20 KAISER-PERMANENTE BASIC PHILOSOPHY AND ORGANIZATION cient utilization of equipment and facilities, ease of consultation, and support to quality. 2. INTEGRATED FACILITIES Combining inpatient and outpatient facilities is the key to optimal utilization of offices, hospital facilities, xray, laboratory, and other equipment. In these days of compulsory regional health planning to avoid duplication of costly specialized hospital units, the fiscal benefits of utilizing the same support services for both the inpatient and outpatient should be obvious. However, there are more subtle advantages for both the physician and the patient. I doubt if I would have to argue with any of you in supporting the advantages of hospital-based practice in terms of physician convenience and quality of care. But we often overlook the fact that what is convenient for the physician can also be convenient for the patient. The patient can relate all of his health needs to one medical center, knowing that his physician has complete inpatient and outpatient facilities, equipment and services readily at hand at all times. Multispecialty group practice in integrated medical centers is, of course, the basic structure of medical schools. 3. PREPAYMENT Prepayment, an innovative step in the Thirties, certainly is not unique today, since nearly 85 percent of the American people have some form of insurance for at least a portion of their medical needs. Usually this is in the form of prepayment into an indemnity insurance program or to one of the Blue plans. The role of such third parties is principally that of money changers-converting the prepayment funds into fees-for-service. It is not prepayment that is unusual in our program, but the parties to whom the prepayment is made. As the membership became larger and more complex, it was no longer feasible for the physicians to handle directly the mechanics of prepayment. But even with the health plan acting essentially as a conduit, even though it is a separate entity, the prepayment comes as directly as possible to the providers of medical care-the physicians and the hospitals. This more direct relationship of prepayment to providers becomes an incentive for the physician to develop economies in spending the medical dollar while maintaining quality. When payment is made directly to the medical program, the physician accepts the responsibility not only for episodes of injury or illness, but for continuing care and for preventive measures and health maintenance for those persons in the community who choose to be members of the program. This leads to the next principle. 4. THE REVERSAL OF ECONOMICS Only when the prepayment is made as a capitation payment to the providers of service does the full potential of the group practice prepayment concept become apparent. It is the proper combining of these principles that develops this fourth principle-a new economics of medicine. The new economics is essentially this: It has always been a paradox that doctors and hospitals are dedicated to keeping people well and healthy, yet generally derive most of their income from sickness. By contrast, HISTORICAL DEVELOPMENT AND OPERATING CONCEPTS 241 21 when prepayment is made directly to the providers of care, both the hospitals and the doctors are better off if the patient remains well. It is logical, therefore, for us, the providers of care, to turn our attention and efforts toward maintaining the health of the healthy member as well as returning the ill to good health. To this end it is advantageous for prepayment coverage to be as comprehensive as possible in order to remove financial barriers that could keep our members from seeking care early. For this reason the health plan has always included routine checkups, immunizations, and other preventive services. Overutilization by members with psychosomatic problems has not been a serious problem, although the attempt to provide health maintenance or periodic examinations for the great number of members is an increasingly serious challenge. This could become a universal problem under national health insurance. Dr. Collen will touch on some of the new concepts in medical service organization and delivery which we are attempting to apply to this problem. 5. VOLUNTARY ENROLLMENT One of the first steps we took after opening the program to the community was to establish the policy that all health plan members must be able to choose our form of medical care on a voluntary basis. We recognized that we were no longer the only available provider of medical care-as we had been in the desert and at Grand Coulee nor did we have the strong industrial and employer indentification that we had had in the shipyards. Signing up groups of people in their entirety, as was common practice at that time, meant we might be getting not only the majority who had chosen our program, but the minority who did not want us as well. As pragmatists, we also recognized that in many cases it could be the minority who wanted us and the majority might not. By insisting that at least one alternative means of health insurance be offered each individual within the group, we make sure that there is an element of mutual consent upon which to build a doctor-patient relationship. Moreover, we have built in a barometer to indicate how well we are providing service. Every member can drop us and change to an alternative carrier should he become dissatisfied. 6. Physician Responsibility This last principle is so inherent to the program that we often overlook it. However, it is the physician's acceptance of responsibility for providing comprehensive care to the membership, and his responsible role as a partner in administering the program, that are the keys to unlocking the potential of a rational organization of medical care. Our responsibilities may not be as all-encompassing as when we were a single entity, but our influence as a full partner in this symbiotic management has not lessened. Major policy decisions are made jointly after consultation and mutual consent. Each partner-the plan, the hospitals, and the medical groups-realizes it would be disastrous to make decisions unilaterally concerning prepaid benefits, medical policies, new areas of service, new facilities, etc. We must work together, for poor quality of care would soon prove to be the most costly; poor service the most discouraging to membership. Good quality of care, in the long run, benefits the patient and the program alike. 72-759 - 72 - 15 22 KAISER-PERMANENTE BASIC PHILOSOPHY AND ORGANIZATION These, then, are the six seemingly fundamental keystones to our program. With the exception of voluntary enrollment, all have been inherent to the program since its inception, although some have taken longer to discern or define than others. There are variations in practice and theme from region to region, but the basic principles remain the same. They worked in a limited context, with very simple administrative structure, and they work now in expanding circumstances under great administrative complexity. I have purposely provided only the skeleton of operational concepts and I do not apologize for failing to provide the flesh. To overwhelm you with details on how it works on a day-to-day basis would be a disservice, and I would have to provide equal time to my counterparts in the other five regions. For once we go beyond the contracts and the principles, we reach the intangibles-the interpersonal relationships required for a partnership of mutual respect. The relationships that have developed here in this region will not necessarily be applicable anywhere else. A partnership between businessmen and physicians is not unlike any other partnership. On occasion, heads must be knocked together so each can gain the other's attention; and how one does the knocking depends largely upon the heads that are involved. Before asking for more operating details, I urge you to consider the message in a little poem that caught my fancy as a boy, and which more and more frequently seems appropriate: A centipede was happy quite Until a frog in fun Said, "Pray, which leg comes after which?" This raised her mind to such a pitch, She lay distracted in the ditch Considering how to run. ANY ORGANIZATION is in large part a product of its own history-past responses to past problems, opportunities and circumstances-and not necessarily the distillation of contemporary judgment as to the “ideal.” The Kaiser-Permanente program was born of the need to provide better-organized health care services, first for construction workers in isolated areas, second for World War II workers in ship building and steel making, and finally for the general public. It does not represent the execution of a preconceived grand design, but rather the evolution of some underlying concepts through pragmatic responses to changing circumstances. Major forces have influenced this evolution: Legal forces, which are imperfect reflections of socio-economic trends, have changed over time. Ethical and professional influences have also responded to strong undercurrents in our society. Judgments of business and financial leaders within the program have responded to a changing environment. Attitudes and demands of membership groups and a variety of other influences have also evolved and influenced our evolution. Another qualification is significant. The Kaiser-Permanente Medical Care Program is a complex organization operating in six different geographical regions, each with a high degree of autonomy, and a high degree of responsibility for achieving program objectives within the region. Moreover the program operates through at least 18 legally separate organizational units. Considerations of brevity and clarity require oversimplification so that the forest will not be lost among the trees. I will try to explain some fundamental characteristics which are coherent throughout the program. Examples and specifics will be based on operations in the two largest regions-Northern California and Southern California. But before describing the detailed structure, I wish to emphasize one fundamental: Despite legal, ethical, and historical constraints which emphasize separation, even * Executive Vice-President and Secretary, Kaiser Foundation Hospitals and Kaiser Foundation Health Plan, Inc. 24 KAISER-PERMANENTE BASIC PHILOSOPHY AND ORGANIZATION fragmentation, of the health care industry, we have evolved a way to function in a unified fashion. The program is unified in organization, for the 18 different components are brought together through formal contracts and informal managerial arrangements. The program is unified in financing, for the various sources of revenue, whether from prepayment, from various charges incident to provision of services, or from pharmacy and optical sales, are brought together within each region and allocated through unified medical and manageriai judgments. The program is unified in delivery of services, for all available resources are applied to meet health care needs without regard to prevailing fragmentation within the health care industry such as the traditional hospital-medical dichotomy. As we examine the nature of, and relationships among, the various component organizations, bear in mind that these are functioning parts of a unified program. KAISER FOUNDATION HEALTH PLAN Central to understanding the structure of the Kaiser-Permanente program is Kaiser Foundation Health Plan, Inc. The plan is a California nonprofit corporation, exempt from federal taxes on corporate income under Internal Revenue Code Section 501 (c) (4)—the so-called "social welfare" exemption. This exemption also applies to Blue Cross, Blue Shield, and other nonprofit prepaid health care plans. The plan is also generally exempt from state income taxes under corresponding legal provisions. There no property tax exemption applicable to our outpatient health care facilities. The plan is basically an administrative and contracting organization. It does not provide any health care services. Its primary functions are: (1) enrolling health plan members, (2) maintaining membership records, (3) collecting membership duesthe term we use to designate the periodic payments required to maintain eligibility for benefits, (4) providing certain facilities, and (5) arranging for health care services by contracting with medical groups and hospitals. The plan's basic relationship with its members is contractual and is evidenced by what we call a Medical and Hospital Service Agreement issued to membership groups and to persons or families enrolled as individuals. These agreements are in some respects analogous to health insurance policies written by commercial insurance companies and medical and hospital coverage agreements written by Blue Shield and Blue Cross. Agreements define eligibility for membership, and specify monthly or quarterly dues rates and any charges in addition to dues which members may be called upon to pay for health care services. The contracts also specify the medical, hospital, and other services to which members are entitled and set forth contractual exclusions and limitations on services. The basic obligation assumed by the plan to the membership is to arrange—not provide but arrange-medical, hospital, and other services to meet the obligations set forth in membership contracts. This is an essential characteristic of the Kaiser-Permanente program that distinguishes it from commercial insurance and the Blue plans. The latter's obligation is primarily financial. It is up to their policy holders or subscribers to obtain medical and |