How Kaiser's Cost Slashing Nicked Its Image

Two big states suspect the HMO may have cut corners, too

In its 51 years, Kaiser Permanente, the nation's oldest health maintenance organization, has prided itself on providing quality care. Indeed, the Oakland (Calif.) nonprofit spends 98% of every health-care dollar it receives on patient care. That has helped the $13 billion behemoth sign up some 7.9 million members nationwide, more than any other HMO. But these days, Kaiser's sterling reputation is being tarnished.

In recent months, state and federal authorities have launched investigations into Kaiser practices in Texas and California. The probes examine issues ranging from inadequate staffing at hospitals to poor emergency-care service and, in Texas, a high number of wrongful-death suits. They follow sweeping efforts initiated by Kaiser to control costs, raising the question of whether Kaiser may be cutting too deeply. "That's a big concern we've had with HMOs in general," says Reggie James, the Southwest regional director for the Consumers Union. "In an effort to be more competitive and cut costs, they are cutting services." Kaiser vehemently denies any wrongdoing.

PRIME TARGET? Kaiser's biggest woes are in the Lone Star State, where it's among the top 10 HMOs and is in a nasty legal battle with the Texas Insurance Dept., which regulates HMOs. In a yet-to-be-released report, Texas officials are highly critical of Kaiser. Court papers filed in a dispute over releasing the report indicate that the review stemmed from numerous complaints about poor-quality care, allegations that Kaiser improperly discourages emergency-room care, and the filing of at least 20 wrongful-death suits against the HMO in the Dallas-Fort Worth area. Insurance Dept. records also indicate that Kaiser has lost some $71 million since 1991 in Texas.

One wrongful-death suit was brought in 1995 by Tracey M. Almany, whose husband, Trevor, died in December, 1993. The suit alleges that Kaiser's network physician and its Texas subsidiary were grossly negligent in improperly diagnosing her husband's heart condition and failing to get him admitted to the closest emergency room. Kaiser declined to comment on the suit, which is pending in U.S. District Court in Dallas. But Kaiser's Texas spokesman, David O'Grady, says that because Kaiser is the only HMO in Texas to assume legal liability for its doctors, it is named in a disproportionate amount of malpractice suits. As a result, O'Grady says, Kaiser is a more likely litigation target than competitors.

Kaiser recently won a state court order sealing the Texas report, which O'Grady calls "flawed through and through" and "loaded with inaccuracies and erroneous conclusions." Kaiser contends that officials botched the investigation, misapplied the law, contradicted reports by their own consultants, and attempted to release confidential information. On Apr. 18, Kaiser will ask the court to continue the injunction sealing the report.

SHUTTERED HOSPITALS. Meanwhile, Texas State Attorney General Dan Morales says there are "sufficient grounds and justification" for the state to yank Kaiser's HMO license. Morales says those grounds are separate from findings in the report. He says his office has received complaints about Kaiser skimping on emergency-room services--even though the company in 1995 settled a lawsuit with Morales' office over denial of benefits to Kaiser members who received emergency care at non-Kaiser facilities. "We now have indications that, essentially, Kaiser is going back to their old practices," he says. O'Grady says that there is no basis for shuttering the HMO's Texas operations.

Back in its home state, Kaiser faces a probe by California's Health Services Dept. In conjunction with the federal Health Care Financing Administration, California is looking into four patient deaths in the emergency room at a Kaiser hospital in Richmond. On Apr. 3, Kaiser Chairman David Lawrence conceded that Kaiser's own investigation showed that the emergency room does not meet federal standards. Problems included inadequate medical documentation and staffing.

Again, cost-cutting may be to blame. The complaints about the Richmond facility arose after Kaiser scaled back services there and set plans to shutter two of its five hospitals in the East Bay, near San Francisco. That move has infuriated the California Nurses Assn. In a complaint lodged with the California Corporations Dept., which oversees HMOs operating in the state, the nurses charge that quality of care has fallen since the hospital closings. The union, which represents about 25,000 nurses in Northern California, plans a one-day strike against Kaiser on Apr. 16.

Kaiser says it is working diligently to clean up its act. "There's been a lot of bashing. But the fact is, we have acknowledged the problems, and we are correcting them," says spokeswoman Beverly Hayon. That may offer little comfort to the likes of Tracey Almany.

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