KAISER PERMANENTE: Drops Northeast in Wake of $90M Loss
Kaiser Permanente announced Friday that it will close its troubled Northeast division after losses of nearly $90 million there last year, shedding more than half a million enrollees in its "fourth regional pullback." The move is seen by many as a signal that staff-model, West Coast-style managed care, which relies heavily on large groups of physicians, does not fly in the East. Watson Wyatt consultant Jane Laffner said, "Kaiser has been successful in California, but this area of the country is not ready for that model. The Northeast is still a few years behind California, and this is a Darwinian market" (Freudenheim, New York Times, 6/19). Kaiser spokesperson Beverly Hayon said, "This is a financial decision, but it's also philosophical. We have learned some lessons and are acknowledging that we do need to get back to our core system of health care ... so we can really concentrate what we do well and polish it up so that it really gleams." After its expansion throughout the mid-1990s, Kaiser "has lost more than $500 million, and the resultant financial squeeze has forced it to postpone needed upgrades of some hospitals and clinics in California."
Change of Heart
The Los Angeles Times reports that the move "reflects a significant change of heart for Oakland-based Kaiser, which has poured $200 million into the Northeast division since 1996 and just four months ago made turning its operations around a keystone of its financial plan" (Rubin, 6/19). The insurer also blamed the competitive Northeast market for some of its woes there. Spokesperson Tim Riley said, "It's difficult to have rates actually cover the costs when you're locked in with organizations of the same size" (Boston Globe, 6/19). Kaiser CEO Dr. David Lawrence said, "While this region has made some improvements as a result of the go-forward plan announced in February, longer term sustainability would require further investments that we are not prepared to make" (Heldt Powell, Boston Herald, 6/19). The Wall Street Journal notes that "Kaiser blamed some of its troubles on the fact that its Northeast business is focused predominately on relatively sparsely populated rural areas," that do not lend themselves to its staff model of care (Kravetz, 6/21). The HMO also blamed "costly mandates imposed by governments" in the Northeast (Eldridge, USA Today, 6/21).
Lawrence said "Kaiser is in talks with potential buyers in each of the states where the Northeastern division operates" (Los Angeles Times, 6/19). Possible bidders include Aetna U.S. Healthcare, Empire Blue Cross, Cigna and Physicians Health Plan. Outside of its 5.8 million California members, Kaiser still has HMOs in Washington, DC, Atlanta, Baltimore, Kansas City, Cleveland and Akron, OH, Washington State, Oregon and Hawaii (New York Times, 6/19).