Getting more for their dollar: a comparison of the NHS with California's Kaiser PermanenteCommentary: Funding is not the only factorCommentary: Same price, better careCommentary: Competition made them do it
Kaiser Permanente is not successful because of competition - it is
successful in spite of it!
Kaiser has a long history of providing better care for the same or
less money than any other major health care provider. Its rates used to be
'community-based' - every employer or enrollment group member paying the
same premium regardless of individual acuity, age, or medical history.
This is not surprising, because Kaiser provided all aspects of health care
as a nonprofit organization. Technically, the medical groups are for-
profit, while the health plan is nonprofit. The doctors can show a profit,
which they distribute to themselves in the form of shares, with the money
going back into the health plan instead of their pockets (As a nonprofit
the health plan cannot make a profit, although it can make an 'operating
margin,' to reinvest in infrastructure). Kaiser does not bear the
additional burden of the necessity of making a profit for shareholders nor
of providing expensive perks such as stock options for top executives.
The steps the government and its consultants took in the 90s to "open
up the health care market" were not wholly unlike those promoted by Enron
lobbyists to "open up the energy market to free competition," and we can
see where that led! Unfortunately, there is an inherent conflict of
interest in for-profit insurance companies: they answer primarily to their
shareholders and are in business to make money, not to provide health
care. Consequently, it is to their advantage to enroll only young, healthy
members ('cherry picking'), to get rid of expensively sick people
('dumping') and, generally, to deny care whenever they can get away with
it - hence the nonmedical claims authorization people whose job is just
that!
On a more basic level, these insurance HMOs are just middle men.
Unlike Kaiser, they don't own hospitals or clinics, or directly care for
anyone, and bear no risk. They aren't really 'Health Maintainance
Organizations' at all - they just shell organizations that contract with
the hospitals and medical group providing the care. They have been
successful because as more and more employers signed up with these
insurance companies, their bargaining power increased, enabling them to
ratchet down payment to hospitals and medical groups (that's why
independent doctors bad-mouth HMOs - not because of the quality of care,
but because they saw their huge incomes deteriorating, and why many want
to return to the old fee-for-service insurance reimbursement model).
The other reason for their success was to deny claims and to
introduce acuity-based premiums, in which employers with young and healthy
employees pay less for insurance than employees with old/sick employees.
The insurance companies did three things that they are good at: low
balling costs; denying claims; and being actuaries. That's been the key to
their success.
Employees are often not permitted to choose the health plan they
want. Employers with young and healthy employees began to drop Kaiser,
switching to the cheaper insurance companies, leaving Kaiser with, on the
average, older and sicker members. Kaiser was forced to increase its rates
to cover their higher costs, leading to more employers opting for cheaper
plans. In the industry this is known as the 'death spiral'. As younger
groups leave and older groups remain, premiums escalate until on one can
afford you any more. Kaiser almost went bankrupt.
Unfortunately, what they then implemented, on the pricing side, was
not much different from what the insurance companies implemented.
Employers with younger members now pay less than employers with older
members. (When a member without national health insurance through the
social security system who pays for his/her own premium (through a group)
turns 65, his/her premium now jumps to US$1649/month!) The only difference
is that Kaiser retains its own delivery system. Being run by doctors, the
emphasis remains on providing quality care. The 'insurance' side of Kaiser
is more like a poorly-run insurance company - an insurance company
handicapped by a conscience!
The biggest change in the health care industry is that drugs keep
people out of hospitals, resulting in lower hospitalization costs but very
much higher drug costs. While Kaiser provided drugs almost free of charge
($5 per prescription for decades, without limit), most other insurance
plans do not, often forcing the sick, and especially the elderly sick, to
choose between medicine and food or heat. To remain competitive, Kaiser
has been forced to raise per prescription drug charges to $15 and to
implement a $1,000 per year cap because many companies and public entities
are concerned only with which health plan is the cheapest - not which one
is the best, or the most cost-effective.
Drug cost is increasing faster than any other cost in the health care
industry. Much of the cost is driven by the drug companies themselves. For
example, since the ban on prescription drug advertising was lifted,
companies spent thousands of millions (yes - US 'billions') of dollars
advertising brand-name drugs. Both patients and doctors fall for these
ads, resulting in a huge amount spent on over-prescribed or inappropriate
drugs.
There is also the controversy about 'lifestyle' drugs. Clearly, an
HMO should pay for a drug that keeps you alive, but what about paying for
Viagra, so you can have sex more often. Heavily-lobbied California
insurance regulators said, "Yes!" And should I pay higher premiums so you
can take Rogain to have more hair? So far, they say, "No."
Kaiser's members have traditionally been mostly low and middle class
workers. Big corporations often have different, and far better, plans for
those who least need them - the top-paid executives. Probably the worst
possible steps for a publicly-funded health care system to take would be
to implement a two-tiered system, a 'private' one for the affluent or
those with organizations providing top health insurance and another for
the 'others,' starting a downward spiral in which those with better care
(and more influence) oppose funding for the system they don't use,
weakening it and making more people anxious to get out, further reducing
its funding...
The NHS, of course, needs to increase efficiency and reduce
unnecessary hospital stays, but more important is the concomitant need to
control drug costs, recognizing the rapacious greed of many of the drug
companies. Other than direct price controls, prices can be kept under
control by reasonable patent expirations (something drug company lobbyists
in the US pay politicians many tens of millions of dollars to avoid) or by
direct governmental control of the fruits of basic research at public
institutions leading to these drugs. Virtually every major drug on the
market today was developed in part with tax dollars - direct clinical
support, not just the R & D tax breaks given to pharmaceutical
companies! Ideally, you would have a single international body, which
could contract with private companies, for international research and
approval of drugs.
One thing NOT to do is to hire a phalanx of expensive, self serving
and well-connected consultants to tell you what to do. Kaiser made this
mistake over several years recently. The major blunders that resulted were
extremely expensive, leading to the first sea of red ink in Kaiser's
history and almost to its collapse, also taking a serious toll on the
morale of those attempting to provide caring, quality services! Find out
how best to improve services by talking to those on the line providing
them!
Rapid Response:
Success in Spite of Competition
Kaiser Permanente is not successful because of competition - it is
successful in spite of it!
Kaiser has a long history of providing better care for the same or
less money than any other major health care provider. Its rates used to be
'community-based' - every employer or enrollment group member paying the
same premium regardless of individual acuity, age, or medical history.
This is not surprising, because Kaiser provided all aspects of health care
as a nonprofit organization. Technically, the medical groups are for-
profit, while the health plan is nonprofit. The doctors can show a profit,
which they distribute to themselves in the form of shares, with the money
going back into the health plan instead of their pockets (As a nonprofit
the health plan cannot make a profit, although it can make an 'operating
margin,' to reinvest in infrastructure). Kaiser does not bear the
additional burden of the necessity of making a profit for shareholders nor
of providing expensive perks such as stock options for top executives.
The steps the government and its consultants took in the 90s to "open
up the health care market" were not wholly unlike those promoted by Enron
lobbyists to "open up the energy market to free competition," and we can
see where that led! Unfortunately, there is an inherent conflict of
interest in for-profit insurance companies: they answer primarily to their
shareholders and are in business to make money, not to provide health
care. Consequently, it is to their advantage to enroll only young, healthy
members ('cherry picking'), to get rid of expensively sick people
('dumping') and, generally, to deny care whenever they can get away with
it - hence the nonmedical claims authorization people whose job is just
that!
On a more basic level, these insurance HMOs are just middle men.
Unlike Kaiser, they don't own hospitals or clinics, or directly care for
anyone, and bear no risk. They aren't really 'Health Maintainance
Organizations' at all - they just shell organizations that contract with
the hospitals and medical group providing the care. They have been
successful because as more and more employers signed up with these
insurance companies, their bargaining power increased, enabling them to
ratchet down payment to hospitals and medical groups (that's why
independent doctors bad-mouth HMOs - not because of the quality of care,
but because they saw their huge incomes deteriorating, and why many want
to return to the old fee-for-service insurance reimbursement model).
The other reason for their success was to deny claims and to
introduce acuity-based premiums, in which employers with young and healthy
employees pay less for insurance than employees with old/sick employees.
The insurance companies did three things that they are good at: low
balling costs; denying claims; and being actuaries. That's been the key to
their success.
Employees are often not permitted to choose the health plan they
want. Employers with young and healthy employees began to drop Kaiser,
switching to the cheaper insurance companies, leaving Kaiser with, on the
average, older and sicker members. Kaiser was forced to increase its rates
to cover their higher costs, leading to more employers opting for cheaper
plans. In the industry this is known as the 'death spiral'. As younger
groups leave and older groups remain, premiums escalate until on one can
afford you any more. Kaiser almost went bankrupt.
Unfortunately, what they then implemented, on the pricing side, was
not much different from what the insurance companies implemented.
Employers with younger members now pay less than employers with older
members. (When a member without national health insurance through the
social security system who pays for his/her own premium (through a group)
turns 65, his/her premium now jumps to US$1649/month!) The only difference
is that Kaiser retains its own delivery system. Being run by doctors, the
emphasis remains on providing quality care. The 'insurance' side of Kaiser
is more like a poorly-run insurance company - an insurance company
handicapped by a conscience!
The biggest change in the health care industry is that drugs keep
people out of hospitals, resulting in lower hospitalization costs but very
much higher drug costs. While Kaiser provided drugs almost free of charge
($5 per prescription for decades, without limit), most other insurance
plans do not, often forcing the sick, and especially the elderly sick, to
choose between medicine and food or heat. To remain competitive, Kaiser
has been forced to raise per prescription drug charges to $15 and to
implement a $1,000 per year cap because many companies and public entities
are concerned only with which health plan is the cheapest - not which one
is the best, or the most cost-effective.
Drug cost is increasing faster than any other cost in the health care
industry. Much of the cost is driven by the drug companies themselves. For
example, since the ban on prescription drug advertising was lifted,
companies spent thousands of millions (yes - US 'billions') of dollars
advertising brand-name drugs. Both patients and doctors fall for these
ads, resulting in a huge amount spent on over-prescribed or inappropriate
drugs.
There is also the controversy about 'lifestyle' drugs. Clearly, an
HMO should pay for a drug that keeps you alive, but what about paying for
Viagra, so you can have sex more often. Heavily-lobbied California
insurance regulators said, "Yes!" And should I pay higher premiums so you
can take Rogain to have more hair? So far, they say, "No."
Kaiser's members have traditionally been mostly low and middle class
workers. Big corporations often have different, and far better, plans for
those who least need them - the top-paid executives. Probably the worst
possible steps for a publicly-funded health care system to take would be
to implement a two-tiered system, a 'private' one for the affluent or
those with organizations providing top health insurance and another for
the 'others,' starting a downward spiral in which those with better care
(and more influence) oppose funding for the system they don't use,
weakening it and making more people anxious to get out, further reducing
its funding...
The NHS, of course, needs to increase efficiency and reduce
unnecessary hospital stays, but more important is the concomitant need to
control drug costs, recognizing the rapacious greed of many of the drug
companies. Other than direct price controls, prices can be kept under
control by reasonable patent expirations (something drug company lobbyists
in the US pay politicians many tens of millions of dollars to avoid) or by
direct governmental control of the fruits of basic research at public
institutions leading to these drugs. Virtually every major drug on the
market today was developed in part with tax dollars - direct clinical
support, not just the R & D tax breaks given to pharmaceutical
companies! Ideally, you would have a single international body, which
could contract with private companies, for international research and
approval of drugs.
One thing NOT to do is to hire a phalanx of expensive, self serving
and well-connected consultants to tell you what to do. Kaiser made this
mistake over several years recently. The major blunders that resulted were
extremely expensive, leading to the first sea of red ink in Kaiser's
history and almost to its collapse, also taking a serious toll on the
morale of those attempting to provide caring, quality services! Find out
how best to improve services by talking to those on the line providing
them!
Competing interests: No competing interests