David M. Lawrence; CEO led Kaiser through HMO storm

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The San Francisco Chronicle

On May 1, Dr. David M. Lawrence heads downstairs from his office on the 27th floor of Kaiser Permanente’s Oakland headquarters to the floor below to make room for Kaiser‘s new chief executive.

“I’ve preparing for this for some time but I’ve invested a lot of my
life and my soul in Kaiser Permanente, so it’s hard to think about leaving,” said Lawrence, 61, who is retiring after 10 years as the chief executive officer of Kaiser Foundation Health Plan and Hospitals.

A former doctor in the Peace Corps with a long history in the public
health, Lawrence stepped into Kaiser‘s top job when the nation was on the cusp of the managed-care revolution.

“My tenure was really about dealing with the managed care movement — how to position Kaiser Permanente in this brave new world we encountered in the ’90s,” said Lawrence. “. . . We had some real ups and down and we had tough times.”

During his reign, the 60-year-old health plan, which covers a third of California’s insured residents, endured its first financial losses ever when it suffered three consecutive years of financial losses in the mid-1990s. The HMO also stumbled through unsuccessful expansions into some regions and had more than its share of labor problems.

While Lawrence’s legacy in the health care industry will be a topic of discussion in the coming months, he seems more concerned with the tasks at hand.

He has a book deadline that he hopes his publisher will be generous enough to extend, and he has plans to finish some projects and represent Kaiser on several commissions at conferences through the balance of the year. He also will stay on at Kaiser as chairman emeritus through the end of this year and help his successor, George Halvorson, head of Minnesota’s HealthPartners, through the transition.

Although Lawrence has spent far more of his career in health
administration than practicing hands-on medicine, it’s not difficult to imagine him making an old-fashioned house call. He comes across as likable, with both a cerebral and almost folksy air.

Health care experts praised Lawrence for his ability to lead such a
large and influential organization without compromising his commitment to public health. His focus on continuing Kaiser‘s preventive care efforts, reducing medical errors and beefing up technological operations have earned high marks.

Drew Altman, president of the Kaiser Family Foundation, a nonprofit health care group with no financial ties to Kaiser Permanente, called Lawrence one of the most respected figures in American health care. “He’s led one of the most innovative and socially responsible health plans in the country,” he said.


On the other side, Kaiser has never been without its detractors, who have accused it of practicing factory-style medicine and being too focused on the bottom line.

Jamie Court, who heads the Foundation for Taxpayer and Consumer Rights in Santa Monica, criticized the nonprofit for making nearly $700 million last year.

“Lawrence changed the entire value system of the Kaiser system to undercut the bottom-of-the-barrel practices of it competitors,” Court said. “Kaiser tried to cut costs by reducing its medical budget even while it was bringing in new members. . . . It’s time to start giving back.”

At a recent meeting of health care professionals in San Francisco, Steve McDermott, head of Hill Physicians, the largest physicians group in the Bay Area, described Kaiser Permanente as the health plan to beat.

“They’re (Kaiser) winning the game. And this game is over soon if we don’t mount some sort of defensive,” McDermott said. “They really have become a standard against which we have to compete.”

One would have been hard-pressed to find that kind of praise a few years ago. Kaiser was in the black in 2001 for the second consecutive year after losing a total of $560 million from 1997 to 1999, with 1998 being the worst year when it lost a stunning $288 million.

The red ink was largely blamed on several missteps. Among other things, the HMO attracted more members than it could accommodate, incurred higher costs than expected when it referred patients to non-Kaiser physicians and specialists, and divested money-losing subsidiaries in the Northeast and other parts of the country.

The HMO’s financial picture has improved considerably in the past two years. Last year, Kaiser posted $681 million in net income on revenue of $19.7 billion.

Kaiser turned the situation around by raising premiums, much to the chagrin of many members, and adding a bunch of co-payments and fees. In addition, it curbed its growth, improved its operational efficiencies and pulled out of unsuccessful regions.


Some have criticized Kaiser — and Lawrence in particular — for trying to mimic the structure of for-profit HMOs and straying off course with overly aggressive expansion plans.

Helen Wilmot, Kaiser‘s former chief turnaround officer and now CEO of EHealthContracts.com, which helps health care companies manage their contracts, said it wasn’t one thing or one person behind Kaiser‘s problems. But she credits Lawrence for helping to set the HMO giant back on course.

“He’s led Kaiser through positive times, held on through the negative and then through positive times again,” she said. “He’s leaving it on a very positive note.”

Glenn Smith, a health care consultant with Watson Wyatt Worldwide in San Francisco, credits Kaiser and Lawrence with being able to put the right people in place to correct errors. “It’s very hard to turn that battleship around, and Kaiser is the battleship of health care in California.”


During Lawrence’s tenure, Kaiser has grown from 6.5 million members in 16 states and the District of Columbia to 8.2 million members in eight states and D.C. Annual revenue rose from $9.83 billion in 1991 to almost $20 billion today.

Lawrence, just the third CEO in Kaiser‘s history, credits his
predecessor, James A. Vohs, for bringing Kaiser into the mainstream of American health care with an unprecedented growth period that tripled membership during his 15 years at the helm. Lawrence, who characterized his time as leading Kaiser through a decade of turbulence in managed care, admitted things did not always go how expected in the new era.

Just like missionaries who go off into remote places to convert people, Lawrence said, Kaiser tried to do the same in areas that weren’t familiar with its system — and it didn’t always work.

“We had the naive belief that we were good people, we believed in what we were doing and it had worked in California, Oregon, Colorado, Hawaii and by god it was going to work elsewhere,” he said. “Expansion is hard to do and do well. You’ve got to be very systematic about it, and I don’t think we were.”

Lawrence’s reference to missionary work is somewhat analogous to his own career.


Beginning after his second year of medical school, when Lawrence did a nutritional study of three Indian tribes in British Columbia, he clearly embraced a global approach to medicine. In his last year of medical school, he spent three months in Bolivia, studying the health status of people at different altitudes.

Lawrence joined the Public Health Service as an alternative to military service in Vietnam and was assigned at his request to the Peace Corps, first serving as a physician caring for Peace Corps volunteers and supervising some health programs in the Dominican Republic. That led to a position with the Peace Corps in Washington, in charge of the health volunteers worldwide.

In 1970, Lawrence went to Chile for two years as a public health adviser to the Chilean government under the aegis of Johns Hopkins University’s School of Hygiene and Public Health, which had a contract with USAID.


Upon his return to the United States to start a family in Seattle, he
held several faculty positions in public health at the University of Washington and was a medical director at a clinic for migrant farm workers. “But I got to thinking, I really want to practice public health on the front lines,” he said.

His wish to be on the front lines led him to become the medical director and eventually the head of the Department of Human Services in Multnomah County in Oregon, which includes Portland. He was in charge of everything from restaurant inspections to the care of jail inmates.

“It was daunting to take care of patients in the jail. It was a side of
life I had never been around before,” he said, as he described how some patients threatened him and many others faked illnesses for drugs or the chance to escape.


In 1980, he was approached by a Kaiser executive and was selected vice-president of medical operations for the HMO’s Northwest region.

He worked his way up from a regional manager for Northern California to chief operating officer before becoming CEO.

Lawrence took over his new post about the time HMO became synonymous with many of the worst things about managed care — bureaucracy, denials of care and profit motivation.

Kaiser has tried to improve its image in recent years, most noticeably in the areas of customer service (shortening the telephone wait times, adding online appointment making) and quality of care.

Kaiser is proud of recent accolades such as its high rating last month by the Office of Statewide Health Planning and Development for treating heart attack patients.


Lawrence is credited with being particularly bullish on technology.
Under his reign, Kaiser has invested about $2 billion in its electronic medical record system, which is being gradually phased in and will be operational this fall in Northern California.

He also is passionate about reducing medical errors, serving on an Institute of Medicine committee that released a revealing medical error report and instituting programs at Kaiser to reduce handwriting prescription mistakes.

To Lawrence, the past 10 years in health care have been turbulent but he expect the next 10 years to be even more so.

Advances in biotechnology and microcircuitry, he speculates, will create drugs and devices that will benefit patients enormously — but at what cost? And who will have access to them?

“The tools that we’ll have available for taking care of patients and
organizing health care are simply beyond conception at this point,” he said. In addition, he said, the growing problem of the uninsured and the aging population will put tremendous demands on the system.


David Lawrence, MD

Position: Kaiser Foundation Health Plan and Hospitals, CEO (since 1991) and chairman (since 1992).

Age: 61

Education: Bachelor’s degree in American History from Amherst College, Amherst, Mass. (1962); MD, University of Kentucky, Lexington, Ky. (1966); master’s of public health, University of Washington, Seattle (1973)

Personal: Native of Portland, Ore. Married, father of four grown
children and recently became a grandfather. Fluent in Spanish.

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