Two months earlier in June 2006, the Centers for Medicare and Medicaid threatened to cut off funding to the HMO after determining that Kaiser's kidney transplant program had failed to provide adequate care to patients waiting to receive a kidney transplant.
The program was poorly planned, poorly staffed, poorly run and poorly qualified to care for transplant patients, CMS inspectors wrote in the report. And as the program faltered again and again through late 2004 and 2005, no one at the HMO even seemed aware that patients were at risk, the report said.
"There was no indication that patients were informed of their rights or of other available options as well as potential consequences of the transfer," the report stated.
The report says that a UC Davis transplant coordinator warned Kaiser back in May 2004, before Kaiser launched its plan, that Sacramento-area patients "would have to wait 1.5 to 3.6 years longer for transplantation, depending on blood type" because they would be getting their organs from a different source.
But according to the report, Kaiser did not notify patients of the longer waiting times, nor did it sufficiently inform Medicare patients that they could obtain transplants at UCSF or UC Davis if they were willing to pay the higher deductibles of non-Kaiser patients.
CMS officials told Kaiser to either fix the problems or lose Medicare funding, and cited 3 problems areas: (1) the governing body and management; (2) patient rights and responsibilities; and (3) the director of the transplant program.
However, Kaiser got a reprieve in a letter dated September 12, 2006, in which the CMS withdrew the threat to cut off funding based on a survey conducted on August 18, 2006, that showed the deficiencies had been corrected and Kaiser was now in compliance with federal standards.
According to the September 14, 2006 LA Times, had the deficiencies not been corrected to the inspectors' satisfaction, "Kaiser could have lost federal funding not just for transplant patients but for all Medicare patients with end-stage renal disease treated by the HMO's San Francisco hospital."
The LA Times and CBS News TV Channel 5, exposed the story about the failed kidney transplant program in early May 2006.
Prior to starting its own transplant program, Kaiser outsourced transplant procedures to non-Kaiser medical centers, including the University of California, San Francisco and the UC Davis Medical Center in Sacramento.
In mid-2004, Kaiser cancelled contracts with UC San Francisco and UC Davis and sent a form letter to more than 1,500 Kaiser patients awaiting transplants at those medical facilities, stating that Kaiser would no longer pay for transplants at outside hospitals and patients would be transferred to Kaiser's new kidney transplant program.
Kidneys are allocated based on how much time a patient has spent on a waiting list so when patients transfer to other programs, it is essential that the medical records show the time already spent on a waiting list or the patient will appear as a new addition and drop to the bottom of the list.
The transfer of patients involves registration with the federal contractor, United Network for Organ Sharing, responsible for overseeing kidney distribution. A patient is not eligible to receive a kidney without proper registration.
The Times reported that Kaiser launched its transplant program "without holding basic discussions with regulators about how to safely transfer up to 1,500 of its patients from other programs to its San Francisco center."
Nearly 2 years after Kaiser's new program began, in May 2006, the LA Times reported that hundreds of patients were stuck in "transplant limbo" because of improper handling of paperwork, and that because of the delays, many patients missed opportunities for a transplant and that the Kaiser waiting list had grown to more than 2,000 patients.
Most of the patients on the list were waiting for kidneys from strangers, which can normally take over 5 years. But some patients had offers of kidney donations from relatives, which if well-matched, usually means a transplant right away.
Thirty-one-year-old, Jessica Parker told CBS News that she had two people who were willing to donate a kidney to her for over a year, but says appointments were delayed and calls to Kaiser's transplant program often went unreturned.
Ms Parker spends most weekdays hooked to a dialysis machine and says she is angered by Kaiser's incompetence and mismanagement. "Kaiser needs to come out and publicly say, 'these are the changes we are going to make' and possibly issue an apology to the families and people on the wait list that have been waiting in vain through mismanagement and incompetence," Ms Parker told CBS.
The Times reported that doctors attempting to build a record of success avoided the riskier organs and patients, which slowed the rate of transplants, and that doctors at UC San Francisco revealed that in 25 cases where kidneys were a perfect match for Kaiser patients, the HMO refused to authorize the hospital to perform the transplants.
On May 3, 2006, the Times quoted current and former Kaiser employees who said that problems at Kaiser went beyond mere growing pains. "Surgeons and kidney specialists battled over who should receive transplants," the newspaper wrote. "Desperate patients complained of inexplicable delays," it noted.
And since the transplant program began, the Times discovered that 10 permanent Kaiser employees had either quit or been fired out of a staff of 22. In less than a year, the first administrator of the program left, and a little over a year later, her replacement was terminated.
In January, 2006, kidney specialist, Dr James Chon, sent a 12-page letter to Kaiser's physician-in-chief describing problems he saw in the transplant program, including "numerous resignations" and other internal issues.
"On the outside, the program seems to have settled into a reasonably functioning unit," he wrote. "However, a closer look at the program will show that it is suffering from very serious and potentially explosive problems," he said.
In his letter, Dr Chon detailed battles between staff members over which patients could receive transplants. One 73-year-old woman, he wrote, had been waiting, initially at UC San Francisco, since 1999.
Dr Chon stated that he and his colleagues felt that although the woman was a high-risk patient, she was a viable candidate but that Dr Sharon Inokuchi, the program's medical director, refused to sign off until she saw additional medical records, which Dr Chon said were irrelevant.
"I truly believe that decision to overrule four other transplant physicians was unjust and unethical," he wrote in the letter.
Dr Chon was also put on leave in February 2006, after the dispute with Dr Inokuchi.
In February 2006, kidney specialist, Dr Eric Savransky, walked off the job and cleared out his office and never returned, but Kaiser officials told the Times that he was technically on leave.
According to the May 3, 2006 LA Times, in the end, Dr Inokuchi was "relieved" of her administrative duties to focus on patient care and with all the departures, she was the only kidney specialist left to manage patients' care after their transplants, see them for checkups, handle calls for medical advice, review lab results and evaluate patients.
Transplant surgeons at other hospitals told the Times that programs of Kaiser's size would have trouble functioning without at least four or five transplant nephrologists.
On July 14, 2006, a former administrator of the transplant unit, David Merlin, filed a wrongful termination lawsuit against Kaiser, seeking $5 million in damages. Mr Merlin's annual salary as head of the transplant program was $128,000, and he was charged with "responsibility for patient safety and risk management," the lawsuit states.
The complaint alleges that Mr Melin was terminated after two months on the job for raising concerns about patient care in the transplant program and violations of state and federal guidelines.
According to the lawsuit, Kaiser's new transplant program served 19 Northern California medical centers and received patient referrals from 48 Kaiser nephrologists or kidney specialists throughout the region.
Within a few weeks of starting the job, the complaint states, Mr Merlin "discovered that the program was so poorly organized and unprofessionally managed that it failed to comply with state and federal requirements and was compromising patient care, leading to unnecessary suffering and possibly deaths."
After being terminated in early February, Mr Merlin went to the media and contacted state and federal regulatory agencies, including the California Department of Managed Health Care, the US Department of Justice, and the California Medical Licensing Board. As result, a steady bombardment of media stories and government investigations followed and prompted Kaiser to shut down the transplant program in May 2006.
The more than 2,000 patients on its waiting list are now being transferred back to UC San Francisco and UC Davis, many to the same hospital that treated them to begin with, in a process that is not expected to be complete until the end of the year.
Kaiser's dismal record of patient care is beyond dispute. CBS News' analysis of national transplant data showed that in 2005, when Kaiser performed 56 transplants, more than twice as many, or 116 people died while waiting on the transplant list.
"And the number of transplants completed at Kaiser," CBS states, "also was low compared to state averages: less than 3 percent of people on Kaiser's waiting list got transplants compared to an average 12 percent of people on other lists statewide."
A large part of the problem with any decision made by Kaiser Permanente, critics say, stems from the fact that the for-profit Permanente Medical Group (TPMG), comprised of approximately 6,000 doctors, gets to split the profits at the end of the year that result from cutting corners on patient care.
Thus, as part of an attempt to increase the pot, the TPMG got the bright idea to set up a kidney transplant center so that it could stop outsourcing the expensive procedure and keep the profits in-house.
According to the May 3, 2006, LA Times, the decision to open a transplant unit came about because Kaiser's San Francisco hospital's open-heart surgery program was shrinking as less-invasive procedures became more common and the HMO was left with unused beds and operating rooms. So in 2002, the Times notes, heart transplant surgeon, Arturo Martinez, at Sharp Memorial Hospital in San Diego, brought the idea to Kaiser officials.
In August 2003, Kaiser officials told the media that they could do a better job of coordinating the care of their transplant patients by working with its own network of doctors, hospitals, labs and pharmacies, serving Kaiser's 3.2 million members in Northern California.
"We should be able to achieve higher outcomes," Dr Inokuchi, told the San Francisco Business Times at the time.
Of course in hindsight, Kaiser officials could not have been more wrong.
Experts told the Times that the delay in providing transplant services to HMO patients on the waiting list also raises ethical questions. "If you don't have the resources to transplant all the patients you have on the wait list who really should be transplanted, then you have an obligation to send them to another institution," said David Magnus, who heads Stanford's Center for Biomedical Ethics.
Former Kaiser employees say the TPMG should be called on the carpet for the transplant program disaster. "The fault lies with the dysfunctional nature of TPMG, which has so far escaped scrutiny," said Ruth Given, a former Kaiser and California Medical Association executive, in the May 19, 2006 San Jose Business Journal.
"They should have done a better job of monitoring quality, not only of this program but of all medical programs," Ms Given said. "But my experience is that the M.D.s discourage that (kind of oversight) -- and Kaiser typically backs off."
Considering that Kaiser's own "Principles of Permanente Medicine" guidelines hold the system's physicians responsible for directing all clinical decisions and designing and operating care delivery within the organization, Ms Given said in the San Francisco Business Times on July 21, 2006, "it is particularly puzzling to me that there has been no official public statement from TPMG about (its) role in this entire fiasco."
Rather than just picking on Mary Ann Thode, Kaiser's Northern California president, she said, "somebody needs to get (Permanente CEO) Robbie Pearl on the hot seat and have him explain and apologize and describe why this will never happen again."
In his wrongful termination lawsuit, Mr Merlin said he met with several senior executives of the TPMG in January and early February 2006, raising concerns about the operation of the transplant unit.
Mr Merlin's lawsuit claims that executives Nancy Langholff, RN, assistant medical group administrator; Diane DeCorso, Ms Langholff's boss, and Dr Nora Burgess, TPMG's chief financial officer at the San Francisco hospital, ignored the severe ongoing problems that he brought to their attention, and refused to let him schedule a meeting with Dr Bruce Blumberg, MD, the medical center's physician-in-chief at the time.
Instead, Mr Melin alleges, he was told to "shut up" about the problems, and to "let it go."
By mid-May 2006, three lawsuits related to its failed kidney program were already filed against Kaiser. One lawsuit was filed on behalf of the widow of a man who died, alleging that her husband was refused a kidney transplant as a result of mishandled paperwork.
Another woman alleges that her condition grew progressively worse after Kaiser continually delayed her transplant.
And the third plaintiff, who has been on dialysis for six years, fears the damage the delay may have caused him, and alleges that a Kaiser doctor advised him on several occasions to travel overseas to get a transplant.
On June 5, 2006, a class action complaint was filed against Kaiser in San Francisco Superior Court, alleging "negligence, fraud and misrepresentation due to Kaiser's inability to properly administrate the San Francisco Kidney Transplant Program," according to a press release.
Legal experts predict that many more similar lawsuits will be filed in the months ahead.
At first glance, it would appear that damages for Kaiser patients would be limited by the Medical Compensation Reform Act (MIRCA) enacted in California 1975, that limits pain and suffering awards against health care providers to $250,000.
But legal experts predict that the limitations will not apply to patients injured as a result of the failed transplant program, because California Civil Code S 3428, states that a health care service plan or managed care entity, such as Kaiser, has a duty of ordinary care to "arrange for the provision of medically necessary health care service to its subscribers and enrollees..." and that damages recoverable for a violation of this statute are not limited by MICRA.
Practically speaking, experts say, this means that for those who lost family members, or were otherwise seriously injured, as a consequence of Kaiser's misadministration of the program, pain and suffering damages may reflect their actual losses and will not be limited by the MICRA.