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No. 97-0389

DOCKET No. C-97-0389

General remarks and official action:

On this day came on for consideration by the Commissioner of Insurance ("the Commissioner") the complaint of the Texas Department of Insurance ("TDI") against Kaiser Health Plan of Texas ("KAISER "). TDI has alleged that KAISER violated the insurance laws of the State of Texas in the manner more specifically described below and that such conduct constitutes grounds for disciplinary action pursuant to TEX. INS. CODE ANN. arts. 1.10 and 1.10E.

KAISER specifically denies and disputes the allegations. KAISER, however, agrees to perform the conditions ordered by the Commissioner in order to fully and finally resolve the allegations made against it.
The Commissioner specifically makes no findings as to the truth of the allegations made by TDI in its report to the Commissioner, filed March 3. 1997.

The report should not be considered in compliance with, or within, the requirements of. Rule 803(8) of the Texas Rules of Civil Evidence or Rule 803(8) of the Federal Rules of Evidence .

TDI and KAISER have announced they have compromised and settled all claims raised by TDI and have agreed, pursuant to TEX. INS. CODE ANN. art. 1.10, § 7(d). TEX. GOV'T. CODE ANN. § 2001.056. and TEX. ADMIN. CODE § 1.47 to the entry of the Consent Order.


The Commissioner makes the following agreed findings of fact:

1    KAISER is a health maintenance organization ("HMO") licensed under the provisions of CHAPTER 20A of the TEXAS       INSURANCE CODE ("HMO ACT") which requires a Certificate of Authority to operate an HMO in the State of Texas           pursuant to TEX. INS. CODE ANN. art. 20A-O5.

2.   TDI and KAISER have agreed to the entry of this Consent Order and do not contest the same.

3.   KAISER, by agreeing to the entry of this Consent Order, acknowledges and consents to the jurisdiction of the                       Commissioner of Insurance over it and voluntarily waives all procedural rights regarding the entry of this Consent                   Order, including those set out in TEX. GOV'T. CODE ANN. §§2001.051-2001.902.

During its operation in Texas, KAISER has been operating at a loss and has borrowed extensively from affiliated                  companies. To date KAISER is in debt to its parent, KAISER Foundation Health Plan. Inc. (KFHP), and affiliated                  companies in the approximate amount of $175,000,000.

5.    On March 3, 1997. TDl staff submitted a Report to the Commissioner alleging the following violations of the Texas     
        Insurance Code and the Texas Administrative Code.

         a. retroactive denial of payment of emergency care services in violation of 28 TAC §§11.204(20) and 11.301;

         b. unlawful denial and delay in the payment of emergency care claims when liability to pay said claims had become              reasonably clear in violation of TEX. INS. CODE ANN. art. 20A.14(b) and 21.21-2;

         c. actions in violation of TEX. INS. CODE ANN. art. 2OA.09(a)(3)(A); and

         d. failure to follow the written quality assurance programs and procedures which it represented it would use when it              applied for a certificate of authority as required by TEX. INS. CODE ANN. arts. 20A.04 and 20A.05 and 28 TAC                  §11.204(14).

6.    TDI agrees to submit the March 3. 1997 Report to the Commissioner, along with any drafts of the Report for which TDI         receives a request under TEX. GOVT. CODE ANN.
§552.001 et seq., to the Open Records Division of the Office of             the Attomey General to determine if the Report or any draft of the report contain confidential information which may not         be released. KAISER retains the right to challenge or contest any such Open Records determinations or opinions.

7.    KAISER agrees to dismiss with prejudice Cause No. 9702481, filed in the 200th District Court of Travis County,                  Texas.

8.    KAISER and TDI agree to mutually release each other, their agents and employees from any liability for matters which        are the subject of Cause No. 9702481. Nothing in the releases shall prevent TDI from enforcing the terms of this                    Consent Order. The individual defendants and KAISER will execute mutual releases in a separate docmnent.


Based upon the agreement of the parties and the foregoing agreed findings of fact, the Comissioner of Insurance makes the following conclusions of law;

1.    The Texas Department of Insurance has jurisdiction over this matter pursuant to TEX. INS. CODE ANN. arts. 1.10, § 7,        1.l0E, and TEX. GOV'T. CODE ANN. §§ 2001.051-­2001.902.

2.    The Comissioner of Insurance has authority to informally dispose of this matter under TEX. INS. CODE ANN. art. 1.10,         § 7(d), TEX. GOV'T. CODE ANN. § 2001.056, and 28 TEX. ADMIN. CODE § 1.47.

3.    KAISER has knowingly and voluntarily waived all procedural rights to which it may have been entitled regarding the              entry of this Order.

IT IS, THEREFORE, ORDERED by the Commissioner of Insurance that:

A.    Quality Assurance/Quality Improvement, Peer Review and Credentialing:

1.    KAISER shall employ at KAISER'S expense a quality assurance/quality improvement consultant ("consultant") to review and recommend changes to KAISER'S quality assurance, quality improvement. peer review, and credentialing programs and procedures and emergency care and claims processing. The consultant shall have on its staff at least one (1) physician and sufficient additional personnel with appropriate medical credentials and expertise. The consultant must be approved by TDI and will provide periodic reports to TDI. The consultant's review shall include, but not be limited to, the following tasks:

a. Review and recommend improvements, as necessary, to KAISER'S system for the identification and review of quality of care issues in enrollee complaints;

b. Review and recommend improvements, as necessary, to KAISER'S system to accurately gauge the severity of complaints and incidents;

c.  Review and recommend improvements, as necessary, to KAISER'S system so that even one serious incident triggers review by the peer review committee;

d. Review and recommend improvements, as necessary, to KAISER'S system so that a standard number of complaints or incidents, regardless of the severity level of the individual incidents, involving an individual physician will trigger review by the peer review committee;

e. Review and make recomendations. as necessary. regarding the medical advice nurse-triage system to ensure that nurses are making appropriate decisions about emergency room care. are appropriately engaged in the practice of nursing, and are informing patients that the ultimate decision of whether to seek emergency care is the patient's decision;

f. Review the decisions made by quality assurance nurses (QA nurses) that are not sent to physicians for review to advise if the QA nurses are complying with the peer review standards and to make observations/recommendations whether the nurses are reviewing the files consistently;

g. Review the categories of documents maintained in the credentialing files and make recommendations of additional documents to· be made a part of the file if necessary. At a minimum the credentialing files shall include:
i. all peer review evaluations;

ii. all decisions to terminate or take disciplinary action against the physician; and

iii relevant medical records. or a workable system of cross reference to relevant medical records.

2. If recommended by the consultant. aU quality assurance files shan contain at a minimum:

a. a complete description of the records that were reviewed by either the QA nurse or any reviewing physician, including the dates of the records and the location of the medical records;

b. notes and determinations of reviewing physicians;

c. if a physician determination has been overruled at any stage of the quality assurance process. the identity of the person making the change and documentation of the reasons for the change; 

d. a written justification for the final severity level assigned to the case which identifies the person making the assignment of the final severity level;

e. copies of all documents that indicate the corrective measures taken in response to any quality assurance problem that was identified in the review.

B.     Emergency Care:

1. KAISER shall commit to a high degree of accuracy in processing all emergency care claims, including internal communication that will result in the accurate and efficient processing of claims.

2. Upon recommendation of the consuhant, KAISER shall revise the information concerning emergency care contained in its enrollee brochure and in an other written communications to enrollees making these materials more user-friendly. The materials shall specifically advise enrollees that KAISER will pay emergency claims when the enrollee is instructed by an agent of KAISER to seek emergency care.

3. KAISER shall promptly pay all emergency care claims in compliance with the patient protection rules, including all cases where enrollees were instructed by KAISER'S advice nurse to seek emergency care.

4. Upon recommendation of the consultant, KAISER shall review and improve its methods, as necessary, of informing claims personnel that an enrollee was advised by a medical advice nurse or other agent of KAISER an emergency medical technican, a policeman or other reliable person to seek emergency care. In those instances in which a medical advice nurse has recommended the enrollee seek emergency care, the medical advice nurse shall notify claims personnel of the recommendation within 48 hours of the advice nurses recommendation. The consultant shall also review and make recommendations, as necessary, on improvements to emergency claims processing.

C.     Patient Record Keeping

1. KAISER shall comply with accepted and adopted standards for maintaining medical records that are current, detailed and well organized to permit effective patient care and quality review;

2. KAISER shall maintain on staff a qualified medical records librarian who shall develop a plan of operation to ensure proper training of all personnel who create or maintain patient medical records and implement a medical records system that complies with the standards referenced above.

3. Consultant shall review the librarian's plan of operation and make recommendations on improvements, if any.

4. If recommended by the consultant, the patient medical records shall contain, either in hard copy or on computer. the following:

a. timely recording of lab results in the patient's medical file;

b. an prescriptions and medications on the "Med Sheet" contained within, the patient's medical file;

c. medical records from an out-of-network providers including consultants and hospitals (both contracting and non-contracting) where necessary to ensure that all enrollees' charts are complete;

d. complete pertinent patient history, including if necessary, copies of the patient's records from prior treating physicians.

D.     Business Plan

1. Within 30 days KAISER shall submit a written business plan to TDI describing its plan to implement the terms of this Consent Order. The business plan is subject to review and approval by TDI and TDI Will specify the relevant reporting intervals that KAISER is obligated to meet.

E.     Financial conditions.

KAISER, with the cooperation of its parent, Kaiser Foundation Health Plan, Inc., agrees to a combination of capital infusions, debt forgiveness, and in-kind capital expenditure contributions, in a total amount of approximately $80 million during 1997, plus additional contributions as may be required in 1998, as follows:

1.  KAISER agrees to obtain a capital contribution of twenty million dollars ($20,000,000). with ten million ($10.000.000) to      be infused immediately as of the date of this order. and an additional ten million ($10,000,000) available on call within          five business days of the call.

2.  KAISER agrees to obtain debt forgiveness in the amount of $20,000,000, retroactive to 3/31/97.

3.  KAISER agrees to restructure its existing surplus debenture from its parent, to reflect the following terms: the interest          rate shall be set at zero percent (0%). retroactive to 12/31/96; the surplus debenture floor shall be set at $20,000,000          and no payments may be made if net worth is below this amount; and a notice provision to the attention of
the                        Association Commissioner of the Financial Program, TDI, is set so that payment will be made no sooner than 15                  months after the date of notice. The restructure of the interest rate to zero provides financial assistance to KAISER of          approximately twenty million dollars ($20,000,000.00) in 1997, and additional comparable benefits in future years.

4.  KAISER agrees to obtain approximately $20.5 million in capital equipment and other capital expenditures needs from        its parent, and retflect no liability for said assets;

5.  In the event that KAISER has negative variances for 1998 on its net income from the Business Plan projections                    submitted pursuant to section D above, KAISER agrees to obtain capital infusions sufficient to offset negative net                income to at least a break-even point, so that the net worth remains above twenty million dollars ($20,000,000).

F.     Penalty.

shall pay to the State of Texas the sum of One Million dollars ($1,000,000) as an administrative penalty. Seven Hundred Fifty Thousand dollars ($750,000) of said administrative penalty shall be tendered to the Texas Department of Insurance within thirty (30) days of the date of this order. The remaining Two Hundred Fifty Thousand dollars ($250,000) shall be probated for a period of one year from the date of this order, and the Commissioner shall review the compliance of KAISER with the terms of this order and may, in his sole discretion, waive all or a portion of the $250,000 probated amount. Payment shall be made to, Texas Department of Insurance, Accounting Department, 333 Guadalupe. MC 999-9, P. O. Box 149104. Austin, Texas, 78714-9104.

signed by  -





BEFORE ME, the undersigned notary public, personally appeared William A. Gillespie, M.D. who being by me duly sworn. deposed as follows:

"My name is William A. Gillespie.  I am of sound mind, capable of making this statement, and am personally acquainted with the facts herein stated.

I am President of KAISER FOUNDATION HEALTH PLAN OF TEXAS, which is chartered by the State of Texas, and holds a Certificate of Authority to operate a health maintenance organization in the State of Texas pursuant to TEX. INS. CODE ANN. art. 20A.05. As an officer of KAISER I am authorized to make this statement, and agree to and execute this Consent Order on behalf of KAISER.

KAISER FOUNDATION HEALTH PLAN OF TEXAS agrees with and consents to the issuance and service of the foregoing Consent Order to be entered by the Commissioner of Insurance, State of Texas.

signed by -

William A. Gillespie, M.D.

SWORN TO AND SUBSCRIBED before me the undersigned authority, by  William A. Gillespie, of KAISER FOUNDATION HEALTH PLAN OF TEXAS on  this 18 day of  April, 1997 1997.

signed by -

Karla Melde
Signature of Notary Public

Karla Melde
Printed Name of Notary Public



By: William A. Gillespie, M.D.
Title: President



Page 1 of State of Texas order to Kaiser Permanente
Page 2 of official order from state of Texas to Kaiser Permanente

state of Texas order to Kaiser Permanente
State of Texas order to Kaiser Permanente
state of Texas order to Kaiser Permanente
State of Texas Order to Kaiser Permanente
State of Texas Insurance Commissioner, Elton Bomer, signing order against Kaiser Permanente
Sworn statement from Permanente President William A. Gillespie

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