The Kaiser And The Pope

People who get health care from Kaiser Permanente in metro Denver are at risk of taking orders on health care from the Pope starting in 2008.

Sisters of Charity of Leavenworth Health System prepares to take over Exempla Healthcare's St. Joseph Hospital in Denver, Lutheran Medical Center in Wheat Ridge and Good Samaritan Medical Center in Lafayette. Sisters of Charity is paying $311 million to buy out the 50 percent stake of its partner in the hospitals, the Community First Foundation.

At the time the agreement was announced in December, Exempla and the foundation said they would try to find a third party to provide reproductive services, such as abortions and birth control, which are banned by the Catholic church's ethical and religious directives. But this week both sides said they wouldn't reach an agreement to provide such services, prompting Exempla's board to oppose the deal. . . .

Kaiser, one of the state's largest insurers with about 480,000 subscribers, funnels most of its Denver members to Exempla's hospitals. St. Joseph, owned outright by the Sisters of Charity, is already run according to Catholic tenets, but Good Samaritan and Lutheran will stop offering reproductive services if the deal is completed.

Kaiser's regional president, Donna Lynne, said the insurer has been working with Exempla to develop a plan for Kaiser members to receive care for the services that would no longer be available, but "at this time we have not finalized a plan that we believe fully meets the needs of our members." . . . Sisters of Charity said it expects to complete [the ownership change] by year-end[.] . . .

The first part of the attorney general's review [required to approve the deal] centers on whether Sisters of Charity's complete ownership of Exempla will result in a "material change in purpose" for the charitable organization . . . . Sisters of Charity and the Foundation said an analysis shows there is "more than adequate" access to these procedures elsewhere in the community. Exempla's board, however, plans to write a letter stating the transfer would cause a reduction of services. . . .

Exempla agreed to the ownership change last year, in part because . . . Sisters of Charity agreed to invest at least $300 million in the Exempla hospital, in addition to the $311 million it is paying to the foundation.

Attorney General Suthers, a conservative Republican elected official, will make the call (subject to deferential court review) on whether this deal passes muster.

The fate of the deal also impacts the future development plans of all three hospitals and the former Children's Hospital site downtown.

What is the status quo?

At St. Joseph, only indirect abortions - defined as treating the clinical illness of the mother to preserve her life, knowing the fetus could be lost - are allowed. Women requesting emergency contraceptives are referred to nearby hospitals or medical centers.

Doctors at Lutheran and Good Samaritan, meanwhile, provide women with information and the option of emergency contraceptives if they have been raped.

Abortions are performed but only very rarely, at an average of five a year at both hospitals combined. Most abortions are to preserve the life and health of the mother . . . [Often] women opt to get tubal ligations after giving birth via Caesarean sections. At Catholic-run facilities, that sterilization treatment must be performed elsewhere at another time, meaning another major abdominal surgery and finding child care. . .

In September, the Vatican declared that vegetative patients have a moral right to feeding tubes, which some observers felt was a shift toward a more restrictive policy on feeding tube use for patients who have no hope of regaining consciousness.

This is a high price to pay for $200 a month less in premiums. To be clear, Kaiser Permanente isn't the instigator in this case. It had a status quo that provided health care choices to members, although only by leaving Denver to get them. Kaiser is in this position simply because it has a very small network of health care providers, which its business model seems to require to get competitive rates. But, it remains to be seen if Exempla and Kaiser are going to sell its customers down the river for $300 million from the Sisters of Charity. The likelihood that this issue was going to come up should have been obvious when the deal was signed and it is disappointing to see players like Exempla and Kaiser wake up to the consequences of their deal only now.

Kaiser v Everyone Else

Health insurance isn't cheap, even for those employers in the hallowed land of large group rates.

Basic, but fairly complete, HMO health insurance, at group rates, from Kaiser Permanente, which manages bottom of the market pricing by hiring its own doctors and, as a result, limiting patients to the smallest network in the state (and by streamlining administrative costs with vertifical integration), still costs $1,000 a month for a family. And, the network is small. It has only sixteen ordinary provider officers, about three hospitals, about three more ERs (although members can go to any ER in an emergency) and about three behavioral health centers in the entire metropolitan area. In Denver proper, it provides health care at only two locations, one in the St. Joseph's Hospital complex in Uptown Denver, and the other near the Aurora border at Alameda.

A couple of hundred more dollars a month will buy you roughly comparable HMO coverage for a family from another major health insurer, at large group rates, with a much larger network that covers almost all doctors in the area except Kaiser doctors, Veteran's Administration providers, and a thin elite of doctors who charge above market rates and limit their practices to the lucky few who have non-HMO type health insurance and can afford to pay large deductibles.

Generally speaking, Kaiser's business model saves 16%-18% over comparable coverage from more conventional insurers. I don't know how much of that gain comes from administrative savings and an insistence on preventative and "by the book" care (partially savings due to lack of "unnecessary" care, partially savings from more healthy members), which could be easily scaled to larger operations, and how much of that gain comes from salary control and careful selections of productive provider staff, that might not scale nearly so well to a much larger share of the market.

The Kaiser business model also does wonders for cash flow. Conventional health insurance usually have losses some years and profits in others, as the market is more competitive than you might think and because investment returns are important to their bottom line. Many have left the market entirely because the returns on investment aren't good enough. In contrast, Kaiser's finances are much more stable, because it adds a consistent margin at the provider level on top of the fickle returns on middle man operations to the extent it operates as an insurer.

Kaiser's business model also means that it has the least to lose should there be any move towards a single payer system. Its insurance operations side administrators would be snapped up by any single payer system, because they have the most experience working in something that resembles that business model. And, Kaiser could easily simply morph into being a pure provider group and continue to do business. In contrast, single payer puts the health insurance divisions of other companies either entirely out of business, or into fringe and niche businesses providing supplemental insurance or insurance to people who through quirks of a new system don't qualify for coverage (e.g. perhaps employees of foreign embassies and counsulates).

Thus, while the Kaiser business model does save money, there are limits to how much can be saved on that front. Even a health care system that delivered large group, Kaiser rates to everyone would only result in a one time savings of 16%-18%, after which high rates of medical inflation, that have spared no provider, would continue to ratched up.