Kaiser Permanente, the California- based health-care behemoth, is moving east. In a bid to shake up the East Coast market, Kaiser will compete for emergency-room patients with HCA Holdings Inc. (HCA), the largest for-profit hospital chain in the U.S.
Kaiser has completed four of five “multi-specialty centers” in the Washington area, at a cost of about $2 billion. The facilities will test the market for patients that might otherwise go to emergency rooms to receive treatment for routine matters such as broken bones or ear infections.
The move by Kaiser, a nonprofit with $48 billion in yearly revenue, is part of a broader shift toward stand-alone medical centers that are less expensive for patients and insurers than ERs. They are growing by about 300 a year, according to the Urgent Care Association of America. The proliferation of these centers is a worry for hospitals, which rely on emergency room income from privatelyinsured patients to help make ends meet.
“When you pull out privately insured individuals from emergency departments, the people who end up going are people who don’t have access to other services,” said Jesse Pines, an associate professor of emergency medicine and health policy at George Washington University in Washington.
For Kaiser, “it makes a lot of sense,” Pines said in a telephone interview. “But it will horribly increase the uncompensated and under-compensated care burden of local emergency departments.”
About 85 percent of patients who use ERs nationally are insured. In affluent northern Virginia, where Kaiser has one of its facilities, many patients are people with insurance who need acute care faster than it can be provided by their doctors, often at odd hours. These patients also prefer, given a choice, to avoid emergency rooms overflowing with patients lining up to be admitted to the hospital for major health problems.
Kaiser provides health insurance and care, through a system of hospitals and physician organizations in the western U.S. Its larger centers will have surgical suites, exam rooms, imaging technology, pharmacies and even eye exams.
It’s not the first time Kaiser has dipped its toe in the East Coast market. The nonprofit operated health plans in North Carolina and the Northeast for much of the 1990s before pulling out after reporting $881 million in operating losses in 1997 and 1998.
Now, though, the direction of health-care reform increasingly favors aspects of Kaiser’s management strategies.
Most U.S. doctors and hospitals are paid on a fee-for- service system, in which they make money for every service they perform. The more services and the more involved each service, the more they’re paid.
Conversely, Kaiser is a health maintenance organization, or HMO, that pays doctors salaries and coordinates care to limit costs.
“What they are known for is being the leaders in what we often refer to now as integrated health care,” said Alain Enthoven, a professor at Stanford University’s Center for Health Policy who has consulted for Kaiser since 1973. “What Kaiser’s trying to do is prevent people from needing emergency care by giving them high-quality care on an outpatient basis.”
Removing people who don’t need critical care from costly ERs “creates efficiencies for the entire health-care system,” said Bernard Tyson, president and chief operating officer of Oakland, California-based Kaiser Permanente, in an interview. “Historically, and around the country, many of the ERs are jammed with people who could be appropriately cared for in other care sites.”
Still, there are times — for instance, for someone suffering a heart attack — when Kaiser tells its health-plan members that it’s more appropriate to go to a hospital emergency room than one of their centers, Tyson said.
In 2011, the Kaiser center in Washington located blocks from the U.S. Capitol served almost 200,000 patients, said Che Parker, a spokesman for the company. That level of success is pushing the company to begin expanding the effort with similar facilities in the Atlanta area.
Centers like Kaiser’s also have several regulatory advantages over hospitals. For instance, they aren’t covered by a federal law requiring they take all patients, no matter their insurance, and they don’t have to acquire a “certificate of need,” an often time-consuming process needed for most hospital construction.
While Parker said Kaiser’s centers won’t refuse care to anyone, Mark Foust, a spokesman for HCA Virginia, said, “it remains to be seen if Kaiser does that or not.”
HCA recognizes “the need and the obligation to treat all- comers to our emergency room,” said Foust, whose HCA unit runs 12 hospitals in the state.
HCA is fighting back. In an effort to attract patients, the for-profit hospital chain is advertising the wait times at their emergency rooms. The ads are running online and on roadside signs.
The website for HCA’s Reston Hospital Center in northern Virginia, which sits 10 miles from the Kaiser center in Tyson’s Corner, noted yesterday that patients waited just 16 minutes before being seen by a nurse. A little further south, the Spotsylvania Regional Medical Center has a billboard on Interstate 95 with a digital clock that provides the ER wait time.
Foust declined to say how much HCA’s ERs earn for their hospitals. Nationally, Nashville, Tennessee-based HCA operates 163 hospitals that generated $32.5 billion in revenue in 2011, according to data compiled by Bloomberg.
Pines, who heads George Washington University’s Center for Health Care Quality, said that the existence of clinics like Kaiser’s may serve to drive up national health-care spending by creating more demand for health services.
It’s “like building roads,” he said. “People will use it.”
This article originally appeared in the September 21, 2012 edition of Bloomberg.