HMO Trend Demands Eagle-Eyed State Oversight

Three HMOs--Kaiser Permanente, Pacificare and Health Systems International--will soon control health care for 9 million of the 13 million Californians in HMOs. Kaiser is singular among these titans in receiving an annual tax break of more than $200 million because of its nonprofit status. Such status requires the provision of charity care, but does not preclude Kaiser from diverting profits to the doctors who own Kaiser’s for-profit medical group and receive dividends for Kaiser’s penny-pinching.

While Kaiser was once the gold standard for affordable, high-quality HMO care, it has recently led the race to the bottom in health quality, clinging to its tax break even as it acts like a for-profit company. Kaiser has been the leader in reducing patient stays and has steadily cut back on preventive services by limiting mammograms, pap smears and prostate cancer screenings.

An infamous Kaiser memo announcing an eight-hour discharge policy for newborns and their mothers (since outlawed) was called “Positive Thoughts Regarding the Eight Hour Discharge.” It encouraged staff to offer such justifications as “hospital food is not tasty” and “unlimited visitors at home.”

The state Department of Corporations, which oversees HMOs, has done an audit of Kaiser, released in August, and found that medical decisions at Kaiser do not appear to be “independent of fiscal and administrative considerations.” In other words, money is dictating medicine. This is against the law.

Specifically, auditors found that “clinical financial review nurses have the authority to overrule physician decisions.” Bureaucrats can, in effect, practice medicine without a license. The auditors also found that 25% of non-network emergency room treatment for Kaiser members was denied unreasonably.

Kaiser has been ordered to answer for these abuses by February, but it will no doubt resist. Kaiser’s own 1995-97 Southern California strategic plan, which includes such reckless care-cutting as replacing skilled nurses with unskilled attendants, is based on a financial goal that amounts to being able to quote the lowest price to all corporate and individual purchasers. Prevention, which used to be the signature of HMOs, is barely mentioned in the document, which reads more like a corporate prospectus than a plan for health policy. This “nonprofit” company has made more than $2 billion in net operating income, i.e. profit, over the last three years. Today Kaiser spends $60 million annually on advertising and marketing, more than a 700% increase over four years ago.

While the state has tried to resolve cases with Kaiser and other HMOs “quietly,” only a forceful and public response will prevent the kind of reckless indifference that threatens patients like Charla Cooper. Cooper will lose her ability to have children if Kaiser does not provide $70,000 in specialist care, available only outside the Kaiser network, that she requires for a pre-cancerous cervical condition and ovarian complications. HMOs like Kaiser do not like to provide such out-of-network care, even when no qualified specialist exists at the HMO, because of cost.

Cooper has stated: “Kaiser missed a diagnosis, did not return my phone calls, scheduled procedures three months after they were needed and returned test results up to two months after the tests were performed.” Fertility specialists whose advice Cooper sought on her own have urged that she receive special surgery and fertility treatment unavailable at Kaiser, but Kaiser bureaucrats have steadfastly refused to authorize such treatment. Cooper’s chances of becoming a mother fade every day. Her complaint, marked “urgent” by department investigators in July, is still sitting on the desk of Department of Corporations Commissioner Keith Bishop.

Bishop has charted a harmfully cautious course with HMOs since his appointment by Gov. Wilson. And indeed, the Department of Corporations has issued only one fine in its 20 years of HMO oversight for improper denial of health care. But HMOs like Kaiser understand money most, and that is what they must be forced to pay when they violate state law and abandon patients like Cooper. The penalty should be enough to give a billion-dollar behemoth an incentive to live up to its obligations under the law and its debt to taxpayers who underwrite that $200-million annual bonus.