Bruising Labor Battles Put Kaiser Permanente鈥檚 Reputation On The Line
Kaiser Permanente historically has been praised for efficiency and cost savings. But high-profile labor disputes have exposed the health system to criticism from legislators, health policy analysts and others who say the corporate titan is no longer living up to its nonprofit ideals. (Hannah Norman/KHN)
[This article was last updated on Dec. 9.]
Kaiser Permanente, which just narrowly averted one massive strike, is facing another one Monday.
The ongoing labor battles have undermined the health giant鈥檚 once-golden reputation as a model of cost-effective care that caters to satisfied patients 鈥 which it calls 鈥渕embers鈥 鈥 and is exposing it to new scrutiny from politicians and health policy analysts.
As the labor disputes have played out loudly, ricocheting off the bargaining table and into the public realm, some critics believe that the nonprofit health system is becoming more like its for-profit counterparts and is no longer living up to its foundational ideals.
Compensation for CEO Bernard Tyson topped $16 million in 2017, making him the in the nation. The organization also is building a in Oakland. And it bid to become the Golden State Warriors鈥 official health care provider, the San Francisco Chronicle reported. The deal gave the health system naming rights for the shopping and restaurant complex surrounding the team鈥檚 new arena in San Francisco, which it has dubbed 鈥.鈥
Kaiser Permanente reportedly bid up to $295 million to secure the naming rights for a shopping and restaurant complex surrounding the Golden State Warriors鈥 new arena in San Francisco, which it dubbed 鈥淭hrive City.鈥 (Hannah Norman/KHN)
The organization reported in 2018 and its health plan sits on about $37.6 billion in reserves.
Against that backdrop of wealth, more than 80,000 employees were poised to strike last month over salaries, retirement benefits and concerns over outsourcing and subcontracting. Nearly 4,000 members of its mental health staff in California are threatening to walk out Monday over the long wait times their patients face for appointments.
鈥淜aiser鈥檚 primary mission, based on their nonprofit status, is to serve a charitable mission,鈥 said Ge Bai, associate professor of accounting and health policy at Johns Hopkins University. 鈥淭he question is, do they need such an excessive, fancy flagship space? Or should they save money to help the poor and increase employee salaries?鈥
Lawmakers in California, Kaiser Permanente鈥檚 home state, recently targeted it with a new financial transparency law aimed at determining why its premiums continue to increase.
There鈥檚 a growing suspicion 鈥渢hat these nonprofit hospitals are not here purely for charitable missions, but instead are working to expand market share,鈥 Bai said.
Therapists, psychologists and other mental health providers rallied in Oakland in October to protest the long wait times their patients face. About 4,000 mental health providers in California who belong to the National Union of Healthcare Workers threaten a five-day strike starting Monday. (Credit: Chris Joel)
The scrutiny marks a disorienting role-reversal for Kaiser, an integrated system that acts as both health insurer and medical provider, serving 12.3 million patients and operating 39 hospitals across eight states and the District of Columbia. The bulk of its presence . (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)
Many health systems have tried to imitate its model for delivering affordable health care, which features teams of salaried doctors and health professionals who work together closely, and charges few if any extraneous patient fees. It with slogans like 鈥淗ealth isn鈥檛 an industry. It鈥檚 a cause,鈥 and 鈥淲e鈥檙e all in this together. And together, we thrive.鈥
for its efficiency and high-quality care, the health maintenance organization has tried to set itself apart from its profit-hungry, fee-for-service counterparts.
Now, its current practices 鈥 financial and medical 鈥 are getting a more critical look.
As a nonprofit, Kaiser doesn鈥檛 have to pay local property and sales taxes, state income taxes and federal corporate taxes, in exchange for providing 鈥渃harity care and community benefits鈥 鈥 although the federal government doesn鈥檛 specify how much.
As a percentage of its total spending, Kaiser Permanente鈥檚 charity care spending has decreased from 1.29% in 2012 to 0.8% in 2017. Other hospitals in California have exhibited a similar decrease, saying there are fewer uninsured patients who need help since the Affordable Care Act expanded insurance coverage.
CEO Tyson told California Healthline that he limits operating income to about 2% of revenue, which pays for things like capital improvements, community benefit programs and 鈥渢he running of the company.鈥
鈥淭he idea we鈥檙e trying to maximize profit is a false premise,鈥 he said.
The organization is different from many other health systems because of its integrated model, so comparisons are not perfect. But its operating margins were smaller and more stable than those of other large nonprofit hospital groups in California. For example,聽Dignity Health聽聽in 2016 and 2017.
Tyson said that executive compensation is a 鈥渉otspot鈥 for any company in a labor dispute. 鈥淚n no way would I try to justify it or argue against it,鈥 he said of his salary. In addition to his generous compensation, the health plan paid 35 other executives more than $1 million each in 2017, .
Even its board members are well-compensated. In 2017, 13 directors each received between $129,000 and $273,000 for what its tax filings say is five to 10 hours of work a week.
And that ? It鈥檚 about 17 times more than the health plan is required by the state to maintain, according to the California Department of Managed Health Care.
Kaiser Permanente said it doesn鈥檛 consider its reserves excessive because state regulations don鈥檛 account for its integrated model. These reserves represent the value of its hospitals and hundreds of medical offices in California, plus the information technology they rely on, it said.
Kaiser Permanente is spending $900 million on a new headquarters in Oakland, which the company says will save at least $60 million a year in operating costs by bringing all of its Oakland staffers together under one roof. (Credit: Kaiser Permanente)
Kaiser Permanente said its new headquarters will save at least $60 million a year in operating costs because it will bring all of its Oakland staffers under one roof. It justified the partnership with the Warriors by noting it spans 20 years, and includes a community gathering space that will provide health services for both members and the public.
Kaiser has a right to defend its spending, but 鈥渋t鈥檚 hard to imagine a nearly $300 million sponsorship being justifiable,鈥 said Michael Rozier, an assistant professor at St. Louis University who studies nonprofit hospitals.
The Service Employees International Union-United Healthcare Workers West was about to strike in October before with Kaiser Permanente.
Democratic presidential candidates , , and , as well as 132 elected California officials, .
California legislators this year sponsored by SEIU California that will require the health system to report its financial data to the state by facility, as opposed to reporting aggregated data from its Northern and Southern California regions, as it currently does. This data must include expenses, revenues by payer and the reasons for premium increases.
Other hospitals already report financial data this way, but the California legislature granted Kaiser Permanente an exemption in the 1970s because it is an integrated system. This created a financial 鈥渂lack hole鈥 said state Sen. Richard Pan (D-Sacramento), the bill鈥檚 author.
鈥淭hey鈥檙e the biggest game in town,鈥 said Anthony Wright, executive director of the consumer group Health Access California. 鈥淲ith great power comes great responsibility, and a need for transparency.鈥
Patient care, too, is under scrutiny.
California鈥檚 Department of Managed Health Care over mental health wait times in 2013, and in 2017 hammered out an agreement with it to hire an access to care. The department said Kaiser Permanente has so far met all the requirements of the settlement.
Ann Rivello, a therapist who works at Kaiser Permanente Redwood City Medical Center, says she鈥檚 frustrated that Kaiser Permanente markets itself as a leader in mental health care. Her patients have to wait about two months between appointments for individual therapy, she says. (Credit: Chris Joel)
But according to the National Union of Healthcare Workers, which is planning Monday鈥檚 walkout, wait times have just gotten worse.
Tyson said mental health care delivery is a national issue 鈥 鈥渘ot unique to Kaiser Permanente.鈥 He said the system is , contracting with outside providers and looking into using technology to broaden access to treatment.
At a mid-October union rally in Oakland, therapists said the health system鈥檚 billions in profits should allow it to hire more than one mental health clinician for , which the union says is the current ratio.
Ann Rivello, 50, who has worked periodically at Kaiser Permanente Redwood City Medical Center since 2000, said therapists are so busy they struggle to take bathroom breaks and patients wait about two months between appointments for individual therapy.
鈥淛ust take $100 million that they鈥檙e putting into the new 鈥楾hrive City鈥 over there with the Warriors,鈥 she said. 鈥淲hy can鈥檛 they just give it to mental health?鈥