Formation of The Permanente Federation and National Partnership Agreement mark a turning point in the history of Kaiser Permanente (KP) and will positively influence the future of Permanente Medical Groups. Understanding the genesis and nature of these two events is helpful for visualizing the KP of the next decade.
On the surface, the story is simple. Early in 1996, KP began a new cycle of geographic expansion involving either merger or acquisition of health plans. Examples include the merger with Group Health Cooperative of Puget Sound (in the Pacific Northwest), acquisition of Community Health Plan (in New York) and acquisition of Humana (in Washington, DC). The case for new geographic expansion was compelling: consolidation of regional competitors into large national for-profit managed care organizations could eventually marginalize Kaiser Permanente. A sound case was made that to be a truly national organization, we need to extend our presence to other large population centers, especially in the eastern US
The new expansion quickly raised basic questions: Was Kaiser Foundation Health Plan (KFHP) expanding, or was KP expanding? If expanding, then what should be the nature of the "Permanente" side of this effort? How could 12 independent PMGs manage such a national undertaking?
Another set of issues was also being formulated. In 1996, a combination of aggressive pricing and operational inefficiencies had already created operating losses for some KP Regions. Intermittent operating losses have adversely affected KP for years but in the new competitive environment were of more concern than ever. There arose a new need to fix underperforming areas quickly so that we all could thrive together.
Also, the outside world was becoming more hostile to so-called managed care organizations, a category into which we continue to be placed. As several well-publicized charges of poor quality of care have made clear, we are under a national microscope. If it was not true before, we now know that the reputations of all Permanente physicians are linked together in the national mind. The quality of care delivered at every site we call "Permanente" must be of a level that we all can "own" and be proud of.
Both these issues--improvement of performance and quality of care wherever needed--called for the 12 Permanente Medical Groups to help each other. In 1996, however, no demonstrable common will to do so was evident, and no defined organization or set of resources were available for this purpose. If organizations such as Phycor and MedPartners Mulliken could create national physician business entities, why not Permanente?
These were the issues facing the Permanente Medical Directors in 1996. To investigate the options and recommend a solution, the Executive Committee of the Medical Directors, chaired by Dr. Harry Caulfield, appointed a small group of physicians called the Business Support Work Group. The group included me, Dr. Allan Weiland (an obstetrician-gynecologist and Medical Director of KP-Northwest), Dr. Ian Leverton (a surgeon and Executive Director of Permanente Interregional Consulting), Dr. Irwin Goldstein (a pediatrician and Associate Medical Director of Southern California PMG), and Dr. Bruce Perry (a family practitioner and Executive Medical Director of Southeast PMG). We worked intensively during Summer and Fall of 1996, and in October presented to the Medical Directors a set of recommendations calling for creation of a PMG federation, a KP national business entity, and comprehensive negotiations with KFHP.
The Permanente Federation
Ultimately, on January 6, 1997, we created The Permanente Federation, whose "constitution"--the Articles of Federation--installed in the Federation governance central authority to further four purposes. They are:
Each of these purposes relates to solving the issues which faced the Medical Directors earlier that year: improving financial performance where needed, improving quality of care where needed, and creating new KP business competencies to support and expand the KP organization.
The Articles of Federation created for the new Federation a balanced and representative governing body--the Executive Committee--consisting of an Executive Director and four Medical Directors. Executive Committee decisions are subject to review by the Medical Directors (Fig. 1) as a group. All this and more is delineated in the Articles of Federation and in the Federation Operating Agreement, which were approved in December 1996 by all Medical Directors and Permanente Boards of Directors and are available for anyone to read.
The first meeting of the Executive Committee was convened on February 5, 1997. The first four members of the Executive Committee were Dr. Oliver Goldsmith (Chair), a gastroenterologist and Executive Medical Director of Southern California PMG; Dr. Harry Caulfield, a cardiologist and Executive Director of The Permanente Medical Group (TPMG); Dr. Allan Weiland; and Dr. Adrian Long, an emergency physician and Executive Medical Director of the Mid-Atlantic PMG. In April 1997, I was appointed and approved as Executive Director and fifth member of the group.
The Permanente Company
What is the difference between the Federation and PermCo? They are separate but related entities, each with a distinct purpose (Fig. 2): The Permanente Federation develops policy and provides governance and oversight for the purposes outlined in the Articles of Federation; PermCo builds and manages the business functions of the Federation.
What business functions was PermCo intended to build? First, PermCo will build physician practice management capabilities--services (such as supplied by Phycor or MedPartners Mulliken) needed to improve Permanente practice and to create new Permanente delivery systems in expansion areas. PermCo teams initially began helping to improve Permanente practice in North Carolina and Ohio. Working with KFHP, PermCo teams began exploring expansion opportunities in Chicago and New York in March 1997.
Second, PermCo will build a new capability to enable PMGs to explore business diversification opportunities. An advisory group including physicians from each PMG began working last Fall to examine sound business opportunities which could strengthen Permanente capabilities, further the mission of our organization, and provide new employment opportunities for PMG physicians and an opportunity for them to build value over time.
Third, PermCo will be the place where Permanente physicians build information systems to provide the clinical and business support we will need in the future. In partnership with KFHP, a team of Permanente medical informatics specialists will direct the multiyear national project designed for this purpose. We will hear more from PermCo in the future.
The National Partnership Agreement
On February 4 and 5, 1997, the leaders of both the Permanente Federation and KFHP met in San Francisco to receive NPAG's recommendations. On February 5, all parties (Fig. 3) signed a memorandum of understanding which, in May 1997, led to a final agreement and contract between the parties.
The National Partnership Agreement established:
The National Partnership Agreement became effective on June
1, 1997. KPPG began to meet in July
Click here to see a related article, Creating the Future of Kaiser Permanente: Critical Strategic Choices, also authored by Dr. Crosson.