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Careless or Less Care?

Kaiser's high profits give strong warning yet regulators appear to stand fast

by Mike Fleming
July 7, 2003

As premiums for health care continue to skyrocket the Kaiser Permanente, the country's largest not-for-profit health care organization, reported net income of $301 million for the first quarter, up from $297 million in the same period last year. Kaiser posted operating income of $308 million on operating revenue of $6.2 billion for the first quarter ending March 31.

By comparison, the company posted operating income of $288 million on operating revenue of $5.5 billion in the first quarter of 2002. Arnold Matsunobu, Kaiser vice president of finance states, "However, this is only the first quarter. We are still facing the challenge of rising health-care costs." Mr. Matsunobu also offers, in justifying the profit increase, that Kaiser was "better able to utilize hospital resources and control the number of outside referrals, which helped control expenses."

Last year The Foundation for Taxpayer and Consumer Rights (FTCR) called for an investigation into unfair rates in response to a Goldman Sachs report projecting increased health insurer profits through 2006. "It is unconscionable that HMOs continue to gouge businesses and consumers with high premiums while they block access to necessary medical care," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. "State regulators should examine unfair rate setting in HMO premiums. State legislators should realize that HMOs are raising premiums to increase their own profitability at the expense of patient health."

Blaming health care costs spiraling out of control, last month the California Public Employees Retirement System approved health insurance premium rate hikes averaging from 16.7 percent to 18.4, along with higher emergency room visit and drug fees. CALPERS -- the state's largest pension fund -- is agonizing over health care purchasing and how to get a handle on rising rates. The giant has lost most of its ability to sway prices in a market plagued by escalating costs.

Tom Elkin, a former executive director of CALPERS' health benefits program, who got health plans to roll back premiums in the 1990s, told members and staff of the Health Benefits Committee at the California Public Employees' Retirement System that HMOs should share the pain of California's budget crisis and dramatically scale back their premium proposals for 2004, and demand that HMOs open their books and show why premium increases are needed and what kind of value they offer. Health care costs are out of control and the California State Employees Association wanted action. The labor union that represents more than half the state work force hired Elkin to lean on CALPERS, the second-largest purchaser of health care in the nation, to change its ways. It seems the move had little impact upon CALPERS decision to increase contributions made by its workforce rather than confront matter Kaiser's skyrocketing premiums more aggressively.

Not only is Kaiser under public scrutiny for reporting high profits while raising costs to its members, but the HMO is also the focus of a number of ethical issues regarding treatment of their patients by placing profit over necessary health care.

Under the newest interpretations of EMTALA (the Federal Emergency Medical Treatment and Active Labor Act, also known as COBRA or the Patient Antidumping Law), every hospital receiving federal funds in any form (including Kaiser) is part of the national, unfunded utility of medical care. Every hospital receiving such funds must evaluate every patient - prior to checking insurance coverage - to determine if the patient is stable and make a plan of treatment. The patient can only be released if stable, and this really requires (most often) the normal examination and work up. Claims that Kaiser has neglected patients that come to their emergency room until they either leave or wait for extraordinary amounts of time while Kaiser members are seen first despite their medical condition are on the rise.