blog.fixkp.org

If Kaiser Permanente was a for-profit, publicly traded company, it would come in at number 63, by revenue, on the 2007 Fortune 500 listing, just ahead of The Walt Disney Company.

In fact, as a not-for-profit organization, Kaiser Foundation Health Plan and Kaiser Foundation Hospitals raked in considerably more profit (on a net income basis) last year than Best Buy, Safeway, Medco, Costco, Kroger (which also owns Ralphs), Cardinal Health, and McKesson. Continuing the list, it made about as much as CVS/Caremark and Sprint Nextel, but just slightly less than Sears Holdings (which also owns Kmart).

If the concept of a not-for-profit making that much money worries you, the tale only gets worse for Kaiser Permanente members. Those sumptuous profits are coming at the expense of the future stability of the largest health insurer in California.

Kaiser Permanente is approaching its perfect storm, the coalescence of an expected deterioration in the rolls of traditional members, a rapid escalation in spending to try to repair the unreliable (and already enormously costly) HealthConnect project, and, at long last, the inability to raise member dues further (since payers simply can’t afford higher rates anymore).

When I learned, last year, that Kaiser Permanente could face losses of billions of dollars through 2009, I was shocked. (Kaiser Permanente later called those projections a “worst case scenario.”) Our organization had grown revenue and income by leaps and bounds for years: could that growth finally come to an end?

Right up to fiscal year 2007, those projections show that all financial signs should be pointing to healthy. By and large, they are. But the warning bells are sounding.

Under George Halvorson, Kaiser Permanente’s financial “transparency” has become murky, at best. Looking at the provided figures for 2006, you would probably notice that net income increased a whopping 30 percent last year. You’d even be pleased (or not) to know that our operating margin increased from 2.6 to 2.8 percent. But, in real numbers, that means our operating income likely only increased around 19 percent, far less than our reported net income increase of 30 percent.

While net income provides an important metric, it doesn’t provide a true picture of our organization’s health, and is more susceptible to one-time adjustments and transactions that could mask true financial changes or problems.

If Kaiser Permanente can’t report upfront, honest financial numbers to the public, you have to wonder why. Perhaps fortunately for Kaiser Permanente, there really isn’t any governmental entity that pays much attention to the truth in financial reporting of not-for-profits. That oversight (or, ironically, that lack of oversight) is quite unfortunate for the organization itself, and especially for our members.

Here’s an interesting snippet from Erik Sherman’s blog.

Ironically, Mr. Deal first sent his complaints to Kaiser’s compliance officer and to the board of directors:

Kaiser’s assistant general counsel sent Mr. Deal a letter saying that “a thorough investigation” found no evidence of misconduct by the executives, nor of a “disastrous failure” of the HealthConnect project.

And yet there was this internal report. In either case it’s clear that the board has some problems. Either it knew of the system issues and ignored them – which would seem like criminal negligence if patient health was affected – or it was incapable of unearthing this report. In either case, this would seem a clear issue of board dysfunction.

This story was originally posted at justendeal.com.

Today, the Charleston Gazette is printing, on their front page, a story based on an interview I did with Tara Tuckwiller, along with a reprint of Rhonda Rundle’s Wall Street Journal article. From the Gazette article:

In a telephone interview with the Gazette Wednesday from his home in Los Angeles, Deal said he still thinks Kaiser Permanente is a good organization.

“For me, there were these problems that were threatening patient safety and the financial stability of the organization,” he said.

“It was not within me to just ignore that or be quiet about it.”

Ignore the Problems

The Kaiser Permanente Responds page has no actual response to the Wall Street Journal article, and, unfortunately, our Board of Directors has not yet addressed the Minnesota Attorney General report, the Dodd SEC filings, or the other inaccuracies in George Halvorson’s initial response. In fact, our Board has never commented whatsoever on any of these serious issues.

As if the continued complete lack of responsibility by our Board wasn’t enough, the organization now has officially adopted Mr. Halvorson’s “just give me more time to hide the problems” mantra:

“The value and merit of the various KP systems and strategies will be validated by time and actual performance.”

Halvorson’s original plea:

“[We] will prove the point beyond debate of whether or not [HealthConnect] can handle our total volume. I am confident that those results will be entirely satisfactory. All signs are that the careful work we did to guarantee scalability of the system have succeeded.”

That’s not what the 722-page document obtained the Los Angeles Time said.

Finally, the “official response” continues the attempt to say that the few features of KP Online are an integral part of HealthConnect and indicative of the total project’s “success.” KP Online is not KP HealthConnect. Requesting an appointment online is convenient. Your physician having access to accurate, reliable medical records can be critical. The system’s reliability has not drastically improved since November, and instead of talking honestly about that fact, Mr. Halvorson ordered that the downtime figures stop being published internally.

The project and the system can be pushed along, but that doesn’t mean it’s truly functioning, and that certainly doesn’t mean it’s ever going to be a success. Instead, we’re throwing more money at what will ultimately be another multi-billion dollar write-off — to shield, as long as possible, the comfortable position of George Halvorson and the reputation of our absent Board members.

Many Discussions

Meanwhile, around the web, folks are talking. I’ll try to list here some of the comments forwarded on to me.

From Rick Nelson, at Taking the Measure:

“Interestingly, Deal’s mass mailing wasn’t a rash, spur of the moment action. His message is a carefully edited 2000-word indictment alleging conflict of interest among Kaiser Permanente officials and outside organizations as well as mismanagement of the document-conversion program.”

You can see my original message here.

From the Wall Street Journal Health Blog:

“Mr. Deal’s email has the ring of truth. Mr. Halvorson’s email has the ring of arrogant corporate vengeance.”

You can read Mr. Halvorson’s response here.

From a lively discussion at MetaFilter:

“I want to say that I was struck at the quality of this man’s email; it does a better job of representing the issue than I’ve come to expect from investigative journalists these days. He may not have a future in IT any more (debatable), but he would make a fine reporter.”

Professor Bailey and Professor Hollis would be proud.

“By definition, a nonprofit has been deemed to be an organization serving a public good. In exchange for this public service, their obligation to pay income tax gets waived. Every nonprofit organization is a taxpayer-subsidized organization. As a nonprofit they also become eligible for public subsidies in the form of grants. A nonprofit’s profligate waste better be a matter of public interest. We’re all its stock holders. [...] If you think a massive nonprofit’s screwups or corruption are none of your business, go right on ignoring it. It’s your investment to flush away if you want. The rest of us stakeholders will be over there, giving a damn.”

Exactly. I hope you will join me in telling our Board of Directors that you care about the future of Kaiser Permanente.

This story was originally posted at justendeal.com.

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Page one of today’s Wall Street Journal has an article on the email I sent on November 3, along with a look at the events leading up to and following it.

This story was a personal struggle for me. When other reporters called, I never volunteered or confirmed my personal situation (not even my age) or history, and never really discussed, at length, the process leading up to my sending the email. I have tried to make sure I stay focussed on the failures of HealthConnect and the terrible impact it is having on patient safety.

Ultimately, I came to recognize that it was important for there to be a record, an honest one, of what transpired before and after the email. I spent months prior to November 3, trying to get the patient safety and financial issues relating to HealthConnect investigated properly. The “compliance” department of Kaiser Permanente, under Daniel Garcia, failed utterly to conduct any such investigation. And our Board of Directors abdicated their most important responsibility, to protect Kaiser Permanente and our members.

In December, when Kaiser Permanente became aware that the Los Angeles Times was planning to print a front page story on HealthConnect, the tone of their communications with me changed. Individuals at the organization increasingly seemed desperate to convince me to stop cooperating with the Times. The desperation culminated in a concoction of fact and fiction regarding a list of about a dozen “violations of policy” which the organization subtely hinted could be leaked to the media if necessary. I knew none of the manufactured “violations” could withstand any level of scrutiny, but I also knew that our public relations folks could be highly selective about the “information” they chose to release or withhold, to paint a picture just the way they wanted. (They’ve done it before.)

I knew this process would be difficult, but I also knew it was something I had to do. I know I have done everything I can to make sure our members have access to safe, affordable care, and I will continue to do whatever I can do to protect Kaiser Permanente. Can he say that?

Digg this story.

This story was originally posted at justendeal.com.

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George Halvorson today announced that Jenny Ming has been appointed to the Boards of Directors for Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals. Ms. Ming effectively replaces Robert Ridgley, who left the Board early last year before the end of his term. Mr. Ridgley had been chair of both the Board’s finance and audit committee and governance and compliance committee. Under Halvorson, the Board has seen unprecedented turnover, and, as such, the organization no longer discloses the resignation or retirement of directors, and, instead, only publicizes the vacancy when it is filled.

In fact, with Mr. Ridgley’s departure from the Board last year, the appointment of every member of the Board has been approved by Mr. Halvorson, with the exception of Daniel Garcia and Thomas Chapman. Such turnover is unprecedented in the history of Kaiser Permanente, and the fact that a near total replacement of the board occurred in just barely four years is a remarkable testament to what former officer J. Clifford Dodd referred to as the “unwinding and resetting” of the Board of Directors.

The news that Ms. Ming had been appointed as a director came without any accompanying statement from the Board regarding Mr. Garcia and Dr. Chapman. Mr. Garcia’s handling of the HealthConnect “investigation” last fall brought to light his questionable history in Los Angeles politics. Dr. Chapman’s role in the HRDI scandal was recently uncovered.

The truth is, I learned firsthand last fall how ineffective our Board of Directors is at providing guidance and governance to our organization. My personal conversations with board members and my observations of their workings (or lack thereof) has made it unfortunately clear to me that the “unwind and reset” project Mr. Halvorson and Mr. Dodd set out to implement five years ago has been all to terribly effective.

Update. Based on IRS 990 filings for Kaiser Foundation Health Plan, it’s more lucrative than ever to be a Kaiser Permanente Board member. In 2002, the year in which George Halvorson became chairman, the average outside director who served more than half their term was paid $56,670 for their time. By 2004, when Project Unwind and Reset was fully underway, the average payment had more than doubled to $123,813! Considering Kaiser Foundation Health Plan board members meet for barely 40 hours per year, that’s a very charitable hourly rate of $3,095. In case you were wondering, Mr. Halvorson himself only made a paltry $1,805 per hour. Now, remember, this is a not-for-profit organization.

This story was originally posted at justendeal.com.