Kaiser Permanente Hawaii, the state’s second-largest medical insurer, has fallen behind competitors in the volatile business of health care.

Ron Vance, the new president of Kaiser Foundation Health Plan and Hospitals Hawaii region, painted a dire financial picture to employees in a recent memo, which detailed the reality that the health plan is losing “substantial amounts of money every year,” continues to “fall behind our competition on affordability, access, convenience and member experience” with “no plan to achieve sustainable growth.”

“For more than 60 years, Kaiser Permanente has been at the forefront of patient-led care in Hawaii, but changes in the market have challenged the way we operate and conduct business,” he said in the letter. “As a result, our finances have been trending in the wrong direction for some time.”

“We have no clear path to a positive balance sheet — and without this, we won’t be able to continue delivering the kind of care and service our patients and members expect and deserve,” he added.

Kaiser is the state’s largest health maintenance organization — both a medical provider and health insurer covering more than 250,000 members and has an exclusive contract with doctors in its network. It is second in market share only to the Hawaii Medical Service Association, which has 729,000 members.

The health plan recorded a staggering year-to-date loss of $88 million in the third quarter and is projecting a loss that “could be substantially higher” in 2020, Vance said.

“This is unsustainable,” he said, adding that Kaiser’s national program office has had to lend the region nearly $400 million over the past several years.

In its attempt to achieve financial sustainability Kaiser has delayed about $370 million of maintenance and capital projects, Vance said, adding that the backlog and building for the future could cost more than $2 billion.

“Incremental change and a laundry list of cost-saving initiatives aren’t enough to secure our future,” he said. “Doing what we’ve always done isn’t enough.”

Vance said the Hawaii health plan needs to “become more affordable.”

“It costs more to purchase health care policies from us compared with our competitors. And the difference can be significant,” he said. “This is not how we want to serve our community. We need to reduce our costs and improve our margins so that we can fulfill our mission of offering high quality care at an affordable, market-competitive price.”

Kaiser spokeswoman Laura Lott said Vance was off island and unavailable for comment on the memo. She previously said the HMO is developing a long-term strategic plan by early 2020 to lower costs and and ensure that members’ expectations for quality, service and affordability are being met.

Paul Tom, president of Benefit Plan Solutions, an employee benefit consulting firm that works with large employers and trust funds covering about 50,000 employees and their dependants, said other health plans have become much more competitive than Kaiser in recent years. That’s due in part to Kaiser members not being able to get the doctors of their choice and appointments in a timely manner.

Access to care

In the letter, Vance acknowledged that the health plan and more than 400 physicians in the Hawaii Permanente Medical Group are not working well together.

“We need to fundamentally rethink how we deliver medical care. Our members are asking for easier access on their terms. They want the care they need when they need it. They want to be able to call or video chat with a doctor after hours or, if needed, receive urgent care in person,” Vance said. “Today it can take too long to schedule an appointment by phone, the online process often isn’t smooth and getting in to see a preferred practitioner can be difficult. Frankly, we are way behind our competitors in this area. We have to innovate and reestablish ourselves as a leader in health care delivery or we’ll simply be left behind.”

Kaiser’s competitors offer patient portals, video visits and access to more convenient urgent care, he said.

“If you can’t make appointments and get the doctors that you want, then you’re going to choose other plans. If people feel they need an appointment they don’t want to be subjected to long waits,” Tom said. “It’s been awhile that Kaiser has not been competitive and the gap (between its health plan and other plans in the market) is getting wider. We’ve gone too long, and to correct it now is just going to take a tremendous effort on everybody’s part.”

Medicare, the government health insurance program for seniors, and HMSA have been aggressive with new payment models, including bundled payments and set monthly reimbursements for physicians no matter how many times patients visit the doctor, in an attempt to rein in escalating health care costs. Reimbursements are largely based on quality outcomes and patient satisfaction.

Because the HMO hasn’t kept up with the competition, some employers are opting to freeze enrollment or discontinue Kaiser altogether, Tom said.

One issue is that Kaiser has been charging large employers a “greater share than what they’re entitled to based on their experience” to offset lower prices it is charging smaller groups to gain that business, according to Tom. Health insurers pool small groups together to determine premiums and spread rate increases over a larger base, while large employer rates are based on utilization of medical benefits.

“One of the problems we see is they’ve been trying to be competitive with small plans and as a result, they’re expecting the large plans to subsidize the small plans,” he said. “What the employers and employees have to pay, if it’s not affordable, of course, they’re not going to enroll in the plan.”

Navigating changes

Kaiser established its health plan with the opening of its Honolulu hospital in 1958. It is expanding primary and specialty care on Oahu, with a $60 million medical building in Kapolei slated for completion in 2021.

In 2017, the HMO assumed control of three Maui County hospitals in the largest privatization in state history, pledging to invest more than $50 million to expand services and update technology to improve patient care. The following year it acquired 6.2 acres under its Wailuku Medical Office for $22 million for future renovation and expansion.

In recent months, Kaiser has also been embroiled in a lawsuit against The Queen’s Health Systems over what it claims is unfair billing practices and recently settled labor negotiations with the nurses’ union.

The company has also gone through a number of leadership changes in recent years following the departure of President Janet Liang, who took the helm in 2007 and moved to Kaiser’s Northern California region in 2014. She was replaced that year by Mary Ann Barnes, who retired in 2017.

Interim regional President Bill Caswell stepped in until 2018, when Kaiser hired Dave Underriner, who abruptly stepped down in October. Kaiser announced Vance as the new interim regional president in an emailed screen shot of an iPhone memo while it searches for a permanent leader.

While the company is facing challenging times, there is value in Kaiser’s integrated health care system, which competitors have been trying to emulate in recent years, Tom said.

“But in everything if you just let it go and you don’t pay attention to it, then it begins to not be efficient and not be responsive to members,” Tom said. “Our marketplace is competitive and he (Vance) recognizes that. He’s not taking the position that we’re the almighty and nobody can touch us. They’re beginning to find out with cost of health care, especially when it comes to drugs, it affects everybody. The problem is the CEOs that preceded him did not look at it objectively. They were looking at it with rose-colored glasses. This individual has taken off the glasses and is looking at the reality of their delivery system.”

Letter to Kaiser employees by Honolulu Star-Advertiser on Scribd