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Care Versus Cost
Nation’s Wealthiest HMO Leaves Jury Outraged
Feb. 13, 1998

              FORREST SAWYER

It begins with a malpractice lawsuit in Texas, a family claiming the negligence of the country’s largest HMO, Kaiser Permanente, left their loved one dead. During the trial, startling evidence emerged, an internal speech by a Kaiser
administrator. The administrator painted a picture of a company that appeared willing to risk placing profit above patient welfare. Together with the rest of the evidence, the speech stunned jurors and helped drive Kaiser to settle the
lawsuit for millions.

At the heart of all this, the public’s growing fear of health maintenance organizations. Kaiser Permanente has itself endured dozens of lawsuits and three blistering government investigations while across the country HMOs are
losing money and consumer confidence and facing demands for tough new legislation, all this at the same time that more people than ever before are provided medical coverage by HMOs. What’s gone wrong with a system intended to
help contain the boiling growth in the cost of health care? Tonight, the nation’s wealthiest HMO and why a jury was left outraged. First, ABC’s Valeri Williams.

        VALERI WILLIAMS, ABC NEWS (VO) Just before Christmas in 1994, Ron Henderson danced at his daughter’s wedding. Less than a year later, the Dallas technician was dead from a heart attack.

     IRENE HENDERSON, WIFE It was terrible. It was an awful ordeal to go through. This wasn’t a sudden death. This came on for five and a half weeks. This man asked repeatedly for help from the doctor and it wasn’t given.
     VALERI WILLIAMS (VO) Henderson’s medical files document all the warning signs, including an abnormal EKG and a previous heart attack. But Henderson’s family says his HMO denied him access to either specialists or critical tests.
Instead, he was diagnosed with a hiatal hernia.
     IRENE HENDERSON You cannot just say well I’m sure it’s my heart, I’m going to a specialist. You cannot go to a cardiologist without a written referral from a Kaiser doctor and if they don’t give you one, you just don’t go.
     VALERI WILLIAMS (VO) Henderson’s HMO was Kaiser Permanente of Texas, the same HMO of former Dallas schoolteacher Cynthia Confer. (interviewing) Do you think Kaiser let her die?
     LUTHER WALLACE Yes, I do. They had all kinds of opportunities to prevent
her from dying and what she died of is as simple as having appendicitis.
     VALERI WILLIAMS (VO) Confer died when the aorta to her heart ruptured. Her family says like Ron Henderson, all the warning signs were there. Confer’s medical file repeatedly notes she had a potentially dangerous heart condition
from a dilated or enlarged aorta. But Confer was never referred to a cardiologist. The diagnosis of a Kaiser physician? Bronchitis.
     LUTHER WALLACE I’m just very, very upset.
     LUTHER WALLACE There’s no excuse for letting people die this way.
     VALERI WILLIAMS (VO) Kaiser Permanente was also the HMO of Dallas preacher Jim Morgan, another heart attack patient. Again, like Ron Henderson, Morgan had an abnormal EKG. He also had high blood pressure and high cholesterol. But Morgan’s family says he was never referred for further tests or to see a specialist. The diagnosis of a Kaiser doctor, sore ribs.
     BRIGETTE MORGAN, DAUGHTER I mean you trust your doctor. I mean, that’s someone that you can always trust is your doctor and you cannot trust Kaiser.
     VALERI WILLIAMS Morgan, Confer and Henderson all died in the same city within seven months of one another from serious heart problems. Kaiser Permanente denies any wrongdoing but just recently the HMO settled lawsuits
with all three families who believe Kaiser was pressuring its doctors to cut back on referrals for tests, to the hospital and to see specialists in order to save money. They talked with Nightline before signing confidentiality agreements.
     IRENE HENDERSON The thought that this man’s life was wasted and no one knew or cared about it, they need to start caring about these patients more than they care about the bottom dollar.
     VALERI WILLIAMS (VO) Indeed, what each of these families sued over is exactly what many Americans suspect about their own HMOs. According to a Harvard University study, 55 percent of managed care patients believe that if
they became ill, their plan would be more interested in saving money than in providing the best medical treatment. (on camera) Reinforcing that fear is this document that emerged as a damaging piece of evidence during the Henderson’s
lawsuit. It’s a copy of a speech given by a Kaiser official and some are now calling it a smoking gun.
     PROSECUTOR Help me in terms of the importance to the bottom line.
     VALERI WILLIAMS (VO) Dr John Vogt is that official. He’s an associate medical director at Kaiser Permanente in Texas. Little did Vogt know that when he gave that speech to an HMO industry conference in 1995, that it would become
such a damaging piece of evidence. The topic? Cutting costs. And these are some of his more controversial remarks. “The first thing that ever comes out of a Kaiser CEO now is what’s the bottom line,” and, “ ... any time you have to
balance the budget, how do you do it? You cut utilization, drop referral rates, drop your hospitalization. The budget balances. We all go home ... “ And Vogt continued. At one point he refers to Kaiser’s urgent care centers or UCCs. “We
basically said to the UCC doctors if you value your job, you won’t say anything about hospitalization. All you’ll say is I think you need further evaluation and Dr Schmoe is going to come in and talk with you.
     TONY CRABTREE, PLAINTIFF’S ATTORNEY I think it is the best snapshot this country has ever had of what managed care is really about. I think for the first time we’ve kind of got to get under the rock and see what was going on
and what we saw was what we’re all scared of and I think it’s the clearest picture we may ever see of what is going on with HMOs.
     VALERI WILLIAMS (VO) Dr Vogt has declined comment for this broadcast. But his employer, Kaiser Permanente, now insists that he was merely joking during the speech.
     DR WILLIAM GILLESPIE Dr Vogt was exaggerating, making jokes and telling untruths to please the audience that he was addressing in 1995, as I understand it.
     VALERI WILLIAMS Was he joking when he said that doctors would lose their jobs if they talked about hospitalization?
     DR WILLIAM GILLESPIE That was an inaccurate statement, yes.
     VALERI WILLIAMS Was he joking?
     DR WILLIAM GILLESPIE He was telling an untruth, an exaggeration and an, that was an outright untruth.
     VALERI WILLIAMS (VO) The Dallas jurors who’ve heard both sides of Ron Henderson’s case didn’t take Dr Vogt’s speech as a joke.
     KYLE SWIHART This was a smoking gun. This was a smoking gun that is, in my eyes, still smoking. I mean it’s something that they haven’t put out or wanted to put out.
     VALERI WILLIAMS (VO) And nobody found it funny?
     KYLE SWIHART Nobody found it funny. (Commercial Break)
     FORREST SAWYER The case of Ron Henderson was eventually settled out of court, but not before a special panel of jurors had a chance to review the evidence against Kaiser Permanente. Their conclusions were harsh. Once again,
ABC’s Valeri Williams.
     JOHN GULLIC, JUROR As far as doing something wrong, this was awful.
     VALERI WILLIAMS (VO) Two months ago, these four people served on a jury in a special settlement trial involving the Henderson family’s lawsuit against Kaiser. They say without a doubt, the most damning piece of evidence was the
cost cutting speech by Kaiser executive John Vogt at an HMO conference. (on camera) How many of you are angry right now? How many of you are scared? One of the things jurors found disturbing in Vogt’s speech was how in 1993 Kaiser
Permanente in Texas misdiagnosed nine heart attacks. The HMO realized it had a problem so it came up with a new system for dealing with patients who had chest pain, a system so successful, Vogt said, that it cut the number of missed heart attacks down to one. But within a year, he said, Kaiser scaled back the new system. (VO) According to Vogt, “The reason we’re revising that protocol now is because our utilization exploded. The cost of dropping it to only one missed
heart attack in 1995 was a tripling of our hospital days.” In other words, what Vogt said was the cost of success meant more people were treated at the hospital and that meant it would cost Kaiser more money.
     JUROR That was one of the times when I gasped. It was just unbelievable to me.
     JUDY REEVES, JUROR If this person would make a statement like that, what we’re beginning to wonder about all the other HMOs. Are all of them like this? is this one that just got caught?
     VALERI WILLIAMS (VO) Dr William Gillespie, president of Kaiser Permanente in Texas, disavows Vogt’s speech and he insists that hospital admissions in 1995 for chest pain actually increased.
     DR WILLIAM GILLESPIE Dr Vogt was telling exaggerations and making things up in order to make a point in addressing this audience that he was addressing.
     VALERI WILLIAMS (VO) Although he’s been president for almost two years, Gillespie was unable to tell us if Kaiser has gone back to the flawed system that led to nine misdiagnosed heart attacks.
     DR WILLIAM GILLESPIE I can’t answer that question. They were operating under a current protocol and I have no idea what its relationship is to a protocol from 1995. I’m confident that the protocol that we’re using is one that puts the best interests of the patients first.
     VALERI WILLIAMS (VO) But these jurors say no matter what Kaiser officials are claiming now, the trial produced evidence that they think is shocking and they believe the public would want to know about it. Item, this confidential
business plan outlines Kaiser’s intention of aggressively reducing hospitalization expenses by 45 percent.
     DAVE BEAUDETTE, JUROR I found out in the testimony that they have a computer program that they can actually watch the hospital utilization on a daily basis, almost like watching the stock market or something. It, you know, one day it’s up, next day it’s down. If it’s down, everybody gets pats on the back and if it’s up then, you know, the caning starts from the top and goes on down to the bottom.
     MEDICAL ADVICE NURSE He told me he had chest pains across the arms and that’s the way I took it.
     VALERI WILLIAMS (VO) Item, a videotaped deposition given by what Kaiser refers to as a medical advice nurse whose job is to screen all calls for emergency treatment. Using a script and a checklist like this, she makes life and death decisions over the phone. (VO) According to testimony, Ron Henderson told the medical advice nurse that he had severe pain throughout his chest and arms, classic heart attack symptoms. But she refused to authorize a trip to the emergency room because Henderson didn’t use the word radiating, which was on her list.
     MEDICAL ADVICE NURSE I can’t put down radiating because he didn’t tell me radiating.
     PROSECUTOR Well, do you expect the patient or the member to make a determination whether he has radiating chest pain?
     MEDICAL ADVICE NURSE Well if it goes across the arms.
     PROSECUTOR That’s radiating, isn’t it?
     VALERI WILLIAMS (VO) Item, this is a test Kaiser gave its medical advice nurses specifically on chest pain protocol. According to Kaiser’s own results, nearly 70 percent of the nurses taking the exam failed and 21 percent couldn’t
even name one common symptom of chest pain correctly. (interviewing) If you were a patient, how would you like to know that one of these nurses was screening your call for medical attention?
     DR WILLIAM GILLESPIE The nurses who work in this organization, in this practice, are highly trained professionals and we expect them to do the very best that they can in taking care of their patients.
     VALERI WILLIAMS (VO) But what Gillespie could not tell us is if the nurses who failed the exam have been retrained or retested. (Clip from TV commercial)
     VALERI WILLIAMS (VO) For decades, Kaiser Permanente, as a non—profit organization, has enjoyed a special status as the oldest, wealthiest and biggest HMO in the country and last year, when “US News & World Report” issued a report card on HMOs, it ranked near the top in 12 of the 17 states it operates in. However, in the past two years, Kaiser’s treatment of patients has prompted three major investigations in Texas and in California. Last year, Kaiser paid a $1 million fine to keep its license in Texas. There, regulators found numerous cases of Kaiser refusing to reimburse patients for emergency room care. (on camera) Two days after the special trial, Kaiser settled out of court with the Hendersons for $5.3 million. But the jury was convinced that Kaiser’s conduct was so egregious that they were prepared to unanimously award the family substantially more money and that, jurors hope, is the message Kaiser officials remember the next time someone asks what’s the bottom line? I’m Valeri Williams for Nightline.
     FORREST SAWYER We will be joined by Kaiser Permanente’s chief executive officer, Dr David Lawrence, when we return. (Commercial Break)
     FORREST SAWYER Joining us now from San Francisco, Dr David Lawrence, Kaiser Permanente’s chief executive officer.
 Dr Lawrence, I know that the confidentiality agreement constrains you from
commenting on this particular lawsuit or any of the others that Kaiser has been involved in.
     DR DAVID LAWRENCE, CEO, KAISER PERMANENTE (San Francisco) That’s correct.
     FORREST SAWYER But listening to the jurors and understanding some of the problems that Kaiser Permanente has had in Texas and that other HMOs have had, can you understand why they feel so worried and are, in fact, so outraged?
     DR DAVID LAWRENCE I can certainly understand why people are worried and I can understand their outrage, yes. There is another side to the story and obviously I hope that we can talk about it this evening.
     FORREST SAWYER And the other side is?
     DR DAVID LAWRENCE Well, the concern that was raised was about whether or not what was driving these situations is the bottom line, whether or not what Dr Vogt said is an accurate reflection of our organization. I can tell you right here that what he said was outrageous and completely false and I repudiate it completely. And the discussion about the bottom line, I’d like to have more time to talk with you about, because that’s certainly not what drives Kaiser Permanente.
     FORREST SAWYER Let’s talk about that. In the case of Ron Henderson and the other two cases that were cited and, in fact, in some of the other 30 cases that have been settled in Texas since 1990, many of them had to do with patient
referrals, either for additional testing or for other doctors and that’s exactly what people are afraid of with HMOs.
     DR DAVID LAWRENCE Yeah, that’s right. In our system, in Kaiser Permanente, the values that we have is that the physician makes the decision about what to do with a patient. The physician makes the clinical judgment about what it is
that the patient needs. There are no constraints on going to a specialist if the physician and the patient believe that that’s what should happen.
     FORREST SAWYER What John Vogt appeared to be saying, and this is why the jurors seemed to focus so much on what he had to say, was that there really are pressures and there are tremendous economic pressures. In fact, you have lost some $270 million, I think, last year and other HMOs are in some difficulties and those pressures must necessarily come down on constraining some medical practices.
     DR DAVID LAWRENCE I just don’t buy it. I mean, what John Vogt said, Dr Vogt said is absolutely inaccurate. It’s a complete fabrication, as far as I can see and as far as I know in our organization. Yes, the financial issues are real for everybody in health care, but I have to tell you that the way that we operate and the way that we talk with everyone in our organization is that the most inexpensive way of providing care is superior care, superior quality. The most expensive thing to do is the wrong thing for a patient. If you miss a diagnosis or do the sorts of things that you’re talking about in this show
tonight, those are very expensive when those mistakes occur, when those problems occur. They’re not the way to take care of people. It turns out that that’s the very most expensive way to provide care.
     FORREST SAWYER But of course HMOs became so popular now because in the past medical costs were skyrocketing and one of the reasons that they were skyrocketing is that physicians would call for tests of all kinds in order to keep from being sued, in part. And now people say HMOs have the pressure not to provide those tests and that’s exactly what’s happening. You’re arguing against that.
     DR DAVID LAWRENCE Yes. Let me give you a couple of examples. If, for example, we fail to give an immunization to a child or we fail to diagnose a patient with cancer, what happens? They come back, they’re sicker, they demand more care, they demand more treatment, they demand more attention. Their problems are graver for them and it’s more expensive. It doesn’t make sense to avoid giving care.
     FORREST SAWYER I think you’ve made a fair point. But it seems to me that economically speaking, what you have to do is try to find where you can make enough money and still be able to provide the quality of care. And I think what the jurors are saying is that in the state of Texas, the Dallas—Fort Worth area, it appears that you have erred on the wrong side.
     DR DAVID LAWRENCE Yeah, I, we’ve had problems in Texas. We admit that. We have sent our best team of leaders into Texas. We have sent inspectors of our own into Texas. We have sent specialists into Texas to help based on what we
know how to do in other parts of the country. We’ve made a number of improvements and a number of major advances in Texas over the last several years.
     FORREST SAWYER You know that the Kaiser Family Foundation in Harvard did a survey of consumer feelings about HMOs and more than half said that HMOs make it harder to see specialists and more than half said that they provide
decreased quality of care for the sick. Now how do you think you’ve wound up in that circumstance?
     DR DAVID LAWRENCE Well, let me tell you another study that was done by the governor’s task force in California this year. It was just reported, actually in the latter part of last year, that the group and staff model kinds of organizations of the sort that Kaiser Permanente is were rated the highest among the alternatives for the quality of care, for the care given to people with chronic illness and so on. So I, you know, I know what the study showed that the Family Foundation did together with Harvard. That was a general study across the United States. But in general, our patients and our members tend to be highly satisfied and highly loyal to Kaiser Permanente.
     FORREST SAWYER Just a few seconds left. You’ve lost a lot of money last year. Do you see the up side in the next year?
     DR DAVID LAWRENCE We sure hope to and I can promise you this, it will not come at the expense of quality. It will come because we continue to improve quality. Remember one thing, I think it’s terribly important that one of the
things that’s going on in the United States before managed care and with managed care is that hospitals, for example, have to be used very, very carefully. People get sick in hospitals. People die in hospitals from the medication and treatment errors that occur there. So we’re going to be looking for every opportunity we can find to improve quality because that’s the best and most effective way of taking care of our patients and taking care of the bottom line.
     FORREST SAWYER Dr David Lawrence, chief executive officer for Kaiser Permanente, thank you for joining us, sir.
     DR DAVID LAWRENCE Thank you.