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PAYMENTS TO PHYSICIANS IN THE PERMANENTE MEDICAL GROUP Morris F. Collen, M.D. The Permanente Medical Group, Inc. August 1985 Contractor Document Health Program, Office of Technology Assessment U.S. Congress, Washington, DC 20510 This paper was prepared by an outside contractor for the OTA assessment Payment for Physician Services: Strate&ies for Medicare. The paper does not necessarily reflect the analytical findings of OTA, the assessment's advisory panel, or the Technology Assessment Board. 

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CONTEr;TS 1. SUMMARY 1-1 2. INTRODUCTION 2-1 A. KAISER PERMANENTE NATIONAL ORGANIZATION 2-1 -4 8. NORTHERN CA~IFORNIA REGION 2-3 -6 3. ALTERNATIVE PAYMENT PLANS TO TPMG PHYSICIANS 3-1 -10 A. IN A PROPRIETORSHIP 3-1 8. IN A PARTNERSHIP 3-3 -12 C. IN A CORPORATION 3-5 -14 4. FACTORS INFLUENCING MEDICAL PRACTICE IN KAISER PERMANENTE 4-1 A. INTRODUCTION 4-1 8. PHYSICIAN ATTRIBUTES 4-3 a. The Prote11ional Iaperative 4-3 -19 b. The Technolo1Y Iaperative 4-4 -28 c. Physicians' Coapen sat ion 4-7 -23 d. Physician-Patient Relationships 4-9 -25 C. ORGANIZATIONAL ATTRIBUTES 4-10-26 a. Physician-Meaber Ratio 4-10 b. Cost Containaent 4-11 -27 C. Or1anizational Structure 4-14 -30 d. Quality Assurance 4-15 -31 e. Leadership Developent 4-15 D. ENVIRONMENTAL AND COMMUNITY ATTRIBUTES 4-16 -32 a. Competition for Patients/Members 4-16 b. Copetition for Physicians 4-19 -35 

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c. General Econoaic Factors d. Le1i1lative, Ethical, and Social Factors 5. REFERENCES 8. ACKNOWLEDGEMENTS 4-19 4-20 -36 --: ,;,.5-1 -38 8-1 -40 

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1. SUMMARY The Permanente Medical Group (TPMG) in Northern California contracts with Kaiser Foundation Health Plan to provide coaprehen sive aedicol care to Health Plan aeabers within the Kaiser Foundation Hospitals and their asaociated aedical o!tices. Forty years a10, this Medical Group had 30 physicians takin1 care of 40,000 Health Plan aeabers. Now TPMG has aore than 2,000 physicians providin1 care to alaoat two aillion aeabers. TPMG has been or1anized as a proprietorship (1942-48), as a partnership (194882).and as a corporation since 1982. Payaents to TPMG physicians include a basic aonthly income which is suppleaented by fringe benefits, a pension plan, and an incentive coapensation plan linked to the financial success of the Kaiser Permanente pro1ram in the re1ion. Kaiser Permanente operates under an annual operat in1 bud1et formulated by aana1ers of all professional and adminis trative departments. Health Plan 1enerates an incoe flow, primarily from members' dues, to pay TP~G physicians. cover all operating requirements, and pay for facilities and capital equipment. This review of the Northern California Region of Kaiser Perm~ nente, an or1anization derived from a union of industry and medicine, attempts to analyze factors influencing its success, with special considera~ion to payments to TPMG physicians. It is important to know that, firstly, its industry founders developed a financial organization which made Kaiser Permanente financially self-supporting, and recognized the need for the professional autonom~ of ~hysicians and their responsibility for decisions 1-1 

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balancins quality of care with costs. Secondly, its physician founders reco;nized the expertise and responsibility of financial anasers, and they selected physicians who coitted theselves to providin1100d quality coaprehenaive care at an affordable prepnid coat to voluntary enrollees within inte1rated facilities. These physicians selected and trained new physicians who, in turn, coaai ted theselves, and thereby perpetuated a stron1 internal coaaitaent to the Kaiser Peraanente pro1raa. Incentives tor aaintalnin1 and perpetuatin1 these 1oals and principles have been supported by aany !actors, includin1 the ethod ot payent tor physicians' services. A fixed annual bud;et provides incentives to prudently use Health Plan dollars. On a physician-patient decision level tor balancin1 quality of care with costs, the incor e ot the individual TP!4G physician is ne1li1ibly attected by providin1 ore or less than necessary procedures, ottice visits, or inpatient sursery. :'lo TP~G physician aakes oney fro doin; or from denyin; an elective operation, for example. TP!4G physicians know that their contin uin1 financial success depends upon their sat!sfyin; the needs ot the Health Plan members so that they will not move to other competitive health plans. Since fees-for-service and incentive compensation payments always accounted for only a small proportion of TPMG physicians' incomes, they have not shown a measurable effect upon physician's performance. Incentives have not been perceptively affected by organizational structure (i.e., proprietorship, partnership, or corporation). External competition to the organi zation always has been a strong motivator. Probably there is no more important incentive which has dffected TP~G's physicians than 1-2 

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pride of their individual and of their Group's professional quality. The le11on1 learned fro Kaiser Peraanente's experience can be applied to any 1roup practice wi1hin1 to provide its voluntary enrollee, (includin1 Medicare beneficiaries) with prepaid coapre hen1ive care. The current payaent arran1eaent1 for TPMO physician, do not visibly affect their care of Medicare beneficiaries (who enroll in Health Plan's Medicare 1uppleaent plan) in any way different fro other Health Plan aeaber1. The closer th, orpni zational structure of a health care pro1raa re1eable1 the Northern California Kaiser Peraanente aodel, the aore likely the reaul ts will be transferable. However, it ir iaportant to recopize that 1oae of the Northern California experience has not been transferred to other Kaiser Peraanente re1ions in that aost do not have incentive coapenaation plans, and soae do not own their hospitals. For an a11ociation of independent physician,, auch of Kaiser Peraanente'i experience should be useful. For physicians in solo practice, Kaiser Peraan~nte's experience will have limited applicabilJ ty. 1-3 

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2. I~TRODUCTION A. KAISER PERMANENTE NATIONAL ORGANIZATION The Kaiser Permanente Medical Care Pro1ra11, usually referred to aa "Ka her Peranente", is a 1roup practice, prepay11en t plan. It provides coprehensive edical and hospital services to about five on voluntarily enrolled ebers in twelve operatin1 re1ions--Nortbern California, Southern California, Colorado, Connecticut, Geor1ia, Hawaii, Kansas, Mid-Atlantic States, Northwest, North Carolina, Ohio, and Texas. Kaiser Peranente is the ac knowled;ed prototype tor the 1roup practice "health 11aintenance or1anization (HMO) concept, and each ot its re;ions is a federally qualified HMO. Kaiser Peranente is or1anized on a decentralized basis, with each ot its twelve re1ions mana1in1 its own operations. Almost all decisions on the day-to-day ana1ement of health care services and facilities are aade at the re1ional level. throu1h a structure consistin1 of separate but closely cooperatin1 organizations wit~ the comc~ purpose ot providin1 comprehensive health care to that re;ion's Health Plan 11embers. A11on1 these cooperatin1 or;anizations, the Kaiser Foundation Health Plans, which are nonprofit and charitable corporations in each of the re1ions, contract with individual and 1roup subscrib ers (enrollees/members) to arran1e tor their comprehensive health care benefits in return tor dues paid on a monthly basis. Health Plans, in turn, contract with Kaiser Foundation Hospitals and Permanente ~edical Groups to provide hospital and medical services. respectively, required to meet these covered heal th bene-2-1 

PAGE 8

fits of its embers in these reaions. Kaiser Foundation Health Plans 1enerally prefer not to rely on community hospital beds. since it has been a basic principle of Kaiser Permanente to operate in intearated outpatient and inpatient services with a unified professional staff and aedical records as well as adainistrative control ot available beds and operational costs. Kaiser Foundation Hospitals are nonprofit and charitable corporations which own and operate coaaunity hospital facilities in their reaions. provide or arranae hospital services, &Pd sponsor charitable, educational. and research activities. Peraanente Medical Groups are partnerships or professional corporations of physicians--one Medical Group in each re1ion. The full responsibi 11 ty tor providina and arran1in1 the medical care necessary to satisfy Heal th Plans' contracts with the meabership is assuaed in each reaion by a Peraanente Medical Group. Each of the Peranente Medical Groups is responsible tor its own physician recruitment and stattina patterns and for the quality of medical services tor the Health Plan population. In some regions the Medical Group also employs and supervises allied health professionals and administrative personnel. Many Permanente physicians also ~old appointments in the clinical facilities ot nearby aedi cal schools and are responsible tor specialty residency training pro1rams in Kaiser Hospitals, soae in affiliation with the nearby medical schools. Kaiser Permanente's principles of operation have always included: (a) prepayment of health plan dues under a community rating structure, which tends to provide a predictable flow of income; (bl organized iroup practice for the physicians .fn each 2-2 

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re1ion: (c) hospital and aedical otrice services inte1rated into edical centers ("vertical inte1rat1on"). with detached or satellite aedical offices operated as extensions of the hearest medical center: (d) voluntary enrollaent ot health plan aeabers. with a dual choice for an alternative plan available to 1roup subscr ibers: (e) coaprehensive benefits includin1 preventive care and health proaotion: and (f) physician participation in 11ana1ement. in that physician leaders participate in all aajor policy decisions, in allocation ot resources, and in plannin1 and directin1 the pro1raa. (1) This or1anizational structure and these operational principles have creat~d a partnership-like approach between the professions ot aedicine and aana1eaent and have assured physicians and mana1ers ot a voice in all aajor policy decisions. B. ~ORTHERN CALIFORNIA R~GION In the Northern California re1ion, Kaiser Permanente had its be1innin1s as a prepaid industrial health care pro1ram for the World War II workers in the l<aiser-mana1ed shipyards in Richmond. California. In Aul\,lst, 1942, the Health Plan tor non-industrial care was started in the Richaond shipyards, and the Plan hnd 90,600 shipyard workers in March. 1943.(2) ,H the end of the War, the shipyards closed, and in October, 1945, the Health Plan aeabership decreased to 14,S00.(3) In 1946, the service area was expanded across the San Francisco Bay with the opening of medical offices in San Francisco.(4,5) Since then, 1rowth in the ~orthern California region has been 2-3 

PAGE 10

steady with :he addition or both aedical centers and rree-standina aedic11l offices oarallelin1 increases in aeabership. At the end or 1984. this re11on :.,eluded 13 hospitals, 19 outpatient aedlcal ott ices. 1. 789 physicians and 14,894 eaployee11. It served a total aeabership ot aore than 1.7 aillion people--or approxiaately one ot every tour people in the San Francisco Bay Area.(6,7) The ran1e ot resources and scope ot services quality the Northern California Re1ion as one ot the lar1est and aost coaprehensive private sector health care delivery syateaa anywhere. In the Northern California re1ion, aa in tbe others, Kaiser Peraanente's financial or1anization 11 coaplex; its success de pends upon close plannin1, cooperation and support between the three aajor or1anizational entities in the re1ion. The dues paid by its Health Plan aeabers are the priaary assurance ot the finan cial success ot the total pro1raa. The Medical Group operates on a year-to-year contract with Health Plan. The Medical Group budaet in the Northern California reaion includes all the outpatient offices and the outpatient non-doctor personnel, all laboratories located in and out of the hospitals. x-ray and ima1in1 departaents, and physical aedicine.( 10, 11) A coabined operatin1 bud1et tor Medical Group, Hospitals and Health Plan is put to1ether each tall which includes the financial requireaents estiaated by mana1er1 tor re1ional service divisions as well as those of the physicians-in-chief and adainistrators ot the 13 11edical cer.ters. These. in tur.n, include the requirements ot the individual professional departments. The bud1etary process !lows upward and downward throuah the or1anization so th.it the final bud1et represents a coordinated pro1ram tor the comin1 year 2-4 

PAGE 11

financed fro dues paid by or on behalf of the ebers. Re1ional aana1eaent view, the bud1et a, a whole and coaaunicate1 its diaenaions and liaitationa to aana1er1 throu1hout the or1anization. ~edical center adaini1trator1 seek approval fro re1ional aana1eaent for their reapective bud1et reque1t1. Meanwhile, re1ional aana1eaent auat a1ree on aeveral key i1-1ue1: 1taffin1 ratio, for phy1ician1, nur1e1, and non-nurs1n1 per10Mel, patient day t-oreca1ta for each ho1pi tal, capt tal need, for expansion or refurbi1hin1 of exiattn1 fac111t1e1. new fac~litiea and equipaent, and new or aodified Health Plan ben~tits. About five percent of the Hospital's operatin1 costs is used tor its coaaunity service, bud1et for charity, aedical research and education. Health Plan aeaber1hip ls forecast by a re1ional Department ot Medical Econoalcs uain1 atatlstical foraulas. econo ic reports. historical data, and inforaation fro Health Plan aarkettn1 representatives. The bi11est factors in predlcttn1 aeabership are the re1ional econoay and coapeti tlon. Ba1ed on this forecast. they also provide patient day and service population projections. which are used for edical center staff allocations. Once re11onal aana1eaent haa approved the aeabership forecast, pro1raa revenues are e1tiaated. Ei1hty percent of revenues come fro ~ebers dues. The reaainin1 20 percent is derived fro suppleental char1es to aeaber patients tor specific services received. fro Medicare rel 11burseaents. non-eber tees-tor-services. and other small miscellaneous sources. The last step in creatin1 a bud1et is projectin1 what it will 2-5 

PAGE 12

coat to provide adainiltrative and aedical aervicea. pay aalarlH and benerita, and purcha1e 1upplie1. Over the paat 2S year,. annual rate lncrea1e1 have avera1ed 9.1 percent.(S) Health Plan doe, not ,eek to aaxiaize revenue, Jt1 rate, are aet at a level that can aeet contractual obli1ation1 to aeabera and reaaJn coapetitive in tbe aarketplace. Health Plan 1eek1 to 1enerate an incoae flow auttJcient to cover all operatin1 requJreaenta and 1ufticient capital tor facility laproveaent and rea1onable 1rowtb. It baa alway, been a con1ciou1 objective of the pro,ra to provide 1ood quality of care at a rea1onable cuat. 2-6 

PAGE 13

3. ALTERIATIV! PAVXENT PLAHS TOT~ PHYSICIANS A. IMPLOYID PHYSICIANS IN A PROPRIETORSHIP (Garfield and A110-c tatH, 1942) In tbe be1innin1 of tbi1 or1anization, all phy1ician1 were eaployee1, and tbey were paid a aontbly 1alary in accordance with a 1cbedale e1tabli1bed by tbe 1ole proprietor and aedical direc tor. Sidney R. Garfleld, N.D. About once a year. the aedical director aet witb bi1 cbieh of 1ervice1 and tbey reviewed each pby1ician'1 1alary. Criteria for 1alary adJu1taent1 included the phy1ic iaa, level of adainhtra ti ve re1pon1ib1l 1ty. tenure. aa1e11aeat ot profe11ional 1kill1 by tbe chief of 1ervice. and the 1oln1 aarket rate for new phy1ician hire,. In the1e be11nnini year,. Peraaneate bad to aare111vely coapete in phy1lcian acqu11it1on, 1lnce, a, Garfield wrote at the tiae, our relationa with tbe aedlcal profe11lon bave been poor, cbiefly becau1e of lack of 11Dder1tandin1 of our aotive1, diatruat of our financial plan. and fear of wbat 1t ai1ht do to the econoay of private practice."'121 Acqui1ition of well qualified pby1ician1 wa1 very d1fl1cult a, a re1ult of the effort, by or1an1zed aedicine and 1oae cert1fyin1 1pec lal ty board to di acredH the Garfield 1roup'1 prote111ona 1 reputation. The re1pon11b111ty for 1upervi1in1 the quality of aedlcal care waa dele1ated to the cbief1 of 1ervlce1, who were ur1ed by the aedical director to a1way1 recruit the beat phy1ician1." Dr. Oarfleld e1tabll1hed early that the a1111on of the ~a111r Peraanente pro1raa waa to provide ~aood quality care at a cost the bers can afford. Another aphori frequently heard wa1 that 3-1 

PAGE 14

"Poor quality aedicine always turn, out to be expensive medicine." Accordin1ly, the chiefs of 1ervice1 closely aonitored each physician in thei,. departaenta a, to the quality of aedical practice and the patients' aatiafaction with the profe11ional services. The oranizatfon was in considerable debt in those early years, incurred by the purcbaae of !ta fac111t1ea. Dr. Garfield's 1tron1 control on coats h at111 reaeabered to this day b~, the Pencil Stub Club, 10 naaed becauae in order to obtain a new lead pencil in those early daya, a uaed abort stub waa required for excban1e. New facfl1t1e were added in accordance with the slow eatabliahaent of bank credit. Maintainin1 a positive cash flow was a 1eriou1 proble due to the relatively low capitalization and all aeaberahip baae. Coapet1t1on for patients fro fee-for aervice coaaunity pbyaiciana was severe. Individual physicians were aware of the need to control expense, to the exte~t that they were 10 inforaed by adainiatration. Althou1h a pharaacy coaaittee published a dru1 foraulary inforain1 physician, of available low coat, in-house aanufactured 1eneric dru1s (by Roytield, Inc.), physician were never forbidden to order whatever they felt was needed f~r their patients. Reliable 1tat11Uca are not available for the proprietorship period. Data publiahed for 1944 apply to the wartiae shipyard workers. The first useful 1tat11t1c1 for the Realth Plan are for 1949 when it provided service entirely to coaaun1ty aeabers. Health Plan aeaberahip waa about 13,000 in 1944 and 70,000 in 1948. The ratio of physicians to aeabers avero1ed about 1:1200.(25) 3-2 

PAGE 15

8. PARTNERS IN A PARTNERSHIP (TPMG, 1~48-82) By 1948, it had become apparent to Dr. Garr ie ld that the prosram was 1rowin1 so rapidly that a tor-profit, sole proprietorship was no lon1er suitable. Accordin1ly, there were established the two non-profit entities: Kaiser Foundation Health Plan, Inc .. and Kaiser Foundation Hospitals, Inc.. (ori1inally ,called "Per11anen te" instead ot "Kaiser"); and the tor-prof it partnership, The Peraanente Medical Group. In 1948, there were ~nly seven toundin1 partners: but partners rapidly were added atter they co11pleted three years ot employee status. As Kaiser Permanente's reputation 1rew and co11petition tro tee-tor-s~rvice groups decreased. physician acquisition beca~e easier and patients Joined th~ Health Plan in increasin1 numbers. By 1974, TPMG had about 1,200 physicians, ot who .. ~., .. ere partners, Health Plan membership exceeded one aillion aeabers, and the physician-to-aeaber ratio was reduced to below 1: 1000.(8,9) TMPG was 1overned by an Executive Comaittee comprised of the Executivft Director, Physicians-in-Chiet, and one elected Representative troa each Medical Center. The partnership ne1otiated each year with Heal th Plan tor a basic per capita pay11ent--a contractually a1reed upon dollar aaount per meaber per month. In addition, Health Plan reibursed TPMG tor specified expenses not within Medical Group's control, such as ottice rental, equipment, etc. Alter three years of salaried employment by TP~G. physicians were eli;ible tor election to beco11e partners. [n order :o :aaintain a base or workin1 capital tor TP~G. at the time o! 3-3 

PAGE 16

election to partnership, each physician made a modest financial contribution to the partners ip which was returned to the physician upon ter111ination fron, the partnership. Partners would draw monthly against a fixed annual income and also share periodically in any incentive compensation plan which was linked to the financial success of the program as a whole. An incentive compensation arranreaent between the Health Plan, Hospitals and Medical Grou~ was initiated in the late 1950s and has been ~vntinued to the present time with some modifications. The incentive formula was based on the concept that if the Northern California region as a whole had planned and performec well, then there should still be some net revenue remaining for the Hospital. Originally, one-halt of this net revenue was distributed to the Medical Group to be divided equally by all partners as incentive compensation, and the remainder was retained by Hospitals dS additional earnings available for facility development, repayment of loans, financing equipment, or other program purposes. Health Plan and Medical Group projected for each year the financial operating requirc~ents agreed upon for the Medical Group, to be made up by a fixed per capita payment based upon the actual membership durini the year and a contingent contractual incentive payment. In order to develop a dollar requirement for Health Plan's dues rate for the year, there was included a targeted amount for the contingent incentive payment. The contingent contractual payment was an additional amount agreed upon in advance that became an addition level of earnings for Medical Group partners to be distributed among them on 3 share alike basis. It was contingent because even though a mutually agreed upon target 3-4 

PAGE 17

figure was included in the financial forecast, it was more or less dependent upon the overall results of operations for the year, and thus wa.s not precisely predictible. Through this incentive compensation arrangement, the partners shared in both favorable and adverse financial results and were directly involved in the financial success of the total program. It was not considered to be a "surplus" or an "excess" of earnings, but it was a planned feature of the Medical Group's physician compensation program. Consistent failure to achieve the planned level of total income could represent a detriment with regard to retaining partner physicians. In the 1970s, to minimize the effects of major fluctuations, a "corridor concept" was agreed upon which set for TP~G partners a target incentive income, with adjustments applied for the year to decrease the additional in~ome if over the target, or to supple ment the income deficiency if under target. Although the incentive compensation was never substantial (in 1974, e.g., it amounted to 4 percent of the average total physician's revenues) (12), it recognized that the performance of individual physicians influenced the effectiveness and economy of the total program--Hospitals and Health Plan as well as the Medical Group. C. SENIOR PHYSICIANS IN A CORPORATION (TPMG, Inc., 1982) In 1982, TPMG became incorporated in order to implement an IRS qualified retirement program with protected pension funds, and to better protect its physicians' personal assets from seizure from lawsuits against TP~G. The articles of incorporation were carefully drafted so as to impact TP~G as little as possible in 3-5 

PAGE 18

its internal organization and operation and in its relatJons with the Health Plan and Hospitals. The hoped for result was that TPMG physicians would continue to perform as they did in the partnership but for them to have greater personal financial security. TPMG, Inc., is governed by a Board of Di rectors, constituted similarly to the partnership's Executive Committee, and with similar policy responsibilities and duties. All partners at the time of incorporation were designated "senior physicians". For their initial contribution, now transferred to TPMG, Inc., they received shares which provided voting rights c1 eligibility to receive dividends. Currently, pa1,11ents to TPMG physicians are divided into four portions: (a) "distributed earnings", which constitute the basic fixed monthly income of senior physicians; (b) "undistributed income", which is "at risk" and is paid out on a quarterly basis; (c) if there are earnings in excess of the targeted sum for (a) and (b), this amount is analogous to the "incentive compensation" of the former partnership, and is divided equally between Medical Group and Hospitals in accordance with the "corridor concept", which was developed during the partnership period; and (d) lastly, there is a dividend declared and distributed after each year's financial books are closed. TPMG, Inc., in 1984 had more than 2,000 physicians and provided care to almost two million Health Pian members. The current rate of growth in the Health Plan's membership has slowed, and Medical Group physicians are now acutely aware of the need to control Health Plan dues in order to meet the intense competition from the new HM0s, which tend to have a younger group of members. 3-6 

PAGE 19

and as yet have not built-up their full utilization experiences and costs. 3-7 

PAGE 20

4. FACTORS INFLUENCING MEDICAL PRACTICE IN KAISER PERMANENTE A. INTRODUCTION :.totivations that drive physicians include the professional's desire to serve the patient, ego and self-satisfaction, and fear and insecurity. The physician's practice of medicine within Kaiser Permanente, as in any health maintenance organization (HMO), will be influenced by the operational principles of the organization. For Kaiser Permanente, as described in Section 2.A., these included voluntary enrollment of heal th plan members who receive comprehensive services by prepayment to a medical group practice within integrated care facilities. As in any medical practice situation, the Health Plan patient usually visits the Medical Group physician because of a medical problem and expects the physician to provide a problem definition (i.e., an accurate diagnosis) and a problem solution (i.e., an appropriate treatment). The patient evaluates the care experience on the basis of the outcome of the problem; satisfaction with the relationship established with the physician and other personnel encountered. and with the process by which the diagnosis and treatment were provided; the acceptability of the care environment; the cost to the patient in money, time, and transportation; and may consider missed alternative opportunities for obtaining medical care elsewhere. As in any other medical practice situation, the TPMG physician is aware of the patient's expectations and professionally recognizes that a physician's first responsibility is to the patient. When a physician is in a soio, self-employed practice, he must balance what may be in the best interest of the patient 4-1 

PAGE 21

and what may be his own interest. In a group practice, the physician is subject to additional pressure from the interests of the medical group. In Kaiser Permanente, as in any HMO, the pressures on the physician are further augmented by the fixed budgetary operation ot the HMO. Fear and insecurity are not the best, but they certainly can be strong motivators. Job insecurity and t inancial insecurity motivate physicians to join professional groups, societies, guilds, and even unions; and to seek secured tenured positions. These feelings motivate physicians to support their organizational objectives and comply with or5ani2:ation policies. Physicians k'ho feel insecure seek the greater financial security of a group practice. A sole proprietorship retains a high degree of insecurity since, unless protected by a specified term of contract, the sole proprietor may firean employed physician at any time. Group physicians desiring to increase their security will form partnerships or corporations from which it is much more difficult for them to be t~rminated. Ego and self satisfaction motivate physicians to fulfill their personal objectives and drive individuals to excel in their professions, to achieve professional and organizati.on status and rank, and to seek power and respect. The professional ethic, the commitment to serve the patient first, motivates the physician to consider the patient first, then loyalty to the medical profession and, finally, to the organization. The organization seeks physicians who are ambitious to excel. who consider the advantages of group practice to exceed its disadvantages (i.e .. they are 4-2 

PAGE 22

group practice oriented), who will commit themselves to the group's objectives, and who also can sati1:1fy patients' expectations. Thus, the TPMG physician is influenced by a complex array of patient, professional, organizational, and external community-societal expectations. B. PHYSICIAN ATTRIBUTES a. The Professional Imperative The practice of medicine combines clinical judg~ent in decision-making, interpersonal skills for communication, and the appropriate use of current medical technology. Professionalism is the imperative to achieve and maintain the respect of one's professional peers. This drives the physician to attempt to excel in technical skill with current technology, to attain a reputation for a high quality of medical practice, to P.dvance within one's organization and in professional societies, to seek academic affiliations and clinical professional appointments, to conduct clinical investigations, and to publish in peer-reviewed journals. The physician-patient relationship is governed by organizational, legal, ethical, and a oral considerations. The phys j ian often faces patients who have unrealistic expectations and limited finances, practices a profession short on science and long on art, works w 1th inan environment w 1th 11 mi ted resources and with an increasing tendency to regulate, ration and bJdget. As a result. the clinical and management decision-making process associated with many physician-patient encounters is becoming increasingly complex. ~ore health care organizations seek policies and strate4-3 

PAGE 23

1ies which will permit the physician to satisfy professional and patient expectations for good quality of care services at affordable and competitive costs. Physicians are motivated to satisfy and win the t~ust and confidence of their patients and to earn the respect of their professional associates and peers. This motivation results in physicians joinin1 professional societies and in writing for pro-fessional publications. In 1roup practice, pride in the profes-sional status of the 1roup is a 100d assurance of the quality of its care. The survival of any HMO depends upon the extent to which its physicians can (a) commit to the organization's goals, objectives. and principles, (b) practice at an acceptable level of professional excellence while all ,eating their services within a fixed bud1et which is based upon health plan dues rates, and (c) accept physician incoaes within the prevailing competitive market. It is 1enerally acknowledged in Kaiser Permanente that it is essential to recruit Permanente physicians of high quality who will make a career commitment to the program, and to convince them that their professional careers 3re intimately involved with and dependent upon the success of the total program. b. !h! Iechnolop lmperat!Y! The peer pressures on physician specialists to acquire and use the same innovations in technology employed by others in their specialty must ~e balanced in a H~O by the financial constraints of the fixed budget. This require& prudent allocation of limited resources among competing alternative technologies and specialties -1-4 

PAGE 24

and provides strong incentives to obtain the most cost-effective technology. This incentive is present in any hospital with a fixed budget: but an essential difference is that the HMO cannot balance an overspent equipment budget by utilizing the new equipment to generate more revenues from its Health Plan patients. The assessment of medical technology is a necessary management tool for a HMO, whose expenditures are limited by prospective annual budgets and whose revenues are primarily generated by periodic payments of fixed dues from its members. Within the constraint of a fixed annual budget, the HMO administration_ strives to improve managerial efficiency by modifying care processes to decrease costs yet provide adequate quality and quantity of services to satify an~ retain its members. This they try to do by selecting the most cost-effective technology, training lower cost personnel when appropriate for technical procedures, and motivating physicians to improve their clinical efficiency to arrive at the best diagnosis and treatment at the lowest cost. Although a physician traditionally attempts to provide clinically effective care at a cost acceptable to the patient, per capitation prepayment reverses the traditional financial incentives of fee-for-service practice. Thus Kaiser Permanente advises Health Plan members to seek "well care" in addition to "sick care". Under a !ee-for-serv ice or cost-reimbursement f inane i al arrange111ent, a medical care provider's income is dependent upon revenues generated from the services provided to patients. In Kaiser Permanente, under community-rated dues, the program profits from its well members, with the additional direct financial 4-5 

PAGE 25

incentive to provide to the sick the 11ost appropriate effective care at the lowest cost. Within the usual HMO financing structure, an increase in the use of a technology 11ay increase expenses and not generate revenues as it might in a fee-for-service or cost-rei11bursement pro graa. Accordingly, the HMO has incentives to acquire and employ only those technologies that maintain or increase the ef tecti veness of medical care yet contain or decrease costs. Under the newly increasing competition trom other HMOs, Kaiser Permanente physician-managers must prudently select cost-effective technology to sustain an appropriate balance between quality of medical care services to its patients and costs (dues) for its 11embers.(l) However, Kaiser Permanente can regionali ze expensive high technology centers, share these services with multiple facilities, and spread its costs over a large membership base. Kaiser Permanente in Northern California assesses new medical technology by a variety of management review processes. Its purchasing department routinely studies co11petitive pricing for established medical products. ~ew laboratory equipment and the use of laboratory procedures are reviewed by a "Laboratory Utilization Committee" represented by one physician specialist from each of the 13 Northern California medical centers. ~ew 1 maging equipment and procedures are reviewed by a similarly constituted "I11agin1 Utilization Com11ittee". All other capital equipment is reviewed by an "Equipment Committee'' comprised of appropriate medical and technical experts. Ultimately, all expensive capital equipment is reviewed by TP:'ttG's Board of Directors prior to purchase. 4-6 

PAGE 26

c. Physicians' opensation Basis .s!pensation--Few will question the iaportance of physicians' coapenaation as a factor intluencin1 their satisfaction with proteasional practice. The aajority ot physicians in the U.S.A. are still coapenaated on soae bash for their individuall, provided services. An increasin1 nuaber ot physicians now work within an or1anizational or 1roup environaent where they receive tixed incoaes, soaetiaes with protit-sharin1 incentive pro1raas. Under a tee-for-service or cost-reiaburseaent arran1eaent, physicians have a financial incentive to increase their services since, 1enerally, aore services tend to 1enerate aore revenues than expenses. Under a tixed prepayaent or prospective bud1etary arran1eaent, physicians have a financial incentive to turnish only necessary and appropriate services, while providin1 a 100d quality ot care and satistyin1 patients' expectations. A 1enerally accepted hypothesis is that an appropriate provision of health care services will be achieved when the phy$ician'a proteasional Jud1aent is not subject to direct influence by aonetary considerations. However, it is 1enerally viewed that the collectin1 ot tees troa patients tor protessional services or bein1 reiabursed by a third party for the costs ot services provided can turnish incentives for soae unnecessary services in order to increase revenues. On the other hand, it is expected that a fixed bud1etary operation can provide incentives tor prioritizing some expensive services or scarce resources in order to contain coats within the allocated bud1et. 4-7 

PAGE 27

A physician' individual coapen1ation in TP~G has alwRy1 been established as a basic aonthly incoae. For an eaployee, this is paid a, a 1eai-aonthly salary. For a shareholder (as toraerly tor a partner). tbil 1a received aonthly a, a "draw" a1ain1t an e1tiaated annual incoae. This basic incoae 1 approved periodically by the corporation' Board o! Directors (as !oraerly by the partnership's Executive Coaaittee), upon recoaaendation or the individual's pbysician-in-cbie! and chie!-ot-service. The basic incoae depends upon the physician's professional and technical qualification,, or1anizational adainistrative responsibilities, tenure in the Group, and aerit as to productivity; also hJ relationship with patients and other 1roup protea1ional1 and the prevailin1 coapetitive aarket tor physician acquisition. TPMG physicians have never been paid on any basis or tee-tor-services. Any incoae tr~ non-Health Plan patients (aaountin1 to lea, than 5 percent (12) of total TPMG revenues) 1oea into the 1eneral revenue pool and ii shared equally by all shareholders (!oraerly partners). ft.1!1.1! !!.!!!lll1--Frin1e benefits to TP~G physicians are a subatantial portion ot their total incoae and are an expense ot the Health Plan. Phy1ician1 continually seek 1reater !rin1e benefits in lieu ot basic coapensation. These benefits include annual holiday,, vacation leave, sick leave, educational leave, disability leave, paid tiae tor adainistration. tor hospital rounds, and tor research, coapensat in1 pay tor ni 1h t duty. 1uppleaental pay tor extra halt-days beyond 10 halt-days per week. heal th insurance, Ute insurance, dental insurance, pens ion plan. "' -8 

PAGE 28

and edical liability covera1e. Since TPMG oper1tes on a fixed annual bud1et it controls the total aaount alloca tad for fr in1e benefits. TPMG' S Board periodically distributes a survey questionnaire to all shareholders askin1 the to rank their priorities for each of the above frin1e benefits for the distribution of any increase in coapensation in the next year. Alao1t uniforaly the aJority of physician, rank a, the hi1hest priority an increase in basic aonthly incoae over any frin1e benefit. Incentive pensation--It i1 1enerall~ a1reed in the Norther~ California re1ion that the incentive copen1ation payaent, which has avera1ed leas than 5 percent of the avera1e physician's income (12), ii an iaportant concept in physician coapensation, but it is not certain that the incentive coapen1ation arran1eaent has any 1i1niticant effect on utilization of resources. The available utilization data (e.1., a1e-1e7. rate of office visits and hospital days per 1000 aeabers per year) are not si1t1ificantly different in Kaiser Peraanente re1ions with and in those without incentive copensation pro1ras.(6) Perhaps the oat iaportant aspect of the incentive coapensation arran1ement is that it eabodies in financial ter the fundaaental concept of autuality of interest, the partnership between the Medical Group and the Health Plan and 801pitals. d ?bllJcian-P!.!!J!U Relationships Physicians Joinin1 TPMG have already been trained in their professional re1pon1ibilitie1 to their patients. When the health care service, are prepaid, Heal th Plan aeabers may have the 4-9 

PAGE 29

teelinsr that durina the immediate experience with their doctor they are not payins tor their care. so that Health Plan patients need soae education as to the economics ot a HMO. Physicians need to be educated that their Health Plan patients trust them enough to pay in advance, and that by its contract with members, Health Plan comits the-availability ot quality health care services. C. ORGANIZATIONAL ATTRIBUTE~ The attributes ot a health care orvanization which influence sisniticantly the physician's practice include the size of the pro1"t"a11, the number or patients in a physic!an's panel (i.e .. physician-population ratio). the size and composition of the physician sroup, the coaprehensiveness ot the services provided, the orsanization's quality assurance prosrram, its continuing medical education and resnrch opportunities, the administrative structure ot the aroup (i.e., proprietorship, partnership. corporation), the supportins personnel, facilities, &nd equipment. its leadership development prosram, its utilization review and cost containment prosraas, and the or1anization's financing and 11arketin1 strateaies. a. Physician-~eaber The physician-to-population ratio is sometimes used as a proxy aeasure of the availability of physician services to the population served. The averi.sre ratio of full-time equivalents of TP~G physicians to Health Plan members has steadily decreased over the past -10 years, from 1:1200 in 19H--18. to 1:955 in 19i-l. to .i-10 

PAGE 30

1:890 in 1984. This substantial proportionate increase in the number of ph~sicians has been due to greater availability of physicians to HMOs as they bec::irne more acceptable, increased benefits and new specialist services being provided by Health Plan (e.g., high technology surgery, imaging services, psychiatric care, etc.) and increased amounts of physician time for other than direct patient care (for administration, education and research, vacation and sick leave, etc.). Attributes of Kaiser Permanente which. favor cost containment and improved productivity include: (a) integrated facilities, which permit conservation of physician time by minimizing travel between office and hospital; (b) substituting office care for hospital care when appror: :-iate; (c) shared support services (laboratory, x-ray, medical records, scheduling functions, etc., Letween offices and hospital) to exploit possible economies of scale; (d) regionalizing high technology, "super-specialist" services (e.g. cardiac surgery, neurosurgery, regional laboratory); (e) common centralized administrative, business, purchasing and personnel services; (f) prepayment, which permits pro spec~ i ve budgeting and stable cash flow; (g) group practice, including all specialists, resulting in decreased outside referral and consultative services; and (h) a continuing educational program in leadership development and cost-effective decisionmaking. b. ~! fontainment Physicians have not generally shared in the economic risks of their hospital. but Kaiser Permanente has always recognized the 4-11 

PAGE 31

ability of physicians to substantially affect utilization and costs of inpatient services and has linked the success of the hospital to that of its medical staff. Dr. Garfield often said that the Health Plan's success was the result of Medical Group physicians' commitment to make it succeed. Accordingly, an objective of the Health Plan was to develop a continuing incentive for physicians to feel coillmitted to the financial success of the Hospitals and liea l th Plan and to be concerned about the cos ts of patient care services delivered. This was accomplished by developing an incentive strategy within the Medical Group to share to some extent the economic risks of Hospital and Health Plan, to commit physicians to cooperate and support Hospitals and Health Plan, and to eliminate the competition seen in the fee-for-service environment between physicians and hospitals for the same patients in primary, emergency.and ambulatory care settings. Current financing trends (e.g., Medicare Prospective Payment System) put the hospital at risk, and in order for it to survive, a hospital must obtain the support and cooperation of its medical staff. This shifts a considerable economic responsibility to the physicians when any fixed price payment (per case, per patient, or per subscriber) results in a fixed budget. Due to the constant uncertainty about treatment, patients and physicians are encouraged to seek a "second opinion". Si mi lar ly for diagnosis, physicians tend to increase the certainty of their decisions by ordering second tests and multiple diagnostic procedures, all of which are intended to decrease the likelihood of error and paten tial malpractice suits bet result in increased 4-12 

PAGE 32

medical costs. Physicians learn to select the most necessary and appropriate procedures to assure certainty of diagnosis and quality of treatment, to defend against medical liability claims, and to contain costs sufficiently to meet market competition. Medical Group physicians have always had to adapt to this environment, but the current increasing HMO competition and increasing medical liability costs demand an even higher level of commitment to the financial success of Health Plan and Hospitals and a keener ability for clinical decision-making, balanced with economic decision-making. That is, they must use both clinical and financial data and consider the economic implications of clinical decision-making. The physician always considers the relative effectiveness of each treatment mode that is appropriate for the patient, and should also consider the costs associated with each treatment mode. There is a continuing inhouse staff &ducational program on cost-effective decision-making based to some extent on the data obtained from committees that review the cost-effectiveness of laboratory and x-ray procedures. Utilization committees study usage patterns and "profiles" of tests ordered, which are compared by departments and facilities on a per 1000 member basis to suggest when significant differences could be due to differences in patient characteristics or physician practice styles. Cost control is dependent upon physicians appropriately using resources. Patients often expect and sometimes ask for specific diagnostic tests or treatment procedures. Whenever these are inappropriate or unnecessary, physicians must take the time to persuade patients that their request is not in their best 4-13 

PAGE 33

interest. Physicians must balance being the representative of the Health Plan and advocate of the patient. The most conspicuous saving in a HMO has been the result of its lower utilization of general hospital services. Since TPMG surgeons do not earn m~re per hour in surgery nor are they compensated for the number of surgeries they perform, they do not have any financial incentives to do "unnecessary" or "unjustifiable" operations. This attribute has resulted in some critics accusing HMOs of "skimping" on the quality of care. It is an important circumstance that the continuing responsibility for the medical care of its members provides incentives for both Health Plan and patient to benefit from early investment in appropriate, effective care.(13) Skimping on qualit/ may save some short term costs but can result in more expensive long term care if the inappropriately treated patient becomes ~c~e severely ill. Furthermore, since members are not "captive" patients and have the free choice to switch to alternative programs of care, or sue for malpractice, skimping on quality is not conducive to Lhe long term health of a HMO. Similarly, physicians themselves will eventually switch to an alternative system where they can practice a level of quality care compatible with their professional standards. c. Organ izat iQ.!!a l S t!:,!;!C tu r~ The organizational structure of a medical group, i.e., whether it is a proprietorship, partnership, or corporation, has substi:'ntial i:npact upon the financial arrangements and the -1-14 

PAGE 34

sccuri ty under which a physician works. Section 3 reviews the historical organizational arrangements for TPMG and describes the differences in the various methods used for payments to its physicians. It is evident that in order to retain TPMG physicians, the total annual income must satisfy individual physicians' expectations and meet the prevailing market price. However, the mix (i.e., basic pay, fringe benefits, incentive compensation) or the method of payment (i.e., salary, draw, bonus, dividend) has never been shown to significantly affect physicians' incentives or motivations towards quality, services, or costs of patient care. d. Q!!aliti ~ssurance In its early years, as a small organization, the quality of professional care was directly the responsibility of the chiefs of the professional services who were committed to the philosophy that pride in the quality of the medical group was the best assurance of quality of care. As the organization grew in size. it gradually added the usual programs and procedures for assuring quality of care. Its quality assurance program is directed by a regional director with a committee comprised of physicJans in every medical center who are responsible to carry out al 1 procedures needed to satisfy all accreditation requirements. e. LeadershiJ2 DeveloE.!!!ent In 1955, Kaiser Permanente founders developed an internal agreement in which the individual responsibilities were identified 4-15 

PAGE 35

and recognized for !'>iedical Group, Hospitals and Health Plan. A management team concept was initiated to permit participation, cooperation and coordination on major joint policy decisions. When it comes to difficult decisions in allocation of medical resources, Kaiser Permanente has recognized that physicians are best qualified to balance quality and costs.(1) A continuing inhouse training and development program moves TPMG physicians up its organizational ladder. Each chief at a departmental or facility level selects and trains one or more assistant chiefs, the majority 01' whom eventually assume increasing management responsi bi l 11:i es in existing or new facilities. Selected administratively placed physicians receive educational leave for external training in bu~1ness management at recognized university schools of business. D. ENVIRONMENTAL AND COMMUNITY ATTRIBUTES External factors which significantly influence the physicians' practices within a health care organization include the amount of community competition for patients, the economic status of the community, legislation, methods of payment for care services, and the socio-educational status of the service population. a. Com~etitio~ for Patients/Members In the early years, the severe competition for patients from the surrounding fee-for-service physicians was the greatest threat to Kaiser Permanente's survival. Patients were then unfamiliar with prepaid group practice, and the greatest influx of new members came from unions and industries through their negotiated ~-16 

PAGE 36

nealth and welfare benefits. In the middle years, the main competition was from the health insurance indemnification plans (e.g., Blue Cross-Blue Shield Plans). Competition from the fee-for-service physicians gradually decreased, and there was as yet no serious competition from other HMOs. Following the enactment of the Health Maintenance Organization (HMO) Act of 1973, Kaiser Permanente became acutely a~are of the rapid acceptance of the HMO concept in the country and the emergence of serious competition from other HMOs.(14) Currently, increasingly severe competition has developed from other HMOs which have many of the same attributes as Kaiser Permanente for providing comprehensive health care services at an affordable cost, and they can compete very effectively against Kaiser Permanente. Some critics have accused HMOs of "skimming" from the available population pool a favorable selection of the healthy young enrollees. Surprisingly, this is an emerging problem for an older HMO, like Kaiser Permanente. The termination rate in Health Plan members after two years of enrollment is very much lower than it is in the first two years. In addition, non-terminated members naturally age each year. Newly formed HMOs, with which Kaiser Permanente is now competing, have a higher proportio~ of new enrollees with a younger average age, which puts new HMOs in a favorable competitive position. Some new HMOs specialize in selecting young members with a favorable health experience, which permits them to easily compete with Kaiser Permanente which 4-17 

PAGE 37

community rates its dues over its entire membership's experience. HMOs have to compete on price ( dues to members). benefits ( services provided), access (availabi 11 ty of faci 11 ties and ability to obtain desired services in an acceptable time), and quality of care (patient outcomes and satisfaction with professional services). In this competitive environment, a technology innovation which improves the quality of care often introduces a new or increased cost. As for any hospital with a fixed budget, priorities must be established to permit adding new technology within the budgetary constraints. Kaiser Permanente's physicianmanagers have always participated in these difficult decisions which require carefully balancing quality of care and costs. Patients usually select physicians on the basis of reputation, recommendations of friends, or on referral from other physicians. Members select the Health Plan primarily on cost, scope of benefits, recommendations of employers or unions, media marketing, and reputation. Members mainly leave the Health Plan because they change jobs or move out of the area: but some leave because of dissatisfaction with accessibility to services (excessive wait for / appointments), dissatisfaction with non-professional services (e.g., telephones busy, clerks discourteous, etc.), or dissatisfaction with quality of professional services (e.g., "Doctor didn't explain my problem", "Treatment didn't help", etc.). With increasing demand for lower cost care, much of the risk and responsibility is being transferred to the physicians, who must establish, e.g., the appropriate use of hospital care vs. outpatient care vs. home care. The challenge to the H~O is to 4-18 

PAGE 38

maintain a competitive level of quality in the appropriate setting at an affordable competitive price. b. Co!!!J2etition for Ph~icians Physicians joining and remaining with Kaiser Permanente are, of course, a self-selected group. who enjoy the professional stimulus of group practice with ready access to specialized resources, acceptable stable incomes and fringe benefits, regular, predictible working hours, and relief from the business aspects of medical practice. In return they accept some restrictions in professional autonomy and limitations of their control over patient workload and scheduling. Within a short time, the physicians become aware of the need to consider costs to the program for the services they order for their patients. Serious differences between professional and organizational objectives may lead to physician dissatisfaction; but professional autonomy and quality of care is not a common issue; the physicians for whom this has been an issue usually terminate within the first two year employ~ent period. TPMG termination rates for partners (or shareholders) for other than normal retirement or long term disability has been about 1% per year. Only once (in 1970) did this termination rate reach 3.7% when annual incomes dropped below that of, the competition.( 15) c. General Economic Factors The state of the nation's economy affects the economic status of the Health Plan member population. The adverse effects of 4-19 

PAGE 39

inflation or recession in the regional economy upon dues revenues can be lessened only to the extent that Kaiser Permanente can effect internal economies, increase productivity, or raise Health Plan dues. A HMO, along with the rest of the heal th care industry, is not insulated against the impact of inflation, which increases operating costs of utilities, of supplies, of remuneration to professional and non-professional personnel, and of capital expenditures such as facilities and equipment. Organized labor continually pressures Kaiser Permanente to increase its union workers' salaries and to also increase Heal th Plan's benefits to union members, all with minimal increases in member dues. d. !&gislative, Ethical, and Social Factors The control of the practice of medicine by laws, licensing, and regulatory agencies have a major impact on all medical practitioners, including TPMG physicians. The ethical standards promulgated by professional societies are having an increasing influence on medical decision-making, especially as to the responsibility for rationing and allocating scarce services (e.g., organ transpl'ants), which is shifting directly onto physicians. TPMG physicians incur some benefits from participating in a large organization with resources responsible for helping to inform and advise them in accommodating to new legislation and regulations. Social and cultural factors in the population served substantially affect TP:-tG physicians' practice and costs. The current increasing interest in health promotion and physical fitness has required the addition of health educators and -1-20 

PAGE 40

counselors to meet members' expectations. 4-21 

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5. REFERENCES 1. Cuttin;, c.c., "Medical Care: Its Social and Orsanization Aspects: Group Medical Practice and Prepayment,"~! EnL L ~!!!:., 269: 729-736 (Oct. 3), 1963. 2. Garfield, S.R., First Annual Report of the Permanente Foundation Hospital," Pe!:.!!!.!l!.!!te Fo!!,llda!,!Q.!! ~!!!:. ~Y.!L. 1944: 2:35-48. 3. Garfield, S.R., "Second Annual Report of the Peraanente Foundation Hospital," e.!!:!!.!l!.!!l! f.2!!.nda!,!Q.!! ~!!L. ~!!lL. 1945: 3:31-45. 4. Garfield, S.R., "A Report on Peraanente's First Ten Years," ~anente Foundation Med. Bull. 1952: 10:1-11. 5. Weissaan, A., "A Morbidity Study ot the Permanente Health Plan Population: I. A preliainary report," ~!:.!!!..:.:-=.!!~ [.2!!.!lg!.!.!2.!! ~!!L. ~.!!l.L. 19 5 1 : 9: 1 -1 7 ; and I I Coaparison ot data with experience ot other population sroups," ~!:.!!.!l!.!!l! [,2!!,llg!!.!2.!l ~!!!:. Bul.,L 1952: 9: 12-26. 6. Kaiser Per11anente, 1il! Annual Statistica! Review. (Oakland): Dept. ot Medical Econoaics and Statistics, ~ay 1985. 7. TPMG, .2!1!!.!.S!.!! !!!!!!! gl, !2!!.12.!g. ~2.S!~.tillU !.!!~ Utilization 1 ~. (Oakland): Re;ional Medical Centers Adainistration, March 18, 1985. 8. Kaiser Peraanente Medical Care Pr01ra11 .!21:! ~U.!1!:!.!l .!! .!.! !.S .!.. !.! !! ~.! ( 0 a k land ) : Dept. of :'if e di ca l Economics, June 1975. 9. TP!IIG, .2!!1!!.!.S.!.!! !!!!!! 2! !2!:!!2!g. f!:21.!!~.!.!.!1.!~ !U~ Y.S!..!!.!!.S.!..2!L. !.2!.!, ( Oak 1 and): Stewart. G. C. and Keatins, J.R., April 1. 1976. 10. Pal11er, W.K., Chap. VII. .t.!..!l!.!!!!. !!19 Pl!.!!ni!l.i, pp. 71-87, in So11ers, A.R.: Ih! !!.!!.!!: f!!!!!l!!l.!! ~!2.ll!.! !!:! Progr_!~ ~1,111posiu.!!, (New York): Coamonwealth Fund. 1971. 11. Danzis, D., "Our Budset: Understandins the Pieces of the Puzzle". Kaiser Permanente Reporter, 9-10 (June l 1985. 12. Ernst and Ernst: Auditeg .E.!.n!.!!.1!.! ~!!!!.!!!, TP~G. 1975. 13. Fle111in1, S. and Gentry, 0., a fU!R~l.!~ !i!l!!U::.f~L~!l.!~ !~! tl!!llh Car! f!.f>iram!, (Oakland): Kaiser Foundation Health Plan, 1979. 5-1 

PAGE 42

14. Vohs, J.A., Anderson, R.V. and Straus, R., "Critical Issues in HMO Strate1y"; ti!!! ,!!.L ;h ,tted. 286: 1082-1086 (May 18), 1972. 15. TPMG Physicians Turnover, Coptrollers Office, Feb. 14, 1978. 5-2 

PAGE 43

6. ACKNOWLEDGE~ENTS Th!s paper represents the personal views of the author. The writer acknowledges with thanks the critical review of this paper by Walter Caultield, M.D., Vice President and Regional "4edical Centers Administrator for Kaiser Foundation Hospitals and Heal th Plan ot Northern California; Cecil Cutting, M.D., formerly, Executive Director of TP!'tfG; Dwight Fitterer, ~t.D., Treasurer of TPMG, Inc.; Bernard Rhodes, Executive Vice President of Central Kaiser Foundation Hospitals and Health Plan; Bruce Sams, M.D., Executive Director of TPMG, Inc.; Joseph Sender, ~.o., Chairman of the Board of TP!'tfG, Inc.; and Edmund Van Brunt, :-1.0., Director of Department of Medical Methods Research of TP~G. 6-1