Kaiser Permanente Puts Costs Under The Knife — Pay Freeze, Layoffs Planned

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Kaiser Permanente’s regional leaders have been told to start taking a series of severe belt-tightening steps, in the wake of nearly $800 million in investment-related losses last year at the sprawling Oakland-based health-care system.

Among those steps: freezing the pay of top executives, holding staffing at 2008 levels, slashing travel budgets by 25 percent or more, reducing use of consultants and temps, cutting an unspecified number of jobs and holding capital spending to 2008 levels, giving priority to “projects needed to improve care, maintain our facilities, and position us for future growth.”

Details were sketchy, but the impetus is clear: Kaiser’s health plan and hospital operations announced late last week they lost $794 million in 2008, Kaiser’s biggest yearly loss ever, due to a $996 million fourth-quarter non-operating loss. All told, Kaiser’s nonprofit hospital and health plan units hemorrhaged $2.3 billion in non-operating losses last year (see Health Care column, Page 16, for more details).

In response, Bernard Tyson, Kaiser’s executive vice president of health plan and hospital operations, emailed top leaders in the organization early this week detailing steps Kaiser is taking to “weather the economic storm.”

“While our business model remains strong, the global economy is having a detrimental impact on our customers, our membership, and our investments,” Tyson wrote Feb. 17. “It is clear that an extended economic recession will profoundly affect how we do business and will require that we capitalize on our integrated system and our investments in people and technology to improve our cost trends and retain our membership.”

Tyson said Kaiser’s senior national and regional leaders, including the heads of its for-profit medical groups and the executive director of the Coalition of Kaiser Permanente Unions, have met for two months to come up with a game plan to deal with the deteriorating economy while preserving quality care. He said Kaiser will immediately:

– Freeze 2009 salaries for top 500 executives.
– Reduce the budget for other non-union salary increases by 1 percentage point (by slashing 3 percent raises to 2 percent, for example).
– Hold full-time staffing to year-end 2008 levels, adding staff only for projects that can demonstrate a “strong business case.”
– Eliminate staff “in some areas.”
– Reduce use of temporary staff, consultants and contractors.
– Aggressively pursue marketing, advertising, sales and account management activities that retain membership and increase sales, to offset losses due to rising unemployment. (Kaiser’s overall health plan membership fell by 30,000 last year to “more than” 8.6 million in nine states and the District of Columbia. Approximately 75 percent of them reside in California.)
– Slash travel by “at least 25 percent” and shrink or eliminate large national meetings and conferences “in favor of telephone, web and video conferencing.”

Tyson said the steps would complement regional and local actions “that are in progress or will be implemented in the near future.”

Jamie Court, president of Santa Monica’s Consumer Watchdog and HMO bete noire, said it’s “shameful… and almost unfathomable” that a not-for-profit company should lose this kind of money on investments. He called on Attorney General Jerry Brown and other regulators to investigate, saying major for-profit health plans haven’t suffered losses of the same magnitude.

Sybil Wartenberg, Kaiser’s director of national media relations, told the Business Times that each region shared Tyson’s message with its employees, and that the regions are “tailoring” their responses to their individual marketplaces.

As for the losses, she said Kaiser’s portfolio lost 15 percent of its overall value last year, and that the organization is monitoring the markets, and is “ready to take actions to limit losses and participate in market upswings,” adding: “we continue to adhere to a strict governance process” for investment decisions.

Email Chris Rauber at [email protected] or (415) 288-4946.

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