A Short History of Kaiser Permanente by Dr. Paul Bernstein

Our next Sunbelt Spotlight guest is Dr. Paul Bernstein, author of Courage to Heal. His book is based on the true story of the founding of Kaiser Permanente. Dr. Bernstein has shared with us the following history for your reading pleasure.

If this story piques your interest, make sure you register for our talk with the author. The free talk will be held through Zoom on September 9th at 10:00 am. Register Here

How many of you are familiar with the story of Kaiser Permanente?

If you haven’t heard the story, you’ve been missing out because it has all the makings of a blockbuster Hollywood movie. Doctor Sidney Garfield, the handsome heroic surgeon, Henry Kaiser, his rich and famous mentor, and Betty Runyon, a beautiful and skilled nurse, who teamed up to create the organization that has kept Americans thriving for a century. It is a story of the power of innovation.

It all begins in 1899.

American industrialist and millionaire Henry Kaiser will never forget what it was like to grow-up in a poor immigrant family after his mother dies in his arms due to lack of medical care. His poor cobbler father could not afford to pay for a doctor.

Then Sidney Garfield is born in New Jersey in 1906, the same year that George Bernand Shaw débuts his play, “The Doctor’s Dilemma.” Using his unique wit, Shaw points out the advantages of prepayment over fee for service medicine by comparing the baker making more money by baking more bread to the doctor making more money by cutting off more legs.

Fast forward to 1933, the midst of the great Depression, a time of bread lines, joblessness, where 10% of the population receives 90% of the health care. Dr. Sidney Garfield graduates from LA County Hospital as a general surgeon. He moves to one of the hottest and most desolate places in the country, the Mojave Desert. 5000 construction workers are there building the California Aqueduct and they have no health care. With a $2500 loan from his father, Garfield builds his own hospital. It’s an air-conditioned oasis with the latest equipment of his day.

Unfortunately, most of the workers can’t afford to pay. Garfield, who can’t turn anyone away, treats them for free, knowing he won’t be able to make ends meet. He resorts to hunting rabbits and holding his creditors off at gun point, and Betty Runyon, his nurse and sweetheart, works without pay.

Just when things couldn’t get worse, fate steps in.

Henry Kaiser, one of the principal builders, learns that the aqueduct project is behind schedule and over budget. He wants to see for himself. Because the train does not stop near the construction site, Kaiser has them slow down. He jumps off the train, tumbles, and lacerates his scalp. Garfield’s hospital is nearby.

At this chance meeting of mogul and doctor, Kaiser sees in Garfield a younger version of himself—idealistic with a “can do” attitude. Kaiser shares with Garfield how his mother died because his family couldn’t afford a doctor. They both want to change the system that pays doctors more money when patients are sick and not a penny to keep them healthy.

Kaiser says, “The insurance company could prepay you 5 cents a day per worker to keep them healthy so they don’t get sick.”

Garfield shakes Kaiser’s hand. “That sounds good to me, but how are you ever going to get the insurance company to agree to such a radical new system of care?”

“Well, Dr. Garfield,” Kaiser replies, “because I own it.”

Together, on that fateful night in the middle of nowhere, they come up with the simple plan of prepayment.

With that … Kaiser Permanente’s history of Innovation is born.

Kaiser completes the aqueduct on time and under budget. Garfield and Betty provide health care for the workers in a high quality and affordable manner.

After this success, Kaiser and Garfield team up again to build the greatest construction project in history, the Grand Coulee Dam in Washington State. Garfield with Betty, hire a team of specialists and primary care physicians to demonstrate just how prepayment can not only keep workers healthy, it can do the same for their families and the community as a whole. Once again, they prove the power of prepayment to keep the workers and their families healthy.

A few months before completing the dam, on December 7, 1941—the bombing of Pearl Harbor, a day that will live in infamy – FDR and Congress declare war. Garfield enlists in the Army. He is ready to ship out when his phone wakes him up from a restless sleep. A few hours later, he’s on a plane to San Francisco to meet Henry Kaiser.

FDR has placed Kaiser in charge of building the ships needed to take men and supplies to Europe and the Pacific. Ships needed to win the war. Kaiser needs workers. He hires women, African Americans, Asians, and those due to health reasons are not qualified for military service, giving many unimaginable job opportunities.

Kaiser needs someone to be in charge of the 100,000 workers’ health care. It needs to be up and running in twelve days.

“I can do it,” Garfield says, “except that I’m in the Army and shipping out to Burma.”

Kaiser smiles his infectious grin and hands Garfield a letter from the White House. FDR is releasing Garfield from the Army and assigning him to head up the shipyard medical program.

Using the system of healthcare that he’d created in the desert; Garfield hires his colleagues from Grand Coulee and LA County to run one of the first integrated health care systems in America. Everyone and everything are covered with no barrier to patient care by demanding fee-for-service.

The local doctors with the AMA behind them, oppose this system. Kaiser bullies them into signing an agreement to allow Garfield to practice prepayment “for the duration” of the War.

Using their system of prepayment, they provide the safest and highest quality care in the history of shipbuilding. In fact, in the history of industrialized medicine. No one has been able to reduplicate their safety record.

According to Henry Kaiser, “With innovative thinking, problems become opportunities in work clothes.”

After the War ends, the number of workers shrinks to less than 10,000. Nevertheless, Garfield and Kaiser want to keep this revolutionary new model going. The AMA feels differently and declares war against Garfield’s “radical socialist, communist group.” They threaten to banish any physician who joins Garfield. Most of his doctors quit, leaving Garfield with a small dedicated team willing to fight for what they believe.

The Kaiser name, however, becomes ubiquitous. Walls and ceil¬ings of homes are made of Kaiser-brand wallboards made with Kaiser Gypsum. Driveways and foundations of Kaiser concrete. Wires by Kaiser Aluminum bring power from hydroelectric dams built by Kaiser. Kaiser automobiles drive on freeways of Kaiser concrete, protected by Kaiser aluminum guardrails, fueled by thousands of miles of underground oil and gas Kaiser steel pipelines, all while playing, KBHK, the Kaiser radio network.

To accomplish all of this, union workers are needed. Union leadership encourages them to join the new Kaiser Health Plan and membership throughout California and the Northwest skyrockets. As the number of workers grows, Garfield and his team demonstrate they can provide the highest quality comprehensive medical care with a new emphasis on preventative care. The healthier Garfield keeps his patients, the more profits the doctors make.

Kaiser becomes the biggest industrialist of the twentieth century. He’s known for innovations, optimism, and the enthusiastic energy of his entire organization. He gives opportunities and healthcare to workers who never had them before and creates America’s new middle class.

Still, the AMA doesn’t give up. They strip Garfield of his medical license on trumped up false charges. Garfield and Kaiser fight back. They confront the AMA in Chicago. But even, Kaiser, riding a wave of popularity that some feel will take him to the White House, can’t change the minds of the AMA ivory tower. The AMA calls them Communists and uses a massive campaign to stop Garfield’s prepaid plan at all costs.

Garfield’s personal life – he and Betty had split up– and his professional life are in shambles. He feels like everything has come to an end as he walks into the courthouse to confront the California Medical Board to reinstate his license. To his surprise, the courtroom is packed with patients he has treated and saved over the years. They all express their support.

Despite the impassioned pleas and a threat by Kaiser’s attorney to shut down the AMA and CMA, the Board refuses to reinstate Garfield’s license.

Flying to Sacramento the next day, Kaiser develops severe abdominal pain and is rushed to the Oakland hospital. A week later, Kaiser is recovering in his private hospital room, talking on one phone while two other phones are ringing when the door opens. The Dean of Stanford’s medical school and the head of the California Medical Board walk in. The Dean tells Kaiser he’s reviewed the care at all Kaiser hospitals and finds it to be not only exemplary but the highest quality in the state of California. “You will reinstate Dr. Garfield’s license,” he orders the Medical Board, and “you will allow any physician who works with Mr. Kaiser to join the CMA and obtain their California license without any further prejudice.”

From that moment on Kaiser Permanente’s innovative way of practicing medicine became an accepted form of practice. This innovation continues today … but I’ll save that for another talk. Together, they had solved Shaw’s Doctor’s Dilemma. Their new system of medicine was about health care, not sick care.

OH and because this is like a Hollywood movie – it deserves the Hollywood ending.

And Kaiser Permanente thrived and lived happily AND healthily ever after.