Kaiser Permanente’s rubber-stamp board.

In my message last fall to my colleagues at Kaiser Permanente, I voiced my concerns that the Kaiser Foundation Health Plan Board of Directors was abdicating its most important responsibility: the oversight of our chief executive officer. I had spoken with several directors last fall, and was disappointed and shocked by their lack of knowledge of the organization, its operations, and its finances. In my message, though, my goal was to encourage the board to take its responsibilities seriously, and I acknowledged that the board was made up of “knowledgeable, respected, and experienced men and women.”

In a “the lady doth protest too much” moment, though, Mr. Halvorson responded angrily, writing that he couldn’t believe anyone would label his board a “rubber-stamp board.” I’m not sure where he got the term, as it wasn’t a term I had ever used to describe our board, but, since then, I have come to recognize it as a sadly accurate label.

Not surprisingly, it wasn’t the first time Mr. Halvorson had to defend a board overseeing him for incompetence. In 2003, Mr. Halvorson tried to defend his previous board, at HealthPartners, after a report by Minnesota Attorney General showed that directors there spent only a few hours each year overseeing the organization (a situation eerily similar to Kaiser Permanente today). Mr. Halvorson insisted the HealthPartners board, which he also had assembled, was not a “parade” board that only rubber stamped a “padded agenda.”

If the accountability and competency of Mr. Halvorson’s HealthPartners board was questionable, it paled in comparison to the rubber-stamp board he would set up at Kaiser Permanente. Less than two years after he became chairman of Kaiser Permanente, Mr. Halvorson had cleared nearly the entire board. By the spring of 2004, the organization had five vacancies on its board, an unimaginable situation for the largest not-for-profit healthcare organization in the country.

In addition to the five empty seats, three other directors had already quit and been replaced. That meant eight of the twelve independent directors had resigned less than two years into Mr. Halvorson’s tenure as chief executive officer, and five of those twelve seats were empty by March 2004. As I’ve said before, it was unprecedented turnover in the history of Kaiser Permanente, for the organization to lose two-thirds of its independent directors in less than two years.

Only two men remain from the board that hired Mr. Halvorson. One is Daniel Garcia, the man who hired George Halvorson, the same man who was later hired and (surprise!) kept by Mr. Halvorson to manage the organization’s ethics department (amid much controversy). Although Mr. Garcia was an independent director when he hired George Halvorson, he is now considered an inside director as his paycheck is signed by Mr. Halvorson. The other man remaining from the original board is Thomas Chapman, an independent director who was recently caught up in an illegal non-profit healthcare kickback scheme investigation by the Connecticut Attorney General. (Yes, you read that correctly. The only two remaining directors that hired George Halvorson have both been caught up in ethical scandals, and, yes, one of them now “runs” the Kaiser Permanente ethics and compliance department.)

Fast forward to today. The majority of the independent directors on the Kaiser Foundation Health Plan board have barely three years of experience with the organization (some even fewer, as high turnover has continued). Each independent director, with one exception, was hand-picked by Mr. Halvorson. Just like in Minnesota, Mr. Halvorson’s hand-picked board has become the epitome of an unaccountable, irresponsible, and incompetent board.

Mr. Halvorson, last year, defended his conduct at HealthPartners, saying that the Kaiser Permanente Board of Directors read the Minnesota Attorney General’s report on his behavior there, and found no problems. If that’s so, why did eight of the directors resign following that discussion?

(If KP were a publicly traded company, it would likely have been required to file a report with the SEC, indicating the reasons for eight directors resigning or being replaced in such a short period of time. Instead, under Mr. Halvorson, the organization has kept director resignations quiet, and only mentioned any vacancy once the seat is subsequently filled. Which explains the large five seat vacancy in 2004: Mr. Halvorson had to fill those seats slowly, to prevent outside knowledge of a rash of resignations. The fact that five or more board seats were empty is buried on page 54 of an obscure bond sale notice from 2004.)

In Minnesota, the Attorney General considered installing his own independent directors on the HealthPartners board. By that point, though, Mr. Halvorson was gone, and the problems had largely (but not surprisingly) left with him. If the Kaiser Foundation Health Plan Board of Directors continues to refuse to adequately meet and consider the critical flaws of the direction in which George Halvorson is taking Kaiser Permanente, perhaps it is time California Attorney General Jerry Brown implement the Minnesota Attorney General’s plan to create a truly independent and competent board to oversee Kaiser Permanente?