory therapists.
“We have really been, in southern California, battling this surge since November,” Harvey said. “And by the time Christmas and the holidays rolled around, we knew that this was not going to be a short-term situation.”
Dr. John Eisenach, a Kaiser Colorado anesthesiologist, also volunteered. He got assigned to another hot zone, in Riverside, east of LA. His job is to help a lead doctor supervise a team of other ICU physicians.
His time working in Colorado hospitals with COVID-19 patients has given him plenty of relevant experience, including in the critical procedures that involve ventilator support, inserting tubes to help people breathe. He says treating patients during the pandemic has been eye-opening.
“I've never seen so many people of so many ages with relatively few or no medical problems come to the ICU in extreme distress with respiratory failure and not all of them actually can make it,” said Eisenach, who works at Good Samaritan Hospital in Lafayette and Denver’s St. Joseph’s Hospital.
The timing to help is good too with most frontline providers now having been vaccinated, and patient counts down in Colorado hospitals.
“The biggest reason I wanted to volunteer in California is because they need our help and we've been fortunate enough to keep rather good control of (the virus in Colorado),” he said. “Nevertheless, it does help that I have been vaccinated.”
But he warns “we're not over this yet. And Southern California is a cautionary tale of what could happen here in Colorado.”
That’s if its residents don't respect the virus, by keeping up with the public health precautions that have so far allowed it to avoid the biggest COVID-19 waves that have swamped other states.
The proportion of U.S. hospitals nearing a breaking point has doubled since November, according to an analysis of federal hospital data by the Associated Press. More than two in five Americans now live in locations running out of ICU capacity, with just 15 percent of beds still available.
Colorado avoided a post-holiday surge. California did not
An estimated one in three residents in Los Angeles has been infected with the virus. The region’s wave of cases coincides with a new variant, different from the more infectious strains first found in the U.K. and South Africa, called CAL.20C. It’s become one of the main strains in LA County. Thanks to the flood of new cases, hospitals there have faced shortages of staff, even oxygen.
Colorado’s hospitals were headed in that direction too in early December, when hospitalizations and deaths peaked at record levels for the state. But since then key COVID-19 metrics (hospitalizations, cases, positivity, deaths) have trended downward steadily, following renewed implementation of since-eased restrictions in November.
It also appears residents heeded calls to avoid travel and crowded indoor spaces and to wear masks helping Colorado avoid the kind of post-holiday surge of cases seen elsewhere. That improving hospital situation opened the door for some of its providers to give desperately needed help in other states.
American integrated managed care company
Headquarters (the Ordway Building) in downtown Oakland
|Type||Consortium of for-profit and not-for-profit entities.|
|Founded||July 21, 1945; 76 years ago (1945-07-21)|
|Founders||Henry J. Kaiser|
Sidney R. Garfield
Oakland, California, U.S.
District of Columbia
Health Plan and Hospitals CEO
Imelda Dacones, M.D.,
Chair, National Permanente Executive Committee
see section below
|Revenue||$88.7 billion USD (2020)|
|$2.2 billion USD (2020)|
Number of employees
|304,220 employees (including 63,847 nurses and 23,597 physicians as of 2021)|
Kaiser Permanente (; KP), commonly known simply as Kaiser, is an Americanintegrated managed careconsortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield. Kaiser Permanente is made up of three distinct but interdependent groups of entities: the Kaiser Foundation Health Plan, Inc. (KFHP) and its regional operating subsidiaries; Kaiser Foundation Hospitals; and the regional Permanente Medical Groups. As of 2017, Kaiser Permanente operates in eight states (Hawaii, Washington, Oregon, California, Colorado, Maryland, Virginia, Georgia) and the District of Columbia, and is the largest managed care organization in the United States.
Kaiser Permanente is one of the largest nonprofit healthcare plans in the United States, with over 12 million members. It operates 39 hospitals and more than 700 medical offices, with over 300,000 personnel, including more than 80,000 physicians and nurses.
Each Permanente Medical Group operates as a separate for-profit partnership or professional corporation in its individual territory, and while none publicly reports its financial results, each is primarily funded by reimbursements from its respective regional Kaiser Foundation Health Plan entity. KFHP is one of the largest not-for-profit organizations in the United States.
KP's quality of care has been highly rated and attributed to a strong emphasis on preventive care, its doctors being salaried rather than paid on a fee-for-service basis, and an attempt to minimize the time patients spend in high-cost hospitals by carefully planning their stay. However, Kaiser has had disputes with its employees' unions; repeatedly faced civil and criminal charges for falsification of records and patient dumping; faced action by regulators over the quality of care it provided, especially to patients with mental health issues; and faced criticism from activists and action from regulators over the size of its cash reserves.
Structure and governance
Kaiser Permanente provides care throughout eight regions in the United States. Two or three (four, in the case of California) distinct but interdependent legal entities form the Kaiser system within each region. This structure was adopted by Kaiser Permanente physicians and leaders in 1955.
Each entity of Kaiser Permanente has its own management and governance structure, although all of the structures are interdependent and cooperative to a great extent. There are multiple affiliated nonprofits registered with the U.S. Internal Revenue Service. According to Form 990 governance questions, Kaiser Foundation Hospitals and Kaiser Foundation Health Plan do not have members with the power to appoint or elect board members, meaning that the board itself nominates and appoints new members.
James A. Vohs was appointed CEO in 1978 and chairman in 1980, and he would serve until his retirement in 1992. He was the first chairman to not be a member of the Kaiser family.
David M. Lawrence served as chairman and CEO until his retirement in 2002.
George Halvorson became the chairman and CEO until his retirement in December 2013.
On November 5, 2012, the board of directors announced that Bernard J. Tyson, Kaiser's president and chief operating officer for the last two years, would replace Halvorson, marking the first time an African American was appointed as chairman. Tyson died in November 2019. Greg A Adams assumed the role of chairman and CEO in December 2019.
As of 2021, Kaiser Permanente had 12.5 million health plan members, 216,776 employees, 23,597 physicians, 63,847 nurses, 39 medical centers, and 724 medical facilities. As of December 31, 2018, the nonprofit Kaiser Foundation Health Plan and Kaiser Foundation Hospitals entities reported a combined $2.5 billion in net income on $79.7 billion in operating revenues.
The two types of organizations which make up each regional entity are:
- Kaiser Foundation Health Plans (KFHP) work with employers, employees, and individual members to offer prepaid health plans and insurance. The health plans are not-for-profit and provide infrastructure for and invest in Kaiser Foundation Hospitals and provide a tax-exempt shelter for the for-profit medical groups.
- Permanente Medical Groups are physician-owned organizations, which provide and arrange for medical care for Kaiser Foundation Health Plan members in each respective region. The medical groups are for-profit partnerships or professional corporations and receive nearly all of their funding from Kaiser Foundation Health Plans. The first medical group, The Permanente Medical Group (TPMG), formed in 1948 in Northern California. Permanente physicians become stockholders in TPMG after three years at the company.
In addition, Kaiser Foundation Hospitals (despite the plural name, a single legal entity) operates medical centers in California, Oregon, and Hawaii, and outpatient facilities in the remaining Kaiser Permanente regions. The hospital foundation entity is not-for-profit and relies on the Kaiser Foundation Health Plans for funding. It also provides infrastructure and facilities that benefit the for-profit medical groups.
Kaiser Permanente is administered through eight regions, including one parent and six subordinate health plan entities, one hospital entity, and nine separate, affiliated medical groups:
Various legal entities serve the areas of the US where Kaiser operates: California (the largest two), Colorado, Georgia, Hawaii, mid-Atlantic, Pacific Northwest, and Washington.
In addition to the regional entities, in 1997, the then-twelve Permanente Medical Groups created The Permanente Federation LLC, a separate entity, which focuses on standardizing patient care and performance under one name and system of policies. Around the same time, The Permanente Company was also chartered as a vehicle to provide investment opportunities for the for-profit Permanente Medical Groups. One of the ventures of the Permanente Company is Kaiser Permanente Ventures, a venture capital firm that invests in emerging medical technologies.
The history of Kaiser Permanente dates to 1933 and a tiny hospital in the town of Desert Center, California. At that time, Henry J. Kaiser and several other large construction contractors had formed an insurance consortium called Industrial Indemnity to meet their workers' compensation obligations. Sidney Garfield had just finished his residency at Los Angeles County-USC Medical Center at a time when jobs were scarce; he was able to secure a contract with Industrial Indemnity to care for 5,000 construction workers building the Colorado River Aqueduct in the Mojave Desert. Soon enough, Garfield's new hospital was in a precarious financial state (with mounting debt and the staff of three going unpaid), due in part to Garfield's desire to treat all patients regardless of ability to pay, as well as his insistence on equipping the hospital adequately so that critically injured patients could be stabilized for the long journey to full-service hospitals in Los Angeles.: 19–26
However, Garfield won over two Industrial Indemnity executives, Harold Hatch and Alonzo B. Ordway. It was Hatch who proposed to Garfield the specific solution that would lead to the creation of Kaiser Permanente: Industrial Indemnity would prepay 17.5% of premiums, or $1.50 per worker per month, to cover work-related injuries, while the workers would each contribute five cents per day to cover non-work-related injuries. Later, Garfield also credited Ordway with coming up with the general idea of prepayment for industrial health care and explained that he did not know much at the time about other similar health plans except for the Ross-Loos Medical Group.
Hatch's solution enabled Garfield to bring his budget back into the positive, and to experiment with providing a broader range of services to the workers besides pure emergency care. By the time work on the aqueduct concluded and the project was wrapped up, Garfield had paid off all of his debts, was supervising ten physicians at three hospitals, and controlled a financial reserve of $150,000.
Garfield returned to Los Angeles for further study at County-USC with the intent of entering private practice. However, in March 1938, Consolidated Industries (a consortium led by the Kaiser Company) initiated work on a contract for the upper half of the Grand Coulee Dam in Washington state, and took over responsibility for the thousands of workers who had worked for a different construction consortium on the first half of the dam. Edgar Kaiser, Henry's son, was in charge of the project. To smooth over relations with the workers (who had been treated poorly by their earlier employer), Hatch and Ordway persuaded Edgar to meet with Garfield, and in turn Edgar persuaded Garfield to tour the Grand Coulee site. Garfield subsequently agreed to reproduce at Grand Coulee Dam what he had done on the Colorado River Aqueduct project. He immediately spent $100,000 on renovating the decrepit Mason City Hospital and hired seven physicians.
Unlike the workers on Garfield's first project, many workers at Grand Coulee Dam had brought dependents with them. The unions soon forced the Kaiser Company to expand its plan to cover dependents, which resulted in a dramatic shift from industrial medicine into family practice and enabled Garfield to formulate some of the basic principles of Kaiser Permanente. It was also during this time that Henry Kaiser personally became acquainted with Garfield and forged a friendship which lasted until Kaiser's death.
World War II
In 1939, the Kaiser Company began work on several huge shipbuilding contracts in Oakland, and by the end of 1941 would control four major shipyards on the West Coast. During 1940, the expansion of the American defense-industrial complex in preparation for entrance into World War II resulted in a massive increase in the number of employees at the Richmond shipyard. In January 1941, Henry Kaiser asked Garfield to set up an insurance plan for the Richmond workers (this was merely contract negotiation with insurance companies), and a year later Kaiser asked Garfield to duplicate at Richmond what he had done at Desert Center and Mason City. Unlike the two other projects, the resulting entity lived on after the construction project that gave birth to it, and it is the direct ancestor of today's Kaiser Permanente.
On March 1, 1942, Sidney R. Garfield & Associates opened its offices in Oakland to provide care to 20,000 workers, followed by the opening of the Permanente Health Plan on June 1. From the beginning, Kaiser Permanente strongly supported preventive medicine and attempted to educate its members about maintaining their own health.
In July, the Permanente Foundation formed to operate Northern California hospitals that would be linked to the outpatient health plans, followed shortly thereafter by the creation of Northern Permanente Foundation for Oregon and Washington and Southern Permanente Foundation for California. The name Permanente came from Permanente Creek, which flowed past Henry Kaiser's Kaiser Permanente Cement Plant on Black Mountain in Cupertino, California. Kaiser's first wife, Bess Fosburgh, liked the name. An abandoned Oakland facility was modernized as the 170-bed Permanente Hospital opened on August 1, 1942. Three weeks later, the 71-bed Richmond Field Hospital opened. Six first aid stations were set up in the shipyards to treat industrial accidents and minor illness. Each first aid station had an ambulance ready to rush patients to the surgical field hospital if required. Stabilized patients could be moved to the larger hospital for recuperative care. The Northern Permanente Hospital opened two weeks later to serve workers at the Kaiser shipyard in Vancouver, Washington. Shipyard workers paid seven cents per day for comprehensive health care coverage, and within a year, the shipyard health plan employed sixty physicians with salaries between $450 and $1,000 per month. These physicians established California Physicians Service to offer similar health coverage to the families of shipyard workers. In 1944, Kaiser decided to continue the program after the war and to open it up to the general public.
Meanwhile, during the war years, the American Medical Association (AMA) (which opposed managed care organizations from their very beginning) tried to defuse demand for managed care by promoting the rapid expansion of the Blue Cross and Blue Shieldpreferred provider organization networks.
Courage to Heal, a novel by KP Historical Society President Paul Bernstein, MD, is based on the story of Garfield's life, his struggles with the AMA, and the origins of Kaiser Permanente.
In 1943, Henry J. Kaiser and Dr. Sidney R. Garfield opened a 50-bed hospital, housing six physicians for the 3000 employees and their families at the new Kaiser Steel Mill in Fontana, California, offering a pre-paid health care plan for $0.60/week for adults, and $0.30/week for children. In 1945, the Kaiser Permanente health plan was opened to the public.
In 1948, Kaiser established the Henry J. Kaiser Family Foundation (also known as Kaiser Family Foundation), a U.S.-based nonprofit, private operating foundation focusing on the major health care issues facing the nation. The Foundation, not associated with Kaiser Permanente or Kaiser Industries, is an independent voice and source of facts and analysis for policymakers, the media, the health care community, and the general public.
The end of World War II brought about a huge plunge in Kaiser Permanente membership; for example, 50,000 workers had left the Northern California yards by July 1945. Membership bottomed out at 17,000 for the entire system but then surged back to 26,000 within six months as Garfield aggressively marketed his plan to the public. Sidney Garfield & Associates had been a sole proprietorship, but in 1948, it was reorganized into a partnership, Permanente Medical Group.
During this period, a substantial amount of growth came from union members; the unions saw Kaiser Permanente care as more affordable and comprehensive than what was available at the time from private physicians under the fee-for-service system. For example, Fortune magazine had reported in 1944 that 90% of the U.S. population could not afford fee-for-service health care. Kaiser Permanente membership soared to 154,000 in 1950, 283,000 in 1952, 470,000 in 1954, 556,000 in 1956, and 618,000 in 1958.
From 1944 onward, both Kaiser Permanente and Garfield fought numerous attacks from the AMA and various state and local medical societies. Henry Kaiser came to the defense of both Garfield and the health plans he had created.
In 1951, the organization acquired its current name when Henry Kaiser unilaterally directed the trustees of the health plans, hospital foundations, and medical groups to add his name before Permanente. However, the physicians in the Permanente Medical Group deeply resented the implication that they were directly controlled by Kaiser, and successfully forced him to back off with respect to their part of the organization. That same year, Kaiser Permanente also began experiments with large-scale multiphasic screening to identify unknown conditions and to facilitate treatment of known ones. Simultaneously, although no one questioned his medical competence, Garfield's deficiencies as an executive were becoming apparent as the organization expanded far beyond his ability to manage it properly.
Henry Kaiser became fascinated with the health care system created for him by Garfield and began to directly manage Kaiser Permanente and Garfield. This resulted in a financial disaster when Kaiser splurged on the new Walnut Creek hospital; his constant intermeddling led to significant friction at every level of the organization. The situation was not helped by Kaiser's marriage to Garfield's head administrative nurse (who had helped care for Kaiser's first wife on her deathbed), convincing Garfield to marry the sister of that nurse, and then having Garfield move in next door to him. Clifford Keene (who would eventually serve as president of Kaiser Permanente) later recalled that this arrangement resulted in a rather dysfunctional and combative family in charge of Kaiser Permanente.
Keene was an experienced Permanente physician whom Garfield had personally hired in 1946. During 1953 he had been trying to get a job at U.S. Steel, but on the morning of December 5, 1953, with internal tensions worsening day by day, Garfield met with Keene at the Mark Hopkins Hotel in San Francisco and asked him to turn around the organization. It took Keene 15 years to realize that Kaiser had forced Garfield to ask Keene to become his replacement. Due to the chaos on the board, Keene at first took control with the vague title of Executive Associate, but it soon became clear to everyone that he was actually in charge and Garfield was to become a lobbyist and "ambassador" for the HMO concept.
However, even with Garfield relieved of day-to-day management duties, the underlying problem of Henry Kaiser's authoritarian management style continued to persist. After several tense confrontations between Kaiser and Permanente Medical Group physicians, the doctors met with Kaiser's top adviser, Eugene Trefethen, at Kaiser's personal estate near Lake Tahoe on July 12, 1955. Trefethen came up with the idea of a contract between the medical groups and the health plans and hospital foundations that would set out roles, responsibilities, and financial distribution. Trefethen, already a successful attorney, went on to a successful career with Kaiser Permanente and in retirement became a famous vintner.
While Keene and Trefethen struggled to fix the damage from Kaiser's micromanagement and Garfield's ineffectual management, Henry Kaiser moved to Oahu in 1956 and insisted on expanding Kaiser Permanente into Hawaii in 1958. He quickly ruined what should have been a simple project, and only a last-minute intervention by Keene and Trefethen in August 1960 prevented the total disintegration of the Hawaii organization. By that year, Kaiser membership had grown to 808,000.
Managed care era
Having overseen Kaiser Permanente's successful transformation from Henry Kaiser's health care experiment into a large-scale self-sustaining enterprise, Keene retired in 1975. By 1976, membership reached three million. In 1977, all six of Kaiser Permanente's regions had become federally qualified health maintenance organizations. Historians[who?] now believe then President Richard Nixon specifically had Kaiser Permanente in mind when he signed the Health Maintenance Organization Act of 1973 since the organization was mentioned in an Oval Office discussion of the Act, where John Ehrlichman characterized Kaiser's philosophy thus: "All the incentives are toward less medical care, because the less care they give them, the more money they make." In 1980, Kaiser acquired a nonprofit group practice to create its Mid-Atlantic region, encompassing the District of Columbia, Maryland, and Virginia. In 1985, Kaiser Permanente expanded to Georgia.
By 1990, Kaiser Permanente provided coverage for about a third of the population of the cities of San Francisco and Oakland; total Northern California membership was over 2.4 million.
Elsewhere, Kaiser Permanente did not do as well, and its geographic footprint changed significantly in the 1990s. The organization spun off or closed outposts in Texas, North Carolina, and the Northeast. In 1998, Kaiser Permanente sold its Texas operations, where reported problems had become so severe that the organization directed its lawyers to attempt to block the release of a Texas Department of Insurance report. This prompted the state attorney general to threaten to revoke the organization's license. Kaiser Permanente closed health plans in Charlotte and Raleigh-Durham in North Carolina four years later. The organization also sold its unprofitable Northeast division in 2000. The Ohio division was sold to Catholic Health Partners in 2013.
In 1995, Kaiser Permanente celebrated its fiftieth anniversary as a public health plan. Two years later, national membership reached nine million. In 1997, the organization established an agreement with the AFL-CIO to explore a new approach to the relationship between management and labor, known as the Labor Management Partnership. Going into the new millennium, competition in the managed care market increased dramatically, raising new concerns. The Southern California Permanente Medical Group saw declining rates of new members as other managed care groups flourished.
In 2002, Kaiser Permanente abandoned its attempt to build its own clinical information system with IBM, writing off some $452 million in software assets. This information technology failure led to major changes in the organization's approach to digital records. Under George Halvorson's direction, Kaiser looked closely at two medical software vendors, Cerner and Epic Systems, ultimately selecting Epic as the primary vendor for a new system, branded KP HealthConnect. Although Kaiser's approach shifted to "buy, not build," the project was unprecedented for a civilian system in size and scope. Deployed across all eight regions over six years and at a cost of more than $6 billion, by 2010, it was the largest civilian electronic medical record system, serving more than 8.6 million Kaiser Permanente members, implemented at a cost exceeding a half million dollars per physician. As of 2020 KP HealthConnect supports 12.2 million members.
Early in the 21st century, the NHS and UK Department of Health became impressed with some aspects of the Kaiser operation and initiated a series of studies involving several health care organizations in England. Visits occurred and suggestions of adopting some KP policies are currently active. The management of hospital bed-occupancy by KP, by means of integrated management in and out of hospital and monitoring progress against care pathways has given rise to trials of similar techniques in eight areas of the UK.
In 2002, a controversial study by California-based academics published in the British Medical Journal compared Kaiser to the British National Health Service, finding Kaiser to be superior in several respects. Subsequently, a group of health policy academics who were experts on the NHS published a competing analysis claiming that Kaiser's costs were actually substantially higher than the NHS and for a younger and healthier population.
Quality of care
In the California Healthcare Quality Report Card 2013 Edition, Kaiser Permanente's Northern California and Southern California regions, KP received four out of four possible stars in Meeting National Standards of Care. KP North and South also received three out of four stars in Members Rate Their HMO. KP's performance has been attributed to three practices: First, KP places a strong emphasis on preventive care, reducing costs later on. Second, its doctors are salaried rather than paid per service, which removes the main incentive for doctors to perform unnecessary procedures. Thirdly, KP attempts to minimize the time patients spend in high-cost hospitals by carefully planning their stay and by shifting care to outpatient clinics. This practice results in lower costs per member, cost savings for KP and greater doctor attention to patients. A comparison to the UK's National Health Service found that patients spend 2–5 times as much time in NHS hospitals as compared to KP hospitals.
In June 2013, the California Department of Managed Health Care (DMHC) levied a $4 million fine, the second largest in the agency's history, against Kaiser for not providing adequate mental health care to its patients. Alleged violations of California's timely access laws included failures to accurately track wait times and track doctor availability amid evidence of inconsistent electronic and paper records. It was also found by the DMHC that patients received written materials circulated by Kaiser dissuading them from seeking care, a violation of state and federal laws. DMHC also issued a cease and desist order for Kaiser to end the practices. DMHC conducted a follow up investigation which published in April 2015. The report found Kaiser had put systems in place to better track how patients were being cared for but still had not addressed problems with actually providing mental health care that complied with state and federal laws. Kaiser's challenges on this front were exacerbated by a long, unresolved labor dispute with the union representing therapists.
Kaiser appealed the findings, the order, and the fine, and sought to keep the proceedings closed, but in September 2014, in the face of the administrative judge's order to keep the proceedings open, and facing the beginning of public testimony, Kaiser withdrew the appeal and paid the $4 million. It also issued a statement which denied much of the wrongdoing. Kaiser faces ongoing inspections by DMHC and three class-action lawsuits related to the issues identified by the DMHC.
In 2006 Kaiser settled five cases for alleged patient dumping—the delivery of homeless hospitalized patients to other agencies or organizations in order to avoid expensive medical care—between 2002 and 2005. Los Angeles city officials had filed civil and criminal legal action against Kaiser Permanente for patient dumping, which was the first action of its kind that the city had taken. The city's decision to charge Kaiser Permanente reportedly was influenced by security camera footage, allegedly showing a 63-year-old patient, dressed in hospital gown and slippers, wandering toward a mission on Skid Row (this footage was prominently featured in the Michael Moore 2007 documentary Sicko). At the time that the complaint was filed, city officials said that 10 other hospitals were under investigation for similar issues. Kaiser settled the case, paying $5,000 in civil penalties and agreeing to spend $500,000 on services for the homeless. During that same period, the Department of Health and Human Services' Office of the Inspector General settled 102 cases against U.S. hospitals that resulted in a monetary payment to the agency.
In 2004, Northern California Kaiser Permanente initiated an in-house program for kidney transplantation. Prior to opening the transplant center, Northern California Kaiser patients would generally receive transplants at medical centers associated with the University of California (UC San Francisco and UC Davis). Upon opening the transplant center, Kaiser required that members who are transplant candidates in Northern California obtain services exclusively through its internal KP-owned transplant center.
While it was in operation, the Kaiser program had a 100% survival rate, which is better than other transplant centers. However, patients who needed a kidney were less likely to be offered one. Northern California Kaiser performed 56 transplants in 2005, and twice that many patients died while waiting for a kidney. At other California transplant centers, more than twice as many people received kidneys than died during the same period. Unlike other centers, the Kaiser program did not perform riskier transplants or use donated organs from elderly or other higher-risk people, which have worse outcomes. Northern California Kaiser closed the kidney transplant program in May 2006. As before, Northern California Kaiser now pays for pre-transplant care and transplants at other hospitals. This change affected approximately 2,000 patients.
Research and publishing
Kaiser operates a Division of Research, which annually conducts between 200 and 300 studies, and the Center for Health Research, which in 2009 had more than 300 active studies. Kaiser's bias toward prevention is reflected in the areas of interest—vaccine and genetic studies are prominent. The work is funded primarily by federal, state, and other outside (non-Kaiser) institutions.
Kaiser has created and operates a voluntary biobank of donated blood samples from members along with their medical record and the responses to a lifestyle and health survey. As of November 2018, the Kaiser Permanente Research Bank had over 300,000 samples, with a goal of 500,000. De-identified data is shared with both Kaiser researchers and researchers from other institutions.
Kaiser Permanente Bernard J. Tyson School of Medicine
Main article: Kaiser Permanente Bernard J. Tyson School of Medicine
Kaiser Permanente announced its plan to start a medical school in December, 2015, and the school welcomed its inaugural class in June, 2020. The vision for the school is to redesign physician education around the pillars of patient-centered care, population health, quality improvement, team-based care, and health equity.
Mark Schuster, MD, PhD was named the medical school's Founding Dean and CEO in 2017. The Kaiser Permanente Bernard J. Tyson School of Medicine was renamed from the Kaiser Permanente School of Medicine in November 2019 in honor of late Kaiser Permanente Chairman and CEO Bernard J. Tyson. The medical school received preliminary LCME accreditation in February 2019 and is expected to receive full LCME accreditation by 2023. The school will waive all tuition for the full four years of medical school for its first five classes.
In order to contain costs, Kaiser requires an agreement by planholders to submit patient malpractice claims to arbitration rather than litigating through the court system. This has triggered some opposition.
Wilfredo Engalla is a notable case. In 1991, Engalla died of lung cancer nearly five months after submitting a written demand for arbitration. The California Supreme Court found that Kaiser had a financial incentive to wait until after Engalla died; his spouse could recover $500,000 from Kaiser if the case was arbitrated while he was alive, but only $250,000 after he died. The Foundation for Taxpayer and Consumer Rights contends that Kaiser continues to oppose HMO arbitration reform.
Watchdogs have accused Kaiser of abusing the power imbalance inherent in the arbitration system. Kaiser engages in many cases whereas a customer will usually engage in just one and Kaiser can reject any arbitrator unilaterally, thus they can select company-friendly arbitrators over those that rule in favor of customers. As a large organization, Kaiser can also afford to spend much more on lawyers and orators than the customer, giving them more advantages. In response to criticisms, Kaiser established an Office of Independent Administrators (OIA) in 1999 to oversee the arbitration process. The degree to which this office is actually independent has been questioned.[third-party source needed]
Patients and consumer interest groups sporadically attempt to bring lawsuits against Kaiser Permanente. Recent lawsuits include Gary Rushford's 1999 attempt to use proof of a physician lie to overturn an arbitration decision.
In one case, Kaiser attempted to significantly expand the scope of its arbitration agreements by arguing it should be able to force nonsignatories to its member contracts into arbitration, merely because those third parties had allegedly caused an injury to a Kaiser member which Kaiser had then allegedly exacerbated through its medical malpractice. The California Court of Appeal for the First District did not accept that argument: "Absent a written agreement—or a preexisting relationship or authority to contract for another that might substitute for an arbitration agreement—courts sitting in equity may not compel third party nonsignatories to arbitrate their disputes."
While Doctors of Medicine (M.D.) and Doctors of Osteopathic Medicine (D.O.) are partners within the for-profit physician groups, many employees are members of various unions and guilds, depending on their role and service area.
KP's California operations were the target of four labor strikes in 2011 and 2012 — two (September 2011, January 2012) involved more than 20,000 nurses, mental health providers, and other professionals. The National Union of Healthcare Workers (NUHW) has accused Kaiser of deliberately stalling negotiations while profiting $2.1 billion in 2011 and paying its CEO George Halvorson $9 million annually. The workers were dissatisfied with proposed changes to pensions and other benefits.
On November 11, 2014, up to 18,000 nurses went on strike at KP hospitals in Northern California over Ebola safeguards and patient-care standards during union contract talks. 21 hospitals and 35 clinics in the San Francisco Bay Area were affected.
In fall 2018, Kaiser Permanente and the Alliance of Health Care Unions reached a Tentative Agreement on a national, 3-year collective bargaining agreement that covers nearly 48,000 unionized Kaiser Permanente health care workers in 22 union locals. The negotiations, which began in May, were among the largest private-sector contract talks in the United States this year. The deputy director and commissioners of the Federal Mediation and Conciliation Service attended the sessions. This agreement went far beyond the traditional contract issues of wages and benefits to include provisions to strengthen the groundbreaking labor-management partnership between Kaiser Permanente and the Alliance, at the senior leadership level as well as the front-line level. This includes 3,600 unit-based teams — jointly led by pairs of managers and union-represented employees — that are delivering significant improvements in the areas of quality, affordability, service and work environment on behalf of Kaiser Permanente members and patients.
Jamie Court, president of the Foundation for Taxpayer and Consumer Rights has said that Kaiser's retained profits are evidence that Kaiser policies are overpriced and that health insurance regulation is needed.
State insurance regulations require that insurers maintain certain minimum amounts of cash reserves to ensure that they are able to meet their obligations; the amount varies by insurer, based on its risk factors, such as its investments, how many people it insures, and other factors; a few states also have caps on how large the reserves can be.
Kaiser has been criticized by activists and state regulators for the size of its cash reserves. As of 2015, it had $21.7 billion in cash reserves, which was about 1,600% the amount required by California state regulations. Its reserves had been a target of advertising by Consumer Watchdog supporting Proposition 45 in California's 2014 elections. At the end of 2010 Kaiser held $666 million in reserves, which was about 1,300% of the minimum required under Colorado state law. Those funds were in Kaiser's risk-based capital account, held to pay for disasters or major projects. In 2008, the Colorado regulator required Kaiser to spend down its reserves; after negotiations Kaiser agreed to spend $155 million of its reserves giving credits to its clients and building clinics in underserved parts of the state.
Kaiser has been fined nearly $500k, more than any other health care employer in California, by Cal/OSHA for its violations regarding patient and staff safety following outbreaks of COVID-19 in Kaiser hospitals across California, though primarily in the Bay Area. Kaiser is responsible for more than 10% of all COVID violations in California. A COVID-19 outbreak sickened 92 people at Kaiser San Jose Medical Center on Christmas Day 2020. Kaiser San Leandro received the largest portion of fines, nearly $90k, for delays in reporting COVID infections and for failure to ration medical equipment according to pandemic regulations.
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- ^Cal Matters - State fines Kaiser $499K for COVID worker safety violations
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- ^Kaiser San Jose Patients Test Positive for Coronavirus After Christmas Day Outbreak
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Colorado kaiser hospitals
Kaiser partially blames hospitals for exit in 2 Colorado counties
Kaiser Permanente Colorado, a health insurer and provider, is leaving two of the state's counties due in part to its inability to strike contracts with hospitals, according to Summit Daily.
Kaiser said hospitals in Eagle and Summit counties have been "unreasonably opposed to contracting with us." Kaiser entered the counties four years ago and pledged a 10-year commitment to building contracts with hospitals. Despite the promise, Kaiser will close its two offices in the region Dec. 27.
The Colorado Hospital Association said Kaiser is responsible for any troubles it has faced, not the hospitals. Michael Holton, a spokesperson for Vail (Colo.) Health Hospital, told Summit Daily the hospital was surprised to hear the news.
Kaiser's population in Summit and Eagle counties is 4,400. That represents less than 5 percent of the area's market and less than 1 percent of Kaiser's total membership in Colorado, according to the report.
Read more here.
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Kaiser Permanente Colorado has made its mark in the state as both the lowest-cost and largest provider of health care coverage.
But as Kaiser celebrates 50 years in Colorado, it faces several challenges in its efforts to keep care affordable, from unhappy workers preparing to strike to a bruising battle with hospital partners over their fees.
“They have been really thinking through the issues of efficiency and keeping costs down. They have kept the conversation around affordability alive,” said Michele Lueck, president and CEO of the Colorado Health Institute.
RELATED: Kaiser Permanente Colorado workers weighing a strike (July 2019)
Kaiser Permanente, based in Oakland, Calif., planted a branch in Colorado in 1969 with 700 members and six physicians. Five decades later, the nonprofit has become the state’s largest health care provider with 1,200 physicians and 6,700 staff at 31 medical offices serving 640,000 members.
About 26% of individuals covered under a workplace plan in Colorado receive their care through Kaiser Permanente, Lueck said. Kaiser also dominates in Medicare coverage and is a critical provider on Connect for Health Colorado, the state’s Affordable Care Act marketplace.
It has gained that dominance by combining insurance coverage with health care services, a hard-to-replicate model that offers greater control over costs and more flexibility to innovate.
“Consumers want to spend as little as possible. We need to take costs out and keep people healthy,” said Ron Vance, former president of Kaiser Permanente Colorado, in an interview before his departure at the start of this month.
But Kaiser failed to do something in Colorado that had been critical to its success in California — own its own hospitals.
Hospitals represent the largest expenditure in health care, and hospitalization costs have skyrocketed in Colorado, rising 76% between 2009 and 2016, according to the Colorado Department of Health Care Policy and Financing.
A building boom has resulted in an oversupply of hospital beds. Normally, that should result in more competition and lower costs. Instead, it contributed to more empty rooms and greater inefficiencies, the cost of which hospitals have tried to pass onto insurers.
They could do that because all but two of the state’s large hospitals are controlled by just five systems, Lueck said.
“It gives them more leverage. You can’t go across the street because it is owned by the same system,” she said.
Between escalating hospital costs and higher-than-expected expenses tied to serving the individual market, Kaiser has lost hundreds of millions in Colorado the past several years.
Vance and his team stopped the bleeding this year after tough negotiations with hospitals, including the threat of antitrust litigation, and a push to handle more medical procedures inside its facilities.
Kaiser was part of a coalition behind a state law passed this year to limit surprise medical bills at out-of-network providers.
Kaiser performs more than 250 different surgeries and procedures a week at its own facilities for patients, from knee replacements to mastectomies, Vance said. That represents more surgeries within its walls now than outside.
Virtual care, or consulting with members via phone, email, text and chat, is another way Kaiser is trying to lower costs. And Kaiser is going retro in a big way.
Kaiser is sending medical care teams to visit patients with chronic conditions or limited mobility, as well as new moms. Yes, house calls are making a comeback.
“It is safer and more comfortable. It is a better quality experience and more affordable. We really see the value in care teams,” Vance said.
Teams can get a sense if a home has accessibility problems, if caretakers are up to the task and they can address basic needs, such as checking if a patient has enough healthy food options available.
Already the low-cost provider, Kaiser views boosting convenience as a way to set itself further apart from the competition and win more business. Primary doctor visits can soon be scheduled as late as 7 p.m. and on weekends starting this fall, eliminating the need for members to take time off to make an appointment.
Rather than having to line up at a crowded pharmacy to fill a new prescription, members will receive medicine delivered to the doorstep after they leave an appointment.
But all those changes have not sat well with many Kaiser workers, who argue they are having more tasks piled on them without a commensurate boost in pay. And they want a greater say regarding the new initiatives that are being pursued.
“Colorado is getting the short end of the stick,” said David Fernandez, communications director of the Service Employees International Union Local 105, which represents more than 3,000 Kaiser employees in Colorado.
For example, Kaiser has offered a 3% raise per year over the next four years to its California staff. But in Colorado, SEIU workers are being offered raises of 1% in the first year and 2% in each of the following three years.
Kaiser is also proposing a two-tier system, with new hires receiving lower starting pay, exclusion from the pension plan and reduced medical benefits in retirement. The union opposes a two-tier system and wants protections against outsourcing for the next five years.
“When I first came aboard with Kaiser Permanente, it was a place where you wanted to wake up and go to work,” said Sadé Kiel, a member of the Kaiser customer contact center in Denver.
But as the losses piled up in recent years, a different attitude emerged. A heavier workload was piled on a reduced number of workers, and compassion and empathy fell by the wayside, she said.
“It was more about the numbers, numbers, numbers. It wasn’t about the employees and the members. We forgot to provide quality care,” she said.
And executives made questionable decisions at the highest levels, union officials argue.
Rather than investing in a Colorado hospital to protect profitability, Kaiser Permanente built a new corporate headquarters in Oakland at a cost of $900 million. The nonprofit is believed to be spending $295 million for naming rights for the 11-acre plaza around the Golden State Warriors new arena, which is slated to be called “Thrive,” including the right to be the team’s official health care provider.
Colorado SEIU members are so upset that it appears likely they will join California workers in voting to approve a strike. Results in Colorado should be available on Sept. 11, Fernandez said.
And while approval doesn’t make a strike inevitable, if one takes place it would be the largest labor action the nation has seen in two decades.
Kaiser executives, however, express confidence that a compromise can be reached and that the collaboration that existed between management and workers will be restored.
They argue that Kaiser unionized employees are paid wages and benefits above what competitors are offering. They counter that the company isn’t trying to create a two-tiered system, but rather a new program that allows workers who might have not otherwise qualified to train on the job.
As to the investment in the new headquarters, Kaiser responds that it is saving the company $60 million a year in costs. And the naming rights deal is expected to cost closer to $2.5 million a year over 20 years.
“There is a long-standing relationship between Kaiser and labor that has benefitted the community. There are ongoing talks and I am anticipating a favorable outcome for both parties,” said Mike Ramseier, who took over from Vance as president of the Colorado region on Tuesday.
That’s not to say there won’t be changes. Technology and automation will become a bigger part of the mix and duties will change. More workers will be working remotely, providing care in member homes.
“Change is never easy,” Vance said. “But when we focus culturally on putting the member first, it anchors everything around that.”
Because it is a nonprofit, Kaiser can place a greater emphasis on health and wellness initiatives, reducing the services members consume.
Over the past 10 years, Kaiser has pumped $1 billion back into the local community through various initiatives. Behavioral health, which seeks to address a whole range of concerns, such as the region’s high suicide rate, is receiving a stronger emphasis.
For example, Kaiser has a new program called Ghosted that helps Colorado high school students deal with anxiety and depression. That is part of its larger mission to improve community health.
If Kaiser can continue to provide more convenient care at a lower cost to its members, and reinvest in the larger community, it will have a winning formula for covering a larger share of the market, Ramseier said.
“We need to sell the model — that integrated care, the member experience, what we do for the community. There is no other plan that does that, and that is what will make us win the marketplace” he said.
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It’s easy to get care at a Kaiser Permanente medical office that’s convenient for you. There are 29 Kaiser Permanente medical offices in Colorado, offering a wide range of care and services to help you get healthy and stay that way.
Easy access for easier care
At most of our medical offices, you can see a doctor, get labs and X-rays done, and pick up a prescription in one place. But now we’re doing even more to help you save time:
- Evening and Saturday primary care hours are now available at most medical offices
- There are more same-day care options, so you can schedule a last-minute appointment when you need it
Wide network of providers
If you live in Northern or Southern Colorado, you can get care from Kaiser Permanente providers or from network providers in your area.
Choose from 29 urgent care locations across Colorado. Or, if you live in Denver/Boulder or Colorado Springs, you can get urgent care at home with a visit from DispatchHealth.
Finding convenient locations
Choosing the right Kaiser Permanente medical office is easy – just visit our online search. Registered members on kp.org can also use the location finder on the Kaiser Permanente app.
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