An interesting podcast from Sarah Varney of KQED’s The California Report, on why Kaiser’s premiums have risen in recent years to levels often on a par with traditional health insurance rates. Among others, she interviews KP CEO George Halvorson, who as usual would like his customers to disbelieve their own experiences in favor of his PRBS™ spin. Also note the customary lack of transparency.
You may be surprised to learn that we have never thought the idea behind Kaiser Permanente is a bad one. We believe the problems are in the execution, and are mostly due to issues inherent in its corrupt corporate culture. We can only hope that the more direct competition that is spoken of in this report might someday put pressure on KP to clean itself up, as well as keep prices lower in the future.
Our transcription for the hearing impaired and folks without audio is below the embedded player.
Announcer: As I just mentioned, the federal health law now under review by the US Supreme Court tries to tackle the problem of high health care costs with financial rewards to providers who do a better job coordinating patient care. And in that regard, Kaiser Permanente, here in California, is often touted as the nation’s best hope for bringing health care costs more in line with other developed nations. But, if that’s the case, asked The California Report’s health reporter, Sarah Varney, why isn’t Kaiser less expensive?
Sarah Varney: Kaiser Permanente rose out of a utopian industrialist’s dream. During the 1930s and 40s Henry J. Kaiser wanted to make sure the workers at his Richmond shipyard were steady and strong.
Cut to vintage promotional recording: A medical dream comes true under the drive of industrialist Henry Kaiser, who holds the plans of the ultra modern hospital, designed by…
George Halvorson: When Henry built things he tended to assemble an entire team to build all of the parts.
SV: George Halvorson is KP’s current CEO.
GH: So when he started providing health care to his workers he used that model, which was to have a Kaiser hospital, Kaiser clinics…
SV: KP opened its doors to the public in 1945 and offered health coverage that was considerably less expensive than conventional insurers like Blue Cross. The strategy worked because it owned and operated its own hospitals and clinics, and directly employed physicians. But Mark Smith, head of the California Health Care Foundation, says KP is no longer the bargain it used to be.
Mark Smith: They got where they are in part by being the cost leader in the market, and they no longer are.
SV: Indeed, health care researchers and Kaiser’s biggest customers say the price gap between Kaiser and other insurance companies has narrowed or closed all together. CalPERS, the state agency that manages benefits for retired public employees, negotiated premiums with Blue Shield that are less expensive than Kaiser. That was unheard of just a few years ago. Smith, of the California Health Care Foundation, says because Kaiser is both the insurer and the health care provider the company hasn’t faced much competition.
MS: They’re not really pressed to be that much cheaper; they’re kind of shadow pricing, is what economists would say. So if your competitor takes $4 to make a banana and it only takes you $2 to make a banana, you price your banana at $3.95 and you kind of pocket the rest.
SV: That’s a charge Kaiser’s CEO George Halvorson vigorously denies.
GH: We’re at least 10% better everywhere, um, sometimes we’re 15 or 20% less expensive.
SV: Kaiser sets its rates, says Halvorson, based on how much it spends on patient care. It has nothing to do, he says, with what other insurers are charging. And, he adds, Kaiser offers richer benefits than other plans.
GH: Everybody else is stripping their benefit packages down, so they’re putting in higher and higher deductibles, and that’s just shifting the cost to the employee.
SV: Since negotiations between health plans and employers are largely confidential, and each insurance plan offers different services, it’s difficult to discern just how Kaiser fairs against other companies. In documents filed with state regulators, Kaiser Permanente says the cost of running its entire operation increases by about 5% each year. But some of Kaiser’s biggest customers — companies that are household names in California — say their premiums have jumped much higher. In some cases 20%. David Lansky heads the San Francisco based Pacific Business Group on Health, which represents large employers.
David Lansky: Kaiser seems to have a difficulty of explaining why their price is what it is. So they can’t explain it very well to the benefits manager of a large company, who then can’t explain it to his or her boss. Why should we keep Kaiser? Why is this price legitimate? If Kaiser can’t document their internal cost structure and pricing, then there’s a whole chain of mistrust that gets generated because of a lack of transparency and clarity.
SV: The frustration seems to stem in part from the very trait that makes Kaiser so good at taking care of patients. It doesn’t price out procedures, tests and doctors’ visits on a menu of fees. These so called fee schedules are often arbitrary. A procedure can cost a thousand dollars at one hospital and ten thousand elsewhere.
GH: Fee schedules are a very primitive way to buy care.
SV: Kaiser’s CEO Halvorson says his company’s focus on patient outcomes is what matters.
GH: We have cut the rate of broken bones for, um, for our seniors, by about 40%, and we do nine things for the seniors to cut the broken bones. Six of the nine things do not show up on the Medicare fee schedule.
SV: Still, large employers say that because Kaiser doesn’t price out its services, it’s difficult to know why premiums rise every year. One large employer, who is not authorized to speak publicly because negotiations are confidential, told me Kaiser’s rate increases don’t seem to reflect changes in the use of Kaiser services. David Lansky says Kaiser is much more efficient than other insurers and providers. For example, patients can avoid unnecessary office visits by talking with doctors over email, but Lansky says employers, who pay the bills, aren’t yet seeing the savings.
DL: I told you what we all went through with the banks when they went to ATMs and stopped having tellers in the retail points of service. You’d think that would actually lower costs; instead we started paying fees at the ATMs.
Bob Kocher: A lot of us in health policy land have scratched our heads at that and said well, you know, why can’t Kaiser be a heck of a lot cheaper.
SV: Bob Kocher, now a partner at the venture capital firm Venrock, served as a health care adviser to President Obama. Kocher is a big fan of Kaiser’s highly coordinated system, saying that its model was at the back of many policy makers’ minds when they pushed to include in the federal health law financial enticements for hospitals and doctors to essentially form Kaiser lookalikes. Still, Kocher says he would hope the Kaiser model would deliver steeper savings.
BK: How do we unleash that sort of pressure on price to have them not be compelled to raise their prices by 8, 9, 10% a year?
SV: Kocher and other policy experts suspect that pressure to compete might come when, and if, those Kaiser mini-mes get off the ground. For the California Report, I’m Sarah Varney.
At the end of February, the California Department of Managed Health Care (DMHC) issued a cease and desist order against Kaiser Foundation Health Plan, for denying physical, occupational and speech therapy to members with “non-physical conditions.” This action was in response to more than 100 complaints that were received by the department since 2009.
