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This report was originally published by the California Nurses Association.

Corporate Healthcare- For Profit, Not for Profit, or Not for Patients: Kaiser Permanente

Table of Contents

Kaiser Permanente: Not-for-Profit or "Not for Patients"?

Nearly 1 in 3 persons in the nation is now dependent upon an HMO for their health care needs. Health care mergers and acquisitions over the last five years total nearly $200 billion and health care CEO compensation continues to set historic highs. This is a time of drive through mastectomies and 8-hour maternity stays. It is a time of 24-hour “emergency room” waits and of 41.3 million uninsured patients waiting until the last possible moment to go to a hospital. They wait out of fear of an inability to pay or of being treated as second class citizens by the new “bottom-line” medicine of corporate health care.

The leader among the nation’s 765 HMOs is $13.2 billion Kaiser Permanente with nine million members, $3.3 billion in profits in the past five years, 12% of the current national HMO membership, 36% of the California HMO market, and the subject of numerous federal and state quality care investigations both in and out of California.

Kaiser has taken advantage of a legal technicality to attain market dominance - it is a non-profit corporation - which means it is exempt from paying any federal income taxes. The Internal Revenue Service requires a non-profit organization to contribute services to the community as a condition of its non-profit status. Kaiser’s corporate bylaws reflect those requirements:

This corporation’s principal purpose is to provide hospital, medical and surgical care, including emergency services, extended care and home health care, for members of the public, without regard to sex, race, religion or national origin, or physical or mental handicap or to the individual’s ability to pay.

Kaiser lives up to none of these requirements.

Meaningful distinctions between private non-profits like Kaiser and for-profit health care corporations have all but disappeared. Kaiser uses the same management consultants as the largest for-profit corporations, the same economic advisors, adopts the same downsizing strategies, utilizes the same care denial and standard of care lowering programs as the for-profit health care sector, and dwarfs the financial empires of almost all other U.S. health care corporations.

Kaiser has abused its tax exempt non-profit status and used it to fuel its market expansion program while providing minimal community service. This report reveals a Kaiser radically different from the public service image it portrays in its bylaws and details how Kaiser is:

  • Accumulating wealth and resources that make it one of the richest and most powerful medical corporations in the world.
  • Launching a major expansion program focused on enhancing its managed care market dominance by draining resources from patient services.
  • Lowering the standards of care by displacing its highest skilled caregivers and downgrading the skills of those who remain.
  • Placing seniors and low-income populations at risk through a practice of Medical Redlining.

The net effect of these policies have combined to allow Kaiser to erode the standard of care and to misuse its non-profit status to portray itself as victimized by for-profit health care while diverting attention from the real victims - patients and their families.

The Price Patients Pay

There are many hundreds of tragic accounts of Kaiser patients. Each tells a story of personal tragedy because of Kaiser Permanente’s devotion to its bottom-line rather than its patients. Following are two of those stories.

A grandfather speaks of the death of his child’s child:

    In June 1995, my 5-year-old granddaughter died in surgery following a failed attempt at …removing Kidney Stones… Her autopsy report quotes one doctor as saying, “this death was caused by a surgical misadventure.”

    According to the report, a doctor who was involved in the operation, when asked about safeguards and precautions replied “there were none.”

    Our family faced untold hours of living hell. A separate volume would be required to express my emotions - the double suffering of helplessly watching the agony of my child lose a child.

Kaiser employed adult rather than child surgical protocols in this procedure. It saved them the expense of sending the child to a children’s hospital.

Another story involves a former ballerina. For over a decade, Kaiser denied her treatment she needed for a debilitating nervous system disorder. She loved the ballet. She loved the poetry of the human form in motion and studied tirelessly to be the best ballerina that her dreams promised and her physical gifts would allow. Dance was her art and art was her life. That’s all gone now. 

    Before my HMO willfully sentenced me to a living death, I had a very glamorous life as a ballerina. Then I lived my dreams; today, I can only dream of being well enough to get into my wheelchair again.

    To this day, my HMO continues to deny me any treatment, treatment that is available, yet costly. Treatment they don’t want to pay for.

    When I was three years old and my parents signed on Kaiser’s dotted line on my behalf, unbeknownst to all of us, my life was gambled … and I lost.

The Threat to the Public Health

Private Non-Profit vs. For-Profit: A Distinction Without a Difference

The battles in today’s health care struggles are between private health care corporations -both for-profit and non-profit - and public non-profit health care facilities such as state, county and educational medical centers.

The number of public hospitals - those with a mission to serve the public health irrespective of ability to pay - declined markedly from 1980 to 1990, when 39% of for-profit hospital conversions were public facilities. Keeping public hospitals’ mission intact is critical in California where in 1995 a UCLA study found that over 80% of California’s uninsured were from working families and yet could not afford health care insurance.

Private hospitals such as Kaiser are not likely to do much to fill the void left by the decline in public facilities. As HMOs, managed-care companies, and insurers reduce their payments to hospitals, most hospitals cut back on uncompensated care. In 1995, uncompensated care dropped to its lowest level in ten years.

Premium Dollars: Funding the Kaiser Business Plan

Kaiser’s business plan is a classic case of a corporate push for market dominance and power. Kaiser members’ premium dollars ultimately pay for that corporate expansion. It is marked by specific tell-tale factors:

  • Systematically withholding care and reducing access to minimum rather than maximum standards (a scarcity of critical care beds, premature patient discharges, and rationing of access to medical specialists).
  • Cutting profit margins to build market share while total revenues increased by 7% in the six months that ended June 30, 1997 compared to the same period in 1996. That 7% amounts to more than $490 million, putting Kaiser on its way to a $14 billion year in 1997 - an $800 million gain over 1996.
  • Huge increases in advertising (a 641% increase from 1992 through 1995).
  • Enormous sums expended on management consultants (nearly $100 million on only the top four in 1995 alone).
  • Intense merger and acquisition activity (five deals in the last year involving over 2.3 million members).
  • Large health plan administration increases (a 30% increase in 1996 compared to 1995 and a 137% increase over a five year period).
  • Cutbacks in staff combined with a demand for higher productivity (speed-up).
  • Automating caregiver work and deskilling the remaining workforce in an attempt to boost long-term profitability.
  • Redlining seniors, low income populations, minorities and other medically costly groups out of access to care.

Kaiser Mergers and Acquisitions

In 1996, most HMO mergers and acquisitions involved for-profits, but in the third quarter of 1996, 95% of all acquired hospitals were non-profits. More importantly, 80% of the buyers were non-profits as well.

From late 1996 to the present, Kaiser merger and acquisition activity includes:

    1. Community Health Plan, Inc., Latham, New York: 350,000 members.

    2. Humana Group Health Plan, Louisville, Kentucky: 118,000 members ($60 million purchase price).

    3. Group Health Cooperative in Washington: 675,000 members.

    4. George Washington University Health Plan, based in Washington, D.C.: 88,000 members.

    5. Health Insurance Plan of Greater New York: 1,100,000 members.

The 1996 national health care merger frenzy involved nearly 1,000 deals. In the HMO sector the average price paid per health plan enrollee about $558. Kaiser paid $60 million - about $508 per enrollee - in its acquisition of Humana Group Health.

The U.S. "Billion Dollar" Club of Health Care Conglomerates (Amounts are in Thousands)
Rank Company Net Sales
1 Columbia/HCA $19,909,000
2 Cigna, Inc. PA $18,900,000
3 Kaiser Permanente CA $13,200,000
4 United Healthcare Corp MN $10,074,000
5 Aetna, Inc. (Health Plans) CT $9,734,000
6 Humana, Inc. KY $6,788,000
7 Tenet Healthcare Corp. CA $5,559,000
8 Medpartners Inc. AL $4,813,499
9 Pacificare Health Systems Inc. CA $4,637,305
10 FHP International Corp CA $4,179,284

The “Billion Dollar Club”

If Kaiser were a publicly traded for-profit corporation, it would rank third in the nation among for-profit providers with sales of $1 billion or more, behind only Columbia/HCA and Cigna.

Of over 950 for-profit health care related corporations operating in the U.S., only 8 surpassed Kaiser’s 1996 revenues. Most of those were giant drug manufacturers or distributors.

Kaiser Permanente in the Global Market (Amounts are in Thousands)
Rank Company Net Sales
1 Columbia/HCA $19,909,000
2 Merck Pharmaceuticals $19,829,000
3 Cigna Corp $18,950,000
4 Rhone Poulenc Sa, France $16,386,861
5 Bristol Myers Squibb $15,065,000
6 Glaxo Wellcome, United Kingdom $14,162,976
7 American Home Products Corp $14,088,000
8 Smithkline Beecham, United Kingdom $13,456,610
9 Kaiser Permanente $13,200,000
10 Mckesson Corp $12,887,000

Market Share vs. Health Care

More than 63.3 million people were enrolled in 636 HMOs across the country as of July 1, 1996, an increase of 9.9 million over the previous July. In 1996, 25 HMOs accounted for nearly 67% of the national HMO membership. In 1997, 77.8 million people - 29% of the United States population - are in 765 HMOs. Kaiser’s approximate 9 million membership places it at the top of the HMO industry and gives it about a 12% market share of HMO members nationally. About 5 million of those members are located in California alone, roughly 16% of the state’s entire population and over 3% of the U.S. population.

Kaiser has at minimum 36% of HMO market share in California where about 43% of the population are in an HMO. PacifiCare has 17% of the California market, Foundation Health Systems 15% and California Care has 6%. Kaiser’s market dominance is underscored by the fact that its total assets increased by about $4.3 billion (52%) in only four years.

Total Assets in 1992: $8,145,000,000
Total Assets in 1993: $9,762,000,000
Total Assets in 1994: $10,762,000,000
Total Assets in 1995: $11,878,000,000
Total Assets in 1996: $12,392,000,000

Whether we call it profits, net-income, revenue in excess of expenses, or surplus, Kaiser does generate extraordinary revenues. For example, Kaiser’s combined net income from 1992 through 1996 is $3.3 billion.

This kind of financial performance has enabled Kaiser to increase its Health Plan Administrative Budget to $518 million in 1996. This figure represents over a 30% increase from 1995. In the Northern California Region alone, Kaiser Foundation Health Plan administration expenses have increased 137% since 1992.

Kaiser Permanente Compared to the Fortune 500

Kaiser Permanente is not on the Fortune Magazine top 500 corporations list because it is a “not-for-profit,”- even though substantial aspects of its operations are for-profit. For practical purposes this means it pays no income taxes but still makes impressive sums of money. However, if it were on the Fortune 500 list, Kaiser’s $13.2 billion in total revenues would rank it as 95th.

Cypress, CA based PacifiCare Health Systems Inc., Kaiser’s largest HMO competitor with $4.6 billion in sales is far down the list with a ranking of 304th.

In 1996, the following figures apply:
Total Revenues: $13.2 Billion
Marketable Securities: $1.3 Billion
Segregated Securities: $1.8 Billion
Cash: $94 Million

Putting Patients Last

Health Care Equivalencies

Kaiser’s spending priorities - its health care budget - are choices that Kaiser has made. Those choices reflect values and set policy. At issue is whose values are better served in Kaiser budget policies - Kaiser’s or its patients?

Kaiser’s health care dollar could be put to better use. Following is a short sampling of what could be accomplished with Kaiser’s vast financial resources.

Combining Kaiser profits for the last five years, its cash reserves for 1996 and the value of its marketable securities for 1996 totals $4.7 billion. This amount could:

  • Provide 162 million hands-on RN nursing hours over the next 22 years at Kaiser’s own 1996 nursing hour utilization rate, or
  • Pay for San Francisco’s total health care costs for 28 years at 1994 levels, or
  • Insure over 5 million Californians - about 75% of the state’s uninsured - for one year at Kaiser’s typical 1996 Northern California Area “A” rates for individual subscribers between 30-39 years of age, or
  • Fund national AIDS research for more than three years at 1995 levels, or
  • Provide an additional 3.6 million hospital days for California mothers and their new born infants at 1994 rates, or
  • Provide another 98,000 coronary bypass procedures.

Lowering the Standard of Care

The permanent replacement of highly skilled employees with those with less skill by giant corporations is not new. The replacement of skilled health care professionals to maximize profit, however, is an unprecedented corporate-medicine tactic that could in years to come harm thousands of lives.

Incredibly, Kaiser seems headed in just that direction.

During a Kaiser employee forum in early 1997, a senior Kaiser vice president was asked:

Why is there less staff, when Kaiser is adding more members?

His answer?

That is the strategic plan. You have to look at it a little more closely. When we are saying less staff, we are really talking about people at the highest skill levels MDs, RNs... This is being done due to market competition, not because anyone likes it.

The answer is straightforward. Publicly, Kaiser claims that the elimination of “surplus” skilled caregivers is designed to boost quality. Privately, Kaiser states that competition is at the heart of the layoffs of the most highly skilled caregivers. But Kaiser is the competition. It controls 36% of the HMO market in the state and its closest HMO competitor, PacifiCare, has less than half that share.

“Deprofessionalizing” the Health Care Professions

Corporate medicine has always spoken in health care contradictions. Publicly, it avows that a highly skilled caregiver workforce tends to increase quality. Privately, it wants cheaper and “deskilled” labor and at the same time, an increase in productivity (the number of patients “processed” per hour) and an increase in the perception - if not the reality - of quality.

The Registered Nurses of the California Nurses Association know that skill is,

“the effective exercise of professional judgment in non-routine situations.”

Kaiser advocates “cross training” as opposed to education of caregivers in order to increase revenues - and layoffs of skilled caregivers.

Training has its uses; it can enable people to perform tasks, but education is required to learn health care skills. Education based skills do what task training can never do; skills enable caregivers to see the often critical relationships among their various tasks and to exercise professional judgment in the performance of those tasks. Training caregivers in discrete task performance does not prepare them for unexpected patient emergencies. Education, in contrast to training, does exactly that.

Kaiser’s emphasis on “training” rather than education of medical staff may result in routinizing the care that patients receive. Routinized care is care with the skill removed. It is deskilled care.

The deskilling of care results in:

  • Patients defined as “units of health care utilization”.
  • Hospitals no longer being safe havens for patients left alone.
  • Corporate medicine generating billions in revenues.

“Screening” for Profit

The latest example of this trend is being carried out in a Kaiser plan for warehouse style regional Call Centers. The plan calls for the implementation of computerized “canned” sets of medical advice staffed by “Teleservice Representatives” (TRs) that field patients’ calls. TRs may soon be the first person - and possibly the only one - with whom a Kaiser member may speak when calling in for help to one of these centers. TRs are appointment clerks who will be discussing symptoms with patients. TRs will decide whether to allow a patient to speak to a Registered Nurse or a physician.

The required educational and skill levels of Teleservice Representatives are markedly different from those of Registered Nurses.

Teleservice Representatives:

    a high school education, no formal health care education, and no professional license.

Registered Nurses:

    a formal degree in Nursing with intensive education including anatomy, physiology, pharmacology, and chemistry. They are licensed health care professionals.

The computerized directions TRs will be following are generally known as “expert systems.” However, the “expert” in the machine sometimes gets lost because its expertise is not in medicine but in statistical averaging techniques. The problem is that neither patients nor their individual health care needs can be reduced to mere numerical averages.

In the PBS Special, “The Thinking Machine,” for example, artificial intelligence researcher Doug Lenat tells of describing his rusting 1980 Chevy to a skin disease diagnostic system… It concluded that the patient had measles...

By attempting to routinize care to increase revenues, Kaiser is reducing the caring process to the health care equivalent of “painting by numbers.”

Manufacturing Consent: Substituting Advertising for Quality

Kaiser has proven itself adept at entering the public relations market place with its TV and print advertising campaigns. In 1995, Kaiser increased its advertising and marketing budget to $60.3 million - a 641% jump from 1992. Kaiser’s marketing consultants apparently have taken over quality control as Kaiser is increasingly promoting quality based on patient satisfaction surveys.

According to the U.S. Department of Health and Human Services, technical weaknesses in many HMO surveys may mask problems and inflate satisfaction with managed care plans:

...more than half (of HMO surveys) include no questions about problems with or complaints about health plan services, …Most HMOs are also lacking mail follow up procedures and are not conducting non-respondent analyses.

How do Kaiser’s “Patient Satisfaction” Surveys stack up?

Of 78 questions on a typical Kaiser survey, exactly one of them directly addressed health care quality and it asked only how in general the respondent would rate Kaiser’s quality and only for the past year. The overwhelming majority of other questions focus on patient perceptions about the attitude of the medical staff, how difficult it is to get an appointment and whether or not perceived access to a specialist was adequate.

Some Kaiser physicians are not impressed with patient satisfaction surveys. They have drafted their own survey exploring the possibility of forming a Professional Association to protect themselves and their patients from Kaiser’s restructuring efforts. One question asks, The Member Patient Satisfaction Survey is demonstrably invalid and has no place in the intelligent management of TPMG. Agree or Disagree?

Kaiser’s Quality of Care: A Dangerous Free Fall

The Registered Nurses of the California Nurses Association are not the only health care professionals who are alarmed by the erosion of quality care in the Kaiser system. Some Kaiser physicians are also concerned.

As long as the organization feels that “Cost Structure” is our biggest challenge, we will continue to have deteriorating care, demoralized staff, and people leaving the organization. (Kaiser Physician, North East Bay Connections).

The Health Care Financing Administration (HCFA) has executed a number of surprise Kaiser inspections in California due to patient deaths and delays in transferring critically ill patients to appropriately staffed facilities. In 1997, inspections took place in Oakland, Richmond, Martinez, and Walnut Creek.

In Richmond’s stand-by emergency department a patient died while awaiting transfer to a critical care bed.

Other HCFA findings at Richmond include:

  • Thirteen-hour delays in transferring critically ill patients
  • Overloading Registered Nurses with up to 152% of their patient assignment

Kaiser Walnut Creek fared no better. A patient bled to death on May 24, 1996:

…after a detachable intravenous line became disconnected. All the alarms that should have warned nurses of the patient’s failing condition had either been turned off or were broken.

The Walnut Creek emergency department had such long lines that:

…In April, 1997, those who left without being seen was 7.5%. On May 7, 11% left without being seen, on May 28, 12%…

Kaiser failed the HCFA return safety inspection - a rare event according to HCFA.

The report on Martinez included a man who:

…waited in the Martinez emergency room for eight hours, untreated, after suffering a stroke because the hospital’s CT scan was broken.

Martinez emergency room waits were so long that in one five hour period,

…19% who registered ...left without being seen.

HCFA cited as many as 4.6 medication errors per day in its Walnut Creek and Martinez report.

Kaiser has caught the attention of various governmental agencies in other states as well.

In Texas, the Department of Insurance found early in 1997 that Kaiser quality was suffering and that Kaiser denied emergency room payment for patients,

…even though Kaiser’s own advice nurses had found the symptoms serious enough to instruct enrollees to seek emergency care immediately.

Kaiser’s internal review of member’s quality care complaints consistently found no quality care concerns surrounding those member complaints, even after one enrollee ‘was examined during an office visit for gastroesophageal reflux disorder [indigestion], … and two or three weeks later, the enrollee was rushed to the emergency room due to cardio-pulmonary arrest and died.

The problems were so severe that Kaiser directed its law firm to attempt to block the release of a Texas Department of Insurance report - a report that prompted the state attorney general to threaten to revoke Kaiser’s license.

In North Carolina, the Industrial Union Department of the AFL-CIO issued a 1996 report critical of Kaiser quality. The AFL-CIO report, based on a multi-year study by the North Carolina Department of Insurance, highlighted 11,767 member complaints filed against Kaiser from 1989 through 1995. Nearly 70% of those complaints focused on access to care.

Binding Arbitration: Liability Insurance for Corporate Health Care

Kaiser for years held that its in-house arbitration system - although closed to public view and patient advocacy groups - was a viable and speedy alternative to court proceedings for dissatisfied or injured Kaiser patients. The California Supreme Court disagreed. It found that the only thing binding about Kaiser’s arbitration process was that it tied up cases so long that patients sometimes died before having a chance to pursue their grievances. Wilfredo Engalla was one of those literally dying to get his grievance against Kaiser heard.

Wilfredo Engalla alleged medical malpractice in the misdiagnosis of his lung cancer. He requested arbitration on May 31, 1991. He died Oct. 23, 1991, the day after both sides agreed to a neutral arbitrator.

The court found that, ...Kaiser fraudulently induced Engalla to enter the arbitration agreement... by misrepresenting the speed and fairness of its arbitration program.

The court also noted 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.

Delays occur statistically in 99 percent of all Kaiser medical malpractice arbitrations, the high court said, while only 3 percent of cases see a neutral arbitrator appointed within 180 days. A neutral arbitrator is appointed in an average of 674 days.

Managing Neglect

Management Consultants and the Assault on Clinical Practice

Kaiser is spending millions on management consulting firms. Management-consulting firms know how to enrich their own coffers, even if their advice to Kaiser means cutting access to care for Kaiser members.

In 1995, Kaiser paid out $96.1 million to its top 4 consultants alone. McKinsey & Co. has been a particular beneficiary of Kaiser’s consulting largess, sometimes pulling in as much as a reported $3 million a month over the past five years.

Deloitte & Touche Consulting and Accounting: $41.1 million
Kresser, Stein, Robaire Advertising Services: $24.8 million
McKinsey & Co. Strategic Planning: $16.2 million
Andersen Consulting Consulting: $14 Million

That same $96.1 million could:

  • provide another 73,600 hospital days for California mothers and their new born infants, or
  • pay for the total health care costs of San Diego County for about 2.5 years.

Restructuring Associates - a Washington D.C. based consulting firm - is new on the scene for Kaiser. They specialize in restructuring and downsizing unionized corporations. They have apparently served as advisors to the U.S. Department of Energy in its efforts to privatize its operations including the “Mound 2000” nuclear clean up program in Ohio.

Medical Redlining

Medical Redlining occurs when health care corporations abandon communities where ill people are concentrated in favor of communities where healthy people predominate, with a goal of increasing overall profits and revenues. It is a particularly attractive strategy for HMOs like Kaiser, since every dollar of care it provides decreases its net income (profits). Kaiser’s legions of management consultant firms are moving them out of low income communities and their sometimes high medical needs and costs.

Pursuing the Healthy and Wealthy: Oakland and the “Health Care Representation Gap”

In 1995, access to Kaiser Oakland for much of Oakland’s Black population was sparse compared to their representation in the community. If Kaiser follows through on its business plan and closes its flagship Oakland facility, access to care will be even more difficult.

Numerous studies have shown a clear connection between wealth and health. Wealthier populations tend to be relatively healthy. Other studies have demonstrated that the wealthy are not concentrated in communities of color. An HMO intent on market share and profit knows it can be more “competitive” by distancing itself from poor areas with relatively high medical needs. Oakland is a good example.

According to U.S. Bureau of the Census data:

  • 44% of the Oakland population is Black.
  • 32% of the Oakland population is White.

According to Kaiser’s 1995 Patient Discharge records filed with the State of California:

  • 38% of Kaiser Oakland hospital patient discharges were Black.
  • 49% of Kaiser Oakland hospital patient discharges were White.
  • White patients had a discharge percentage share 17% greater than their proportional representation in the community.
  • Black patients had a discharge percentage share 6% less than their proportional representation in the community.
  • For Kaiser patients, this results in a total “Health Care Representation Gap” of 23% between Oakland’s Black and White populations.

This may mean that $13.2 billion “non-profit” Kaiser is fulfilling neither its non-profit IRS requirements nor its stated organizational mission.

Kaiser’s Business Plan: Targeting the Vulnerable

Kaiser’s “business plan” is a market share strategy with a medical redlining program as centerpiece. Its strategy includes selectively abandoning communities with population segments that present the potential for higher medical costs. Communities with significant population segments with the potential to increase Kaiser revenues (the relatively healthy and wealthy) are far less likely to be deserted.

  • Nearly 18% of the population of Oakland receives some form of public assistance and over 30% of related children under 18 live in poverty. Thirteen percent of all households earn less than $10,000 per year. Eleven percent of those over 65 are in poverty.
  • In Richmond, the number of related children under 18 in poverty is about 26%, while over 11% of all households bring in less than $10,000 per year.
  • In Martinez, the Black per capita income is extremely low - a little over $9000 per year, even less than the $10,940 Black per capita for Oakland.
  • Twelve percent of Sacramento households bring in less than $10,000 per year and the number of households receiving public assistance is about 16%. Sixteen percent are of Latino origin.
  • Twenty seven percent of the San Pablo population is of Latino origin. More than 13% of all households earn less than $10,000 per year and the per capita for Asian or Pacific Islanders is about $9,500. The White per capita is only $11,400. Of the 10.7% that are 65 and over, 11% are in poverty. More than 27% of related children under 18 are in poverty.

Medicare patients in the targeted communities will be especially hard hit. Over half of Richmond’s 1995 discharges were Medicare patients (55.7%). Oakland had about 27% and Sacramento about 33%. Kaiser is willing to desert these Medicare populations because the less wealthy Medicare populations tend to be less healthy and less healthy Medicare patients tend to need more costly care.

Setting Low-Income Seniors Adrift: Skimming Medicare

The average length of acute care stay for Kaiser’s Northern California Medicare patients in 1991 was 6.4 days. In 1995, it was 4.8 days. This is a difference of 1.6 days less - 25% - on average.

Has Kaiser made dramatic progress in caring for those 65 years of age and over, or does it like other HMOs seek to recruit the healthiest and wealthiest of Medicare patients?

About 26% of Kaiser’s 1995 California patient discharges were Medicare patients. However, Kaiser, may “cherry pick” its Medicare population in order to boost revenues by focusing on healthier and wealthier urban populations.


It’s a great scam for the owners of the HMOs. Here’s how it works: The average senior citizen costs Medicare $4,750 per year. But the sickest ten-percent cost $37,000 (per year).

The other 90 percent of beneficiaries cost Medicare about $1,400 per year.

...guess which senior citizens HMOs recruit: the healthier ones! The arithmetic is such that there is no easier and surer way for them to make truckloads of money, short of printing it. (San Francisco Chronicle)

An examination of the distribution of Medicare expenditures by top percentiles of enrollees in 1993 helps demonstrate the enormous revenues that HMOs can generate by concentrating on healthy Medicare populations.

Percent of Enrollees Percents of Expenditures
5% 50%
10% 70%
25% 91%
100% 100%

As one critic of Medicare abuse puts it:

    ...This is a guide to “cherry picking” made easy. If you can enroll the healthiest 75% of enrollees, you would only pay out 9%, on average, of Medicare expenditures. ...the opportunity for huge profits for managed Medicare providers is apparent. (Professor Peter Arno, Albert Einstein Medical Center).

Those Medicare patients with chronic and costly health problems are left to the much-beleaguered public hospitals.

An August, 1997 report on California HMO Medicare patterns from the U.S. General Accounting Office and other reports provide an excellent snapshot of why Kaiser and other California HMOs prefer to take care of Medicare patients only so long as they are relatively healthy and wealthy.

California Medicare risk HMO enrollment increased nearly five-fold between 1987 and 1995. By 1995, California accounted for over 1/3 of all Medicare HMO enrollment, and five California plans were among the seven largest in the nation.

...we found that prior to enrolling in an HMO a substantial cost difference, 29%, existed between new HMO enrollees and those remaining in Fee for Service because HMOs attracted the least costly enrollees...

The “least costly” patients are the healthiest patients.

Medical Myths in the Service of Corporate Healthcare

The “Empty Bed Syndrome”

Kaiser, like the rest of the private non-profit and for-profit health care industry, claims that its central economic problem is “too many empty hospital beds.” Empty beds might be a convincing argument for cut backs in the hotel industry, but in health care it smacks of the worst kind of self-serving rhetoric in an era of over 41 million uninsured and ER patients literally dying because no bed is available. Of the 67,367 hospital beds that were bought and sold in 1996, the average price per bed as a proportion of total assets acquired was about $264,224. Corporations are not willing to make these kinds of expenditures for merchandise they believe to be worthless.

"It’s not the first time I’ve heard it, but I thought by now everyone had come to realize there is no excess bed capacity and likely never will be." (Chief of Medicine, Kaiser Martinez)

The key determinant as to whether a bed is available or not was stated by the Quality Assurance Director from Kaiser Richmond in the HCFA report:

...even if beds are available, there may not be nursing staff for those beds. She said, “If there are no staff, then there are no beds.”

Non-Profit Status is not Enough–Kaiser’s Questionable Privilege

Kaiser and other private non-profit health care corporations have all benefited by attaching themselves to the ethical image of public non-profit hospitals - hospitals committed to serving the public health irrespective of cost. Kaiser may wear the legal mantle of a non-profit, but its misuse of its non-profit shield reduces it to a poor likeness of a public non-profit hospital’s community commitment.

Kaiser’s community service program outlays - which Kaiser maintains at minimal levels to maintain its non-profit shield, avoid income tax payments and cloak its for-profit operations from public view - are typically 1% of its total non-profit expenses. For-profit health care corporations, manifestly more concerned with profits than health care, pay income taxes. If private non-profit Kaiser had been paying income taxes similar to the 1996 rates paid by some of California’s largest for-profit health care corporations (PacifiCare, FHP International, Wellpoint, Foundation Health Corp., Foundation Health Systems and Oxford Health Plans) it would have paid at minimum $1.3 billion in income taxes from 1992 through 1996.

Is Kaiser living up to the obligations of its non-profit status as well as enjoying its privileges? Its community service program is marginal, it is redlining some of the most vulnerable populations out of access to care, operates without effective public oversight, and is geared to maximize corporate revenues while minimizing quality care. All this underscores the growing lack of real distinctions between private non-profit and for-profit health care corporations and the danger to community health this heralds. It also highlights crucial policy questions surrounding the depth of Kaiser’s commitment to community health:

  • Is Kaiser’s medical redlining program reconcilable with its stated corporate purpose of community and public service free from discrimination?
  • Is Kaiser’s funding of its national and international expansion program with taxpayer subsidies generated from tax-exempt revenues of its non-profit shield in the best interests of patients or corporate prerogatives?
  • Whose interests are served through Kaiser’s use of escalating advertising and management consultant budgets to finance deceptive promotions of Kaiser quality and lowering the standard of care?
  • Should not a genuine health care reform package include the basic right to know where precious health care dollars are going? If so, should not Kaiser publicly disclose its for-profit operations’ income, expense, and tax returns?

The question for California, the nation, and their patients is this: Is private non-profit Kaiser pulling its weight in its commitment to community health and services, or is it simply providing token service to the detriment of quality care in the pursuit of ever-greater revenues, market share and net income?

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