[For more information see Internal rumblings at KP.]
November 3, 2006
Dear Colleague,
Three weeks ago, George Halvorson, our CEO, wrote to tell us that Health Plan and Hospitals are facing significant financial challenges. What Mr. Halvorson did not mention was the magnitude of the financial losses we could see: our internal projections show that we could lose as much as $7 billion dollars in total over the next two fiscal years. Losses of even a fraction of that total will be a threatening blow to our organization and what we stand for, and will significantly compromise our ability to care for our members.
There are many things that are triggering these losses. Among them are accelerating changes to our membership base as more member move towards higher deductible plans, reductions in Medicare reimbursements, and our capital outlays for rebuilding. But the truth is, these issues are only exposing our real financial problem: we’re spending recklessly, to the tune of over $1.5 billion in waste every year, primarily on HealthConnect, but also on other inefficient and ineffective information technology projects.
A History of Problems
On George Halvorson’s first day here, he cancelled KP’s existing project to implement electronic health records. He wrote off the $442 million KP-CIS system that we had built with IBM. Instead of continuing to build on KP-CIS, Mr. Halvorson selected a company he was quite familiar with, Epic Systems of Wisconsin. Mr. Halvorson had also pushed through the selection of Epic at the health plan he previously had led, in Minnesota.
Despite internal resistance to this unusual and significant change of course, Cliff Dodd, our CIO, embraced Mr. Halvorson’s decision, and both began working to convince key KP leaders that KP-CIS would eventually fail and that Epic was our only option.
What was particularly disconcerting about abandoning KP-CIS was the significant investment we had already made in the system. It was functioning reliably in Hawaii, had been in use in Colorado for years, and was on track for deployment in our Southern and Northern California regions. In fact, only days before Mr. Halvorson was hired, the Kaiser Permanente Partnership Group had reaffirmed its unequivocal support for KP-CIS. Comprehensive plans and agreements were even in place to continue building on KP-CIS.
But Mr. Halvorson was determined that KP would give its business to Epic. Several respected KP executives, who had supported or were directly involved with KP-CIS, saw the writing on the wall and quickly left the organization entirely. Others converted to supporting Epic after extensive ballyhooing from Mr. Halvorson and Mr. Dodd. All the while, our CEO and CIO ignored internal engineering reports which said Epic software would be unreliable for our size and difficult to adapt to our scope.
Instead of heeding those engineering reports, Mr. Dodd brought in a company called Tanning Technology to give an opinion on the viability of Epic within an organization as large as Kaiser Permanente. Mr. Dodd, while serving as an officer of Health Plan, also simultaneously served as a director for Tanning. Ignoring this significant conflict of interest, Mr. Dodd paid nearly $1 million dollars for Tanning Technology to give a favorable report on his and Mr. Halvorson’s predetermined plan to shift KP’s business to Epic. Tanning Technology, shortly thereafter, went belly up.
Despite the fact that Mr. Halvorson was hired for what we believed was his experience in implementing electronic health records, the truth turned out to not be quite so convincing. Mr. Halvorson was previously CEO at a health plan called HealthPartners, in Minnesota. HealthPartners is a little less than a tenth of the size of KP. Although George Halvorson had signed HealthPartners to an expensive contract with Epic Systems just before he left, HealthPartners still hasn’t seen the results that Mr. Halvorson had promised. In fact, HealthPartners has faced significant problems with its Epic project, and, so far, the Epic software has only been able to completely cover about half of HealthPartners members.
Unfortunately, the story gets worse. When George Halvorson abandoned HealthPartners to come to KP, that (also not-for-profit) health plan was in the midst of being investigated by the Minnesota Attorney General for high-level financial waste and abuse. Mr. Halvorson left HealthPartners before the Attorney General could release the condemning report that laid blame for significant waste and abuse directly at George Halvorson’s feet. By that point, Mr. Halvorson had been in place as CEO at KP for about a year, and the scandal failed to get much coverage outside of Minnesota.
That the Minnesota waste and abuse report slid under the radar in the California media doesn’t change the fact that it has serious and direct implications relating to the judgment and decision-making ability of our CEO.
And the report only seems even more alarming now that KP is dealing with huge sums of financial waste, not unlike the financial waste and abuse that led Mr. Halvorson to give "no comment" to the Minnesota press.
A Lack of Accountability
When I first began to uncover this information, I almost could not believe what I was reading. As the impact to Kaiser Permanente became more and more obvious, and when I learned of the sheer magnitude of the potential losses, I knew I had to do something.
I was certainly concerned about jobs being eliminated, even mine. I thought about the poor people at Enron and WorldCom who lost their pensions. But, most of all, I worried about the millions of people who depend on us every single day for healthcare. For me, this isn’t just an issue of saving money, it could very well become an issue of making sure our physicians and nurses have the tools they need to save lives.
So, I gathered all of the information I had collected: the news articles, the SEC filings, the engineering reports, and the Attorney General’s allegations. I put it all in a package, and I sent it, along with a letter explaining what I had found, to Dan Garcia, our chief compliance officer. That was in August. I also sent an identical packet to each member of the Health Plan Board.
I was worried by the seriousness of the issues, but I was heartened by many of the responses I received. Several Board members told me privately how shocked they were to see such terrible evidence and how alarmed they were to see the very negative financial projections. They thanked me for bringing the important information to their attention, and said they would be meeting with Mr. Garcia soon to make a decision on an appropriate course of action.
In putting all these pieces together, though, I missed one key fact that would lead me to seriously question Mr. Garcia’s ability to handle the situation. After sending the information to Mr. Garcia, I learned that Mr. Garcia had also served on the Health Plan Board of Directors for several years, even before he became our CCO. The key piece I missed was significant: Mr. Garcia is the very man who hired George Halvorson, back in 2002.
That presented a serious conflict of interest that I don’t believe Mr. Garcia disclosed to the Board when they asked him to investigate, on their behalf, the issues that I had uncovered and report back to them.
I trusted Dan Garcia and his staff. I didn’t question his integrity or honesty until he directly instructed me to have no further contact with any Board member. I found his order unusual: several directors had personally told me how concerned they were with these issues, and how thankful they were that this evidence had been brought to their attention. Why would Dan Garcia, who reports to the Board, try to create distance between the Board and me, and try so hard to keep the Board in the dark?
When I found a KP press release from 2001 that pointed out that Mr. Garcia headed the small committee that selected Mr. Halvorson, Mr. Garcia’s strange, and incredibly defensive behavior began to make sense.
Having Their Way
For some reason, Mr. Halvorson and Mr. Dodd were determined to make sure KP switched its business to Epic, regardless of the potentially catastrophic financial impact. Mr. Garcia chose to not stand in their way. And to make sure nobody else objected, Mr. Halvorson began replacing each and every director with handpicked candidates, who I believe he thought he could control.
The fact is, in an interview about a year ago, Mr. Dodd made a statement that puts everything into perspective. He said:
"We had a whole executive committee that was quite committed to [[KP- CIS]]… The board…[and] all the medical directors…each had tobe unwound and reset."
And ‘unwind’ and ‘reset’ Mr. Halvorson and Mr. Garcia did. Today, only one person remains on the Board from before 2002. That’s an unprecedented turnover in our history, that, I believe, has allowed Mr. Halvorson and Mr. Dodd, with Mr. Garcia’s compliance, to mislead Kaiser Permanente into a multi-billion dollar spending spree benefitting Epic Systems, that Wisconsin company that Mr. Halvorson is so familiar with.
Misleadership
Unfortunately, in this process, many of us have been misled, and no matter what happens to Mr. Halvorson, Mr. Dodd, and Mr. Garcia, we will be the ones left to deal with these problems. We put our faith in each of them. Other KP leaders trusted them, and depended on the integrity and accuracy information they provided. Dr. Jay Crosson, the leader of The Permanente Federation, and one of the most respected physician leaders in the country, recently wrote that downtime with Epic’s systems has been getting better and better. The truth is, over the past several months, Epic outages have increased from just over 9,000 user hours per month in June to over 59,000 last month. Dr. Crosson, and each of us, have all been told how reliable and wonderful Epic is going to be. Sadly, it’s just not true.
Epic simply cannot scale to meet the size and needs of Kaiser Permanente. And we’re wasting billions of dollars trying to make it.
Time to Fix These Problems
It’s time we hold George Halvorson and Cliff Dodd accountable for their mistakes. It’s time Dan Garcia stopped covering up these problems.
Most importantly, it is time the Health Plan and Hospitals Board of Directors take action to right these wrongs. Mr. Halvorson may have picked each Board member because he thought they would stand back and let him do whatever he wanted at Kaiser Permanente. But, if you look at our Board, knowledgeable, respected, and experienced men and women hold each independent seat.
If you recognize, as I do, how serious the stakes are here, please ask Victoria Zatkin to share with the Board your concern that these issues be dealt with immediately. Ms. Zatkin is senior counsel for Health Plan and Hospitals, and she serves as secretary to the Board. You can reach Ms. Zatkin via email at victoria.zatkin@kp.org.
If you’re a Permanente physician, please tell Dr. Crosson, Dr. Pearl, Dr. Weisz, and our other national, regional, and local physician leaders that you continue to support their efforts to make sure Kaiser Permanente physicians, nurses, and pharmacists have access to the most reliable, most advanced, and most effective tools available. Dr. Crosson, Dr. Pearl, and Dr. Weisz are all exemplary leaders to us here in California, strong leaders who have set an example for each of us.
We all know that we have to make sure every dollar is spent wisely, so that we can focus our resources on providing the quality care our members deserve. It’s time Mr. Halvorson, Mr. Dodd, and Mr. Garcia stop jeopardizing our ability to do that.
Please, help me fight to protect the future of our organization, the future of Kaiser Permanente, the future of America’s foremost healthcare leader.
If you would like to stay up to date, I will try to update a website I have set up, fixkp.org, with the latest information.
Sincerely, and most respectfully,
Justen Deal