(Im)Permanente.

• Author: Speizer, Irwin
• Position: Kaiser Permanente's sale of its operation in Charlotte, NC

Kaiser calls it quits in Charlotte, a symptom the shakeout in North Carolina's managed-care industry is in full swing.

From the gleaming white-stone exterior of the four-story office building to the rows of comfortable chairs in waiting rooms, you could tell Kaiser Permanente, the giant California-based health-maintenance organization, intended to stay awhile.

Just about everything a person needs for basic medical care is under one roof at Kaiser's SouthPark Medical Center in Charlotte: family-practice doctors, dermatologists, obstetricians, mental-health specialists, a lab, X-ray machines, even a pharmacy. But mid-morning on a typical weekday, there's an odd stillness about the place. Only one seat is taken in a waiting room with more than 20 chairs. The pharmacy doesn't have a single customer. No one is even taking a blood test. The only thing flowing red around this office is the ink.

After losing money most of its dozen years in Charlotte, Kaiser finally decided to do the sensible thing and scram. In January, it put up for sale its entire Charlotte operation, with its 37,000 members, 48 doctors and $30 million in buildings and equipment. It is retreating to the Triangle, where it has 80,000 members and a better chance. One of the largest HMOs in the state and nation simply couldn't cut it in the Queen City.

What happened? A combination of factors, some unique to the company, some to Charlotte and some common to the managed-care industry. Ultimately, Kaiser's downfall may have most to do with its misreading of how people in Charlotte would react to its unique brand of managed care, tailored to the dense, transient cities of California. In a place like Charlotte, where people are more comfortable with their longtime family physicians, Kaiser's system of restricting patient choice to a short list of doctors it employed in clinics it owned was greeted with suspicion.

"There was a perception that the physicians at Kaiser were not the best and brightest," says Don Hardin, a benefits consultant at William M. Mercer Inc. in Charlotte. "I'm not sure the perception was correct, but that was the perception: You have to go to their doctors, so, gee, they must not be very good." If Kaiser's failure in Charlotte taught anything, it's that managed-care companies can't just roll out national programs and expect them to work in every market. "It reinforces the notion that health care is a regional, local product," Hardin says.

Kaiser tried to adapt. In 1996, it launched its Community Option program, adding hundreds of outside doctors to its rosters in Charlotte and the Triangle. Things just got worse. The program ran up expenses while cutting into Kaiser's clinic revenue. The past three years, the company lost nearly $50 million in North Carolina.

In early 1998, Kaiser's home office in Oakland, Calif., issued an ultimatum: Get profitable or get out of town. By the end of the third quarter, the Triangle was running at break-even. But it was too late for Charlotte. Of the $12.4 million Kaiser lost in North Carolina last year, $11.1 million was in the Queen City. "It got to a point of, how much are we willing to invest in something people are saying they don't want?" says George Stokes, executive director of Triangle operations and head of the Charlotte office from 1991 to 1994.

Kaiser's pullback is significant because it was one of North Carolina's first HMOs, recruited by the state to bring managed care to...