Plop, Plop, Fizz, Fizz The author’s family just joined Kaiser — and “Oh, what a relief it is!”
By David J. Gibson, MD
Few people here in Sacramento appreciate the fact that this area has become a company town. Kaiser owns Sacramento. From its fledgling entry into this market in 1965, when the health plan enrolled 12,000 local members and purchased the Arden Community Hospital, the nonprofit healthcare system now has more than 578,847 members in the region. This represents a growth of 25 percent from 462,407 five years ago. Membership is expected to reach 671,065 in 2006, up 45 percent for the decade.
Buoyed by a strong bottom line and
booming membership growth, Kaiser Permanente is now adding the following
· 50 beds to its Roseville Medical Center. The medical/surgery beds will expand the 116-bed hospital by more than 40 percent. Construction of the $20 million expansion should begin May 1 and finish by year's end, with the new beds ready for patients by February 2003.
· A $27 million medical office building will open in Folsom this fall.
· A $34 million medical office building is slated to open in Elk Grove in the fall of 2003.
· Construction of a new medical office building on the Roseville campus is expected to begin in 2004.
Kaiser recently completed expansion of the emergency room at its South Sacramento Medical Center. Expansion of the hospital's radiology department should be finished in October. The total cost is $30 million. Expansion of the emergency room at Kaiser's Sacramento Medical Center on Morse Avenue will begin this summer and is slated for completion by February 2003. The cost is $12 million.
The consumer’s perspective:
The decision to join Kaiser was not even a close call for me. The factors influencing this decision can be classified as follows: economic factors, product quality and consumer service.
· Economic factors: Selecting a
health insurance product within the context of an employer provided benefit
package looks to the employee as follows:
Medical Plans (Employer has contributed $250 per month in advance)
Tier Kaiser Blue Cross HMO* Blue Cross PPO* Blue Card (non-CA)*
EE** only $33.80*** $42.83 $59.49 $65.56
EE + 1 $118.29 $160.61 $223.08 $245.84
EE + family $188.42 $256.99 $356.93 $393.35
* Represents the lowest cost commercial product (HN, PC, CIGNA, etc.) in each class.
** EE = employee
*** Employee out-of-pocket monthly contribution.
For most working families, the above pricing structure significantly influences the decision to purchase Kaiser. It would make an interesting study to find out how many physicians in private practice have also chosen the Kaiser option through their spouse’s benefit plan.
· Product quality: When all the talking heads are finished blowing smoke over quality, no one has been able to demonstrate that either Kaiser or for-profit commercial HMOs deliver better quality outcomes. Kaiser consistently ranks at the top of independent quality ratings such as the National Committee for Quality Assurance (NCQA) though no one know what to do with this data.
· Consumer service: The quality of service is now hard to differentiate. The soonest my wife could get an appointment with an Internist under our previous health care insurance, the Blue Cross PPO product, was 3 months. Dr. Whitelaw documents a case in the Sutter Medical Group wherein one of the Group’s pediatricians had a child who fractured his arm on a Thursday and nobody in the group could see him until after the weekend - such was the shortage of orthopedic surgeons.
Kaiser once had a reputation for poor customer or patient service. Unfortunately, poor quality service is now ubiquitous across all of health care. Among insured patients who report problems getting medical care, the percentage who cite barriers that are "health-system related" jumped from 54% in 1997 to 62.4% in 2001.
Most people select an insurance product based upon the doctors. In this regard, The Permanente Medical Group wins easily. According to published data , the number of doctors active in private practice in Sacramento and El Dorado counties dropped 13.4 percent between 1995 and 2000. The total number of physicians per 100,000 people in the region dropped to 165 in 2000 from 205 in 1995, a 19.6 percent decline. All of these losses were experienced by the private sector.
Meanwhile, the growth in The Permanente Medical Group has kept pace with the company’s expansion noted above. In addition, these Kaiser physicians are very attractive in the market. Many are women – highly sought after by female patients. Some are minority, which represent a cultural comfort zone for young minority families.
The world of medicine, which I entered after graduating from medical school in the early 1970’s, only exists in private practice today. We are now, sad to say, all middle aged, male, disillusioned curmudgeons. Personally, I want a young doctor who still has the idealism many of us lost over the years. The hospitals are killing private practice in Sacramento.
The above documented product pricing differentials will only increase over time. Now that hospitals have consolidated into regional conglomerates, they have the market strength to dictate to the for-profit HMOs their high pricing structures. Thus, inflationary trends for hospital services are now the primary driver in health care inflation nationally. When factored into the cost for services in a commercial HMO product, the differential in cost with Kaiser will only increase.
What is amazing about all of the above – Kaiser is not the best buy for the consumer. When purchasing individual health insurance coverage with after tax dollars, a high deductible major medical product makes the most sense. I was able to purchase a $4,000 annual deductible PPO policy from Blue Shield for $229 per month for our family’s coverage. This compares quite favorably with the Kaiser product at $438.42 ($250 employer contribution + $188.42 employee contribution per month). Unfortunately, I learned this year that the risks inherent in such a policy here in Sacramento are unacceptably high.
I recently wrote about my daughter’s experience receiving an IV infusion in an emergency department. Her costs were unconscionably high. For example, according to its invoice, the hospital marked up the cost for diagnostic laboratory testing and drugs by a factor of over 18 times above market. Such above billing practices are generating real human misery here in Sacramento. Unbudgeted medical expenses now produce the leading cause of bankruptcy for the middle-class.
Billing practices that exceed the bounds of common sense and decency unfortunately victimize the uninsured and the private pay patient with high deductible insurance. These fee-for-service patients represent the essential core of the private practice market.
This targeting of the middle class now makes the private option an unreasonable financial risk for families in Sacramento. These practices either force the middle class into contracted network structures that consistently work against the interest of the private physicians in Sacramento or force the patient to select the Kaiser option.
This is not good news for Kaiser.
I predict that we will see continued and accelerating erosion of the private pay market to Kaiser. My bet, Kaiser will be unable to build facilities fast enough to accommodate their market growth. A more likely scenario will involve Kaiser’s purchase of existing hospitals that are already financially weakened by this market shift (the Mercy System) at fire sale prices to accommodate their growth.
One would think that all of the above is good news for Kaiser – wrong. There is a point where market dominance by a single entity becomes a liability under anti-trust law. Market penetration that exceeds 50% within a given sector will begin to draw attention form the Justice Department – remember Standard Oil, AT&T, and Microsoft. Under such circumstances, after Kaiser has won in Sacramento, it may be forced to divest. In short, Kaiser could suffer from too much of a good thing. That is not a good outcome for Kaiser.
© David J. Gibson, MD 2002