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Chapter 8
Kaiser Permanents ease Study
This case study provides an overview of the ECHO Kaiser Permanente's
marketing operations. Kaiser is the largest Health Maintenance Organization
(HMO) in the United States. Although much larger in scale than transit
agencies, Kaiser faces a similar task in marketing to business. Kaiser must sell
employers on using its HMO and other health insurance options, and then in
must sell employees who may have other choices besides Kaiser for health
-c,-- - ~
Insurance.
This chapter covers the history of Kaiser
Permanente and the market conditions
faced by the organization. There has been
rapid change in the health care industry,
and the last few years have seen
tremendous growth in HMOs and in Point-
of-service (POS) options for health care.
The field is also quite competitive, which
means that market research and marketing
are crucial to Kaiser.
Hi
In response to this new level of competition, Kaiser has had to be more
aggressive about costs, and has had to focus on developing a clearer and stronger
marketing message to retain existing customers and to lure new ones. Kaiser
also has responded by increasing the stature and role of marketing within the
organization. Even more striking has been Kaiser's decision to explicitly link
the marketing function with operations at the national and local levels, a
common practice in product-oriented industries such as auto production, but an
innovation in the service-oriented health care sector.
Kaiser's general approach has been to handle most of its marketing and sales in
house. It has developed a state-of-the-art of telemarketing operation, and it has
used teams of Kaiser employees as its main marketing force. Recently,
however, it has started to use brokers to help sell to smaller businesses.
Kaiser has been collecting its own customer satisfaction information for many
years. This program first focused on comparing different Kaiser Divisions and
on measuring customer response to new Kaiser initiatives. Later on, the survey
Pat S-]
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K8IS~ P~Tla~ Gem ShUY
also looked at key questions such as whether a customer would choose to
repurchase Kaiser or whether they would recommend Kaiser to a friend. The
survey also began to incorporate a random selection of non-users to better
understand the outside perceptions of the organizations. More recently, Kaiser
has started to consider the value of an independent firm to conduct customer
satisfaction surveys, since findings from an independent source may have more
credibility in the marketplace.
Finally, Kaiser has been working to develop a brand image. The objective is to
have a recognizable brand that people automatically associate with certain
values, such as low-cost and high-quality health care.
[~rIRit~Illllll~llllllI~!~lllill~,[~dllPlllUll(r
Kaiser Permanente is the country's largest health maintenance organization
(HMO). Founded in 1945, it is a non-profit, group-practice prepayment program
with headquarters in Oakland, California. As of January, 1997, the
organization's membership totaled over 7 million members, a majority of whom
in 37 Americans
IS a Kalser
Permanente
Member.
enrolled through their employers.
424 For perspective, this figure translates to 1
in 37 Americans as a Kaiser member. Kaiser's service coverage is equally
broad, with business units in ~ 7 states and the District of Columbia. Kaiser
remains one of the largest employers in the state of California, and, including all
USA operations, the organization reports 90,000 technical, administrative, and
clerical employees and ~ 0,000 physicians on their payroll. In ~ 996, revenues
totaled $13 billion.
Kaiser's history began just prior to the second World War. In ~ 933, Dr. Sidney
R. Garfield established a prepayment health plan for workers on a construction
project in the Southern California desert. Several years later, Henry I. Kaiser
asked Dr. Garfield to develop a similar plan for his employees at work on the
Grand Coulee Dam project. By ~ 942, this program had been extended to include
workers and their families at the Kaiser-managed shipyards in the San Francisco
Bay area and Vancouver, Washington, as well as at a Kaiser steel mill in
Fontana in Southern California. In 1945, Kaiser was formally incorporated, and
the plan opened for community enrollment.
After establishing a presence in California and the Pacific Northwest, Kaiser
expanded operations into Hawaii in 195S, and Colorado and Ohio in 1969. In
the late 1970s and 1980s, Kaiser embarked on an aggressive expansion plan; by
1986 the organization had extended its reach to include Dallas, Texas, the
Washington, DC area, Maryland, Virginia, Connecticut, parts of New York
North Carolina, Kansas City, and Georgia. In recent years, Kaiser has
broadened its geographic coverage and increased membership by acquiring other
plans or by establishing affiliations with other groups. This new strategy led
to an affiliation with the Community Health Plan of Albany, New York in ~ 996,
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Kd - ~
and an arrangement with Group Health Cooperative of the Washington Puget
Sound area in early 1997.
Until 1996, Kaiser's organizational structure was based around 12 separate
regions, with Northern and Southern California operating as two separate units.
In September of 1996, Kaiser announced a new organizational structure,
replacing the previous regional model. The new mode! established several
distinct divisions and ~ ~ local markets:
N~ast ah skin - Includes Massachusetts, Vermont, central New York,
east New York, and Connecticut
· Knead DN~bn - Includes Cleveland and Akron in Ohio, Washington, D.C.,
a suburban Maryland/Northern market, and the Baltimore area
A___ no
MU - BI DIVE - I - Includes Atlanta, Georgia, and Raleigh/Durham and
Charlotte, North Carolina
Southwest Dhtshn - Composed of 2 local markets in Dallas and Fort Worth
Texas
Rosy MountaN DNbion- Includes Denver and Kansas City
rthwat Dabs- Includes the greater Portland
Hawal- Considered a special local market
,, Oregon, area
· N~rn em forms and S0U~ eaefor'N - Managed as separate divisions
until January of 1997, when both were consolidated into a single division.
This new divisional structure is designed to improve Kaiser's ability to respond
more aggressively and more quickly to local market demands.
While the divisions offer a larger organizational structure, at the core of Kaiser's
health care delivery system is a business partnership between Kaiser Foundation
Health Plan & Hospitals and 12 Permanente Medical Groups. The Kaiser
Foundation Health Plan (KFHP) is a non-profit, public benefit entity that
contracts with individuals and groups to arrange comprehensive medical and
hospital services. Kaiser Foundation Hospitals (KFH) also is a non-profit,
public benefit corporation, but one which is largely focused on hospitals in
California, Oregon, and Hawaii. KFH also owns outpatient facilities in several
states, provides or arranges hospital services, and sponsors charitable,
educational, and research activities.
The Permanente Medical Groups are partnerships or professional corporations of
physicians, one in each Kaiser Permanente division. The Permanente Group
subscribes to the "group practice mode! HMO," in which physicians work
Page W
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Kd. ~ C" SO
together in multi-specialty groups. In several parts of the country, Permanente
physicians partner with local physician groups to enhance their service within
these communities. Otherwise, the Permanente Groups are comprised of
physicians who care exclusively for Kaiser Permanente members.
Kaiser has successfully integrated the elements of health care into the largest
coordinated health care delivery system in the country. Under the single
umbrella of Kaiser Permanente, the organization has coordinated physicians,
hospitals, home health, support functions, and insurance. Kaiser asserts that this
integrated health care system is the organization's unique advantage, an
advantage which leads to the organization's unique ability to foster innovations
and quality improvements. In Kaiser's words, putting people and systems
together as part of the integrated network "enable us to provide better quality
health care than in a fragmented system."
GIE3
Recent discussions about the health care industry focus on several key concepts:
"managed care," Health Maintenance Organization (HMOs), and "fee-for-
service" plans. Managed care is an umbrella term for an emphasis on preventive
care, and the elimination of unnecessary services. Managed care also involves
negotiated price discounts - generally by larger employers or pools of small- to
medium-sized employers - and smaller copayments and deductibles for
consumers. HMOs are one form of managed care and focus on early detection
and treatment, as well as on all types of preventive care. HMOs also tend to
eliminate or reduce financial barriers so that members will be encouraged to
seek preventive care or, at the very least, respond early to receive treatment for a
sickness. Because HMOs receive captivated or fixed monthly per-person fees
from employers, they have financial incentives to keep members healthy.
Finally, "fee-for-service" is the traditional health care model, in which insured
customers pay 20 percent of the cost of seeing a private physician, while the
insurance company pays the remaining 80 percent, less a deductible.
The gross figures for health care spending and for HMO enrollment speak to the
changing landscape of the health care industry. In 1995, the nation's total
spending for health care increased 5.5 percent to nearly $1 trillion, an estimated
average of $3~621 per person. Total expenditures for 1995 were $988.5 billion,
up from $937.~ billion in 1994. Total health care spending as a share of the
gross domestic product (GDP) remained at 13.5 percent. Spending for Medicare
grew even faster than spending in the private sector, primarily because the
private sector has garnered greater savings from managed care. By law,
Medicare must base its managed care payments on a formula related to Medicare
fee-for-service costs. Therefore, under current law, Medicare may not benefit
from discounts and other factors that generate savings for the private sector.
This is the primary reason why private sector spending grew at a rate of 2.9
percent in 1995, while public sector spending grew 8.7 percent in that year.423
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Kdw ~ ~ Sew
GrowtI, in tile number of HMOs has been equally striking. From 1976 to l99S
HMO membership has risen nearly tenfold, and over 53 million people have left
fee-for-service plans in favor of HMO plans.124 New estimates suggest that
HMO service is, at the very least, an $80 billion a year market.425 Before ~ 980,
fewer than 10 million Americans belonged to HMOs; by the end of 1994, an
estimated SO million Americans, or 16 percent of the population, were HMO
members.426 Point-of-service (POS) plans (a blend of HMO and fee-for-service
plans, under which members are allowed to go outside of the network for
specified services) also have experienced a growth in popularity.
The latest industry figures indicate that virtually none of the country's major
employers offered POS plans in 1990, but 34 percent did so last year, according
to a Hewitt Associates study. A recent KPMG Peat Marwick study echoes that
finding: 40 percent of firms with at least 200 workers offered point-of-service
plans in 1995, compared to 23 percent in 1993. Participation in POS plans more
than doubled in three years, going from an ~ percent share of total enrollment in
1992 to IS percent in 1995.427 These spin-offs have been especially popular
among small- and mid-sized employers because it offers employees an "out"
while retaining the managed care cost savings. 4 2494 259~2894 2994 3094 34
POS plans, for example, are now offered by most HMOs. Eight out of ten health
maintenance organizations now offer a POS option, according to the
Washington, D.C.-based American Association of Health Plans (AAHP). Five
years ago, the figure was close to four in ten.427 The extremely competitive
nature of the health care industry has forced almost all of the players to offer a
very similar set of products.
New players, new companies, and new insurance products have significantly
increased the level of competition in the health care industry and, in turn,
produced significant pressures on price. The result has been a challenge for
Kaiser.
Kaiser's current market share in each of its distinct areas varies greatly; it has a
stronger presence in what were the older regions and smaller slices of the health
care markets in the newer areas. In 1995, the reported figures included a market
share in Northern California hovering between 22-24 percent* while in Atlanta,
Georgia, Kaiser fought hard for S percent of the local market (as a proportion of
file total population).
*Market share for health care is usually determined In two ways: either by using
Kaiser membership as a proportion of He total population, or by using Kaiser
membership as a proportion of the insured population. Using He first
methodology, Kaiser's market share In Northern California calculates to between
22-24%, while He second memos generates a figure closer to 30%.
Kaiser's market
share varies from
24 percent to 5
percent of the local
market
Eases 5
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Kid ~ C" I~
Kaiser sells its product- I,ealthcare - to employers and individuals.
Nonetheless, as with most healthcare companies, close to 80 piercers of Kaiser's
business is with employers, while the remaining 20 percent involves direct sales
to individuals. In line with these figures, Kaiser's marketing efforts are
primarily geared toward attracting employers, although a proportion of
marketing efforts are focused on individual consumers.
Figure 8- ~ shows a list of the insurance products sold by Kaiser to employers in
what was previously the Northern California Division anal what is now part of
the consolidated California Division. Note that a different set of products is sold
to companies of 50 employees or less than for companies with 5 ~ or more
employees.
For clarification, Kaiser defines point-of-service, dual choice and out-of-area
plans as follows:
Point~f4ervice - If enrolled in a POS plan, the employee may make the
decision to receive health care services from a Kaiser Permanente facility, or
from any non-Kaiser Permanente provider at any time. If the care is
received at a non-Kaiser Permanente facility, the employee will be
reimbursed according to the PM Group Benefit plan, resulting in higher out-
of-pocket costs.
Dual ewes Each year, during open enrollment, an employee will be able to
choose either a traditional Kaiser Permanente HMO plan or PM Group
managed care indemnity plan. The employee must remain within the chosen
plan until the next open enrollment opportunity.
Out oft a Plan - Employees whose firms are located within a Kaiser
Permanente service area, but who live too far away to take advantage of the
Kaiser Permanente facilities, would be covered under a Permanente Medical
Group managed care indemnity plan. ~2 ~
Kaiser has offered the HMO plan for decades; the POS plan, however, is
relatively new to both Kaiser and the health care industry. The point-of-service
hybrid initially appealed to highly paid employees, including many top
managers, who could afford out-of-network care whenever they wished. Point-
of-service also attracted workers who relied on specific providers to treat chronic
or unusual medical conditions or employees who traveled frequently and needed
care away from home.
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Kid ~ C" Sib
Figure Ill: Kaiser Products and Serviettes
For [ - t8 will 3 t0 50 [~l010 Onploy"
Beah0'S Advantage
HMO plans
bow outpatient ($5, $10, $15) and prescription ($5, $7) copays; 100 percent
coverage for inpatient services
· Full range of preventive care services, including physicals, well-baby care,
eye and hearing exams
· Age-rated or composite billing
The Hail b$UM" Plan 0 Salerno each
Two HMO benefit plans and two Point-of-Service benefit plans
Added eho - ~ for SmaD BUS& - S
_ Point-of-service product
· Four plan options offering Kaiser Permanente in-network HMO care ($5 to
$! 5 outpatient copays) and 70 percent coverage for out-of-network services;
out-of-network deductible ranges from $250 to $500 per member, out-of-
pocket maximums vary accordingly
mended Chow
· HMO and out-of-area product
· Provides Kaiser Permanente HMO plan ($0 to $15 outpatient copays) for
employees residing in the Kaiser Permanente service area; provides Kaiser
Permanente Insurance Company's PPO through Community Care Network
(80 percent PPO coverage with $5 to $! 5 outpatient copays) OR indemnity
coverage (80 percent with $ ~ 5 to $20 PPO outpatient copays) for employees
residing outside the Kaiser Permanente service area.
O~f-Area Plans
· Available in combination with all other products, excluding the HIPC
· Provides Kaiser Permanente NO plan ($0 to $15 outpatient copays) for
employees residing in the Kaiser Permanente service area; provides Kaiser
Permanente Insurance Company's PPO through Community Care Network
(80 percent PPO coverage with $5 to $! 5 outpatient copays) OR indemnity
coverage (80 percent with $! 5 to $20 outpatient copays) for employees
residing outside the Kaiser Permanente service areas
sup,1emantal Ben0m Programs
· Optical coverage through Kaiser Permanente HMO
· Dental coverage available through Delta Dental
· Chiropractic coverage available through the American Chiropractic Network
(ACN)
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Kin ~ C" Sly
For Ilbnts with 51 or More ~ghb hnpioy~s
1 1
Dual Chow
· Dual option product
· Provides coverage through Kaiser Permanente HMO plan ($0 to $15
outpatient copays), PPO coverage through Community Care Network (90
percent to 70 percent PPO coverage with $5 to $20 PPO outpatient copays),
OR an EPO plan ~ ~ 00 percent to 70 percent coverage with $ ~ 0 EPO of flee
visit copays); employees select their plan of choice (Kaiser Permanente
HMO OR Kaiser Permanente Insurance Company's PPO/EPO) at open
enrollment
Added [ho - _ POS3
~ Point-of-service product
· Provides coverage through Kaiser Permanente HMO plan ($0 to $ ~ 5
outpatient copays), PPO coverage through Community Care Network (80
percent to 70 percent coverage), AND indemnity coverage (60 percent to 50
percent) coverage; deductible ranges from $250 to $2,000 per member; out-
of-pocket maximums vary accordingly
Anise
· HMO and out-of-area product
· Provides Kaiser Permanente HMO coverage ($0 to $ ~ 5 outpatient copays)
or Kaiser Permanente insurance Company's PPO through Community Care
Network (90 percent to 70 percent PPO coverage with $5 to $20 PPO
outpatient copays); employees select their plan of choice (Kaiser
Permanente HMO OR Kaiser Permanente Insurance Company's PPO/EPO)
at open enrollment
Out~f-Area Plang
· Available in combination with all other products, excluding the HIPC
Provides Kaiser Permanente Insurance Company's PPO coverage through
Community Care Network (80 percent PPO coverage with $5 to $ ~ 5 PPO
outpatient copays) OR Indemnity coverage (80 percent with $15 to $20
outpatient copays) for employees residing outside the Kaiser Permanente
service area
SUppb_~! B-fit Program
Optical coverage through Kaiser Permanente HMO
Dental coverage available through Delta Dental
Chiropractic coverage available through the American Chiropractic Network
(ACN)
Pages 8
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Kdw ~ tot She
ll~Lllp41RlllBl~llall~llllIt'ld,luillilll0elldlnIll~u
To improve the focus and quality of its marketing function, Kaiser recently
began an organizational restructuring. The departmental reorganization began
with the hiring of a new Senior Vice President of Marketing and Sates for Kaiser
Foundation Health Plan and Hospitals, in November of ~ 995. The Senior Vice
President of Marketing and Sales is now responsible for all marketing and sales
functions. This position reports directly to the President and Chief Operating
Officer of Kaiser Foundation Health Plan and Hospitals.
Prior to November of 1995, marketing and sales were primarily the separate
responsibility of the Regional (and now Divisional) Managers. Now, the snore
centralized marketing function and the location of marketing in Kaiser's central
office operations arm encourages the melding of the marketing and operating
functions. The new role of marketing is outlined in Figure 8-2, Product
Development, Roles & Responsibilities. The Program (or "central") office is
responsible for strategic product design, organization-wide prioritization,
assessing the business case, conducting feasibility analyses, developing the
promotion plan, market testing, client training, and communication. The central
office also directs design efforts at the divisional level. National Product
Development leaders receive direction from and work out of the central of rice.
The individual divisions are responsible for coordinating with the central office
to establish priorities. This coordination has been labeled the "National Team"
for product development. Divisions also are responsible for assessing the
operational feasibility of new products (i.e. answering the questions "can
existing systems absorb new customers?" and "do divisions need to make
systemwide changes to accommodate the new product or service?"~. Regulatory
compliance and adherence to stakehoIcler agreements also are the responsibility
of each division. Finally, divisions tailor products to local demand and oversee
the training of divisional personnel. The training process is facilitated by
training modules for each product (although the modules are developed at the
national level).
Local markets also bear a part of the product development responsibility. Local
areas must coordinate implementation and provide divisional managers and the
central office with feedback on performance. Local markets also are viewed as
primary generators of neat ideas; ideally, product ideas floor from the local
markets to the divisions and then on to the central office. Figure 8-3, Product
Development Phases, diagrams this product process.
b
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Kdw Pats Cam Sew
Figure I-2: Produet Dav010pment
Program Off -
· Strategic Product thesis
Roles and ResponserKbs
· Prioritization (Program and Divisional VP's Team)
Business CasefFeasibility Analysis & Promotion Plan
· Market Testing (Pre/Post Raunchy
Client for Training and Communication
· Directs National Design Efforts in Divisions for Strategic Products
Division
Dblshn
Prioritization as a National Team
Assesses Operational Feasibility
with National PD Leaders
Regional Compliance Stakeholder
Agreements
· Enhar~ces/Customizes Product
· Oversees Training in Division
(Modules Created by HPl)
Local Marks
~ Coordinates Implementation
· Provides Performance Feedback
· Implements Design at Customer
Interface
· Communicates Strategy
Monitors Performance
Idea Generation
Pat
OCR for page 175
Figure I-3: Product D0v010pm0nt Phases
_ _
I~ ~L
__. a_
In__
· Screening
· Prioritization
· Feasibility Study and Asscs~nent
· F'nalReconunendation
, . . -: . . . . .- . l; ': -''' ':'' '''1
1 Be a~ff~e~t_t
· Marica Need
· Idea Generation
· Conecpt Dc~elopn~cn
k~dbB/
~ -
i.1 wet
:'.~1
1 2 ~ ~,,. ~ --in = ~'a = - ~
I. Em_ - EM -
·T - ck Product Perfonruance J Succc"
B. ~
· HandotT
· T'ainin8
· Product Launch
~ ~ -
· Assemble Team
· Work Plan
· Product Desi~/Deve10pn~ent
· Maricel Testing, Planing Materials
· Sample Intpiemeatat~on Plan
, _- ~is,- : . . . ~
~ ~ELArs~E' ~
'L. _ '~v'~;~1,~ ~,9t' :y'~ Am= it'' ~ . . . ' i .' ' . 'I' . .' ~ 'a ~ "'
- ., :' :- . . . ' ' , ' .::: ': '' . ' :': ., , : :- ' ': ' ' ': ' : .
A=
Kaiser's first step toward refining the organization's marketing message has
been to rethink the organization's marketing goals mission, advertising
approach, and the product development process. At the heart of this rethinking
is a shift toward "brand management"; in this case, thinking of Kaiser
Perrnanente as a brand with specific equity in the marketplace.
David Aaker, E.T. Grether Professor of Marketing and Strategy at the Haas
School of Business at the University of California Berkeley (and author of
Builcling Strong Brands, The Free Press, ~ 996, and Managing Brand Equity, The
Free Press, 1991), has been hired by Kaiser as an independent consultant. Aaker
argues that just as an organization may sell a tangible product or service, a
company also sells a set of perceptions (some intangible and irrational) as wed]
as a collection of values - or even what the company stands for - to the
consumer. Aaker believes this is all part of a company's "brand."424 In a sense,
branding identifies the customer's series of expectations about the service, and
then delivers on that promise. Together, the brand values, customer perceptions,
and buying expectations create a relationship with that product or company
which can transcend price by engendering deep loyalties. This loyalty is
particularly useful in "confused markets" where customers are bombarded with
multiple appeals.
Page I-8
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Representative terms from entire chapter:
outpatient copays
Kaiser P - nit lea S1=
:
Pagers
. ... I....
Figure I-4: Kaiser Promotional [iteratur0
Running a small business in wives t-.ard v`Por~r 1~g his `~d ,no'~ in..
it~--iQ u'r.-e~:.nty. All '> aft) yr'c~1~e go ,~..~y other ink t~:att~rs to Arcs o,-
::>=s`;] Is ~ Alar 1~31~3 cove~ace. t~Jnicn is Hahn it~.;ef
' :0,~,tt t - ~1i"~> thy 5!~10~l ~ICj[,~:~.~ - fit Bitt ~ .t~:l Llt~ tj~`r[;r j5,r~fl`~. Miff fly v - ' `-.!~:' `~~>,`'
I l-~ !;t~7 Bit. person<; i2=t r0~ ~ iti~c3t.~( li ~ i.., Sty) '1~-'; 0~. i "\'4~' )~~3 flit' 'I)';; 1~.~07e I?
.~:'.~i ~--lt.ent~- ~v'l~OrC. to I'COCiOd rot:: i. `~.c-~Jr->ll~ll1~S.
KA1~ - F ~ _ If t~1~.'~ A! ~ .-- Business Advantage
k4.,'i\!(''`~ '.''0t 3~' t`~t r employs- tree ac~;i''t<.~.~:~s Act;
Coverage which can be custom-tailored to the needs of your work force.
I;- yolk =~lp'~c:~ieSs rle8C~` to `-~C~'t-£~', '~l;9t!Ca?, O' (~;,`~.:)rcl(:'t~ (`r.,;.~r~-.~-.~??
<.~.~:r i~C~a,1~?~-~ {;,li'.~'S ~ uses ;3 `'c;riery 'c' c.~oice`- ,r tills it r)~ftil Co.,:~rE3~.~e,
s; t!-;at en~pl<~`fees set the It. ;~i~ r~ tr`a t's .,,~. or ;;-.
Quality personalized health care from their own teen, of physicians.
A: liaises ?~as~enr~e, special en~p'~asis is placed on oLlilo.ir,`! ~ OnC-tO-OrlO
'~-13tic'~sh~p, Skeet petri the physic argot ;t,~ pain,. .-.~e n drape .~; i~teal-1
care. Tacks Why your employees-can choose their c: Kaiser Perr,~ane~te
~~'q~,
Urn i.~s~'ra~ce company.
Kaiser ?e~r~?~ente's rates for health ·-~`ere.~e a e ext
Kdw ~ Can Say
With the help of Information Management Associates (IMA), a Shelton,
Connecticut, provider of marketing software, Kaiser began using a call-center in
California in June 1996 to respond to incoming calls prompted by new direct
mail and television advertising campaigns. IMA, whose call center software
and systems start at $150,000 and go up to $350,000 or more, helped train
Kaiser representatives, who are now increasing enrollment in Kaiser by
providing salespeople with qualified sales leads.434 Some 120 phone
representatives in both Southern and Northern California call prospects to
discuss HMO plans and options. If the customer is interested, the phone
representative sets up an appointment for a salesperson to visit and also sends
them information about the plan. All of the information about the customer and
tile appointment is immediately sent to a salesperson's computer by the phone
representative.
As a result of the new call center operation, the number of Kaiser's customers
(individuals rather than employers) in Southern California grew from ~ 5S,000 at
tile end of 1995 to more than ~ 80,000 as of October 1996. But just as important
to Kaiser is the continuer! flexibility the company feels it has in running its own
call center instead of outsourcing the function. Along with having a central
phone bank on-site, the Kaiser call center is a "virtual" center, in that phone
representatives can dial into it from their homes or elsewhere and answer
customer inquiries or make outbound calls. Additionally, by being able to alter
its call-center programs quickly to meet the changes in its HMO plans, Kaiser
believes it is better reaching its customers.
Several companies in addition to Kaiser have had well-publicized successes with
call centers. Federal Express is continuing to outpace its competitors in part due
to its package-tracking technology integrated with a call center, which handles
more than 12 million calls a year. General Electric uses its in-house center to
increase repeat customer purchases, and has reduced the cost of servicing
customers from $67 million in 1995 to less than $20 million today. 130
~-Pel~
Kaiser has used traditional avenues to advertise its products, including radio and
television advertisements and print media geared toward local markets. (See
examples attached.) Kaiser's more innovative advertising has come through the
sponsorship of medical research, funding community initiatives, producing
health-related plays for adolescents, and visible involvement in national health
care issues.
P8gS 8-17
Ka 811r P - net - _ - _
Kaiser's Division of Research in Oakland, California, has made numerous
important contributions to medical, epidemiological, and health services
research. The division conducts long-term studies on a base of close to 3
million northern California Kaiser members. The division has published over
500 studies. In 1992, funding for the division was $9.2 million, and a staff of
~ 80 is currently at work on 50 research projects. Funds are primarily
competitive federal grants and contracts. The division also has close
collaborative ties with the University of California at Berkeley, San Francisco,
and Davis; Stanford University; and the California Department of Health
Services. 1 2 )
. .
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Kaiser also operates a Center for Health Research in Portland, Oregon, whose
purposes include serving the public interest through research, demonstrations
education, and community service. The study base include 378 Northwest
Divisional members, and involves a permanent staff of ~ 5 investigators and 200
technical assistants. Center collaborations include work with the Oregon Health
Sciences University as well as universities throughout the states of Washington
and Oregon. In 1992, Center funding was over $48 million, primarily through
competitive federal grants and contracts.
Finally, Kaiser founded the Research and Evaluation Program in 1987 in Los
Angeles, California, to perform clinical research, health services research, and
epidemiological studies. The study base involves 2.2 million members from the
southern California area. Study efforts - some funded through external research
grants- include large-scale studies on epidemiology, medical outcomes, and the
cost-effectiveness of health services.
The following research projects now underway have been well publicized in
local and national newspapers:
· National Institutes of Health awarded Kaiser physician William VolImer,
MD, a five-year grant to find the best asthma treatment mode for children
ages 4-14.
· Researchers in Northern California have demonstrated for the first time that
large-scale prenatal population screening for Cystic Fibrosis (CF) carriers is
a viable method of identifying couples at risk for affected fetuses. A year-
long screening program involved approximately 5,100 Caucasian and
Hispanic women in early pregnancy.
· Kaiser initiated a multiregional demonstration project to improve health
service delivery to its elderly health plan members, age 65 and over. The
$ ~ .6 million project, funded by the Garfield Memorial Fund, consists of
demonstrations in a number of Kaiser Permanente divisions.
· The Northwest and what was originally the Southern California regions are
participating in the first major test to determine the effectiveness of the drug
tamoxifen in preventing breast cancer to high-risk women. The five to
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seven year, $60 million National Cancer Institute study was launched in
1992 at more than 270 sites in the US and Canada.
In addition, Kaiser has been involved extensively in studies that track the health
of pregnant women and their babies. Most recently, Kaiser completed a three-
year study that tracked the deliveries of approximately 7,000 women prior to
cesareans. Kaiser also was chosen to conduct a Center for Disease Control
study on the immunization patterns of some 100,000 children. Again, many of
these studies have been publicized in local, regional, and national newspapers,
and are often used in Kaiser's literature to reinforce Kaiser's image as a health-
conscious HMO committed to the public interest rather than to its bottom line.
As a non-profit entity, Kaiser is required by law to contribute to the "public
good" of the community. In other words, in lieu of paying taxes, Kaiser '~pays"
communities through useful research projects and by funding community
initiatives. In ~ 994, Kaiser's national community service spending exceeded
$127.5 million. Programs supported through these funds range from
contributions and grants to dues subsidy, charitable care, programs for children,
and research. The following is a quick review of several of these efforts:
Kaiser Permanente's Dues Subsidy program provided free or reduced-cost
health benefits to nearly 136,000 low-income individuals and families not
eligible for Medicaid, at a cost of $46.6 million.
Kaiser provides an estimated $6 million in charitable care (care for those
who are unable to pay for care and were not covered under any of Kaiser's
programs).
· Kaiser contributed close to $20 million in community contributions and
scholarships. Education benefited heavily as did community programs
serving the elderly, children, health services, minorities, and persons with
disabilities. Over 1,500 organizations were assisted.
Kaiser also has received considerable attention for its "RAVES" (Real
Alternatives to Violence for Every Student) program. The program was
developed by the Mid-AtIantic States markets to teach and promote conflict
resolution skills across grade levels, as part of a program to reduce violence.
Over 688,000 children and teachers have seen the RAVES program. Again, the
RAVES program and the other community initiatives have brought local and
national media attention to Kaiser. Kaiser, in turn, has viewed the attention as
an opportunity to publicize Kaiser's commitment to the "working man" and to
solidify its image as an alternative to the for-profit HMOs (who are ostensibly
more interested in their bottom line).
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Costs
Kaiser Health Plan and Hospital's total annual budget is close to $13 billion.
The organization currently spends between $7 to $10 million (or less than 0.1
percent of their annual budget) developing a new product such as a POS plan,
which is on the low end of the scale for the health care industry. Obviously,
enhancing a feature on an existing product to develop a "new" product is
considerably less expensive than developing a new product or service entirely
from scratch.
Kaiser marketing personnel pointed out a drawback in measuring the costs of
product development for services: usually a new "service" is really a new
"process," a considerably more elusive and therefore immeasurable quantity
The new National Advantage is one such example. The National Advantage
program is a nationwide HMO plan that offers employers with wide geographic
coverage one point of contact at Kaiser. This program "eliminates the hassles
of coordinating benefits options across multiple locations" by offering
administrative ease through a personal representative who is "the single point of
contact from initial purchase, through enrollment, billing and renewals." Kaiser
personnel had difficulty estimating the cost of this new program.
Measures of Effectiveness
How does Kaiser measure success? Kaiser spends considerable resources in
measuring the quality of its service as perceived by consumers, employers, and
the general public. In addition, Kaiser conducts benchmarking of its processes
as compared to other industries.
With regard to marketing, Kaiser uses three different measures to evaluate
success: general awareness about the organization, number of persons who
"consider purchasing," and the growth rate for the organization. After a
successful marketing campaign, a greater number of people should know about
Kaiser than before the advertisements were aired. A second measure is the
number of persons who previously did not consider purchasing Kaiser, but have
now changed their minds and are considering Kaiser as a possibility. An
increase in the growth rate of the organization is the final measure of marketing
success. If specific markets within the organization meet or exceed forecast,
then Kaiser knows that a marketing campaign has been effective.
Kaiser also tracks the general effectiveness of marketing efforts by comparing
the cost of sales to the revenue generated Mom sales. If, for example, marketing
to individuals, is costing the company far more than the revenue gained through
enrolling members, then Kaiser re-evaluates and re-prioritizes its marketing
effort. In general, marketing to employers is far less expensive than marketing
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to individuals since a single employer can generate multiple enrollees. Finally,
Kaiser compares its marketing costs to other companies both in and outside of
the health care industry. To encourage innovation, Kaiser has been particularly
aggressive about researching how companies outside of the health care industry
develop, price, and manage new product development.
customer Satisfaction
Kaiser spends considerable effort and funding on tracking customer satisfaction.
From 1988 to 1993, Kaiser's customer market research was re-organized to
follow a system called STAR: Satisfaction, Tracking, and Reporting
methodology across what were then 12 regions. STAR used the same
questionnaire and survey instrument for each region, except that individual
operating units could add their own questions. To administer the
questionnaires, (45 questions, ~ 0 minutes each), Kaiser used Computer-Assisted
Telephone Interviewing (CATI). One hundred (100) surveys were completed
and tabulated per market per quarter. The STAR program measured member
satisfaction and the impacts of service initiatives.
Results from the first five years of STAR enabled Kaiser to develop internal
benchmarks, and showed that member satisfaction varied greatly from region to
region. Further, the key drivers of satisfaction were largely dependent on what
the industry calls "care `delivery variables," such as interest and attention of
doctor, ability to see regular doctor, appointment access, and phone access.
STAR also has been sensitive enough to record the impact of performance
improvement initiatives. For example, after panel-based compensation for
physicians was introduced across all regions, STAR results reported increased
satisfaction with "ability to see your own doctor." In another example, re-
engineering appointment making and implementing a call center improved
members' satisfaction with phone access.
The ability to track a few key issues over time and the option to track the impact
of initiatives were two positive aspects of the STAR market research program.
Unfortunately, there were problems with the STAR information. For one,
comparison between Kaiser divisions was not the relevant comparison for
Kaiser. What they really needed to know is how they compared to the non-
Kaiser competition. In fact, the internal benchmarking may have inhibited the
drive for performance improvement. In response to these concerns, from 1994
to 1996, Kaiser introduced external benchmarking into the marketing effort.
Therefore, in 1995 Kaiser began to include a statistically significant random
sample of non-members in the phone survey. Questions asked of non-members
were as comparable as possible to the Kaiser member survey. The result:
external benchmarking redefined the challenge as a gap between image and
performance.
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Currently, Kaiser is in the process of determining whether survey research
conducted by an internal or external group would prove best for conducting
market research for external benchmark data. Internal surveys would have the
advantage of providing control of timing, sample, and context; however, an
internal survey offers little credibility outside of the organization. In their
evaluations of HMOs, for example, Newsweek and Consumer Reports award
fewer points when the HMO conducts consumer satisfaction research in-house
rather than with an independent firm.423~424 Kaiser agrees; leaders within the
organization fee] that external surveys are more difficult to control and are of a
more uneven quality, but have the advantage of more credibility in the
marketplace.
When Kaiser audited its market research spending, they realized that a
considerable percentage of marketing funds were being utilized to assess
customer satisfaction through the STAR and other programs. While this was
certainly useful information, the STAR data and tracking sidestepped the more
fundamental series of questions Kaiser needed to ask. These more relevant
questions involved members' repurchasing decision rather than service
satisfaction. For Toyota, for example, the core issue to track for Lexus owners
is not whether customers are satisfied per se, but rather whether customers
recommend Lexus cars to their friends or whether they purchase yet another
Lexus. The case was similar for Kaiser; the organization needed to know
whether existing customers chose to repurchase Kaiser health plans and whether
Kaiser members recommended the plan to their friends and family.
To accomplish this more subtle level of market research, Kaiser focused on
assessing the repurchasing decisions at the consumer level. The flow of
marketing research at Kaiser now begins with identifying loyal customers and
then conducting extensive interviews and surveys of these members. Less loyal
and even "disloyal" customers also are targeted and surveyed. The primary
purpose of the interviews and surveys is to determine the key elements that
separate the customers who choose to repurchase Kaiser health plans from those
who purchase another health plan. From these critical questions Kaiser begins to
develop a profile of core and ancillary target consumers. Future marketing
efforts then become focused around the core consumers; meanwhile, the
organization as a whole reviews the issues that discourage consumers from
purchasing Kaiser. If organizational changes can be made to capture less loyal
or even "disloyal" customers without sacrificing organization goals, objectives
or brand vision, then Kaiser moves forward with these changes.
Other Measures of Effectiveness
Kaiser also has looked to external resources to obtain survey results and to
establish benchmarks for measuring performance. Large companies, state
offices of personnel management, and the HEDTS Medicare/Medicaid
requirements are sources Kaiser pursues.
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· Larger Pompanos - Larger companies and employers often conduct their
own surveys to establish employee satisfaction, usually to determine
whether or not to continue a relationship with Kaiser or other employee-
benefit -providers.
· Stab Of - 1 of P~rsonnd Managarnent - Through its office of Personnel
Management, for example, the State of California surveys its civil
employees to determine levels of satisfaction for available health care plans.
These surveys offer comparable results by plan, and are generally well
known for quality of data. The data also is very accessible: a booklet costs
only $~.95, or a diskette with data may be purchased for a nominal fee.
· Con~uliants- On several occasions Kaiser leas hired the Gallup company to
survey member employers of all sizes. in addition, the survey sample
included employers not purchasing service from Kaiser. The employers
offered information on Kaiser's reputation and general perceptions about the
company.
· Sells - As of January I, ~ 997, more than 4.9 million Medicare beneficiaries
were enrolled in a total of 336 managed care plans, accounting for 13
percent of the total Medicare population. That represents a ~ 08 percent
increase in managed care enrollment since 1993. In 1996, an average of
80,000 Medicare beneficiaries voluntarily enrolled in risk-bearing HMOs
each month. Medicare beneficiaries can enroll or unenroll in a managed
care plan at any time and for any reason with only 30 days notice.435 As the
number of beneficiaries enrolled in managed care plans has increased, the
Clinton Administration has been working with states, insurers, health care
professionals and consumers to assure the quality of care provided in that
setting. Several initiatives to evaluate care are already underway, including
the Medicare HEDIS, which was developed in partnership with the Kaiser
Family Foundation to establish "a proven performance measurement system
that will minimize reporting burdens on managed care plans serving
Medicare beneficiaries." The Health Care Financing Administration, a
federal government entity under the auspices of the Department of Health
and Human Services, began requiring plans to submit Medicare HEDIS data
as of January ~997. This HEDIS requirement included two surveys within
1997 alone.
· N8'l- The National Committee for Quality Assurance is an indepenclent
non-profit organization based in Washington, D.C. NCQA has worked with
consumers, health care purchasers, state regulators, and the managed care
industry in developing standards that evaluate the structure and function of
medical and quality management systems in managed care organizations.
NCQA's Standards for Accreditation of Managed Care Organizations
evaluate a managed care plan's performance in the areas of quality
management and improvement, utilization management, credentials,
members' rights and responsibilities, preventive health services, and medical
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record-keeping. Accreditation by NCQA demonstrates a managed care
organization's commitment to principles of quality and continuously
improving the clinical care and services it provides.
While there are no universally accepted stamps of approval, accreditation by
NCQA is generally understood to be a more accepted measure of HMO quality.
As Newsweek points out, "Otto get [NCQA approval] a plan is judged on 50
different characteristics, like how well it checks out doctor's credentials. Of the
222 plans in the country that have been reviewed by the NCQA, only 37 percent
won full accreditation. An additional 39 percent got partial accreditation,
percent received provisional accreditation and 12 percent were denied
accreditation." 424
As mentioned earlier, Kaiser has hired the Gallup company to conduct polls of
employers to better understand how Kaiser is perceived in the business
community. These surveys and interviews have been very effective in prov
Kaiser with a "snapshot" of the employer marketplace.
·
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In contrast, Kaiser does not use any survey instruments to gage community
support. Instead, the organization monitors regional, neighborhood, or local
responses when presented with major issues affecting Kaiser. For example, last
year Kaiser proposed relocating the Oakland Kaiser facility to an unused football
field on the Merritt Community College Campus. As part ofthis relocation,
Kaiser proposed collaborating with the college to develop vocational training
programs in nursing and medical technical specialties, and committed to
spending millions of dollars in funding for community initiatives. However pro-
community the proposal, the response from the Oakland City Council and from
the entire East Bay area was resoundingly negative. Editorials fitted the
newspapers and "anti-Kaiser" headlines appeared in the Oakland Tribune and
San Francisco Chronicle. The consensus was that Kaiser was cheating Oakland
by relocating. Kaiser executives viewed the Merritt Community College
relocation as a failure in their community relations. Kaiser executives agreed
that they had done a poor job of outreaching to community leaders, and had
failed to involve community groups in the decision-making process.
=
Concepts from the Kaiser Permanente case study that may be transferable to the
transit industry include the following:
Kaiser Permanente has focused on developing a "brand image" for the
organization. This requires the development of an image via advertising and
promotion, and absolute adherence to that image in the delivery of products
and services. Some transit agencies accomplish something similar to this
when they reinforce a particular image of themselves with slogans,
promotions, advertising, and graphic design. Key to the success of this
approach for transit, however, is ensuring that the image cultivated fits the
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service and vice versa. While this is not exclusively a "business-to-
business" marketing approach for Kaiser, it is still key to attracting the
employee members, Elicit make up 80 percent of Kaiser's customers.
Kaiser has reorganized to tightly integrate its marketing and sales with
product development and operations at both the national and local levels.
This type of organizational structure would be unusual in transit, but it is
still important that these functions work closely together to ensure that
transit service is responsive to the needs of businesses and employees.
· Kaiser conducts extensive and ongoing customer satisfaction research.
Similar research in transit would help to identify routes or areas which need
improvement, and also would indicate the impact of marketing promotions
or service changes. Kaiser also is asking hard questions, such as intent to
continue to use the service. Such questions to transit passengers might help
identify problems as well as areas needing more marketing affection.
Kaiser found it necessary to market to small business, but impossible to do
so with its own sales force. Its alternative approach was to use insurance
brokers, who receive a commission for selling Kaiser's services. While
transit agencies are not likely to be able to provide a sufficient commission
to insurance brokers to interest them in transit-related programs, insurance
brokers might be willing to provide literature on transit services as a service
to their employer/clients.
Kaiser focuses a lot of effort on service to the community, partly because it
needs to do so as a private non-profit organization, and partly because it
furthers Kaiser's image as an organization interested in the greater good of
the community and in furthering health care through research. Although
transit does not have the advantage of excess revenues to put into
community service, transit agencies often get pressed into helping with
community events. Like Kaiser, the special community services that are
provided by transit should be seen as part of marketing, and should be
promoted so that transit gets appropriate credit.
Pat I-~
