Plans for putting patient safety first — and for building a comprehensive injury reporting and reviewing system — have stalled for nearly a decade.

This article was first published on Thursday, November 21, 2019 in Kaiser Health News.

By Fred Schulte and Erika Fry, Fortune

In fall 2009, several dozen of the best minds in health information technology huddled at a hotel outside Washington, D.C., to discuss potential dangers of an Obama White House plan to spend billions of tax dollars computerizing medical records.

The health data geeks trusted that transitioning from paper to electronic records would cut down on medical errors, help identify new cures for disease and give patients an easy way to track their health care histories.

But after two days of discussions, the group warned that few safeguards existed to protect the public from possible consequences of rolling out the new technology so quickly. Because this software tracks the medicines people take and their vital signs, even a tiny error or omission, or a doctor's inability to access the file quickly, can be a matter of life or death.

The experts at that September 2009 meeting, mainly members of the American Medical Informatics Association, or AMIA, agreed that safety should be a top priority as federal officials poured more than $30 billion into subsidies to wire up medical offices and hospitals nationwide.

The group envisioned creating a national databank to track reports of deaths, injuries and near misses linked to issues with the new technology.

It never happened.

Instead, plans for putting patient safety first — and for building a comprehensive injury reporting and reviewing system — have stalled for nearly a decade, because manufacturers of electronic health records (EHRs), health care providers, federal health care policy wonks, academics and Congress have either blocked the effort or fought over how to do it properly, an ongoing investigation by Fortune and Kaiser Health News shows.

Over the past 10 years, the parties have squabbled over how best to collect injury data, over who has the power to require it, over who should pay for it, and over whether to make public damning findings and the names of those responsible for safety problems.

In 2015, members of Congress derailed a long-planned EHR safety center, first by challenging the government's authority to create it and later by declining to fund it. A year later, Congress stripped the Food and Drug Administration of its power to regulate the industry or even to track malfunctions and injuries.

"A lot of people involved with patient safety and medical informatics were horrified," said Ross Koppel, a University of Pennsylvania sociologist and prominent EHR safety expert. Koppel said the industry won legal status as a "regulatory free zone" when it came to safety, an outcome he called a "scandal beyond belief."

The Electronic Health Record Association, a trade group that represents more than 30 vendors, declined to comment on the safety issue.

Meanwhile, patients remain at risk of harm. In March, Fortune and KHN revealed that thousands of injuries, deaths or near misses tied to software glitches, user errors, interoperability problems and other flaws have piled up in various government-sponsored and private repositories. One study uncovered more than 9,000 patient safety reports tied to EHR problems at three pediatric hospitals over a five-year period.

Allegations of EHR-related injuries or other flaws have surfaced in the courts. KHN/Fortune examined more than two dozen such cases, such as a California woman who mistakenly had most of her left leg amputated because the EHR sent another patient's pathology report indicating cancer to her medical file. A Vermont patient died after a doctor's order to scan her brain for an aneurysm never made it from the computer to the lab.

Despite such incidents, experts believe EHRs have made medicine safer by eliminating errors due to illegible handwriting and in some cases speeding up access to vital patient files. But they also acknowledge they have no idea how much safer, or how much the systems could still be improved because no one — a decade after the federal government all but mandated their adoption — is assessing the technology's overall safety record.

KHN and Fortune found that at least a dozen expert commissions, federal health IT panels and medical associations have echoed AMIA's early call to track EHR safety risks only to be thwarted by objections from the industry or its allies, or by simple bureaucratic inertia. Some critics see the situation as a dispiriting Washington tale of corporate "capture" of government, while others wonder why a warning system to alert health officials to dangers with certain software is even controversial.

"How is it in the public interest for medical records software to have flaws that lead to deaths?" said Joshua Sharfstein, who served as FDA deputy commissioner when the safety issue flared up during President Barack Obama's first term. These incidents "should be fully understood and investigated" and "not be able to be buried."

Support for computerizing medical records has spanned the political spectrum. The health IT industry's aversion to FDA oversight has won support at critical times both with liberals who embraced EHRs as a high-tech magic bullet for reforming the nation's costly health care system and with free-market conservatives skeptical of red tape and government interventions.

The vendors protested they were overburdened with technical requirements that their software had to meet to qualify for the government subsidy program. Those specifications included many relatively small-bore features, like including a check box indicating the doctor had asked about the patient's smoking status — and other tasks likely to have little impact on safety.

Complicating things further, many safety advocates themselves have worried that heavy-handed oversight — such as requiring approval of every software update — could actually make the technology less safe, stalling urgent software updates (not to mention stifling innovation and slowing the marketing of vital new technology).

After a contentious process in which consumer advocacy group Public Citizen accused FDA officials of collaborating with the devices industry to weaken oversight, Congress passed the 21st Century Cures Act. A few sentences buried in the law, signed by Obama in late 2016, all but shut the door on FDA regulation of EHRs.

The bipartisan law, which speeds up approvals for some medical therapies, states flatly that electronic health records are not medical devices subject to FDA scrutiny. Some longtime EHR safety advocates say they have all but given up hope for consensus on any system that would investigate and share findings from adverse events, as happens in other industries, like transportation and aviation.

"We have nothing like that," said Justin Starren, director of the Center for Data Science and Informatics at Northwestern University. "We have the opposite … with vendors saying that customers are explicitly forbidden from publicizing problems they encounter."

Starren noted that health care providers don't like to share safety failures either: "It's the liability fear. If an institution holds up its hand and says, 'Our EHR might be killing people,' the lawyers will be lining up outside the courthouse door."

Less Red Tape Unleashes Red Flags?

In the months before the 2009 AMIA meeting, concern was mounting at the FDA over the rapidly advancing EHR rollout.

Since the mid-1980s, however, the FDA had considered health IT to present a low risk of harm because a "learned intermediary," such as a doctor, was in charge. Most manufacturers agreed and insisted their products were not medical devices, but vehicles for processing and storing medical information.

The legal distinction is critical. While the FDA requires device makers to report adverse events, the policy in place gave EHR manufacturers a pass. At least one major vendor, Cerner Corp., has concluded that EHRs are, in fact, medical devices and has submitted some error reports to FDA's public MAUDE database. But most manufacturers disagree and have not reported data, leaving a sizable gap in the agency's grasp of possible hazards.

Within the FDA, some staffers urged the agency to rethink the hands-off stance given the rush by hundreds of health IT companies — many of them new entrants — to sell medical records software that tens of thousands of doctors, hospitals and patients would rely on.

On Sept. 22, 2009, FDA staff shared their views with deputy commissioner Sharfstein and his boss, commissioner Margaret Hamburg, at a "regulatory strategy" meeting. After hearing the pitch, Hamburg agreed the FDA "needs to be involved in the White House [EHR] initiative," according to an agency memo. Hamburg had no comment for this article.

One former FDA official recalls tension mounting as the agency became more assertive, saying: "It was a big train going down the tracks at 80 miles per hour, and there were concerns that FDA would slow it down."

The FDA sounded a public warning at a February 2010 hearing. The agency's chief devices regulator, Jeffrey Shuren, testified that even with limited surveillance, the FDA had tied six deaths and 44 reported injuries to health information technology failures.

In all, Shuren said, the FDA had logged 260 reports of "malfunctions with the potential for patient harm" over the previous two years. In one case, the software filed results from emergency lab tests to the wrong patient's electronic record.

Shuren described the reports as likely the "tip of the iceberg" and said they suggested "significant clinical implications and public safety issues." He laid out three options for FDA involvement, the least burdensome being registration of EHR software and mandatory reporting of dangerous incidents. Through an agency spokesperson, Shuren declined to be interviewed for this article.

Shuren's 2010 testimony did not appear to carry much weight with David Blumenthal, a Harvard physician chosen as the Obama administration's point man for the digital medical record rollout. Blumenthal declined to comment.

Many in Blumenthal's division, known as the Office of the National Coordinator for Health Information Technology, or ONC, sympathized with the industry's assertion that FDA regulation would discourage innovation, which, in turn, could cripple the president's plans to revolutionize health care and save money. Blumenthal, who was convinced EHRs would make medicine much safer, described the FDA injury reports as "anecdotal."

An obscure outpost of the Department of Health and Human Services in the second Bush administration, ONC under Blumenthal revved up as federal officials laid plans for distributing billions of stimulus dollars.

The stimulus law directed ONC to set up two diverse advisory panels so that no single faction of the health care sector could unduly influence policy. Yet it seemed clear, at least to skeptics, that ONC depended heavily on the goodwill, expertise and guidance of the technology community.

Steven Findlay, who served on one of the panels as a representative of Consumers Union, said industry witnesses often "commandeered" the discussions because they "had the technical knowledge to steer things in a direction that they wanted."

Safety "was not necessarily their first priority. They were building products to serve an industry and designing them to make money," Findlay said in a recent interview.

Dean Sittig, a medical informaticist at the University of Texas Health Science Center at Houston and early researcher on EHR safety, said ONC was "trying to promote" digital records "and there wasn't a lot of interest in talking about things that could go wrong." That conflict persists, he said. "They gave out $36 billion. It's hard for them to say EHRs aren't safe."

The ONC did form a safety "working group." The panel suggested that doctors and hospitals be required to report "potential hazards" and "incidents" to a national database or risk forfeiting government subsidies for purchasing records software, according to minutes from its March 12, 2010, meeting.

That idea never got past the drafting stage, however.

Glitches In The Matrix

In a nod to safety, ONC asked the National Academy of Sciences' Institute of Medicine to weigh in, a move some at the FDA hoped would at the least lend support for nationwide collection of injury data.

When the 18-member expert panel held a public hearing in mid-December 2010, Shuren reappeared with updated FDA figures — about 370 reports of "adverse events or near misses" involving health IT since January 2008. Once again, he called FDA's count a "small percentage of the actual [adverse] events that do occur."

Among the causes he cited: failure of the software to interface properly with other technologies, user errors, design flaws and inadequate pre-market testing.

Shuren suggested EHRs were medical devices over which the FDA "has exercised enforcement discretion; meaning it has not enforced existing requirements," an apparent reference to the hands-off policy. He called for "real-time collection, aggregation and analysis" of reports on the functioning of EHRs.

The Institute of Medicine panel in November 2011 called on HHS to make adverse incident reporting mandatory for vendors and voluntary for users. It also said HHS should ask Congress to approve a government-run injury monitoring system as rigorous as that used to promote airline safety that would both investigate and make its findings public. The FDA might not be the best-equipped agency to take on the task, the group noted.

The panel asserted that EHR vendors face "competing priorities, including maximizing profits and maintaining a competitive edge, which can limit shared learning and have adverse consequences for patient safety."

One member called for even stricter oversight. In an impassioned dissent, Richard Cook, a Chicago radiologist and safety expert, argued EHRs were medical devices that necessitated the scrutiny of the FDA.

"At least a few U.S. citizens — perhaps more than a few — have died or have been maimed because of health IT. The extent of the injuries generated by health IT is unknown because no one has bothered to look for them in a systematic fashion," Cook wrote in his dissent.

Backtracking On Oversight

In 2012, Congress required FDA, ONC and the Federal Communications Commission to propose "risk-based" oversight for health IT that "promotes innovation, protects patient safety, and avoids regulatory duplication."

Two years went by before the agencies did so. In April 2014, they promoted a "limited, narrowly tailored approach" to oversight led by the ONC as well as a "surveillance mechanism" to track adverse events and near misses.

ONC's budget for the 2015 and 2016 fiscal years proposed spending $5 million for such a center, which ONC said would begin "a robust collection and analysis of health IT-related adverse events."

But four House Republicans in June 2014 questioned whether ONC had the legal authority to set up the center.

Energy and Commerce Committee Chairman Fred Upton of Michigan, Vice Chairman Marsha Blackburn of Tennessee, health subcommittee Chairman Joseph Pitts of Pennsylvania and communications and technology subcommittee Chairman Greg Walden of Oregon argued that ONC had failed to satisfy their concerns over what Blackburn termed regulatory "mission creep." At a House hearing in July 2014, Blackburn repeated her worry about "a misguided system of regulation."

Former ONC director Karen DeSalvo said she was five months on the job and felt completely blindsided by the line of questioning — despite the National Academy of Sciences report years earlier that had advised HHS to seek approval from Congress to expand ONC's oversight role. The center's prospects dimmed further when the Congressional Research Service issued a report on the matter in early 2015 that seemed to side with the Republicans.

DeSalvo's team later requested legislative authority to create the center, but the effort was not successful. ONC was granted legislative authority for other requests, however, empowering it to define interoperability and to crack down on vendors who improperly restrict access to medical records.

These days, many of the key players have conflicting opinions and recollections about what went wrong and why.

DeSalvo, now a professor of medicine and population health at Dell Medical School, said she really doesn't know if something sinister torpedoed the safety center or it was just a matter of not enough people caring. "It was really just kind of start and stop," she said. That's perhaps not surprising, considering ONC has had seven directors in its 15 years of existence — and six since 2009, when the government made EHRs a national priority. (And that's not counting four interim directors who collectively helmed the outfit for 16 months.)

Doug Fridsma, who left his role as ONC's chief scientist in 2014, cited other factors that slowed the center's momentum. He said uncertainty over its mission didn't help gain the trust of the industry, while citing other thorny issues, such as who would foot the bill and whether its data might be used to discipline or otherwise harm vendors. Fridsma, now AMIA's chief executive, said that government-sponsored regional patient safety organizations aren't well equipped to conduct national oversight of EHR functions.

"It has resulted in a vacuum around health IT safety," said Fridsma. "Congress has failed to make it a priority."

Shifting Public Attention

Revisiting plans for a full-fledged EHR safety center holds little appeal to Don Rucker, the Trump administration's ONC chief.

Rucker said he sees little value in collecting data on incidents often "years and years" after they occurred. Rapidly evolving technologies are making computer errors easier to recognize and remedy. "We can catch these things a lot earlier," he said.

Rucker argues that the 21st Century Cures Act prohibits the industry from enforcing "gag" clauses that in the past have handcuffed hospitals and doctors from criticizing their EHRs. The Cures law includes fines of up to $1 million for "information blocking," including taking steps to discourage EHR users from reporting adverse events and other problems for review.

New freedom to sound off assures that doctors and hospitals will begin sharing EHR problems, mitigating any need for mandatory reporting, in Rucker's view. Rucker said he hopes to have the regulations in place by the end of the year.

The proposed ONC regulations cite a "strong public interest" in "open communication of information regarding health hazards, adverse events and unsafe conditions." But that information won't be shared with the public. ONC says all reports of problems are exempt from public release under the Freedom of Information Act. Congress gave these records the same legal status as income tax returns as part of the Cures law.

Jacob Reider, a former ONC interim director, said the government's failure to do more to promote public awareness of safety concerns is disappointing — and even irresponsible — given its zeal in bringing EHRs into the mainstream of medicine.

"I remember internal conversations where we talked about 'What is the equivalent of a plane crash that is going to get the attention of people?'" said Reider, who now practices family medicine in upstate New York. "'Is it going to be a congressperson's relative is harmed by health IT that causes the attention to shift?' I would offer that still hasn't happened yet, but someday it will. And gosh, wouldn't it be a horrible thing that we have to wait for that to happen?"

Fred Schulte: fschulte@kff.org, @fredschulte

Health plans pass the cost of 'free' flu shots to consumers through higher premiums.

This article was first published on Tuesday, November 19, 2019 in Kaiser Health News.

By Phil Galewitz

In the Byzantine world of health care pricing, most people wouldn't expect that the ubiquitous flu shot could be a prime example of how the system's lack of transparency can lead to disparate costs.

The Affordable Care Act requires health insurers to cover all federally recommended vaccines at no charge to patients, including flu immunizations. Although people with insurance pay nothing when they get their shot, many don't realize that their insurers foot the bill — and that those companies will recoup their costs eventually.

In just one small sample from one insurer, Kaiser Health News found dramatic differences among the costs for its own employees. At a Sacramento, Calif., facility, the insurer paid $85, but just a little more than half that at a clinic in Long Beach. A drugstore in Washington, D.C., was paid $32.

The wide discrepancy in what insurers pay for the same flu shot illustrates what's wrong with America's health system, said Glenn Melnick, a health economist at the University of Southern California.

"There is always going to be some variance in prices, but $85 as a negotiated price sounds ridiculous," he said.

Flu shots are relatively cheap compared with most health services, but considering the tens of millions of Americans who get vaccinated each year, those prices add up.

Health plans pass those expenses to consumers through higher premiums, economists say.

"The patient is immune from the cost, but they are the losers because eventually they pay a higher premium," said Ge Bai, an accounting and health policy professor at Johns Hopkins University's campus in Washington, D.C.

Bai said the variation in payments for flu shots has nothing to do with the cost of the drug but is a result of negotiations between health plans and providers.

Typically, health insurers' reimbursements to private health providers are closely guarded secrets. The insurers argue secrecy is needed for competitive business reasons.

But there's one place those dollar figures appear for anyone to see: the "explanation of benefit" forms that insurers send to members after paying a claim.

KHN reviewed forms that one of its insurers, Cigna, paid for some colleagues to get flu shots this fall in Washington, D.C., and California.

Cigna paid $32 to CVS for a flu shot in downtown Washington and $40 to CVS less than 10 miles away in Rockville, Md.

In Southern California, Cigna paid $47.53 for a flu shot from a primary care doctor with MemorialCare in Long Beach. But it paid $85 for a shot given at a Sacramento doctors' office affiliated with Sutter Health, one of the biggest hospital chains in the state.

Health experts were not surprised insurers paid Sutter more, though they were stunned just how much more.

"Sutter has huge clout in California, and insurers have no other option than to pay Sutter the price," Bai said.

For years, Sutter has faced criticism that is uses its market dominance to charge higher rates. In October, it settled a lawsuit brought by the state attorney general, employers and unions that accused the hospital giant of illegally driving up prices.

The $85 was not just far more than what Cigna paid elsewhere but also more than triple the price Sutter advertises on its website for people without insurance: $25.

How does Sutter justify its higher prices as well as different prices for the same shot at the same location?

Sutter officials had no simple explanation. "Pricing can vary based on a number of factors, including the care setting, a patient's insurance coverage and agreements with insurance providers," Sutter said in a statement.

Cigna also said many issues are considered when determining its varied payments.

"What a plan reimburses a pharmacy/clinic/medical center for a flu vaccine depends on the plan's contracted rate with that entity, which can be affected by a number of factors including location, number of available pharmacies/facilities in that area (a.k.a. competition), and even the size of the plan (a.k.a. potential customers)," Cigna said in a statement. "It is important to keep in mind that hospitals and pharmacies have different economics, including the cost to administer."

It's also noteworthy that Medicaid, the state-federal health insurance program covering more than 72 million low-income Americans, pays providers far less for a flu shot. In Washington, D.C., Medicaid pays $15. In Connecticut, $19.

Nationally, self-insured employers and insurers paid between $28 and $80 for the same type of flu shot administered in doctors' offices in 2017, according to an analysis of more than 19 million claims of people under 65 years old by the Kaiser Family Foundation in partnership with the Peterson Center on Healthcare. (Kaiser Health News is an editorially independent program of the foundation.)

"Your health plan could end up paying more than double the cost for the same flu shot depending on where you get it," said Cynthia Cox, a vice president at the foundation.

"We see the same pattern for more expensive services like MRIs or knee replacements," she said. "That variation in prices is part of what's driving insurance premiums higher in some parts of the country."

The wide discrepancy in costs for the same service highlights a major problem in the U.S. health care system.

"We don't have a functioning health care market because of all this lack of transparency and opportunities for price discrimination," Melnick said.

"Prices are inconsistent and confusing for consumers," he said. "The system is not working to provide efficient care, and the flu shot is one example of how these problems persist."

An unintended consequence of the health law making flu shots free for insured patients is that health plans have little ability to direct patients to providers that offer the vaccine for less cost because patients have no reason to care, Bai said.

Around the country, retailers like Target and CVS offer various incentives such as gift cards and coupons to entice consumers to come in for their free flu shots in hopes they shop for other goods, too. Some hospital systems such as Baptist Health in South Florida have also started providing  free flu shots for people without insurance.

Bai said that while hospitals like Baptist should be praised for helping improve the health of their communities, there are other factors in play.

"There is a hidden motivation to use free flu shots as a marketing tool to improve the hospital's reputation," she said. "If people come to the hospital for a flu shot, they may like the facility and come again."

Phil Galewitz: pgalewitz@kff.org, @philgalewitz

American Kidney Fund tells California dialysis patients it will no longer help pay for treatments.

This article was first published on Thursday, November 14, 2019 in Kaiser Health News.

By Ana B. Ibarra

Russell Desmond received a letter a few weeks ago from the American Kidney Fund that he said felt like "a smack on the face."

The organization informed Desmond, who has kidney failure and needs dialysis three times a week, that it will no longer help him pay for his private health insurance plan — to the tune of about $800 a month.

"I am depressed about the whole situation," said the 58-year-old Sacramento resident. "I have no clue what I'm going to do."

Desmond has Medicare, but it doesn't cover the entire cost of his care.  So, with assistance from the American Kidney Fund, he pays for a private plan to cover the difference.

Now, the fund, which helps about 3,700 Californians pay their premiums and out-of-pocket costs, is threatening to pull out of California because of a new state law that is expected to cut into the dialysis industry's profits — leaving patients like Desmond scrambling.

The letter portrayed the fund as helpless. "We are heartbroken at this outcome," it read. "Ending assistance in California is the last thing we want to do."

But supporters of the new law are calling the threat a scare tactic. State Assemblyman Jim Wood (D-Healdsburg), the author of AB-290, said there is nothing in the measure that prohibits the fund from continuing to provide financial assistance to patients.

"AKF has simply made a conscious decision, without merit, to leave the state despite the many accommodations I made by amending the bill in the Senate to ensure that it can continue to operate in California," Wood said in a written statement.

What's behind this dispute is the tight relationship between the American Kidney Fund and the companies that provide dialysis, which filters the blood of people whose kidneys are no longer doing the job.

People on dialysis usually qualify for Medicare, the federal health insurance program for people 65 and older, and those with kidney failure and certain disabilities. If they're low income, they may also qualify for Medicaid, which is called Medi-Cal in California.

But dialysis companies can get higher reimbursements from private insurers than from public coverage. And one way to keep dialysis patients on private insurance is by giving them financial assistance from the American Kidney Fund, which helps nearly 75,000 low-income dialysis patients across the country.

The fund gets most of its money from DaVita and Fresenius Medical Care, the two largest dialysis companies in the country. The fund does not disclose its donors, but an audit of its finances reveals that 82% of its funding in 2018 — nearly $250 million — came from two companies.

Insurance plans, consumer advocacy groups and unions have accused the American Kidney Fund of helping dialysis providers steer patients into private insurance plans in exchange for donations from the dialysis industry. Wood said his bill is intended to discourage that practice.

American Kidney Fund CEO LaVarne Burton denied the accusations and said her group plays no role in patients' coverage choices.

Starting in 2022, the new law will limit the private-insurance reimbursement rate that dialysis companies receive for patients who get assistance from groups such as the American Kidney Fund to the rate that Medicare pays. The rate change won't apply to patients who are currently receiving assistance as long as they keep the same health plans. The bill will also address a similar dynamic in drug treatment programs.

To determine which patients receive financial aid, the law will require third-party groups to disclose patients' names to health insurers starting July 1, 2020.

These disclosure requirements are spurring the American Kidney Fund's decision to leave, Burton said. She argues that they conflict with federal rules and violate patient privacy.

"AKF has no choice but to leave or seek legal relief," Burton said.

In mid-October, the fund started sending letters to its financial aid recipients in California warning of its departure. And Nov. 1, it joined two dialysis patients in filing suit against the state, asking a U.S. District Court to rule the law unconstitutional.

Gov. Gavin Newsom cautioned against such actions when he signed the bill, and urged "both opponents and supporters to put patients first."

But as the threats and legal battle play out, patients are caught "squarely in the middle," said Bonnie Burns, a consultant with California Health Advocates, a Medicare advocacy group.

Their options may be limited, she said. Those who don't work won't have access to employer-sponsored coverage to make up the difference. And in California, Medicare recipients under age 65 are not eligible to purchase supplemental insurance known as Medigap.

The state Department of Managed Health Care offers a fact sheet for affected patients, directing them to programs such as Covered California and Medi-Cal.

DaVita and Fresenius said insurance counselors and social workers at their clinics are working with patients to find other options.

"We will continue to treat all patients, regardless of insurance status," said Paige Hosler, vice president of insurance management at DaVita. Hosler noted that some patients may qualify for DaVita's charity care program.

Dialysis companies have been at the center of recent legislative and ballot-box battles, and have spent big to defend their bottom lines. Last year, they poured a record-breaking $111 million into a campaign to defeat Proposition 8, a ballot initiative that would have capped their profits. The measure failed.

The industry also spent about $2.5 million in California on lobbying and campaign contributions in the first half of this year to oppose Wood's measure.

Desmond said he understands why lawmakers targeted the dialysis industry but can't fathom why they did so at the expense of patients.

Desmond was laid off from his job as a computer programmer in Massachusetts in 2009 and moved to California to join his brother. One year later, he was diagnosed with kidney failure.

He lives off his Social Security Disability Insurance benefits, which come to about $2,000 a month after his Medicare premiums are deducted. Medicare pays for 80% of his care.

He also qualifies for Medi-Cal coverage that comes with high out-of-pocket costs, so he relies instead on a private Aetna insurance plan to cover the remaining 20%. The American Kidney Fund has been paying the premiums for his private plan since 2015.

"What they did is take away our life raft and left us to drown," he said of lawmakers.

Brian Carroll, 40, of Sacramento, has been on dialysis for five years. He moved back in with his parents in 2016 because, he said, dialysis left him too weak to work.

"I am now completely depending on other people," Carroll said. The American Kidney Fund pays the $270 monthly premium for his private insurance plan that covers what Medicare doesn't. "That's an entire month of groceries and gas for me," he said.

Carroll said he supported Proposition 8, even though dialysis companies argued it would force them to cut back services and shut down clinics.

In this situation, he's not sure whom to blame — the lawmakers, who passed the law with no backup plan for patients, or the fund, which is essentially holding patients hostage.

"What I do know is that you can't just leave dialysis patients like this," Carroll said. "It's cruel."

This KHN story first published on California Healthline, a service of the California Health Care Foundation.

Ana B. Ibarra: aibarra@kff.org, @ab_ibarra

Critics say the nonprofit health system is becoming more like its for-profit counterparts.

This article was first published on Friday, November 8, 2019 in Kaiser Health News.

By Anna Almendrala

Kaiser Permanente, which just narrowly averted one massive strike, is facing another one Monday.

The ongoing labor battles have undermined the health giant's once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls "members" — and is exposing it to new scrutiny from politicians and health policy analysts.

As the labor disputes have played out loudly, ricocheting off the bargaining table and into the public realm, some critics believe that the nonprofit health system is becoming more like its for-profit counterparts and is no longer living up to its foundational ideals.

Compensation for CEO Bernard Tyson topped $16 million in 2017, making him the highest-paid nonprofit health system executive in the nation. The organization also is building a $900 million flagship headquarters in Oakland. And it bid up to $295 million to become the Golden State Warriors' official health care provider, the San Francisco Chronicle reported. The deal gave the health system naming rights for the shopping and restaurant complex surrounding the team's new arena in San Francisco, which it has dubbed "Thrive City."

The organization reported $2.5 billion in net income in 2018 and its health plan sits on about $37.6 billion in reserves.

Against that backdrop of wealth, more than 80,000 employees were poised to strike last month over salaries, retirement benefits and concerns over outsourcing and subcontracting. Nearly 4,000 members of its mental health staff in California are threatening to walk out Monday over the long wait times their patients face for appointments.

"Kaiser's primary mission, based on their nonprofit status, is to serve a charitable mission," said Ge Bai, associate professor of accounting and health policy at Johns Hopkins University. "The question is, do they need such an excessive, fancy flagship space? Or should they save money to help the poor and increase employee salaries?"

Lawmakers in California, Kaiser Permanente's home state, recently targeted it with a new financial transparency law aimed at determining why its premiums continue to increase.

There's a growing suspicion "that these nonprofit hospitals are not here purely for charitable missions, but instead are working to expand market share," Bai said.

The scrutiny marks a disorienting role-reversal for Kaiser, an integrated system that acts as both health insurer and medical provider, serving 12.3 million patients and operating 39 hospitals across eight states and the District of Columbia. The bulk of its presence is in California. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)

Many health systems have tried to imitate its model for delivering affordable health care, which features teams of salaried doctors and health professionals who work together closely, and charges few if any extraneous patient fees. It emphasizes caring and community with slogans like "Health isn't an industry. It's a cause," and "We're all in this together. And together, we thrive."

Praised by President Barack Obama for its efficiency and high-quality care, the health maintenance organization has tried to set itself apart from its profit-hungry, fee-for-service counterparts.

Now, its current practices — financial and medical — are getting a more critical look.

As a nonprofit, Kaiser doesn't have to pay local property and sales taxes, state income taxes and federal corporate taxes, in exchange for providing "charity care and community benefits" — although the federal government doesn't specify how much.

As a percentage of its total spending, Kaiser Permanente's charity care spending has decreased from 1.29% in 2012 to 0.8% in 2017. Other hospitals in California have exhibited a similar decrease, saying there are fewer uninsured patients who need help since the Affordable Care Act expanded insurance coverage.

CEO Tyson told California Healthline that he limits operating income to about 2% of revenue, which pays for things like capital improvements, community benefit programs and "the running of the company."

"The idea we're trying to maximize profit is a false premise," he said.

The organization is different from many other health systems because of its integrated model, so comparisons are not perfect, but its operating margins were smaller and more stable than other large nonprofit hospital groups in California. AdventHealth's operating margin was 7.15% in 2018, while Dignity Health had losses in 2016 and 2017.

Tyson said that executive compensation is a "hotspot" for any company in a labor dispute. "In no way would I try to justify it or argue against it," he said of his salary. In addition to his generous compensation, the health plan paid 35 other executives more than $1 million each in 2017, according to its tax filings.

Even its board members are well-compensated. In 2017, 13 directors each received between $129,000 and $273,000 for what its tax filings say is five to 10 hours of work a week.

And that $37.6 billion in reserves? It's about 17 times more than the health plan is required by the state to maintain, according to the California Department of Managed Health Care.

Kaiser Permanente said it doesn't consider its reserves excessive because state regulations don't account for its integrated model. These reserves represent the value of its hospitals and hundreds of medical offices in California, plus the information technology they rely on, it said.

Kaiser Permanente said its new headquarters will save at least $60 million a year in operating costs because it will bring all of its Oakland staffers under one roof. It justified the partnership with the Warriors by noting it spans 20 years, and includes a community gathering space that will provide health services for both members and the public.

Kaiser has a right to defend its spending, but "it's hard to imagine a nearly $300 million sponsorship being justifiable," said Michael Rozier, an assistant professor at St. Louis University who studies nonprofit hospitals.

The Service Employees International Union-United Healthcare Workers West was about to strike in October before reaching an agreement with Kaiser Permanente.

Democratic presidential candidates Kamala Harris, Bernie Sanders, Elizabeth Warren and Pete Buttigieg, as well as 132 elected California officials, supported the cause.

California legislators this year adopted a bill sponsored by SEIU California that will require the health system to report its financial data to the state by facility, as opposed to reporting aggregated data from its Northern and Southern California regions, as it currently does. This data must include expenses, revenues by payer and the reasons for premium increases.

Other hospitals already report financial data this way, but the California legislature granted Kaiser Permanente an exemption when reporting began in the 1970s because it is an integrated system. This created a financial "black hole" said state Sen. Richard Pan (D-Sacramento), the bill's author.

"They're the biggest game in town," said Anthony Wright, executive director of the consumer group Health Access California. "With great power comes great responsibility, and a need for transparency."

Patient care, too, is under scrutiny.

California's Department of Managed Health Care fined the organization $4 million over mental health wait times in 2013, and in 2017 hammered out an agreement with it to hire an outside consultant to help improve access to care. The department said Kaiser Permanente has so far met all the requirements of the settlement.

But according to the National Union of Healthcare Workers, which is planning Monday's walkout, wait times have just gotten worse.

Tyson said mental health care delivery is a national issue — "not unique to Kaiser Permanente." He said the system is actively hiring more staff, contracting with outside providers and looking into using technology to broaden access to treatment.

At a mid-October union rally in Oakland, therapists said the health system's billions in profits should allow it to hire more than one mental health clinician for every 3,000 members, which the union says is the current ratio.

Ann Rivello, 50, who has worked periodically at Kaiser Permanente Redwood City Medical Center since 2000, said therapists are so busy they struggle to take bathroom breaks and patients wait about two months between appointments for individual therapy.

"Just take $100 million that they're putting into the new 'Thrive City' over there with the Warriors," she said. "Why can't they just give it to mental health?"

Anna Almendrala: aalmendrala@kff.org, @annaalmendrala