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Kaiser Permanente and Worker's Compensation 
This Section of the Kaiser Papers is for the Employees of Kaiser and The Permanente

Article placed here for historical purposes.

Title: Thomas Fleishman.,  By: James, Philip N., Information Systems Management, 10580530, Fall91, Vol. 8, Issue 4

Section: INTERVIEW On The Role of IS in Health Care

KAISER PERMANENTE Medical Care Program is an association of health care professionals and patients that is organized as a health plan, a hospital corporation, and an association of separate and independent groups of physicians who are contracted to provide services to the health plan and hospital corporation. Kaiser Foundation Health Plan Inc is a California nonprofit corporation that enrolls members and arranges for their medical, hospital, and related services. Kaiser Foundation Hospitals is a separate nonprofit corporation that owns and operates hospitals and outpatient facilities. Permanente Medical Groups is an association of separate and independent groups of physicians who are contracted to provide medical care for Health Plan members. A small corporate organization drawn from these entities is located in Oakland CA.

There are 12 autonomous Regions, which are subsidiaries of these corporations and groups and are similarly organized. The Northern California and Southern California Regions are the oldest and largest. The Regions span the nation from Hawaii to New England, but they currently do not cover all states. The Southern California Region, the second largest, encompasses 10 counties from Kern to San Diego and retains 2,800 physicians to provide health care for about 2.3 million members.

Kaiser Permanente was a pioneer in the provision of prepaid health care. It functioned as a health maintenance organization before the term HMO was coined. Once a minor part of the health care scene in California, it has benefited from changes in the social contract governing health care in the US and is now a significant force in the delivery of quality health care and in pioneering new cooperative arrangements between those in need of health care and those who provide it. On a national basis, the annual revenues for the organization exceed $7 billion and it currently has 7 million members.

Thomas Fleishman, director of the Information Services Department of Kaiser Permanente's Southern California region, presides over an organization of 500 employees with an annual operating budget of about $50 million. Fleishman's career began when he joined a unit of Columbia University as a computer programmer trainee, where he worked on software supporting sonar submarine detection systems. He was recruited to System Development Corp in Santa Monica and then, after a brief stint in Northrop Corp's internal audit department, joined TRW Space Systems Division, where he spent nearly 10 years before joining Kaiser Permanente in May 1979. After about 18 months as manager of computer operations and support services, he was appointed assistant director of the division, then director in January 1982. He has one of the longest tenures among chief information executives in southern California and is currently a member of the Southern California Chapter of the Society for Information Management. He was recently elected to the Board of Directors of the Pasadena Chamber of Commerce and was asked to join IBM's Information Systems Customer Advisory Council. Fleishman discusses the changes in the health care industry during the past decade and the effects they are having on information systems management.

The health care system seems to be in a tremendously dynamic state these days, more so than most industries in this turbulent time. Why is that?

I think there are two primary reasons. First, when inflation began to recede during the Reagan years, people noticed that the increase in the cost of health care wasn't receding proportionately. In fact, it was continuing to grow. There has been continuous debate in many circles about the rising costs of health care. The most recent debates have been in the corporate world, where health coverage is changing dramatically for both employees and retirees as a part of the accelerating effort to reduce business costs.

Second, for a variety of reasons, people are now less in awe of physicians and are likely to want to participate in decisions affecting their care. More patients are challenging physician authority, which has undermined the deity status physicians once enjoyed. One result of this is an increase in the number of malpractice cases, and this change has driven many physicians out of health care. It has also dramatically increased the number of procedures performed to reduce liability rather than for actual medical need.

These factors are producing changes in the way health care is viewed--by the public, by Congress, by regulatory agencies, by Insurance companies, and by the patients themselves. And, there's so little real information about many of these fundamental issues that everything we learn tends to cause a change in the way we do business. The regulatory agencies have probably had the most significant impact, and that's related to the rising costs of Medicare. Although some of these costs have been brought about by new medical technologies, which are more and more sophisticated, effective, and expensive, there are other factors as well. But I think one of the most significant change agents in the way we do business has been the establishment of the DRGs as the means for reimbursing health care costs.

What is a DRG?

DRG stands for Diagnostic Related Group. A set of government panels determined that all illnesses could be classified into approximately 500 DRGs. Within a DRG, there's an established protocol or procedure for treating an illness or a set of illnesses. Of course, circumstances differ, but on the average all patients within a DRG can be considered as if they were treated alike.
Clearly, everyone expects that each patient will be treated according to his or her needs. But reimbursement is made in accordance with the specified DRG. This means that the cost to the health care delivery system--the physician, the hospital, the medications- should match the DRG reimbursement level. If the treatment cost is higher, the delivery system swallows the excess; if it's lower, the delivery system enjoys the benefits. To have a lower delivery cost, the institution must be relatively efficient in comparison with other delivery organizations.

That approach makes some sense to me. Why is it a problem?

The real problem is that there's very little consensus in the medical community about what treatments produce what outcomes. Physicians legitimately and reasonably differ depending on their own backgrounds and experiences. The heart of the problem is that there is no one body of information that makes it clear, in most cases, what the relative effectiveness of differing treatment styles is on the patient.

We see a very strong sentiment growing for the collection and analysis of information of this kind. As the results of such analysis accumulate, the cost-effective options will become clearer, and we may begin to get a handle on an approach to bringing health care costs down. That's going to have profound effects on the way information is managed.

With all of these changes, what has been the role of information technology during the past decade?

Well, first of all, I'd say that the health care industry has been somewhat behind other industries in its use of sophisticated information technology. It was not too long ago at this facility, for example, that patient admission statistics were almost literally computed on the backs of envelopes. The development of hospital information systems to handle business transactions has matured pretty well during the decade, and there has been a lot of fine work in the areas of pharmacy and laboratory management systems. This has helped the health care industry at large.

A significant problem for Kaiser Permanente is that the market for these systems is generally the single community hospital with fewer than 300 beds. Most of the 6,000 or so hospitals in the US fall into that category. When you get into large multifacility organizations like ours, the volume of transactions is huge. The readily available systems simply cannot handle those volumes. Furthermore, in that category, the needs are usually unique enough that applications must be custom developed.
What are the basics of your shop? Do you have a substantial telecommunications network?

Well, we have three IBM 3090600's (two J models and one S model) plus substantial installations of Digital Equipment Corp, Tandem, and Data General equipment. We also have a fully digital, T1, state-of-the-art multipath backbone network with six major nodes. A lot of it is fiber optics wherever it's available, and we're working to complete that. We have approximately 15,000 devices connected to the network, including computers, terminals, controllers, and printers.

Did you build this network yourself? Is it proprietary, or do you use a telecommunications vendor?

We primarily use Pacific Bell because most of the network is within its territory, but we also have a substantial presence in GTE territory. For long distance, we use both AT&T and MCI. The 10-county Southern California Region includes several LATAs (local access and transport areas), and our network covers both inter-LATA and intra-LATA links.

How many transactions a day does this network handle, and where do they come from? What drives the principal load?
I'd say in a typical day, the IBM part of the network alone handles about 2.2 million transactions. Most of these are from the medical centers, and they're all complex transactions not just single items like processing a check. Almost 1 million per day come from our scheduling system as appointment booking transactions. Another 400,000 or so come from our inpatient management/admission/discharge system. And another 200,000 to 250,000 are from our materiel management system.
What does your whole application portfolio look like?

At this point, we have approximately 120 applications. These fall into four major groups. Accounting and finance (the controller functions) obviously compose one of these groups. Service and support for the health plan composes another, and is primarily in the area of membership service, marketing, and membership accounting. The two medical areas form the third and fourth groups. The hospital information systems deal with the business and financial support of the acute care facilities. It's larger than most systems, so although it's based on a vendor system, most of it has been modified in-house. Finally, we have the outpatient and clinical support systems, which are perhaps the most innovative and interesting. Among other things, we have the largest private medical lab in the country.

One of our systems is a very sophisticated appointment scheduling system. A physician's time is obviously one of our most valuable resources, and we try to manage that as effectively and efficiently as we can. This system has many of the characteristics of an airline reservation system except that we're scheduling physician time slots instead of airline seats.
Do you have what you'd call a patient-centered information system that includes automated medical records, bedside terminals, nursing support, lab, pharmacy, and radiology support?

The automated medical record is the holy grail of health care. Very few organizations have made a substantial commitment to it. One group that has is the Harvard Community Health Plan in the Boston-Cambridge area; this has no connection with Harvard University, though many in the Harvard family are members.

Why did Harvard feel that the automated medical record commitment was important?
I don't really know. I'd guess perhaps they feel that in that community it's justified. There's a large concentration of distinguished medical schools there, as you know, and the system was originally built as a research project.
Why don't you do it?

It's primarily a cost issue, but the technology is also lacking at this time. The Harvard group spends about $0.64 per member per month for that system alone, whereas we provide our full range of support for about $1.40 per member per month. At $0.64 per member per month, the automated medical record represents an annual cost of approximately $17.5 million, in addition to our existing budget. At this time such cost is prohibitive for us.

Bedside terminals are a different issue. I have no doubt that some day there will be automation arrayed around the patient. But I don't think we currently know what's required in such a workstation. There's been so much talk about bedside terminals in the industry and so much written in the literature--but so little actual implementation--that I get the feeling that this still is a solution looking for a problem. We've had demonstrations of several systems, but we don't see anything that we feel would be a significant help to us at this time. However, we are actively working with several vendors to eventually acquire a Clinical Work Station that is functionally robust and meets our needs in terms of cost/benefit trade-offs.
What are you doing that you'd consider innovative?

Well, I mentioned our appointment scheduling system earlier. We think that's pretty innovative; it's the only one like it that I'm aware of. It works much like an airline reservation system and provides a great deal of management information about patient and procedure characteristics and physician work loads that was never available before. In that sense, it's our SABRE system.
Another application that we think helps a lot is our automated prescription refill system. A patient can call a number, enter his or her medical record number and prescription number, and the system checks to see if a refill is authorized. If it is, it tells the patient to pick up the prescription in 24 hours and transmits the order to the pharmacy. If it's not, it tells the patient that the physician will be called and asks the member to call back. When the refill authorization has been entered, it works the same way. If a refill is not authorized by the physician, the system notifies the patient to call his or her doctor to schedule an appointment.
In the old system that this replaced, phone messages accumulated on an answering machine. First, there was a lot of work matching the message to the patient and the prescription. Then, if the refill wasn't authorized, the pharmacist had to call the patient back to keep him or her informed. The new system is much more efficient and frees up the pharmacy staff for more substantive work. We also have innovative inventory control and laboratory management systems that use bar codes, and we're doing electronic data interchange with a couple of our major vendors.

How do you measure your success here? How do you justify your budget to senior management?

We do it largely by the applause level. During the 1960s and 1970s, our data processing achievements were relatively modest. We were in a kind of theoretical stargazer mode during those years. Since 1980, we've implemented a substantial number of the systems that are now in place. I've also been able to move the shop into a situation in which our applications come in reasonably close to the schedule and budget we establish. This has done a lot to build management's confidence in us, as has the fact that we have managed our tremendous growth within reasonable costs and with relatively favorable results.

In the 1970s, we realized, as many others did, that a data management orientation was the wave of the future, but Kaiser made the same mistake that many other shops made. We thought that meant a single global data base accessed by all the applications. Kaiser Permanente spent many years and dollars trying to make that approach work. The output, in terms of improved applications useful to the various parts of the business, was few and far between. So we stepped back and took a long look at our approach.

We asked Nolan, Norton to come in and review our situation. They found a fair number of areas that needed attention, and they suggested a different philosophical approach. I was a beneficiary of their study. As part of the process to rebuild the IS management structure, I was asked to come on board to manage operations and support services, and I did so in May 1979.1 became assistant director in October 1980 and director in January of 1982.

We acknowledge the data management orientation, which was the objective during the 1970s; indeed, we see it as the means for integrating our systems. But our approach benefits from all that was learned about data management during that period. We'll be developing a collection of data bases and applications that will provide a steady stream of results of value but in accordance with an architecture that describes our ultimate objectives and strategies.

That sounds like a strategic business plan. How did you develop that?

Well, of course a lot of the planning occurs as a result of my reporting relationship. I'm one of eight people who reports directly to the CEO of the Southern California Region, and I'm accepted as part of executive management. This gives me a clear perspective on the business needs and direction of the organization, and I can translate those into supportive information technology implementation projects. This has been reasonably informal until recently because we've been operating with a relatively informal business plan. We've just recently formalized the process, and it has produced the first truly strategic plan. That should help us a great deal for the future.

During the 1980s, we were guided by a strategic information systems plan which was prepared about the time of the Nolan, Norton study. About a year-and-a-half ago, we asked Deloitte & Touche to look at what we were doing and how we were doing it, and to give us some feedback. They did a fine job. They recommended that we needed an updated strategic information systems plan, arid we developed one last year.

Do you have a process in place for maintaining that plan as the business environment changes?

I think we're in pretty fine shape on that score. As I've mentioned, my position as a member of senior management of the Region is the backbone of the effort, and we have an efficient Information Systems Steering Committee. I also spend a large part of my time working directly with my customers in the medical centers of the Region, and I encourage my managers to do the same. That keeps us pretty well abreast of the needs as they evolve and allows us to keep the plan current, at least informally.
You're familiar with the survey issues that come out of studies by various organizations from time to time. How do you relate to those issues?

We track pretty well with the issues, although of course the priorities vary. We're trying to reengineer the firm using information technology and we're moving toward a workable datacentered philosophy and strategic planning. We're also trying to improve software development quality and productivity, including CASE. We've created an information architecture, and we're addressing new technology integration in our applications. We're not considering outsourcing, and we're not international. Telecommunications improvement is a continuing issue, but upgrading old systems, fortunately, is not; most of our systems are relatively new. We continue to emphasize career development and training, and this has paid off in a staff turnover rate that is substantially below that of the industry. And, as in the past, we continuously emphasize the information systems department's role as a service organization that supports the Region's business direction and vision. That is the primary mission; technology is secondary and serves as the tool we implement to achieve the mission of the department.
By Philip N. James

PHILIP N. JAMES is a member of the information systems faculty at California State University, Long Beach.