Use the readings from this week to respond to the following:
As you reflect on your own emotional intelligence, which of the competencies is an area of growth for you and what are two immediate actions you could take to enhance that competency area?Briefly summarize how Dr. Robert Pearl used Kotter’s 8 steps to achieve the change he desired.What are some proactive steps you have taken or witnessed that have been used to lessen the effects of unconscious/implicit bias?
Dr. Robert Pearl and the Permanente Medical Group Of Northern California: A Lesson in Strategic Leadership CASE: SM-333 DATE: 8/1/21 DR. ROBERT PEARL AND THE PERMANENTE MEDICAL GROUP OF NORTHERN CALIFORNIA: A LESSON IN STRATEGIC LEADERSHIP INTRODUCTION Becoming CEO of a multibillion-dollar health care organization would surely be a tempting prospect for any ambitious health care professional. Yet when such an opportunity presented itself to Dr. Robert Pearl, MD, he initially demurred. He was content in his role as physician-in- chief, leading the Silicon Valley portion of the Kaiser Permanente program in California. Being CEO would mean a massive change in his professional life, including the end to his career in reconstructive surgery. The problems Kaiser1 faced were massive: Patient satisfaction scores were plummeting, physician morale was sagging, and the number of open positions was widening as new doctors steered clear of a troubled brand. 1 Throughout the case, the shorthand “Kaiser” is used to denote The Permanente Medical Group of Northern California, which employs the physician groups that provide medical services to both the: (a) offices (i.e., for outpatient care) and hospitals of the Kaiser Foundation Hospitals, and (b) the patients of the Kaiser Foundation Health Plan, which respectively run the hospital and insurance portions of Kaiser Permanente. In certain jurisdictions such as Northern California, the three entities, although technically distinct, are governed by medical service agreements and mutually exclusive contracts (see footnote 12), creating Kaiser Permanente, which to patients appears as a single, unified whole. Kaiser is situated in eight different regions: Northern California, Ziv Shafir and Professor Robert Burgelman prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The authors wish to thank Dr. Robert Pearl for his extensive assistance with this case. Unattributed quotes and data in this case come from an interview conducted with Dr. Pearl on March 15, 2017, along with subsequent communications over email. Copyright © 2021 by the Board of Trustees of the Leland Stanford Junior University. Publicly available cases are distributed through Harvard Business Publishing at hbsp.harvard.edu and The Case Centre at thecasecentre.org; please contact them to order copies and request permission to reproduce materials. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. Every effort has been made to respect copyright and to contact copyright holders as appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at
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[email protected] https://thecasecentre.org https://hbsp.harvard.edu Dr. Robert Pearl and The Permanente Medical Group of Northern California SM-333 p. 2 Yet even more troubling were the headlines about Kaiser in major publications.2 Not only had Kaiser posted losses for the first time in its history, but those losses were over five times what was initially projected.3 One metric in particular stood out like a lamppost on a dark, foggy night: two days of cash. With over 50 years of history providing innovative, quality health care to millions of members, the organization was now at the point of taking out an emergency loan simply to meet California regulatory requirements. A change in leadership was desperately needed, and the Board of Directors of The Permanente Medical Group selected Dr. Pearl as the next CEO, the fourth-ever in its history.4 Over 20 years later, in a classroom at the Stanford Graduate School of Business packed with second-year MBA and other graduate students, Dr. Pearl delivered the final lecture in the seminar he taught with Professor Robert Burgelman about leading strategic change in health care. His tenure as CEO complete after three successive six-year terms, Dr. Pearl had been asked to explain the approach and mindset he used to turn Kaiser into one of the most admired health systems in the United States.5 THE HISTORY AND LEGACY OF KAISER The roots of Kaiser were interwoven with those of America’s modern-day infrastructure, from a historical perspective as well as a figurative one: Each was a feat of human engineering born of necessity. For residents of Los Angeles, this meant constructing the Colorado River Aqueduct to Southern California, Hawaii, Georgia, Ohio, Colorado, Northwest, and Mid-Atlantic states. Northern California is the largest and most successful of the regions. 2 Milt Freudenheim, “Kaiser HMO, Erring on Costs, Posts $270 Million Loss for ’97,” The New York Times, February 14, 1998, http://www.nytimes.com/1998/02/14/business/kaiser-hmo-erring-on-costs-posts-270-million- loss-for-97.html (July 12, 2019). 3 Carl T. Hall, “Huge Loss for Kaiser – Rates to Rise / $270 million Shortfall Also Means Cost Cuts,” San Francisco Chronicle, February 14, 1998, https://www.sfgate.com/news/article/PAGE-ONE-Huge-Loss-For- Kaiser-Rates-To-Rise-3012692.php (July 12, 2019). 4 Dr. Robert Pearl, MD, was also CEO of The Permanente Medical Group for the mid-Atlantic region from 2008 to 2017; for more information about his impact in that region, please refer to GSB case study SM-319, “The Mid- Atlantic Permanente Medical Group: Spreading the Integrated Care Delivery Model.” 5 “Most recently, TPMG received the 2013 Acclaim Award from the American Medical Group Association. The award is the AMGA’s most prestigious, and honors excellence and innovation in high-performing medical groups and health systems. In addition to the accolades we receive as a top-performing medical group, TPMG also has been recognized along with Kaiser Foundation Health Plan for the combined excellence of Kaiser Permanente Northern California. The National Committee for Quality Assurance (NCQA) ranked KP Northern California third in the country, out of 395 plans, in the NCQA’s Medicare Health Insurance Plan Rankings for 2012-2013. It ranked Kaiser Foundation Health Plan of Northern California eighth nationally, out of 473 plans, in NCQA’s Private Insurance Plan Rankings for 2012-2013. In the latter category, the next best performer in California, outside of Kaiser Permanente, is ranked 139. We’ve also scored four stars—the highest rating possible—for clinical quality from the California Office of the Patient Advocate five years in a row. And Hewitt Value Health Initiative results show Kaiser Permanente is the highest-ranking health care plan in California for clinical quality in 2013. As a result of this superior performance, we are one of only 11 health care organizations—and the only one in California—to earn a five-star rating from the Centers for Medicare & Medicaid Services, out of a total of nearly 600 plans.” See “Performance Powered by Physicians,” The Permanente Medical Group, April 2014, https://doctorsatkaisertpmg.com/wp-content/uploads/2014/04/TPMG-Performance-Powered-By-Physicians.pdf (April 2, 2019). For the exclusive use of A. GUPTA, 2022. This document is authorized for use only by ATUL GUPTA in 2022. http://www.nytimes.com/1998/02/14/business/kaiser-hmo-erring-on-costs-posts-270-million-loss-for-97.html http://www.nytimes.com/1998/02/14/business/kaiser-hmo-erring-on-costs-posts-270-million-loss-for-97.html https://www.sfgate.com/news/article/PAGE-ONE-Huge-Loss-For-Kaiser-Rates-To-Rise-3012692.php https://www.sfgate.com/news/article/PAGE-ONE-Huge-Loss-For-Kaiser-Rates-To-Rise-3012692.php https://doctorsatkaisertpmg.com/wp-content/uploads/2014/04/TPMG-Performance-Powered-By-Physicians.pdf Dr. Robert Pearl and The Permanente Medical Group of Northern California SM-333 p. 3 transport water over 242 miles to supply a rapidly growing and thirsty metropolis. For the forefather of Kaiser, Dr. Sidney Garfield, this meant supplying health care to the 4,000 workers and their families toiling away to build the Aqueduct. Dr. Garfield did not intend to create a health care revolution. He was a newly minted surgeon looking to open a medical practice and begin his career. Having trained in Southern California, he saw a prime opportunity in 1933 by opening a 12-bed hospital in the Mojave Desert, right next the main construction site of the Colorado River Aqueduct. Dr. Garfield ran the equivalent of a fee-for-service practice, providing care and seeking reimbursement after the fact from insurance companies or the patients themselves. In California and most of the nation, insurance companies in this case were not the modern-day behemoths but rather workers’ compensation plans, set up by the state legislature in response to the rising tide of on-the-job accidents.6 The same reimbursement and patient population headaches facing doctors in 2019 nearly bankrupted Dr. Garfield’s practice in those early years. Insurance companies challenged the necessity and cost of Dr. Garfield’s treatments, and when they finally agreed to pay, they were frequently late doing so. Insurance companies referred workers with the most serious injuries to favored hospitals in Los Angeles, which deprived Dr. Garfield’s practice of the most profitable cases. Furthermore, Dr. Garfield loathed having to turn away workers and their families who could not pay full price for their non-industrial medical problems. This meant he frequently was left unreimbursed, much like modern-day hospitals when uninsured patients seek care 7, 8, 9(particularly primary care) in the emergency room. A Health System Blossoms in the Desert Ironically, it was Industrial Indemnity Co.,10 one of the main insurance companies not only underwriting the Colorado River Aqueduct but also paying for workers’ industrial treatment, that ultimately rescued Dr. Garfield’s practice. Harold Hatch, an executive at Industrial Indemnity, proposed prepaying Dr. Garfield a portion of the premium otherwise allocated towards treating injured workers. In exchange, Dr. Garfield would be responsible for comprehensive medical care for industrial injuries. This was the rough equivalent of a capitated model, in which Dr. Garfield could keep any leftovers of the prepayment if he efficiently delivered the necessary care—but also would not be further compensated for medical care required beyond this prepaid amount for a particular population. The other innovation was a voluntary payroll deduction of 5 6 The California legislature had previously passed the Workers’ Compensation, Insurance and Safety Act of 1913 (the Boynton Act), which required companies to cover worker compensation fees administered by insurance companies. 7 Kaiser Permanente, “Harold Hatch, health insurance visionary,” April 12, 2018, https://about.kaiserpermanente.org/our-story/our-history/harold-hatch-health-insurance-visionary (April 2, 2019). 8 Kaiser Permanente, “How it all started,” https://about.kaiserpermanente.org/our-story/our-history/how-it-all-started (April 2, 2019). 9 “Who Bears the Cost of the